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EXHIBIT 4.2
LEEDS FEDERAL SAVINGS BANK
AND
LEEDS FEDERAL BANKSHARES, M.H.C.
1994 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. PURPOSE
The purpose of the Leeds Federal Savings Bank and the Leeds Federal
Bankshares, M.H.C. 1994 Stock Option Plan for Outside Directors (the
"Directors' Option Plan") is to promote the growth and profitability of Leeds
Federal Savings Bank (the "Bank") and Leeds Federal Bankshares, M.H.C. (the
"Company"), and to provide non-employee directors of the Bank and the Company
with an incentive to achieve long-term objectives of the Bank and the Company,
attract and retain non-non-employee directors of outstanding competence and to
provide non-employee directors with an opportunity to acquire an equity
interest in the Bank.
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
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
"AFFILIATE" means any "parent corporation" or "subsidiary corporation"
of the Bank or the Company, as such terms are defined in Section 424(e) or
424(f), respectively, of the Code.
"AWARD" means an Award of Non-statutory Stock Options granted under
the provisions of the Plan.
"BENEFICIARY" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
"BOARD" means the board of directors of the Bank and/or the Company,
as applicable or as indicated by the context.
"COMMITTEE" means a Committee of the Board of the Bank and the Company
consisting of all non-employee directors.
"COMMON STOCK" means the common stock of the Bank.
"COMPANY" means Leeds Federal Bankshares, M.H.C., the mutual holding
company parent of the Bank.
"CONVERSION TRANSACTION" means the conversion of the Company from the
mutual to stock form of organization either on a stand-alone basis or in the
context of a merger conversion.
"DATE OF GRANT" means the actual date on which an Award is granted by
the Committee.
"DIRECTOR" means a member of the Board of the Bank or the Company.
"DISABILITY" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Director to perform the work
customarily assigned to him. Additionally, a medical doctor selected or
approved by the Board must advise the Committee that it is either not possible
to determine when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of such Director's
lifetime.
"FAIR MARKET VALUE" means, when used in connection with the Common
Stock on a certain date, the reported closing price of the Common Stock as
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market (as published by The Wall Street Journal, if
published) on the day prior to such date, or if the Common Stock
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was not traded on such date, on the next preceding day on which the Common
Stock was traded thereon; provided, however, that if the Common Stock is not
reported on the Nasdaq National Market, Fair Market Value shall mean the
average sale price of all shares of Common Stock sold during the 30-day period
immediately preceding the date on which such stock Option was granted, and if
no shares of stock have been sold within such 30-day period, the average sale
price of the last three sales of Common Stock sold during the 90-day period
immediately preceding the date on which such stock Option was granted. In the
event Fair Market Value cannot be determined in the manner described above,
then Fair Market Value shall be determined by the Committee. The Committee
shall be authorized to obtain an independent appraisal to determine the Fair
Market Value of the Common Stock.
"NON-STATUTORY STOCK OPTION" means an Option granted by the Committee
to a Participant.
"OFFERING" means the initial public offering of the Common Stock of
the Bank.
"OPTION" means an Award of a Non-Statutory Stock Option granted
pursuant to the terms of the Plan.
"OUTSIDE DIRECTOR" means a member of the Board who is not also serving
as an employee of the Bank or the Company.
"PARTICIPANT" means a Director of the Bank or its Affiliates chosen by
the Committee to participate in the Plan.
"REORGANIZATION" means the reorganization of Leeds Federal Savings
Bank as a mutual holding company and the establishment of the Bank as its
majority-owned subsidiary.
"TERMINATION FOR CAUSE" means the termination of service of a Director
caused by such Director's personal dishonesty, willful misconduct, any breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, or the willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or a final cease-and-desist order,
any of which results in a material loss to the Bank or an Affiliate.
3. ADMINISTRATION
(a) The Directors' Option Plan shall be administered by the
Committee. The Committee is authorized, subject to the provisions of the Plan,
to establish such rules and regulations as it deems necessary for the proper
administration of the Directors' Option Plan and to make whatever
determinations and interpretations in connection with the Directors' Option
Plan it deems necessary or advisable. All determinations and interpretations
made by the Committee shall be binding and conclusive on all Participants in
the Directors' Option Plan, and on their legal representatives and
beneficiaries.
(b) The Directors' Option Plan is intended to comply with Rule
16b-3 under the Securities Exchange Act of 1934. Notwithstanding any term to
the contrary appearing herein, unless permitted by Rule 16b-3(c)(2)(ii),
subsequent to the establishment of the Directors' Option Plan neither the
Committee nor the Board shall have the authority to determine the amount and
price of securities to be awarded and/or timing of awards to designated
directors or categories of directors, which terms shall be set forth herein.
To the extent any provision of the Plan or action by Plan administrators fails
to comply with this subsection 3(b), such provision or action shall be deemed
null and void to the extent permitted by law and deemed advisable by the Board.
4. GRANT OF OPTIONS
(a) Initial Grant. Each Outside Director who is serving in such
capacity on the date of the Bank's Offering and at the effective date of this
Directors' Option Plan, shall be granted a single non-qualified stock option to
purchase shares of the Common Stock, subject to adjustment pursuant to Section
5, in the following amounts:
Director Amount of Grant
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John F. Amer 13,809
Marguerite E. Wolf 16,361
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Raymond J. Hartman, Jr. 9,128
John F. Doyle 8,702
The purchase price per share of the Common Stock deliverable upon the
exercise of each non-qualified stock option shall be Fair Market Value of the
Common Stock of the Bank on the date the option is granted.
(b) Subsequent Grant. Each person who becomes an Outside Director
subsequent to the effective date of the Directors Option Plan shall be entitled
to receive, upon becoming a Director, options for 100 shares of Common Stock to
the extent options are available. The option exercise price shall be the Fair
Market Value of the Common Stock on the date the option is granted. The
purchase price for shares of Common Stock is deliverable upon exercise of each
such option.
5. TERMS OF OPTIONS
(a) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Bank and the Outside Director specifying the
number of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions that are not inconsistent with the
terms of this grant.
(b) Termination of Option. Each Option shall expire upon the
earlier of (i) one hundred and twenty (120) months following the date of grant,
or (ii) one (1) year following the date on which the Outside Director ceases to
serve in such capacity for any reason other than Termination for Cause. If the
Outside Director dies before fully exercising any portion of an Option then
exercisable, such Option may be exercised by such Outside Director's personal
representative(s), heir(s) or devisee(s) at any time within the one (1) year
period following his or her death; provided, however, that in no event shall
the Option be exercisable more than one hundred and twenty (120) months after
the date of its grant. If the Outside Director is terminated for Cause, all
Options awarded to him or her shall expire upon such termination.
(c) Manner of Exercise. The Option may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Bank. Such notice is irrevocable
and must be accompanied by full payment of the purchase price in cash or shares
of previously acquired Common Stock. If previously acquired shares of Common
Stock are tendered in payment of all or part of the exercise price, the value
of such shares shall be determined as of the date of such exercise.
(d) Termination of Service. In the event of an Outside Director's
termination of service as a result of death, Disability, retirement or failure
to seek re-election, the Outside Director (or his or her personal
representative(s), heir(s), or devisee(s)) may, in a form acceptable to the
Committee, make application to surrender all or part of Options held by such
Outside Director in exchange for a cash payment from the Bank of an amount
equal to the difference between the Fair Market Value of the Common Stock on
the date of termination of service and the exercise price per share of the
Option on the Date of Grant. Whether the Bank accepts such application or
determines to make payment, in whole or part, is within its absolute and sole
discretion, it being expressly understood that the Bank is under no obligation
to any Outside Director whatsoever to make such payments. In the event that
the Bank accepts such application and determines to make payment, such payment
shall be in lieu of the exercise of the underlying Option and such Option shall
cease to be exercisable.
(e) Transferability. Each Option granted hereby may be exercised
only by the Outside Director to whom it is issued, or in the event of the
Outside Director's death, his or her personal representative(s), heir(s) or
devisee(s) pursuant to the terms of Section 5(b) hereof.
(f) Limitations Upon Exercise of Options. Notwithstanding any
other provision of this Director's Option Plan, so long as the Company remains
in the mutual form of organization and so long as any applicable statute or
regulation requires the Company to own at least a majority of the outstanding
Common Stock of the Bank, an Option granted under this Plan may not be
exercised if the exercise of such an Option would result in the Company owning
less than a majority of the Common Stock of the Bank. Nothing herein shall
preclude the Bank from issuing additional authorized but unissued shares of
Common Stock to the Company to allow for the exercise of Options which would
otherwise have resulted in the Company owning less than a majority of the
Common Stock of the Bank.
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6. COMMON STOCK SUBJECT TO THE PLAN
The shares that shall be issued and delivered upon exercise of Options
granted under the Directors' Option Plan may be either authorized and unissued
shares of Common Stock or authorized and issued shares of Common Stock held by
the Bank as treasury stock or stock purchased by Bank or the Company on the
open market; provided, however, that in the event any such purchase by the Bank
would result in the recapture of bad debt reserves pursuant to Section 593(e)
of the Code, the Boards of the Bank and the Company may determine that such
purchase shall be made exclusively by the Company. The maximum number of
shares of Common Stock reserved for issuance under the Directors' Option Plan
shall, subject to adjustments pursuant to this Section 6, not exceed 6% of the
shares of Common Stock of the Bank sold in connection with initial public
offering of the Common Stock of the Bank (or 72,000 shares). The shares of
Common Stock represented by such Options may be either authorized but unissued
shares or shares previously issued and reacquired by the Bank. To the extent
that Options or rights granted under the Plan are exercised, the shares covered
will be unavailable for future grants under the Plan; to the extent that
Options together with any related rights granted under the Plan terminate,
expire or are cancelled without having been exercised or, in the case of
Limited Rights exercised for cash, new Awards may be made with respect to these
shares.
In the event of any change or changes in the outstanding Common Stock
of the Bank by reason of any stock dividend or split, recapitalization,
reorganization, merger, consolidation, split-off, combination or any similar
corporate change, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Bank, the number of shares of Common
Stock that may be issued under this Directors' Option Plan, the number of
shares of Common Stock subject to Options granted under the Directors' Option
Plan, and the Option price of such Options, shall be automatically adjusted to
prevent dilution or enlargement of the rights granted to an Outside Director
under the Directors' Option Plan.
7. TREATMENT OF OPTIONS IN THE EVENT OF A CONVERSION TRANSACTION
In the event that the Company converts (a "Conversion Transaction")
from the mutual to stock form of organization ("Stock Holding Company") either
on a stand-alone basis or in the context of a merger conversion, any Options
outstanding shall, at the Option of the holder, (i) be convertible into Options
for Common Stock of the Stock Holding Company, or (ii) be exercised by the
holder prior to the effective date of the Conversion Transaction and the holder
shall be entitled to exchange, in the same manner as other minority
stockholders of the Bank, the shares of Common Stock of the Bank received upon
such exercise for shares of Common Stock of the Stock Holding Company. If for
any reason such Options are not to be converted or such shares are not
exchanged, the holders of Options under this plan shall receive cash payment
for the shares of stock represented by the Options in an amount equal to the
fair market value of the shares underlying the Options or the initial offering
price of the number of shares of common stock of the Stock Holding Company for
which the Common Stock underlying the Options would otherwise be exchanged, in
both cases less the original exercise price of such Options and, with respect
to Options that have been exercised, the Stock Holding Company shall redeem
such shares for cash in the same manner as such redemption would occur for
other minority stockholders of the Bank. Any exchange, conversion of Options,
or cash payment for shares shall be subject to applicable federal and state
regulations and, if necessary, subject to the approval of the appropriate
Regulatory Authorities.
8. EFFECTIVE DATE OF THE PLAN; SHAREHOLDER RATIFICATION AND APPROVAL
The Plan shall become effective upon the date adopted by the Board of
the Bank and the Company, following the approval of stockholders (the
"Effective Date").
9. TERMINATION OF THE PLAN
The right to exercise Options under the Directors' Option Plan will
terminate upon the earlier of ten years after the Effective Date of the Plan or
exercise of Options equal to the maximum number of shares of Common Stock
reserved for issuance under the Directors' Option Plan. A majority of the
shareholders of the Bank represented in person or proxy at a meeting of the
shareholders may terminate the Directors' Option Plan; provided, however, no
such termination shall, without the consent of the affected individual, affect
such individual's rights under a previously granted Option.
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10. COMPLIANCE WITH RULE 16b-3 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
(a) Notwithstanding any contrary provisions herein, unless
permitted by Rule 16b-3(c)(2)(ii)(B) terms stating the amount and price of
securities to be awarded and/or timing of awards to designated directors or
categories of directors shall not be amended more than once every six months
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or rules thereunder.
(b) Transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the 1934 Act, and
the Plan is intended to be administered in the manner specified in Rule
16b-3(c)(2)(ii). To the extent any provision of the Plan or action by the plan
administrators fails to so comply, it shall be deemed null and void to the
extent permitted by law and deemed advisable by the Plan administrators.
11. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the State
of Maryland.
IN WITNESS WHEREOF, the Bank and the Company have adopted this Plan
and caused it to be executed by its duly authorized officers and the corporate
seal to be affixed and duly attested, as of the 28th day of October, 1994.
Approved by Stockholders on October 26, 1994.
LEEDS FEDERAL SAVINGS BANK
ATTEST:
/s/ Joan H. McCleary /s/ Gordon E. Clark
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Joan H. McCleary, Secretary Gordon E. Clark, President and
Chief Executive Officer
ATTEST: LEEDS FEDERAL BANKSHARES, M.H.C.
/s/ Joan H. McCleary /s/ Gordon E. Clark
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Joan H. McCleary, Secretary Gordon E. Clark, President and
Chief Executive Officer
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