[LEEDS FEDERAL BANKSHARES, INC. LOGO]
September 30, 1999
Dear Stockholder:
We cordially invite you to attend the 1999 Annual Meeting of Stockholders of
Leeds Federal Bankshares, Inc. (the "Company"). The Annual Meeting will be held
at 1101 Maiden Choice Lane, Baltimore, Maryland, at 4:00 p.m., local time, on
November 3, 1999.
The enclosed Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted. During the meeting we will also report on the
operations of the Company. Directors and officers of the Company, as well as a
representative of our independent auditors, will be present to respond to any
questions that stockholders may
have.
The business to be conducted at the annual meeting includes the election of two
directors and the ratification of the appointment of KPMG LLP as auditors for
the Company's 2000 fiscal year.
The Board of Directors of the Company has determined that the matters to be
considered at the Annual Meeting are in the best interest of the Company and its
stockholders. For the reasons set forth in the Proxy Statement, the Board of
Directors unanimously recommends a vote "FOR" each matter to be considered.
Also enclosed for your review is our 1999 Annual Report to Stockholders, which
contains detailed information concerning the activities and operating
performance of the Company. On behalf of the Board of Directors, we urge you to
sign, date and return the enclosed proxy card as soon as possible even if you
currently plan to attend the Annual Meeting. This will not prevent you from
voting in person, but will assure that your vote is counted if you are unable to
attend the meeting.
Sincerely,
/s/ Gordon E. Clark
Gordon E. Clark
President and Chief Executive Officer
LEEDS FEDERAL BANKSHARES, INC.
1101 Maiden Choice Lane
Baltimore, Maryland 21229
(410) 242-1234
NOTICE OF
1999 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On November 3, 1999
Notice is hereby given that the 1999 Annual Meeting of Leeds Federal
Bankshares, Inc. (the "Company") will be held at 1101 Maiden Choice Lane,
Baltimore, Maryland, on November 3, 1999 at 4:00 p.m., local time.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company;
2. The ratification of the appointment of KPMG LLP as auditors
for the Company for the fiscal year ending June 30, 2000; and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on
the date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on September 10,
1999, are the stockholders entitled to vote at the Meeting, and any adjournments
thereof.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR
HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE
PERSONALLY AT THE MEETING.
By Order of the Board of Directors
/s/ Margaret Balsamo
Margaret Balsamo
Secretary
Baltimore, Maryland
September 30, 1999
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- --------------------------------------------------------------------------------
PROXY STATEMENT
LEEDS FEDERAL BANKSHARES, INC.
1101 Maiden Choice Lane
Baltimore, Maryland 21229
(410) 242-1234
1999 ANNUAL MEETING OF STOCKHOLDERS
November 3, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Leeds Federal Bankshares, Inc.
(the "Company") to be used at the 1999 Annual Meeting of Stockholders of the
Company (the "Meeting"), which will be held at 1101 Maiden Choice Lane,
Baltimore, Maryland, on November 3, 1999, at 4:00 p.m., local time, and all
adjournments of the Meeting. The accompanying Notice of Annual Meeting of
Stockholders and this Proxy Statement are first being mailed to stockholders on
or about October 4, 1999.
REVOCATION OF PROXIES
Stockholders who execute proxies in the form solicited hereby retain the
right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
the Company will be voted in accordance with the directions given thereon. Where
no instructions are indicated, proxies will be voted "FOR" the proposals set
forth in this Proxy Statement for consideration at the Meeting.
Proxies may be revoked by sending written notice of revocation to the
Secretary of the Company, Margaret Balsamo, at the address of the Company shown
above. The presence at the Meeting of any stockholder who has given a proxy
shall not revoke such proxy unless the stockholder delivers his or her ballot in
person at the Meeting or delivers a written revocation to the Secretary of the
Company prior to the voting of such proxy.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Holders of record of the Company's common stock, par value $1.00 per share
(the "Common Stock") as of the close of business on September 10, 1999 (the
"Record Date") are entitled to one vote for each share then held. As of the
Record Date, 4,800,341 shares of Common Stock were issued and outstanding. The
presence in person or by proxy of a majority of the outstanding shares of Common
Stock entitled to vote is necessary to constitute a quorum at the Meeting.
Directors are elected by a plurality of votes cast. The affirmative vote of
stockholders holding a majority of the total votes present at the Meeting in
person or by proxy, without regard to broker non-votes, is required for approval
of Proposal II. Shares as to which the "Abstain" box has been selected on the
proxy card will be counted as shares present and entitled to vote and will have
the same effect of a vote against the matter. Leeds Federal Bankshares, M.H.C.,
the Company's parent mutual holding company (the "Mutual Holding Company"),
which owns 3,300,000 shares of Common Stock, intends to vote its shares in favor
of the proposals.
Persons and groups who beneficially own in excess of 5% of the Common
Stock are required to file certain reports with the Securities and Exchange
Commission ("SEC") regarding such ownership pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act"). The following table sets forth, as of July 31,
1999, the shares of Common Stock beneficially owned by directors individually,
by executive officers and directors as a group, and by each person who was the
beneficial owner of more than 5% of the outstanding shares of Common Stock.
Amount of Shares
Owned and Nature
Name and Address of of Beneficial Percent of Shares
Beneficial Owners Ownership (1) Outstanding
Leeds Federal Bankshares, M.H.C. (2) 3,300,000 68.6%
1101 Maiden Choice Lane
Baltimore, Maryland 21229
All Directors and Executive Officers 239,612 5.0%
as a Group (8 persons)
- ------------------------------------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner for purposes of this table, of any shares of Common
Stock if he has shared voting or investment power with respect to such
security, or has a right to acquire beneficial ownership at any time within
60 days from the date as of which beneficial ownership is being determined.
As used herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares. Includes all shares held directly as well as by
spouses and minor children, in trust and other indirect ownership, over
which shares the named individuals effectively exercise sole or shared
voting and investment power.
(2) The Company's executive officers and directors are also executive officers
and directors of the Mutual Holding Company.
PROPOSAL I - ELECTION OF DIRECTORS
The Company's Board of Directors is currently composed of six members. The
Company's bylaws provide that approximately one-third of the directors are to be
elected annually. Directors of the Company are generally elected to serve for a
three-year period or until their respective successors shall have been elected
and shall qualify. Two directors will be elected at the Meeting to serve for a
three-year period and until his or her successors have been elected and
qualified. The Board of Directors has nominated to serve as directors Gordon E.
Clark and John F. Doyle, who are currently members of the Board of Directors.
The table below sets forth certain information, as of July 31, 1999,
regarding members of the Company's Board of Directors, including the terms of
office of Board members. It is intended that the proxies solicited on behalf of
the Board of Directors (other than proxies in which the vote is withheld as to
the nominees) will be voted at the Meeting for the election of the nominee
identified below. If the nominees are unable to serve, the shares represented by
all such proxies will be voted for the election of such substitute as the Board
of Directors may recommend. At this time, the Board of Directors knows of no
reason why the nominees might be unable to serve, if elected. Except as
indicated herein, there are no arrangements or understandings between the
nominee and any other person pursuant to which such nominee was selected.
2
Positions Shares
Held in the Director Current Term Beneficially Percent
Name (1) Age Company Since (2) to Expire Owned (3) Of Class
-------- --- ------- --------- --------- --------- --------
NOMINEES
Gordon E. Clark 57 President, Chief Executive 1976 2002 74,414(4) 1.5%
Officer and Director
John F. Doyle 71 Director 1989 2002 23,614(5) *
DIRECTORS CONTINUING IN OFFICE
John F. Amer 73 Chairman 1977 2001 23,714(6) *
Raymond J. Hartman, Jr. 61 Director 1988 2000 17,332(7) *
Joan H. McCleary 65 Director 1983 2000 11,815 *
Marguerite E. Wolf 72 Vice Chairman and Director 1971 2001 31,185(8) *
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Dale R. Douglas 57 Senior Vice President N/A N/A 27,448(9) *
Kathleen G. Trumpler 61 Treasurer N/A N/A 30,090(10) *
- ------------------------------------
* Less than 1%.
(1) The mailing address for each person listed is 1101 Maiden Choice Lane,
Baltimore, Maryland 21229. Each of the Directors listed is also a director
of the Mutual Holding Company, which owns the majority of the issued and
outstanding shares of
Common Stock.
(2) Reflects initial appointment to the Board of Directors of Leeds Federal
Savings Bank (the "Bank").
(3) See definition of "beneficial ownership" in the table in "Voting Securities
and Principal Holders Thereof."
(4) Includes options to purchase 36,000 shares of Common Stock.
(5) Includes options to purchase 13,053 shares of Common Stock.
(6) Includes options to purchase 20,714 shares of Common Stock.
(7) Includes options to purchase 13,692 shares of Common Stock.
(8) Includes options to purchase 24,541 shares of Common Stock.
(9) Includes options to purchase 12,750 shares of Common Stock.
(10) Includes options to purchase 15,000 shares of Common Stock.
The principal occupation during the past five years of each director and
officer of the Company is set forth below. All directors have held their present
positions for five years unless otherwise stated.
John F. Amer has been a Director of the Bank since 1977, and Chairman since
1993. Mr. Amer, currently retired, is the former President of James Gibbons Co.,
and Vice President of the Mental Health Advisory Board of Howard County.
Gordon E. Clark has been President and Chief Executive Officer of the Bank
since 1980. He has been an employee since 1965. He is a member of the Board of
St. Agnes Hospital and an advisory member of Maryland Housing Research, Inc.
Dale R. Douglas is Senior Vice President and has been employed by the Bank
since 1992.
3
John F. Doyle is presently retired as Purchasing Manager of the Defense
Group of Westinghouse Electric Co. He is Vice Chairman of Baltimore City's
Contractor Qualification Committee and has been a Director since 1989.
Raymond J. Hartman, Jr. is a consultant at Hubbard Funeral Home, Inc. He
has been a Director since 1988 and is active in various community and charitable
organizations. Mr. Hartman is a charter member of the Arbutus Business and
Professional Association and current President of the Lions Club of Arbutus.
Joan H. McCleary was employed by the Bank from 1975 until her retirement
from the Bank as Vice President and Secretary in July 1996. Ms. McCleary was
appointed Secretary in 1977 and Vice President in 1988, and has served as a
Director since 1983. She is past President of the Financial Managers Society,
Maryland Chapter.
Kathleen G. Trumpler is Treasurer and has been employed by the Bank since
1987. Ms. Trumpler is the current President of the Financial Managers Society,
Maryland Chapter.
Marguerite E. Wolf is retired as the secretary to Robert J. Brannan,
Attorney. She has been a Director since 1971 and Vice Chairman of the Board
since June 1993.
Meetings and Committees of the Board of Directors
The business of the Company's Board of Directors is conducted through
meetings and activities of the Board and its committees. During the fiscal year
ended June 30, 1999, the Board of Directors held eight meetings. During the
fiscal year ended June 30, 1999, no director attended fewer than 75 percent of
the total meetings of the Board of Directors of the Company and committees on
which such director served.
The Audit Committee consists of John F. Doyle, Marguerite E. Wolf and
Senior Vice President, Dale R. Douglas. The Audit Committee met four times
during the fiscal year ended June 30, 1999. Mr. Douglas provides the Committee
with reports and findings regarding the Company's departmental internal controls
and operating procedures.
The Nominating Committee consists of the entire Board of Directors. The
Nominating Committee met once during fiscal year ended June 30, 1999.
The Compensation Committee consists of Gordon E. Clark, John F. Amer,
Marguerite E. Wolf, and Joan H. McCleary. The Compensation Committee reviews the
performance of officers and employees and proposes compensation programs and
adjustments to the full Board of Directors. The Compensation Committee met once
during the fiscal year ended June 30, 1999.
Ownership Reports by Officers and Directors
The Common Stock is registered pursuant to Section 12(g) of the Exchange
Act. The officers and directors of the Company and beneficial owners of greater
than 10% of the Common Stock ("10% beneficial owners") are required to file
reports on Forms 3, 4 and 5 with the SEC disclosing beneficial ownership and
changes in beneficial ownership of the Common Stock. SEC rules require
disclosure in the Company's Proxy Statement and Annual Report on Form 10-KSB of
the failure of an officer, director or 10% beneficial owner of the Common Stock
to file a Form 3, 4 or 5 on a timely basis. No officer, director or 10%
beneficial owner of the Company failed to file ownership reports on a timely
basis for the fiscal year ended June 30, 1999.
Directors' Compensation
Fees. Directors are not compensated for their service on the Board of
Directors of the Company. However, during the fiscal year ended June 30, 1999,
directors Amer, Clark, McCleary, Wolf, Hartman and Doyle received directors'
fees for their service on the Board of Directors of the Bank of $26,568, $2,733,
$23,395, $23,395, $23,395
4
and $23,395, respectively, which amounts include fees deferred at the election
of directors. Directors who are not employees of the Bank who were members of
Board committees received $235 for each committee meeting attended during the
fiscal year ended June 30, 1999. The Bank paid a total of $124,755 in directors'
and committee fees for the fiscal year ended June 30, 1999. The Bank also pays
supplemental health insurance premiums for directors who are over 65 years of
age.
Deferred Compensation Plans. During 1993, the Bank adopted a deferred
compensation plan ("Deferred Compensation Plan") for directors under which
directors of the Bank can elect to defer, on a pre-tax basis, all or a portion
of their monthly directors' fees until the benefit age set forth in the
director's joinder agreement, i.e., generally the director's retirement age. A
director's deferred fees will be credited to an elective contribution account.
Upon the director's attainment of his benefit age, the Bank will pay the
director a deferred compensation benefit equal to the annuitized value of the
director's elective contribution account. The deferred compensation benefits
payable under the plan range from between $280 and $3,049 per month for 120
months. Benefits will also be payable upon a director's disability, termination
of service prior to the attainment of the director's benefit age, or in the
event of the director's death. If a director's services are terminated for
cause, as defined under the Deferred Compensation Plan, he shall only be
entitled to receive the balance of his elective contribution account. Any other
benefits will be null and void. In the event a director incurs a financial
hardship, he may request a financial hardship benefit which, if approved by the
Bank, will be paid in a lump sum within 30 days of the event triggering the
financial hardship. The payment of a financial hardship benefit will reduce a
director's elective contribution account which will affect the deferred
compensation benefit payable to a director under the Deferred Compensation Plan.
A second Deferred Compensation Plan ("Second Plan") was established in 1998
for the benefit of Directors Amer, Doyle, and Wolfe, who had reached their
benefit age under the original Deferred Compensation Plan, continue to perform
services for the Bank and desire to defer their current director's fees. The
Second Plan is substantially similar to the original Deferred Compensation Plan,
except that under the Second Plan, in the event of a change in control (as
defined under the Second Plan), a director may apply to the acquiror's board of
directors for an immediate distribution of his accrued benefit in a lump sum or
in some alternative form. The decision whether or not to grant the director's
request is in the sole discretion of the acquiror's board. During 1998, the Bank
established a rabbi trust and transferred certain assets to the rabbi trust in
order to ensure that it would have funds available to meet its benefit
obligations under the Deferred Compensation Plan and Second Plan.
Directors' Retirement Plan. During 1997, the Bank established the
Directors' Retirement Plan, a non-qualified plan for income tax purposes, that
guarantees each director will be paid 75% of the director's salary beginning at
the director's benefit age (as set forth in the director's joinder agreement)
for the longer of 10 years or until death (the "payout period"). In the event of
the director's termination of service prior to attainment of his benefit age,
for any reason other than death, disability or a change in control of the Bank,
the director is entitled to his accrued benefit, commencing at his benefit age
and payable over the payout period. In the event of the director's disability,
the payment of the director's accrued benefit will commence immediately. In the
event of a director's death while in the service of the Bank, the director's
beneficiary is entitled to a survivor's benefit equal to the director's
retirement benefit, payable for 10 years. If a change in control occurs prior to
the attainment of the director's benefit age, the director will be entitled to
his full retirement benefit commencing immediately upon his termination of
service. The expense for these benefits amounted to $117,658 for the fiscal year
ended June 30, 1999. During 1998, the Bank established a rabbi trust and
transferred certain assets to the rabbi trust in order to ensure that it would
have funds available to meet its benefit obligation under the Directors
Retirement Plan.
1994 Directors Option Plan. During the fiscal year ended June 30, 1995, the
Bank adopted, and the Company has succeeded to, the 1994 Stock Option Plan for
Outside Directors (the "1994 Directors Option Plan"). The 1994 Directors Option
Plan was approved by a majority of stockholders other than the Mutual Holding
Company present at the 1994 Annual Meeting. The 1994 Directors Option Plan is a
self-administering plan that granted to nonemployee directors Amer, Wolf,
Hartman, and Doyle nonstatutory options to purchase 20,714, 24,541, 13,692, and
13,053 shares of Common Stock, respectively. Share amounts have been adjusted to
reflect the Company's three-for-two stock split in the form of a stock dividend
which was paid in November 1997 (the "Stock Split"). The 1994
5
Directors Option Plan further provides that each new non-employee director shall
be granted options to purchase 100 shares of Common Stock to the extent options
remain available in, or are returned to, the 1994 Directors Option Plan. The
exercise price per share for each option is equal to the fair market value of
the Common Stock on the date the option was granted, or in the case of all
options awarded during the fiscal year ended June 30, 1995, $7.92 per share (as
adjusted for the Stock Split). All options granted under the 1994 Directors
Option Plan expire upon the earlier of ten years following the date of grant or
one year following the date the optionee ceases to be a director.
1994 Directors Recognition Plan. During the fiscal year ended June 30,
1995, the Bank adopted, and the Company has succeeded to the Leeds Federal
Savings Bank and Leeds Federal Bankshares, M.H.C. Recognition and Retention Plan
for Outside Directors (the "1994 Directors Recognition Plan"). The 1994
Directors Recognition Plan was approved by a majority of stockholders other than
the Mutual Holding Company present at the 1994 Annual Meeting. During the fiscal
year ended June 30, 1995, the Bank contributed sufficient funds to the 1994
Directors Recognition Plan to enable it to purchase 16,000 shares of Common
Stock from the Bank, 4,723, 5,745, 2,851, and 2,681 shares of which were awarded
to nonemployee directors Amer, Wolf, Hartman, and Doyle, respectively. Such
awards of Common Stock ("Restricted Stock") are restricted by the terms of the
1994 Directors Recognition Plan. All awards made pursuant to the 1994 Directors
Recognition Plan have fully vested.
Executive Compensation
The following table sets forth for the fiscal years ended June 30,
1999, 1998 and 1997, certain information as to the total remuneration paid by
the Company to the Chief Executive Officer of the Company.
Long-Term Compensation
Annual Compensation (1) Awards Payout
Fiscal
Name and years Restricted Securities
Principal ended Salary Bonus Other Annual Stock Underlying LTIP All other
Position (2) June 30, ($) ($) Compensation(3) Award(s) Options/SARs Payouts compensation (4)
=============== ========== ============ =========== ================= ============= ================ ========== ==================
Gordon E. Clark 1999 $132,869 -- $10,167 -- -- -- $1,580
President and 1998 130,723 -- 9,753 -- -- -- 1,580
Chief Executive 1997 123,572 -- 8,355 -- -- -- 1,580
Officer
=============== ========== ============ =========== ================= ============= ================ ========== ==================
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(1) Amount shown is gross earnings before pre-tax medical premiums paid by
officer through the flexible benefits plan. Includes amounts deferred at
the election of named officers pursuant to the Bank's Savings Plan for
Employees (the "401(k) Plan") and benefit of automobile and related
expenses.
(2) No other executive officer received salary and bonuses that in the
aggregate exceeded $100,000
(3) Includes Company matching contributions to the Bank's 401(k) Plan and a
contribution to the Bank's Employee Stock Ownership Plan. No other monetary
awards were awarded to the named executive.
(4) Includes payments made pursuant to the Bank's life insurance plan
maintained for the named executive for the purposes of deferred
compensation and also premiums on life insurance maintained for all
employees.
Employment Agreement
The Bank entered into an employment agreement, to which the Company has
succeeded, with Gordon E. Clark, President and Chief Executive Officer (the
"Executive"). The employment agreement is intended to ensure that the Company
will be able to maintain a stable and competent management base by enabling the
Company to offer to the Executive certain protections against termination
without cause in the event of a "change in control" as defined in the employment
agreement. The continued success of the Company depends to a significant degree
on the skill and competence of the Executive.
6
The employment agreement provides for a three-year term for Mr. Clark.
Commencing on the first anniversary date and continuing each anniversary date
thereafter, the Board of Directors may extend the employment agreement for an
additional year such that the remaining term shall be three years, unless
written notice of nonrenewal is given by the Board of Directors after conducting
a performance evaluation of the Executive. The agreement provides that the base
salary of the Executive will be reviewed annually. In addition to the base
salary, the employment agreement provides that the Executive is to receive all
benefits provided to permanent full-time employees of the Bank, including among
other things, participation in stock benefit plans and other fringe benefits
applicable to executive personnel. The employment agreement permits termination
by the Bank for cause at any time. In the event the Bank chooses to terminate an
Executive's employment for reasons other than for cause, or upon the termination
of the Executive's employment for reasons other than a change in control, as
defined, or in the event of the Executive's resignation from the Bank upon; (i)
failure to be reelected to the Executive's current office; (ii) a material
change in the Executive's functions, duties or responsibilities which change
would cause the Executive's position to become one of lesser responsibility,
importance or scope; (iii) relocation of the principal place of employment by
more than 30 miles; (iv) the liquidation or dissolution of the Bank; or (v) a
breach of the agreement by the Bank, the Executive, or in the event of death,
his beneficiaries, would be entitled to receive an amount equal to the greater
of the remaining payments, including base salary, bonuses and other payments due
under the remaining term of the employment agreement or three times the average
of Mr. Clark's base salary, including bonuses and other cash compensation paid,
and the amount of any benefits received pursuant to any employee benefit plans
maintained by the Bank.
If termination, whether voluntary or involuntary, follows a change in
control of the Company or the Mutual Holding Company, as defined in the
employment agreement, the Executive or, in the event of death, the Executive's
beneficiaries, would be entitled to a payment equal to the greater of (i) the
payments due under the remaining term of the employment agreement or (ii) three
times Mr. Clark's average annual compensation over the five years preceding
termination. The Company would also continue the Executive's life, health, and
disability coverage for the remaining unexpired term of the employment agreement
to the extent allowed by the plan or policies maintained by the Company from
time to time.
The employment agreement provides that for a period of time following
termination the Executive agrees not to compete with the Company or the Mutual
Holding Company in any city, town or county in which the Company or the Mutual
Holding Company maintains an office or has filed an application to establish an
office, or within a specified geographical area surrounding any such office.
Supplemental Executive Retirement Plan
During 1993, the Bank adopted a supplemental executive retirement plan (the
"SERP") by entering into non-qualified executive retirement income agreements
with certain of its executives to provide supplemental retirement income
benefits to such persons generally upon reaching "benefit age," which is
generally age 65. Benefit amounts are determined by a formula which takes into
consideration each executive's years of service and compensation at retirement
age. Under the SERP, a qualifying officer will generally receive, after
retirement, a supplemental retirement income benefit equal to the product of (i)
the average of the highest base compensation received by such officer during any
three consecutive twelve month periods which occur after the later of the
effective date of the SERP and (ii) 2% multiplied by the number of years of
service of the officer with the Bank, less the amount available to the executive
on or after he reaches his "benefit age," as set forth in the executive joinder
agreement under any other tax-qualified or non-qualified plan except the
Employee Stock Ownership Plan. The maximum number of years of service that can
be taken into account for these purposes is 35. Benefits are also payable upon
disability, termination of service, or death. Benefits accrue annually, but no
vesting occurs until an officer has been employed by the Bank for at least ten
years. If an officer's services are terminated for cause, as defined under the
SERP, all accrued benefits will become null and void. In the event an executive
incurs a financial hardship, he may request a financial hardship benefit which,
if approved by the Bank, will be paid in a lump sum within 30 days of the event
triggering the financial hardship. The payment of a financial hardship benefit
will reduce the officer's vested accrued benefit and will affect the
supplemental retirement income benefit payable to such officer under the SERP.
7
The Bank has restated its executive supplemental retirement income
agreement for certain of its executives ("restated SERP"). The restated SERP
supplements the benefit available to certain of the Bank's executive officers,
including Mr. Clark, under the Bank's tax-qualified 401(k) Plan. Two executives,
or former executives, continue to participate in the original SERP. The restated
SERP is designed to provide a benefit (less the benefits estimated to the
provided under the Bank's 401(k) plan) that is equal to 2% of the highest base
compensation received by the executive during any 3 consecutive 12 month periods
multiplied times the executive's years of service. The benefit is payable over a
period of 15 years or the life of the executive, whichever is longer. In the
case of a change in control followed by the executive's involuntary termination
of employment or voluntary termination of employment within 36 months of a
change in control and following (i) a material change in the executive's
functions, duties or responsibilities which would cause the executive's position
to become one of lesser responsibility, importance or scope, (ii) a relocation
of the executive's principal place of employment by more than 30 miles, or (iii)
a material reduction in the executive's perquisites or benefits, the executive
is entitled to a benefit payable at his benefit age designated in his joinder
agreement equal to the full retirement benefit that he would have received had
he remained in the employ of the Bank and retired at his benefit age. In the
event of the executive's termination of employment due to disability, the
executive may request to receive an immediate disability benefit, in lieu of a
retirement benefit, and such benefit will be payable within 30 days following
board of director's approval of the executive's request, in a lump sum. In the
event of the executive's death while employed, the restated SERP provides a
survivor's benefit equal to the benefit payable to the executive as if the
executive remained employed until his benefit age. The restated SERP also
provides a $10,000 death benefit payable to the executive's beneficiary. In the
event that the executive makes a timely election, he can receive his retirement
benefit in a lump sum instead of an annuity. The Bank has established a rabbi
trust which has purchased life insurance policies on the executives' lives in
order to ensure that the Bank can satisfy its benefit obligation under the
original and restated SERPs. The Bank also makes annual contributions in an
amount equal to the expense accrual under the restated SERP, into a secular
trust for the benefit of each executive covered by a restated SERP. Amounts
accrued for such executives' prior to the restatement of the SERP were
transferred to the secular trust. The estimated pre-tax benefit payable annually
to Mr. Clark upon retirement at his benefit eligibility date is $107,548. The
Bank's contributions with respect to the restated SERP for Mr. Clark for 1999
were $57,792.
The following table indicates the expected aggregate annual retirement
benefit payable from the 401(k) Plan and SERP to SERP participants, expressed in
the form of a single life annuity for the highest average base
compensation and benefit service classification specified below:
Years of Service and
Highest Average Benefit Payable at Retirement (1)
---------------------------------
Base Compensation
25 30 35 40
---- ---- ---- ---
$100,000 $50,000 $60,000 $70,000 $70,000
$125,000 62,500 62,500 87,500 87,500
$150,000 75,000 90,000 105,000 105,000
$175,000 87,500 105,000 122,500 122,500
$200,000 100,000 120,000 140,000 140,000
- -----------------------------
(1) Benefits payable under the SERP are offset by amounts payable under the
Bank's 401(k) Plan.
As of May 1, 1999, Mr. Clark had 34 years of credited service under the
SERP.
1994 Incentive Stock Option Plan
During the fiscal year ended June 30, 1995, the Bank adopted, and the
Company has succeeded to, the Leeds Federal Savings Bank and Leeds Federal
Bankshares, M.H.C. Incentive Stock Option Plan (the "1994 Incentive Stock Option
Plan").
8
Set forth below is certain information concerning exercised and
unexercisable options during the fiscal year ended June 30, 1999, by Mr. Clark,
which have been adjusted to reflect the Stock Split.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
=========================================================================================================================
Number of Unexercised Value of Unexercised In-
Name Shares Acquired Value Options at The-Money Options at
Upon Exercise Realized Fiscal Year-End Fiscal Year-End (1)
Exercisable/Unexercisable Exercisable/Unexercisable
Gordon E. Clark -- -- 36,000/0 $110,880/$0
=========================== ================= ================= ========================== ==========================
- -----------------------------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the shares of Common Stock that
would be received upon exercise, assuming such exercise occurred on June
30, 1999, at which date the last sale of the Common Stock as quoted on the
Nasdaq National Market was at $11.00 per share.
Transactions With Certain Related Persons
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires that 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. However, recent
regulations now permit executive officers and directors to receive the same
terms through benefit or compensation plans that are widely available to other
employees, as long as the director or executive officer is not given
preferential treatment compared to the other participating employees. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of the Company's capital and surplus (up to a maximum of
$200,000) must be approved in advance by a majority of the disinterested members
of the Board of Directors. Prior to the enactment of FIRREA, the Company
provided loans to Directors and executive officers at reduced rates and/or with
points waived or reduced. Subsequent to the enactment of FIRREA, loans made to
officers, directors, and executive officers are made in the ordinary course of
business on the same terms and conditions as the Company would make to any other
customer in the ordinary course of business and do not involve more than a
normal risk of collectibility or present other unfavorable features.
The Company intends that all transactions between the Company and its
executive officers, directors, holders of 10% or more of the shares of any class
of its common stock and affiliates thereof, will contain terms no less favorable
to the Company than could have been obtained by it in arm's-length negotiations
with unaffiliated persons and will be approved by a majority of independent
outside directors of the Company not having any interest in the transaction.
PROPOSAL II - RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has approved the engagement of KPMG
LLP to be the Company's auditors for the fiscal year ending June 30, 2000,
subject to the ratification of the engagement by the Company's stockholders. At
the Meeting, stockholders will consider and vote on the ratification of the
engagement of KPMG LLP for the Company's fiscal year ending June 30, 2000. A
representative of KPMG LLP is expected to attend the Meeting to respond to
appropriate questions and to make a statement if he so desires.
In order to ratify the selection of KPMG LLP as the auditors for the fiscal
year ending June 30, 2000, the proposal must receive at least a majority of the
votes cast, either in person or by proxy, in favor of such ratification. The
Board of Directors recommends a vote "FOR" the ratification of KPMG LLP as
auditors for the 2000 fiscal year.
9
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive office, 1101
Maiden Choice Lane, Baltimore, Maryland 21229, no later than June 2, 2000. Any
such proposals shall be subject to the requirements of the proxy rules adopted
under the Exchange Act.
Under the Company's Bylaws, certain procedures are provided which a
stockholder must follow to nominate persons for election as directors or to
introduce an item of business at an annual meeting of stockholders. These
procedures provide, generally, that stockholders desiring to make nominations
for directors, or to bring a proper subject of business before the meeting, must
do so by a written notice timely received (generally not later than 5 days in
advance of such meeting, subject to certain exceptions) by the Secretary of the
Company.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than the matters described above in the Proxy Statement. However,
if any matters should properly come before the Meeting, it is intended that
holders of the proxies will act in accordance with their best judgment.
MISCELLANEOUS
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation. The
Company's 1999 Annual Report to Stockholders has been mailed to all stockholders
of record as of the Record Date. Any stockholder who has not received a copy of
such Annual Report may obtain a copy by writing the Company. Such Annual Report
is not to be treated as a part of the proxy solicitation material nor as having
been incorporated herein by reference.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
JUNE 30, 1999, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD
DATE UPON WRITTEN REQUEST TO DALE R. DOUGLAS, SENIOR VICE PRESIDENT, LEEDS
FEDERAL BANKSHARES, INC., 1101 MAIDEN CHOICE LANE, BALTIMORE, MARYLAND 21229.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Margaret Balsamo
Margaret Balsamo
Secretary
Baltimore, Maryland
September 30, 1999
10
REVOCABLE PROXY
LEEDS FEDERAL BANKSHARES, INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 3, 1999
The undersigned hereby appoints the official proxy committee consisting
of the entire Board of Directors with full powers of substitution to act as
attorneys and proxies for the undersigned to vote all shares of Common Stock of
the Company which the undersigned is entitled to vote at the 1999 Annual Meeting
of Stockholders ("Meeting") to be held at 1101 Maiden Choice Lane, Baltimore,
Maryland, on November 3, 1999, at 4:00 p.m. The official proxy committee is
authorized to cast all votes to which the undersigned is entitled as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as directors of all nominees listed
below (except as marked to the contrary below) [_] [_]
Gordon E. Clark
John F. Doyle
INSTRUCTION: To withhold your vote for one or
more nominees, write the name of the nominee(s)
on the line below.
_______________________________________________
_______________________________________________
FOR AGAINST ABSTAIN
2. The ratification of the appointment of KPMG LLP as --- ------- -------
auditors for the fiscal year ending June 30, 2000. [_] [_] [_]
The Board of Directors recommends a vote "FOR" each of the listed proposals.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE MAJORITY
OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF
NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at any
adjournment thereof and after notification to the Secretary of the Company at
the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force and effect. This proxy may also be revoked by sending written notice to
the Secretary of the Company at the address set forth on the Notice of Annual
Meeting of Stockholders, or by the filing of a later proxy prior to a vote being
taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from the Company prior to the execution of
this proxy of notice of the Meeting, a proxy statement dated September 30, 1999,
and audited financial statements.
Dated: _________________, 1999 --- Check Box if You Plan
--- to Attend Meeting
- ------------------------------- -----------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------------- -----------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
- --------------------------------------------------------------------------------