[Advance Financial Bancorp Letterhead]
December 15, 1997
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Advance Financial
Bancorp (the "Company"), I cordially invite you to attend a Special Meeting of
Stockholders to be held at the Steubenville Country Club, 413 Lovers Lane,
Steubenville, Ohio, on Tuesday, January 20, 1998, at 9:00 a.m. The attached
Notice of Special Meeting and Proxy Statement describe the formal business to be
transacted at the Special Meeting.
The Board of Directors of the Company has determined that the matters to
be considered at the Meeting, described in the accompanying Notice of Special
Meeting and Proxy Statement, are in the best interest of the Company and its
stockholders. For the reasons set forth in the Proxy Statement, the Board of
Directors unanimously recommends a vote "FOR" each matter to be considered.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID
RETURN ENVELOPE AS PROMPTLY AS POSSIBLE. This will not prevent you from voting
in person at the Special Meeting, but will assure that your vote is counted if
you are unable to attend the Special Meeting. YOUR VOTE IS VERY IMPORTANT.
Sincerely,
/s/ Stephen M. Gagliardi
Stephen M. Gagliardi
President and Chief Executive Officer
<PAGE>
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ADVANCE FINANCIAL BANCORP
1015 COMMERCE STREET
WELLSBURG, WEST VIRGINIA 26070
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on January 20, 1998
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NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Meeting") of
Advance Financial Bancorp ("the Company"), will be held at the Steubenville
Country Club, 413 Lovers Lane, Steubenville, Ohio, on Tuesday, January 20, 1998,
at 9:00 a.m.
The Meeting is for the purpose of considering and acting upon the following
matters:
1. The approval of the Advance Financial Bancorp 1998 Stock Option Plan
(the "1998 Stock Option Plan" or "Option Plan"); and
2. The approval of the Advance Financial Savings Bank Restricted Stock
Plan (the "Restricted Stock Plan" or "RSP").
The transaction of such other business as may properly come before the
Meeting or any adjournments thereof may also be acted upon. If necessary, the
Meeting will be adjourned to solicit additional proxies with respect to approval
of the 1998 Stock Option Plan and the Restricted Stock Plan. The Board of
Directors is not aware of any other business to come before the Meeting.
Action may be taken on any one of the foregoing proposals at the Meeting
on the date specified above, or on any date or dates to which, by original or
later adjournment, the Meeting may be adjourned. Pursuant to the Company's
Bylaws, the Board of Directors has fixed the close of business on December 4,
1997, as the record date for determination of the stockholders entitled to vote
at the Meeting and any adjournments thereof.
EACH STOCKHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY SIGNED PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A
DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING
MAY REVOKE HIS PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE
MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO
VOTE PERSONALLY AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Florence K. McAlpine
Florence K. McAlpine
Corporate Secretary
Wellsburg, West Virginia
December 15, 1997
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
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<PAGE>
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PROXY STATEMENT
OF
ADVANCE FINANCIAL BANCORP
1015 COMMERCE STREET
WELLSBURG, WEST VIRGINIA 26070
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SPECIAL MEETING OF STOCKHOLDERS
January 20, 1998
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GENERAL
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Advance Financial Bancorp (the "Company")
to be used at a Special Meeting of Stockholders of the Company which will be
held at the Steubenville Country Club, 413 Lovers Lane, Steubenville, Ohio, on
January 20, 1998, 9:00 a.m. local time (the "Meeting"). The accompanying Notice
of Special Meeting of Stockholders and this Proxy Statement are being first
mailed to stockholders on or about December 15, 1997. The Company is the parent
company of Advance Financial Savings Bank (the "Bank"). The Company was formed
as a Delaware corporation in September 1996 at the direction of the Bank to
acquire all of the outstanding stock of the Bank issued in connection with the
completion of the Bank's mutual-to-stock conversion on December 31, 1996 (the
"Conversion").
At the Meeting, stockholders will consider and vote upon (1) the approval
of the Advance Financial Bancorp 1998 Stock Option Plan (the "1998 Stock Option
Plan" or "Option Plan"), and (2) the approval of the Bank's Restricted Stock
Plan (the "Restricted Stock Plan" or "RSP"). The Board of Directors knows of no
additional matters that will be presented for consideration at the Meeting.
Execution of a proxy, however, confers on the designated proxyholder the
discretionary authority to vote the shares represented by such proxy in
accordance with their best judgment on such other business, if any, that may
properly come before the Meeting or any adjournment thereof.
The approval of the 1998 Stock Option Plan provides for authorizing the
issuance of an additional 108,445 shares of common stock of the Company ("Common
Stock") upon the exercise of stock options to be awarded to officers, directors,
key employees and other persons providing services to the Company or any present
or future parent or subsidiary of the Company from time to time. The approval of
the Restricted Stock Plan provides for authorization to issue up to an
additional 43,378 shares of Common Stock upon awards to personnel of experience
and ability in key positions of responsibility with the Bank and its
subsidiaries from time to time. At the present time, the Bank intends to acquire
such Common Stock for RSP purposes through open-market purchases. The RSP has
the authority, however, to buy such Common Stock directly from the Company.
Approval of the Option Plan and the RSP may be deemed to have certain
anti-takeover effects with regard to the Company. See "Approval of the 1998
Stock Option Plan - Effect of Mergers, Change of Control and Other Adjustments,
and -Possible Dilutive Effects of the Option Plan" and "Approval of the
Restricted Stock Plan - Possible Dilutive Effects of RSP."
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VOTING AND REVOCABILITY OF PROXIES
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Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Meeting and all adjournments thereof. Proxies
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<PAGE>
may be revoked by written notice to the Secretary of the Company at the address
above or by the filing of a later dated proxy prior to a vote being taken on a
particular proposal at the Meeting. A proxy will not be voted if a stockholder
attends the Meeting and votes in person. Proxies solicited by the Board of
Directors will be voted in accordance with the directions given therein. Where
no instructions are indicated, signed proxies will be voted "FOR" Proposal I and
"FOR" Proposal II at the Meeting or any adjournment thereof.
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INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
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Employees, officers, and directors of the Company have an interest in
certain matters being presented for stockholder approval. Upon stockholder
approval, employees, officers, and directors of the Company may be granted stock
options and restricted stock awards pursuant to the 1998 Stock Option Plan and
the Restricted Stock Plan. The approval of the 1998 Stock Option Plan and the
RSP are being presented as Proposal I and Proposal II, respectively. See "Voting
Securities and Principal Holders Thereof" for information regarding the number
of shares of Common Stock beneficially owned by executive officers and
directors.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Stockholders of record as of the close of business on December 4, 1997
(the "Record Date"), are entitled to one vote for each share of common stock of
the Company (the "Common Stock") then held. As of the Record Date, the Company
had 1,084,450 shares of Common Stock issued and outstanding.
The certificate of incorporation of the Company ("Certificate of
Incorporation") provide that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit") be entitled or permitted to any vote with respect
to the shares held in excess of the Limit. Beneficial ownership is determined
pursuant to the definition in the Certificate of Incorporation and includes
shares beneficially owned by such person or any of his or her affiliates (as
such terms are defined in the Certificate of Incorporation), or which such
person or any of his or her affiliates has the right to acquire upon the
exercise of conversion rights or options and shares as to which such person or
any of his or her affiliates or associates have or share investment or voting
power, but neither any employee stock ownership or similar plan of the Company
or any subsidiary, nor any trustee with respect thereto or any affiliate of such
trustee (solely by reason of such capacity of such trustee), shall be deemed,
for purposes of the Certificate of Incorporation, to beneficially own any Common
Stock held under any such plan.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote (after subtracting any
shares held in excess of the Limit) is necessary to constitute a quorum at the
Meeting. With respect to any matter, any shares for which a broker indicates on
the proxy that it does not have discretionary authority as to such shares to
vote on such matter (the "Broker Non-Votes") will be considered present for
purposes of determining whether a quorum is present. In the event there are not
sufficient votes for a quorum or to ratify any proposals at the time of the
Meeting, the Meeting may be adjourned in order to permit the further
solicitation of proxies.
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<PAGE>
As to matters being proposed for stockholder action as set forth in
Proposal I and Proposal II, the proxy being provided by the Board of Directors
enables a stockholder to check the appropriate box on the proxy to (i) vote
"FOR" the item, (ii) vote "AGAINST" the item, or (iii) vote to "ABSTAIN" on such
item. An affirmative vote of the holders of a majority of the total votes cast
at the Meeting on each matter, in person or by proxy, is required to constitute
stockholder approval for each of Proposals I and II. Shares as to which the
"ABSTAIN" box is selected on the proxy will have the effect of a vote against
the matter. Broker Non-Votes will not be counted in determining the voting on
the matter.
Persons and groups owning in excess of 5% of the Common Stock are required
to file certain reports regarding such ownership pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The following table sets
forth, as of the Record Date, persons or groups who own more than 5% of the
Common Stock and the ownership of all executive officers and directors of the
Company as a group. Other than as noted below, management knows of no person or
group that owns more than 5% of the outstanding shares of Common Stock at the
Record Date.
<TABLE>
<CAPTION>
Percent of Shares
Amount and Nature of of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
- -------------------------------------- -------------------- -----------------
<S> <C> <C>
Advance Financial Savings Bank
Employee Stock Ownership Plan ("ESOP")
1015 Commerce Street
Wellsburg, West Virginia 26070 (1) 86,756 8.0%
Jeffrey L. Gendell
Tontine Partners, L.P.
31 West 52nd Street, 17th Floor
New York, New York 10019 (2) 108,200 9.9%
Mr. Terry Maltese
Sandler O'Neill Asset Management LLC
Malta Hedge Fund LP
Malta Partners LP
SOAM Holdings LLC
712 Fifth Avenue, 22nd Floor
New York, New York 10019 (3) 59,500 5.5%
All directors and officers of the Company as a group
(9 persons) (4) 83,204 7.7%
</TABLE>
-------------------------------------
(1) The ESOP purchased such shares for the exclusive benefit of plan
participants with funds borrowed from the Company. These shares are held
in a suspense account and will be allocated among ESOP participants
annually on the basis of compensation as the ESOP debt is repaid. The
Board of Directors has appointed a committee consisting of the
Compensation and Benefits Committee of the Bank comprised of non-employee
directors Murphy, Sperlazza, Chesson, Johnson, and Watson to serve as the
ESOP administrative committee ("ESOP Committee") and to serve as the ESOP
trustees ("ESOP Trustee"). The ESOP
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<PAGE>
Committee or the Board instructs the ESOP Trustee regarding investment of
ESOP plan assets. The ESOP Trustee must vote all shares allocated to
participant accounts under the ESOP as directed by participants.
Unallocated shares and shares for which no timely voting direction is
received, will be voted by the ESOP Trustee as directed by the Board or
the ESOP Committee. As of the Voting Record Date, 2,226 shares have been
allocated under the ESOP to participant accounts.
(2) Based upon an amended Schedule 13D filed with the Securities and Exchange
Commission, dated January 24, 1997, for which shared voting and
dispositive power is shown with respect to 108,200 shares.
(3) Based upon a Schedule 13D filed with the Securities and Exchange
Commission, dated August 14, 1997, for which shared voting and dispositive
power is shown with respect to 59,500 shares. Based upon this Schedule
13D, Mr. Maltese, Sandler O'Neill Asset Management LLC and SOAM Holdings
LLC beneficially owns all of these 59,500 shares; Malta Partners LP
beneficially owns 42,400 of these 59,500 shares and Malta Hedge Fund LP
beneficially owns 17,100 of these 59,500 shares.
(4) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which shares
the individuals effectively exercise sole voting and investment power,
unless otherwise indicated. Excludes 86,069 shares (86,756 shares minus
687 shares allocated to executive officers) held by the ESOP over which
certain directors, as trustees to the ESOP, exercise shared voting and
investment power. Such directors disclaim beneficial ownership with
respect to such shares held by the ESOP.
The following table sets forth the amount of Common Stock beneficially
owned by each director and each of the named executive officers of the Company.
<TABLE>
<CAPTION>
Common Stock Beneficially
Owned (1)(2)(3)
-----------------------------
Name of Individual Title Shares %
----------------- ------------------- ----------- ------------
<S> <C> <C> <C>
Stephen M. Gagliardi President, Chief 10,325 -- (5)
Executive Officer
and Director
James R. Murphy Director 15,000(4) 1.4 %
William B. Chesson Director 2,500(4) -- (5)
George H. Johnson Director 7,000(4) -- (5)
William E. Watson Director 15,000(4) 1.4 %
Gary Young Director 7,500 -- (5)
Noreen Mechling Director, Senior Vice 5,176 -- (5)
President and Chief
Financial Officer
John R. Sperlazza Director 15,100(4) 1.4 %
</TABLE>
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(1) Beneficial ownership as of December 4, 1997. Includes shares of Common
Stock held directly as well as by spouses or minor children, in trust, and
other indirect ownership, over which shares the individuals effectively
exercise sole or shared voting and investment power, unless otherwise
indicated.
(2) Excludes proposed stock options to purchase shares of Common Stock
issuable under the 1998 Stock Option Plan, the granting of which are
subject to stockholder approval of the 1998 Stock Option Plan and
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<PAGE>
are not exercisable within 60 days of the Record Date. See "Proposal I -
Approval of the 1998 Stock Option Plan."
(3) Excludes shares of Common Stock proposed to be awarded under the RSP, the
granting of which are subject to stockholder approval of the Restricted
Stock Plan. See "Proposal II - Approval of the Restricted Stock Plan."
(4) Excludes 86,756 shares of Common Stock held under the ESOP for which such
individual serves as either a member of the ESOP Committee or as an ESOP
Trustee. Such individual disclaims beneficial ownership with respect to
shares held in a fiduciary capacity. The ESOP purchased such shares for
the exclusive benefit of ESOP participants with funds borrowed from the
Company. These shares are held in a suspense account and will be allocated
among ESOP participants annually on the basis of compensation as the ESOP
debt is repaid. The Board of Directors has appointed Messrs. Murphy,
Sperlazza, Chesson, Johnson and Watson to serve on the ESOP Committee and
to serve as ESOP Trustees. The ESOP Committee or the Board instructs the
ESOP Trustee regarding investment of ESOP plan assets. The ESOP Trustees
must vote all shares allocated to participant accounts under the ESOP as
directed by ESOP participants. Unallocated shares and shares for which no
timely voting direction is received will be voted by the ESOP Trustees as
directed by the Board or the ESOP Committee. As of the Record Date, 2,226
shares have been allocated under the ESOP to participant accounts.
(5) Less than 1.0%.
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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
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Director Compensation
In the fiscal year ended June 30, 1997, members of the Board Directors
received a monthly fee of $400, with up to four absences, regardless of
attendance. Board members receive $35 for attendance at each committee meeting.
For the fiscal year ended June 30, 1997, total fees paid by the Bank to
Directors were $83,245.
Directors will receive awards of stock options and restricted stock under
the 1998 Stock Option Plan and the RSP upon stockholder approval of these plans.
See "Proposal I -- Approval of the 1998 Stock Option Plan" and "Proposal II --
Approval of the Restricted Stock Plan" herein.
Executive Compensation
The Company has no full time employees, but relies on the employees of the
Bank for the limited services required by the Company. All compensation paid to
officers and employees is paid by the Bank.
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the chief executive officer. No
other executive officer of either the Bank or the Company had a salary and bonus
during the fiscal years ended June 30, 1997 and 1996 that exceeded $100,000 for
services rendered in all capacities to the Bank or the Company.
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<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
-------------------
All
Name and Fiscal Other Annual Other
Principal Position Year Salary Bonus Compensation(1) Compensation(2)
- -------------------- ------ ------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen M. Gagliardi 1997 $87,696 $ 7,500 $15,478 $11,640
President and Chief
Executive Officer 1996 81,111 10,000 13,427 8,238
</TABLE>
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(1) At June 30, 1997, consists of $11,200 in Directors' fees and $4,278 in
expenses associated with the use of a company automobile. At June 30,
1996, consists of $9,450 in Directors' fees and $3,977 in expenses
associated with the use of a company automobile.
(2) At June 30, 1997, consists of a contribution of $174 for term life
insurance, a matching contribution of $2,411 to the 401(K) Plan, a profit
sharing contribution of $5,805 and 325 shares of stock allocated under the
ESOP as of December 31, 1996, with a market value at such date of $3,250.
At June 30, 1996, consists of a contribution of $174 for term life
insurance, a matching contribution of $2,526 to the 401(K) Plan and a
profit sharing contribution of $5,538.
Employment Agreement. The Bank entered into an employment agreement with
Stephen M. Gagliardi, President and Chief Executive Officer of the Bank
("Agreement"). The Agreement has a three year term. Mr. Gagliardi's base
compensation under the Agreement is $98,992. Under the Agreement, Mr.
Gagliardi's employment may be terminated by the Bank for "just cause" as defined
in the Agreement. If the Bank terminates Mr. Gagliardi without just cause, Mr.
Gagliardi will be entitled to a continuation of his salary from the date of
termination through the remaining term of the Agreement but not less than one
year's salary. In the event of the termination of employment in connection with
any change in control of the Bank during the term of the Agreement, Mr.
Gagliardi will be paid in a lump sum an amount equal to 2.99 times his five year
average taxable compensation. In the event of a change in control at June 30,
1997, Mr. Gagliardi would have been entitled to a lump sum payment of
approximately $256,835.
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PROPOSAL I - APPROVAL OF THE 1998 STOCK OPTION PLAN
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General
The Company's Board of Directors has adopted the 1998 Stock Option Plan.
The Option Plan is subject to approval by the Company's stockholders. Pursuant
to the Option Plan, up to 108,445 shares of Common Stock equal to up to 10% of
the total Common Stock issued in the Conversion are to be reserved under the
Company's authorized but unissued shares for issuance by the Company upon
exercise of stock options to be granted to officers, directors, key employees
and other persons from time to time. The purpose of the Option Plan is to
attract and retain qualified personnel for positions of substantial
responsibility and to provide additional incentive to certain officers,
directors, key employees and other persons to promote the success of the
business of the Company and the Bank. The Option Plan, which shall become
effective upon the date of approval of the Option Plan by the stockholders of
the Company ("Effective Date"), provides for a term of ten years, after which
time no awards may be made. The following summary of the material features of
the Option Plan is qualified in its entirety by reference to the complete
provisions of the Option Plan which is attached hereto as Exhibit A.
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<PAGE>
The Option Plan will be administered by the Board of Directors or a
committee of not less than two non-employee directors appointed by the Company's
Board of Directors and serving at the pleasure of the Board (the "Option
Committee"). Members of the Option Committee shall be deemed "Non- Employee
Directors" within the meaning of Rule 16b-3 pursuant to the 1934 Act. The Option
Committee may select the officers and employees to whom options are to be
granted and the number of options to be granted based upon several factors
including prior and anticipated future job duties and responsibilities, job
performance, the Bank's financial performance and a comparison of awards given
by other institutions that have converted from mutual to stock form. A majority
of the members of the Option Committee shall constitute a quorum and the action
of a majority of the members present at any meeting at which a quorum is present
shall be deemed the action of the Option Committee.
Officers, directors, key employees and other persons who are designated by
the Option Committee will be eligible to receive, at no cost to them, options
under the Option Plan (the "Optionees"). Each option granted pursuant to the
Option Plan shall be evidenced by an instrument in such form as the Option
Committee shall from time to time approve. It is anticipated that options
granted under the Option Plan will constitute either Incentive Stock Options
(options that afford favorable tax treatment to recipients upon compliance with
certain restrictions pursuant to Section 422 of the Internal Revenue Code
("Code") and that do not normally result in tax deductions to the Company) or
Non- Incentive Stock Options (options that do not afford recipients favorable
tax treatment under Code Section 422). Option shares may be paid for in cash,
shares of Common Stock, or a combination of both. The Company will receive no
monetary consideration for the granting of stock options under the Option Plan.
Further, the Company will receive no consideration other than the option
exercise price per share for Common Stock issued to Optionees upon the exercise
of those Options.
Options to be awarded to employees, officers, and directors shall be
conditioned upon receipt of stockholder approval of the Option Plan. Options
awarded to employees, officers, and directors become first exercisable at a rate
of 25% annually commencing on the date of grant, except upon the death,
disability or Retirement of the Optionee, or upon a change in control of the
Company. In the event of the death, disability or Retirement of an Optionee, or
a change in control (as such term is described in the Option Plan), the options
granted to such Optionee shall become immediately exercisable without regard to
any vesting schedule.
Shares issuable under the Option Plan may be from authorized but unissued
shares, treasury shares or shares purchased in the open market. An Option which
expires, becomes unexercisable, or is forfeited for any reason prior to its
exercise will again be available for issuance under the Option Plan. No Option
or any right or interest therein is assignable or transferable except by will or
the laws of descent and distribution. The Option Plan shall continue in effect
for a term of ten years from the Effective Date.
Stock Options
The Option Committee may grant either Incentive Stock Options or
Non-Incentive Stock Options. In general, if an Optionee ceases to serve as an
employee of the Company for any reason other than disability, death or
Retirement, an exercisable Incentive Stock Option may continue to be exercisable
for three months but in no event after the expiration date of the option, except
as may otherwise be determined by the Option Committee at the time of the award.
In the event of the disability or death of an Optionee during employment, an
exercisable Incentive Stock Option will continue to be exercisable for one year
and two years, respectively, to the extent exercisable by the Optionee
immediately prior to
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<PAGE>
the Optionee's disability or death but only if, and to the extent that, the
Optionee was entitled to exercise such Incentive Stock Options on the date of
termination of employment. The terms and conditions of Non-Incentive Stock
Options relating to the effect of an Optionee's termination of employment or
service, Retirement, disability, or death shall be such terms as the Option
Committee, in its sole discretion, shall determine at the time of termination of
service, disability or death, unless specifically determined at the time of
grant of such options.
The exercise price for the purchase of Common Stock subject to an Option
may not be less than one hundred percent (100%) of the Fair Market Value of the
Common Stock covered by the Option on the date of grant of such Option. For
purposes of determining the Fair Market Value of the Common Stock, if the Common
Stock is traded otherwise than on a national securities exchange at the time of
the granting of an Option, then the exercise price per share of the Option shall
be not less than the mean between the last bid and ask price on the date the
Option is granted or, if there is no bid and ask price on said date, then on the
immediately prior business day on which there was a bid and ask price. If no
such bid and ask price is available, then the exercise price per share shall be
determined in good faith by the Option Committee. If the Common Stock is listed
on a national securities exchange at the time of the granting of an the Option,
then the exercise price per share of the Option shall be not less than the
average of the highest and lowest selling price of the Common Stock on such
exchange on the date such Option is granted or, if there were no sales on said
date, then the exercise price shall be not less than the mean between the last
bid and ask price on such date. If an officer or employee owns Common Stock
representing more than ten percent of the outstanding Common Stock at the time
an Incentive Stock Option is granted, then the exercise price shall not be less
than one hundred and ten percent (110%) of the Fair Market Value of the Common
Stock at the time the Incentive Stock Option is granted. No more than $100,000
of Incentive Stock Options can become exercisable for the first time in any one
year for any one person. The Option Committee may impose additional conditions
upon the right of an Optionee to exercise any Option granted hereunder which are
not inconsistent with the terms of the Option Plan or the requirements for
qualification as an Incentive Stock Option, if such Option is intended to
qualify as an incentive stock option.
No shares of Common Stock shall be issued upon the exercise of an Option
until full payment has been received by the Company, and no Optionee shall have
any of the rights of a stockholder of the Company until shares of Common Stock
are issued to such Optionee, except to the extent that dividend equivalent
rights are awarded under the Option Plan. Upon the exercise of an Option by an
Optionee (or the Optionee's personal representative), the Option Committee, in
its sole and absolute discretion, may make a cash payment to the Optionee, in
whole or in part, in lieu of the delivery of shares of Common Stock. Such cash
payment to be paid in lieu of delivery of Common Stock shall be equal to the
difference between the Fair Market Value of the Common Stock on the date of the
Option exercise and the exercise price per share of the Option. Such cash
payment shall be in exchange for the cancellation of such Option. Such cash
payment shall not be made in the event that such transaction would result in
liability to the Optionee and the Company under Section 16(b) of the 1934 Act,
and regulations promulgated thereunder.
The Option Plan provides that the Board of Directors of the Company may
authorize the Option Committee to direct the execution of an instrument
providing for the modification, extension or renewal of any outstanding option,
provided that no such modification, extension or renewal shall confer on the
Optionee any right or benefit which could not be conferred on the Optionee by
the grant of a new Option at such time, and shall not materially decrease the
Optionee's benefits under the Option without the Optionee's consent, except as
otherwise provided under the Option Plan.
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<PAGE>
Awards Under the Option Plan
The Board or the Option Committee shall from time to time determine the
officers, Directors, key employees and other persons who shall be granted Awards
under the Plan, the number of Awards to be granted to any Participant under the
Plan, and whether Awards granted to each such Participant under the Plan shall
be Incentive Stock Options and/or Non-Incentive Stock Options. In selecting
Participants and in determining the number of shares of Common Stock subject to
Options to be granted to each such Participant, the Board or the Option
Committee may consider the nature of the services rendered by each such
Participant, each such Participant's current and potential contribution to the
Company and such other factors as may be deemed relevant. Participants who have
been granted an Award may, if otherwise eligible, be granted additional Awards.
In no event shall Shares subject to Options granted to non-employee Directors in
the aggregate under this Plan exceed more than 41% of the total number of Shares
authorized for delivery under this Plan, and no more than 6% of total Plan
shares may be awarded to any individual non-employee Director. In no event shall
Shares subject to Options granted to any Employee exceed more than 25% of the
total number of Shares authorized for delivery under the Plan.
Pursuant to the terms of the Option Plan, Non-Incentive Stock Options to
purchase 6,325 shares of Common Stock will be granted to each non-employee
Director of the Company, as of the Effective Date, at an exercise price equal to
the Fair Market Value of the Common Stock on such date of grant. Options may be
granted to newly appointed or elected non-employee Directors within the sole
discretion of the Option Committee, and the exercise price shall be equal to the
Fair Market Value of such Common Stock on the date of grant. Twenty-five percent
of the Options granted to non-employee Directors on the Effective Date will be
first exercisable as of the Effective Date and 25% annually thereafter, during
such period of service as a Director or a Director Emeritus. Such Options
granted to non-employee Directors will remain exercisable for up to ten years
from such date of grant. Upon the death, disability or Retirement of a Director
or Director Emeritus, such Options shall be deemed immediately 100% exercisable
for their remaining term. All outstanding option awards shall become immediately
exercisable in the event of a change in control of the Company or the Bank.
Subject to vesting requirements, if applicable, except in the event of death or
disability of the Optionee or Change in Control, a minimum of six months must
elapse between the date of the grant of an Option and the date of the sale of
the Common Stock received through the exercise of such Option.
The table below presents information related to stock option awards
anticipated to be awarded upon stockholder approval of the Option Plan.
<TABLE>
<CAPTION>
NEW PLAN BENEFIT
1998 STOCK OPTION PLAN
----------------------
Number of Options
Name and Position Dollar Value(1) to be Granted
- ------------------ --------------- ------------------
<S> <C> <C>
Stephen M. Gagliardi
Director, President and
Chief Executive Officer............ N/A 27,111(2)(3)
James R. Murphy
Director........................... N/A 6,325(3)(4)
William B. Chesson
Director........................... N/A 6,325(3)(4)
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Number of Options
Name and Position Dollar Value(1) to be Granted
- ------------------ --------------- ------------------
<S> <C> <C>
George H. Johnson
Director........................... N/A 6,325(3)(4)
William E. Watson
Director........................... N/A 6,325(3)(4)
Gary Young
Director........................... N/A 6,325(3)(4)
John R. Sperlazza
Director........................... N/A 6,325(3)(4)
Executive Officer Group (3 persons).. N/A 27,111(3)(5)
Non-Executive Director Group
(6 persons)........................ N/A 37,950(4)
Non-Executive Officer Employee Group N/A NA(5)
</TABLE>
- ------------------
(1) The exercise price of such Options shall be equal to the Fair Market Value
of the Common Stock on the date of stockholder approval of the Option
Plan. Accordingly, the dollar value of the options was not determinable at
the time of mailing this Proxy Statement. On December 5, 1997, the last
reported sale price on the Nasdaq Small-Cap Market was $17.25 per share.
It is intended that Options awarded to Mr. Gagliardi and to the Directors
as of the Effective Date shall include Dividend Equivalent Rights. Future
Awards under the Plan may also include Dividend Equivalent Rights.
(2) Options awarded to officers and employees will be exercisable as follows:
Options awarded at the time of stockholder approval are first exercisable
at the rate of 25% on the date of grant and 25% annually thereafter during
periods of continued service as an employee, Director or Director
Emeritus. Such awards shall be 100% exercisable in the event of death,
disability, Retirement, or upon a change in control of the Company or the
Bank. Options awarded to employees shall continue to be exercisable during
continued service as an employee, Director or Director Emeritus. Options
not exercised within three months of termination of service as an employee
shall thereafter be deemed non-incentive stock options.
(3) Awards shall vest during periods of continued service as an employee,
director, or director emeritus. Upon vesting, awards shall remain
exercisable for ten years from the date of grant without regard to
continued service as an employee, director, or director emeritus.
(4) Options awarded to directors are first exercisable at a rate of 25% on the
date of stockholder approval of the Option Plan and 25% annually
thereafter, during such period of service as a director or director
emeritus, and shall remain exercisable for ten years without regard to
continued service as a director or director emeritus. Upon disability,
death, Retirement or a change in control of the Company or the Bank, such
awards shall be 100% exercisable.
(5) It is anticipated that additional Options will be awarded to officers and
employees of the Company and the Bank as of the Effective Date or
otherwise during the 1998 fiscal year. No determination with respect to
such awards has been made at the present time.
-10-
<PAGE>
Dividend Equivalent Rights
The Committee, in its sole discretion, may include as a term of any
Option, the right of the Optionee to receive Dividend Equivalent Rights. Such
rights shall provide that upon the payment of a dividend on the Common Stock,
the holder of such Options shall receive payment of compensation in an amount
equivalent to the dividend payable as if such Options had been exercised and
such Common Stock held as of the dividend record date. Such rights shall expire
upon the expiration or exercise of such underlying Options. Such rights are
nontransferable and shall attach to Options whether or not such Options are
immediately exercisable. The dividend equivalent payments associated with
Options that are not yet immediately exercisable shall be paid within 30 days of
the related dividend payment date. All Options granted to non-employee Directors
of the Company or the Bank as of the Effective Date in accordance with the Plan
are intended to have Dividend Equivalent Rights associated with such Options.
Effect of Mergers, Change of Control and Other Adjustments
Subject to any required action by the stockholders of the Company, within
the sole discretion of the Option Committee, the aggregate number of shares of
Common Stock for which Options may be granted hereunder or the number of shares
of Common Stock represented by each outstanding Option will be proportionately
adjusted for any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting from a subdivision or consolidation of shares
or the payment of a stock dividend or any other increase or decrease in the
number of shares of Common Stock effected without the receipt or payment of
consideration by the Company. Subject to any required action by the stockholders
of the Company, in the event of any change in control, recapitalization, merger,
consolidation, exchange of shares, spin-off, reorganization, tender offer,
partial or complete liquidation or other extraordinary corporate action or
event, the Option Committee, in its sole discretion, shall have the power, prior
to or subsequent to such action or events, to (i) appropriately adjust the
number of shares of Common Stock subject to each Option, the exercise price per
share of such Option, and the consideration to be given or received by the
Company upon the exercise of any outstanding Options; (ii) cancel any or all
previously granted Options, provided that appropriate consideration is paid to
the Optionee in connection therewith; and/or (iii) make such other adjustments
in connection with the Option Plan as the Option Committee, in its sole
discretion, deems necessary, desirable, appropriate or advisable. However, no
action may be taken by the Option Committee which would cause Incentive Stock
Options granted pursuant to the Option Plan to fail to meet the requirements of
Section 422 of the Code without the consent of the Optionee. Upon the payment of
a special or non-recurring cash dividend that has the effect of a return of
capital to the stockholders, the Option exercise price per share shall be
adjusted proportionately, except to the extent that the Optionee shall otherwise
receive payments associated with Dividend Equivalent Rights attributable to such
Options with regard to such special or non-recurring cash dividends.
The Option Committee will at all times have the power to accelerate the
exercise date of all Options granted under the Option Plan. In the case of a
Change in Control of the Company as determined by the Option Committee, all
outstanding options shall become immediately exercisable. A Change in Control is
defined to include (i) the sale of all, or a material portion, of the assets of
the Company; (ii) the merger or recapitalization of the Company whereby the
Company is not the surviving entity; (iii) a change in control of the Company as
otherwise defined or determined by the OTS or its regulations; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of Section 13(d) of the 1934 Act and rules and regulations promulgated
thereunder) of 25% or more of
-11-
<PAGE>
the outstanding voting securities of the Company by any person, trust, entity,
or group. This limitation shall not apply to the purchase of shares by
underwriters in connection with a pubic offering of Company stock or the
purchase of shares of up to 25% of any class of securities of the Company by a
tax qualified employee stock benefit plan which is exempt from the approval
requirements set forth under 12 C.F.R. ss.574.3(c)(1)(vi).
In the event of such a Change in Control, the Option Committee and the
Board of Directors will take one or more of the following actions to be
effective as of the date of such Change in Control: (i) provide that such
Options shall be assumed, or equivalent options shall be substituted,
("Substitute Options") by the acquiring or succeeding corporation (or an
affiliate thereof), provided that: (A) any such Substitute Options exchanged for
Incentive Stock Options shall meet the requirements of Section 424(a) of the
Code, and (B) the shares of stock issuable upon the exercise of such Substitute
Options shall constitute securities registered in accordance with the Securities
Act of 1933, as amended, ("1933 Act") or such securities shall be exempt from
such registration in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933
Act, (collectively, "Registered Securities"), or in the alternative, if the
securities issuable upon the exercise of such Substitute Options shall not
constitute Registered Securities, then the Optionee will receive upon
consummation of the Change in Control transaction a cash payment for each Option
surrendered equal to the difference between (1) the Fair Market Value of the
consideration to be received for each share of Common Stock in the Change in
Control transaction times the number of shares of Common Stock subject to such
surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options, or (ii) in the event of a transaction under the terms of
which the holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment (the "Merger Price") for each share of
Common Stock exchanged in the Change in Control transaction, to make or to
provide for a cash payment to the Optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
Options held by each Optionee (to the extent then exercisable at prices not in
excess of the Merger Price) and (B) the aggregate exercise price of all such
surrendered Options in exchange for such surrendered Options.
The power of the Option Committee to accelerate the exercise of Options
and the immediate exercisability of Options in the case of a Change in Control
of the Company could have an anti-takeover effect by making it more costly for a
potential acquiror to obtain control of the Company due to the higher number of
shares outstanding following such exercise of Options. The power of the Option
Committee to make adjustments in connection with the Option Plan, including
adjusting the number of shares subject to Options and canceling Options, prior
to or after the occurrence of an extraordinary corporate action, allows the
Option Committee to adapt the Option Plan to operate in changed circumstances,
to adjust the Option Plan to fit a smaller or larger company, and to permit the
issuance of Options to new management following such extraordinary corporate
action. However, this power of the Option Committee also has an anti-takeover
effect, by allowing the Option Committee to adjust the Option Plan in a manner
to allow the present management of the Company to exercise more options and hold
more shares of the Company's Common Stock, and to possibly decrease the number
of Options available to new management of the Company.
Although the Option Plan may have an anti-takeover effect, the Company's
Board of Directors did not adopt the Option Plan specifically for anti-takeover
purposes. The Option Plan could render it more difficult to obtain support for
stockholder proposals opposed by the Company's Board and management in that
recipients of Options could choose to exercise such Options and thereby increase
the number of shares for which they hold voting power. Also, the exercise of
such Options could make it easier for the Board and management to block the
approval of certain transactions requiring the voting
-12-
<PAGE>
approval of 80% of the Common Stock in accordance with the Certificate of
Incorporation. In addition, the exercise of such Options could increase the cost
of an acquisition by a potential acquiror.
Amendment and Termination of the Option Plan
The Board of Directors may alter, suspend or discontinue the Option Plan,
except that no action of the Board shall increase the maximum number of shares
of Common Stock issuable under the Option Plan, materially increase the benefits
accruing to Optionees under the Option Plan or materially modify the
requirements for eligibility for participation in the Option Plan unless such
action of the Board shall be subject to approval or ratification by the
stockholders of the Company.
Possible Dilutive Effects of the Option Plan
The Common Stock to be issued upon the exercise of Options awarded under
the Option Plan may either be authorized but unissued shares of Common Stock or
shares purchased in the open market. Because the stockholders of the Company do
not have preemptive rights, to the extent that the Company funds the Option
Plan, in whole or in part, with authorized but unissued shares, the interests of
current stockholders will be diluted. If upon the exercise of all of the
Options, the Company delivers newly issued shares of Common Stock (i.e.,
108,445, shares of Common Stock), then the dilutive effect to current
stockholders would be approximately 9.1%.
Federal Income Tax Consequences
Under present federal tax laws, awards under the Option Plan will have the
following consequences:
1. The grant of an Option will not by itself result in the recognition
of taxable income to an Optionee nor entitle the Company to a tax
deduction at the time of such grant.
2. The exercise of an Option which is an "Incentive Stock Option"
within the meaning of Section 422 of the Code generally will not, by
itself, result in the recognition of taxable income to an Optionee
nor entitle the Company to a deduction at the time of such exercise.
However, the difference between the Option exercise price and the
Fair Market Value of the Common Stock on the date of Option exercise
is an item of tax preference which may, in certain situations,
trigger the alternative minimum tax for an Optionee. An Optionee
will recognize capital gain or loss upon resale of the shares of
Common Stock received pursuant to the exercise of Incentive Stock
Options, provided that such shares are held for at least one year
after transfer of the shares or two years after the grant of the
Option, whichever is later. Generally, if the shares are not held
for that period, the Optionee will recognize ordinary income upon
disposition in an amount equal to the difference between the Option
exercise price and the Fair Market Value of the Common Stock on the
date of exercise, or, if less, the sales proceeds of the shares
acquired pursuant to the Option.
3. The exercise of a Non-Incentive Stock Option will result in the
recognition of ordinary income by the Optionee on the date of
exercise in an amount equal to the difference between the exercise
price and the Fair Market Value of the Common Stock acquired
pursuant to the Option.
-13-
<PAGE>
4. The Company will be allowed a tax deduction for federal tax purposes
equal to the amount of ordinary income recognized by an Optionee at
the time the Optionee recognizes such ordinary income, including the
receipt of cash paid related to Dividend Equivalent Rights.
5. In accordance with Section 162(m) of the Code, the Company's tax
deductions for compensation paid to the most highly paid executives
named in the Company's Proxy Statement may be limited to no more
than $1 million per year, excluding certain "performance-based"
compensation. The Company intends for the award of Options under the
Option Plan to comply with the requirement for an exception to
Section 162(m) of the Code applicable to stock option plans so that
the Company's deduction for compensation related to the exercise of
Options would not be subject to the deduction limitation set forth
in Section 162(m) of the Code.
Accounting Treatment
The Company expects to use the "intrinsic value based method" as
prescribed by APB Opinion 25. Accordingly, neither the grant nor the exercise of
an Option under the Option Plan currently requires any charge against earnings
under generally accepted accounting principles. In certain circumstances, Common
Stock issuable pursuant to outstanding Options which are exercisable under the
Option Plan might be considered outstanding for purposes of calculating primary
earnings per share and earnings per share on a fully diluted basis.
Stockholder Approval
Stockholder approval of the Option Plan is being sought in order to
qualify the Option Plan for the granting of Incentive Stock Options in
accordance with the Code, to enable Optionees to qualify for certain exemptive
treatment from the short-swing profit recapture provisions of Section 16(b) of
the 1934 Act, to meet the requirements for the tax-deductibility of certain
compensation items under Section 162(m) of the Code, and to meet the
requirements for continued listing of the Common Stock under the Nasdaq
Small-Cap Market. An affirmative vote of the holders of a majority of the total
votes cast at the Meeting on the matter, in person or by proxy, is required to
constitute stockholder approval of this Proposal I.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1998
STOCK OPTION PLAN.
-14-
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL II - APPROVAL OF THE RESTRICTED STOCK PLAN
- --------------------------------------------------------------------------------
General
The Board of Directors of the Company has adopted the RSP as a method of
providing directors, officers, and key employees of the Bank with a proprietary
interest in the Company in a manner designed to encourage such persons to remain
in the employment or service of the Bank. The Bank will contribute sufficient
funds to the RSP to purchase Common Stock representing up to 4% of the aggregate
number of shares issued in the Conversion (i.e., 43,378 shares of Common Stock)
in the open market. Alternatively, the RSP may purchase authorized but unissued
shares of Common Stock or treasury shares from the Company. All of the Common
Stock to be purchased by the RSP will be purchased at the Fair Market Value of
such stock on the date of purchase. Awards under the RSP will be made in
recognition of expected future services to the Bank by its directors, officers
and key employees responsible for implementation of the policies adopted by the
Bank's Board of Directors and as a means of providing a further retention
incentive. The following is a summary of the material features of the RSP which
is qualified in its entirety by reference to the complete provisions of the RSP
which is attached hereto as Exhibit B.
Awards Under the RSP
Benefits under the RSP ("Plan Share Awards") may be granted at the sole
discretion of a committee comprised of not less than two directors who are not
employees of the Bank or the Company (the "RSP Committee") appointed by the
Bank's Board of Directors. The RSP is managed by trustees (the "RSP Trustees")
who are non-employee directors of the Bank or the Company and who have the
responsibility to invest all funds contributed by the Bank to the trust created
for the RSP (the "RSP Trust"). Unless the terms of the RSP or the RSP Committee
specifies otherwise, awards under the RSP will be in the form of restricted
stock payable as the Plan Share Awards shall be earned and non- forfeitable.
Twenty (20%) of such awards shall be earned and non-forfeitable as of the date
of grant of such awards, and 20% annually thereafter, provided that the
recipient of the award remains an employee, Director or Director Emeritus during
such period. A recipient of such restricted stock will not be entitled to voting
rights associated with such shares prior to the applicable date such shares are
earned. Dividends paid on Plan Share Awards shall be paid within 30 days of the
dividend payment date without regard to the vested status of such Plan Share
Awards. Any shares held by the RSP Trust which are not yet earned shall be voted
by the RSP Trustees, as directed by the RSP Committee. If a recipient of such
restricted stock terminates employment or service for reasons other than death,
disability, Retirement or a change in control of the Company or the Bank, the
recipient forfeits all rights to the awards under restriction. If the
recipient's termination of employment or service is caused by death, disability,
Retirement or a change in control of the Company or the Bank, all restrictions
expire and all shares allocated shall become unrestricted. Awards of restricted
stock to directors shall be immediately non-forfeitable in the event of the
death, disability or Retirement of such director, or a change in control of the
Company or the Bank, and will be distributed as soon as practicable thereafter.
The Board of Directors can terminate the RSP at any time, and if it does so, any
shares not allocated will revert to the Company.
Plan Share Awards under the RSP will be determined by the RSP Committee.
In no event shall any Employee receive Plan Share Awards in excess of 25% of the
aggregate Plan Shares authorized under the Plan. Plan Share Awards may be
granted to newly elected or appointed non-employee Directors of the Bank
subsequent to the effective date (as defined in the RSP) provided that the Plan
Share Awards
-15-
<PAGE>
made to non-employee directors shall not exceed 41% of total Plan Share Reserve
in the aggregate under the Plan or 6% of the total Plan Share Reserve to any
individual non-employee Director.
The aggregate number of Plan Shares available for issuance pursuant to the
Plan Share Awards and the number of shares to which any Plan Share Award relates
shall be proportionately adjusted for any increase or decrease in the total
number of outstanding shares of Common Stock issued subsequent to the effective
date (as defined in the RSP) of the RSP resulting from any split, subdivision or
consolidation of the Common Stock or other capital adjustment, change or
exchange of Common Stock, or other increase or decrease in the number or kind of
shares effected without receipt or payment of consideration by the Company.
The following table presents information related to the anticipated award
of Common Stock under the RSP as authorized pursuant to the terms of the RSP or
the anticipated actions of the RSP Committee.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
RESTRICTED STOCK PLAN
---------------------
Name and Position Dollar Value (1) Number of Shares (2)(3)
- ----------------- ---------------- -----------------------
<S> <C> <C>
Stephen M. Gagliardi
Director, President and $187,059 10,844
Chief Executive Officer..........
James R. Murphy
Director......................... $43,643 2,530
William B. Chesson
Director......................... $43,643 2,530
George H. Johnson
Director......................... $43,643 2,530
William E. Watson
Director......................... $43,643 2,530
Gary Young
Director......................... $43,643 2,530
John R. Sperlazza
Director......................... $43,643 2,530
Executive Officer Group (3 persons) $187,059 10,844(4)
Non-Executive Director
Group (6 persons)................ $261,855 15,180
Non-Executive Officer Employee
Group............................ NA NA(4)
</TABLE>
- --------------------
(1) These values are based on the last reported sale price for the Common
Stock as reported on the Nasdaq Small-Cap Market on December 5, 1997,
which was $17.25 per share. The exact dollar value of the Common Stock
granted will equal the market price of the Common Stock on the date of
vesting of such awards. Accordingly, the exact dollar value is not
presently determinable.
-16-
<PAGE>
(2) All Plan Share Awards presented herein shall be earned at the rate of 20%
on the date of stockholder approval of the RSP and 20% annually
thereafter. All awards shall become immediately 100% vested upon death,
disability, Retirement or termination of service following a change in
control (as defined in the RSP).
(3) Plan Share Awards shall continue to vest during periods of service as an
employee, director, or director emeritus.
(4) It is anticipated that additional Awards will be awarded to officers and
employees of the Company and the Bank as of the Effective Date or
otherwise during the 1998 fiscal year. No determination with respect to
such awards has been made at the present time.
Amendment and Termination of the Plan
The Board may amend or terminate the RSP at any time. However, no action
of the Board may increase the maximum number of Plan Shares permitted to be
awarded under the RSP, except for adjustments in the Common Stock of the
Company, materially increase the benefits accruing to Participants under the RSP
or materially modify the requirements for eligibility for participation in the
RSP unless such action of the Board shall be subject to ratification by the
stockholders of the Company.
Possible Dilutive Effects of RSP
The RSP provides that Common Stock to be awarded may be acquired by the
RSP through open-market purchases or from authorized but unissued shares of
Common Stock from the Company. In that stockholders do not have preemptive
rights, to the extent that the Company utilizes authorized but unissued shares
to fund RSP awards, the interests of current stockholders will be diluted. If
all Plan Share Awards are funded with newly issued shares, the dilutive effect
to existing stockholders would be approximately 3.9%. It is the Company's
present intention to fund the RSP through open-market purchases of Common Stock.
Federal Income Tax Consequences
Common Stock awarded under the RSP is generally taxable to the recipient
at the time that such awards become earned and non-forfeitable, based upon the
Fair Market Value of such stock at the time of such vesting. Alternatively, a
recipient may make an election pursuant to Section 83(b) of the Code within 30
days of the date of the award to elect to include in gross income for the
current taxable year the Fair Market Value of such stock as of the date of the
award. Such election must be filed with the Internal Revenue Service within 30
days of the date of the granting of the stock award. The Company will be allowed
a tax deduction for federal tax purposes as a compensation expense equal to the
amount of ordinary income recognized by a recipient of Plan Share Awards at the
time the recipient recognizes taxable ordinary income. A recipient of a Plan
Share Award may elect to have a portion of such award withheld by the RSP Trust
in order to meet any necessary tax withholding obligations.
Accounting Treatment
For accounting purposes, the Company will recognize compensation expense
in the amount of the Fair Market Value of the Common Stock subject to Plan Share
Awards at the grant date pro rata over the period of years during which the
awards are earned.
-17-
<PAGE>
Stockholder Approval
The Company is submitting the RSP to stockholders for approval to enable
recipients of Plan Share Awards to qualify for certain exemptive treatment from
the short-swing profit recapture provisions of Section 16(b) of the 1934 Act and
to meet the requirements for continued listing of the Common Stock on the Nasdaq
Small-Cap Market. The affirmative vote of holders of a majority of the total
votes cast at the Meeting on the matters, in person or by proxy, is required to
constitute stockholder approval of this Proposal II.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
RESTRICTED STOCK PLAN.
- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
Certain Related Transactions
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. The loans
have been made in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with the Bank's other customers, and do not involve
more than the normal risk of collectibility, or present other unfavorable
features.
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described in this Proxy Statement. However, if
any other matters should properly come before the Meeting, it is intended that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the persons named in the accompanying proxy.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The cost of soliciting proxies will be borne by the Company. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers, and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation. The
Company may retain the assistance of a third party to aid in the solicitation of
proxies at a cost which is not anticipated to exceed $3,000 plus reimbursement
of certain incurred expenses; however, actual expenses may exceed estimated
costs.
-18-
<PAGE>
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In order to be eligible for inclusion in the Company's proxy materials for
the 1998 Annual Meeting of Stockholders, any stockholder proposal to take action
at such meeting must be received at the Company's executive offices at 1015
Commerce Street, Wellsburg, West Virginia 26070, no later than June 2, 1998. Any
such proposals shall be subject to the requirements of the proxy rules adopted
under the 1934 Act.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Florence K. McAlpine
Florence K. McAlpine
Corporate Secretary
Wellsburg, West Virginia
December 15, 1997
-19-
<PAGE>
Appendix A
- --------------------------------------------------------------------------------
ADVANCE FINANCIAL BANCORP
1015 COMMERCE STREET
WELLSBURG, WEST VIRGINIA 26070
- --------------------------------------------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
January 20, 1998
- --------------------------------------------------------------------------------
The undersigned hereby appoints the Board of Directors of Advance
Financial Bancorp (the "Company"), or its designee, with full powers of
substitution, to act as attorneys and proxies for the undersigned, to vote all
shares of Common Stock of the Company which the undersigned is entitled to vote
at the Special Meeting of Stockholders (the "Meeting"), to be held at the
Steubenville Country Club, 413 Lovers Lane, Steubenville, Ohio, on Tuesday,
January 20, 1998, at 9:00 a.m. and at any and all adjournments thereof, in the
following manner:
FOR AGAINST ABSTAIN
--- ------- -------
1. The approval of the
Advance Financial Bancorp
1998 Stock Option Plan. |_| |_| |_|
2. The approval of the
Advance Financial Savings Bank
Restricted Stock Plan |_| |_| |_|
In their discretion, such attorneys and proxies are authorized to vote upon such
other business as may properly come before the Meeting or any adjournments
thereof. If necessary, the Meeting will be adjourned to solicit additional
proxies with respect to approval of the Advance Financial Bancorp 1998 Stock
Option Plan and the Advance Financial Savings Bank Restricted Stock Plan.
The Board of Directors recommends a vote "FOR" all of the above listed
propositions.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
SIGNED PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED
IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or at
any adjournments thereof, and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this Proxy, the power
of said attorneys and proxies shall be deemed terminated and of no further force
and effect. The undersigned may also revoke this Proxy by filing a subsequently
dated Proxy or by written notification to the Secretary of the Company of his or
her decision to terminate this Proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Special Meeting of Stockholders and a
Proxy Statement dated December 15, 1997.
Dated:
-------------------------
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PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
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PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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<PAGE>
Appendix B
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a 6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Advance Financial Bancorp
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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