December 20, 1999
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
of Northeast Pennsylvania Financial Corp. The meeting will be held at the
Genetti's Best Western Motor Lodge, Route 309 North, Hazleton, Pennsylvania, on
Wednesday, January 26, 2000 at 11:00 a.m., local time.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of KPMG LLP,
the Company's independent auditors, will be present to respond to appropriate
questions of stockholders.
It is important that your shares are represented at this meeting,
whether or not you attend the meeting in person and regardless of the number of
shares you own. To make sure your shares are represented, we urge you to
complete and mail the enclosed proxy card. If you attend the meeting, you may
vote in person even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Thomas L. Kennedy
Thomas L. Kennedy
Chairman of the Board
<PAGE>
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
12 E. Broad Street
Hazleton, Pennsylvania 18201
(570) 459-3700
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On January 26, 2000
- --------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Northeast Pennsylvania Financial Corp. (the "Company") will be held at the
Genetti's Best Western Motor Lodge, Route 309 North, Hazleton, Pennsylvania, on
Wednesday, January 26, 2000, at 11:00 a.m., local time, for the following
purposes:
1. To elect three directors to serve for a term of three years;
2. To ratify certain amendments to the Northeast Pennsylvania
Financial Corp. 1998 Stock-Based Incentive Plan;
3. To approve the Northeast Pennsylvania Financial Corp. 2000
Stock Option Plan;
4. To ratify the appointment of KPMG LLP as independent auditors
for the Company for the fiscal year ending September 30, 2000;
and
5. To transact any other business that may properly come
before the meeting.
NOTE: The Board of Directors is not aware of any other business to
come before the meeting.
Stockholders of record at the close of business on December 3, 1999 are
entitled to receive notice of the meeting and to vote at the meeting and any
adjournment or postponement of the meeting.
Please complete and sign the enclosed form of proxy, which is solicited
by the Board of Directors, and mail it promptly in the enclosed envelope. The
proxy will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Megan Kennedy
Megan Kennedy
Corporate Secretary
Hazleton, Pennsylvania
December 20, 1999
IMPORTANT: The prompt return of proxies will save the Company the expense
of further requests for proxies in order to ensure a quorum. A self-addressed
envelope is enclosed for your convenience. No postage is required if mailed in
the United States.
<PAGE>
- --------------------------------------------------------------------------------
PROXY STATEMENT
OF
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
January 26, 2000
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Northeast Pennsylvania Financial Corp.
(the "Company") to be used at the annual meeting of stockholders of the Company.
The Company is the holding company for First Federal Bank ("First Federal" or
the "Bank"). The annual meeting will be held at the Genetti's Best Western Motor
Lodge, Route 309 North, Hazleton, Pennsylvania on Wednesday, January 26, 2000,
at 11:00 a.m., local time. This proxy statement and the enclosed proxy card are
being first mailed to stockholders on or about December 20, 1999.
- --------------------------------------------------------------------------------
VOTING AND PROXY PROCEDURE
- --------------------------------------------------------------------------------
Who Can Vote at the Meeting
You are entitled to vote your Company common stock if the records of
the Company show that you held your shares as of the close of business on
December 3, 1999. As of the close of business on that date, a total of 5,787,483
shares of Company common stock was outstanding. Each share of common stock has
one vote. As provided in the Company's Certificate of Incorporation, in no event
shall any record owner of the Company's common stock which is beneficially
owned, either directly or indirectly, by a person who beneficially owns in
excess of 10% of the Company's outstanding shares, be entitled to any vote in
respect of the shares held in excess of the 10% limit.
Attending the Meeting
If you are a beneficial owner of Company common stock held by a broker,
bank or other nominee (i.e., in "street name"), you will need proof of ownership
to be admitted to the meeting. A recent brokerage statement or letter from a
bank or broker are examples of proof of ownership. If you want to vote your
shares of Company common stock held in street name in person at the meeting, you
will have to get a written proxy in your name from the broker, bank or other
nominee who holds your shares.
Vote Required
A majority of the outstanding shares of common stock entitled to vote
is required to be represented at the meeting in order to constitute a quorum for
the transaction of business. If you return valid proxy instructions or attend
the meeting in person, your shares will be counted for purposes of determining
whether there is a quorum, even if you abstain from voting. Broker non-votes
also will be counted for purposes for determining the existence of a quorum. A
broker non-vote occurs when a broker, bank or other nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
1
<PAGE>
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. Directors are elected by a plurality of the votes cast for the
election of directors. This means that the nominees receiving the greatest
number of votes will be elected. Votes that are withheld and broker non-votes
will have no effect on the outcome of the election. In voting on the
ratification of the Amended and Restated Northeast Pennsylvania Financial Corp.
1998 Stock-Based Incentive Plan (the "Incentive Plan"), the adoption of the
Northeast Pennsylvania Financial Corp. 2000 Stock Option Plan (the "Option
Plan") and the ratification of the appointment of KPMG LLP as independent
auditors, you may vote in favor of the proposal, vote against the proposal or
abstain from voting. These matters will be decided by the affirmative vote of a
majority of the votes cast on each matter. Shares underlying broker non-votes,
shares held in excess of the 10% limit and abstentions will not be counted as
votes cast and will have no effect on the voting.
Voting by Proxy
This proxy statement is being sent to you by the Company's Board of
Directors for the purpose of requesting that you allow your shares of Company
common stock to be represented at the annual meeting by the persons named in the
enclosed proxy card. All shares of Company common stock represented at the
meeting by properly executed proxies will be voted according to the instructions
indicated on the proxy card. If you sign and return a proxy card without giving
voting instructions, your shares will be voted as recommended by the Company's
Board of Directors. The Board of Directors recommends a vote "FOR" each of the
nominees, "FOR" ratification of certain amendments to the Incentive Plan, "FOR"
approval of the Option Plan and "FOR" ratification of KPMG LLP as independent
auditors.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own judgment to determine how to vote your shares. This includes a motion
to adjourn or postpone the meeting in order to solicit additional proxies. If
the annual meeting is postponed or adjourned, your Company common stock may be
voted by the persons named in the proxy card on the new meeting date as well,
unless you have revoked your proxy. The Company does not know of any other
matters to be presented at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Corporate Secretary of
the Company in writing before your common stock has been voted at the annual
meeting, deliver a later dated proxy, or attend the meeting and vote your shares
in person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your Company common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet. Please see the
instruction form that is provided by your broker, bank or other nominee and
accompanies this proxy statement.
The cost of solicitation of proxies on behalf of the Board will be
borne by the Company. In addition to the solicitation of proxies by mail,
Corporate Investor Communications, a proxy solicitation firm, will assist the
Company in soliciting proxies for the annual meeting and will be paid a fee of
$3,000, plus out-of-pocket expenses. Proxies may also be solicited personally or
by telephone by directors, officers and other employees of the Company and the
Bank without any additional compensation. 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, the beneficial owners, and will reimburse those record
holders for their reasonable expenses in doing so.
2
<PAGE>
- --------------------------------------------------------------------------------
STOCK OWNERSHIP
- --------------------------------------------------------------------------------
The following table provides information as of December 3, 1999 with
respect to persons believed by the Company to be the beneficial owners of more
than 5% of the Company's outstanding common stock. A person may be considered to
own any shares of common stock over which he or she has, directly or indirectly,
sole or shared voting or investing power.
Number of Shares Percent of Common
Name and Address Owned Stock Outstanding
- ---------------------- ------------------ -------------------
First Federal Bank Employee Stock
Ownership Plan and Trust 514,188(1) 8.9%
12 E. Broad Street
Hazleton, Pennsylvania 18201
First Federal Charitable Foundation 456,100(2) 7.9%
12 E. Broad Street
Hazleton, Pennsylvania 18201
Wellington Management Company, LLP 346,400 6.0%
75 State Street
Boston, Massachusetts 02109
Frederick J. Jaindl et al. 325,889 5.6%
3150 Coffeetown Road
Orefield, Pennsylvania
(1) Under the terms of the ESOP, the ESOP Trustee, subject to its fiduciary
responsibilities, will vote unallocated shares and allocated shares for
which no timely voting instructions are received in the same proportion as
shares for which the trustee has received voting instructions from
participants. As of December 3, 1999, 51,419 shares have been allocated to
participants' accounts and 462,769 shares remain unallocated. The trustee
of the ESOP is First Bankers Trust Company, N.A.
(2) The Foundation was established and funded in connection with the Bank's
conversion to stock form on March 31, 1998. Pursuant to the terms of the
contribution of common stock, as mandated by the Office of Thrift
Supervision, all shares of common stock held by the Foundation must be
voted in the same ratio as all other shares of Company common stock on all
proposals considered by stockholders of the Company.
3
<PAGE>
The following table provides information about the shares of Company
common stock that may be considered to be owned by each director or nominee for
director of the Company, by the executive officers named in the Summary
Compensation Table and by all directors and executive officers of the Company as
a group as of December 3, 1999. A person may be considered to own any shares of
common stock over which he or she has, directly or indirectly, sole or shared
voting or investment power. Unless otherwise indicated, each of the named
individuals has sole voting and investment power with respect to the shares
shown.
<TABLE>
Number of Shares
Number of That May Be
Shares Acquired Within Percent of
Owned 60 Days By Common Stock
Name (excluding options) Exercising Options Outstanding (1)
- ------------------------ ------------------- ------------------ ----------------
<S> <C> <C> <C>
E. Lee Beard............ 79,416 32,137 1.9%
Paul L. Conard.......... 12,027 4,200 *
William R. Davidson..... 19,599(2) 4,200 *
Barbara M. Ecker........ 34,746(3) 4,200 *
R. Peter Haentjens, Jr.. 37,000(4) 4,200 *
Thomas L. Kennedy....... 86,472 28,923 2.0
John P. Lavelle......... 27,000 4,200 *
Michael J. Leib......... 31,673(5) 4,200 *
Patrick J. Owens, Jr.... 23,561(6) 7,000 *
Joseph K. Osiecki....... 25,218 7,000 *
William J. Spear........ 23,551(7) 4,200 *
All Executive Officers and 407,778 107,460 8.7%
Directors as a Group (13 persons)
<FN>
* Less than 1% of shares outstanding
(1) Based on 5,787,483 shares of Company common stock outstanding and
entitled to vote as of December 3, 1999, plus the number of shares that
may be acquired within 60 days by each individual (or group of
individuals) by exercising stock options.
(2) Includes 1,010 shares owned by Dr. Davidson's spouse.
(3) Includes 12,623 shares owned by Ms. Ecker's spouse.
(4) Includes 400 shares held in a trust for which Mr. Haentjens serves
as trustee and 800 shares held by a corporation in which Mr. Haentjens
has a 50% ownership interest.
(5) Includes 9,967 shares held by Mr. Leib's spouse and 2,020 shares held by
a corporation in which Mr. Leib serves as president.
(6) Includes 475 shares held by Mr. Owens' spouse.
(7) Includes 2,000 shares held by Mr. Spear's spouse.
</FN>
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL 1 -- ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Company's Board of Directors consists of nine members and is divided
into three classes with three-year staggered terms, with one-third of the
directors elected each year. The nominees for election this year are Paul L.
Conard, John P. Lavelle and Michael J. Leib, each of whom is a director of the
Company and the Bank.
It is intended that the proxies solicited by the Board of Directors will
be voted for the election of the nominees named above. If any nominee is unable
to serve, the persons named in the proxy card would vote your shares to approve
the election of any substitute proposed by the Board of Directors.
Alternatively, the Board of Directors may adopt a resolution to reduce the size
of the Board. At this time, the Board of Directors knows of no reason why any
nominee might be unable to serve.
The Board of Directors recommends a vote "FOR" the election of all of the
nominees.
The following table sets forth certain information regarding the nominees
for election at the meeting, as well as information regarding those directors
continuing in office after the meeting.
<TABLE>
Year First
Elected Term to
Age (1) Director (2) Expire
--------- -------------- ----------
<S> <C> <C> <C>
BOARD NOMINEES
Paul L. Conard...................... 66 1989 2003
John P. Lavelle..................... 68 1972 2003
Michael J. Leib..................... 51 1989 2003
DIRECTORS CONTINUING IN OFFICE
E. Lee Beard........................ 48 1993 2001
William R. Davidson................. 63 1988 2001
Thomas L. Kennedy................... 55 1986 2001
Barbara M. Ecker.................... 58 1987 2002
R. Peter Haentjens, Jr.............. 54 1981 2002
William J. Spear.................... 63 1981 2002
<FN>
- --------------
(1) As of December 3, 1999.
(2) Includes prior service on the Board of Directors of the Bank. Each member
of the Board of Directors also serves as a director of the Bank.
</FN>
</TABLE>
The present principal occupation and other business experience during
the last five years of each nominee for election and each director continuing in
office is set forth below:
5
<PAGE>
Board Nominees
Paul L. Conard. Mr. Conard is a retired Assistant Vice President of
Bloomsburg University, located in Bloomsburg, Pennsylvania.
The Honorable John P. Lavelle. Judge Lavelle has served as the President
Judge for the Court of Common Pleas of Carbon County, Pennsylvania since 1977.
Michael J. Leib. Mr. Leib is the president of Weatherly Casting & Machine
Company located in Weatherly, Pennsylvania.
Directors Continuing in Office
E. Lee Beard. Ms. Beard has served as President and Chief Executive Officer
since January 1993. Prior to 1993, Ms. Beard spent 15 years in the thrift
industry in the Washington, D.C. area, where she served as an Executive Vice
President of Citizens Savings Bank in Silver Spring, Maryland and Senior Vice
President/Treasurer for Perpetual Savings Bank. Ms. Beard is a certified public
accountant.
William R. Davidson, Ed.D. Dr. Davidson is currently an assistant professor
at Pennsylvania State University, Schuylkill Campus. Dr. Davidson previously
served as Superintendent of the Pottsville City School District, Pottsville,
Pennsylvania for twenty years.
Thomas L. Kennedy. Mr. Kennedy has been a practicing attorney for the past
30 years. He is a shareholder in the law firm of Kennedy and Lucadamo, P.C. On
November 18, 1997, Mr. Kennedy became the General Counsel of the Bank, although
he also remains a shareholder in his law firm. Mr. Kennedy serves as Chairman of
the Board of the Company and the Bank.
Barbara M. Ecker. Mrs. Ecker is a certified public accountant with the
Hazleton St. Joseph Medical Center in Hazleton, Pennsylvania.
R. Peter Haentjens, Jr. Mr. Haentjens is employed as a Vice President,
General Manager of Hazleton Pumps, Inc., Hazleton, Pennsylvania.
William J. Spear. Mr. Spear is the owner and President of Hazle Drugs,
Inc., a retail pharmacy located in Hazleton, Pennsylvania.
Meetings and Committees of the Board of Directors
The Company conducts its business through meetings of its Board of
Directors and its committees. During the fiscal year ended September 30, 1999,
the Board of Directors held 14 meetings. No director attended fewer than 75% of
the total meetings of the Board and committees on which such person served
during this period.
Audit Committee. The Audit Committee consists of Ms. Ecker and Messrs.
Conard, Lavelle, Leib and Spear. This committee reviews audit reports and
management's actions regarding the implementation of audit findings and
compliance with all relevant laws and regulations. The Audit Committee met one
time in fiscal 1999.
6
<PAGE>
Nominating Committee. The Company's Nominating Committee for the annual
meeting consists of Ms. Beard, Ms. Ecker and Messrs. Davidson, Haentjens,
Kennedy and Spear. The committee selects the nominees for election as directors.
The Nominating Committee met on September 28, 1999.
Personnel and Compensation Committee. The Personnel and Compensation
Committee of the Company consists of Ms. Beard and Messrs. Davidson, Kennedy,
Lavelle and Leib. The committee is responsible for all matters regarding
compensation and fringe benefits for officers and employees of the Company and
meets on an as needed basis. The Personnel and Compensation Committee of the
Company met one time in fiscal 1999.
Directors' Compensation
Directors' Fees. All directors of the Bank are currently paid an annual
retainer of $10,500, paid quarterly, and $400 for each Board meeting attended.
All non-employee directors of the Bank also receive $325 for each committee
meeting attended. All directors of the Company are paid an annual retainer fee
of $4,000.
Incentive Plan. Under the Incentive Plan which was adopted by the
Company's stockholders on October 21, 1998, each member of the Board of
Directors of the Company who is not an officer or employee of the Company or the
Bank received non-statutory stock options to purchase 21,000 shares of the
Common Stock at an exercise price of $11.75, the fair market value of the Common
Stock on October 27, 1998, the date the option was granted, and stock awards for
9,500 shares (collectively "Directors' Awards"). The Directors' Awards initially
granted under the Incentive Plan vest equally over a five-year period. The first
20% vested on October 27, 1999. The Board of Directors has amended the Incentive
Plan to provide for acceleration of vesting of the options and stock awards upon
a change in control of the Company or the Bank. See Proposal 2 for more
information.
7
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Summary Compensation Table
The following information is furnished for the chief executive officer
and all other executive officers of First Federal who received salary and bonus
of $100,000 or more during the year ended September 30, 1999.
<TABLE>
Long-Term Compensation
-----------------------
Annual Compensation Awards
------------------------------ -----------------------
Other Securities
Annual Restricted Underlying All Other
Compensation Stock Awards Options/SA Compensation
Name and Principal Positions Year Salary($) Bonus($) ($)(1) ($)(2) (#)(3) ($)
- ---------------------------- ---- ------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
E. Lee Beard....................... 1999 $197,350 $ 910 $-- $694,719 160,684 $25,110(4)
President and Chief Executive Office 1998 171,931 23,558 -- -- -- 5,330
1997 148,770 23,059 -- -- -- 4,626
Thomas L. Kennedy (5).............. 1999 $127,406 $ 590 $-- $570,756 144,616 $23,222(6)
Chairman of the Board of the Compan 1998 97,123 -- -- -- -- 1,089
and the Bank and General Counsel of
the Bank
Patrick J. Owens, Jr............... 1999 $100,454 $ 2,077 $-- $182,419 35,000 $2,236(7)
Treasurer of the Company and Senior 1998 88,909 9,608 -- -- -- --
Vice President and Chief 1997 88,469 11,936 -- -- -- 1,253
Financial Officer of the Bank
Joseph K. Osiecki.................. 1999 $ 99,561 $ 2,036 $-- $181,538 35,000 $3,013(7)
Senior Vice President of the Bank 1998 88,062 9,420 -- -- -- 2,744
1997 89,720 12,061 -- -- -- 2,648
<FN>
- ---------------------
(1) Does not include the aggregate amount of perquisites and other personal benefits, which was less than 10% of the
total annual salary and bonus reported.
(2) Includes 59,125, 48,575, 15,525 and 15,450 shares of restricted stock
granted to Ms. Beard and Messrs. Kennedy, Owens and Osiecki under the
Incentive Plan. The dollar amounts set forth in the table represent the
market value on the date of the grant of the shares. The restricted stock
awards vest in five equal annual installments commencing on October 27,
1999, the first anniversary of the awards. When shares become vested and
are distributed from the trust in which they are held, the recipients will
also receive an amount equal to unaccumulated cash and stock dividends (if
any) paid with respect thereto, plus earnings thereon. As of September 30,
1999, the market values of the shares subject to the restricted stock
awards held by Ms. Beard, Messrs. Kennedy, Owens, and Osiecki were
$613,422, $503,966, $161,072 and $160,294, respectively.
(3) Includes stock options granted pursuant to the Incentive Plan during fiscal
year 1999. See "Option Grants in Last Fiscal Year" table for discussion of
options granted under the Incentive Plan.
(4) Consists of directors' fees of $19,400 and employer contributions to First
Federal's 401(k) plan of $5,710.
(5) Mr. Kennedy was named General Counsel of the Bank on November 18, 1997.
(6) Consists of directors' fees of $19,400 and employer contributions to First
Federal's 401(k) plan of $3,822.
(7) Consists of employer contributions to First Federal's 401(k) plan.
</FN>
</TABLE>
8
<PAGE>
Employment Agreements. The Company and the Bank entered into employment
agreements with Ms. Beard and Mr. Kennedy, (the "Executive"). The employment
agreements are intended to ensure that the Company and the Bank will be able to
maintain a stable and competent management base. The continued success of the
Company and the Bank 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 terms of the Company employment agreements shall be extended on a
daily basis, unless written notice of non-renewal is given by the Board of
Directors. The Bank employment agreements provide that, commencing on the first
anniversary date and continuing each anniversary date thereafter, the Board of
Directors may extend the agreement for an additional year so that the remaining
term shall be three years, unless written notice of non-renewal is given by the
Board of Directors after conducting a performance evaluation of the Executive.
The employment agreements provide that the Executive's base salary will be
reviewed annually. The base salaries currently effective for such employment
agreements are $197,350 and $127,406 for Ms. Beard and Mr. Kennedy,
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 Company or the Bank for cause, as
described in the employment agreements, at any time. In the event the Company
and the Bank choose to terminate the Executive's employment for reasons other
than for cause, or in the event of the Executive's resignation from the Company
and the Bank upon: (i) failure to re-elect the Executive to his or her 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 Company
or the Bank; or (v) a breach of the employment agreement by the Company or the
Bank, the Executive or, in the event of death, his or her 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 Company and the Bank during the
remaining term of the employment agreement. The employment agreements restrict
each Executive's right to compete against the Bank or the Company for a period
of one year from the date of termination of the agreement if his or her
employment is terminated without cause, except if termination follows a change
in control.
Under the employment agreements, involuntary or, under certain
circumstances, voluntary termination follows a change in control of the Company
or the Bank, 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
Company and the Bank would also continue the Executive's life, health, and
disability coverage for thirty-six months. Notwithstanding that both the Company
and the Bank employment agreements provide for a severance payment in the event
of a change in control, no duplicate payments would be made under the
agreements.
Payment under the Company employment agreement would be made by the
Company. Payments to the Executive under the Bank employment agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. 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 Company or the Bank, respectively, if the
Executive is successful on the merits pursuant to a legal judgment, arbitration
or settlement. The employment agreements also provide that the Company and the
Bank shall indemnify the Executive to the fullest extent allowable under federal
and Delaware law, respectively. Assuming that a change in control of the Company
or the Bank had occurred at September 30,
9
<PAGE>
1999, the total amount of payments due under both of the employee agreements,
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $926,000.
Change in Control Agreements
The Company has entered into a two-year change in control agreement
with Mr. Owens. The Bank has entered into two-year change in control agreements
with Messrs. Osiecki and Owens. Commencing on the first anniversary date and
continuing on each anniversary thereafter, the Bank agreements may be renewed by
the Board of Directors of the Bank for an additional year. The Company agreement
shall be extended on a daily basis unless written notice of non-renewal is given
by the Board of Directors. The agreements provide that in the event involuntary
termination or, under certain circumstances, voluntary termination following a
change in control of the Bank or the Company, Messrs. Osiecki and Owens would be
entitled to receive a severance payment equal to three times their average
annual compensation for the five most recent taxable years preceding
termination. The Company or the Bank would also continue and pay for his life,
health and disability coverage for 24 months following termination. Payments to
Messrs. Osiecki and Owens under the Bank agreement will be guaranteed by the
Company in the event that payments or benefits are not paid by the Bank.
Assuming that a change in control of the Bank or Company had occurred at
September 30, 1999, the total payments that would be due under the agreements,
excluding any benefits under any employee benefit plan which may be payable,
would be approximately $579,000. Notwithstanding that both the Company and the
Bank change in control agreements provide for a severance payment in the event
of a change in control, no duplicate payments would be made under the
agreements.
Employee Benefit Plans
Retirement Plan. The Bank participates in the Financial Institutions
Retirement Fund (the "Retirement Plan") to provide retirement benefits for
eligible employees. Employees are generally eligible to participate in the
Retirement Plan after the completion of 12 consecutive months of employment with
the Bank and the attainment of age 21. Hourly paid employees are excluded from
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.
10
<PAGE>
The following table sets forth the estimated annual benefits payable
upon retirement at age 65 for the period ended September 30, 1999.
<TABLE>
Career Average
Compensation Years of Benefit Service
- ------------------ ---------------------------------------------------------------------------------------
15 20 25 30 35
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 75,000 $22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
100.000 30,000 40,000 50,000 60,000 70,000
125,000 37,500 50,000 62,500 75,000 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
225,000 67,500 90,000 112,500 135,000 157,500
250,000 75,000 100,000 125,000 150,000 175,000
275,000 82,500 110,000 137,500 165,000 192,500
</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, 1999, Ms. Beard and Messrs. Kennedy, Owens and Osiecki had 5
years, 10 months; 11 months; 6 years, 7 months; and 5 years, 3 months of
credited service, respectively.
Deferred Compensation Plan. The Bank maintains 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 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 Internal Revenue Code of 1986, as amended (the
"Code"). From time to time, the Board or Directors 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. The Bank established a
grantor trust in February 1999 to satisfy its obligations under the plan. The
grantor trust is permitted to invest in a wide-variety of investments, including
the Company's 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 reducing such number by the number of shares actually
11
<PAGE>
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 five equal annual increments
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.
Incentive Plan
The Company's stockholders adopted the Incentive Plan on October 21,
1998. It provides discretionary awards of options to purchase Common Stock and
awards of Common Stock (collectively, "Awards") to officers, directors and
employees as determined by a committee of the Board of Directors. The following
table lists all grants of options under the Incentive Plan to the Named
Executive Officers for fiscal year 1999 and contains certain information about
potential value of those options based upon certain assumptions as to the
appreciation of the Company's stock over the life of the option.
<TABLE>
Option Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------- ----------
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise or Grant Date
Granted Employees in Base Price Expiration Present
Name (#)(1)(2) Fiscal Year (3) Per Share Date (4) Value (5)
- ------- ------------- ------------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
E. Lee Beard......................... 160,684 25.6% $11.75 October 27, 2008 $1,055,694
Thomas L. Kennedy.................... 144,616 23.1 11.75 October 27, 2008 950,127
Patrick J. Owens, Jr................. 35,000 5.6 11.75 October 27, 2008 229,950
Joseph K. Osiecki ................... 35,000 5.6 11.75 October 27, 2008 229,950
<FN>
(1) Options granted under the Incentive Plan become exercisable in five equal
annual installments commencing on October 27, 1999, provided, however,
options will be immediately exercisable in the event the optionees
terminate employment due to death or disability.
(2) The purchase price may be made in whole or in part in cash or Common Stock.
(3) Includes options granted to officers, directors and employees.
(4) The option term is ten years.
(5) The estimated present value of the options granted during fiscal year 1999
have been calculated using the Black- Scholes option pricing model, based
on the following assumptions: estimated time until exercise of 10 years; a
risk- free interest rate of 5.9%, representing the interest rate of the
Constant Maturity Treasury Bill index as of September 30, 1999 with a
maturity corresponding to the estimated time until exercise; a volatility
rate of 33.6%; and a dividend yield of 2.01%, representing the current
$0.24 per share annualized dividends divided by the fair market value of
the common stock at the date of grant. The approach used in developing the
assumptions upon which the Black-Scholes valuation was done is consistent
with the requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation."
</FN>
</TABLE>
12
<PAGE>
The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding options held by the Named
Executive Officers as of September 30, 1999. Also reported are the values for
"in-the-money" options which represent the positive spread between the exercise
price of any such existing stock options and the year end price of the Common
Stock.
<TABLE>
Fiscal Year-End Option Value
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End(#)(1) at Fiscal Year-End($)(2)
Name Exercisable Unexercisable Exercisable Unexercisable
- ------- ------------ --------------- ------------- ----------------
<S> <C> <C> <C> <C>
E. Lee Beard...................... -- 160,684 $ -- $--
Thomas L. Kennedy................. -- 144,616 -- --
Patrick J. Owens.................. -- 35,000 -- --
Joseph K. Osiecki................. -- 35,000 -- --
<FN>
(1) The options in this table have an exercise price of $11.75 per share.
(2) The price of the Common Stock on September 30, 1999 was $10.38 per share.
</FN>
</TABLE>
Report of the Personnel and Compensation Committee
The report of the Personnel and Compensation Committee and the stock
performance graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act of 1933 or the Exchange Act, except as to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
Committee Report on Executive Compensation. Under rules established by
the SEC, the Company is required to provide certain data and information in
regard to the compensation and benefits provided to the Company's Chief
Executive Officer and the other executive officers of the Company. The
disclosure requirements for these executive officers include the use of a report
explaining the rationale and considerations that led to fundamental compensation
decisions affecting those individuals. In fulfillment of this requirement, the
Personnel and Compensation Committee has prepared the following report for
inclusion in this proxy statement.
Compensation Policies. The policies and objectives of the Personnel and
Compensation Committee are designed to assist the Company in attracting and
retaining qualified executives, to recognize individual contributions towards
achieving strategic business initiatives and reward them for their achievement
and to closely align the financial interests of the executive officers with
those of its stockholders. In furtherance of these objectives, the Company and
the Bank maintain a compensation program for executives officers which consists
of both cash and equity based compensation. Only disinterested members of the
Board of Directors recommend base salaries for the executive officers and the
Chairman of the Board.
The Board, following a recommendation from the Committee, sets the
level of annual salaries for the President and Chief Executive Officer and
Chairman of the Board, generally based upon a review of the performance of the
President and Chief Executive Officer, Chairman of the Board and the Company
during the prior year and competitive data for that position. The President and
Chief Executive Officer and the Chairman of the Board are then responsible for
13
<PAGE>
determining the base salaries of the remaining executive officers.
In addition, in order to align the interests and performance of its
executive officers with the long term interests of its stockholders, the Company
and the Bank adopted plans which reward the executives for delivering long-term
value to the Company and the Bank through stock ownership.
The compensation package available to executive officers is composed of
the following components:
(i) Base Salary;
(ii) Performance Incentive Plan; and
(iii) Long Term Incentive Compensation, including option and stock
awards.
Ms. Beard and Mr. Kennedy have employment agreements which specify a base
salary and require an annual review of such salary. In addition, Ms. Beard and
Mr. Kennedy and all other executive officers of the Company and the Bank
participate in other benefit plans available to all employees including the
ESOP.
Base Salaries. The salary levels are intended to be consistent and
competitive with the practices of other comparable financial institutions and
each executive's level of responsibility. The Personnel and Compensation
Committee consulted surveys of compensation paid to executive officers
performing similar duties for depository institutions and their holding
companies with particular focus on the level of compensation paid by
institutions of comparable size and characteristics primarily in Pennsylvania
and the Northeast region of the United States. The surveys primarily used by the
Committee were based on the 1998 SNL Executive Compensation Review for Thrift
Institutions and 1998 and 1997 Annual Meeting Proxy Statements.
Although no specific formula is used for decision making, salary
increases are aimed at reflecting the overall performance of the Company and the
performance of the individual executive officer.
Performance Incentive Plan. The Bank maintains the First Federal Bank
Performance Incentive Plan ("Performance Incentive Plan") for all employees
except for the President and Chief Executive Officer and the Chairman of the
Board. The Performance Incentive Plan was designed by senior officers and
approved by the Board to give all employees an incentive for effectively
operating the Bank. The Performance Incentive Plan provides all employees an
opportunity to earn semi-annual cash payments, equal to a certain percentage of
their base salaries upon the attainment of specific performance goals. In
establishing the performance goals the Bank considers the following financial
criteria: (i) efficiency ratio; and (ii) return on equity.
Long Term Incentive Compensation. The Company maintains the Incentive
Plan under which executive officers may receive grants and awards of Common
Stock and options to purchase Common Stock of the Company. The Board believes
that stock ownership is a significant incentive in building stockholder value
and aligning the interests of employees with stockholders. Following the
approval of the Incentive Plan by stockholders on October 21, 1998, all
executive officers received grants and awards of Common Stock and options to
purchase Common Stock which vest in five equal installments beginning on October
27, 1999. The Board granted awards to executive officers after considering
recommendations made by an independent compensation consultant. The exercise
price of options granted was the market value of the Common Stock on the date of
pricing of the grants. The value of this component of compensation increases as
the Common Stock of the Company appreciates in value.
14
<PAGE>
Chief Executive Compensation. The Chief Executive Officer was evaluated
on her performance in managing the Company, including the effort related to
operating the Company as a public company, fiscal performance, and stock
appreciation. Certain quantitative and qualitative factors were reviewed to
determine the Chief Executive Officer's compensation. Following a review of the
Chief Executive's performance, it was determined that the total compensation for
the Chief Executive Officer would be established according to an analysis of the
Chief Executive Officer's base salary and bonus in comparison to peer
institutions with specific consideration given to the level of the Bank's
operations in comparison to peer institutions. Based on such analysis, the
Personnel and Compensation Committee recommended to the Board that the Chief
Executive Officer receive a bonus of 2,000 restricted stock awards for her
performance in the 1999 fiscal year. The stock awards will vest equally over a
five year period.
Personnel and Compensation Committee
Thomas L. Kennedy John P. Lavelle
E. Lee Beard Michael J. Leib
William R. Davidson
Compensation Committee Interlocks and Insider Participation. No executive
officer of the Company or the Bank serves as a member of the compensation
committee of another entity, one of whose executive officers serves on the
Personnel and Compensation Committee of the Company or the Bank. No executive
officer of the Company or the Bank serves as a director of another entity, one
of whose executive officers serves on the Personnel and Compensation Committee
of the Company or the Bank. No executive officer of the Company or the Bank
serves as a member of the compensation committee of another entity, one of whose
executive officers serves as a director of the Company or the Bank.
15
<PAGE>
- --------------------------------------------------------------------------------
STOCK PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph compares the cumulative total stockholder return on
the Company Common Stock with the cumulative total return on the American Stock
Exchange Index and with the American Stock Exchange Savings Institutions Index.
Total return assumes the reinvestment of all dividends. The base amount for the
Company's Common Stock is $15.50 per share, which was the closing price on the
initial day of trading on April 1, 1998. The initial offering price for the
Company's Common Stock was $10.00 per share.
[GRAPHIC OMITTED]
[GRAPH]
Period Ended
---------------------------------------
4/01/98 9/30/98 3/31/99 9/30/99
--------- --------- --------- ---------
Northeast Pennsylvania Financial Corp... $100.00 $72.58 $ 70.85 $ 67.89
The American Stock Exchange Index....... 100.00 84.23 98.81 108.21
AMEX Savings Institutions Index......... 100.00 70.54 72.14 73.06
16
<PAGE>
- --------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
any registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Executive officers, directors
and greater than 10% stockholders are required by regulation to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of the reports it has received
and written representations provided to the Company from the individuals
required to file the reports, the Company believes that each of its executive
officers and directors has complied with applicable reporting requirements for
transactions in Company common stock during the fiscal year ended September 30,
1999 with the exception of the purchase of 638 shares by Mr. Owens through a
cash contribution made to the Company's dividend reinvestment plan in May 1999,
which was reported in August 1999.
- --------------------------------------------------------------------------------
TRANSACTIONS WITH MANAGEMENT
- --------------------------------------------------------------------------------
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In addition,
loans made to a director or executive officer in excess of the greater of
$25,000 or 5% of the Bank's capital and surplus (up to a maximum of $500,000)
must be approved in advance by a majority of the disinterested members of the
Board of Directors.
The Bank currently makes loans to its executive officers and directors
on the same terms and conditions offered to the general public. The Bank's
policy provides that all loans made by the Bank to its executive officers and
directors be made in the ordinary course of business, on substantially the same
terms, including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve more than the normal risk of
collectibility or present other unfavorable features. As of September 30, 1999,
the Bank had $1.4 million of loans to executive officers or directors. All of
the Bank's loans to executive officers and directors were made by the Bank in
the ordinary course of business with no favorable terms and do not involve more
than the normal risk of collectibility or present unfavorable features.
The Company intends that all transactions in the future between the
Company and its executive officers, directors, holders of 10% or more of the
shares of any class of its common stock and affiliates thereof, will contain
terms no less favorable to the Company than could have been obtained by it in
arms length negotiations with unaffiliated persons and will be approved by a
majority of independent outside directors of the Company not having any interest
in the transaction.
17
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL 2. RATIFICATION OF THE AMENDMENTS TO THE
NORTHEAST PENNSYLVANIA FINANCIAL CORP. 1998 STOCK-BASED INCENTIVE PLAN
- --------------------------------------------------------------------------------
The Board of Directors of the Company is presenting certain amendments
to the Northeast Pennsylvania Financial Corp. 1998 Stock-Based Incentive Plan to
stockholders for ratification. Stockholders originally approved the Incentive
Plan on October 21, 1998. The Board of Directors of the Company approved the
amendments to the Incentive Plan on November 30, 1999. The Incentive Plan was
amended primarily in two respects. First, the amendments allow the Company to
accelerate or modify the vesting of restricted stock awards and stock options
upon a participant's retirement. Second, the amendments provide for accelerated
vesting of outstanding restricted stock awards and stock options upon a change
in control of the Bank or the Company. For purposes of the Incentive Plan, a
"change in control" of the Bank or the Company means an event or circumstance
that results in a substantial change in ownership or control of the Bank or the
Company. In the most typical circumstance, a change in control of the Bank or
the Company will result from an acquisition or merger of the Bank or the Company
with another entity in which the Bank or the Company is not the surviving
entity. Other circumstances involving a change in control may result from a sale
of substantially all the assets of the Bank or the Company, a change in the
composition of the Board of Directors following a contested election of Board
members or an offer by a third party to purchase in excess of 20% of the
Company's outstanding stock. The amendments also clarify that the committee
administering the Incentive Plan may determine the time period over which awards
vest. The Company also amended the Incentive Plan for conforming changes and
certain minor administrative matters. The amendments to the Incentive Plan do
not increase the number of shares available for grant under the Incentive Plan,
change the eligibility requirements for participation in the Incentive Plan, or
otherwise alter the type of grants or existing grants that have been made to the
participants of the Incentive Plan. The following is a summary of all material
terms of the Incentive Plan. Nevertheless, shareholders are urged to read
carefully the Incentive Plan which is attached hereto as Appendix A.
General
The Incentive Plan authorizes the granting of options to purchase
Common Stock and awards of Common Stock (collectively, "Awards"). Subject to
certain adjustments to the Awards, as specified in Section 14 of the Incentive
Plan, to prevent dilution, diminution or enlargement of the rights of the
participant, the maximum number of shares available for Awards under the
Incentive Plan is 899,829 shares. The maximum number of shares authorized for
issuance pursuant to the exercise of stock options which may be granted under
the Incentive Plan is 642,735 shares. The maximum number of shares authorized
for awards of Common Stock is 257,094 shares. All officers, other employees and
non-employee directors of the Company and its affiliates are eligible to receive
Awards under the Incentive Plan. The Incentive Plan is administered by a
committee appointed by the Board of Directors (the "Committee"). Subject to the
terms of the Incentive Plan, the Committee interprets the plan and is authorized
to make decisions and determinations thereunder. The Committee also determines
to whom Awards will be granted, the type and amount of Awards that will be
granted and the terms and conditions applicable to such Awards. Authorized but
unissued shares or shares previously issued and reacquired by the Company may be
used to satisfy Awards under the Incentive Plan. Any shares subject to an option
that expires or otherwise terminates unexercised will again be available for
issuance under the Incentive Plan.
The Incentive Plan authorizes the grant of awards in the form of: (i)
options to purchase the Company's Common Stock intended to qualify as incentive
stock options under Section 422 of the Code (options which afford certain tax
benefits to the recipients upon compliance with certain conditions and
18
<PAGE>
which do not result in tax deductions to the Company), referred to as "Incentive
Stock Options" or "ISOs"; (ii) options that do not so qualify (options which do
not afford the same income tax benefits to recipients, but which may provide tax
deductions to the Company), referred to as "Non-Statutory Stock Options" or
"NSOs"; and (iii) restricted stock awards, which provide a grant of Common Stock
that may vest over time.
Stock Options
The Committee has the discretion to award Incentive Stock Options or
Non-Statutory Stock Options to employees, while only Non-Statutory Stock Options
may be awarded to non-employee directors. Pursuant to the Incentive Plan, the
Committee has the authority to determine the date or dates on which each stock
option will become exercisable. In order to qualify as Incentive Stock Options
under Section 422 of the Code, the exercise price must not be less than 100% of
the fair market value on the date of the grant. Incentive Stock Options granted
to any person who is the beneficial owner of more than 10% of the outstanding
voting stock may be exercised only for a period of five years from the date of
grant and the exercise price must be at least equal to 110% of the fair market
value of the underlying Common Stock on the date of the grant. The exercise
price may be paid in cash or in Common Stock at the discretion of the Committee.
See "Payment Alternatives" and "Method of Option Exercise."
Termination of Employment or Service and Change In Control. Unless
otherwise determined by the Committee, upon termination of a participant's
service for any reason other than death, disability, retirement or termination
for cause, the vested Incentive Stock Options and Non-Statutory Stock Options
shall be exercisable for a period of three months following termination. The
Committee, in its discretion, may determine the time frame in which options may
be exercised and may redesignate Incentive Stock Options as Non-Statutory Stock
Options. In the event of termination for cause, all rights to any stock options
granted under the Incentive Plan shall expire immediately upon termination. In
the event a participant's service is terminated for death or disability, all
stock options held by the participant vest and shall be exercisable for up to
one year from the date of such termination of service. The Committee has the
discretion to permit the acceleration of the vesting of stock options upon the
retirement of a participant, as well. Following retirement, a participant, has
three years to exercise his stock options; provided that Incentive Stock Options
not exercised within three months from the participant's retirement date shall
be redesignated as Non-Statutory Stock Options. As amended, the Incentive Plan
also now provides that in the event of a change in control of the Company or the
Bank, stock options will become fully vested and shall be exercisable for the
term of the stock option; provided that Incentive Stock Options not exercised
within three months of an individual's termination of employment shall not be
eligible for incentive treatment for tax purposes.
Stock Awards
The Incentive Plan also authorizes the granting of stock awards to
employees and directors. The Committee has the authority to determine the dates
on which stock awards granted will vest. As amended, the Incentive Plan now
provides that all stock award grants immediately vest in the event of a change
in control or following termination of service due to death or disability. In
addition, the Committee has the discretion to permit stock awards to vest
immediately following the termination of service of a participant due to
retirement. Under the Incentive Plan, the vesting of stock awards may also be
made contingent upon the attainment of certain performance goals by the Company,
Bank or grantee, which performance goals, if any, would be established by the
Committee.
19
<PAGE>
The Committee has the power, under the Incentive Plan, to permit
transfers. When stock awards are distributed in accordance with the Incentive
Plan, the recipients will also receive amounts equal to accumulated cash and
stock dividends (if any) with respect thereto plus earnings thereon minus any
required tax withholding amounts. Prior to vesting, recipients of stock awards
may direct the voting of shares of Common Stock granted to them and held in the
trust. Shares of Common Stock held by the 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.
Tax Treatment
The following brief description of the tax consequences of stock option
grants and awards under the Incentive Plan is based on federal income tax laws
currently in effect and does not purport to be a complete discussion of the
federal income tax consequences.
Stock Options. An optionee will generally not recognize taxable income
upon grant or exercise of any Incentive Stock Option, provided that shares
transferred in connection with the exercise are not disposed of by the optionee
for at least one year after the date the shares are transferred in connection
with the exercise of the stock option and two years after the date of grant of
the stock option. If the holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share stock option exercise
price and the fair market value of the Common Stock is recognized as income
taxable at long-term capital gains rates. No compensation deduction may be taken
by the Company as a result of the grant or exercise of Incentive Stock Options,
assuming those holding periods are met. In the event shares received through the
exercise of an Incentive Stock Option are disposed of prior to the satisfaction
of the holding periods (a "disqualifying disposition") the optionee will
recognize ordinary income equal to the lesser of (i) the difference between the
fair market value of the Stock upon exercise and the exercise price or (ii) the
excess of the amount realized upon the disposition and the exercise price. In
the case of the exercise of a Non- Statutory Stock Option, an optionee will
recognize ordinary income in an amount equal to the aggregate amount by which
the per share exercise price is exceeded by the fair market value of the Common
Stock on the date of exercise. In the event that a Non-Statutory Stock Option is
exercised during a period that would subject the optionee to liability under
Section 16(b) of the Exchange Act (i.e., within six months of the date of
grant), the optionee will not be deemed to have recognized income until such
period of liability has expired, unless the optionee makes an election under
Section 83(b) of the Code. The amount of any ordinary income recognized by an
optionee upon the exercise of a Non-Statutory Stock Option or due to a
disqualifying disposition will be a deductible expense of the Company for tax
purposes.
Restricted Stock Awards. A participant who has been awarded restricted
stock under the Incentive Plan and does not make an election under Section 83(b)
of the Internal Revenue Code will not recognize taxable income at the time of
the award. At the time any transfer or forfeiture restrictions applicable to the
restricted stock award lapse, the recipient will recognize ordinary income and
the Company will be entitled to a corresponding deduction equal to the excess of
the fair market value of such stock at such time over the amount paid, if any,
therefor. Any dividend paid to the recipient on the restricted stock at or prior
to such time will be ordinary compensation income to the recipient and
deductible as such by the Company.
A recipient of a restricted stock award who makes an election under
Section 83(b) of the Code will recognize ordinary income at the time of the
award and the Company will be entitled to a corresponding deduction equal to the
fair market value of such stock at such time over the amount paid, if any,
therefor. Any dividends subsequently paid to the recipient on the restricted
stock will be dividend income to the recipient and not deductible by the
Company. If the recipient makes a Section 83(b) election, there are no federal
20
<PAGE>
income tax consequences either to the recipient or the Company at the time any
transfer or forfeiture restrictions applicable to the restricted stock award
lapse.
Payment Alternatives
The Committee has the sole discretion to determine what form of payment
it shall use in distributing payments for all Awards. If the Committee requests
any or all participants to make an election as to form of payment, it shall not
be considered bound by the election. Any shares of Common Stock tendered in
payment of an obligation arising under the Incentive Plan or applied to any tax
withholding amounts shall be valued at the fair market value of the Common
Stock. The Committee may use treasury stock, authorized but unissued stock or
may direct the market purchase of shares of Common Stock to satisfy its
obligations under the Incentive Plan.
Method of Option Exercise
The Committee has the sole discretion to determine the form of payment
for the exercise of a stock option, including payment of cash, stock or other
property, by surrender of all or part of the option being exercised, by the
immediate sale through a broker of the number of shares being acquired to pay
the purchase price, or through some combination of these methods. The Committee
may indicate acceptable forms in each optionee's award agreement covering such
options or may reserve its decision to the time of exercise. No stock option is
to be considered exercised until payment in full is accepted by the Committee.
Amendment
The Board of Directors may generally amend the Incentive Plan in any
respect, at any time, subject to certain prohibitions established by law or the
terms of the Incentive Plan itself.
Non-transferability
An award of stock options or stock awards under the Incentive Plan shall
not be transferable by a participant other than by will or the laws of intestate
succession or pursuant to a domestic relations order. With consent of the
Committee, a participant may permit transferability or assignment of a
Non-Statutory Stock Option or stock award for valid estate planning purposes as
permitted under the Code or Rule 16b-3 under the Exchange Act and a participant
may designate a person or his or her estate, beneficiary of any stock option or
stock award which the participant would then be entitled, in the event of the
death of the employee.
Adjustments
In the event of any change in the outstanding shares of Common Stock of
the Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company, or in the event a
capital distribution is made, the Company may make such adjustments to
previously granted Awards, to prevent dilution, diminution or enlargement of the
rights of the Award holder. All Awards under the Incentive Plan shall be binding
upon any successors or assigns of the Company.
21
<PAGE>
Stockholder Vote
Stockholders are being requested to ratify all amendments to the
Incentive Plan. If stockholders fail to ratify Proposal 2, the Incentive Plan,
in the form attached hereto, will remain in full force and effect at the
discretion of the Company's Board of Directors. The affirmative vote of a
majority of the shares present at the Annual Meeting and eligible to be cast on
this proposal is required to ratify the amendments to 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 ratification of
the amendments to the Northeast Pennsylvania Financial Corp. 1998 Stock-Based
Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION
OF THE AMENDMENTS TO THE NORTHEAST PENNSYLVANIA FINANCIAL CORP. 1998
STOCK-BASED INCENTIVE PLAN.
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PROPOSAL 3. APPROVAL OF THE NORTHEAST PENNSYLVANIA
FINANCIAL CORP. 2000 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
On November 30, 1999, the Board of Directors of the Company adopted,
subject to stockholder approval, the Northeast Pennsylvania Financial Corp. 2000
Stock Option Plan. It is anticipated that, if approved by stockholders, the
Stock Option Plan will supplement the Incentive Plan. To date, stock options
covering 633,165 shares of common stock of 642,735 shares of common stock
available for stock options have been granted to officers, directors and
employees of the Company and its affiliates. As such, the Incentive Plan only
has a limited number of shares of common stock remaining for future stock option
grants.
Since the Company's conversion to stock form, the Company's assets have
grown significantly. In part, such growth has resulted from the Company's
acquisition of a title insurance agency, an asset management and trust services
company and the opening of three new branch offices by the Bank. To the extent
the Company continues to expand and hires additional senior officers in the
future, the Company may, on occasion, wish to offer options as part of its
compensation package. The Option Plan will provide the Company with the
flexibility to do so. The ability to grant stock options in the future to
attract people of experience and ability to serve the Company and its affiliates
is critical to sustain the Company's continued growth and success. The granting
of stock options advances the interests of the Company and its stockholders by
providing certain key employees and non-employee directors upon whose judgment,
initiative and efforts the successful conduct of the business of the Company and
its affiliates largely depends, with additional incentive in the form of a
proprietary interest in the Company to perform in a superior manner.
Furthermore, the Company's Board of Directors believes that the
granting of stock options can be very effective over time and can be an
important component of the Company's overall compensation strategy. In order to
continue to be able to retain key employees, the Company must have the ability
to offer market competitive long-term compensation opportunities. Stock options,
because of their upside potential, are a key component in retaining employees.
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For these reasons, the Company wishes to continue its stock option program;
therefore, the Company is presenting the Northeast Pennsylvania Financial Corp.
2000 Stock Option Plan for stockholder approval in the form attached hereto as
Appendix B.
General
The Option Plan reserves 173,624 shares of common stock for purchase
pursuant to the exercise of stock options. All officers, employees and
non-employee directors of the Company or any of its affiliates are eligible to
receive awards under the Option Plan. The Option Plan will be administered by a
committee appointed by the Board of Directors (the "Option Plan Committee").
Subject to the terms of the Option Plan, the Option Plan Committee interprets
the plan and is authorized to make decisions and determinations thereunder. The
Option Plan Committee also determines the individuals to whom stock options will
be granted, the type and amount of stock options they will be granted and the
terms and conditions applicable to such grants. Authorized but unissued shares
or authorized shares previously issued and reacquired by the Company may be used
to satisfy an exercise of stock options under the Option Plan. If authorized but
unissued shares are used to satisfy stock option exercises, the number of shares
outstanding would increase which would have a dilutive effect on the holdings of
existing stockholders. Any shares subject to stock options that expire or
otherwise terminate unexercised will again be available for issuance under the
Option Plan.
Awards to Employees
Types of Awards. The Option Plan authorizes the grant to employees of
"Incentive Stock Options" and "Non-Statutory Stock Options."
As of the date of this proxy statement, the Board of Directors has not
yet granted any stock options under the Option Plan and has made no
determination as to any future grants. Pursuant to the Option Plan, the Option
Plan Committee has the authority to grant options in its sole discretion. Stock
options granted under the Option Plan may not have a term in excess of ten
years. Unless otherwise determined by the Option Plan Committee, all stock
options shall become fully exercisable upon death or disability and shall remain
exercisable for one year from such time. In the event of a change in control of
the Company or the Bank all stock options will immediately become exercisable
and remain exercisable for the remaining term of the stock option; provided that
Incentive Stock Options not exercised within three months following a
participant's termination of employment shall be redesignated as Non-Statutory
Stock Options. Unless otherwise determined by the Option Plan Committee, in the
event of a participant's retirement only those stock options that were
exercisable as of the participant's retirement date are exercisable and shall
remain exercisable for one year from the participant's retirement date; provided
that Incentive Stock Options not exercised within three months following a
participant's retirement shall not be eligible for incentive treatment for tax
purposes. In the event of an employee's termination for cause, all related
rights to the individual's stock options become null and void upon such
termination. Unless otherwise determined by the Option Plan Committee, upon the
termination of an employee's service for any reason, other than death,
disability, retirement, or termination for cause, the employee's stock options
will be exercisable only as to those options that were immediately exercisable
by the employee at the date of termination and only for a period of three
months. The exercise price of stock options granted must be equal to at least
100% of the fair market value of the underlying Common Stock at the time of
grant, except as provided below. Stock options granted under the Option Plan to
employees may be exercised at such times as the Committee determines, but in no
event shall a stock option be exercisable more than 10 years from the date of
grant.
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Incentive Stock Options may be granted only to employees. In order to
qualify as Incentive Stock Options, in addition to certain other restrictions,
the exercise price must not be less than 100% of the fair market value on the
date of grant. Incentive Stock Options granted to any person who is the
beneficial owner of more than 10% of the outstanding voting stock may be
exercised only for a period of five years from the date of grant and the
exercise price must be at least equal to 110% of the fair market value of the
underlying Common Stock on the date of grant.
Tax Treatment
The following brief description of the tax consequences of stock option
grants under the Option Plan is based on federal income tax laws currently in
effect and does not purport to be a complete description of such federal income
tax consequences. An optionee will generally not recognize taxable income upon
grant or exercise of any Incentive Stock Option, provided that shares
transferred in connection with the exercise are not disposed of by the optionee
for at least one year after the date the shares are transferred in connection
with the exercise of the stock option and two years after the date of grant of
the stock option. If the holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share stock option exercise
price and the per share fair market value of the common Stock is recognized as
income taxable at long-term capital gains rates. The Company may not take a
compensation deduction as a result of the grant or exercise of Incentive Stock
Options, assuming these holding periods are met. In the event an optionee
disposes of shares received through the exercise of an Incentive Stock Option
prior to the satisfaction of the holding periods (a "disqualifying disposition")
the optionee will recognize ordinary income equal to the lesser of (i) the
difference between the fair market value of the Common Stock upon exercise and
the exercise price or (ii) the excess of the amount realized upon the
disposition and the exercise price. In the case of the exercise of a
Non-Statutory Stock Option, an optionee will recognize ordinary income upon
exercise of the stock option in an amount equal to the aggregate amount by which
the per share fair market value of the Common Stock. In the event that a
Non-statutory Stock Option is exercised during a period that would subject the
optionee to liability under Section 16(b) of the Exchange Act (i.e., within six
months of the date of grant), the optionee will not be deemed to have recognized
income until such period of liability has expired, unless the optionee makes an
election under Section 83(b) of the Code. The amount of any ordinary income
recognized by an optionee upon the exercise of a Non-Statutory Stock Option or
due to a disqualifying disposition will be a deductible expense of the Company
for tax purposes.
Method of Option Exercise
The Option Plan Committee has the sole discretion to determine the form
of payment for the exercise of a stock option, including payment of cash, stock
or other property by surrender of all or part of the option being exercised, by
the immediate sale through a broker of the number of shares being acquired to
pay the purchase price, or through some combination of these methods. The Option
Plan Committee may indicate acceptable forms in each optionee's award agreement
covering such options or may reserve its decision to the time of exercise. No
stock option is to be considered exercised until payment in full is accepted by
the Option Plan Committee. If the Option Plan Committee requests any or all
participants to make an election as to form of payment, it shall not be
considered bound by the election. Any shares of Common Stock tendered in payment
of an obligation arising under the Option Plan or applied to any tax withholding
amounts shall be valued at the fair market value of the Common Stock.
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Amendment
The Board of Directors generally may, at any time, amend the Option
Plan, subject to certain prohibitions established by law or by the terms of the
Option Plan itself.
Non-transferability
Stock options granted under the Option Plan shall not generally be
transferable by the optionee other than by will or the laws of intestate
succession or pursuant to a domestic relations order. However, with consent of
the Committee, an optionee may transfer of a Non-Statutory Stock Option for
valid estate planning purposes as permitted by the Option Plan and under the
Code or Rule 16b-3 under the Exchange Act and an optionee may designate a person
or his or her estate, beneficiary of any stock option which the optionee would
then be entitled, in the event of the death of the employee.
Stockholder Approval and Effective Date of the Option Plan
The Board of Directors adopted the Option Plan on November 30, 1999, and
determined to submit the Option Plan for approval by stockholders. The Option
Plan shall become effective upon its approval by stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE NORTHEAST PENNSYLVANIA FINANCIAL CORP. 2000 STOCK OPTION
PLAN.
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PROPOSAL 4 -- RATIFICATION OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors has appointed KPMG LLP to be its auditors for the
2000 fiscal year, subject to the ratification by stockholders. A representative
of KPMG LLP is expected to be present at the annual meeting to respond to
appropriate questions from stockholders and will have the opportunity to make a
statement should he or she desire to do so.
If the ratification of the appointment of the auditors is not approved
by a majority of the votes cast by stockholders at the annual meeting, other
independent public accountants will be considered by the Board of Directors. The
Board of Directors recommends that stockholders vote "FOR" the ratification of
the appointment of auditors.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The Company's Annual Report to Stockholders has been mailed to
stockholders as of the close of business on December 3, 1999. Any stockholder
who has not received a copy of the Annual Report may obtain a copy by writing to
the Secretary of the Company. The Annual Report is not to be treated as part of
the proxy solicitation material or as having been incorporated herein by
reference.
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A copy of the Company's Form 10-K for the fiscal year ended September
30, 1999, as filed with the SEC will be furnished without charge to stockholders
as of the close of business on December 3, 1999 upon written request to Megan
Kennedy, Corporate Secretary, Northeast Pennsylvania Financial Corp., 12 E.
Broad Street, Hazleton, Pennsylvania 18201.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
To be considered for inclusion in the Company's proxy statement and
form of proxy relating to the 2001 Annual Meeting of Stockholders, a stockholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Stockholders not later than August 22,
2000. If such Annual Meeting is held on a date more than 30 calendar days from
January 26, 2000, a stockholder proposal must be received by a reasonable time
before the proxy solicitation for such Annual Meeting is made. Any such proposal
will be subject to 17 C.F.R. ss. 240.14a-8 of the Rules and Regulations under
the Exchange Act.
The Bylaws of the Company set forth the procedures by which a
stockholder may properly bring business before a meeting of stockholders.
Pursuant to the Bylaws, only business brought by or at the direction of the
Board of Directors may be conducted at a special meeting. The Bylaws of the
Company provide an advance notice procedure for a stockholder to properly bring
business before an annual meeting. The stockholder must give written advance
notice to the Secretary of the Company not less than ninety (90) days before the
date originally fixed for such meeting; provided, however, that in the event
that less than one hundred (100) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
day following the date on which the Company's notice to stockholders of the
annual meeting date was mailed or such public disclosure was made. The advance
notice by stockholders must include the stockholder's name and address, as they
appear on the Company's record of stockholders, a brief description of the
proposed business, the reason for conducting such business at the annual
meeting, the class and number of shares of the Company's capital stock that are
beneficially owned by such stockholder and any material interest of such
stockholder in the proposed business. In the case of nominations to the Board of
Directors, certain information regarding the nominee must be provided. Nothing
in this paragraph shall be deemed to require the Company to include in its proxy
statement or the proxy relating to any Annual Meeting any stockholder proposal
which does not meet all of the requirements for inclusion established by the SEC
in effect at the time such proposal is received.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Megan Kennedy
Megan Kennedy
Corporate Secretary
Hazleton, Pennsylvania
December 20, 1999
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APPENDIX A
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
1998 STOCK-BASED INCENTIVE PLAN
(as amended and restated)
1. DEFINITIONS
(a) "Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Holding Company, as such terms are defined in Sections
424(e) and 424(f) of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan
of Non-Statutory Stock Options, Incentive Stock Options and Stock Awards.
(c) "Award Agreement" means an agreement evidencing and setting forth
the terms of an Award.
(d) "Bank" means 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 Act; or (ii) results in a "change in
control" of the Bank or the Holding Company within the meaning of the Home
Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and the
Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS")
(or its predecessor agency), as in effect on the date hereof (provided, that in
applying the definition of change in control as set forth under the rules and
regulations of the OTS, the board of directors shall substitute its judgment for
that of the OTS); or (iii) without limitation a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company; or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) a solicitation of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations, as
a result of which the outstanding shares of the class of securities then subject
to the plan are exchanged for or converted into cash or property or securities
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<PAGE>
not issued by the Bank or the Holding Company; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of
Directors, pursuant to Section 2 of the Plan, to administer the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(j) "Date of Grant" means the effective date of an Award.
(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 October 21, 1998.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Exercise Price" means the price at which a Participant may
purchase a share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock,
determined by the Committee as follows:
(i) If the Common Stock was traded on the 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.
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.
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(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, as amended and restated.
(y) "Retirement" means retirement from employment with the Holding
Company or an Affiliate in accordance with the then current retirement policies
of the Holding Company or Affiliate, as applicable. "Retirement" with respect to
an Outside Director means the termination of service from the board(s) of
directors of the Holding Company and any Affiliate following written notice to
such board(s) of directors of the Outside Director's intention to retire.
(z) "Stock Award" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(aa) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the board(s) of directors of the Holding Company and its
Affiliates in accordance with the applicable by-laws of the Holding Company and
its Affiliates or, in the case of an Employee, as defined under any employment
agreement with the Holding Company or an Affiliate; provided, however, that if
no employment agreement exists with respect to the Employee, Termination for
Cause shall mean termination of employment because of a material loss to the
Holding Company or an Affiliate, as determined by and in the sole discretion of
the Board of Directors or its designee(s).
(bb) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Common Stock or other property for the
purposes set forth in the Plan.
(cc) "Trustee" means any person or entity approved by the Board of
Directors or its designee(s) to hold any of the Trust assets.
2. ADMINISTRATION
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(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 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.
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<PAGE>
3. TYPES OF AWARDS
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
(c) Stock Awards.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 14 of the Plan, the
maximum number of shares reserved for Awards under the Plan is 899,829. 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. The maximum number of the shares reserved for Stock
Awards is 257,094. The shares of Common Stock issued under the Plan may be
either authorized but unissued shares or authorized shares previously issued and
acquired or reacquired by the Trustee or the Holding Company, respectively. To
the extent that Options and Stock Awards are granted under the Plan, the shares
underlying such Awards will be unavailable for any other use including future
grants under the Plan except that, to the extent that Stock Awards or Options
terminate, expire or are forfeited without having vested or without having been
exercised, new Awards may be made with respect to these shares.
5. ELIGIBILITY
Subject to the terms of the Plan, all Employees and Outside Directors
shall be eligible to receive Awards under the Plan. In addition, the Committee
may grant eligibility to consultants and advisors of the Holding Company or an
Affiliate, as it sees fit.
6. NON-STATUTORY STOCK OPTIONS
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-Statutory Stock Options. The Committee shall determine
the term during which a Participant may exercise a Non-Statutory Stock Option,
but in no event may a Participant exercise a Non-Statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The Committee
shall also determine the date on which each Non-Statutory Stock Option, or any
part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Non- Statutory Stock Option.
The shares of Common Stock underlying each Non-Statutory Stock Option may be
purchased in whole or in part by the Participant at any time during the term of
such Non-Statutory Stock Option, or any portion thereof, once the Non-Statutory
Stock Option becomes exercisable.
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(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, 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, or, if sooner, the expiration of the term of the
Non-Statutory Stock Option.
(e) Termination of Employment or Service (Retirement). Unless otherwise
determined by the Committee, in the event of a Participant's Retirement, the
Participant may exercise only those Non-Statutory Stock Options that were
immediately exercisable by the Participant at the date of Retirement and only
for a period of one (1) year from the date of Retirement, or, if sooner, the
expiration of the term of the Non- Statutory Stock Option.
(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, or, if sooner, the expiration of the term of the
Non-Statutory Stock Option.
(g) Termination of Employment or Service (Termination for Cause).
Unless otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's
Non-Statutory Stock Options shall expire immediately upon the effective date of
such Termination for Cause.
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(h) Acceleration Upon a Change in Control. In the event of a Change in
Control all Non- Statutory Stock Options held by a Participant as of the date of
the Change in Control shall immediately become exercisable and shall remain
exercisable until the expiration of the term of the Non-Statutory Stock Options
regardless of termination of employment or service.
(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 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
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Committee grants the Incentive Stock Option. The designation of a
beneficiary does not constitute a transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by
the Committee, upon the termination of a Participant's employment or other
service for any reason other than Retirement, Disability or death or Termination
for Cause, the Participant may exercise only those Incentive Stock Options that
were immediately exercisable by the Participant at the date of such termination
and only for a period of three (3) months following the date of such termination
or, if sooner, the expiration of the term of the Incentive Stock Option.
(f) Termination of Employment (Retirement). Unless otherwise determined
by the Committee, in the event of a Participant's Retirement, the Participant
may exercise only those Incentive Stock Options that were immediately
exercisable by the Participant at the date of Retirement and only for a period
of one (1) year from the date of Retirement, or, if sooner, the expiration of
the term of the Incentive Stock Option. Any Option originally designated as an
Incentive Stock Option shall be treated as a Non-Statutory Stock Option to the
extent the Option does not otherwise qualify as an Incentive Stock Option
pursuant to Section 422 of the Code.
(g) Termination of Employment (Disability or Death). Unless otherwise
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination,
or, if sooner, the expiration of the term of the Incentive Stock Option.
(h) Termination of Employment (Termination for Cause). Unless otherwise
determined by the Committee, in the event of a Participant's Termination for
Cause, all rights under such Participant's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(i) Acceleration Upon a Change in Control. In the event of a Change in
Control all Incentive Stock Options held by a Participant as of the date of the
Change in Control shall immediately become exercisable and shall remain
exercisable until the expiration of the term of the Incentive Stock Options
regardless of termination of employment or service. Any Option originally
designated as an Incentive Stock Option shall be treated as a Non-Statutory
Stock Option to the extent the Option does not otherwise qualify as an Incentive
Stock Option pursuant to Section 422 of the Code.
(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.
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8. STOCK AWARDS
The Committee may make grants of Stock Awards, which shall consist of
the grant of some number of shares of Common Stock, to a Participant upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates
on which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
determined by the Committee, upon the termination of a Participant's employment
or service for any reason other than Retirement, Disability or death or
Termination for Cause, any Stock Awards in which the Participant has not become
vested as of the date of such termination shall be forfeited and any rights the
Participant had to such Stock Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). Unless otherwise
determined by the Committee, in the event of a Participant's Retirement, any
Stock Awards in which the Participant has not become vested as of the date of
Retirement shall be forfeited and any rights the Participant had to such
unvested Stock Awards shall become null and void.
(e) Termination of Employment or Service (Disability or Death). Unless
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
(f) 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.
(g) Acceleration Upon a Change in Control. In the event of a Change in
Control all unvested Stock Awards held by a Participant shall immediately vest.
(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
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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 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
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amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.
(l) Voting of Stock Awards. After a Stock Award has been granted but
for which the shares covered by such Stock Award have not yet been vested,
earned and distributed to the Participant pursuant to the Plan, the Participant
shall be entitled to vote or to direct the Trustee to vote, as the case may be,
such shares of Common Stock which the Stock Award covers subject to the rules
and procedures adopted by the Committee for this purpose and in a manner
consistent with the Trust agreement.
(m) Payment. Payment due to a Participant upon the redemption of a
Stock Award shall be made in the form of shares of Common Stock.
9. PERFORMANCE AWARDS
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:
(a) 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;
(b) 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;
(c) 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;
(d) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered; and
(e) 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.
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10. DEFERRED PAYMENTS
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
11. METHOD OF EXERCISE OF OPTIONS
Subject to any applicable Award Agreement, any Option may be exercised
by the Participant in whole or in part at such time or times, and the
Participant may make payment of the Exercise Price in such form or forms
permitted by the Committee, including, without limitation, payment by delivery
of cash, Common Stock or other consideration (including, where permitted by law
and the Committee, Awards) having a Fair Market Value on the 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;
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(b) adjustments in the aggregate number or kind of shares of
Common Stock or other securities underlying Awards already
made under the Plan;
(c) adjustments in the Exercise Price of outstanding Incentive
and/or Non-Statutory Stock Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company.
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.
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Other provisions of this Plan will remain in full force and effect. No such
termination, modification or amendment may adversely affect the rights of a
Participant under an outstanding Award without the written permission of such
Participant.
(b) Except as provided in paragraph (c) of this Section 17, the
Committee may amend any Award Agreement, prospectively or retroactively;
provided, however, that no such amendment shall adversely affect the rights of
any Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall
the Committee amend an Award Agreement in any manner that has the effect of:
(i) Allowing any Option to be granted with an exercise
below the Fair Market Value of the Common Stock on
the Date of Grant.
(ii) Allowing the exercise price of any Option previously
granted under the Plan to be reduced subsequent to
the Date of Award.
(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any Award or right under this Plan would, in the opinion of the
Holding Company's accountants, cause a transaction to be ineligible for pooling
of interest accounting that would, but for such Award, be eligible for such
accounting treatment, the Committee, as its discretion, may modify, adjust,
eliminate or terminate the Award so that pooling of interest accounting is
available.
18. EFFECTIVE DATE OF PLAN
The Board of directors approved and adopted the Plan with an
effective date of October 21, 1998. All amendments are effective upon approval
by the Board of Directors, subject to shareholder ratification when specifically
required under the Plan or by applicable federal or state statutes, rules or
regulations. The failure to obtain shareholder ratification for such purposes
will not affect the validity of other provisions of the Plan and any Awards made
under the Plan.
19. TERMINATION OF THE PLAN
The right to grant Awards under the Plan will terminate upon the
earlier of: (i) ten (10) years after the Effective Date; or (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.
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.
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21. COMPLIANCE WITH OFFICE OF THRIFT SUPERVISION CONVERSION
REGULATIONS
Notwithstanding any other provision contained in this Plan:
(a) No Option or Stock Award granted prior to March 31, 1999, shall
become vested or exercisable at a rate in excess of 20% per year of
the total number of Stock Awards or Options (whichever may be the
case) granted to such Participant, provided, that Awards shall become
fully vested or immediately exercisable in the event of a
Participant's termination of service due to death or Disability; and
provided, further, that Awards shall vest or become exercisable or the
Committee may, in accordance with the applicable provisions of the
Plan, as amended, determine to modify the terms of any Award after
March 31, 1999, to provide for acceleration of vesting or the
exercisability of such Award, including a modification or amendment to
provide that such Award shall become fully vested or immediately
exercisable in the event of a Change in Control;
(b) No Option or Stock Award granted to any individual Employee prior
to March 31, 1999, may exceed 25% of the total amount of Stock Awards
or Options (whichever may be the case) which may be granted under the
Plan;
(c) No Option or Stock Award granted to any individual Outside
Director prior to 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
(d) 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.
22. TREATMENT OF AWARDS UPON A CHANGE IN CONTROL
In the event of a Change in Control where the Holding Company or the
Bank is not the surviving entity, the Board of Directors of the Holding Company
and/or the Bank, as applicable, shall require that the successor entity take one
of the following actions with respect to all Awards held by Participants at the
date of the Change in Control:
(a) Assume the Awards with the same terms and conditions as granted
to the Participant under this Plan;
(b) Replace the Awards with comparable Awards, subject to the same
or more favorable terms and conditions as the Award granted to
the Participant under this Plan, whereby the Participant will
be granted common stock or the option to purchase common stock
of the successor entity; or
(c) Replace the Awards with an immediate cash payment of equivalent
value.
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APPENDIX B
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
2000 STOCK OPTION PLAN
1. DEFINITIONS
(a) "Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Holding Company, as such term is defined in Sections 424(e)
and 424(f) of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan
of Non-Statutory Stock Options and Incentive Stock Options.
(c) "Award Agreement" means an agreement evidencing and setting forth
the terms of an Award.
(d) "Bank" means First Federal Bank.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" means a change in control of the Holding
Company or the Bank of a nature that (i) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Sections 13 or 15(d) of the Exchange Act; (ii) results in a
"change of control" or "acquisition of control" within the meaning of the
regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency) found at 12 C.F.R. Part 574, as in effect on the date
hereof; provided, however, that in applying the definition of change in control
as set forth under such regulations the Board of Directors shall substitute its
judgment for that of the OTS; or (iii) without limitation Change in Control
shall be deemed to have occurred at such time as (A) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Holding Company representing 20%
or more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company and any securities
purchased by any tax-qualified employee benefit plan of the Bank; or (B)
individuals who constitute the Board of Directors on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by a nominating committee
serving under the Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; or (D) a solicitation
of shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank or
similar transaction with one or more corporations, as a result of which the
outstanding shares of the class of securities then subject to the plan are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Holding Company; or (E) a tender offer is made for 20% or more of
the voting securities of the Bank or the Holding Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
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(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 date the Plan is approved by Holding
Company shareholders or, if not so approved, November 30, 1999, the date the
Plan was adopted by the Board of Directors.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Exercise Price" means the price at which a Participant may
purchase a share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock,
determined by the Committee as follows:
(i) If the Common Stock was traded on the 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.
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.
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(r) "Incentive Stock Option" means a stock option granted to a
Participant, pursuant to Section 7 of the Plan, that is intended to meet the
requirements of Section 422 of the Code.
(s) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(t) "Option" means an Incentive Stock Option or Non-Statutory Stock
Option.
(u) "Outside Director" means a member of the Boards of Directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(v) "Participant" means any person who holds an outstanding Award.
(w) "Performance Award" means an Award granted to a Participant
pursuant to Section 8 of the Plan.
(x) "Plan" means this Northeast Pennsylvania Financial Corp. 2000 Stock
Option Plan.
(y) "Retirement" means retirement from employment with the Holding
Company or an Affiliate in accordance with the current retirement policies of
the Holding Company or Affiliate, as applicable. "Retirement" with respect to an
Outside Director means the termination of service from the Board of Directors of
the Holding Company and any Affiliate following written notice to the Board of
Directors of such Outside Director's intention to retire.
(z) "Termination for Cause" shall mean termination because of a
Participant's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or material breach of any provision of any
employment agreement between the Holding Company and/or any subsidiary of the
Holding Company and a Participant.
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.
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(b) The Committee shall (i) select the Employees and Outside Directors
who are to receive Awards under the Plan, (ii) determine the type, number,
vesting requirements and other features and conditions of such Awards, (iii)
interpret the Plan and (iv) make all other decisions relating to the operation
of the Plan. The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. The Committee's determinations under the Plan
shall be final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be approved by the Committee. Each
Award Agreement shall constitute a binding contract between the Holding Company
or an Affiliate and the Participant, and every Participant, upon acceptance of
the Award Agreement, shall be bound by the terms and restrictions of the Plan
and the Award Agreement. The terms of each Award Agreement shall be in
accordance with the Plan, but each Award Agreement may include such additional
provisions and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan. In particular and at a minimum, the Committee shall
set forth in each Award Agreement (i) the type of Award granted; (ii) the
Exercise Price of any Option; (iii) the number of shares subject to the Award;
(iv) the expiration date of the Award; (v) the manner, time, and rate
(cumulative or otherwise) of exercise or vesting of such Award; and (vi) the
restrictions, if any, placed upon such Award, or upon shares which may be issued
upon exercise of such Award. The Chairman of the Committee and such other
directors and officers as shall be designated by the Committee is hereby
authorized to execute Award Agreements on behalf of the Company or an Affiliate
and to cause them to be delivered to the recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination
of forms of payment to be made by or received by the Plan and (ii) the execution
of any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
3. TYPES OF AWARDS
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 13 of the Plan, the
maximum number of shares reserved hereby for purchase pursuant to the exercise
of Options granted under the Plan is 173,624, which number shall not exceed
three percent (3%) of the outstanding shares of Common Stock as of the record
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 Bank. To the extent that Options are granted under the Plan,
the shares underlying such Options will be unavailable for any other use
including future grants under the Plan except that, to the extent that such
Options terminate, expire, or are forfeited without having been exercised new
Awards may be made with respect to these shares.
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5. ELIGIBILITY
Subject to the terms of the Plan, all Employees and Outside Directors
shall be eligible to receive Awards under the Plan. In addition, the Committee
may grant eligibility to consultants and advisors of the Holding Company or an
Affiliate.
6. NON-STATUTORY STOCK OPTIONS
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-Statutory Stock Options. The Committee shall determine
the term during which a Participant may exercise a Non-Statutory Stock Option,
but in no event may a Participant exercise a Non-Statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The Committee
shall also determine the date on which each Non-Statutory Stock Option, or any
part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Non- Statutory Stock Option.
The shares of Common Stock underlying each Non-Statutory Stock Option may be
purchased, in whole or in part, by the Participant at any time during the term
of such Non-Statutory Stock Option, after such Option becomes exercisable.
(c) Non-Transferability. Unless otherwise determined by the Committee
in accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Non-Statutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, (b) a transfer for no consideration
to: (i) any member of the Participant's Immediate Family, (ii) any trust solely
for the benefit of members of the Participant's Immediate Family, (iii) any
partnership whose only partners are members of the Participant's Immediate
Family, and (iv) any limited liability corporation or corporate entity whose
only members or equity owners are members of the Participant's Immediate Family,
or (c) the 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 bothers and sisters), and individuals who are family members by
adoption. Nothing contained in this Section 6(c) shall be construed to require
the Committee to give its approval to any transfer or assignment of any Non-
Statutory Stock Option or portion thereof, and approval to transfer or assign
any Non-Statutory Stock Option or portion thereof does not mean that such
approval will be given with respect to any other Non-Statutory Stock Option or
portion thereof. The transferee or assignee of any Non-Statutory Stock Option
shall be subject to all of the terms and conditions applicable to such
Non - Statutory Stock Option immediately prior to the transfer or assignment and
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shall be subject to any other conditions proscribed by the Committee with
respect to such Non-Statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death, or
Termination for Cause, the Participant may exercise only those Non- Statutory
Stock Options that were immediately exercisable by the Participant at the date
of such termination and only for a period of three (3) months following the date
of such termination, or, if sooner, the expiration of the term of the
Non-Statutory Stock Option.
(e) Termination of Employment or Service (Retirement). Unless otherwise
determined by the Committee, in the event of a Participant's Retirement, the
Participant's may exercise only those Non- Statutory Stock Options that were
immediately exercisable by the Participant at the date of Retirement and only
for a period of one (1) year following the date of Retirement, or, if sooner,
the expiration of the term of the Non-Statutory Stock Option.
(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, or, if sooner, the expiration of the term of the
Non-Statutory Stock Option.
(g) Termination of Employment or Service (Termination for Cause).
Unless otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's
Non-Statutory Stock Options shall expire immediately upon the effective date of
such Termination for Cause.
(h) Acceleration Upon a Change in Control. In the event of a Change in
Control, all Non- Statutory Stock Options held by such Participant shall
immediately become exercisable and remain exercisable until the expiration of
the term of the Non-Statutory Stock Option regardless of termination of
employment or service.
(i) Payment. Payment due to a Participant upon the exercise of a
Non-Statutory Stock Option shall be made in the form of shares of Common Stock.
(j) Maximum Individual Award. No individual Employee shall be granted
an amount of Non- Statutory Stock Options which exceeds 25% of all Options
eligible to be granted under the Plan within any 12-month period.
7. INCENTIVE STOCK OPTIONS
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but not previously awarded under
this Plan, grant Incentive Stock Options to an Employee upon such terms and
conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:
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(a) Exercise Price. The Committee shall determine the Exercise Price of
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant;
provided, however, that if at the time an Incentive Stock Option is granted, the
Employee owns or is treated as owning, for purposes of Section 422 of the Code,
Common Stock representing more than 10% of the total combined voting securities
of the Holding Company ("10% Owner"), the Exercise Price shall not be less than
110% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate
Fair Market Value of shares of Common Stock with respect to which Incentive
Stock Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; provided, however, that
if at the time an Incentive Stock Option is granted to an Employee who is a 10%
Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Incentive Stock Option. The
shares of Common Stock underlying each Incentive Stock Option may be purchased,
in whole or in part, at any time during the term of such Incentive Stock Option,
after such Option becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be
transferable except by will or the laws of descent and distribution and is
exercisable, during his lifetime, only by the Employee to whom the Committee
grants the Incentive Stock Option. The designation of a beneficiary does not
constitute a transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by
the Committee, upon the termination of a Participant's employment or other
service for any reason other than Retirement, Disability or death, or
Termination for Cause, the Participant may exercise only those Incentive Stock
Options that were immediately exercisable by the Participant at the date of such
termination and only for a period of one (1) year following the date of such
termination, or, if sooner, the expiration of the term of the Incentive Stock
Option. Any Option originally designated as an Incentive Stock Option shall be
treated as a Non-Statutory Stock Option to the extent the Participant exercises
such Option more than three (3) months following the Participant's cessation
from employment.
(f) Termination of Employment (Retirement). Unless otherwise determined
by the Committee, in the event of a Participant's Retirement, the Participant
may exercise only those Incentive Stock Options that were immediately
exercisable by the Participant at the date of Retirement and only for a period
of three (3) months following the date of Retirement, or, if sooner, the
expiration of the term of the Incentive Stock Option.
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(g) Termination of Employment (Disability or Death). Unless otherwise
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination,
or, if sooner, the expiration of the term of the Incentive Stock Option.
(h) Termination of Employment (Termination for Cause). Unless otherwise
determined by the Committee, in the event of a Participants's Termination for
Cause, all rights under such Participant's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(i) Acceleration Upon a Change in Control. In the event of a Change in
Control, all Incentive Stock Options held by such Participant shall become
immediately exercisable and remain exercisable until the expiration of the term
of the Incentive Stock Option regardless of termination of employment or
service. Any Option originally designated as an Incentive Stock Option shall be
treated as a Non-Statutory Stock Option to the extent the Participant exercises
such Option more than three (3) months following the Participant's cessation
from employment.
(j) Payment. Payment due to a Participant upon the exercise of an
Incentive Stock Option shall be made in the form of shares of Common Stock.
(k) Maximum Individual Award. No individual Employee shall be granted
an amount of Incentive Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 12-month period.
(l) Disqualifying Dispositions. Each Award Agreement with respect to an
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition.
8. PERFORMANCE AWARDS
The Committee may determine to make any Award under the Plan contingent
upon the satisfaction of any conditions related to the performance of the
Holding Company, an Affiliate, or the Participant. Each Performance Award shall
be evidenced in the Award Agreement, which shall set forth the applicable
conditions, the maximum amounts payable and such other terms and conditions as
are applicable to the Performance Award. Unless otherwise determined by the
Committee, each Performance Award shall be granted and administered to comply
with the requirements of Section 162(m) of the Code and subject to the following
provisions:
(a) 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;
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(b) 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; and
(c) No Award or portion thereof that is subject to the satisfaction of
any condition shall be considered to be earned or vested until the Committee
certifies in writing that the conditions to which the distribution, earning or
vesting of such Award is subject have been achieved.
9. 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.
10. METHOD OF EXERCISE OF OPTIONS
Subject to any applicable Award Agreement, any Option may be exercised
by the Participant in whole or in part at such time or times, and the
Participant may make payment of the Exercise Price in such form or forms,
including, without limitation, payment by delivery of cash, Common Stock or
other consideration (including, where permitted by law and the Committee,
Awards) having a Fair Market Value on the exercise date equal to the total
Exercise Price, or by any combination of cash, shares of Common Stock and other
consideration, including exercise by means of a cashless exercise arrangement
with a qualifying broker-dealer or a constructive stock swap, as the Committee
may specify in the applicable Award Agreement.
11. 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.
12. 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.
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13. 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; and
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-statutory Stock Options
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company.
14. TAX WITHHOLDING
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise of an Award or any other event with respect to rights
and benefits hereunder, the Committee shall be entitled to require as a
condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the 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 15 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.
15. NOTIFICATION UNDER SECTION 83(b)
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option make the election permitted
under
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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.
16. AMENDMENT OF THE PLAN AND AWARDS
(a) Except as provided in paragraph (c) of this Section 16, the Board
of Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided, however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law or regulation. Failure to ratify or
approve amendments or modifications by shareholders shall be effective only as
to the specific amendment or modification requiring such approval or
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) Except as provided in paragraph (c) of this Section 16, the
Committee may amend any Award Agreement, prospectively or retroactively;
provided, however, that no such amendment shall adversely affect the rights of
any Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall
the Committee amend an Award Agreement in any manner that has the effect of:
(i) Allowing any Option to be granted with an exercise
below the Fair Market Value of the Common Stock on
the Date of Grant.
(ii) Allowing the exercise price of any Option previously
granted under the Plan to be reduced subsequent to
the Date of Award.
(d) Notwithstanding anything in this Plan or any Award Agreement to
the contrary, if any Award or
right under this Plan would cause a transaction to be ineligible for pooling of
interest accounting that would, but for such Award or right, be eligible for
such accounting treatment, the Committee may modify or adjust the Award or right
so that pooling of interest accounting is available.
17. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon approval by the Holding Company's
shareholders or, if not so approved, on November 30, 1999, the date the Plan was
adopted by the Board of Directors. The failure to obtain shareholder
ratification for such purposes will not effect the validity of the Plan and any
Awards made under the Plan; provided, however, that if the Plan is not ratified
by stockholders in accordance with IRS regulations, the Plan may remain in full
force and effect, unless terminated by the Board of Directors, and any Incentive
Stock Options granted under the Plan shall be deemed to be Non-Statutory Stock
Options and any Award intended to comply with Section 162(m) of the Code shall
not comply with Section 162(m) of the Code.
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18. TERMINATION OF THE PLAN
The right to grant Awards under the Plan will terminate upon the
earlier of: (i) ten (10) years after the Effective Date; or (ii) the issuance of
a number of shares of Common Stock pursuant to the exercise of Options is
equivalent to the maximum number of shares reserved under the Plan as set forth
in Section 4 of the Plan. The Board of Directors has the right to suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
19. APPLICABLE LAW
The Plan will be administered in accordance with the laws of the state
of Delaware and applicable federal law.
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