<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
12 E. BROAD STREET
HAZLETON, PENNSYLVANIA 18201
(717) 459-3700
September 9, 1998
Fellow Shareholders:
You are cordially invited to attend the special meeting of shareholders
(the "Special Meeting") of Northeast Pennsylvania Financial Corp. (the
"Company"), the holding company for First Federal Bank (the "Bank"), in order to
consider the approval of the Northeast Pennsylvania Financial Corp. 1998
Stock-Based Incentive Plan ("Incentive Plan" or "Plan") and such other matters
as may properly come before the Special Meeting, which will be held on October
21, 1998, at 11:00 a.m., Eastern Time, at Genetti's Best Western Motor Lodge,
Route 309 North, Hazleton, Pennsylvania.
The attached Notice of the Special Meeting and Proxy Statement describe
the Incentive Plan. Directors and officers of the Company will be present at the
Special Meeting to respond to any questions that our shareholders may have
regarding the Incentive Plan.
The Board of Directors of Northeast Pennsylvania Financial Corp. has
determined that approval of the Incentive Plan at the Special Meeting is in the
best interests of the Company and its shareholders. FOR THE REASONS SET FORTH IN
THE PROXY STATEMENT, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE PLAN.
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.
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/ Thomas L. Kennedy
Thomas L. Kennedy
Chairman of the Board
<PAGE> 3
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
12 E. BROAD STREET
HAZLETON, PENNSYLVANIA 18201
----------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 1998
----------------------------------
NOTICE IS HEREBY GIVEN that the special meeting of shareholders (the
"Special Meeting") of Northeast Pennsylvania Financial Corp. (the "Company"),
the holding company for First Federal Bank will be held on October 21, 1998, at
11:00 a.m., Eastern Time, at Genetti's Best Western Motor Lodge, Route 309
North, Hazleton, Pennsylvania.
The purpose of the Special Meeting is to consider and vote upon the
following matters:
1. The approval of the Northeast Pennsylvania Financial Corp.
1998 Stock-Based Incentive Plan; and
2. 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 August 31, 1998, as the record
date for the determination of shareholders entitled to receive notice of and to
vote at the Special 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 Special Meeting or any adjournments
thereof. In the event there are not sufficient votes for a quorum or to approve
the foregoing proposal at the time of the Special Meeting, the Special Meeting
may be adjourned in order to permit further solicitation of proxies by the
Company. A list of shareholders entitled to vote at the Special Meeting will be
available at Northeast Pennsylvania Financial Corp., 12 E. Broad Street,
Hazleton, Pennsylvania 18201, for a period of ten days prior to the Special
Meeting and will also be available at the Special Meeting itself.
By Order of the Board of Directors
/s/ Megan Kennedy
Megan Kennedy
Corporate Secretary
Hazleton, Pennsylvania
September 9, 1998
<PAGE> 4
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
-----------------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 21, 1998
-----------------------
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is being furnished to shareholders of Northeast
Pennsylvania Financial Corp. (the "Company") in connection with the solicitation
by the Board of Directors ("Board of Directors" or "Board") of proxies to be
used at the special meeting of shareholders, to be held on October 21, 1998 (the
"Special Meeting"), and at any adjournments thereof. This Proxy Statement is
first being mailed to record holders of the Company's common stock (the "Common
Stock") on or about September 9, 1998.
Regardless of the number of shares of Common Stock owned, it is
important that shareholders be represented by proxy or in person at the Special
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. THE PROXIES ARE SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
AND WILL BE VOTED IN ACCORDANCE WITH THE DIRECTIONS GIVEN THEREIN. WHERE NO
INSTRUCTIONS ARE INDICATED, SIGNED PROXY CARDS WILL BE VOTED "FOR" THE APPROVAL
OF THE NORTHEAST PENNSYLVANIA FINANCIAL CORP. 1998 STOCK-BASED INCENTIVE PLAN
(THE "INCENTIVE PLAN").
Other than the vote upon the Northeast Pennsylvania Financial Corp.
1998 Stock-Based Incentive Plan ("Proposal 1"), the Board of Directors knows of
no additional matters that will be presented for consideration at the Special
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
SPECIAL MEETING AND AT ANY ADJOURNMENTS THEREOF, INCLUDING WHETHER OR NOT TO
ADJOURN THE SPECIAL 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 Special 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 vote personally at the
Special Meeting.
The cost of solicitation of proxies on behalf of the Board of Directors
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 Special 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, First Federal Bank (the
<PAGE> 5
"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.
VOTING SECURITIES
The securities which may be voted at the Special Meeting consist of
shares of Common Stock, with each share entitling its owner to one vote on all
matters to be voted on at the Special Meeting, except as described below.
The close of business on August 31, 1998, 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 Special Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 6,427,350 shares.
As provided in the Company's Certificate of Incorporation, for quorum
purposes, record holders of shares of Common Stock which are beneficially owned
by a person who beneficially owns in excess of 10% of the outstanding shares of
Common Stock (the "Limit") are not entitled to any vote in respect of shares
owned in excess of the Limit (the "Excess Shares") and such Excess Shares 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 Special
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 Special Meeting, the Special
Meeting may be adjourned in order to permit the further solicitation of proxies.
As to the proposed approval of the Incentive Plan submitted for
shareholder action set forth in Proposal 1, the proxy card being provided by the
Board of Directors enables a shareholder to check the appropriate box on the
proxy card to (i) vote "FOR" Proposal 1, (ii) vote "AGAINST" Proposal 1, or
(iii) "ABSTAIN" from voting on such item. Under Delaware law and the Company's
Bylaws, an affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the Special Meeting at which a quorum is
present and entitled to vote on Proposal 1 is required to constitute shareholder
approval of Proposal 1. Shares as to which the "ABSTAIN" box has been selected
on the proxy card with respect to Proposal 1 will be counted as present at the
Special Meeting for quorum purposes and entitled to vote on the matter
presented.
2
<PAGE> 6
Thus, "ABSTAIN" votes have the effect of a vote against the matter for which the
"ABSTAIN" box has been selected. Shares underlying "broker non-votes" also will
be counted for purposes of determining whether a quorum is present but will not
be counted as entitled to vote on Proposal 1 and thus will have the effect of
counting as a vote against Proposal 1. For further information on the vote
required to implement Proposal 1 during the first year following the Bank's
conversion from mutual to stock form, which was completed on March 31, 1998
("Conversion"), see the discussion under Proposal 1 herein.
Proxies solicited hereby are to be returned to the Company's transfer
agent, Registrar and Transfer Company. Registrar and Transfer Company is not
otherwise employed by, or a director of, the Company or any of its affiliates.
The Board of Directors has designated Kissel-Blake, Inc. to act as inspectors of
election and tabulate the votes at the Special Meeting. Except for its role as
proxy solicitor, Kissel-Blake, Inc. is not otherwise employed by, or a director
of, the Company or any of its affiliates. After the final adjournment of the
Special Meeting, the proxies will be returned to the Company.
3
<PAGE> 7
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 Securities and Exchange Commission ("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>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ---------------- ----------------------- --------------- ----------
<S> <C> <C> <C>
Common Stock First Federal Bank Employee Stock 514,188(1) 8.0%
Ownership Plan and Trust ("ESOP")
12 E. Broad Street
Hazleton, Pennsylvania 18201
Common Stock First Federal Charitable Foundation
12 E. Broad Street
Hazleton, Pennsylvania 18201 476,100(2) 7.4%
Common Stock Bay Pond Partners, L.P.
75 State Street
Boston, Massachusetts 02109 339,300(3) 5.3%
</TABLE>
- --------------------------
(1) Shares of Common Stock were acquired by the ESOP in the Bank's
Conversion. The ESOP Committee administers the ESOP. First Bankers
Trust, N.A has been appointed as the trustee for the ESOP ("ESOP
Trustee"). The ESOP Trustee must vote all allocated shares held in the
ESOP in accordance with the instructions of the participants. At August
31, 1998, no shares had been allocated under the ESOP. Each
participant, however, will be deemed to have one share of Common Stock
in the ESOP allocated to such participant's account for the purpose of
providing voting instructions to the ESOP Trustee. 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 fiduciary provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(2) First Federal Charitable Foundation (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 charitable purposes
within the communities in which the Bank operates. The Foundation is
governed by a board of directors with five members, four of whom are
existing directors and officers of the Company and the Bank. The fifth
is an individual from the Bank's community. Pursuant to the terms of
the contribution of Common Stock, 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 stockholders
of the Company.
(3) Based on information filed in a Schedule 13G on April 15, 1998, Bay
Pond Partners, L.P. may be deemed the beneficial owners of 339,300
shares.
4
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of August 25, 1998 as to
shares of Common Stock beneficially owned by directors and Named Executive
Officers by all Executive Officers and directors as a group. Ownership
information is based upon information furnished by the respective individuals.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME TITLE(1) OWNED(2)(3) CLASS(4)
- ------- --------- ------------------ ------------
DIRECTORS
<S> <C> <C> <C>
Thomas L. Kennedy Chairman of the Board and 40,102 *
General Counsel of the Bank
E. Lee Beard President, Chief Executive Officer 17,726 *
and Director
Paul L. Conard Director 2,500 *
William R. Davidson Director 10,000 *
Barbara M. Ecker Director 25,000 *
R. Peter Haentjens, Jr. Director 20,000 *
John P. Lavelle Director 17,500 *
Michael J. Leib Director 20,000 *
William J. Spear Director 14,000 *
All directors and
executive officers as a
group (13 persons) 199,411 3.1%
- --------------------
</TABLE>
* Does not exceed 1.0% of the Company's voting securities.
(1) Titles are for both the Company and the Bank unless otherwise
indicated.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting and dispositive power as to shares
reported.
(3) Does not include options and awards intended to be granted under the
Incentive Plan, which is subject to stockholder approval. For a
discussion of the options and awards that are intended to be granted
under the Incentive Plan, see Proposal 1.
(4) As of the Record Date, there were 6,427,350 shares of Common Stock
outstanding.
5
<PAGE> 9
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The Company is presenting the Incentive Plan for approval under which
all directors, officers and employees of the Bank and the Company are eligible
to receive awards. See Proposal 1 for a summary of the material terms of the
Incentive Plan.
DIRECTORS' COMPENSATION
BOARD FEES. Directors of the Company receive an annual retainer of
$4,000 but do not receive additional fees for meetings of the Board of Directors
of the Company. All directors of the Bank receive an annual retainer of $10,500
a year, paid quarterly, and $325 for each Bank Board meeting attended. All
non-employee directors of the Bank also receive $325 for each committee meeting
attended. Directors may defer receipt of fees under the Bank's deferred
compensation plan.
INCENTIVE PLAN. The Company is presenting to shareholders for approval
the Incentive Plan, under which all directors of the Company and the Bank are
eligible to receive awards. See Proposal 1 for a summary of the material terms
of the Incentive Plan.
ADVISORY BOARDS. The Bank has three advisory boards serving Schuylkill,
Columbia and Carbon counties. Each advisory board meets four times per year.
Such Advisory Boards, which are composed of members of the Bank's Board of
Directors, officers of the Bank and other members of the communities that the
Bank serves are designed to provide the Bank with a forum for exchanging ideas
with members of its local communities so that the Bank may better serve the
needs of its customers and communities it serves. Each director of the Bank and
the other individuals who are not employees of the Bank who serve on the
Advisory Boards receive $150 for each meeting attended.
DIRECTOR EMERITUS. The Bank has entered into a consulting agreement
with a director emeritus. The consulting agreement provides for a one-year term
and a $10,000 annual consulting fee. The Director Emeritus is required to attend
six (6) Advisory Board meetings and to be available for advice and counsel at
the request of the Board of Directors. The Director Emeritus does not receive
Advisory Board meeting fees.
6
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table shows, for the fiscal
year ended September 30, 1997 the cash compensation paid, as well as certain
other compensation paid or accrued for that year to the Chief Executive Officer
of the Company and the Bank ("Named Executive Officer"). No other executive
officer of the Company or Bank earned in excess of $100,000 in salary and bonus
in fiscal year 1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
YEAR(1) ($)(2) ($)(3) ($)(4) ($)(5) (#)(6) ($)(7) ($)(8)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. Lee Beard 1997 $148,770 $23,059 -- -- -- $4,626
President and Chief Executive
Officer of the Company and the
Bank
</TABLE>
(1) Neither the Company nor its predecessor, the Bank, was a reporting
company with respect to the 1996 and 1995 fiscal years.
(2) Under Annual Compensation, the column titled "Salary" includes
directors' fees and amounts deferred by the Named Executive Officer
pursuant to the Bank's 401(k) Plan.
(3) Bonus equals the amount earned under the First Federal Bank Performance
Incentive Plan.
(4) For 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. For 1997, the
Bank had no restricted stock or stock related plans in existence.
(5) No stock awards were granted or earned in 1997. See Proposal 1.
(6) No stock options or SARs were earned or granted in 1997. See Proposal
1.
(7) For 1997, there were no payouts or awards under any long-term incentive
plan.
(8) Other Compensation includes the Bank's matching contribution under the
Bank's 401(k) Plan. The Named Executive Officer currently participates
in the Bank's Employee Stock Ownership Plan. The Plan became effective
January 1, 1998.
EMPLOYMENT AGREEMENTS. The Bank and the Company have entered into
employment agreements with Ms. Beard and Mr. Kennedy, (individually, the
"Executive") (collectively, the "Employment Agreements") which became effective
as of March 31, 1998. 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 Ms. Beard and Mr. Kennedy.
The Employment Agreements provide for three-year terms for each
Executive. The term of the Employment Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of Directors.
The Employment Agreements provide that the Executive's base salary will be
reviewed annually. The base salaries which will be effective for such Employment
Agreements for Ms. Beard and Mr. Kennedy will be $182,000 and $118,000,
respectively. In addition to the base salary, the Employment Agreements provide
for, among other things, participation in stock benefits plans and other fringe
benefits applicable to similarly situated executive personnel. The Employment
Agreements provide for termination by the Bank or the Company for cause, as
defined in the Employment 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,
7
<PAGE> 11
or in the event of the Executive's resignation from the Bank and the Company
upon: (i) failure to re-elect the Executive to his current offices; (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, his beneficiary would be entitled to receive an amount
equal to the remaining base salary 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 and the Company during the remaining term of
the Employment Agreement. 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 termination of 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, if voluntary or involuntary
termination follows a change in control of the Bank or the Company, the
Executive or, in the event of the Executive's death, his beneficiary, would be
entitled to a severance payment equal to the greater of: (i) the payments due
for the remaining terms of the agreement; or (ii) three times the average of the
five preceding taxable years' annual compensation. The Bank and the Company
would also continue the Executive's life, health, and disability coverage for
thirty-six months. Notwithstanding that both the Bank and Company 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.
Payments to the Executive under the Bank's 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's 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. In the event of a change in control of the Bank or
the Company, the total amount of payments due under both of the Agreements,
based solely on the current base salaries for Ms. Beard and Mr. Kennedy and
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $900,000.
EMPLOYEE BENEFIT PLANS
INCENTIVE PLAN. The Company is presenting to stockholders for approval
the Incentive Plan under which all eligible employees of the Company and the
Bank are eligible to receive awards. See Proposal 1 for a summary of the
material terms of the Incentive Plan.
RETIREMENT PLAN. The Bank participates in the Financial Institutions
Retirement Fund (the "Retirement Fund") 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
8
<PAGE> 12
participating 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 an 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 benefits under the Retirement Plan. The table below reflects the pension
benefit payable to a participant assuming various levels of earnings and years
of service.
The following table sets forth the estimated annual benefits payable
upon retirement at age 65 for the period ended September 30, 1997.
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
FIVE YEAR AVERAGE ----------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- -------------------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 15,000 $ 5,000 $ 6,000 $ 8,000 $ 9,000 $ 11,000
$ 30,000 9,000 12,000 15,000 18,000 21,000
$ 45,000 14,000 18,000 23,000 27,000 32,000
$ 60,000 18,000 24,000 30,000 36,000 42,000
$ 75,000 23,000 30,000 38,000 45,000 53,000
$ 90,000 27,000 36,000 45,000 54,000 63,000
$105,000 32,000 42,000 53,000 63,000 74,000
$120,000 36,000 48,000 60,000 72,000 84,000
$135,000 41,000 54,000 68,000 81,000 95,000
$150,000 45,000 60,000 75,000 90,000 105,000
$160,000 48,000 64,000 80,000 96,000 112,000
</TABLE>
The benefits listed in the table above for the Retirement Plan are not
subject to a deduction for Social Security benefits or any other offset amount.
As of September 30, 1997, E. Lee Beard had three years, nine months of credited
service.
DEFERRED COMPENSATION PLAN. The Bank maintains a deferred compensation
plan for selected employees of First Federal Bank and directors of the Bank who
desire to defer a portion of their compensation. This plan is a non-qualified
deferred compensation plan which provides key employees and directors an
opportunity to defer receipt of a portion of their compensation, including any
bonuses, payable to them by the Bank until a separation from service or death.
Upon a participant's separation from service the participant shall receive his
or her account balance in a lump sum cash payment unless the participant elects
to receive installment payments over a period of time not to exceed ten years.
In the event of a participant's death, the value of the participant's account
balance shall be paid to a designated beneficiary or, if none, by the
participant's surviving spouse or
9
<PAGE> 13
estate in a single sum cash payment. If a participant owes any amounts to the
Bank at the time of his or her distribution, the Bank has the right to offset
such amounts against the participant's account balance.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Bank implemented a
supplemental executive retirement plan to provide for supplemental benefits to
employees whose benefits under the ESOP and/or 401(k) Plan are reduced by
limitations imposed by the Code. From time to time, the Board will designate
which employees may participate in this additional supplemental executive
retirement plan. This supplemental executive retirement plan is an "unfunded"
promise to pay supplemental benefits in the future and the benefits under the
plan remain subject to the claims of the Bank's general creditors until they are
paid to plan participants. The Bank may establish a grantor trust in connection
with the plan to satisfy the obligations of the Bank under the plan. The grantor
trust would be permitted to invest in a wide-variety of investments, including
Company Common Stock.
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Bank implemented
a non-qualified Management Supplemental Executive Retirement Plan ("MSERP") to
provide certain officers and highly compensated employees of the Bank and its
affiliates, including the Company, with additional retirement benefits. The
MSERP 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 MSERP are
determined by first: (i) projecting the number of shares that would have been
allocated to the participant under the ESOP if they had been employed throughout
the period of the ESOP loan (measured from the participant's first date of ESOP
participation); and (ii) first reducing the number determined by (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 represent the
difference between such figures by the average fair market value of the Common
Stock over the preceding five years. Benefits under the MSERP vest in 20% annual
increments over a five year period commencing as of the date of a Participant's
participation in the MSERP. The vested portion of the MSERP Participant's
benefits are payable to the Participant upon Retirement (as defined in the ESOP)
or to the Participant's beneficiary in the event of the Participant's death.
PROPOSAL 1: APPROVAL OF THE
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
1998 STOCK-BASED INCENTIVE PLAN
The Board of Directors of the Company is presenting for shareholder
approval the Northeast Pennsylvania Financial Corp. 1998 Stock-Based Incentive
Plan ("Incentive Plan"), in the form attached hereto as Appendix A. The purpose
of the Incentive Plan is to attract and retain qualified personnel in key
positions, provide officers, employees and non-employee directors ("Outside
Directors") of the Company and any of its affiliates, including the Bank, with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company, promote the attention of management to other shareholder's
concerns and reward employees for outstanding performance. The following is a
summary of the material terms of the Incentive Plan which is qualified in its
entirety by the complete provisions of the Incentive Plan attached as Appendix
A.
10
<PAGE> 14
GENERAL
The Incentive Plan authorizes the granting of options to purchase
Common Stock of the Company ("Options"), awards of restricted shares Common
Stock ("Stock Awards") (collectively, Option and Stock Awards are referred to as
"Awards"). Subject to certain adjustments to prevent dilution of Awards to
participants, the maximum number of shares of Common Stock reserved for Awards
under the Incentive Plan is 899,829 shares, consisting of 642,735 shares
reserved for Options and Option-related Awards and 257,094 shares reserved for
Stock Awards. All employees and Outside Directors of the Company and its
affiliates, including the Bank, are eligible to receive Awards under the
Incentive Plan. The Incentive Plan will be administered by a committee (the
"Committee") consisting of five members of the Board of Directors, three of whom
are not employees of the Company or its affiliates. Authorized but unissued
shares or shares previously issued and reacquired by the Company may be used to
satisfy Awards under the Incentive Plan. If authorized but unissued shares are
used to satisfy the grant of Stock Awards and the exercise of Options granted
under the Incentive Plan, it will result in an increase in the number of shares
outstanding and will have a dilutive effect on the holdings of existing
shareholders. It is currently anticipated that a trust (the "Incentive Plan
Trust") will be established which will purchase previously issued shares to fund
the Company's obligation for Stock Awards which such stock will be purchased by
the Incentive Plan trustee with contributions from the Company or Bank. As of
the date of this Proxy Statement, no Awards have been granted under the
Incentive Plan.
TYPES OF AWARDS
GENERAL. The Incentive Plan authorizes the grant of Awards in the form
of: (i) Options intended to qualify as incentive stock options under Section 422
of the Code (Options which afford 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"; (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"; and (iii) Stock Awards. Each type of Award may be
subject to vesting or service requirements or other conditions imposed by the
Committee.
OPTIONS. The Committee has the authority to determine the date or dates
on which each Option shall become exercisable and any other conditions
applicable to the exercisability of an Option; provided, however, that certain
regulatory limitations on exercisability will apply to any Option granted prior
to March 31, 1999. See "Amendments" and "Shareholder Approval, Effective Date of
Plan and OTS Compliance." The exercise price (described below) of any Option may
generally be paid in cash or in Common Stock at the discretion of the Committee.
See "Alternate Option Payments." The term of Options shall be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
from the date of grant.
All Options granted under the Incentive Plan to officers and employees
may qualify as Incentive Stock Options to the extent permitted under Section 422
of the Code and to the extent awarded as such by the Committee. In order to
qualify as Incentive Stock Options under Section 422
11
<PAGE> 15
of the Code, the Option must be granted only to an employee, the exercise price
must not be less than 100% of the fair market value on the date of grant (except
in the case of "10% owners" as described below), the term of the Option may not
exceed ten years from the date of grant (except in the case of "10% owners" as
described below), no more than $100,000 of options may become exercisable for
the first time in any calendar year and the options must be transferrable except
by the laws of descent and distribution. Incentive Stock Options granted to any
person who is the beneficial owner of more than 10% of the outstanding voting
stock (a "10% owner") 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.
Each Outside Director of the Company or its affiliates will be eligible
to receive Non-Statutory Stock Options to purchase shares of Common Stock.
Additionally, officers and employees are also eligible to receive Non-Statutory
Stock Options.
Unless otherwise determined by the Committee and subject to applicable
regulation, upon termination of an optionee's services for any reason other than
death, disability, retirement or termination for cause, all then exercisable
Options shall remain exercisable for a period of three months following
termination and all unexercisable Options shall be cancelled. In the event of
the death or disability of an optionee, all unexercisable Options held by such
optionee will become fully exercisable and remain exercisable for up to one year
thereafter. In the event of termination for cause, all exercisable and
unexercisable Options held by the optionee shall be cancelled. In the event of
retirement, all exercisable options held by such optionee will remain generally
exercisable for a period of one year following the optionee's termination from
service. However, in the event of the retirement of an optionee, the Committee
shall, subject to applicable regulation, have the discretion to allow
unexercisable Options to continue to vest or become exercisable in accordance
with their original terms.
STOCK AWARDS. The Committee has the authority to determine the dates on
which Stock Awards granted will vest or any other conditions which must be
satisfied prior to vesting; provided, however, that certain regulatory
conditions on vesting will apply to any Stock Award granted prior to March 31,
1999. See "Amendments" and "Shareholder Approval, Effective Date of Plan and OTS
Compliance."
When Stock Awards are distributed (i.e., vest) in accordance with the
Incentive Plan, the recipients will receive an amount 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 Incentive Plan Trust. Shares of Common Stock held by the Incentive 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.
Unless otherwise determined by the Committee and subject to applicable
regulation, upon termination of the services of a holder of a Stock Award for
any reason other than death, disability
12
<PAGE> 16
retirement or termination for cause, all such holder's rights in unvested Stock
Awards shall be cancelled. In the event of the death or disability of the holder
of the Stock Award, all unvested Stock Awards held by such individual will
become fully vested. In the event of termination for cause of a holder of a
Stock Award, all unvested Stock Awards held by such individual shall be
cancelled. In the event of retirement of the holder of a Stock Award, the
Committee shall, subject to applicable regulation, have the discretion to
determine that all unvested Stock Awards shall continue to vest in accordance
with their original terms.
TAX TREATMENT
OPTIONS. An optionee will generally not be deemed to have recognized
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 Option and two years after the date of grant
of the Option. If these holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share Option exercise price and
the fair market value of the Common Stock is recognized as income taxable at
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 Option 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
exercise of the Option will essentially be treated as the exercise of a
Non-Statutory Stock Option, except that the optionee will recognize the ordinary
income for the year in which the disqualifying disposition occurs. The amount of
any ordinary income recognized by the 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 federal income tax purposes, subject to
the limitations imposed by Code Section 162(m) (discussed below).
STOCK AWARDS. When shares of Common Stock, as Stock Awards, are
distributed, the recipient recognizes ordinary income equal to the fair market
value of such shares at the date of distribution plus any dividends and earnings
on such shares (provided such date is more than six months after the date of
grant) and the Company is permitted a commensurate compensation expense
deduction for income tax purposes.
PERFORMANCE AWARDS.
GENERAL. The Incentive Plan provides the Committee with the ability to
condition or restrict the vesting or exercisability of any Award upon the
achievement of performance targets or goals as set forth under the Incentive
Plan. Any Award subject to such conditions or restrictions is considered to be a
"Performance Award." Subject to the express provisions of the Plan and as
13
<PAGE> 17
discussed in this paragraph, the Committee has discretion to determine the terms
of any Performance Award, including the amount of the award, or a formula for
determining such, the performance criteria and level of achievement related to
these criteria which determine the amount of the award granted, issued,
retainable and/or vested, the period as to which performance shall be measured
for determining achievement of performance (a "performance period"), the timing
of delivery of any awards earned, forfeiture provisions, the effect of
termination of employment for various reasons, and such further terms and
conditions, in each case not inconsistent with the Plan, as may be determined
from time to time by the Committee. The performance criteria upon which
Performance Awards are granted, issued, retained and/or vested may be based on
financial performance and/or personal performance evaluations, except that for
any Performance Award that is intended by the Committee to satisfy the
requirements for "performance based compensation" under Code Section 162(m), the
performance criteria shall be a measure based on one or more Qualifying
Performance Criteria (as defined below). Notwithstanding satisfaction of any
performance goals, the number of Shares granted, issued, retainable and/or
vested under a Performance Award may be adjusted by the Committee on the basis
of such further considerations as the Committee in its sole discretion shall
determine. However, the Committee may not increase the amount earned upon
satisfaction of any performance goal by any Participant who is a "covered
employee" within the meaning of Section 162(m) of the Code.
QUALIFYING PERFORMANCE CRITERIA AND SECTION 162(M) LIMITS. Subject to
shareholder approval of the Plan, the Performance Criteria for any Performance
Award that is intended to satisfy the requirements for "performance based
compensation" under the Code Section 162(m) shall be based upon any one or more
of the following Performance Criteria, either individually, alternatively or in
any combination, applied to either the Company as a whole or to a business unit
or subsidiary, either individually, alternatively or in any combination, and
measured either on an absolute basis or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
preestablished by the Committee under the terms of the Award: net income, as
adjusted for non-recurring items; cash earnings; earnings per share; cash
earnings per share; return on equity; return on assets; assets; stock price;
total shareholder return; capital; net interest income; market share; cost
control or efficiency ratio; and asset growth.
MAXIMUM AWARDS. The aggregate amount of Options granted under the Plan
during any 60 month period to any one Participant may not exceed 25% of the
total amount of options available to be granted under the Incentive Plan. The
aggregate amount of shares of Common Stock issuable under a Stock Award granted
under the Plan for any 60 month period to any one Participant may not exceed 25%
of the total amount of Stock Awards available to be granted under the Incentive
Plan.
PAYOUT ALTERNATIVES
Any shares of Common Stock tendered in payment of an obligation arising
under the Incentive Plan or applied to 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 it may direct the market purchase of
shares of Common Stock to satisfy its obligations under the Incentive Plan.
14
<PAGE> 18
ALTERNATE OPTION PAYMENTS
Subject to the terms of the Incentive Plan, the Committee also has
discretion to determine the form of payment for the exercise of an Option. The
Committee may indicate acceptable forms in the Award Agreement covering such
Options or may reserve its decision to the time of exercise. No Option is to be
considered exercised until payment in full is accepted by the Committee. The
Committee may permit the following forms of payment for Options: (a) in cash or
by certified or cashiers check; (b) by tendering previously acquired shares of
Common Stock; or (c) some other method acceptable to it. Any shares of Common
Stock tendered in payment of the exercise price of an Option shall be valued at
the fair market value of the Common Stock on the date prior to the date of
exercise.
AMENDMENTS
Subject to limitations imposed by the Incentive Plan, the Board of
Directors or Committee may amend the Incentive Plan in any respect, at any time,
provided that no amendment may affect the rights of the holder of an Award
without his or her permission and such amendment must comply with applicable law
and regulation. Applicable OTS regulations provide that any stock based benefit
plan, such as the Incentive Plan, that is adopted by a converted institution
within the first year after conversion may not provide for the granting of
awards which vest or become exercisable in installments at a rate greater than
20% per year and may not permit the acceleration of vesting or exercisability,
except in the case of death or disability. The Board of Directors intends to
take any necessary action, including the amendment or modification of the
Incentive Plan, to provide for the acceleration of vesting or exercisability of
Awards upon the occurrence of a change in control of the Company or the Bank (as
defined in the Incentive Plan) and other circumstances. It is intended that any
such modification or amendment shall be submitted to shareholders for approval
to the extent required by applicable OTS regulations.
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 an
extraordinary capital distribution is made, including the payment of an
extraordinary dividend, the Committee may make such adjustments to previously
granted Awards, to prevent dilution, diminution or enlargement of the rights of
the holder; provided, however, that in the case of an extraordinary dividend,
the Committee may be required to obtain OTS approval prior to any such
adjustment. All Awards under the Incentive Plan shall be binding upon any
successors or assigns of the Company.
15
<PAGE> 19
NONTRANSFERABILITY
Unless determined otherwise by the Committee, Awards under the
Incentive Plan shall not be transferable by the recipient other than by will or
the laws of intestate succession or pursuant to a domestic relations order. With
the consent of the Committee, an Award recipient may permit transferability or
assignment of Non-Statutory Stock Options 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 as beneficiary of any Award to which
the recipient would then be entitled, in the event of the death of the
participant.
SHAREHOLDER APPROVAL, EFFECTIVE DATE OF PLAN AND OTS COMPLIANCE
The Company believes the Incentive Plan complies with the applicable
regulations of the OTS. However, the OTS has not in any way endorsed or approved
the Incentive Plan. Pursuant to OTS regulations, the Incentive Plan may not be
implemented prior to March 31, 1999, unless it is approved by a majority of the
votes eligible to be cast by the Company's shareholders at a duly called meeting
of shareholders which may be held no sooner than six months after the completion
of the Conversion.
The Incentive Plan provides that it shall become effective upon the
earlier of: (i) the date that it is approved by a majority of votes eligible to
be cast by the Company's shareholders at a duly called meeting of shareholders;
or (ii) April 1, 1999. Accordingly, if the Incentive Plan is not approved by a
majority of the votes eligible to be cast by shareholders at the Special
Meeting, the Incentive Plan and any grants thereunder shall become effective on
April 1, 1999 without further shareholder approval unless it is terminated by
the Board of Directors. In the absence of the approval of the Incentive Plan by
a majority of shares cast at the Special Meeting, the Options granted under the
Incentive Plan would not qualify as Incentive Stock Options under the Code and
the Common Stock of the Company may no longer be eligible for listing on the
American Stock Exchange. Applicable OTS regulations also impose certain
limitations on the vesting or exercisability of Awards under the Incentive Plan.
See "Amendments."
NEW PLAN BENEFITS
As of the date of this Proxy Statement, no determination had been made
regarding the granting of Awards under the Incentive Plan.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY CARD, IF EXECUTED AND RETURNED, WILL BE VOTED "FOR" THE APPROVAL OF THE
NORTHEAST PENNSYLVANIA FINANCIAL CORP. 1998 STOCK-BASED INCENTIVE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
THE NORTHEAST PENNSYLVANIA FINANCIAL CORP. 1998 STOCK-BASED INCENTIVE PLAN.
16
<PAGE> 20
ADDITIONAL INFORMATION
SHAREHOLDER PROPOSALS
Since no annual meeting of stockholders at which a proxy statement was
distributed has been previously held, to be considered for inclusion in the
Company's proxy statement and form of proxy relating to the 1999 Annual Meeting
of Shareholders, 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. Section 240.14a-8 of the Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
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 Special Meeting other than as stated in the Notice of
Special Meeting of Shareholders. If, however, other matters are properly brought
before the Special 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 Special Meeting, you are
urged to return your proxy card promptly. If you are then present at the Special
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Special Meeting. However, if you are a stockholder
whose shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Special Meeting.
By Order of the Board of Directors
/s/ Megan Kennedy
Megan Kennedy
Corporate Secretary
Hazleton, Pennsylvania
September 9, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
17
<PAGE> 21
APPENDIX A
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
1998 STOCK-BASED INCENTIVE PLAN
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 First Federal Bank.
(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; provided, however, that such an event listed above will be
deemed to have
A-1
<PAGE> 22
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.
(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.
(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 earlier of the date the Plan is approved
by shareholders or March 31, 1999.
(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 American Stock
Exchange or any other 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;
(ii) 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; 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.
A-2
<PAGE> 23
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 Northeast Pennsylvania Financial Corp.
(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.
(x) "Plan" means this Northeast Pennsylvania Financial Corp. 1998
Stock-Based Incentive Plan.
(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.
A-3
<PAGE> 24
(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.
(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
A-4
<PAGE> 25
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 AND RELATED RIGHTS.
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 899,829, which
number shall not exceed 14% of the outstanding shares of the Common Stock
determined immediately as of the Effective Date. 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
642,735, which number shall not exceed 10% of the outstanding shares of Common
Stock as of the Effective Date. The maximum number of the shares reserved for
Stock Awards is 257,094, which number shall not exceed 4% of the outstanding
shares of Common Stock as of the Effective Date. 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.
A-5
<PAGE> 26
(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 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 First Federal 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 brothers 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, a
Change in Control, 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). 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 [one (1) year] following the
date of Retirement; provided, however, that upon the Participant's Retirement,
the Committee, in its discretion, may determine that all Non-Statutory Stock
Options
A-6
<PAGE> 27
that were not exercisable by the Participant as of such date shall continue to
become exercisable in accordance with the terms of the Award Agreement if the
Participant is immediately engaged by the Holding Company or an Affiliate as a
consultant or advisor or continues to serve the Holding Company or an Affiliate
as a director, advisory director, or director emeritus.
(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 (Change in Control). Unless
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or service due to a Change in Control, whether such
termination is actual, constructive, or otherwise, 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 one (1)
year following the date of such termination.
(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 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
A-7
<PAGE> 28
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, a Change in
Control, 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). 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 one (1) year following the date of
Retirement; provided however, that upon the Participant's Retirement, the
Committee, in its discretion, may determine that all Incentive Stock Options
that were not otherwise exercisable by the Participant as of such date shall
continue to become exercisable in accordance with the terms of the Award
Agreement if the Participant is immediately engaged by the Holding Company or an
Affiliate as a consultant or advisor or continues to serve the Holding Company
or an Affiliate as a director, advisory director, or director emeritus. 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 Retirement.
(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
A-8
<PAGE> 29
become exercisable and remain exercisable for a period one (1) year following
the date of such termination.
(h) Termination of Employment (Change in Control). Unless otherwise
determined by the Committee, in the event of the termination of a Participant's
employment or service due to a Change in Control, 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.
(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.
(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, a Change
in Control, or Termination for Cause, any Stock Awards in which the Participant
has not become vested as of the date of such termination
A-9
<PAGE> 30
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). 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;
provided however, that upon the Participant's Retirement, the Committee, in its
discretion, may determine that all unvested Stock Awards shall continue to vest
in accordance with the Award Agreement if the Participant is immediately engaged
by the Holding Company or an Affiliate as a consultant or advisor or continues
to serve the Holding Company or an Affiliate as a director, advisory director,
or director emeritus.
(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) Termination of Employment or Service (Change in Control). Unless
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to a Change in Control 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 unvested Stock Awards shall
become null and void.
(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 against
transfer) contained in the Northeast Pennsylvania Financial Corp. 1998
Stock-Based Incentive Plan and Award Agreement entered into between the
registered owner of such shares and Northeast Pennsylvania Financial
Corp. or its Affiliates. A copy of the Plan and Award Agreement is on
file in the office of
A-10
<PAGE> 31
the Corporate Secretary of Northeast Pennsylvania Financial Corp.
located at 12 E. Broad Street Hazleton, PA 18201
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
A-11
<PAGE> 32
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.
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.
A-12
<PAGE> 33
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 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.
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.
A-13
<PAGE> 34
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.
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
A-14
<PAGE> 35
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, be eligible for such
accounting treatment, the Committee, at its discretion, may modify, adjust,
eliminate or terminate the Award 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 in accordance with OTS and Internal Revenue Service ("IRS")
regulations or March 31, 1999, whichever is earlier. 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 shall
remain in full force and effect, 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; (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 hereof. 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.
A-15
<PAGE> 36
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 Award under the Plan shall be made which would be
prohibited by 12 CFR Section 563b.3(g)(4);
(b) Unless the Plan is approved by a majority vote of the
outstanding shares of the total votes eligible to be cast at a
duly called meeting of stockholders to consider the Plan, as
required by 12 CFR Section 563b.3(g)(4)(vii), the Plan shall
not become effective or implemented prior to one year from the
date of the Bank's conversion from the mutual to stock form
("Conversion");
(c) No Option or Stock Award granted prior to one year from the
date of the Bank's Conversion 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;
(d) 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;
(e) No Option or Stock Award granted to any individual Outside
Director prior to one year from the date of the Bank's
Conversion 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
(f) The aggregate amount of Option or Stock Awards granted to all
Outside Directors prior to one year from the date of the
Bank's Conversion 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-16
<PAGE> 37
REVOCABLE PROXY
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
MEETING OF SHAREHOLDERS
OCTOBER 21, 1998
11:00 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the official proxy committee of the
Board of Directors of Northeast Pennsylvania Financial Corp. (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 Special Meeting of Shareholders, to be held on
October 21, 1998, at 11:00 a.m. Eastern Time, at Genetti's Best Western Motor
Lodge, Route 309 North, Hazleton, Pennsylvania and at any and all adjournments
thereof, with all of the powers the undersigned would possess if personally
present at such meeting as follows:
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL LISTED. IF
ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, INCLUDING WHETHER OR NOT
TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED
PROPOSAL:
The approval of the Northeast Pennsylvania Financial Corp. 1998
Stock-Based Incentive Plan.
FOR AGAINST ABSTAIN
/ / / / / /
The abovesigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Special Meeting of Shareholders and of a
Proxy Statement dated ______________, 1998.
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
Date ______________________ _________________________________________
Signature of Shareholder
Date ______________________ _________________________________________
Signature of Shareholder
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.
