[FORM OF FALMOUTH BANCORP, INC. LETTERHEAD]
December 18, 1998
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Falmouth Bancorp, Inc. (the "Company"), the holding company
for Falmouth Co-operative Bank (the "Bank") which will be held on January
19, 1999 at 3:00 p.m. Eastern Standard Time at the Quality Inn, 921 Jones
Road, Falmouth, Massachusetts 02540 (the "Annual Meeting").
The attached Notice of Annual Meeting and Proxy Statement describe 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 Co-operative Bank, we thank you for your
continued support and look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Santo P. Pasqualucci
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 19, 1999
Time: 3:00 p.m., local time
Place: Quality Inn
921 Jones Road
Falmouth, Massachusetts 02540
At our 1999 Annual Meeting, we will ask you to:
* Elect four directors to serve for a three-year term expiring at
the 2002 annual meeting. The following four directors are the
Board of Directors' nominees:
John W. Holland, Jr. Gardner L. Lewis Eileen C. Miskell
Wayne C. Lamson
* Ratify the appointment of Shatswell MacLeod & Co., P.C. as our
independent auditors for the fiscal year ending September 30,
1999; 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 8, 1998, the record date.
By Order of the Board of Directors,
/s/ Jeanne E. Alves
Jeanne E. Alves
Secretary
Falmouth, Massachusetts
December 18, 1998
============================================================================
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 18, 1998 to all
stockholders entitled to vote. If you owned the Company's common stock
("Common Stock") at the close of business on December 8, 1998, the record
date, you are entitled to vote at the Annual Meeting. On the record date,
there were 1,402,578 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 of the Company 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 8, 1998. 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.
Vote Required
Proposal 1:
Elect Four Directors The four nominees for director who receive the
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:
Ratify Appointment The affirmative vote of a majority of the shares
of Independent present in person or by proxy at the Annual
Public Accountants Meeting and entitled to vote on this proposal is
required to ratify the appointment of Shatswell,
MacLeod & Co., P.C. as the Company's independent
certified 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." Here is the
effect of a "broker non-vote":
* Proposal 1: Elect Four Directors. A broker non-vote would have no
effect on the outcome this proposal because only a plurality of votes
cast is required to elect a director.
* Proposal 2: Ratify Appointment of Independent Public Accountants. A
broker non-vote would have no effect on the outcome of this proposal.
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.
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, 1998, which will be filed with the Securities and
Exchange Commission ("SEC"), we will send you one (without exhibits) free of
charge. Please write to:
George E. Young, III
Vice President and Chief Financial Officer
Falmouth Bancorp, Inc.
20 Davis Straits, P.O. Box 567
Falmouth, Massachusetts 02541
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 September 30, 1998. 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 share. 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)
- ---------------------------------------------------------------------------------
Common Stock The Cape Cod Five Cents 131,800(2) 9.4%
Savings Bank
P.O. Box 10
19 West Road
Orleans, Massachusetts 02653
Common Stock Jeffrey L. Gendell 82,000(3) 5.8%
200 Park Avenue, Suite 3900
New York, New York 10166
- --------------------
<F1> The total number of shares of the Company's Common Stock outstanding
on September 30, 1998 was 1,401,784 shares.
<F2> Based on information in a Schedule 13G filed with the SEC on February
5, 1998, The Cape Cod Five Cents Savings Bank is deemed to be the
beneficial owner of these shares.
<F3> Based on information filed in a Schedule 13D with the FDIC, dated July
31, 1997, Mr. Gendell has the sole power to vote and to dispose or
direct the disposition of 34,500 shares and is deemed to be the
beneficial owner of these shares. Totine Financial Partners, L.P.
("Totine") a private investment limited partnership which invests
primarily in financial institutions directly owns 47,500 shares. Mr.
Gendell is the Managing Member of Totine Management, L.L.C. ("TM"),
the general partner of Totine, and therefore may be deemed to have
beneficial ownership of the Common Stock beneficially owned or deemed
to be beneficially owned by Totine or TM.
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, 1998. 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
- ---------------------------------------------------------------------------------------
John W. Holland, Jr.(4) Director 5,152 0.4%
James A. Keefe(5) Director 20,321 1.4%
Gardner L. Lewis(6) Director 9,841 0.7%
John J. Lynch, Jr.(7) Director 27,652 2.0%
Ronald L. McLane Director 4,152 0.3%
Eileen C. Miskell(8) Director 7,652 0.5%
Robert H. Moore(9) Director 5,652 0.4%
Walter A. Murphy(10) Chairman of the Board 15,566 1.1%
William E. Newton(11) Director 12,652 0.9%
Armand Ortins Director 5,652 0.4%
Santo P. Pasqualucci(12) President, Chief 53,526 3.8%
Executive Officer -------
and Director
All directors and executive 282,260 19.6%
officers as a group =======
(15 persons)(13)
- --------------------
<F1> Titles are for both the Company and the Bank.
<F2> Includes restricted stock awards of 1,064 shares of Common Stock made
to each of the outside directors, with the exception of Mr. Murphy
who was awarded 2,124 shares, under the 1997 Recognition and
Retention Plan for Outside Directors, Officers and Employees of
Falmouth Bancorp, Inc. ("RRP"). Mr. Pasqualucci was also awarded
10,000 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 with respect to 1,588
shares of Common Stock to each outside director, 3,442 shares to Mr.
Murphy and 14,548 shares to Mr. Pasqualucci 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.
<F4> Includes 500 shares held jointly with spouse and 2,000 shares held
solely by spouse.
<F5> Includes 2,669 shares held in an Individual Retirement Account
("IRA").
<F6> Includes 2,489 shares held in spouse's IRA, 4,000 shares held in Mr.
Lewis's IRA, 250 shares held individually by spouse, and 350 shares
held by his son, for which Mr. Lewis disclaims beneficial ownership.
<F7> Includes 20,000 shares held in an IRA and 5,000 shares owned by the
corporation of which Mr. Lynch serves as president.
<F8> 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.
<F9> Includes 3,000 shares held in an IRA.
<F10> Includes 10,000 held in an IRA.
<F11> 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.
<F12> Includes the total of 3,541 shares that have been allocated to Mr.
Pasqualucci under the ESOP as of September 30, 1998, as to which he
has sole voting power, but no investment power, except in limited
circumstances, 18,000 shares held in IRA's in Mr. Pasqualucci's name,
and 6,027 shares held in three trusts for the benefit of Mr.
Pasqualucci's three minor children.
<F13> Includes 6,216 shares held by the ESOP Trust that have been allocated
as of September 30, 1998 to the individual accounts of the executive
officers under the ESOP (excluding Mr. Pasqualucci) as to which such
executive officers have sole voting power, but no investment power,
except in limited circumstances. Also includes 65,465 unallocated
shares held by the ESOP Trust as to which the ESOP Trustee may be
deemed to share voting and investment power.
DISCUSSION OF PROPOSALS RECOMMENDED BY BOARD
---------------------
PROPOSAL 1
ELECTION OF DIRECTORS
---------------------
General
The Board has nominated four persons for election as directors at the
Annual Meeting. Three of 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 2002, 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.
Nominees and Continuing Directors
Position(s)
Held with Director
Age(1) Term Expires the Company Since(2)
--------------------------------------------------------------
Nominees
- --------
John W. Holland, Jr. 73 1999 Director 1966
Gardner L. Lewis 61 1999 Director 1993
Eileen C. Miskell 40 1999 Director 1994
Wayne C. Lamson(3) 47 -- -- --
Continuing Directors
- --------------------
James A. Keefe 72 2000 Director 1973
Ronald L. McLane 81 2000 Director 1970
Robert H. Moore 65 2000 Director 1976
John J. Lynch, Jr. 71 2001 Director 1970
Walter A. Murphy 72 2001 Chairman of the Board 1969
William E. Newton 60 2001 Director 1975
Santo P. Pasqualucci 59 2001 President, Chief Executive 1993
Officer and Director
Retiring Director
- -----------------
Armand Ortins 80 1999 Director 1966
- --------------------
<F1> As of November 1, 1998.
<F2> Includes service as director of the Bank prior to the formation of the
Company in 1996. All directors of the Bank have served as directors
of the Company since its formation in 1996.
<F3> Wayne C. Lamson is a nominee for election to the Company's Board of
Directors. Mr. Lamson does not currently serve on this Board.
The principal occupation and business experience of each nominee for
election as director and each Continuing Director is set forth below.
Nominees
John W. Holland, Jr. is an attorney in the private practice of law in
West Falmouth, Massachusetts. Mr. Holland has provided legal services to
the Bank at its request from time to time.
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.
Eileen C. Miskell, CPA, is Treasurer of Wood Lumber Company in
Falmouth, Massachusetts. Previously, she was an accountant at the New
England Deaconess Hospital.
Wayne C. Lamson, has been Treasurer/Comptroller of the Woods Hole
Martha's Vineyard and Nantucket Steamship Authority since 1982, and has held
various positions in the accounting department since 1972.
Continuing Directors
James A. Keefe has been a principal of Falmouth Ford, an automobile
dealership, since October of 1966.
John J. Lynch, Jr. has served as President of Paul Peters Agency,
Inc., a general insurance agency located in Falmouth, since 1957.
Ronald L. McLane has been retired for the past five years. Previously
Mr. McLane was a building contractor in the Falmouth area.
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.
Walter A. Murphy served as President of the Bank from 1968 to 1992 and
continues to serve as the Chairman of the Board of Falmouth Bancorp, Inc.
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 30 years.
Retiring Director
Armand Ortins has been retired since 1984. Previously Mr. Ortins was
owner and operator of a local photo sales and service retail store.
============================================================================
The Board of Directors unanimously recommends a vote "For" all
of the nominees for election as directors.
============================================================================
------------------------------
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
------------------------------
The Board of Directors has appointed Shatswell MacLeod & Co., P.C. as
our independent public auditors for the Company for the fiscal year ending
September 30, 1999, 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 auditors for the Company.
============================================================================
INFORMATION ABOUT BOARD OF DIRECTORS AND MANAGEMENT
Board of Directors
The Company's Board of Directors currently consists of eleven 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 terms of three directors expire at the Annual Meeting. The
Board nominated Mr. Wayne C. Lamson to stand for election as a director at
the 1999 Annual Meeting for a three-year term to expire in 2002. In
addition, Mr. Armand Ortins, will be retiring from the Board of Directors,
effective January 19, 1999, 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 advisers (legal counsel, auditors, financial advisors
and other consultants).
The Board of Directors held 11 regular meetings during the fiscal year
ended September 30, 1998. 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.
Committees of the Board
The Board of Directors of the Company has established the following
committees:
EXECUTIVE The Executive Committee considers strategic, planning and
COMMITTEE industry issues and is authorized to act as appropriate
between meetings of the Board of Directors.
Directors Keefe, Lewis, Lynch, Newton, and Pasqualucci
serve as members of the committee.
The Executive Committee met 11 times in the 1998 fiscal
year.
AUDIT The Audit Committee is responsible for review of the annual
COMMITTEE audit with the Company's outside auditors and to report any
substantive issues found during the audit to the Board.
Directors Miskell, Lewis and Ortins serve as members of the
committee.
The Audit Committee met three times in the 1998 fiscal
year.
COMPENSATION The Compensation Committee is responsible for establishing
COMMITTEE guidelines for management and employee compensation.
Directors Murphy, Keefe and Newton serve as members of the
committee.
The Compensation Committee did not meet in the 1998 fiscal
year.
SECURITY The Security Committee reviews the loan collateral,
COMMITTEE 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 McLane, Moore and Pasqualucci serve as members of
the committee.
The Security Committee met 50 times in the 1998 fiscal
year.
The Board of Directors, acting as the nominating committee, met in
November, 1998 to select the nominees for election as directors at the
Annual Meeting. See page 18 for a discussion of the procedures for
stockholder nominations for director.
Directors' Compensation
Director's Fees. Currently, each director of the Bank receives the
following fees:
* fees of $400 per Board meeting attended; and
* fees ranging from $100 to $300 per committee meetings attended.
The Chairman of the Board also receives a fee of $700 per Board
Meeting attended. Total directors' meeting and committee fees for fiscal
1998 were $57,950. We do not compensate our employees for service as
directors. All directors fees for fiscal 1998 relate solely to the Bank.
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 Plan" and "Recognition and Retention
Plan."
Executive Officers
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names.
Name Position Held with the Company
---- ------------------------------
Santo P. Pasqualucci President and Chief Executive Officer
George E. Young, III 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
---- ---------------------------
Santo P. Pasqualucci President and Chief Executive Officer
George E. Young, III Vice President and Treasurer
Ronald Garcia Vice President/Senior Loan Officer
Sharon L. Shoner Vice President/Auditor/Compliance Officer
Jeanne E. Alves Clerk/Assistant Treasurer
The Board of Directors elects the executive officers of the Company
and the Bank, annually. 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 59, 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 30 years.
George E. Young, III, age 53, joined the Bank in 1991 as Assistant
Treasurer, was promoted to Treasurer in 1992 and since 1994 has served as
the Bank's Vice President and Treasurer. Mr. Young has also served as Vice
President and Chief Financial Officer of the Company since 1996. He was
Treasurer and Auditor/Compliance Officer from 1973 to 1991 with another
financial institution. Mr. Young has 28 years of banking experience.
Jeanne E. Alves, age 54, 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 48, has served as Vice President/Senior Loan
Officer of the Bank since April 1997. Prior thereto, he served as Vice
President/Commercial Lending of the Bank from 1994 through April 1997.
Prior thereto, he was a Vice President and Commercial Loan Officer for
Falmouth National Bank/Bank of Boston.
Sharon L. Shoner, age 48, 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.
Compensation Table
The following table sets forth cash and noncash compensation for the
fiscal years ended September 30, 1998, 1997 and 1996 awarded to or earned by
Santo P. Pasqualucci, the Company's President and Chief Executive Officer.
Compensation Table
Long Term Compensation
Annual Compensation(1) Awards Payouts
------------------------------------- ---------------------------------------------
Other Restricted
Annual Stock LTIP All Other
Name and Principal Compensation Awards Options Payouts Compensation
Positions Year Salary($) Bonus($) ($) ($)(2) (#)(3) ($) ($)(4)
- -----------------------------------------------------------------------------------------------------------------------
Santo P. Pasqualucci, 1998 $137,948 $ - - - - - $29,663
President and Chief 1997 124,499 5,628 - $137,500 36,368 - 34,162
Executive Officer 1996 121,045 6,052 - - - - 14,391
- --------------------
<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 10,000 shares of
restricted stock, which vest in 20% increments beginning on February
1, 1998. The value of the restricted share award shown in the table
above is based a price of $13.75, which is the closing price of a
share of common stock on January 21, 1997, the effective date of the
award. At September 30, 1998, the aggregate fair market value of the
restricted stock award made to Mr. Pasqualucci was $162,500, based on
a closing price of $16.25 on September 30, 1998. The restricted stock
award made to Mr. Pasqualucci was not approved by the Commissioner of
Banks of Massachusetts until February 1998, and as such was not
reported in fiscal 1997. In the case of death, disability,
retirement, or a change in control, as defined by the RRP, all
restricted stock awards become immediately exercisable.
<F3> Includes 36,368 shares of Common Stock subject to options granted to
Mr. Pasqualucci under the Stock Option Plan. The options granted are
intended to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code, as amended (the "Code") to the maximum
extent possible, and any options which do not qualify will constitute
non-qualified stock options. The Stock Option Plan provides for
options to become exercisable, beginning on January 21, 1998, and
generally remain exercisable until the tenth anniversary of the grant.
In the case of death, disability, retirement or a change in control,
as defined in the Stock Option plan, all options granted become
immediately exercisable.
<F4> Includes (i) the dollar value of premiums, if any, 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 and (ii) the Company's
contributions on behalf of the executive officer to the Company's
401(k) plan and (iii) 1,505, 1,413, and 623 shares of Common Stock
allocated to the executive officer under the ESOP for fiscal 1998,
1997 and 1996, respectively. The value of the shares were based on a
price of $16.25, $20.875, and $12.50, the closing price on September
30, 1998, 1997 and 1996, respectively See "-Certain Employee Benefit
Plans and Employment Agreement - Retirement Plans" and "- Employee
Stock Ownership Plan and Trust."
Certain Employee Benefit Plans and Employment Agreement
Employment Agreements. Effective March 28, 1996, the Bank entered into
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 (the "Executives" or when referring
to either one individually, the "Executive"). These Employment Agreements
set forth the duties and compensation of the Senior 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 two years, in the case of Mr. Young; and each will
provide for an annual base salary equal to the Executives' existing base
salary rate in effect on March 28, 1996, the date the Bank converted to
stock form. 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 will be paid, within 10 days of such
termination, an amount equal to 2.99 times his "base amount," as defined in
Section 280G(b)(3) of the Code, and, in the case of Mr. Young, 2 times his
base amount. 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.
Retirement Plans. The Bank is a participant in the retirement plans
sponsored by the Co-operative Bank Employees Retirement Association
("CBERA"). Two plans are provided:
* a defined contribution plan (the "401(k) Plan"), under which employee
contributions are matched by contributions from the Company; and
* a defined benefit plan (the "Pension Plan") that is funded solely by
the employer.
Employees of the Bank are eligible for enrollment in these Plans after
attaining age 21 and completing one year of service (defined as a 12-month
period commencing on the date of hire during which the employee has worked
at least 1,000 hours).
Under the 401(k) Plan, the Bank provides a 50% match of participating
employees' contributions up to a limit of 5% of salary. Under the Pension
Plan, upon reaching the age of 65, participants are entitled to receive
their vested account balances in a lump sum or periodically in the form of
an annuity. Annual retirement benefits under the Pension Plan are determined
according to the following formula: one percent of the final average
compensation paid over the employee's three consecutive highest years, plus
one-half percent of the amount by which the above average exceeds the
employee's average Social Security Wage Base for a designated period, times
all years of service since January 1, 1989.
The following table sets forth the estimated annual benefits that
would be payable under the Pension Plan in the form of a single life annuity
before reduction for the social security amount upon retirement at the
normal retirement date. The amounts are expressed at various levels of
compensation and years of service.
Pension Plan Table
Years of Credited Service
----------------------------------------
Average
Earnings 10 15 20 25
----------------------------------------------------
$ 20,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000
40,000 4,535 6,802 9,070 11,337
60,000 7,535 11,302 15,070 18,837
80,000 10,535 15,802 21,070 26,337
100,000 13,535 20,302 27,070 33,837
120,000 16,535 24,802 33,070 41,337
140,000 19,535 29,302 39,070 48,837
160,000 21,535 32,302 43,070 53,837
- --------------------
<F1> These are hypothetical benefits based on the Pension Plan's normal
retirement benefit formula. The benefits shown above do not reflect
an offset for Social Security benefits and there are no other offsets.
For purposes of determining the estimated annual benefits that would
be payable under the Pension Plan to Santo P. Pasqualucci, the executive
officer listed in the Summary Compensation Table, Mr. Pasqualucci had
completed five years, ten months of service to the Bank as of September 30,
1998 and had final average compensation of $129,499.
Employee Stock Ownership Plan and Trust. The Company has established,
for the benefit of eligible employees, an ESOP and related trust which
became effective upon completion of the Company's conversion to stock form.
Substantially all employees of the Company who have attained age 21 and
have completed six months of service may be eligible to become participants
in the ESOP. The ESOP purchased 87,285 shares of Company Common Stock
issued in the Bank's conversion to stock form. In order to fund the ESOP's
purchase of the Company Common Stock, the Company borrowed funds equal to
the aggregate purchase price of the Company's Common Stock. Although
contributions to the ESOP are discretionary, the Company makes annual
contributions to the ESOP in an aggregate amount at least equal to the
principal and interest requirement on the debt. The ESOP loan is for a term
of 10 years, bearing interest at the rate of 7.25% per annum and calls for
level annual payments of principal and interest designed to amortize the
loan over its term. The loan also permits optional pre-payment. In
February 1998, the ESOP Trust refinanced the loan and replaced it with a new
loan from the Company. The Company may make additional annual contributions
to the ESOP to the maximum extent deductible for federal income purposes.
Shares purchased by the ESOP are pledged as collateral for the loan,
and held in a suspense account until released for allocation among
participants in the ESOP as the loan is repaid. The pledged shares are
released annually from the suspense account in an amount proportional to the
repayment of the ESOP loan for each plan year, and allocated among the
accounts of participants on the basis of the participant's compensation for
the year of allocation. Participants will be fully vested at all times as
to any shares that have been allocated to their account. Vested benefits
may be paid in a single sum or in the form of shares of Company's Common
Stock and are payable upon death, retirement at age 65 or older, disability
or separation from service.
In connection with the establishment of the ESOP, a the Board of
Directors appointed a Committee to administer the ESOP (the "ESOP
Committee"). The trustees of the ESOP are directors Gardner Lewis, John J.
Lynch, Jr. and Armand Ortins. The ESOP Committee may instruct the trustees
regarding investment of funds contributed to the ESOP. The ESOP trustees,
subject to their fiduciary duty, must vote all allocated shares held in the
ESOP in accordance with the instructions of the participating employees.
Under the ESOP, unallocated shares will be voted in a manner calculated to
most accurately reflect the instructions it has received from participants
regarding the allocated stock as long as such vote is in accordance with the
provisions of ERISA.
Stock Option Plan
The 1997 Stock Option Plan for Outside Directors, Officers and
Employees of Falmouth Co-operative Bank ("Stock Option Plan") was adopted by
the Board of Directors of the Bank and approved by its stockholders at the
1997 Annual Meeting. In accordance with the terms of the Reorganization,
the Company assumed sponsorship of the Stock Option Plan and changed its
name to the "1997 Stock Option Plan for Outside Directors, Officers and
Employees of Falmouth Bancorp, Inc." 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 Plan.
The members of the Board's Compensation Committee who are
disinterested directors ("Option Committee") administer the Stock Option
Plan. In general, both "incentive stock options" and non-qualified stock
options to purchase Common Stock of the Company ("Options") may be granted
to eligible officers, employees and outside directors, subject to the
restrictions of the Internal Revenue Code. The Option Committee has
discretion under the Stock Option Plan to establish certain material terms
of the Options granted to officers and employees provided such grants are
made in accordance with the Plan's requirements. All Options granted to
outside directors are by automatic formula grant and the Option Committee
has no discretion over the material terms of these grants. As of December
8, 1998, each outside director of the Company had been granted a non-
qualified stock option to purchase an aggregate of 3,969 shares of Common
Stock at an exercise price of $13.375 per share and the Chairman of the
Board has been granted a non-qualified stock option to purchase an aggregate
of 8,605 shares of Common Stock, including 7,939 shares of Common Stock at
an exercise price of $13.375 and 666 shares of Common Stock at an exercise
price of $19.825. In February 1998, the Commissioner of Banks of
Massachusetts approved the grants to officers and employees of the Company
and the Bank.
All stock options granted under the Plan generally vest in 20%
increments over a five year period subject to automatic full vesting upon
the optionee's death, disability or retirement or upon a change in control
of the Company. The Company believes the use of a vesting schedule will
encourage each Option recipient to remain in the service of the Company (or
an affiliate) and contribute to its profitability in order to enjoy the full
economic benefit of the Option. The Company pays all costs and expenses of
the Stock Option Plan. The Company has reserved the right to amend or
terminate the Plan, in whole or in part, subject to the requirements of all
applicable laws.
The following table summarizes the option grants that were made to
Santo P. Pasqualucci during the fiscal year 1997.
Option/SAR Grants in Fiscal Year 1997
Individual Grants
--------------------------------------------- Potential Realizable
Value at Assumed
Percent of Annual Rate of
Number of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Option Term
Options/SARs Employees in Exercise or --------------------
Granted Fiscal Year Base Price Expiration 5% 10%
Name (#)(1) (%) ($ per Share) Date ($) ($)
- -------------------------------------------------------------------------------------------------------
Santo P. Pasqualucci, 36,368 33.5% 13.375 4/15/07 305,908 775,231
President and Chief
Executive Officer
- --------------------
<F1> All options granted are Incentive Stock Options which become
exercisable in 20% increments on an annual basis, with the first
installment vesting on January 21, 1998. In case of death,
disability, retirement or a change in control, as defined in the Stock
Option Plan, all options granted become immediately exercisable.
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, which was
$16.25 per share. The first installment of options became exercisable on
January 21, 1998.
Aggregated Options in 1998 Fiscal Year and 1998 Fiscal Year End Options
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Fiscal Options/SARs at Fiscal
Year-end Year-end(1)
(#) ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------------
Santo P. Pasqualucci,
President and Chief Executive Officer 7,274/29,094 20,913/83,645
- --------------------
<F1> The closing price per share of Common Stock on September 30, 1998 was
$16.25, and all options have an exercise price of $13.375 per share,
which equals a spread of $2.875.
Recognition and Retention Plan
The 1997 Recognition and Retention Plan for Outside Directors,
Officers and Employees of Falmouth Co-operative Bank (the "RRP") was adopted
by the Board of Directors of the Bank and approved by its stockholders at
the 1997 Annual Meeting. In accordance with the Company's Reorganization,
the Company assumed sponsorship of the RRP and changed its name to the "1997
Recognition and Retention Plan For Outside Directors, Officers and Employees
of Falmouth Bancorp, Inc." 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 (" 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 ("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 his 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. In
February 1998, the Company received approval from the Massachusetts Division
of Banks of the material terms of awards granted to officers and employees
of the Company and the Bank. As of December 8, 1998, each outside director
has been granted a Restricted Stock Award with respect to 1,064 shares of
Common Stock and the Chairman received a Restricted Stock Award with respect
to 2,124 shares of Common Stock. All outstanding Restricted Stock Awards
will vest and become distributable at the rate of 20% per year, over a five
year period, commencing on February 1, 1998, subject to automatic full
vesting on the date of the Award holder's death, disability or retirement or
upon a change in control of the Company.
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
From time to time the Bank makes mortgage or other loans to its
directors. Prior to the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), the Bank had a policy of
offering loans to directors, officers and employees on terms substantially
equivalent to those offered to the public.
Under FIRREA, loans to the Company's directors are required to be made
on terms substantially the same as those offered in comparable transactions
to other persons. Furthermore, FIRREA generally prohibits loans above the
greater of $25,000 or 5.0% of the Bank's capital and surplus (up to
$500,000) to directors and officers and their affiliates, unless such loans
are approved in advance by a disinterested majority of the Board of
Directors. As a matter of policy, loans to directors of the Company, as well
as other affiliated persons or entities, currently are made in the ordinary
course of business and on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, do not involve more than the normal risk of
collectability or present other unfavorable features, and are approved by
the Board of Directors. At September 30, 1998, the Bank had a total of
$789,000 loans outstanding to its executive officers and directors.
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.
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 1999 proxy
statement for the 2000 Annual Meeting of Stockholders, we must receive them
by August 20, 1999, 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:
* You must be a stockholder of record and have given timely notice in
writing to the Secretary of the Company.
* Your notice must contain specific information required in our Bylaws.
By Order of the Board of Directors,
/s/ Jeanne E. Alves
Jeanne E. Alves
Secretary
Falmouth, Massachusetts
December 18, 1998
============================================================================
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.
============================================================================
Falmouth Bancorp, Inc. REVOCABLE PROXY
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 19, 1999.
The undersigned stockholder of Falmouth Bancorp, Inc. hereby appoints
Santo P. Pasqualucci and Walter A. Murphy, 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 8, 1998, at the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") to be held at 3:00 p.m., Eastern Standard Time, on
January 19, 1999, or at any adjournment or postponement thereof, upon the
matters described in the accompanying Notice of the 1999 Annual Meeting of
Stockholders and Proxy Statement, dated December 18, 1998, and upon such
other matters as may properly come before the Annual Meeting. The
undersigned hereby revokes all prior proxies.
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.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
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.
Please mark your vote as indicated in this example. [x]
I will attend the Annual Meeting. [ ]
1. Election of four Directors for terms of three years each.
Nominees: John W. Holland, Jr., Gardner L. Lewis, Eileen C. Miskell
and Wayne C. Lamson
[ ] FOR All nominees (except as [ ] WITHHOLD for all nominees
otherwise indicated)
2. Ratification of the appointment of Shatswell MacLeod & Co., P.C. as
independent auditors for the fiscal year ending September 30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Instruction: TO WITHHOLD AUTHORITY to vote for any individual nominee, write
that nominee's name in the space provided:
- ----------------------------------------------------------------------------
The undersigned hereby acknowledges receipt of the Notice of the 1999 Annual
Meeting of Stockholders and the Proxy Statement, dated December 18, 1998 for
the 1999 Annual Meeting.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Signature(s)
Dated: , 199_
----------------------------------------------------------------
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.