-----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, Sq7oMMuzzNalzPLe1IVMGYFEa9j+hsdpRN9gBq6hIi5+3x/yeH/4K8Q/2KbdEnaV 9bx4HRvLJtP1dHwJ1Gzi0Q== 0000950116-04-003335.txt : 20041110 0000950116-04-003335.hdr.sgml : 20041110 20041109172327 ACCESSION NUMBER: 0000950116-04-003335 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041109 DATE AS OF CHANGE: 20041109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL BANCSHARES OF PENNSYLVANIA INC CENTRAL INDEX KEY: 0000922487 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 231627866 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26366 FILM NUMBER: 041130721 BUSINESS ADDRESS: STREET 1: 732 MONTGOMERY AVE CITY: NARBERTH STATE: PA ZIP: 19072 BUSINESS PHONE: 6106684700 MAIL ADDRESS: STREET 1: 732 MONGTOMERY AVENUE CITY: NARBERTH STATE: PA ZIP: 19072 10-Q 1 tenq.txt 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended: SEPTEMBER 30, 2004 -------------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: to Commission file number: 0-26366 --------- ROYAL BANCSHARES OF PENNSYLVANIA, INC. ---------------------------------------------------------- (Exact name of the registrant as specified in its charter) PENNSYLVANIA 23-2812193 ------------------------------ ------------------ (State or other jurisdiction of (IRS Employer incorporated or organization) identification No.) 732 MONTGOMERY AVENUE, NARBERTH, PA 19072 ----------------------------------------- (Address of principal Executive Offices) (610) 668-4700 -------------------------------------------------- (Registrant's telephone number, including area code) N/A --------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act 12b-2). Yes /X/ No. / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Common Stock Outstanding at October 31, 2004 -------------------- ------------------------------- $2.00 PAR VALUE 10,257,741 Class B Common Stock Outstanding at October 31, 2004 -------------------- ------------------------------- $.10 PAR VALUE 1,941,340 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data)
ASSETS SEPT 30, 2004 DEC 31, 2003 (UNAUDITED) ----------------- ------------------ Cash and due from banks $15,174 $17,470 Federal funds sold 7,000 7,600 ----------------- ------------------ Total cash and cash equivalents 22,174 25,070 ----------------- ------------------ Investment securities held to maturity (HTM) (fair value of $186,974 at September 30, 2004 and $114,275 at December 31, 2003) 186,379 113,091 Investment securities available for sale (AFS) - at fair value 390,074 452,246 Loans held for sale 1,544 3,157 Loans 462,119 512,557 Less allowance for loan losses 12,601 12,426 ----------------- ------------------ Net loans 449,518 500,131 Premises and equipment, net 71,610 7,480 Accrued interest and other assets 59,584 53,235 ----------------- ------------------ Total assets $1,180,883 $1,154,410 ================= ================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $60,555 $58,942 Interest bearing (includes certificates of deposit in excess of $100 of $97,483 at September 30, 2004 and $104,123 at December 31, 2003) 675,829 732,117 ----------------- ------------------ Total deposits 736,384 791,059 Accrued interest payable 7,252 7,733 Borrowings 283,358 212,000 Other liabilities 9,892 7,920 ----------------- ------------------ Total liabilities 1,036,886 1,018,712 ----------------- ------------------ MINORITY INTEREST 3,582 865 Stockholders' equity Common stock Class A, par value $2 per share; authorized, 18,000,000 shares; issued, 10,247,444 at September 30, 2004 and 10,027,284 at December 31, 2003 20,495 20,055 Class B, par value $.10 per share; authorized, 2,000,000 shares; issued, 1,942,213 at September 30, 2004 and 1,909,742 at December 31, 2003 194 191 Additional paid in capital 91,501 85,448 Retained earnings 24,270 24,989 Accumulated other comprehensive income 6,220 6,415 ----------------- ------------------ 142,680 137,098 Treasury stock - at cost, shares of Class A, 215,388 at September 30, 2004, and December 31, 2003. (2,265) (2,265) ----------------- ------------------ Total stockholders' equity 140,415 134,833 ----------------- ------------------ Total liabilities and stockholders' equity $1,180,883 $1,154,410 ================= ==================
The accompanying notes are an integral part of these statements. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------- (in thousands, except per share data) 2004 2003 ----------------- ---------------- Interest income Loans, including fees $9,774 $11,872 Investment securities held to maturity 2,070 630 Investment securities available for sale 5,011 5,552 Deposits in banks 9 117 Federal funds sold 16 26 ----------------- ---------------- TOTAL INTEREST INCOME 16,880 18,197 ----------------- ---------------- Interest expense Deposits 4,151 5,089 Borrowings 2,642 2,141 ----------------- ---------------- TOTAL INTEREST EXPENSE 6,793 7,230 ----------------- ---------------- NET INTEREST INCOME 10,087 10,967 Provision for loan losses 1 197 ----------------- ---------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,086 10,770 ----------------- ---------------- Other income Service charges and fees 343 380 Net gains on sales of investment securities 282 203 Gains on sales of other real estate 915 107 Gains on sales of loans 91 181 Income related to variable interest entities "VIE" 1,954 -- Other income 237 55 ----------------- ---------------- 3,822 926 ----------------- ---------------- Other expenses Salaries and wages 2,249 1,942 Employee benefits 635 503 Occupancy and equipment 379 328 Expenses related to variable interest entities "VIE" 1,324 -- Other operating expenses 2,003 1,939 ----------------- ---------------- 6,590 4,712 ----------------- ---------------- INCOME BEFORE INCOME TAXES 7,318 6,984 Income taxes 2,206 2,222 ----------------- ---------------- NET INCOME $5,112 $4,762 ================= ================ Per share data Net income - basic $.42 $ .39 ================= ================ Net income - diluted $.41 $ .39 ================= ================
The accompanying notes are an integral part of these statements. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- (in thousands, except per share data) 2004 2003 ----------------- ---------------- Interest income Loans, including fees $30,061 $35,562 Investment securities held to maturity 4,463 1,801 Investment securities available for sale 15,662 16,502 Deposits in banks 296 401 Federal funds sold 69 116 ----------------- ---------------- TOTAL INTEREST INCOME 50,551 54,382 ----------------- ---------------- Interest expense Deposits 12,806 17,252 Borrowings 7,686 5,636 ----------------- ---------------- TOTAL INTEREST EXPENSE 20,492 22,888 ----------------- ---------------- NET INTEREST INCOME 30,059 31,494 Provision for loan losses 6 514 ----------------- ---------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 30,053 30,980 ----------------- ---------------- Other income Service charges and fees 1,014 935 Net gains on sales of investment securities 508 347 Gains on sales of other real estate 1,789 296 Gains on sales of loans 523 465 Income related to variable interest entities "VIE" 5,714 -- Other income 921 112 ----------------- ---------------- 10,469 2,155 ----------------- ---------------- Other expenses Salaries and wages 6,540 5,925 Employee benefits 1,705 1,395 Occupancy and equipment 1,120 993 Expenses related to variable interest entities "VIE" 3,858 -- Other operating expenses 6,360 5,625 ----------------- ---------------- 19,583 13,938 ----------------- ---------------- INCOME BEFORE INCOME TAXES 20,939 19,197 Income taxes 6,269 6,055 ----------------- ---------------- NET INCOME $14,670 $13,142 ================= ================ Per share data Net income - basic $1.20 $1.08 ================= ================ Net income - diluted $1.19 $1.08 ================= ================
The accompanying notes are an integral part of these statements. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK ADDITIONAL -------------------------- --------------------------- PAID IN RETAINED (in thousands) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ------------ ------------- ------------- ------------- ------------- ------------- Balance, January 1, 2004 10,027 $20,055 1,909 $191 $85,448 $24,989 Net income for the nine months ended Sept 30, - - - - - 14,670 Conversion of Class B common stock to Class A Common stock 7 14 (6) (1) - (13) Purchase of treasury stock - - - - - - 2% stock dividend declared 196 392 39 4 5,842 (6,237) Cash dividends on common stock - - - - - (per share: Class A $0.75 and Class B $0.86) - - - - - (9,128) Cash in lieu of fractional shares - - - - - (11) Stock options exercised 17 34 - - 211 - Other comprehensive income, net of Reclassifications and taxes - - - - - - ------------ ------------- ------------- ------------- ------------- ------------- Comprehensive income Balance, September 30, 2004 10,247 $20,495 1,942 $194 $91,501 $24,270 ============ ============= ============= ============= ============= =============
[RESTUBBED TABLE]
ACCUMULATED OTHER TREASURY COMPREHENSIVE COMPREHENSIVE (in thousands) STOCK INCOME (LOSS) INCOME ------------ ---------------------------------- Balance, January 1, 2004 $(2,265) $6,415 Net income for the nine months ended Sept 30, - - $14,670 Conversion of Class B common stock to Class A Common stock - - - Purchase of treasury stock - - - 2% stock dividend declared - - Cash dividends on common stock (per share: Class A $0.75 and Class B $0.86) - - - Cash in lieu of fractional shares - - - Stock options exercised - - - Other comprehensive income, net of Reclassifications and taxes - (195) (195) ------------------------------------------------ Comprehensive income $14,475 ================== Balance, September 30, 2004 $(2,265) $6,220 ============== ===============
The accompanying notes are an integral part of the financial statement. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME NINE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK ADDITIONAL -------------------------- --------------------------- PAID IN RETAINED (in thousands) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ------------ ------------- ------------- ------------- ------------- ------------- Balance, January 1, 2003 9,595 $19,190 1,861 $186 $76,984 $24,819 Net income for the nine months ended Sept 30, - - - - - 13,142 Conversion of Class B common stock to Class A Common stock 8 16 (7) (1) - (15) Purchase of treasury stock - - - - - - 3% stock dividend declared 281 563 55 6 6,443 (7,011) Cash dividends on common stock (per share: Class A $0.71 and Class B $0.82) - - - - - (8,469) Cash in lieu of fractional shares - - - - - (8) Stock options exercised 64 126 - - 517 - Other comprehensive income, net of Reclassifications and taxes - - - - - - ------------ ------------- ------------- ------------- ------------- ------------- Comprehensive income Balance, September 30, 2003 9,948 $19,895 1,909 $191 $83,944 $22,458 ============ ============= ============= ============= ============= =============
[RESTUBBED TABLE]
ACCUMULATED OTHER TREASURY COMPREHENSIVE COMPREHENSIVE (in thousands) STOCK INCOME (LOSS) INCOME ------------ ---------------------------------- Balance, January 1, 2003 $(2,265) $2,416 Net income for the nine months ended Sept 30, - - $13,142 Conversion of Class B common stock to Class A Common stock - - - Purchase of treasury stock - - - 3% stock dividend declared - - Cash dividends on common stock (per share: Class A $0.71 and Class B $0.82) - - - Cash in lieu of fractional shares - - - Stock options exercised - - - Other comprehensive income, net of Reclassifications and taxes - 3,475 3,475 ------------------------------------------------ Comprehensive income $16,617 ================== Balance, September 30, 2003 $(2,265) $5,891 ============== ===============
The accompanying notes are an integral part of the financial statement. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, (in thousands)
Cash flows from operating activities 2004 2003 ---------------- ----------------- Net income $14,670 $13,142 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation 2,172 777 Provision for loan loss 6 514 Net accretion (amortization) of discounts and premiums on loans, mortgage-backed securities and investments (499) 1,606 Provision for deferred income taxes 2,384 2,239 Gains on other real estate (1,789) (296) Gains on sales of loans (523) (465) Net (gains) on sales of investment securities (508) (347) Changes in assets and liabilities: Increase(decrease) in accrued interest receivable 101 (2,063) (Increase) in other assets (8,835) (15,787) Increase(decrease) in accrued interest payable 6,308 (822) Increase in other liabilities 4,016 1,956 ---------------- ----------------- Net cash provided by operating activities 17,503 454 Cash flows from investing activities Proceeds from calls/maturities of HTM investment securities 109,410 4,000 Proceeds from calls/maturities of AFS investment securities 141,770 187,288 Proceeds from sales of AFS investment securities 5,890 86,339 Purchase of AFS investment securities (86,311) (321,451) Purchase of HTM investment securities (185,125) (40,000) Redemption(purchase) of FHLB Stock (1,018) (3,685) Net decrease in loans 53,544 29,604 Purchase of premises and equipment (66,302) (452) ---------------- ----------------- Net cash (used in) investing activities (28,142) (58,357) Cash flows from financing activities: Net (decrease) increase in non-interest bearing and interest bearing demand deposits and savings accounts (31,070) 75,564 Net decrease in certificates of deposit (23,605) (92,736) Mortgage payments (47) (45) Net increase in borrowings 71,358 84,500 Cash dividends (9,128) (8,469) Cash in lieu of fractional shares (11) (8) Issuance of common stock under stock option plans 246 643 ---------------- ----------------- Net cash provided by financing activities 7,743 59,449 NET (DECREASED) INCREASE IN CASH AND CASH EQUIVALENTS (2,896) 1,546 Cash and cash equivalents at beginning of year 25,070 40,571 ---------------- ----------------- Cash and cash equivalents at end of year $22,174 $42,117 ================ =================
The accompanying notes are an integral part of these statements. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited consolidated financial statements include the accounts of Royal Bancshares of Pennsylvania, Inc. (the Company) and its wholly-owned subsidiaries: Royal Investments of Delaware, Inc. and Royal Bank America (the Bank), Royal Real Estate of Pennsylvania, Inc., Royal Investments of Pennsylvania, LLC. and its 60% ownership interest in Crusader Servicing Corporation. These financial statements reflect the historical information of the Company. All significant inter-company transactions and balances have been eliminated. 1. The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in opinion of management, necessary to present a fair statement of the results for the interim periods. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. The results of operations for the three-month and nine-month periods ended September 30, 2004, are not necessarily indicative of the results, to be expected for the full year. 2. Segment Information The Company's community banking segment consists of commercial and retail banking. The community banking business segment is managed as a single strategic unit which generates revenue from a variety of products and services provided by the Bank. For example, commercial lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. The same is also true for consumer and residential mortgage lending. The Company's tax lien operation does not meet the quantitative thresholds for requiring disclosure, but has different characteristics to the community banking operation. The Company's tax lien operation consists of purchasing delinquent tax certificates from local municipalities at auction. The tax lien operation is managed as a single strategic unit which generates revenue from a nominal interest rate achieved at the individual auction along with periodic penalties imposed. The accounting policies used in this disclosure of business segments are the same as those described in the summary of significant accountings policies. The consolidating adjustments reflect certain eliminations of inter-segment revenues, cash and investments in subsidiaries.
THREE MONTHS ENDED SEPTEMBER 30, 2004 ----------------------------------------- (in thousands) COMMUNITY TAX LIEN BANKING OPERATION CONSOLIDATED -------------- ------------------- ----------------- Total assets $1,136,654 $44,229 $1,180,883 Total deposits 736,384 -- 736,384 Net interest income $9,002 $720 $9,722 Provision for loan losses -- 1 1 Other income 3,779 43 3,822 Other expense 5,780 445 6,225 Income tax expense 2,145 61 2,206 -------------- ------------------- ----------------- Net income $4,856 $256 $5,112 ============== =================== =================
THREE MONTHS ENDED SEPTEMBER 30, 2003 ----------------------------------------------------------- (in thousands) COMMUNITY TAX LIEN BANKING OPERATION CONSOLIDATED -------------- ------------------- ----------------- Total assets $1,121,091 $44,996 $1,166,087 Total deposits 803,668 -- 803,668 Net interest income $10,005 $962 $10,967 Provision for loan losses 150 47 197 Other income 808 118 926 Other expense 4,197 515 4,712 Income tax expense 2,093 129 2,222 -------------- ------------------- ----------------- Net income $4,373 $389 $4,762 ============== =================== =================
Interest paid to the Community Banking segment by the Tax Lien Operation was approximately $478 thousand and $451 thousand for the three months period ending September 30, 2004, and 2003, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 2004 ---------------------------------------------------------- (in thousands) COMMUNITY TAX LIEN BANKING OPERATION CONSOLIDATED -------------- ------------------- ----------------- Total assets $1,136,654 $44,229 $1,180,883 Total deposits 736,384 -- 736,384 Net interest income 27,702 2,357 30,059 Provision for loan losses -- 6 6 Other income 9,460 1,009 10,469 Other expense 17,866 1,717 19,583 Income tax expense 5,953 316 6,269 -------------- ------------------- ----------------- Net income $13,343 $1,327 $14,670 ============== =================== =================
NINE MONTHS ENDED SEPTEMBER 30, 2003 ----------------------------------------------------------- (in thousands) COMMUNITY TAX LIEN BANKING OPERATION CONSOLIDATED -------------- ------------------- ----------------- Total assets $1,121,091 $44,996 $1,166,087 Total deposits 803,668 -- 803,668 Net interest income 28,807 2,687 31,494 Provision for loan losses 450 64 514 Other income 1,859 296 2,155 Other expense 12,413 1,525 13,938 Income tax expense 5,707 348 6,055 -------------- ------------------- ----------------- Net income $12,096 $1,046 $13,142 ============== =================== =================
Interest paid to the Community Bank segment by the Tax Lien Operation was approximately $1,335 thousand and $1,426 thousand for the nine months period ending September 30, 2004, and 2003, respectively. 3. Per Share Information The Company follows the provisions of SFAS No. 128, "Earnings Per Share. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. In January 2004 the Company declared a 2% stock dividend. All share and per share information has been restated to reflect this dividend. Basic and diluted EPS are calculated as follows (In thousands, except per share data):
THREE MONTHS ENDED SEPTEMBER 30, 2004 -------------------------------------------- Income Average shares Per share (numerator) (denominator) Amount ------------ ---------------- ----------- Basic EPS Income available to common shareholders $5,112 12,260 $0.42 Effect of dilutive securities Stock options 60 ($0.01) ------------------------------------------------ Diluted EPS Income available to common shareholders Plus assumed exercise of options $5,112 12,320 $0.41
THREE MONTHS ENDED SEPTEMBER 30, 2003 -------------------------------------------- Income Average shares Per share (numerator) (denominator) Amount ------------ ---------------- ----------- Basic EPS Income available to common shareholders $4,762 12,146 $0.39 Effect of dilutive securities Stock options 60 -- ------------------------------------------------ Diluted EPS Income available to common shareholders Plus assumed exercise of options $4,762 12,206 $0.39
NINE MONTHS ENDED SEPTEMBER 30, 2004 ------------------------------------------------ Income Average shares Per share (numerator) (denominator) Amount ------------- ---------------- ------------ Basic EPS Income available to common shareholders $14,670 12,254 $1.20 Effect of dilutive securities Stock options 63 (.01) ------------------------------------------------ Diluted EPS Income available to common shareholders Plus assumed exercise of options $14,670 12,317 $1.19
NINE MONTHS ENDED SEPTEMBER 30, 2003 ------------------------------------------------ Income Average shares Per share (numerator) (denominator) Amount ------------- ---------------- ------------ Basic EPS Income available to common shareholders $13,142 12,122 $1.08 Effect of dilutive securities Stock options 58 -- ------------------------------------------------ Diluted EPS Income available to common shareholders Plus assumed exercise of options $13,142 12,180 $1.08
4. Investment Securities: The carrying value and approximate market value of investment securities at September 30, 2004 are as follows:
AMORTIZED GROSS GROSS APPROXIMATE PURCHASED UNREALIZED UNREALIZED FAIR CARRYING (in thousands) COST GAINS LOSSES VALUE VALUE ---------------- ------------ ------------ ---------------- --------------- HELD TO MATURITY: ----------------- Mortgage Backed $256 $-- $-- $256 $256 US Agencies 165,000 102 (151) 164,951 165,000 Other Securities 21,123 644 -- 21,767 21,123 ---------------- ------------ ------------ ---------------- --------------- $186,379 $746 ($151) $186,974 $186,379 ================ ============ ============ ================ =============== AVAILABLE FOR SALE: ------------------- Federal Home Loan Bank Stock - at cost $12,425 $-- $-- $12,425 $12,425 Mortgage Backed 54,817 505 (56) 55,266 55,266 CMO's 30,962 471 -- 31,433 31,433 US Agencies 94,976 62 (835) 94,203 94,203 Other securities 187,470 9,350 (73) 196,747 196,747 ---------------- ------------ ------------ ---------------- --------------- $380,650 $10,388 ($964) $390,074 $390,074 ================ ============ ============ ================ ===============
5. Allowance for Loan Losses: Changes in the allowance for loan losses were as follows:
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 2004 2003 --------------- --------------- (in thousands) BALANCE AT BEGINNING OF PERIOD, $12,539 $12,654 Loans charged-off (7) (483) Recoveries 68 14 --------------- --------------- Net charge-offs and recoveries 61 (469) Provision for loan losses 1 197 --------------- --------------- BALANCE AT END OF PERIOD $12,601 $12,382 =============== ===============
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 2004 2003 --------------- --------------- (in thousands) BALANCE AT BEGINNING OF PERIOD, $12,426 $12,470 Loans charged-off (98) (685) Recoveries 267 83 --------------- --------------- Net charge-offs and recoveries 169 (602) Provision for loan losses 6 514 --------------- --------------- BALANCE AT END OF PERIOD $12,601 $12,382 =============== ===============
6. Non-performing loans -------------------- Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $4.5 million and $12.3 million at September 30, 2004 and 2003, respectively. Although the Company has non-performing loans of approximately $4.5 million at September 30, 2004, management believes it has adequate collateral to limit its credit risk with these loans. The balance of impaired loans, which included the loans on which the accrual of interest has been discontinued, was approximately $4.5 million and $12.3 million at September 30, 2004 and 2003, respectively. The Company identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreements. Although the Company recognizes the balances of impaired loans when analyzing its loan loss reserve, the allowance for loan loss associated with impaired loans was $612 thousand at September 30, 2004. The income that was recognized on impaired loans during the three-month period ended September 30, 2004 was $-0-. The cash collected on impaired loans during the same period was $430 thousand of which $430 thousand was credited to the principal balance outstanding on such loans. The Company's policy for interest income recognition on impaired loans is to recognize income on currently performing restructured loans under the accrual method. The Company recognizes income on non-accrual loans under the cash basis when the principal payments on the loans become current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. If these factors do not exist, the Company does not recognize income. 7. Pension Plan ------------ The Company has a noncontributory nonqualified defined benefit pension plan covering certain eligible employees. The Company-sponsored pension plan provides retirement benefits under pension trust agreements and under contracts with insurance companies. The benefits are based on years of service and the employee's compensation during the highest consecutive years during the last 10 years of employment. The Company's policy is to fund pension costs allowable for income tax purposes. Net periodic defined benefit pension expense for the three months ended September 30, 2004 and 2003 included the following components:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ------------------------- (in thousands) 2004 2003 2004 2003 --------- ------- ---------- ----------- Service cost 191 103 573 309 Interest cost 53 54 159 161 --------- ------- ---------- ----------- Net periodic benefit cost 244 157 732 470
8. Stock-based Compensation ------------------------ At September 30, 2004, the Company had both a director and employee stock-based compensation plan. The Company accounts for the plan under the recognition and measurement provisions of APB No. 25, "Accounting for Stock Issued to Employee," and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plan had an exercise price equal to the market value under the underlying common stock of the date of the grant. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS No. 148") in December 2002. SFAS No. 148 amends the disclosure and certain transition provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation". The new disclosure provisions are effective for financial statements for fiscal years ending after December 15, 2002 and financial reports containing condensed financial statement for interim periods beginning after December 15, 2002. The following table provides the disclosure required by SFAS No. 148 and illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- -------------------------- (in thousands, except per share data) 2004 2003 2004 2003 -------- ------ ----------- --------- Net income, as reported $5,112 $4,762 $14,670 $13,142 Less: Stock-based compensation costs under fair value based method for (106) (115) (318) (327) all awards, net of related tax effect ------ ------ ------------ ----------- Pro forma net income $5,006 $4,647 $14,352 $12,815 Earnings per share - Basic As reported $0.42 $0.39 $1.20 $1.08 Pro forma $0.41 $0.38 $1.17 $1.06 Earnings per share - Diluted As reported $0.41 $0.39 $1.19 $1.08 Pro forma $0.41 $0.38 $1.17 $1.05
9. Variable Interest Entities ("VIE") ---------------------------------- The Company, together with a real estate development company, formed Brook View Investors, L.L.C. ("Brook View") in May 2001. Brook View was formed to construct 13 apartment buildings with a total of 116 units in a gated apartment community. The development company is the general partner of the project. The Company invested 60% of initial capital contributions with the development company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the development company. At September 30, 2004, Brook View had total assets of $13.2 million and total borrowings of $13.0 million of which $0 is guaranteed by the Company. The Company has determined that Brook View is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from Brook View is $212 thousand. The Company, together with a real estate development company, formed Burrough's Mill Apartment, L.L.C. ("Burrough's Mill") in December 2001. Burrough's Mill was formed to construct 32 apartment buildings with a total of 308 units in a gated apartment community. The development company is the general partner of the project. The Company invested 72% of initial capital contributions with the development company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the development company. At September 30, 2004, Burrough's Mill had total assets of $35.9 million and total borrowings of $28.4 million of which $0 is guaranteed by the Company. The Company has determined that Burrough's Mill is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from Burrough's Mill is $4.2 million. The Company, together with a real estate development company, formed Main Street West Associates, L.P. ("Main Street") in February 2002. Main Street was formed to acquire, maintain, improve, and operate office space located in Norristown, Pennsylvania. The development company is the general partner of the project. The Company invested 90% of initial capital contributions with the development company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the development company. At September 30, 2004, Main Street had total assets of $4.1 million and total borrowings of $2.9 million of which $0 is guaranteed by the Company. The Company has determined that Main Street is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from Main Street is $737 thousand. The Company, together with a real estate investment company, formed 212 C Associates, L.P. ("212 C") in May 2002. 212 C was formed to acquire, hold, improve, and operate office space located in Lansdale, Pennsylvania. The investment company is the general partner of the project. The Company invested 90% of initial capital contributions with the investment company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the investment company. At September 30, 2004, 212 C had total assets of $13.9 million and total borrowings of $12.0 million of which $0 is guaranteed by the Company. The Company has determined that 212 C is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from 212 C is $1.6 million. The Company's interest in the above mentioned variable interest entities are held by Royal Investments of Pennsylvania, LLC, a wholly owned subsidiary of Royal Bank America, and consolidated into the financial statements of the Company. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS The following discussion and analysis is intended to assist in understanding and evaluating the changes in the financial condition and earnings performance of the Company and its subsidiaries for the nine-month period ended September 30, 2004. From time to time, the Company may include forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters in this and other filings with the Securities Exchange Commission. The Private Securities Litigation Reform Act of 1995 provides safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance development and results of the Company's business include the following: general economic conditions, including their impact on capital expenditures, business conditions in the banking industry; the regulatory environment; rapidly changing technology and evolving banking industry standards; competitive factors, including increased competition with community, regional and national financial institutions; new service and product offerings by competitors and price pressures and similar items. CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES - ----------------------------------------------------- The accounting and reporting policies of the Company conform with accounting principals generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Allowance for Loan Losses - ------------------------- The Company considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The balance in the allowance for loan losses is determined based on managements' review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management's assumptions as to future delinquencies, recoveries and losses. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from managements' estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods. Income Taxes - ------------ Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities. Deferred tax assets are subject to managements' judgment based upon available evidence that future realization is more likely than not. If management determines that the company may be unable to realize all or part of the net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of net deferred tax assets to the expected realizable amount. FINANCIAL CONDITION - ------------------- Total consolidated assets as of September 30, 2004 were $1,180 million, an increase of $26 million from the $1,154 million reported at year-end, December 31, 2003. This increase is primarily due to $67 million of assets, of which the majority relates to premises and equipment, relating to investments in real estate partnerships that are now being consolidated as a result of FIN 46(R). Previously these investments were accounted for under the equity method of accounting. Total loans decreased $50.61 million from the $512.6 million level at December 31, 2003 to $462.2 million at September 30, 2004. This decrease is attributed to the speed of loans payoffs resulting from project completions and rate restructuring. The year-to-date average balance of loans was $459.7 million at September 30, 2004. The allowance for loan loss increased $175 thousand to $12.6 million at September 30, 2004 from $12.4 million at December 31, 2003. The level of allowance for loan loss reserve represents approximately 2.7% of total loans at September 30, 2004 versus 2.4% at December 31, 2003. While management believes that, based on information currently available, the allowance for loan loss is sufficient to cover losses inherent in the Company's loan portfolio at this time, no assurances can be given that the level of allowance will be sufficient to cover future loan losses or that future adjustments to the allowance will be sufficient to cover future loan losses or that future adjustments to the allowance will not be necessary if economic and/or other conditions differ substantially from the economic and other conditions considered by management in evaluating the adequacy of the current level of the allowance. The $11.1 million increase in total investment securities is primarily attributable to the redeployment of excess cash held during the year. Total cash and cash equivalents decreased $2.9 million from the $25.1 million level at December 31, 2003 to $22.2 million at September 30, 2004. This decrease is primarily due to a decline in the money market accounts as a result increase in short term interest rates. Total deposits, the primary source of funds, decreased $54.7 million to $736.4 million at September 30, 2004, from $791.1 million at December 31, 2003. The balance of brokered deposits was $73.1 million, representing approximately 10% of total deposits at September 30, 2004. Generally, these brokered deposits cannot be redeemed prior to the stated maturity, except in the event of the death or adjudication of incompetence of the deposit holder. Total borrowings increased $71.4 million to $283.4 million at September 30, 2004, from $212.0 million at December 31, 2003. This increase is primarily attributed to the consolidation of investments in real estate partnerships as a result of FIN 46(R). In the balance at September 30, 2004, $63.4 million of borrowings are not an obligation nor guaranteed by the company. Consolidated stockholders' equity increased $5.6 million to $140.4 million at September 30, 2004 from $134.8 million at December 31, 2003. This increase is primarily due to net income of $14.7 million, partially offset by quarterly cash dividends totaling $9.1 million. RESULTS OF OPERATIONS - --------------------- Results of operations depend primarily on net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities. Interest earning assets consist principally of loans and investment securities, while interest bearing liabilities consist primarily of deposits and borrowings. Net income is also effected by the provision for loan losses and the level of non-interest income as well as by non-interest expenses, including salary and employee benefits, occupancy expenses and other operating expenses. Consolidated net income for the three months ended, September 30, 2004 was $5.1 million or $0.42 basic earnings per share, as compared to net income of $4.8 million or $0.39 basic earnings per share for the same three month period in 2003. Consolidated net income for the nine months ended, September 30, 2004 was $14.7 million or $1.20 basic earnings per share, as compared to net income of $13.1 million or $1.08 basic earnings per share for the same nine month period in 2003. For the third quarter 2004, net interest income was $10.1 million as compared to $11.0 million for the same quarter in 2003, a decrease of $0.9 million. This decrease is primarily due to $1.3 million of interest paid relating to investments in real estate partnerships that are now being consolidated as a result of FIN 46(R). Interest income including fees on loans decreased $2.1 million for the third quarter of 2004 versus 2003 primarily due to a decrease in the average balance of loans during the same period. Interest income on investment securities during the third quarter increased $899 thousand, a 15% increase over the same three-month period in 2003, which is primarily due to the larger average balance in investment securities held during the quarter. Total interest expense on deposits and borrowings decreased $437 thousand to $6.8 million as compared to $7.2 million for the same three-month period in 2003. This decrease in interest expense is primarily due the reduction in average deposits balance along with a reduction of interest rates on deposits and borrowings offset by an increase of interest reported as a result investments in real estate partnerships that are now being consolidated as a result of FIN 46(R). Provision for loan losses was $1 thousand for the third quarter of 2004 and $197 for the same three-month period in 2003. Charge-offs and recoveries for the third quarter of 2004 were $7 thousand and $68 thousand respectively. Overall, management considers the current level of allowance for loan loss to be adequate at September 30, 2004. Total non-interest income for the three-month period ended September 30, 2004 was $3.8 million as compared to $926 thousand for the same three-month period in 2003. The $2.9 million increase in 2004 is primarily due to a $2.0 million addition from the consolidation as a result of FIN 46(R) and gains realized from the sale of other real estate owned. Total non-interest expense for the three months ended September 30, 2004 was $6.6 million, an increase of $1.9 million, as compared to $4.7 million for the same period in 2003. The increase is primarily attributed to the $1.3 million addition from the consolidation as a result of FIN 46(R). CAPITAL ADEQUACY - ---------------- The company is required to maintain minimum amounts of capital to total "risk weighted" assets and a minimum Tier 1 leverage ratio, as defined by the banking regulators. At September 30, 2004, the Company was required to have a minimum Tier 1 and total capital ratios of 4% and 8%, respectively, and a minimum Tier 1 leverage ratio of 3% plus an additional 100 to 200 basis points. The table below provides a comparison of Royal Bancshares of Pennsylvania's risk-based capital ratios and leverage ratios:
SEPTEMBER 30, 2004 DECEMBER 31, 2003 ------------------ ----------------- CAPITAL LEVELS Tier 1 leverage ratio 11.6% 11.1% Tier 1 risk-based ratio 16.3% 15.3% Total risk-based ratio 16.4% 16.5% CAPITAL PERFORMANCE Return on average assets 1.7% (1) 1.6% (1) Return on average equity 14.8% (1) 14.5% (1) (1) annualized
The Company's ratios compare favorably to the minimum required amounts of Tier 1 and total capital to "risk weighted" assets and the minimum Tier 1 leverage ratio, as defined by banking regulators. The Company currently meets the criteria for a well-capitalized institution, and management believes that the Company will continue to meet its' minimum capital requirements. At present, the Company has no commitments for significant capital expenditures. The Company is not under any agreement with regulatory authorities nor is the Company aware of any current recommendations by the regulatory authorities that, if such recommendations were implemented, would have a material effect on liquidity, capital resources or operations of the Company. LIQUIDITY & INTEREST RATE SENSITIVITY - ------------------------------------- Liquidity is the ability to ensure that adequate funds will be available to meet its financial commitments as they become due. In managing its liquidity position, all sources of funds are evaluated, the largest of which is deposits. Also taken into consideration is the repayment of loans. These sources provide alternatives to meet its short-term liquidity needs. Longer liquidity needs may be met by issuing longer-term deposits and by raising additional capital. The liquidity ratio is calculated by adding total cash and investments less reserve requirements divided by deposits and short-term liabilities which is generally maintained equal to or greater than 25%. The liquidity ratio of the Company remains strong at approximately 53% and exceeds the Company's peer group levels and target ratio set forth in the Asset/Liability Policy. The Company's level of liquidity is provided by funds invested primarily in corporate bonds, capital trust securities, US Treasuries and agencies, and to a lesser extent, federal funds sold. The overall liquidity position is monitored on a monthly basis. Interest rate sensitivity is a function of the repricing characteristics of the Company's assets and liabilities. These include the volume of assets and liabilities repricing, the timing of the repricing, and the interest rate sensitivity gaps is a continual challenge in a changing rate environment. The following table shows separately the interest sensitivity of each category of interest earning assets and interest bearing liabilities as of September 30, 2004:
INTEREST RATE SENSITIVITY - ------------------------- (IN MILLIONS) DAYS -------------------------- 1 TO 5 OVER 5 NON-RATE ASSETS 0 - 90 91 - 365 YEARS YEARS SENSITIVE TOTAL ------------ ------------ ------------ ------------ ------------ ------------ Interest-bearing deposits in banks $3.3 $0.0 $0.0 $0.0 $11.9 $15.2 Federal funds sold 7.0 0.0 0.0 0.0 0.0 7.0 Investment securities: Available for sale 23.7 33.4 258.5 65.1 9.4 390.1 Held to maturity 4.2 21.8 160.4 0.0 0.0 186.4 ------------ ------------ ------------ ------------ ------------ ------------ Total investment securities 27.9 55.2 418.9 65.1 9.4 576.5 Loans: Fixed rate 46.9 49.8 107.7 17.9 0.0 222.3 Variable rate 154.8 67.5 19.1 0.0 (12.6) 228.8 ------------ ------------ ------------ ------------ ------------ ------------ Total loans 201.7 117.3 126.8 17.9 (12.6) 451.1 Other assets 0.0 0.0 0.0 0.0 131.1 131.1 ------------ ------------ ------------ ------------ ------------ ------------ Total Assets $239.9 $172.5 $545.7 $83.0 $139.8 $1,180.9 ============ ============ ============ ============ ============ ============ LIABILITIES & CAPITAL - --------------------- Deposits: Non interest bearing deposits $0.0 $0.0 $0.0 $0.0 $58.4 $58.4 Interest bearing deposits 48.8 166.5 247.9 0.0 0.0 463.2 Certificate of deposits 33.8 55.4 120.7 4.9 0.0 214.8 ------------ ------------ ------------ ------------ ------------ ------------ Total deposits 82.6 221.9 368.6 4.9 58.4 736.4 Borrowings (1) 15.0 7.5 30.0 174.5 56.4 283.4 Other liabilities 0.0 0.0 0.3 0.0 20.4 20.7 Capital 0.0 0.0 0.0 0.0 140.4 140.4 ------------ ------------ ------------ ------------ ------------ ------------ Total liabilities & capital $97.6 $229.4 $398.9 $179.4 $275.6 $1,180.9 ============ ============ ============ ============ ============ ============ Net interest rate GAP $142.3 $(56.9) $146.8 $(96.4) $(135.8) ============ ============ ============ ============ ============ Cumulative interest rate GAP $142.3 $85.4 $232.2 $135.8 ============ ============ ============ ============ ============ GAP to total assets 12% -5% ============ ============ GAP to total equity 101% -41% ============ ============ Cumulative GAP to total assets 12% 7% ============ ============ Cumulative GAP to total equity 101% 61% ============ ============
(1) The $56.4 in borrowings classified as non-rate sensitive are related to variable interest entities and are not obligations of the Company. The Company's exposure to interest rate risk is mitigated somewhat by a portion of the Company's loan portfolio consisting of floating rate loans, which are tied to the prime lending rate but which have interest rate floors and no interest rate ceilings. Although the Company is originating fixed rate loans, a portion of the loan portfolio continues to be comprised of floating rate loans with interest rate floors. ITEM 4 - CONTROLS AND PROCEDURES - -------------------------------- We maintain a system of controls and procedures designed to provide reasonable assurance to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. As of September 30, 2004, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon the evaluation of disclosures and financial reporting, the controls are determined to be effective. Such controls revealed a weakness within our residential mortgage originations department with regards to procedures and policy manuals. These weaknesses are in the process of being corrected with enhanced policy manuals, changes to operating procedures, and the outsourcing of the quality control function. Management expects this to be corrected by year end. The Company has determined that these weaknesses will not have a material financial impact to operations. No significant changes in the Company's internal controls over financial reporting were necessitated by the evaluation. RECENT DEVELOPMENTS ------------------- On October 27, 2004, the Company completed a private placement of an aggregate of $25.0 million of trust preferred securities through two newly-formed Delaware trust affiliates, Royal Bancshares Capital Trust I ("Trust I") and Royal Bancshares Capital Trust II ("Trust II") (collectively, the "Trusts"). As part of this transaction, the Company issued an aggregate principal amount of $12,887,000 of floating rate junior subordinate debt securities to Trust I, which debt securities bear an initial interest rate of 4.26% until December 2004, and after that which will be rest quarterly at 3-month LIBOR plus 2.15%, and an aggregate principal amount of $12,887,000 of fixed/floating rate junior subordinated deferrable interest to Trust II, which debt securities bear an initial interest rate of 5.80% until December 2009 and then which will reset quarterly at 3-month LIBOR plus 2.15%. Each of Trust I and Trust II issued an aggregate principal amount of $12,500,000 of capital securities bearing fixed and or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387,000 of common securities bearing fixed and or fixed/floating interest rates corresponding to the debt securities held by each trust to the Company. The Company has fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities. The Company's adoption of FIN 46(R), "Consolidation of Variable Interest Entities" during period ending December 31, 2004 will require the Company to record on its balance sheet the two new trust preferred placements issued on October 27, 2004 as "Note Payable to Royal Bancshares Capital Trust I" and "Note Payable to Royal Bancshares Capital Trust II". RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). In general, a variable interest entity is a corporation, partnership, trust or any other legal structures used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to interest entities created after January 31, 2003. In December 2003, the FASB issued FIN 46(R) with respect to variable interest entities created before January 31, 2003, which among other things revised the implementation date to the first fiscal year or interim period ended after March 15, 2004, with the exception of Special Purpose Entities (SPE). The Company currently has no SPEs. The Company adopted the provisions of FIN 46 effective for the period ending March 31, 2004, which required the Company to consolidate its investment in real estate partnerships. Prior to FIN 46 and 46(R), the Company accounted for its investment in the real estate partnerships under the equity method of accounting. The Company's investment in real estate partnerships is further discussed in Note 9. The SEC recently released Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments. SAB 105 provides guidance about the measurements of loan commitments recognized at fair value under FASB Statement No. 133, Accountings for Derivative Instruments and Hedging Activities. SAB 105 also requires companies to disclose their accounting policy for those loan commitments including methods and assumptions used to estimate fair value and associated hedging strategies. SAB 105 is effective for all loan commitments accounted for as derivatives that are entered into after March 31, 2004. The adoption of SAB 105 is not expected to have a material effect on our consolidated financial statements. On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, Share-Based Payment an Amendment of FASB Statements No. 123 and APB No. 95, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. Under the FASB's proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company is currently evaluating this proposed statement and its effects on its results of operations. On September 30, 2004, the Financial Accounting Standards Board ("FASB") issued Staff Position No. EITF Issue 03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," which delays the effective date for the measurement and recognition guidance contained in Emerging Issues Task Force ("EITF") Issue No. 03-1. EITF Issue No. 03-1 provides guidance for evaluating whether an investment is other-than-temporarily impaired and was originally to be effective for other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004 (July 1, 2004 for the Company). The delay in the effective date for the measurement and recognition guidance contained in EITF Issue No. 03-1 does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The disclosure guidance in paragraphs 21 and 22 of EITF Issue 03-1 remains effective. The delay will be superseded concurrent with the final issuance of Staff Position No. EITF Issue 03-1-a, which is expected to provide implementation guidance on matters such as impairment evaluations for declines in value caused by increases in interest rates and/or sector spreads. As previously noted, the Company's unrealized losses on securities are attributable to these rate-related factors. The impact of the final issuance of Staff Position No. EITF 03-1-a on the Company's financial condition and results of operations cannot be determined at the present time. PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULT AND UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO VOTE SECURITY HOLDERS On Wednesday, May 19, 2004, the Annual Meeting of Shareholders of Royal Bancshares of Pennsylvania was convened in Philadelphia, PA at 6:30 P.M. The following nominees were elected as Class II Directors of the Registrant to serve for a three year term:
FOR WITHHOLD --- -------- Jack Loew 25,285,186 9,945 Anthony Micale 25,286,693 8,438 Mitchell Morgan 25,287,443 7,688 Albert Ominsky 25,285,186 9,945 Gregory Reardon 25,286,693 8,438 Robert Tabas 25,151,534 143,597
ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS 10.1 Employment agreement between Royal Bancshares of Pennsylvania, Inc. and Joseph P. Campbell, President and Chief Executive Officer, entered into on April 23, 2004. 10.2 Employment agreement between Royal Bancshares of Pennsylvania, Inc. and John Decker, Senior Vice President, entered into on April 23, 2004. 10.3 Employment agreement between Royal Bancshares of Pennsylvania, Inc. and James J. McSwiggan, Executive Vice President, entered into on April 23, 2004. 10.4 Employment agreement between Royal Bancshares of Pennsylvania, Inc. and Murray Stempel, Senior Vice President, entered into on April 23, 2004. 10.5 Employment agreement between Royal Bank America and Edward Shin, entered into on April 23, 2004. 10.6 Employment agreement between Royal Bank America and Robert R. Tabas, entered into on April 23, 2004. 31.1 Section 302 Certification Pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 signed by Joseph P. Campbell, Chief Executive Officer of Royal Bancshares of Pennsylvania on November 9, 2004. 31.2 Section 302 Certification Pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 signed by Jeffrey T. Hanuscin, Chief Financial Officer of Royal Bancshares of Pennsylvania on November 9, 2004. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Joseph P. Campbell, Chief Executive Officer of Royal Bancshares of Pennsylvania on November 9, 2004. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Jeffrey T. Hanuscin, Chief Financial Officer of Royal Bancshares of Pennsylvania on November 9, 2004. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROYAL BANCSHARES OF PENNSYLVANIA, INC. (Registrant) Dated: November 9, 2004 /s/ Jeffrey T. Hanuscin ------------------------- Jeffrey T. Hanuscin Chief Financial Officer EX-10 2 b402075ex10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 20th day of AUGUST, 2004, between ROYAL BANCSHARES OF PENNSYLVANIA, INC. ("Corporation"), a Pennsylvania business corporation having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, ROYAL BANK AMERICA ("Bank") a state chartered bank having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, and Joseph P. Campbell ("Executive"), an individual residing at 422 Glen Arbor Court, King of Prussia, PA 19406. W I T N E S S E T H: WHEREAS, Corporation and Bank desire to employ Executive to serve in the capacity of President and Chief Executive Officer of each of Corporation and Bank under the terms and conditions set forth herein; WHEREAS, Executive desires to accept employment with Corporation and Bank on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. EMPLOYMENT. Corporation and Bank hereby employ Executive and Executive hereby accepts employment with Corporation and Bank, under the terms and conditions set forth in this Agreement. 2. DUTIES OF EMPLOYEE. Executive shall perform and discharge well and faithfully such duties as an executive officer of Corporation and Bank as may be assigned to Executive from time to time by the Board of Directors of Corporation and Bank. Executive shall be employed as President and Chief Executive Officer of Corporation and Bank, and shall hold such other titles as may be given to him from time to time by the Board of Directors of Corporation and Bank. Executive shall devote his full time, attention and energies to the business of Corporation and Bank during the Employment Period (as defined in Section 3 of this Agreement); provided, however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments, (b) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization or (c) being involved in any other activity with the prior approval of the Board of Directors of Corporation and Bank. The Executive shall not engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of Corporation or Bank, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with Corporation or Bank. 1 3. TERM OF AGREEMENT. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of August 18, 2004, and shall continue for a period of thirty-six (36) full calendar months thereafter (the "Employment Period"). Commencing on the date of the execution of this Agreement, the term of this Agreement shall be extended for one day each day until such time as the Board of Directors of the Corporation or Bank or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 3 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the third anniversary of the date of such written notice. (b) Notwithstanding anything herein contained to the contrary: (i) Executive's employment with the Corporation or Bank may be terminated by the Corporation or Bank or Executive during the term of this Agreement, subject to the terms and conditions of this Agreement; (ii) nothing in this Agreement shall mandate or prohibit a continuation of Employee's employment following the expiration of the term of the Agreement upon such terms as the Board and the Executive may mutually agree. (c) Notwithstanding the previous provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the Board of Directors of Corporation and Bank to Executive. As used in this Agreement, "Cause" shall mean any of the following: (i) Executive's conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of sixty (60) consecutive days or more; (ii) Executive's willful failure to follow the good faith lawful instructions of the Board of Directors of Corporation or Bank with respect to their operations, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; or (iii) Executive's willful failure to substantially perform Executive's duties to Corporation or Bank, other than a failure resulting from Executive's incapacity because of physical or mental illness, as provided in subsection (f) of this Section 3, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation, which failure results in injury to Corporation or Bank, monetarily or otherwise; 2 (iv) Executive's intentional violation of the provisions of this Agreement, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; (v) dishonesty of the Executive in the performance of his duties, as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (vi) Executive's removal or prohibition from being an institutional-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or any applicable Regulatory Agency; (vii) the willful engaging by the Executive in misconduct injurious to the Corporation or Bank after notice from Corporation or Bank, and a failure to cure such conduct within twenty (20) days; (viii) the breach of Executive's fiduciary duty to the Corporation or Bank involving personal profit; (ix) the willful violation of (1) any material law, rule or regulation applicable to Corporation or Bank or (2) any final cease and desist order issued by an applicable regulatory agency; (x) conduct on the part of Executive that brings public discredit to Corporation or Bank or that is clearly contrary to the best interests of Corporation or Bank as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (xi) unlawful harassment by the Executive against employees, customers, business associates, contractors or vendors of Corporation or Bank as reasonably determined by seventy-five percent (75%) of the disinterested members of the Board of Directors following an investigation of the claims by a third party; (xii) any act of fraud or misappropriation against the Corporation, the Bank, or their customers, employees, contractors or business associates; (xiii) intentional misrepresentation of a material fact, or intentional omission of information necessary to make the information supplied materially misleading, in application or other information provided by the Executive to Corporation or Bank in connection with the Executive's employment with Corporation or Bank; or 3 (xiv) the existence of any material conflict between the interests of Corporation or Bank and the Executive that is not disclosed in writing by the Executive to Corporation or Bank prior to action and approved in writing by the Board of Directors, and, after notice from Corporation or Bank, a failure to cure such conflict within twenty (20) days of said notice. (d) Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under this Section 3(c) above if such termination took place solely as a result of: (i) Questionable judgment on the part of the Executive; (ii) Any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Corporation or Bank (or its affiliated companies); or (iii) Any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or By-laws of Corporation or Bank or the directors' and officers' liability insurance of Corporation or Bank, in each case as in effect at the time of such act or omission. If this Agreement is terminated for Cause, all of Executive's rights under this Agreement shall cease as of the effective date of such termination. (e) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason. The term "Good Reason" shall mean (i) the assignment of duties and responsibilities inconsistent with Executive's status as President and Chief Executive Officer of Corporation and Bank, (ii) a reassignment which requires Executive to move his principal residence, (iii) any removal of the Executive from office or any adverse change in the terms and conditions of the Executive's employment, except for any termination of the Executive's employment under the provisions of Section 3 hereof, (iv) any reduction in the Executive's Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time, (v) any failure of Corporation and Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health and accident, disability or other employee plans of Corporation and Bank, or the taking of any action that would materially reduce any of such benefits unless such reduction is part of a reduction applicable to all employees. If such termination occurs for Good Reason, then Corporation and Bank shall pay Executive an amount equal to 2.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option 4 of Executive in lump sum or in thirty-six (36) equal monthly installments over a period of three years. Payment shall be made in a lump sum unless a written notice to receive the payments in thirty-six (36) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of three (3) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with the termination of his employment, would result in the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. At the option of the Executive, exercisable by the Executive within ninety (90) days after the occurrence of the event constituting "Good Reason," the Executive may resign from employment under this Agreement by a notice in writing (the "Notice of Termination") delivered to Corporation and Bank and the provisions of this Section 3(e) hereof shall thereupon apply. (f) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's Disability and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (g) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's death and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (h) Executive agrees that in the event his employment under this Agreement is terminated, unless (1) Executive maintains an ownership interest in the Corporation of five percent (5%) or more, or (2) termination is due to retirement, Executive shall resign as a director of Corporation and Bank, or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities. (i) The term "Base Amount" shall equal the base amount as defined by 26 U.S.C. ss.280G (b)(3) which generally includes all compensation for services (excluding directors' fees, if any) for five years prior to the year during which the Change in Control occurs divided by five, except that the calculation of the Base Amount 5 shall not include any compensation resulting from director fees; or the granting, the vesting or exercise of any stock options. 4. EMPLOYMENT PERIOD COMPENSATION. (a) Annual Base Salary. For services performed by Executive under this Agreement, Corporation and Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of $351,000.00 per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of Corporation or Bank. Corporation and/or Bank may, from time to time, increase Executive's Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of Corporation or Bank or any committee of such Board in the resolutions authorizing such increases. (b) Bonus. For services performed by Executive under this Agreement, Corporation and/or Bank may, from time to time, pay a bonus or bonuses (including payments made under Bank Profit Sharing Incentive Plan) to Executive as Corporation and/or Bank, in their sole discretion, deem appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Corporation and/or Bank to Executive provided for in this Agreement. (c) Vacations. During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of Corporation and Bank. However, Executive shall not be entitled to receive any additional compensation from Corporation and Bank for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of Corporation and Bank. (d) Automobile. During the term of this Agreement, Corporation and Bank shall provide Executive with of an automobile or automobile allowance consistent with the current practice at the date of signing of this agreement. (e) Employee Benefit Plans. During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at Corporation and Bank, subject to the terms of said plan, until such time that the Boards of Directors of Corporation and Bank authorize a change in such benefits. Corporation and Bank shall provide Executive with disability coverage. Corporation and Bank shall not make any changes in such plans or benefits which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of Corporation and Bank and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of Corporation and Bank. Nothing 6 paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 4(a) hereof. (f) Retirement Health Benefits. Provided that Executive's employment has not been terminated prior to retirement, Executive shall be entitled to receive medical insurance benefits comparable to the benefits received by full-time employees of the bank, commencing with the later of (1) the date of Executive's retirement, or (2) the date of Executive's 60th birthday, and terminating on the earlier of (1) the date that Executive becomes eligible for Medicaid, or (2) the date of Executive's 65th birthday. If Corporation and Bank cannot provide such benefits because Executive is no longer an employee, Executive shall annually receive a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially equal benefits), not to exceed one hundred and twenty percent (120%) of Bank's cost to provide such benefits to other employees. (g) Business Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Boards of Directors of Corporation and Bank for their executive officers. For the purpose of this Agreement, business expenses shall include dues paid for a country club membership, with said country club membership reimbursement subject to an annual cap established by the Compensation Committee. 5. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall occur and, thereafter, if at any time during the term of this Agreement there shall be: (i) any involuntary termination of Executive's employment (other than for the reasons set forth in Section 3(c) of this Agreement); (ii) any reduction in Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities or authority as such may be increased from time to time during the term of this Agreement; (iii) the assignment to Executive of duties inconsistent with Executive's office on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (iv) any reassignment of Executive to a location greater than fifty (50) miles from the location of Executive's office on the date of the Change in Control; 7 (v) any significant reduction in Executive's compensation as provided in Section 4 in effect on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (vi) any failure to provide Executive with benefits at least as favorable as those enjoyed by Executive under any of Corporation or Bank's retirement or pension, life insurance, medical, health and accident, disability or other employee plans in which Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control; (vii) any requirement that Executive travel in performance of his duties on behalf of Corporation or Bank for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred; or (viii) any sustained pattern of interruption or disruption of Executive for matters substantially unrelated to Executive's discharge of Executive's duties on behalf of Corporation and Bank; then, at the option of Executive, exercisable by Executive within ninety (90) days of the Change in Control and occurrence of any of the foregoing events, Executive may resign from employment with Corporation and Bank (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering a notice in writing (the "Notice of Termination") to Corporation and Bank and the provisions of Section 6 of this Agreement shall apply. In addition, notwithstanding the payments to Executive contemplated by Section 6, if Executive is requested by the Corporation, Bank or a successor thereto to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank following the Date of Change of Control, the Executive expressly agrees, subject to the condition set forth below, to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for not less than six months following the Date of Change of Control. The Corporation, Bank, or successor to the Corporation or Bank shall have the right to request the Executive remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for a period of less than six months following the Date of Change of Control. Executive agrees to remain an employee of the Corporation, Bank or successor to the Corporation or Bank pursuant to their request conditioned upon the Executive being compensated in the same amount and on the same terms as he was compensated immediately prior to the Date of Change of Control, including participation in all employee benefit plans to which he would otherwise be entitled. 8 (b) As used in this Agreement, "Change in Control" shall mean the occurrence of any of the following: (i) (A) a merger, consolidation or division involving Corporation or Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets of Corporation or Bank, or (C) a purchase by Corporation or Bank of substantially all of the assets of another entity, unless (y) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by seventy percent (70%) or more of the members of the Board of Directors of Corporation or Bank who are not interested in the transaction and (z) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and the Board of Directors of such entity's parent corporation, if any, are former members of the Board of Directors of Corporation or Bank; or (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than Corporation or Bank or any "person" who on the date hereof is a director or officer of Corporation or Bank is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Corporation or Bank representing twenty-five percent (25%) or more of the combined voting power of Corporation or Bank's then outstanding securities; provided, however, that for the purposes of this Agreement, a Change-in-Control shall not result from any transfer of ownership, which would otherwise cause the transferee to be a beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, to a family member of Daniel M. Tabas, who is not currently a director or an officer of the Corporation or the Bank, of securities of the Corporation, which are solely or jointly owned or titled in the name of Daniel M. Tabas, the estate of Daniel M. Tabas, or any trust, proxy, power of attorney, pooling arrangement or any other contract or arrangement or other special purpose entity in which Daniel M. Tabas either is the grantor, settlor, or he otherwise caused to be formed; or controls the voting rights or disposition of shares of the Corporation; or (iii) during any period of two (2) consecutive years during the term of Executive's employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Corporation or Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least sixty-seven percent (67%)of the directors then in office who were directors at the beginning of the period; or 9 (iv) any other change in control of Corporation and Bank similar in effect to any of the foregoing. 6. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event that Executive delivers a Notice of Termination (as defined in Section 5(a) of this Agreement) to Corporation and Bank, Executive shall be absolutely entitled to receive the compensation and benefits set forth below: If, at the time of termination of Executive's employment, a "Change in Control" (as defined in Section 5(b)(i) of this Agreement) has also occurred, Corporation or Bank shall pay Executive an amount equal to and no greater than 2.99 times the Executive's Base Amount as defined in subsection (i) of Section 3, minus applicable taxes and withholdings. Such payment shall be paid at the option of the Executive in lump sum or in twenty-four (24) equal installments over a period of two years. In addition, for a period of three (3) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. 7. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE IN CONTROL. In the event that Executive's employment is involuntarily terminated by Corporation and/or Bank without Cause and no Change in Control shall have occurred at the date of such termination, Corporation and Bank shall pay Executive an amount equal to 2.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum or in thirty-six (36) equal monthly installments over a period of three years. Payment shall be made in a lump sum unless a written notice to receive the payments in thirty-six (36) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of three (3) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal 10 to the cost to Executive of obtaining such benefits (or substantially similar benefits) not to exceed one hundred twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such imposition. 8. COVENANT NOT TO COMPETE. (a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Corporation and Bank and accordingly agrees that, during and for the applicable period set forth in Section 8(c) hereof, Executive shall not: (i) be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in any county in which, at any time during the Employment Period or at the date of termination of the Executive's employment, a branch, office or other facility of Corporation or Bank or any of their subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the "Non-Competition Area"); or (ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in the Non-Competition Area; or (iii) solicit current and former customers of Corporation, Bank or any Corporation subsidiary in the Non-Competition Area; or (iv) solicit current or former employees of Corporation, Bank or any Corporation subsidiary. Notwithstanding the foregoing, Executive shall not be prohibited from making personal investments, loans, or real estate transactions comparable to such transactions which would have been permitted during the Executive's employment with the Corporation or Bank. 11 (b) It is expressly understood and agreed that, although Executive and Corporation and Bank consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Corporation and Bank and their subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. (c) The provisions of this Section 8 shall be applicable commencing on the date of this Agreement and ending on the third anniversary date of the effective date of termination of employment. (d) The provision of Section 9 will apply during the period of enforcement of the Covenant not to Compete as defined in Section 8(c). (e) In the event that Bank breaches this Agreement, this Section 8 of the Agreement and specifically the time periods set forth in Section 8(c)shall be voided. (f) Executive agrees that any breach of the restrictions set forth in this Section will result in irreparable injury to Corporation and Bank for which they will have no adequate remedy at law and the Corporation and Bank shall be entitled to injunctive relief in order to enforce the provisions hereof and/or seek specific performance and damages. Executive agrees to personal jurisdiction in the Common Pleas Court of Montgomery County, Pennsylvania or the U. S. District Court for the Eastern District of Pennsylvania. In the event that Corporation or Bank obtains injunctive relief, Executive will promptly reimburse the Corporation and Bank for reasonable attorney fees and any other costs associated with the litigation. 9. UNAUTHORIZED DISCLOSURE. During the term of his employment hereunder, or at any later time, the Executive shall not, without the written consent of the Boards of Directors of Corporation and Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of Corporation or Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of Corporation and Bank, any material confidential information obtained by him while in the employ of Corporation and Bank with respect to any of Corporation and Bank's services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to Corporation or Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business of a business 12 similar to that conducted by Corporation and Bank or any information that must be disclosed as required by law. 10. LIABILITY INSURANCE. Corporation and Bank shall use their best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of Corporation and Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however, nothing herein shall be construed to require Corporation and/or Bank to obtain such insurance, if the Board of Directors of the Corporation and/or Bank determine that such coverage cannot be obtained at a reasonable price. 11. NOTICES. Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive's residence, in the case of notices to Executive, and to the principal executive offices of Corporation and Bank, in the case of notices to Corporation and Bank. 12. WAIVER. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Boards of Directors of Corporation and Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. ASSIGNMENT. This Agreement shall not be assignable by any party, except by Corporation and Bank to any successor in interest to their respective businesses. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement. 13 15. SUCCESSORS; BINDING AGREEMENT. (a) Corporation and Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Corporation and Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Corporation and Bank would be required to perform it if no such succession had taken place. Failure by Corporation and Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 3 of this Agreement shall apply. As used in this Agreement, "Corporation" and "Bank" shall mean Corporation and Bank, as defined previously and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If Executive should die after a Notice of Termination is delivered by Executive, or following termination of Executive's employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee, or, if there is no such designee, to Executive's estate. 16. ARBITRATION. Corporation, Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in Philadelphia, Pennsylvania, to the American Arbitration Association (the "Association") in accordance with the Association's National Rules for the Resolution of Employment Disputes or other applicable rules then in effect ("Rules"). Corporation, Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Corporation and Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Association's pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Corporation, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein. . In the event that Executive terminates pursuant to Section 6 herein, and any dispute arising under or in conjunction with Executive's termination is resolved in Executive's favor, whether by judgment, arbitration or settlement, Executive shall be 14 entitled to the reimbursement by Corporation or Bank of all reasonable legal fees paid or incurred by Executive in resolving such dispute. 17. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 18. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles. 19. HEADINGS. The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ATTEST: ROYAL BANCSHARES OF PENNSYLVANIA, INC. /s/ George J. McDonough By: /s/ Robert R. Tabas - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Robert R. Tabas, Chairman ROYAL BANK AMERICA /s/ George J. McDonough By: /s/ Jack R. Loew - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Jack R. Loew, Chairman, Compensation Committee WITNESS: /s/ Patricia Bilotta /s/ Joseph P. Campbell - ---------------------------------- -------------------------------------- Joseph P. Campbell, President and Chief Executive Officer, "Executive" 15 EX-10 3 b402075ex10-2.txt EXHIBIT 10.2 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 27th day of August, 2004, between ROYAL BANCSHARES OF PENNSYLVANIA, INC. ("Corporation"), a Pennsylvania business corporation having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, ROYAL BANK AMERICA ("Bank") a state chartered bank having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, and John Decker ("Executive"), an individual residing at 809 Old Gulph Rd., Bryn Mawr, PA 19010. W I T N E S S E T H: WHEREAS, Corporation and Bank desire to employ Executive to serve in the capacity of Senior Vice President of each of Corporation and Bank under the terms and conditions set forth herein; WHEREAS, Executive desires to accept employment with Corporation and Bank on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. EMPLOYMENT. Corporation and Bank hereby employ Executive and Executive hereby accepts employment with Corporation and Bank, under the terms and conditions set forth in this Agreement. 2. DUTIES OF EMPLOYEE. Executive shall perform and discharge well and faithfully such duties as an executive officer of Corporation and Bank as may be assigned to Executive from time to time by the Board of Directors of Corporation and Bank. Executive shall be employed as Senior Vice President of Corporation and Bank, and shall hold such other titles as may be given to him from time to time by the Board of Directors of Corporation and Bank. Executive shall devote his full time, attention and energies to the business of Corporation and Bank during the Employment Period (as defined in Section 3 of this Agreement); provided, however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments, (b) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization or (c) being involved in any other activity with the prior approval of the Board of Directors of Corporation and Bank. The Executive shall not engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of Corporation or Bank, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with Corporation or Bank. 1 3. TERM OF AGREEMENT. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of August 18, 2004 and shall continue for a period of twenty-four (24) full calendar months thereafter (the "Employment Period"). Commencing on the date of the execution of this Agreement, the term of this Agreement shall be extended for one day each day until such time as the Board of Directors of the Corporation or Bank or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 3 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the second anniversary of the date of such written notice. (b) Notwithstanding anything herein contained to the contrary: (i) Executive's employment with the Corporation or Bank may be terminated by the Corporation or Bank or Executive during the term of this Agreement, subject to the terms and conditions of this Agreement; (ii) nothing in this Agreement shall mandate or prohibit a continuation of Employee's employment following the expiration of the term of the Agreement upon such terms as the Board and the Executive may mutually agree. (c) Notwithstanding the previous provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the Board of Directors of Corporation and Bank to Executive. As used in this Agreement, "Cause" shall mean any of the following: (i) Executive's conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of sixty (60) consecutive days or more; (ii) Executive's willful failure to follow the good faith lawful instructions of the Board of Directors of Corporation or Bank with respect to their operations, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; or (iii) Executive's willful failure to substantially perform Executive's duties to Corporation or Bank, other than a failure resulting from Executive's incapacity because of physical or mental illness, as provided in subsection (f) of this Section 3, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation, which failure results in injury to Corporation or Bank, monetarily or otherwise; 2 (iv) Executive's intentional violation of the provisions of this Agreement, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; (v) dishonesty of the Executive in the performance of his duties, as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (vi) Executive's removal or prohibition from being an institutional-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or any applicable Regulatory Agency; (vii) the willful engaging by the Executive in misconduct injurious to the Corporation or Bank after notice from Corporation or Bank, and a failure to cure such conduct within twenty (20) days; (viii) the breach of Executive's fiduciary duty to the Corporation or Bank involving personal profit; (ix) the willful violation of (1) any material law, rule or regulation applicable to Corporation or Bank or (2) any final cease and desist order issued by an applicable regulatory agency; (x) conduct on the part of Executive that brings public discredit to Corporation or Bank or that is clearly contrary to the best interests of Corporation or Bank as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (xi) unlawful harassment by the Executive against employees, customers, business associates, contractors or vendors of Corporation or Bank as reasonably determined by seventy-five percent (75%) of the disinterested members of the Board of Directors following an investigation of the claims by a third party; (xii) any act of fraud or misappropriation against the Corporation, the Bank, or their customers, employees, contractors or business associates; (xiii) intentional misrepresentation of a material fact, or intentional omission of information necessary to make the information supplied materially misleading, in application or other information provided by the Executive to Corporation or Bank in connection with the Executive's employment with Corporation or Bank; or 3 (xiv) the existence of any material conflict between the interests of Corporation or Bank and the Executive that is not disclosed in writing by the Executive to Corporation or Bank prior to action and approved in writing by the Board of Directors, and, after notice from Corporation or Bank, a failure to cure such conflict within twenty (20) days of said notice. (d) Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under this Section 3(c) above if such termination took place solely as a result of: (i) Questionable judgment on the part of the Executive; (ii) Any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Corporation or Bank (or its affiliated companies); or (iii) Any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or By-laws of Corporation or Bank or the directors' and officers' liability insurance of Corporation or Bank, in each case as in effect at the time of such act or omission. If this Agreement is terminated for Cause, all of Executive's rights under this Agreement shall cease as of the effective date of such termination. (e) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason. The term "Good Reason" shall mean (i) the assignment of duties and responsibilities inconsistent with Executive's status as Senior Vice President of Corporation and Bank, (ii) a reassignment which requires Executive to move his principal residence, (iii) any removal of the Executive from office or any adverse change in the terms and conditions of the Executive's employment, except for any termination of the Executive's employment under the provisions of Section 3 hereof, (iv) any reduction in the Executive's Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time, (v) any failure of Corporation and Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health and accident, disability or other employee plans of Corporation and Bank, or the taking of any action that would materially reduce any of such benefits unless such reduction is part of a reduction applicable to all employees. If such termination occurs for Good Reason, then Corporation and Bank shall pay Executive an amount equal to 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option 4 of Executive in lump sum or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with the termination of his employment, would result in the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. At the option of the Executive, exercisable by the Executive within ninety (90) days after the occurrence of the event constituting "Good Reason," the Executive may resign from employment under this Agreement by a notice in writing (the "Notice of Termination") delivered to Corporation and Bank and the provisions of this Section 3(e) hereof shall thereupon apply. (f) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's Disability and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (g) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's death and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (h) Executive agrees that in the event his employment under this Agreement is terminated, unless (1) Executive maintains an ownership interest in the Corporation of five percent (5%) or more, or (2) termination is due to retirement Executive shall resign as a director of Corporation and Bank, or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities. (i) The term "Base Amount" shall equal the base amount as defined by 26 U.S.C. ss.280G (b)(3) which generally includes all compensation for services (excluding directors' fees, if any) for five years prior to the year during which the Change in Control occurs divided by five, except that the calculation of the Base Amount 5 shall not include any compensation resulting from director fees; or the granting, the vesting or exercise of any stock options. 4. EMPLOYMENT PERIOD COMPENSATION. (a) Annual Base Salary. For services performed by Executive under this Agreement, Corporation and Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of $156,000.00 per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of Corporation or Bank. Corporation and/or Bank may, from time to time, increase Executive's Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of Corporation or Bank or any committee of such Board in the resolutions authorizing such increases. (b) Bonus. For services performed by Executive under this Agreement, Corporation and/or Bank may, from time to time, pay a bonus or bonuses (including payments made under Bank Profit Sharing Incentive Plan) to Executive as Corporation and/or Bank, in their sole discretion, deem appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Corporation and/or Bank to Executive provided for in this Agreement. (c) Vacations. During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of Corporation and Bank. However, Executive shall not be entitled to receive any additional compensation from Corporation and Bank for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of Corporation and Bank. (d) Automobile. During the term of this Agreement, Corporation and Bank shall provide Executive with an automobile or automobile allowance consistent with the current practice at the date of signing of this agreement. (e) Employee Benefit Plans. During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at Corporation and Bank, subject to the terms of said plan, until such time that the Boards of Directors of Corporation and Bank authorize a change in such benefits. Corporation and Bank shall provide Executive with disability coverage. Corporation and Bank shall not make any changes in such plans or benefits which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of Corporation and Bank and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of Corporation and Bank. Nothing 6 paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 4(a) hereof. (f) Retirement Health Benefits. Provided that Executive's employment has not been terminated prior to retirement, Executive shall be entitled to receive medical insurance benefits comparable to the benefits received by full-time employees of the bank, commencing with the later of (1) the date of Executive's retirement, or (2) the date of Executive's 60th birthday, and terminating on the earlier of (1) the date that Executive becomes eligible for Medicaid, or (2) the date of Executive's 65th birthday. If Corporation and Bank cannot provide such benefits because Executive is no longer an employee, Executive shall annually receive a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially equal benefits), not to exceed one hundred and twenty percent (120%) of Bank's cost to provide such benefits to other employees. (g) Business Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Boards of Directors of Corporation and Bank for their executive officers. For the purpose of this Agreement, business expenses shall include dues paid for a country club membership, with said country club membership reimbursement subject to an annual cap established by the Compensation Committee. 5. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall occur and, thereafter, if at any time during the term of this Agreement there shall be: (i) any involuntary termination of Executive's employment (other than for the reasons set forth in Section 3(c) of this Agreement); (ii) any reduction in Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities or authority as such may be increased from time to time during the term of this Agreement; (iii) the assignment to Executive of duties inconsistent with Executive's office on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (iv) any reassignment of Executive to a location greater than fifty (50) miles from the location of Executive's office on the date of the Change in Control; 7 (v) any significant reduction in Executive's compensation as provided in Section 4 in effect on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (vi) any failure to provide Executive with benefits at least as favorable as those enjoyed by Executive under any of Corporation or Bank's retirement or pension, life insurance, medical, health and accident, disability or other employee plans in which Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control; (vii) any requirement that Executive travel in performance of his duties on behalf of Corporation or Bank for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred; or (viii) any sustained pattern of interruption or disruption of Executive for matters substantially unrelated to Executive's discharge of Executive's duties on behalf of Corporation and Bank; then, at the option of Executive, exercisable by Executive within ninety (90) days of the Change in Control and occurrence of any of the foregoing events, Executive may resign from employment with Corporation and Bank (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering a notice in writing (the "Notice of Termination") to Corporation and Bank and the provisions of Section 6 of this Agreement shall apply. In addition, notwithstanding the payments to Executive contemplated by Section 6, if Executive is requested by the Corporation, Bank or a successor thereto to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank following the Date of Change of Control, the Executive expressly agrees, subject to the condition set forth below, to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for not less than six months following the Date of Change of Control. The Corporation, Bank, or successor to the Corporation or Bank shall have the right to request the Executive remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for a period of less than six months following the Date of Change of Control. Executive agrees to remain an employee of the Corporation, Bank or successor to the Corporation or Bank pursuant to their request conditioned upon the Executive being compensated in the same amount and on the same terms as he was compensated immediately prior to the Date of Change of Control, including participation in all employee benefit plans to which he would otherwise be entitled. 8 (b) As used in this Agreement, "Change in Control" shall mean the occurrence of any of the following: (i) (A) a merger, consolidation or division involving Corporation or Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets of Corporation or Bank, or (C) a purchase by Corporation or Bank of substantially all of the assets of another entity, unless (y) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by seventy percent (70%) or more of the members of the Board of Directors of Corporation or Bank who are not interested in the transaction and (z) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and the Board of Directors of such entity's parent corporation, if any, are former members of the Board of Directors of Corporation or Bank; or (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than Corporation or Bank or any "person" who on the date hereof is a director or officer of Corporation or Bank is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Corporation or Bank representing twenty-five percent (25%) or more of the combined voting power of Corporation or Bank's then outstanding securities; provided, however, that for the purposes of this Agreement, a Change-in-Control shall not result from any transfer of ownership, which would otherwise cause the transferee to be a beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, to a family member of Daniel M. Tabas, who is not currently a director or an officer of the Corporation or the Bank, of securities of the Corporation, which are solely or jointly owned or titled in the name of Daniel M. Tabas, the estate of Daniel M. Tabas, or any trust, proxy, power of attorney, pooling arrangement or any other contract or arrangement or other special purpose entity in which Daniel M. Tabas either is the grantor, settlor, or he otherwise caused to be formed; or controls the voting rights or disposition of shares of the Corporation; or (iii) during any period of two (2) consecutive years during the term of Executive's employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Corporation or Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least sixty-seven percent (67%)of the directors then in office who were directors at the beginning of the period; or 9 (iv) any other change in control of Corporation and Bank similar in effect to any of the foregoing. 6. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event that Executive delivers a Notice of Termination (as defined in Section 5(a) of this Agreement) to Corporation and Bank, Executive shall be absolutely entitled to receive the compensation and benefits set forth below: If, at the time of termination of Executive's employment, a "Change in Control" (as defined in Section 5(b)(i) of this Agreement) has also occurred, Corporation or Bank shall pay Executive an amount equal to and no greater than 1.99 times the Executive's Base Amount as defined in subsection (i) of Section 3, minus applicable taxes and withholdings. Such payment shall be paid at the option of the Executive in lump sum or in twenty-four (24) equal installments over a period of two years. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. 7. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE IN CONTROL. In the event that Executive's employment is involuntarily terminated by Corporation and/or Bank without Cause and no Change in Control shall have occurred at the date of such termination, Corporation and Bank shall pay Executive an amount equal 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal 10 to the cost to Executive of obtaining such benefits (or substantially similar benefits) not to exceed one hundred twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such imposition. 8. COVENANT NOT TO COMPETE. (a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Corporation and Bank and accordingly agrees that, during and for the applicable period set forth in Section 8(c) hereof, Executive shall not: (i) be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in any county in which, at any time during the Employment Period or at the date of termination of the Executive's employment, a branch, office or other facility of Corporation or Bank or any of their subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the "Non-Competition Area"); or (ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in the Non-Competition Area; or (iii) solicit current and former customers of Corporation, Bank or any Corporation subsidiary in the Non-Competition Area; or (iv) solicit current or former employees of Corporation, Bank or any Corporation subsidiary. Notwithstanding the foregoing, Executive shall not be prohibited from making personal investments, loans, or real estate transactions comparable to such transactions which would have been permitted during the Executive's employment with the Corporation or Bank. 11 (b) It is expressly understood and agreed that, although Executive and Corporation and Bank consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Corporation and Bank and their subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. (c) The provisions of this Section 8 shall be applicable commencing on the date of this Agreement and ending on the second anniversary date of the effective date of termination of employment. (d) The provision of Section 9 will apply during the period of enforcement of the Covenant not to Compete as defined in Section 8(c). (e) In the event that Bank breaches this Agreement, this Section 8 of the Agreement and specifically the time periods set forth in Section 8(c)shall be voided. (f) Executive agrees that any breach of the restrictions set forth in this Section will result in irreparable injury to Corporation and Bank for which they will have no adequate remedy at law and the Corporation and Bank shall be entitled to injunctive relief in order to enforce the provisions hereof and/or seek specific performance and damages. Executive agrees to personal jurisdiction in the Common Pleas Court of Montgomery County, Pennsylvania or the U. S. District Court for the Eastern District of Pennsylvania. In the event that Corporation or Bank obtains injunctive relief, Executive will promptly reimburse the Corporation and Bank for reasonable attorney fees and any other costs associated with the litigation. 9. UNAUTHORIZED DISCLOSURE. During the term of his employment hereunder, or at any later time, the Executive shall not, without the written consent of the Boards of Directors of Corporation and Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of Corporation or Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of Corporation and Bank, any material confidential information obtained by him while in the employ of Corporation and Bank with respect to any of Corporation and Bank's services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to Corporation or Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business of a business 12 similar to that conducted by Corporation and Bank or any information that must be disclosed as required by law. 10. LIABILITY INSURANCE. Corporation and Bank shall use their best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of Corporation and Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however, nothing herein shall be construed to require Corporation and/or Bank to obtain such insurance, if the Board of Directors of the Corporation and/or Bank determine that such coverage cannot be obtained at a reasonable price. 11. NOTICES. Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive's residence, in the case of notices to Executive, and to the principal executive offices of Corporation and Bank, in the case of notices to Corporation and Bank. 12. WAIVER. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Boards of Directors of Corporation and Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. ASSIGNMENT. This Agreement shall not be assignable by any party, except by Corporation and Bank to any successor in interest to their respective businesses. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement. 13 15. SUCCESSORS; BINDING AGREEMENT. (a) Corporation and Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Corporation and Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Corporation and Bank would be required to perform it if no such succession had taken place. Failure by Corporation and Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 3 of this Agreement shall apply. As used in this Agreement, "Corporation" and "Bank" shall mean Corporation and Bank, as defined previously and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If Executive should die after a Notice of Termination is delivered by Executive, or following termination of Executive's employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee, or, if there is no such designee, to Executive's estate. 16. ARBITRATION. Corporation, Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in Philadelphia, Pennsylvania, to the American Arbitration Association (the "Association") in accordance with the Association's National Rules for the Resolution of Employment Disputes or other applicable rules then in effect ("Rules"). Corporation, Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Corporation and Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Association's pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Corporation, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein. . In the event that Executive terminates pursuant to Section 6 herein, and any dispute arising under or in conjunction with Executive's termination is resolved in Executive's favor, whether by judgment, arbitration or settlement, Executive shall be 14 entitled to the reimbursement by Corporation or Bank of all reasonable legal fees paid or incurred by Executive in resolving such dispute. 17. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 18. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles. 19. HEADINGS. The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ATTEST: ROYAL BANCSHARES OF PENNSYLVANIA, INC. /s/ George J. McDonough, By /s/ Robert Tabas - ---------------------------------- -------------------------------------- George J. McDonough Secretary Robert Tabas, Chairman ROYAL BANK AMERICA /s/ George J. McDonough, By /s/ Joseph P. Campbell - ---------------------------------- -------------------------------------- George J. McDonough Secretary Joseph P. Campbell, President WITNESS: /s/ Patricia Bilotta /s/ John Decker - ---------------------------------- -------------------------------------- John Decker, Senior Vice President, "Executive" 15 EX-10 4 b402075ex10-3.txt EXHIBIT 10.3 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 20th day of August, 2004, between ROYAL BANCSHARES OF PENNSYLVANIA, INC. ("Corporation"), a Pennsylvania business corporation having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, ROYAL BANK AMERICA ("Bank") a state chartered bank having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, and James J. McSwiggan, Jr. ("Executive"), an individual residing at 213 Cardinal Drive, Conshohocken, PA 19428. W I T N E S S E T H: WHEREAS, Corporation and Bank desire to employ Executive to serve in the capacity of Executive Vice President of each of Corporation and Bank under the terms and conditions set forth herein; WHEREAS, Executive desires to accept employment with Corporation and Bank on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. EMPLOYMENT. Corporation and Bank hereby employ Executive and Executive hereby accepts employment with Corporation and Bank, under the terms and conditions set forth in this Agreement. 2. DUTIES OF EMPLOYEE. Executive shall perform and discharge well and faithfully such duties as an executive officer of Corporation and Bank as may be assigned to Executive from time to time by the Board of Directors of Corporation and Bank. Executive shall be employed as Executive Vice President of Corporation and Bank, and shall hold such other titles as may be given to him from time to time by the Board of Directors of Corporation and Bank. Executive shall devote his full time, attention and energies to the business of Corporation and Bank during the Employment Period (as defined in Section 3 of this Agreement); provided, however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments, (b) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization or (c) being involved in any other activity with the prior approval of the Board of Directors of Corporation and Bank. The Executive shall not engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of Corporation or Bank, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with Corporation or Bank. 1 3. TERM OF AGREEMENT. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of August 18, 2004 and shall continue for a period of thirty-six (36) full calendar months thereafter (the "Employment Period"). Commencing on the date of the execution of this Agreement, the term of this Agreement shall be extended for one day each day until such time as the Board of Directors of the Corporation or Bank or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 3 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the third anniversary of the date of such written notice. (b) Notwithstanding anything herein contained to the contrary: (i) Executive's employment with the Corporation or Bank may be terminated by the Corporation or Bank or Executive during the term of this Agreement, subject to the terms and conditions of this Agreement; (ii) nothing in this Agreement shall mandate or prohibit a continuation of Employee's employment following the expiration of the term of the Agreement upon such terms as the Board and the Executive may mutually agree. (c) Notwithstanding the previous provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the Board of Directors of Corporation and Bank to Executive. As used in this Agreement, "Cause" shall mean any of the following: (i) Executive's conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of sixty (60) consecutive days or more; (ii) Executive's willful failure to follow the good faith lawful instructions of the Board of Directors of Corporation or Bank with respect to their operations, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; or (iii) Executive's willful failure to substantially perform Executive's duties to Corporation or Bank, other than a failure resulting from Executive's incapacity because of physical or mental illness, as provided in subsection (f) of this Section 3, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation, which failure results in injury to Corporation or Bank, monetarily or otherwise; 2 (iv) Executive's intentional violation of the provisions of this Agreement, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; (v) dishonesty of the Executive in the performance of his duties, as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (vi) Executive's removal or prohibition from being an institutional-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or any applicable Regulatory Agency; (vii) the willful engaging by the Executive in misconduct injurious to the Corporation or Bank after notice from Corporation or Bank, and a failure to cure such conduct within twenty (20) days; (viii) the breach of Executive's fiduciary duty to the Corporation or Bank involving personal profit; (ix) the willful violation of (1) any material law, rule or regulation applicable to Corporation or Bank or (2) any final cease and desist order issued by an applicable regulatory agency; (x) conduct on the part of Executive that brings public discredit to Corporation or Bank or that is clearly contrary to the best interests of Corporation or Bank as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (xi) unlawful harassment by the Executive against employees, customers, business associates, contractors or vendors of Corporation or Bank as reasonably determined by seventy-five percent (75%) of the disinterested members of the Board of Directors following an investigation of the claims by a third party; (xii) any act of fraud or misappropriation against the Corporation, the Bank, or their customers, employees, contractors or business associates; (xiii) intentional misrepresentation of a material fact, or intentional omission of information necessary to make the information supplied materially misleading, in application or other information provided by the Executive to Corporation or Bank in connection with the Executive's employment with Corporation or Bank; or 3 (xiv) the existence of any material conflict between the interests of Corporation or Bank and the Executive that is not disclosed in writing by the Executive to Corporation or Bank prior to action and approved in writing by the Board of Directors, and, after notice from Corporation or Bank, a failure to cure such conflict within twenty (20) days of said notice. (d) Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under this Section 3(c) above if such termination took place solely as a result of: (i) Questionable judgment on the part of the Executive; (ii) Any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Corporation or Bank (or its affiliated companies); or (iii) Any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or By-laws of Corporation or Bank or the directors' and officers' liability insurance of Corporation or Bank, in each case as in effect at the time of such act or omission. If this Agreement is terminated for Cause, all of Executive's rights under this Agreement shall cease as of the effective date of such termination. (e) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason. The term "Good Reason" shall mean (i) the assignment of duties and responsibilities inconsistent with Executive's status as Executive Vice President of Corporation and Bank, (ii) a reassignment which requires Executive to move his principal residence, (iii) any removal of the Executive from office or any adverse change in the terms and conditions of the Executive's employment, except for any termination of the Executive's employment under the provisions of Section 3 hereof, (iv) any reduction in the Executive's Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time, (v) any failure of Corporation and Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health and accident, disability or other employee plans of Corporation and Bank, or the taking of any action that would materially reduce any of such benefits unless such reduction is part of a reduction applicable to all employees. If such termination occurs for Good Reason, then Corporation and Bank shall pay Executive an amount equal to 2.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option 4 of Executive in lump sum or in thirty-six (36) equal monthly installments over a period of three years. Payment shall be made in a lump sum unless a written notice to receive the payments in thirty-six (36) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of three (3) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with the termination of his employment, would result in the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. At the option of the Executive, exercisable by the Executive within ninety (90) days after the occurrence of the event constituting "Good Reason," the Executive may resign from employment under this Agreement by a notice in writing (the "Notice of Termination") delivered to Corporation and Bank and the provisions of this Section 3(e) hereof shall thereupon apply. (f) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's Disability and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (g) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's death and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (h) Executive agrees that in the event his employment under this Agreement is terminated, unless (1) Executive maintains an ownership interest in the Corporation of five percent (5%) or more, or (2) termination is due to retirement, Executive shall resign as a director of Corporation and Bank, or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities. (i) The term "Base Amount" shall equal the base amount as defined by 26 U.S.C. ss.280G (b)(3) which generally includes all compensation for services (excluding directors' fees, if any) for five years prior to the year during which the Change in Control occurs divided by five, except that the calculation of the Base Amount 5 shall not include any compensation resulting from director fees; or the granting, the vesting or exercise of any stock options. 4. EMPLOYMENT PERIOD COMPENSATION. (a) Annual Base Salary. For services performed by Executive under this Agreement, Corporation and Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of $223,600.00 per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of Corporation or Bank. Corporation and/or Bank may, from time to time, increase Executive's Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of Corporation or Bank or any committee of such Board in the resolutions authorizing such increases. (b) Bonus. For services performed by Executive under this Agreement, Corporation and/or Bank may, from time to time, pay a bonus or bonuses (including payments made under Bank Profit Sharing Incentive Plan) to Executive as Corporation and/or Bank, in their sole discretion, deem appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Corporation and/or Bank to Executive provided for in this Agreement. (c) Vacations. During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of Corporation and Bank. However, Executive shall not be entitled to receive any additional compensation from Corporation and Bank for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of Corporation and Bank. (d) Automobile. During the term of this Agreement, Corporation and Bank shall provide Executive with an automobile or automobile allowance consistent with the current practice at the date of signing of this agreement. (e) Employee Benefit Plans. During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at Corporation and Bank, subject to the terms of said plan, until such time that the Boards of Directors of Corporation and Bank authorize a change in such benefits. Corporation and Bank shall provide Executive with disability coverage. Corporation and Bank shall not make any changes in such plans or benefits which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of Corporation and Bank and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of Corporation and Bank. Nothing 6 paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 4(a) hereof. (f) Retirement Health Benefits. Provided that Executive's employment has not been terminated prior to retirement, Executive shall be entitled to receive medical insurance benefits comparable to the benefits received by full-time employees of the bank, commencing with the later of (1) the date of Executive's retirement, or (2) the date of Executive's 60th birthday, and terminating on the earlier of (1) the date that Executive becomes eligible for Medicaid, or (2) the date of Executive's 65th birthday. If Corporation and Bank cannot provide such benefits because Executive is no longer an employee, Executive shall annually receive a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially equal benefits), not to exceed one hundred and twenty percent (120%) of Bank's cost to provide such benefits to other employees. (g) Business Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Boards of Directors of Corporation and Bank for their executive officers. For the purpose of this Agreement, business expenses shall include dues paid for a country club membership, with said country club membership reimbursement subject to an annual cap established by the Compensation Committee. 5. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall occur and, thereafter, if at any time during the term of this Agreement there shall be: (i) any involuntary termination of Executive's employment (other than for the reasons set forth in Section 3(c) of this Agreement); (ii) any reduction in Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities or authority as such may be increased from time to time during the term of this Agreement; (iii) the assignment to Executive of duties inconsistent with Executive's office on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (iv) any reassignment of Executive to a location greater than fifty (50) miles from the location of Executive's office on the date of the Change in Control; 7 (v) any significant reduction in Executive's compensation as provided in Section 4 in effect on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (vi) any failure to provide Executive with benefits at least as favorable as those enjoyed by Executive under any of Corporation or Bank's retirement or pension, life insurance, medical, health and accident, disability or other employee plans in which Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control; (vii) any requirement that Executive travel in performance of his duties on behalf of Corporation or Bank for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred; or (viii) any sustained pattern of interruption or disruption of Executive for matters substantially unrelated to Executive's discharge of Executive's duties on behalf of Corporation and Bank; then, at the option of Executive, exercisable by Executive within ninety (90) days of the Change in Control and occurrence of any of the foregoing events, Executive may resign from employment with Corporation and Bank (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering a notice in writing (the "Notice of Termination") to Corporation and Bank and the provisions of Section 6 of this Agreement shall apply. In addition, notwithstanding the payments to Executive contemplated by Section 6, if Executive is requested by the Corporation, Bank or a successor thereto to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank following the Date of Change of Control, the Executive expressly agrees, subject to the condition set forth below, to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for not less than six months following the Date of Change of Control. The Corporation, Bank, or successor to the Corporation or Bank shall have the right to request the Executive remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for a period of less than six months following the Date of Change of Control. Executive agrees to remain an employee of the Corporation, Bank or successor to the Corporation or Bank pursuant to their request conditioned upon the Executive being compensated in the same amount and on the same terms as he was compensated immediately prior to the Date of Change of Control, including participation in all employee benefit plans to which he would otherwise be entitled. 8 (b) As used in this Agreement, "Change in Control" shall mean the occurrence of any of the following: (i) (A) a merger, consolidation or division involving Corporation or Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets of Corporation or Bank, or (C) a purchase by Corporation or Bank of substantially all of the assets of another entity, unless (y) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by seventy percent (70%) or more of the members of the Board of Directors of Corporation or Bank who are not interested in the transaction and (z) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and the Board of Directors of such entity's parent corporation, if any, are former members of the Board of Directors of Corporation or Bank; or (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than Corporation or Bank or any "person" who on the date hereof is a director or officer of Corporation or Bank is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Corporation or Bank representing twenty-five percent (25%) or more of the combined voting power of Corporation or Bank's then outstanding securities; provided, however, that for the purposes of this Agreement, a Change-in-Control shall not result from any transfer of ownership, which would otherwise cause the transferee to be a beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, to a family member of Daniel M. Tabas, who is not currently a director or an officer of the Corporation or the Bank, of securities of the Corporation, which are solely or jointly owned or titled in the name of Daniel M. Tabas, the estate of Daniel M. Tabas, or any trust, proxy, power of attorney, pooling arrangement or any other contract or arrangement or other special purpose entity in which Daniel M. Tabas either is the grantor, settlor, or he otherwise caused to be formed; or controls the voting rights or disposition of shares of the Corporation; or (iii) during any period of two (2) consecutive years during the term of Executive's employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Corporation or Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least sixty-seven percent (67%)of the directors then in office who were directors at the beginning of the period; or 9 (iv) any other change in control of Corporation and Bank similar in effect to any of the foregoing. 6. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event that Executive delivers a Notice of Termination (as defined in Section 5(a) of this Agreement) to Corporation and Bank, Executive shall be absolutely entitled to receive the compensation and benefits set forth below: If, at the time of termination of Executive's employment, a "Change in Control" (as defined in Section 5(b)(i) of this Agreement) has also occurred, Corporation or Bank shall pay Executive an amount equal to and no greater than 2.99 times the Executive's Base Amount as defined in subsection (i) of Section 3, minus applicable taxes and withholdings. Such payment shall be paid at the option of the Executive in lump sum or in thirty-six (36) equal installments over a period of three years. In addition, for a period of three (3) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. 7. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE IN CONTROL. In the event that Executive's employment is involuntarily terminated by Corporation and/or Bank without Cause and no Change in Control shall have occurred at the date of such termination, Corporation and Bank shall pay Executive an amount equal to 2.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum or in thirty-six (36) equal monthly installments over a period of three years. Payment shall be made in a lump sum unless a written notice to receive the payments in thirty-six (36) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of three (3) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal 10 to the cost to Executive of obtaining such benefits (or substantially similar benefits) not to exceed one hundred twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such imposition. 8. COVENANT NOT TO COMPETE. (a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Corporation and Bank and accordingly agrees that, during and for the applicable period set forth in Section 8(c) hereof, Executive shall not: (i) be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in any county in which, at any time during the Employment Period or at the date of termination of the Executive's employment, a branch, office or other facility of Corporation or Bank or any of their subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the "Non-Competition Area"); or (ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in the Non-Competition Area; or (iii) solicit current and former customers of Corporation, Bank or any Corporation subsidiary in the Non-Competition Area; or (iv) solicit current or former employees of Corporation, Bank or any Corporation subsidiary. Notwithstanding the foregoing, Executive shall not be prohibited from making personal investments, loans, or real estate transactions comparable to such transactions which would have been permitted during the Executive's employment with the Corporation or Bank. 11 (b) It is expressly understood and agreed that, although Executive and Corporation and Bank consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Corporation and Bank and their subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. (c) The provisions of this Section 8 shall be applicable commencing on the date of this Agreement and ending on the third anniversary date of the effective date of termination of employment. (d) The provision of Section 9 will apply during the period of enforcement of the Covenant not to Compete as defined in Section 8(c). (e) In the event that Bank breaches this Agreement, this Section 8 of the Agreement and specifically the time periods set forth in Section 8(c)shall be voided. (f) Executive agrees that any breach of the restrictions set forth in this Section will result in irreparable injury to Corporation and Bank for which they will have no adequate remedy at law and the Corporation and Bank shall be entitled to injunctive relief in order to enforce the provisions hereof and/or seek specific performance and damages. Executive agrees to personal jurisdiction in the Common Pleas Court of Montgomery County, Pennsylvania or the U. S. District Court for the Eastern District of Pennsylvania. In the event that Corporation or Bank obtains injunctive relief, Executive will promptly reimburse the Corporation and Bank for reasonable attorney fees and any other costs associated with the litigation. 9. UNAUTHORIZED DISCLOSURE. During the term of his employment hereunder, or at any later time, the Executive shall not, without the written consent of the Boards of Directors of Corporation and Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of Corporation or Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of Corporation and Bank, any material confidential information obtained by him while in the employ of Corporation and Bank with respect to any of Corporation and Bank's services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to Corporation or Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business of a business 12 similar to that conducted by Corporation and Bank or any information that must be disclosed as required by law. 10. LIABILITY INSURANCE. Corporation and Bank shall use their best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of Corporation and Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however, nothing herein shall be construed to require Corporation and/or Bank to obtain such insurance, if the Board of Directors of the Corporation and/or Bank determine that such coverage cannot be obtained at a reasonable price. 11. NOTICES. Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive's residence, in the case of notices to Executive, and to the principal executive offices of Corporation and Bank, in the case of notices to Corporation and Bank. 12. WAIVER. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Boards of Directors of Corporation and Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. ASSIGNMENT. This Agreement shall not be assignable by any party, except by Corporation and Bank to any successor in interest to their respective businesses. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement. 13 15. SUCCESSORS; BINDING AGREEMENT. (a) Corporation and Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Corporation and Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Corporation and Bank would be required to perform it if no such succession had taken place. Failure by Corporation and Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 3 of this Agreement shall apply. As used in this Agreement, "Corporation" and "Bank" shall mean Corporation and Bank, as defined previously and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If Executive should die after a Notice of Termination is delivered by Executive, or following termination of Executive's employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee, or, if there is no such designee, to Executive's estate. 16. ARBITRATION. Corporation, Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in Philadelphia, Pennsylvania, to the American Arbitration Association (the "Association") in accordance with the Association's National Rules for the Resolution of Employment Disputes or other applicable rules then in effect ("Rules"). Corporation, Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Corporation and Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Association's pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Corporation, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein. . In the event that Executive terminates pursuant to Section 6 herein, and any dispute arising under or in conjunction with Executive's termination is resolved in Executive's favor, whether by judgment, arbitration or settlement, Executive shall be 14 entitled to the reimbursement by Corporation or Bank of all reasonable legal fees paid or incurred by Executive in resolving such dispute. 17. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 18. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles. 19. HEADINGS. The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ATTEST: ROYAL BANCSHARES OF PENNSYLVANIA, INC. /s/ George J. McDonough By /s/ Robert R. Tabas - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Robert R. Tabas, Chairman ROYAL BANK AMERICA /s/ George J. McDonough By /s/ Joseph P. Campbell - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Joseph P. Campbell, President WITNESS: /s/ Patricia Bilotta /s/ James McSwiggan - ---------------------------------- -------------------------------------- James J. McSwiggan, Jr. Executive Vice President, "Executive" 15 EX-10 5 b402075ex10-4.txt EXHIBIT 10.4 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 23rd day of August, 2004, between ROYAL BANCSHARES OF PENNSYLVANIA, INC. ("Corporation"), a Pennsylvania business corporation having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, ROYAL BANK AMERICA ("Bank") a state chartered bank having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, and Murray Stempel ("Executive"), an individual residing at 633 Robinson Lane, Haverford PA 19041. W I T N E S S E T H: WHEREAS, Corporation and Bank desire to employ Executive to serve in the capacity of Senior Vice President of each of Corporation and Bank under the terms and conditions set forth herein; WHEREAS, Executive desires to accept employment with Corporation and Bank on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. EMPLOYMENT. Corporation and Bank hereby employ Executive and Executive hereby accepts employment with Corporation and Bank, under the terms and conditions set forth in this Agreement. 2. DUTIES OF EMPLOYEE. Executive shall perform and discharge well and faithfully such duties as an executive officer of Corporation and Bank as may be assigned to Executive from time to time by the Board of Directors of Corporation and Bank. Executive shall be employed as Senior Vice President of Corporation and Bank, and shall hold such other titles as may be given to him from time to time by the Board of Directors of Corporation and Bank. Executive shall devote his full time, attention and energies to the business of Corporation and Bank during the Employment Period (as defined in Section 3 of this Agreement); provided, however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments, (b) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization or (c) being involved in any other activity with the prior approval of the Board of Directors of Corporation and Bank. The Executive shall not engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of Corporation or Bank, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with Corporation or Bank. 1 3. TERM OF AGREEMENT. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of August 18, 2004 and shall continue for a period of twenty-four (24) full calendar months thereafter (the "Employment Period"). Commencing on the date of the execution of this Agreement, the term of this Agreement shall be extended for one day each day until such time as the Board of Directors of the Corporation or Bank or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 3 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the second anniversary of the date of such written notice. (b) Notwithstanding anything herein contained to the contrary: (i) Executive's employment with the Corporation or Bank may be terminated by the Corporation or Bank or Executive during the term of this Agreement, subject to the terms and conditions of this Agreement; (ii) nothing in this Agreement shall mandate or prohibit a continuation of Employee's employment following the expiration of the term of the Agreement upon such terms as the Board and the Executive may mutually agree. (c) Notwithstanding the previous provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the Board of Directors of Corporation and Bank to Executive. As used in this Agreement, "Cause" shall mean any of the following: (i) Executive's conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of sixty (60) consecutive days or more; (ii) Executive's willful failure to follow the good faith lawful instructions of the Board of Directors of Corporation or Bank with respect to their operations, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; or (iii) Executive's willful failure to substantially perform Executive's duties to Corporation or Bank, other than a failure resulting from Executive's incapacity because of physical or mental illness, as provided in subsection (f) of this Section 3, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation, which failure results in injury to Corporation or Bank, monetarily or otherwise; 2 (iv) Executive's intentional violation of the provisions of this Agreement, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; (v) dishonesty of the Executive in the performance of his duties, as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (vi) Executive's removal or prohibition from being an institutional-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or any applicable Regulatory Agency; (vii) the willful engaging by the Executive in misconduct injurious to the Corporation or Bank after notice from Corporation or Bank, and a failure to cure such conduct within twenty (20) days; (viii) the breach of Executive's fiduciary duty to the Corporation or Bank involving personal profit; (ix) the willful violation of (1) any material law, rule or regulation applicable to Corporation or Bank or (2) any final cease and desist order issued by an applicable regulatory agency; (x) conduct on the part of Executive that brings public discredit to Corporation or Bank or that is clearly contrary to the best interests of Corporation or Bank as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (xi) unlawful harassment by the Executive against employees, customers, business associates, contractors or vendors of Corporation or Bank as reasonably determined by seventy-five percent (75%) of the disinterested members of the Board of Directors following an investigation of the claims by a third party; (xii) any act of fraud or misappropriation against the Corporation, the Bank, or their customers, employees, contractors or business associates; (xiii) intentional misrepresentation of a material fact, or intentional omission of information necessary to make the information supplied materially misleading, in application or other information provided by the Executive to Corporation or Bank in connection with the Executive's employment with Corporation or Bank; or 3 (xiv) the existence of any material conflict between the interests of Corporation or Bank and the Executive that is not disclosed in writing by the Executive to Corporation or Bank prior to action and approved in writing by the Board of Directors, and, after notice from Corporation or Bank, a failure to cure such conflict within twenty (20) days of said notice. (d) Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under this Section 3(c) above if such termination took place solely as a result of: (i) Questionable judgment on the part of the Executive; (ii) Any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Corporation or Bank (or its affiliated companies); or (iii) Any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or By-laws of Corporation or Bank or the directors' and officers' liability insurance of Corporation or Bank, in each case as in effect at the time of such act or omission. If this Agreement is terminated for Cause, all of Executive's rights under this Agreement shall cease as of the effective date of such termination. (e) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason. The term "Good Reason" shall mean (i) the assignment of duties and responsibilities inconsistent with Executive's status as Senior Vice President of Corporation and Bank, (ii) a reassignment which requires Executive to move his principal residence, (iii) any removal of the Executive from office or any adverse change in the terms and conditions of the Executive's employment, except for any termination of the Executive's employment under the provisions of Section 3 hereof, (iv) any reduction in the Executive's Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time, (v) any failure of Corporation and Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health and accident, disability or other employee plans of Corporation and Bank, or the taking of any action that would materially reduce any of such benefits unless such reduction is part of a reduction applicable to all employees. If such termination occurs for Good Reason, then Corporation and Bank shall pay Executive an amount equal to 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option 4 of Executive in lump sum or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with the termination of his employment, would result in the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. At the option of the Executive, exercisable by the Executive within ninety (90) days after the occurrence of the event constituting "Good Reason," the Executive may resign from employment under this Agreement by a notice in writing (the "Notice of Termination") delivered to Corporation and Bank and the provisions of this Section 3(e) hereof shall thereupon apply. (f) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's Disability and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (g) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's death and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (h) Executive agrees that in the event his employment under this Agreement is terminated, unless (1) Executive maintains an ownership interest in the Corporation of five percent (5%) or more, or (2) termination is due to retirement, Executive shall resign as a director of Corporation and Bank, or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities. (i) The term "Base Amount" shall equal the base amount as defined by 26 U.S.C. ss.280G (b)(3) which generally includes all compensation for services (excluding directors' fees, if any) for five years prior to the year during which the Change in Control occurs divided by five, except that the calculation of the Base Amount 5 shall not include any compensation resulting from director fees; or the granting, the vesting or exercise of any stock options. 4. EMPLOYMENT PERIOD COMPENSATION. (a) Annual Base Salary. For services performed by Executive under this Agreement, Corporation and Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of $156,000.00 per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of Corporation or Bank. Corporation and/or Bank may, from time to time, increase Executive's Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of Corporation or Bank or any committee of such Board in the resolutions authorizing such increases. (b) Bonus. For services performed by Executive under this Agreement, Corporation and/or Bank may, from time to time, pay a bonus or bonuses (including payments made under Bank Profit Sharing Incentive Plan) to Executive as Corporation and/or Bank, in their sole discretion, deem appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Corporation and/or Bank to Executive provided for in this Agreement. (c) Vacations. During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of Corporation and Bank. However, Executive shall not be entitled to receive any additional compensation from Corporation and Bank for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of Corporation and Bank. (d) Automobile. During the term of this Agreement, Corporation and Bank shall provide Executive with an automobile or automobile allowance consistent with the current practice at the date of signing of this agreement. (e) Employee Benefit Plans. During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at Corporation and Bank, subject to the terms of said plan, until such time that the Boards of Directors of Corporation and Bank authorize a change in such benefits. Corporation and Bank shall provide Executive with disability coverage. Corporation and Bank shall not make any changes in such plans or benefits which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of Corporation and Bank and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of Corporation and Bank. Nothing 6 paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 4(a) hereof. (f) Retirement Health Benefits. Provided that Executive's employment has not been terminated prior to retirement, Executive shall be entitled to receive medical insurance benefits comparable to the benefits received by full-time employees of the bank, commencing with the later of (1) the date of Executive's retirement, or (2) the date of Executive's 60th birthday, and terminating on the earlier of (1) the date that Executive becomes eligible for Medicaid, or (2) the date of Executive's 65th birthday. If Corporation and Bank cannot provide such benefits because Executive is no longer an employee, Executive shall annually receive a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially equal benefits), not to exceed one hundred and twenty percent (120%) of Bank's cost to provide such benefits to other employees. (g) Business Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Boards of Directors of Corporation and Bank for their executive officers. For the purpose of this Agreement, business expenses shall include dues paid for a country club membership, with said country club membership reimbursement subject to an annual cap established by the Compensation Committee. 5. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall occur and, thereafter, if at any time during the term of this Agreement there shall be: (i) any involuntary termination of Executive's employment (other than for the reasons set forth in Section 3(c) of this Agreement); (ii) any reduction in Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities or authority as such may be increased from time to time during the term of this Agreement; (iii) the assignment to Executive of duties inconsistent with Executive's office on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (iv) any reassignment of Executive to a location greater than fifty (50) miles from the location of Executive's office on the date of the Change in Control; 7 (v) any significant reduction in Executive's compensation as provided in Section 4 in effect on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (vi) any failure to provide Executive with benefits at least as favorable as those enjoyed by Executive under any of Corporation or Bank's retirement or pension, life insurance, medical, health and accident, disability or other employee plans in which Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control; (vii) any requirement that Executive travel in performance of his duties on behalf of Corporation or Bank for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred; or (viii) any sustained pattern of interruption or disruption of Executive for matters substantially unrelated to Executive's discharge of Executive's duties on behalf of Corporation and Bank; then, at the option of Executive, exercisable by Executive within ninety (90) days of the Change in Control and occurrence of any of the foregoing events, Executive may resign from employment with Corporation and Bank (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering a notice in writing (the "Notice of Termination") to Corporation and Bank and the provisions of Section 6 of this Agreement shall apply. In addition, notwithstanding the payments to Executive contemplated by Section 6, if Executive is requested by the Corporation, Bank or a successor thereto to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank following the Date of Change of Control, the Executive expressly agrees, subject to the condition set forth below, to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for not less than six months following the Date of Change of Control. The Corporation, Bank, or successor to the Corporation or Bank shall have the right to request the Executive remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for a period of less than six months following the Date of Change of Control. Executive agrees to remain an employee of the Corporation, Bank or successor to the Corporation or Bank pursuant to their request conditioned upon the Executive being compensated in the same amount and on the same terms as he was compensated immediately prior to the Date of Change of Control, including participation in all employee benefit plans to which he would otherwise be entitled. 8 (b) As used in this Agreement, "Change in Control" shall mean the occurrence of any of the following: (i) (A) a merger, consolidation or division involving Corporation or Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets of Corporation or Bank, or (C) a purchase by Corporation or Bank of substantially all of the assets of another entity, unless (y) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by seventy percent (70%) or more of the members of the Board of Directors of Corporation or Bank who are not interested in the transaction and (z) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and the Board of Directors of such entity's parent corporation, if any, are former members of the Board of Directors of Corporation or Bank; or (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than Corporation or Bank or any "person" who on the date hereof is a director or officer of Corporation or Bank is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Corporation or Bank representing twenty-five percent (25%) or more of the combined voting power of Corporation or Bank's then outstanding securities; provided, however, that for the purposes of this Agreement, a Change-in-Control shall not result from any transfer of ownership, which would otherwise cause the transferee to be a beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, to a family member of Daniel M. Tabas, who is not currently a director or an officer of the Corporation or the Bank, of securities of the Corporation, which are solely or jointly owned or titled in the name of Daniel M. Tabas, the estate of Daniel M. Tabas, or any trust, proxy, power of attorney, pooling arrangement or any other contract or arrangement or other special purpose entity in which Daniel M. Tabas either is the grantor, settlor, or he otherwise caused to be formed; or controls the voting rights or disposition of shares of the Corporation; or (iii) during any period of two (2) consecutive years during the term of Executive's employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Corporation or Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least sixty-seven percent (67%)of the directors then in office who were directors at the beginning of the period; or 9 (iv) any other change in control of Corporation and Bank similar in effect to any of the foregoing. (c) As used in this Agreement, provisions to the contrary notwithstanding, Change of Control shall not include any transaction as defined in Section 5 (b)(i) in which the majority of the outside directors defined as directors not directly related by birth or marriage to Robert Tabas, or Murray Stempel, do not vote in favor of the transaction giving rise to a change of control. 6. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event that Executive delivers a Notice of Termination (as defined in Section 5(a) of this Agreement) to Corporation and Bank, Executive shall be absolutely entitled to receive the compensation and benefits set forth below: If, at the time of termination of Executive's employment, a "Change in Control" (as defined in Section 5(b)(i) of this Agreement) has also occurred, Corporation or Bank shall pay Executive an amount equal to and no greater than 1.99 times the Executive's Base Amount as defined in subsection (i) of Section 3, minus applicable taxes and withholdings. Such payment shall be paid at the option of the Executive in lump sum or in twenty-four (24) equal installments over a period of two years. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. 7. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE IN CONTROL. In the event that Executive's employment is involuntarily terminated by Corporation and/or Bank without Cause and no Change in Control shall have occurred at the date of such termination, Corporation and Bank shall pay Executive an amount equal to 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a 10 period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits) not to exceed one hundred twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such imposition. 8. COVENANT NOT TO COMPETE. (a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Corporation and Bank and accordingly agrees that, during and for the applicable period set forth in Section 8(c) hereof, Executive shall not: (i) be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in any county in which, at any time during the Employment Period or at the date of termination of the Executive's employment, a branch, office or other facility of Corporation or Bank or any of their subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the "Non-Competition Area"); or (ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in the Non-Competition Area; or (iii) solicit current and former customers of Corporation, Bank or any Corporation subsidiary in the Non-Competition Area; or (iv) solicit current or former employees of Corporation, Bank or any Corporation subsidiary. 11 Notwithstanding the foregoing, Executive shall not be prohibited from making personal investments, loans, or real estate transactions comparable to such transactions which would have been permitted during the Executive's employment with the Corporation or Bank. (b) It is expressly understood and agreed that, although Executive and Corporation and Bank consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Corporation and Bank and their subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. (c) The provisions of this Section 8 shall be applicable commencing on the date of this Agreement and ending on the second anniversary date of the effective date of termination of employment. (d) The provision of Section 9 will apply during the period of enforcement of the Covenant not to Compete as defined in Section 8(c). (e) In the event that Bank breaches this Agreement, this Section 8 of the Agreement and specifically the time periods set forth in Section 8(c)shall be voided. (f) Executive agrees that any breach of the restrictions set forth in this Section will result in irreparable injury to Corporation and Bank for which they will have no adequate remedy at law and the Corporation and Bank shall be entitled to injunctive relief in order to enforce the provisions hereof and/or seek specific performance and damages. Executive agrees to personal jurisdiction in the Common Pleas Court of Montgomery County, Pennsylvania or the U. S. District Court for the Eastern District of Pennsylvania. In the event that Corporation or Bank obtains injunctive relief, Executive will promptly reimburse the Corporation and Bank for reasonable attorney fees and any other costs associated with the litigation. 9. UNAUTHORIZED DISCLOSURE. During the term of his employment hereunder, or at any later time, the Executive shall not, without the written consent of the Boards of Directors of Corporation and Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of Corporation or Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of Corporation and Bank, any material confidential information obtained by him while in the employ of Corporation and Bank with respect to any of Corporation and Bank's services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure 12 of which could be or will be damaging to Corporation or Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business of a business similar to that conducted by Corporation and Bank or any information that must be disclosed as required by law. 10. LIABILITY INSURANCE. Corporation and Bank shall use their best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of Corporation and Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however, nothing herein shall be construed to require Corporation and/or Bank to obtain such insurance, if the Board of Directors of the Corporation and/or Bank determine that such coverage cannot be obtained at a reasonable price. 11. NOTICES. Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive's residence, in the case of notices to Executive, and to the principal executive offices of Corporation and Bank, in the case of notices to Corporation and Bank. 12. WAIVER. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Boards of Directors of Corporation and Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. ASSIGNMENT. This Agreement shall not be assignable by any party, except by Corporation and Bank to any successor in interest to their respective businesses. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement. 13 15. SUCCESSORS; BINDING AGREEMENT. (a) Corporation and Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Corporation and Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Corporation and Bank would be required to perform it if no such succession had taken place. Failure by Corporation and Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 3 of this Agreement shall apply. As used in this Agreement, "Corporation" and "Bank" shall mean Corporation and Bank, as defined previously and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If Executive should die after a Notice of Termination is delivered by Executive, or following termination of Executive's employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee, or, if there is no such designee, to Executive's estate. 16. ARBITRATION. Corporation, Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in Philadelphia, Pennsylvania, to the American Arbitration Association (the "Association") in accordance with the Association's National Rules for the Resolution of Employment Disputes or other applicable rules then in effect ("Rules"). Corporation, Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Corporation and Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Association's pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Corporation, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein. In the event that Executive terminates pursuant to Section 6 herein, and any dispute arising under or in conjunction with Executive's termination is resolved in Executive's favor, whether by judgment, arbitration or settlement, Executive shall be 14 entitled to the reimbursement by Corporation or Bank of all reasonable legal fees paid or incurred by Executive in resolving such dispute. 17. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 18. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles. 19. HEADINGS. The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ATTEST: ROYAL BANCSHARES OF PENNSYLVANIA, INC. /s/ George J. McDonough By /s/ Robert R. Tabas - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Robert R. Tabas, Chairman ROYAL BANK AMERICA /s/ George J. McDonough By /s/ Joseph P. Campbell - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Joseph P. Campbell, President WITNESS: /s/ Patricia Bilotta /s/ Murray Stempel - ---------------------------------- -------------------------------------- Murray Stempel, Senior Vice President, "Executive" 15 EX-10 6 b402075ex10-5.txt EXHIBIT 10.5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 24th day of August, 2004, between ROYAL BANCSHARES OF PENNSYLVANIA, INC. ("Corporation"), a Pennsylvania business corporation having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, Royal Asian Bank A division of ROYAL BANK AMERICA ("Bank") a state chartered bank having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, and Edward Shin ("Executive"), an individual residing at 3701 Elizabeth's Court, North Wales, Pennsylvania 19454. W I T N E S S E T H: WHEREAS, Corporation and Bank desire to employ Executive to serve in the capacity of President of Royal Asian Bank, a division of Royal Bank America under the terms and conditions set forth herein; WHEREAS, Executive desires to accept employment with the Bank on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. EMPLOYMENT. The Bank hereby employs Executive and Executive hereby accepts employment with Bank, under the terms and conditions set forth in this Agreement. 2. DUTIES OF EMPLOYEE. Executive shall perform and discharge well and faithfully such duties as an executive officer of the Bank as may be assigned to Executive from time to time by the Board of Directors of the Bank. Executive shall be employed as President of Royal Asian Bank, and shall hold such other titles as may be given to him from time to time by the Board of Directors of the Bank. Executive shall devote his full time, attention and energies to the business of Corporation and Bank during the Employment Period (as defined in Section 3 of this Agreement); provided, however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments, (b) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization or (c) being involved in any other activity with the prior approval of the Board of Directors of Corporation and Bank. The Executive shall not engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of Corporation or Bank, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with Corporation or Bank. 1 3. TERM OF AGREEMENT. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of August 18, 2004 and shall continue for a period of two years twenty-four (24) full calendar months thereafter (the "Employment Period"). Commencing on the date of the execution of this Agreement, the term of this Agreement shall be extended for one day each day until such time as the Board of Directors of the Corporation or Bank or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 3 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the second anniversary of the date of such written notice. (b) Notwithstanding anything herein contained to the contrary: (i) Executive's employment with the Bank may be terminated by the Bank or Executive during the term of this Agreement, subject to the terms and conditions of this Agreement; (ii) nothing in this Agreement shall mandate or prohibit a continuation of Employee's employment following the expiration of the term of the Agreement upon such terms as the Board and the Executive may mutually agree. (c) Notwithstanding the previous provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the Board of Directors of Corporation and Bank to Executive. As used in this Agreement, "Cause" shall mean any of the following: (i) Executive's conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of sixty (60) consecutive days or more; (ii) Executive's willful failure to follow the good faith lawful instructions of the Board of Directors of Corporation or Bank with respect to their operations, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; or (iii) Executive's willful failure to substantially perform Executive's duties to Corporation or Bank, other than a failure resulting from Executive's incapacity because of physical or mental illness, as provided in subsection (f) of this Section 3, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation, which failure results in injury to Corporation or Bank, monetarily or otherwise; 2 (iv) Executive's intentional violation of the provisions of this Agreement, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; (v) dishonesty of the Executive in the performance of his duties, as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (vi) Executive's removal or prohibition from being an institutional-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or any applicable Regulatory Agency; (vii) the willful engaging by the Executive in misconduct injurious to the Corporation or Bank after notice from Corporation or Bank, and a failure to cure such conduct within twenty (20) days; (viii) the breach of Executive's fiduciary duty to the Corporation or Bank involving personal profit; (ix) the willful violation of (1) any material law, rule or regulation applicable to Corporation or Bank or (2) any final cease and desist order issued by an applicable regulatory agency; (x) conduct on the part of Executive that brings public discredit to Corporation or Bank or that is clearly contrary to the best interests of Corporation or Bank as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (xi) unlawful harassment by the Executive against employees, customers, business associates, contractors or vendors of Corporation or Bank as reasonably determined by seventy-five percent (75%) of the disinterested members of the Board of Directors following an investigation of the claims by a third party; (xii) any act of fraud or misappropriation against the Corporation, the Bank, or their customers, employees, contractors or business associates; (xiii) intentional misrepresentation of a material fact, or intentional omission of information necessary to make the information supplied materially misleading, in application or other information provided by the Executive to Corporation or Bank in connection with the Executive's employment with Corporation or Bank; or 3 (xiv) the existence of any material conflict between the interests of Corporation or Bank and the Executive that is not disclosed in writing by the Executive to Corporation or Bank prior to action and approved in writing by the Board of Directors, and, after notice from Corporation or Bank, a failure to cure such conflict within twenty (20) days of said notice. (d) Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under this Section 3(c) above if such termination took place solely as a result of: (i) Questionable judgment on the part of the Executive; (ii) Any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Corporation or Bank (or its affiliated companies); or (iii) Any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or By-laws of Corporation or Bank or the directors' and officers' liability insurance of Corporation or Bank, in each case as in effect at the time of such act or omission. If this Agreement is terminated for Cause, all of Executive's rights under this Agreement shall cease as of the effective date of such termination. (e) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason. The term "Good Reason" shall mean (i) the assignment of duties and responsibilities inconsistent with Executive's status as President of the Bank, (ii) a reassignment which requires Executive to move his principal residence, (iii) any removal of the Executive from office or any adverse change in the terms and conditions of the Executive's employment, except for any termination of the Executive's employment under the provisions of Section 3 hereof, (iv) any reduction in the Executive's Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time, (v) any failure of Corporation and Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health and accident, disability or other employee plans of Corporation and Bank, or the taking of any action that would materially reduce any of such benefits unless such reduction is part of a reduction applicable to all employees. If such termination occurs for Good Reason, then Corporation and Bank shall pay Executive an amount equal to 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum 4 or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with the termination of his employment, would result in the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. At the option of the Executive, exercisable by the Executive within ninety (90) days after the occurrence of the event constituting "Good Reason," the Executive may resign from employment under this Agreement by a notice in writing (the "Notice of Termination") delivered to Corporation and Bank and the provisions of this Section 3(e) hereof shall thereupon apply. (f) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's Disability and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (g) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's death and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (h) Executive agrees that in the event his employment under this Agreement is terminated, unless (1) Executive maintains an ownership interest in the Corporation of five percent (5%) or more, or (2) termination is due to retirement Executive shall resign as a director of Corporation and Bank, or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities. (i) The term "Base Amount" shall equal the base amount as defined by 26 U.S.C. ss.280G (b)(3), except that the calculation of the Base Amount shall not include any compensation resulting from director fees; or the granting, the vesting or exercise of any stock options. 5 (j) In the event the cumulative net income derived from the Royal Asian Bank totals $500,000, the contract term from the date of the execution of this Agreement shall increase from two to three years. In addition, in sections 3(a), 6 and 7 the multiplier shall increase from 1.99 to 2.99 and the right to receive equal installment payments shall increase from twenty-four months to thirty-six months. The right to receive life, disability, medical insurance and other normal health and welfare benefits, or cash payment as hereinafter provided shall increase from a two year to a three year period. The applicable period for the Covenant Not to Compete in Section 8 (c) shall end on the third anniversary of the effective date of termination of employment. 4. EMPLOYMENT PERIOD COMPENSATION. (a) Annual Base Salary. For services performed by Executive under this Agreement, the Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of $150,000 per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of the Bank. The Bank may, from time to time, increase Executive's Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of the Bank or any committee of such Board in the resolutions authorizing such increases. (b) Bonus. For services performed by Executive under this Agreement, the Bank may, from time to time, pay a bonus or bonuses (including payments made under Bank Profit Sharing Incentive Plan) to Executive as the Bank, in its sole discretion, deem appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Corporation and/or Bank to Executive provided for in this Agreement. (c) Vacations. During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Bank. However, Executive shall not be entitled to receive any additional compensation from the Bank for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Bank. (d) Automobile. During the term of this Agreement, the Bank shall provide Executive with an automobile or automobile allowance consistent with the current practice at the date of signing of this agreement. (e) Employee Benefit Plans. During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at Corporation and Bank, subject to the terms of said plan, until such time that the Boards of Directors of Corporation and Bank authorize a change in such benefits. Corporation and Bank shall provide Executive with disability 6 coverage. Corporation and Bank shall not make any changes in such plans or benefits which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of Corporation and Bank and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of Corporation and Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 4(a) hereof. (f) Retirement Health Benefits. Provided that Executive's employment has not been terminated prior to retirement, Executive shall be entitled to receive medical insurance benefits comparable to the benefits received by full-time employees of the bank, commencing with the later of (1) the date of Executive's retirement, or (2) the date of Executive's 60th birthday, and terminating on the earlier of (1) the date that Executive becomes eligible for Medicaid, or (2) the date of Executive's 65th birthday. If Corporation and Bank cannot provide such benefits because Executive is no longer an employee, Executive shall annually receive a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially equal benefits), not to exceed one hundred and twenty percent (120%) of Bank's cost to provide such benefits to other employees. (g) Business Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Boards of Directors of Corporation and Bank for their executive officers. 5. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall occur and, thereafter, if at any time during the term of this Agreement there shall be: (i) any involuntary termination of Executive's employment (other than for the reasons set forth in Section 3(c) of this Agreement); (ii) any reduction in Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities or authority as such may be increased from time to time during the term of this Agreement; (iii) the assignment to Executive of duties inconsistent with Executive's office on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; 7 (iv) any reassignment of Executive to a location greater than fifty (50) miles from the location of Executive's office on the date of the Change in Control; (v) any significant reduction in Executive's compensation as provided in Section 4 in effect on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (vi) any failure to provide Executive with benefits at least as favorable as those enjoyed by Executive under any of Corporation or Bank's retirement or pension, life insurance, medical, health and accident, disability or other employee plans in which Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control; (vii) any requirement that Executive travel in performance of his duties on behalf of Corporation or Bank for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred; or (viii) any sustained pattern of interruption or disruption of Executive for matters substantially unrelated to Executive's discharge of Executive's duties on behalf of Corporation and Bank; then, at the option of Executive, exercisable by Executive within ninety (90) days of the Change in Control and occurrence of any of the foregoing events, Executive may resign from employment with Corporation and Bank (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering a notice in writing (the "Notice of Termination") to Corporation and Bank and the provisions of Section 6 of this Agreement shall apply. In addition, notwithstanding the payments to Executive contemplated by Section 6, if Executive is requested by the Corporation, Bank or a successor thereto to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank following the Date of Change of Control, the Executive expressly agrees, subject to the condition set forth below, to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for not less than six months following the Date of Change of Control. The Corporation, Bank, or successor to the Corporation or Bank shall have the right to request the Executive remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for a period of less than six months following the Date of Change of Control. Executive agrees to remain an employee of the Corporation, Bank or successor to the Corporation or Bank pursuant to their request conditioned upon the Executive being compensated in the same amount and on the same terms as he was compensated immediately prior to 8 the Date of Change of Control, including participation in all employee benefit plans to which he would otherwise be entitled. (b) As used in this Agreement, "Change in Control" shall mean the occurrence of any of the following: (i) (A) a merger, consolidation or division involving Corporation or Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets of Corporation or Bank, or (C) a purchase by Corporation or Bank of substantially all of the assets of another entity, unless (y) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by seventy percent (70%) or more of the members of the Board of Directors of Corporation or Bank who are not interested in the transaction and (z) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and the Board of Directors of such entity's parent corporation, if any, are former members of the Board of Directors of Corporation or Bank; or (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than Corporation or Bank or any "person" who on the date hereof is a director or officer of Corporation or Bank is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Corporation or Bank representing twenty-five percent (25%) or more of the combined voting power of Corporation or Bank's then outstanding securities; provided, however, that for the purposes of this Agreement, a Change-in-Control shall not result from any transfer of ownership, which would otherwise cause the transferee to be a beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, to a family member of Daniel M. Tabas, who is not currently a director or an officer of the Corporation or the Bank, of securities of the Corporation, which are solely or jointly owned or titled in the name of Daniel M. Tabas, the estate of Daniel M. Tabas, or any trust, proxy, power of attorney, pooling arrangement or any other contract or arrangement or other special purpose entity in which Daniel M. Tabas either is the grantor, settlor, or he otherwise caused to be formed; or controls the voting rights or disposition of shares of the Corporation; or (iii) during any period of two (2) consecutive years during the term of Executive's employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Corporation or Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least 9 sixty-seven percent (67%)of the directors then in office who were directors at the beginning of the period; or (iv) any other change in control of Corporation and Bank similar in effect to any of the foregoing. 6. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event that Executive delivers a Notice of Termination (as defined in Section 5(a) of this Agreement) to Corporation and Bank, Executive shall be absolutely entitled to receive the compensation and benefits set forth below: If, at the time of termination of Executive's employment, a "Change in Control" (as defined in Section 5(b)(i) of this Agreement) has also occurred, Corporation or Bank shall pay Executive an amount equal to and no greater than 1.99 times the Executive's Base Amount as defined in subsection (i) of Section 3, minus applicable taxes and withholdings. Such payment shall be paid at the option of the Executive in lump sum or in twenty four (24) equal installments over a period of two years. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. 7. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE IN CONTROL. In the event that Executive's employment is involuntarily terminated by Corporation and/or Bank without Cause and no Change in Control shall have occurred at the date of such termination, Corporation and Bank shall pay Executive an amount equal to 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of two (2) years from the date of termination of employment, or until Executive 10 secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits) not to exceed one hundred twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such imposition. 8. COVENANT NOT TO COMPETE. (a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Corporation and Bank and accordingly agrees that, during and for the applicable period set forth in Section 8(c) hereof, Executive shall not: (i) be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in any county in which, at any time during the Employment Period or at the date of termination of the Executive's employment, a branch, office or other facility of Corporation or Bank or any of their subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the "Non-Competition Area"); or (ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in the Non-Competition Area; or (iii) solicit current and former customers of Corporation, Bank or any Corporation subsidiary in the Non-Competition Area; or (iv) solicit current or former employees of Corporation, Bank or any Corporation subsidiary. 11 Notwithstanding the foregoing, Executive shall not be prohibited from making personal investments, loans, or real estate transactions comparable to such transactions which would have been permitted during the Executive's employment with the Corporation or Bank. (b) It is expressly understood and agreed that, although Executive and Corporation and Bank consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Corporation and Bank and their subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. (c) The provisions of this Section 8 shall be applicable commencing on the date of this Agreement and ending on the second anniversary date of the effective date of termination of employment. (d) The provision of Section 9 will apply during the period of enforcement of the Covenant not to Compete as defined in Section 8(c). (e) In the event that Bank breaches this Agreement, this Section 8 of the Agreement and specifically the time periods set forth in Section 8(c)shall be voided. (f) Executive agrees that any breach of the restrictions set forth in this Section will result in irreparable injury to Corporation and Bank for which they will have no adequate remedy at law and the Corporation and Bank shall be entitled to injunctive relief in order to enforce the provisions hereof and/or seek specific performance and damages. Executive agrees to personal jurisdiction in the Common Pleas Court of Montgomery County, Pennsylvania or the U. S. District Court for the Eastern District of Pennsylvania. In the event that Corporation or Bank obtains injunctive relief, Executive will promptly reimburse the Corporation and Bank for reasonable attorney fees and any other costs associated with the litigation. 9. UNAUTHORIZED DISCLOSURE. During the term of his employment hereunder, or at any later time, the Executive shall not, without the written consent of the Boards of Directors of Corporation and Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of Corporation or Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of Corporation and Bank, any material confidential information obtained by him while in the employ of Corporation and Bank with respect to any of Corporation and Bank's services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure 12 of which could be or will be damaging to Corporation or Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business of a business similar to that conducted by Corporation and Bank or any information that must be disclosed as required by law. 10. LIABILITY INSURANCE. Corporation and Bank shall use their best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of Corporation and Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however, nothing herein shall be construed to require Corporation and/or Bank to obtain such insurance, if the Board of Directors of the Corporation and/or Bank determine that such coverage cannot be obtained at a reasonable price. 11. NOTICES. Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive's residence, in the case of notices to Executive, and to the principal executive offices of Corporation and Bank, in the case of notices to Corporation and Bank. 12. WAIVER. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Boards of Directors of Corporation and Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. ASSIGNMENT. This Agreement shall not be assignable by any party, except by Corporation and Bank to any successor in interest to their respective businesses. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement. 13 15. SUCCESSORS; BINDING AGREEMENT. (a) Corporation and Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Corporation and Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Corporation and Bank would be required to perform it if no such succession had taken place. Failure by Corporation and Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 3 of this Agreement shall apply. As used in this Agreement, "Corporation" and "Bank" shall mean Corporation and Bank, as defined previously and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If Executive should die after a Notice of Termination is delivered by Executive, or following termination of Executive's employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee, or, if there is no such designee, to Executive's estate. 16. ARBITRATION. Corporation, Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in Philadelphia, Pennsylvania, to the American Arbitration Association (the "Association") in accordance with the Association's National Rules for the Resolution of Employment Disputes or other applicable rules then in effect ("Rules"). Corporation, Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Corporation and Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Association's pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Corporation, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein. In the event that Executive terminates pursuant to Section 6 herein, and any dispute arising under or in conjunction with Executive's termination is resolved in Executive's favor, whether by judgment, arbitration or settlement, Executive shall be 14 entitled to the reimbursement by Corporation or Bank of all reasonable legal fees paid or incurred by Executive in resolving such dispute. 17. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 18. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles. 19. HEADINGS. The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ATTEST: ROYAL BANCSHARES OF PENNSYLVANIA, INC. /s/ George J. McDonough By /s/ Robert R. Tabas - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Robert R. Tabas, Chairman of the Board ROYAL BANK AMERICA /s/ George J. McDonough By /s/ Joseph P. Campbell - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Joseph P. Campbell, President WITNESS: /s/ Patricia Bilotta /s/ Edward Shin - ---------------------------------- -------------------------------------- Edward Shin, President, "Executive" Royal Asian Bank a division of Royal Bank America 15 EX-10 7 b402075ex10-6.txt EXHIBIT 10.6 EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 20th day of August, 2004, between ROYAL BANCSHARES OF PENNSYLVANIA, INC. ("Corporation"), a Pennsylvania business corporation having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, ROYAL BANK AMERICA ("Bank") a state chartered bank having a place of business at 732 Montgomery Avenue, Narberth, Pennsylvania 19072, and Robert R. Tabas ("Executive"), an individual residing at 681 Black Rock Road, Bryn Mawr, PA 19010. W I T N E S S E T H: WHEREAS, Corporation and Bank desire to employ Executive to serve in the capacity of Senior Vice President of the Bank under the terms and conditions set forth herein; WHEREAS, Executive desires to accept employment with the Bank on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. EMPLOYMENT. The Bank hereby employs Executive and Executive hereby accepts employment with Bank, under the terms and conditions set forth in this Agreement. 2. DUTIES OF EMPLOYEE. Executive shall perform and discharge well and faithfully such duties as an executive officer of the Bank as may be assigned to Executive from time to time by the Board of Directors of the Bank. Executive shall be employed as Senior Vice President of the Bank, and shall hold such other titles as may be given to him from time to time by the Board of Directors of the Bank. Executive shall devote his full time, attention and energies to the business of Corporation and Bank during the Employment Period (as defined in Section 3 of this Agreement); provided, however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments, (b) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization or (c) being involved in any other activity with the prior approval of the Board of Directors of Corporation and Bank. The Executive shall not engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of Corporation or Bank, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with Corporation or Bank. 1 3. TERM OF AGREEMENT. (a) The period of Executive's employment under this Agreement shall be deemed to have commenced as of August 18, 2004 and shall continue for a period of twenty-four (24) full calendar months thereafter (the "Employment Period"). Commencing on the date of the execution of this Agreement, the term of this Agreement shall be extended for one day each day until such time as the Board of Directors of the Corporation or Bank or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with Section 3 of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the second anniversary of the date of such written notice. (b) Notwithstanding anything herein contained to the contrary: (i) Executive's employment with the Bank may be terminated by the Bank or Executive during the term of this Agreement, subject to the terms and conditions of this Agreement; (ii) nothing in this Agreement shall mandate or prohibit a continuation of Employee's employment following the expiration of the term of the Agreement upon such terms as the Board and the Executive may mutually agree. (c) Notwithstanding the previous provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the Board of Directors of Corporation and Bank to Executive. As used in this Agreement, "Cause" shall mean any of the following: (i) Executive's conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of sixty (60) consecutive days or more; (ii) Executive's willful failure to follow the good faith lawful instructions of the Board of Directors of Corporation or Bank with respect to their operations, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; or (iii) Executive's willful failure to substantially perform Executive's duties to Corporation or Bank, other than a failure resulting from Executive's incapacity because of physical or mental illness, as provided in subsection (f) of this Section 3, after written notice from Corporation or Bank and a failure to cure such violation within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation, which failure results in injury to Corporation or Bank, monetarily or otherwise; (iv) Executive's intentional violation of the provisions of this Agreement, after written notice from Corporation or Bank and a failure to cure such violation 2 within ten (10) days of said written notice, unless it is apparent under the circumstances that Executive is unable to cure such violation; (v) dishonesty of the Executive in the performance of his duties, as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (vi) Executive's removal or prohibition from being an institutional-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act or any applicable Regulatory Agency; (vii) the willful engaging by the Executive in misconduct injurious to the Corporation or Bank after notice from Corporation or Bank, and a failure to cure such conduct within twenty (20) days; (viii) the breach of Executive's fiduciary duty to the Corporation or Bank involving personal profit; (ix) the willful violation of (1) any material law, rule or regulation applicable to Corporation or Bank or (2) any final cease and desist order issued by an applicable regulatory agency; (x) conduct on the part of Executive that brings public discredit to Corporation or Bank or that is clearly contrary to the best interests of Corporation or Bank as reasonably determined by a vote of seventy-five percent (75%) of the directors of the Board of Directors; (xi) unlawful harassment by the Executive against employees, customers, business associates, contractors or vendors of Corporation or Bank as reasonably determined by seventy-five percent (75%) of the disinterested members of the Board of Directors following an investigation of the claims by a third party; (xii) any act of fraud or misappropriation against the Corporation, the Bank, or their customers, employees, contractors or business associates; (xiii) intentional misrepresentation of a material fact, or intentional omission of information necessary to make the information supplied materially misleading, in application or other information provided by the Executive to Corporation or Bank in connection with the Executive's employment with Corporation or Bank; or (xiv) the existence of any material conflict between the interests of Corporation or Bank and the Executive that is not disclosed in writing by the Executive to Corporation or Bank prior to action and approved in writing by the Board 3 of Directors, and, after notice from Corporation or Bank, a failure to cure such conflict within twenty (20) days of said notice. (d) Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under this Section 3(c) above if such termination took place solely as a result of: (i) Questionable judgment on the part of the Executive; (ii) Any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Corporation or Bank (or its affiliated companies); or (iii) Any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or By-laws of Corporation or Bank or the directors' and officers' liability insurance of Corporation or Bank, in each case as in effect at the time of such act or omission. If this Agreement is terminated for Cause, all of Executive's rights under this Agreement shall cease as of the effective date of such termination. (e) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason. The term "Good Reason" shall mean (i) the assignment of duties and responsibilities inconsistent with Executive's status as Senior Vice President of the Bank, (ii) a reassignment which requires Executive to move his principal residence, (iii) any removal of the Executive from office or any adverse change in the terms and conditions of the Executive's employment, except for any termination of the Executive's employment under the provisions of Section 3 hereof, (iv) any reduction in the Executive's Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time, (v) any failure of Corporation and Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health and accident, disability or other employee plans of Corporation and Bank, or the taking of any action that would materially reduce any of such benefits unless such reduction is part of a reduction applicable to all employees. If such termination occurs for Good Reason, then Corporation and Bank shall pay Executive an amount equal to 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent 4 with Executive's resignation as provided in this Section. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with the termination of his employment, would result in the imposition of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. At the option of the Executive, exercisable by the Executive within ninety (90) days after the occurrence of the event constituting "Good Reason," the Executive may resign from employment under this Agreement by a notice in writing (the "Notice of Termination") delivered to Corporation and Bank and the provisions of this Section 3(e) hereof shall thereupon apply. (f) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's Disability and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (g) Notwithstanding the previous provisions of Section 3 of this Agreement, this Agreement shall terminate automatically upon Executive's death and Executive's rights under this Agreement shall cease as of the date of such termination without further compensation due Executive. (h) Executive agrees that in the event his employment under this Agreement is terminated, unless (1) Executive maintains an ownership interest in the Corporation of five percent (5%) or more, or (2) termination is due to retirement, Executive shall resign as a director of Corporation and Bank, or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities. (i) (i) The term "Base Amount" shall equal the base amount as defined by 26 U.S.C. ss.280G (b)(3) which generally includes all compensation for services (excluding directors' fees, if any) for five years prior to the year during which the Change in Control occurs divided by five, except that the calculation of the Base Amount shall not include any compensation resulting from director fees; or the granting, the vesting or exercise of any stock options. 5 4. EMPLOYMENT PERIOD COMPENSATION. (a) Annual Base Salary. For services performed by Executive under this Agreement, the Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of $187,000.00 per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of the Bank. The Bank may, from time to time, increase Executive's Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of the Bank or any committee of such Board in the resolutions authorizing such increases. (b) Bonus. For services performed by Executive under this Agreement, the Bank may, from time to time, pay a bonus or bonuses (including payments made under Bank Profit Sharing Incentive Plan) to Executive as the Bank, in its sole discretion, deem appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Corporation and/or Bank to Executive provided for in this Agreement. (c) Vacations. During the term of this Agreement, Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Bank. However, Executive shall not be entitled to receive any additional compensation from the Bank for failure to take a vacation, nor shall Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Bank. (d) Automobile. During the term of this Agreement, the Bank shall provide Executive with an automobile or automobile allowance consistent with the current practice at the date of signing of this agreement. (e) Employee Benefit Plans. During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at Corporation and Bank, subject to the terms of said plan, until such time that the Boards of Directors of Corporation and Bank authorize a change in such benefits. Corporation and Bank shall provide Executive with disability coverage. Corporation and Bank shall not make any changes in such plans or benefits which would adversely affect Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of Corporation and Bank and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of Corporation and Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 4(a) hereof. 6 (f) Retirement Health Benefits. Provided that Executive's employment has not been terminated prior to retirement, Executive shall be entitled to receive medical insurance benefits comparable to the benefits received by full-time employees of the bank, commencing with the later of (1) the date of Executive's retirement, or (2) the date of Executive's 60th birthday, and terminating on the earlier of (1) the date that Executive becomes eligible for Medicaid, or (2) the date of Executive's 65th birthday. If Corporation and Bank cannot provide such benefits because Executive is no longer an employee, Executive shall annually receive a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially equal benefits), not to exceed one hundred and twenty percent (120%) of Bank's cost to provide such benefits to other employees. (g) Business Expenses. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Boards of Directors of Corporation and Bank for their executive officers. For the purpose of this Agreement, business expenses shall include dues paid for a country club membership, with said country club membership reimbursement subject to an annual cap set by the Compensation Committee. 5. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. (a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall occur and, thereafter, if at any time during the term of this Agreement there shall be: (i) any involuntary termination of Executive's employment (other than for the reasons set forth in Section 3(c) of this Agreement); (ii) any reduction in Executive's title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities or authority as such may be increased from time to time during the term of this Agreement; (iii) the assignment to Executive of duties inconsistent with Executive's office on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; (iv) any reassignment of Executive to a location greater than fifty (50) miles from the location of Executive's office on the date of the Change in Control; (v) any significant reduction in Executive's compensation as provided in Section 4 in effect on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; 7 (vi) any failure to provide Executive with benefits at least as favorable as those enjoyed by Executive under any of Corporation or Bank's retirement or pension, life insurance, medical, health and accident, disability or other employee plans in which Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control; (vii) any requirement that Executive travel in performance of his duties on behalf of Corporation or Bank for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred; or (viii) any sustained pattern of interruption or disruption of Executive for matters substantially unrelated to Executive's discharge of Executive's duties on behalf of Corporation and Bank; then, at the option of Executive, exercisable by Executive within ninety (90) days of the Change in Control and occurrence of any of the foregoing events, Executive may resign from employment with Corporation and Bank (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering a notice in writing (the "Notice of Termination") to Corporation and Bank and the provisions of Section 6 of this Agreement shall apply. In addition, notwithstanding the payments to Executive contemplated by Section 6, if Executive is requested by the Corporation, Bank or a successor thereto to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank following the Date of Change of Control, the Executive expressly agrees, subject to the condition set forth below, to remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for not less than six months following the Date of Change of Control. The Corporation, Bank, or successor to the Corporation or Bank shall have the right to request the Executive remain in the employ of the Corporation, Bank, or a successor to the Corporation or Bank for a period of less than six months following the Date of Change of Control. Executive agrees to remain an employee of the Corporation, Bank or successor to the Corporation or Bank pursuant to their request conditioned upon the Executive being compensated in the same amount and on the same terms as he was compensated immediately prior to the Date of Change of Control, including participation in all employee benefit plans to which he would otherwise be entitled. (b) As used in this Agreement, "Change in Control" shall mean the occurrence of any of the following: (i) (A) a merger, consolidation or division involving Corporation or Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets of Corporation or Bank, or (C) a purchase by Corporation or Bank of 8 substantially all of the assets of another entity, unless (y) such merger, consolidation, division, sale, exchange, transfer, purchase or disposition is approved in advance by seventy percent (70%) or more of the members of the Board of Directors of Corporation or Bank who are not interested in the transaction and (z) a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and the Board of Directors of such entity's parent corporation, if any, are former members of the Board of Directors of Corporation or Bank; or (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than Corporation or Bank or any "person" who on the date hereof is a director or officer of Corporation or Bank is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Corporation or Bank representing twenty-five percent (25%) or more of the combined voting power of Corporation or Bank's then outstanding securities; provided, however, that for the purposes of this Agreement, a Change-in-Control shall not result from any transfer of ownership, which would otherwise cause the transferee to be a beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly through any contract, arrangement, understanding, relationship or otherwise, to a family member of Daniel M. Tabas, who is not currently a director or an officer of the Corporation or the Bank, of securities of the Corporation, which are solely or jointly owned or titled in the name of Daniel M. Tabas, the estate of Daniel M. Tabas, or any trust, proxy, power of attorney, pooling arrangement or any other contract or arrangement or other special purpose entity in which Daniel M. Tabas either is the grantor, settlor, or he otherwise caused to be formed; or controls the voting rights or disposition of shares of the Corporation; or (iii) during any period of two (2) consecutive years during the term of Executive's employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Corporation or Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least sixty-seven percent (67%)of the directors then in office who were directors at the beginning of the period; or (iv) any other change in control of Corporation and Bank similar in effect to any of the foregoing. (c) As used in this Agreement, provisions to the contrary notwithstanding, Change of Control shall not include any transaction as defined in Section 5 (b)(i) in which the majority of the outside directors defined as directors not directly related by birth 9 or marriage to Robert Tabas, or Murray Stempel, do not vote in favor of the transaction giving rise to a change of control. 6. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event that Executive delivers a Notice of Termination (as defined in Section 5(a) of this Agreement) to Corporation and Bank, Executive shall be absolutely entitled to receive the compensation and benefits set forth below: If, at the time of termination of Executive's employment, a "Change in Control" (as defined in Section 5(b)(i) of this Agreement) has also occurred, Corporation or Bank shall pay Executive an amount equal to and no greater than 1.99 times the Executive's Base Amount as defined in subsection (i) of Section 3, minus applicable taxes and withholdings. Such payment shall be paid at the option of the Executive in lump sum or in twenty-four (24) equal installments over a period of two years. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal to the cost to Executive of obtaining such benefits (or substantially similar benefits), not to exceed One Hundred and Twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such excise tax imposition. 7. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE IN CONTROL. In the event that Executive's employment is involuntarily terminated by Corporation and/or Bank without Cause and no Change in Control shall have occurred at the date of such termination, Corporation and Bank shall pay Executive an amount equal to 1.99 times the Executive's Base Amount as defined in subsection (i) of this Section 3, and shall be subject to federal, state and local tax withholdings. Such payment shall be paid at the option of Executive in lump sum or in twenty-four (24) equal monthly installments over a period of two years. Payment shall be made in a lump sum unless a written notice to receive the payments in twenty-four (24) equal monthly installments is received concurrent with Executive's resignation as provided in this Section. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if Corporation and Bank cannot provide such benefits because Executive is no longer an employee, a dollar amount equal 10 to the cost to Executive of obtaining such benefits (or substantially similar benefits) not to exceed one hundred twenty percent (120%) of Bank's cost to provide such benefits to an employee. However, if the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such payments shall be retroactively (if necessary) increased to the extent necessary to cover such imposition. 8. COVENANT NOT TO COMPETE. (a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Corporation and Bank and accordingly agrees that, during and for the applicable period set forth in Section 8(c) hereof, Executive shall not: (i) be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in any county in which, at any time during the Employment Period or at the date of termination of the Executive's employment, a branch, office or other facility of Corporation or Bank or any of their subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the "Non-Competition Area"); or (ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Corporation or Bank or any of their subsidiaries are engaged during the Employment Period, in the Non-Competition Area; or (iii) solicit current and former customers of Corporation, Bank or any Corporation subsidiary in the Non-Competition Area; or (iv) solicit current or former employees of Corporation, Bank or any Corporation subsidiary. Notwithstanding the foregoing, Executive shall not be prohibited from making personal investments, loans, or real estate transactions comparable to such transactions which would have been permitted during the Executive's employment with the Corporation or Bank. 11 (b) It is expressly understood and agreed that, although Executive and Corporation and Bank consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Corporation and Bank and their subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. (c) The provisions of this Section 8 shall be applicable commencing on the date of this Agreement and ending on the second anniversary date of the effective date of termination of employment. (d) The provision of Section 9 will apply during the period of enforcement of the Covenant not to Compete as defined in Section 8(c). (e) In the event that Bank breaches this Agreement, this Section 8 of the Agreement and specifically the time periods set forth in Section 8(c)shall be voided. (f) Executive agrees that any breach of the restrictions set forth in this Section will result in irreparable injury to Corporation and Bank for which they will have no adequate remedy at law and the Corporation and Bank shall be entitled to injunctive relief in order to enforce the provisions hereof and/or seek specific performance and damages. Executive agrees to personal jurisdiction in the Common Pleas Court of Montgomery County, Pennsylvania or the U. S. District Court for the Eastern District of Pennsylvania. In the event that Corporation or Bank obtains injunctive relief, Executive will promptly reimburse the Corporation and Bank for reasonable attorney fees and any other costs associated with the litigation. 9. UNAUTHORIZED DISCLOSURE. During the term of his employment hereunder, or at any later time, the Executive shall not, without the written consent of the Boards of Directors of Corporation and Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of Corporation or Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of Corporation and Bank, any material confidential information obtained by him while in the employ of Corporation and Bank with respect to any of Corporation and Bank's services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to Corporation or Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business of a business 12 similar to that conducted by Corporation and Bank or any information that must be disclosed as required by law. 10. LIABILITY INSURANCE. Corporation and Bank shall use their best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of Corporation and Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however, nothing herein shall be construed to require Corporation and/or Bank to obtain such insurance, if the Board of Directors of the Corporation and/or Bank determine that such coverage cannot be obtained at a reasonable price. 11. NOTICES. Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive's residence, in the case of notices to Executive, and to the principal executive offices of Corporation and Bank, in the case of notices to Corporation and Bank. 12. WAIVER. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Boards of Directors of Corporation and Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. ASSIGNMENT. This Agreement shall not be assignable by any party, except by Corporation and Bank to any successor in interest to their respective businesses. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement. 15. SUCCESSORS; BINDING AGREEMENT. (a) Corporation and Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Corporation and Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Corporation and Bank would be required to perform it if no such succession had taken place. Failure by Corporation and Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 3 of this Agreement shall apply. As used in this Agreement, "Corporation" and "Bank" shall mean Corporation and Bank, as defined previously and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, 13 devisees and legatees. If Executive should die after a Notice of Termination is delivered by Executive, or following termination of Executive's employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee, or, if there is no such designee, to Executive's estate. 16. ARBITRATION. Corporation, Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in Philadelphia, Pennsylvania, to the American Arbitration Association (the "Association") in accordance with the Association's National Rules for the Resolution of Employment Disputes or other applicable rules then in effect ("Rules"). Corporation, Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Corporation and Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Association's pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Corporation, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein. In the event that Executive terminates pursuant to Section 6 herein, and any dispute arising under or in conjunction with Executive's termination is resolved in Executive's favor, whether by judgment, arbitration or settlement, Executive shall be entitled to the reimbursement by Corporation or Bank of all reasonable legal fees paid or incurred by Executive in resolving such dispute. 17. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 18. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles. 19. HEADINGS. The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. 14 ATTEST: ROYAL BANCSHARES OF PENNSYLVANIA, INC. /s/ George J. McDonough By /s/ Jack R Loew - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Jack R. Loew, Chairman, Compensation Committee ROYAL BANK AMERICA /s/ George J. McDonough By /s/ Joseph P. Campbell - ---------------------------------- -------------------------------------- George J. McDonough, Secretary Joseph P. Campbell, President WITNESS: /s/ Patricia Bilotta /s/ Robert R. Tabas - ---------------------------------- -------------------------------------- Robert R. Tabas, Senior Vice President, "Executive" of Royal Bank America 15 EX-31 8 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 - ------------ CERTIFICATION I, Joseph P. Campbell, Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Royal Bancshares of Pennsylvania; 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15(d)-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: (b) [Intentionally omitted]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 9, 2004 /s/ Joseph P. Campbell - ----------------------- Chief Executive Officer EX-31 9 ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 - ------------- CERTIFICATION I, Jeffrey T. Hanuscin, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Royal Bancshares of Pennsylvania; 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) internal control over financial reporting for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: b) [Intentionally omitted]; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 9, 2004 /s/ Jeffrey T. Hanuscin - ----------------------- Chief Financial Officer EX-32 10 ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT 2002 In connection with the Quarter Report of Royal Bancshares ("Royal") on form 10-Q for the period ending September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph P. Campbell, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Royal as of the dates and for the periods expressed in the Report. /s/ Joseph P. Campbell -------------------------- Joseph P. Campbell Chief Executive Officer November 9, 2004. EX-32 11 ex32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT 2002 In connection with the Quarterly Report of Royal Bancshares ("Royal") on form 10-Q for the period ending September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey T. Hanuscin, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Royal as of the dates and for the periods expressed in the Report. /s/ Jeffrey T. Hanuscin -------------------------- Jeffrey T. Hanuscin Chief Financial Officer November 9, 2004. -----END PRIVACY-ENHANCED MESSAGE-----