SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule14a-12
FALMOUTH BANCORP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined.):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FALMOUTH BANCORP, INC.
20 DAVIS STRAITS
FALMOUTH, MASSACHUSETTS 02540
508-548-3500
December 19, 2002
Dear Stockholder:
You are cordially invited to attend the 2003 Annual Meeting of
Stockholders of Falmouth Bancorp, Inc. (the "Company"), the holding company
for Falmouth Bank (the "Bank") which will be held on January 21, 2003 at
4:30 p.m., local time, at the main office of the Bank, 20 Davis Straits,
Falmouth, Massachusetts 02540 (the "Annual Meeting").
The attached Notice of Annual Meeting and Proxy Statement describes
the formal business that we will transact at the Annual Meeting. In
addition to the formal items of business, management will report on the
operations and activities of the Company and the Bank and you will have an
opportunity to ask questions.
The Board of Directors of the Company has determined that an
affirmative vote on each matter to be considered at the Annual Meeting is
in the best interests of the Company and its stockholders and unanimously
recommends a vote "FOR" each of these matters.
Please complete, sign and return the enclosed proxy card promptly,
whether or not you plan to attend the Annual Meeting. Your vote is
important regardless of the number of shares you own. Voting by proxy will
not prevent you from voting in person at the Annual Meeting but will assure
that your vote is counted if you cannot attend.
On behalf of the Board of Directors and the employees of Falmouth
Bancorp, Inc. and Falmouth Bank, we thank you for your continued support
and look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Santo P. Pascqualucci
Santo P. Pasqualucci
President and Chief Executive Officer
FALMOUTH BANCORP, INC.
20 DAVIS STRAITS
FALMOUTH, MASSACHUSETTS 02540
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: Tuesday, January 21, 2003
Time: 4:30 p.m., local time
Place: Falmouth Bank
20 Davis Straits
Falmouth, Massachusetts 02540
At our 2003 Annual Meeting, we will ask you to:
* Elect three directors to serve for a three-year term expiring at
the 2006 annual meeting. The following three directors are the
Board of Director's nominees:
Peter A. Frizzell, DDS Robert H. Moore Henry D. Newman, III
* Ratify the appointment of Shatswell, MacLeod & Company, P.C. as
our independent public accountants for the fiscal year ending
September 30, 2003; and
* Transact any other business as may properly come before the
Annual Meeting.
You may vote at the Annual Meeting if you were a stockholder of the
Company at the close of business on December 9, 2002, the record date.
By Order of the Board of Directors,
/s/ Jeanne E. Alves
Jeanne E. Alves
Secretary
Falmouth, Massachusetts
December 19, 2002
===========================================================================
You are cordially invited to attend the Annual Meeting. It is important
that your shares be represented regardless of the number of shares you own.
The Board of Directors urges you to sign, date and mark the enclosed proxy
card promptly and return it in the enclosed envelope. Returning the proxy
card will not prevent you from voting in person if you attend the Annual
Meeting.
===========================================================================
GENERAL INFORMATION
General
We have sent you this Proxy Statement and enclosed proxy card because
the Board of Directors is soliciting your proxy to vote at the Annual
Meeting. This Proxy Statement summarizes the information you will need to
know to cast an informed vote at the Annual Meeting. You do not need to
attend the Annual Meeting to vote your shares. You may simply complete,
sign and return the enclosed proxy card and your votes will be cast for you
at the Annual Meeting. This process is described below in the section
entitled "Voting Rights."
We began mailing this Proxy Statement, the Notice of Annual Meeting
and the enclosed proxy card on or about December 19, 2002 to all
stockholders entitled to vote. If you owned the Company's common stock at
the close of business on December 9, 2002, the record date, you are
entitled to vote at the Annual Meeting. On the record date, there were
901,379 shares of common stock outstanding.
Quorum
A quorum of stockholders is necessary to hold a valid meeting. If the
holders of at least a majority of the total number of the outstanding
shares of common stock entitled to vote are represented in person or by
proxy at the Annual Meeting, a quorum will exist. We will include proxies
marked as abstentions and broker non-votes to determine the number of
shares present at the Annual Meeting.
Voting Rights
You are entitled to one vote at the Annual Meeting for each share of
the Company's common stock that you owned as of record at the close of
business on December 9, 2002. The number of shares you own (and may vote)
is listed at the top of the back of the proxy card.
You may vote your shares at the Annual Meeting in person or by proxy.
To vote in person, you must attend the Annual Meeting and obtain and submit
a ballot, which we will provide to you at the Annual Meeting. To vote by
proxy, you must complete, sign and return the enclosed proxy card. If you
properly complete your proxy card and send it to us in time to vote, your
"proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares FOR each of the
proposals identified in the Notice of the Annual Meeting.
If any other matter is presented, your proxy will vote the shares
represented by all properly executed proxies on such matters as a majority
of the Board of Directors determines. As of the date of this Proxy
Statement, we know of no other matters that may be presented at the Annual
Meeting, other than those listed in the Notice of the Annual Meeting.
-2-
Vote Required
Proposal 1: The three nominees for director who receive the
Elect Three Directors most votes will be elected. So, if you do not vote
for a nominee, or you indicate "withhold authority"
for any nominee on your proxy card, your vote will
not count "for" or "against" the nominee. You may
not vote your shares cumulatively for the election
of directors.
Proposal 2: The affirmative vote of a majority of the shares
Ratify Appointment of present in person or by proxy at the Annual Meeting
Independent Public and entitled to vote on this proposal is required
Accountants to ratify the appointment of Shatswell, MacLeod &
Co., P.C. as the Company's independent public
accountants. So, if you "abstain" from voting, it
has the same effect as if you voted "against" this
proposal.
Effect of Broker Non-Votes
If your broker holds shares that you own in "street name," the broker
may vote your shares on the two proposals listed above even if the broker
does not receive instructions from you. If your broker does not vote on any
of the proposals, this will constitute a "broker non-vote." Broker non-
votes will be treated as shares that are not represented on Proposals 1 and
2 and will have no effect on the outcome of the votes.
Confidential Voting Policy
The Company maintains a policy of keeping stockholder votes
confidential. We only let our Inspector of Election and certain employees
of our independent tabulating agent examine the voting materials. We will
not disclose your vote to management unless it is necessary to meet legal
requirements. We will, however, forward any written comments that you may
have to management.
Revoking Your Proxy
You may revoke your proxy at any time before it is exercised by:
* Filing with the Secretary of the Company a letter revoking the
proxy;
* Submitting another signed proxy with a later date; and
* Attending the Annual Meeting and voting in person, provided you
file a written revocation with the Secretary of the Annual
Meeting prior to the voting of such proxy.
If your shares are not registered in your own name, you will need
appropriate documentation from your stockholder of record to vote
personally at the Annual Meeting. Examples of such documentation include a
broker's statement, letter or other document that will confirm your
ownership of shares of the Company.
-3-
Solicitation of Proxies
The Company will pay the costs of soliciting proxies from its
stockholders. Directors, officers or employees of the Company and the Bank
may solicit proxies by:
* mail;
* telephone; and
* other forms of communication.
We will also reimburse banks, brokers, nominees and other fiduciaries
for the expenses they incur in forwarding the proxy materials to you.
Obtaining an Annual Report on Form 10-KSB
If you would like a copy of our Annual Report on Form 10-KSB for the
year ended September 30, 2002, which will be filed with the SEC, we will
send you one (without exhibits) free of charge. Please write to:
George E. Young, III
Senior Vice President and Chief Financial Officer
Falmouth Bancorp, Inc.
20 Davis Straits
Falmouth, Massachusetts 02540
-4-
Security Ownership of Certain Beneficial Owners
The following table contains common stock ownership information for
persons known to the Company to "beneficially own" 5% or more of the
Company's common stock as of December 9, 2002. In general, beneficial
ownership includes those shares that a person has the power to vote, sell,
or otherwise dispose. Beneficial ownership also includes that number of
shares which an individual has the right to acquire within 60 days (such as
stock options) of the date this table was prepared. Two or more persons may
be considered the beneficial owner of the same shares. We obtained the
information provided in the following table from filings with the SEC and
with the Company. In this proxy statement, "voting power" is the power to
vote or direct the voting of shares, and "investment power" includes the
power to dispose or direct the disposition of shares.
Amount of Percent of Shares
Name and Address Beneficial of Common Stock
Title of Class of Beneficial Owner Ownership Outstanding (1)
- -------------- ------------------- ---------- -----------------
<s> <c> <c> <c>
Common Stock The Cape Cod Five Cents 131,800(2) 14.62%
Savings Bank
P.O. Box 10
19 West Road
Orleans, Massachusetts 02653
Common Stock Falmouth Bancorp, Inc. 82,191 9.12%
Employee Stock Ownership
Plan Trust
20 Davis Straits
Falmouth, Massachusetts 02540
Common Stock Santo P. Pasqualucci 85,867 8.93%
c/o Falmouth Bancorp, Inc.
20 Davis Straits
Falmouth, Massachusetts 02540
<FN>
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<F1> The total number of shares of the Company's common stock outstanding
on December 9, 2002 was 901,379 shares.
<F2> Based on information in a Schedule 13G/A filed with the SEC on July
30, 1999, The Cape Cod Five Cents Savings Bank is deemed to be the
beneficial owner of these shares.
</FN>
-5-
Stock Ownership of Management
The following table shows the number of shares of the Company's
common stock beneficially owned by each director and executive officer, and
all directors and executive officers of the Company as a group, as of
December 1, 2002. Beneficial ownership also includes that number of shares
which an individual has the right to acquire within 60 days (such as stock
options) of the date this table was prepared. Except as otherwise
indicated, each person and each group shown in the table has sole voting
and investment power with respect to the shares of common stock listed next
to their name.
Amount and Percent of
Nature of Common
Beneficial Stock
Name Title(1) Ownership(2)(3) Outstanding(12)
- ---- -------- --------------- ---------------
<s> <c> <c> <c>
James A. Keefe(4) Director 23,560 2.6%
Wayne C. Lamson Director 4,027 0.4%
Gardner L. Lewis(5) Director 11,730 1.3%
John J. Lynch, Jr.(6) Director, Chairman of the Board 36,749 4.1%
Eileen C. Miskell(7) Director 10,891 1.2%
Robert H. Moore(8) Director 4,922 0.5%
William E. Newton(9) Director 15,891 1.8%
Santo P. Pasqualucci(10) President, Chief Executive 85,867 8.9%
Officer and Director
All directors and executive 244,348 24.7%
officers as a group
(13 persons)(11)
<FN>
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<F1> Titles are for both the Company and the Bank.
<F2> Includes restricted stock awards of 858 shares of common stock made
to each of the outside directors, with the exception of Mr. Lynch,
who was awarded 1,716 shares, under the 1997 Recognition and
Retention Plan for Outside Directors, Officers and Employees of
Falmouth Bancorp, Inc. ("RRP"). Mr. Pasqualucci was also awarded
4,310 shares of restricted stock under the RRP. Each recipient of a
RRP restricted share award has sole voting power, but no investment
power, over the shares of common stock covered by the award.
<F3> The figures above include stock options granted to the following
directors under the 1997 Stock Option Plan for Outside Directors,
Officers and Employees of Falmouth Bancorp, Inc. ("Stock Option
Plan"), which may be acquired pursuant to these vested options: Mr.
Lynch, 3,969 shares; Mr. Keefe, 3,969 shares; Mr. Lamson, 2,381
shares, Mr. Lewis, 2,969 shares; Ms. Miskell, 1,589 shares; Mr.
Moore, 0 shares; Mr. Newton, 3,969 shares; and Mr. Pasqualucci,
36,368 shares. The figures above also include an additional 20,000
shares of common stock granted to Mr. Pasqualucci, which may be
acquired pursuant to vested options.
<F4> Includes 2,669 shares held in an Individual Retirement Account
("IRA").
<F5> Includes 2,489 shares held in spouse's IRA, 4,000 shares held in Mr.
Lewis's IRA and 250 shares held individually by spouse. Mr. Lewis
disclaims beneficial ownership over the shares held by his spouse.
-6-
<F6> Includes 25,000 shares held in an IRA and 5,000 shares owned by the
corporation of which Mr. Lynch serves as president.
<F7> Includes 1,000 shares held in an IRA, 1,500 shares held solely by
spouse and 2,500 shares owned by a corporation of which Ms. Miskell
serves as treasurer.
<F8> Includes 3,000 shares held in an IRA.
<F9> Includes 5,000 shares held by Mr. Newton as trustee for a Profit
Sharing Trust, 2,500 shares held in an IRA, and 2,500 shares held by
Mr. Newton for a corporation of which Mr. Newton is a principal.
<F10> Includes the total of 8,731 shares that have been allocated to Mr.
Pasqualucci under the ESOP as of September 30, 2002, as to which he
has sole voting power, but no investment power, except in limited
circumstances, 9,000 shares held in an IRA in Mr. Pasqualucci's name,
and 4,018 shares held in two trusts for the benefit of Mr.
Pasqualucci's minor children. Mr. Pasqualucci disclaims beneficial
ownership over the shares held for his minor children.
<F11> Includes 29,217 shares held by the ESOP Trust that have been
allocated as of September 30, 2002 to the individual accounts of the
executive officers under the ESOP as to which such executive officers
have sole voting power, but no investment power, except in limited
circumstances. Also includes 30,551 unallocated shares held by the
ESOP Trust as to which the ESOP Trustee may be deemed to share voting
and investment power.
<F12> Based on a total of 901,379 shares of the Company's common stock
outstanding as of December 9, 2002.
</FN>
DISCUSSION OF PROPOSALS RECOMMENDED BY BOARD
---------------------
PROPOSAL 1
ELECTION OF DIRECTORS
---------------------
General
The Board has nominated three persons for election as directors at
the Annual Meeting. The nominees are currently serving on the Company's
Board of Directors. If you elect the nominees, they will hold office until
the Annual Meeting in 2006, or until their successors have been elected.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for
another nominee proposed by the Board. If for any reason these nominees
prove unable or unwilling to stand for election, the Board will nominate
alternates or reduce the size of the Board of Directors to eliminate the
vacancy. The Board has no reason to believe that its nominees would prove
unable to serve if elected.
-7-
Nominees and Continuing Directors
Position(s)
Held with
Nominees Age(1) Term Expires the Company Director Sice(2)
- -------- ------ ------------ ----------- ----------------
<s> <c> <c> <c> <c>
Peter A. Frizzell, DDS 55 2006 Director -
Robert H. Moore 69 2006 Director 1976
Henry D. Newman, III 47 2006 Director -
Continuing Directors
- --------------------
Wayne C. Lamson 52 2005 Director 1999
Gardner L. Lewis 65 2005 Director 1993
John J. Lynch, Jr. 75 2004 Director, Chairman of the 1970
Board
Eileen C. Miskell 44 2005 Director 1994
William E. Newton 63 2004 Director 1975
Santo P. Pasqualucci 63 2004 President, Chief Executive 1993
Officer and Director
Retiring Director
- -----------------
James A. Keefe 76 2003 Director 1973
<FN>
- --------------------
<F1> As of November 1, 2002.
<F2> Includes service as director of the Bank prior to the formation of
the Company in 1996.
</FN>
The principal occupation and business experience of each nominee for
election as director and each Continuing Director is set forth below.
Nominees
Peter A. Frizzell, DDS has owned and operated a dental practice in
Falmouth, Massachusetts for approximately 25 years.
Robert H. Moore has worked as an agent with the Paul Peters Agency,
Inc., a general insurance agency located in Falmouth, since May of 1960.
Mr. Moore retired from the insurance agency in 1999.
Henry D. Newman, III is the owner of Newman Associates, a plumbing
and heating supply distribution company located in Westwood, Massachusetts,
and Westwood Systems, a steel fabrication company located in Bellingham,
Massachusetts.
Continuing Directors
Wayne C. Lamson, has been Treasurer/Comptroller of the Woods Hole,
Martha's Vineyard and Nantucket Steamship Authority since 1982. As
Treasurer/Comptroller, Mr. Lamson is responsible for the Authority's
accounting, treasury, finance, internal audit, insurance, payroll, credit
and collection, procurement and pension plan administration functions.
-8-
Gardner L. Lewis is currently retired. He owned and operated The
Pancake Man, a full-service restaurant located in Falmouth, from 1964 to
1993. In 1993, the restaurant was leased to a third party.
John J. Lynch, Jr. has served as President of Paul Peters Agency,
Inc., a general insurance agency located in Falmouth, since 1957.
Eileen C. Miskell, CPA, has an MBA from Boston College and is
currently the Treasurer of Wood Lumber Company, a family-owned company
located in Falmouth, Massachusetts. She has former accounting experience
with the regional public accounting firms of Livingston & Haynes and Wolf &
Company.
William E. Newton has worked as a contractor and has been a principal
of C. H. Newton Builders, Inc. in West Falmouth since 1965.
Santo P. Pasqualucci has served as President of the Bank since
December, 1992 and as President and Chief Executive Officer of the Company
since its formation in 1996. Prior to that time, he served as the President
of a savings bank for six years. He has served the banking community of
Massachusetts for over 38 years.
Retiring Director
James A. Keefe has been a principal of Falmouth Ford, an automobile
dealership, since October of 1966.
===========================================================================
The Board of Directors unanimously recommends a vote "For" all of the
nominees for election as directors.
===========================================================================
------------------------------
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The Board of Directors has appointed Shatswell, MacLeod & Co., P.C.
as our independent public accountants for the Company for the fiscal year
ending September 30, 2003, and we are asking stockholders to ratify the
appointment. Representatives of Shatswell, MacLeod & Co., P.C. are not
expected to attend the Annual Meeting.
===========================================================================
The Board of Directors unanimously recommends a vote "For" the ratification
of the appointment of Shatswell, MacLeod & Co., P.C. as independent public
accountants for the Company.
===========================================================================
-9-
Audit Fees
Audit Fees. The aggregate fees paid to Shatswell, MacLeod & Co., P.C.
for professional services rendered for the audit of our annual financial
statements for the fiscal year ended September 30, 2002, and for the
reviews of the financial statements included in our quarterly reports on
Form 10-QSB for that fiscal year, were $53,322.
Financial Information Systems Design and Implementation Fees. We did
not engage Shatswell, MacLeod & Co., P.C. for any professional services
related to financial information systems design and implementation during
the fiscal year ended September 30, 2002.
All Other Fees. The aggregate fees paid to Shatswell, MacLeod & Co.,
P.C. for services rendered to use, other than the services described under
"Audit Fees" for the fiscal year ended September 30, 2002 were $10,350.
INFORMATION ABOUT BOARD OF DIRECTORS AND MANAGEMENT
Board of Directors
As of the date of this proxy statement, the Company's Board of
Directors consists of seven members. The Company's Certificate of
Incorporation provides that the Board of Directors shall be divided into
three classes, as nearly equal in number as possible. The term of two
directors expire at the Annual Meeting. Mr. Robert Moore will be retiring
as a director, effective at the expiration of his term on the date of the
annual meeting. Each of our directors also serves as a director of the
Bank.
The Board of Directors oversees our business and monitors the
performance of our management. In accordance with our corporate governance
procedures, the Board of Directors does not involve itself in the day-to-
day operations of the Company. The Company's executive officers and
management oversee the day-to-day operations of the Company. Our directors
fulfill their duties and responsibilities by attending regular meetings of
the Board which are held on a monthly basis. Our directors also discuss
business and other matters with the Chairman and the President, other key
executives, and our principal external advisors (legal counsel, auditors,
financial advisors and other consultants).
The Board of Directors held 12 regular meetings during the fiscal
year ended September 30, 2002. Each incumbent director attended at least
75% of the meetings of the Board of Directors plus committee meetings on
which that particular director served during this period.
-10-
Committees of the Board
The Board of Directors of the Company and the Bank have established
the following committees:
EXECUTIVE COMMITTEE The Committee provides advice and recommendations to
the Board in areas of employee salaries and
directors' compensation. The Executive Committee
considers strategic, planning and industry issues
and is authorized to act as appropriate between
meetings of the Board of Directors.
Directors Keefe, Lynch, Miskell, Newton, Lewis and
Pasqualucci serve as members of the committee.
The Executive Committee met one time in the 2002
fiscal year.
AUDIT COMMITTEE The Audit Committee is responsible for review of the
annual audit with the Company's outside auditors and
to report any substantive issues found during the
audit to the Board. The Audit Committee adopted a
written charter, which was attached to the Proxy
Statement for the 2001 Annual Meeting.
Directors Miskell, Lamson and Lewis serve as members
of the committee and are "independent" as defined in
Section 121(A) of the American Stock Exchange's
listing standards.
The Audit Committee met 2 times during the 2002
fiscal year.
COMPENSATION The Compensation Committee is responsible for
COMMITTEE establishing guidelines for management and employee
compensation.
Directors Miskell, Keefe, Lewis, Lynch and Newton
serve as members of the committee.
The Compensation Committee met 2 times in the 2002
fiscal year.
SECURITY COMMITTEE The Security Committee reviews the loan collateral,
appraisal reports on real estate, and authorizes the
funding of real estate loans. In addition, the
Committee authorizes the release of periodic draws
on construction loans.
Directors Lewis, Moore and Pasqualucci serve as
members of the committee.
The Security Committee met 48 times in the 2002
fiscal year.
The Board of Directors, acting as the nominating committee, met in
October, 2002 to select the nominees for election as directors at the
Annual Meeting. The Company's bylaws also set forth a procedure for
shareholders to nominate directors by notifying the Secretary of the
Company in writing and meeting other requirements as set forth in the
bylaws.
-11-
Audit Committee Report
The following Report of the Company's Audit Committee is provided in
accordance with the rules and regulations of the SEC. Pursuant to such
rules and regulations, this report shall not be deemed "soliciting
material," filed with the SEC, subject to Regulation 14A or 14C of the SEC
or subject to the liabilities of section 18 of the Exchange Act.
FALMOUTH BANCORP, INC. AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended September 30, 2002 with
management. The Audit Committee has also reviewed and discussed with
Shatswell, MacLeod & Co., P.C. ("Shatswell"), the Company's independent
auditors, the matters required to be discussed by SAS 61, as may be
modified or supplemented.
The Audit Committee has received the written disclosures and the
letter from Shatswell required by Independence Standards Board Standard No.
1 (Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees), as may be modified or supplemented, and has
discussed Shatswell's independence with respect to the Company with
Shatswell and considered whether the provision of non-audit services
provided by Shatswell is compatible with maintaining the auditor's
independence.
Based on the review and discussions referred to in this audit
committee report, the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Annual
Report on Form 10-KSB for the year ended September 30, 2002 for filing with
the SEC.
FALMOUTH BANCORP, INC.
AUDIT COMMITTEE
Eileen C. Miskell, Chairperson
Wayne C. Lamson
Gardner L. Lewis, III
Director Compensation
Meeting Fees. Each non-employee of the Bank receives a fee of $600
for attendance at each board meeting. The Chairman of the Board receives a
fee of $900 per Board meeting attended. The Bank also pays each non-
employee director fees ranging from $120 to $300 for each committee meeting
attended, as well as an annual retainer of $3,600 to each non-employee
director.
Total directors' meeting and committee fees for fiscal 2002 were
$71,350. We do not compensate our employees for service as directors.
Directors are also entitled to the protection of certain indemnification
provisions in our Certificate of Incorporation and Bylaws.
Recognition and Retention Plan and Stock Option Plan. In addition,
our directors are eligible to participate in the Stock Option Plan and
Recognition and Retention Plan. These stock benefit plans are discussed
under "-Benefits," "Stock Option Plans" and "Recognition and Retention
Plan."
-12-
Executive Officers
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names.
<CAPTI0N>
Name Position Held with the Company
---- ------------------------------
<s> <c>
Santo P. Pasqualucci President and Chief Executive Officer
George E. Young, III Senior Vice President and Chief Financial Officer
Jeanne E. Alves Secretary
The following individuals are executive officers of the Bank and hold
the offices set forth below opposite their names.
Name Position Held with the Bank
---- ---------------------------
<s> <c>
Santo P. Pasqualucci President and Chief Executive Officer
George E. Young, III Senior Vice President and Treasurer
Ronald Garcia Vice President/Senior Loan Officer
Sharon L. Shoner Vice President/Auditor/Compliance Officer
Jacqueline B. Nolan Vice President, Retail Operations
Jeanne E. Alves Clerk/Assistant Treasurer
The Board of Directors annually elects the executive officers of the
Company and the Bank. The elected officers hold office until their
respective successors have been elected and qualified, or until death,
resignation or removal by the Board of Directors. The Company has entered
into Employment Agreements with certain of its executive officers which set
forth the terms of their employment. See "-Employment Agreements."
Biographical information of executive officers of the Company and the
Bank is set forth below.
Santo P. Pasqualucci, age 63, has served as President and Chief
Executive Officer of the Bank since December, 1992 and President and Chief
Executive Officer of the Company since 1996. Prior to that time, he served
as the President of a savings bank for six years. He has served the banking
community of Massachusetts for over 38 years.
George E. Young, III, age 57, has served as Senior Vice President &
Treasurer of the Company since 2001. Mr. Young served as Senior Vice
President and Chief Financial Officer of the Company from 1996 to 2001,
Vice President & Treasurer from 1994 to 1996 and Treasurer from 1992 to
1994. Prior thereto, he was Treasurer and Auditor/Compliance Officer from
1973 to 1991 with another financial institution. Mr. Young has over 30
years of banking experience.
Jeanne E. Alves, age 58, has served as the Secretary of the Company
and Clerk of the Bank since November 1997. Ms. Alves joined the Bank in
1984 and was promoted to Assistant Treasurer in 1992.
Ronald Garcia, age 52, has served as Vice President/Senior Loan
Officer of the Bank since April 1997. Mr. Garcia served as Vice
President/Commercial Lending of the Bank from 1994 through April
-13-
1997. Prior thereto, he was a Vice President and Commercial Loan Officer
for Falmouth National Bank/Bank of Boston.
Sharon L. Shoner, age 52, has served with the Loan Department of the
Bank since 1977. She is currently Vice President/Audit and Compliance
Officer of the Bank, overseeing the Bank's internal audit and compliance
functions. Ms. Shoner also conducts quarterly CRA reviews and meetings.
Jacqueline B. Nolan, age 41, has served as Vice President, Retail
Operations & Marketing of the Bank since 2001. She served as Assistant Vice
President of the Bank from October 1998 to 2001, and Branch Administrator
from 1996 to 1998. Prior thereto, she served as a loan originator with
Fleet Bank and another former Cape Cod Bank. She has also served as
Assistant Vice President for the former BayBank, now Fleet Bank. Ms. Nolan
has over 20 years of banking experience.
Executive Compensation
The following table sets forth cash and noncash compensation for the
fiscal years ended September 30, 2002, 2001 and 2000 awarded to or earned
by Santo P. Pasqualucci, the Company's President and Chief Executive
Officer.
Compensation Table
Summary
Long Term
Annual Compensation(1) Compensation Awards
----------------------------------- --------------------
Other Restricted
Annual Stock All Other
Name and Principal Compensation Awards Options Compensation
Positions Year Salary($) Bonus($) ($) ($)(2) (#)(3) ($)(4)
- ------------------ ---- --------- -------- ------------ ---------- ------- ------------
<s> <c> <c> <c> <c> <c> <c> <c>
Santo P. Pasqualucci, 2002 $166,949 - - $94,820 3,778 $34,986
President and Chief 2001 155,000 - - - - 31,682
Executive Officer 2000 150,462 - - - 20,000 24,261
<FN>
- --------------------
<F1> Under Annual Compensation, the column titled "Salary" includes base
salary, amounts deferred by Mr. Pasqualucci under the Company's
401(k) plan (but not matching contributions made by the Company) and
payroll deductions for health insurance under the Company's health
insurance plan.
<F2> Pursuant to the RRP, Mr. Pasqualucci was awarded 4,310 shares of
restricted stock, which vest as follows: 1,079 shares on February 1,
2003 and 1,077 shares on each of February 1, 2004, 2005 and 2006. The
value of the restricted share award shown in the table above is based
a price of $22.00, which is the closing price of a share of common
stock on March 19, 2002 the effective date of the award. At September
30, 2002, the aggregate fair market value of the restricted stock
award made to Mr. Pasqualucci was $100,208, based on a closing price
of $23.25 on September 30, 2002. Any cash dividends or distributions
declared and paid with respect to awarded shares shall be paid to
participants. In the case of death, disability, retirement, or a
change in control, as defined by the RRP, all restricted stock awards
become immediately vested.
<F3> The options granted are "non-qualified stock options" under Section
422 of the Internal Revenue Code, as amended (the "Code"). The 2000
stock options are immediately exercisable and generally remain
exercisable until the tenth anniversary of the grant. The 2002 stock
options vest as follows: 946 shares on February 1, 2003, and 944
shares on each of February 1, 2004, 2005 and 2006 and generally
remain exercisable until the tenth anniversary of the grant.
-14-
<F4> Includes (i) the dollar value of premiums paid by the Company with
respect to term life insurance (other than group term insurance
coverage under a plan available to substantially all salaried
employees) for the benefit of Mr. Pasqualucci amounting to $2,246,
$2,246 and $2,246 for fiscal 2002, 2001 and 2000, respectively; and
(ii) the Company's contributions on behalf of the executive officer
to the Company's 401(k) plan consisting of $4,050, $3,875 and $3,635
for fiscal 2002, 2001 and 2000, respectively; and (iii) 1,234, 1,273
and 1,349 shares of common stock allocated to the executive officer
under the ESOP for fiscal 2002, 2001 and 2000, respectively. The
value of the shares were based on a price of $23.25, $20.08 and
$13.625, the closing price on September 30, 2002, 2001 and 2000,
respectively.
</FN>
Employment Agreements. The Company is party to employment agreements
(the "Employment Agreements") with Messrs. Santo Pasqualucci, the Bank's
President and Chief Executive Officer, and George Young, its Vice President
and Treasurer. These Employment Agreements set forth the duties and
compensation of the Executives and are intended to ensure that the Bank and
the Company will have experienced and competent management personnel.
The Employment Agreements provide for terms of four years, in the
case of Mr. Pasqualucci, and three years, in the case of Mr. Young. On each
anniversary date from the date of commencement of the Employment
Agreements, the term of employment will be extended for an additional one-
year period beyond the then effective expiration date, upon a determination
by the Board of Directors that the performance of the Executive has met the
required performance standards and that such Employment Agreement should be
extended. The Employment Agreements provide the Executives with a salary
review by the Board of Directors not less often than annually, as well as
with inclusion in any discretionary bonus plans, retirement and medical
plans, customary fringe benefits and vacation and sick leave. The
Employment Agreements will terminate upon the Executives' death or
disability, and are terminable by the Bank or the Company for "cause" as
defined in the Employment Agreements. In the event of termination for
cause, no severance benefits are available. If the Bank or the Company
terminates the Executive without cause, the Executive will be entitled to a
continuation of his salary and benefits from the date of termination
through the remaining term of the Employment Agreement. If an Employment
Agreement is terminated due to the Executive's "disability" (as defined in
the Employment Agreement), the Executive will be entitled to a continuation
of his salary at three-quarters level and benefits until the Executive
becomes employed again, reaches age 65 or dies. In the event of an
Executive's death during the term of the Employment Agreement, his estate
will be entitled to receive his salary through the end of the month of his
death.
The Employment Agreements contain provisions stating that in the
event of an Executive's involuntary termination of employment in connection
with, or within one year after, any "change in control" (as defined in the
Employment Agreement), Mr. Pasqualucci and Mr. Young will be paid, within
10 days of such termination, an amount equal to 2.99 times their "base
amount," as defined in Section 280G(b)(3) of the Code. The Employment
Agreements also provide for a lump sum payment of the payments due to an
Executive for the remaining term of the Employment Agreement to be made in
the event of the Executive's voluntary termination of employment, upon the
occurrence, or within 60 days thereafter, of certain specified events which
have not been consented to in writing by an Executive, including:
* the requirement that an Executive perform his principal
executive functions more than 35 miles from the Bank's or the
Company's current primary office;
* material reduction in the Executive's authority and
responsibility;
* liquidation or dissolution of the Bank or the Company; and
* a breach of the Employment Agreement by the Bank or the Company.
-15-
Stock Option Plan
The Company has a Stock Option Plan in effect which was previously
approved by its stockholders. The purpose of the Stock Option Plan is to
promote the growth of the Company, the Bank and other affiliates by linking
the incentive compensation of officers, key executives and directors with
the profitability of the Company. The Stock Option Plan is not subject to
ERISA and is not a tax-qualified plan. The Company has reserved an
aggregate of 145,475 shares of common stock for issuance upon the exercise
of stock options granted under the Stock Option Plan. The Company also
maintains a stock option plan not approved by stockholders that is also not
subject to ERISA and is not a tax-qualified plan. The Company has reserved
an aggregate of 23,778 shares of common stock for issuance upon the
exercise of stock options granted under this plan.
The following table summarizes the grants of options that were made
to Santo P. Pasqualucci, the named executive officer, during fiscal 2002.
Percent of
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year(%) ($ Per Share) Date
---- ------------ -------------- ------------- ----------
<s> <c> <c> <c> <c>
Santo P. Pasqualucci, 3,778 31.28 22.00 3/19/12
President and Chief
Executive Officer
The following table provides the value for "in-the-money" options,
which represent the positive spread between the exercise price of any such
existing stock options and the year-end price of the common stock.
Aggregated Options in 2002 Fiscal Year and 2002 Fiscal Year End Options
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Options/SARs at Fiscal Options/SARs at Fiscal
on Value Year-end Year-end(1)
Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- -------- ------------------------- -------------------------
<s> <c> <c> <c> <c>
Santo P. Pasqualucci, - - 56,368/3,778 524,134/4,723
President and Chief
Executive Officer
<FN>
- --------------------
<F1> The closing price per share of common stock on September 30, 2002 was
$23.25. 36,368 exercisable options have an exercise price of $13.375
per share and 20,000 exercisable options have an exercise price of
$15.00 per share, which equal spreads of $9.875 and $8.25,
respectively. The unexercisable options have an exercise price of
$22.00 per share, which equals a spread of $1.25.
</FN>
-16-
Recognition and Retention Plan
Similar to the Stock Option Plan, the RRP functions as a long-term
incentive compensation program for eligible officers, employees and outside
directors of the Company, the Bank and other affiliates. The members of the
Board's Compensation Committee who are disinterested directors ("RRP
Committee") administer the RRP. The Company pays all costs and expenses of
administering the RRP.
As required by the terms of the RRP, the Company has established a
trust and will contribute, or cause to be contributed, to the trust, from
time to time, funds sufficient to purchase up to 58,190 shares of common
stock, the maximum number of restricted stock awards that may be granted
under the RRP. Shares of common stock subject to a restricted stock award
are held in the trust until the award vests at which time the shares of
common stock attributable to the portion of the award that have vested are
distributed to the award holder. An award recipient is entitled to exercise
voting rights and receive cash dividends with respect to the shares of
common stock subject to the award, whether or not the underlying shares
have vested.
Restricted stock awards are granted under the RRP on a discretionary
basis to eligible officers and executives selected by the RRP Committee and
are awarded to outside directors pursuant to the terms of the RRP. All
outstanding restricted stock awards are automatic full vesting on the date
of the award holder's death, disability or retirement or upon a change in
control of the Company. On March 19, 2002, each outside director of the
Company was granted 858 shares of restricted stock under the RRP, except
for Mr. Lynch who was granted 1,716 shares. The awards generally vest 25%
each year, beginning on February 1, 2003.
The Company may amend or terminate the RRP, in whole or in part, at
any time, subject to the requirements of all applicable laws.
Transactions with Certain Related Persons
Under applicable federal law, all loans or extensions of credit to
executive officers and directors must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not
involve more than the normal risk of repayment or present other unfavorable
features. The Bank has made loans or extended credit to executive officers
and directors and also to certain persons related to executive officers and
directors. All such loans were made by the Bank in the ordinary course of
business and were not made with more favorable terms nor did they involve
more than the normal risk of collectibility or present unfavorable
features. At September 30, 2002, the Bank had a total of $1,500,000 in
loans outstanding to its directors and no loans to its executive officers.
In addition to these provisions of federal law, Massachusetts law
requires that loans by a co-operative bank to its officers and directors be
made on non-preferential terms and receive the prior approval of a
disinterested majority of the board of directors. Further, loans by a co-
operative bank to its own officers may not exceed $20,000 for general
purposes; $75,000 for educational purposes; and $275,000 for residential
home mortgage purposes. All loans by a co-operative bank to its officers
and directors must be reported annually to the Commissioner.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that the Company's
directors, executive officers, and any person holding more than ten percent
of the Company's Common Stock file with the SEC reports of ownership
changes, and that such individuals furnish the Company with copies of the
reports.
-17-
Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons, the Company
believes that all of our executive officers and directors complied with all
Section 16(a) filing requirements applicable to them.
ADDITIONAL INFORMATION
Information About Stockholder Proposals
If you wish to submit proposals to be included in our 2003 proxy
statement for the 2004 Annual Meeting of Stockholders, we must receive them
by August 19, 2003, pursuant to the proxy soliciting regulations of the
SEC. SEC rules contain standards as to what stockholder proposals are
required to be in the proxy statement. Any such proposal will be subject to
17 C.F.R. [SECTION]240.14a-8 of the rules and regulations promulgated by
the SEC.
In addition, under the Company's Bylaws, if you wish to nominate a
director or bring other business before an annual meeting (which is not
included in the proxy statement for the 2004 Annual Meeting), you must be a
shareholder of record and have given timely notice in writing to the
Secretary of the Company, according to the procedures set forth in our
Bylaws. If our 2004 Annual Meeting is held on a day that is within thirty
(30) days preceding the anniversary of this year's meeting, we must receive
your notice at least sixty days (60) days in advance of the 2004 Annual
Meeting. For example, if the 2004 Annual Meeting is held on January 20,
2004, we must receive your notice by November 21, 2003. If our 2003 Annual
Meeting is held on or after January 21, 2003, we must receive your notice
at least ninety (90) days in advance of the 2004 Annual Meeting. Finally,
if our 2004 Annual Meeting is held on a date which is outside the time
periods set forth above, we must receive your notice by the close of
business on the tenth (10th) day following the date on which the notice of
the 2004 Annual Meeting is first given to shareholders as provided in the
Bylaws.
By Order of the Board of Directors,
/s/ Jeanne E. Alves
Jeanne E. Alves
Secretary
Falmouth, Massachusetts
December 19, 2002
===========================================================================
To assure that your shares are represented at the Annual Meeting, please
complete, sign, date and promptly return the accompanying proxy card in the
postage-paid envelope provided.
===========================================================================
-18-
REVOCABLE PROXY
Falmouth Bancorp, Inc.
This Proxy is solicited on behalf of the Board of Directors of
Falmouth Bancorp, Inc.
for the Annual Meeting of Stockholders to be held on January 21, 2003.
The undersigned stockholder of Falmouth Bancorp, Inc. hereby appoints
Santo P. Pasqualucci and John J. Lynch, Jr., and each of them, with full
powers of substitution, to represent and to vote as proxy, as designated, all
shares of common stock of Falmouth Bancorp, Inc. held of record by the
undersigned on December 9, 2002, at the 2003 Annual Meeting of Stockholders
(the "Annual Meeting") to be held at 4:30 p.m., Eastern Standard Time, on
January 21, 2003, or at any adjournment or postponement thereof, upon the
matters described in the accompanying Notice of the 2003 Annual Meeting of
Stockholders and Proxy Statement, dated December 9, 2002, and upon such other
matters as may properly come before the Annual Meeting. The undersigned hereby
revokes all prior proxies.
Please mark votes as in this [X]
example.
1. Election of three Directors FOR ALL
for terms of three years each. FOR WITHHOLD EXCEPT
Nominees: Peter A. Frizzell, DDS, [ ] [ ] [ ]
Robert H. Moore and Henry D.
Newman, III.
Instruction: TO WITHHOLD
AUTHORITY to vote for any
individual nominee, write that
nominee's name in the space
provided below.
----------------------------------
2. Ratification of the appointment of FOR AGAINST ABSTAIN
Shatswell, MacLeod & Company, P.C. [ ] [ ] [ ]
as independent public accountants
for the fiscal year ending
September 30, 2003.
Please check this box if you plan to attend the meeting. [ ]
The Board of Directors unanimously recommends a vote "FOR" all of the nominees
named in Item 1 and a vote "FOR" the proposal in Item 2.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this Proxy
will be voted FOR the election of all nominees listed in Item 1 and FOR the
proposal listed in Item 2.
The undersigned hereby acknowledges receipt of the Notice of the 2003 Annual
Meeting of Stockholders and the Proxy Statement, dated December 9, 2002 for
the 2003 Annual Meeting.
- --------------------------------
- --------------------------------
Signature(s)
Dated: -------------------------
Please sign exactly as your name appears on this proxy. Joint owners should
each sign personally. If signing as attorney, executor, administrator, trustee
or guardian, please include your full title. Corporate or partnership proxies
should be signed by an authorized officer.