-----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, GC0ufzKaZa3bhQIqx38C2kComOq/seYpZa1QTnQTl2Xfh/daKLPwgxjyAqO2CfMi sLEK5rExFYuDkL4jZrkqjw== 0000916641-99-000647.txt : 19990809 0000916641-99-000647.hdr.sgml : 19990809 ACCESSION NUMBER: 0000916641-99-000647 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990806 EFFECTIVENESS DATE: 19990806 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: SEC FILE NUMBER: 333-84621 FILM NUMBER: 99679171 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 COMMONWEALTH BANKSHARES S-8 As filed with the Securities and Exchange Commission on August 5, 1999 Registration No.33-_____ 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 Identification No.) Incorporation or Organization) 403 Boush Street Norfolk, Virginia 23510 (Address of Principal Executive Office) (Zip Code) Commonwealth Bankshares, Inc. 1999 Stock Incentive Option Plan (Full Title of the Plan) Jody M. Wagner, Esq. Kaufman & Canoles P. O. Box 3037 Norfolk, VA 23514-3037 (Name and Address of Agent for Service) (757) 624-3294 (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 Per Share(1) Price(1) Fee(1) - -------------------------------------------------------------------------------- Common Stock, $2.50 par value 225,000 $10.00 $2,250,000 $607.50 (1)Pursuant to rules 457(h), the registration fee was computed using $10.00 per share of Common Stock, which is the exercise price on granted shares. - ------------------------ Exhibit Index can be found on page 3. PART II INFORMATION REQUIRED IN REGISTRATION STATEMENT AND NOT REQUIRED IN PROSPECTUS Item 3: Incorporation of Documents by Reference. ---------------------------------------- The following documents of Commonwealth Bankshares, Inc., a Virginia corporation (the "Company"), filed with the Securities and Exchange Commission (the "Commission"), are incorporated by reference into this Registration Statement: (a) The Company's Annual Report on Form 10-KSB, for the Company's fiscal year ended December 31, 1998 filed pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). (b) All reports filed by the Company pursuant to Section 13(a) of the 1934 Act since the end of the Company's fiscal year ended December 31, 1998. (c) The description of the Company's Common Stock registered under the 1934 Act contained in the Company's Registration Statement on Form 8-B (File No. 0-19492), which became effective in December 1988. All reports and other documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the 1934 since the Company's fiscal year ended December 31, 1998. Any statement contained in a document incorporated in this Registration Statement by reference shall be deemed to be modified or superseded for the purposes of this Registration Statement to the extent that a statement contained in this Registration Statement or in any other subsequently filed document which also is or is deemed to be incorporated in this Registration Statement by reference modifies or replaces such statement. Item 4: Description of Securities. -------------------------- Not applicable. Item 5: Interests of the Named Experts and Counsel. ------------------------------------------- Not applicable. Item 6: Indemnification of Directors and Officers. ------------------------------------------ Section 13.1-692.1 of the Virginia Stock Corporation Act (the "Act") provides that in any proceeding brought by or in the right of a corporation or brought by or on behalf of shareholders of the corporation, the damages assessed against an officer or director arising out of a single transaction, occurrence or course of conduct shall not exceed the lesser of (1) the monetary amount, including the elimination of liability, specified in the articles of incorporation or, if approved by the shareholders, in the bylaws as a limitation on or elimination of the liability of the officer or director, or (2) the greater of (i) $100,000 or (ii) the amount of cash compensation received by the officer or director from the corporation during the 12 months immediately preceding the act or omission for which liability was imposed. The liability of an officer or director may not be limited under this section of the Act if the officer or director engaged in willful misconduct or a knowing violation of the criminal law or of any federal or state securities law, including, without limitation, any claim of unlawful insider trading or manipulation of the market for any security. 2 Section 13.1-697 of the Act authorizes a Virginia corporation to indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding. A Virginia corporation may not indemnify a director under this section in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him. Section 13.1-698 provides that, unless limited by its Articles of Incorporation, a Virginia corporation must indemnify a director who entirely prevails in the defense of any proceeding to which he was a party because he is or was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding. Section 13.1-702 of the Act authorizes a Virginia corporation to indemnify its officers, employees or agents to the same extent as directors. The Company's Articles of Incorporation provide that to the full extent that the Act permits the limitation or elimination of the liability of directors or officers, a director or officer of the Company shall not be liable to the Company or its shareholders for monetary damages. The Company's Articles of Incorporation also provide that to the full extent permitted and in the manner prescribed by the Act and any other applicable law, the Company shall indemnify a director or officer of the Company who is or was a party to any proceeding by reason of the fact that he is or was such a director or officer or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Any aforesaid reference to directors, officers, employees or agents includes former directors, officers, employees and agents and their respective heirs, executors and administrators. Officers and directors of the Company are covered by insurance that (with certain exceptions and within certain limitations) indemnifies them against losses and liabilities arising from an alleged "harmful act," including any alleged error or misstatement or misleading statement or wrongful act or omission or neglect or breach of duty. Item 7: Exemption from Registration Claimed. ------------------------------------ Not applicable. Item 8: Exhibits. --------- Number Description ------ ----------- 4.1 1999 Stock Incentive Plan 4.2 1990 Stock Option Plan, as amended 4.3 Non-Employee Director Stock Compensation Plan. Filed on March 30, 1996 as exhibit 10.13 to the Registrant's Form 10-K, and incorporated herein by reference 4.4 Amendment to the Non-Employee Director Stock Compensation Plan 5 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) 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 3 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. 4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-8 and 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 July 29, 1999. COMMONWEALTH BANKSHARES, INC. By: /s/ EDWARD J. WOODARD, JR. ---------------------------------- Edward J. Woodard, Jr., Chairman of the Board & Chief Executive Officer POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person in so signing, also makes, constitutes and appoints Edward J. Woodard, Jr., and Richard J. Tavss, and each of them individually, his true and lawful attorney-in-fact in this place and stead, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to this Registration Statement. Signature - --------- /s/ EDWARD J. WOODARD, JR. - ----------------------------------------- July 29, 1999 Edward J. Woodard, Jr., Chairman of the Board & Chief Executive Officer /s/ JOHN H. GAYLE - ----------------------------------------- July 29, 1999 John H. Gayle, Executive Vice President, Cashier and Chief Financial Officer /s/ GEORGE H. BURTON, JR. - ----------------------------------------- July 29, 1999 George H. Burton, Jr., Director /s/ MORTON GOLDMEIER - ----------------------------------------- July 29, 1999 Morton Goldmeier, Director /s/ WILLIAM P. KELLAM - ----------------------------------------- July 29, 1999 William P. Kellam, Director /s/ THOMAS W. MOSS, JR. - ----------------------------------------- July 29, 1999 Thomas W. Moss, Jr., Director /s/ WILLIAM D. PAYNE - ----------------------------------------- July 29, 1999 William D. Payne, M.D., Director /s/ HERBERT L. PERLIN - ----------------------------------------- July 29, 1999 Herbert L. Perlin, Director /s/ RICHARD J. TAVSS - ----------------------------------------- July 29, 1999 Richard J. Tavss, Director /s/ KENNETH J. YOUNG - ----------------------------------------- July 29, 1999 Kenneth J. Young, Director /s/ MORTON M. ZEDD - ----------------------------------------- July 29, 1999 Morton M. Zedd, Director EXHIBIT INDEX The following exhibits are filed herewith unless otherwise indicated: Sequential Page Number Description Number - -------------------------------------------------------------------------------- **4.1 1999 Stock Incentive Plan E-1 **4.2 1990 Stock Option Plan, as amended E-17 *4.3 Non-Employee Director Stock Compensation Plan. Filed on March E-40 30, 1996 as exhibit 10.13 to the Registrant's Form 10-K, and incorporated herein by reference **4.4 Amendment to the Non-Employee Director Stock Compensation Plan E-41 **5.1 Opinion of Kaufman & Canoles, P.C. E-42 **23.1 Consent of Poti, Walton & Associates, P.C. E-43 **23.2 Consent of Kaufman & Canoles, P.C. (contained in Exhibit 5) **24 Power of Attorney (included on the signature page of this Registration Statement) - -------------------------------------------------------------------------------- * Not filed herewith. In Accordance with Rule 12b-32 of the General Rules and Regulations under the Securities Exchange Act of 1934, the exhibit is incorporated by reference. ** Filed herewith. EX-4 2 EXHIBIT 4.1 Exhibit 4.1 COMMONWEALTH BANKSHARES, INC. 1999 STOCK INCENTIVE PLAN 1. PURPOSE COMMONWEALTH BANKSHARES, INC., a Virginia corporation (the "Company"), wishes to recruit, reward, and retain employees and outside directors. To further these objectives, the Company hereby sets forth the Commonwealth Bankshares, Inc. 1999 Stock Incentive Plan (the "Plan") to provide options ("Options" or "Awards") to employees and outside directors with respect to shares of the Company's common stock (the "Common Stock"). The Plan is effective as of February 19, 1999 (the "Effective Date"), subject to shareholder approval of the Plan within one year of the Effective Date. 2. PARTICIPANTS All employees of the Company and any Eligible Subsidiaries (as defined in Section 16) are eligible for Options under the Plan, as are the directors of the Company who are not employees ("Eligible Directors"). Eligible employees and directors become "optionees" or "participants" when the Administrator grants them an Option under the Plan. The term "participant" also includes, where appropriate, a person authorized to exercise an Award in place of the original optionee. Employee as such term is used in the Plan means any person employed as a common law employee of the Company or an Eligible Subsidiary. 3. ADMINISTRATOR The Administrator will be the Board of Directors of the Company, unless the Board delegates its duties to a committee of the Board composed solely of two or more Non-Employee Directors, as "Non-Employee Director" is defined by Rule 16b-3 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"). The Administrator is responsible for the general operation and administration of the Plan and for carrying out its provisions and has full discretion in interpreting and administering the provisions of the Plan. Subject to the express provisions of the Plan, the Administrator may exercise such powers and authority of the Board as the Administrator may find necessary or appropriate to carry out its functions. The Administrator may delegate its functions (other than those described in Section 4) to officers or other employees of the Company. The Administrator's powers will include, but not be limited to, the power to amend, waive, or extend any provision or limitation of any Award. The Administrator may act through meetings of a majority of its members or by unanimous consent. 4. GRANTING OF Subject to the terms of the Plan, the AWARDS Administrator will, in its sole discretion, determine the participants who receive Awards, the terms and restrictions, if any, of such Awards, the schedule for exercisability or nonforfeitability (including any requirements that the participant or the Company satisfy performance criteria), the time and conditions for expiration of the Award, and the form of payment due upon exercise of the Award, if any. The Administrator's determinations under the Plan need not be uniform and need not consider whether possible participants are similarly situated. Options granted to employees may be nonqualified stock options ("NQSOs") or "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or the corresponding provision of any subsequently enacted tax statute. Options granted to Eligible Directors must be NQSOs. SUBSTITUTIONS The Administrator may also grant Awards in substitution for options held by individuals who become employees of the Company or of an Eligible Subsidiary as a result of the Company's acquiring or merging with the individual's employer or acquiring its assets. If necessary to conform the Awards to the interests for which they are substitutes, the Administrator may grant substitute Awards under terms and conditions that vary from those the Plan otherwise requires. 5. DIRECTOR Each Eligible Director will receive an Option FORMULA ("Formula Option") as of the Effective Date with OPTION respect to 250 shares of Common Stock. Each Eligible Director serving on the Board at each annual meeting of the Company's shareholders (beginning with the meeting at least six months after the Effective Date) will receive a Formula Option as of that meeting with respect to 250 shares of Common Stock. EXERCISE Options will not become exercisable until the average SCHEDULE closing price of a share of Common Stock traded on NASDAQ Bulletin Board (or any other over-the-counter automated quotation system or national exchange on which the Common Stock is traded) for thirty (30) consecutive trading days has been at least $21.00. After this requirement has been fulfilled, the Options may be exercised regardless of the price at which the Common Stock is trading at the time Optionee elects to exercise the Options. If Options are granted after this requirement has been fulfilled, such Options may be exercised regardless of the price at which the Common Stock is trading at the time the Optionee elects to exercise Options. No Option shall be exercisable before the first anniversary of the Date of Grant (as defined below) or after the date ten (10) years from the Date of Grant. 6. DATE OF GRANT The Date of Grant will be the date as of which the Plan or the Administrator grants an Award to a participant, as specified in the Plan or in the Administrator's minutes. 7. EXERCISE PRICE The Exercise Price is the value of the consideration that a participant must provide in exchange for one share of Common Stock. The Administrator will determine the Exercise Price under each Award and may set the Exercise Price without regard to the Exercise Price of any other Awards granted at the same or any other time. The Company may use the consideration it receives from the participant for general corporate purposes. The Exercise Price per share may not be less than 100% of the Fair Market Value (on the Date of Grant) of a share of Common Stock covered by the Option; provided, however, that if the Administrator decides to grant an ISO to someone covered by Sections 422(b)(6) and 424(d) of the Code (more-than-10% stock owner), the Exercise Price of the Option must be at least 110% of the Fair Market Value (on the Date of Grant). In no event, however, may any Options be granted for an Exercise Price per share less than the book value per share of Common Stock as shown on the Company's last published financial statement prior to the Date of Grant. FAIR MARKET Fair Market Value of a share of Common Stock for VALUE purposes of the Plan will be determined as follows: If the Common Stock is traded on a national securities exchange, the average closing sale price for the ten (10) trading days ending on and including such date; If the Common Stock is not traded on any such exchange, the closing sale price as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq") for the ten (10) trading days ending on and including such date; If no such closing sale price information is available, the average of the closing bid and asked prices as reported by Nasdaq Bulletin for the ten (10) trading days ending on and including such date; or If there are no such closing bid and asked prices, the average of the closing bid and asked prices as reported by any other commercial service for the ten (10) trading days ending on and including such date. For any date that is not a trading day, the price of a share of Common Stock shall be calculated by using the closing sale price or the average of the closing bid and asked prices, as appropriate, for the immediately preceding trading day. 8. EXERCISABILITY The Administrator will determine the times and conditions for exercise of or purchase under each Award but may not extend the period for exercise beyond the tenth anniversary of its Date of Grant (or five years for ISOs granted to 10% owners covered by Code Sections 422(b)(6) and 424(d)). Awards will become exercisable at such times and in such manner as the Administrator determines and the Award Agreement, if any, indicates. Options will not become exercisable until the average closing price of a share of Common Stock traded on NASDAQ Bulletin Board (or any other over-the-counter automated quotation system or national exchange on which the Common Stock is traded) for thirty (30) consecutive trading days has been at least $21.00. After this requirement has been fulfilled, the Options may be exercised regardless of the price at which the Common Stock is trading at the time Optionee elects to exercise the Options. If Options are granted after this requirement has been fulfilled, such Options may be exercised regardless of the price at which the Common Stock is trading at the time the Optionee elects to exercise Options. No Option shall be exercisable before the first anniversary of the Date of Grant (as defined below) or after the date ten (10) years from the Date of Grant. No portion of an Award that is unexercisable at a participant's termination of employment will thereafter become exercisable, unless the Award Agreement provides otherwise, either initially or by amendment. CHANGE OF Upon a Change of Control (as defined below), all CONTROL Options will become fully exercisable; provided, however, such acceleration will not occur if it would render unavailable "pooling of interest" accounting for any reorganization, merger or consolidation of the Company, unless the Board determines otherwise. A Change of Control for this purpose means the occurrence of any one or more of the following events, unless otherwise determined by the Administrator at or after grant of Awards, but prior to the occurrence of such Change in Control: a) a person, entity, or group (other than the Company, any Company subsidiary, any Company benefit plan, or any underwriter temporarily holding securities for an offering of such securities) acquires ownership of more than 25% of the undiluted total voting power of the Company's then-outstanding securities eligible to vote to elect members of the Board ("Company Voting Securities") without the consent of the Board of Directors; b) the individuals (A) who constitute the Board of Directors of the Company on the Effective Date of the Plan (the "Original Directors") or (B) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors then still in office (such directors becoming "Additional Original Directors" immediately following their election) or (C) who are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors and Additional Original Directors then still in office (such directors also becoming "Additional Original Directors" immediately following their election) cease for any reason to constitute a majority of the members of the Board; c) consummation of a merger or consolidation of the Company into any other entity, unless the holders of the Company Voting Securities outstanding immediately before such consummation, together with any trustee or other fiduciary holding securities under a Company benefit plan, hold securities that represent immediately after such merger or consolidation at least 75% of the combined voting power of the then outstanding voting securities of either the Company or the other surviving entity or its parent; or d) the shareholders of the Company approve (i) a plan of complete liquidation or dissolution of the Company or (ii) an agreement for the Company's sale or disposition of all or substantially all the Company's assets, (i.e., 50% or more of the total assets of the Company) and such liquidation, dissolution, sale, or disposition is consummated. The provisions of Section 15 of the Plan will also apply if the Change of Control is a Substantial Corporate Change (as defined in Section 15). 9. LIMITATION ON An Option granted to an employee will be an ISO only ISOs to the extent that the aggregate Fair Market Value (determined at the Date of Grant) of the stock with respect to which ISOs are exercisable for the first time by the optionee during any calendar year (under the Plan and all other plans of the Company and its subsidiary corporations, within the meaning of Code Section 422(d)), does not exceed $100,000. This limitation will be applied by taking Options into account in the order in which such Options were granted. If, by design or operation, the Option exceeds this limit, the excess will be treated as an ISOs 10. METHOD OF To exercise any exercisable portion of an Award, the EXERCISE participant must: Deliver a written notice of exercise to the Secretary of the Company (or to whomever the Administrator designates), in a form complying with any rules the Administrator may issue, signed by the participant, and specifying the number of shares of Common Stock underlying the portion of the Award the participant is exercising; Pay the full Exercise Price, if any, by cashier's or certified check for the shares of Common Stock with respect to which the Award is being exercised, unless the Administrator consents to another form of payment (which could include Common Stock or other property); and Deliver to the Administrator such representations and documents as the Administrator, in its sole discretion, may consider necessary or advisable. Payment in full of the Exercise Price need not accompany the written notice of exercise provided the notice directs that the stock certificates for the shares issued upon the exercise be delivered to a licensed broker acceptable to the Company as the agent for the individual exercising the option and at the time the stock certificates are delivered to the broker, the broker will tender to the Company cash or cash equivalents acceptable to the Company and equal to the Exercise Price. If the Administrator agrees to payment through the tender to the Company of shares of Common Stock, the individual must have held the stock being tendered for at least six months at the time of surrender. Shares of stock offered as payment will be valued, for purposes of determining the extent to which the participant has paid the Exercise Price, at their Fair Market Value on the date of exercise. 11. AWARD No one may exercise an Award more than ten years after EXPIRATION its Date of Grant (or five years, for an ISO granted to a more-than-10% shareholder). Unless the Award Agreement provides otherwise, either initially or by amendment, no one may exercise an Award after the first to occur of: EMPLOYMENT The 90th day after the date of termination of TERMINATION employment (other than for death or disability), where termination of employment means the time when the employer-employee or other service-providing relationship between the employee and the Company ends for any reason, including retirement. Unless the Award Agreement provides otherwise, termination of employment does not include instances in which the Company immediately rehires a common law employee as an independent contractor. The Administrator, in its sole discretion, will determine all questions of whether particular terminations or leaves of absence are terminations of employment. Notwithstanding the foregoing, if the Administrator determines that the participant's termination of employment was for cause, all unexercised Awards held by the participant shall immediately terminate. DISABILITY For disability, the earlier of (i) the first anniversary of the participant's termination of employment for disability and (ii) thirty (30) days after the participant no longer has a disability, where "disability" means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve months; or DEATH The date twelve months after the participant's death. If exercise is permitted after termination of employment, the Award will nevertheless expire as of the date that the former service provider violates any covenant not to compete in effect between the Company and the former employee. In addition, an optionee who exercises an Option more than 90 days after termination of employment with the Company and/or the Eligible Subsidiaries will only receive ISO treatment to the extent permitted by law, and becoming or remaining an employee of another related company (that is not an Eligible Subsidiary) or an independent contractor to the Company will not prevent loss of ISO status as a result of the formal termination of employment. Nothing in the Plan extends the term of an Award beyond the tenth anniversary of its Date of Grant, nor does anything in this Section 11 make an Award exercisable that has not otherwise become exercisable. 12. AWARD Option Agreements will set forth the terms of each AGREEMENT Option and will include such terms and conditions, consistent with the Plan, as the Administrator may determine are necessary or advisable. To the extent an Option Agreement is inconsistent with the Plan, the Plan will govern. The Option Agreements may contain special rules. 13. STOCK SUBJECT Except as adjusted pursuant to Section 15, the TO PLAN aggregate number of shares of Common Stock that may be issued under Awards may not exceed fifteen percent (15%) of the Company's outstanding Common Stock, less the aggregate number of shares subject to issuance pursuant to options granted or available for grant under the Corporation's 1990 Stock Option Plan (for employees) and the Non-Employee Director Stock Compensation Plan, and shall in no event exceed 350,000 shares. The aggregate number of shares of Common Stock that may be issued under Awards shall be allocated 60% for grants to Eligible Directors pursuant to Section 5 of this Plan, and 40% for grants to Employees by the Administrator pursuant to Section 4 of this Plan. The Common Stock will come from either authorized but unissued shares or from previously issued shares that the Company reacquires, including shares it purchases on the open market. If any Award expires, is canceled, or terminates for any other reason, the shares of Common Stock available under that Award will again be available for the granting of new Awards. No adjustment will be made for a dividend or other right for which the record date precedes the date of exercise, except as determined by the Administrator pursuant to Section 15 of the Plan. The participant will have no rights of a shareholder with respect to the shares of stock subject to an Award except to the extent that the Company has issued certificates for, or otherwise confirmed ownership of, such shares upon the exercise of the Award. The Company will not issue fractional shares pursuant to the exercise of an Award, but the Administrator may, in its discretion, direct the Company to make a cash payment in lieu of fractional shares. 14. PERSON WHO During the participant's lifetime, only the MAY EXERCISE participant or his duly appointed guardian or personal representative may exercise the Awards. After his death, his personal representative or any other person authorized under a will or under the laws of descent and distribution may exercise any then exercisable portion of an Award. If someone other than the original recipient seeks to exercise any portion of an Award, the Administrator may request such proof as it may consider necessary or appropriate of the person's right to exercise the Award. 15. ADJUSTMENTS Subject to any required action by the Company (which UPON CHANGES it shall promptly take) or its shareholders, and IN CAPITAL STOCK subject to the provisions of applicable corporate law, if, after the Date of Grant of an Award, the outstanding shares of Common Stock increase or decrease or change into or are exchanged for a different number or kind of security by reason of any recapitalization, reclassification, stock split, reverse stock split, combination of shares, exchange of shares, stock dividend, or other distribution payable in capital stock, or some other increase or decrease in such Common Stock occurs without the Company receiving consideration, the Administrator may make a proportionate and appropriate adjustment in the number of shares of Common Stock underlying each Award, so that the proportionate interest of the participant immediately following such event will, to the extent practicable, be the same as immediately before such event. In the event the Company declares a stock dividend in lieu of a cash dividend in lieu of a cash dividend, then the Administrator shall make a proportionate and appropriate adjustment in the number shares of Common Stock underlying each Award, so that the proportionate interest of the Participant immediately following such event will, to the extent practicable, be the same as immediately before such event. (This adjustment does not apply to Common Stock that the optionee has already purchased, except to the extent of similar treatment for all shareholders.) Unless the Administrator determines another method would be appropriate, any such adjustment to an Award will not change the total price with respect to shares of Common Stock underlying the unexercised portion of the Award but will include a corresponding proportionate adjustment in the Award's Exercise Price. The Administrator will make a commensurate change to the maximum number of shares provided in Sections 5 and 13 of the Plan. The grant of an Award under the Plan will not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or to consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets. SUBSTANTIAL Upon a Substantial Corporate Change, the Plan and any CORPORATE unexercised Awards will terminate unless provision is CHANGE made in writing in connection with such transaction for the assumption or continuation of outstanding Awards, or the substitution for such options or grants of any options or grants covering the stock or securities of a successor employer corporation, or a parent or subsidiary of such successor, with appropriate adjustments as to the number and kind of shares of stock and prices, in which event the Awards will continue in the manner and under the terms so provided. Unless the Board determines otherwise, if an Award would otherwise terminate pursuant to the preceding sentence, participants will have the right, at such time before the consummation of the transaction causing such termination as the Board reasonably designates, to exercise any unexercised portions of the Award, whether or not they had previously become exercisable. However, unless the Board determines otherwise, the acceleration will not occur if it would render unavailable "pooling of interest" accounting for any reorganization, merger, or consolidation of the Company. A Substantial Corporate Change means a) the dissolution or liquidation of the Company, b) merger, consolidation, or reorganization of the Company with one or more corporations in which the Company is not the surviving corporation, c) the sale of substantially all of the assets of the Company to another corporation, or d) any transaction (including a merger or reorganization in which the Company survives) approved by the Board that results in any person or entity (other than any affiliate of the Company as defined in Rule 144(a)(1) under the Securities Act) owning 100% of the combined voting power of all classes of stock of the Company. 16. SUBSIDIARY Employees of Company Subsidiaries will be entitled to EMPLOYEES participate in the Plan, except as otherwise designated by the Board of Directors. Eligible Subsidiary means each of the Company's Subsidiaries, except as the Board otherwise specifies. For ISO grants, Subsidiary means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time an ISO is granted to a participant under the Plan, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For ISO purposes, Subsidiary also includes a single member limited liability company included within the chain described in the preceding sentence. For NQSOs, the Administrator can use a different definition of Subsidiary in its discretion. 17. LEGAL The Company will not issue any shares of Common Stock COMPLIANCE under an Award until all applicable requirements imposed by Federal and state securities and other laws, rules, and regulations, and by any applicable regulatory agencies or stock exchanges, have been fully met. To that end, the Company may require the participant to take any reasonable action to comply with such requirements before issuing such shares. No provision in the Plan or action taken under it authorizes any action that is otherwise prohibited by Federal or state laws. The Plan is intended to conform to the extent necessary with all provisions of the Securities Act of 1933 ("Securities Act") and the Exchange Act and all regulations and rules the Securities and Exchange Commission issues under those laws. Notwithstanding anything in the Plan to the contrary, the Administrator must administer the Plan, and Awards must be granted and exercised, only in a way that conforms to such laws, rules, and regulations. To the extent permitted by applicable law, the Plan and any Awards will be deemed amended to the extent necessary to conform to such laws, rules, and regulations. 18. PURCHASE FOR Unless a registration statement under the Securities INVESTMENT Act covers the shares of Common Stock a participant AND OTHER receives upon exercise of his Award, the Administrator RESTRICTIONS may require, at the time of such exercise or receipt of a grant, that the participant agree in writing to acquire such shares for investment and not for public resale or distribution, unless and until the shares subject to the Award are registered under the Securities Act. Unless the shares are registered tinder the Securities Act, the participant must acknowledge: that the shares purchased on exercise of the Award are not so registered, that the participant may not sell or otherwise transfer the shares unless the shares have been registered under the Securities Act in connection with the sale or transfer thereof, or counsel satisfactory to the Company has issued an opinion satisfactory to the Company that the sale or other transfer of such shares is exempt from registration under the Securities Act, and such sale or transfer complies with all other applicable laws, rules, and regulations, including all applicable Federal and state securities laws, rules, and regulations. Additionally, the Common Stock, when issued upon the exercise of an Award, will be subject to any other transfer restrictions, rights of first refusal, and rights of repurchase set forth in or incorporated by reference into other applicable documents, including the Company's certificate of incorporation, by-laws, or generally applicable shareholders' agreements. The Administrator may, in its sole discretion, take whatever additional actions it deems appropriate to comply with such restrictions and applicable laws, including placing legends on certificates and issuing stop-transfer orders to transfer agents and registrars. 19. TAX WITHHOLDING The participant must satisfy all applicable Federal, state, and local income and employment tax withholding requirements before the Company will deliver stock certificates upon the exercise of an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company does not or cannot withhold from other compensation, the participant must pay the Company, with a cashier's check or certified check, the full amounts required by withholding. Payment of withholding obligations is due before the Company issues shares with respect to the Award. If the Administrator so determines, the participant may instead satisfy the withholding obligations by directing the Company to retain shares from the Award exercise, by tendering previously owned shares. 20. TRANSFERS Unless the Administrator otherwise approves in advance ASSIGNMENTS in writing, an Award may not be assigned, pledged, or AND PLEDGES otherwise transferred in any way, whether by operation of law or otherwise or through any legal or equitable proceedings (including bankruptcy), by the participant to any person, except by will or by operation of applicable laws of descent and distribution. 21. AMENDMENT OR The Board may amend, suspend, or terminate the Plan at TERMINATION any time, without the consent of the participants or OF PLAN AND their beneficiaries; provided, however, that no OPTIONS amendment will deprive any participant or beneficiary of any previously declared Award. Except as required by law or by Sections 8 or 15, the Administrator may not, without the participant's or beneficiary's consent, modify the terms and conditions of an Award so as to adversely affect the participant. No amendment, suspension, or termination of the Plan will, without the participant's or beneficiary's consent, terminate or adversely affect any right or obligations under any outstanding Awards. 22. PRIVILEGES OF No participant and no beneficiary or other person STOCK claiming under or through such participant will have OWNERSHIP any right, title, or interest in or to any shares of Common Stock allocated or reserved under the Plan or subject to any Award except as to such shares of Common Stock, if any, that have been issued to such participant. 23. EFFECT ON Whether exercising or receiving an Award causes the OTHER PLANS participant to accrue or receive additional benefits under any pension or other plan is governed solely by the terms of such other plan. 24. LIMITATIONS ON Notwithstanding any other provisions of the Plan, no LIABILITY individual acting as a director, employee, or agent of the Company shall be liable to any participant, former participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan, nor shall such individual be personally liable because of any contract or other instrument he executes in such other capacity. The Company will indemnify and hold harmless each director, employee, or agent of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been or will be delegated, against any cost or expense (including attorneys' fees) or liability (including any sum paid in settlement of a claim with the Board's approval) arising out of any act or omission to act concerning the Plan unless arising out of such person's own fraud or bad faith. 25. NO EMPLOYMENT Nothing contained in the Plan constitutes an CONTRACT employment contracts between the Company and the participants. The Plan does not give any participant any right to be retained in the Company's employ, nor does it enlarge or diminish the Company's right to terminate the participant's employment. 26. APPLICABLE LAW The laws of the Commonwealth of Virginia (other than its choice of law provisions) and applicable federal law govern the Plan and its interpretation. 27. DURATION OF PLAN Unless the Board extends the Plan's term, the Administrator may not grant Awards after February 2009. The Plan will then terminate but will continue to govern unexercised and unexpired Awards. Adopted by the Board of Directors February 19, 1999, and by the Shareholders on April 27, 1999. EX-4 3 EXHIBIT 4.2 Exhibit 4.2 FIRST AMENDMENT TO COMMONWEALTH BANKSHARES, INC. 1990 STOCK OPTION PLAN Section 5 of the 1990 Stock Option Plan is hereby amended to read as follows: "Upon the exercise of any Option, the Company shall deliver to the Participant authorized but unissued stock. The maximum aggregate number of shares of Common Stock that may be issued pursuant to options granted under this Plan is 45,000, subject to adjustment as provided in Section 9. If an Option is terminated, in whole or in part, for an), reason other than its exercise, the number of shares of Common Stock allocated to the option or portion thereof may be reallocated to other Options to be granted under this Plan." [Emphasis added.] COMMONWEALTH BANKSHARES, INC. 1990 STOCK OPTION PLAN 1. PURPOSE ------- This Stock Option Plan is intended to assist Commonwealth Bankshares, Inc. in recruiting and retaining key employees with ability and initiative by enabling employees who contribute significantly to the Company to participate in its future success and to associate their interests with those of the Company. The proceeds received by the Company from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes. This Plan is also intended to assist an Affiliate as hereafter defined in recruiting and retaining key employees with ability and initiative by enabling such employees who contribute significantly to the Affiliate and, thereby, the Company to participate in the Company's future success and to associate their interests with those of the Company. 2. DEFINITIONS ----------- For purposes of this Plan, the following terms shall have the following meanings: (a) Affiliate means any "subsidiary" or "parent" corporation of the Company. (b) Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of an Option granted to such Participant. (c) Board means the Board of Directors of the Company. (d) Common Stock means the common stock of the Company. (e) Company means Commonwealth Bankshares, Inc. (f) Fair Market value means, on any given date, the fair market value per share of Common Stock determined by the Board using any reasonable method in good faith. (g) Option means a stock option that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement. (h) Participant means an employee of the Company or an employee of an Affiliate, who satisfies the requirements of Section 4 and is selected by the Board to receive an Option. (i) Plan means the Commonwealth Bankshares, Inc. 1989 Stock Option Plan. 3. ADMINISTRATION -------------- This Plan shall be administered by the Board. A member of the Board or of the Board of Directors of an Affiliate who is also an employee of the Company or an Affiliate shall be eligible to participate in this Plan. The Board shall have authority to grant options upon such terms (not inconsistent with the provisions of this Plan) as the Board may consider appropriate. Such terms may include conditions (in addition to those contained in this Plan) upon the exercisability of all or any part of an Option. Notwithstanding any such conditions, the Board may, in its discretion, accelerate the time at which any Option may be exercised. In addition, the Board shall have complete authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of this Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in this Plan of any specific power to the Board shall not be construed as limiting any power or authority of the Board. Any decision made, or action taken, by the Board in connection with the administration of this Plan shall be final and conclusive. No member of the Board shall be liable for any act done in good faith with respect to this Plan or any Agreement or Option. All expenses of administering this Plan shall be borne by the Company. 4. ELIGIBILITY ----------- (a) General. Any employee of the Company or of an Affiliate who, in the judgment of the Board has contributed or can be expected to contribute to the profits or growth of the Company or an Affiliate, as the case may be, may be granted one or more Options. Directors of the Company or of an Affiliate who are employees are eligible to participate in this Plan. (b) Grants. The Board will designate employees to whom Options are to be granted and will specify the number of shares of Common Stock subject to each grant. All Options granted under this Plan shall be evidenced by Agreements that shall be subject to applicable provisions of this Plan and to such other provisions as the Board may adopt. 5. STOCK SUBJECT TO OPTIONS ------------------------ Upon the exercise of any Option, the Company shall deliver to the Participant authorized but unissued stock. The maximum aggregate number of shares of Common Stock that may be issued pursuant to options granted under this Plan is 25,000, subject to adjustment as provided in Section 9. If an Option is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to the Option or portion thereof may be reallocated to other Options to be granted under this Plan. 6. OPTION PRICE ------------ The price per share for Common Stock purchased by the exercise of any Option granted under this Plan shall be not less than the Fair Market Value on the date such Option is granted. 7. EXERCISE OF OPTIONS ------------------- (a) MAXIMUM OPTION PERIOD. No option shall-be exercisable after the expiration of ten years from the date the Option was granted. The terms of any Option may provide that it is exercisable for a period less than such maximum period. (b) NONTRANSFERABILITY. Any Option granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution and, during the lifetime of the Participant to whom the Option is granted, may be exercised only by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant. (c) EMPLOYEE STATUS. In the event that the terms of any option provide that it may be exercised only during employment or within a specified period of time after termination of employment, the Board may decide in each case to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment. (d) VESTING. The terms of any Option may provide that it is exercisable in whole or in part from time to time over such period of time as the Board shall consider appropriate; provided, however, that such period of time shall not exceed the maximum option period as set forth in Section 7(a) hereof. 8. METHOD OF EXERCISE ------------------ (a) EXERCISE. Subject to the provisions of Sections 7 and 10, an Option may be exercised in whole at any time or in part from time to time at such times and in compliance with such requirements as the Board shall determine. An Option granted under this Plan may be exercised with respect to any number of whole shares less than the full number for which the Option could be exercised. Such partial exercise of an option shall not affect the right to exercise the Option from time to time in accordance with this Plan with respect to remaining shares subject to the Option. (b) PAYMENT. Unless otherwise provided by the Agreement or permitted by the Board, payment of the Option price shall be made in cash (United States dollars) or a cash equivalent acceptable to the Board. If the Agreement provides or the Board permits, payment of all or a part of the Option price may be made by surrendering shares of Common Stock to the Company. If Common Stock is used to pay all or part of the Option price, the shares surrendered must have a Fair Market Value (determined as of the date of exercise) that is not less than such price or part thereof. The preceding paragraph to the contrary notwithstanding, if the Agreement provides, payment of all or part of the Option price may be made in installments. In that event the Company shall lend the Participant an amount equal to not more than ninety percent of the Option price of the shares acquired by the exercise of the Option. This amount shall be payable in not more than five equal annual installments, unless the amount of the loan exceeds the maximum loan value for the shares purchased which value shall be established from time to time by regulations of the Board of Governors of the Federal Reserve System in which event the note shall be payable in equal quarterly installments over a period of time not to exceed five years. The Participant shall pay interest on the unpaid balance at the minimum "test rate" established by the Internal Revenue Service pursuant to Section 483 of the Internal Revenue Code of 1986 as in effect when the Option is granted. All shares acquired with cash borrowed from the Company shall be pledged to the Company as security for the repayment of the note. Shares of stock will be released from such pledge proportionately as payments of the note (together with interest) are made, provided the release of such shares complies with the regulations of the Federal Reserve System relating to securities credit transactions then applicable. While shares are so pledged, and so long as there has been no default in the installment payments, such shares shall remain registered in the name of the Participant, and he shall have the right to vote such shares and to receive all dividends paid thereon. (c) SHAREHOLDER RIGHTS. No Participant shall, as a result of receiving any Option, have any rights as a shareholder until the date he exercises such Option. 9. CHANGE IN CAPITAL STRUCTURE --------------------------- Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the price per share thereof in each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock of the Company resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock), a stock split-up or any other increase or decrease in the number of such shares effected without receipt of cash or property or labor or services by the Company. Subject to any required action by the shareholders of the Company, if the Company shall be the surviving corporation in any merger or consolidation, each outstanding Option shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to this option would have been entitled. A dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, shall cause each outstanding Option to terminate, provided that each Participant shall, in such event, have the right immediately prior to such dissolution or liquidation, or merger or consolidation in which the Company is not the surviving corporation, to exercise his option. In the event of a change in the Common Stock of -the Company as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided in this Section 9 a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation, and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to this Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. 10. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES ----------------------------------------------------- No Option shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations and rules of all domestic stock exchanges on which the Company's shares may be listed. The Company shall have the right to rely on the opinion of its counsel as to such compliance. Any share certificate issued to evidence Common Stock for which an Option is exercised may bear such legends and statements as the Board may deem advisable to assure compliance with federal and state laws and regulations. No Option shall be exercisable, no Common Stock shall be issued, no certificate for shares shall be delivered, and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Board may deem advisable from regulatory bodies having jurisdiction over such matters. 11. GENERAL PROVISIONS ------------------ (a) EFFECT ON EMPLOYMENT. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate, as the case may be, to terminate the employment of any employee at any time with or without assigning a reason therefor. (b) UNFUNDED PLAN. This Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under the Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company. (c) RULES OF CONSTRUCTION. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. 12. AMENDMENT --------- The Board may amend or terminate this Plan from time to time; provided, however, that no amendment may become effective until shareholder approval is obtained if the amendment (i) increases the aggregate number of shares that may be issued under Options or (ii) changes the class of employees eligible to become Participants. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any Option outstanding at the time such amendment is made. 13. DURATION OF PLAN ---------------- No Option may be granted under this Plan more than ten years after the earlier of (i) the date the Plan is adopted by the Board or (ii) the date the Plan is approved by the Company's shareholders. Options granted before the expiration of such ten-year period shall remain valid in accordance with their terms. 14. EFFECTIVE DATE OF PLAN ---------------------- Options may be granted under this Plan upon its adoption by the Board, provided that no option will be effective unless this Plan is approved by shareholders holding a majority of the Company's outstanding voting stock within twelve months of such adoption. EX-4 4 EXHIBIT 4.3 Exhibit 4.3 COMMONWEALTH BANKSHARES, INC* NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN ARTICLE I DEFINITIONS 1.01 Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of an Award granted to such Participant. 1.02 Award means an award of Options as provided for hereunder. 1.03 Bank means Bank of the Commonwealth, or its successors. 1.04 Board means the Board of Directors of the Company. 1.05 Code means the Internal Revenue Code of 1986, as amended. 1.06 Common Stock means the common stock of the Company. 1.07 Date of Grant means the date that the Board sets for the grant of Options to Participants under the Plan. 1.08 Fair Market Value means the average of the five (5) most recent trades of the Common Stock on the over-the-counter market during the period, not to exceed thirty (30) calendar days, immediately preceding an Option's Date of Grant. 1.09 Option means a stock option granted pursuant to Article IV, and that entities the holder to purchase from the Company a stated number of shares of Common Stock at the shares' Fair Market Value. 1.10 Participant means a member of the Board who is not an employee of the Company or the Bank on the applicable Date of Grant. 1.11 Plan means the Commonwealth Bankshares, Inc. Non-Employee Director Stock Compensation Plan. 1.12 Company means Commonwealth Bankshares, Inc. and its subsidiaries, or such successors thereto. ARTICLE II PURPOSE The Plan is intended to promote a greater identity of interest between Participants and the Company's shareholders by increasing the Participants' proprietary interest in the Company through the receipt of Awards in the form of Options. ARTICLE III ADMINISTRATION The Plan shall be administered by the one or more persons who are employees of the Company and directors of the Board (the "Employee Directors"), and such additional employees as the Employee Directors shall appropriately designate, who shall have complete authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. Any decision made, or action taken, by the Employee Directors in connection with the administration of this Plan shall be final and conclusive. All expenses of administering this Plan shall be borne by the Company. ARTICLE IV GRANT OF OPTIONS The Board shall have authority to designate Participants to whom Options are to be granted and shall specify the number of shares subject to grants. All Options shall be evidenced by a Memorandum of Option agreement which shall be subject to the applicable provisions of the Plan and to such other provisions as the Employee Directors may adopt. ARTICLE V STOCK SUBJECT TO OPTIONS Upon the exercise of any Option, the Company may deliver to the Participant (or the Participant's broker if the Participant so directs) authorized but unissued Common Stock. The maximum aggregate number of shares of Common Stock that may be issued pursuant to the exercise of Options under this Plan is 50,000, subject to adjustment as provided in Article IX. If an Option is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to the Option or portion thereof may be reallocated to other Options to be granted under this Plan. ARTICLE VI OPTION PRICE The price per share for Common Stock purchased on the exercise of an Option shall be the share's Fair Market Value. ARTICLE VII EXERCISE OF OPTIONS 7.01 Maximum Option Period. No Option shall be exercisable after the expiration of ten (10) years from its Date of Grant. 7.02 Nontransferability,. Options granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. During the lifetime of the Participant to whom the Option is granted, the Option may be exercised only by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant. ARTICLE VIII METHOD OF EXERCISE OF OPTIONS 8.01 Exercisability of Options. Subject to the provisions of Articles VII and X, an Option becomes exercisable six (6) months after its Date of Grant. However, an Option granted to a Participant shall be immediately exercisable if the Participant's membership on the Board terminates as a result of the Participant's retirement in accordance with Company policy, death or permanent and total disability (as such term is defined in Section 22(e)(3) of the Code). An Option shall be forfeited if, as of the termination of the Participant's membership on the Board, the Option is not then exercisable and such termination occurs for any reason other than the Participant's retirement in accordance with Company policy, death or disability (as defined above). Options that are exercisable or that become exercisable upon the Participant's termination of membership on the Board will remain exercisable until the tenth anniversary of the Option's Date of Grant. An Option may be exercised with respect to any number of whole shares less than the full number for which the Option could be exercised. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Agreement with respect to the shares remaining subject to the Option. 8.02 Payment. Unless otherwise provided by the Agreement, payment of the Option price shall be made in cash or a cash equivalent acceptable to the Board. In addition, all or part of the Option price may be paid by surrendering shares of Common Stock to the Company. If Common Stock is used to pay all or part of the Option price, the shares surrendered must have a fair market value (determined as of the day before the date of exercise and based on the average of the five [5] most recent trades of the Common Stock on the over-the-counter market during the period, not to exceed thirty [30] calendar days, preceding such date) that is not less than such price or part thereof. 8.03 Shareholder Rights. No Participant shall have any rights as a stockholder with respect to shares subject to his Option until the date of exercise of such Option. ARTICLE IX ADJUSTMENT UPON CHANGE IN COMMON STOCK The maximum number of shares to which Awards may be granted under this Plan shall be proportionately adjusted, and the terms of outstanding Awards shall be adjusted, as the Employee Directors shall determine to be equitably required in the event that the Company (i) effects one or more stock dividends, stock split-ups, subdivisions or consolidations of shares or (ii) engages in a transaction to which Section 424 of the Code applies. Any determination made under this Article IX by the Board shall be final and conclusive. The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares of obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards. ARTICLE X COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES No Option shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), and applicable requirements of any exchange or other market having authority over the trading of the Company's shares. ARTICLE XI GENERAL PROVISIONS 12.01 Effect on Service. Neither the adoption of this Plan, its operation, documents describing or referring to this Plan (or any part thereof) shall confer on any Participant any right to continue service as a member of the Board. 12.02 Unfunded Plan. The Plan, insofar as it provides for grants, shall be unfunded and the Company shall not be required to segregate any assets that may be represented at any time by grants under this Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that are created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company. 12.03 Rules of Construction. Headings are given to the articles and sections of the Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or provision of law shall be construed to refer to any amendment to or successor of such provision of law. ARTICLE, XII AMENDMENT The Board may amend this Plan from time to time; provided that no amendment may become effective until shareholder approval is obtained if the amendment (i) materially increases the aggregate number of shares of Common Stock that may be issued under the Plan, except in accordance with the provisions of Article IX, (ii) materially changes the class of individuals eligible to become Participants or (iii) materially increases the benefits that may accrue to Participants under the Plan, and provided further that the Board may not amend the Plan more than once in any six month period unless such amendment is required to comply with the Code. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any Option outstanding at the time such amendment is made. ARTICLE XIII TERMINATION The Board may terminate this Plan at any time. This Plan will terminate automatically, without any action of the Board, if, on any Date of Grant, there are insufficient shares available for the grant of Awards in accordance with the terms of the Plan. The termination of this Plan shall not affect any rights of a Participant under any Option outstanding at the time of such termination. ARTICLE XIV DURATION OF PLAN No Award may be granted under this Plan after five (5) years from the date of the first grant of an Option under the Plan. Options granted on or before such date shall remain valid in accordance with their terms. ARTICLE XV EFFECTIVE DATE OF PL4N This Plan is subject to approval by a majority of the votes entitled to be cast by the Company's shareholders, voting either in person or by proxy, at a duly held shareholders' meeting. No Awards granted shall be exercisable prior to approval by the Company's shareholders. However, Awards may be granted prior to approval of the Plan by shareholders, subject to such approval. EX-4 5 EXHIBIT 4.4 Exhibit 4.4 FIRST AMENDMENT TO COMMONWEALTH BANKSHARES, INC. NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN Article III of the Non-Employee Director Stock Compensation Plan is hereby amended to read as follows: "The Plan shall be administered by the Board, which shall have authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend and rescind rules and regulations pertaining to administration of this Plan; and to make all other determinations necessary or advisable for the administration of this Plan. Any decision made or action taken by the Board in connection with the administration of this Plan shall be final and conclusive. All expenses of administering this Plan shall be borne by the Company." Article IV of the Non-Employee Director Stock Compensation Plan is hereby amended to read as follows: "GRANT OF OPTIONS. The Board shall have authority to designate Participants to whom Options are to be granted and shall specify the number of shares subject to grants. All Options shall be evidenced by an Agreement which shall be subject to the provisions of this Plan and such other provisions as the Board may adopt." Article V of the Non Employee Director Stock Compensation Plan is hereby amended to read as follows: "Upon the exercise of any Option, the Company may deliver to the Participant (or the Participant's broker if the Participant so directs) authorized but unissued Common Stock. The maximum aggregate number of shares of Common Stock that may be issued pursuant to the exercise of Options under this Plan is 70,000, subject to adjustment as provided in Article IX. If an Option is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to the option or portion thereof may be reallocated to other Options to be granted under this Plan." [Emphasis added.] EX-5 6 EXHIBIT 5.1 EXHIBIT 5.1 Commonwealth Bankshares, Inc. 403 Boush Street Norfolk, VA 23 5 10 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 (i) 225,000 shares of Common Stock, $2.50 par value, of Commonwealth Bankshares, Inc. (the "Company"), which may be issued pursuant to the terms of the Company's 1999 Stock Incentive Plan (the "Plan"), we hereby advise you that in our opinion that upon issuance pursuant to the terms of the Plans, the shares of Common Stock which may be issued pursuant thereto 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, Kaufman & Canoles, P.C. EX-23 7 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Commonwealth Bankshares, Inc.: We consent to the incorporation by reference in the Registration Statement (No. 33__ ) on Form S-8 of Commonwealth Bankshares, Inc. and subsidiaries of our report dated January 15, 1999, related to the consolidated balance sheets of Commonwealth Bankshares, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, comprehensive income and stockholders' equity and cash flows for each of the years in the three-year period ended December 31, which report appears in the December 31, 1998 annual report on Form 10-KSB of Commonwealth Bankshares, Inc. Poti, Walton & Associates, PC Richmond, Virginia July 29, 1999 -----END PRIVACY-ENHANCED MESSAGE-----