<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.__ )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COMMUNITY SAVINGS BANKSHARES, INC.
----------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(Community Savings Bankshares, Inc. Letterhead)
April 28, 1999
Dear Shareholder:
You are cordially invited to attend the first Annual Meeting of
Shareholders of Community Savings Bankshares, Inc. (the "Company"). The meeting
will be held at The Embassy Suites PGA, 4350 PGA Boulevard, Palm Beach Gardens,
Florida on Friday, June 18, 1999, at 1:30 p.m. Eastern Time.
The enclosed Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted. During the Annual Meeting we will also report
on the operations of the Company. Directors and officers of the Company, as well
as a representative of our independent auditors, will be present to respond to
any questions that shareholders may have.
The formal business to be conducted at the Annual Meeting includes the (i)
election of two directors to the Company's Board of Directors, (ii)
consideration and approval of the 1999 Stock Option Plan, (iii) consideration
and approval of the 1999 Recognition and Retention Plan and Trust Agreement and
(iv) ratification of the appointment of Crowe, Chizek and Company LLP as
auditors for the Company for the fiscal year ending December 31, 1999.
The Board of Directors of the Company has determined that the matters to be
considered at the Annual Meeting are in the best interest of the Company and its
shareholders. For the reasons set forth in the Proxy Statement, the Board of
Directors unanimously recommends a vote "FOR" each matter to be considered.
It is very important that your shares be represented and voted at the
Annual Meeting regardless of the number you own or whether you are able to
attend the meeting in person. This year you may vote your shares either by
telephone using the instructions on the enclosed proxy card (if this option is
available to you), OR by marking, signing, dating and promptly returning your
proxy card in the postage-paid envelope provided for that purpose. Any proxy may
be revoked in the manner described in the accompanying Proxy Statement at any
time prior to its exercise at the Annual Meeting.
Your continued support of and interest in the Company is sincerely
appreciated.
Sincerely,
/s/ James B. Pittard, Jr.
James B. Pittard, Jr.
President and Chief Executive Officer
<PAGE> 3
COMMUNITY SAVINGS BANKSHARES, INC.
660 U.S. HIGHWAY ONE
NORTH PALM BEACH, FLORIDA 33408
(561) 881-2212
-----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 18, 1999
-----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Community Savings Bankshares, Inc. (the "Company") will be
held at The Embassy Suites PGA, 4350 PGA Boulevard, Palm Beach Gardens, Florida,
on Friday, June 18, 1999, at 1:30 p.m., Eastern Time, for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:
(1) To elect two (2) directors for a three-year term and until
their successors are elected and qualified;
(2) To consider and approve the adoption of the Company's 1999
Stock Option Plan;
(3) To consider and approve the adoption of the Company's 1999
Recognition and Retention Plan and Trust Agreement;
(4) To ratify the appointment by the Board of Directors of Crowe,
Chizek and Company LLP as the Company's independent auditors for the year ending
December 31, 1999; and
(5) To transact such other business as may properly come before
the meeting or any adjournment thereof. Management is not aware of any other
such business.
The Board of Directors has fixed April 20, 1999 as the voting record
date for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting and at any adjournment thereof. Only those shareholders of
record as of the close of business on that date will be entitled to vote at the
Annual Meeting or at any such adjournment.
By Order of the Board of Directors
/s/ Deborah M. Rousseau
----------------------------------
Deborah M. Rousseau
Vice President and Secretary
North Palm Beach, Florida
April 28, 1999
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. YOU MAY ALSO VOTE BY TELEPHONE FOLLOWING THE
INSTRUCTIONS PROVIDED TO YOU. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF. HOWEVER, IF YOU ARE A
SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED
ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO VOTE IN PERSON AT
THE ANNUAL MEETING.
<PAGE> 4
COMMUNITY SAVINGS BANKSHARES, INC.
-----------------
PROXY STATEMENT
-----------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 18, 1999
This Proxy Statement is furnished to holders of common stock, $1.00 par
value per share ("Common Stock"), of Community Savings Bankshares, Inc., a
Delaware corporation (the "Company"), which is the sole shareholder of Community
Savings, F. A. (the "Association"), a federally chartered savings association.
At Special Meetings of Members and Shareholders held in December 1998, the
Association's members and the shareholders of Community Savings Bankshares,
Inc., a federal corporation (the "Mid-Tier Holding Company"), approved an
Agreement and Plan of Reorganization whereby the Association became the wholly
owned subsidiary of the Company (the "1998 Reorganization"). The 1998
Reorganization was consummated as of December 15, 1998. Proxies are being
solicited on behalf of the Board of Directors of the Company to be used at the
Annual Meeting of Shareholders ("Annual Meeting") to be held at The Embassy
Suites PGA, 4350 PGA Boulevard, Palm Beach Gardens, Florida, on Friday, June 18,
1999, at 1:30 p.m., Eastern Time, and at any adjournment thereof for the
purposes set forth in the Notice of Annual Meeting of Shareholders. This Proxy
Statement is first being mailed to shareholders on or about April 28, 1999.
Your vote is important. Because many shareholders cannot attend the
Annual Meeting in person, it is necessary that a large number be represented by
proxy. Most shareholders have a choice of voting by using a toll-free telephone
number or by completing a proxy card and mailing it in the postage-paid envelope
provided. Check your proxy card or the information forwarded by your broker or
other holder of record to see which options are available to you. The telephone
voting facilities will close at 5:00 p.m. on June 17, 1999.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Company written
notice thereof (mailed to the attention of Deborah M. Rousseau, Vice President
and Secretary, Community Savings Bankshares, Inc., 660 U.S. Highway One, North
Palm Beach, Florida 33408); (ii) submitting a duly-executed proxy bearing a
later date; or (iii) appearing at the Annual Meeting and giving the Secretary
notice of his or her intention to vote in person. Proxies solicited hereby may
be exercised only at the Annual Meeting and any adjournment thereof and will not
be used for any other meeting.
The telephone voting procedure is designed to authenticate shareholders
by use of a control number and to allow shareholders to confirm that their
instructions have been properly recorded.
The method by which you vote will in no way limit your right to vote at
the Annual Meeting if you later decide to attend in person. If your shares are
held in the name of a broker or other holder of record, you must obtain a proxy,
executed in your favor, from the holder of record, to be able to vote at the
Annual Meeting.
VOTING
Only shareholders of record of the Company at the close of business on
April 20, 1999 (the "Voting Record Date") are entitled to notice of and to vote
at the Annual Meeting and at any adjournment thereof. On the Voting Record Date,
there were 10,548,884 shares of Common Stock of the Company issued and
outstanding, and the Company had no other class of equity securities
outstanding. Each share of Common Stock is entitled to one vote at the Annual
Meeting on all matters properly presented at the Annual Meeting.
The presence in person or by proxy of at least a majority of the issued
and outstanding shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Annual Meeting. Directors will be elected by a
plurality of the votes cast at the Annual Meeting. The affirmative vote of a
majority of the total votes present in person or by proxy
<PAGE> 5
at the Annual Meeting is required for approval of the proposal to ratify the
appointment of the Company's independent auditors. The affirmative vote of the
holders of a majority of the total votes represented at the Annual Meeting, in
person or by proxy, is required for the approval of the proposals to approve the
1999 Stock Option Plan and the Recognition and Retention Plan and Trust
Agreement (the "1999 Recognition Plan"). Shares represented by a proxy card or
telephonic vote which are voted as abstaining on any of the proposals, other
than the election of directors, will be treated as shares present and entitled
to vote that were not cast in favor of a particular matter, and thus will be
counted as votes against the matter. Under the rules of the New York Stock
Exchange, the proposals for the election of directors and to ratify the
selection of Crowe Chizek and Company LLP are considered to be "discretionary"
items upon which brokerage firms may vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions and for which
there will not be "broker non-votes." The proposals to approve the 1999 Stock
Option Plan and to approve the 1999 Recognition Plan are considered
"non-discretionary." Accordingly, a brokerage firm may not vote upon these
matters without instructions from beneficial owners and for which there may be
broker non-votes. A broker non-vote will have the same effect as a vote against
the proposals to approve the 1999 Stock Option Plan and the 1999 Recognition
Plan.
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR, DIRECTORS
WHOSE TERMS CONTINUE, AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors of the
Company shall be divided into three classes which are as equal in number as
possible, and that the members of each class are to be elected for a term of
three years and until their successors are elected and qualified.
No nominee for director is related to any other director or executive
officer of the Company by blood, marriage or adoption, and all nominees
currently serve as directors of the Company. There are no arrangements or
understandings between the nominees and any other person pursuant to which such
nominee was elected.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted FOR the election of the nominees for director listed
below. If any person named as nominee should be unable or unwilling to stand for
election at the time of the Annual Meeting, the proxies will nominate and vote
for any replacement nominee or nominees recommended by the Board of Directors.
At this time, the Board of Directors knows of no reason why either of the
nominees listed below may not be able to serve as a director if elected.
The following tables present information concerning the nominees for
director and each director whose term continues, including his tenure as a
director of the Company.
NOMINEES FOR DIRECTOR FOR THREE-YEAR TERM EXPIRING IN 2002
<TABLE>
<CAPTION>
Position with the Company and the
Association and Principal Occupation
During the Director
Name Age(1) Past Five Years Since (2)
---- ------ --------------- ---------
<S> <C> <C> <C>
James B. Pittard, Jr. 52 Director, President and Chief 1993
Executive Officer; President and
Chief Executive Officer of the
Association since 1993; from 1982
to 1993 served as Senior Vice
President and Treasurer of the
Association.
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
Position with the Company and the
Association and Principal Occupation
During the Director
Name Age(1) Past Five Years Since (2)
---- ------ --------------- ---------
<S> <C> <C> <C>
Robert F. Cromwell 80 Director; Chairman Emeritus of the 1955
Association; Retired; served as
Chairman of the Board of the
Association from 1983 to 1993.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE NOMINEES FOR
DIRECTOR.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
DIRECTORS WITH TERMS EXPIRING IN 2000
<TABLE>
<CAPTION>
Position with the Company and the
Association and Principal Occupation
During the Director
Name Age(1) Past Five Years Since (2)
---- ------ --------------- ---------
<S> <C> <C> <C>
Karl D. Griffin 70 Director; Secretary Emeritus of the 1955
Association; President of Kirklington
Park, Inc., a commercial real estate
leasing company located in Riviera
Beach, Florida; President of Smith &
Yetter, Inc. from 1961 until 1994.
Harold I. Stevenson, CPA 63 Director; from 1987 through 1993, 1987
served as President of Harold I.
Stevenson, CPA, PA; since 1994, self-
employed, Palm Beach Gardens,
Florida and Rising Fawn, Georgia.
</TABLE>
DIRECTORS WITH TERMS EXPIRING IN 2001
<TABLE>
<CAPTION>
Position with the Company and the
Association and Principal Occupation
During the Director
Name Age(1) Past Five Years Since (2)
---- ------ --------------- ---------
<S> <C> <C> <C>
Forest C. Beaty, Jr. 69 Director; Retired; consultant; 1977
majority stockholder of FMS, Inc.,
a holding company based in Lake
Park, Florida which owns retail
clothing stores.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
Position with the Company and the
Association and Principal Occupation
During the Director
Name Age(1) Past Five Years Since (2)
---- ------ --------------- ---------
<S> <C> <C> <C>
Frederick A. Teed 70 Chairman; Retired; previously 1964
President and Chief Executive
Officer of the Association from 1983
to 1992.
</TABLE>
- - ----------
(1) As of the Voting Record Date.
(2) Includes period served as director of the Association.
SHAREHOLDER NOMINATIONS
Article IV, Section 4.15 of the Company's Bylaws ("Bylaws") governs the
nominations for election to the Board of Directors and requires all such
nominations, other than those made by the Board of Directors or a committee
appointed by the Board, to be made at a meeting of shareholders called for the
election of directors, and only by a shareholder who has complied with the
notice provisions in that section. Shareholder nominations must be made pursuant
to timely notice in writing to the Secretary of the Company. Generally, to be
timely, a shareholder's notice must be delivered to, or mailed, postage prepaid,
to the principal executive offices of the Company in connection with the
immediately preceding annual meeting of shareholders of the Company. Each
written notice of a shareholder nomination is required to set forth certain
information specified by Bylaws. Because this is the first Annual Meeting, any
such nomination by a shareholder must have been delivered or received no later
than the close of business on December 15, 1998. No such nominations by
shareholders were received.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARDS OF THE COMPANY AND
ASSOCIATION
The business of the Company's Board of Directors is conducted through
meetings and activities of the Board and its committees. Regular meetings of the
Board of Directors of the Company are held on a quarterly basis and special
meetings of the Board of Directors of the Company are held from time-to-time as
needed. There were only eight meetings of the Board of Directors of the Company
held during fiscal 1998 because the Company was not organized until August 1998.
No director attended fewer than 75% of the total number of meetings of the Board
of Directors of the Company held during fiscal 1998 and the total number of
meetings held by all committees of the Board on which the director served during
such year.
The Board of Directors of the Company has established various
committees, including Nominating, Stock Benefits and Audit Committees.
The Audit Committee reviews the records and affairs of the Company to
determine its financial condition, reviews with management and the independent
auditors the systems of internal control, and monitors the Company's adherence
in accounting and financial reporting to generally accepted accounting
principles. Currently, all Directors except President Pittard, although he is
invited to the meeting by the Committee, serve as members of this Committee. The
Audit Committee did not meet during fiscal 1998 since the 1998 Reorganization
was consummated in mid- December 1998.
The Stock Benefits Committee consists of the non-employee Directors of
the Company and is chaired by Mr. Stevenson. The Stock Benefits Committee has
exclusive responsibility and authority to control and manage the operation and
administration of the Association's Employee Stock Ownership Plan ("ESOP"),
including the interpretation and application of its provisions, except to the
extent such responsibility and authority are otherwise specifically allocated.
In addition, the Committee has exclusive responsibility regarding decisions
concerning the payment of benefits under the ESOP. The Stock Benefits Committee
also has exclusive responsibility for determining
4
<PAGE> 8
the award of options to employees under the 1995 Stock Option Plan ("1995 Option
Plan") and restricted stock awards to employees under the 1995 Recognition and
Retention Plan for Employees and Outside Directors (the "1995 RRP"), and are
responsible for administration of such plans. The Stock Benefits Committee met
once during fiscal 1998.
In accordance with the Bylaws, the Board of Directors acts as the
Nominating Committee. The Board did not meet in such capacity in fiscal 1998 but
met subsequent to December 31, 1998 to nominate the persons listed herein as the
Board's nominees.
The Board of Directors of the Association met 20 times during fiscal
1998. In addition, the Board of Directors of the Association has established
various committees including a Compensation Committee. The Compensation
Committee of the Association meets monthly to review the performance of
employees (other than officers) and determines compensation programs and
adjustments. The entire Board of Directors ratifies the recommendations of the
Compensation Committee with respect to officers other than Mr. Pittard (who is a
member of the Committee) whose compensation is established by the Board. The
Compensation Committee was comprised of Larry J. Baker, Cecil F. Howard, Jr.,
Feriel G. Hughes, Mary L. Kaminske, James B. Pittard, Jr. and Michael E.
Reinhardt. The Compensation Committee met 12 times during fiscal 1998.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information with respect to the
executive officers of the Company and the Association who are not directors.
<TABLE>
<CAPTION>
Name Age (1) Position(s)
---- ------- -----------
<S> <C> <C>
Larry J. Baker, CPA 59 Senior Vice President, Chief Financial Officer, Treasurer
and Director of the Association's Finance Division
Cecil F. Howard, Jr. 61 Senior Vice President and Director of the Association's
Lending Division
Feriel G. Hughes 49 Senior Vice President and Director of the Association's
Human Resources, Marketing and Training Division
Mary L. Kaminske 61 Senior Vice President and Director of the Association's
Operations Division
Michael E. Reinhardt 53 Senior Vice President and Director of the Association's
Properties and Insurance Division
</TABLE>
- - --------------
(1) As of the Voting Record Date.
Set forth below is a brief description of the background for at least
the last five years of each executive officer of the Company and the Association
who is not a director of the Company.
LARRY J. BAKER, CPA is Senior Vice President, Chief Financial Officer
and Treasurer of the Company and the Association and Director of the Finance
Division of the Association. Mr. Baker has been employed by the Association
since 1982 and has served as Senior Vice President since 1995, and Treasurer of
the Association since 1993. Mr. Baker has served in various other positions with
the Association including Controller from 1982 until 1996 and Vice President
from 1987 to 1994.
CECIL F. HOWARD, JR. is Senior Vice President of the Company and the
Association and has been Director of the Lending Division and Chief Lending
Officer of the Association since 1987 (except for the period from October 1994
until January 1995 during which time he served as President of First Federal
Savings and Loan Association of Florida, Lakeland, Florida).
5
<PAGE> 9
FERIEL G. HUGHES is Senior Vice President of the Company and the
Association and Director of the Human Resources, Marketing and Training Division
of the Association. Ms. Hughes joined the Association in March 1997 and became
Senior Vice President in September 1997. She previously served as a sales
consultant with the national firm of Schneider Sales Management, from February
1995 to March 1997, Human Resources Director of Brooklyn Bow International,
Riviera Beach, Florida, from October 1994 to September 1996 and as Director of
Sales and Marketing of Flagler National Bank, West Palm Beach, Florida from
August 1986 until March 1994.
MARY L. KAMINSKE is Senior Vice President of the Company and the
Association and Director of the Operations Division of the Association, which
includes oversight of the Association's branch office network. Ms. Kaminske has
been employed by the Association since 1969 in various positions including
serving as Vice President from 1987 until 1996 and as Senior Vice President
since January 1996.
MICHAEL E. REINHARDT is Senior Vice President of the Company and the
Association and Director of the Properties and Insurance Division of the
Association. Mr. Reinhardt was first employed by the Association in 1973 serving
in various positions, including as Vice President from 1987 to 1996 and as
Senior Vice President since January 1997.
6
<PAGE> 10
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common
Stock as of the Voting Record Date, and certain other information with respect
to (i) the only persons or entities, including any "group" as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), who or which was known to the Association to be the beneficial
owner of more than 5% of the issued and outstanding Common Stock on the Voting
Record Date, (ii) each director of the Company, (iii) certain executive officers
of the Company and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Name of Beneficial Owner or Ownership as of Percent of
Number of Persons in Group April 20, 1999 (1)(2)(3)(4)(5) Common Stock
- - -------------------------- ------------------------------ ------------
<S> <C> <C>
Community Savings, F. A. 793,451(6) 7.5%
Employee Stock Ownership Plan
660 U.S. Highway One
North Palm Beach, Florida 33408
Capital Guardian Trust Company 1,037,300(7) 9.8%
Capital International, Inc.
11100 Santa Monica Boulevard
Los Angeles, California 90025-3384
DIRECTORS:
Frederick A. Teed 44,402 *
James B. Pittard, Jr. 56,898(8) *
Forest C. Beaty, Jr. 45,414(9) *
Robert F. Cromwell 49,491 *
Karl D. Griffin 45,196(10) *
Harold I. Stevenson, CPA 39,824(11) *
EXECUTIVE OFFICERS:
Larry J. Baker, CPA 39,145(12) *
Cecil F. Howard, Jr. 19,860(13) *
Feriel G. Hughes 716(14) *
Mary L. Kaminske 29,787(15) *
Michael E. Reinhardt 30,630(16) *
All directors and executive officers as a 401,361(17) 3.8%
group (11 persons)
</TABLE>
- - ----------
* Represents less than 1% of the outstanding Common Stock.
(1) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals and entities. Under regulations
promulgated pursuant to the Exchange Act, shares of Common Stock are
deemed to be beneficially owned by a person if he or she directly or
indirectly has or shares (i) voting power, which includes the power to
vote or to direct the voting of the shares, or (ii) investment power,
which includes the power to dispose or to direct the disposition of the
shares. Unless otherwise indicated, the named beneficial owner has sole
voting and dispositive power with respect to the shares.
(footnotes continued on following page)
7
<PAGE> 11
(2) For shares, grants and options owned or made, as the case may be, prior
to December 15, 1998, the data presented reflects an adjustment made in
order to account for the share exchange ratio applied in connection
with the 1998 Reorganization. In connection with the consummation of
the 1998 Reorganization, as of December 15, 1998, the Mid-Tier Holding
Company's common stock was exchanged for the Company's Common Stock
pursuant to a ratio of 2.0445 shares of the Company's Common Stock for
each one (1) share of the Mid-Tier Holding Company's common stock (the
"Exchange Ratio") (except for the Mid-Tier Holding Company common stock
owned by the MHC, which was canceled).
(3) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of Common Stock which may be acquired within 60
days of the Voting Record Date pursuant to the exercise of outstanding
stock options. Shares of Common Stock which are subject to stock
options are deemed to be outstanding for the purpose of computing the
percentage of outstanding Common Stock owned by such person or group
but not deemed outstanding for the purpose of computing the percentage
of Common Stock owned by any other person or group.
(4) Includes amounts totaling 9,710, 9,075, 9,710, 9,710, 9,710, 7,768,
8,381, 2,040, 11,755 and 11,651 shares awarded pursuant to the 1995 RRP
granted to Messrs. Teed, Pittard, Beaty, Cromwell, Griffin, Stevenson,
Baker, Howard and Reinhardt and Ms. Kaminske, respectively. Such shares
may be voted by such persons although not all of such shares have
vested and been distributed. The awards vest at the rate of 20% per
year from the date of grant (January 1995 except with respect to Mr.
Howard whose grant was made in January 1997).
(5) Includes shares totaling 19,381, 37,782, 19,381, 19,381, 19,381,
19,381, 16,356, 6,132, 12,591 and 12,429 which may be acquired upon the
exercise of options exercisable within 60 days of the Voting Record
Date granted to Messrs. Teed, Pittard, Beaty, Cromwell, Griffin,
Stevenson, Baker, Howard, Reinhardt and Ms. Kaminske, respectively,
pursuant to the 1995 Option Plan.
(6) Does not include 22,941 shares allocated to or deemed beneficially
owned pursuant to the ESOP by the executive officers, or such officers'
spouses, as the case may be, listed below, which shares are reflected
in such individuals' beneficial ownership.
(7) Reflects shares held by Capital Guardian Trust Company (729,160) and
Capital International, Inc. (308,140). Capital Guardian Trust Company
is a Bank (as defined under Section 3(a)6 of the Exchange Act) and is
wholly owned by The Capital Group Companies, Inc. Capital International
Research and Management, Inc., dba Capital International, Inc., is an
Investment Advisor registered under Section 203 of the Investment
Advisor Act of 1940 and is a wholly owned subsidiary of Capital Group
International, Inc., which is wholly owned by The Capital Group
Companies, Inc. Neither Capital Guardian Trust Company nor Capital
International, Inc. owns shares for its own account. The shares are
deemed to be beneficially owned by them in their capacities as
investment manager and investment advisor, respectively, for various
investment companies and/or institutional accounts, as the case may be.
(8) Includes 1,118 shares allocated to Mr. Pittard's wife, a former
employee of the Association, pursuant to the Association's ESOP, 116
shares owned by Mr. Pittard's children, 3,740 shares allocated to Mr.
Pittard pursuant to the ESOP and 11,117 shares owned jointly with Mr.
Pittard's wife (of which 6,050 of such shares are included in the
shares granted to Mr. Pittard pursuant to the 1995 RRP as noted above).
(9) Includes 9,322 shares owned jointly with Mr. Beaty's wife and 1,500
shares owned by Mr. Beaty's wife.
(footnotes continued on following page)
8
<PAGE> 12
(10) Includes 7,156 shares owned jointly with Mr. Griffin's wife and 4,476
shares owned by Mr. Griffin's wife.
(11) Includes 5,111 shares owned by Mr. Stevenson's wife and 5,826 shares
held jointly with Mr. Stevenson's wife, (all of such 5,826 shares are
included in the shares granted to Mr. Stevenson pursuant to the 1995
RRP as noted above).
(12) Includes 4,377 shares allocated to Mr. Baker pursuant to the ESOP.
(13) Includes 6,049 shares allocated to Mr. Howard pursuant to the ESOP and
196 shares owned by Mr. Howard's wife through her IRA.
(14) Includes 616 shares allocated to Ms. Hughes pursuant to the ESOP.
(15) Includes 8,788 shares owned jointly with Ms. Kaminske's husband and
3,338 shares allocated to her pursuant to the ESOP.
(16) Includes 11,985 shares owned jointly with Mr. Reinhardt's wife (of
which 9,404 of such shares are included in the shares granted to Mr.
Reinhardt pursuant to the 1995 RRP as noted above) and 3,703 shares
allocated to Mr. Reinhardt pursuant to the ESOP.
(17) Includes 89,510 shares held by the RRP, which may be voted by directors
and executive officers pending vesting and distribution, 22,941 shares
allocated to executive officers and their spouses, as the case may be,
pursuant to the ESOP and 182,195 shares which may be acquired by
directors and executive officers upon the exercise of stock options
exercisable within 60 days of the Voting Record Date.
9
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information
concerning the compensation awarded to or paid by the Association for services
rendered in all capacities during the past three years to the Chief Executive
Officer and the two other officers of the Association and its subsidiaries whose
compensation (salary and bonus) during the fiscal year ended December 31, 1998
exceeded $100,000. The Association changed its fiscal year from September 30 to
December 31 subsequent to September 30, 1996. Accordingly, amounts for fiscal
1996 have been restated to be consistent with fiscal 1998. Said officers, who
also serve as executive officers of the Company, do not receive separate
compensation from the Company.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
Other ----------------------
Name and Fiscal Annual All Other
Principal Position Year Salary Bonus Compensation(1) Stock Grants(2) Options(2) Compensation(3)
- - ------------------ ---- ------ ----- --------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
James B. Pittard, Jr. 1998 $228,053 $-- $10,500 $ -- $ -- $16,496
President and Chief 1997 205,754 -- 10,500 -- -- 30,238
Executive Officer 1996 194,334 -- 10,500 -- -- 22,345
Larry J. Baker 1998 $116,337 $-- $ -- $ -- $ -- $15,097
Senior Vice President, 1997 100,596 -- -- -- -- 18,487
Chief Financial Officer and 1996 94,860 -- -- -- -- 13,583
Treasurer and Director of
the Association's Finance
Division
Cecil F. Howard, Jr. 1998 $152,189 $-- $ -- $ -- $ -- $11,466
Senior Vice President and 1997 144,131 -- -- 2,040 18,972 26,543
Chief Lending Officer and 1996 133,579 -- -- -- -- 19,552
Director of the Association's
Lending Division
</TABLE>
- - ----------
(1) Includes director fees paid for attendance at Board meetings of the
Company and its subsidiaries. Does not include amounts attributable to
miscellaneous benefits received by executive officers. In the opinion
of management of the Association, the costs to the Association of
providing such benefits to any individual
(Footnotes continued on next page)
10
<PAGE> 14
executive officer during the year ended December 31, 1998 did not
exceed the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for the individual.
(2) For shares, grants and options owned or made, as the case may be, prior
to December 15, 1998, the data presented reflects an adjustment made in
order to account for the Exchange Ratio resulting from the 1998
Reorganization.
(3) Represents amounts allocated during the years ended December 31, 1998,
1997 and 1996 on behalf of Messrs. Pittard, Baker and Howard pursuant
to the ESOP.
DIRECTOR COMPENSATION
BOARD FEES. During the year ended December 31, 1998, each member of the
Board of Directors of the Company and its subsidiaries received a monthly
meeting fee of $1,750, except Mr. Pittard who received $875 per monthly meeting.
As of February 1999, the Chairman of the Company and its subsidiaries receives
$3,000 per month, each outside director receives $2,000 per month and Mr.
Pittard receives $1,000 per month.
STOCK OPTIONS. Pursuant to the 1995 Option Plan each non-employee
director of the Association was granted in January 1995 a compensatory stock
option to purchase 11,850 shares of Common Stock. Pursuant to the Exchange Ratio
utilized in the 1998 Reorganization each director now has an option to purchase
24,227 Shares of Common Stock. Each new non-employee director will receive an
option to purchase 409 shares of Common Stock upon election to the Board, to the
extent shares are available in the 1995 Option Plan. Options granted to
non-employee directors vest at the rate of 20% per year from the date of grant.
RESTRICTED STOCK AWARDS. Pursuant to the 1995 RRP, each non-employee
director of the Association was granted 4,750 shares of restricted stock, which
grant now represents 9,711 shares (assuming that previously vested shares have
not been paid) after giving effect to the Exchange Ratio. Each new non-employee
director will receive an award of 204 shares of Common Stock upon election to
the Board, to the extent shares are available in the 1995 RRP. The restricted
stock granted pursuant to the 1995 RRP vests at the rate of 20% per year from
the date of grant.
STOCK OPTIONS
The following table sets forth certain information concerning exercises
of stock options granted pursuant to the 1995 Option Plan by the named executive
officers during the fiscal year ended December 31, 1998 and options held at
December 31, 1998. No options were granted to the named executive officers
during fiscal 1998.
<TABLE>
<CAPTION>
Value of Unexercised in the
Number of Unexercised Money Options at Fiscal Year
Options at Year End(1) End(2)
---------------------- ----------------------------
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James B. Pittard, Jr. 10,631 $117,000 23,225 29,114 $123,302 $154,566
Cecil F. Howard, Jr. 0 $ 0 3,066 12,267 $ 4,443 $ 17,775
Larry J. Baker 0 $ 0 12,267 8,178 $ 65,126 $ 43,417
</TABLE>
- - ----------
(1) Reflects application of the Exchange Ratio.
(2) Based on a per share market price of $10.75 at December 31, 1998 after
applying the Exchange Ratio.
11
<PAGE> 15
DEFINED BENEFIT PLAN
The Association maintains a noncontributory defined benefit plan (the
"Retirement Plan"). All employees age 21 or older who have worked at the
Association for a period of one year and been credited with at least 1,000 hours
of employment with the Association during the year can accrue benefits under the
Retirement Plan. The Association annually contributes an amount to the
Retirement Plan necessary to satisfy the actuarially determined minimum funding
requirements in accordance with the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
At the normal retirement age of 65 (or completion of 30 years of
service with the Association, if earlier), the plan is designed to provide a
life annuity. The retirement benefit provided is an amount equal to 1.75% of a
participant's average monthly compensation based on the average of the three
consecutive years during the last 10 calendar years of employment which provides
the highest monthly average compensation multiplied by the participant's years
of credited service (not to exceed 35 years) to the normal retirement date.
Retirement benefits are also payable upon retirement due to early and late
retirement. A reduced benefit is payable upon early retirement at or after age
55 and the completion of fifteen years of service with the Association. Benefits
are also paid from the Retirement Plan upon a Participant's disability or death.
Upon termination of employment other than as specified above, a participant who
was employed by the Association for a minimum of two years is eligible to
receive his or her accrued benefit reduced for early retirement or a deferred
retirement benefit commencing on such participant's normal retirement date.
Benefits are payable in various annuity forms as well as in the form of a single
lump sum payment. Participants whose vested benefit upon termination is less
than $3,500 will normally receive their benefit in a single lump sum payment.
The following table sets forth estimated annual benefits payable upon
retirement at age 65 to the named executive officers under the Association's
Retirement Plan based upon various levels of compensation and years of service.
<TABLE>
<CAPTION>
Final Average
Compensation Years of Benefit Service at Retirement
- - ------------- ---------------------------------------------------------------------------
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 25,000 $ 6,563 $ 8,750 $10,938 $13,125 $15,313
50,000 13,125 17,500 21,875 26,250 30,625
75,000 19,688 26,250 32,813 39,375 45,938
100,000 26,250 35,000 43,750 52,500 61,250
125,000 32,813 43,750 54,688 65,625 76,563
150,000 39,375 52,500 65,625 78,750 91,875
160,000 42,000 56,000 70,000 84,000 98,000
and above
</TABLE>
The maximum annual compensation which may be taken into account under
the Internal Revenue Code (as adjusted from time to time by the Internal Revenue
Service ("IRS")) for calculating contributions under qualified defined benefit
plans after December 31, 1998 is $160,000 and the maximum annual benefit
permitted under such plans is $130,000.
At December 31, 1998, Messrs. Pittard, Howard and Baker had 17, 11 and
16 years of credited service, respectively, under the Retirement Plan.
EMPLOYEE STOCK OWNERSHIP PLAN
The Association has established an ESOP for employees age 21 or older
who have at least one year of credited service with the Association. The ESOP is
funded by the Association's contributions made in cash (which primarily will be
invested in Common Stock) or Common Stock. Benefits may be paid either in shares
of Common Stock or, to the extent permitted, in cash.
12
<PAGE> 16
In October 1994, the ESOP borrowed $2.8 million from an unaffiliated
lender to purchase 190,388 shares of Association common stock in the open market
(which was deemed exchanged for Mid-Tier Holding Company common stock as a
result of the Mid-Tier Reorganization). The Association makes scheduled
discretionary cash contributions to the ESOP sufficient to amortize the
principal and interest on the loan, which has a maturity of seven years. During
1998, the Mid-Tier Holding Company loaned sufficient funds to the ESOP to permit
the ESOP to repay the loan to the unaffiliated lender. The terms of the loan to
ESOP from the Company are similar to those of the loan from the unaffiliated
lender. In connection with the 1998 Reorganization, the ESOP borrowed funds from
the Company to purchase 437,652 shares of the Company's Common Stock. Collateral
for the loan is the Company's Common Stock purchased by the ESOP with the loan
proceeds. The two loans will be repaid principally from the Association's
contributions to the ESOP over a period of 3 and 15 years, respectively. The
loans bear fixed interest rates of 8.50% and 7.75%, respectively. Shares
purchased by the ESOP using the loan proceeds are held in a loan expense account
and released on a pro rata basis as debt service payments are made. The Mid-Tier
Holding Company common stock held by the ESOP prior to the 1998 Reorganization
was converted into Company Common Stock pursuant to the Exchange Ratio.
The Association may, in any plan year, make additional discretionary
contributions for the benefit of plan participants in either cash or shares of
Common Stock, which may be acquired through the purchase of outstanding shares
in the market or from individual shareholders, upon the original issuance of
additional shares by the Association or upon the sale of treasury shares by the
Association. Such purchases, if made, would be funded through additional
borrowings by the ESOP or additional contributions from the Association. The
timing, amount and manner of future contributions to the ESOP will be affected
by various factors, including prevailing regulatory policies, the requirements
of applicable laws and regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan are held in
a loan suspense account and released on a pro rata basis as debt service
payments are made. Discretionary contributions to the ESOP and shares released
from the suspense account will be allocated among participants on the basis of
compensation. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount the Association might otherwise have
contributed to the ESOP. Benefits generally vest at the rate of 20% per year
beginning in the second year of participation until the participant becomes 100%
vested after six years of credited service. Benefits may be payable upon
retirement, early retirement, disability or separation from service. The
Association's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
The Stock Benefits Committee of the Board administers the ESOP and an
unaffiliated financial institution has been appointed to act as trustee of the
related trust. The Stock Benefits Committee may instruct the trustee regarding
investment of funds contributed to the ESOP. Under the ESOP, the trustee must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees, and allocated shares for which employees do not
give instructions will be voted in the same ratio on any matter as to those
shares for which instructions are given. Unallocated shares held in the ESOP
will be voted by the ESOP trustee after considering the recommendation of the
Stock Benefits Committee.
The ESOP is subject to the requirements of ERISA and the regulations of
the IRS and the Department of Labor thereunder.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Association maintains a non-qualified supplemental executive
retirement plan ("SERP") for certain executives and former executives (including
Messrs. Teed, Pittard, Baker and Howard) of the Association to compensate those
executives participating in the Association's Retirement Plan whose benefits are
limited by Section 415 or Section 401(a)(17) of the Internal Revenue Code. As of
December 31, 1998, there were four executive officers participating in the SERP.
The SERP provides the designated executives with retirement benefits generally
equal to the difference between (i) seventy-five percent (75%) of the
executive's compensation and (ii) the sum of the executive's retirement benefit
under the Association's Retirement Plan and the executive's social security
benefits. Benefits under the SERP vest on normal retirement age (age 65). If an
executive remains employed with the Association after normal retirement age, the
executive will receive retirement benefits, actuarially adjusted to reflect the
executive's later retirement. Retirement benefits will be payable to the
executive in the form of a quarterly benefit for fifteen consecutive years.
Death benefits are payable to an
13
<PAGE> 17
executive's beneficiary only if the executive survives to retirement from the
Association. Benefits will be paid to the beneficiary until the executive and
the beneficiary have received a total of sixty quarterly payments.
The SERP is considered an unfunded plan for tax and ERISA purposes. All
obligations arising under the SERP are payable from the general assets of the
Association. However, the Association has chosen to purchase life insurance
contracts to ensure that sufficient assets will be available to pay the benefits
under the SERP.
The benefits paid under the SERP supplement the benefits paid by the
Retirement Plan. The following table indicates the expected aggregate annual
retirement benefit payable from the SERP to SERP participants, expressed in the
form of a single-life annuity for the final average salary and years of service
specified below.
<TABLE>
<CAPTION>
Final Average Years of Service and
Compensation Benefit Payable at Retirement
- - -------------- --------------------------------------------------------------------------------
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$100,000 $ 32,636 $ 23,886 $ 15,136 $ 6,386 $ --
125,000 44,824 33,886 22,949 12,011 1,074
150,000 57,011 43,886 30,761 17,636 4,522
175,000 73,136 59,136 45,136 31,136 17,136
200,000 91,886 77,886 63,888 49,886 35,886
225,000 110,636 96,636 82,636 68,636 54,636
250,000 129,588 115,588 101,588 87,588 73,588
275,000 148,338 134,338 120,338 106,338 92,338
300,000 167,088 153,088 139,088 125,088 111,088
</TABLE>
Messrs. Pittard, Howard and Baker have 17, 11 and 16 years,
respectively, of credited service under the SERP. The Association's pension cost
attributable to the SERP was $76,000 for the year ended December 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation philosophy, policies, levels and programs are
the responsibility of the full Board of Directors. Mr. Pittard, who serves as
President and Chief Executive Officer, as well as a director of the Company and
the Association, does not participate in the Board's determination of
compensation for the President and Chief Executive Officer. In addition, Mr.
Teed, currently Chairman of the Board, served as President and Chief Executive
Officer of the Association from 1983 to 1993. The report of the committee with
respect to compensation for the Chief Executive Officer and certain executive
officers is set forth below.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information regarding the
compensation and benefits provided to its Chief Executive Officer and certain
other executive officers of the Association (since such persons do not receive
compensation for service as officers of the Company). The disclosure
requirements for the Chief Executive Officer and such other executive officers
include the use of various tables as well as a report explaining the rationale
and considerations that led to fundamental executive compensation decisions
affecting those individuals. In fulfillment of this requirement, the Board of
Directors has prepared the following report for inclusion in this proxy
statement.
The Board of Directors (excluding Mr. Pittard as Chief Executive
Officer) annually reviews the performance of the Chief Executive Officer and
other executive officers and approves changes to base compensation as well as
the level of bonus, if any, to be awarded. With respect to all positions within
the organization with the exception of the Chief Executive Officer, the
Association uses a formal quantitative system of job evaluation. In determining
whether the base salary of the Chief Executive Officer should be increased, the
Board of Directors takes into account individual performance,
14
<PAGE> 18
performance of the Association, the size of the Association and the complexity
of its operations, and information regarding compensation paid to executives
performing similar duties for financial institutions in the Association's market
area.
While the Board of Directors does not use strict numerical formulas to
determine changes in compensation for the Chief Executive Officer and while it
weighs a variety of different factors in its deliberations, it has emphasized
and will continue to emphasize earnings, profitability, capital position and
income level, and return on tangible equity as factors in setting the
compensation of the Chief Executive Officer. Other non-quantitative factors
considered by the Board of Directors in fiscal 1998 included general management
oversight of the Association, the quality of communication with the Board of
Directors, and the productivity of employees. Finally, the Board of Directors
considers the Association's standing with customers and the community, as
evidenced by the level of customer/community complaints and compliments. While
each of the quantitative and non-quantitative factors described above was
considered by the Board of Directors, such factors were not assigned a specific
weight in evaluating the performance of the Chief Executive Officer.
Based upon the above factors, the Board of Directors increased Mr.
Pittard's base salary by approximately $36,000 or 17.7% to $241,000 for 1998.
The Board of Directors provided for an average 17.9% salary increase for the
five other Senior Executive Officers. No officer participates in the review of
his or her respective compensation.
THE BOARD OF DIRECTORS
(EXCLUDING MR. PITTARD)
-----------------------
Frederick A. Teed
Forest C. Beaty, Jr.
Robert F. Cromwell
Karl D. Griffin
Harold I. Stevenson, CPA
15
<PAGE> 19
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Common
Stock since the Company's initial public offering of common stock in December
1998 with (i) the yearly cumulative total return on the stocks included in the
SNL Thrift Index; (ii) the yearly cumulative total return on the stocks indexed
in the SNL $500 Million to $1 Billion Thrift Index; and (iii) the yearly
cumulative total return on the stocks included in the Nasdaq Stock Market Index
(for United States companies). All of these cumulative returns are computed
assuming the reinvestment of dividends at the frequency with which dividends
were paid during the applicable period.
[GRAPH]
<TABLE>
<CAPTION>
PERIOD ENDING
=========================================================================
INDEX 12/15/98 12/18/98 12/22/98 12/24/98 12/28/98 12/31/98
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Community Savings Bankshares, Inc. 100.00 104.66 104.66 104.66 104.05 104.66
NASDAQ - Total US 100.00 103.60 105.20 107.35 108.12 108.86
SNL Thrift Index 100.00 103.81 102.95 103.22 103.42 108.08
SNL $500M - $1B Thrift Index 100.00 101.02 100.02 99.75 99.73 101.73
</TABLE>
The graph represents $100 invested in the Company's initial public
offering of common stock issued on December 15, 1998 at $10.00 per share. On
September 30, 1997, the Association undertook the Mid-Tier Reorganization
pursuant to which it became the wholly owned subsidiary of the Mid-Tier Holding
Company, which
16
<PAGE> 20
was, in turn, the majority owned subsidiary of ComFed, M. H. C. In connection
with the Mid-Tier Reorganization, the Association's common stock was exchanged
on a one-for-one basis with the Mid-Tier Holding Company's common stock. In
connection with the consummation of the 1998 Reorganization, as of December 15,
1998, the Mid-Tier Holding Company's common stock was exchanged for the
Company's Common Stock pursuant to the Exchange Ratio resulting in 2.0445 shares
of Common Stock being issued in exchange for each share of Mid-Tier Holding
Company Common Stock. The SNL Thrift Index and SNL $500 million to $1.0 billion
Thrift Index are indices created by SNL Securities, L.P., Charlottesville,
Virginia, a nationally recognized analyst of financial institutions.
INDEBTEDNESS OF MANAGEMENT AND AFFILIATED TRANSACTIONS
In accordance and in compliance with applicable federal laws and
regulations, the Association offers mortgage loans to its directors, officers
and full-time employees for the financing of their primary residences and
certain other loans. Currently, except as described below all existing loans
made by the Association to its executive officers and directors and their
associates were made on substantially the same terms, including interest rate
and collateral, as those prevailing at the time for comparable transactions with
non-affiliated persons. It is the belief of management that these loans neither
involve more than the normal risk of collectibility nor present other
unfavorable features. In accordance with applicable regulations, the Association
extends residential first mortgage loans to its officers secured by their
primary residence pursuant to a benefit program that is widely available to
employees of the Association who have provided service to the Association for at
least one year and does not give preference to any officer over other employees
of the Association. Under the terms of such loans, the interest on
adjustable-rate loans is 0.50% below that charged on similar loans to
non-employees and certain fees and charges, such as private mortgage insurance,
are waived.
All transactions between the Company and/or the Association and their
respective executive officers, directors, holders of 10% or more of the shares
of its Common Stock and affiliates thereof, are on terms no less favorable to
the Company or the Association, as the case may be, than could have been
obtained by it in arm's-length negotiations with unaffiliated persons. Such
transactions must be approved by a majority of independent outside directors of
the Company, or the Association, as the case may be, not having any interest in
the transaction.
PROPOSAL TO ADOPT THE 1999 STOCK OPTION PLAN
GENERAL
On February 25, 1999, the Board of Directors adopted the 1999 Stock
Option Plan which is designed to attract and retain qualified officers and other
employees, provide officers and other employees with a proprietary interest in
the Company as an incentive to contribute to the success of the Company and
reward officers and other employees for outstanding performance. The 1999 Stock
Option Plan provides for the grant of incentive stock options ("incentive stock
options") intended to comply with the requirements of Section 422 of the Code
and non-qualified or compensatory stock options (the incentive stock options and
the non-qualified options, together, the "options"). The Board of Directors
believes that the 1999 Stock Option Plan is necessary because only options to
purchase 1,096 shares remain available to be granted under the 1995 Plan and it
will continue to motivate Company employees to perform well. Accordingly, the
Board of Directors believes that the 1999 Stock Option Plan is in the best
interest of the Company and its shareholders. If shareholder approval is
obtained, options to acquire shares of Common Stock will be awarded to officers,
key employees and directors of the Company and the Association with an exercise
price equal to the fair market value of the Common Stock on the date of grant.
DESCRIPTION OF THE 1999 STOCK OPTION PLAN
The following description of the 1999 Stock Option Plan is a summary of
its terms and is qualified in its entirety by reference to the 1999 Stock Option
Plan, a copy of which is attached hereto as Appendix A.
17
<PAGE> 21
Administration. The 1999 Stock Option Plan will be administered and
interpreted by the Stock Benefits Committee of the Board of Directors
("Committee") that is comprised solely of the non-employee directors of the
Company.
Stock Options. Under the 1999 Stock Option Plan, the Board of Directors
or the Committee will determine which officers, key employees and non-employee
directors will be granted options, whether such options will be incentive or
compensatory options (in the case of options granted to employees), the number
of shares subject to each option, the exercise price of each option and whether
such options may be exercised by delivering other shares of Common Stock. The
per share exercise price of both an incentive stock and a compensatory option
shall at least equal the fair market value of a share of Common Stock on the
date the option is granted (110% of fair market value in the case of incentive
stock options granted to employees who are 5% shareholders).
All options granted to participants under the 1999 Stock Option Plan
shall become vested and exercisable at the rate of 20% per year on each annual
anniversary of the date the options were granted, and the right to exercise
shall be cumulative. Notwithstanding the foregoing, no vesting shall occur on or
after a participant's employment or service with the Company is terminated for
any reason other than his death or disability. Unless the Committee or Board of
Directors shall specifically state otherwise at the time an option is granted,
all options granted to participants shall become vested and exercisable in full
on the date an optionee terminates his employment or service with the Company or
a subsidiary company because of his death or disability. In addition, all stock
options will become vested and exercisable in full on the date an optionee
terminates his employment or service with the Company or a subsidiary company
due to retirement or as the result of a change in control of the Company if, as
of such date of retirement or change in control of the Company: (i) such
treatment is either authorized or is not prohibited by applicable laws and
regulations, or (ii) an amendment to the 1999 Stock Option Plan providing for
such treatment has been approved by the shareholders of the Company at a meeting
of shareholders held more than one year after the consummation of the 1998
Reorganization.
Each stock option or portion thereof shall be exercisable at any time
on or after it vests and is exercisable until the earlier of ten years after its
date of grant or six months after the date on which the optionee's employment
terminates (three years after termination of service in the case of non-employee
directors), unless extended by the Committee or the Board of Directors to a
period not to exceed five years from such termination. Unless stated otherwise
at the time an option is granted, (i) if an optionee terminates his employment
or service with the Company as a result of disability or retirement without
having fully exercised his options, the optionee shall have three years
following his termination due to disability or retirement to exercise such
options, and (ii) if an optionee terminates his employment or service with the
Company following a change in control of the Company without having fully
exercised his options, the optionee shall have the right to exercise such
options during the remainder of the original ten year term of the option.
However, failure to exercise incentive stock options within three months after
the date on which the optionee's employment terminates may result in adverse tax
consequences to the optionee. If an optionee dies while serving as an employee
or a non-employee director or terminates employment or service as a result of
disability or retirement and dies without having fully exercised his options,
the optionee's executors, administrators, legatees or distributees of his estate
shall have the right to exercise such options during the one year period
following his death. In no event shall any option be exercisable more than ten
years from the date it was granted.
Stock options are non-transferable except by will or the laws of
descent and distribution, and during an optionee's lifetime, shall be
exercisable only by such optionee or his guardian or legal representative.
Notwithstanding the foregoing, an optionee who holds non-qualified options may
transfer such options to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Options so transferred may thereafter be transferred only to
the optionee who originally received the grant or to an individual or trust to
whom the optionee could have initially transferred the option. Options which are
so transferred shall be exercisable by the transferee according to the same
terms and conditions as applied to the optionee.
18
<PAGE> 22
Payment for shares purchased upon the exercise of options may be made
(i) in cash or by check, (ii) by delivery of a properly executed exercise
notice, together with irrevocable instructions to a broker to sell the shares
and then to properly deliver to the Company the amount of sale proceeds to pay
the exercise price, all in accordance with applicable laws and regulations or
(iii) if permitted by the Committee or the Board, by delivering shares of Common
Stock (including shares acquired pursuant to the exercise of an option) with a
fair market value equal to the total option price of the shares being acquired
pursuant to the option, by withholding some of the shares of Common Stock which
are being purchased upon exercise of an option, or any combination of the
foregoing. With respect to subclause (iii) in the preceding sentence, the shares
of Common Stock delivered to pay the purchase price must have either been (a)
purchased in open market transactions or (b) issued by the Company pursuant to a
plan thereof, in each case more than six months prior to the exercise date of
the option.
If the fair market value of a share of Common Stock at the time of
exercise is greater than the exercise price per share, this feature would enable
the optionee to acquire a number of shares of Common Stock upon exercise of the
Option, which is greater than the number of shares delivered as payment for the
exercise price. In addition, an optionee can exercise his or her option in whole
or in part and then deliver the shares acquired upon such exercise (if permitted
by the Committee or the Board) as payment for the exercise price of all or part
of his options. Again, if the fair market value of a share of Common Stock at
the time of exercise is greater than the exercise price per share, this feature
would enable the optionee to either (i) reduce the amount of cash required to
receive a fixed number of shares upon exercise of the option or (ii) receive a
greater number of shares upon exercise of the option for the same amount of cash
that would have otherwise been used. Because options may be exercised in part
from time to time, the ability to deliver Common Stock as payment of the
exercise price could enable the optionee to turn a relatively small number of
shares into a large number of shares. In addition, an optionee can elect, with
the Committee's concurrence, to defer the delivery of the proceeds of the
exercise of any compensatory option not transferred under the terms of the 1999
Stock Option Plan. Such deferral must comply with the provisions of the 1999
Stock Option Plan and other rules and regulations as may be established by the
Committee.
Stock Appreciation Rights. Under the 1999 Stock Option Plan, the Board
of Directors or the Committee is authorized to grant rights to optionees ("stock
appreciation rights") under which an optionee may surrender any exercisable
incentive stock option or compensatory stock option or part thereof in return
for payment by the Company to the optionee of cash or Common Stock, or a
combination thereof, in an amount equal to the excess of the fair market value
of the shares of Common Stock subject to option at the time over the option
price of such shares. Stock appreciation rights may be granted concurrently with
the stock options to which they relate or, with respect to compensatory options,
at any time thereafter which is prior to the exercise or expiration of such
options. The proceeds of the exercise of a stock appreciation right may also be
deferred as provided by the provisions of the 1999 Stock Option Plan.
Number of Shares Covered by the 1999 Stock Option Plan. A total of
547,065 shares of Common Stock, which is equal to 10% of the Common Stock sold
in the Offering, has been reserved for future issuance pursuant to the 1999
Stock Option Plan. In the event of a stock split, subdivision, stock dividend or
any other capital adjustment, the number of shares of Common Stock under the
1999 Stock Option Plan, the number of shares to which any Award relates and the
exercise price per share under any option or stock appreciation right shall be
adjusted to reflect such increase or decrease in the total number of shares of
Common Stock outstanding or such capital adjustment. The 1999 Stock Option Plan
provides that grants to each employee and non-employee director shall not exceed
25% and 5% of the shares of Common Stock available under the 1999 Stock Option
Plan, respectively. Awards made to non-employee directors in the aggregate may
not exceed 30% of the number of shares available under the 1999 Stock Option
Plan.
Amendment and Termination of the 1999 Stock Option Plan. Unless sooner
terminated, the 1999 Stock Option Plan shall continue in effect for a period of
ten years from February 25, 1999, the date the 1999 Stock Option Plan was
adopted by the Board of Directors. Termination of the 1999 Stock Option Plan
shall not affect any previously granted Awards.
19
<PAGE> 23
Federal Income Tax Consequences. Under current provisions of the Code,
the federal income tax treatment of incentive stock options and compensatory
stock options is different. As regards incentive stock options, an optionee who
meets certain holding period requirements will not recognize income at the time
the option is granted or at the time the option is exercised, and a federal
income tax deduction generally will not be available to the Company at any time
as a result of such grant or exercise. With respect to compensatory stock
options, the difference between the fair market value on the date of exercise
and the option exercise price generally will be treated as compensation income
upon exercise, and the Company will be entitled to a deduction in the amount of
income so recognized by the optionee. Upon the exercise of a stock appreciation
right, the holder will realize income for federal income tax purposes equal to
the amount received by him, whether in cash, shares of stock or both, and the
Company will be entitled to a deduction for federal income tax purposes in the
same amount.
Section 162(m) of the Code generally limits the deduction for certain
compensation in excess of $1.0 million per year paid by a publicly-traded
corporation to its chief executive officer and the four other most highly
compensated executive officers ("covered executives"). Certain types of
compensation, including compensation based on performance goals, are excluded
from the $1.0 million deduction limitation. In order for compensation to qualify
for this exception: (i) it must be paid solely on account of the attainment of
one or more preestablished, objective performance goals; (ii) the performance
goal must be established by a compensation committee consisting solely of two or
more outside directors, as defined; (iii) the material terms under which the
compensation is to be paid, including performance goals, must be disclosed to,
and approved by, shareholders in a separate vote prior to payment; and (iv)
prior to payment, the compensation committee must certify that the performance
goals and any other material terms were in fact satisfied (the "Certification
Requirement").
Treasury regulations provide that compensation attributable to a stock
option or stock appreciation right is deemed to satisfy the requirement that
compensation be paid solely on account of the attainment of one or more
performance goals if: (i) the grant is made by a compensation committee
consisting solely of two or more outside directors, as defined; (ii) the plan
under which the option or stock appreciation right is granted states the maximum
number of shares with respect to which options or stock appreciation rights may
be granted during a specified period to any employee; and (iii) under the terms
of the option or stock appreciation right, the amount of compensation the
employee could receive is based solely on an increase in the value of the stock
after the date of grant or award. The Certification Requirement is not necessary
if these other requirements are satisfied.
The 1999 Stock Option Plan has been designed to meet the requirements
of Section 162(m) of the Code and, as a result, the Company believes that
compensation attributable to stock options and stock appreciation rights granted
under the 1999 Stock Option Plan in accordance with the foregoing requirements
will be fully deductible under Section 162(m) of the Code. If the non-excluded
compensation of a covered executive exceeded $1.0 million, however, compensation
attributable to other awards, such as restricted stock, may not be fully
deductible unless the grant or vesting of the award is contingent on the
attainment of a performance goal determined by a compensation committee meeting
specified requirements and disclosed to and approved by the shareholders of the
Company. The Board of Directors believes that the likelihood of any impact on
the Company from the deduction limitation contained in Section 162(m) of the
Code is remote at this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
Accounting Treatment. Stock appreciation rights will, in most cases,
require a charge against the earnings of the Company each year representing
appreciation in the value of such rights over periods in which they become
exercisable. Such charge is based on the difference between the exercise price
specified in the related option and the current market price of the Common
Stock. In the event of a decline in the market price of the Common Stock
20
<PAGE> 24
subsequent to a charge against earnings related to the estimated costs of stock
appreciation rights, a reversal of prior charges is made in the amount of such
decline (but not to exceed aggregate prior charges).
Neither the grant nor the exercise of an incentive stock option or a
non-qualified stock option under the 1999 Stock Option Plan currently requires
any charge against earnings under generally accepted accounting principles. In
October 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered into after December
15, 1995. This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. This Statement defines a
fair value method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company
anticipates that it will use the intrinsic value method, in which event pro
forma disclosure will be included in the footnotes to the Company's financial
statements to show what net income and earnings per share would have been if the
fair value method had been utilized. If the Company elects to utilize the fair
value method, its net income and earnings per share may be adversely affected.
However, the FASB has recently proposed further amendments to the operation of
APB Opinion No. 25 to, among other things, limit the applicability of APB
Opinion No. 25 to grants to employees. Thus, grants to non-employee directors
would be required to be accounted for under the provisions of SFAS No. 123.
Neither the likelihood of such amendments or the timing of such amendments can
be predicted at this time.
Shareholder Approval. No awards will be granted under the 1999 Stock
Option Plan unless the 1999 Stock Option Plan is approved by shareholders.
Shareholder ratification of the 1999 Stock Option Plan will also satisfy The
Nasdaq Stock Market listing, federal tax, and requirements of the Office of
Thrift Supervision ("OTS").
Awards to be Granted. The Board of Directors of the Company adopted the
1999 Stock Option Plan and the Committee established thereunder intends to grant
options to executive officers, employees and non-employee directors of the
Company and the Association. The initial grants shall be effective upon
shareholder approval of the 1999 Stock Option Plan with a per share exercise
price equal to the fair market value of a share of Common Stock on such date.
The following table sets forth certain information with respect to such grants.
<TABLE>
<CAPTION>
Name of Individual or Number of Number of Shares Subject to Stock
Persons in Group Title Options
- - ------------------------------------ ------------------------------------ ---------------------------------
<S> <C> <C>
James B. Pittard, Jr. President and Chief Executive 56,206
Officer
Larry J. Baker Senior Vice President, Chief 29,092
Financial Officer and Treasurer
Cecil F. Howard, Jr. Senior Vice President 23,570
All executive officers as a group 177,283
(six persons)
All non-employee directors as 136,766 (1)
a group (five persons)
</TABLE>
- - ----------
(1) Each non-employee director will receive an option covering 27,353
shares.
21
<PAGE> 25
The terms of the initial options granted to all recipients shall
provide that they will be vested and exercisable 20% per year over a five-year
period commencing on the first anniversary of the date of grant.
The Committee is also considering awarding options to certain
non-executive officers and key employees of the Association.
On April 19, 1999, the closing price of a share of Common Stock on the
Nasdaq Stock Market was $12.50.
Regulatory Requirements. The 1999 Stock Option Plan and the 1999
Recognition Plan (the "Plans") comply with applicable OTS regulations and are
required to be submitted to the OTS after approval by shareholders. No assurance
can be given as to whether the OTS will raise any objections to the Plans as
presented to shareholders or whether the OTS may require modifications to be
made to the Plans. A vote for approval of the Plans shall be deemed to be a vote
for approval of the Plans as the same may be required to be modified by the OTS,
provided that the change is not material as determined by the Company. The
Company will not make any modification to the Plans which would increase the
level of benefits from that presented. Non-objection to the Plans by the OTS
shall not constitute approval or endorsement of the Plans by the OTS.
Under OTS regulations, certain stock benefit plans established or
implemented within one year following the completion of a mutual to stock
conversion are required to contain certain restrictions and limitations, which
are contained in the Plans. Specifically, the OTS regulations provide, among
other provisions, that awards begin vesting no earlier than one year from the
date the plans are approved by shareholders, shall not vest at a rate in excess
of 20% per year and shall not provide for accelerated vesting except in the case
of disability or death. Recently, the OTS has authorized the elimination of
these provisions more than one year after an offering, provided that shareholder
approval of such amendments to the plans is obtained. The Plans provide that in
the event of termination of service following a change in control of the Company
or retirement, vesting of awards would accelerate if, as of such date: (i) such
treatment is either authorized or is not prohibited by applicable law and
regulations, or (ii) amendments to the Plans providing for such treatment has
been approved by the shareholders of the Company at a meeting of shareholders
held more than one year after the consummation of the Offering. The Company
currently plans to submit amendments to the Plans to shareholders at its first
meeting of shareholders held one year after the Offering in order to remove
these restrictions and to provide that new awards granted after such shareholder
approval shall vest at the rate determined by the Board or the Committee at the
time of grant and that both existing and new awards shall accelerate and vest
upon termination of service to the Company upon retirement or following a change
in control of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ADOPTION OF THE
1999 STOCK OPTION PLAN.
PROPOSAL TO ADOPT THE 1999 RECOGNITION PLAN
GENERAL
On February 25, 1999, the Board of Directors of the Company adopted the
1999 Recognition Plan, the objective of which is to enable the Company to
provide officers, key employees and directors with a proprietary interest in the
Company and as an incentive to contribute to its success. Officers, key
employees and directors of the Company and the Association who are selected by
the Board of Directors of the Company or members of a committee appointed by the
Board will be eligible to receive benefits under the 1999 Recognition Plan. If
shareholder approval is obtained, shares will be granted to officers, key
employees and directors as determined by the Committee or the Board of
Directors.
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<PAGE> 26
DESCRIPTION OF THE 1999 RECOGNITION PLAN
The following description of the 1999 Recognition Plan is a summary of
its terms and is qualified in its entirety by reference to the 1999 Recognition
Plan, a copy of which is attached hereto as Appendix B.
Administration. The Stock Benefits Committee of the Board of Directors
of the Company will administer the 1999 Recognition Plan, the members of which
are the non-employee directors of the Company. Messrs. Teed, Beaty, Cromwell,
Griffin and Stevenson will also serve as trustees of the trust established
pursuant to the 1999 Recognition Plan (the "Trust"). The trustees will have the
responsibility to invest all funds contributed by the Company to the Trust.
Upon shareholder approval of the 1999 Recognition Plan, the Company
will contribute sufficient funds to the Trust so that the Trust can purchase a
number of shares of Common Stock equal to 4% of the Common Stock sold in the
Offering, or 218,826 shares. It is currently anticipated that these shares will
be acquired through open market purchases to the extent available, although the
Company reserves the right to issue previously unissued shares or treasury
shares to the 1999 Recognition Plan. The issuance of new shares by the Company
would be dilutive to the voting rights of existing shareholders and to the
Company's book value per share and earnings per share.
Grants. Shares of Common Stock granted pursuant to the 1999 Recognition
Plan will be in the form of restricted stock payable over a five-year period at
a rate of 20% per year, beginning one year from the anniversary date of the
grant. A recipient will be entitled to all voting and other shareholder rights
with respect to shares which have been earned and allocated under the 1999
Recognition Plan. In addition, recipients of shares of restricted stock that
have been granted pursuant to the 1999 Recognition Plan that have not yet been
earned and distributed (other than shares granted pursuant to Performance Share
Awards (as defined below)) are entitled to direct the trustees of the Trust as
to the voting of such shares on the recipients behalf. However, until such
shares have been earned and allocated, they may not be sold, assigned, pledged
or otherwise disposed of and are required to be held in the Trust. Any cash
dividends, stock dividends or returns of capital declared in respect of each
share in the 1999 Recognition Plan (excluding Performance Share Awards) (whether
declared before or after the applicable award was granted) held by the Trust
will be paid by the Trust, as soon as practicable after the Trust's receipt
thereof, to the recipient on whose behalf such share is then held by the Trust.
Any cash dividends, stock dividends or returns of capital declared in respect of
each unvested Performance Share Award will be held by the Trust for the benefit
of the recipient on whose behalf such Performance Share Award is then held by
the Trust (whether declared before or after the applicable Performance Share
Award was granted), and such dividends or returns of capital, including any
interest thereon, will be paid out proportionately by the Trust to the recipient
as soon as practicable after the Performance Share Awards become earned.
If a recipient terminates employment or service with the Company for
reasons other than death, disability or retirement, the recipient will forfeit
all rights to the allocated shares under restriction. All shares subject to an
award held by a recipient whose employment or service with the Company or any
subsidiary terminates due to death or disability shall be deemed earned as of
the recipient's last day of employment or service with the Company or any
subsidiary and shall be distributed as soon as practicable thereafter. In
addition, in the event that a recipient's employment or service with the Company
or any subsidiary terminates due to retirement or following a change in control
of the Company all shares subject to an award held by a recipient shall be
deemed earned as of the recipient's last day of employment with or service to
the Company or any subsidiary and shall be distributed as soon as practicable
thereafter, provided that as of the date of such retirement or change in
control: (i) such treatment is either authorized or is not prohibited by
applicable laws and regulations, or (ii) an amendment to the 1999 Recognition
Plan providing for such treatment has been approved by the shareholders of the
Company at a meeting of shareholders held more than one year after the
consummation of the 1998 Reorganization.
Performance Share Awards. The 1999 Recognition Plan provides the
Committee with the ability to condition or restrict the vesting or
exercisability of any 1999 Recognition Plan award upon the achievement of
performance targets or goals as set forth under the 1999 Recognition Plan. Any
1999 Recognition Plan award subject to such conditions or restrictions is
considered to be a "Performance Share Award." Subject to the express provisions
of the 1999
23
<PAGE> 27
Recognition Plan and as discussed in this paragraph, the Committee has
discretion to determine the terms of any Performance Share Award, including the
amount of the award, or a formula for determining such, the performance criteria
and level of achievement related to these criteria which determine the amount of
the award granted, issued, retainable and/or vested, the period as to which
performance shall be measured for determining achievement of performance (a
"performance period"), the timing of delivery of any awards earned, forfeiture
provisions, the effect of termination of timing of delivery of any awards
earned, forfeiture provisions, the effect of termination of employment for
various reasons, and such further terms and conditions, in each case not
inconsistent with the 1999 Recognition Plan, as may be determined from time to
time by the Committee. Each Performance Share Award shall be granted and
administered to comply with the requirements of Section 162(m) of the Code.
Accordingly, the performance criteria upon which Performance Share Awards are
granted, issued, retained and/or vested shall be a measure based on one or more
Performance Goals (as defined below). Notwithstanding satisfaction of any
Performance Goals, the number of shares granted, issued, retainable and/or
vested under a Performance Share Award may be reduced or eliminated, but not
increased, by the Committee on the basis of such further considerations as the
Committee in its sole discretion shall determine.
Subject to shareholder approval of the 1999 Recognition Plan, the
Performance Goals for any Performance Share Award shall be based upon any one or
more of the following performance criteria, either individually, alternatively
or any combination, applied to either the Company as a whole or to a business
unit or subsidiary, either individually, alternatively or in any combination,
and measured either on an absolute basis or relative to a pre-established
target, to previous years' results or to a designated comparison group, in each
case as preestablished by the Committee under the terms of the Performance Share
Award: net income, as adjusted for non-recurring items; cash earnings; earnings
per share; cash earnings per share; return on average equity; return on average
assets; assets; stock price; total shareholder return; capital; net interest
income; market share; cost control or efficiency ratio; and asset growth.
Federal Income Tax Consequences. Pursuant to Section 83 of the Code,
recipients of 1999 Recognition Plan awards will recognize ordinary income in an
amount equal to the fair market value of the shares of Common Stock granted to
them at the time that the shares vest and become transferable. A recipient of a
1999 Recognition Plan award may also elect, however, to accelerate the
recognition of income with respect to his or her grant to the time when shares
of Common Stock are first transferred to him or her, notwithstanding the vesting
schedule of such awards. The Company will be entitled to deduct as a
compensation expense for tax purposes the same amounts recognized as income by
recipients of 1999 Recognition Plan awards in the year in which such amounts are
included in income.
Section 162(m) of the Code generally limits the deduction for certain
compensation in excess of $1.0 million per year paid by a publicly-traded
corporation to its covered executives. Certain types of compensation, including
compensation based on performance goals, are excluded from the $1.0 million
deduction limitation. In order for compensation to qualify for this exception:
(i) it must be paid solely on account of the attainment of one or more
preestablished, objective performance goals; (ii) the performance goal must be
established by a compensation committee consisting solely of two or more outside
directors, as defined; (iii) the material terms under which the compensation is
to be paid, including performance goals, must be disclosed to and approved by
shareholders in a separate vote prior to payment; and (iv) prior to payment, the
compensation committee must certify that the performance goals and any other
material terms were in fact satisfied.
The 1999 Recognition Plan has been designed to meet the requirements of
Section 162(m) of the Code and, as a result, the Company believes that
compensation attributable to Performance Share Awards granted under the 1999
Recognition Plan in accordance with the foregoing requirements will be fully
deductible under Section 162(m) of the Code. The Board of Directors believes
that the likelihood of any impact on the Company from the deduction limitation
contained in Section 162(m) of the Code is remote at this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their
24
<PAGE> 28
application may vary in individual circumstances. Finally, the consequences
under applicable state and local income tax laws may not be the same as under
the federal income tax laws.
Accounting Treatment. For a discussion of SFAS No. 123, see "Proposal
to Adopt the 1999 Stock Option Plan - Description of 1999 Stock Option Plan -
Accounting Treatment." Under the intrinsic value method, the Company will also
recognize a compensation expense as shares of Common Stock granted pursuant to
the 1999 Recognition Plan vest. The amount of compensation expense recognized
for accounting purposes is based upon the fair market value of the Common Stock
at the date of grant to recipients, rather than the fair market value at the
time of vesting for tax purposes. The vesting of plan share awards will have the
effect of increasing the Company's compensation expense.
Shareholder Approval. No shares will be granted under the 1999
Recognition Plan unless the 1999 Recognition Plan is approved by shareholders.
Shares to be Granted. The Board of Directors of the Company adopted the
1999 Recognition Plan and the Committee established thereunder intends to grant
shares to executive officers, key employees and non-employee directors of the
Company and the Association. The 1999 Recognition Plan provides that grants to
each employee and each non-employee director shall not exceed 25% and 5% of the
shares of Common Stock available under the 1999 Recognition Plan, respectively.
Awards made to non-employee directors in the aggregate may not exceed 25% of the
number of shares available under the 1999 Recognition Plan. The initial grants
shall be effective upon shareholder approval of the 1999 Recognition Plan. The
following table sets forth certain information with respect to such grants.
<TABLE>
<CAPTION>
Name of Individual or Number of Number of Shares Subject to
Persons in Group Title Award
- - ------------------------------------ ------------------------------------ ---------------------------
<S> <C> <C>
James B. Pittard, Jr. President and Chief Executive 22,482
Officer
Larry J. Baker Senior Vice President, Chief 11,637
Financial Officer and Treasurer
Cecil F. Howard, Jr. Senior Vice President 9,428
All executive officers as a group 70,913
(six persons)
All non-employee directors as 54,705 (1)
a group (five persons)
</TABLE>
- - ------------
(1) Each non-employee director will receive a grant of 10,941 shares.
The Committee also is considering making grants to certain
non-executive officers and key employees of the Association.
The terms of the stock awards initially granted to all recipients shall
provide that they will be vested and exercisable 20% per year (subject with
respect to Performance Share Awards, to the satisfaction of the performance
target(s)) over a five-year period commencing on the first anniversary of the
date of grant.
Regulatory Requirements. For a discussion of OTS requirements related
to the 1999 Recognition Plan see "Proposal to Adopt the 1999 Stock Option Plan -
Description of the 1999 Stock Option Plan - Regulatory Requirements."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ADOPTION
OF THE 1999 RECOGNITION PLAN.
25
<PAGE> 29
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has appointed Crowe, Chizek and
Company LLP, independent accountants, to perform the audit of the Company's
financial statements for the year ending December 31, 1999, and further directed
that the selection of accountants be submitted for ratification by the
shareholders at the Annual Meeting.
The Company has been advised by Crowe, Chizek and Company LLP that
neither that firm nor any of its associates has any relationship with the
Company or its subsidiaries other than the usual relationship that exists
between independent accountants and clients. Crowe, Chizek and Company LLP will
have one or more representatives at the Annual Meeting who will have an
opportunity to make a statement, if they so desire, and who will be available to
respond to appropriate questions.
For the fiscal year ended December 31, 1997, the three months ended
December 31, 1996 and the fiscal year ended September 30, 1996, the Mid-Tier
Holding Company's (or, prior to December 31, 1997, the Association's) financial
statements were audited by Deloitte & Touche LLP. The services of Deloitte &
Touche LLP were discontinued in November 1997, such termination to be effective
upon the release of the audit report for the year ended December 31, 1997 which
release was deemed to be March 30, 1998. Crowe, Chizek and Company LLP was
engaged in November 1997 to audit the financial statements for the fiscal year
ended December 31, 1998. Subsequently, the Company requested that Crowe, Chizek
& Company LLP reaudit the fiscal years ended December 31, 1997 and September 30,
1996 and the three months ended December 31, 1996. The decision to change
auditors was approved by the Mid-Tier Holding Company's Board of Directors.
For the fiscal year ended September 30, 1996, the three months ended
December 31, 1996 and the fiscal year ended December 31, 1997 and up to the date
of the discontinuation of services of Deloitte & Touche LLP, there were no
disagreements with Deloitte & Touche LLP on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of Deloitte & Touche LLP, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. Furthermore, during such periods, Deloitte & Touche
LLP did not advise the Mid-Tier Holding Company or the Association that: (a) the
internal controls necessary to develop reliable financial statements did not
exist; (b) information had come to its attention that had led it to no longer be
able to rely on management's representations or be unwilling to be associated
with the financial statements; (c) (1) the scope of the audit needed to be
expanded significantly or that information had come to its attention that if
further investigated might have (i) a material impact on the fairness or
reliability of either: a previously issued audit report or the underlying
financial statements, or the financial statements issued or to be issued
covering the fiscal periods subsequent to the date of the most recent financial
statements covered by an audit report (including information that may have
prevented it from rendering an unqualified audit report on those financial
statements), or (ii) caused it to be unwilling to rely on management's
representations or to be associated with the financial statements, and (2) due
to its replacement or for another reason, the issue was not resolved to its
satisfaction prior to its replacement; or (d) (1)information had come to its
attention that it concluded materially impacted the fairness or reliability of
either (i) a previously issued audit report or the underlying financial
statements, or (ii) the financial statements issued or to be issued covering the
fiscal periods subsequent to the date of the most recent financial statements
covered by an audit report, and (2) due to its replacement, or for any other
reason, the issue was not resolved to its satisfaction prior to its replacement.
During the two most recent fiscal years and the subsequent interim
periods preceding the selection of Crowe, Chizek and Company LLP, the Mid-Tier
Holding Company and the Association did not consult Crowe, Chizek and Company
LLP regarding the application of accounting principles, either contemplated or
proposed, the type of audit opinion that might be rendered on the Association's
or the Mid-Tier Holding Company's financial statements or any other matters that
would be required to be reported therein.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF CROWE, CHIZEK AND COMPANY LLP AS INDEPENDENT ACCOUNTANTS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1999.
26
<PAGE> 30
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of shareholders of
the Company, which is currently scheduled to be held in April 2000, must be
received at the principal executive offices of the Company, 660 U.S. Highway
One, North Palm Beach, Florida 33408, Attention: Deborah M. Rousseau, Vice
President and Secretary, no later than December 30, 1999. If such proposal is in
compliance with all applicable requirements, it will be included in the proxy
statement and set forth on the form of proxy issued for such annual meeting of
shareholders. It is urged that any such proposals be sent certified mail, return
receipt requested.
ANNUAL REPORTS
A copy of the Company's Annual Report to Shareholders for the year
ended December 31, 1998 accompanies this Proxy Statement. Such Annual Report is
not part of the proxy solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
SHAREHOLDER WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE LIST OF EXHIBITS THERETO REQUIRED
TO BE FILED WITH THE SEC UNDER THE EXCHANGE ACT. SUCH WRITTEN REQUEST SHOULD BE
DIRECTED TO DEBORAH M. ROUSSEAU, VICE PRESIDENT AND SECRETARY, COMMUNITY SAVINGS
BANKSHARES, INC., 660 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408. THE
FORM 10-K IS NOT PART OF THE PROXY SOLICITATION MATERIALS.
OTHER MATTERS
Management is not aware of any business to come before the Annual
Meeting other than the matters described above in this Proxy Statement. However,
if any other matters should properly come before the meeting, it is intended
that the proxies solicited hereby will be voted with respect to those other
matters in accordance with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by the Company.
The Company has retained Morrow & Co., Inc., a professional proxy solicitation
firm to assist in the solicitation of proxies. Such firm will be paid a fee of
$5,000 plus reimbursement for reasonable out-of-pocket expenses. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending the proxy materials to the
beneficial owners of the Company's Common Stock. In addition to solicitations by
mail, directors, officers and employees of the Company may solicit proxies
personally or by telephone without additional compensation.
By Order of the Board of Directors
/s/ DEBORAH M. ROUSSEAU
------------------------------------
Deborah M. Rousseau
Vice President and Secretary
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APPENDIX A
COMMUNITY SAVINGS BANKSHARES, INC.
1999 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Community Savings Bankshares, Inc. (the "Corporation") hereby
establishes this 1999 Stock Option Plan (the "Plan") upon the terms and
conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation and its Subsidiary Companies by providing Employees and
Non-Employee Directors with a proprietary interest in the Corporation as an
incentive to contribute to the success of the Corporation and its Subsidiary
Companies, and rewarding Employees and Non-Employee Directors for outstanding
performance. All Incentive Stock Options issued under this Plan are intended to
comply with the requirements of Section 422 of the Code, and the regulations
thereunder, and all provisions hereunder shall be read, interpreted and applied
with that purpose in mind. Each recipient of an Award hereunder is advised to
consult with his or her personal tax advisor with respect to the tax
consequences under federal, state, local and other tax laws of the receipt
and/or exercise of an Award hereunder.
ARTICLE III
DEFINITIONS
3.01 "Association" means Community Savings, F. A., a wholly owned
subsidiary of the Corporation.
3.02 "Award" means an Option or Stock Appreciation Right granted
pursuant to the terms of this Plan.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the
occurrence of any of the following: (i) the acquisition of control of the
Corporation as defined in 12 C.F.R. ss.574.4, unless a presumption of control is
successfully rebutted or unless the transaction is exempted by 12 C.F.R.
ss.574.3(c)(vii), or any successor to such sections; (ii) an event that would be
required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of
Schedule 14A of Regulation 14A pursuant to the Exchange Act, or any successor
thereto, whether or not any class of securities of the Corporation is registered
under the Exchange Act; (iii) any "person" (as such 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 Corporation representing 25% or more of the combined voting
power of the Corporation's then outstanding securities; or (iv) during any
period three consecutive years during the term of an Award, individuals who at
the beginning of such period constitute the Board of Directors of the
Corporation cease for any reason to constitute at least two-thirds thereof of
unless the election, or the nomination for election by shareholders, of each new
director was approved by a vote of at least majority of the directors then still
in office who were directors at the beginning of the period. If any of the
events enumerated in clauses (i) through (iv) occur, the Board shall determine
the effective date of the Change in Control resulting therefrom for purposes of
the Plan.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors
appointed by the Board pursuant to Article IV hereof, each of whom shall be a
Non-Employee Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or
any successor thereto and within the meaning of Section 162(m) of the Code and
the regulations promulgated thereunder.
3.07 "Common Stock" means shares of common stock, par value $1.00
per share, of the Corporation.
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3.08 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company, or, if no
such plan applies, which would qualify such individual for disability benefits
under the Federal Social Security System.
3.09 "Effective Date" means the day upon which the Board approves
this Plan.
3.10 "Employee" means any person who is employed by the
Corporation, the Association or any Subsidiary Company, or is an Officer of the
Corporation, the Association or any Subsidiary Company, but not including
directors who are not also Officers of or otherwise employed by the Corporation,
the Association or any Subsidiary Company.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.12 "Fair Market Value" shall be equal to the fair market value
per share of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the composite
of the markets, if more than one) or national quotation system in which such
shares are then traded, or if no such closing prices are reported, the mean
between the high bid and low asked prices that day on the principal market or
national quotation system then in use, or if no such quotations are available,
the price furnished by a professional securities dealer making a market in such
shares selected by the Committee.
3.13 "Incentive Stock Option" means any Option granted under this
Plan which the Board intends (at the time it is granted) to be an incentive
stock option within the meaning of Section 422 of the Code or any successor
thereto.
3.14 "Non-Employee Director" means a member of the Board of the
Corporation or Board of Directors of the Association or any successor thereto,
including an advisory director or a director emeritus of the Boards of the
Corporation and/or the Association, who is not an Officer or Employee of the
Corporation or any Subsidiary Company.
3.15 "Non-Qualified Option" means any Option granted under this
Plan which is not an Incentive Stock Option.
3.16 "Offering" means the subscription and community offering of
Common Stock to the public (but not the exchange offer to former shareholders of
the Association) in connection with the reorganization of the Association from
the mid-tier mutual holding company structure to the stock holding company
structure.
3.17 "Officer" means an Employee whose position in the Corporation
or a Subsidiary Company is that of a corporate officer, as determined by the
Board.
3.18 "Option" means a right granted under this Plan to purchase
Common Stock.
3.19 "Optionee" means an Employee or Non-Employee Director or
former Employee or Non-Employee Director to whom an Option is granted under the
Plan.
3.20 "Retirement" means a termination of employment which
constitutes a "retirement" under any applicable qualified pension benefit plan
maintained by the Corporation or a Subsidiary Corporation, or, if no such plan
is applicable, which would constitute "retirement" under the Corporation's
pension benefit plan, if such individual were a participant in that plan. With
respect to Non-Employee Directors, retirement means retirement from service on
the Board of Directors of the Corporation or the Association or any successor
thereto (including service as a director emeritus) after attaining the age of
65.
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3.21 "Stock Appreciation Right" means a right to surrender an
Option in consideration for a payment by the Corporation in cash and/or Common
Stock, as provided in the discretion of the Board or the Committee in accordance
with Section 8.10.
3.22 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Association, which meet the definition of "subsidiary
corporations" set forth in Section 424(f) of the Code, at the time of granting
of the Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt, amend
and rescind such rules, regulations and procedures as, in its opinion, may be
advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures which (i) deal with satisfaction of an
Optionee's tax withholding obligation pursuant to Section 12.01 hereof, (ii)
include arrangements to facilitate the Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Award, if applicable, from
securities brokers and dealers, (iii) establish the method and arrangements by
which an optionee may defer the recognition of income upon the exercise of a
Non-Qualified Option or Stock Appreciation Right pursuant to Article XIII
hereof, and (iv) include arrangements which provide for the payment of some or
all of such exercise or purchase price by delivery of previously-owned shares of
Common Stock or other property and/or by withholding some of the shares of
Common Stock which are being acquired. The interpretation and construction by
the Committee of any provisions of the Plan, any rule, regulation or procedure
adopted by it pursuant thereto or of any Award shall be final and binding in the
absence of action by the Board.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director, as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The Committee shall report its actions and
decisions to the Board at appropriate times but in no event less than one time
per calendar year.
4.03 REVOCATION FOR MISCONDUCT. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, or any Stock Appreciation Right, to the
extent not yet exercised, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Corporation or a Subsidiary
Company for cause, which, for purposes hereof, shall mean termination because of
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. Options granted
to a Non-Employee Director who is removed for cause pursuant to the
Corporation's Certificate of Incorporation and Bylaws or the Association's
Charter and Bylaws shall terminate as of the effective date of such removal.
4.04 LIMITATION ON LIABILITY. Neither the members of the Board nor
any member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan, any rule, regulation or procedure
adopted pursuant thereto or any Awards granted hereunder. If a member of the
Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with
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respect to the Plan, the Corporation shall, subject to the requirements of
applicable laws and regulations, indemnify such member against all liabilities
and expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Corporation and its
Subsidiary Companies and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted
hereunder shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as may
be required. The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any federal or state law or any rule or regulation
of any government body, which the Corporation shall, in its sole discretion,
determine to be necessary or advisable. Moreover, no Option or Stock
Appreciation Right may be exercised if such exercise would be contrary to
applicable laws and regulations.
4.06 RESTRICTIONS ON TRANSFER. The Corporation may place a legend
upon any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees and Non-Employee Directors of
the Corporation and its Subsidiary Companies as may be designated from time to
time by the Board or the Committee. Awards may not be granted to individuals who
are not Employees or Non-Employee Directors of either the Corporation or its
Subsidiary Companies. Non-Employee Directors shall be eligible to receive only
Awards of Non-Qualified Options pursuant to this Plan.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock
which may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 547,065, which is equal to 10% of the shares of Common
Stock issued in the Offering. None of such shares shall be the subject of more
than one Award at any time (provided that Stock Appreciation Rights and the
related Options shall be deemed to be a single Award), but if an Option as to
any shares is surrendered before exercise, or expires or terminates for any
reason without having been exercised in full, or for any other reason ceases to
be exercisable, the number of shares covered thereby shall again become
available for grant under the Plan as if no Awards had been previously granted
with respect to such shares. Notwithstanding the foregoing, if an Option is
surrendered in connection with the exercise of a Stock Appreciation Right, the
number of shares covered thereby shall not be available for grant under the
Plan. During the time this Plan remains in effect, grants to each Employee and
each Non-Employee Director shall not exceed 25% and 5% of the shares of Common
Stock available under the Plan, respectively, and Awards made to Non-Employee
Directors in the aggregate may not exceed 25% of the number of shares available
under this Plan, in each case subject to adjustment as provided in Article IX.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the
Plan may be authorized but unissued shares, treasury shares or shares purchased
by the Corporation on the open market or from private sources for use under the
Plan.
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ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Board or the Committee shall, in its discretion, determine from
time to time which Employees and Non-Employee Directors will be granted Awards
under the Plan, the number of shares of Common Stock subject to each Award,
whether each Option will be an Incentive Stock Option or a Non-Qualified Stock
Option (in the case of Employees) and the exercise price of an Option. In making
all such determinations there shall be taken into account the duties,
responsibilities and performance of each respective Employee and Non-Employee
Director, his present and potential contributions to the growth and success of
the Corporation, his salary and such other factors deemed relevant to
accomplishing the purposes of the Plan.
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board or the Committee in each instance shall deem appropriate, provided they
are not inconsistent with the terms, conditions and provisions of this Plan.
Each Optionee shall receive a copy of his executed Stock Option Agreement.
8.02 OPTION EXERCISE PRICE.
(A) INCENTIVE STOCK OPTIONS. The per share price at which
the subject Common Stock may be purchased upon exercise of an Incentive Stock
Option shall be no less than one hundred percent (100%) of the Fair Market Value
of a share of Common Stock at the time such Incentive Stock Option is granted,
except as provided in Section 8.09(b), and subject to any applicable adjustment
pursuant to Article IX hereof.
(B) NON-QUALIFIED OPTIONS. The per share price at which
the subject Common Stock may be purchased upon exercise of a Non-Qualified
Option shall be established by the Committee at the time of grant, but in no
event shall be less than one hundred percent (100%) of the Fair Market Value of
a share of Common Stock at the time such Non-Qualified Option is granted,
subject to any applicable adjustment pursuant to Article IX hereof.
8.03 VESTING AND EXERCISE OF OPTIONS.
(A) GENERAL RULES. Incentive Stock Options and
Non-Qualified Options granted hereunder shall become vested and exercisable at
the rate of 20% per year over five years, commencing one year from the date of
grant with an additional 20% vesting on each successive annual anniversary of
the date the Option was granted, and the right to exercise shall be cumulative.
Notwithstanding the foregoing, except as provided in Sections 8.03(b) and
8.03(c) hereof, no Option granted to an Employee or a Non-Employee Director
shall continue to vest on or after the date the Employee's employment or the
Non-Employee Director's service with the Corporation and all Subsidiary
Companies (or any successor companies) is terminated for any reason other than
his death or Disability. In determining the number of shares of Common Stock
with respect to which Options are vested and/or exercisable, fractional shares
shall be rounded down to the nearest whole number, provided that such fractional
Shares shall be aggregated and deemed vested on the fifth annual anniversary of
the date of grant.
(B) ACCELERATED VESTING. Unless the Board or the
Committee shall specifically state otherwise at the time an Option is granted,
all Options granted under this Plan shall become vested and exercisable in full
on the date an Optionee terminates his employment with the Corporation or a
Subsidiary Company or service as a Non-
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Employee Director because of his death or Disability. All Options hereunder
shall become immediately vested and exercisable in full on the date an Optionee
terminates his employment with the Corporation or a Subsidiary Corporation due
to Retirement if as of the date of such Retirement (i) such treatment is either
authorized or is not prohibited by applicable laws and regulations, or (ii) an
amendment to the Plan providing for such treatment has been approved by the
shareholders of the Corporation at a meeting of shareholders held more than one
year after the consummation of the Offering. In addition, all Options hereunder
shall become immediately vested and exercisable in full as of the effective date
of a Change in Control of the Corporation if as of the date of such Change in
Control of the Corporation (i) such treatment is either authorized or is not
prohibited by applicable laws and regulations or (ii) an amendment to the Plan
providing for such treatment has been approved by the shareholders of the
Corporation at a meeting of shareholders held more than one year after
consummation of the Offering.
(C) CONTINUED VESTING AFTER A CHANGE IN CONTROL. If a
Change in Control of the Corporation occurs and the vesting of outstanding
Options is not accelerated pursuant to Section 8.03(b) hereof, the outstanding
Options shall continue to vest in accordance with their terms for as long as the
Optionee remains either an Employee or a Non-Employee Director of the
Corporation or any Subsidiary Company (or any successor companies), including
Options initially granted to an Employee who subsequently becomes a director,
advisory director or director emeritus of the Corporation or any Subsidiary
Company (or any successor companies).
8.04 DURATION OF OPTIONS.
(A) GENERAL RULE. Except as provided in Sections 8.04(b)
and 8.09, each Option or portion thereof granted to an Employee shall be
exercisable at any time on or after it vests and remain exercisable until the
earlier of (i) ten (10) years after its date of grant or (ii) six (6) months
after the date on which the Employee ceases to be employed by the Corporation
and all Subsidiary Companies, unless the Board or the Committee in its
discretion decides at the time of grant or thereafter to extend such period of
exercise upon termination of employment to a period not exceeding five (5)
years.
Except as provided in Section 8.04(b), each Option or portion thereof
granted to a Non-Employee Director shall be exercisable at any time on or after
it vests and remain exercisable until the earlier of (i) ten (10) years after
its date of grant or (ii) three (3) years after the date on which the
Non-Employee Director ceases to serve as a director of the Corporation and all
Subsidiary Companies, unless the Board or the Committee in its discretion
decides at the time of grant or thereafter to extend such period of exercise
upon termination of service to a period not exceeding five (5) years.
(B) EXCEPTIONS. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted: (i) if an
Employee terminates his employment with the Corporation or a Subsidiary Company
as a result of Disability or Retirement without having fully exercised his
Options, the Employee shall have the right, during the three (3) year period
following his termination due to Disability or Retirement, to exercise such
Options, and (ii) if a Non-Employee Director terminates his service as a
director with the Corporation or a Subsidiary Company as a result of Disability
or Retirement without having fully exercised his Options, the Non-Employee
Director shall have the right, during the three (3) year period following his
termination due to Disability or Retirement, to exercise such Options.
Unless the Board or the Committee shall specifically state otherwise at
the time an Option is granted, if an Employee or Non-Employee Director
terminates his employment or service with the Corporation or a Subsidiary
Company following a Change in Control of the Corporation without having fully
exercised his Options, the Optionee shall have the right to exercise such
Options during the remainder of the original ten (10) year term of the Option
from the date of grant.
If an Optionee dies while in the employ or service of the Corporation
or a Subsidiary Company or terminates employment or service with the Corporation
or a Subsidiary Company as a result of Disability or Retirement and dies without
having fully exercised his Options, the executors, administrators, legatees or
distributees of his estate shall have the right, during the one (1) year period
following his death, to exercise such Options.
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In no event, however, shall any Option be exercisable more than ten
(10) years from the date it was granted.
8.05 NONASSIGNABILITY. Options shall not be transferable by an
Optionee except by will or the laws of descent or distribution, and during an
Optionee's lifetime shall be exercisable only by such Optionee or the Optionee's
guardian or legal representative. Notwithstanding the foregoing, or any other
provision of this Plan, an Optionee who holds vested Non-Qualified Options may
transfer such Options to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Options so transferred may thereafter be transferred only to
the Optionee who originally received the grant or to an individual or trust to
whom the Optionee could have initially transferred the Option pursuant to this
Section 8.05. Options which are transferred pursuant to this Section 8.05 shall
be exercisable by the transferee according to the same terms and conditions as
applied to the Optionee.
8.06 MANNER OF EXERCISE. Options may be exercised in part or in
whole and at one time or from time to time. The procedures for exercise shall be
set forth in the written Stock Option Agreement provided for in Section 8.01
above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of such Option shall
be made to the Corporation upon exercise of such Option. All shares sold under
the Plan shall be fully paid and nonassessable. Payment for shares may be made
by the Optionee (i) in cash or by check, (ii) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker to sell the
shares and then to properly deliver to the Corporation the amount of sale
proceeds to pay the exercise price, all in accordance with applicable laws and
regulations, (iii) at the discretion of the Board or the Committee, by
delivering shares of Common Stock (including shares acquired pursuant to the
exercise of an Option) equal in Fair Market Value to the purchase price of the
shares to be acquired pursuant to the Option, (iv) at the discretion of the
Board or the Committee, by withholding some of the shares of Common Stock which
are being purchased upon exercise of an Option, or (v) any combination of the
foregoing. With respect to subclause (iii) hereof, the shares of Common Stock
delivered to pay the purchase price must have either been (x) purchased in open
market transactions or (y) issued by the Corporation pursuant to a plan thereof,
in each case more than six months prior to the exercise date of the Option.
8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting
or dividend rights or other rights of a shareholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's shareholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All
Options issued under the Plan as Incentive Stock Options will be subject, in
addition to the terms detailed in Sections 8.01 to 8.08 above, to those
contained in this Section 8.09.
(A) Notwithstanding any contrary provisions contained
elsewhere in this Plan and as long as required by Section 422 of the Code, the
aggregate Fair Market Value, determined as of the time an Incentive Stock Option
is granted, of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
under this Plan, and stock options that satisfy the requirements of Section 422
of the Code under any other stock option plan or plans maintained by the
Corporation (or any parent or Subsidiary Company), shall not exceed $100,000.
(B) LIMITATION ON TEN PERCENT SHAREHOLDERS. The price at
which shares of Common Stock may be purchased upon exercise of an Incentive
Stock Option granted to an individual who, at the time such Incentive Stock
Option is granted, owns, directly or indirectly, more than ten percent (10%) of
the total combined voting power of all classes of stock issued to shareholders
of the Corporation or any Subsidiary Company, shall be no less than one hundred
and ten percent (110%) of the Fair Market Value of a share of the Common Stock
of the Corporation at the time of grant, and such Incentive Stock Option shall
by its terms not be exercisable after the earlier of the date determined under
Section 8.03 or the expiration of five (5) years from the date such Incentive
Stock Option is granted.
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(C) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An
Optionee shall immediately notify the Corporation in writing of any sale,
transfer, assignment or other disposition (or action constituting a
disqualifying disposition within the meaning of Section 421 of the Code) of any
shares of Common Stock acquired through exercise of an Incentive Stock Option,
within two (2) years after the grant of such Incentive Stock Option or within
one (1) year after the acquisition of such shares, setting forth the date and
manner of disposition, the number of shares disposed of and the price at which
such shares were disposed of. The Corporation shall be entitled to withhold from
any compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of federal
or state law or regulation and, further, to collect from the Optionee any
additional amounts which may be required for such purpose. The Committee or the
Board may, in its discretion, require shares of Common Stock acquired by an
Optionee upon exercise of an Incentive Stock Option to be held in an escrow
arrangement for the purpose of enabling compliance with the provisions of this
Section 8.09(c).
8.10 STOCK APPRECIATION RIGHTS.
(A) GENERAL TERMS AND CONDITIONS. The Board or the
Committee may, but shall not be obligated to, authorize the Corporation, on such
terms and conditions as it deems appropriate in each case, to grant rights to
Optionees to surrender an exercisable Option, or any portion thereof, in
consideration for the payment by the Corporation of an amount equal to the
excess of the Fair Market Value of the shares of Common Stock subject to the
Option, or portion thereof, surrendered over the exercise price of the Option
with respect to such shares (each such right being hereinafter referred to as a
"Stock Appreciation Right"). Such payment, at the discretion of the Board or the
Committee, may be made in shares of Common Stock valued at the then Fair Market
Value thereof, or in cash, or partly in cash and partly in shares of Common
Stock.
The terms and conditions with respect to a Stock Appreciation Right may
include (without limitation), subject to other provisions of this Section 8.10
and the Plan: the period during which, date by which or event upon which the
Stock Appreciation Right may be exercised; the method for valuing shares of
Common Stock for purposes of this Section 8.10; a ceiling on the amount of
consideration which the Corporation may pay in connection with exercise and
cancellation of the Stock Appreciation Right; and arrangements for income tax
withholding. The Board or the Committee shall have complete discretion to
determine whether, when and to whom Stock Appreciation Rights may be granted.
(B) TIME LIMITATIONS. If a holder of a Stock Appreciation
Right terminates service with the Corporation as an Officer or Employee, the
Stock Appreciation Right may be exercised only within the period, if any, within
which the Option to which it relates may be exercised.
(C) EFFECTS OF EXERCISE OF STOCK APPRECIATION RIGHTS OR
OPTIONS. Upon the exercise of a Stock Appreciation Right, the number of shares
of Common Stock available under the Option to which it relates shall decrease by
a number equal to the number of shares for which the Stock Appreciation Right
was exercised. Upon the exercise of an Option, any related Stock Appreciation
Right shall terminate as to any number of shares of Common Stock subject to the
Stock Appreciation Right that exceeds the total number of shares for which the
Option remains unexercised.
(D) TIME OF GRANT. A Stock Appreciation Right granted in
connection with an Incentive Stock Option must be granted concurrently with the
Option to which it relates, while a Stock Appreciation Right granted in
connection with a Non-Qualified Option may be granted concurrently with the
Option to which it relates or at any time thereafter prior to the exercise or
expiration of such Option.
(E) NON-TRANSFERABLE. The holder of a Stock Appreciation
Right may not transfer or assign the Stock Appreciation Right otherwise than by
will or in accordance with the laws of descent and distribution, and during a
holder's lifetime a Stock Appreciation Right may be exercisable only by the
holder.
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ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any outstanding Award relates,
the maximum number of shares that can be covered by Awards to each Employee,
each Non-Employee Director and all Non-Employee Directors as a group, and the
exercise price per share of Common Stock under any outstanding Option shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
this Plan resulting from a split, subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation, the shares of the Corporation's
Common Stock shall be exchanged for other securities of the Corporation or of
another corporation, each recipient of an Award shall be entitled, subject to
the conditions herein stated, to purchase or acquire such number of shares of
Common Stock or amount of other securities of the Corporation or such other
corporation as were exchangeable for the number of shares of Common Stock of the
Corporation which such optionees would have been entitled to purchase or acquire
except for such action, and appropriate adjustments shall be made to the per
share exercise price of outstanding Options. Notwithstanding any provision to
the contrary herein and to the extent permitted by applicable laws and
regulations and interpretations thereof, the exercise price of shares subject to
outstanding Awards shall be proportionately adjusted upon the payment by the
Corporation of a special cash dividend or return of capital in an amount per
share which exceeds 10% of the Fair Market Value of a share of Common Stock as
of the date of declaration, provided that the adjustment to the per share
exercise price shall satisfy the criteria set forth in Emerging Issues Task
Force 90-9 (or any successor thereto) so that the adjustments do not result in
compensation expense, and provided further that if such adjustment with respect
to Incentive Stock Options would be treated as a modification of the outstanding
incentive stock options with the effect that, for purposes of Sections 422 and
425(h) of the Code, and the rules and regulations promulgated thereunder, new
Incentive Stock Options would be deemed to be granted hereunder, then no
adjustment to the per share exercise price of outstanding Incentive Stock
Options shall be made.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Awards have not been
granted, subject to any required shareholder approval or any shareholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the holder of an
Award, alter or impair any Award previously granted or awarded under this Plan
except as specifically authorized herein.
ARTICLE XI
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create any
right on the part of any Employee or Non-Employee Director to continue in such
capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Corporation may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash payment is
insufficient, the Corporation may require the Optionee to pay to the Corporation
the amount required to be withheld as a condition to delivering the shares
acquired pursuant to an Award. The Corporation also may withhold or collect
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amounts with respect to a disqualifying disposition of shares of Common Stock
acquired pursuant to exercise of an Incentive Stock Option, as provided in
Section 8.09(c).
12.02 METHODS OF TAX WITHHOLDING. The Board or the Committee is
authorized to adopt rules, regulations or procedures which provide for the
satisfaction of an Optionee's tax withholding obligation by the retention of
shares of Common Stock to which the Employee would otherwise be entitled
pursuant to an Award and/or by the Optionee's delivery of previously owned
shares of Common Stock or other property.
ARTICLE XIII
DEFERRED PAYMENTS
13.01 DEFERRAL OF OPTIONS AND STOCK APPRECIATION RIGHTS.
Notwithstanding any other provision of this Plan, any Optionee may elect, with
the concurrence of the Committee and consistent with any rules and regulations
established by the Committee, to defer the recognition of ordinary income
resulting from the exercise of any NonQualified Option not transferred under the
provisions of Section 8.05 hereof and of any Stock Appreciation Rights.
13.02 TIMING OF ELECTION. The election to defer the recognition of
ordinary income resulting from the exercise of any eligible Non-Qualified Option
or Stock Appreciation Right must be made at least six (6) months prior to the
date such Option or Stock Appreciation Right is exercised or at such other time
as the Committee may specify. Deferrals of eligible Non-Qualified Options or
Stock Appreciation Rights shall only be allowed for exercises of Options and
Stock Appreciation Rights that occur while the Participant is in active service
with the Corporation or one of its Subsidiary Companies. Any election to defer
the ordinary income resulting from the exercise of an eligible NonQualified
Option or Stock Appreciation Right shall be irrevocable as long as the Optionee
remains an Employee or a Non-Employee Director of the Corporation or one of its
Subsidiary Companies.
13.03 STOCK OPTION DEFERRAL. The deferral of the ordinary income
resulting from the exercise of NonQualified Options may be elected by an
Optionee subject to the rules and regulations established by the Committee. The
income resulting from such an exercise shall be credited to a deferred stock
option account established for the Optionee (which may be part of an existing
deferred compensation trust account). The income shall be credited to the
deferred stock option account as a number of deferred shares or share units
equivalent in value to such income. Deferred share units shall be valued at the
Fair Market Value on the date of exercise. Subsequent to exercise, the deferred
shares or share units shall be valued at the Fair Market Value of Common Stock.
Deferred share units shall accrue dividends at the rate paid upon the Common
Stock credited in the form of additional deferred share units. Deferred shares
or share units shall be distributed in shares of Common Stock or cash, at the
discretion of the Committee, upon the Optionee's termination of employment or
service as a director or at such other date(s), as may be approved by the
Committee, over a period of no more than ten (10) years.
13.04 STOCK APPRECIATION RIGHT DEFERRAL. The deferral of the
ordinary income resulting from the exercise of Stock Appreciation Rights may be
made by an Optionee subject to the rules and regulations established by the
Committee. Upon exercise, the Committee will credit the Optionee's deferred
stock option account with a number of deferred shares or share units equivalent
in value to the difference between the Fair Market Value of a share of Common
Stock on the exercise date and the Exercise Price of the Stock Appreciation
Right multiplied by the number of shares exercised. Deferred shares or share
units shall be valued at the Fair Market Value on the date of exercise.
Subsequent to exercise, the deferred shares or share units shall be valued at
the Fair Market Value of Common Stock. Deferred shares or share units shall
accrue dividends at the rate paid upon the Common Stock credited in the form of
additional deferred shares or share units. Deferred shares or share units shall
be distributed in shares of Common Stock or cash, at the discretion of the
Committee, upon the Participant's termination of employment or service as a
director or at such other date(s), as may be approved by the Committee, over a
period of no more than ten (10) years.
13.05 ACCELERATED DISTRIBUTIONS. The Committee may, at its sole
discretion, allow for the early payment of an Optionee's deferred stock option
account in the event of an "unforeseeable emergency" or in the event of the
death or Disability of the Optionee. An "unforeseeable emergency" means an
unanticipated emergency caused by an event
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beyond the control of the Optionee that would result in severe financial
hardship if the distribution were not permitted. Such distributions shall be
limited to the amount necessary to sufficiently address the financial hardship.
Any distributions under this provision shall be consistent with the Code and the
regulations promulgated thereunder. Additionally, the Committee may use its
discretion to cause stock option deferral accounts to be distributed when
continuing the program is no longer in the best interest of the Corporation or
one of its Subsidiary Companies.
13.06 ASSIGNABILITY. No rights to deferred stock option accounts may
be assigned or subject to any encumbrance, pledge or charge of any nature except
that an Optionee may designate a beneficiary pursuant to any rules established
by the Committee.
13.07 UNFUNDED STATUS. No Optionee or other person shall have any
interest in any fund or in any specific asset of the Corporation or one of its
Subsidiary Companies by reason of any amount credited pursuant to the provisions
hereof. Any amounts payable pursuant to the provisions hereof shall be paid from
the general assets of the Corporation or one of its Subsidiary Companies and no
Optionee or other person shall have any rights to such assets beyond the rights
afforded general creditors of the Corporation or one of its Subsidiary
Companies. However, the Corporation or one of its Subsidiary Companies shall
have the right to establish a reserve, trust or make any investment for the
purpose of satisfying the obligations created under this Article XIII of the
Plan; provided, however, that no Optionee or other person shall have any
interest in such reserve, trust or investment.
ARTICLE XIV
EFFECTIVE DATE OF THE PLAN; TERM
14.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective
on the Effective Date, and Awards may be granted hereunder no earlier than the
date that this Plan is approved by shareholders of the Corporation and no later
than the termination of the Plan, provided that this Plan is approved by s of
the Corporation pursuant to Article XV hereof.
14.02 TERM OF THE PLAN. Unless sooner terminated, this Plan shall
remain in effect for a period of ten (10) years ending on the tenth anniversary
of the Effective Date. Termination of the Plan shall not affect any Awards
previously granted and such Awards shall remain valid and in effect until they
have been fully exercised or earned, are surrendered or by their terms expire or
are forfeited.
ARTICLE XV
SHAREHOLDER APPROVAL
The Corporation shall submit this Plan to shareholders for approval at
a meeting of shareholders of the Corporation held within twelve (12) months
following the Effective Date in order to meet the requirements of (i) Section
422 of the Code and regulations thereunder, (ii) Section 162(m) of the Code and
regulations thereunder, (iii) the Nasdaq Stock Market for continued quotation of
the Common Stock on the Nasdaq Stock Market, and (iv) the regulations of the
Office of Thrift Supervision.
ARTICLE XVI
MISCELLANEOUS
16.01 GOVERNING LAW. To the extent not governed by federal law, this
Plan shall be construed under the laws of the State of Delaware.
16.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
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APPENDIX B
COMMUNITY SAVINGS BANKSHARES, INC.
1999 RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Community Savings Bankshares, Inc. (the "Corporation") hereby
establishes the 1999 Recognition and Retention Plan (the "Plan") and Trust (the
"Trust") upon the terms and conditions hereinafter stated in this 1999
Recognition and Retention Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the
Trust assets existing on the date of this Agreement and all additions and
accretions thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing Employees and Non-Employee Directors with
a proprietary interest in the Corporation and its Subsidiary Companies as
compensation for their contributions to the Corporation and its Subsidiary
Companies and as an incentive to make such contributions in the future. Each
Recipient of a Plan Share Award hereunder is advised to consult with his or her
personal tax advisor with respect to the tax consequences under federal, state,
local and other tax laws of the receipt of a Plan Share Award hereunder.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine pronouns
shall include the feminine pronouns and the singular shall include the plural.
3.01 "Association" means Community Savings, F. A., a wholly owned
subsidiary of the Corporation.
3.02 "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the
occurrence of any of the following: (i) the acquisition of control of the
Corporation as defined in 12 C.F.R. ss.574.4, unless a presumption of control is
successfully rebutted or unless the transaction is exempted by 12 C.F.R.
ss.574.3(c)(vii), or any successor to such sections; (ii) an event that would be
required to be reported in response to Item 1(a) of Form 8-K or Item 6(e) of
Schedule 14A of Regulation 14A pursuant to the Exchange Act or any successor
thereto, whether or not any class of securities of the Corporation is registered
under the Exchange Act; (iii) any "person" (as such 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 Corporation representing 25% or more of the combined voting
power of the Corporation's then outstanding securities; or (iv) during any
period of three consecutive years during the term of a Plan Share Award,
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation cease for any reason to constitute at least
two-thirds thereof unless the election, or the nomination for election by
shareholders, of each new director was approved by a vote of at least majority
of the directors then still in office who were directors at the beginning of the
period. If any of the events enumerated in
<PAGE> 43
clauses (i) through (iv) occur, the Board shall determine the effective date of
the Change in Control resulting therefrom for purposes of the Plan.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means the committee appointed by the Board
pursuant to Article IV hereof.
3.07 "Common Stock" means shares of common stock, par value $1.00
per share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company or, if no
such plan applies, which would qualify such individual for disability benefits
under the Federal Social Security System.
3.09 "Effective Date" means the day upon which the Board approves
this Plan.
3.10 "Employee" means any person who is employed by the
Corporation, the Association, or any Subsidiary Company, or is an Officer of the
Corporation, the Association, or any Subsidiary Company, but not including
directors who are not also Officers of or otherwise employed by the Corporation,
the Association or a Subsidiary Company.
3.11 "Employer Group" means the Corporation and any Subsidiary
which, with the consent of the Board, agrees to participate in the Plan.
3.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.13 "Non-Employee Director" means a member of the Board of the
Corporation or the Board of Directors of the Association or any successor
thereto, including an advisory director or a director emeritus of the Boards of
the Corporation and/or the Association (or any successor company), who is not an
Officer or Employee of the Corporation, the Association or any Subsidiary
Company.
3.14 "Offering" means the subscription and community offering of
Common Stock to the public (but not the exchange offer to former shareholders of
the Association) in connection with the reorganization of the Association from
the mid-tier mutual holding company structure to the stock holding company
structure.
3.15 "Officer" means an Employee whose position in the Corporation
or a Subsidiary Company is that of a corporate officer, as determined by the
Board.
3.16 "Performance Share Award" means a Plan Share Award granted to
a Recipient pursuant to Section 7.05 of the Plan.
3.17 "Performance Goal" means an objective for the Corporation or
any Subsidiary Company or any unit thereof or any Employee with respect to any
of the foregoing that may be established by the Committee for a Performance
Share Award to become vested, earned or exercisable. The establishment of
Performance Goals are intended to make the applicable Performance Share Awards
"performance-based" compensation within the meaning of Section 162(m) of the
Code, and the Performance Goals shall be based on one or more of the following
criteria:
(i) net income, as adjusted for non-recurring
items;
(ii) cash earnings;
(iii) earnings per share;
(iv) cash earnings per share;
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(v) return on average equity;
(vi) return on average assets;
(vii) asset quality;
(viii) stock price;
(ix) total shareholder return;
(x) capital;
(xi) net interest income;
(xii) market share;
(xiii) cost control or efficiency ratio; and
(xiv) asset growth.
3.18 "Plan Shares" or "Shares" means shares of Common Stock held in
the Trust which may be distributed to a Recipient pursuant to the Plan.
3.19 "Plan Share Award" or "Award" means a right granted under this
Plan to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII, and includes Performance Share Awards.
3.20 "Recipient" means an Employee or Non-Employee Director who
receives a Plan Share Award or Performance Share Award under the Plan.
3.21 "Retirement" means a termination of employment which
constitutes a "retirement" under any applicable qualified pension benefit plan
maintained by the Corporation or a Subsidiary Company, or, if no such plan is
applicable, which would constitute "retirement" under the Corporation's pension
benefit plan, if such individual were a participant in that plan. With respect
to Non-Employee Directors, retirement means retirement from service on the Board
of Directors of the Corporation or the Bank or any successor thereto (including
service as a director emeritus) after attaining the age of 65.
3.22 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Association, which meet the definition of "subsidiary
corporation" set forth in Section 424(f) of the Code, at the time of the
granting of the Plan Share Award in question.
3.23 "Trustee" means such firm, entity or persons approved by the
Board to hold legal title to the Plan and the Plan assets for the purposes set
forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of the
Board, each of whom shall be a Non-Employee Director, as defined in Rule
16b-3(b)(3)(i) of the Exchange Act. In addition, each member of the Committee
shall be an "outside director" within the meaning of Section 162(m) of the Code
and the regulations thereunder at such times as is required under such
regulations. The Committee shall have all of the powers allocated to it in this
and other sections of the Plan. The interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding in the absence of action by the Board. The
Committee shall act by vote or written consent of a majority of its members.
Subject to the express provisions and limitations of the Plan, the Committee may
adopt such rules, regulations and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than once per calendar year.
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4.02 ROLE OF THE BOARD. The members of the Committee and the
Trustee shall be appointed or approved by, and will serve at the pleasure of,
the Board. The Board may in its discretion from time to time remove members
from, or add members to, the Committee, and may remove or replace the Trustee,
provided that any directors who are selected as members of the Committee shall
be Non-Employee Directors as defined in Rule 16b-3(b)(3)(i) of the Exchange Act.
4.03 LIMITATION ON LIABILITY. No member of the Board or the
Committee shall be liable for any determination made in good faith with respect
to the Plan or any Plan Shares or Plan Share Awards granted under it. If a
member of the Board or the Committee is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of anything
done or not done by him in such capacity under or with respect to the Plan, the
Corporation shall, subject to the requirements of applicable laws and
regulations, indemnify such member against all liabilities and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in the best interests of the Corporation and any Subsidiaries and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
4.04 COMPLIANCE WITH LAWS AND REGULATIONS. All Awards granted
hereunder shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency or
stockholders as may be required.
4.05 RESTRICTIONS ON TRANSFER. The Corporation may place a legend
upon any certificate representing shares issued pursuant to a Plan Share Award
noting that such shares may be restricted by applicable laws and regulations.
ARTICLE V
CONTRIBUTIONS
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine
the amount (or the method of computing the amount) and timing of any
contributions by the Corporation and any Subsidiaries to the Trust established
under this Plan. Such amounts may be paid in cash or in shares of Common Stock
and shall be paid to the Trust at the designated time of contribution. No
contributions by Employees or Non-Employee Directors shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; NUMBER OF PLAN SHARES. Subject to
Section 8.02 hereof, the Trustee shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares available for
distribution pursuant to this Plan shall be 218,826 shares of Common Stock,
subject to adjustment as provided in Section 10.01 hereof, which shares shall be
purchased (from the Corporation and/or, if permitted by applicable regulations,
from stockholders thereof) by the Trust with funds contributed by the
Corporation. During the time this Plan remains in effect, Awards to each
Employee and each Non-Employee Director shall not exceed 25% and 5% of the
shares of Common Stock available under the Plan, respectively, and Plan Share
Awards to Non-Employee Directors in the aggregate shall not exceed 25% of the
number of shares available under this Plan, in each case subject to adjustment
as provided in Section 10.01 hereof.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 AWARDS. Plan Share Awards and Performance Share Awards may be
made to such Employees and Non-Employee Directors as may be selected by the
Board or the Committee. In selecting those Employees and Non-Employee Directors
to whom Plan Share Awards and/or Performance Share Awards may be granted and the
number of Shares covered by such Awards, the Board or the Committee shall
consider the duties, responsibilities and
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performance of each respective Employee and Non-Employee Director, his present
and potential contributions to the growth and success of the Corporation, his
salary and such other factors as deemed relevant to accomplishing the purposes
of the Plan. The Board or the Committee may but shall not be required to request
the written recommendation of the Chief Executive Officer of the Corporation
other than with respect to Plan Share Awards and/or Performance Share Awards to
be granted to him.
6.02 FORM OF ALLOCATION. As promptly as practicable after an
allocation pursuant to Section 6.01 that a Plan Share Award or a Performance
Share Award is to be issued, the Board or the Committee shall notify the
Recipient in writing of the grant of the Award, the number of Plan Shares
covered by the Award, and the terms upon which the Plan Shares subject to the
Award shall be distributed to the Recipient. The date on which the Board or the
Committee makes such determination with respect to an Award shall be considered
the date of grant of the Plan Share Award or the Performance Share Award. The
Board or the Committee shall maintain records as to all grants of Plan Share
Awards or Performance Share Awards under the Plan.
6.03 ALLOCATIONS NOT REQUIRED TO ANY SPECIFIC EMPLOYEE OR
NON-EMPLOYEE DIRECTOR. No Employee or Non-Employee Director shall have any right
or entitlement to receive a Plan Share Award hereunder, as the granting of
Awards is subject to the total discretion of the Board or the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Subject to the terms hereof, Plan
Share Awards granted shall be earned by a Recipient at the rate of twenty
percent (20%) of the aggregate number of Shares covered by the Award as of each
annual anniversary of the date of grant of the Award, with the first 20% to vest
on the one-year anniversary of the date of grant. If the employment of an
Employee or service as a Non-Employee Director is terminated prior to the fifth
(5th) annual anniversary of the date of grant of a Plan Share Award for any
reason (except as specifically provided in subsections (b), (c) and (d) below),
the Recipient shall forfeit the right to any Shares subject to the Award which
have not theretofore been earned. In the event of a forfeiture of the right to
any Shares subject to an Award, such forfeited Shares shall become available for
allocation pursuant to Section 6.01 hereof as if no Award had been previously
granted with respect to such Shares. No fractional shares shall be distributed
pursuant to this Plan. In determining the number of Shares which are earned as
of any annual anniversary date, fractional shares shall be rounded down to the
nearest whole number, provided that such fractional Shares shall be aggregated
and distributed on the fifth annual anniversary of the date of grant.
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH, DISABILITY
OR RETIREMENT. Notwithstanding the general rule contained in Section 7.01(a),
all Plan Shares subject to a Plan Share Award held by a Recipient whose
employment with the Corporation or any Subsidiary or service as a Non-Employee
Director terminates due to death or Disability shall be deemed earned as of the
Recipient's last day of employment with or service to the Corporation or any
Subsidiary Company (provided, however, no such accelerated vesting shall occur
in the event of Disability if a Recipient remains employed by at least one
member of the Employer Group) and shall be distributed as soon as practicable
thereafter. All Plan Shares subject to a Plan Share Award held by a Recipient
whose employment with the Corporation or any Subsidiary Company or service as a
Non-Employee Director terminates due to Retirement shall be deemed earned as of
the Recipient's last day of employment with or service to the Corporation or any
Subsidiary Company (provided, however, no such accelerated vesting shall occur
if a Recipient remains employed by at least one member of the Employer Group)
and shall be distributed as soon as practicable thereafter if as of the date of
such Retirement (i) such treatment is either authorized or is not prohibited by
applicable laws and regulations, or (ii) such provision has been approved by
shareholders of the Corporation at a meeting of shareholders held more than one
(1) year after the consummation of the Offering.
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(c) EXCEPTION FOR A CHANGE IN CONTROL OF THE CORPORATION.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient shall be deemed to be earned
as of the effective date of a Change in Control of the Corporation if, as of the
date of such Change in Control of the Corporation (i) such treatment is either
authorized or is not prohibited by applicable laws and regulations, or (ii) an
amendment to the Plan providing for such treatment has been approved by
stockholders of the Corporation at a meeting of shareholders held more than one
(1) year after the consummation of the Offering. If a Change in Control of the
Corporation occurs and the vesting of outstanding Awards is not accelerated
pursuant to the preceding sentence, the outstanding Awards shall continue to
vest in accordance with their terms for as long as the Recipient remains either
an Employee or a Non-Employee Director of the Corporation or any Subsidiary
Company (or any successor companies), including Awards initially granted to an
Employee who subsequently becomes a director, advisory director or director
emeritus of the Corporation or any Subsidiary Company (or any successor
companies).
(d) REVOCATION FOR MISCONDUCT. Notwithstanding anything
in this Plan to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award or Performance Share Award or portion
thereof, previously awarded under this Plan, to the extent Plan Shares have not
been distributed hereunder to the Recipient, whether or not yet earned, in the
case of an Employee who is discharged from the employ of the Corporation or any
Subsidiary Company for cause (as hereinafter defined). Termination for cause
shall mean termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order. Plan Share Awards granted to a Non-Employee
Director who is removed for cause pursuant to the Corporation's Certificate of
Incorporation and Bylaws or the Association's Charter and Bylaws shall terminate
as of the effective date of such removal.
7.02 DISTRIBUTION OF DIVIDENDS. Any cash dividends, stock dividends
or returns of capital declared in respect of each Plan Share (excluding
Performance Share Awards) (whether declared before or after the applicable Award
was granted) held by the Trust will be paid by the Trust, as soon as practicable
after the Trust's receipt thereof, to the Recipient on whose behalf such Plan
Share is then held by the Trust. Any cash dividends, stock dividends or returns
of capital declared in respect of each unvested Performance Share Award will be
held by the Trust for the benefit of the Recipient on whose behalf such
Performance Share Award is then held by the Trust (whether declared before or
after the applicable Performance Share Award was granted), and such dividends or
returns of capital, including any interest thereon, will be paid out
proportionately by the Trust to the Recipient thereof as soon as practicable
after the Performance Share Awards become earned.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Subject to the
provisions of Sections 7.03(b) and 7.05 hereof, Plan Shares shall be distributed
to the Recipient or his Beneficiary, as the case may be, as soon as practicable
after they have been earned.
(b) TIMING: EXCEPTION FOR 10% SHAREHOLDERS.
Notwithstanding Section 7.03(a) above, no Plan Shares may be distributed prior
to the date which is five years from the date of consummation of the
Association's reorganization from the mid-tier mutual holding company structure
to the stock holding company structure to the extent the Recipient or
Beneficiary, as the case may be, would after receipt of such Shares own in
excess of 10% of the issued and outstanding shares of Common Stock, unless
specifically approved by two-thirds of the Board. Any Plan Shares remaining
undistributed solely by reason of the operation of this Section 7.03(b) shall be
distributed to the Recipient or his Beneficiary on the date which is five years
from the date of consummation of the Association's reorganization from the
mid-tier mutual holding company structure to the stock holding company structure
to stock form.
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<PAGE> 48
(c) FORM OF DISTRIBUTIONS. All Plan Shares, together with
any Shares representing stock dividends, shall be distributed in the form of
Common Stock. One share of Common Stock shall be given for each Plan Share
earned and distributable. Payments representing cash dividends or returns of
capital shall be made in cash.
(d) WITHHOLDING. The Trustee may withhold from any cash
payment or Common Stock distribution made under this Plan sufficient amounts to
cover any applicable withholding and employment taxes, and if the amount of a
cash payment is insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. The Trustee shall pay over to the
Corporation or any Subsidiary Company which employs or employed such Recipient
any such amount withheld from or paid by the Recipient or Beneficiary.
(e) RESTRICTIONS ON SELLING OF PLAN SHARES. Plan Share
Awards may not be sold, assigned, pledged or otherwise disposed of prior to the
time that they are earned and distributed pursuant to the terms of this Plan.
Upon distribution, the Board or the Committee may require the Recipient or his
Beneficiary, as the case may be, to agree not to sell or otherwise dispose of
his distributed Plan Shares except in accordance with all then applicable
federal and state securities laws, and the Board or the Committee may cause a
legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares for
such period of time or under such circumstances as the Board or the Committee,
upon the advice of counsel, may deem appropriate.
7.04 VOTING OF PLAN SHARES. After a Plan Share Award (other than a
Performance Share Award) has been made, the Recipient shall be entitled to
direct the Trustee as to the voting of the Plan Shares which are covered by the
Plan Share Award and which have not yet been earned and distributed to him
pursuant to Section 7.03, subject to rules and procedures adopted by the
Committee for this purpose. All shares of Common Stock held by the Trust which
have not been awarded under a Plan Share Award, shares subject to Performance
Share Awards which have not yet vested and shares which have been awarded as to
which Recipients have not directed the voting shall be voted by the Trustee in
its discretion.
7.05 PERFORMANCE SHARE AWARDS
(a) DESIGNATION OF PERFORMANCE SHARE AWARDS. The
Committee may determine to make any Plan Share Award a Performance Share Award
by making such Plan Share Award contingent upon the achievement of a Performance
Goal or any combination of Performance Goals. Each Performance Share Award shall
be evidenced by a written agreement ("Award Agreement"), which shall set forth
the Performance Goals applicable to the Performance Share Award, the maximum
amounts payable and such other terms and conditions as are applicable to the
Performance Share Award. Each Performance Share Award shall be granted and
administered to comply with the requirements of Section 162(m) of the Code.
(b) TIMING OF GRANTS. Any Performance Share Award shall
be made not later than 90 days after the start of the period for which the
Performance Share Award relates and shall be made prior to the completion of 25%
of such period. All determinations regarding the achievement of any Performance
Goals will be made by the Committee. The Committee may not increase during a
year the amount of a Performance Share Award that would otherwise be payable
upon achievement of the Performance Goals but may reduce or eliminate the
payments as provided for in the Award Agreement.
(c) RESTRICTIONS ON GRANTS. Nothing contained in this
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.
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<PAGE> 49
(d) RIGHTS OF RECIPIENTS. Notwithstanding anything to the
contrary herein, a Participant who receives a Performance Share Award payable in
Common Stock shall have no rights as a stockholder until the Common Stock is
issued pursuant to the terms of the Award Agreement.
(e) TRANSFERABILITY. A Participant's interest in a
Performance Share Award may not be sold, assigned, transferred, pledged, or
otherwise encumbered.
(f) DISTRIBUTION. No Performance Share Award or portion
thereof that is subject to the attainment or satisfaction of a condition of a
Performance Goal shall be distributed or considered to be earned or vested until
the Committee certifies in writing that the conditions or Performance Goal to
which the distribution, earning or vesting of such Award is subject have been
achieved.
ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 MANAGEMENT OF TRUST. It is the intent of this Plan and Trust
that the Trustee shall have complete authority and discretion with respect to
the arrangement, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except to the extent that the Trustee determines that the holding
of monies in cash or cash equivalents is necessary to meet the obligations of
the Trust. In performing its duties, the Trustee shall have the power to do all
things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all
Trust assets in Common Stock without regard to any law now or hereafter in force
limiting investments for trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and in making
such investment, the Trustee is authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased may be
outstanding, newly issued or treasury shares.
(b) To invest any Trust assets not otherwise invested in
accordance with (a) above, in such deposit accounts, certificates of deposit,
obligations of the United States Government or its agencies or such other
investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any
property at any time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be
registered in the name of a nominee, without the addition of words indicating
that such security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may
in the opinion of the Trustee be reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants
and accountants.
(g) To hire counsel to render advice with respect to its
rights, duties and obligations hereunder, and such other legal services or
representation as it may deem desirable.
B-8
<PAGE> 50
(h) To hold funds and securities representing the amounts
to be distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account or held
in common with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Board or the Committee.
8.04 EXPENSES. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation or, in the
discretion of the Corporation, the Trust.
8.05 INDEMNIFICATION. Subject to the requirements of applicable
laws and regulations, the Corporation shall indemnify, defend and hold the
Trustee harmless against all claims, expenses and liabilities arising out of or
related to the exercise of the Trustee's powers and the discharge of its duties
hereunder, unless the same shall be due to the Trustee's gross negligence or
willful misconduct.
ARTICLE IX
DEFERRED PAYMENTS
9.01 DEFERRAL OF PLAN SHARES. Notwithstanding any other provision
of this Plan, any Recipient may elect, with the concurrence of the Committee and
consistent with any rules and regulations established by the Committee, to defer
the receipt of Plan Shares subject to Awards granted hereunder.
9.02 TIMING OF ELECTION. The election to defer the receipt of any
Plan Shares must be made no later than the last day of the calendar year
preceding the calendar year in which the Recipient would otherwise have an
unrestricted right to receive such Plan Shares. Deferrals of eligible Plan
Shares shall only be allowed for those Plan Shares scheduled to vest while the
Recipient is in active service with the Corporation or one of its Subsidiary
Companies. Any election to defer the receipt of eligible Plan Shares shall be
irrevocable as long as the Recipient remains an Employee or a Non-Employee
Director of the Corporation or one of its Subsidiary Companies.
9.03 PLAN SHARE AWARD DEFERRAL. The deferral of Plan Shares may be
elected by a Recipient subject to the rules and regulations established by the
Committee. Upon the vesting of such Plan Shares, the Committee shall credit to a
deferred stock award account established for the Recipient (which may be part of
an existing deferred compensation trust account) a number of deferred shares or
share units equivalent in value to the number of deferred Plan Shares multiplied
by the Fair Market Value of the Common Stock. Deferred shares or share units
shall be valued at the Fair Market Value on the date the deferred Plan Shares
vest. Subsequent to the lapsing of all restrictions, the deferred shares or
share units shall be valued at the Fair Market Value of the Common Stock.
Deferred shares or share units shall accrue dividends at the rate paid upon the
Common Stock credited in the form of additional deferred share units. Deferred
share units shall be distributed in shares of Common Stock or cash, at the
discretion of the Committee, upon the Recipient's termination of employment or
service as a director or at such other date(s), as may be approved by the
Committee, over a period of no more than ten (10) years.
9.04 ACCELERATED DISTRIBUTIONS. The Committee may, at its sole
discretion, allow for the early payment of an Recipient's deferred stock award
account in the event of an "unforeseeable emergency" or in the event of the
death or Disability of the Recipient. An "unforeseeable emergency" means an
unanticipated emergency caused by an event beyond the control of the Recipient
that would result in severe financial hardship if the distribution were not
B-9
<PAGE> 51
permitted. Such distributions shall be limited to the amount necessary to
sufficiently address the financial hardship. Any distributions under this
provision shall be consistent with the Code and the regulations promulgated
thereunder. Additionally, the Committee may use its discretion to cause stock
award accounts to be distributed when continuing the program is no longer in the
best interest of the Corporation or one of its Subsidiary Companies.
9.05 ASSIGNABILITY. No rights to deferred stock award accounts may
be assigned or subject to any encumbrance, pledge or charge of any nature except
that a Recipient may designate a beneficiary pursuant to any rules established
by the Committee.
9.06 UNFUNDED STATUS. No Recipient or other person shall have any
interest in any fund or in any specific asset of the Corporation or one of its
Subsidiary Companies by reason of any amount credited pursuant to the provisions
hereof. Any amounts payable pursuant to the provisions hereof shall be paid from
the general assets of the Corporation or one of its Subsidiary Companies and no
Recipient or other person shall have any rights to such assets beyond the rights
afforded general creditors of the Corporation or one of its Subsidiary
Companies. However, the Corporation or one of its Subsidiary Companies shall
have the right to establish a reserve, trust or make any investment for the
purpose of satisfying the obligations created under this Article IX of the Plan;
provided, however, that no Recipient or other person shall have any interest in
such reserve, trust or investment.
ARTICLE X
MISCELLANEOUS
10.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan
Shares available for distribution pursuant to the Plan Share Awards, the number
of Shares to which any unvested Plan Share Award relates and the maximum number
of Plan Shares which may be granted to any Employee, to any Non-Employee
Director or to all Non-Employee Directors as a group shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of the Plan resulting
from any split, subdivision or consolidation of shares or other capital
adjustment, the payment of a stock dividend or other increase or decrease in
such shares effected without receipt or payment of consideration by the
Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation or of another corporation, each
recipient of a Plan Share Award shall be entitled, subject to the conditions
herein stated, to receive such number of shares of Common Stock or amount of
other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such Recipients would have been entitled to receive except for such action.
10.02 AMENDMENT AND TERMINATION OF THE PLAN. The Board may, by
resolution, at any time amend or terminate the Plan and the Trust, subject to
any required stockholder approval or any stockholder approval which the Board
may deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the consent of the Recipient, alter or impair any Plan Share
Award previously granted under this Plan except as specifically authorized
herein. Termination of this Plan shall not affect Plan Share Awards previously
granted, and such Plan Share Awards shall remain valid and in effect until they
(a) have been fully earned, (b) are surrendered, or (c) expire or are forfeited
in accordance with their terms.
10.03 NONTRANSFERABLE. Plan Share Awards and Performance Share
Awards and rights to Plan Shares shall not be transferable by a Recipient, and
during the lifetime of the Recipient, Plan Shares may only be earned by and paid
to the Recipient who was notified in writing of the Award pursuant to Section
6.02. No Recipient or Beneficiary shall have any right in or claim to any assets
of the Plan or Trust, nor shall the Corporation or any Subsidiary be subject to
any claim for benefits hereunder.
10.04 EMPLOYMENT OR SERVICE RIGHTS. Neither the Plan nor any grant
of a Plan Share Award, Performance Share Award or Plan Shares hereunder nor any
action taken by the Trustee, the Committee or the Board
B-10
<PAGE> 52
in connection with the Plan shall create any right on the part of any Employee
or Non-Employee Director to continue in such capacity.
10.05 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting
or dividend rights or other rights of a stockholder in respect of any Plan
Shares covered by a Plan Share Award or Performance Share Award, except as
expressly provided in Sections 7.02, 7.04 and 7.05 above, prior to the time said
Plan Shares are actually earned and distributed to him.
10.06 GOVERNING LAW. To the extent not governed by federal law, the
Plan and Trust shall be governed by the laws of the State of Delaware.
10.07 EFFECTIVE DATE. This Plan shall be effective as of the
Effective Date, and Awards may be granted hereunder no earlier than the date
this Plan is approved by the stockholders of the Corporation and no later than
the termination of the Plan. Notwithstanding the foregoing or anything to the
contrary in this Plan, the implementation of this Plan is subject to the
approval of the Corporation's stockholders.
10.08 TERM OF PLAN. This Plan shall remain in effect until the
earlier of (1) ten (10) years from the Effective Date, (2) termination by the
Board, or (3) the distribution to Recipients and Beneficiaries of all the assets
of the Trust.
10.09 TAX STATUS OF THE TRUST. It is intended that the trust
established hereby be treated as a Grantor Trust of the Corporation under the
provisions of Section 671 et seq. of the Code, as the same may be amended from
time to time.
B-11
<PAGE> 53
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and its corporate seal to be affixed
and duly attested, and the initial Trustees of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this 25th day of
February 1999.
COMMUNITY SAVINGS BANKSHARES, INC.
By: /s/ James B. Pittard. Jr.
---------------------------------------
James B. Pittard, Jr.,
President and Chief Executive Officer
ATTEST: TRUSTEES:
/s/ Deborah M. Rousseau /s/ Frederick A. Teed
- - ------------------------------- -------------------------------------------
Deborah M. Rousseau Frederick A. Teed
Secretary
/s/ Forest C. Beaty
-------------------------------------------
Forest C. Beaty
/s/ Robert F. Cromwell
-------------------------------------------
Robert F. Cromwell
/s/ Karl D. Griffin
-------------------------------------------
Karl D. Griffin
/s/ Harold I. Stevenson
-------------------------------------------
Harold I. Stevenson
B-12
<PAGE> 54
(Community Savings Bankshares, Inc. Logo)
<PAGE> 55
Please mark
Your vote [X]
like this
THE BOARD OF DIRECTORIES RECOMMENDS A VOTE FOR PROPOSALS 1,2,3, AND 4
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
Proposal 1 - Election of Directors Proposal 3 - Approval of 1999 Recognition [ ] [ ] [ ]
Plan
01 James B. Pittard, Jr. WITHHOLD
02 Robert F. Cromwell FOR FOR ALL Proposal 4 - Ratification of Appointment of
[ ] [ ] Independent Auditors [ ] [ ] [ ]
WITHHOLD FOR: (Write nominee's name
in the space below):
YES NO
____________________________________ WILL ATTEND MEETING [ ] [ ]
FOR AGAINST ABSTAIN
Proposal 2 - Approval of 1999 Stock [ ] [ ] [ ] This proxy will be voted as directed, but if no
Option Plan instruction are specified, this Proxy will be voted
FOR Proposals 1, 2, 3 and 4 and otherwise at the
discretion of the proxy holders.
The undersigned hereby acknowledges receipt of
notice of the Annual Meeting of Shareholders of
Community Savings Bankshares, Inc., called for
June 18, 1999 and the accompanying Proxy Statement
and other materials prior to the signing of this
Proxy.
Signature Title Date
_____________________________________________ ________________________________________________ __________________
</TABLE>
Please sign exactly as your name appears on the stock certificate(s). Where
stock is issued in two or more names, only one need sign. If signing as
attorney, executor, administrator, trustee or guardian, give full title as such.
A corporation should sign by an authorized officer and affix its seal. A
partnership should sign in the partnership name by an authorized person.
- - --------------------------------------------------------------------------------
- FOLD AND DETACH HERE AND READ THE REVERSE SIDE -
VOTE BY TELEPHONE
- QUICK * * * EASY * * * IMMEDIATE -
YOUR VOTE IS IMPORTANT! - YOU CAN VOTE IN ONE OF TWO WAYS:
1. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone telephone 24
HOURS A DAY-7 DAYS A WEEK
There is NO CHARGE to you for this call. - Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box
in the lower right hand corner of this form.
- - --------------------------------------------------------------------------------
OPTION 1: To vote as the Board of Directors Recommends for ALL proposals press 1
- - --------------------------------------------------------------------------------
When asked, please confirm by Pressing 1.
- - --------------------------------------------------------------------------------
OPTION 2: If you choose to vote on each Proposal separately, press 0. You will
hear these instructions.
- - --------------------------------------------------------------------------------
Proposal 1 - To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees,
press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the
instructions.
Proposal 2 - To vote FOR, press 1; AGAINST, press 9; ABSTAIN,
Press 0
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
The instructions are the same for all remaining proposals.
OR
2. TO VOTE BY PROXY: Mark, sign and date your proxy card and return promptly in
the enclosed envelope.
NOTE: If you vote by telephone, THERE IS NO NEED TO MAIL BACK your Proxy Card.
THANK YOU FOR VOTING.
<PAGE> 56
REVOCABLE PROXY
1999 ANNUAL MEETING OF SHAREHOLDERS
COMMUNITY SAVINGS BANKSHARES, INC.
660 U.S. Highway One
North Palm Beach, Florida 33408
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, being a shareholder of Community Savings Bankshares, Inc. (the
"Company") as of April 20, 1999, hereby authorizes the Board of the Company, or
any of their successors, as proxies, with full powers of substitution, to
represent the undersigned at the Annual Meeting of Shareholders to be held at
The Embassy Suites PGA, 4350 PGA Boulevard, Palm Beach Gardens, Florida, on
Friday, June 18, 1999, at 1:30 p.m. Eastern Time, and at any adjournment of
said meeting, and thereat to act with respect to all votes that the undersigned
would be entitled to cast, if then personally present, as set forth on the
reverse hereof.
-- FOLD AND DETACH HERE --
EMBASSY
SUITES(R)
4350 PGA Blvd. [ROAD MAP]
Palm Beach Gardens, FL 33410
Telephone 561-622-1000
Location Conveniently located at Interstate 95 exit 57B PGA Blvd.
west, just 1 mile from the Florida Turnpike exit 109.
