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SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 under Section 240.14a-12
PARKVALE FINANCIAL CORPORATION
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 O-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:
---------------
(5) Total fee paid:
------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-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:
----------------------------------------
(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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PARKVALE FINANCIAL CORPORATION LOGO
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4220 WILLIAM PENN HIGHWAY, MONROEVILLE, PA 15146
September 20, 2004
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Parkvale Financial Corporation. The meeting will be held at the Pittsburgh
Athletic Association, 4215 Fifth Avenue, Pittsburgh, Pennsylvania, on Thursday,
October 28, 2004, at 10:00 a.m.
At the meeting, stockholders will act on the matters set forth in the
accompanying Notice of Annual Meeting and Proxy Statement and on any other
business matters properly brought before the meeting.
FOR THE REASONS SET FORTH IN THE PROXY STATEMENT, THE BOARD UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE NOMINEES AS DIRECTORS, "FOR" THE ADOPTION OF THE
2004 STOCK INCENTIVE PLAN AND "FOR" THE RATIFICATION OF AUDITORS.
It is important that your shares be represented and voted at the Annual
Meeting regardless of whether you plan to attend. Please complete, sign, date
and return the enclosed proxy card promptly in the envelope provided.
Sincerely,
/s/ ROBERT J. McMARTHY, JR.
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
PARKVALE FINANCIAL CORPORATION
4220 WILLIAM PENN HIGHWAY
MONROEVILLE, PENNSYLVANIA 15146
(412) 373-7200
------------------------------
NOTICE OF ANNUAL MEETING
TO BE HELD ON OCTOBER 28, 2004
------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Parkvale
Financial Corporation, Monroeville, Pennsylvania (the "Corporation"), will be
held at the Pittsburgh Athletic Association, 4215 Fifth Avenue, Pittsburgh,
Pennsylvania, on Thursday, October 28, 2004, at 10:00 a.m., Eastern Time, for
the following purposes, all of which are more completely set forth in the
accompanying Proxy Statement:
(1) To elect two directors for a term of three years or until their
successors have been elected and qualified;
(2) To adopt the 2004 Stock Incentive Plan, pursuant to which 279,000
shares or 5% of the issued and outstanding Common Stock will be
reserved for future grants.
(3) To ratify the appointment of Parente Randolph, LLC as the Corporation's
independent auditors for the fiscal year ending June 30, 2005; and
(4) To transact such other business as may properly come before the
meeting.
Stockholders of the Corporation of record at the close of business on
August 30, 2004 are entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors
/s/ ERNA A GOLOTA
Erna A. Golota
Secretary
Monroeville, Pennsylvania
September 20, 2004
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED. IF YOU ATTEND THE
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
PARKVALE FINANCIAL CORPORATION
------------------------------
PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to holders of Common Stock, par
value $1.00 per share ("Common Stock"), of Parkvale Financial Corporation (the
"Corporation" or "PFC"), the holding company of Parkvale Savings Bank (the
"Bank"), in connection with the solicitation of proxies on behalf of the Board
of Directors, for use at the Annual Meeting of Stockholders to be held at the
Pittsburgh Athletic Association, 4215 Fifth Avenue, Pittsburgh, Pennsylvania, on
Thursday, October 28, 2004, at 10:00 a.m., Eastern Time, and at any adjournment
thereof for the purposes set forth in the Notice of Annual Meeting. This Proxy
Statement is being first sent to stockholders on or about September 20, 2004.
The proxies solicited hereby, if properly signed and returned to the
Corporation, will be voted in accordance with the instructions contained therein
if they are not revoked prior to their use. IF NO CONTRARY INSTRUCTIONS ARE
GIVEN, EACH PROXY RECEIVED WILL BE VOTED FOR THE SLATE OF DIRECTORS DESCRIBED
HEREIN; FOR THE ADOPTION OF THE 2004 STOCK INCENTIVE PLAN ATTACHED HERETO AS
APPENDIX A; FOR RATIFICATION OF THE APPOINTMENT OF PARENTE RANDOLPH, LLC AS THE
CORPORATION'S INDEPENDENT AUDITORS; AND UPON THE TRANSACTION OF SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING IN ACCORDANCE WITH THE BEST
JUDGMENT OF THE PERSONS APPOINTED AS PROXIES.
Any stockholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Corporation
written notice thereof (Erna A. Golota, Secretary, Parkvale Financial
Corporation, 4220 William Penn Highway, Monroeville, Pennsylvania 15146), (ii)
submitting a duly executed proxy bearing a later date, or (iii) appearing at the
Annual Meeting and giving the Secretary notice of his or her intention to vote
in person. Proxies solicited hereby may be exercised only at the Annual Meeting
and any adjournment thereof and will not be used for any other meeting.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP THEREOF
Only stockholders of record at the close of business on August 30, 2004
(the "Voting Record Date") will be entitled to vote at the Annual Meeting. On
the Voting Record Date, there were 5,580,967 shares of Common Stock of the
Corporation issued and outstanding and the Corporation had no other class of
equity securities outstanding. Each share of Common Stock is entitled to one
vote on each proposal at the Annual Meeting, with no cumulative voting for the
election of directors permitted.
The following table sets forth, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) persons or entities
known to the Corporation to be the beneficial owners of 5% or more of the
Corporation's Common Stock, (ii) directors of the Corporation, (iii) executive
officers of the Corporation who are not directors, and (iv) all directors and
executive officers as a group. The information shown is based upon filings
pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"),
and/or information furnished by the individuals or entities.
2
<Table>
<Caption>
NUMBER OF SHARES
BENEFICIALLY OWNED AS PERCENT OF
NAME OF BENEFICIAL OWNER OF AUGUST 30, 2004(1) COMMON STOCK
- ------------------------ --------------------- ------------
Parkvale Financial Corporation 565,273(2) 10.13%
Employee Stock Ownership Plan
4220 William Penn Highway
Monroeville, PA 15146
Beck, Mack & Oliver LLC 400,602(3) 7.18
330 Madison Avenue
New York, NY 10017
DIRECTORS:
Fred P. Burger, Jr. 164,586(4)(5) 2.93
Andrea F. Fitting 21,499(4)(6) 0.38
Robert J. McCarthy, Jr. 468,223(4)(7)(8) 8.26
Patrick J. Minnock 37,287(4)(9) 0.67
Robert D. Pfischner 121,878(4)(10) 2.17
Harry D. Reagan 3,200(4) 0.06
EXECUTIVE OFFICERS
WHO ARE NOT DIRECTORS:
Timothy G. Rubritz 125,879(4)(7)(11) 2.25
Gail B. Anwyll 32,712(4)(7) 0.56
Thomas R. Ondek 45,917(4)(7) 0.82
Gilbert A. Riazzi 12,056(4)(7) 0.22
DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP
(10 persons) 1,033,237(4)(7) 17.71
</Table>
- ---------
(1) Under applicable regulations, shares are deemed to be beneficially owned by
a person if he or she directly or indirectly has or shares the power to
vote or dispose of the shares, whether or not he or she has any economic
interest in the shares. Unless otherwise indicated, the named beneficial
owner has sole voting and dispositive power with respect to the shares.
(2) All shares have been allocated to the participants of the Employee Stock
Ownership Plan ("ESOP").
(3) Beck, Mack & Oliver LLC is an investment adviser registered under the
Investment Advisers Act of 1940 and based on a Schedule 13F as of June 30,
2004 filed with the SEC, the 400,602 shares are owned by investment
advisory clients of the firm. No one of these clients owns more than 5% of
said shares.
(4) Includes shares that may be acquired within 60 days through exercise of
stock options as follows: Mr. Burger, 30,586 shares; Dr. Fitting, 19,500
shares; Mr. McCarthy, 86,125 shares; Mr. Minnock, 19,500 shares; Mr.
Pfischner, 35,941 shares; Mr. Reagan, 2,000 shares; Mr. Rubritz, 25,375
shares; Ms. Anwyll, 15,687 shares; Mr. Ondek, 15,687 shares; Mr. Riazzi,
3,750 shares; and all directors and executive officers as a group, 254,151
shares. Shares of Common Stock which are subject to stock options are
deemed to be outstanding for the purpose of computing the percentage of
outstanding Common Stock owned by the individual or group but are not
deemed outstanding for the purpose of computing the percentage of Common
Stock owned by any other person or group. Exclusive of shares which may be
acquired upon the exercise of stock options, directors and executive
officers of the Corporation as a group beneficially owned 779,086 shares or
13.96% of the issued and outstanding Common Stock.
(5) Includes 38,000 shares held under Mr. Burger's deferred fee agreement with
the Bank.
3
(6) Includes 1,140 shares held by Dr. Fitting's spouse.
(7) Includes shares allocated to such person or group under the ESOP as
follows: Mr. McCarthy, 58,079 shares; Mr. Rubritz, 37,757 shares; Ms.
Anwyll, 11,607 shares; Mr. Ondek, 16,815 shares; Mr. Riazzi, 5,004 shares;
and all executive officers as a group, 129,262 shares. Also includes shares
allocated under (a) the Supplemental Executive Benefit Plan ("SEBP") as
follows: Mr. McCarthy, 20,851 shares; Mr. Rubritz, 513 shares, and all
executive officers as a group, 21,364 shares; and (b) Executive Deferred
Compensation Plan ("EDCP"): Mr. McCarthy, 34,716 shares; Mr. Rubritz, 3,900
shares; Mr. Ondek, 75 shares; and all executive officers as a group 38,691
shares. (See Audit-Finance Committee Report On Executive Compensation.)
Shares are deemed to be beneficially owned by such individuals or group as
a result of their ability to direct the ESOP, SEBP and EDCP trustees'
voting of such shares allocated to their respective accounts.
(8) Includes 164,360 shares held jointly by Mr. McCarthy and his wife, 17,254
shares held by Mr. McCarthy as custodian for his children, and 86,838
shares held under deferred fee and compensation agreements with the Bank.
(9) Includes 3,281 shares held by Mr. Minnock's wife and 9,900 shares held by
the Minnock Family Limited Partnership.
(10) Includes 26,816 shares held jointly by Mr. Pfischner and his wife and 1,525
shares held by his wife.
(11) Includes 44,578 shares held jointly by Mr. Rubritz and his wife and 6,006
shares held by Mr. Rubritz as custodian for his children.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that directors and officers of
the Corporation and the Bank file reports of ownership and changes in ownership
of the Common Stock with the Securities and Exchange Commission. Directors and
officers are required to furnish the Corporation with copies of all Section
16(a) forms they file. Based solely upon review of copies of Forms 3, 4 and 5
received by the Corporation's compliance administrator, the Corporation believes
that all filing requirements applicable to its directors and officers were
complied with during fiscal 2004.
4
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
DIRECTORS WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS
Pursuant to the Bylaws of the Corporation and by resolution of the
Corporation's Board of Directors, the Board of Directors currently consists of
six members. The Board of Directors is divided into three classes, and members
of each class are elected for a term of three years and until their successors
are elected and qualified. One class of directors is to be elected annually.
There are no arrangements or understandings between the Corporation and any
person pursuant to which such person has been nominated as a director other than
the nomination of Harry D. Reagan as a director. Pursuant to the terms of the
Parkvale/Second National Bank of Masontown Agreement and Plan of Acquisition,
Mr. Reagan was recommended by the Masontown Advisory Board for a seat on the
Parkvale Board. Parkvale's Board of Directors concurred with this
recommendation. No director or executive officer is related to any other
director or executive officer of either the Corporation or the Bank.
The Board of Directors has determined that four of its six members meet the
standards for independence as defined in applicable Nasdaq Listing Standards. In
making this determination, the Board determined that a director may be
independent even if he or she has business relationships with Parkvale or one of
its affiliates as long as such relationship does not interfere with the
director's exercise of judgment independent from management of Parkvale, such
relationship complies with all applicable federal and state regulations, and any
relationship involving the director is entered into in the ordinary course of
business and on substantially the same terms as those prevailing at the time for
comparable transactions with other persons. Mr. McCarthy, as a full-time
salaried employee, and Mr. Reagan, as a result of the three year consulting
agreement entered into in connection with the acquisition of Second National
Bank, are not considered independent directors at this time.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of the nominees listed below. If any
person named as nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxies will nominate and vote for the
replacement nominee recommended by the Board of Directors. At this time, the
Board of Directors knows of no reason why the persons listed below may not be
able to serve as a director if elected. A majority of the shares of Common Stock
entitled to vote, present in person or by proxy at the meeting, will constitute
a quorum. The election of directors requires the affirmative vote of the holders
of a plurality of the shares of Common Stock by all stockholders entitled to
vote thereon, whether in person or by proxy. Abstentions are considered in
determining the presence of a quorum but will not be counted as votes cast.
Accordingly, abstentions will have no effect on the plurality vote required for
the election of directors. There will not be any "broker non-votes" on this
proposal.
5
NOMINEES FOR TERMS EXPIRING IN 2007
<Table>
<Caption>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS SINCE
- ---- --- -------------------------- -----
Robert J. McCarthy, Jr. 61 Vice Chairman of the Board since October 1985(1)(2)
2002; Director, President and Chief
Executive Officer of the Bank since
December 1984 and of the Corporation since
organization in August 1987; previously
President and Chief Executive Officer of
Metropolitan Federal Savings Bank,
Bethesda, Maryland
Patrick J. Minnock 47 Director; President of Minnock Construction 1998(2)
Company, a leading builder and land
developer in the western Pennsylvania area,
since 1988; licensed real estate broker
since 1987; Life Director and former
President of the Builders Association of
Metropolitan Pittsburgh
</Table>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE ABOVE NOMINEES
BE ELECTED AS DIRECTORS.
DIRECTORS WITH TERMS EXPIRING IN 2005
<Table>
<Caption>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS SINCE
- ---- --- -------------------------- -----
Fred P. Burger, Jr. 77 Director; President of Burger Agency, Inc., 1981(1)(2)
a real estate brokerage firm and insurance
agency, since 1948
Harry D. Reagan 71 Chief Executive Officer of Masontown 2003(2)
Division of Parkvale Savings Bank February
1, 2002 until retirement on December 31,
2002; formerly Chairman of the Board of The
Second National Bank of Masontown (SNB)
prior to the merger of SNB into Parkvale
Savings Bank on January 31, 2002; Chief
Executive Officer of SNB since 1988;
previously with Gallatin National Bank from
1951 until 1988; member of the Board of
Directors of Health Resources, Inc. and
Uniontown Hospital
</Table>
6
DIRECTORS WITH TERMS EXPIRING IN 2006
<Table>
<Caption>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS SINCE
- ---- --- -------------------------- -----
Andrea F. Fitting, Ph.D. 50 Director; President and Chief Executive 1998(2)
Officer of Fitting Group, Inc., formerly
known as Fitting Creative, Inc., since 1995
and President of Fitting Communications,
Inc. from 1986 to 1995, marketing
communications firms; former Commissioner
of the Pennsylvania Historical and Museum
Commission
Robert D. Pfischner 82 Chairman of the Board; Retired, former 1968(1)(2)
President of E.T. Lippert Saw Co., a
manufacturer of saw blades for industry and
fabricator of armor plate, from 1973 to
2003
</Table>
- ---------
(1) Includes terms as director of the Bank prior to organization of the
Corporation in 1987.
(2) Currently serves as a director of the Bank.
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS
Shareholders may communicate with the Board of Directors or any member
thereof by doing so in writing, addressed to the intended recipient, including
the number of shares beneficially owned, and mailed to the Corporate Secretary,
Parkvale Financial Corporation, 4220 William Penn Highway, Monroeville, PA
15246-2774.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Corporation holds regular meetings at least
quarterly. Each member of the Board of Directors of the Corporation also serves
as a director of the Bank. During the year ended June 30, 2004, the Board of
Directors of the Corporation met fourteen times. No directors failed to attend
fewer than 90% of such meetings and the meetings of the committees of the Board
on which they served. In the future, the independent members of the Board of
Directors will meet at least two times a year.
The Nominating Committee met one time in fiscal 2004. The Nominating
Committee is currently composed of Mr. Burger, Chairman of the Committee, Dr.
Fitting, Mr. Minnock and Mr. Pfischner. The Board has determined that each
member of the Nominating Committee meets all applicable independence
requirements of the Nasdaq listing standards. The Nominating Committee Charter
adopted by the Board of Directors is attached hereto as Appendix B and is
available at www.Parkvale.com. The Nominating Committee identifies individuals
qualified to become Board members and recommends director nominees for election
at each annual stockholder meeting. The Nominating Committee will consider
nominations made by stockholders if such nominations are made in accordance with
Article IV, Section 3 of the Corporation's Bylaws. The Board also has other
standing committees, each served by the same members of the Board and in the
same capacities as those described below for similar committees of the Bank's
Board. The Executive Committee, which did not meet in fiscal 2004, has the
authority to exercise all of the powers of the Board between Board meetings. The
joint Audit-Finance Committee of the Corporation and the Bank met six times in
fiscal 2004. Directors of the Corporation do not receive any fees directly from
the Corporation for serving as Board and Committee members. The Board does not
have a separate compensation committee as determination of compensation is a
function of the Audit-Finance Committee.
7
The Board of Directors of the Bank meets regularly each month and may have
additional special meetings. The Board met fourteen times during fiscal 2004.
The Bank has standing Executive, Audit-Finance and Site-Building Committees as
described below, in addition to other committees. During fiscal 2004, no
directors failed to attend fewer than 100% of the meetings held during the year
by the Board of Directors and by all committees of the Board on which they
served.
The Executive Committee has the authority to exercise all the powers of the
Board of Directors between Board meetings. The members of the Executive
Committee are appointed annually and consisted of Dr. Fitting and Messrs.
Burger, Minnock, Pfischner and Reagan during fiscal 2004. Mr. Pfischner
currently serves as Chairman of this committee. Mr. McCarthy attends but does
not vote at the meetings. The Executive Committee met one time during fiscal
2004.
The Site-Building Committee inspects, evaluates and recommends to the Board
proposed sites for branch offices and recommends any major repairs and/or
additions to such proposed sites that may be necessary. The members of the
Site-Building Committee are appointed annually and consisted of Dr. Fitting and
Messrs. Burger, Minnock and Reagan during fiscal 2004. Messrs. Pfischner and
McCarthy, as ex-officio members, attend the meetings but do not vote. Mr.
Minnock currently serves as Chairman of this committee. The Site-Building
Committee did not meet during fiscal 2004.
The joint Audit-Finance Committee is comprised of three independent
directors. The Committee reviews the Bank's budget; the scope and results of the
audit performed by the Corporation's and the Bank's independent auditors; the
scope and results of the examinations performed by the Office of Thrift
Supervision, the Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation; the Bank's system of internal control; and monitors
compliance with the Bank's established investment, interest rate risk, financial
futures and options policies. The members of such committee must consider and
act upon (1) all transactions with respect to the investment portfolio, with the
exception of Federal Funds sold, in excess of $25 million, and (2) all hedging
activities over $10 million and up to $25 million. In addition, the
Audit-Finance Committee reviews and makes recommendations to the Board
concerning compensation of officers and employees. The members of the
Audit-Finance Committee are appointed annually and consisted of Dr. Fitting and
Messrs. Burger and Minnock during fiscal 2004. Messrs. Pfischner and McCarthy,
as ex-officio members, attend the meetings but do not vote. Mr. Burger currently
serves as Chairman of this committee. The Audit-Finance Committee met six times
during fiscal 2004.
8
AUDIT-FINANCE COMMITTEE REPORT
The Board of Directors has determined that the three Audit-Finance
Committee members are financially literate under the current listing standards
of the Nasdaq. The Board also determined that Patrick J. Minnock qualifies as an
"audit committee financial expert" as defined by the SEC rules adopted pursuant
to the Sarbanes-Oxley Act of 2002. A copy of the Audit-Finance Committee Charter
is attached to this Proxy Statement as Appendix C.
The Committee oversees the Corporation's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling the oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosure in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgment as to
the quality, not just the acceptability, of the Corporation's accounting
principles and such other matters as are required to be discussed with the
Committee under generally accepted auditing standards, including Statement of
Auditing Standards No. 61. In addition, the Committee has discussed with the
independent auditors the auditors' independence from management and the
Corporation, including the matters in the written disclosures required by the
Independence Standards Board and the Independent Standards Board Standard No. 1,
and considered the compatibility of non-audit services with the auditors'
independence.
The Committee discussed with the Corporation's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Corporation's internal controls, and the overall quality of the Corporation's
financial reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board has approved, that the
audited financial statements be included in the Annual Report on Form 10-K for
the fiscal year ended June 30, 2004 for filing with the Securities and Exchange
Commission. The Committee and the Board have also recommended, subject to
shareholder approval, selection of Parente Randolph, LLC as the Corporation's
independent auditors for the fiscal year ending June 30, 2005.
Fred P. Burger, Jr., Chairman
Andrea F. Fitting
Patrick J. Minnock
September 9, 2004
COMPENSATION OF DIRECTORS
Board members receive a retainer of $1,375 monthly, based on an annualized
retainer of $16,500, and $500 for each meeting attended. Mr. McCarthy does not
receive the annual retainer and meeting fees. Directors, excluding Messrs.
Pfischner and McCarthy, received $200 for each committee meeting attended during
fiscal 2004, except for the chairman of the Audit-Finance Committee, who
received $225 per meeting attended. The Site-Building Committee did not meet
during fiscal 2004; however, in addition to the normal $225 per meeting fee for
fulfilling his duties as Chairman of the Site-Building Committee, Mr. Minnock
may receive $100 for inspecting and evaluating a proposed branch site and any
major repairs to a branch office or site. Mr. Minnock made one evaluation during
fiscal 2004 and received $100 for performing such services.
9
Dr. Fitting and Messrs. Burger, Minnock and Pfischner served as
trustees/administrators of the Corporation's following benefit plans during
fiscal 2004: 401(k) Plan, Employee Stock Ownership Plan and Stock Option Plans.
To date, the directors serving as trustees/administrators of these plans have
not received any additional compensation for such services.
On December 16, 1993, the Bank entered into a consulting agreement with Mr.
Pfischner to serve as a consultant to the President-Chief Executive Officer,
Board of Directors and executive staff of the Bank for a term of one year
commencing on January 1, 1994 and continuing from year to year by written
agreement. The agreement has been extended by written agreement each calendar
year through 2004 under the same terms and conditions for a term of one year.
The agreement provides for a minimum base annual fee of $20,400 payable monthly,
which may be increased in the future. Either party may terminate the agreement
by providing the other party with at least thirty days written notice before the
expiration date of the agreement. Mr. Pfischner had performed consulting
services to the Bank for many years without a written agreement. For services
performed during fiscal 2004, in addition to the regular Board fees, Mr.
Pfischner received $25,400 which included a bonus of $5,000 for outstanding
services to the Bank.
Pursuant to the three-year employment agreement dated January 31, 2002
between the Bank and Mr. Reagan, upon his retirement as Chief Executive Officer
of the Masontown Division of the Bank on December 31, 2002, he serves as a
consultant to the Bank for the then remaining term of twenty-five months which
commenced on January 1, 2003. The agreement provides for a minimum base annual
fee of $107,999 payable monthly.
Under the 1993 Directors' Stock Option Plan, each person who serves as a
non-employee director immediately following the last adjournment of each Annual
Meeting shall be granted as of such date a compensatory stock option to purchase
shares of the Corporation's Common Stock at a price equal to the fair market
value of a share of the Common Stock on that date. On the 2003 Annual Meeting
date, each non-employee director received an option to purchase 2,000 shares.
The fair market value on the October 23, 2003 Annual Meeting date was $25.625
per share. This Plan expired in October 2003, after the granting of these
options.
Directors may make an irrevocable election prior to the beginning of each
calendar year to defer all or a portion of the annual retainer and meeting fees
into a cash account and/or a PFC stock account. The cash account earns interest
each year at a rate equal to the rate paid on the Bank's highest rated
certificate of deposit on the first business day of each calendar year. The
stock account is credited with the dividends paid on PFC stock during the year.
Prior to the beginning of the year, each participant may elect to purchase PFC
Common Stock with the cash in either account. A third deemed investment option
earns the performance rate of any of the selected mutual funds offered by CIGNA
to participants of the Bank's 401(k) Plan. At the end of each quarter, the
account is credited with gains (or debited for losses) in accordance with the
mutual fund experience reports provided by CIGNA. Participants may receive
payments from their accounts on the attainment of an age after 65 or at
termination of Board service in cash, in either a lump sum or annual
installments, or receive the Common Stock.
10
EXECUTIVE MANAGEMENT
The following table sets forth certain information with respect to
executive officers of the Corporation and the Bank who are not directors of the
Corporation. There are no arrangements or understandings between the Corporation
or the Bank and any person pursuant to which such person has been appointed an
executive officer. No executive officer is related to any other executive
officer or director of the Corporation or the Bank by blood, marriage or
adoption. Officers of the Corporation and the Bank are appointed annually by the
respective Boards of Directors for one-year terms.
<Table>
<Caption>
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS
---- --- -------------------
Timothy G. Rubritz 50 Vice President-Treasurer of the Corporation since its
organization in August 1987; Senior Vice President-Treasurer
of the Bank since December 1989; Vice President-Treasurer
from January 1986 to December 1989; joined the Bank in June
1985 as Audit Director; with Coopers & Lybrand from 1976 to
1985, including a general practice manager at such firm from
1982 to 1985.
Gail B. Anwyll 52 Senior Vice President of the Bank since June 2000; Vice
President from December 1992 to June 2000; in charge of
Human Resources Department and Marketing; Assistant
Corporate Secretary since July 1990; Senior Assistant Vice
President from December 1991 to December 1992; Assistant
Vice President from December 1989 to December 1991; joined
the Bank in August 1989 as Director of Human Resources; with
Lyman Savings & Loan Association from 1976 to August 1989,
serving as Executive Vice President from 1987 to August
1989.
Thomas R. Ondek 45 Senior Vice President of the Bank since December 2001; in
charge of Deposit Operations; Vice President from December
1989 to December 2001; Assistant Vice President from
December 1986 to December 1989; branch manager from April to
December 1985; joined the Bank in May 1984.
Gilbert A. Riazzi 40 Senior Vice President of the Bank since December 2003 and
Chief Information Officer since July 2002; Vice President
from December 1999 to December 2003; Audit-Compliance
Director of the Corporation and the Bank from December 1999
to July 2002; Senior Assistant Vice President of the Bank
from December 1996 to December 1999; Assistant Vice
President from December 1993 to December 1996; joined the
Bank as Internal Auditor in May 1992; with Landmark Savings
from 1989 to 1992 as Audit Supervisor.
</Table>
11
OTHER OFFICERS
<Table>
<Caption>
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS
---- --- -------------------
Joseph C. DeFazio 43 Assistant Treasurer of the Corporation since April 2003;
Vice President of the Bank since December 2000 and Assistant
Treasurer since December 1995; Assistant Controller from
December 1986 to December 1995; joined the Bank in October
1984 as Accounting Supervisor.
Robert B. Powderly 46 Vice President-Manager of Commercial Services since joining
the Bank in December 2003; Vice President of L. J. Melody &
Company, a mortgage banking firm, from 1999 to 2003; with
National City Bank of PA and Integra Bank from 1992 to 1999
serving as Vice President-Manager of Commercial Real Estate
in both banks.
Jason W. Ross 30 Vice President-Audit Compliance Director of the Bank since
December 2003; Audit Compliance Director of the Corporation
and the Bank since July 2002; Senior Assistant Vice
President from June 2003 to December 2003; Assistant Vice
President from December 2002 to June 2003; joined the Bank
in April 2002; with Arthur Andersen as Manager in Assurance
and Business Advisory from 1996 to April 2002.
Thomas A. Webb 54 Vice President-Manager of Consumer, Mortgage Lending and
Asset Management of the Bank since September 2003; joined
the Bank in June 2003; with Laurel Savings and Loan
Association from 1998 to 2003 serving as Vice President and
Chief Lending Officer.
</Table>
AUDIT-FINANCE COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
PFC's business consists primarily of the business of the Bank and its
subsidiaries. The financial results of PFC are a direct function of the Bank's
achievement of its goals as set forth in its long-term strategic plan.
Executives are compensated for their contribution to the achievement of these
goals, which benefits the stockholders, customers, employees and communities in
which the Bank operates.
The Audit-Finance Committees of the Bank and PFC ("Committee") jointly
administer executive compensation, with all compensation currently paid by the
Bank. The Committee reviews all issues pertaining to executive compensation and
submits its recommendations to the Board of Directors for approval. Mr. Robert
J. McCarthy, Jr., in his capacity as a member of the Board of Directors of PFC
and the Bank, abstains from any Board of Directors' vote concerning compensation
affecting himself. The Committee's compensation program for executive officers
currently consists of annual payments of salary and bonuses and periodic grants
of options to purchase Common Stock under PFC's Stock Option Plans. PFC does not
have any Stock Option Plans with shares eligible for grant at June 30, 2004.
Each element of the program has a different purpose. Salary and bonus payments
are mainly designed to reward current and past performance. Stock option awards
are designed to help attract and retain superior personnel for positions of
substantial responsibility as well as to provide additional incentive to
contribute to the long-term success of PFC.
In determining the amount and form of executive compensation to be paid or
awarded in fiscal 2004, the Committee considered PFC's overall performance over
a period of years--and its future objectives and challenges--rather than a
guideline or formula based on any particular performance measure in a single
year. Within this framework, the Committee considered, among other things, the
following performance factors in making its compensation decisions in fiscal
2004: return on equity; earnings per share; fair market value of the Common
Stock; and the Bank's achievement of its annual goals relating to earnings,
growth, net worth, asset quality, efficiency ratio and evaluation by regulators
12
as to safety and soundness. The Committee's decisions concerning the
compensation of individual executive officers during fiscal 2004 were made in
the context of historical practice and competitive environment, including
comparisons with compensation practices of companies of similar size and
function in the financial services industry. The Committee has not addressed the
adoption of a policy with respect to the issue of the deductibility of
qualifying executive compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended ("Code") because no executive has compensation subject
to Section 162(m) that exceeds the $1,000,000 threshold.
Supplemental non-qualified benefit plans are provided to executive officers
as follows:
Supplemental Executive Benefit Plan
Effective December 31, 1994, PFC and the Bank adopted the Supplemental
Benefit Plan ("SEBP") for the benefit of certain officers who are subject to the
limitations imposed by Sections 401(a)(17) and 415 of the Code on the maximum
amount of compensation which may be taken into consideration for the purposes of
the Parkvale Financial Corporation Employee Stock Ownership Plan ("ESOP") and
the maximum amount of benefits which may be allocated to an individual
participant thereunder. In calendar year 1994, the maximum amount of base pay
for qualified benefit plan purposes was reduced to $150,000 from $235,840
previously. From 1997 through 2001, the base amount gradually increased to
$170,000. Effective January 1, 2002, this limit was increased to $200,000.
Persons earning more than $200,000 in 2003 were deprived of retirement funds
otherwise available to them. The officer affected by the Code limitation in
calendar year 2003 was Mr. McCarthy and 884 Treasury shares of PFC Common Stock
applicable to the 2003 distribution were allocated to the Trust administered by
the Heritage Trust Division of Northwest Savings Bank for his benefit. The value
of those shares, based upon the closing price of $26.85 per share on the last
trading day of calendar 2003 (December 31, 2003), is included in the Summary
Compensation Table.
Executive Deferred Compensation Plan
Due to benefit limits imposed by the Code and/or discrimination tests of
highly compensated employees, the Bank adopted, effective July 1, 1994, the
Parkvale Savings Bank Executive Deferred Compensation Plan ("EDCP") for certain
senior officers of the Bank to compensate such individuals who participate in
the 401(k) Plan for benefits lost under the Plan. The EDCP is an unfunded, non-
qualified plan which provides for the accrual of matching contributions and
investment returns that may not be accrued under the 401(k) Plan. Under the
401(k) Plan, participating employees may voluntarily make pre-tax contributions
to their accounts up to 10% of covered plan compensation. The Bank matches 50%
of the employee's pre-tax contributions up to a maximum of 6% of the employee's
covered compensation. In addition, the Bank may make a profit sharing
contribution equal to a percentage of each eligible employee's covered
compensation during a plan year, subject to the Bank's profitability and the
discretionary approval of the Board of Directors. The historical discretionary
contribution has been 2%. Contributions to the 401(k) Plan and EDCP for the
named executive officers are included in the Summary Compensation Table.
BASES FOR CHIEF EXECUTIVE OFFICER AND NAMED EXECUTIVE OFFICERS COMPENSATION
In fiscal 2004, PFC's President and Chief Executive Officer received total
cash payments of $480,000 in salary and bonus (as shown in the Summary
Compensation Table). The Committee notes that Mr. McCarthy's salary in fiscal
2004 was unchanged from fiscal 2003, and that the bonus paid to Mr. McCarthy in
fiscal 2004 exceeded 45% of his salary for the year, down $50,000 from fiscal
2003. The bonus paid to Mr. Rubritz in fiscal 2004 exceeded 30% of his salary
for the year and the bonus paid to Mr. Ondek in fiscal 2004 exceeded 29% of his
salary for the year. All named executives received reduced bonuses in fiscal
2004 compared to fiscal 2003.
The Committee considered these 2004 payments appropriate in light of PFC's
performance. In addition, the Committee determined Mr. McCarthy's fiscal 2004
compensation based on its assessment
13
of his ability and dedication to enhance the long-term value and financial
strength of PFC by continuing to provide the leadership and vision that he has
provided throughout his tenure as Chief Executive Officer. PFC's net income has
increased in three of the last five fiscal years. In addition, PFC's return on
average equity for the last five fiscal years has averaged 12.85%.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2004, no member of the Audit-Finance Committee was a former
or is presently a full-time officer or employee of the Corporation or any of its
subsidiaries.
AUDIT-FINANCE COMMITTEE
Fred P. Burger, Chairman
Andrea F. Fitting
Patrick J. Minnock
14
PERFORMANCE GRAPH
The following table and graph compares the yearly cumulative total return
of the Common Stock over a five-year measurement period with (i) the yearly
cumulative total return on the stocks included in the Nasdaq Market Index and
(ii) the yearly cumulative total return on the stocks included in the Nasdaq
Financial Stock Market Index as reported by the Center for Research in
Securities Prices at the University of Chicago. All of these cumulative returns
are computed assuming the reinvestment of dividends at the frequency with which
dividends were paid during the applicable years.
TABLE OF CUMULATIVE VALUES
<Table>
<Caption>
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Parkvale........................... $100.00 $ 82.66 $119.14 $146.50 $121.33 $119.69
Nasdaq............................. 100.00 147.83 80.27 54.68 60.71 76.53
Nasdaq Financial................... 100.00 78.77 106.32 118.93 125.01 153.62
S&P 500............................ 100.00 107.44 91.74 75.17 75.54 90.04
Book Value Per Share............... 13.84 14.75 16.78 17.09 17.93 18.76
Market Value Per Share............. 21.75 17.25 24.00 28.64 24.42 26.32
</Table>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
<Table>
<Caption>
PARKVALE NASDAQ NASDAQ FINANCIAL S&P 500
-------- ------ ---------------- -------
1999 $100.00 $100.00 $100.00 $100.00
2000 82.66 147.83 78.77 107.44
2001 119.14 80.27 106.32 91.74
2002 146.50 54.68 118.93 75.17
2003 121.33 60.71 125.01 75.54
2004 119.69 76.53 153.62 90.04
</Table>
* Assumes the investment of $100 on June 30, 1999 and the reinvestment of all
dividends.
The market value on the record date, August 30, 2004 was $25.36 per share.
15
EXECUTIVE COMPENSATION
SUMMARY
The following table sets forth a summary of certain information concerning
the compensation awarded or paid for services rendered in all capacities during
the last three fiscal years to the Chief Executive Officer and other executive
officers of the Corporation and the Bank ("Named Executive Officers") whose
total compensation during the last fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY(1) BONUS OPTION AWARDS COMPENSATION(2)(3)
- --------------------------- ----------- --------- ----- ------------- ------------------
Robert J. McCarthy, Jr. 2004 $330,000 $150,000 0 $64,069
President and 2003 330,000 200,000 0 76,365
Chief Executive Officer 2002 330,000 275,000 0 86,049
Timothy G. Rubritz 2004 138,606 42,000 0 23,468
Vice President-Treasurer 2003 136,200 48,000 0 25,575
of the Corporation and 2002 134,400 58,000 0 28,131
Senior Vice
President-Treasurer of the
Bank
Thomas R. Ondek 2004 86,294 25,000 0 11,688
Senior Vice President 2003 83,896 28,000 0 13,900
of the Bank 2002 81,486 33,000 0 14,856
</Table>
- ---------
(1) Salary includes amounts deferred at the election of the executive officer
through the Bank's 401(k) Plan and Executive Deferred Compensation Plan
("EDCP").
(2) Includes the Bank's contributions to the 401(k) Plan and EDCP during fiscal
2004 on behalf of Mr. McCarthy ($25,000), Mr. Rubritz ($9,114) and Mr. Ondek
($4,279).
(3) Includes the value of the Common Stock allocated to the ESOP and SEBP Trust
account of Mr. McCarthy ($39,069) and ESOP accounts of Messrs. Rubritz
($14,354) and Mr. Ondek ($7,409) based upon the closing price of $26.85 per
share on the allocation date, December 31, 2003.
The column "Other Annual Compensation" has been omitted because there is no
compensation required to be reported in such column. The aggregate amount of
perquisites and other personal benefits provided to each Named Executive Officer
did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
of such officer.
16
OPTION GRANTS IN THE LAST FISCAL YEAR
There were no options granted during the fiscal year ended June 30, 2004.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning stock options
exercised during fiscal year 2004 by the Named Executive Officers and the value
of unexercised stock options held by each such officer on the last trading day
of the fiscal year (June 30, 2004). The number of shares have been adjusted to
reflect the 5 for 4 stock splits in October 1994, 1995, 1996, 1997 and 1998.
<Table>
<Caption>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE(2)
- ---- ----------- ----------- ------------- ----------------
Robert J. McCarthy,
Jr. 24,414 $412,855 86,125/0 $536,929/$0
Timothy G. Rubritz 11,807 196,564 25,775/0 155,875/0
Thomas R. Ondek 9,155 150,376 15,687/0 84,008/0
</Table>
- ---------
(1) The value was determined by subtracting the exercise price from the fair
market value of the Common Stock on the exercise date.
(2) The value was determined by subtracting the exercise prices from the fair
market value of the Common Stock on June 30, 2004 ($26.07 per share) and
multiplying the same by the number of options.
17
LONG-TERM INCENTIVE PLANS--AWARDS IN THE LAST FISCAL YEAR
A long-term incentive plan has not been instituted for either the
Corporation or the Bank.
EMPLOYMENT AGREEMENT
The Bank entered into a five-year employment agreement with Mr. McCarthy in
April 1987 and the Corporation became a party to the agreement upon consummation
of the reorganization of the Bank into the holding company form of organization
in January 1989. The initial term of the agreement was extended automatically
for an additional year on each anniversary date of the agreement. Effective
January 1, 1997, a new five-year employment agreement was entered into by the
parties to reflect the holding company formation, the Bank's charter conversion
to a savings bank and change in regulators, and changes in applicable law and
regulatory policies since 1987. The agreement provides for a minimum annual
salary of $262,000, which may be increased from time to time in such amounts as
may be determined by the Boards of Directors of the Corporation and the Bank. In
addition, Mr. McCarthy may receive bonus payments as determined by the Boards of
Directors. Prior to the first anniversary of the effective date and each annual
anniversary thereafter, the Boards of Directors shall consider all relevant
factors, including Mr. McCarthy's performance, and if appropriate approve a
one-year extension of the remaining term of the agreement. The term of Mr.
McCarthy's agreement will be extended each year if the Boards of Directors of
the Bank and the Corporation ("Parkvale") approve the extension, unless Mr.
McCarthy provides at least 30 days written notice not to extend the agreement
beyond its remaining term. The agreement is terminable by Parkvale for cause at
any time and currently expires on January 1, 2009.
The agreement with Mr. McCarthy provides for severance payments and other
benefits in the event Parkvale terminates his employment for other than cause,
disability, retirement or death or Mr. McCarthy resigns for "good reason," as
defined in the agreement. Good reason includes among other things a "change in
control" of Parkvale, which is defined to include any of the following: (1) any
change in control required to be reported pursuant to Item 6(e) of Schedule 14A
promulgated under the Exchange Act; (2) the acquisition of beneficial ownership
by any person (as defined in Sections 13(d) and 14(d) of the Exchange Act) of
10% or more of the combined voting power of the Corporation's then outstanding
securities; or (3) within any period during the term of the agreement, a change
in the majority of the Board of Directors for any reason without the written
consent of Mr. McCarthy. In such event, Parkvale will give severance payments to
Mr. McCarthy equal to 2.99 times his average annual base salary, bonus and other
incentive compensation for the preceding three years, plus the continuation or
payment of certain fringe benefits other than stock benefit plans. Under Mr.
McCarthy's employment agreement, Mr. McCarthy could receive payments and
benefits that constitute a parachute payment. Parachute payments generally are
payments in excess of three times the base amount, which is defined to mean the
recipient's average annual compensation from the employer includible in the
recipient's gross income during the most recent five taxable years ending before
the date on which a change in control of the employer occurred. Recipients of
parachute payments are subject to a 20% excise tax on the amount by which such
payments exceed the base amount, in addition to regular income taxes, and
payments in excess of the base amount are not deductible by the employer as
compensation expense for federal income tax purposes. In such event, Parkvale
has agreed to pay the 20% excess tax that would otherwise be owed by Mr.
McCarthy and such additional amounts as may be necessary to reimburse Mr.
McCarthy for the federal, state and local income taxes and excise taxes on such
amounts.
The agreement also precludes Mr. McCarthy from owning (excluding the
ownership of 1% or less of the stock of a public corporation), managing,
operating and controlling, being employed by or participating in or being in any
way connected with any other business covered by federal deposit insurance which
is located in the Pennsylvania counties of Allegheny, Armstrong, Butler, Beaver,
Washington and Westmoreland. Such restriction shall continue throughout Mr.
McCarthy's employment with Parkvale.
18
The employment agreement with Mr. McCarthy and the change in control
agreement with Mr. Rubritz described below, to the extent they increase the cost
of any acquisition of control of the Corporation, could be deemed to have an
anti-takeover effect. As a result, the agreements may discourage takeover
attempts which (1) are deemed by certain stockholders to be in their best
interests, (2) might be at prices in excess of the then market value of the
Corporation's Common Stock, and (3) as a result, may tend to perpetuate existing
management.
CHANGE IN CONTROL AGREEMENT
The Corporation and the Bank ("Parkvale") entered into a three-year change
in control severance agreement with Mr. Rubritz effective January 1, 2000.
Commencing on the first annual anniversary of each effective date, the term of
the agreement will be extended for an additional year on each annual anniversary
of the effective date until such time as the Boards of Directors of Parkvale or
Mr. Rubritz gives notice not to extend the term of the agreement. As a
consequence, subsequent to the first anniversary of the effective date, the
remaining term of the agreement will stay between two and three years unless
notice of non-renewal is given not less than thirty (30) days prior to any
anniversary date. If either party gives timely notice that the term will not be
extended as of any annual anniversary date, then the agreement shall terminate
at the conclusion of its remaining term. The agreement currently expires on
January 1, 2007.
The agreement with Mr. Rubritz provides for severance payments and other
benefits in the event his employment with Parkvale is terminated subsequent to a
change in control of the Corporation by (i) Parkvale for other than cause,
disability, retirement or death, (ii) by Mr. Rubritz for any reason within the
first sixty (60) days following the one-year anniversary of the change in
control, or (iii) by Mr. Rubritz for good reason, then Parkvale shall (a) pay to
Mr. Rubritz, in either twenty-four (24) equal monthly installments beginning
with the first business day of the month following the date of termination or in
a lump sum within five (5) business days of the date of termination, a cash
severance amount equal to two (2) times Mr. Rubritz's annual compensation, and
(b) maintain and provide for a period ending at the earlier of (i) the
expiration of the remaining term of the agreement as of the date of termination
or (ii) the date of Mr. Rubritz's full-time employment by another employer, at
no cost to him, continued participation in all group insurance, life insurance,
health and accident insurance, disability insurance and other employee benefit
plans, programs and arrangements offered by Parkvale in which Mr. Rubritz was
entitled to participate immediately prior to the date of termination (excluding
stock benefit plans and cash incentive compensation). If such payments would
constitute a "parachute payment" under Section 280G of the Code, then the
payments and benefits payable shall be reduced by the minimum amount necessary
to avoid constituting a parachute payment.
Parkvale may assign the agreement and its rights and obligations thereunder
in whole, but not in part, to any corporation, bank or other entity with or into
which either the Corporation or the Bank may merge or consolidate or which
either may transfer all or substantially all of its respective assets. Mr.
Rubritz may not assign or transfer the agreement or any rights or obligations
thereunder.
LOANS TO MANAGEMENT
In the ordinary course of business, the Bank makes loans available to its
directors, officers and employees. Such loans are made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans to other
borrowers. It is the belief of management that these loans neither involve more
than the normal risk of collectability nor present other unfavorable features.
At June 30, 2004, the Bank had 19 loans outstanding to directors and officers of
the Bank, or members of their immediate families or related entities. In total,
these loans were less than 5% of total shareholders' equity at June 30, 2004.
19
PROPOSAL TO ADOPT THE 2004 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors has adopted the 2004 Stock Incentive Plan (the
"Incentive Plan"), pursuant to which 279,000 shares of 5% of the issued and
outstanding Common Stock will be reserved for future grants. The Incentive Plan
is designed to attract and retain qualified personnel in key positions, provide
officers and key employees with a proprietary interest in the Company and as an
incentive to contribute to the success of the Company and reward key employees
for outstanding performance. The Incentive Plan is also designed to attract and
retain qualified directors for the Company. The Incentive Plan provides for the
grant of incentive stock options intended to comply with the requirements of
Section 422 of the Code ("incentive stock options"), non-incentive or
compensatory stock options and share awards (collectively "Awards"). Awards will
be available for grant to officers, key employees and directors of the Company
and its subsidiaries, except that non-employee directors will be eligible to
receive only awards of non-incentive stock options.
DESCRIPTION OF THE 2004 STOCK INCENTIVE PLAN
The following description of the Incentive Plan is a summary of its terms
and is qualified in its entirety by reference to the Incentive Plan, a copy of
which is attached hereto as Appendix A.
Administration. The Incentive Plan will be administered and interpreted by
a special committee of the Board of Directors (the "Committee") that is
comprised solely of two or more non-employee directors. The members of the
Committee will initially consist of Dr. Fitting and Messrs. Burger and Minnock.
Stock Options. Under the Incentive Plan, the Board of Directors or the
Committee will determine which officers, key employees and non-employee
directors will be granted options, whether such options will be incentive or
compensatory options (in the case of options granted to employees), the number
of shares subject to each option, whether such options may be exercised by
delivering other shares of Common Stock and when such options become
exercisable. The per share exercise price of both an incentive stock and a
compensatory option shall at least equal the fair market value of a share of
Common Stock on the date the option is granted.
Options granted to participants will become vested and exercisable at the
rate as may be specified by the Committee. Notwithstanding the foregoing, no
vesting shall occur on or after a participant's employment or service with the
Company is terminated for any reason other than his death, disability,
retirement or a change in control of the Company. Unless the Committee or Board
of Directors shall specifically state otherwise at the time an option is
granted, all options granted to participants shall become vested and exercisable
in full on the date an optionee terminates his employment or service with the
Company or a subsidiary company because of his death, disability or retirement.
In addition, all stock options will become vested and exercisable in full on the
effective date of a change in control of the Company. A change in control is
defined in the Incentive Plan to include (1) stockholder approval of (or, if no
stockholder approval is required, completion of) a merger, consolidation, share
exchange, division or other reorganization or transaction involving the Company
with any other corporation or entity, other than where such a transaction
results in either (A) the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 60% of the combined voting power of the surviving entity
immediately after such transaction or (B) the members of the Board of Directors
of the Company immediately prior thereto continuing to represent at least 60% of
the members of the Board of Directors of the surviving entity, (2) the
acquisition by any person of 20% or more of the Company's then outstanding
voting stock, (3) a change in a majority of the Board of Directors of the
Company during any period of 36 consecutive months, unless each new director was
approved by at least two-thirds of the directors then still in office who were
directors at the beginning of the period, (4) certain acquisitions of control of
the Company as defined in the regulations of the Office of Thrift
20
Supervision, and (5) any change in control events required to be reported to the
Securities and Exchange Commission.
Each stock option or portion thereof shall be exercisable at any time on or
after it vests and is exercisable until the earlier of ten years after its date
of grant or six months after the date on which the optionee's employment
terminates (three years after termination of service in the case of non-employee
directors), unless extended by the Committee or the Board of Directors to a
period not to exceed five years from such termination. Unless stated otherwise
at the time an option is granted, (i) if an optionee terminates his employment
or service with the Company or a subsidiary company as a result of disability or
retirement without having fully exercised his options, the optionee shall have
five years following his termination due to disability or retirement to exercise
such options, and (ii) if an optionee terminates his employment or service with
the Company or a subsidiary company following a change in control of the Company
without having fully exercised his options, the optionee shall have the right to
exercise such options during the remainder of the original ten year term of the
option. However, failure to exercise incentive stock options within three months
after the date on which the optionee's employment terminates may result in
adverse tax consequences to the optionee. If an optionee dies while serving as
an employee or a non-employee director or terminates employment or service as a
result of disability and dies without having fully exercised his options, the
optionee's executors, administrators, legatees or distributees of his estate
shall have the right to exercise such options during the two-year period
following his death. In no event will any option be exercisable more than ten
years from the date it was granted.
Stock options are non-transferable except by will or the laws of descent
and distribution. Notwithstanding the foregoing, an optionee who holds
non-qualified options may transfer such options to his or her immediate family
or to a duly established trust for the benefit of one or more of these
individuals. Options so transferred may thereafter be transferred only to the
optionee who originally received the grant or to an individual or trust to whom
the optionee could have initially transferred the option. Options which are so
transferred shall be exercisable by the transferee according to the same terms
and conditions as applied to the optionee.
Payment for shares purchased upon the exercise of options may be made
either in cash, by check or, if permitted by the Committee or the Board, by
delivering shares of Common Stock (including shares acquired pursuant to the
exercise of an option) with a fair market value equal to the total option price,
by withholding some of the shares of Common Stock which are being purchased upon
exercise of an option, or any combination of the foregoing. If the fair market
value of a share of Common Stock at the time of exercise is greater than the
exercise price per share, this feature would enable the optionee to acquire a
number of shares of Common Stock upon exercise of the Option, which is greater
than the number of shares delivered as payment for the exercise price. In
addition, an optionee can exercise his or her option in whole or in part and
then deliver the shares acquired upon such exercise as-payment for the exercise
price of all or part of his options. Again, if the fair market value of a share
of Common Stock at the time of exercise is greater than the exercise price per
share, this feature would enable the optionee to either (1) reduce the amount of
cash required to receive a fixed number of shares upon exercise of the option or
(2) receive a greater number of shares upon exercise of the option for the same
amount of cash that would have otherwise been used. Because options may be
exercised in part from time to time, the ability to deliver Common Stock as
payment of the exercise price could enable the optionee to turn a relatively
small number of shares into a large number of shares. However, shares of Common
Stock delivered to pay the purchase price of an option must have been acquired
by the optionee more than six months prior to the exercise date of the option.
In addition, an optionee can elect, with the Committee's concurrence, to defer
the delivery of the proceeds of any compensatory option not transferred under
the terms of the Incentive Plan. Such deferral must comply with the provisions
of the Incentive Plan, the Deferred Compensation Plan and other rules and
regulations as may be established by the Committee.
Share Awards. Under the Incentive Plan, the Board of Directors or the
Committee is authorized to grant share awards, which are a right to receive a
distribution of shares of Common Stock. Shares of
21
Common Stock granted pursuant to a share award will be in the form of restricted
stock which shall vest upon such terms and conditions as established by the
Committee. The Board or the Committee will determine which officers and key
employees will be granted share awards, the number of shares subject to each
share award, whether the share award is contingent upon achievement of certain
performance goals and the performance goals, if any, required to be met in
connection with a share award. Non-employee directors are not eligible to
receive share awards. The number of shares available to be issued as share
awards will not exceed 20% (or 55,800 shares) of the total number of shares
available for issuance under the Incentive Plan.
If the employment of a share award recipient is terminated before the share
award is completely earned, the recipient will forfeit the right to any shares
subject to the share award that has not been earned, except as set forth below.
All shares subject to a share award held by a recipient whose employment or
service with the Company or a subsidiary company terminates due to death,
disability or retirement will be deemed fully earned as of the recipient's last
day of employment or service. In addition, all shares subject to a share award
held by a recipient will be deemed to be fully earned as of the effective date
of a change of control of the Company.
Any dividends declared in respect to any unvested share award will be held
by the Incentive Plan trust for the benefit of the recipient of the share award
held by the trust. The dividends, including any interest thereon, will be paid
out proportionately by the trust to the recipient as soon as practicable after
the share award is earned. The recipient of a share award (other than a
performance share award) is entitled to direct the trustee as to the voting of
the shares covered by the share award which have not yet been earned and
distributed to the recipient. All shares of Common Stock held by the trust which
have not been awarded under a share award, shares subject to performance share
awards which have not vested and shares which have been awarded but the
recipient has not directed the voting shall be voted by the trustee in its
discretion. Share awards are not transferable by the recipient and shares
subject to a share award may only be earned by and paid to the recipient who was
notified in writing of such award by the Committee.
The Committee may determine to make any share award a performance share
award by making such award contingent upon the achievement of a performance
goal, or any combination of performance goals. Each performance share award will
be evidenced by a written agreement setting forth the performance goals
applicable to such award. All determinations regarding the achievement of any
performance goal will be made by the Committee. Each performance share award
will be granted and administered to comply with the requirements of Section
162(m) of the Code. Notwithstanding anything to the contrary in the Incentive
Plan, a recipient of a performance award shall have no rights as a stockholder
until the shares of Common Stock covered by the performance share award are
issued to the recipient according to the terms thereof.
Number of Shares Covered by the Incentive Plan. A total of 279,000 shares
of Common Stock has been reserved for future issuance pursuant to the Incentive
Plan. Shares to be issued under the Incentive Plan may be either authorized but
unissued shares, shares acquired in the market and held in a trust or reacquired
shares held by the Company in treasury. No more than 20% (55,800) of the shares
reserved for the Incentive Plan can be subject to share awards. In the event of
a stock split, reverse stock split, subdivision, stock dividend or any other
capital adjustment, the number of shares of Common Stock under the Incentive
Plan, the number of shares to which any Award relates and the exercise price per
share under any option shall be adjusted to reflect such increase or decrease in
the total number of shares of Common Stock outstanding or such capital
adjustment. The Incentive Plan provides that grants to each employee and
non-employee director shall not exceed 25% and 5% of the shares of Common Stock
available under the Incentive Plan, respectively. Awards made to non-employee
directors in the aggregate may not exceed 25% of the total number of shares
available under the Incentive Plan.
Amendment and Termination of the Incentive Plan. The Board of Directors
may, by resolution, at any time terminate or amend the Incentive Plan with
respect to any shares of Common Stock as to
22
which Awards have not been granted, subject to any required stockholder approval
or any stockholder approval the Board may deem advisable. Notwithstanding the
foregoing, in no event shall the Board of Directors amend the Incentive Plan
without stockholder approval or shall the Board of Directors or the Committee
amend an award in any manner that effectively allows the repricing of any option
previously granted under the Incentive Plan. Unless sooner terminated, the
Incentive Plan shall continue in effect for a period of ten years from June 17,
2004, the date the Incentive Plan was adopted by the Board of Directors.
Termination of the Incentive Plan shall not affect any previously granted
Awards. In addition, no more than 80% of the total shares reserved for issuance
under the Incentive Plan may be issued pursuant to the exercise of incentive
stock options.
Federal Income Tax Consequences. Under current provisions of the Code, the
federal income tax treatment of incentive stock options and compensatory stock
options is different. As regards incentive stock options, an optionee who meets
certain holding period requirements will not recognize income at the time the
option is granted or at the time the option is exercised, and a federal income
tax deduction generally will not be available to the Company at any time as a
result of such grant or exercise. An optionee, however, may be subject to an
alternative minimum tax upon exercise of an incentive stock option. With respect
to compensatory stock options, the difference between the fair market value on
the date of exercise and the option exercise price generally will be treated as
compensation income upon exercise, and the Company will be entitled to a
deduction in the amount of income so recognized by the optionee. Upon the
vesting of a share award, the holder will realize income for federal income tax
purposes equal to the amount received by him, whether in cash, shares of stock
or both, and the Company will be entitled to a deduction for federal income tax
purposes in the same amount.
Pursuant to Section 83 of the Code, recipients of share awards will
recognize ordinary income in an amount equal to the fair market value of the
shares of Common Stock granted to them at the time that the shares vest and
become transferable. A recipient of a share award may also elect, however, to
accelerate the recognition of income with respect to his or her grant to the
time when shares of Common Stock are first transferred to him or her,
notwithstanding the vesting schedule of such awards. The Company will be
entitled to deduct as a compensation expense for tax purposes the same amounts
recognized as income by recipients of share awards in the year in which such
amounts are included in income.
Section 162(m) of the Code generally limits the deduction for certain
compensation in excess of $1.0 million per year paid by a publicly-traded
corporation to its chief executive officer and the four other most highly
compensated executive officers ("covered executives"). Certain types of
compensation, including compensation based on performance goals, are excluded
from the $1.0 million deduction limitation. In order for compensation to qualify
for this exception: (i) it must be paid solely on account of the attainment of
one or more preestablished, objective performance goals; (ii) the performance
goal must be established by a compensation committee consisting solely of two or
more outside directors, as defined; (iii) the material terms under which the
compensation is to be paid, including performance goals, must be disclosed to
and approved by stockholders in a separate vote prior to payment; and (iv) prior
to payment, the compensation committee must certify that the performance goals
and any other material terms were in fact satisfied (the "Certification
Requirement").
Treasury regulations provide that compensation attributable to a stock
option or share award is deemed to satisfy the requirement that compensation be
paid solely on account of the attainment of one or more performance goals if:
(i) the grant is made by a compensation committee consisting solely of two or
more outside directors, as defined; (ii) the plan under which the option or
share award is granted states the maximum number of shares with respect to which
options or share awards may be granted during a specified period to any
employee; and (iii) under the terms of the option or share awards, the amount of
compensation the employee could receive is based solely on an increase in the
value of the stock after the date of grant or award. The Certification
Requirement is not necessary if these other requirements are satisfied.
23
The Incentive Plan has been designed to meet the requirements of Section
162(m) of the Code and, as a result, the Company believes that compensation
attributable to stock options and performance share awards granted under the
Incentive Plan in accordance with the foregoing requirements will be fully
deductible under Section 162(m) of the Code. If the non-excluded compensation of
a covered executive exceeded $1.0 million, however, compensation attributable to
other awards, such as restricted stock, may not be fully deductible unless the
grant or vesting of the award is contingent on the attainment of a performance
goal determined by a compensation committee meeting specified requirements and
disclosed to and approved by the stockholders of the Company. The Board of
Directors believes that the likelihood of any impact on the Company from the
deduction limitation contained in Section 162(m) of the Code is remote at this
time.
The above description of tax consequences under federal law is necessarily
general in nature and does not purport to be complete. Moreover, statutory
provisions are subject to change, as are their interpretations, and their
application may vary in individual circumstances. Finally, the consequences
under applicable state and local income tax laws may not be the same as under
the federal income tax laws.
Accounting Treatment. The Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which establishes financial accounting and
reporting standards for stock-based employee compensation plans. At this time,
SFAS No. 123 permits companies to either use a fair value method as defined by
SFAS No. 123 or, alternatively, the intrinsic value method for accounting for an
employee stock option or similar equity instrument under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." It is anticipated, however, that the
FASB may propose new rules that would require expensing of stock-based employee
compensation awards. We intend to review the two methodologies currently
permitted under SFAS No. 123, as well as any rule changes proposed by FASB, if
available, prior to making a determination of the accounting treatment to be
used.
The Company will also recognize a compensation expense as shares of Common
Stock subject to share awards granted pursuant to the Incentive Plan vest. The
amount of compensation expense recognized for accounting purposes is based upon
the fair market value of the Common Stock at the date of grant to recipients,
rather than the fair market value at the time vesting for tax purposes. The
vesting of share awards will have the effect of increasing the Company's
compensation expense.
Stockholder Approval. No Awards will be granted under the Incentive Plan
unless the Incentive Plan is approved by stockholders. Stockholder ratification
of the Incentive Plan will also satisfy The Nasdaq Stock Market listing
requirements and federal tax requirements.
Awards to be Granted. The Board of Directors of the Company adopted the
Incentive Plan and the Committee established thereunder anticipates that it will
grant options and share awards to executive officers, employees and non-employee
directors, as applicable, of the Company and the Bank on or after the receipt of
stockholder approval. Neither the Board of Directors nor the Committee, however,
have made any specific determinations regarding the size of individual Awards.
Awards Granted or Available Under Existing Plans. As of June 30, 2004,
options covering a total of 450,861 shares were issued and outstanding under the
Company's 1993 Key Employee Stock Compensation Program and 1993 Directors' Stock
Option Plan. No additional options can be granted under either of such plans.
24
VOTE REQUIRED
The affirmative vote of a majority of the votes cast by all shareholders
entitled to vote is required to approve the proposal to adopt the 2004 Stock
Incentive Plan. Brokerage firms are not able to vote the shares beneficially
owned by their customers on this proposal unless they receive voting
instructions from such customers. Under the Pennsylvania Business Corporation
Law, abstentions and broker non-votes are not counted as votes cast and,
accordingly, will have no effect on the vote to approve the proposal to adopt
the 2004 Stock Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ADOPTION OF
THE 2004 STOCK INCENTIVE PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Parente Randolph, LLC as independent
auditors for the year ending June 30, 2005, and has further directed that the
selection of such auditors be submitted for ratification by the stockholders at
the Annual Meeting. The Corporation has been advised by Parente Randolph, LLC
that neither the firm nor any of its associates has any relationship with the
Corporation or its subsidiaries other than the usual relationship that exists
between independent certified public accountants and clients. Parente Randolph,
LLC will have a representative at the Annual Meeting who will have an
opportunity to make a statement, if he or she so desires, and who will be
available to respond to appropriate questions. The affirmative vote of the
holders of a majority of the total votes cast at the Annual Meeting is required
for this proposal. Abstentions will not be counted as votes cast and,
accordingly, will have no effect on this proposal. There will be no "broker
non-votes" with respect to this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF PARENTE RANDOLPH, LLC
AS INDEPENDENT AUDITORS FOR FISCAL 2004.
On January 6, 2004, Ernst & Young LLP (E&Y) informed Parkvale Financial
Corporation that it had resigned as the independent auditors for the Corporation
for the fiscal year ending June 30, 2004. E&Y and the Corporation were not able
to agree on financial arrangements for proposed audit services. During the past
2 years, there were no adverse or disclaimer of opinions, no reportable events
and no disagreements with E&Y. The decision to change auditors was solely the
result of the fees to be charged for audit services and this action was approved
by the Audit Committee and the Board of Directors on February 5, 2004. The
Corporation engaged Parente Randolph, LLC on February 12, 2004 as the new
independent auditors for the fiscal year ending June 30, 2004.
The fees and expenses billed by the auditors for the past two fiscal years
are as follows:
<Table>
<Caption>
PARENTE
ERNST & YOUNG LLP RANDOLPH, LLC
------------------ --------------
2004 2003 2004 2003
------- -------- ------- ----
Audit fees..................................... $15,000 $102,920 $74,550 --
Audit related fees............................. -- 13,000 6,300 --
Tax Fees....................................... -- 41,500 5,250 --
All other fees................................. 21,300 -- -- --
</Table>
The Audit Committee believes that the non-audit fees billed and paid to
Ernst & Young LLP and Parente Randolph LLC are compatible for maintaining their
independence.
All services provided by our independent auditors during the year were
pre-approved by the Audit Committee. The Audit Committee is required to
pre-approve all audit and non-audit services performed by the independent
auditors in excess of $10,000 to assure that the provision of such services does
not impair the independent auditor's independence. In addition, any proposed
services exceeding pre-approved cost levels will require specific pre-approval
by the Audit Committee.
25
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have presented at the next
Annual Meeting of Stockholders to be held in October 2005, must be received at
the main office of the Corporation no later than May 24, 2005. If such proposal
is in compliance with all of the requirements of Rule 14a-8 of the Exchange Act,
it will be included in the Proxy Statement and set forth on the form of proxy
issued for the next Annual Meeting of Stockholders. It is urged that any such
proposals be sent by certified mail, return receipt requested.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
A copy of the Corporation's Annual Report to Stockholders for the year
ended June 30, 2004 accompanies this Proxy Statement. Such annual report is not
part of the proxy solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE CORPORATION WILL FURNISH TO ANY
STOCKHOLDER WITHOUT CHARGE A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED JUNE 30, 2004 AND A LIST OF THE EXHIBITS THERETO
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
EXCHANGE ACT. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO TIMOTHY G. RUBRITZ,
TREASURER, PARKVALE FINANCIAL CORPORATION, 4220 WILLIAM PENN HIGHWAY,
MONROEVILLE, PENNSYLVANIA 15146. THE FORM 10-K IS NOT PART OF THE PROXY
SOLICITATION MATERIALS.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority to the
Board of Directors of the Corporation to vote the proxy with respect to the
approval of the minutes of the last meeting of stockholders, the election of any
person as director if the nominee is unable to serve or for good cause will not
serve, matters incident to the conduct of the meeting, and upon such other
matters as may properly come before the Annual Meeting. Management is not aware
of any business to come before the Annual Meeting other than those matters
described above in this Proxy Statement. However, if any other matters should
properly come before the Annual Meeting, it is intended that proxies solicited
hereby will be voted with respect to those other matters in accordance with the
judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by the Corporation. The
Corporation 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 the Corporation's Common Stock. In addition to
solicitations by mail, directors, officers and employees of Parkvale may solicit
proxies personally or by telephone without additional compensation. The
Corporation may retain a proxy soliciting firm to assist in the solicitation of
proxies. The cost of such a firm would not be expected to exceed $3,500.
By Order of The Board of Directors
/s/ ERNA A. GOLOTA
Erna A. Golota,
Secretary
September 20, 2004
26
APPENDIX A
PARKVALE FINANCIAL CORPORATION
2004 STOCK INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Parkvale Financial Corporation (the "Corporation") hereby establishes this
2004 Stock Incentive Plan (the "Plan") upon the terms and conditions hereinafter
stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Corporation and its Subsidiary Companies by providing Employees and Non-Employee
Directors with a proprietary interest in the Corporation as an incentive to
contribute to the success of the Corporation and its Subsidiary Companies, and
rewarding Employees and Non-Employee Directors for outstanding performance. All
Incentive Stock Options issued under this Plan are intended to comply with the
requirements of Section 422 of the Code and the regulations thereunder, and all
provisions hereunder shall be read, interpreted and applied with that purpose in
mind. Each recipient of an Award hereunder is advised to consult with his or her
personal tax advisor with respect to the tax consequences under federal, state,
local and other tax laws of the receipt and/or exercise of an Award hereunder.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Share Award granted pursuant to the terms
of this Plan.
3.02 "Bank" means Parkvale Savings Bank, the wholly owned subsidiary of the
Corporation.
3.03 "Beneficiary" means the person or persons designated by a Recipient or
Optionee 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.
3.04 "Board" means the Board of Directors of the Corporation.
3.05 "Change in Control of the Corporation" shall mean the occurrence of
any of the following: (i) the acquisition of control of the Corporation as
defined in 12 C.F.R. sec.574.4 (unless a presumption of control is successfully
rebutted or unless the transaction is exempted by 12 C.F.R. sec.574.3(c)(vii),
or any successor to such sections), provided, however, if such acquisition of
control involves a Fundamental Transaction (as hereinafter defined), no change
in control of the Corporation shall be deemed to have occurred if either (A) the
voting securities of the Corporation outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 60% of the combined
voting power of the surviving entity immediately after such Fundamental
Transaction or (B) the members of the Board of Directors of the Corporation
immediately prior thereto continue to represent at least 60% of the members of
the Board of Directors of the surviving entity of such Fundamental Transaction;
(ii) an event that would be required to be reported in response to Item 1(a) of
Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Exchange
Act, or any successor thereto, whether or not any class of securities of the
Corporation is registered under the Exchange Act; (iii) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
A-1
Exchange Act but excluding the Corporation and any stock benefit plan, including
this Plan, of the Corporation or any Subsidiary Company thereof), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities except
for any securities purchased by the Corporation or the Bank; (iv) the
stockholders of the Corporation approve (or, in the event no approval of the
Corporation's stockholders is required, the Corporation consummates) a merger,
consolidation, share exchange, division or other reorganization or transaction
involving the Corporation (a "Fundamental Transaction") with any other
corporation or entity, other than a Fundamental Transaction which results in
either (A) the voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 60% of
the combined voting power of the surviving entity immediately after such
Fundamental Transaction or (B) the members of the Board of Directors of the
Corporation immediately prior thereto continuing to represent at least 60% of
the members of the Board of Directors of the surviving entity; or (v) during any
period of thirty-six consecutive months, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
3.06 "Code" means the Internal Revenue Code of 1986, as amended.
3.07 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof, each of whom shall be a Non-Employee
Director (i) as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any
successor thereto, and (ii) within the meaning of Section 162(m) of the Code or
any successor thereto.
3.08 "Common Stock" means shares of the common stock, par value $1.00 per
share, of the Corporation.
3.09 "Director" means a member of the Board of Directors of the Corporation
or a Subsidiary Corporation or any successors thereto, including Non-Employee
Directors as well as Officers and Employees serving as Directors.
3.10 "Director Emeritus" and "Advisory Director" means a person appointed
to serve in such capacity by the Board of either the Corporation or the Bank or
the successors thereto.
3.11 "Disability" means any physical or mental impairment which qualifies
an individual for disability benefits under the applicable long-term disability
plan maintained by the Corporation or a Subsidiary Company, or, if no such plan
applies, which would qualify such individual for disability benefits under the
Federal Social Security System.
3.12 "Effective Date" means the day upon which the Board approves this
Plan, which was June 17, 2004.
3.13 "Employee" means any person who is employed by the Corporation or a
Subsidiary Company, or is an Officer of the Corporation or a Subsidiary Company,
but not including Directors who are not also Officers of or otherwise employed
by the Corporation or a Subsidiary Company.
3.14 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.15 "Exercise Price" means the price at which a share of Common Stock may
be purchased by an Optionee pursuant to an Option.
3.16 "Fair Market Value" shall be equal to the fair market value per share
of the Corporation's Common Stock as of the close of business on the date an
Award is granted. For purposes hereof, the Fair Market Value of a share of
Common Stock shall be the closing sale price of a share of Common Stock on the
date in question (or, if such day is not a trading day in the U.S. markets, on
the nearest preceding trading day), as reported with respect to the principal
market (or the composite of the
A-2
markets, if more than one) or national quotation system in which such shares are
then traded, or if no such closing prices are reported, the mean between the
high bid and low asked prices that day on the principal market or national
quotation system then in use, or if no such quotations are available, the price
furnished by a professional securities dealer making a market in such shares
selected by the Committee.
3.17 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.18 "Non-Employee Director" means a member of the Board (including
advisory boards, if any) of the Corporation or a Subsidiary Company or any
successors thereto as well as an Advisory Director or Director Emeritus who is
not an Officer or Employee of the Corporation or any Subsidiary Company.
3.19 "Non-Qualified Option" means any Option granted under this Plan which
is not an Incentive Stock Option.
3.20 "Officer" means an Employee whose position in the Corporation or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.21 "Option" means a right granted under this Plan to purchase Common
Stock.
3.22 "Optionee" means an Employee or Non-Employee Director to whom an
Option is granted under the Plan.
3.23 "Participant" means any person who holds any outstanding Award
pursuant to this Plan.
3.24 "Performance Share Award" means a Share Award granted to a Recipient
pursuant to Section 9.06 of the Plan.
3.25 "Performance Goal" means an objective for the Corporation or any
Subsidiary Company or any unit thereof or any Employee of the foregoing that may
be established by the Committee for a Performance Share Award to become vested,
earned or exercisable. The establishment of Performance Goals are intended to
make the applicable Performance Share Awards "performance based" compensation
within the meaning of Section 162(m) of the Code, and the Performance Goals
shall be based on one or more of the following criteria:
(i) net income, as adjusted for non-recurring items;
(ii) cash earnings;
(iii) earnings per share;
(iv) cash earnings per share;
(v) return on average equity;
(vi) return on average assets;
(vii) assets;
(viii) stock price;
(ix) total stockholder return;
(x) capital;
(xi) net interest income;
(xii) market share;
(xiii) cost control or efficiency ratio; and
(xiv) asset growth.
A-3
3.26 "Recipient" means an Employee who receives a Share Award or
Performance Share Award under the Plan.
3.27 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Company, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan. With respect to
Non-Employee Directors, retirement means retirement from service on the Board of
Directors of the Corporation or a Subsidiary Company or any successors thereto
(including service as a Director Emeritus or Advisory Director to the
Corporation or any Subsidiary Company) after attaining the normal retirement age
as established by the Board of Directors.
3.28 "Share Award" means a right granted under this Plan to receive a
distribution of shares of Common Stock upon completion of the service or other
requirements described in Article IX and includes Performance Share Awards.
3.29 "Subsidiary Company" means those subsidiaries of the Corporation,
including the Bank, which meet the definition of "subsidiary corporations" set
forth in Section 424(f) of the Code, at the time of granting of the Option in
question.
3.30 "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Plan assets for the purposes set forth herein.
3.31 "Trustee" means such firm, entity or persons approved by the Board to
hold legal title to the Plan and the Plan assets for the purposes set forth
herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt, amend
and rescind such rules, regulations and procedures as, in its opinion, may be
advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures which (i) deal with satisfaction of a
Participant's tax withholding obligation pursuant to Section 13.01 hereof, (ii)
include arrangements to facilitate an Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Option, if applicable, from
securities brokers and dealers, and (iii) include arrangements which provide for
the payment of some or all of such exercise or purchase price by delivery of
previously-owned shares of Common Stock or other property and/or by withholding
some of the shares of Common Stock which are being acquired. The interpretation
and construction by the Committee of any provisions of the Plan, any rule,
regulation or procedure adopted by it pursuant thereto or of any Award shall be
final and binding in the absence of action by the Board.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. 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. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The Committee shall report its actions and
decisions to the Board at appropriate times but in no event less than one time
per calendar year.
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4.03 REVOCATION FOR MISCONDUCT. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any outstanding Option or
Share Award, or portion thereof, to the extent not yet exercised or earned, that
was previously granted or awarded under this Plan to an Employee who is
discharged from the employ of the Corporation or a Subsidiary Company for cause,
which, for purposes hereof, shall mean termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order. Unvested Options granted to a
Non-Employee Director who is removed for cause pursuant to the Corporation's
Articles of Incorporation and Bylaws or the Bank's Articles of Incorporation and
Bylaws or the constituent documents of the Subsidiary Company on whose Board he
serves shall terminate as of the effective date of such removal.
4.04 LIMITATION ON LIABILITY. Neither the members of the Board nor any
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan, any rule, regulation or procedure adopted
by it pursuant thereto or any Awards granted under it. If a member of the Board
or the Committee 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 reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and its Subsidiary Companies and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with respect to such
shares under any federal or state law or any rule or regulation of any
government body, which the Corporation shall, in its sole discretion, determine
to be necessary or advisable. Moreover, no Option may be exercised if such
exercise would be contrary to applicable laws and regulations.
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend upon any
certificate representing shares acquired pursuant to an Award granted hereunder
noting that the transfer of such shares may be restricted by applicable laws and
regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees and Non-Qualified Options may be
granted to such Non-Employee Directors of the Corporation and its Subsidiary
Companies as may be designated from time to time by the Board or the Committee.
Awards may not be granted to individuals who are not Employees or Non-Employee
Directors of either the Corporation or its Subsidiary Companies. Non-Employee
Directors shall not be eligible to receive Share Awards or Incentive Stock
Options pursuant to this Plan.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 NUMBER OF SHARES. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan with respect to all types of Awards
hereunder, subject to adjustment as provided in Article X, shall be 279,000.
However, subject to adjustment as provided in Article X hereof, the
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maximum amount of shares available for Share Awards granted hereunder is 55,800.
None of the shares reserved for the Plan shall be the subject of more than one
Award at any time, but if an Award as to any shares is surrendered before
exercise or vesting occurs, or expires or terminates for any reason without
having been fully exercised in the case of Options or vested in the case of
Share Awards, or for any other reason ceases vesting or to be exercisable, the
number of shares covered thereby shall again become available for grant under
the Plan as if no Award had been previously granted with respect to such shares.
During the time this Plan remains in effect, the aggregate amount of grants of
Awards of all types permitted hereunder to each Employee and each Non-Employee
Director shall not exceed 25% and 5% of the shares of Common Stock available
under the Plan, respectively. Awards made to Non-Employee Directors in the
aggregate may not exceed 25% of the number of shares available under this Plan.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan may
be authorized but unissued shares, treasury shares or shares purchased by the
Corporation on the open market or from private sources for use under the Plan.
ARTICLE VII
DETERMINATION OF AWARDS, NUMBER OF SHARES, ETC.
The Board or the Committee shall, in its discretion, determine from time to
time which Employees and Non-Employee Directors will be granted Awards under the
Plan, the number of shares of Common Stock subject to an Award, the vesting
requirements and other features of such Awards, whether each Option will be an
Incentive Stock Option or a Non-Qualified Stock Option (in the case of
Employees), the exercise price of an Option and whether a Share Award will be a
Performance Share Award. In making all such determinations there shall be taken
into account the duties, responsibilities and performance of each respective
Employee and Non-Employee Director, his present and potential contributions to
the growth and success of the Corporation and/or its
Subsidiary Companies, his salary or other compensation and such other
factors deemed relevant to accomplishing the purposes of the Plan. The Board or
the Committee may but shall not be required to request the written
recommendation of the Chief Executive Officer of the Corporation other than with
respect to Awards to be granted to him.
ARTICLE VIII
OPTIONS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board or the Committee in each instance shall deem appropriate, provided they
are not inconsistent with the terms, conditions and provisions of this Plan.
Each Optionee shall receive a copy of his executed Stock Option Agreement.
8.02 OPTION EXERCISE PRICE.
(A) INCENTIVE STOCK OPTIONS. The per share price at which the subject
Common Stock may be purchased upon exercise of an Incentive Stock Option shall
be no less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted, except as
provided in Section 8.09(b).
(B) NON-QUALIFIED OPTIONS. The per share price at which the subject Common
Stock may be purchased upon exercise of a Non-Qualified Option shall be
established by the Committee at the time of
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grant, but in no event shall be less than one hundred percent (100%) of the Fair
Market Value of a share of Common Stock at the time such Non-Qualified Option is
granted.
8.03 VESTING AND EXERCISE OF OPTIONS.
(A) GENERAL RULES. Incentive Stock Options and Non-Qualified Options shall
vest and become exercisable at the rate, to the extent and subject to such
limitations as may be specified by the Committee. Notwithstanding the foregoing,
except as provided in Section 8.03(b) hereof, no vesting shall occur on or after
an Optionee's employment and/or service as a Non-Employee Director (which, for
purposes hereof, shall include service as a Director Emeritus or Advisory
Director) with the Corporation and all Subsidiary Companies is terminated for
any reason other than his death, Disability, Retirement or in the event of a
Change in Control of the Corporation. In determining the number of shares of
Common Stock with respect to which Options are vested and/or exercisable,
fractional shares will be rounded down to the nearest whole number, provided
that such fractional shares shall be aggregated and deemed vested on the final
date of vesting.
(B) ACCELERATED VESTING. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the date
an Optionee terminates his employment with the Corporation or a Subsidiary
Company and/or service as a Non-Employee Director because of his death,
Disability or Retirement. All outstanding Options hereunder shall become
immediately vested and exercisable in full as of the effective date of a Change
in Control of the Corporation.
8.04 DURATION OF OPTIONS.
(A) GENERAL RULE. Except as provided in Sections 8.04(b) and 8.09, each
Option or portion thereof granted to an Employee shall be exercisable at any
time on or after it vests and becomes exercisable until the earlier of (i) ten
(10) years after its date of grant or (ii) six (6) months after the date on
which the Employee ceases to be employed by or serve as a Director of the
Corporation and all Subsidiary Companies, unless the Board or the Committee in
its discretion decides at the time of grant or thereafter to extend such period
of exercise upon termination of employment or service to a period not exceeding
five (5) years.
Except as provided in Section 8.04(b), each Option or portion thereof
granted to a Non-Employee Director shall be exercisable at any time on or after
it vests and becomes exercisable until the earlier of (i) ten (10) years after
its date of grant or (ii) three (3) years after the date on which the
Non-Employee Director ceases to serve as a director of the Corporation and all
Subsidiary Companies (including service as a Director Emeritus or Advisory
Director), unless the Board or the Committee in its discretion decides at the
time of grant or thereafter to extend such period of exercise upon termination
of service to a period not exceeding five (5) years.
(B) EXCEPTIONS. Unless the Board or the Committee shall specifically state
otherwise at the time an Option is granted: (i) if an Employee terminates his
employment with the Corporation or a Subsidiary Company as a result of
Disability or Retirement without having fully exercised his Options, the
Employee shall have the right, during the five (5) year period following his
termination due to Disability or Retirement, to exercise such Options, and (ii)
if a Non-Employee Director terminates his service as a Director (including
service as an Advisory Director or Director Emeritus) with the Corporation or a
Subsidiary Company as a result of Disability or Retirement without having fully
exercised his Options, the Non-Employee Director shall have the right, during
the five (5) year period following his termination due to Disability or
Retirement, to exercise such Options.
Unless the Board or the Committee shall specifically state otherwise at the
time an Option is granted, if an Employee or Non-Employee Director terminates
his employment or service with the Corporation or a Subsidiary Company following
a Change in Control of the Corporation without having fully exercised his
Options, the Optionee shall have the right to exercise such Options during the
remainder of the original ten (10) year term of the Option from the date of
grant.
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If an Optionee dies while in the employ or service of the Corporation or a
Subsidiary Company or terminates employment or service with the Corporation or a
Subsidiary Company, including as a result of Disability or Retirement, and dies
without having fully exercised his Options, the executors, administrators,
legatees or distributees of his estate shall have the right, during the two (2)
year period following his death, to exercise such Options.
Notwithstanding anything to the contrary herein, in no event, however,
shall any Option be exercisable more than ten (10) years from the date it was
granted.
In the event an Incentive Stock Option is not exercised within ninety (90)
days (or one (1) year with respect to termination due to Disability or death) of
the effective date of termination of the Optionee's status as an Employee, the
tax treatment accorded Incentive Stock Options by the Code may not be available.
In addition, the accelerated vesting of Incentive Stock Options provided by
Section 8.03(b) may result in all or a portion of such Incentive Stock Options
no longer qualifying as Incentive Stock Options.
8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his immediate family or to a duly established trust for the benefit
of one or more of these individuals. For purposes hereof, "immediate family"
includes the Participant's spouse, children (including step children), parents,
grandchildren and great grandchildren. Options so transferred may thereafter be
transferred only to the Optionee who originally received the grant or to an
individual or trust to whom the Optionee could have initially transferred the
Option pursuant to this Section 8.05. Options which are transferred pursuant to
this Section 8.05 shall be exercisable by the transferee according to the same
terms and conditions as applied to the Optionee.
8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set forth
in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of any Option shall be made
to the Corporation upon exercise of the Option. All shares sold under the Plan
shall be fully paid and nonassessable. Payment for shares may be made by the
Optionee (i) in cash or by check, (ii) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker to sell the
shares and then to properly deliver to the Corporation the amount of sale
proceeds to pay the exercise price, all in accordance with applicable laws and
regulations, or (iii) at the discretion of the Committee, by delivering shares
of Common Stock (including shares acquired pursuant to the exercise of an
Option) equal in Fair Market Value to the purchase price of the shares to be
acquired pursuant to the Option, by withholding some of the shares of Common
Stock which are being purchased upon exercise of an Option, or any combination
of the foregoing. With respect to subclause (iii) hereof, the shares of Common
Stock delivered to pay the purchase price must have either been (x) purchased in
open market transactions or (y) issued by the Corporation pursuant to a plan
thereof, in each case more than six months prior to the exercise date of the
Option.
8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 8.01 to 8.08 above, to those contained in this
Section 8.09.
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(A) DOLLAR AMOUNT LIMITATION. Notwithstanding any contrary provisions
contained elsewhere in this Plan and as long as required by Section 422 of the
Code, the aggregate Fair Market Value, determined as of the time an Incentive
Stock Option is granted, of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year under this Plan, and stock options that satisfy the requirements
of Section 422 of the Code under any other stock option plan or plans maintained
by the Corporation (or any parent or Subsidiary Company), shall not exceed
$100,000.
(B) LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which shares of
Common Stock may be purchased upon exercise of an Incentive Stock Option granted
to an individual who, at the time such Incentive Stock Option is granted, owns,
directly or indirectly, more than ten percent (10%) of the total combined voting
power of all classes of stock issued to stockholders of the Corporation or any
Subsidiary Company, shall be no less than one hundred and ten percent (110%) of
the Fair Market Value of a share of the Common Stock of the Corporation at the
time of grant, and such Incentive Stock Option shall by its terms not be
exercisable after the earlier of the date determined under Section 8.03 or the
expiration of five (5) years from the date such Incentive Stock Option is
granted.
(C) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Corporation shall be entitled to withhold from any compensation
or other payments then or thereafter due to the Optionee such amounts as may be
necessary to satisfy any withholding requirements of federal or state law or
regulation and, further, to collect from the Optionee any additional amounts
which may be required for such purpose. The Committee or the Board may, in its
discretion, require shares of Common Stock acquired by an Optionee upon exercise
of an Incentive Stock Option to be held in an escrow arrangement for the purpose
of enabling compliance with the provisions of this Section 8.09(c).
(D) MAXIMUM LIMIT ON INCENTIVE STOCK OPTIONS. No more than 80% of the total
shares which are reserved for issuance pursuant to Section 6.01 of this Plan may
be issued pursuant to the exercise of Incentive Stock Options.
ARTICLE IX
SHARE AWARDS
9.01 SHARE AWARD NOTICE. As promptly as practicable after the granting of a
Share Award pursuant to the terms hereof, the Board or the Committee shall
notify the Recipient in writing of the grant of the Award, the number of shares
covered by the Share Award, whether the Share Award is a Performance Share Award
and the terms upon which the shares subject to the Award shall be distributed to
the Recipient. The Board or the Committee shall maintain records as to all
grants of Share Awards and Performance Share Awards under the Plan.
9.02 EARNING PLAN SHARES; FORFEITURES.
(A) GENERAL RULES. Subject to the terms hereof, Share Awards granted
hereunder shall be earned at the rate and to the extent as may be specified by
the Committee at the date of grant thereof. If the employment of an Employee (or
service as a Non-Employee Director (including for purposes hereof service as a
Director Emeritus or Advisory Director) in the event the Recipient is serving as
a Director at the time of termination of employment and will continue thereafter
to serve in the capacity as a Non-Employee Director) is terminated before the
Share Award has been completely earned for any reason (except as specifically
provided in subsections (b), (c) and (d) below), the Recipient shall forfeit the
right to any shares subject to the Share Award which have not theretofore been
earned. In the event of a
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forfeiture of the right to any shares subject to a Share Award, such forfeited
shares shall become available for grant pursuant to Articles VI and VII as if no
Share Award had been previously granted with respect to such shares. No
fractional shares shall be distributed pursuant to this Plan.
(B) EXCEPTION FOR TERMINATIONS DUE TO DEATH, DISABILITY OR
RETIREMENT.Notwithstanding the general rule contained in Section 9.02(a), all
shares subject to a Share Award held by a Recipient whose employment with the
Corporation or any Subsidiary Company (or service as a Non-Employee Director
(including for purposes hereof service as a Director Emeritus or Advisory
Director) in the event the Recipient received a Share Award while serving as an
Employee and continued to serve as a Non-Employee Director subsequent to his
termination of employment) terminates due to death, Disability or Retirement
shall be deemed fully earned as of the Recipient's last day of employment with
and/or service to the Corporation or any Subsidiary Company (provided, however,
no such accelerated vesting shall occur if a Recipient remains employed by or
continues to serve as a Director of the Corporation or at least one Subsidiary
Company (including for purposes hereof service as a Director Emeritus or
Advisory Director)) and shall be distributed as soon as practicable thereafter.
(C) EXCEPTION FOR A CHANGE IN CONTROL OF THE CORPORATION. Notwithstanding
the general rule contained in Section 9.02(a), all shares subject to a Share
Award held by a Recipient shall be deemed to be fully earned as of the effective
date of a Change in Control of the Corporation.
9.03 DISTRIBUTION OF DIVIDENDS. Any cash dividends (including special,
large and nonrecurring dividends, including any that has the effect of a return
of capital to the Corporation's stockholders) or stock dividends declared in
respect of each unvested Share Award or Performance Share Award will be held by
the Trust for the benefit of the Recipient on whose behalf such Share Award or
Performance Share Award is then held by the Trust and such dividends, including
any interest thereon, will be paid out proportionately by the Trust to the
Recipient thereof as soon as practicable after the Share Awards become earned.
Any cash dividends or stock dividends declared in respect of each vested share
held by the Trust will be paid by the Trust, as soon as practicable after the
Trust's receipt thereof, to the Recipient on whose behalf such share is then
held by the Trust.
9.04 DISTRIBUTION OF PLAN SHARES.
(A) TIMING OF DISTRIBUTIONS: GENERAL RULE. Subject to the provisions of
Section 9.06 hereof, shares shall be distributed to the Recipient or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned.
(B) FORM OF DISTRIBUTIONS. All 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 share earned and
distributable. Payments representing cash dividends shall be made in cash.
(C) RESTRICTIONS ON SELLING OF PLAN SHARES. Share Awards may not be sold,
assigned, pledged or otherwise disposed of prior to the time that they are
earned and distributed pursuant to the terms of this Plan. Upon distribution,
the Board or the Committee may require the Recipient or his Beneficiary, as the
case may be, to agree not to sell or otherwise dispose of his distributed shares
except in accordance with all then applicable federal and state securities laws,
and the Board or the Committee may cause a legend to be placed on the stock
certificate(s) representing the distributed shares in order to restrict the
transfer of the distributed shares for such period of time or under such
circumstances as the Board or the Committee, upon the advice of counsel, may
deem appropriate.
9.05 VOTING OF PLAN SHARES. After a Share Award (other than a Performance
Share Award) has been made, the Recipient shall be entitled to direct the
Trustee as to the voting of the Shares which are covered by the Share Award and
which have not yet been earned and distributed to him pursuant to Section 9.04,
subject to rules and procedures adopted by the Committee for this purpose. All
shares of Common Stock held by the Trust, if any, which have not been awarded
under a Share Award, shares subject to Performance Share Awards which have not
vested and shares which have been awarded as to which Recipients have not
directed the voting shall be voted by the Trustee in its discretion.
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9.06 PERFORMANCE AWARDS.
(A) DESIGNATION OF PERFORMANCE SHARE AWARDS. The Committee may determine to
make any Share Award a Performance Share Award by making such Share Award
contingent upon the achievement of a Performance Goal or any combination of
Performance Goals. Each Performance Share Award shall be evidenced by a written
agreement ("Award Agreement"), which shall set forth the Performance Goals
applicable to the Performance Share Award, the maximum amounts payable and such
other terms and conditions as are applicable to the Performance Share Award.
Each Performance Share Award shall be granted and administered to comply with
the requirements of Section 162(m) of the Code.
(B) TIMING OF GRANTS. Any Performance Share Award shall be made not later
than 90 days after the start of the period for which the Performance Share Award
relates and shall be made prior to the completion of 25% of such period. All
determinations regarding the achievement of any Performance Goals will be made
by the Committee. The Committee may not increase during a year the amount of a
Performance Share Award that would otherwise be payable upon achievement of the
Performance Goals but may reduce or eliminate the payments as provided for in
the Award Agreement.
(C) RESTRICTIONS ON GRANTS. Nothing contained in the Plan will be deemed in
any way to limit or restrict the Committee from making any Award or payment to
any person under any other plan, arrangement or understanding, whether now
existing or hereafter in effect.
(D) RIGHTS OF RECIPIENTS. Notwithstanding anything to the contrary herein,
a Participant who receives a Performance Share Award payable in Common Stock
shall have no rights as a stockholder until the Common Stock is issued pursuant
to the terms of the Award Agreement.
(E) DISTRIBUTION. No Performance Share Award or portion thereof that is
subject to the attainment or satisfaction of a condition of a Performance Goal
shall be distributed or considered to be earned or vested until the Committee
certifies in writing that the conditions or Performance Goal to which the
distribution, earning or vesting of such Award is subject have been achieved.
9.07. NONTRANSFERABLE. Share Awards and Performance Share Awards and rights
to shares shall not be transferable by a Recipient, and during the lifetime of
the Recipient, shares which are the subject of Share Awards may only be earned
by and paid to a Recipient who was notified in writing of an Award by the
Committee pursuant to Section 9.01. No Recipient or Beneficiary shall have any
right in or claim to any assets of the Plan or Trust, nor shall the Corporation
or any Subsidiary Company be subject to any claim for benefits hereunder.
ARTICLE X
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance under
this Plan, the number of shares to which any outstanding Award relates, the
maximum number of shares that can be covered by Awards to each Employee, each
Non-Employee Director and Non-Employee Directors as a group and the exercise
price per share of Common Stock under any outstanding Option 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
this Plan resulting from a split, subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation, the shares of the Corporation's
Common Stock shall be exchanged for other securities of the Corporation or of
another corporation, each recipient of an Award shall be entitled, subject to
the conditions herein stated, to purchase, acquire or receive such number of
shares of Common Stock or amount of other securities of the Corporation or such
other corporation as were exchangeable for the number of shares of Common Stock
of the Corporation which such Participants would have been
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entitled to purchase, acquire or receive except for such action, and appropriate
adjustments shall be made to the per share exercise price of outstanding
Options. Notwithstanding any provision to the contrary, the exercise price of
shares subject to outstanding Awards may be proportionately adjusted upon the
payment of a special large and nonrecurring dividend that has the effect of a
return of capital to the stockholders, providing that the adjustment to the per
share exercise price shall satisfy the criteria set forth in Emerging Issues
Task Force 90-9 (or any successor thereto) so that the adjustments do not result
in compensation expense, and provided further that if such adjustment with
respect to incentive stock options would be treated as a modification of the
outstanding incentive stock options with the effect that, for purposes of
Sections 422 and 425(h) of the Code, and the rules and regulations promulgated
thereunder, new incentive options would be deemed to be granted, then no
adjustment to the per share exercise price of outstanding stock options shall be
made.
ARTICLE XI
AMENDMENT AND TERMINATION OF THE PLAN
Except as otherwise provided herein, the Board may, by resolution, at any
time terminate or amend the Plan with respect to any shares of Common Stock as
to which Awards have not been granted, subject to any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any statutory
or regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The Board may not, without the
consent of the holder of an Award, alter or impair any Award previously granted
or awarded under this Plan except as specifically authorized herein.
Furthermore, in the event of the termination of the Plan, Recipients' Share
Awards (including Performance Share Awards) shall be distributed thereto
regardless of whether or not such Share Awards had been earned under the
requirements of Article IX hereof.
Notwithstanding anything to the contrary herein, in no event shall the
Board of Directors without stockholder approval amend the Plan nor shall the
Board of Directors or the Committee amend an Award in any manner that
effectively allows the repricing of any Option previously granted under the Plan
either through a reduction in the Exercise Price or through the cancellation and
regrant of a new Option in exchange for the cancelled Option (except as
permitted pursuant to Article X in connection with a change in the Company's
capitalization).
ARTICLE XII
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action taken
by the Committee or the Board in connection with the Plan shall create any right
on the part of any Employee or Non-Employee Director to continue in such
capacity.
ARTICLE XIII
WITHHOLDING
13.01 TAX WITHHOLDING. The Corporation may withhold from any cash payment
or Common Stock distribution made under this Plan sufficient amounts to cover
any applicable withholding and employment taxes, and if the amount of such cash
payment is insufficient, the Corporation may require the Participant to pay to
the Corporation the amount required to be withheld as a condition to delivering
the shares acquired pursuant to an Award. The Corporation also may withhold or
collect amounts with respect to a disqualifying disposition of shares of Common
Stock acquired pursuant to exercise of an Incentive Stock Option, as provided in
Section 8.09(c).
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13.02 METHODS OF TAX WITHHOLDING. The Board or the Committee is authorized
to adopt rules, regulations or procedures which provide for the satisfaction of
a Participant's tax withholding obligation by the retention of shares of Common
Stock to which the Employee would otherwise be entitled pursuant to an Award
and/or by the Participant's delivery of previously-owned shares of Common Stock
or other property.
ARTICLE XIV
DEFERRED PAYMENTS
14.01 DEFERRAL OF OPTIONS AND SHARE AWARDS. Notwithstanding any other
provision of this Plan, a Participant may elect, with the concurrence of the
Committee and consistent with any rules and regulations established by the
Committee, to defer the delivery of the proceeds of the exercise of any
Non-Qualified Option not transferred under the provisions of Section 8.05 hereof
or the shares earned upon vesting of a Share Award, provided that the
Corporation has adopted a deferred compensation plan permitting such deferrals.
14.02 TIMING OF ELECTION.
(A) NON-QUALIFIED OPTIONS. The election to defer the delivery of the
proceeds from any eligible Non-Qualified Option must be made at least six (6)
months prior to the date such Option is exercised or at such other time as the
Committee may specify. Deferrals of eligible Non-Qualified Options shall only be
allowed for exercises of Options that occur while the Participant is in active
service with the Corporation or one of its Subsidiary Companies. Any election to
defer the proceeds from an eligible Non-Qualified Option shall be irrevocable as
long as the Optionee remains an Employee and/or a Non-Employee Director of the
Corporation or one of its Subsidiary Companies.
(B) SHARE AWARDS. The election to defer the delivery of any Share Award
must be made no later than the last day of the calendar year preceding the
calendar year in which the Recipient would otherwise have an unrestricted right
to receive such Award. Deferrals of eligible Share Awards shall only be allowed
for Share Awards for which all applicable restrictions lapse while the Recipient
is in active service with the Corporation or one of its Subsidiary Companies.
Any election to defer the proceeds from an eligible Share Award shall be
irrevocable as long as the Recipient remains an Employee and/or a Non-Employee
Director of the Corporation or one of its Subsidiary Companies.
14.03 STOCK OPTION DEFERRAL. The deferral of the proceeds of Non-Qualified
Options may be elected by an Optionee subject to the rules and regulations
established by the Committee and in accordance with the terms of a deferred
compensation plan adopted by the Corporation. The proceeds shall be credited to
the Participant's deferred stock option account in the Corporation's deferred
compensation plan as a number of deferred shares or share units equivalent in
value to those proceeds.
14.04 SHARE AWARD DEFERRAL. The deferral of Share Awards may be elected by
a Recipient subject to the rules and regulations established by the Committee
and in accordance with terms of the Corporation's deferred compensation plan.
Upon the lapsing of restrictions on such a Share Award, the Committee shall
credit to a deferred share award account established for the Recipient in the
Corporation's deferred compensation plan a number of deferred shares or share
units equivalent in value to the number of deferred Share Awards multiplied by
the Fair Market Value of Common Stock. Any shares covered by such deferred Share
Awards shall be transferred from this Plan to any trust created by the
Corporation's deferred compensation plan.
14.05 ACCELERATED DISTRIBUTIONS. To the extent permitted by the
Corporation's deferred compensation plan, the Committee may, at its sole
discretion, allow for the early payment of a Participant's deferred Option
and/or Share Award account in the event of an "unforeseeable emergency" or in
the event of the death or Disability of the Participant. An "unforeseeable
emergency" means an unanticipated emergency caused by an event beyond the
control of the Participant that would result in severe financial hardship if the
distribution were not permitted. Such distributions shall be limited to the
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amount necessary to sufficiently address the financial hardship. Any
distributions under this provision shall be consistent with the Corporation's
deferred compensation plan and the Code and the regulations promulgated
thereunder.
14.06 ASSIGNABILITY. Unless otherwise permitted by the Corporation's
deferred compensation plan, no rights to deferred Option accounts or deferred
Share Award accounts may be assigned or subject to any encumbrance, pledge or
charge of any nature except that an Optionee or Recipient may designate a
beneficiary pursuant to any rules established by the Committee.
14.07 UNFUNDED STATUS. No Participant or other person shall have any
interest in any fund or in any specific asset of the Corporation or one of its
Subsidiary Companies by reason of any amount credited to the Corporation's
deferred compensation plan pursuant to the provisions hereof. Any amounts
payable pursuant to the provisions hereof shall be paid from the general assets
of the Corporation or one of its Subsidiary Companies and no Participant or
other person shall have any rights to such assets beyond the rights afforded
general creditors of the Corporation or one of its Subsidiary Companies.
However, the Corporation or one of its Subsidiary Companies shall have the right
to establish a reserve or trust or make any investment for the purpose of
satisfying the obligations created under this Article XIV of the Plan; provided,
however, that no Participant or other person shall have any interest in such
reserve, trust or investment.
ARTICLE XV
TRUST
15.01 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.
15.02 MANAGEMENT OF TRUST. It is the intent of this Plan and Trust that the
Trustee shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust 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 its duties, the Trustee 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
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 in making such
investment, the Trustee is authorized to purchase Common Stock from the
Corporation 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, certificates of deposit,
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 in the
opinion of the Trustee be reasonable for the proper operation of the Plan
and Trust.
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(F) To employ brokers, agents, custodians, consultants and
accountants.
(G) To hire counsel to render advice with respect to its rights,
duties and obligations hereunder, and such other legal services or
representation as it may deem desirable.
(H) To hold funds and securities representing the amounts to be
distributed to a Recipient 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 of the Trust.
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 court for the exercise of any power
herein contained, or give bond.
15.03 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 Board or the Committee.
15.04 EXPENSES. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation or, in the
discretion of the Corporation, the Trust.
15.05 INDEMNIFICATION. Subject to the requirements of applicable laws and
regulations, the Corporation 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 its duties
hereunder, unless the same shall be due to its gross negligence or willful
misconduct.
15.06. TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a grantor trust of the Corporation under the provisions of
Section 671 et seq. of the Code as the same may be amended from time to time.
ARTICLE XVI
EFFECTIVE DATE OF THE PLAN; TERM
16.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
Effective Date. Awards may be granted hereunder prior to the date that this Plan
is approved by stockholders of the Corporation and prior to the termination of
the Plan, provided (i) that this Plan is approved by stockholders of the
Corporation pursuant to Article XVII hereof and (ii) that no Options granted
hereunder may be exercised or transferred prior to receipt of such stockholder
approval and that no Plan Awards shall be earned prior to receipt of such
stockholder approval. In the event stockholder approval of the Plan is not
obtained, any Awards already granted shall be cancelled.
16.02 TERM OF THE PLAN. Unless sooner terminated, this Plan shall remain in
effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XVII
STOCKHOLDER APPROVAL
The Corporation shall submit this Plan to stockholders for approval at a
meeting of stockholders of the Corporation held within twelve (12) months
following the Effective Date in order to meet the requirements of (i) Section
422 of the Code and regulations thereunder, (ii) Section 162(m) of the Code and
regulations thereunder, and (iii) the Nasdaq Stock Market for continued
quotation of the Common Stock on the Nasdaq National Market.
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ARTICLE XVIII
MISCELLANEOUS
18.01 GOVERNING LAW. To the extent not governed by federal law, this Plan
shall be construed under the laws of the Commonwealth of Pennsylvania.
18.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall include
the feminine pronoun, and the singular shall include the plural.
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APPENDIX B
PARKVALE FINANCIAL CORPORATION
BOARD OF DIRECTORS
NOMINATING COMMITTEE CHARTER
PURPOSE
The Committee's purpose is to identify and recommend qualified individuals
to serve as Board members.
AUTHORITY & MEMBERSHIP
The Committee members, who must number at least three Directors, are
annually appointed by the Board and may be replaced by the Board. None of the
Committee members may be a current officer or employee of the Corporation or any
of its subsidiaries, or an officer or employee of the Corporation or any of its
subsidiaries within the past three years. The Committee may appoint a Secretary,
who need not be a Director. The Committee Chairman shall be appointed by the
Board on the recommendation of the Nominating Committee.
The members of the Committee shall meet the independence requirements of
applicable Nasdaq listing standards, as amended or modified and shall meet any
other standards of independence as may be prescribed for purposes of any federal
securities laws relating to the Committee's responsibilities.
RESPONSIBILITIES
The Committee is responsible for the following:
1. Nominate individuals to stand for election as directors at each annual
meeting of shareholders;
2. Assist the Board in the event of any vacancy on the Board by identifying
individuals qualified to become Board members, and recommending to the Board
qualified individuals to fill such vacancy;
3. Identify and review the qualifications of prospective directors of
Parkvale. The Committee shall select individuals who possess personal and
professional integrity, sound judgment and exceptional ability and who will be
effective in serving the long-term interests of Parkvale's shareholders. Other
relevant considerations for selecting new directors include: area of residence
in relationship to Parkvale's geographic market; business experience; age;
availability; level and type of education; other directorship experience that
would be beneficial to the Board and management of Parkvale; and diversity of
experience relative to that of other Parkvale Directors;
4. Ensure compliance with Article IV, Section 3 of the bylaws of Parkvale
Financial Corporation, regarding shareholder nominations;
5. Recommend to the Board on an annual basis, nominees for each Board
Committee;
GENERAL
1. In performing their responsibilities, Committee members are entitled to
rely in good faith on information, opinions, reports or statements prepared or
presented by:
a. One or more officers or employees of the Corporation whom the
Committee member reasonably believes to be reliable and competent in the
matters presented;
b. Counsel, independent auditors, search firms used to identify
director candidates, or other persons as to matters which the Committee
member reasonably believes to be within the professional or expert
competence of such person; or
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c. Another committee of the Board as to matters within its designated
authority.
2. The Committee shall review and reassess the adequacy of its Charter as
needed, but at least annually, and recommend to the Board any proposed changes
to this Charter.
3. This Charter shall either be available on the Bank's website, or shall
be disclosed as an appendix in the proxy once every three years.
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APPENDIX C
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PARKVALE FINANCIAL CORPORATION
I. PURPOSE OF THE COMMITTEE
The purpose of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of Parkvale Financial Corporation (the "Corporation")
shall be to assist the Board in the oversight of the integrity of the
Corporation's financial statements; compliance with legal and regulatory
requirements; the qualifications, independence and performance of the
independent auditors; and the performance of the internal audit function. The
Committee shall also prepare the Audit Committee report as required by the
Securities and Exchange Commission ("SEC") to be included in the Corporation's
proxy statement for the annual meeting of shareholders. The Committee shall
report regularly to the Board.
II. COMPOSITION OF THE COMMITTEE
The Committee shall be comprised of no fewer than three Directors. The
Directors on the Committee shall meet the independence and other requirements of
the National Association of Securities Dealers ("NASD"), the Sarbanes-Oxley Act
of 2002 ("SOX Act") and the rules promulgated by the SEC pursuant to the SOX Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Each
Director meeting these requirements shall be referred to as an "Independent
Director." Each member of the Committee must be "financially literate," as such
qualification is interpreted by the Board in its business judgment, or must
become financially literate within a reasonable period of time after his or her
appointment to the Committee. In addition, at least one member of the Committee
must have "accounting or related financial management expertise," as the Board
interprets such qualification in its business judgment. One member of the
Committee shall be an "audit committee financial expert" as that term is defined
in the rules and regulations promulgated by the SEC pursuant to the SOX Act. No
Director may serve as a member of the Committee if such Director serves on the
audit committees of more than two other public companies, unless the Board
expressly determines that such service would not impair said Director's ability
to serve effectively on the Committee and such determination is disclosed in the
Corporation's annual proxy statement.
The members of the Committee shall be appointed annually to one year terms
by majority vote of the Board at the first meeting of the Board following the
annual meeting of shareholders. Vacancies on the Committee shall be filled by
majority vote of the Board at the next meeting of the Board following the
occurrence of the vacancy or by unanimous written consent of the Board. No
member of the Committee shall be removed from the Committee except by majority
vote of the Independent Directors of the Board then in office or by unanimous
written consent of the Board.
III. MEETINGS AND PROCEDURES OF THE COMMITTEE
The Committee shall fix its own rules of procedure, which shall be
consistent with the By-laws of the Corporation and this Charter. The Committee
shall meet as provided by its rules, which shall be at least four times annually
or more frequently as circumstances require. The Board shall designate one
member of the Committee as its Chairperson on an annual basis. The Chairperson
of the Committee or a majority of the members of the Committee may also call a
special meeting of the Committee. A majority of the members of the Committee
present in person or by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other shall constitute a quorum. The Committee shall act on the affirmative
vote of a majority of members present at a meeting at which a quorum is present.
Without a meeting, the Committee may act by unanimous written consent of all
members.
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The Committee may request that any Director, officer or employee of the
Corporation, or other person whose advice and counsel is sought by the
Committee, attend any meeting of the Committee to provide such pertinent
information as the Committee requests.
Following each of its meetings, the Committee shall deliver a report on the
meeting to the Board, including a description of all actions taken by the
Committee at the meeting. The Committee shall keep written minutes of its
meetings, which minutes shall be maintained with the books and records of the
Corporation.
The Committee may delegate certain of its functions to one or more members
of the Committee if permitted by law. Such member(s) shall report on all actions
taken no later than at the next meeting of the Committee. The Committee's
functions are the sole responsibility of the Committee and may not be allocated
to a different committee.
IV. DUTIES OF THE COMMITTEE
The Committee shall have the following duties and responsibilities:
A. FINANCIAL REPORTING
1. The Committee shall review and discuss with management, the
Corporation's independent auditors and the Director of Internal Audit &
Compliance the following:
(a) the Corporation's earnings press releases (with particular
attention to any use of "pro forma," or "adjusted" non-GAAP, information),
as well as financial information and earnings guidance provided by the
Corporation to analysts and rating agencies. Generally, this discussion
should include the types of information to be disclosed and the type of
presentation to be made.
(b) the Corporation's annual audited financial statements and
quarterly financial statements, including the disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and any major issues related thereto, and recommend to the
Board whether the audited financial statements should be included in the
Corporation's Annual Report on Form 10-K.
(c) the critical accounting policies and such other accounting
policies of the Corporation as are deemed appropriate for review by the
Committee prior to any interim or year-end filings with the SEC or other
regulatory body, including any financial reporting issues which could have
a material impact on the Corporation's financial statements.
(d) the development, selection and disclosure of critical accounting
estimates included in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(e) any major issues regarding accounting principles and financial
statement presentations, including any significant changes in the selection
or application of accounting principles.
(f) any analyses prepared by management and/or the independent
auditors setting forth significant financial reporting issues and judgments
made in connection with the preparation of the financial statements.
(g) all alternative treatments of financial information within GAAP
that have been discussed by the independent auditors and management,
ramifications of the use of such alternatives and the treatment preferred
by the independent auditors.
(h) all material written communications between the independent
auditors and management including but not limited to any management letter,
schedule of unadjusted differences or management representation letter.
(i) the effect of regulatory, tax, accounting and financial reporting
initiatives or developments, as well as off-balance sheet structures, on
the financial statements of the Corporation, including
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those proposed and/or adopted by the Financial Accounting Standards Board,
the Public Company Accounting Oversight Board, the American Institute of
Certified Public Accountants or the Internal Revenue Service that may have
a bearing on the Corporation.
(j) the Chief Executive Officer and Chief Financial Officer periodic
report certifications and disclosure required under the SOX Act and the
rules promulgated by the SEC pursuant thereto.
2. The Committee shall meet periodically with the Disclosure Committee to
discuss any matters of concern arising from the Disclosure Committee's quarterly
process to assist the Chief Executive Officer and Chief Financial Officer in
their SOX Act Section 302 and 906 certifications.
3. The Committee shall prepare the Audit Committee Report, as required by
Item 306 of Regulation S-K for inclusion in the Corporation's annual proxy
statement.
4. The Committee shall review with the full Board any issues that arise
with respect to the quality or integrity of the Corporation's financial
statements.
B. INDEPENDENT AUDITORS
1. The Committee shall be directly responsible for the appointment (subject
to shareholder ratification), compensation, retention, and oversight of the work
of any independent auditors engaged by the Corporation (including resolution of
disagreements between management and the auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work or
performing other audit, review or attest services for the Corporation, and each
independent auditor shall report directly to the Committee.
2. The Committee shall review and have sole authority to approve the
independent auditors' engagement plan, including the audit plan, scope,
procedures and the engagement letter, including the proposed fees and terms
contained therein, and monitor such plan's progress and results during the year.
3. The Committee shall review and have sole authority to pre-approve all
audit and, as provided in the SOX Act, all permitted non-audit engagements
between the Corporation and the independent auditors and monitor such
engagements' progress and results during the year.
(a) The Committee may establish pre-approval policies and procedures
for the engagement of the independent auditors.
(b) The Committee may delegate to one or more designated members the
authority to grant the pre-approvals required by this subsection. The
decisions of any member to whom authority is delegated to pre-approve an
activity shall be presented to the full Committee at the next meeting of
the Committee to occur after the grant of such approval.
(c) The Committee shall request from the independent auditors written
assurance that each non-audit service they are to provide to the
Corporation is not a prohibited activity as described in Section 10A(g) of
the Exchange Act, Section 201 of the SOX Act, or Rule 2-01(c)(4) of
Regulation S-X.
4. The Committee shall obtain and review at least annually a report from
the independent auditors describing:
(a) the independent auditors' internal quality-control procedures.
(b) any material issues raised by the most recent internal quality
control review, or peer review, of the independent auditors, or by any
inquiry or investigation by any governmental or professional authority,
within the preceding five years, respecting independent audits carried out
by the independent auditors, and any steps taken to deal with any such
issues.
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(c) all relationships between the independent auditors and the
Corporation, including a description of each category of services provided
by the independent auditors to the Corporation and a list of the fees
billed for each such category.
5. The Committee shall evaluate annually the independent auditors'
qualifications, performance and independence. In this evaluation, the Committee
shall take into account the opinions of management and the internal auditors.
The Committee shall review and evaluate the lead partner of the independent
auditors. The Committee shall present its conclusions to the Board.
6. The Committee shall oversee the independence of the independent auditors
by, among other things:
(a) actively engaging in a dialogue with the independent auditors with
respect to any disclosed relationships or services that may affect the
objectivity and independence of the independent auditors, and taking
appropriate action to satisfy itself of the auditors' independence.
(b) monitoring the rotation of audit partners to ensure that the
independent auditors are considered independent under applicable rules and
regulations.
(c) setting clear hiring policies for employees or former employees of
the independent auditors to ensure that the independent auditors are
considered independent under applicable rules and regulations.
(d) considering whether there should be a regular rotation of the
independent auditors.
(e) monitoring whether any improper influence is being asserted on the
independent auditors engaged in the performance of the audit by officers or
Directors of the Corporation, or any person acting under their direction.
7. The Committee shall instruct the independent auditors that they are
ultimately accountable to the Committee and the Board.
8. The Committee shall review and discuss on a regular basis with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 relating to the conduct of the audit, including any
problems or difficulties the independent auditors encountered in the course of
any audit work, and management's response with respect thereto, any restrictions
on the scope of the independent auditors' activities or on access to requested
information, and any significant disagreements with management. In connection
therewith, the Committee should review with the independent auditors the
following:
(a) any accounting adjustments that were noted or proposed by the
independent auditors but were rejected by management (as immaterial or
otherwise).
(b) any communications between the audit team and the independent
auditors' national office regarding auditing or accounting issues presented
by the engagement.
(c) any "management" or "internal control" letters issued, or proposed
to be issued, by the independent auditors.
9. The Committee shall obtain from the independent auditors their annual
report and any other information pursuant to Section 201 of the SOX Act, and
Section 10A of the Exchange Act.
10. The Committee shall review with the full Board any issues that arise
with respect to the performance and independence of the independent auditors.
C. INTERNAL CONTROLS
1. The Committee shall review with the independent auditors and the
internal auditor, the adequacy and effectiveness of the Corporation's internal
controls pertaining to (i) the effectiveness and efficiency of operations, (ii)
reliability of financial reporting and (iii) compliance with applicable law and
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regulations. The Committee's review of the Corporation's internal controls shall
include, beginning with the Corporation's fiscal year ending June 30, 2005, a
review of management's annual report on the Corporation's internal control over
financial reporting, as well as the independent auditors' attestation report on
management's assessment of the Corporation's internal control over financial
reporting included in management's report, prior to the inclusion of such
reports in the Corporation's annual report.
2. The Committee shall review with management the Corporation's internal
controls, including major issues as to the adequacy of the Corporation's
internal controls and any special audit steps adopted in light of the discovery
of material control deficiencies, and evaluate whether the Corporation is
operating in accordance with its prescribed policies, procedures and codes of
conduct.
3. The Committee shall review periodically with the Chief Executive
Officer, Chief Financial Officer, the independent auditors and the internal
auditor, the following:
(a) all significant deficiencies and material weaknesses in the design
or operation of the Corporation's internal control over financial reporting
which are reasonably likely to adversely affect the Corporation's ability
to record, process, summarize and report financial information.
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Corporation's internal
control over financial reporting.
(c) any change in the Corporation's internal control over financial
reporting that has materially affected, or is reasonably likely to
materially affect, the Corporation's internal control over financial
reporting.
D. LEGAL AND REGULATORY COMPLIANCE
The Committee shall:
(a) review with the full Board any issues that arise with respect to
the Corporation's compliance with legal or regulatory requirements.
(b) review with the Corporation's Compliance Officer material
litigation and other legal matters as appropriate.
E. RISK MANAGEMENT
The Committee shall review and discuss with management guidelines and
policies to govern the process by which management assesses and manages the
Corporation's exposure to risk, as well as the Corporation's major financial
risk exposures and the steps management has taken to monitor and control such
risk.
F. INTERNAL AUDIT
1. The Committee shall annually review the Corporation's Internal Audit
Department function including its organization and qualifications, the proposed
audit plan for the coming year, the Internal Audit Department's coordination
efforts with the independent auditors, significant findings during the year, any
difficulties experienced including access restrictions, changes in the audit
plan and the independence of internal audit.
2. The Committee shall review with the full Board any issues that arise
with respect to the performance of the internal audit function.
3. The Committee shall discuss with the independent auditor the
responsibilities, budget and staffing of the Corporation's internal audit
function.
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G. OTHER DUTIES AND RESPONSIBILITIES
The Committee shall:
(a) provide for an open avenue of communications between and among the
Board, the Committee, the internal auditors and the independent auditors,
including periodic meetings with the director of internal audit, the
independent auditors, the Chief Financial Officer and other members of
management in separate executive sessions to discuss any matters that the
Committee, these groups or individuals believe should be discussed
privately with the Committee.
(b) establish procedures for (i) the receipt, retention and treatment
of complaints received by the Corporation regarding accounting, internal
accounting controls or auditing matters and (ii) the confidential,
anonymous submission by employees of the Corporation of concerns regarding
questionable accounting or auditing matters.
(c) perform such other functions as assigned to the Committee by law,
the Corporation's Charter or By-laws, or the Board.
(d) periodically review with the Chief Executive Officer, the Chief
Financial Officer, the Disclosure Committee, and the internal auditor, the
adequacy and effectiveness of the Corporation's disclosure controls and
procedures.
H. FUNDING
Appropriate funding, as determined by the Committee, shall be provided by
the Corporation for payment of compensation to the independent auditors employed
by the Corporation for the purposes of preparing or issuing an audit report or
performing other audit, review or attest services for the Corporation, and for
ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
V. EVALUATION OF THE COMMITTEE
The Committee shall, on an annual basis, evaluate its performance under
this Charter. In conducting this review, the Committee shall evaluate whether
this Charter appropriately addresses the matters that are or should be within
its scope. The Committee shall address all matters that the Committee considers
relevant to its performance including but not limited to the following: the
adequacy, appropriateness and quality of the information and recommendations
presented by the Committee to the Board, the manner in which they were discussed
or debated, and whether the number and length of meetings of the Committee were
adequate for the Committee to complete its work in a thorough and thoughtful
manner.
The Committee shall report to the Board the results of its evaluation,
including any recommended amendment to this Charter and any recommended change
to the Corporation's or the Board's policies or procedures.
VI. INVESTIGATIONS AND STUDIES; OUTSIDE ADVISORS
The Committee may conduct or authorize investigations into or studies of
matters within the Committee's scope of responsibilities, and may engage and
obtain the advice and assistance from outside legal, accounting or other
advisors as the Committee deems necessary to carry out its duties. The Committee
may retain and compensate these advisors without seeking Board approval.
Appropriate funding, as determined by the Committee, shall be provided by the
Corporation for payment of compensation to any outside legal, accounting or
other advisors employed by the Committee.
C-6
VII. GENERAL
While the Committee has the duties and responsibilities set forth in this
Charter, the Committee is not responsible for planning or conducting the audit
or for determining whether the Corporation's financial statements are complete
and accurate and in accordance with generally accepted accounting principles.
In fulfilling their responsibilities hereunder, it is recognized that
members of the Committee are not full-time employees of the Corporation and that
it is not the duty or responsibility of the Committee or its members to conduct
"field work" or other types of auditing or accounting reviews or procedures or
to set auditor independence standards. Each member of the Committee shall be
entitled to rely on (i) the integrity of those persons and organizations within
and outside the Corporation from which it receives information, (ii) the
accuracy of the financial and other information provided to the Committee absent
actual knowledge to the contrary (which shall be promptly reported to the Board)
and (iii) statements made by management or third parties as to any information
technology, internal audit and other non-audit services provided by the
independent auditors to the Corporation.
C-7
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE PARKVALE FINANCIAL CORPORATION
<Table>
<Caption>
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS WITH- FOR ALL
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR HOLD EXCEPT
The undersigned, being a stockholder of the Corporation, 1. Election of Directors: [ ] [ ] [ ]
hereby authorizes the Board of Directors of the
Corporation as proxies with full powers of substitution to NOMINEES:
represent the undersigned at the Annual Meeting of
Stockholders of the Corporation to be held at the ROBERT J. MCCARTHY, JR.
Pittsburgh Athletic Association, 4215 Fifth Avenue, PATRICK J. MINNOCK
Pittsburgh, Pennsylvania, on October 28, 2004, at 10:00
a.m. Eastern Time, and at any adjournment of said meeting, INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
and thereat to act with respect to all votes that the NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE
undersigned would be entitled to cast if then personally SPACE PROVIDED BELOW.
present on all proposals coming before the meeting.
This proxy may be revoked at any time before it is
exercised.
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FOR AGAINST ABSTAIN
2. Adoption of the 2004 Stock Incentive [ ] [ ] [ ]
Plan.
3. Appointment of Parente Randolph, [ ] [ ] [ ]
LLC as the Corporation's Independent
auditors for fiscal 2005.
4. In the proxies' discretion, upon such other business as may
properly come before the meeting.
SHARES OF COMMON STOCK OF THE CORPORATION WILL BE VOTED AS
SPECIFIED. IF THIS PROXY IS SIGNED AND RETURNED BUT NO SPECIFICATION
IS MADE, SHARES WILL BE VOTED "FOR" THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS, "FOR" THE 2004 STOCK
INCENTIVE PLAN AND "FOR" THE APPOINTMENT OF PARENTE RANDOLPH, LLC.
Please be sure to sign and date Date
this Proxy in the box below. Please sign exactly as name appears on this proxy card. When
shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate
name by the President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Shareholder sign above Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
PARKVALE FINANCIAL CORPORATION
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PLEASE ACT PROMPTLY -
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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