SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Bay State 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):
[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:
________________________________________________________________________________
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>
Bay State Bancorp, Inc.
1299 Beacon Street
Brookline, Massachusetts 02446
(617) 739-9500
June 14, 1999
Fellow Shareholders:
You are cordially invited to attend the 1999 annual meeting of shareholders
(the "Annual Meeting") of Bay State Bancorp, Inc. (the "Company"), the holding
company for Bay State Federal Savings Bank (the "Bank"), Brookline,
Massachusetts, which will be held on July 22, 1999 at 2:00 p.m., Eastern Time,
at the Double Tree Guest Suites, 550 Winter Street, Waltham, Massachusetts.
The attached Notice of the Annual Meeting and the Proxy Statement describe
the business to be transacted at the Annual Meeting. Directors and Officers of
the Company as well as a representative of Shatswell, MacLeod & Company, P.C.,
the Company's independent auditors, will be present at the Annual Meeting to
respond to any questions that our shareholders may have regarding the business
to be transacted.
The Board of Directors of the Company has determined that matters to be
considered at the Annual Meeting are in the best interests of the Company and
its shareholders. For the reasons set forth in the Proxy Statement, the Board of
Directors unanimously recommends that you vote "FOR" each of the nominees as
directors specified under Proposal 1, and that you vote "FOR" Proposals 2, 3 and
4.
Please sign and return the enclosed proxy card promptly. Your cooperation
is appreciated since a majority of the common stock must be represented, either
in person or by proxy, to constitute a quorum for the conduct of business at the
Annual Meeting.
On behalf of the Board of Directors and all of the employees of the Company
and the Bank, I thank you for your continued interest and support.
Sincerely yours,
/s/ John F. Murphy
--------------------------------------
John F. Murphy
Chairman of the Board, Chief Executive
Officer and President
<PAGE>
Bay State Bancorp, Inc.
1299 Beacon Street
Brookline, Massachusetts 02446
----------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on July 22, 1999
----------------------------------
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the "Annual
Meeting") of Bay State Bancorp, Inc. (the "Company"), the holding company for
Bay State Federal Savings Bank (the "Bank"), will be held on July 22, 1999 at
2:00 p.m., Eastern Time, at the Double Tree Guest Suites, 550 Winter Street,
Waltham, Massachusetts.
The purpose of the Annual Meeting is to consider and vote upon the
following matters:
1. The election of three directors to a three-year term of office;
2. The ratification of the Bay State Bancorp, Inc. 1998 Stock-Based
Incentive Plan, as amended and restated;
3. The approval of the Bay State Bancorp, Inc. 1999 Stock Option Plan;
4. The ratification of the appointment of Shatswell, MacLeod & Company,
P.C. as independent auditors of the Company for the fiscal year ending
March 31, 2000; and
5. Such other matters as may properly come before the meeting and at any
adjournments thereof, including whether or not to adjourn the meeting.
The Board of Directors has established May 24, 1999 as the record date for
the determination of shareholders entitled to receive notice of and to vote at
the Annual Meeting and at any adjournments thereof. Only record holders of the
common stock of the Company as of the close of business on such record date will
be entitled to vote at the Annual Meeting or any adjournments thereof. In the
event there are not sufficient votes for a quorum or to approve the foregoing
proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned
in order to permit further solicitation of proxies by the Company. A list of
shareholders entitled to vote at the Annual Meeting will be available at Bay
State Bancorp, Inc., 1299 Beacon Street, Brookline, Massachusetts 02446, for a
period of ten days prior to the Annual Meeting and will also be available at the
Annual Meeting itself.
By Order of the Board of Directors
/s/ Jill W. Lacy
----------------------------------
Jill W. Lacy
Corporate Secretary
Brookline, Massachusetts
June 14, 1999
<PAGE>
Bay State Bancorp, Inc.
-----------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
July 22, 1999
-----------------------
Solicitation and Voting of Proxies
This Proxy Statement is being furnished to shareholders of Bay State
Bancorp, Inc. (the "Company") in connection with the solicitation by the Board
of Directors ("Board of Directors" or "Board") of proxies to be used at the
annual meeting of shareholders (the "Annual Meeting"), to be held on July 22,
1999, at 2:00 p.m., Eastern Time, at the Double Tree Guest Suites, 550 Winter
Street, Waltham, Massachusetts, and at any adjournments thereof. The 1999 Annual
Report to Stockholders, including the consolidated financial statements of the
Company for the fiscal year ended March 31, 1999, accompanies this Proxy
Statement which is first being mailed to record holders on or about June 14,
1999.
Regardless of the number of shares of common stock owned, it is important
that record holders of a majority of the shares be represented by proxy or in
person at the Annual Meeting. Shareholders are requested to vote by completing
the enclosed proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Shareholders are urged to indicate their vote in the
spaces provided on the proxy card. Proxies solicited by the Board of Directors
of the Company will be voted by the Board of Directors in accordance with the
directions given therein. Where no instructions are indicated, signed proxy
cards will be voted "FOR" the election of the nominees for director named in
this Proxy Statement, "FOR" the ratification of the Bay State Bancorp, Inc. 1998
Stock-Based Incentive Plan, as amended and restated (the "Incentive Plan"),
"FOR" the approval of the Bay State Bancorp, Inc. 1999 Stock Option Plan (the
"Option Plan") and "FOR" the ratification of Shatswell, MacLeod & Company, P.C.
as independent auditors of the Company for the fiscal year ending March 31,
2000.
Other than the matters listed on the attached Notice of Annual Meeting of
Shareholders, the Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
shareholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to attend the Annual Meeting
and vote personally at the Annual Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail, Kissel-Blake
Inc., a proxy solicitation firm, will assist the Company in soliciting proxies
for the Annual Meeting and will be paid a fee of $3,000, plus out-of-pocket
expenses. Proxies may also be solicited personally or by telephone by directors,
officers and other employees of the Company and its subsidiary, Bay State
Federal Savings Bank (the "Bank"), without additional compensation therefor. The
Company will also request persons, firms and corporations holding shares in
their names, or in the name of their nominees, which are beneficially owned by
others, to send proxy material to, and obtain proxies from, such beneficial
owners, and will reimburse such holders for their reasonable expenses in doing
so.
<PAGE>
Voting Securities and Votes Required
The securities which may be voted at the Annual Meeting consist of shares
of common stock of the Company ("Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Annual Meeting, except as
described below.
The close of business on May 24, 1999, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
shareholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 2,329,670 shares.
As provided in the Company's Certificate of Incorporation, for voting
purposes, holders of Common Stock who beneficially own in excess of 10% of the
outstanding shares of Common Stock (the "Limit") are not entitled to any vote in
respect of the shares held in excess of the Limit and are not treated as
outstanding for voting purposes. A person or entity is deemed to beneficially
own shares owned by an affiliate of, as well as, by persons acting in concert
with, such person or entity. The Company's Certificate of Incorporation
authorizes the Board of Directors (i) to make all determinations necessary to
implement and apply the Limit, including determining whether persons or entities
are acting in concert, and (ii) to demand that any person who is reasonably
believed to beneficially own stock in excess of the Limit to supply information
to the Company to enable the Board of Directors to implement and apply the
Limit.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's
Certificate of Incorporation) is necessary to constitute a quorum at the Annual
Meeting. In the event that there are not sufficient votes for a quorum or to
approve or ratify any proposal at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit the further solicitation of proxies.
As to the election of directors (Proposal 1), the proxy card being provided
by the Board of Directors enables you to vote "FOR" the election of the nominees
proposed by the Board, or to "WITHHOLD" authority to vote for one or more of the
nominees being proposed. Under Delaware law and the Company's Bylaws, directors
are elected by a plurality of votes cast, without regard to either (i) broker
non-votes or (ii) proxies as to which authority to vote for one or more of the
nominees being proposed is withheld.
As to the ratification of certain amendments to the Incentive Plan
(Proposal 2), the approval of the Option Plan (Proposal 3) and the ratification
of Shatswell, MacLeod & Company, P.C. as independent auditors of the Company
(Proposal 4), by checking the appropriate box on the proxy card, you may (i)
vote "FOR" the item, (ii) vote "AGAINST" the item, or (iii) "ABSTAIN" from
voting on such item.
Under the Company's Bylaws and Delaware law, an affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting on Proposals 2, 3
and 4 is required to constitute shareholder approval of each such Proposal.
Shares underlying broker non-votes or shares held in excess of the Limit will
not be counted as present and entitled to vote or as votes cast and will have no
effect on the vote.
Proxies solicited hereby are to be returned to the Company's transfer
agent, Registrar and Transfer Company ("RTC"). The Board of Directors has
designated RTC to act as the inspector of election and tabulate the votes at the
Annual Meeting. RTC is not otherwise employed by, or a director of, the Company
or any of its affiliates. After the final adjournment of the Annual Meeting, the
proxies will be returned to the Company.
2
<PAGE>
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
received to date regarding such ownership filed by such persons with the Company
and with the SEC, in accordance with Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). Other than those persons
listed below, the Company is not aware of any person, as such term is defined in
the Exchange Act, that owns more than 5% of the Company's Common Stock as of the
Record Date.
<TABLE>
<CAPTION>
Name and Address Number Percent
Title of Class of Beneficial Owner of Shares of Class
- --------------- --------------------- ------------ ----------
<S> <C> <C> <C>
Common Stock Bay State Federal Savings Bank 202,818(1) 8.7%
Employee Stock Ownership Plan
(the "ESOP")
1299 Beacon Street
Brookline, Massachusetts 02446
Common Stock The Bay State Federal Savings Charitable 187,795(2) 8.1%
Foundation (the "Foundation")
1299 Beacon Street
Brookline, Massachusetts 02446
Common Stock Jeffrey L. Gendell 183,900(3) 7.9%
200 Park Avenue
Suite 3900
New York, New York 10166
</TABLE>
- ----------
(1) Shares of Common Stock were acquired by the ESOP in the Bank's conversion.
The ESOP Committee administers the ESOP. BankBoston, N.A. has been
appointed as the corporate trustee for the ESOP ("ESOP Trustee"). The ESOP
Trustee, subject to its fiduciary duty, must vote all allocated shares held
in the ESOP in accordance with the instructions of the participants. As of
May 24, 1999, 41,230 shares have been allocated under the ESOP and 161,588
shares remain unallocated. Under the ESOP, unallocated shares and allocated
shares as to which voting instructions are not given by participants are to
be voted by the ESOP Trustee in a manner calculated to most accurately
reflect the instructions received from participants regarding the allocated
stock so long as such vote is in accordance with the trustee's fiduciary
duties under the provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(2) The Foundation was established and funded by the Company in connection with
the Bank's Conversion with an amount of the Company's Common Stock equal to
7.4% of the total amount of Common Stock issued in the Conversion. The
Foundation is a Delaware non-stock corporation and is dedicated to the
promotion of charitable purposes within the communities in which the Bank
operates. The Foundation is governed by a board of directors with four
members, all of whom are directors or officers of the Company or the Bank.
Pursuant to the terms of the contribution of Common Stock, as mandated by
the Office of Thrift Supervision ("OTS"), all shares of Common Stock held
by the Foundation must be voted in the same ratio as all other shares of
the Company's Common Stock on all proposals considered by shareholders of
the Company.
(3) Based on information filed in a Schedule 13F filed on December 31, 1998,
Mr. Gendell may be deemed the beneficial owner of 183,900 shares.
Interest of Certain Persons in Matters to be Acted Upon
Certain directors, officers and employees of the Company and the Bank have
been awarded awards under the Incentive Plan being presented for approval of
amendments in Proposal 2.
Although the Company has no current plans to grant awards under the Option
Plan to any officers, directors or employees of the Company or its affiliates,
officers, directors and employees of the Company and its affiliates will be
eligible to receive grants under the Option Plan.
3
<PAGE>
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of seven (7)
directors and is divided into three classes. Each of the seven members of the
Board of Directors also presently serves as a director of the Bank. Directors
are elected for staggered terms of three years each, with the term of office of
only one of the three classes of directors expiring each year. Directors serve
until their successors are elected and qualified.
The three nominees proposed for election at the Annual Meeting are John F.
Murphy, Leo F. Grace and Richard F. Hughes. No person being nominated as a
director is being proposed for election pursuant to any agreement or
understanding between any such person and the Company.
In the event that any such nominee is unable to serve or declines to serve
for any reason, it is intended that proxies will be voted for the election of
the balance of those nominees named and for such other persons as may be
designated by the present Board of Directors. The Board of Directors has no
reason to believe that any of the persons named will be unable or unwilling to
serve. Unless authority to vote for the directors is withheld, it is intended
that the shares represented by the enclosed proxy card will be voted "FOR" the
election of all nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES
NAMED IN THIS PROXY STATEMENT.
Information with Respect to Nominees, Continuing Directors and Certain Executive
Officers
The following table sets forth, as of the Record Date, the names of
nominees and continuing directors and the Named Executive Officers (as defined
below), their ages, a brief description of their recent business experience,
including present occupations and employment, the year in which each became a
director of the Bank and the year in which their terms (or, in the case of
nominees, their proposed terms) as director of the Company expire. This table
also sets forth the amount of Common Stock and the percent thereof beneficially
owned by each director and all directors and executive officers as a group as of
the Record Date.
4
<PAGE>
<TABLE>
<CAPTION>
Amount and
Expiration Nature of Ownership
Name and Principal Occupation Director of Term as Beneficial as a Percent
at Present and for Past Five Years Age Since (1) Director Ownership (2) of Class (3)
- ---------------------------------- --- --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
NOMINEES
John F. Murphy 59 1975 2002 39,450(4)(6) 1.69%
President, Chief Executive Officer and Chairman
of the Board of Directors of the Bank and the
Company
Leo F. Grace 67 1997 2002 15,590(5)(7) *
Former Chairman of the Board, President and
Chief Executive Officer of Union Federal Savings
Bank, Boston, Massachusetts
Richard F. Hughes 67 1997 2002 7,190(5)(7) *
Founder and President of Hughes & Associates, Inc.,
an organizational and management consulting
firm in Quincy, Massachusetts
CONTINUING DIRECTORS
Denise M. Renaghan 42 1997 2000 26,499(4)(6) 1.14%
Executive Vice President and Chief Operating
Officer of the Bank and the Company
Richard F. McBride 70 1994 2000 24,603(5)(7) 1.06%
Owner of H.R. McBride Realtor,
Watertown, Massachusetts
Robert B. Cleary 63 1987 2001 5,340(5)(7) *
Principal of the Robert Cleary Insurance Group,
Boston, Massachusetts
Kent T. Spellman 50 1988 2001 56,120(5)(7) 2.41%
Founder and President of Telluride Clothing
Corporation, Inc., Natick, Massachusetts
NAMED EXECUTIVE OFFICERS
(Who Are Not Directors)
Michael O. Gilles
Senior Vice President and Chief Financial Officer 39 -- -- 15,267(4)(6) *
Philip R. McNulty
Senior Vice President and Chief Lending Officer 43 -- -- 6,500(4)(6) *
All directors and named executive officers as a
group (9 persons) -- -- -- 196,559 8.44%
</TABLE>
- ----------
* Does not exceed 1.0% of the Company's voting securities.
(1) Includes years of service as a director of the Bank.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family members) voting or dispositive power as to shares
reported.
(3) As of the Record Date, there were 2,329,670 shares of Common Stock
outstanding.
(4) Includes 25,352, 19,014, 8,113 and 5,000 shares of restricted stock awarded
to Mr. Murphy, Ms. Renaghan, Mr. Gilles and Mr. McNulty, respectively,
under the Incentive Plan. Such awards commence vesting at a rate of 20% per
year beginning October 8, 1999, but will vest immediately upon death or
disability. Each participant presently has voting power as to the shares
awarded.
(5) Includes 4,340 shares of restricted stock awarded to each outside director
under the Incentive Plan. Such awards commence vesting at a rate of 20% per
year beginning October 8, 1999, but will vest immediately upon death or
disability.
(6) Excludes 63,381, 47,536, 12,676 and 12,000 shares for Mr. Murphy, Ms.
Renaghan, Mr. Gilles and Mr. McNulty, respectively, subject to options
granted under the Incentive Plan. Shares subject to options granted under
the Incentive Plan vest at a rate of 20% per year commencing on October 8,
1999, but will vest immediately upon death or disability.
(7) Excludes 10,851 shares subject to options granted to each outside director
under the Incentive Plan. Shares subject to options granted under the
Incentive Plan vest at a rate of 20% per year commencing October 8, 1999,
but will vest immediately upon death or disability.
5
<PAGE>
Meetings of the Board of Directors and Committees of the Board of Directors
The Board of Directors of the Company and the Board of Directors of the
Bank conduct business through meetings of the Board of Directors and through
activities of their committees. The Board of Directors of the Company and Bank
generally meet on a monthly basis and may have additional meetings as needed.
During the fiscal year ended March 31, 1999, the Board of Directors of the
Company, held 9 meetings primarily related to organizational matters. The Board
of Directors of the Bank held 13 meetings during fiscal 1999. All of the
directors of the Company and Bank attended at least 75% of the total number of
the Company's Board meetings held and committee meetings on which such directors
served during the fiscal year ended March 31, 1999. The Board of Directors of
the Company and Bank maintain committees, the nature and composition of which
are described below:
Audit and Compliance Committee. The Audit and Compliance Committee of the
Company consists of Messrs. Cleary, Spellman and Murphy. This committee
generally meets on an annual basis and is responsible for the review of audit
reports and management's actions regarding the implementation of audit findings
and to review compliance with all relevant laws and regulations. The Audit and
Compliance Committee of the Company met one time in fiscal 1999.
Nominating Committee. The Company's Nominating Committee for the 1999
Annual Meeting consists of Messrs. Cleary, McBride and Spellman. The committee
considers and recommends the nominees for director to stand for election at the
Company's annual meeting of shareholders. The Company's Certificate of
Incorporation and Bylaws provide for shareholder nominations of directors. These
provisions require such nominations to be made pursuant to timely notice in
writing to the Secretary of the Company. The shareholder's notice of nomination
must contain all information relating to the nominee which is required to be
disclosed by the Company's Bylaws and by the Exchange Act. See "Additional
Information - Notice of Business to be Conducted at a Special or Annual
Meeting." The Nominating Committee of the Company met on February 11, 1999.
Compensation Committee. The Compensation Committee of the Company consists
of Messrs. Cleary, McBride and Murphy. Such committee is responsible for all
matters regarding compensation and fringe benefits for officers and employees of
the Company and the Bank and meets on an as needed basis. The Compensation
Committee of the Company met 2 times in fiscal 1999, respectively.
Directors' Compensation
Directors' Fees. All directors of the Bank are currently paid an annual
retainer of $4,000 and receive a fee of $500 for each regularly scheduled
monthly and special Board meeting attended. Members of the Executive Committee
of the Bank additionally receive an annual retainer of $4,000 and a fee of $500
for each meeting attended. For fiscal 1999, there were 13 regular and special
meetings of the Board of Directors and 11 meetings of the Executive Committee.
All directors of the Company are paid an annual retainer fee of $4,000.
Consulting Agreement. Pursuant to the Bank's merger with Union Federal
Savings Bank, Boston, Massachusetts, in February 1997, the Bank entered into a
consulting agreement (the "Consulting Agreement") with Mr. Grace, who at the
time of the merger was Union Federal's President and Chief Executive Officer.
The agreement, which is for a three-year term, commenced on February 21, 1997
and provides that Mr. Grace be paid an annual amount of $127,000 for consulting
services to the Bank. The Consulting Agreement also provides for his termination
for cause (as defined in the consulting agreement) or without cause upon a vote
of the Board of Directors. During the term of the Consulting Agreement and for a
period of 12 months after the termination of the agreement, Mr. Grace is subject
to a covenant not to compete, either directly or indirectly, with the Bank.
6
<PAGE>
Incentive Plan. Under the Incentive Plan, which was adopted by the
Company's shareholders on September 29, 1998, each member of the Board of
Directors of the Company who is not an officer or employee of the Company or the
Bank received stock options to purchase 10,851 shares of Common Stock at an
exercise price of $19.75, the fair market value of the Common Stock on October
8, 1998, the date the options were granted, and stock awards of 4,340 shares
(collectively, "Directors' Awards"). The Directors' Awards initially granted
under the Incentive Plan will vest over a five-year period, at a rate of 20%
each year, commencing on the first anniversary of the date of the grant. All
Directors' Awards will vest immediately upon death or disability. The Board has
recently amended and restated the Incentive Plan to provide for the acceleration
of vesting upon a "change in control" of the Company or the Bank (as defined in
the Incentive Plan) and, in the discretion of the Compensation Committee of the
Board of Directors, upon retirement (see Proposal 2). All options granted under
the plan expire ten years following the date of grant. When restricted stock
awards vest and are distributed from the trust in which they are held, the
recipients will also receive an amount equal to accumulated cash and stock
dividends (if any) previously paid with respect thereto, plus earnings thereon.
7
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth the cash
compensation paid as well as other compensation paid or accrued for services
rendered in all capacities during fiscal years ended March 31, 1999, 1998 and
1997 to the Chief Executive Officer and the highest paid executive officers who
earned and/or received salary and bonus in excess of $100,000 ("Named Executive
Officers").
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------
Annual Compensation (1) Awards Payouts
-------------------------------- ----------------------- -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Fiscal Salary Bonus Compensation Awards Options/SARs Payout Compensation
Principal Positions Year ($) ($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- -------------------- ------ ------ ----- ------------ -------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Murphy 1999 $273,848 $ -- -- $500,702 63,381 -- $ 32,790
President and Chief 1998 241,223 60,000 -- -- -- -- 45,755
Executive Officer 1997 228,813 82,145 -- -- -- -- 29,093
Denise M. Renaghan 1999 $167,848 $ -- -- $375,527 47,536 -- $ 27,867
Executive Vice 1998 136,000 39,846 -- -- -- -- 38,722
President and Chief 1997 116,640 58,325 -- -- -- -- 7,206
Operating Officer
Michael O. Gilles 1999(7) $144,137 $ -- -- $168,232 12,676 -- $ 22,863
Senior Vice President and
Chief Financial Officer
Philip R. McNulty 1999(7) $ 94,231 $ 10,000 -- $ 98,750 12,000 -- --
Senior Vice President and
Chief Lending Officer
</TABLE>
- ----------
(1) Under Annual Compensation, the column titled "Salary" includes directors'
fees for Mr. Murphy and Ms. Renaghan.
(2) For fiscal years 1999, 1998 and 1997, there were no (a) perquisites over
the lesser of $50,000 or 10% of the individual's total salary and bonus for
the year; (b) payments of above-market preferential earnings on deferred
compensation; (c) payments of earnings with respect to long-term incentive
plans prior to settlement or maturation; (d) tax payment reimbursements; or
(e) preferential discounts on stock.
(3) Includes restricted stock awards of 25,352, 19,014, 8,113 and 5,000 shares
granted to Mr. Murphy, Ms. Renaghan, Mr. Gilles and Mr. McNulty,
respectively, under the Incentive Plan. The awards will vest in five equal
annual installments commencing on October 8, 1999, the first anniversary of
the effective date of the award. When shares become vested and are
distributed from the trust in which they are held, the recipients will also
receive an amount equal to accumulated cash and stock dividends (if any)
paid with respect thereto, plus earnings thereon. As of March 31, 1999, the
market value of the shares held by Mr. Murphy, Ms. Renaghan Mr. Gilles and
Mr. McNulty was $519,716, $389,787, $166,317 and $102,500, respectively.
The dollar amounts set forth in the table represent the market value of the
shares awarded on the date of grant.
(4) Includes stock options granted to Mr. Murphy, Ms. Renaghan, Mr. Gilles and
Mr. McNulty pursuant to the Incentive Plan during fiscal year 1999. See
"Option Grants in Last Fiscal Year" Table for discussion of options granted
under the Incentive Plan.
(5) For fiscal years 1999, 1998 and 1997, there were no payouts or awards under
any long-term incentive plan.
(6) All Other Compensation includes matching contributions under the Bank's
401(a) Plan of $3,191 for Mr. Murphy and $3,197 for Ms. Renaghan, ESOP
allocations with a market value as of March 31, 1999 of $26,129 for Mr.
Murphy, $24,496 for Ms. Renaghan and $22,863 for Mr. Gilles and the value
of split dollar life insurance policies, based upon an actuarial analysis,
of $3,470 for Mr. Murphy and $174 for Ms. Renaghan for fiscal year 1999.
Such life insurance policies provide that Mr. Murphy and Ms. Renaghan may
receive a benefit, if any, equal to the difference between the cash
surrender value of the policy and the premiums paid by the Bank. For fiscal
year 1998, the amounts attributed to Mr. Murphy and Ms. Renaghan for such
life insurance policies were $141,000 and $3,900, respectively, which
reflects the dollar value of the premiums paid during the fiscal year. For
fiscal year 1999, the Company began reporting the value of such policies
attributable to such executive officers on an actuarial basis.
(7) Mr. Gilles and Mr. McNulty were hired on March 13, 1998 and June 17, 1998,
respectively.
8
<PAGE>
Employment Agreements. The Company and the Bank entered into employment
agreements (collectively, the "Employment Agreements") with Mr. Murphy and Ms.
Renaghan (individually, the "Executive"). The Employment Agreements are intended
to ensure that the Bank and the Company will be able to maintain a stable and
competent management base. The continued success of the Bank and the Company
depends to a significant degree on the skills and competence of Mr. Murphy and
Ms. Renaghan.
The Bank Employment Agreements provide for a three-year term for each
Executive and are renewable on an annual basis. The Company Employment
Agreements also provide for a three-year term for each Executive and are
automatically renewed on a daily basis, unless written notice of non-renewal is
given to the Executive by the Board of Directors of the Company or to the
Company by the Executive. The Employment Agreements provide that the Executive's
base salary will be reviewed annually. The base salaries, which are currently
effective for such Employment Agreements for Mr. Murphy and Ms. Renaghan are
$275,000 and $175,000, respectively. In addition to the base salary, the
Employment Agreements provide for, among other things, participation in
stock-based benefit plans and other employee benefit programs and fringe
benefits applicable to similarly-situated executive personnel. The Employment
Agreements provide for termination by the Bank or the Company for cause (as
described in the agreements) at any time. In the event the Bank or the Company
chooses to terminate the Executive's employment for reasons other than for
cause, or in the event of the Executive's resignation from the Bank or the
Company upon (i) the failure to re-elect the Executive to his/her current
office(s); (ii) a material change in the Executive's functions, duties or
responsibilities; (iii) a relocation of the Executive's principal place of
employment by more than 25 miles; (iv) liquidation or dissolution of the Bank or
the Company; or (v) a breach of the Employment Agreement by the Bank or the
Company; the Executive or, in the event of death, the Executive's beneficiary,
would generally be entitled to receive an amount equal to the remaining payments
due to the Executive and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank or the Company
during the remaining term of the Employment Agreements. The Bank and the Company
would also continue and pay for the Executive's life, health and disability
coverage for the remaining term of the Employment Agreement. Upon any voluntary
termination by the Executive, the Executive is subject to a covenant not to
compete with the Company or the Bank for one year.
Under the Employment Agreements, upon involuntary termination or, under
certain circumstances, voluntary termination of the Executive following a change
in control of the Bank or the Company, the Executive or, in the event of the
Executive's death, the Executive's beneficiary, would be entitled to a severance
payment equal to the greater of: (i) the payments due under the Employment
Agreement for the remaining terms of the agreement; or (ii) three times the
average of the five preceding years' annual compensation. The Bank and the
Company would also continue the Executive's life, health, and disability
coverage for thirty-six months following the change in control. Notwithstanding
that both Employment Agreements provide for a severance payment in the event of
a change in control, the Executive would only be entitled to receive a severance
payment under one agreement. In the event of a change in control of the Bank or
Company, the total amount of payments due under the Agreements, based solely on
the base salaries currently paid Mr. Murphy and Ms. Renaghan and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $1.4 million.
Payments to the Executive under the Bank Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company Employment Agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreements shall be paid by the Bank or Company, respectively, if the Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under federal and
Delaware law, respectively. The terms of the agreements as described herein may
be revised as a result of OTS review.
9
<PAGE>
Change in Control Agreements. The Company and the Bank entered into Change
in Control Agreements (the "CIC Agreements") with certain officers of the
Company and the Bank, none of whom are covered by an Employment Agreement. The
CIC Agreements provide for either a two-year or three-year term and are
renewable on an annual basis in the case of a Bank CIC Agreement, and on a daily
basis in the case of a company CIC Agreement. The CIC Agreements provide that in
the event of involuntary termination or, under certain circumstances, voluntary
termination of the officer following a change in control of the Bank or the
Company, the officer is entitled to receive a severance payment equal to two
times or three times (as the case may be) the officer's average annual
compensation for the five years preceding termination. The Bank would also
continue and pay for the officer's life, health and disability coverage for 24
or 36 months (as the case may be) following termination. Payments to the officer
under the CIC Agreements are guaranteed by the Company in the event that
payments or benefits are not paid by the Bank. In the event of a change in
control of the Bank or Company, the total payments that would be due under the
CIC Agreements, based solely on the current annual compensation paid to the
officers covered by the CIC Agreements and excluding any benefits under any
employee benefit plan which may be payable, would be approximately $1.5 million.
Incentive Plan. The Company maintains the Incentive Plan, which provides
discretionary awards of options to purchase Common Stock, option-related awards
and awards of Common Stock (collectively, "Awards") to officers, directors and
employees as determined by the Board of Directors. Awards of Common Stock to
officers, directors and employees are provided under "Restricted Stock Awards"
in the "Summary Compensation Table." The following table lists all grants of
options under the Incentive Plan to the Named Executive Officers for fiscal year
1999 and contains certain information about potential value of those options
based upon certain assumptions as to the appreciation of the Company's stock
over the life of the option.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to Exercise or
SARs Granted Employees in Base Price Expiration
Name (#)(1)(2)(3) Fiscal Year (4) Per Share Date (5)
- ---- ------------ --------------- --------- ----------
<S> <C> <C> <C> <C>
John F. Murphy............. 63,381 26.13% $19.75 October 8, 2008
Denise M. Renaghan......... 47,536 19.60 19.75 October 8, 2008
Michael O. Gilles.......... 12,676 5.23 19.75 October 8, 2008
Philip R. McNulty.......... 12,000 4.95 19.75 October 8, 2008
</TABLE>
- ----------
(1) Options granted pursuant to the Incentive Plan become exercisable in five
equal annual installments commencing on October 8, 1999, provided, however,
options will be immediately exercisable in the event the optionee
terminates employment due to death or disability.
(2) The purchase price may be made in whole or in part in cash or Common Stock.
(3) All options are intended to be Incentive Stock Options to the extent
permissible under Section 422 of the Code.
(4) Includes options granted to officers, directors and employees.
(5) The option term is ten years.
10
<PAGE>
The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding options held by the Named
Executive Officers as of March 31, 1999. Also reported are the values for
"in-the-money" options which represent the positive spread between the exercise
price of any such existing stock options and the year end price of the Common
Stock.
Fiscal Year-End Option/SAR Value
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs in-the-money Options/SARs
at Fiscal Year-End(#)(1) at Fiscal Year-End($)(2)(3)
--------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
John F. Murphy.................... -- 63,381 -- $47,536
Denise M. Renaghan................ -- 47,536 -- 32,652
Michael O. Gilles................. -- 12,676 -- 9,507
Philip R. McNulty................. -- 12,000 -- 9,000
</TABLE>
- ----------
(1) The options in this table have an exercise price of $19.75.
(2) The price of the Common Stock on March 31, 1999 was $20.50.
(3) Based on the market value of the underlying Common Stock at fiscal year
end, minus the exercise price.
Retirement Plan. The Bank participates in the Financial Institutions
Retirement Fund (the "Retirement Plan") to provide retirement benefits for
eligible employees. Employees are generally eligible to participate in the
Retirement Plan after the completion of 12 consecutive months of employment with
the Bank and the attainment of age 21. Hourly-paid employees are excluded from
participation in the Retirement Plan. Benefits payable to a participant under
the Retirement Plan are based on the participant's years of service and salary.
The formula for normal retirement benefits payable annually under the Retirement
Plan is 2% multiplied by years of benefit service multiplied by the average of
the participant's highest three years of salary paid by the Bank. A participant
may elect early retirement as early as age 45. However, such participant's
normal retirement benefits will be reduced by an early retirement factor based
on age at early retirement.
Participants generally have no vested interest in Retirement Plan benefits
prior to the completion of five years of service with the Bank. Following the
completion of five years of vesting service, or in the event of a participant's
attainment of age 65, death or termination of employment due to disability, a
participant will become 100% vested in the accrued benefit under the Retirement
Plan. The amounts of benefits paid under the Retirement Plan are not reduced for
any social security benefit payable to participants. As of January 1, 1999, Mr.
Murphy, Ms. Renaghan, Mr. Gilles and Mr. McNulty had 33, 25, 1 and 1 credited
years of service, respectively.
Management Supplemental Executive Retirement Plan. The Bank maintains a
non-tax qualified Management Supplemental Executive Retirement Plan ("SERP") to
provide certain officers and highly compensated employees with additional
retirement benefits. The SERP benefit is intended to make up benefits lost under
the ESOP allocation procedures to participants who retire prior to the complete
repayment of the ESOP loan. At the retirement of a participant, the benefits
under the SERP are determined by first: (i) projecting the number of shares that
would have been allocated to the participant under the ESOP if he/she had been
employed throughout the period of the ESOP loan (measured from the participant's
first date of ESOP participation); and (ii) reducing the number determined in
(i) above by the number of shares actually allocated to the participant's
account under the ESOP; and second, by multiplying the number of shares that
11
<PAGE>
represents the difference between such figures by the average fair market value
of the Common Stock over the preceding five years. Benefits under the SERP vest
in 20% annual increments over a five-year period commencing as of the date of a
participant's participation in the SERP. The vested portion of the SERP
participant's benefits are payable upon the termination of the participant's
service (other than for cause) after attaining his/her "Normal Retirement Age"
under the ESOP. A separate trust may be established to hold assets of the Bank
for the purpose of paying benefits under the SERP or the Bank may hold assets
for SERP payments through a common trust established for the benefit
equalization plan discussed below.
Benefit Equalization Plan. The Bank maintains a retirement benefit
equalization plan to provide selected employees with retirement benefits which
would have been payable under the ESOP, Retirement Plan and Thrift Plan (the
"Benefit Equalization Plan" or "BEP"), but for the limits imposed by the Code on
the amount of benefits accrued or allocated under tax-qualified plans.
A participant's benefit under the BEP generally equals the excess of the
benefits that would otherwise have accrued or have been allocated under the
tax-qualified plans for the benefit of the participant, but for the limitations
imposed by the Code, over the benefits that are is actually accrued or allocated
under such plans after giving effect to any reduction of such benefit by the
limitations imposed by the Code. The Bank has established a grantor trust (also
known as a "rabbi trust") to hold assets of the Bank for the purpose of paying
benefits under the BEP, provided that, in the event of the insolvency of the
Bank, the assets of the trust are subject to the claims of the Bank's creditors.
The assets of this trust may be used to acquire shares of Common Stock to be
used to satisfy the obligations of the Bank for the payment of benefits under
the BEP.
Transactions With Certain Related Persons
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
requires that 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. In addition, loans made to a director or
executive officer in excess of the greater of $25,000 or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors.
Prior to FIRREA, the Bank made loans to its executive officers and
Directors which were secured by their primary residences. The rates of interest
charged by the Bank on such loans were the Bank's cost of funds. Pursuant to
FIRREA, in 1989, the Bank discontinued its practice of making such preferential
loans to its officers and Directors. However, all such pre-FIRREA preferential
loans were "grandfathered" under FIRREA. Since the enactment of FIRREA, the Bank
has not made any loans to its executive officers or Directors. The Bank has
recently revised its policies whereby it will be permitted to make loans to
executive officers and Directors. Pursuant to such policy, such loans, as well
as loans made to Bank employees, must be made on the same terms and conditions
offered to the general public, in the ordinary course of business, on
substantially the same terms, including collateral, as those prevailing at the
time for comparable transactions with other person and may not involve more than
the normal risk of collectibility or present other unfavorable features. As of
March 31, 1999, the Bank had $4.8 million of loans to executive officers or
Directors. With the exception of loans to Messrs. Cleary and Murphy, which are
secured by mortgage liens on their primary residences and, at March 31, 1999,
had balances of $497,000 and $376,000, respectively, all other of the Bank's
loans to executive officers and Directors had balances of less than $60,000 as
of March 31, 1999 or were made by the Bank in the ordinary course of business,
on substantially the same terms, including interest rates and collateral
prevailing at the time for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present unfavorable
features. Although such loans to Messrs. Cleary and Murphy were made prior to
the enactment of FIRREA and do not involve more than the normal risk of
collectibility or present unfavorable features, such loans were made
12
<PAGE>
with interest rates which were below the interest rates otherwise available to
the Bank's customers at the time such loans were made.
The Company intends that all transactions in the future between the Company
and its executive officers, directors, holders of 10% or more of the shares of
any class of its common stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arms length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of the Company not having any interest in the
transaction.
PROPOSAL 2. RATIFICATION OF THE AMENDMENTS TO THE
BAY STATE BANCORP, INC. 1998 STOCK-BASED INCENTIVE PLAN
The Board of Directors of the Company is presenting for stockholder
ratification the Bay State Bancorp, Inc. 1998 Stock-Based Incentive Plan, as
amended and restated (the "Plan"). Stockholders originally approved the Plan on
September 29, 1998. The Board of Directors of the Company approved the Plan, as
amended and restated, on April 20, 1999. The Board of Directors of the Company
determined it was in the best interest of the Company and Bank to amend and
restate the Plan to, among other things, eliminate provisions no longer
necessary or required, provide for the accelerated vesting of restricted stock
awards and stock options in the event of a change in control of the Company or
the Bank or, at the discretion of the committee, upon the retirement of a
participant, and to make certain conforming and technical amendments. The
amended and restated Plan is attached as Appendix A.
General
The Plan authorizes the granting of options to purchase Common Stock and
awards of Common Stock (collectively, "Awards"). Subject to certain adjustments
to the Awards, as specified in Section 14 of the Plan, to prevent dilution,
diminution or enlargement of the rights of the participant, the maximum number
of shares available for Awards under the Plan is 354,932 shares. The maximum
number of shares authorized for purchase pursuant to the exercise of stock
options which may be granted under the Plan is 253,523 shares. The maximum
number of shares authorized for the award of restricted stock of Common Stock
("Stock Awards") is 101,409 shares. At May 24, 1999, 242,550 stock options had
been granted to participants and Stock Awards for 97,609 shares of Common Stock
had been granted to participants pursuant to the Plan. All officers, other
employees and non-employee directors, including advisory directors of the
Company and its affiliates are eligible to receive Awards under the Plan. The
Plan is administered by a committee (the "Committee"). Authorized but unissued
shares or shares previously issued and reacquired by the Company may be used to
satisfy Awards under the Plan.
The Plan authorizes the grant of awards in the form of: (i) options to
purchase the Company's Common Stock intended to qualify as incentive stock
options under Section 422 of the Code (options which afford certain tax benefits
to the recipients upon compliance with certain conditions and which do not
result in tax deductions to the Company), referred to as "Incentive Stock
Options" or "ISOs"; (ii) options that do not so qualify (options which do not
afford certain income tax benefits to recipients, but which may provide tax
deductions to the Company), referred to as "Non-Statutory Stock Options" or
"NSOs"; and (iii) Stock Awards, which provide a grant of Common Stock that may
vest over time.
Stock Options
The Committee has the discretion to award Incentive Stock Options or
Non-Statutory Stock Options to employees, while only Non-Statutory Stock Options
may be awarded to non-employee directors. Pursuant to the Plan, the Committee
has the authority to determine the date or dates on which each stock option will
become exercisable. In order to qualify as Incentive Stock Options under Section
422 of the Code, the
13
<PAGE>
exercise price must not be less than 100% of the fair market value on the date
of the grant. Incentive Stock Options granted to any person who is the
beneficial owner of more than 10% of the outstanding voting stock may be
exercised only for a period of five years from the date of grant and the
exercise price must be at least equal to 110% of the fair market value of the
underlying Common Stock on the date of the grant. The exercise price may be paid
in cash or in Common Stock at the discretion of the Committee. See "Payment
Alternatives" and "Method of Option Exercise."
Termination of Employment or Service and Change In Control. Unless
otherwise determined by the Committee, upon termination of a participant's
service for any reason other than death, disability, retirement or termination
for cause, the vested Incentive Stock Options and Non-Statutory Stock Options
shall be exercisable for a period of three months following termination. The
Committee, in its discretion, may determine the time frame in which options may
be exercised and may redesignate Incentive Stock Options as Non-Statutory Stock
Options. In the event of termination for cause, all rights to any stock options
granted under the Plan shall expire immediately upon termination. In the event a
participant's service is terminated for death or disability all stock options
held by the participant vest and shall be exercisable for up to one year from
the date of such termination of service. The Committee has the discretion to
permit the acceleration of the vesting of stock options following the retirement
of a participant as well. Following retirement, a participant, has three years
to exercise his stock options; provided that Incentive Stock Options not
exercised within three months from the participant's retirement date shall be
redesignated as Non-Statutory Stock Options. The Plan now provides that in the
event of a change in control of the Company or the Bank stock options will
become fully vested and shall be exercisable for the term of the stock option;
provided that Incentive Stock Options not exercised within three months of an
individual's termination of employment shall be redesignated as Non-Statutory
Stock Options.
Stock Awards
The Plan also authorizes the granting of Stock Awards to employees and
directors. The Committee has the authority to determine the dates on which Stock
Awards granted will vest. The Plan now provides that all Stock Award grants
immediately vest in the event of a change in control or following termination of
service due to death or disability. In addition, the Committee has the
discretion to permit Stock Awards to vest immediately following the termination
of service of a participant due to retirement. Under the Plan, the vesting of
Stock Awards may also be made contingent upon the attainment of certain
performance goals by the Company, Bank or grantee, which performance goals, if
any, would be established by the Committee.
Stock Awards are generally nontransferable and nonassignable as provided in
the Plan. The Committee has the power, under the Plan, to permit transfers. When
Stock Awards are distributed in accordance with the Plan, the recipients will
also receive amounts equal to accumulated cash and stock dividends (if any) with
respect thereto plus earnings thereon minus any required tax withholding
amounts. Prior to vesting, recipients of Stock Awards may direct the voting of
shares of Common Stock granted to them and held in the trust. Shares of Common
Stock held by the Plan trust which have not been allocated or for which voting
has not been directed are voted by the trustee in the same proportion as the
awarded shares are voted in accordance with the directions given by all
recipients of Stock Awards.
Tax Treatment
Stock Options. An optionee will generally not recognize taxable income upon
grant or exercise of any Incentive Stock Option, provided that shares
transferred in connection with the exercise are not disposed of by the optionee
for at least one year after the date the shares are transferred in connection
with the exercise of the stock option and two years after the date of grant of
the stock option. If the holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share stock option exercise
price and the fair market value of the Common Stock is recognized as income
taxable at long-term capital gains rates. No compensation deduction may be taken
by the Company as a result of the grant or exercise
14
<PAGE>
of Incentive Stock Options, assuming those holding periods are met. In the case
of the exercise of a Non-Statutory Stock Option, an optionee will recognize
ordinary income in an amount equal to the aggregate amount by which the per
share exercise price is exceeded by the fair market value of the Common Stock.
In the event shares received through the exercise of an Incentive Stock Option
are disposed of prior to the satisfaction of the holding periods (a
"disqualifying disposition") the optionee will recognize ordinary income equal
to the lesser of (i) the difference between the fair market value of the Stock
upon exercise and the exercise price or (ii) the excess of the amount relized
upon the disposition and the exercise price. In the event that a Non-statutory
Stock Option is exercised during a period that would subject the optionee to
liability under Section 16(b) of the Exchange Act (i.e., within six months of
the date of grant), the optionee will not be deemed to have recognized income
until such period of liability has expired, unless the optionee makes an
election under Section 83(b) of the Code. The amount of any ordinary income
recognized by an optionee upon the exercise of a Non-Statutory Stock Option or
due to a disqualifying disposition will be a deductible expense of the Company
for tax purposes.
Stock Awards. When shares of Common Stock, as Stock Awards, are
distributed, the recipient will recognize ordinary income equal to the fair
market value of such shares as of the date of distribution plus any dividends
and earnings on such dividends and the Company is permitted a commensurate
compensation expense deduction for income tax purposes.
Payment Alternatives
The Committee has the sole discretion to determine what form of payment it
shall use in distributing payments for all Awards. If the Committee requests any
or all participants to make an election as to form of payment, it shall not be
considered bound by the election. Any shares of Common Stock tendered in payment
of an obligation arising under the Plan or applied to any tax withholding
amounts shall be valued at the fair market value of the Common Stock. The
Committee may use treasury stock, authorized but unissued stock or may direct
the market purchase of shares of Common Stock to satisfy its obligations under
the Plan.
Method of Option Exercise
The Committee has the sole discretion to determine the form of payment for
the exercise of a stock option. The Committee may indicate acceptable forms in
each optionee's Award Agreement covering such options or may reserve its
decision to the time of exercise. No stock option is to be considered exercised
until payment in full is accepted by the Committee.
Amendment
The Board of Directors may generally amend the Plan in any respect, at any
time, subject to certain prohibitions established by law or the terms of the
Plan itself.
Non-transferability
An award of stock options or stock awards under the Plan shall not be
transferable by a participant other than by will or the laws of intestate
succession or pursuant to a domestic relations order. With consent of the
Committee, a participant may permit transferability or assignment of a
Non-Statutory Stock Option or Stock Award for valid estate planning purposes as
permitted under the Code or Rule 16b-3 under the Exchange Act and a participant
may designate a person or his or her estate, beneficiary of any stock option or
stock award which the participant would then be entitled, in the event of the
death of the employee.
15
<PAGE>
Adjustments
In the event of any change in the outstanding shares of Common Stock of the
Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company, or in the event a
capital distribution is made, the Company may make such adjustments to
previously granted Awards, to prevent dilution, diminution or enlargement of the
rights of the Award holder. All Awards under this Plan shall be binding upon any
successors or assigns of the Company.
Stockholder Vote
Stockholders are being requested to ratify all amendments to the Plan. If
stockholders fail to ratify Proposal 2, the Plan in the form attached hereto,
will remain in full force and effect at the discretion of the Company's Board of
Directors. The affirmative vote of a majority of the shares present at the
Annual Meeting and eligible to be cast on this proposal is required to ratify
the Plan, as amended.
Unless marked to the contrary, the shares represented by the enclosed proxy
card, if executed and returned, will be voted "FOR" the ratification of the Bay
State Bancorp, Inc. 1998 Stock-Based Incentive Plan, as amended and restated.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
BAY STATE BANCORP, INC. 1998 STOCK-BASED INCENTIVE PLAN, AS AMENDED AND
RESTATED.
PROPOSAL 3. APPROVAL OF THE BAY STATE BANCORP, INC.
1999 STOCK OPTION PLAN
The Board of Directors of the Company is presenting for shareholder
approval the Bay State Bancorp, Inc. 1999 Stock Option Plan (the "Stock Option
Plan"), in the form attached hereto as Appendix B. The purpose of the Stock
Option Plan is to advance the interests of the Company and its shareholders by
providing those key employees and non-employee directors of the Company and its
affiliates, including the Bank, upon whose judgment, initiative and efforts the
successful conduct of the business of the Company and its affiliates largely
depends, with additional incentive in the form of a proprietary interest in the
Company to perform in a superior manner. A further purpose of the Stock Option
Plan is to attract and retain people of experience and ability to the service of
the Company and its affiliates.
General
The Stock Option Plan reserves 120,423 shares of Common Stock for purchase
pursuant to the exercise of stock options. All officers and other employees of
the Company and its affiliates, and directors who are not also serving as
employees of the Company or any of its affiliates ("Outside Directors"), are
eligible to receive awards under the Stock Option Plan. The Stock Option Plan
will be administered by the Compensation Committee of the Board of Directors,
the majority of which consists of non-employee directors (the "Committee").
Authorized but unissued shares or authorized shares previously issued and
reacquired by the Company may be used to satisfy an exercise of an option under
the Stock Option Plan. If authorized but unissued shares are used to satisfy
option exercises, the number of shares outstanding would increase which would
have a dilutive effect on the holdings of existing shareholders.
16
<PAGE>
Awards to Employees
Types of Awards. The Stock Option Plan authorizes the grant to employees of
(i) options to purchase the Company's Common Stock intended to qualify as
"incentive stock options" under Section 422 of the Code (options which afford
certain tax benefits to the recipients upon compliance with certain conditions),
which generally do not result in tax deductions to the Company, referred to as
"Incentive Stock Options"; and (ii) options that do not so qualify (options
which do not afford the same income tax benefits to recipients as Incentive
Stock Options), but which may provide tax deductions to the Company, referred to
as "Non-Statutory Stock Options".
As of the date of this proxy statement, the Board of Directors, has not yet
granted any stock options under the Stock Option Plan and has made no
determination as to any future grants. Pursuant to the Stock Option Plan, the
Committee has the authority to grant options in its sole discretion. Unless
otherwise determined by the Committee, all stock options shall become fully
vested and exercisable upon death or disability and shall remain exercisable for
one year from such time. In the event of a change in control of the Company or
the Bank all stock options will immediately vest and remain exercisable for the
remaining term of the stock option; provided that Incentive Stock Options not
exercised within three months following a participant's termination of
employment shall be redesignated as Non-Statutory Stock Options. Unless
otherwise determined by the Committee, in the event of a participant's
retirement only those stock options that were vested as of the participant's
retirement date are exercisable and shall remain exercisable for three years
from the participant's retirement date; provided that Incentive Stock Options
not exercised within three months following a participant's retirement shall be
redesignated as Non-Statutory Stock Options. In the event of an employee's
termination for cause, all related rights to the individual's stock options
become null and void upon such termination. Unless otherwise determined by the
Committee, upon the termination of an employee's service for any reason, other
than death, disability, retirement, or termination for cause, the employee's
stock options will be exercisable only as to those options that were immediately
exercisable by the employee at the date of termination and only for a period of
three months. The exercise price of stock options granted must be equal to at
least 100% of the fair market value of the underlying Common Stock at the time
of grant, except as provided below. The exercise price may be paid in cash,
borrowed funds or in Common Stock. Stock options granted under the Stock Option
Plan to employees may be exercised at such times as the Committee determines,
but in no event shall a stock option be exercisable more than 10 years from the
date of grant.
Incentive Stock Options may only be granted to employees. In order to
qualify as Incentive Stock Options under Section 422 of the Code, in addition to
certain other restrictions, the exercise price must not be less than 100% of the
fair market value on the date of grant. Incentive Stock Options granted to any
person who is the beneficial owner of more than 10% of the outstanding voting
stock may be exercised only for a period of five years from the date of grant
and the exercise price must be at least equal to 110% of the fair market value
of the underlying Common Stock on the date of grant.
Tax Treatment
An optionee will generally not recognize taxable income upon grant or
exercise of any Incentive Stock Option, provided that shares transferred in
connection with the exercise are not disposed of by the optionee for at least
one year after the date the shares are transferred in connection with the
exercise of the stock option and two years after the date of grant of the stock
option. If the holding periods are satisfied, upon disposal of the shares, the
aggregate difference between the per share stock option exercise price and the
fair market value of the common Stock is recognized as income taxable at
long-term capital gains rates. No compensation deduction may be taken by the
Company as a result of the grant or exercise of Incentive Stock Options,
assuming these holding periods are met. In the case of the exercise of a
Non-Statutory Stock Option, an optionee will recognize ordinary income upon
exercise of the stock option in an amount equal to the aggregate amount by which
the per share exercise price exceeds the fair market value of the Common Stock.
In the event that a Non-statutory Stock Option is exercised during a period that
would subject the
17
<PAGE>
optionee to liability under Section 16(b) of the Exchange Act (i.e., within six
months of the date of grant), the optionee will not be deemed to have recognized
income until such period of liability has expired, unless the optionee makes an
election under Section 83(b) of the Code. In the event shares received through
the exercise of an Incentive Stock Option are disposed of prior to the
satisfaction of the holding periods (a "disqualifying disposition") the optionee
will recognize ordinary income equal to the lesser of (i) the difference between
the fair market value of the Stock upon exercise and the exercise price or (ii)
the excess of the amount realized upon the disposition and the exercise price.
The amount of any Ordinary income recognized by an optionee upon the exercise of
a Non-Statutory Stock Option or due to a disqualifying disposition will be a
deductible expense of the Company for tax purposes.
Payment Alternatives
The Committee has the sole discretion to determine what form of payment it
shall use in distributing payments for all Awards. If the Committee requests any
or all participants to make an election as to form of payment, it shall not be
considered bound by the election. Any shares of Common Stock tendered in payment
of an obligation arising under the Plan or applied to any tax withholding
amounts shall be valued at the fair market value of the Common Stock. The
Committee may use treasury stock, authorized but unissued stock or may direct
the market purchase of shares of Common Stock to satisfy its obligations under
the Plan.
Method of Option Exercise
The Committee has the sole discretion to determine the form of payment for
the exercise of a stock option. The Committee may indicate acceptable forms in
each optionee's Award Agreement covering such options or may reserve its
decision to the time of exercise. No stock option is to be considered exercised
until payment in full is accepted by the Committee.
Amendment
The Board of Directors generally may, at any time, amend the Stock Option
Plan, subject to certain prohibitions established by law or by the terms of the
plan itself.
Non-transferability
An award of stock options under the Stock Option Plan shall not generally
be transferable by the optionee other than by will or the laws of intestate
succession or pursuant to a domestic relations order. However, with consent of
the Committee, an optionee may permit transferability or assignment of a
Non-Statutory Stock Option for valid estate planning purposes as permitted by
the Stock Option Plan and under the Code or Rule 16b-3 under the Exchange Act
and an optionee may designate a person or his or her estate, beneficiary of any
stock option which the optionee would then be entitled, in the event of the
death of the employee.
Stockholder Approval and Effective Date of the Plan
The Board of Directors adopted the Stock Option Plan on April 20, 1999, and
determined to submit the Stock Option Plan for approval by shareholders. The
Stock Option Plan shall become effective upon its approval by shareholders.
Implementation of the Stock Option Plan in the absence of shareholder approval
may result in the inability of the Company to grant Incentive Stock Options but
may not impair its ability to grant Non-Statutory Stock Options.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
BAY STATE BANCORP, INC. 1999 STOCK OPTION PLAN.
18
<PAGE>
PROPOSAL 4. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended March 31, 1999
were Shatswell, MacLeod & Company, P.C. The Company's Board of Directors has
reappointed Shatswell, MacLeod & Company, P.C. to continue as independent
auditors for the Bank and the Company for the fiscal year ending March 31, 2000,
subject to ratification of such appointment by the shareholders.
Representatives of Shatswell, MacLeod & Company, P.C. will be present at
the Annual Meeting. They will be given an opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions
from shareholders present at the Annual Meeting.
Unless marked to the contrary, the shares represented by the enclosed proxy
card will be voted "FOR" ratification of the appointment of Shatswell, MacLeod &
Company, P.C. as the independent auditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF SHATSWELL, MACLEOD & COMPANY, P.C. AS THE INDEPENDENT AUDITORS OF
THE COMPANY.
ADDITIONAL INFORMATION
Shareholder Proposals
To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 2000 annual meeting of shareholders, a shareholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Shareholders not later than February
12, 2000. If such annual meting is held on a date more than 30 calendar days
from July 22, 1999, a stockholder proposal must be received by a reasonable time
before the proxy solicitation for such annual meeting is made. Any such proposal
will be subject to 17 C.F.R. ss. 240.14a-8 of the Rules and Regulations under
the Exchange Act.
Notice of Business to be Conducted at a Special or Annual Meeting
The Bylaws of the Company set forth the procedures by which a shareholder
may properly bring business before a meeting of shareholders. Pursuant to the
Bylaws, only business brought by or at the direction of the Board of Directors
may be conducted at a special meeting. The Bylaws of the Company provide an
advance notice procedure for a shareholder to properly bring business before an
annual meeting. The shareholder must give written advance notice to the
Secretary of the Company not less than ninety (90) days before the date
originally fixed for such meeting; provided, however, that in the event that
less than one hundred (100) days notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the tenth day
following the date on which the Company's notice to shareholders of the annual
meeting date was mailed or such public disclosure was made. In order for the
notice of a stockholder proposal for consideration at the Company's 2000 Annual
Meeting of Shareholders to be timely, the Company would have to receive such
notice no later than April 21, 2000 (assuming the 2000 Annual Meeting is held on
July 20, 2000 and the Company provides at least 100 days notice or public
disclosure of the date of the meeting). The advance notice by shareholders must
include the shareholder's name and address, as they appear on the Company's
record of shareholders, a brief description of the proposed business, the reason
for conducting such business at the annual meeting, the class and number of
shares of the Company's capital stock that are beneficially owned by such
shareholder and any material interest of such shareholder in the proposed
19
<PAGE>
business. In the case of nominations to the Board of Directors, certain
information regarding the nominee must be provided. Nothing in this paragraph
shall be deemed to require the Company to include in its proxy statement or the
proxy relating to any Annual Meeting any shareholder proposal which does not
meet all of the requirements for inclusion established by the SEC in effect at
the time such proposal is received.
Other Matters Which May Properly Come Before the Meeting
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of Annual
Meeting of Shareholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are then present at the Annual
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Annual Meeting. However, if you are a shareholder whose
shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Annual Meeting.
A COPY OF THE FORM 10-KSB (WITHOUT EXHIBITS) FOR THE FISCAL YEAR ENDED
MARCH 31, 1999, AS FILED WITH THE SEC, WILL BE FURNISHED WITHOUT CHARGE TO
SHAREHOLDERS OF RECORD UPON WRITTEN REQUEST TO MICHAEL O. GILLES, BAY STATE
BANCORP, INC., 1299 BEACON STREET, BROOKLINE, MASSACHUSETTS 02446.
By Order of the Board of Directors
/s/ Jill W. Lacy
----------------------------------
Jill W. Lacy
Corporate Secretary
Brookline, Massachusetts
June 14, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, YOU ARE REQUESTED TO SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
20
<PAGE>
APPENDIX A
BAY STATE BANCORP, INC.
1998 STOCK-BASED INCENTIVE PLAN
(As Amended and Restated)
1. DEFINITIONS.
(a) "Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Holding Company, as such terms are defined in Sections 424(e) and 424(f)
of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options and Stock Awards.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award.
(d) "Bank" means Bay State Federal Savings Bank, Brookline, Massachusetts.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" of the Holding Company or the Bank means an event
of a nature that: (i) would be required to be reported in response to Item 1 of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange; or (ii) results in a "change in control" of
the Bank or the Holding Company within the meaning of the Home Owners' Loan Act
of 1933, as amended, the Federal Deposit Insurance Act and the Rules and
Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under the rules and regulations
of the OTS, the board of directors shall substitute its judgment for that of the
OTS); or (iii) without limitation a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Bank or the Holding Company representing 25% or more of the
Bank's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the Bank purchased
by the Holding Company and any voting securities purchased by any employee
benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) a solicitation of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations, as
a result of which the outstanding shares of the class of securities then subject
to the plan are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company; or (E) a tender offer is made for
20% or more of the voting securities of the Bank or the Holding Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors,
pursuant to Section 2 of the Plan, to administer the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
A-1
<PAGE>
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "Disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevent the Participant from fulfilling his duties or
responsibilities to the Holding Company or an Affiliate.
(l) "Effective Date" means September 29, 1998.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal to
the last transaction price quoted for such date by The Nasdaq
Stock Market;
(ii) If the Common Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.
(q) "Holding Company" means Bay State Bancorp, Inc.
(r) "Incentive Stock Option" means a stock option granted to a Participant,
pursuant to Section 7 of the Plan, that is intended to meet the requirements of
Section 422 of the Code.
(s) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(t) "Option" means an Incentive Stock Option or Non-Statutory Stock Option.
(u) "Outside Director" means a member of the board(s) of directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(v) "Participant" means any person who holds an outstanding Award.
(w) "Performance Award" means an Award granted to a Participant pursuant to
Section 9 of the Plan.
A-2
<PAGE>
(x) "Plan" means this Bay State Bancorp, Inc. 1998 Stock-Based Incentive
Plan, as amended and restated.
(y) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the then current retirement policies of the
Holding Company or Affiliate, as applicable. "Retirement" with respect to an
Outside Director means the termination of service from the board(s) of directors
of the Holding Company and any Affiliate following written notice to such
board(s) of directors of the Outside Director's intention to retire.
(z) "Stock Award" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(aa) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the board(s) of directors of the Holding Company and its
Affiliates in accordance with the applicable by-laws of the Holding Company and
its Affiliates or, in the case of an Employee, as defined under any employment
agreement with the Holding Company or an Affiliate; provided, however, that if
no employment agreement exists with respect to the Employee, Termination for
Cause shall mean termination of employment because of a material loss to the
Holding Company or an Affiliate, as determined by and in the sole discretion of
the Board of Directors or its designee(s).
(bb) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Common Stock or other property for the
purposes set forth in the Plan.
(cc) "Trustee" means any person or entity approved by the Board of
Directors or its designee(s) to hold any of the Trust assets.
2. ADMINISTRATION.
(a) The Committee shall administer the Plan. The Committee shall consist of
two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall be
deemed to be "disinterested" only if he satisfies (i) such requirements as the
Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under Section 16 of the Exchange
Act or for whom Awards are not intended to satisfy the provisions of Section
162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and Award Agreements in all respects and (iv) make all other decisions
relating to the operation of the Plan. The Committee may adopt such rules or
guidelines as it deems appropriate to implement the Plan. The Committee's
determinations under the Plan shall be final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be required by the Plan and
otherwise approved by the Committee. Each Award Agreement shall constitute a
binding contract between the Holding Company or an Affiliate and the
Participant, and every Participant, upon acceptance of an Award Agreement, shall
be bound by the terms and restrictions of the Plan and the Award Agreement. The
terms of each Award Agreement shall be in accordance with the Plan, but each
Award Agreement may include any additional provisions and restrictions
determined by the Committee, in its discretion, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan. In
particular and at a minimum, the Committee shall set forth in each Award
Agreement: (i) the type of Award granted; (ii) the Exercise Price of any Option;
(iii) the number of shares subject to the Award; (iv) the expiration date of the
Award; (v) the manner, time, and rate (cumulative or otherwise) of exercise or
vesting of such Award; and (vi) the restrictions, if any, placed upon such
Award, or upon shares which may be issued upon exercise of such Award. The
Chairman of the Committee and such other directors and officers as shall be
designated by the Committee is hereby authorized to execute Award Agreements on
behalf of the Company or an Affiliate and to cause them to be delivered to the
recipients of Awards.
A-3
<PAGE>
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
3. TYPES OF AWARDS.
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
(c) Stock Awards.
4. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 14 of the Plan, the maximum
number of shares reserved for Awards under the Plan is 354,932. Subject to
adjustment as provided in Section 14 of the Plan, the maximum number of shares
reserved hereby for purchase pursuant to the exercise of Options granted under
the Plan is 253,523. The maximum number of the shares reserved for Stock Awards
is 101,409. The shares of Common Stock issued under the Plan may be either
authorized but unissued shares or authorized shares previously issued and
acquired or reacquired by the Trustee or the Holding Company, respectively. To
the extent that Options and Stock Awards are granted under the Plan, the shares
underlying such Awards will be unavailable for any other use including future
grants under the Plan except that, to the extent that Stock Awards or Options
terminate, expire or are forfeited without having vested or without having been
exercised, new Awards may be made with respect to these shares.
5. ELIGIBILITY.
Subject to the terms of the Plan, all Employees and Outside Directors shall
be eligible to receive Awards under the Plan. In addition, the Committee may
grant eligibility to consultants and advisors of the Holding Company or an
Affiliate, as it sees fit.
6. NON-STATUTORY STOCK OPTIONS.
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-statutory Stock Options. The Committee shall determine the
term during which a Participant may exercise a Non-Statutory Stock Option, but
in no event may a Participant exercise a Non-Statutory Stock Option, in whole or
in part, more than ten (10) years from the Date of Grant. The Committee shall
also determine the date on which each Non-Statutory Stock Option, or any part
thereof, first becomes exercisable and any terms or conditions a Participant
must satisfy in order to exercise each Non-Statutory Stock Option. The shares of
Common Stock underlying each Non-Statutory Stock Option may be purchased in
whole or in part by the Participant at any time during the term of such
Non-Statutory Stock Option, or any portion thereof, once the Non-Statutory Stock
Option becomes exercisable.
(c) Non-Transferability. Unless otherwise determined by the Committee in
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit
A-4
<PAGE>
transferability or assignment of a Non-Statutory Stock Option if such transfer
or assignment is, in its sole determination, for valid estate planning purposes
and such transfer or assignment is permitted under the Code and Rule 16b-3 under
the Exchange Act. For purposes of this Section 6(c), a transfer for valid estate
planning purposes includes, but is not limited to: (a) a transfer to a revocable
intervivos trust as to which the Participant is both the settlor and trustee,
(b) a transfer for no consideration to: (i) any member of the Participant's
Immediate Family, (ii) any trust solely for the benefit of members of the
Participant's Immediate Family, (iii) any partnership whose only partners are
members of the Participant's Immediate Family, and (iv) any limited liability
corporation or corporate entity whose only members or equity owners are members
of the Participant's Immediate Family, or (c) a transfer to the Bay State
Federal Savings Charitable Foundation. For purposes of this Section 6(c),
"Immediate Family" includes, but is not necessarily limited to, a Participant's
parents, grandparents, spouse, children, grandchildren, siblings (including half
bothers and sisters), and individuals who are family members by adoption.
Nothing contained in this Section 6(c) shall be construed to require the
Committee to give its approval to any transfer or assignment of any
Non-Statutory Stock Option or portion thereof, and approval to transfer or
assign any Non-Statutory Stock Option or portion thereof does not mean that such
approval will be given with respect to any other Non-Statutory Stock Option or
portion thereof. The transferee or assignee of any Non-Statutory Stock Option
shall be subject to all of the terms and conditions applicable to such
Non-Statutory Stock Option immediately prior to the transfer or assignment and
shall be subject to any other conditions proscribed by the Committee with
respect to such Non-Statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death, or
Termination for Cause, the Participant may exercise only those Non-Statutory
Stock Options that were immediately exercisable by the Participant at the date
of such termination and only for a period of three (3) months following the date
of such termination.
(e) Termination of Employment or Service (Retirement). Unless otherwise
determined by the Committee, in the event of a Participant's Retirement, the
Participant may exercise only those Non-Statutory Stock Options that were
immediately exercisable by the Participant at the date of Retirement and only
for a period of three (3) years following the date of Retirement.
(f) Termination of Employment or Service (Disability or Death). Unless
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or other service due to Disability or death, all
Non-Statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination.
(g) Acceleration Upon a Change in Control. In the event of a Change in
Control, all Non-Statutory Stock Options held by a Participant as of the date of
the Change in Control shall immediately become exercisable and shall remain
exercisable until the expiration of the Non-Statutory Stock Option.
(h) Termination of Employment or Service (Termination for Cause). Unless
otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's
Non-Statutory Stock Options shall expire immediately upon the effective date of
such Termination for Cause.
(i) Payment. Payment due to a Participant upon the exercise of a
Non-Statutory Stock Option shall be made in the form of shares of Common Stock.
(j) Maximum Individual Award. No individual Employee shall be granted an
amount of Non-Statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 60-month period.
7. INCENTIVE STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine to the extent such terms and conditions are consistent with the
following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date
A-5
<PAGE>
of Grant; provided, however, that if at the time an Incentive Stock Option is
granted, the Employee owns or is treated as owning, for purposes of Section 422
of the Code, Common Stock representing more than 10% of the total combined
voting securities of the Holding Company ("10% Owner"), the Exercise Price shall
not be less than 110% of the Fair Market Value of the Common Stock on the Date
of Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; provided, however, that
if at the time an Incentive Stock Option is granted to an Employee who is a 10%
Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Incentive Stock Option. The
shares of Common Stock underlying each Incentive Stock Option may be purchased
in whole or in part at any time during the term of such Incentive Stock Option
after such Option becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be transferable
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by the
Committee, upon the termination of a Participant's employment or other service
for any reason other than Retirement, Disability or death, or Termination for
Cause, the Participant may exercise only those Incentive Stock Options that were
immediately exercisable by the Participant at the date of such termination and
only for a period of three (3) months following the date of such termination.
(f) Termination of Employment (Retirement). Unless otherwise determined by
the Committee, in the event of a Participant's Retirement, the Participant may
exercise only those Incentive Stock Options that were immediately exercisable by
the Participant at the date of Retirement and only for a period of three (3)
years following the Participant's cessation of employment. Any Option originally
designated as an Incentive Stock Option shall be treated as a Non-Statutory
Stock Options to the extent the Participant exercises such Option more than
three (3) months following the Participant's cessation of employment.
(g) Termination of Employment (Disability or Death). Unless otherwise
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination.
(h) Acceleration Upon a Change in Control. In the event of a Change in
Control, all Incentive Stock Options held by a Participant as of the date of the
Change in Control shall immediately become exercisable and shall remain
exercisable until the expiration of the term of the Incentive Stock Options. Any
Option originally designated as an Incentive Stock Option shall be treated as a
Non-Statutory Stock Option to the extent the Option does not otherwise qualify
as an Incentive Stock Option pursuant to Section 422 of the Code.
(i) Termination of Employment (Termination for Cause). Unless otherwise
determined by the Committee, in the event of an Employee's Termination for
Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(j) Payment. Payment due to a Participant upon the exercise of an Incentive
Stock Option shall be made in the form of shares of Common Stock.
A-6
<PAGE>
(k) Maximum Individual Award. No individual Employee shall be granted an
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 60-month period.
(l) Disqualifying Dispositions. Each Award Agreement with respect to an
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition.
8. STOCK AWARDS.
The Committee may make grants of Stock Awards, which shall consist of the
grant of some number of shares of Common Stock, to a Participant upon such terms
and conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
determined by the Committee, upon the termination of a Participant's employment
or service for any reason other than Retirement, Disability or death, or
Termination for Cause, any Stock Awards in which the Participant has not become
vested as of the date of such termination shall be forfeited and any rights the
Participant had to such Stock Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). Unless otherwise
determined by the Committee, in the event of a Participant's Retirement, any
Stock Awards in which the Participant has not become vested as of the date of
Retirement shall be forfeited and any rights the Participant had to such
unvested Stock Awards shall become null and void.
(e) Termination of Employment or Service (Disability or death). Unless
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
(f) Acceleration Upon a Change in Control. In the event of a a Change in
Control all unvested Stock Awards held by a Participant shall immediately vest.
(g) Termination of Employment or Service (Termination for Cause). Unless
otherwise determined by the Committee, or in the event of the Participant's
Termination for Cause, all Stock Awards in which the Participant had not become
vested as of the effective date of such Termination for Cause shall be forfeited
and any rights such Participant had to such unvested Stock Awards shall become
null and void.
(h) Maximum Individual Award. No individual Employee shall be granted an
amount of Stock Awards which exceeds 25% of all Stock Awards eligible to be
granted under the Plan within any 60-month period.
(i) Issuance of Certificates. Unless otherwise held in Trust and registered
in the name of the Trustee, reasonably promptly after the Date of Grant with
respect to shares of Common Stock pursuant to a Stock Award, the Holding Company
shall cause to be issued a stock certificate, registered in the name of the
Participant to whom such Stock Award was granted, evidencing such shares;
provided, that the Holding Company shall not cause such a stock certificate to
be issued unless it has received a stock power duly endorsed in blank with
respect to such shares. Each such stock certificate shall bear the following
legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and conditions
(including forfeiture provisions and restrictions
A-7
<PAGE>
against transfer) contained in the Bay State Bancorp, Inc. 1998 Stock-Based
Incentive Plan, as amended and restated and Award Agreement entered into
between the registered owner of such shares and Bay State Bancorp, Inc. or
its Affiliates. A copy of the Plan and Award Agreement is on file in the
office of the Corporate Secretary of Bay State Bancorp, Inc. located at
1299 Beacon St., Brookline, MA 02146.
Such legend shall not be removed until the Participant becomes vested in such
shares pursuant to the terms of the Plan and Award Agreement. Each certificate
issued pursuant to this Section 8(i), in connection with a Stock Award, shall be
held by the Holding Company or its Affiliates, unless the Committee determines
otherwise.
(j) Non-Transferability. Except to the extent permitted by the Code, the
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Stock Award
until full vesting of such shares has occurred. For purposes of
this section, the separation of beneficial ownership and legal
title through the use of any "swap" transaction is deemed to be a
prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution. The
designation of a beneficiary shall not constitute a transfer.
(iii) If a recipient of a Stock Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject to
such Stock Award may not, without the written consent of the
Committee (which consent may be given in the Award Agreement), be
sold or otherwise disposed of within six (6) months following the
date of grant of the Stock Award.
(k) Accrual of Dividends. To the extent Stock Awards are held in Trust and
registered in the name of the Trustee, unless otherwise specified by the Trust
Agreement whenever shares of Common Stock underlying a Stock Award are
distributed to a Participant or beneficiary thereof under the Plan, such
Participant or beneficiary shall also be entitled to receive, with respect to
each such share distributed, a payment equal to any cash dividends and the
number of shares of Common Stock equal to any stock dividends, declared and paid
with respect to a share of the Common Stock if the record date for determining
shareholders entitled to receive such dividends falls between the date the
relevant Stock Award was granted and the date the relevant Stock Award or
installment thereof is issued. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.
(l) Voting of Stock Awards. After a Stock Award has been granted but for
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(m) Payment. Payment due to a Participant upon the redemption of a Stock
Award shall be made in the form of shares of Common Stock.
A-8
<PAGE>
9. PERFORMANCE AWARDS.
(a) The Committee may determine to make any Award under the Plan contingent
upon the satisfaction of any conditions related to the performance of the
Holding Company, an Affiliate of the Participant. Each Performance Award shall
be evidenced in the Award Agreement, which shall set forth the applicable
conditions, the maximum amounts payable and such other terms and conditions as
are applicable to the Performance Award. Unless otherwise determined by the
Committee, each Performance Award shall be granted and administered to comply
with the requirements of Section 162(m) of the Code and subject to the following
provisions:
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any applicable conditions will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon satisfaction of the conditions but may reduce or
eliminate the payments as provided for in the Award Agreement.
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Company Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without cash
consideration.
(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(f) No Award or portion thereof that is subject to the satisfaction of any
condition shall be distributed or considered to be earned or vested until the
Committee certifies in writing that the conditions to which the distribution,
earning or vesting of such Award is subject have been achieved.
10. DEFERRED PAYMENTS.
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
11. METHOD OF EXERCISE OF OPTIONS.
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms permitted by the
Committee, including, without limitation, payment by delivery of cash, Common
Stock or other consideration (including, where permitted by law and the
Committee, Awards) having a Fair Market Value on the day immediately preceding
the exercise date equal to the total Exercise Price, or by any combination of
cash, shares of Common Stock and other consideration, including exercise by
means of a cashless exercise arrangement with a qualifying broker-dealer, as the
Committee may specify in the applicable Award Agreement.
12. RIGHTS OF PARTICIPANTS.
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
A-9
<PAGE>
13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by and
delivered to the Holding Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-Statutory Stock Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company. Notwithstanding the above, in the event of an extraordinary capital
distribution, any adjustment under this Section 14 shall be subject to required
approval by the Office of Thrift Supervision.
15. TAX WITHHOLDING.
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing provided, however,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan.
(b) If any disqualifying disposition described in Section 7(l) is made with
respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 16 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the Participant,
or, except in the case of any transfer pursuant to Section 6(c), from any shares
of Common Stock due to the Participant under this Plan.
16. NOTIFICATION UNDER SECTION 83(b).
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code, such
Participant shall notify the Committee of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
A-10
<PAGE>
17. AMENDMENT OF THE PLAN AND AWARDS.
(a) Except as provided in paragraph (c) of this Section 17, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law, regulation or otherwise. Failure to
ratify or approve amendments or modifications by shareholders shall be effective
only as to the specific amendment or modification requiring such ratification.
Other provisions of this Plan will remain in full force and effect. No such
termination, modification or amendment may adversely affect the rights of a
Participant under an outstanding Award without the written permission of such
Participant.
(b) Except as provided in paragraph (c) of this Section 17, the Committee
may amend any Award Agreement, prospectively or retroactively; provided,
however, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that has the effect of:
(i) Allowing any Option to be granted with an exercise below the Fair
Market Value of the Common Stock on the Date of Grant.
(ii) Allowing the exercise price of any Option previously granted
under the Plan to be reduced subsequent to the Date of Award.
(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any Award or right under this Plan would, in the opinion of the
Holding Company's accountants, cause a transaction to be ineligible for pooling
of interest accounting that would, but for such Award or right, be eligible for
such accounting treatment, the Committee, at its discretion, may modify, adjust,
eliminate or terminate the Award or right so that pooling of interest accounting
is available.
18. EFFECTIVE DATE OF PLAN.
The Plan was originally approved by shareholders and became effective on
September 29, 1998. The Plan as amended and restated became effective on April
20, 1999. The failure to obtain shareholder ratification of the amendments will
not effect the validity of the prior provisions of the Plan and any Awards made
under the Plan.
19. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards (is equivalent to the maximum number of shares
reserved under the Plan as set forth in Section 4 of the Plan. The Board of
Directors has the right to suspend or terminate the Plan at any time, provided
that no such action will, without the consent of a Participant, adversely affect
a Participant's vested rights under a previously granted Award.
20. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the state of
Delaware to the extent not pre-empted by applicable federal law.
21. COMPLIANCE WITH OFFICE OF THRIFT SUPERVISION CONVERSION REGULATIONS.
Notwithstanding any other provision contained in this Plan:
(a) No Option or Stock Award granted prior to March 27, 1999, shall become
vested or exercisable at a rate in excess of 20% per year of the total number of
Stock Awards or Options (whichever may be the case) granted to such Participant,
provided, that Awards shall become fully vested or immediately exercisable in
the event of a Participant's termination of service due to death or Disability
and provided, further, that Awards shall vest or become
A-11
<PAGE>
exercisable or the Committee may, in accordance with the applicable provisions
of the Plan, as amended, determine to modify the terms of any Award after March
27, 1999, to provide for acceleration of vesting or the exercisability of such
Award, including a modification or amendment to provide that such Award shall
become fully vested or immediately exercisable in the event of a Change in
Control;
(b) No Option or Stock Award granted to any individual Employee prior to
one year from the date of the Bank's Conversion may exceed 25% of the total
amount of Stock Awards or Options (whichever may be the case) which may be
granted under the Plan;
(c) No Option or Stock Award granted to any individual Outside Director
prior to March 27, 1999, may exceed 5% of the total amount of Stock Awards or
Options (whichever may be the case) which may be granted under the Plan; and
(d) The aggregate amount of Option or Stock Awards granted to all Outside
Directors prior to March 27, 1999 may not exceed 30% of the total amount of
Stock Awards or Options (whichever may be the case) which may be granted under
the Plan.
A-12
<PAGE>
APPENDIX B
BAY STATE BANCORP, INC.
1999 STOCK OPTION PLAN
1. DEFINITIONS.
(a) "Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Holding Company, as such term is defined in Sections 424(e) and 424(f) of
the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options and Incentive Stock Options.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award.
(d) "Bank" means Bay State Federal Savings Bank, Brookline, Massachusetts.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" means a change in control of the Holding Company or
the Bank of a nature that (i) would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Sections 13 or 15(d) of the Exchange Act; (ii) results in a "change
of control" or "acquisition of control" within the meaning of the regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency) found at 12 C.F.R. Part 574, as in effect on the date hereof; provided,
however, that in applying the definition of change in control as set forth under
such regulations the Board of Directors shall substitute its judgment for that
of the OTS; or (iii) without limitation Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding Company and any securities purchased by any
tax-qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a nominating committee serving under the Incumbent
Board, shall be, for purposes of this clause (B), considered as though he were a
member of the Incumbent Board; or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Association or
the Holding Company or similar transaction occurs in which the Bank or Holding
Company is not the resulting entity; or (D) a solicitation of shareholders of
the Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank or similar transaction with one or
more corporations, as a result of which the outstanding shares of the class of
securities then subject to the plan are exchanged for or converted into cash or
property or securities not issued by the Bank or the Holding Company; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors,
pursuant to Section 2 of the Plan, to administer the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(j) "Date of Grant" means the effective date of an Award.
B-1
<PAGE>
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "Disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevent the Participant from fulfilling his duties or
responsibilities to the Holding Company or an Affiliate.
(l) "Effective Date" means the date the Plan is approved by Holding Company
shareholders or, if not so approved, April 20, 1999, the date the Plan was
adopted by the Board of Directors.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal to
the closing price reported for such date;
(ii) If the Common Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.
(q) "Holding Company" means Bay State Bancorp, Inc.
(r) "Incentive Stock Option" means a stock option granted to a Participant,
pursuant to Section 7 of the Plan, that is intended to meet the requirements of
Section 422 of the Code.
(s) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(t) "Option" means an Incentive Stock Option or Non-Statutory Stock Option.
(u) "Outside Director" means a member of the Boards of Directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(v) "Participant" means any person who holds an outstanding Award.
(w) "Performance Award" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(x) "Plan" means this Bay State Bancorp, Inc. 1999 Stock Option Plan.
B-2
<PAGE>
(y) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the current retirement policies of the
Holding Company or Affiliate, as applicable. "Retirement" with respect to an
Outside Director means the termination of service from the Board of Directors of
the Holding Company and any Affiliate following written notice to the Board of
Directors of such Outside Director's intention to retire.
(z) "Termination for Cause" shall mean, in the case of an Outside Director,
removal from the board(s) of directors of the Holding Company and its Affiliates
in accordance with the applicable by-laws of the Holding Company and its
Affiliates or, in the case of an Employee, as defined under any employment
agreement with the Holding Company or an Affiliate; provided, however, that if
no employment agreement exists with respect to the Employee, Termination for
Cause shall mean termination of employment because of a material loss to the
Holding Company or an Affiliate, as determined by and in the sole discretion of
the Board of Directors or its designee(s).
2. ADMINISTRATION.
(a) The Committee shall administer the Plan. The Committee shall consist of
two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall be
deemed to be "disinterested" only if he satisfies (i) such requirements as the
Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under Section 16 of the Exchange
Act or for whom Awards are not intended to satisfy the provisions of Section
162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and (iv) make all other decisions relating to the operation of the
Plan. The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be approved by the Committee. Each
Award Agreement shall constitute a binding contract between the Holding Company
or an Affiliate and the Participant, and every Participant, upon acceptance of
the Award Agreement, shall be bound by the terms and restrictions of the Plan
and the Award Agreement. The terms of each Award Agreement shall be in
accordance with the Plan, but each Award Agreement may include such additional
provisions and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan. In particular and at a minimum, the Committee shall
set forth in each Award Agreement (i) the type of Award granted (ii) the
Exercise Price of any Option, (iii) the number of shares subject to the Award;
(iv) the expiration date of the Award, (v) the manner, time, and rate
(cumulative or otherwise) of exercise or vesting of such Award, and (vi) the
restrictions, if any, placed upon such Award, or upon shares which may be issued
upon exercise of such Award. The Chairman of the Committee and such other
directors and officers as shall be designated by the Committee is hereby
authorized to execute Award Agreements on behalf of the Company or an Affiliate
and to cause them to be delivered to the recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
B-3
<PAGE>
3. TYPES OF AWARDS.
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
4. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 14 of the Plan, the maximum
number of shares reserved hereby for purchase pursuant to the exercise of
Options and Option-related Awards granted under the Plan is 120,423, which
number shall not exceed five percent (5%) of the outstanding shares of Common
Stock as of the date the Board of Directors adopted the Plan. The shares of
Common Stock issued under the Plan may be either authorized but unissued shares
or authorized shares previously issued and acquired or reacquired by the Bank.
To the extent that Options are granted under the Plan, the shares underlying
such Options will be unavailable for any other use including future grants under
the Plan except that, to the extent that such Options terminate, expire, or are
forfeited without having been exercised new Awards may be made with respect to
these shares.
5. ELIGIBILITY.
Subject to the terms of the Plan, all Employees and Outside Directors shall
be eligible to receive Awards under the Plan. In addition, the Committee may
grant eligibility to consultants and advisors of the Holding Company or an
Affiliate.
6. NON-STATUTORY STOCK OPTIONS.
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-statutory Stock Options. The Committee shall determine the
term during which a Participant may exercise a Non-Statutory Stock Option, but
in no event may a Participant exercise a Non-Statutory Stock Option, in whole or
in part, more than ten (10) years from the Date of Grant. The Committee shall
also determine the date on which each Non-Statutory Stock Option, or any part
thereof, first becomes exercisable and any terms or conditions a Participant
must satisfy in order to exercise each Non-Statutory Stock Option. The shares of
Common Stock underlying each Non-Statutory Stock Option may be purchased, in
whole or in part, by the Participant at any time during the term of such
Non-Statutory Stock Option, after such Option becomes exercisable.
(c) Non-Transferability. Unless otherwise determined by the Committee in
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Non-Statutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, (b) a transfer for no consideration
to: (i) any member of the Participant's Immediate Family, (ii) any trust solely
for the benefit of members of the Participant's Immediate Family, (iii) any
partnership whose only partners are members of the Participant's Immediate
Family, and (iv) any limited liability corporation or corporate entity whose
only members or equity owners are members of the Participant's Immediate Family,
or (c) the Bay State Federal Savings Charitable Foundation. For purposes of this
Section 6(c), "Immediate Family" includes, but is not necessarily limited to, a
Participant's parents, grandparents, spouse, children, grandchildren, siblings
(including half bothers and sisters), and
B-4
<PAGE>
individuals who are family members by adoption. Nothing contained in this
Section 6(c) shall be construed to require the Committee to give its approval to
any transfer or assignment of any Non-Statutory Stock Option or portion thereof,
and approval to transfer or assign any Non-Statutory Stock Option or portion
thereof does not mean that such approval will be given with respect to any other
Non-Statutory Stock Option or portion thereof. The transferee or assignee of any
Non-Statutory Stock Option shall be subject to all of the terms and conditions
applicable to such Non-Statutory Stock Option immediately prior to the transfer
or assignment and shall be subject to any other conditions proscribed by the
Committee with respect to such Non-Statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death, or
Termination for Cause, the Participant may exercise only those Non-Statutory
Stock Options that were immediately exercisable by the Participant at the date
of such termination and only for a period of three (3) months following the date
of such termination.
(e) Termination of Employment or Service (Retirement). Unless otherwise
determined by the Committee, in the event of a Participant's Retirement, the
Participant's may exercise only those Non-Statutory Stock Options that were
immediately exercisable by the Participant at the date of Retirement and only
for a period of three (3) years following the date of Retirement.
(f) Termination of Employment or Service (Disability or death). Unless
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or other service due to Disability or death, all
Non-Statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination.
(g) Termination of Employment or Service (Termination for Cause). Unless
otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's
Non-Statutory Stock Options shall expire immediately upon the effective date of
such Termination for Cause.
(h) Acceleration Upon a Change in Control. In the event of a Change in
Control, all Non-Statutory Stock Options held by such Participant shall
immediately become exercisable and remain exercisable until the expiration of
the term of the Non-Statutory Stock Option.
(i) Payment. Payment due to a Participant upon the exercise of a
Non-Statutory Stock Option shall be made in the form of shares of Common Stock.
(j) Maximum Individual Award. No individual Employee shall be granted an
amount of Non-Statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 12-month period.
7. INCENTIVE STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but not previously awarded under
this Plan, grant Incentive Stock Options to an Employee upon such terms and
conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant;
provided, however, that if at the time an Incentive Stock Option is granted, the
Employee owns or is treated as owning, for purposes of Section 422 of the Code,
Common Stock representing more than 10% of the total combined voting securities
of the Holding Company ("10% Owner"), the Exercise Price shall not be less than
110% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
B-5
<PAGE>
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; provided, however, that
if at the time an Incentive Stock Option is granted to an Employee who is a 10%
Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Incentive Stock Option. The
shares of Common Stock underlying each Incentive Stock Option may be purchased,
in whole or in part, at any time during the term of such Incentive Stock Option,
after such Option becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be transferable
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by the
Committee, upon the termination of a Participant's employment or other service
for any reason other than Retirement, Disability or death, or Termination for
Cause, the Participant may exercise only those Incentive Stock Options that were
immediately exercisable by the Participant at the date of such termination and
only for a period of three (3) months following the date of such termination.
(f) Termination of Employment (Retirement). Unless otherwise determined by
the Committee, in the event of a Participant's Retirement, the Participant may
exercise only those Incentive Stock Options that were immediately exercisable by
the Participant at the date of Retirement and only for a period of three (3)
years following the date of Retirement. Any Option originally designated as an
Incentive Stock Option shall be treated as a Non-Statutory Stock Options to the
extent the Participant exercises such Option more than three (3) months
following the Date of the Participant's cessation of employment.
(g) Termination of Employment (Disability or Death). Unless otherwise
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination.
(h) Termination of Employment (Termination for Cause). Unless otherwise
determined by the Committee, in the event of an Employee's Termination for
Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(i) Acceleration Upon a Change in Control. In the event of a Change in
Control, all Incentive Stock Options held by such Participant shall become
immediately exercisable and remain exercisable until the expiration of the term
of the Incentive Stock Option. Any Option originally designated as an Incentive
Stock Option shall be treated as a Non-Statutory Stock Options to the extent the
Participant exercises such Option more than three (3) months following the
Participant's cessation from employment.
(j) Payment. Payment due to a Participant upon the exercise of an Incentive
Stock Option shall be made in the form of shares of Common Stock.
(k) Maximum Individual Award. No individual Employee shall be granted an
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 12-month period.
(l) Disqualifying Dispositions. Each Award Agreement with respect to an
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition.
B-6
<PAGE>
8. PERFORMANCE AWARDS.
(a) The Committee may determine to make any Award under the Plan contingent
upon the satisfaction of any conditions related to the performance of the
Holding Company, an Affiliate, or the Participant. Each Performance Award shall
be evidenced in the Award Agreement, which shall set forth the applicable
conditions, the maximum amounts payable and such other terms and conditions as
are applicable to the Performance Award. Unless otherwise determined by the
Committee, each Performance Award shall be granted and administered to comply
with the requirements of Section 162(m) of the Code and subject to the following
provisions:
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any applicable conditions will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon satisfaction of the conditions but may reduce or
eliminate the payments as provided for in the Award Agreement.
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) No Award or portion thereof that is subject to the satisfaction of any
condition shall be considered to be earned or vested until the Committee
certifies in writing that the conditions to which the distribution, earning or
vesting of such Award is subject have been achieved.
9. GRANTS IN THE EVENT OF A CHANGE IN CONTROL
(a) In the event of a Change in Control, Options then available for grant
under this Plan pursuant to Section 4 shall be automatically granted among those
current Employees and current Outside Directors who have previously been granted
Options under this Plan or granted options to purchase common stock under the
Bay State Bancorp, Inc. 1998 Stock-Based Incentive Plan as amended and restated
(the "1998 Plan"), as of the date of the Change in Control. The number of shares
subject to Options to be granted to each such individual pursuant to this
Section 9 shall be determined by multiplying the number of Options to purchase
shares of Common Stock then available for grant to Employees and Outside
Directors, respectively, pursuant to Section 4 of the Plan by a fraction, the
numerator of which is the number of Options to purchase shares of Common Stock
previously granted to that individual under this Plan plus the options to
purchase common stock previously granted to that individual under the 1998 Plan
(whether or not yet exercised), and the denominator of which is the total number
of Options to purchase shares of Common Stock previously granted to all
Employees (whether or not yet exercised), in the case of an Employee, and all
current Outside Directors, in the case of an Outside Director, under this Plan
and the 1998 Plan.
(b) The Exercise Price for any Option granted pursuant to this Section 9
shall be the weighted average Exercise Price of all Options, as adjusted
pursuant to Section 14 of the Plan, granted under this Plan plus the options to
purchase common stock previously granted to that individual under the 1998 Plan,
whether such previously granted Option has been exercised or is exercisable or
unexercisable, to the respective Employee or Outside Director prior to the
Change in Control.
(c) All Options granted pursuant to this Section 9 shall be 100% vested and
exercisable upon a Change in Control and shall remain exercisable for a period
of ten (10) years from the date of grant.
10. DEFERRED PAYMENTS.
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
B-7
<PAGE>
11. METHOD OF EXERCISE OF OPTIONS.
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms, including, without
limitation, payment by delivery of cash, Common Stock or other consideration
(including, where permitted by law and the Committee, Awards) having a Fair
Market Value on the exercise date equal to the total Exercise Price, or by any
combination of cash, shares of Common Stock and other consideration, including
exercise by means of a cashless exercise arrangement with a qualifying
broker-dealer or a constructive stock swap, as the Committee may specify in the
applicable Award Agreement.
12. RIGHTS OF PARTICIPANTS.
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by and
delivered to the Holding Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-statutory Stock Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company. Notwithstanding the above, in the event of an extraordinary capital
distribution, any adjustment under this Section 14 shall be subject to required
approval by the Office of Thrift Supervision.
15. TAX WITHHOLDING.
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise of an Award or any other event with respect to rights
and benefits hereunder, the Committee shall be entitled to require as a
condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the
B-8
<PAGE>
foregoing provided, however, that no amount shall be withheld from any cash
payment or shares of Common Stock relating to an Award which was transferred by
the Participant in accordance with this Plan.
(b) If any disqualifying disposition described in Section 7(l) is made with
respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 16 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the Participant,
or, except in the case of any transfer pursuant to Section 6(c), from any shares
of Common Stock due to the Participant under this Plan.
16. NOTIFICATION UNDER SECTION 83(b).
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option make the election permitted
under Section 83(b) of the Code, such Participant shall notify the Committee of
such election within 10 days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Code.
17. AMENDMENT OF THE PLAN AND AWARDS.
(a) Except as provided in paragraph (c) of this Section 17, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law or regulation. Failure to ratify or
approve amendments or modifications by shareholders shall be effective only as
to the specific amendment or modification requiring such approval or
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) Except as provided in paragraph (c) of this Section 17, the Committee
may amend any Award Agreement, prospectively or retroactively; provided,
however, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that has the effect of:
(i) Allowing any Option to be granted with an exercise below the Fair
Market Value of the Common Stock on the Date of Grant.
(ii) Allowing the exercise price of any Option previously granted
under the Plan to be reduced subsequent to the Date of Award.
(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any Award or right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for such Award or
right, be eligible for such accounting treatment, the Committee may modify or
adjust the Award or right so that pooling of interest accounting is available.
18. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon approval by the Holding Company's
shareholders or, if not so approved, on April 20, 1999, the date the Plan was
adopted by the Board of Directors. The failure to obtain shareholder
ratification for such purposes will not effect the validity of the Plan and any
Awards made under the Plan; provided, however, that if the Plan is not ratified
by stockholders in accordance with IRS regulations, the Plan may remain in full
force and
B-9
<PAGE>
effect, unless terminated by the Board of Directors, and any Incentive Stock
Options granted under the Plan shall be deemed to be Non-Statutory Stock Options
and any Award intended to comply with Section 162(m) of the Code shall not
comply with Section 162(m) of the Code.
19. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; or (ii) the issuance of a
number of shares of Common Stock pursuant to the exercise of Options is
equivalent to the maximum number of shares reserved under the Plan as set forth
in Section 4 of the Plan. The Board of Directors has the right to suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
20. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the state of
Delaware and applicable federal law.
B-10
<PAGE>
REVOCABLE PROXY
BAY STATE BANCORP, INC.
ANNUAL MEETING OF SHAREHOLDERS
July 22, 1999
2:00 p.m. Eastern Time
-------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the official proxy committee of Bay State
Bancorp, Inc. (the "Company") each with full power of substitution, to act as
proxy for the undersigned, and to vote all shares of common stock of the Company
which the undersigned is entitled to vote only at the Annual Meeting of
Shareholders, to be held on July 22, 1999, at 2:00 p.m. Eastern Time, at the
Double Tree Guest Suites, 550 Winter Street, Waltham, Massachusetts, and at any
and all adjournments thereof, with all of the powers the undersigned would
possess if personally present at such meeting as follows:
1. The election as directors of all nominees listed (except as marked to the
contrary below).
John F. Murphy, Leo F. Grace and Richard F. Hughes
FOR ALL
FOR VOTE WITHHELD EXCEPT
--- ------------- ------
|_| |_| |_|
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR ALL
EXCEPT" and write that nominee's name on the line provided below.
- --------------------------------------------------------------------------------
2. The ratification of the Amended and Restated Bay State Bancorp, Inc. 1998
Stock-Based Incentive Plan.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
3. The approval of the Bay State Bancorp, Inc. 1999 Stock Option Plan.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
4. The ratification of the appointment of Shatswell, MacLeod & Company, P.C.
as independent auditors of Bay State Bancorp, Inc. for the fiscal year
ending March 31, 2000.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
<PAGE>
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted "FOR" each of the proposals
listed. If any other business is presented at the Annual Meeting, including
whether or not to adjourn the meeting, this proxy will be voted by the proxies
in their best judgment. At the present time, the Board of Directors knows of no
other business to be presented at the Annual Meeting.
Dated:___________________________
_________________________________
SIGNATURE OF SHAREHOLDER
_________________________________
SIGNATURE OF CO-HOLDER (IF ANY)
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Shareholders and of a
Proxy Statement dated June 14, 1999 and of the Annual Report to Shareholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
-----------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.