SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _______)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a 6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant toss.240.14a-11(c) orss.240.14a-12
PHSB Financial Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[PHSB FINANCIAL CORPORATION LETTERHEAD]
November 19, 2002
To Our Stockholders:
On behalf of the Board of Directors and management of PHSB Financial
Corporation (the "Company"), I cordially invite you to attend our Special
Meeting of Stockholders ("Meeting") to be held at Chippewa Township Municipal
Building, 2811 Darlington Road, Chippewa Township, Pennsylvania on Monday,
December 23, 2002 at 9:00 a.m. local time.
The attached Notice of Special Meeting of Stockholders and Proxy
Statement describe the formal business to be transacted at the Meeting. You will
be asked to ratify the PHSB Financial Corporation 2002 Stock Option Plan and the
Peoples Home Savings Bank 2002 Restricted Stock Plan. The Board of Directors has
unanimously approved these proposals and recommends that you vote FOR them.
Your vote is important, regardless of the number of shares you own and
regardless of whether you plan to attend the Meeting. I encourage you to read
the enclosed proxy statement carefully and sign and return your enclosed proxy
card as promptly as possible because a failure to do so could cause a delay in
the Meeting and additional expense to the Company. A postage-paid return
envelope is provided for your convenience. This will not prevent you from voting
in person, but it will assure that your vote will be counted if you are unable
to attend the Meeting. If you do decide to attend the Meeting and feel for
whatever reason that you want to change your vote at that time, you will be able
to do so. However, if you are a stockholder whose shares are not registered in
your own name, you will need additional documentation from your recordholder to
vote personally at the Meeting. Additionally, if you are planning to attend the
Meeting, please let us know by marking the appropriate box on the proxy card.
Sincerely,
/s/James P. Wetzel, Jr.
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James P. Wetzel, Jr.
President and Chief Executive Officer
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PHSB FINANCIAL CORPORATION
744 SHENANGO ROAD
BEAVER FALLS, PENNSYLVANIA 15010
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 2002
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NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of PHSB Financial Corporation (the "Company") will be held at
Chippewa Township Municipal Building, 2811 Darlington Road, Chippewa Township,
Pennsylvania, on Monday, December 23, 2002 at 9:00 a.m. local time. The Meeting
is for the purpose of considering and acting upon the following matters:
1. The ratification of the PHSB Financial Corporation 2002 Stock
Option Plan; and
2. The ratification of the Peoples Home Savings Bank 2002 Restricted
Stock Plan.
all as set forth in the Proxy Statement accompanying this notice, and to
transact such other business as may properly come before the Meeting and any
adjournments. The Board of Directors is not aware of any other business to come
before the Meeting. Stockholders of record at the close of business on November
8, 2002 are the stockholders entitled to vote at the Meeting and any
adjournments thereof.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU
OWN. WE ENCOURAGE YOU TO VOTE BY PROXY SO THAT YOUR SHARES WILL BE REPRESENTED
AND VOTED AT THE MEETING EVEN IF YOU CANNOT ATTEND. ALL STOCKHOLDERS OF RECORD
CAN VOTE BY WRITTEN PROXY CARD. 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/John M. Rowse
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John M. Rowse
Secretary
Beaver Falls, Pennsylvania
November 19, 2002
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
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PROXY STATEMENT
OF
PHSB FINANCIAL CORPORATION
744 SHENANGO ROAD
BEAVER FALLS, PENNSYLVANIA 15010
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SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 23, 2002
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GENERAL
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This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of PHSB Financial Corporation (the
"Company") to be used at the Special Meeting of Stockholders of the Company
which will be held at Chippewa Township Municipal Building, 2811 Darlington
Road, Chippewa Township, Pennsylvania on Monday, December 23, 2002 at 9:00 a.m.
local time (the "Meeting"). The accompanying Notice of Special Meeting of
Stockholders and this Proxy Statement are being first mailed to stockholders on
or about November 19, 2002. The Company is the parent company of Peoples Home
Savings Bank (the "Bank").
All properly executed written proxies that are delivered pursuant to
this proxy statement will be voted on all matters that properly come before the
Meeting for a vote. If your signed proxy specifies instructions with respect to
matters being voted upon, your shares will be voted in accordance with your
instructions. If no instructions are specified, your shares will be voted (a)
FOR Proposal I (Ratification of the 2002 Stock Option Plan) ("2002 Option
Plan"), (b) FOR Proposal II (Ratification of the 2002 Restricted Stock Plan
("2002 RSP"), (c) in the discretion of the proxy holders, as to any other
matters that may properly come before the Meeting (including any adjournments).
Your proxy may be revoked at any time prior to being voted by: (i) filing with
the Corporate Secretary of the Company (John M. Rowse, 744 Shenango Road, Beaver
Falls, Pennsylvania 15010) written notice of such revocation, (ii) submitting a
duly executed proxy bearing a later date, or (iii) attending the Meeting and
giving the Secretary notice of your intention to vote in person.
The ratification of the 2002 Option Plan provides for authorizing the
issuance of an additional 154,000 shares of common stock of the Company ("Common
Stock") upon the exercise of stock options to be awarded to officers, directors,
key employees and other persons providing services to the Company or any present
or future parent or subsidiary of the Company from time to time. The
ratification of the 2002 RSP provides for authorization to issue up to an
additional 66,000 shares of Common Stock upon awards to personnel of experience
and ability in key positions of responsibility with the Bank from time to time.
At the present time, the Bank intends to acquire such Common Stock for the 2002
RSP purposes through open-market purchases. The RSP has the authority, however,
to buy such common stock directly from the Company. Ratification of the 2002
Option Plan and the 2002 RSP may be deemed to have certain anti-takeover effects
with regard to the Company. See "Proposal I - Ratification of the 2002 Option
Plan - Effect of Mergers, Change of Control and Other Adjustments, and -Possible
Dilutive Effects of the 2002 Option Plan" and "Proposal II - Ratification of the
2002 RSP - Possible Dilutive Effects of the 2002 RSP."
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VOTING STOCK AND VOTE REQUIRED
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The Board of Directors has set the close of business on November 8,
2002 as the record date for the determination of stockholders who are entitled
to notice of, and to vote at, the Meeting. On the record date, there were
3,028,399 shares of the Common Stock. Each stockholder of record on the record
date is entitled to one vote for each share held.
The articles of incorporation of the Company ("Articles of
Incorporation") provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit") be entitled or permitted to any vote with respect
to the shares held in excess of the Limit. Beneficial ownership is determined
pursuant to the definition in the Articles of Incorporation and includes shares
beneficially owned by such person or any of his or her affiliates (as such terms
are defined in the Articles of Incorporation), or which such person or any of
his or her affiliates has the right to acquire upon the exercise of conversion
rights or options and shares as to which such person or any of his or her
affiliates or associates have or share investment or voting power, but neither
any employee stock ownership or similar plan of the Company or any subsidiary,
nor any trustee with respect thereto or any affiliate of such trustee (solely by
reason of such capacity of such trustee), shall be deemed, for purposes of the
Articles of Incorporation, to beneficially own any Common Stock held under any
such plan.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote (after subtracting any
shares held in excess of the Limit) is necessary to constitute a quorum at the
Meeting. With respect to any matter, any shares for which a broker indicates on
the proxy that it does not have discretionary authority as to such shares to
vote on such matter (the "Broker Non- Votes") will not be considered present for
purposes of determining whether a quorum is present. In the event there are not
sufficient votes for a quorum or to ratify the proposal at the time of the
Meeting, the Meeting may be adjourned in order to permit the further
solicitation of proxies.
As to the matters being proposed for stockholder action as set forth in
Proposal I, Ratification of the 2002 Option Plan, and Proposal II, Ratification
of the 2002 RSP, and the proxy card being provided by the Board of Directors
enables a stockholder to check the appropriate box on the proxy to (i) vote
"FOR" the item, (ii) vote "AGAINST" the item, or (iii) vote to "ABSTAIN" on such
item. An affirmative vote of the holders of a majority of the total votes cast
at the Meeting, in person or by proxy, is required to constitute stockholder
ratification for Proposals I and II. Broker Non-Votes will not have an impact on
the outcome of the vote on such matter and proxies marked "ABSTAIN" will have
the same impact as a vote "AGAINST" such matter.
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INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
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Executive officers and directors of the Company have an interest in the
matters being presented for stockholder ratification. Upon stockholder
ratification of the 2002 Stock Option Plan and the 2002 RSP, executive officers
and directors of the Company and the Bank may be granted stock options and
restricted stock awards pursuant to the 2002 Option Plan and the 2002 RSP. The
ratification of the 2002 Option Plan and the 2002 RSP is being presented as
Proposal I and Proposal II, respectively. See "Voting Stock and Vote Required"
for information regarding the number of shares of Common Stock beneficially
owned by executive officers and directors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Persons and groups owning in excess of 5% of the Common Stock are
required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended. The following table sets forth, as
of November 8, 2002, persons or groups who own more than 5% of the Common Stock
and the ownership of each director, named executive officer, and all executive
officers and directors of the Company as a group. Other than as noted below,
management knows of no person or group that owns more than 5% of the outstanding
shares of Common Stock at the record date.
Percent of Shares of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
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Peoples Home Savings Bank
Employee Stock Ownership Plan ("ESOP")
744 Shenango Road
Beaver Falls, Pennsylvania 15010 (1) 295,727 9.8%
Joseph D. Belas 30,151 1.0%
Douglas K. Brooks 39,778(3) 1.3%
Richard E. Canonge 39,699(3) 1.3%
Emlyn Charles 29,503(3) 1.0%
John C. Kelly 74,720(2)(3) 2.5%
Howard B. Lenox 48,374(3) 1.6%
John M. Rowse 10,687(2)(3) *
James P. Wetzel, Jr. 90,222 2.9%
All directors and executive officers of the 714,089 22.6%
Company as a group (11) persons) (2)
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(1) The ESOP purchased such shares for the exclusive benefit of plan
participants with funds borrowed from the Company. These shares are held in
a suspense account and will be allocated among ESOP participants annually
on the basis of compensation as the ESOP debt is repaid. The Bank's board
of directors (the "Bank's Board") has appointed a committee consisting of
directors John C. Kelly and John M. Rowse to serve as the ESOP
administrative committee ("ESOP Committee") and to serve as the ESOP
Trustees ("ESOP Trustees"). The ESOP Committee or the board instructs the
ESOP Trustees regarding investment of ESOP plan assets. The ESOP Trustees
must vote all shares allocated to participants accounts under the ESOP as
directed by participants. Unallocated shares and shares for which no timely
voting director is received, will be voted by the ESOP Trustee as directed
by the Bank's Board or the ESOP Committee. As of the record date, 57,288
shares have been allocated under the ESOP to participant accounts.
(Footnotes continued on next page.)
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(2) Excludes 295,727 shares of Common Stock held by the ESOP which such person
serves as trustee and exercises shared voting and investment power. Shares
which are unallocated (238,439 shares) and shares for which no voting
directions are received are voted by the trustees as directed by the ESOP
Committee or the Board. Once allocated to participant accounts, such Common
Stock will be voted by the trustee as directed by the beneficial owner of
such Common Stock. The trustees act as fiduciaries within the meaning of
the Employee Retirement Income Security Act of 1974, as amended. The
individuals serving as trustee disclaim beneficial ownership of the Common
Stock held under the ESOP.
(3) For all individuals, except for Messrs. Belas, Wetzel and Canonge, the
share amounts include 7,956 shares of Common Stock that may be acquired
through the exercise of stock options within 60 days of the record date.
For Mr. Wetzel, includes 31,826 shares subject to such stock options. Mr.
Belas' shares include no stock options. For Mr. Canonge, includes 20,687
shares subject to such stock options.
* Less than 1% of Common Stock outstanding.
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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
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Non-employee members of Board of Directors of the Bank were paid an
annual retainer of $18,000 during the year ended December 31, 2001 and are
permitted 10 paid excused absences. Members of the Board's committees receive
$100 per meeting attended. Directors do not currently receive compensation for
their service on the Board of the Company. For the year ended December 31, 2001,
total fees paid by the Bank to directors were approximately $142,000.
The Company sponsors a Trustees Retirement Plan ("TRP") to provide
retirement benefits to directors (formerly trustees in mutual form) of the
Company who are not officers or employees ("Outside Trustees"). Any director who
has served as an Outside Trustee is a participant in the TRP and payments under
the TRP commence once the Outside Trustee ceases being a director of the
Company. The TRP provides a retirement benefit based on the number of years of
service to the Company. Outside Trustees receive 70% of the final average Board
compensation (as defined in the TRP) for a period of 120 months following
retirement (after not less than 15 years of Board service) or upon a termination
of service following a change in control of the Company. At December 31, 2001,
there were no payments being made under the TRP.
Executive Compensation
The following table sets forth the cash and non-cash compensation
awarded or earned by the named executive officers. Except as set forth below, no
other executive officer of the Company had salaries and bonuses during the year
ended December 31, 2001 which exceeded $100,000 for services rendered in all
capacities to the Company.
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Annual Compensation
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Fiscal All Other
Name and Principal Position Year Salary($) Bonus($) Compensation ($)
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James P. Wetzel, Jr. 2001 170,750 15,450 41,561(1)
President and Chief Executive 2000 154,500 15,850 24,000
Officer 1999 154,500 -- 31,125
Richard E. Canonge 2001 104,355 -- 26,437(2)
Vice President, Treasurer and 2000 96,995 -- 16,641
Chief Financial Officer 1999 89,490 -- 15,087
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(1) Represents $6,050 employer contributions to the Company's 401(k) profit
sharing plan, $10,930 of dividends paid on stock options, and 2,057 shares
allocated under the ESOP, at an average cost of $11.95 per share. At
December 31, 2001, the market value of such ESOP shares was approximately
$25,000.
(2) Represents $4,462 employer contributions to the Company's 401(k) profit
sharing plan, $7,492 of dividends paid on stock options, and 1,212 shares
allocated under the ESOP, at an average cost of $11.95 per share. At
December 31, 2001, the market value of such ESOP shares was approximately
$14,000.
Stock Awards. The following table sets forth information with respect
to previously awarded stock options to purchase the Common Stock granted in 1998
to the named executive officers and held by them as of December 31, 2001. The
Company has not granted to the named executive officers any stock appreciation
rights.
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Values
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Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-The-Money Options
Shares Acquired FY-End (#) at FY-End ($)
Name on Exercise (#) Value Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- --------------- -------------------- ------------------------- ----------------------------
James P. Wetzel, Jr. -- -- 31,825/-- 86,882/--
Richard E. Canonge -- -- 16,549/4,137 45,179/11,294
__________________
(1) Based upon an exercise price of $9.22 per share, as adjusted for the
exchange ratio in the Conversion of 1.28123 and estimated price of $11.95
at December 31, 2001.
Set forth below is information as of September 30, 2002 with respect to
compensation plans under which equity securities of the Registrant are
authorized for issuance. Such table excludes securities issuable under the 2002
Option Plan and the 2002 RSP (See "Proposal I, Ratification of the 2002 Option
Plan" and "Proposal II Ratification of the 2002 RSP").
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EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under
exercise of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column (a))
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Equity compensation plans
approved by shareholders:
1998 Stock Option Plan.............. 159,129 $9.22 --
1998 Restricted Stock Plan.......... 6,380 0.00 --
Equity compensation plans
not approved by
shareholders(1)..................... n/a n/a n/a
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TOTAL......................... 165,509 $8.87 --
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_____________________
(1) Not applicable.
Other Benefits
Employment Agreement. The Bank entered into a separate three-year
employment agreements with Messrs. Wetzel and Canonge. The agreements provide
that these individuals may be terminated by the Bank for "just cause" as defined
in the agreements. If the Bank terminates these individuals without just cause,
they will be entitled to a continuation of salary from the date of termination
through the remaining term of the agreement. The employment agreements also
contain a provision stating that in the event of involuntary termination of
employment in connection with any change in control of the Bank, these
individuals will be paid a lump sum amount equal to 2.999 times their prior five
year average compensation. In the event of a change of control as of December
31, 2001, Messrs. Wetzel and Canonge would have received approximately $463,000,
and $272,000, respectively.
Supplemental Executive Retirement Plan ("SERP"). Effective January 1,
1995, the Bank adopted an unfunded SERP for the benefit of Mr. Wetzel, Jr. The
targeted level of retirement benefits under the SERP are calculated as 2.25% of
the final average compensation (as defined in the SERP) times years of service,
reduced by payments under the Company's defined benefit pension plan. Benefits
payable prior to age 65 are reduced by 2.5% for each year of payment prior to
age 65. The SERP provides that the Company will pay the benefits under the SERP
for a period of 120 months. Benefits under the SERP are immediately payable upon
death or disability of the participant, or upon the termination of the
participant (other than for cause), after obtaining age 55. For the year ended
December 31, 2001, Mr. Wetzel had an accrued SERP benefit of approximately
$202,000, and such benefit under the SERP was vested.
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PROPOSAL I - RATIFICATION OF THE 2002 OPTION PLAN
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General
The Company's Board of Directors has adopted the 2002 Option Plan. The
2002 Option Plan is subject to ratification by the Company's stockholders.
Pursuant to the 2002 Option Plan, up to 154,000 shares of Common Stock (equal to
5.1% of total shares of Common Stock currently outstanding), are to be reserved
under the Company's authorized but unissued shares for issuance by the Company
upon exercise of stock options to be granted to officers, directors, employees,
and other persons from time to time. The purpose of the 2002 Option Plan is to
attract and retain qualified personnel for positions of substantial
responsibility and to provide additional incentive to certain officers,
directors, employees and other persons to promote the success of the business of
the Company and the Bank. The 2002 Option Plan, which shall become effective
upon the date of stockholder ratification ("2002 Plan Effective Date"), provides
for a term of ten years, after which time no awards may be made. The following
summary of the material features of the 2002 Option Plan is qualified in its
entirety by reference to the complete provisions of the 2002 Option Plan which
is attached hereto as Appendix A.
The 2002 Option Plan will be administered by the Board of Directors or
a committee of not less than two non-employee directors appointed by the
Company's Board of Directors and serving at the pleasure of the Board (the "2002
Option Committee"). Members of the 2002 Option Committee shall be deemed
"Non-Employee Directors" within the meaning of Rule 16b-3 pursuant to the 1934
Act. The 2002 Option Committee may select the officers and employees to whom
options are to be granted and the number of options to be granted based upon
several factors including prior and anticipated future job duties and
responsibilities, job performance, the Company's financial performance and a
comparison of awards given by other institutions that have converted from mutual
to stock form. A majority of the members of the 2002 Option Committee shall
constitute a quorum and the action of a majority of the members present at any
meeting at which a quorum is present shall be deemed the action of the 2002
Option Committee.
Officers, directors, employees and other persons who are designated by
the 2002 Option Committee will be eligible to receive, at no cost to them,
options under the 2002 Option Plan (the "2002 Optionees"). Each option granted
pursuant to the 2002 Option Plan shall be evidenced by an instrument in such
form as the 2002 Option Committee shall from time to time approve. It is
anticipated that options granted under the 2002 Option Plan will constitute
either Incentive Stock Options (options meeting the requirements under Section
422 of the Internal Revenue Code of 1986, as amended ("Code") or Non- Incentive
Stock Options. Option shares may be paid for in cash, shares of Common Stock, or
a combination of both. The Company will receive no monetary consideration for
the granting of stock options under the 2002 Option Plan. Further, the Company
will receive no consideration other than the option exercise price per share for
Common Stock issued to 2002 Optionees upon the exercise of those options.
Shares issuable under the 2002 Option Plan may be from authorized but
unissued shares, treasury shares or shares purchased in the open market. An
option which expires, becomes unexercisable, or is forfeited for any reason
prior to its exercise will again be available for issuance under the 2002 Option
Plan. No option or any right or interest therein is assignable or transferable
except by will or the laws of descent and distribution. The 2002 Option Plan
shall continue in effect for a term of ten years from the 2002 Plan Effective
Date.
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Stock Options
The 2002 Option Committee may grant either Incentive Stock Options or
Non-Incentive Stock Options. In general, if a 2002 Optionee ceases to serve as
an employee of the Company for any reason other than disability, retirement or
death, an exercisable Incentive Stock Option may continue to be exercisable for
three months but in no event after the expiration date of the option, except as
may otherwise be determined by the 2002 Option Committee at the time of the
award. In the event of the disability of a 2002 Optionee during employment, an
exercisable Incentive Stock Option will continue to be exercisable for one year,
to the extent exercisable by the 2002 Optionee immediately prior to the 2002
Optionee's disability but only if, and to the extent that, the 2002 Optionee was
entitled to exercise such Incentive Stock Options on the date of termination of
employment. Upon the death or retirement of the 2002 Optionee, the Incentive
Stock Options shall be immediately exercisable for the remaining term of such
options. The terms and conditions of Non-Incentive Stock Options relating to the
effect of a 2002 Optionee's termination of employment or service, disability,
retirement or death shall be such terms as the 2002 Option Committee, in its
sole discretion, shall determine at the time of termination of service,
disability, retirement or death, unless specifically determined at the time of
grant of such options.
The exercise price for the purchase of Common Stock subject to an
option may not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock covered by the option on the date of grant of such option.
For purposes of determining the Fair Market Value of the Common Stock, if the
Common Stock is traded otherwise than on a national securities exchange at the
time of the granting of an option, then the exercise price per share of the
option shall be not less than the mean between the last bid and ask price on the
date the option is granted or, if there is no bid and ask price on said date,
then on the immediately prior business day on which there was a bid and ask
price. If no such bid and ask price is available, then the exercise price per
share shall be determined in good faith by the 2002 Option Committee. If the
Common Stock is listed on a national securities exchange at the time of the
granting of an the option, then the exercise price per share of the option shall
be not less than the average of the highest and lowest selling price of the
Common Stock on such exchange on the date such option is granted or, if there
were no sales on said date, then the exercise price shall be not less than the
mean between the last bid and ask price on such date. If an officer or employee
owns Common Stock representing more than ten percent of the outstanding Common
Stock at the time an Incentive Stock Option is granted, then the exercise price
shall be not less than one hundred and ten percent (110%) of the Fair Market
Value of the Common Stock at the time the Incentive Stock Option is granted. No
more than $100,000 of Incentive Stock Options can become exercisable for the
first time in any one year for any one person. The 2002 Option Committee may
impose additional conditions upon the right of a 2002 Optionee to exercise any
option granted hereunder which are not inconsistent with the terms of the 2002
Option Plan or the requirements for qualification as an Incentive Stock Option,
if such option is intended to qualify as an Incentive Stock Option.
No shares of Common Stock shall be issued upon the exercise of an
option until full payment has been received by the Company, and no 2002 Optionee
shall have any of the rights of a stockholder of the Company until shares of
Common Stock are issued to such 2002 Optionee except to the extent that Dividend
Equivalent Rights are awarded under the 2002 Option Plan. Upon the exercise of
an option by a 2002 Optionee (or the 2002 Optionee's personal representative),
the 2002 Option Committee, in its sole and absolute discretion, may make a cash
payment to the 2002 Optionee, in whole or in part, in lieu of the delivery of
shares of Common Stock. Such cash payment to be paid in lieu of delivery of
Common Stock shall be equal to the difference between the Fair Market Value of
the Common Stock on the date of the option exercise and the exercise price per
share of the option. Such cash payment shall be in exchange for the cancellation
of such option. Such cash payment shall not be made in the event that such
transaction
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would result in liability to the 2002 Optionee and the Company under Section
16(b) of the 1934 Act or any related regulations promulgated thereunder.
The 2002 Option Plan provides that the Board of Directors of the
Company may authorize the 2002 Option Committee to direct the execution of an
instrument providing for the modification, extension or renewal of any
outstanding option, provided that no such modification, extension or renewal
shall confer on the 2002 Optionee any right or benefit which could not be
conferred on the 2002 Optionee by the grant of a new option at such time, and
shall not materially decrease the 2002 Optionee's benefits under the option
without the 2002 Optionee's consent, except as otherwise provided under the 2002
Option Plan.
Awards Under the 2002 Option Plan
The Board or the 2002 Option Committee shall from time to time
determine the officers, directors, employees and other persons who shall be
granted options under the 2002 Option Plan, the number of options to be granted
to any individual, and whether the options granted will be Incentive Stock
Options and/or Non-Incentive Stock Options. In selecting 2002 Optionees and in
determining the number of options to be granted, the Board or the 2002 Option
Committee may consider the nature of the services rendered by each such
individual, each individual's current and potential contribution to the Company
and such other factors as may be deemed relevant. The 2002 Optionees may, if
otherwise eligible, be granted additional options. In no event shall options be
granted under the 2002 Option Plan to any individual exceeding 25% of the total
number of available shares of Common Stock under the 2002 Option Plan.
Pursuant to the terms of the 2002 Option Plan, Non-Incentive Stock
Options to purchase up to 7,100 shares of Common Stock will be granted to each
non-employee director of the Company, as of the 2002 Plan Effective Date, at an
exercise price equal to the Fair Market Value of the Common Stock on such date
of grant. Options may be granted to newly appointed or elected non-employee
directors within the sole discretion of the 2002 Option Committee, and the
exercise price shall be equal to the Fair Market Value of such Common Stock on
the date of grant. The options granted to non-employee directors on the 2002
Plan Effective Date will be first exercisable on December 23, 2002 at the rate
of 331/3% and 331/3% annually thereafter, during such period of service as a
director. Such options granted to non-employee directors will remain exercisable
for up to ten years from the date of grant. All outstanding options become
immediately exercisable in the event of a Change in Control (as defined in the
2002 Option Plan) of the Company or the Bank.
-9-
The table below presents information related to stock option awards
anticipated to be awarded upon stockholder ratification of the 2002 Option Plan.
NEW PLAN BENEFIT
2002 OPTION PLAN
----------------
Number of Options
Name and Position Dollar Value (1) to be Granted(5)
- ----------------- ---------------- ----------------
James P. Wetzel, Jr. N/A 31,100(2)
President, Chief Executive Officer, and Director
Richard E. Canonge N/A 23,000(2)
Vice President,
Chief Financial Officer and Treasurer
David E. Ault, Vice President N/A 9,000(3)
Joseph R. Pollock, Vice President N/A 9,000(3)
Paul W. Jewell, Vice President N/A 7,200(4)
Joseph D. Belas, Director N/A 7,100(4)
Douglas K. Brooks, Director N/A 7,100(4)
Emlyn Charles, Director N/A 7,100(4)
John C. Kelly, Director N/A 7,100(4)
Howard B. Lenox, Director N/A 7,100(4)
John M. Rowse, Director N/A 7,100(4)
Executive Group (5 persons).............................. N/A 79,300
Non-Executive Director Group (6 persons)................. N/A 42,600(4)
Non-Executive Officer Employee Group (7 persons) ........ N/A 32,100(3)
- ------------------
(1) The exercise price of such options shall be equal to the fair market value
of the Common Stock on the date of stockholder ratification of the 2002
Option Plan. Accordingly, the dollar value of the options was not
determinable at the time of mailing this proxy statement. On November 4,
2002, the closing market price of the Common Stock on the Nasdaq National
Market was $14.97 per share.
(2) Options awarded to Messrs. Wetzel and Canonge and will be exercisable as
follows: Options awarded at the time of stockholder ratification are first
exercisable at the rate of 50% on December 23, 2002 and 50% on December 23,
2003 during periods of continued service as an employee or director. Such
awards shall be 100% exercisable in the event of death, disability,
retirement or upon a Change in Control of the Company or the Bank. Options
awarded to employees shall continue to be exercisable during continued
service as an employee or a director.
(3) Options awarded to executive officers will be exercisable as follows:
Options awarded at the time of stockholder ratification are first
exercisable at the rate of 331/3% on December 23, 2002 and 331/3% annually
thereafter during periods of continued service as an employee or a
director. Such awards shall be 100% exercisable in the event of death,
disability, retirement or upon a Change in Control of the Company or the
Bank. Options awarded to employees shall continue to be exercisable during
continued service as an employee or a director.
(4) Options awarded to directors are first exercisable at a rate of 331/3% on
December 23, 2002 and 331/3% annually thereafter, during such period of
service as a director, and shall remain exercisable for ten years without
regard to continued service as a director. Upon a Change in Control of the
Company or the Bank, such awards shall be 100% exercisable.
(5) It is anticipated that all such options awarded as of the date of
stockholder ratification of the 2002 Option Plan will include dividend
equivalent rights. Upon the payment of dividends on the Common Stock, the
holder of unexercised options will receive a cash payment comparable to the
amount of dividends that would be received if such options had been
exercised and such stock were held as of the dividend record date.
-10-
Dividend Equivalent Rights
The Option Committee, in its sole discretion, may include as a term of
any option, the right of the 2002 Optionee to receive Dividend Equivalent
Rights. Such rights shall provide that upon the payment of a dividend on the
Common Stock, the holder of such options shall receive payment of compensation
in an amount equivalent to the dividend payable as if such options had been
exercised and such Common Stock held as of the dividend record date. Such rights
shall expire upon the expiration or exercise of such underlying options. Such
rights are nontransferable and shall attach to options whether or not such
options are immediately exercisable. The dividend equivalent payments associated
with options shall be paid to the 2002 Optionee within 30 days of the related
dividend payment date. All options to be awarded as of the 2002 Plan Effective
Date to non-employee directors and employees are intended to have Dividend
Equivalent Rights associated with such options.
Effect of Mergers, Change of Control and Other Adjustments
Subject to any required action by the stockholders of the Company,
within the sole discretion of the 2002 Option Committee, the aggregate number of
shares of Common Stock for which options may be granted hereunder or the number
of shares of Common Stock represented by each outstanding option will be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of shares of Common Stock effected without the receipt
or payment of consideration by the Company. Subject to any required action by
the stockholders of the Company, in the event of any Change in Control,
recapitalization, merger, consolidation, exchange of shares, spin-off,
reorganization, tender offer, partial or complete liquidation or other
extraordinary corporate action or event, the 2002 Option Committee, in its sole
discretion, shall have the power, prior to or subsequent to such action or
events, to (i) appropriately adjust the number of shares of Common Stock subject
to options, the exercise price per share of such option, and the consideration
to be given or received by the Company upon the exercise of any outstanding
options; (ii) cancel any or all previously granted options, provided that
appropriate consideration is paid to the 2002 Optionee in connection therewith;
and/or (iii) make such other adjustments in connection with the 2002 Option Plan
as the 2002 Option Committee, in its sole discretion, deems necessary,
desirable, appropriate or advisable. However, no action may be taken by the 2002
Option Committee which would cause Incentive Stock Options granted pursuant to
the 2002 Option Plan to fail to meet the requirements of Section 422 of the Code
without the consent of the 2002 Optionee.
The 2002 Option Committee will at all times have the power to
accelerate the exercise date of all options granted under the 2002 Option Plan.
In the case of a Change in Control of the Company as determined by the 2002
Option Committee, all outstanding options shall become immediately exercisable.
A Change in Control is defined to include (i) the sale of all, or substantially
all, of the assets of the Company or the Bank; (ii) the merger or
recapitalization of the Company whereby the Company is not the surviving entity;
(iii) a change in control of the Company as otherwise defined or determined by
the Federal Reserve Board or the Pennsylvania Department of Banking regulations
promulgated by such governmental agencies; or (iv) the acquisition, directly or
indirectly, of the beneficial ownership (within the meaning of Section 13(d) of
the 1934 Act and rules and regulations promulgated thereunder) of 25% or more of
the outstanding voting securities of the Company by any person, trust, entity,
or group.
-11-
In the event of a Change in Control, the 2002 Option Committee and the
Board of Directors will take one or more of the following actions to be
effective as of the date of such Change in Control: (i) provide that such
options shall be assumed, or equivalent options shall be substituted,
("Substitute Options") by the acquiring or succeeding Company (or an affiliate
thereof), provided that: (A) any such Substitute options exchanged for Incentive
Stock Options shall meet the requirements of Section 424(a) of the Code, and (B)
the shares of stock issuable upon the exercise of such Substitute Options shall
constitute securities registered in accordance with the Securities Act of 1933,
as amended ("1933 Act") or such securities shall be exempt from such
registration in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act
(collectively, "Registered Securities"), or in the alternative, if the
securities issuable upon the exercise of such Substitute Options shall not
constitute Registered Securities, then the 2002 Optionee will receive upon
consummation of the Change in Control a cash payment for each option surrendered
equal to the difference between (1) the Fair Market Value of the consideration
to be received for each share of Common Stock in the Change in Control times the
number of shares of Common Stock subject to such surrendered options, and (2)
the aggregate exercise price of all such surrendered options, or (ii) in the
event of a transaction under the terms of which the holders of the Common Stock
of the Company will receive upon consummation thereof a cash payment (the
"Merger Price") for each share of Common Stock exchanged in the Change in
Control transaction, to make or to provide for a cash payment to the 2002
Optionees equal to the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such options held by each 2002 Optionee (to
the extent then exercisable at prices not in excess of the Merger Price) and (B)
the aggregate exercise price of all such surrendered options in exchange for
such surrendered options.
The power of the 2002 Option Committee to accelerate the exercise of
options and the immediate exercisability of options in the case of a Change in
Control of the Company could have an anti-takeover effect by making it more
costly for a potential acquiror to obtain control of the Company due to the
higher number of shares outstanding following such exercise of options. The
power of the 2002 Option Committee to make adjustments in connection with the
2002 Option Plan, including adjusting the number of shares subject to options
and canceling options, prior to or after the occurrence of an extraordinary
corporate action, allows the 2002 Option Committee to adapt the 2002 Option Plan
to operate in changed circumstances, to adjust the 2002 Option Plan to fit a
smaller or larger institution, and to permit the issuance of options to new
management following such extraordinary corporate action. However, this power of
the 2002 Option Committee also has an anti-takeover effect, by allowing the 2002
Option Committee to adjust the 2002 Option Plan in a manner to allow the present
management of the Company to exercise more options and hold more shares of the
Company's Common Stock, and to possibly decrease the number of Options available
to new management of the Company.
Although the 2002 Option Plan may have an anti-takeover effect, the
Company's Board of Directors did not adopt the 2002 Option Plan specifically for
anti-takeover purposes. The 2002 Option Plan could render it more difficult to
obtain support for stockholder proposals opposed by the Company's Board and
management in that recipients of options could choose to exercise such options
and thereby increase the number of shares for which they hold voting power.
Also, the exercise of such options could make it easier for the Board and
management to block the approval of certain transactions. In addition, the
exercise of such options could increase the cost of an acquisition by a
potential acquiror.
Amendment and Termination of the 2002 Option Plan
The Board of Directors may alter, suspend or discontinue the 2002
Option Plan, except that no action of the Board shall increase the maximum
number of shares of Common Stock issuable under the 2002 Option Plan, materially
increase the benefits accruing to 2002 Optionees under the 2002 Option Plan
-12-
or materially modify the requirements for eligibility for participation in the
2002 Option Plan unless such action of the Board shall be subject to approval or
ratification by the stockholders of the Company.
Possible Dilutive Effects of the 2002 Option Plan
The Common Stock to be issued upon the exercise of options awarded
under the 2002 Option Plan may either be authorized but unissued shares of
Common Stock or shares purchased in the open market. Because the stockholders of
the Company do not have preemptive rights, to the extent that the Company funds
the 2002 Option Plan, in whole or in part, with authorized but unissued shares,
the interests of current stockholders may be diluted. If upon the exercise of
all of the options, the Company delivers newly issued shares of Common Stock
(i.e., 154,000 shares of Common Stock), then the dilutive effect to current
stockholders would be approximately 4.8%. The Company can avoid dilution
resulting from awards under the 2002 Option Plan by delivering shares
repurchased in the open market upon the exercise of options.
Federal Income Tax Consequences
Under present federal tax laws, awards under the 2002 Option Plan will
have the following consequences:
1. The grant of an option will not by itself result in the recognition of
taxable income to a 2002 Optionee nor entitle the Company to a tax
deduction at the time of such grant.
2. The exercise of an option which is an "Incentive Stock Option" within the
meaning of Section 422 of the Code generally will not, by itself, result in
the recognition of taxable income to a 2002 Optionee nor entitle the
Company to a deduction at the time of such exercise. However, the
difference between the option exercise price and the Fair Market Value of
the Common Stock on the date of option exercise is an item of tax
preference which may, in certain situations, trigger the alternative
minimum tax for a 2002 Optionee. A 2002 Optionee will recognize capital
gain or loss upon resale of the shares of Common Stock received pursuant to
the exercise of Incentive Stock Options, provided that such shares are held
for at least one year after transfer of the shares or two years after the
grant of the option, whichever is later. Generally, if the shares are not
held for that period, the 2002 Optionee will recognize ordinary income upon
disposition in an amount equal to the difference between the option
exercise price and the Fair Market Value of the Common Stock on the date of
exercise, or, if less, the sales proceeds of the shares acquired pursuant
to the option.
3. The exercise of a Non-Incentive Stock Option will result in the recognition
of ordinary income by the 2002 Optionee on the date of exercise in an
amount equal to the difference between the exercise price and the Fair
Market Value of the Common Stock acquired pursuant to the option.
4. The Company will be allowed a tax deduction for federal tax purposes equal
to the amount of ordinary income recognized by a 2002 Optionee at the time
the optionee recognizes such ordinary income, including the receipt of cash
paid related to Dividend Equivalent Rights.
5. In accordance with Section 162(m) of the Code, the Company's tax deductions
for compensation paid to the most highly paid executives named in the
Company's Proxy Statement may be limited to no more than $1 million per
year, excluding certain "performance-based" compensation. The Company
intends for the award of options under the 2002 Option Plan to comply with
the
-13-
requirement for an exception to Section 162(m) of the Code applicable to
stock option plans so that the amount of the Company's deduction for
compensation related to the exercise of options would not be limited by
Section 162(m) of the Code.
Accounting Treatment
The Company expects to use the "intrinsic value based method" as
prescribed by APB Opinion 25. Accordingly, neither the grant nor the exercise of
an option under the 2002 Option Plan currently requires any charge against
earnings under generally accepted accounting principles. Common Stock issuable
pursuant to outstanding options which are exercisable under the 2002 Option Plan
will be considered outstanding for purposes of calculating earnings per share on
a diluted basis.
Stockholder Ratification
Stockholder ratification of the 2002 Option Plan is being sought to
qualify the 2002 Option Plan for the granting of Incentive Stock Options in
accordance with the Code, to enable 2002 Optionees to qualify for certain exempt
transactions related to the short-swing profit recapture provisions of Section
16(b) of the 1934 Act, to meet the requirements under the rules of the Nasdaq
National Market for continued listing of the Company's Common Stock, and to meet
the requirements for the tax-deductibility of certain compensation items under
Section 162(m) of the Code. An affirmative vote of the holders of a majority of
the total votes cast at the Meeting in person or by proxy is required to
constitute stockholder ratification of this Proposal I.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE 2002 OPTION PLAN.
- --------------------------------------------------------------------------------
PROPOSAL II - RATIFICATION OF THE 2002 RSP
- --------------------------------------------------------------------------------
General
The Board of Directors of the Company and the Bank have adopted the
2002 RSP as a method of providing directors, officers, and employees of the Bank
with a proprietary interest in the Company in a manner designed to encourage
such persons to remain in the employment or service of the Bank. The Bank will
contribute sufficient funds to the 2002 RSP to purchase up to 66,000 shares of
Common Stock representing up to 2.2% of the aggregate number of shares presently
outstanding. Alternatively, the 2002 RSP may purchase authorized but unissued
shares of Common Stock or treasury shares from the Company. All of the Common
Stock to be purchased by the 2002 RSP will be purchased at the Fair Market Value
of such stock on the date of purchase. Awards under the 2002 RSP will be made in
recognition of expected future services to the Bank by its directors, officers
and employees responsible for implementation of the policies adopted by the
Bank's Board of Directors and as a means of providing a further retention
incentive. The following is a summary of the material features of the 2002 RSP
which is qualified in its entirety by reference to the complete provisions of
the 2002 RSP which is attached hereto as Appendix B.
-14-
Awards Under the 2002 RSP
Benefits under the 2002 RSP ("2002 Plan Share Awards") may be granted
at the sole discretion of a committee comprised of not less than two directors
who are not employees of the Bank or the Company (the "2002 RSP Committee")
appointed by the Bank's Board of Directors. The 2002 RSP is managed by trustees
(the "2002 RSP Trustees") who are non-employee directors of the Bank or the
Company and who have the responsibility to invest all funds contributed by the
Bank to the trust created for the 2002 RSP (the "2002 RSP Trust"). Unless the
terms of the 2002 RSP or the 2002 RSP Committee specifies otherwise, awards
under the 2002 RSP will be earned and non-forfeitable at the rate of twenty
percent (20%) of such awards on December 23, 2002, and 20% annually thereafter,
provided that the recipient of the award remains an employee or director during
such period. A recipient of such restricted stock will not be entitled to voting
rights associated with such shares prior to the applicable date such shares are
earned. Dividends paid on 2002 Plan Share Awards that are not yet earned shall
be paid to the holder of an award as compensation within 30 days of the
applicable dividend payment date. Any shares held by the 2002 RSP Trust which
are not yet earned shall be voted by the 2002 RSP Trustees, as directed by the
2002 RSP Committee. If a recipient of such restricted stock terminates
employment or service for reasons other than Retirement or a Change in Control
(as such terms are defined in the 2002 RSP) of the Company or the Bank, the
recipient forfeits all rights to the awards under restriction. If the
recipient's termination of employment or service is caused by Retirement or a
Change in Control of the Company or the Bank all restrictions expire and all
shares allocated shall become unrestricted. The 2002 Plan Share Awards to
directors shall be immediately non-forfeitable in the event of the Retirement of
such director or a Change in Control of the Company or the Bank, and distributed
as soon as practicable thereafter. The Board of Directors can terminate the 2002
RSP at any time, and if it does so, any shares not allocated will revert to the
Bank. The 2002 Plan Share Awards under the 2002 RSP will be determined by the
2002 RSP Committee. In no event shall any individual receive 2002 Plan Share
Awards in excess of 25% of the aggregate Common Stock authorized under the 2002
RSP ("2002 Plan Share Reserve").
The aggregate number of 2002 Plan Shares available for issuance
pursuant to the 2002 Plan Share Awards and the number of shares to which any
2002 Plan Share Award relates shall be proportionately adjusted for any increase
or decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of the 2002 RSP, resulting from any split,
subdivision or consolidation of the Common Stock or other capital adjustment,
change or exchange of Common Stock, or other increase or decrease in the number
or kind of shares effected without receipt or payment of consideration by the
Company.
-15-
The following table presents information related to the anticipated
award of Common Stock under the 2002 RSP upon stockholder ratification of the
2002 RSP as authorized pursuant to the terms of the 2002 RSP or the anticipated
actions of the 2002 RSP Committee.
NEW PLAN BENEFITS
2002 RSP
--------
Number of Shares
Name and Position Dollar Value ($) (1) to be Granted
- ----------------- -------------------- -------------
James P. Wetzel, Jr., President,
Chief Executive Officer and Director.......... $197,604 13,200(2)
Richard E. Canonge, Vice President, Treasurer
and Chief Financial Officer.................... 148,203 9,900(2)
David E. Ault, Vice President.................. 74,102 4,950(3)
Joseph R. Pollock, Vice President.............. 74,102 4,950(3)
Paul W. Jewell, Vice President................. 49,401 3,300(3)
Joseph D. Belas, Director...................... 49,401 3,300(3)
Douglas K. Brooks, Director.................... 49,401 3,300(3)
Emlyn Charles, Director........................ 49,401 3,300(3)
John C. Kelly, Director........................ 49,401 3,300(3)
Howard B. Lenox, Director...................... 49,401 3,300(3)
John M. Rowse, Director........................ 49,401 3,300(3)
Executive Group (5 persons).................... 543,411 36,300(3)
Non-Executive Director Group
(6 persons)................................... 296,406 19,800(3)
Non-Executive Officer Employee Group
(3 persons)................................... 148,203 9,900(3)
______________________
(1) These values are based on the closing market price for the Common Stock as
reported on the Nasdaq National Market on November 4, 2002, which was
$14.97 per share. The exact dollar value of the Common Stock granted will
equal the market price of the Common Stock on the date of vesting of such
awards. Accordingly, the exact dollar value is not presently determinable.
(2) The plan share awards shall be earned at the rate of 331/3% on December 23,
2002 and 331/3% annually thereafter unless otherwise noted. All awards
shall become immediately 100% vested upon death, Disability, Retirement or
termination of service following a Change in Control of the Company or the
Bank. 2002 Plan Share Awards shall continue to vest during periods of
service as an employee or director.
(3) The plan share awards shall be earned at the rate of 20% on December 23,
2002 and 20% annually thereafter. All awards shall become immediately 100%
vested upon Retirement or termination of service following a Change in
Control of the Company or the Bank.
Amendment and Termination of the 2002 RSP
The Board may amend or terminate the 2002 RSP at any time.
Possible Dilutive Effects of the 2002 RSP
It is the Company's present intention to fund the 2002 RSP through
open-market purchases of Common Stock, which will cause no dilutive effect. The
2002 RSP provides, however, that Common Stock to be awarded may be acquired by
the 2002 RSP through open-market purchases or from authorized but unissued
shares of Common Stock from the Company. In that stockholders do not have
preemptive rights, to the extent that the Company utilizes authorized but
unissued shares to fund 2002 Plan Share
-16-
Awards, the interests of current stockholders may be diluted. If all 2002 Plan
Share Awards are funded with newly issued shares, the dilutive effect to
existing stockholders would be approximately 2.1%.
Federal Income Tax Consequences
Common Stock awarded under the 2002 RSP is generally taxable to the
recipient at the time that such awards become earned and non-forfeitable, based
upon the Fair Market Value of such stock at the time of such vesting.
Alternatively, a recipient may make an election pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, within 30 days of the date of the
transfer of such 2002 Plan Share Award to elect to include in gross income for
the current taxable year the Fair Market Value of such award. Such election must
be filed with the Internal Revenue Service within 30 days of the date of the
transfer of the stock award. The Bank will be allowed a tax deduction for
federal tax purposes as a compensation expense equal to the amount of ordinary
income recognized by a recipient of 2002 Plan Share Awards at the time the
recipient recognizes taxable ordinary income. A recipient of a 2002 Plan Share
Award may elect to have a portion of such award withheld by the 2002 RSP Trust
in order to meet any necessary tax withholding obligations.
Accounting Treatment
For accounting purposes, the Bank will recognize compensation expense
in the amount of the Fair Market Value of the Common Stock subject to 2002 Plan
Share Awards at the grant date pro rata over the period of years during which
the 2002 Plan Share Awards are earned.
Stockholder Ratification
The 2002 RSP and awards made thereunder will not be effective until
receipt of stockholder ratification of Proposal II. Stockholder ratification of
the 2002 RSP is being sought to enable recipients of 2002 Plan Share Awards to
qualify for certain exemptive treatment from the short-swing profit recapture
provisions of Section 16(b) of the 1934 Act and to meet the rules of the Nasdaq
National Market for continued listing of the Common Stock. The affirmative vote
of holders of a majority of the total votes cast at the Meeting in person or by
proxy is required to constitute stockholder ratification of this Proposal II.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE 2002 RSP.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The cost of soliciting 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.
BY ORDER OF THE BOARD OF DIRECTORS
/s/John M. Rowse
----------------------------------
John M. Rowse
Secretary
Beaver Falls, Pennsylvania
November 19, 2002
-17-
- --------------------------------------------------------------------------------
PHSB FINANCIAL CORPORATION
744 SHENANGO ROAD
BEAVER FALLS, PENNSYLVANIA 15010
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 2002
- --------------------------------------------------------------------------------
The undersigned hereby appoints the Board of Directors of PHSB
Financial Corporation (the "Company"), or its designee, 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 Special Meeting of Stockholders (the "Meeting"), to be held at Chippewa
Township Municipal Building, 2811 Darlington Road, Chippewa Township,
Pennsylvania on Monday, December 23, 2002 at 9:00 a.m. local time and at any and
all adjournments thereof, in the following matters:
FOR AGAINST ABSTAIN
--- ------- -------
1. The ratification of the PHSB Financial Corporation
2002 Stock Option Plan. |_| |_| |_|
2. The ratification of the Peoples Home Savings
Bank 2002 Restricted Stock Plan. |_| |_| |_|
The Board of Directors recommends a vote "FOR" the above listed
propositions. ---
- --------------------------------------------------------------------------------
THIS SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY
OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS SIGNED PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. 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 adjournments thereof, and after notification to the Secretary of the
Company at the Meeting of the stockholder's decision to terminate this Proxy,
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect. The undersigned may also revoke this Proxy by filing a
subsequently dated Proxy or by written notification to the Secretary of the
Company of his or her decision to terminate this Proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Special Meeting of Stockholders and a
Proxy Statement dated November 19, 2002.
Dated:
-----------------------
- ------------------------------------------- --------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------------------------- --------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy. 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, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------
Appendix A
PHSB FINANCIAL CORPORATION
2002 STOCK OPTION PLAN
1. Purpose of the Plan. The Plan shall be known as the PHSB Financial
Corporation ("Company") 2002 Stock Option Plan (the "Plan"). The purpose of the
Plan is to attract and retain qualified personnel for positions of substantial
responsibility and to provide additional incentive to officers, directors,
employees and other persons providing services to the Company, or any present or
future parent or subsidiary of the Company to promote the success of the
business. The Plan is intended to provide for the grant of "Incentive Stock
Options," within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and Non-Incentive Stock Options, options that do
not so qualify. The provisions of the Plan relating to Incentive Stock Options
shall be interpreted to conform to the requirements of Section 422 of the Code.
2. Definitions. The following words and phrases when used in this Plan
with an initial capital letter, unless the context clearly indicates otherwise,
shall have the meaning as set forth below. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural.
"Award" means the grant by the Committee of an Incentive Stock
Option or a Non-Incentive Stock Option, or any combination thereof, as provided
in the Plan.
"Bank" shall mean Peoples Home Savings Bank, or any successor
corporation thereto.
"Board" shall mean the Board of Directors of the Company, or
any successor or parent corporation thereto.
"Change in Control" shall mean: (i) the sale of all, or
substantially all, of the assets of the Company or the Bank; (ii) the merger or
recapitalization of the Company whereby the Company is not the surviving entity;
(iii) a change in control of the Company, as otherwise defined or determined by
the Federal Reserve Board ("FRB") or the Pennsylvania Department of Banking
("State") or regulations promulgated by such governmental agencies; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Company by any
person, trust, entity or group. This limitation shall not apply to the purchase
of shares by underwriters in connection with a public offering of Company stock,
or the purchase of shares of up to 25% of any class of securities of the Company
by a tax-qualified employee stock benefit plan. The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and regulations promulgated thereunder.
"Committee" shall mean the Board or the Stock Option Committee
appointed by the Board in accordance with Section 5(a) of the Plan.
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"Common Stock" shall mean common stock of the Company, or any
successor or parent corporation thereto.
"Company" shall mean the PHSB Financial Corporation, the
parent corporation of the Bank, or any successor or Parent thereof.
"Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment with the
Company or any present or future Parent or Subsidiary of the Company. Employment
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Company or in the case of transfers
between payroll locations, of the Company or between the Company, its Parent,
its Subsidiaries or a successor.
"Director" shall mean a member of the Board of the Company, or
any successor or parent corporation thereto.
"Disability" means (a) with respect to Incentive Stock
Options, the "permanent and total disability" of the Employee as such term is
defined at Section 22(e)(3) of the Code; and (b) with respect to Non-Incentive
Stock Options, any physical or mental impairment which renders the Participant
incapable of continuing in the employment or service of the Bank or the Parent
in his then current capacity as determined by the Committee.
"Dividend Equivalent Rights" shall mean the rights to receive
a cash payment in accordance with Section 12 of the Plan.
"Effective Date" shall mean the date specified in Section 15
hereof.
"Employee" shall mean any person employed by the Company or
any present or future Parent or Subsidiary of the Company.
"Fair Market Value" shall mean: (i) if the Common Stock is
traded otherwise than on a national securities exchange, then the Fair Market
Value per Share shall be equal to the mean between the last bid and ask price of
such Common Stock on such date or, if there is no bid and ask price on said
date, then on the immediately prior business day on which there was a bid and
ask price. If no such bid and ask price is available, then the Fair Market Value
shall be determined by the Committee in good faith; or (ii) if the Common Stock
is listed on a national securities exchange, then the Fair Market Value per
Share shall be not less than the average of the highest and lowest selling price
of such Common Stock on such exchange on such date, or if there were no sales on
said date, then the Fair Market Value shall be not less than the mean between
the last bid and ask price on such date.
"Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify as an incentive stock option under Section 422 of the Code.
"Non-Incentive Stock Option" or "Non-ISO" shall mean an option
to purchase Shares granted pursuant to Section 9 hereof, which option is not
intended to qualify under Section 422 of the Code.
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"Option" shall mean an Incentive Stock Option or Non-Incentive
Stock Option granted pursuant to this Plan providing the holder of such Option
with the right to purchase Common Stock.
"Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
"Optionee" shall mean any person who receives an Option or
Award pursuant to the Plan.
"Parent" shall mean any present or future corporation which
would be a "parent corporation" of the Bank or the Company as defined in
Sections 424(e) and (g) of the Code.
"Participant" means any Director, officer or employee of the
Company or any Parent or Subsidiary of the Company or any other person providing
a service to the Company who is selected by the Committee to receive an Award,
or who by the express terms of the Plan is granted an Award.
"Plan" shall mean the PHSB Financial Corporation 2002 Stock
Option Plan.
"Retirement" shall mean termination of service in all
capacities as an Employee or Director following attainment of not less than age
55 and completion of not less than ten years of Service to the Company or the
Bank. Service to the Company or the Bank rendered prior to the Effective Date
shall be recognized in determining eligibility to meet the requirements of
Retirement under the Plan.
"Share" shall mean one share of the Common Stock.
"Subsidiary" shall mean any present or future corporation
which constitutes a "subsidiary corporation" as defined in Sections 424(f) and
(g) of the Code.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 154,000 Shares.
Such Shares may either be from authorized but unissued shares, treasury shares
or shares purchased in the market for Plan purposes. If an Award shall expire,
become unexercisable, or be forfeited for any reason prior to its exercise, new
Awards may be granted under the Plan with respect to the number of Shares as to
which such expiration has occurred.
4. Six Month Holding Period.
Subject to vesting requirements, if applicable, except in the
event of the death or Disability of the Optionee or a Change in Control of the
Company or the Bank, a minimum of six months must elapse between the date of the
grant of an Option and the date of the sale of the Common Stock received through
the exercise of such Option.
5. Administration of the Plan.
(a) Composition of the Committee. The Plan shall be
administered by the Board of Directors of the Company or a Committee which shall
consist of not less than two Directors of the
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Company appointed by the Board and serving at the pleasure of the Board. All
persons designated as members of the Committee shall meet the requirements of a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, as found at 17 CFR ss.240.16b-3.
(b) Powers of the Committee. The Committee is authorized (but
only to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The President of the Company and such other officers as
shall be designated by the Committee are hereby authorized to execute written
agreements evidencing Awards on behalf of the Company and to cause them to be
delivered to the Participants. Such agreements shall set forth the Option
exercise price, the number of shares of Common Stock subject to such Option, the
expiration date of such Options, and such other terms and restrictions
applicable to such Award as are determined in accordance with the Plan or the
actions of the Committee.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.
6. Eligibility for Awards and Limitations.
(a) The Committee shall from time to time determine the
officers, Directors, employees and other persons who shall be granted Awards
under the Plan, the number of Awards to be granted to each such persons, and the
terms and conditions of such Awards in accordance with the Plan. In selecting
Participants and in determining the number of Shares of Common Stock to be
granted to each such Participant, the Committee may consider the nature of the
prior and anticipated future services rendered by each such Participant, each
such Participant's current and potential contribution to the Company and such
other factors as the Committee may, in its sole discretion, deem relevant.
Participants who have been granted an Award may, if otherwise eligible, be
granted additional Awards.
(b) The aggregate Fair Market Value (determined as of the date
the Option is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by each Employee during any calendar
year (under all Incentive Stock Option plans, as defined in Section 422 of the
Code, of the Company or any present or future Parent or Subsidiary of the
Company) shall not exceed $100,000. Notwithstanding the prior provisions of this
Section 6, the Committee may grant Options in excess of the foregoing
limitations, provided said Options shall be clearly and specifically designated
as not being Incentive Stock Options.
(c) In no event shall Shares subject to Options granted to
non-employee Directors in the aggregate under this Plan exceed more than 30% of
the total number of Shares authorized for delivery
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under this Plan pursuant to Section 3 herein or more than 5% to any individual
non-employee Director. In no event shall Shares subject to Options granted to
any Participant exceed more than 25% of the total number of Shares authorized
for delivery under the Plan.
7. Term of the Plan. The Plan shall continue in effect for a term of
ten (10) years from the Effective Date, unless sooner terminated pursuant to
Section 18 hereof. No Option shall be granted under the Plan after ten (10)
years from the Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each Incentive Stock
Option granted pursuant to the Plan shall comply with, and be subject to, the
following terms and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive Stock
Option granted by the Committee under the Plan may be exercised shall not, as to
any particular Incentive Stock Option, be less than the Fair Market Value of the
Common Stock on the date that such Incentive Stock Option is granted.
(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock at the
time the Incentive Stock Option is granted, the Incentive Stock Option exercise
price shall not be less than one hundred and ten percent (110%) of the Fair
Market Value of the Common Stock on the date that the Incentive Stock Option is
granted.
(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Incentive Stock Option granted under the Plan
shall be made at the time of exercise of each such Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price must have been owned by the party exercising such Option for
not less than six months prior to the date of exercise of such Option, and such
Common Stock shall be valued at the Fair Market Value at the date of exercise.
The Company shall accept full or partial payment in Common Stock only to the
extent permitted by applicable law. No Shares of Common Stock shall be issued
until full payment has been received by the Company, and no Optionee shall have
any of the rights of a stockholder of the Company until Shares of Common Stock
are issued to the Optionee.
(c) Term of Incentive Stock Option. The term of exercisability
of each Incentive Stock Option granted pursuant to the Plan shall be not more
than ten (10) years from the date each such Incentive Stock Option is granted,
provided that in the case of an Employee who owns stock representing more than
ten percent (10%) of the Common Stock outstanding at the time the Incentive
Stock Option is granted, the term of exercisability of the Incentive Stock
Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in
Section 10 hereof, no Incentive Stock Option may be exercised unless the
Optionee shall have been in the employ of the Company at all times during the
period beginning with the date of grant of any such Incentive Stock Option and
ending on the date three (3) months prior to the date of exercise of any such
Incentive Stock Option.
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The Committee may impose additional conditions upon the right of an Optionee to
exercise any Incentive Stock Option granted hereunder which are not inconsistent
with the terms of the Plan or the requirements for qualification as an Incentive
Stock Option. Except as otherwise provided by the terms of the Plan or by action
of the Committee at the time of the grant of the Options, the Options will be
first exercisable at the rate of one-third as of the date of grant and one-third
annually thereafter.
(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held an Incentive Stock Option for at least six
months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee gives the Company written notice of the exercise of the
Option together with an order to a registered broker-dealer or equivalent third
party, to sell part or all of the Optioned Stock and to deliver enough of the
proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option exercise price plus any
applicable withholding taxes to the Company.
(f) Transferability. An Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
Non-Incentive Stock Option granted pursuant to the Plan shall comply with and be
subject to the following terms and conditions.
(a) Options Granted to Directors. Subject to the limitations
of Section 6(c), Non- Incentive Stock Options to purchase 7,100 shares of Common
Stock will be granted to each Director who is not an Employee as of the
Effective Date, at an exercise price equal to the Fair Market Value of the
Common Stock on such date of grant. The Options will be first exercisable at the
rate of one-third as of the Effective Date and one-third each of the next two
years thereafter. Such Options shall continue to be exercisable for a period of
ten years following the date of grant without regard to the continued services
of such Director as a Director. In the event of the Optionee's death, such
Options may be exercised by the personal representative of his estate or person
or persons to whom his rights under such Option shall have passed by will or by
the laws of descent and distribution. Options may be granted to newly appointed
or elected non-employee Directors within the sole discretion of the Committee.
The exercise price per Share of such Options granted shall be equal to the Fair
Market Value of the Common Stock at the time such Options are granted. Unless
otherwise inapplicable, or inconsistent with the provisions of this paragraph,
the Options to be granted to Directors hereunder shall be subject to all other
provisions of this Plan.
(b) Option Price. The exercise price per Share of Common Stock
for each Non-Incentive Stock Option granted pursuant to the Plan shall be at
such price as the Committee may determine in its sole discretion, but in no
event less than the Fair Market Value of such Common Stock on the date of grant
as determined by the Committee in good faith.
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(c) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Non-Incentive Stock Option granted under the
Plan shall be made at the time of exercise of each such Non-Incentive Stock
Option and shall be paid in cash (in United States Dollars), Common Stock or a
combination of cash and Common Stock. Common Stock utilized in full or partial
payment of the exercise price must have been owned by the party exercising such
Option for not less than six months prior to the date of exercise of such
Option, and such Common Stock shall be valued at the Fair Market Value at the
date of exercise. The Company shall accept full or partial payment in Common
Stock only to the extent permitted by applicable law. No Shares of Common Stock
shall be issued until full payment has been received by the Company and no
Optionee shall have any of the rights of a stockholder of the Company until the
Shares of Common Stock are issued to the Optionee.
(d) Term. The term of exercisability of each Non-Incentive
Stock Option granted pursuant to the Plan shall be not more than ten (10) years
from the date each such Non-Incentive Stock Option is granted.
(e) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
Except as otherwise provided by the terms of the Plan or by action of the
Committee at the time of the grant of the Options, the Options will be first
exercisable at the rate of one-third as of the date of grant and one-third
annually thereafter.
(f) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held a Non-Incentive Stock Option for at least
six months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee gives the Company written notice of the exercise of the
Option together with an order to a registered broker-dealer or equivalent third
party, to sell part or all of the Optioned Stock and to deliver enough of the
proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option exercise price plus any
applicable withholding taxes to the Company.
(g) Transferability. Any Non-Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability, Death or Retirement
on Incentive Stock Options.
(a) Termination of Employment. In the event that any
Optionee's employment with the Company shall terminate for any reason, other
than Disability or death, all of any such Optionee's Incentive Stock Options,
and all of any such Optionee's rights to purchase or receive Shares of Common
Stock pursuant thereto, shall automatically terminate on (A) the earlier of (i)
or (ii): (i) the respective expiration dates of any such Incentive Stock
Options, or (ii) the expiration of not more than three (3) months after the date
of such termination of employment; or (B) at such later date as is determined by
the Committee at the time of the grant of such Award, but only if, and to the
extent that, the Optionee was entitled to exercise any such Incentive Stock
Options at the date of such termination of employment, and
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further that such Award shall thereafter be deemed a Non-Incentive Stock Option.
In the event that a Subsidiary ceases to be a Subsidiary of the Company, the
employment of all of its employees who are not immediately thereafter employees
of the Company shall be deemed to terminate upon the date such Subsidiary so
ceases to be a Subsidiary of the Company.
(b) Disability. In the event that any Optionee's employment
with the Company shall terminate as the result of the Disability of such
Optionee, such Optionee may exercise any Incentive Stock Options granted to the
Optionee pursuant to the Plan at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is one (1) year after the date of such termination of employment, but only
if, and to the extent that, the Optionee was entitled to exercise any such
Incentive Stock Options at the date of such termination of employment. For
purposes of this Section 10(b), any Incentive Stock Option held by an Optionee
shall be considered exercisable at the date of his termination of employment as
a result of such disability, if the only unsatisfied condition precedent to the
exercisability of such Incentive Stock Option at such date is the passage of a
specified period of time.
(c) Death. In the event of the death of an Optionee, any
Incentive Stock Options granted to such Optionee may be exercised by the person
or persons to whom the Optionee's rights under any such Incentive Stock Options
pass by will or by the laws of descent and distribution (including the
Optionee's estate during the period of administration) at any time prior to the
earlier of (i) the respective expiration dates of any such Incentive Stock
Options or (ii) the date specified at the time of grant of such Award, if any,
but in either case only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of death. For purposes of
this Section 10(c), any Incentive Stock Option held by an Optionee shall be
considered exercisable at the date of his death if the only unsatisfied
condition precedent to the exercisability of such Incentive Stock Option at the
date of death is the passage of a specified period of time. At the discretion of
the Committee, upon exercise of such Options the Optionee may receive Shares or
cash or a combination thereof. If cash shall be paid in lieu of Shares, such
cash shall be equal to the difference between the Fair Market Value of such
Shares and the exercise price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes
of Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment without regard to the Disability or death
of the Participant.
(e) Termination of Incentive Stock Options; Vesting Upon
Retirement. Except as may be specified by the Committee at the time of grant of
an Option, to the extent that any Incentive Stock Option granted under the Plan
to any Optionee whose employment with the Company terminates shall not have been
exercised within the applicable period set forth in this Section 10, any such
Incentive Stock Option, and all rights to purchase or receive Shares of Common
Stock pursuant thereto, as the case may be, shall terminate on the last day of
the applicable period. Notwithstanding the foregoing, the Committee may
authorize at the time of the grant of an Option that such Award shall be
immediately 100% exercisable upon the Retirement of the Optionee.
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11. Effect of Termination of Employment, Disability, Death or
Retirement on Non-Incentive Stock Options. The terms and conditions of
Non-Incentive Stock Options relating to the effect of the Retirement or other
termination of an Optionee's employment or service, Disability of an Optionee or
his death shall be such terms and conditions as the Committee shall, in its sole
discretion, determine at the time of termination of service, unless specifically
provided for by the terms of the Agreement at the time of grant of the Award.
12. Dividend Equivalent Rights. The Committee, in its sole discretion,
may include as a term of any Option, the right of the Optionee to receive
Dividend Equivalent Rights. Such rights shall provide that upon the payment of a
cash dividend on the Common Stock, the holder of such Options shall receive
payment of compensation in an amount equivalent to the dividend payable as if
such Options had been exercised and such Common Stock held as of the dividend
record date. Such rights shall expire upon the expiration or exercise of such
underlying Options. Such rights are non-transferable and shall attach to Options
whether or not such Options are immediately exercisable. The dividend equivalent
payments associated with Options shall be paid to the Option holder within 30
days of the dividend payment date of the Common Stock. All Options granted to
non-employee Directors of the Company as of the Effective Date in accordance
with Section 9(a) of the Plan shall have Dividend Equivalent Rights associated
with such Options.
13. Recapitalization, Merger, Consolidation, Change in Control and
Other Transactions.
(a) Adjustment. Subject to any required action by the
stockholders of the Company, within the sole discretion of the Committee, the
aggregate number of Shares of Common Stock for which Options may be granted
hereunder, the number of Shares of Common Stock covered by each outstanding
Option, and the exercise price per Share of Common Stock of each such Option,
shall all be proportionately adjusted for any increase or decrease in the number
of issued and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt or payment of consideration by the Company (other
than Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a Change in Control of the Company. In
the event of such a Change in Control, the Committee and the Board of Directors
will take one or more of the following actions to be effective as of the date of
such Change in Control:
(i) provide that such Options shall be assumed, or
equivalent options shall be substituted, ("Substitute Options") by the acquiring
or succeeding corporation (or an affiliate thereof), provided that: (A) any such
Substitute Options exchanged for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, and (B) the shares of stock issuable
upon the exercise of such Substitute Options shall constitute securities
registered in accordance with the Securities Act of 1933, as amended, ("1933
Act") or such securities shall be exempt from such registration in accordance
with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered
Securities"), or in the alternative, if the securities issuable upon the
exercise of such Substitute Options shall not constitute Registered Securities,
then the Optionee will receive upon the exercise of the Substitute Options a
cash payment for
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each Option surrendered equal to the difference between (1) the Fair Market
Value of the consideration to be received for each share of Common Stock in the
Change in Control transaction times the number of shares of Common Stock subject
to such surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options, or
(ii) in the event of a transaction under the terms of
which the holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment (the "Merger Price") for each share of
Common Stock exchanged in the Change in Control transaction, to make or to
provide for a cash payment to the Optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
Options held by each Optionee (to the extent then exercisable at prices not in
excess of the Merger Price) and (B) the aggregate exercise price of all such
surrendered Options in exchange for such surrendered Options.
(c) Extraordinary Corporate Action. Notwithstanding any
provisions of the Plan to the contrary, subject to any required action by the
stockholders of the Company, in the event of any Change in Control,
recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, partial or complete liquidation or other
extraordinary corporate action or event, the Committee, in its sole discretion,
shall have the power, prior or subsequent to such action or event to:
(i) appropriately adjust the number of Shares of
Common Stock subject to each Option, the Option exercise price per Share of
Common Stock, and the consideration to be given or received by the Company upon
the exercise of any outstanding Option;
(ii) cancel any or all previously granted Options,
provided that appropriate consideration is paid to the Optionee in connection
therewith; and/or
(iii) make such other adjustments in connection with
the Plan as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code without the
consent of the Optionee.
(d) Acceleration. The Committee shall at all times have the
power to accelerate the exercise date of Options previously granted under the
Plan.
Except as expressly provided in Sections 13(a) and 13(b),
no Optionee shall have any rights by reason of the occurrence of any of the
events described in this Section 13.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Notice of the grant of an Option shall be
given to each individual to whom an Option is so granted within a reasonable
time after the date of such grant in a form determined by the Committee.
15. Effective Date. The Plan shall become effective upon the later of
the date of ratification of the Plan by the stockholders of the Company or
adoption of the Plan by the Board. The Committee may make a determination
related to Awards prior to the Effective Date with such Awards to be effective
upon the later of the date of stockholder ratification of the Plan or the date
of Board adoption.
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16. Ratification by Stockholders. The Plan shall be ratified by
stockholders of the Company within twelve (12) months before or after the date
the Plan is approved by the Board.
17. Modification of Options. At any time and from time to time, the
Board may authorize the Committee to direct the execution of an instrument
providing for the modification of any outstanding Option, provided no such
modification, extension or renewal shall confer on the holder of said Option any
right or benefit which could not be conferred on the Optionee by the grant of a
new Option at such time, or shall not materially decrease the Optionee's
benefits under the Option without the consent of the holder of the Option,
except as otherwise permitted under Section 18 hereof.
18. Amendment and Termination of the Plan.
(a) Action by the Board. The Board may alter, suspend or
discontinue the Plan, except that no action of the Board may increase (other
than as provided in Section 13 hereof) the maximum number of Shares permitted to
be optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Company.
(b) Change in Applicable Law. Notwithstanding any other
provision contained in the Plan, in the event of a change in any federal or
state law, rule, regulation or policy which would make the exercise of all or
part of any previously granted Option unlawful or subject the Company to any
penalty, the Committee may restrict any such exercise without the consent of the
Optionee or other holder thereof in order to comply with any such law, rule or
regulation or to avoid any such penalty.
19. Conditions Upon Issuance of Shares; Limitations on Option Exercise;
Cancellation of Option Rights.
(a) Shares shall not be issued with respect to any Option
granted under the Plan unless the issuance and delivery of such Shares shall
comply with all relevant provisions of applicable law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities laws and the
requirements of any stock exchange upon which the Shares may then be listed.
(b) The inability of the Company to obtain any necessary
authorizations, approvals or letters of non-objection from any regulatory body
or authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares issuable hereunder shall relieve the Company of
any liability with respect to the non-issuance or sale of such Shares.
(c) As a condition to the exercise of an Option, the Company
may require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(d) Notwithstanding anything herein to the contrary, upon the
termination of employment or service of an Optionee by the Company or its
Subsidiaries for "cause" as determined in
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good faith by the Board of Directors, all Options held by such Participant shall
cease to be exercisable as of the date of such termination of employment or
service.
(e) Upon the exercise of an Option by an Optionee (or the
Optionee's personal representative), the Committee, in its sole and absolute
discretion, may make a cash payment to the Optionee, in whole or in part, in
lieu of the delivery of shares of Common Stock. Such cash payment to be paid in
lieu of delivery of Common Stock shall be equal to the difference between the
Fair Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee or the
Company under Section 16(b) of the Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder.
20. Reservation of Shares. During the term of the Plan, the Company
will reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Company by reason of the Plan or
the grant of any Option under the Plan. No trust fund shall be created in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Company shall have the right to deduct from
all amounts paid in cash with respect to the cashless exercise of Options and
Dividend Equivalent Rights any taxes required by law to be withheld with respect
to such cash payments. Where a Participant or other person is entitled to
receive Shares pursuant to the exercise of an Option, the Company shall have the
right to require the Participant or such other person to pay the Company the
amount of any taxes which the Company is required to withhold with respect to
such Shares, or, in lieu thereof, to retain, or to sell without notice, a number
of such Shares sufficient to cover the amount required to be withheld.
23. No Employment Rights. No Director, Employee or other person shall
have a right to be selected as a Participant under the Plan. Neither the Plan
nor any action taken by the Committee in administration of the Plan shall be
construed as giving any person any rights of employment or retention as an
Employee, Director or in any other capacity with the Company, the Bank or other
Subsidiaries.
24. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, except to the
extent that federal law shall be deemed to apply.
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Appendix B
Peoples Home Savings Bank
2002 Restricted Stock Plan
and Trust Agreement
Article I
---------
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Peoples Home Savings Bank ("Savings Bank") hereby establishes the
2002 Restricted Stock Plan (the "Plan") and Trust (the "Trust") upon the terms
and conditions hereinafter stated in this Restricted Stock Plan and Trust
Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
Article II
----------
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and to retain personnel of
experience and ability in key positions of responsibility with the Savings Bank
and its subsidiaries, by providing such personnel of the Savings Bank and its
subsidiaries with an increased equity interest in PHSB FINANCIAL CORPORATION
("Parent") as compensation for their prior and anticipated future professional
contributions and service to the Savings Bank and its subsidiaries.
Article III
-----------
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meaning as set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
"Beneficiary" means the person or persons designated by the Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing by
the Participant and addressed to the Bank or the Committee on forms provided for
this purpose by the Committee and delivered to the Bank and may be changed from
time to time by similar written notice to the Committee. A Participant's last
will and testament or any codicil thereto shall not constitute written
designation of a Beneficiary. In the absence of such written designation, the
Beneficiary shall be the Participant's surviving spouse, if any, or if none, the
Participant's estate.
"Board" means the Board of Directors of the Savings Bank, or any
successor corporation thereto.
"Cause" means the personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profits, intentional
failure to perform stated duties, willful violation of a material provision of
any law, rule or regulation (other than traffic violations and similar offense),
or a material
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violation of a final cease-and-desist order or any other action which results in
a substantial financial loss to the Savings Bank or its Subsidiaries.
"Change in Control" shall mean: (i) the sale of all, or a material
portion, of the assets of the Parent or Savings Bank; (ii) the merger or
recapitalization of the Parent or the Savings Bank whereby the Parent or Savings
Bank is not the surviving entity; (iii) a change in control of the Parent or
Savings Bank, as otherwise defined or determined by the Pennsylvania Department
of Banking ("Department") or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the 1934 Act and the
rules and regulations promulgated thereunder) of twenty-five percent (25%) or
more of the outstanding voting securities of the Parent or Savings Bank by any
person, trust, entity or group. This limitation shall not apply to the purchase
of shares of up to 25% of any class of securities of the Parent or Savings Bank
by a tax-qualified employee stock benefit plan. The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
"Committee" means the Board of Directors of Savings Bank or the
Restricted Stock Plan Committee appointed by the Board of Directors of the
Savings Bank pursuant to Article IV hereof.
"Common Stock" means shares of the common stock of the Parent, or any
successor corporation or parent thereto.
"Director" means a member of the Board of the Savings Bank.
"Disability" means any physical or mental impairment which renders the
Participant incapable of continuing in the employment or service of the Savings
Bank in his current capacity as determined by the Committee.
"Effective Date" shall mean the date of Board approval of the Plan.
"Employee" means any person who is employed by the Savings Bank or a
Subsidiary.
"Parent" shall mean PHSB Financial Corporation, the parent corporation
of the Savings Bank, or any successor parent thereto.
"Participant" means an Employee or Director who receives a Plan Share
Award under the Plan.
"Plan Shares" means shares of Common Stock held in the Trust which are
awarded or issuable to a Participant pursuant to the Plan.
"Plan Share Award" or "Award" means a right granted to a Participant
under this Plan to earn or to receive Plan Shares.
"Plan Share Reserve" means the shares of Common Stock held by the Trust
pursuant to Sections 5.03 and 5.04.
"Retirement" means the termination of service in all capacities as an
Employee and Director following attainment of not less than age 55 and
completion of not less than ten years of Service to the Savings Bank. Service to
the Savings Bank rendered prior to the Effective Date shall be recognized in
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determining eligibility to meet the requirements of Retirement under the Plan.
"Savings Bank" or "Bank" means Peoples Home Savings Bank, and any
successor corporation thereto.
"Subsidiary" means those subsidiaries of the Savings Bank which, with
the consent of the Board, agree to participate in this Plan.
"Trustee" or "Trustee Committee" means that person(s) or entity
nominated by the Committee and approved by the Board pursuant to Sections 4.01
and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.
Article IV
----------
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Board of Directors of the Savings Bank or a Committee
appointed by said Board, which shall consist of not less than two non-employee
members of the Board, which shall have all of the powers allocated to it in this
and other sections of the Plan. All persons designated as members of the
Committee shall be "Non-Employee Directors" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended ("1934 Act"). The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding. The
Committee shall act by vote or written consent of a majority of its members.
Subject to the express provisions and limitations of the Plan, the Committee may
adopt such rules, regulations and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year. The Committee shall recommend to the Board one
or more persons or entity to act as Trustee in accordance with the provision of
this Plan and Trust and the terms of Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee
shall be appointed or approved by, and will serve at the pleasure of the Board.
The Board may in its discretion from time to time remove members from, or add
members to, the Committee, and may remove, replace or add Trustees. The Board
shall have all of the powers allocated to it in this and other sections of the
Plan, may take any action under or with respect to the Plan which the Committee
is authorized to take, and may reverse or override any action taken or decision
made by the Committee under or with respect to the Plan, provided, however, that
the Board may not revoke any Plan Share Award already made except as provided in
Section 7.01(b) herein.
4.03 Limitation on Liability. No member of the Board, the Committee or
the Trustee shall be liable for any determination made in good faith with
respect to the Plan or any Plan Share Awards granted. If a member of the Board,
Committee or any Trustee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by any reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Savings Bank
shall indemnify such member against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him
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or her in connection with such action, suit or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in the best
interests of the Savings Bank and its Subsidiaries and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Notwithstanding anything herein to the contrary, in no event shall
the Savings Bank take any actions with respect to this Section 4.03 which is not
in compliance with the limitations or requirements set forth by regulations of
the Federal Deposit Insurance Corporation or the Department, as may be amended
from time to time.
Article V
---------
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board of Directors of the
Savings Bank shall determine the number of shares of Common Stock or the amount
of cash to be contributed by the Savings Bank to the Trust established under
this Plan. Such contributions to the Trust shall be delivered to the Trustee at
the time of such contribution. No contributions to the Trust by Participants
shall be permitted except with respect to amounts necessary to meet tax
withholding obligations.
5.02 Initial Investment. Any funds held by the Trust prior to
investment in the Common Stock shall be invested by the Trustee in such
interest-bearing account or accounts at the Savings Bank as the Trustee shall
determine to be appropriate.
5.03 Maximum Plan Share Reserve; Investment of Trust Assets. The Trust
shall purchase Common Stock in an amount not greater than 100% of the Trust's
cash assets, after providing for any required withholding as needed for tax
purposes, provided, however, that the Trust shall not distribute more than
66,000 shares of Common Stock in the aggregate pursuant to Awards under the
Plan. The Trustee may accept the transfer of Common Stock held by the Bank in
other trust accounts, purchase shares of Common Stock in the open market or, in
the alternative, may purchase authorized but unissued shares of the Common Stock
or treasury shares from the Parent sufficient to fund the Plan Share Reserve.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.05,
or the decision of the Committee to return Plan Shares to the Savings Bank, the
Plan Share Reserve shall be reduced by the number of Shares subject to the
Awards so allocated or returned. Any Shares subject to an Award which are not
earned because of forfeiture by the Participant pursuant to Section 7.01 shall
be added to the Plan Share Reserve.
Article VI
----------
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees are eligible to receive Plan Share Awards
within the sole discretion of the Committee. Directors who are not otherwise
Employees shall receive Plan Share Awards pursuant to Section 6.05.
6.02 Allocations. The Committee will determine which of the Employees
will be granted Plan Share Awards and the number of Shares covered by each
Award, provided, however, that in no event shall any Awards be made which will
violate the Charter or Bylaws of the Savings Bank or its Parent or
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Subsidiaries or any applicable federal or state law or regulation. In the event
Shares are forfeited for any reason or additional Shares are purchased by the
Trustee, the Committee may, from time to time, determine which of the Employees
will be granted Plan Share Awards to be awarded from forfeited Shares. In
selecting those Employees to whom Plan Share Awards will be granted and the
number of shares covered by such Awards, the Committee shall consider the prior
and anticipated future position, duties and responsibilities of the Employees,
the value of their prior and anticipated future services to the Savings Bank and
its Subsidiaries, and any other factors the Committee may deem relevant. All
actions by the Committee shall be deemed final, except to the extent that such
actions are revoked by the Board. Notwithstanding anything herein to the
contrary, in no event shall any Participant receive Plan Share Awards in excess
of 25% of the aggregate Plan Shares authorized under the Plan.
6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 or Section 6.05 that a Plan Share
Award is to be made, the Committee shall notify the Participant in writing of
the grant of the Award, the number of Plan Shares covered by the Award, and the
terms upon which the Plan Shares subject to the award may be earned. The date on
which the Committee makes its award determination or the date the Committee so
notifies the Participant shall be considered the date of grant of the Plan Share
Awards as determined by the Committee. The Committee shall maintain records as
to all grants of Plan Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary
at Sections 6.01, 6.02 or 6.05, no Employee shall have any right or entitlement
to receive a Plan Share Award hereunder, such Awards being at the sole
discretion of the Committee and the Board, nor shall the Employees as a group
have such a right. The Committee may, with the approval of the Board (or, if so
directed by the Board) return all Common Stock in the Plan Share Reserve to the
Savings Bank at any time, and cease issuing Plan Share Awards.
6.05 Awards to Directors. Notwithstanding anything herein to the
contrary, upon the Effective Date, a Plan Share Award consisting of 3,300 Plan
Shares shall be awarded to each Director of the Savings Bank that is not
otherwise an Employee. Such Plan Share Award shall be earned and non-forfeitable
at the rate of 20% as of December 23, 2002, and an additional 20% following each
of the next four successive years during such periods of service as a Director.
Further, such Plan Share Award shall be immediately 100% earned and
non-forfeitable in the event of the Change in Control of the Savings Bank or
Parent. Subsequent to the Effective Date, Plan Share Awards may be awarded to
newly elected or appointed Directors of the Savings Bank by the Committee,
provided that total Plan Share Awards granted to non-employee Directors of the
Savings Bank shall not exceed 30% of the total Plan Share Reserve in the
aggregate under the Plan or 5% of the total Plan Share Reserve to any individual
non-employee Director.
Article VII
-----------
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
(a) General Rules. Unless the Committee shall specifically states to
the contrary at the time a Plan Share Award is granted, Plan Shares subject to
an Award shall be earned and non-forfeitable by a Participant at the rate of
one-fifth of such Award as of the date of the granting of such Award, and an
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additional one-fifth following each of the next four successive years; provided
that such Participant remains an Employee or Director during such period.
(b) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Board shall, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Participant, whether or not yet earned, in the case of a Participant who is
discharged from the employ or service of the Savings Bank or a Subsidiary for
Cause, or who is discovered after termination of employment or service to have
engaged in conduct that would have justified termination for Cause. A
determination of Cause shall be made by the Board within its sole discretion.
(c) Exception for Terminations Due to Retirement. Notwithstanding the
general rule contained in Section 7.01(a) above, all Plan Shares subject to a
Plan Share Award held by a Participant whose employment or service with the
Savings Bank or a Subsidiary terminates due to Retirement, shall be deemed
earned and nonforfeitable as of the Participant's last date of employment or
service with the Savings Bank or Subsidiary and shall be distributed as soon as
practicable thereafter.
(d) Exception for Termination after a Change in Control.
Notwithstanding the general rule contained in Section 7.01 above, all Plan
Shares subject to a Plan Share Award held by a Participant shall be deemed to be
immediately 100% earned and non-forfeitable in the event of a Change in Control
of the Parent or Savings Bank and shall be distributed as soon as practicable
thereafter.
7.02 Payment of Dividends on Plan Share Awards. A holder of a Plan
Share Award, whether or not earned, shall also be entitled to receive an amount
equal to any cash dividends declared and paid with respect to shares of Common
Stock represented by such Plan Share Award between the date the relevant Plan
Share Award was granted to such Participant and the date the Plan Shares are
distributed. Such cash amounts shall be paid as compensation to the Participant
by the Trust or the Bank within 30 days of the applicable dividend payment date,
less applicable tax withholding, if applicable.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsections (d) and (e) below, Plan Shares shall be distributed to the
Participant or his Beneficiary, as the case may be, as soon as practicable after
they have been earned. No fractional shares shall be distributed.
Notwithstanding anything herein to the contrary, at the discretion of the
Committee, Plan Shares may be distributed prior to such Shares being 100%
earned, provided that such Plan Shares shall contain a restrictive legend
detailing the applicable limitations of such shares with respect to transfer and
forfeiture.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earnings thereon) shall be made in cash.
Notwithstanding anything within the Plan to the contrary, upon a Change in
Control whereby substantially all of the Common Stock of the Parent shall be
acquired for cash, all Plan Shares associated with Plan Share Awards, together
with any shares representing stock dividends associated with Plan Share Awards,
shall be, at the sole discretion of the Committee, distributed as of the
effective date of such Change in Control, or as soon as administratively
feasible thereafter, in the form of cash equal to the consideration received in
exchange for such Common Stock represented by such Plan Shares.
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(c) Withholding. The Trustee may withhold from any payment or
distribution made under this Plan sufficient amounts of cash or shares of Common
Stock necessary to cover any applicable withholding and employment taxes, and if
the amount of such payment or distribution is not sufficient, the Trustee may
require the Participant or Beneficiary to pay to the Trustee the amount required
to be withheld in taxes as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Parent, Savings Bank or Subsidiary which employs
or employed such Participant any such amount withheld from or paid by the
Participant or Beneficiary.
(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection
(a) above, no Plan Shares may be distributed to the extent the Participant or
Beneficiary, as the case may be, would after receipt of such Shares own in
excess of ten percent (10%) of the issued and outstanding shares of Common
Stock, unless such action is approved in advance by a majority vote of
disinterested directors of the Board of the Parent.
(e) Regulatory Exceptions. No Plan Shares shall be distributed,
however, unless and until all of the requirements of all applicable law and
regulation shall have been fully complied with, including the receipt of
approval of the Plan by the stockholders of the Savings Bank by such vote, if
any, as may be required by applicable law and regulations as determined by the
Board.
7.04 Voting of Plan Shares. A Participant shall be entitled to direct
the Trustee as to the voting of any Plan Shares which are associated with a Plan
Share Award which have been earned and which have not yet been distributed
pursuant to Section 7.03, subject to rules and procedures adopted by the
Committee for this purpose. All shares of Common Stock held by the Trust as to
which Participants are not entitled to direct, or have not directed, the voting
of such Shares, shall be voted by the Trustee as directed by the Committee.
Article VIII
------------
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 Management of Trust. It is the intention of this Plan and Trust
that the Trustee shall have complete authority and discretion with respect to
the management, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust, except those attributable to cash dividends paid
with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock
to the fullest extent practicable, except to the extent that the Trustee
determines that the holding of monies in cash or cash equivalents is necessary
to meet the obligations of the Trust. In performing their duties, the Trustees
shall have the power to do all things and execute such instruments as may be
deemed necessary or proper, including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
the Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and
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in making such investment, the Trustee is authorized to purchase Common
Stock from the Parent or from any other source, and such Common Stock
so purchased may be outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of deposit
(including those issued by the Savings Bank), obligations of the United
States government or its agencies or such other investments as shall be
considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Participant or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account
or held in common with other assets.
(i) As may be directed by the Committee or the Board from time to time,
the Trustee shall pay to the Saving Bank earnings of the Trust
attributable to the Plan Share Reserve.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of a court for the exercise of any power
herein contained, or to maintain bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust
assets shall be allocated in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Participants or to the general
account of the Trust, depending on the nature and allocation of the assets
generating such earnings, gains and losses. In particular, any earnings on cash
dividends received with respect to shares of Common Stock shall be allocated to
accounts for Participants, except to the extent that such cash dividends are
distributed to Participants, if such shares are the subject of outstanding Plan
Share Awards, or, otherwise to the Plan Share Reserve.
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8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan, including those incurred by the Trustee, shall be
paid by the Savings Bank.
8.06 Indemnification. Subject to the requirements and limitations of
applicable laws and regulations, the Parent and the Savings Bank shall
indemnify, defend and hold the Trustee harmless against all claims, expenses and
liabilities arising out of or related to the exercise of the Trustee's powers
and the discharge of their duties hereunder, unless the same shall be due to
their gross negligence or willful misconduct.
Article IX
----------
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan
Shares available for issuance pursuant to the Plan Share Awards and the number
of Shares to which any Plan Share Award relates shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of the Plan resulting
from any split, subdivision or consolidation of the Common Stock or other
capital adjustment, change or exchange of the Common Stock, or other increase or
decrease in the number or kind of shares effected without receipt or payment of
consideration by the Parent.
9.02 Amendment and Termination of the Plan. The Board may, by
resolution, at any time, amend or terminate the Plan. The power to amend or
terminate the Plan shall include the power to direct the Trustee to return to
the Savings Bank or the Parent all or any part of the assets of the Trust,
including shares of Common Stock held in the Plan Share Reserve, as well as
shares of Common Stock and other assets subject to Plan Share Awards which have
not yet been earned by the Participants to whom they have been awarded. However,
the termination of the Trust shall not affect a Participant's right to earn Plan
Share Awards and to the distribution of Common Stock relating thereto, including
earnings thereon, in accordance with the terms of this Plan and the grant by the
Committee or the Board.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Participant, and during the lifetime of the
Participant, Plan Shares may only be earned by and paid to the Participant who
was notified in writing of the Award by the Committee pursuant to Section 6.03.
No Participant or Beneficiary shall have any right in or claim to any assets of
the Plan or Trust, nor shall the Parent, Savings Bank, or any Subsidiary be
subject to any claim for benefits hereunder.
9.04 No Employment Rights. Neither the Plan nor any grant of a Plan
Share Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Participant to continue in the
employ or service of the Parent, Savings Bank, or a Subsidiary thereof.
9.05 Voting and Dividend Rights. No Participant shall have any voting
or dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above,
prior to the time said Plan Shares are actually distributed to such Participant.
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9.06 Governing Law. The Plan and Trust shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania, except to the
extent that Federal Law shall be deemed applicable.
9.07 Effective Date. The Plan shall be effective as of the date of
approval of the Plan by the Board of the Bank, subject to ratification of the
Plan by the stockholders of the Parent.
9.08 Term of Plan. This Plan shall remain in effect until the earlier
of (i) termination by the Board, (ii) the distribution of all assets of the
Trust, or (iii) 21 years from the Effective Date. Termination of the Plan shall
not effect any Plan Share Awards previously granted, and such Plan Share Awards
shall remain valid and in effect until they have been earned and paid, or by
their terms expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the Trust established
hereby shall be treated as a grantor trust of the Savings Bank under the
provisions of Section 671 et seq. of the Internal Revenue Code of 1986, as
amended, as the same may be amended from time to time.
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