SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VSB BANCORP, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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VSB BANCORP, INC.
3155 Amboy Road
Staten Island, New York 10306
(718) 979-1100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of VSB BANCORP, INC.:
PLEASE TAKE NOTICE that our Annual Meeting of Stockholders will be held at the
principal office of Victory State Bank, 3155 Amboy Road, Staten Island, New York
on April 26, 2005 at 5:00 p.m. (New York time), for the following purposes:
1. To elect three directors for three-year terms;
2. To ratify the appointment of Crowe Chizek and Company LLC as our
independent registered public accountants for 2005; and
3. To transact any other business that may properly come before the
meeting or any adjournments.
The close of business on March 17, 2005 is the record date to determine which
stockholders are entitled to notice of and to vote at the meeting.
By order of the Board of Directors
/s/ JOAN NERLINO CADDELL
Joan Nerlino Caddell,
Corporate Secretary
March 25, 2005
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IMPORTANT - PLEASE MAIL YOUR PROXY PROMPTLY, WHETHER YOU PLAN TO
ATTEND THE MEETING IN PERSON OR NOT
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Table of Contents
Summary........................................................................1
General Information............................................................2
The Proxy...................................................................2
Capital Stock Outstanding and Record Date...................................2
Forward-Looking Statements.....................................................3
Proposal 1 - The Election of Directors.........................................4
General Information Regarding Nominees and Our Other Directors..............4
Committees of the Board of Directors........................................5
Audit Committee.............................................................5
Audit Committee Report .....................................................6
Nominating Committee........................................................6
Stockholder Communications with Directors...................................7
Attendance by Directors at Our Annual Meeting...............................8
Director Compensation.......................................................8
Management Compensation.....................................................8
Employment Agreement........................................................9
401(k) Plan................................................................10
Employee Stock Ownership Plan..............................................10
Stock Option Plans.........................................................10
Security Ownership of Management and Certain Beneficial Owners.............11
Transactions with Directors and Officers and Their Related Interests.......12
Proposal 2 - Ratification of Independent Public Accountants...................13
Non-retention of Prior Accountants.........................................13
Audit Fees.................................................................14
Financial Information.........................................................14
Other Matters.................................................................15
Stockholder Nominations or Proposals.......................................15
Submission of Matters for Inclusion in Our 2006 Proxy Statement............15
We will provide, without charge, to each person solicited with this proxy
statement, upon the written request of any such person, a copy of our annual
report on Form 10-KSB, including the financial statements and the financial
statement schedules that we are required to file with the Securities and
Exchange Commission for our most recent fiscal year. The written request should
be directed to Raffaele Branca, Chief Financial Officer, VSB Bancorp, Inc., 3155
Amboy Road, Staten Island, New York 10306. The Form 10-KSB is also available on
the Internet as part of the Securities and Exchange Commission's EDGAR database
at http://www.sec.gov/edgar.shtml.
VSB Bancorp, Inc.
3155 Amboy Road
Staten Island, New York 10306
(718) 979-1100
Proxy Statement
SUMMARY
Q: Why am I receiving these materials?
A: Our Board of Directors is sending you these proxy materials in connection
with our annual meeting of stockholders, which will take place on April 26,
2005. You may attend the annual meeting in person but we ask that you send us
your proxy card and vote on the proposals described in this proxy statement to
make sure that your vote is counted.
Q: What proposals will stockholders vote on at the annual meeting?
A: There are two proposals that stockholders are scheduled to vote on at the
meeting:
o the election of three directors for three-year terms; and
o the ratification of the appointment of Crowe Chizek and Company LLC as
our independent public accountants.
Q: Who has been nominated as a director?
A: The Board of Directors, upon the recommendation of the Nominating
Committee, has nominated Raffaele M. Branca, Robert S. Cutrona, Sr. and Chaim
Farkas for election as directors. They are all now directors of both our company
and our subsidiary, Victory State Bank.
Q: How many votes are required for election as a director?
A: The three nominees with the highest vote totals will be elected.
Q: What shares can I vote?
A: You can vote all shares that you owned at the close of business on March
17, 2005 (the "Record Date"). You may cast one vote for each share of stock. You
may vote for up to three directors for three-year terms, but you may cast only
one vote per share for any single nominee.
Q: How can I vote my shares?
A: The best way to vote your shares is to mail your proxy card in the enclosed
pre-paid envelope. You can still attend the meeting and change your vote, but
sending your proxy card will make sure your vote is counted. If you own your
stock in street name through a stockbroker, please be sure to send your voting
instructions to your broker so your shares will be voted.
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Q: Can I change my vote?
A: You may change your voting instructions at any time before the vote at the
annual meeting. You may do so by granting a new proxy card with a later date
(which automatically revokes earlier voting instructions) or by attending the
meeting and voting in person. Attendance at the meeting will not automatically
revoke your proxy unless you specifically so request. If you own your stock in
street name, you must contact your broker to change your vote.
General Information
We are furnishing this Proxy Statement and the accompanying form of proxy
to the stockholders of VSB Bancorp, Inc. in connection with our solicitation of
proxies for our Annual Meeting of Stockholders to be held on April 26, 2005 at
5:00 p.m. (local time) at the main office of our subsidiary, Victory State Bank,
at 3155 Amboy Road, Staten Island, New York 10306, and at any adjournments of
the meeting.
We are first sending this Proxy Statement to our stockholders on or about
March 25, 2005.
The Proxy
Our Board of Directors is soliciting your proxy. If you properly sign and
return the enclosed form of proxy prior to or at the meeting and you do not
revoke it, all your shares covered by the proxy will be voted at the meeting
and, if you give instructions on how you want your shares to be voted, we will
follow those instructions. If you properly sign and return the proxy but you do
not specify how you want to vote, your shares will be voted for the election of
the director nominees named below and in favor of all other proposals described
in this Proxy Statement. If you hold your stock in street name through a broker,
please send your voting instructions to your broker.
We will solicit proxies by mail and by delivery to agents for street name
holders. We may also solicit proxies by telephone, facsimile or in person by
officers and other employees of ours or of our subsidiary. We will pay the
entire cost of this solicitation. We will reimburse financial institutions,
brokerage houses or other custodians, nominees or fiduciaries for their
reasonable expenses in forwarding the forms of proxy and proxy materials to
beneficial owners. You may revoke your proxy at any time before the vote is cast
for your shares, either by written notice or by your oral revocation at the
meeting. To be valid, written notice must be actually received by Joan Nerlino
Caddell, Corporate Secretary, VSB Bancorp, Inc., 3155 Amboy Road, Staten Island,
New York 10306 before the proxy is used at the meeting. Attendance at the
meeting will not in and of itself revoke a proxy.
Other than the matters listed on the attached Notice of Annual Meeting, our
Board of Directors does not know of any other matters that will be presented for
a vote at the meeting. If you sign the enclosed proxy, the holders of the proxy
will have the authority to vote your shares in accordance with their best
judgment on any other business that may properly come before the meeting.
Capital Stock Outstanding and Record Date
The close of business on March 17, 2005 is the record date to determine
which stockholders are entitled to notice of, and to vote at, the meeting. At
the close of business on that date, there were 1,505,022 shares of our common
stock outstanding and entitled to vote at the meeting. Common stock is our only
authorized class of stock. Each outstanding share is entitled to one vote at the
meeting on each matter to be voted upon. There will be no cumulative voting of
shares for the election of directors.
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If 501,675 shares of our common stock are represented at the meeting in
person or by proxy, representing one-third of the issued and outstanding share,
there will be a quorum. Abstentions and broker non-votes are counted to
determine whether there is a quorum.
On Proposal 1, the election of directors, you may vote for up to three
candidates. You may not cast more than one vote per share for any one nominee.
You may "Withhold Authority" to vote for some or all of the nominees named below
by so indicating in the appropriate space on the proxy. The three nominees for
three-year terms with the most votes will be elected to three-year terms. Votes
that are withheld have no effect on the election of directors.
On Proposal 2, the ratification of the independent auditors, you may vote
"FOR", "AGAINST" or "ABSTAIN". Proposal 2 requires the affirmative vote of a
majority of the votes cast on Proposal 2 to be approved. Abstentions and broker
non-votes, as well a failing to submit a proxy card or a ballot at the meeting,
have no effect on the results of the vote on Proposal 2.
Please return your proxy to our transfer agent, Registrar and Transfer
Company, in the envelope we provide. Inspectors of election designated by the
Board will count the votes. The inspectors will not be officers or directors of
VSB Bancorp.
There are no dissenters' rights arising out of any of the proposals set
forth in this Proxy Statement.
Forward-Looking Statements
When used in this proxy statement, or in any written or oral statement made
by us or our officers, directors or employees, the words and phrases "will
result," "expect," "will continue," "anticipate," "estimate," "project," or
similar terms are intended to identify "forward-looking statements." A variety
of factors could cause our actual results and experiences to differ materially
from the anticipated results or other expectations expressed in any
forward-looking statements. Some of the risks and uncertainties that may affect
our operations, performance, development and results, the interest rate
sensitivity of our assets and liabilities, and the adequacy of our loan loss
allowance, include, but are not limited to:
o deterioration in local, regional, national or global economic
conditions which could result in, among other things, an increase in
loan delinquencies, a decrease in property values, or a change in the
real estate turnover rate;
o changes in market interest rates or changes in the speed at which
market interest rates change;
o changes in laws and regulations affecting the financial service
industry;
o changes in competition; and
o changes in consumer preferences.
Please do not place undue reliance on any forward-looking statement, which
speaks only as of the date made. There are many factors, including those
described above, that could affect our future business activities or financial
performance and could cause our actual future results or circumstances to differ
materially from those we anticipate or project.
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Proposal 1 - The Election of Directors
General Information Regarding Nominees and Our Other Directors
Our Board of Directors has nine members. At the meeting, three directors
are to be elected, all for three-year terms, each to serve until his or her
successor is elected and has qualified. The Board of Directors has nominated
Raffaele M. Branca, Robert S. Cutrona, Sr. and Chaim Farkas for the three
directorships. All of the nominees are presently members of the Board of
Directors, with their terms expiring at the meeting.
If any nominee becomes unavailable for election, which we do not
anticipate, the shares represented by proxies that would otherwise have been
voted for such nominee will be voted for a substitute nominee designated by our
Board of Directors.
The following table provides information about the three nominees and our
other six directors. Length of service as a director includes service as a
director of Victory State Bank prior to our holding company reorganization.
Principal Occupation
Length of Service During Past 5 Years
as Director and and Directorships
Name and Age Expiration of Term of Public Companies
- ------------ ------------------ -------------------
Nominees:
Raffaele M. Branca Director since 1997 Executive Vice President and
(40) Term expires 2005 Chief Financial Officer, VSB
Bancorp, Inc. and Victory
State Bank; formerly Vice
President, Finance and
Investment Portfolio Manager
for River Bank America;
Formerly Vice President for
Finance and Investments of
Hamilton Bancorp. Inc.
Robert S. Cutrona, Sr. Director since 1997 President of Project-One
(67) Term expires 2005 Services, Inc., a cleaning
and maintenance firm.
Chaim Farkas Director since 1997 President and Owner of
(51) Term expires 2005 Dataware Systems Lease,
Inc., a computer services
company.
Continuing Directors:
Alfred C. Johnsen Director since 2003 Certified public accountant
(58) Term expires 2006 and owner of the firm Alfred
C. Johnsen Certified Public
Accounts.
Bruno Savo Director since 2004 Vice President, S.L. Homes
(46) Term expires 2006 Development and Savo Bothers
Development, local building
firms that construct mainly
residential housing.
Carlos Perez MD Director since 1997 Doctor of Gynecology.
(65) Term expires 2006
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Joseph J. LiBassi Director since 1997 Chairman, VSB Bancorp, Inc.
(69) Term expires 2007 and Victory State Bank;
Self-employed investor.
Merton Corn Director since 1997 President and Chief
(70) Term expires 2007 Executive Officer, VSB
Bancorp, Inc. and Victory
State Bank; President and
Chief Executive Officer of
Gateway State Bank from 1977
until its merger with Staten
Island Savings Bank in 1995;
Senior Vice President of
Staten Island Savings Bank
from August 1995 to December
1995; President and Chief
Executive Officer of
Community Capital Bank from
December 1995 to November
1997.
Joan Nerlino Caddell Director since 1997 Secretary, VSB Bancorp, Inc.
(47) Term expires 2007 and Victory State Bank;
Partner, Nerlino & Gambale,
LLP, Attorneys; Partner,
Nerlino, Gambale and Klapper
LLP, Attorneys to the Bank
through February 28, 2002;
Partner, Holzka, Donahue and
Nerlino, Attorneys to the
Bank through October 1,
1998.
The Board of Directors held 14 meetings during 2004.
Our Board of Directors unanimously recommends that you vote IN FAVOR of
the election of Directors Branca, Cutrona and Farkas as directors.
Committees of the Board of Directors
The Board of Directors has a nominating committee, an audit committee and a
human resources (compensation) committee. These committees all operate jointly
with comparable committees of the Board of Directors of Victory State Bank
having the same members. The Board of Directors also has a steering committee
for Sarbanes Oxley Section 404 compliance. Except for the issue of stockholder
recommendations to the nominating committee for director candidates, which
applies only to the VSB Bancorp, Inc. nominating committee, the following
discussion regarding committees relates to both the Victory State Bank and VSB
Bancorp committees.
During the year ended December 31, 2004, each director attended at least
75% of the total of the number of Board meetings held and the number of meetings
held by all committees on which he or she served, while he or she served.
Audit Committee
The audit committee conducts the annual statutory directors' examination of
Victory State Bank, reviews reports of examination made by regulatory
authorities, reviews and discusses the audited financial statements with our
independent registered public accountants and makes periodic reports to the
Board of Directors regarding the findings of the regular audits by Victory State
Bank's internal auditor. The audit committee also receives a report from our
independent public accountants regarding critical accounting policies and
procedures, any material alternate treatment discussed with management, and
other written communications from those accountants to management. The audit
committee also approves the retention of our independent registered public
accountants, and recommends the approved firm to the Board of Directors for
approval by the Board.
The Board of Directors has determined that director Alfred C. Johnsen, who
is a member of the audit committee, qualifies as an audit committee financial
expert under the regulations of the Securities and Exchange Commission and that
he is independent of management. Mr. Johnsen will not be deemed an expert for
any other purpose as a result of being designated or identified as an audit
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committee financial expert. The designation or identification of a person as an
audit committee financial expert does not impose on such person any duties,
obligations or liability that are greater than the duties, obligations and
liability imposed on such person as a member of the audit committee and board of
directors in the absence of such designation or identification. In addition, the
designation or identification of a person as an audit committee financial expert
does not affect the duties, obligations or liability of any other member of the
audit committee or board of directors.
The following is the report of our audit committee.
Audit Committee Report
During 2004, the audit committee reviewed the quality and integrity of our
financial statements, our compliance with legal and regulatory requirements, the
qualifications and independence of our independent public accountants, the
performance of the internal audit function and our independent public
accountants and significant financial matters. Each of the audit committee
members satisfies the definition of independent director under National
Association of Securities Dealers Rule 4200. The audit committee met seven times
during 2004.
The Board of Victory State Bank adopted a written charter for the audit
committee in 2000. The Board and the audit committee reviewed and reapproved the
charter in 2004 and the Board of VSB Bancorp has approved the same charter for
its audit committee.
The audit committee has reviewed our audited consolidated financial
statements and discussed the statements with management. The audit committee has
discussed with Crowe Chizek and Company LLC, our independent registered public
accountants for 2004, the matters required to be discussed by Statement of
Auditing Standards No. 61 (Communication with Audit Committees), as amended. The
audit committee received from Crowe Chizek the written disclosures required by
Independence Standards Board Standard No. 1, disclosing to the audit committee
all relationships with the accountants that may reasonably bear on independence,
confirming the accountants' independence and confirming that the accountants
discussed their independence with the audit committee. Based on the review and
discussions noted above, the audit committee recommended to the Board that the
audited consolidated financial statements be included in our Annual Report for
2004 as sent to our stockholders.
Submitted by the audit committee:
Alfred C. Johnsen (Chairman), Joseph J. LiBassi and Carlos Perez
Nominating Committee
The nominating committee proposes candidates to the Board of Directors for
election as directors by stockholders. The committee also reviews issues of
independence and conflicts of interest regarding directors and candidates for
nomination. The nominating committee consists of three independent directors
Joseph J. LiBassi, Alfred C. Johnsen and Carlos Perez MD. All of the members of
the nominating committee are independent of management. The nominating committee
met one time during 2004. The Board of Directors has adopted a charter for the
nominating committee. The charter is available for review on our web site at
www.victorystatebank.com.
We are principally engaged in business in Staten Island. Our existing
directors are active, well-known members of the community. In most cases, we
anticipate that existing directors will be renominated if they want to continue
to serve as directors. If an existing director will not be renominated for any
6
reason, or if the size of the board of directors has been increased, then the
nominating committee, in consultation with the other directors and based upon
their knowledge of the Staten Island community, will seek to identify
individuals known to them with character, experience, knowledge and business
relationships that reflect favorably on their ability to act as productive
members of the Board of Directors. Once candidates are identified, the committee
evaluates their credentials and forms a judgment as to which candidate or
candidates have the greatest ability to both guide us and assist in the growth
of our business. All candidates suggested to the committee will be evaluated in
the same manner, regardless of whether the candidate is suggested by a director,
officer, shareholder or other person.
We seek director nominees who, at a minimum, possess:
o knowledge of the business community in Staten Island;
o expertise in the evaluation of financial matters;
o the ability to review, absorb and comment on financial statements
which are an integral part of our operations;
o the character and reputation appropriate for a director of a bank
holding company; and
o no blemishes in their past which would cause concerns among federal or
state bank regulators who regularly examine the operations of VSB
Bancorp or its subsidiary, Victory State Bank.
The nominating committee will consider, for inclusion in the Board of
Directors' slate of nominees for director, candidates suggested by stockholders.
In order to suggest a candidate, a stockholder must send a notice to the
nominating committee which we must receive at our principal office no later than
120 calendar days before the date which corresponds to the date of our proxy
statement for the prior year's annual meeting. The notice must be signed by the
stockholder and must provide the following information:
o A detailed resume of the proposed nominee showing his or her academic
and business achievements and history; his or her experience and
qualifications to be a director; and any other information that the
stockholder or the proposed nominee considers relevant in evaluating
the person's qualifications to be a director;
o All information regarding the proposed nominee that would be required
to be disclosed to the Board of Governors of the Federal Reserve
System in our Annual Report on form FR Y-6;
o All other information relating to the proposed nominee that would be
required to be disclosed in a proxy statement under the rules and
regulations of the Securities and Exchange Commission; and
o The name and address of the stockholder submitting the notice; the
number of shares owned by the stockholder; and a description of any
business, family or employment relationship between the stockholder
and the proposed nominee.
Stockholder Communications with Directors
Stockholders may communicate directly with a director by mailing or
delivering a letter addressed to the director by name at our principal office.
The envelope should be conspicuously marked on the outside front "Confidential."
We will forward any such letters to the named director unopened. Letters
addressed to the Board of Directors as a whole will be given to the Chairman of
the Board, who will then distribute copies to all directors.
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Attendance by Directors at Annual Meeting
The Board has adopted a formal policy that all directors should attend the
annual meeting of stockholders. It has been the practice of Victory State Bank
and VSB Bancorp, Inc., to hold meetings of their Boards of Directors immediately
after the annual stockholders' meeting. Therefore, we anticipate that most, if
not all, of the directors will attend the annual meeting of stockholders. In
2004, eight of our nine directors attended the annual stockholders' meeting of
our company.
Director Compensation
Non-employee directors, other than the Chairman of the Board, receive
attendance fees of $400 per board meeting and $150 per committee meeting ($125
per loan committee meeting). The committee attendance fee for the chairman of
the committee is $200 per meeting ($175 per loan committee meeting). The
Chairman of the Board received an annual retainer of $62,500 in 2004 but did not
receive per meeting fees.
In 2004, upon approval of our 2004 Directors Stock Option Plan by our
stockholders, each of our directors received an option to purchase 5,000 shares
of our common stock at an exercise price of $22.00, which was the fair market
value of the stock on the date of grant.
Management Compensation
The following table sets forth the aggregate remuneration for services in
all capacities paid for the last three calendar years, to the chief executive
officer and to each executive officer whose aggregate direct remuneration
exceeded $100,000 for such year, for services rendered to VSB Bancorp, Inc. and
Victory State Bank.
Compensation
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Long Term All Other
Salary Bonus Compensation Compensation
Name and Principal Position Year ($) ($) (Options/SARs) ($)
- --------------------------------------------------------------------------------------------------------------
Merton Corn 2004 $204,000 $ 45,000 5,000 $ 84,866(1)
President and Chief Executive Officer 2003 $195,000 $ 40,000 $ 65,853(1)
2002 $167,660 $ 64,600(2) $ 41,946(1)
Raffaele M. Branca 2004 $151,311 $ 30,500 5,000 $ 23,275(1)
Executive Vice President 2003 $144,425 $ 28,638 $ 15,676(1)
2002 $138,938 $ 23,140 $ 14,430(1)
(1) Represents the following items:
- -----------------------------------------------------------------------------------------------------------------
401(k) match Vested value of Contributions
and profit SARs that first Exercised value to the
sharing plan vest during of SARs during Employee Stock
Name Year contribution the year the year Ownership Plan Miscellaneous
- -----------------------------------------------------------------------------------------------------------------
Merton Corn 2004 $11,695 $14,500 $33,250 $13,670 $11,751
2003 $17,000 $38,000 n/a n/a $10,853
2002 $17,000 $14,500 n/a n/a $10,446
- -----------------------------------------------------------------------------------------------------------------
Raffaele M. Branca 2004 $10,210 n/a n/a $12,123 $ 942
2003 $14,710 n/a n/a n/a $ 966
2002 $14,041 n/a n/a n/a $ 389
- -----------------------------------------------------------------------------------------------------------------
(2) Includes the $34,000 signing bonus for Mr. Corn's execution of a 5-year
employment contract effective November 16, 2002.
8
Option/Stock Appreciation Rights ("SAR") Grants in Last Fiscal Year
- ----------------------------------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------
Number of
securities Percent of total
underlying options/SARs granted
options/SARs to employees in Exercise or base
Name granted (#) fiscal year price ($/Share) Expiration date
- ----------------------------------------------------------------------------------------------------------------
Merton Corn 5,000 16.7% $22.00 April 27, 2014
- ----------------------------------------------------------------------------------------------------------------
Raffaele M. Branca 5,000 16.7% $22.00 April 27, 2014
- ----------------------------------------------------------------------------------------------------------------
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
- -------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money Options/SAR at
Acquired on Realized Options/SAR at FY End Fiscal Year End
Name Exercise (#) ($) Exercisable/Unexercisable (#) Exercisable/Unexercisable ($)
- -------------------------------------------------------------------------------------------------------------------
Merton Corn 17,600 $33,250 24,400/5,000 $419,584/$1,250
Raffaele M. Branca - $ - 17,400/5,000 $268,490/$1,250
- -------------------------------------------------------------------------------------------------------------------
The value of unexercised, in-the-money SARs and options at December 31, 2004 is
the difference between the closing price of the common stock of VSB Bancorp,
Inc. on December 31, 2004 and the exercise price under such outstanding SARs and
options.
Employment Agreement
Victory State Bank has an employment agreement with President Merton Corn.
This employment agreement is intended to maintain a stable and competent
management base. Our continued success depends to a significant degree on the
skills and competence of Mr. Corn. Upon Mr. Corn's commencement of employment
with Victory State Bank in August of 1997, the bank entered into a five-year
employment agreement with him to serve as President and Chief Executive Officer.
In November 2002, Victory State Bank entered into a new agreement with Mr. Corn
for an additional five year term. The agreement provides for a salary of
$195,000 in 2003, with annual salary increases of at least 5% per year beginning
in November 2004. In addition, Mr. Corn may receive annual bonuses at the
discretion of the Board based upon the performance of Victory State Bank and
other factors.
Any termination of the agreement by either party prior to November 16,
2005, except termination by Victory State Bank for cause, would be a breach. In
addition to any other remedies for breach, termination before November 16, 2005
by the bank not for cause requires the payment of six months severance. Either
party may terminate the agreement without cause after November 16, 2005 upon 90
days notice, and Mr. Corn will be entitled to severance of from eight to twelve
months salary, depending on when the termination occurs, plus, if termination is
by the bank, continued medical insurance coverage. If Mr. Corn's employment is
terminated within one year after a change in control, then he is entitled to a
payment of 36 months salary plus 36 months of continued medical insurance
coverage. Mr. Corn was awarded 20,000 stock appreciation rights effective
January 13, 1998, at an exercise price of $5.00 per share. Mr. Corn was awarded
additional 5,000 stock appreciation rights on April 13, 1999, at an exercise
price of $5.00 per share. The stock appreciation rights are now exercisable and
may be exchanged for employee incentive stock options if such options are
available.
9
401(k) Plan
We maintain a qualified 401(k) salary deferral plan for all eligible
employees of Victory State Bank and our holding company who are at least 21
years of age, who work for one consecutive year and are credited with 1,000
hours of service in the plan year. Each participant may elect to make salary
deferral contributions to the 401(k) plan on a pre-tax basis. We match 100
percent of the first three percent of salary deferred by employees, including
Mr. Corn and Mr. Branca. Compensation for purposes of the 401(k) is capped at
$205,000 annually (subject to cost of living adjustments). At our sole
discretion, we can also make a discretionary (or profit sharing) contribution to
the Plan. This discretionary contribution is in addition to the matching
contribution. The matching contribution and the discretionary contribution vest
in annual installments of 20% beginning after the second anniversary of
eligibility in the 401(k) plan. Employee salary deferral contributions are
immediately vested. For 2004, we made a 2.75% discretionary contribution to the
Plan. Aggregate contributions to the accounts of an employee under the 401(k)
plan cannot exceed $41,000 annually (subject to cost of living adjustments).
Employee Stock Ownership Plan
We have an Employee Stock Ownership Plan (the "ESOP") for employees.
Employees of VSB Bancorp, Inc., Victory State Bank and any other subsidiaries
who have been credited with at least 1,000 hours of service during a designated
12-month period and who have attained age 21 will be eligible to participate in
the plan. The ESOP purchased 74,320 shares of our common stock from us out of
authorized but unissued shares in 2004 using the proceeds of a loan we made to
the ESOP.
Stock purchased with the proceeds of the loan will be allocated to employee
accounts in the ESOP gradually as it is released from the security interest for
the ESOP loan. The loan was in the amount of $1,690,780, and for 2004 we repaid
$112,719 of the loan, so 5,700 shares of our common stock were released from the
lien of the loan. Those shares have been allocated to the ESOP accounts of all
participating employees.
The ESOP will continue to hold the stock, and any other amounts held for
the benefit of each employee, until that employee's employment terminates,
whether by retirement, resignation or termination by the employer. After
termination, the employee's vested balance will be distributed to the employee.
Benefits for each employee will vest over a seven-year period, with no vesting
during the first two years of employment, and 20% vesting each year for the next
five years of employment. The plan provides that in the event of a change in
control, all benefits will fully vest automatically. Employees received full
credit for service with Victory State Bank before the ESOP was implemented to
determine vesting of benefits.
In general, when stock is released from the security interest of the ESOP
loan, the stock is allocated based upon the relative compensation of each
participant for the year. Other amounts contributed to the ESOP that are
allocated to employees will be allocated in the same manner, based upon
compensation. However, profits allocated to employee accounts, such as any gain
on the sale of unallocated stock held by the ESOP, will be allocated based upon
each employee's relative ESOP account balances.
Stock Option Plans
We have five stock options plans. Four of them were originally approved by
stockholders of Victory State Bank. These plans became the stock option plans of
VSB Bancorp upon the holding company reorganization. The fifth plan was approved
by our stockholders in 2004. There are two plans for employees and two plans for
non-employee directors. The plan approved in 2004 applies to all directors,
10
whether or not they are employees. The employee plans, which are incentive stock
option plans under the Internal Revenue Code, provide for the grant of options
to purchase 84,000 shares of our common stock. The director plans, which are
non-qualified plans under the Internal Revenue Code, provide for the grant of
options to purchase 111,000 shares of our common stock. The exercise price of
options under all the plans may not be less than 100% of the fair market value
of our stock on the date of the grant of the option. The maximum option term is
10 years.
As adjusted, four non-employee directors have been granted options to
acquire 13,000 shares of our common stock under the plans; two non-employee
directors have been granted options to acquire 5,000 shares of our common stock
under the 2004 directors plan; and the Chairman of the Board has been granted
17,000 options to acquire shares of our common stock under the plans. The two
employee directors were granted options to acquire 5,000 shares of our common
stock under the 2004 directors plan, as disclosed above. Options to purchase all
available shares under the two non-employee director plans have been granted and
there remain available 10,000 additional shares for which options maybe granted
under the 2004 directors plan. All director options were immediately exercisable
when they were granted.
The incentive stock option plans for employees provide for the grant of
options to officers or other employees as a committee of the Board of Directors
determines is appropriate. The options granted under the employee plans
gradually vest over five years beginning with the first anniversary of the grant
date. Options to purchase all available shares under the two incentive stock
option plans have been granted.
Upon a change of control of our company, all options issued under the five
plans immediately vest. No employee may receive incentive stock options if, at
the time of the grant, such person owns, directly and indirectly, more than 10%
of our total combined voting power unless the stock option price is at least
110% of the fair market value of the common stock and the exercise of such
incentive stock option is limited by its terms to five years.
Payments for shares purchased upon the exercise of options may be made in
cash or cash equivalents. All stock options under the plans will be adjusted for
stock splits, reorganization, recapitalization, exchange of shares and stock
dividends. Any such changes to outstanding options will be made without a change
in the total price applicable to the unexercised portion of the option but with
a corresponding adjustment in the per share price and the number of shares
covered by the option.
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth, to our knowledge based upon a review of our
records and information provided in required filings, the beneficial ownership
of our stock as of the Record Date by directors, executive officers, and any
other person, entity or group known by us to beneficially own 5% or more of our
stock, including options exercisable now or within 60 days after the Record
Date.
11
Number Percent
Name of Shares of Total
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Directors and Executive Officers
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Raffaele M. Branca 68,025 (9)(12)(13) 4.31%
Joan Nerlino Caddell 43,891 (1)(5)(6)(12) 2.78%
Merton Corn (a) 136,200 (7)(9)(12) 8.64%
Robert S. Cutrona, Sr. 30,291 (2)(5)(6)(8)(12) 1.92%
Chaim Farkas 31,933 (3)(5)(6)(12) 2.03%
Alfred C. Johnsen 2,691 (12) 0.02%
Joseph J. LiBassi (a) 126,691 (5)(6)(10)(12) 8.04%
Carlos Perez 55,000 (4)(5)(6)(12) 3.49%
Bruno Savo 9,025 (11)(12) 0.57%
All directors and executive officers
as a group (9 persons) 503,747 31.95%
=======
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(1) Excludes 4,200 shares, which are owned by Scott R. Caddell, Ms. Nerlino
Caddell's spouse, as to which she disclaims voting power and beneficial
ownership. Includes 4,000 shares that Ms. Caddell's two minor children own.
(2) Includes 20,000 shares owned as joint tenants with David P. Cutrona, his
son.
(3) Owned as joint tenants with Gail Farkas, his spouse.
(4) Includes 46,000 shares owned by the Carlos Perez M.D. Trust, of which Dr.
Perez is a beneficiary. Excludes 3,000 shares owned by Dr. Perez' adult
children, as to which Dr. Perez disclaims voting power and beneficial
ownership.
(5) Includes, for each non-employee director, 4,000 stock options granted under
the 2000 Directors' Plan.
(6) Includes 4,000 stock options granted to each non-employee director under
the 1998 Directors' Plan and 8,000 stock options granted to Mr. LiBassi
under the 1998 Directors' Plan.
(7) Excludes, as to Mr. Corn, 23,000 SARs that do not carry voting rights.
(8) Excludes 2,000 shares owned by Jennifer Gotlin Cutrona, Mr. Cutrona's
spouse, as to which Mr. Cutrona disclaims voting power and beneficial
ownership.
(9) Includes 1,400 options and 17,400 options granted to Mr. Corn and Mr.
Branca, respectively.
(10) Excludes 1,000 shares, which are owned by Melinda LiBassi, Mr. LiBassi's
spouse, as to which Mr. LiBassi disclaims voting power and beneficial
ownership.
(11) Includes 3,000 shares for Mr. Bruno Savo's three minor children, for which
Mr. Savo is the custodian.
(12) Includes 1,000 vested options, as to each director, of the grant to
purchase 5,000 shares of stock granted in connection with the 2004
Directors Stock Option Plan as approved by stockholders in 2004.
(13) Excludes 560 shares, which are owned by Dawn Marie Branca, Mr. Branca's
spouse, as to which Mr. Branca disclaims voting power and beneficial
ownership.
(a) Merton Corn's address is c/o Victory State Bank, 3155 Amboy Road, Staten
Island, New York 10306 and Joseph J. LiBassi's address is c/o Victory State
Bank, 3155 Amboy Road, Staten Island, New York 10306.
Transactions with Directors and Officers and Their Related Interests
Some of our directors and officers and some of the corporations and firms
with which they are associated also are our customers in the ordinary course of
business, or have loans from Victory State Bank. None of them have loans from
VSB Bancorp, Inc. It is anticipated that some of these individuals, corporations
and firms will continue to be our customers or may continue to have loans from
Victory State Bank on a similar basis in the future. All loans extended to such
individuals, corporations and firms were made in the ordinary course of
business, did not involve more than normal risk of collectibility or present
other unfavorable features, and were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable Victory State Bank transactions with unaffiliated persons.
Director Joan Nerlino Caddell is a member of the law firm of Nerlino &
Gambale, LLP (formerly of "Nerlino, Gambale & Klapper LLP" and formerly of
"Holzka, Donahue & Nerlino"), which we have retained during the last fiscal year
for the performance of legal services on a matter by matter basis. Fees paid to
the firm of which Director Joan Nerlino Caddell is a partner totaled $105,772 in
2004 and $127,470 in 2003.
12
Director Chaim Farkas is President and shareholder of the firm of Dataware
Systems Lease, Inc. ("Dataware") from which Victory State Bank purchased
computer hardware and related software in the ordinary course of business. The
fees paid to Dataware in the aggregate, totaled $31,179 in 2004 and $61,114 in
2003.
Director Bruno Savo, is a member of Boardwalk Estates, LLC, NBM
Development, LLC and Jolene Estates, LLC, limited liability companies, which
develop residential real estate for resale and Savino Savo, a former director
and the father of Bruno Savo, is the president of Village Green Shopping Center,
Inc. and Village Green Maintenance Corp, which are real estate companies, all of
which had loans from Victory State Bank at December 31, 2004. The loans were
made in the ordinary course of business, were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and did not involve more than
the normal risk of collectibility or present other unfavorable features.
Other than normal customer relationships, none of our directors or officers
or the corporations or firms with which they are associated currently maintain
or have maintained during the past fiscal year any other significant business or
personal relationship with us.
Proposal 2 - Ratification of Independent Registered Public Accountants
Our Audit Committee has approved the engagement of Crowe Chizek and Company
LLC to be our independent registered public accounting firm for 2005, subject to
the ratification of the engagement by our stockholders. At the Annual Meeting,
stockholders will consider and vote on the ratification of that engagement of
Crowe Chizek and Company LLC. We expect that representatives of Crowe Chizek
will attend the meeting and be available to respond to appropriate questions.
The representatives will be allowed to make a statement, if they desire to do
so.
Non-retention of Prior Accountants
The independent public accounting firm of Deloitte & Touche acted as our
independent public accountants for 2003. Our Board of Directors, on March 9,
2004, unanimously decided not to retain the firm of Deloitte & Touche LLP as our
independent public accountants for 2004 but to instead retain the firm of Crowe
Chizek and Company LLC, subject to stockholder approval. Deloitte & Touche LLP's
report on our financial statements for the past two years does not contain an
adverse opinion or disclaimer of opinion, and was not modified as to
uncertainty, audit scope, or accounting principles. The decision to change
accountants was approved by the Board of Directors upon the unanimous
recommendation of the audit committee of the Board of Directors.
We had no disagreements with Deloitte & Touche LLP, whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, to the best of our
knowledge, if not resolved to Deloitte & Touche LLP's satisfaction, would have
caused Deloitte & Touche LLP to make reference to the subject matter of the
disagreement in connection with its report. Deloitte & Touche LLP did not advise
us that:
o internal controls necessary to develop reliable financial statements
did not exist; or
o information has come to the attention of Deloitte & Touche LLP which
made Deloitte & Touche LLP unwilling to rely on management's
representations, or unwilling to be associated with the financial
statements prepared by management; or
o the scope of the audit should be expanded significantly, or
information has come to Deloitte & Touche LLP's attention that
Deloitte & Touche LLP has concluded will, or if further investigated
might, materially impact the fairness or reliability of a previously
issued audit report or the underlying financial statements, or the
financial statements issued or to be issued covering the fiscal
periods subsequent to the date of the most recent audited financial
statements (including information that might preclude the issuance of
an unqualified audit report), and the issue was not resolved to
Deloitte & Touche LLP satisfaction prior to March 9, 2004.
13
During 2002 and 2003, or thereafter until the Board made its decision on
March 9, 2004, we did not consult with Crowe Chizek and Company LLC regarding
the application of accounting principles to a specific completed or contemplated
transaction, or the type of audit opinion that might be rendered on our
financial statements and no written or oral advice was provided that was an
important factor considered by the audit committee or the Board of Directors in
reaching a decision as to the accounting, auditing or financial reporting issue.
Audit Fees
The following table sets forth the aggregate fees billed or expected to be
billed by Deloitte & Touche (with respect to the 2003 fiscal year) and Crowe
Chizek and Company LLC (with respect to the 2004 fiscal year) for audit services
rendered in connection with the consolidated financial statements and reports
and for other services rendered during 2004 and 2003 on our behalf on a combined
basis, including Victory State Bank and VSB Bancorp, Inc., as well as all
out-of-pocket costs incurred in connection with these services, which have been
billed or will be billed to us. It is the policy of the audit committee that all
non-audit services must be approved in advance by the audit committee. Only the
audit committee has the authority to approve services to be provided by our
independent accountants and all members of management are aware that they must
report to the audit committee any proposal to obtain non-audit services from our
independent accountants and obtain approval from such committee before any such
services are provided. In recent years, we have not sought any non-audit
services from our independent accounts, and thus the audit committee has not
addressed the approval or disapproval of any non-audit services.
2004 2003
---- ----
Audit Fees
Annual Audit Fees $ 78,500 $ 77,000(1)
Non-Audit Fees
Design and Implementation of
Financial Information Systems $ - $ -
All Other Fees:
Tax services $ - $ -
Consulting services $ - $ -
Total Non-Audit Fees $ - $ -
(1) Includes $5,500 for work performed in connection with the restatement of our
2003 financial statements and the consent to the inclusion of those financial
statements in a registration statement on Form S-8 related to the registration
of shares of our stock sold to our Employee Stock Ownership Plan.
Our Board of Directors unanimously recommends that you vote IN FAVOR of the
ratification of the appointment of Crowe Chizek and Company LLC as our
independent registered public accountants for the fiscal year ending
December 31, 2005.
Financial Information
Accompanying this Proxy Statement is our Annual Report containing financial
and related information. The Annual Report is not part of this Proxy Statement.
14
Other Matters
Stockholder Nominations or Proposals
Bylaw Limitations. Our bylaws provide that, except for proposals or
nominations by the Board of Directors, a stockholder will be permitted to
nominate a person to serve as a director or to present a proposal to
stockholders at a stockholders' meeting only by first satisfying certain
requirements. A stockholder must give advance written notice to our Secretary
before making any such nomination or submitting such a proposal. To be timely, a
stockholder's notice must be delivered to or mailed to and received at our
principal executive offices not less than ninety days prior to the date of the
annual meeting; provided, however, that as to any annual meeting held earlier
than 30 days in advance of the anniversary of the annual meeting in the previous
year, the notice must be received not later than the close of business on the
10th day following the day on which notice of the date of the annual meeting was
mailed or public disclosure of the date of the meeting is made.
The stockholder must sign the notice. The notice must state (i) the name
and address of such stockholder as they appear on our books and (ii) the class
and number of shares of our capital stock that the stockholder beneficially
owns.
As to notices of intent to submit a proposal for stockholder vote, the
notice must also state: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting; and (ii) any material interest of the stockholder in the
proposed business. Only business which is a proper subject of stockholder action
may be proposed at or voted on at the meeting.
As to notices of intent to nominate a person as a director, the notice must
also state: (i) all information relating to each proposed nominee that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to applicable law and
regulation; and (ii) any business, familial or employment relationship between
such stockholder and such nominees. The notice must be accompanied by the
nominee's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected, provided, however, that we will not be
required to name such nominee in any proxy statement for a proxy solicitation by
our Board of Directors or to solicit votes for such nominee unless required by
law to do so.
Submission of Matters for Inclusion in Our 2006 Proxy Statement
Stockholders may submit proposals for inclusion in our 2006 proxy material
by satisfying the requirements of the regulations of the Securities and Exchange
Commission. We must receive those proposals by 5 p.m. local time not less than
120 calendar days before the date in 2006 that corresponds to the date that this
proxy statement is released to stockholders in 2005. However, if the date of the
2006 annual meeting is changed by more than 30 days from the date of the 2005
annual meeting, then the deadline is a reasonable time before we begin to print
and mail our proxy materials. Proposals should be sent via registered,
certified, or express mail to: Office of the Chief Financial Officer, VSB
Bancorp, Inc., 3155 Amboy Road, Staten Island, New York 10306. The stockholder
must also satisfy all the other requirements of Securities and Exchange
Commission Rule 14a-8 in order to be able to include a proposal in our proxy
material.
Dated: March 25, 2005
15
REVOCABLE PROXY
VSB Bancorp, Inc.
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
ANNUAL MEETING OF STOCKHOLDERS
April 26, 2005
The undersigned hereby appoints Carlos Perez MD and Bruno Savo, or each of them
individually, each with full power of substitution, proxies and agents for the
undersigned to vote all shares of common stock of VSB Bancorp Inc. which the
undersigned is entitled to vote at the Annual Meeting of Stockholders, to be
held on April 26, 2005, at 5:00 p.m., and at any and all adjournments thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF VSB BANCORP, INC.
---------------------------------------
Please be sure to sign and date Date
this Proxy in the box below. ---------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Stockholder sign above ___________ Co-holder (if any) sign above
For All
For Withhold Except
1. The election as directors of the three [_] [_] [_]
nominees listed below to three year
terms:
Three Year Nominees:
--------------------
Raffaele M. Branca Robert S. Cutrona, Sr. Chaim Farkas
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"For All Except" and write that nominee's name in the space provided below.
- --------------------------------------------------------------------------------
For Against Abstain
2. The ratification of the appointment of [_] [_] [_]
Crowe Chizek and Company LLC as
independent registered public
accountants for VSB Bancorp, Inc. for
the fiscal year ending December 31,
2005.
3. In their discretion, such other matters as may properly come before the
meeting and at any adjournments thereof, including whether or not to
adjourn the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED
ABOVE AND "FOR" EACH OF THE LISTED PROPOSALS.
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted FOR each of the proposals
listed above. If any other business is presented at the Annual Meeting, this
proxy will be voted by those named in this proxy in their discretion. At the
present time, the Board of Directors knows of no other business to be presented
at the Annual Meeting.
Detach above card, sign, date and mail in postage paid envelope provided
VSB Bancorp, Inc.
- --------------------------------------------------------------------------------
IMPORTANT: The undersigned acknowledges receipt from the Company prior to
the execution of this proxy of a Notice of Annual Meeting of Stockholders, a
Proxy Statement and an Annual Report.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
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 ENEVELOPE PROVIDED.
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