<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
-------
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Pennwood Bancorp, Inc.
- --------------------------------------------------------------------------------
(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): (previously paid by wire
transfer)
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2), or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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:
---------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
---------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
-----------------------------------------
(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 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------
(2) Form, schedule or registration statement no.:
-------------------
(3) Filing party:
---------------------------------------------------
(4) Date filed:
-----------------------------------------------------
<PAGE> 2
[PENNWOOD BANCORP, INC. LETTERHEAD]
February 20, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of Pennwood Bancorp, Inc., the holding company for Pennwood
Savings Bank. The meeting will be held at the main office of the Savings Bank
located at 683 Lincoln Avenue, Pittsburgh, Pennsylvania on Wednesday, March 26,
1997 at 6:00 p.m., Eastern Time. The matters to be considered by stockholders
at the Special Meeting are described in the accompanying materials.
The Board of Directors of Pennwood Bancorp, Inc. has
determined that the matters to be considered at the Special Meeting are in the
best interests of the Company and its stockholders. FOR THE REASONS SET FORTH
IN THE PROXY STATEMENT, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
EACH MATTER TO BE CONSIDERED.
It is very important that your shares be voted at the Special
Meeting regardless of the number you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today
and return it in the envelope provided, even if you plan to attend the Special
Meeting. This will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend.
On behalf of the Board of Directors and all of the employees
of the Company and the Savings Bank, I thank you for your continued interest
and support.
Sincerely,
Paul S. Pieffer
President and Chief Executive Officer
<PAGE> 3
PENNWOOD BANCORP, INC.
683 LINCOLN AVENUE
PITTSBURGH, PENNSYLVANIA 15202
(412) 761-1234
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 26, 1997
----------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders
("Special Meeting") of Pennwood Bancorp, Inc. (the "Company") will be held at
the main office of Pennwood Savings Bank (the "Savings Bank"), located at 683
Lincoln Avenue, Pittsburgh, Pennsylvania on Wednesday, March 26, 1997 at 6:00
p.m., Eastern Time, for the following purposes, all of which are more
completely set forth in the accompanying Proxy Statement:
(1) To consider and approve the adoption of the 1997
Stock Option Plan;
(2) To consider and approve the adoption of the 1997
Recognition and Retention Plan and Trust; and
(3) To transact such other business as may properly come
before the meeting or any adjournment thereof. Management is not aware of any
other such business.
The Board of Directors has fixed February 13, 1997 as the
voting record date for the determination of stockholders entitled to notice of
and to vote at the Special Meeting and at any adjournment thereof. Only those
stockholders of record as of the close of business on that date will be
entitled to vote at the Special Meeting or at any such adjournment.
By Order of the Board of Directors
James W. Kihm
Vice President and Secretary
Pittsburgh, Pennsylvania
February 20, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL 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 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.
<PAGE> 4
PENNWOOD BANCORP, INC.
-------------------------
PROXY STATEMENT
-------------------------
SPECIAL MEETING OF STOCKHOLDERS
MARCH 26, 1997
This Proxy Statement is furnished to holders of common stock,
$.01 par value per share ("Common Stock"), of Pennwood Bancorp, Inc. (the
"Company"). The Company acquired all of the stock of Pennwood Savings Bank
(the "Savings Bank") in connection with the reorganization of the Savings Bank
to the holding company form of ownership in January 1997 (the
"Reorganization"). Proxies are being solicited on behalf of the Board of
Directors of the Company to be used at the Special Meeting of Stockholders
("Special Meeting") to be held at the main office of the Savings Bank, located
at 683 Lincoln Avenue, Pittsburgh, Pennsylvania, on Wednesday, March 26, 1997
at 6:00 p.m., Eastern Time, and at any adjournment thereof for the purposes set
forth in the Notice of Special Meeting of Stockholders. This Proxy Statement
is first being mailed to stockholders on or about February 20, 1997.
The proxy solicited hereby, if properly signed and returned to
the Company and not revoked prior to its use, will be voted in accordance with
the instructions contained therein. If no contrary instructions are given, each
proxy received will be voted FOR the matters described below 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 Company written notice
thereof (Secretary, Pennwood Bancorp, Inc., 683 Lincoln Avenue, Pittsburgh,
Pennsylvania 15202); (ii) submitting a duly-executed proxy bearing a later
date; or (iii) appearing at the Special Meeting and giving the Secretary notice
of his or her intention to vote in person. Proxies solicited hereby may be
exercised only at the Special Meeting and any adjournment thereof and will not
be used for any other meeting.
<PAGE> 5
VOTING
Only stockholders of record of the Company at the close of
business on February 13, 1997 ("Voting Record Date") are entitled to notice of
and to vote at the Special Meeting and at any adjournment thereof. On the
Voting Record Date, there were 610,128 shares of Common Stock issued and
outstanding and the Company had no other class of equity securities
outstanding. Each share of Common Stock is entitled to one vote at the Special
Meeting on all matters properly presented at the meeting.
The presence in person or by proxy of at least a majority of
the issued and outstanding shares of Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting. The affirmative vote of the
holders of a majority of the total votes eligible to be cast in person or by
proxy at the Special Meeting is required for approval of the proposals to
approve the 1997 Stock Option Plan (the "Stock Option Plan") and the 1997
Recognition and Retention Plan and Trust (the "Recognition Plan"). Under rules
applicable to broker-dealers, the proposals to approve the Stock Option Plan
and the Recognition Plan are considered "non-discretionary" items upon which
brokerage firms may not vote in their discretion on behalf of their clients if
such clients have not furnished voting instructions and, thus, there may be
"broker non-votes." Because of the required votes, abstentions and broker
non-votes will have the same effect as a vote against the proposals to approve
the Stock Option Plan and the Recognition Plan.
2
<PAGE> 6
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Voting Record Date,
certain information as to the Common Stock beneficially owned by (i) each
person or entity, including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
who or which was known to the Company to be the beneficial owner of more than
5% of the issued and outstanding Common Stock, (ii) the directors of the
Company, (iii) certain executive officers of the Company, and (iv) all
directors and executive officers of the Company and the Savings Bank as a
group.
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial of Beneficial
Owner or Number of Ownership as of Percent of
Persons in Group February 13, 1997(1) Common Stock
--------------------- ------------------- ------------
<S> <C> <C>
Pennwood Bancorp, Inc. 48,810(2) 8.0%
Employee Stock Ownership Plan Trust
683 Lincoln Avenue
Pittsburgh, Pennsylvania 15202
Jeffrey S. Halis 43,000(3) 7.0
500 Park Avenue, Fifth Floor
New York, New York 10022
Directors:
Mary M. Frank 15,000(4) 2.5
John B. Mallon 6,500 1.1
C. Joseph Touhill 5,000 *
Charles R. Frank 15,000(4) 2.5
H.J. Zoffer 7,500 1.2
Paul S. Pieffer 15,000 2.5
Robert W. Hannan 9,000 1.5
Michael Kotyk 7,500 1.2
All directors and executive officers 162,443(2) 7.4
of the Company and the Savings Bank
as a group (10 persons)
</TABLE>
(Footnotes on following page)
3
<PAGE> 7
- --------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of Common Stock are deemed to be
beneficially owned by a person if he or she directly or indirectly has
or shares (i) voting power, which includes the power to vote or to
direct the voting of the shares, or (ii) investment power, which
includes the power to dispose or to direct the disposition of the
shares. Unless otherwise indicated, the named beneficial owner has sole
voting and dispositive power with respect to the shares.
(2) The Pennwood Bancorp, Inc. Employee Stock Ownership Plan Trust ("ESOP
Trust") holds Common Stock on behalf of employee participants of the
plan. None of the shares held in the ESOP Trust have been allocated to
the accounts of participating employees to date and, as a result, will
be voted by Messrs. Frank, Pieffer and Mallon (the "Trustees") pursuant
to the terms of the ESOP. Shares allocated to participating employees
are voted in accordance with the instructions of the participants. The
shares held in the ESOP Trust are not included in the individual
beneficial ownership amounts of the Trustees or the amount of Common
Stock beneficially owned by all officers and directors as a group.
(3) Pursuant to a filing by Mr. Halis under the Exchange Act, 41,700 of the
indicated shares are owned by Tyndall Partners L.P. and 1,300 shares
are owned by Madison Avenue Partners L.P. Mr. Halis serves as a general
partner of Halo Capital Partners, L.P., which serves as the sole general
partner of each of Tyndall Partners, L.P. and Madison Avenue Partners,
L.P.
(4) The indicated shares are held jointly by Mr. and Mrs. Frank.
4
<PAGE> 8
PROPOSAL TO ADOPT THE 1997 STOCK OPTION PLAN
GENERAL
The Board of Directors has adopted the Stock Option Plan which is
designed to attract and retain qualified personnel in key positions, provide
officers and key employees with a proprietary interest in the Company as an
incentive to contribute to the success of the Company and reward key employees
for outstanding performance. The Stock Option Plan is also designed to retain
qualified directors for the Company. The Stock Option Plan provides for the
grant of incentive stock options intended to comply with the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("incentive stock options"), non-qualified or compensatory stock options and
stock appreciation rights (collectively "Awards"). Awards will be available
for grant to directors and key employees of the Company and any subsidiaries,
except that non-employee directors will not be eligible to receive incentive
stock options. If stockholder approval is obtained, options to acquire shares
of Common Stock will be awarded to employees and directors of the Company and
the Savings Bank with an exercise price equal to the fair market value of the
Common Stock on the date of such approval.
DESCRIPTION OF THE STOCK OPTION PLAN
The following description of the Stock Option Plan is a summary of its
terms and is qualified in its entirety by reference to the Stock Option Plan, a
copy of which is attached hereto as Appendix A.
ADMINISTRATION. The Stock Option Plan is administered and interpreted
by a committee of the Board of Directors ("Committee") that is composed solely
of two or more non-employee directors.
STOCK OPTIONS. Under the Stock Option Plan, the Board of Directors or
the Committee determines which officers, key employees and directors will be
granted options, whether such options will be incentive or compensatory
options, 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 a stock option shall be
equal to the fair market value of a share of Common Stock on the date the
option is granted.
All options granted to participants under the Stock Option Plan shall
become vested and exercisable at the rate of 20% per year on each annual
anniversary of the date the options were granted, and the right to exercise
shall be cumulative. Notwithstanding the foregoing, no vesting shall occur on
or after a participant's employment with the Company is terminated for any
reason other than his death or disability. Unless the Board or the Committee
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 with or service to the Company
or a subsidiary company because of his death or disability. In addition, all
stock options will become vested and exercisable in full in the event of a
change in control of the Company or on the date an optionee
5
<PAGE> 9
terminates his employment or service to the Company or a subsidiary company due
to retirement, each as defined in the Stock Option Plan, if, as of such date of
retirement or change in control of the Company, such treatment is either
authorized or is not prohibited by applicable laws and regulations.
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 three months after the date on which the optionee's employment
or service as a non-employee director terminates, unless extended by the
Committee or the Board to a period not to exceed three years from such
termination. 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 his service as an
employee or a non-employee director as a result of disability 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 twelve-month period following the earlier of his death or
termination due to disability, provided no option will 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 spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit or 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.
STOCK APPRECIATION RIGHTS. Under the Stock Option Plan, the Board of
Directors or the Committee is authorized to grant stock appreciation rights to
optionees under which an optionee may surrender any exercisable incentive stock
option or compensatory stock option or any portion thereof in return for
payment by the Company to the optionee of cash or Common Stock in an amount
equal to the excess of the fair market value of the shares of Common Stock
subject to option, or portion thereof, at the time over the exercise price of
the option with respect to such shares, or a combination of cash and Common
Stock. Stock appreciation rights which relate to incentive stock options must
be granted concurrently with the incentive stock options, while stock
appreciation rights which relate to compensatory stock options may be granted
concurrently with the option or at any time thereafter which is prior to the
exercise or expiration of such options.
NUMBER OF SHARES COVERED BY THE STOCK OPTION PLAN. A total of 61,013
shares of Common Stock has been reserved for issuance pursuant to the Stock
Option Plan, which is equal to 10% of the Common Stock issued in connection
with the conversion of the Savings Bank to the stock form of ownership in July
1996 (the "Conversion). In the event of a stock split, reverse stock split or
stock dividend, the number of shares of Common Stock under the Stock Option
Plan, the number of shares to which any Award relates and the exercise price
per share under any option or stock appreciation right shall be adjusted to
reflect such increase or decrease in the total number of shares of the Common
Stock outstanding.
6
<PAGE> 10
AMENDMENT AND TERMINATION OF THE STOCK OPTION PLAN. Unless sooner
terminated, the Stock Option Plan shall continue in effect for a period of ten
years from the effective date, which is February 19, 1997, the date the Stock
Option Plan was adopted by the Board and became effective by its terms.
Termination of the Stock Option Plan shall not affect any previously granted
Awards.
FEDERAL INCOME TAX CONSEQUENCES. Under current provisions of the Code,
the federal income tax treatment of incentive stock options and compensatory
stock options is substantially different. As regards incentive stock options,
an optionee who does not dispose of the shares within two years after the
option was granted, or within one year after the option was exercised, will not
recognize income at the time the option is exercised, and no federal income tax
deduction will be available to the Company at any time as a result of such
grant or exercise. However, the excess of the fair market value of the stock
subject to an incentive stock option on the date such option is exercised over
the exercise price of the option will be treated as an item of tax preference
in the year of exercise for purposes of the alternative minimum tax. If stock
acquired pursuant to an incentive stock option is disposed of before the
holding periods described above expire, then the excess of the fair market
value (but not in excess of the sales proceeds) of such stock on the option
exercise date over the option exercise price will be treated as compensation
income to the optionee in the year in which such disposition occurs and, if it
complies with applicable withholding requirements, the Company will be entitled
to a commensurate income tax deduction. If the holding periods are satisfied,
any difference between the sales proceeds and the fair market value of the
stock on the option exercise date will be treated as long-term capital gain or
loss.
With respect to compensatory stock options, the difference between the
fair market value of the Common Stock 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 a subsequent disposition of the shares, the
difference between the amount received by the optionee and the fair market
value on the option exercise date will be treated as long or short-term capital
gain or loss, depending on whether the shares were held for more than one year.
No federal income tax consequences are incurred by the Company or the
holder at the time a stock appreciation right is granted. However, upon the
exercise of a stock appreciation right, 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 at the same time and in the same amount.
The above description of tax consequences 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.
7
<PAGE> 11
ACCOUNTING TREATMENT. Stock appreciation rights will, in most cases,
require a charge against the earnings of the Company each year representing
appreciation in the value of such rights over periods in which they become
exercisable. Such charge is based on the difference between the exercise price
specified in the related option and the current market price of the Common
Stock. In the event of a decline in the market price of the Common Stock
subsequent to a charge against earnings related to the estimated costs of stock
appreciation rights, a reversal of prior charges is made in the amount of such
decline (but not to exceed aggregate prior charges).
Neither the grant nor the exercise of an incentive stock option or a
non-qualified stock option under the Plan currently requires any charge against
earnings under generally accepted accounting principles. In October 1995, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered into after December
15, 1995. This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. This Statement defines
a fair value method of accounting for an employee stock option or similar
equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for those plans
using the intrinsic value method of accounting prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees." Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company
anticipates that it will use the intrinsic value method, in which event pro
forma disclosure will be included in the footnotes to the Company's financial
statements to show what net income and earnings per share would have been if
the fair value method had been utilized. If the Company elects to utilize the
fair value method, its net income and earnings per share may be adversely
affected.
STOCKHOLDER APPROVAL. No Awards will be granted under the Stock Option
Plan unless the Stock Option Plan is approved by stockholders. Stockholder
ratification of the Stock Option Plan will satisfy certain Nasdaq market
listing and tax requirements.
8
<PAGE> 12
AWARDS TO BE GRANTED. The Board of Directors of the Company adopted the
Stock Option Plan and approved the grant of incentive options to executive
officers and employees of the Company and the Savings Bank and the grant of
non-qualified options to non-employee directors thereof. The options shall be
effective upon stockholder approval of the Stock Option Plan with a per share
exercise price equal to the fair market value of a share of Common Stock on the
date of such approval. The following table sets forth certain information with
respect to such grants.
<TABLE>
<CAPTION>
Number of Shares
Name of Individual or Subject to
Number of Persons in Group Title Stock Options
-------------------------- ----- -----------------
<S> <C> <C>
Paul S. Pieffer President and Chief 15,253
Executive Officer
All executive officers as --- 30,506
a group (three persons)
All non-employee directors --- 18,304
as a group (seven persons)
All employees, not including --- 3,051
executive officers, as a
group (two persons)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION OF
THE 1997 STOCK OPTION PLAN.
9
<PAGE> 13
PROPOSAL TO ADOPT THE 1997 RECOGNITION
AND RETENTION PLAN AND TRUST
GENERAL
The Board of Directors of the Company has adopted the Recognition Plan,
the objective of which is to retain qualified personnel in key positions,
provide officers, key employees and directors with a proprietary interest in
the Company as an incentive to contribute to its success and reward key
employees for outstanding performance. Officers and key employees of the
Company who are selected by the Board of Directors of the Company or a
committee thereof, as well as non-employee directors of the Company, will be
eligible to receive benefits under the Recognition Plan. If stockholder
approval is obtained, shares will be granted to employees and to non-employee
directors as described below.
DESCRIPTION OF THE RECOGNITION PLAN
The following description of the Recognition Plan is a summary of its
terms and is qualified in its entirety by reference to the Recognition Plan, a
copy of which is attached hereto as Appendix B.
ADMINISTRATION. The Recognition Plan is administered and interpreted by
a committee of the Board of Directors ("Committee") that is composed solely of
two or more non-employee directors.
Upon stockholder approval of the Recognition Plan, the Company will
acquire Common Stock on behalf of the Recognition Plan, in an amount necessary
to purchase the number of shares of Common Stock equal to 4% of the Common
Stock issued in the Conversion, or 24,405 shares. These shares will be
acquired through open market purchases.
GRANTS. Shares of Common Stock granted pursuant to the Recognition Plan
will be in the form of restricted stock payable over a five-year period at a
rate of 20% per year, beginning one year from the anniversary date of the
grant. A recipient will be entitled to all voting and other stockholder rights
with respect to shares which have been earned and allocated under the
Recognition Plan. However, until such shares have been earned and allocated,
they may not be sold, pledged or otherwise disposed of and are required to be
held in the Recognition Plan Trust. Under the terms of the Recognition Plan,
all shares which have not yet been earned and allocated are required to be
voted by the trustees in their sole discretion. In addition, any cash
dividends or stock dividends declared in respect of unvested share awards will
be held by the Recognition Plan Trust for the benefit of the recipients and
such dividends, including any interest thereon, will be paid out
proportionately by the Recognition Plan Trust to the recipients 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
Recognition Plan Trust will be paid by
10
<PAGE> 14
the Recognition Plan Trust as soon as practicable after the Recognition Plan
Trust's receipt thereof to the recipient on whose behalf such share is then
held by the Recognition Plan Trust.
If a recipient terminates employment for reasons other than death,
disability or retirement, the recipient will forfeit all rights to the
allocated shares under restriction. All shares subject to an award held by a
recipient whose employment with or service to the Company or any subsidiary
terminates due to death or Disability, as defined in the Recognition Plan,
shall be deemed earned as of the recipient's last day of employment with or
service to the Company or any subsidiary and shall be distributed as soon as
practicable thereafter. In addition, in the event that a recipient's
employment with or service to the Company or any subsidiary terminates due to
retirement, as defined in the Recognition Plan, all shares subject to an award
held by a recipient shall be deemed earned as of the recipient's last day of
employment with or service to the Company or any subsidiary and shall be
distributed as soon as practicable thereafter, provided that as of the date of
such retirement, such treatment is either authorized or is not prohibited by
applicable laws and regulations. All shares subject to an award held by a
recipient also shall be deemed to be earned in the event of a change in control
of the Company, as defined in the Recognition Plan, provided that as of the
date of such change in control of the Company, such treatment is either
authorized or is not prohibited by applicable laws and regulations.
FEDERAL INCOME TAX CONSEQUENCES. Pursuant to Section 83 of the Code,
recipients of Recognition Plan 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
Recognition Plan 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
Recognition Plan awards in the year in which such amounts are included in
income.
ACCOUNTING TREATMENT. For accounting purposes, the Company will also
recognize a compensation expense as shares of Common Stock granted pursuant to
the Recognition Plan vest. Unlike the treatment of Recognition Plan awards for
tax purposes, however, the compensation expense recognized for accounting
purposes is limited to the fair market value of the Common Stock at the date of
grant to recipients, rather than the fair market value of the Common Stock at
the time that a Recognition Plan grant vests.
STOCKHOLDER APPROVAL. No shares will be granted under the Recognition
Plan unless the Recognition Plan is approved by stockholders. Stockholder
ratification of the Recognition Plan will satisfy certain Nasdaq market listing
requirements.
11
<PAGE> 15
SHARES TO BE GRANTED. The Board of Directors of the Company adopted the
Recognition Plan and approved the grant of shares to executive officers and
employees of the Company and the Savings Bank and non-employee directors
thereof. The awards shall be effective upon stockholder approval of the
Recognition Plan. The following table sets forth certain information with
respect to such grants.
<TABLE>
<CAPTION>
Name of Individual or Number of Shares
Number of Persons in Group Title Awarded
-------------------------- ----- -----------------
<S> <C> <C>
Paul S. Pieffer President and Chief 6,101
Executive Officer
All executive officers as --- 12,202
a group (three persons)
All non-employee directors --- 7,322
as a group (seven persons)
All employees, not --- 1,220
including executive
officers, as a group
(two persons)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION OF
THE 1997 RECOGNITION AND RETENTION PLAN AND TRUST.
12
<PAGE> 16
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information
concerning the compensation paid by the Savings Bank for services rendered in
all capacities during the last two fiscal years to the President and Chief
Executive Officer. No executive officers of the Company or the Savings Bank
had total compensation during the year ended June 30, 1996 which exceeded
$100,000.
<TABLE>
<Caption
Annual Compensation
------------------------------------------------
Other
Name and Year Ended Annual
Principal Position June 30, Salary Bonus Compensation(1)
- ----------------------------- ----------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Paul S. Pieffer 1996 $80,750 $-- $--
President and Chief Executive 1995 78,000 -- --
Officer
</TABLE>
- -----------------------------
(1) Does not include amounts attributable to miscellaneous benefits received
by the named executive officer. In the opinion of management of the
Company, the costs of providing such benefits to the named executive
officer during the year ended June 30, 1996 did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus reported for the
individual.
DIRECTOR'S COMPENSATION
Members of the Board of Directors, with the exception of Mr. Pieffer,
receive $7,200 per annum for serving on the Board. Members of the Board
serving on committees do not receive any additional compensation for serving on
such committees.
BENEFITS
EMPLOYEE STOCK OWNERSHIP PLAN. The Company has established and Employee
Stock Ownership Plan ("ESOP") for employees of the Company the Savings Bank.
Employees who have been credited with at least 1,000 hours of service during a
twelve month period and who have attained age 21 are eligible to participate in
the ESOP.
As part of the Conversion in July 1996, in order to fund the purchase of
48,810 shares, or 8% of the Common Stock issued in the Conversion, the ESOP
borrowed $488,100 from an independent third party lender. The loan to the ESOP
will be repaid from scheduled discretionary cash contributions to the ESOP by
the Company sufficient to amortize the principal and interest on the loan,
which has a maturity of 10 years. The
13
<PAGE> 17
Company may, in any plan year, make additional discretionary contributions for
the benefit of plan participants in either cash or shares of Common Stock,
which may be acquired through the purchase of outstanding shares in the market
or from individual stockholders, upon the original issuance of additional
shares by the Company or upon the sale of treasury shares by the Company. Such
purchases, if made, would be funded through additional borrowing by the ESOP or
additional contributions from the Company. The timing, amount and manner of
future contributions to the ESOP will be affected by various factors, including
prevailing regulatory policies, the requirements of applicable laws and
regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan are held in a
suspense account and released on a pro rata basis as debt service payments are
made. Discretionary contributions to the ESOP and shares released from the
suspense account will be allocated among participants on the basis of
compensation. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount the Company might otherwise have
contributed to the ESOP. Participants will be 100% vested in their rights to
receive their account balances within the ESOP after completing five years of
service. Credit is given for years of service with the Company prior to
adoption of the ESOP. In the case of a "change in control," as defined,
however, participants will become immediately fully vested in their account
balances, subject to certain tax considerations. Benefits may be payable upon
retirement or separation from service. The Company's contributions to the ESOP
are not fixed, so benefits payable under the ESOP cannot be estimated.
Messrs. Frank, Pieffer and Mallon serve as trustees of the ESOP. Under
the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees, and allocated
shares for which employees do not give instructions, and unallocated shares,
will generally be voted in the same ratio on any matter as to those shares for
which instructions are given.
Generally accepted accounting principles requires that any third party
borrowing by the ESOP be reflected as a liability on the Company's consolidated
statement of financial condition. In addition, shares purchased with borrowed
funds are, to the extent of the borrowings, excluded from stockholders' equity,
representing unearned compensation to employees for future services not yet
performed. Consequently, if the ESOP purchases already issued shares in the
open market, the Company's consolidated liabilities will increase to the extent
of the ESOP's borrowings, and total and per share stockholders' equity will be
reduced to reflect such borrowings. If the ESOP purchases newly-issued shares
from the Company, total stockholders' equity would neither increase nor
decrease, but per share stockholders' equity and per share net income would
decrease because of the increase in the number of outstanding shares. In
either case, as the borrowings used to fund ESOP purchases are repaid, total
stockholders' equity will correspondingly increase.
14
<PAGE> 18
The ESOP is subject to the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the regulations of the
Internal Revenue Service and the Department of Labor thereunder.
PENSION PLAN. The Savings Bank participates in a multiple employer
defined benefit pension plan that covers all employees that have attained 21
years of age and have completed one full year of service (consisting of 1,000
hours worked during the year). In general, the pension plan provides for
benefits payable monthly at retirement or normal retirement age 65 in an amount
equal to a percentage of the participant's average annual salary for the three
consecutive years of highest salary during his service with the Savings Bank,
multiplied by the number of his years of service, with a reduced level of
benefits in the event of early retirement prior to having attained age 65.
Payment of benefits under the pension plan generally will be made in the
form of a life annuity to an unmarried participant or in the form of a
qualified joint and survivor annuity to a married participant, although
alternative forms of benefits are available. The pension plan also provides a
death benefit payment, in the event of death prior to retirement.
For the years ended June 30, 1996 and 1995, no pension expense was
recognized by the Savings Bank.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
All loans or extensions of credit to executive officers and directors
must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features.
The Savings Bank's policy provides that all loans made by the Savings
Bank to its directors and officers are made in the ordinary course of business,
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than the normal risk of collectibility or
present other unfavorable features. As of June 30, 1996, the Savings Bank had
no loans outstanding to its executive officers and directors.
15
<PAGE> 19
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials of the Company relating to the first annual meeting of stockholders
of the Company, which is scheduled to be held in October 1997, must be received
at the principal executive offices of the Company, 683 Lincoln Avenue,
Pittsburgh, Pennsylvania 15202, Attention: James W. Kihm, Secretary, no later
than June 10, 1997. If such proposal is in compliance with all of the
requirements of Rule 14a-8 under the Exchange Act, it will be included in the
proxy statement and set forth on the form of proxy issued for such annual
meeting of stockholders. It is urged that any such proposals be sent certified
mail, return receipt requested.
OTHER MATTERS
Management is not aware of any business to come before the Special
Meeting other than those matters described in this Proxy Statement. However,
if any other matters should properly come before the Special Meeting, it is
intended that the 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 Company. The
Company has retained Corporate Investor Communications ("CIC"), a professional
proxy solicitation firm, to assist in the solicitation of proxies. Such firm
will be paid a fee of $3,500, plus reimbursement for out-of-pocket expenses.
The Company will also 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 Common Stock. In addition to
solicitations by mail, directors, officers and employees of the Company may
solicit proxies personally or by telephone without additional compensation.
16
<PAGE> 20
APPENDIX A
PENNWOOD BANCORP, INC.
1997 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Pennwood Bancorp, Inc. (the "Corporation") hereby establishes
this 1997 Stock Option 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 those Employees for outstanding
performance and the attainment of targeted goals. 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.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right
granted pursuant to the terms of this Plan.
3.02 "Board" means the Board of Directors of the
Corporation.
3.03 "Change in Control of the Corporation" shall be deemed
to have occurred if: (i) any "person" as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Corporation and any trustee or
other fiduciary holding securities under any employee benefit plan of the
Corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities; (ii) during any period of two
consecutive years (not including any period prior to the adoption of the Plan),
individuals who at the beginning of such period constitute the Board of
Directors, and any new director whose election by the Board of Directors or
nomination for election by the Corporation's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board
<PAGE> 21
of Directors; (iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a
merger or consolidation that would result in 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) more than 50% of the combined voting power of the
voting securities of the Corporation outstanding immediately after such merger
or consolidation; or (iv) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets. If any of the events enumerated in clauses (i) through (iv) occur, the
Board shall determine the effective date of the Change in Control resulting
therefrom for purposes of the Plan.
3.04 "Code" means the Internal Revenue Code of 1986, as
amended.
3.05 "Committee" means the committee appointed by the Board
pursuant to Article IV hereof.
3.06 "Common Stock" means shares of the common stock, $.01
par value per share, of the Corporation.
3.07 "Disability" means any physical or mental impairment
which qualifies an Employee 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 Employee for
disability benefits under the Federal Social Security System.
3.08 "Effective Date" means the day upon which the Board
approves this Plan.
3.09 "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.
3.10 "Exchange Act" means the Securities Exchange Act of
1934, as amended.
3.11 "Fair Market Value" shall be equal to the fair market
value per share of the Corporation's Common Stock 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 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.
A-2
<PAGE> 22
3.12 "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.
3.13 "Non-Employee Director" means a member of the Board who
is not an Officer or Employee of the Corporation or any Subsidiary Company and
shall include any individual who serves the Board as a director in an advisory
or emeritus capacity.
3.14 "Non-Qualified Option" means any Option granted under
this Plan which is not an Incentive Stock Option.
3.15 "Offering" means the offering of Common Stock to the
public pursuant to the Savings Bank's Plan of Conversion completed in July
1996.
3.16 "Officer" means an Employee whose position in the
Corporation or Subsidiary Company is that of a corporate officer, as determined
by the Board.
3.17 "Option" means a right granted under this Plan to
purchase Common Stock.
3.18 "Optionee" means an Employee or Non-Employee Director
or former Employee or Non-Employee Director to whom an Option is granted under
the Plan.
3.19 "Retirement" means a termination of employment upon or
after attainment of age sixty-five (65) or such earlier age as may be specified
in any applicable plans or policies maintained by the Corporation or a
Subsidiary Company.
3.20 "Savings Bank" means Pennwood Savings Bank, the
wholly-owned subsidiary of the Corporation.
3.21 "Stock Appreciation Right" means a right to surrender
an Option in consideration for a payment by the Corporation in cash and/or
Common Stock, as provided in the discretion of the Committee in accordance with
Section 8.11.
3.22 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Savings Bank, which meet the definition of
"subsidiary corporations" set forth in Section 425(f) of the Code, at the time
of granting of the Option in question.
A-3
<PAGE> 23
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 an Optionee's tax withholding obligation pursuant to Section 12.02 hereof,
(ii) include arrangements to facilitate the Optionee's ability to borrow funds
for payment of the exercise or purchase price of an Award, 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 of
Directors.
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. 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.
4.03 REVOCATION FOR MISCONDUCT. The Board of Directors or
the Committee may by resolution immediately revoke, rescind and terminate any
Option, or portion thereof, to the extent not yet vested, or any Stock
Appreciation Right, to the extent not yet exercised, 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. Options granted to a Non-Employee Director who
is removed for cause pursuant to the Corporation's or the Savings Bank's
Articles of Incorporation or Bylaws shall terminate as of the effective date of
such removal.
A-4
<PAGE> 24
4.04 LIMITATION ON LIABILITY. Neither the members of the
Board of Directors 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 pursuant thereto or for any Awards granted
hereunder. If any members of the Board of Directors or a member of 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 or Stock
Appreciation Right 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 or Non-Employee
Directors of the Corporation and its Subsidiary Companies as may be designated
from time to time by the Board of Directors 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 be eligible to receive only Non-Qualified Options.
A-5
<PAGE> 25
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of
Common Stock which may be issued pursuant to this Plan, subject to adjustment
as provided in Article IX, shall be 61,013 shares, which is equal to 10.0% of
the shares of Common Stock issued in the Offering. None of such shares shall
be the subject of more than one Award at any time, but if an Option as to any
shares is surrendered before exercise, or expires or terminates for any reason
without having been exercised in full, or for any other reason ceases to be
exercisable, the number of shares covered thereby shall again become available
for grant under the Plan as if no Awards had been previously granted with
respect to such shares. Notwithstanding the foregoing, if an Option is
surrendered in connection with the exercise of a Stock Appreciation Right, the
number of shares covered thereby shall not be available for grant under the
Plan. During the time this Plan remains in effect, grants 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.
6.02 SOURCE OF SHARES. The shares of Common Stock issued
under the Plan may be authorized but unissued shares, treasury shares, shares
purchased by the Corporation on the open market or from private sources for use
under the Plan, or, if applicable, shares held in a grantor trust created by
the Corporation.
ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Board of Directors 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 each Award, whether each Option will be an Incentive Stock
Option or a Non-Qualified Stock Option and the exercise price of an Option. In
making determinations with respect to Employees there shall be taken into
account the duties, responsibilities and performance of each respective
Employee, his present and potential contributions to the growth and success of
the Corporation, his salary and such other factors as the Board of Directors or
the Committee shall deem relevant to accomplishing the purposes of the Plan.
A-6
<PAGE> 26
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
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 of Directors 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 AWARDS TO EMPLOYEES AND NON-EMPLOYEE DIRECTORS.
Specific Awards to Employees and Non-Employee Directors shall be made to such
persons and in such amounts as are determined by the Board of Directors or the
Committee. However, Awards up to 18,304 shares (or 30% of the number of shares
available under this Plan) may be made to Non-Employee Directors in the
aggregate and no individual Non-Employee Director may receive Awards in excess
of 3,051 shares (or 5% of the number of shares available under this Plan).
8.03 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 8.10(b), and subject to any
applicable adjustment pursuant to Article IX hereof.
(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 no 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, and subject to any applicable adjustment pursuant to Article
IX hereof.
8.04 VESTING AND EXERCISE OF OPTIONS.
(a) GENERAL RULES. Incentive Stock Options and
Non-Qualified Options granted hereunder shall become vested and exercisable at
the rate of 20% per year on each annual anniversary of the date the Option was
granted, and the right to exercise shall be cumulative. Notwithstanding the
foregoing, no vesting shall occur on or after an Employee's employment with the
Corporation and all Subsidiary Companies is terminated for any reason other
than his death or Disability. In determining the number of shares of Common
A-7
<PAGE> 27
Stock with respect to which Options are vested and/or exercisable, fractional
shares will be rounded up to the nearest whole number if the fraction is 0.5 or
higher, and down if it is less.
(b) ACCELERATED VESTING. Unless the Committee shall
specifically state otherwise at the time an Option is granted, all Options
granted hereunder shall become vested and exercisable in full on the date an
Optionee terminates his employment with or service to the Corporation or a
Subsidiary Company because of his death or Disability. All options hereunder
shall become immediately vested and exercisable in full on the date of a Change
in Control of the Corporation or on the date an Optionee terminates his
employment or service to the Corporation or a Subsidiary Company due to
Retirement if, as of such date of such Retirement or Change in Control of the
Corporation, such treatment is either authorized or is not prohibited by
applicable laws and regulations.
8.05 DURATION OF OPTIONS.
(a) GENERAL RULE. Except as provided in Sections
8.05(b) and 8.10, each Option or portion thereof granted to Employees and
Non-Employee Directors 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) months after the date on which the Optionee ceases
to be employed (or in the service of the Board of Directors in the case of
Non-Employee Directors) by the Corporation and all Subsidiary Companies, unless
the Board of Directors 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 from three (3) months to a period not exceeding three (3)
years.
(b) EXCEPTIONS. If an Employee dies while in the
employ of the Corporation or a Subsidiary Company or terminates employment with
the Corporation or a Subsidiary Company as a result of Disability or Retirement
without having fully exercised his Options, the Optionee or the executors,
administrators, legatees or distributees of his estate shall have the right,
during the twelve-month period following the earlier of his death or
termination due to Disability or Retirement, to exercise such Options. If a
Non-Employee Director dies while serving as a Non-Employee Director or
terminates his service to the Corporation or a Subsidiary Company as a result
of Disability or Retirement without having fully exercised his Options, the
Non-Employee Director or the executors, administrators, legatees or
distributees of his estate shall have the right, during the twelve-month period
following the earlier of his death or termination due to Disability or
Retirement, to exercise such Options. In no event, however, shall any Option
be exercisable more than ten (10) years from the date it was granted.
8.06 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 or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these
A-8
<PAGE> 28
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 pursuant to this
Section 8.06. Options which are transferred pursuant to this Section 8.06
shall be exercisable by the transferee according to the same terms and
conditions as applied to the Optionee.
8.07 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 pursuant to
Section 8.01.
8.08 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 such Option. All
shares sold under the Plan shall be fully paid and nonassessable. Payment for
shares may be made by the Optionee in cash or, at the discretion of the Board
of Directors or the Committee, by delivering shares of Common Stock (including
shares acquired pursuant to the exercise of an Option) or other property 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.
8.09 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 such Option.
8.10 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 8.09 above, to those
contained in this Section 8.10.
(a) 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
A-9
<PAGE> 29
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 8.04 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
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
8.10(c).
8.11 STOCK APPRECIATION RIGHTS.
(a) GENERAL TERMS AND CONDITIONS. The Board of
Directors or the Committee may, but shall not be obligated to, authorize the
Corporation, on such terms and conditions as it deems appropriate in each case,
to grant rights to Optionees to surrender an exercisable Option, or any portion
thereof, in consideration for the payment by the Corporation of an amount equal
to the excess of the Fair Market Value of the shares of Common Stock subject to
the Option, or portion thereof, surrendered over the exercise price of the
Option with respect to such shares (any such authorized surrender and payment
being hereinafter referred to as a "Stock Appreciation Right"). Such payment,
at the discretion of the Board or the Committee, may be made in shares of
Common Stock valued at the then Fair Market Value thereof, or in cash, or
partly in cash and partly in shares of Common Stock.
The terms and conditions set with respect to a Stock
Appreciation Right may include (without limitation), subject to other
provisions of this Section 8.11 and the Plan, the period during which, date by
which or event upon which the Stock Appreciation Right may be exercised (which
shall be on the same terms as the Option to which it relates pursuant to
Section 8.04 hereunder); the method for valuing shares of Common Stock for
purposes of this Section 8.11; a ceiling on the amount of consideration which
the Corporation may pay in connection with exercise and cancellation of the
Stock Appreciation Right; and arrangements for income tax withholding. The
Board or the Committee shall have complete discretion to determine whether,
when and to whom Stock Appreciation Rights may be granted.
A-10
<PAGE> 30
(b) TIME LIMITATIONS. If a holder of a Stock
Appreciation Right terminates service with the Corporation, the Stock
Appreciation Right may be exercised only within the period, if any, within
which the Option to which it relates may be exercised.
(c) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS
OR OPTIONS. Upon the exercise of a Stock Appreciation Right, the number of
shares of Common Stock available under the Option to which it relates shall
decrease by a number equal to the number of shares for which the Stock
Appreciation Right was exercised. Upon the exercise of an Option, any related
Stock Appreciation Right shall terminate as to any number of shares of Common
Stock subject to the Stock Appreciation Right that exceeds the total number of
shares for which the Option remains unexercised.
(d) TIME OF GRANT. A Stock Appreciation Right
granted in connection with an Incentive Stock Option must be granted
concurrently with the Option to which it relates, while a Stock Appreciation
Right granted in connection with a Non-Qualified Option may be granted
concurrently with the Option to which it relates or at any time thereafter
prior to the exercise or expiration of such Option.
(e) NON-TRANSFERABLE. The holder of a Stock
Appreciation Right may not transfer or assign the Stock Appreciation Right
otherwise than by will or in accordance with the laws of descent and
distribution, and during a holder's lifetime a Stock Appreciation Right may be
exercisable only by the holder.
ARTICLE IX
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 Award relates and
the exercise price per share of Common Stock under any 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 or acquire 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 optionees would have been
entitled to purchase or acquire 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
A-11
<PAGE> 31
payment of a special large and nonrecurring dividend that has the effect of a
return of capital to the stockholders.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
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 applicable regulatory requirements and 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 as specifically
authorized herein.
ARTICLE XI
EMPLOYMENT 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 of the
Corporation or a Subsidiary Company to continue in such capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any
cash payment 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 Optionee 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 the exercise of an Incentive Stock Option, as
provided in Section 8.10(c).
12.02 METHODS OF TAX WITHHOLDING. The Board of Directors or
the Committee is authorized to adopt rules, regulations or procedures which
provide for the satisfaction of an Optionee'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 Optionee's delivery of
previously-owned shares of Common Stock or other property.
A-12
<PAGE> 32
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become
effective on the Effective Date, and Awards may be granted hereunder as of or
after the Effective Date and prior to the termination of the Plan, provided
that no Incentive Stock Option issued pursuant to this Plan shall qualify as
such unless this Plan is approved by the requisite vote of the holders of the
outstanding voting shares of the Corporation at a meeting of stockholders of
the Corporation held within twelve (12) months of the Effective Date.
Notwithstanding the foregoing or anything to the contrary in this Plan, the
implementation of this Plan and any Awards granted pursuant hereto shall be
subject to the receipt of any applicable regulatory approvals or non-objections
and to the approval of the Corporation's stockholders.
13.02 TERM OF 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 XIV
MISCELLANEOUS
14.01 GOVERNING LAW. To the extent not governed by federal
law, this Plan shall be construed under the laws of the Commonwealth of
Pennsylvania.
14.02 PRONOUNS. Wherever appropriate, the masculine pronoun
shall include the feminine pronoun, and the singular shall include the plural.
A-13
<PAGE> 33
APPENDIX B
PENNWOOD BANCORP, INC.
1997 RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Pennwood Bancorp, Inc. (the "Corporation") hereby
establishes this 1997 Recognition and Retention Plan (the "Plan") and Trust
(the "Trust") upon the terms and conditions hereinafter stated in this
Recognition and Retention Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to
hold the Trust assets existing on the date of this Agreement and all additions
and accretions thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain personnel of
experience and ability in key positions by providing Employees and Non-Employee
Directors of the Corporation and of Pennwood Savings Bank (the "Savings Bank")
with a proprietary interest in the Corporation as compensation for their
contributions to the Corporation, the Savings Bank, and any other Subsidiaries
and as an incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement
with an initial capital letter, unless the context clearly indicates otherwise,
shall have the meanings set forth below. Wherever appropriate, the masculine
pronouns shall include the feminine pronouns and the singular shall include the
plural.
3.01 "Beneficiary" means the person or persons designated by
a Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time
to time by similar written notice to the Committee. In the absence of a
written designation, the Beneficiary shall be the Recipient's surviving spouse,
if any, or if none, his estate.
3.02 "Board" means the Board of Directors of the
Corporation.
<PAGE> 34
3.03 "Change of Control of the Corporation"shall be deemed
to have occurred if: (i) any "person" as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Corporation and any trustee or
other fiduciary holding securities under any employee benefit plan of the
Corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities; (ii) during any period of two
consecutive years (not including any period prior to the adoption of the Plan),
individuals who at the beginning of such period constitute the Board of
Directors, and any new director whose election by the Board of Directors or
nomination for election by the Corporation's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors; (iii) the
stockholders of the Corporation approve a merger or consolidation of the
Corporation with any other corporation, other than a merger or consolidation
that would result in 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) more than 50% of the combined voting power of the voting securities of
the Corporation outstanding immediately after such merger or consolidation; or
(iv) the stockholders of the Corporation approve a plan of complete liquidation
of the Corporation or an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's assets. If any of
the events enumerated in clauses (i) through (iv) occur, the Board shall
determine the effective date of the Change in Control resulting therefrom for
purposes of the Plan.
3.04 "Code" means the Internal Revenue Code of 1986, as
amended.
3.05 "Committee" means the committee appointed by the Board
pursuant to Article IV hereof.
3.06 "Common Stock" means shares of the common stock, $.01
par value per share, of the Corporation.
3.07 "Disability" means any physical or mental impairment
which qualifies an Employee for disability benefits under the applicable
long-term disability plan maintained by the Corporation or any Subsidiary or,
if no such plan applies, which would qualify such Employee for disability
benefits under the Federal Social Security System.
3.08 "Effective Date" means the day upon which the Board
approves this Plan.
3.09 "Employee" means any person who is employed by the
Corporation, the Savings Bank, or any Subsidiary, or is an officer of the
Corporation, the Savings Bank, or any Subsidiary, including officers or other
employees who may be directors of the Corporation.
B-2
<PAGE> 35
3.10 "Exchange Act" means the Securities Exchange Act of
1934, as amended.
3.11 "Non-Employee Director" means a member of the Board who
is not an Employee, and shall include any individual who serves the Board as a
director in an advisory or emeritus capacity.
3.12 "Plan Shares" or "Shares" means shares of Common Stock
held in the Trust which may be distributed to a Recipient pursuant to the Plan.
3.13 "Plan Share Award" or "Award" means a right granted
under this Plan to receive a distribution of Plan Shares upon completion of the
service requirements described in Article VII.
3.14 "Recipient" means an Employee or Non-Employee Director
who receives a Plan Share Award under the Plan.
3.15 "Retirement" means a termination of employment upon or
after attainment of age sixty-five (65) or such earlier age as may be specified
in applicable plans or policies of the Corporation, a Subsidiary or in a
Recipient's Plan Share Award.
3.16 "Subsidiary" means Pennwood Savings Bank and any other
subsidiaries of the Corporation or the Savings Bank which, with the consent of
the Board, agree to participate in this Plan.
3.17 "Savings Bank" means Pennwood Savings Bank, the
wholly-owned subsidiary of the Corporation.
3.18 "Trustee" means such firm, entity or persons approved
by the Board of Directors to hold legal title to the Plan for the purposes set
forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered
and interpreted by the Committee, which shall 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. The Committee
shall have all of the powers allocated to it in this and other Sections of the
Plan. The interpretation and construction by the Committee of any provisions
of the Plan or of any Plan Share Award granted hereunder shall be final and
binding in the absence of action by the Board of Directors. The Committee
shall act by vote or written consent of a majority of its members. Subject to
the express provisions and limitations of the Plan, the Committee may adopt
such rules, regulations and procedures as it deems appropriate for the conduct
of its affairs. The Committee shall report its actions
B-3
<PAGE> 36
and decisions with respect to the Plan to the Board at appropriate times, but
in no event less than one time per calendar year.
4.02 ROLE OF THE BOARD. The members of the Committee and
the Trustee shall be appointed or approved by, and will serve at the pleasure
of, the Board. The Board may in its discretion from time to time remove
members from, or add members to, the Committee, and may remove or replace the
Trustee, provided that any directors who are selected as members of the
Committee shall be Non-Employee Directors, as defined in Rule 16b-3(b)(3)(i) of
the Exchange Act or any successor thereto.
4.03 LIMITATION ON LIABILITY. No member of the Board or the
Committee shall be liable for any determination made in good faith with respect
to the Plan or any Plan Shares or Plan Share 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 any Subsidiaries and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
4.04 COMPLIANCE WITH LAWS 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.
ARTICLE V
CONTRIBUTIONS
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall
determine the amount (or the method of computing the amount) and timing of any
contributions by the Corporation and any Subsidiaries to the Trust established
under this Plan. Such amounts may be paid in cash or in shares of Common Stock
and shall be paid to the Trust at the designated time of contribution. No
contributions by Employees or Directors shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; NUMBER OF PLAN SHARES.
Subject to Section 8.02 hereof, the Trustee shall invest all of the Trust's
assets primarily in Common Stock. The aggregate number of Plan Shares
available for distribution pursuant to this Plan shall be 24,405 shares of
Common Stock, which shares shall be purchased from the Corporation and/or from
stockholders thereof by the Trust with funds contributed by the Corporation.
B-4
<PAGE> 37
During the time this Plan remains in effect, Awards 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.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 AWARDS TO NON-EMPLOYEE DIRECTORS. Plan Share Awards to
Non-Employee Directors shall be made to such persons and in such amounts as
determined by the Board of Directors of the Committee. However, Plan Share
Awards up to 7,322 shares (or 30% of the number of shares available under this
Plan) may be made to Non-Employee Directors in the aggregate and no individual
Non-Employee Director may receive Plan Share Awards in excess of 1,220 shares
(or 5% of the number of shares available under this Plan). In the event of a
forfeiture of the right to any Shares subject to an Award, such forfeited
Shares shall be reallocated on the first day of the month following such
forfeiture to the remaining Non-Employee Directors who are eligible to receive
such re-allocation by dividing the number of forfeited shares of Common Stock
by such remaining number of Non-Employee Directors at such time.
6.02 AWARDS TO EMPLOYEES. Plan Share Awards may be made to
such Employees as may be selected by the Board of Directors or the Committee.
In selecting those Employees to whom Plan Share Awards may be granted and the
number of Shares covered by such Awards, the Committee shall consider the
duties, responsibilities and performance of each respective Employee, his
present and potential contributions to the growth and success of the
Corporation, his salary and such other factors as shall be deemed relevant to
accomplishing the purposes of the Plan. The Board of Directors 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
Plan Share Awards to be granted to him.
6.03 FORM OF ALLOCATION. As promptly as practicable after a
determination is made pursuant to Sections 6.01 or 6.02 that a Plan Share Award
is to be issued, the Board of Directors or the Committee shall notify the
Recipient in writing of the grant of the Award, the number of Plan Shares
covered by the Award, and the terms upon which the Plan Shares subject to the
Award shall be distributed to the Recipient. The date on which the Board of
Directors or the Committee makes the determination with respect to Plan Share
Awards shall be considered the date of grant of the Plan Share Award. The
Board of Directors or the Committee shall maintain records as to all grants of
Plan Share Awards under the Plan.
6.04 ALLOCATIONS NOT REQUIRED TO ANY SPECIFIC EMPLOYEE.
Notwithstanding anything to the contrary in Section 6.02 hereof, no Employee
shall have any right or entitlement to receive a Plan Share Award hereunder,
such Awards being at the total discretion of the Board of Directors or the
Committee.
B-5
<PAGE> 38
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Subject to the terms hereof,
Plan Share Awards shall be earned by a Recipient at the rate of twenty percent
(20%) of the aggregate number of Shares covered by the Award as of each annual
anniversary of the date of grant of the Award. If the employment of an
Employee or service as a Non-Employee Director is terminated prior to the fifth
(5th) annual anniversary of the date of grant of a Plan Share Award 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 Award which
have not theretofore been earned. In the event of a forfeiture of the right to
any Shares subject to an Award by an Employee, such forfeited Shares shall
become available for allocation pursuant to Section 6.02 hereof as if no 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
7.01(a), all Plan Shares subject to a Plan Share Award held by a Recipient
whose employment with or service to the Corporation or any Subsidiary
terminates due to death or Disability shall be deemed earned as of the
Recipient's last day of employment with or service to the Corporation or any
Subsidiary and shall be distributed as soon as practicable thereafter;
provided, however, that Awards shall be distributed in accordance with Section
7.03(a). In addition, in the event that a Recipient's employment with or
service to the Corporation or any Subsidiary terminates due to Retirement, all
Plan Shares subject to a Plan Share Award held by a Recipient shall be deemed
earned as of the Recipient's last day of employment with or service to the
Corporation or any Subsidiary and shall be distributed as soon as practicable
thereafter; provided, however, that Awards shall be distributed in accordance
with Section 7.03(a) and, as of the date of such Retirement, such treatment is
either authorized or is not prohibited by applicable laws and regulations.
(c) EXCEPTION FOR TERMINATIONS AFTER A CHANGE IN
CONTROL OF THE CORPORATION. Notwithstanding the general rule contained in
Section 7.01(a), all Plan Shares subject to a Plan Share Award held by a
Recipient shall be deemed to be earned in the event of a Change in Control of
the Corporation if, as of the date of such Change in Control of the
Corporation, such treatment is either authorized or is not prohibited by
applicable laws and regulations.
(d) REVOCATION FOR MISCONDUCT. Notwithstanding
anything hereinafter to the contrary, the Board may by resolution immediately
revoke, rescind and terminate any Plan Share Award, or portion thereof,
previously awarded under this Plan, to the extent Plan Shares have not been
distributed hereunder, whether or not yet earned, in the case of an
B-6
<PAGE> 39
Employee who is discharged from the employ of the Corporation or any Subsidiary
for cause (as hereinafter defined). Termination for cause 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. Plan Share Awards granted to a Non-Employee
Director who is removed for cause pursuant to the Corporation's or Savings
Bank's Articles of Incorporation or Bylaws shall terminate as of the effective
date of such removal.
7.02 DISTRIBUTION OF DIVIDENDS. Any cash dividends
(including special large and nonrecurring dividends including one that has the
effect of a return of capital to the Corporation's stockholders) or stock
dividends declared in respect of each unvested Plan Share Award will be held by
the Trust for the benefit of the Recipient on whose behalf such Plan 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 Plan Share Awards become earned. Any cash
dividends or stock dividends declared in respect of each vested Plan 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 Plan Share is
then held by the Trust.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Plan
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 Plan Shares,
together with any Shares representing stock dividends, shall be distributed in
the form of Common Stock. One share of Common Stock shall be given for each
Plan Share earned and distributable. Payments representing cash dividends
shall be made in cash.
(c) WITHHOLDING. The Trustee 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 a cash payment is insufficient, the Trustee may require the Recipient
or Beneficiary to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. The Trustee shall pay over to the
Corporation or any Subsidiary which employs or employed such Recipient any such
amount withheld from or paid by the Recipient or Beneficiary.
(d) RESTRICTIONS ON SELLING OF PLAN SHARES. Plan
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. Following distribution, the Board of Directors 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 Plan Shares except in accordance
with all
B-7
<PAGE> 40
then applicable federal and state securities laws, and the Board of Directors
or the Committee may cause a legend to be placed on the stock certificate(s)
representing the distributed Plan Shares in order to restrict the transfer of
the distributed Plan Shares for such period of time or under such circumstances
as the Board of Directors or the Committee, upon the advice of counsel, may
deem appropriate.
7.04 VOTING OF PLAN SHARES. All Plan Shares which have not
yet been earned and allocated shall be voted by the Trustee in its sole
discretion.
ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer,
invest and make distributions and disbursements from the Trust in accordance
with the provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Board of Directors or
the Committee pursuant to the Plan.
8.02 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 determine that the
holding of monies in cash or cash equivalents is necessary to meet the
obligations of the Trust. In performing their 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, and
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
B-8
<PAGE> 41
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.
(f) To employ brokers, agents, custodians,
consultants and accountants.
(g) To hire counsel to render advice with respect to
their rights, duties and obligations hereunder, and such other legal services
or representation as the Trustee deems 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.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain
accurate and detailed records and accounts of all transactions of the Trust,
which shall be available at all reasonable times for inspection by any legally
entitled person or entity to the extent required by applicable law, or any
other person determined by the Board of Directors or the Committee.
8.04 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.
8.05 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 the Trustee's gross
negligence or willful misconduct.
B-9
<PAGE> 42
ARTICLE IX
MISCELLANEOUS
9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number
of Plan Shares available for distribution pursuant to the Plan Share Awards and
the number of Shares to which any Plan Share Award relates shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
the Plan resulting from any split, subdivision or consolidation of shares or
other capital adjustment, or other increase or decrease in such shares effected
without receipt or payment of consideration by the Corporation.
9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by
resolution, at any time amend or terminate the Plan and the Trust (including
amendments which may result int eh merger of the Plan or the Trust with and
into other plans or trusts of the Corporation or successor thereto), subject to
any applicable regulatory requirements and 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 Recipient, alter or impair his Plan Share Award except as
specifically authorized herein. Upon termination of the Plan, the Recipient's
Plan Share Awards shall be distributed to the Recipient in accordance with the
terms of Article VII hereof.
9.03 NONTRANSFERABLE. Plan Share Awards and rights to Plan
Shares shall not be transferable by a Recipient, and during the lifetime of the
Recipient, Plan Shares may only be earned by and paid to a Recipient who was
granted a Plan Share Award pursuant to Article VI hereof. 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 be subject to any claim for
benefits hereunder.
9.04 EMPLOYMENT OR SERVICE RIGHTS. Neither the Plan nor any
grant of a Plan Share Award or Plan Shares hereunder nor any action taken by
the Trustee, the Committee or the Board in connection with the Plan shall
create any right on the part of any Employee or Non-Employee Director to
continue in such capacity.
9.05 VOTING AND DIVIDEND RIGHTS. No Recipient shall have
any voting or dividend rights or other rights of a stockholder in respect of
any Plan Shares covered by a Plan Share Award, except as expressly provided in
Sections 7.02 and 7.04 above, prior to the time said Plan Shares are actually
earned and distributed to him.
9.06 GOVERNING LAW. To the extent not governed by federal
law, the Plan and Trust shall be governed by the laws of the Commonwealth of
Pennsylvania.
B-10
<PAGE> 43
9.07 EFFECTIVE DATE. This Plan shall be effective as of the
Effective Date, and Awards may be granted hereunder as of or after the
Effective Date and as long as the Plan remains in effect. Notwithstanding the
foregoing or anything to the contrary in this Plan, the implementation of this
Plan and any Awards granted pursuant hereto are subject to the receipt of any
applicable regulatory approvals or non-objections and approval of the
Corporation's stockholders.
9.08 TERM OF PLAN. This Plan shall remain in effect until
the earlier of (1) ten (10) years from the Effective Date, (2) termination by
the Board, or (3) the distribution to Recipients and Beneficiaries of all
assets of the Trust.
9.09 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.
B-11
<PAGE> 44
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be executed by its duly authorized officers and the corporate seal to be
affixed and duly attested, and the initial Trustee established pursuant hereto
have duly and validly executed this Agreement, all on this 19th day of February
1997.
PENNWOOD BANCORP, INC.
By: /s/ Paul S. Pieffer
-----------------------------------------
Paul S. Pieffer
President and Chief Executive Officer
ATTEST:
By: /s/ James W. Kihm
----------------------------------
James W. Kihm
Vice President and Secretary
TRUSTEE
By: /s/ John B. Mallon
-----------------------------------------
John B. Mallon
Trustee
By: /s/ Mary M. Frank
-----------------------------------------
Mary M. Frank
Trustee
By: /s/ C. Joseph Touhill
-----------------------------------------
C. Joseph Touhill
Trustee
B-12
<PAGE> 45
REVOCABLE PROXY
PENNWOOD BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENNWOOD
BANCORP, INC. FOR USE AT THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
MARCH 26, 1997 AND AT ANY ADJOURNMENT THEREOF.
The undersigned hereby appoints Charles R. Frank and Paul S.
Pieffer as proxies, each with power to appoint his substitute, and hereby
authorizes each of them to represent and vote, as designated below, all the
shares of Common Stock of Pennwood Bancorp, Inc. (the "Company") held of record
by the undersigned on February 13, 1997 at the Special Meeting of Stockholders
to be held at the main office of Pennwood Savings Bank, located at 683 Lincoln
Avenue, Pittsburgh, Pennsylvania, on March 26, 1997, at 6:00 p.m., Eastern
Time, and any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSALS 1 AND 2 BELOW.
1. PROPOSAL to adopt the 1997 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL to adopt the 1997 Recognition and Retention Plan and Trust.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(CONTINUED ON REVERSE SIDE)
<PAGE> 46
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. THE SHARES OF THE
COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS TO ADOPT THE 1997 STOCK OPTION PLAN
AND THE 1997 RECOGNITION AND RETENTION PLAN AND OTHERWISE AT THE DISCRETION OF
THE PROXIES. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TIME IT IS
VOTED AT THE SPECIAL MEETING.
Dated: , 1997
-------------------------
-----------------------------------
-----------------------------------
Signatures
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAMES(S) APPEAR(S) ON THIS PROXY. WHEN
SIGNING IN A REPRESENTATIVE CAPACITY, PLEASE GIVE TITLE. WHEN SHARES ARE HELD
JOINTLY, ONLY ONE HOLDER NEED SIGN.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
