<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-14577
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 23-2980576
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identication No.)
31 W. Broad Street, Hazleton, Pennsylvania 18201
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(Address of principal executive offices) (Zip Code)
(570) 454-0824
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(Issuer's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal
year, if changes since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Yes No X
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: the Issuer had 1,587,000
shares of common stock, par value $0.01 per share, outstanding as of February
16, 1999.
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SECURITY OF PENNSYLVANIA FINANCIAL CORP.
FORM 10-QSB
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at
December 31, 1998 (unaudited) and June 30, 1998.....................1
Consolidated Income Statement and Statement of
Comprehensive Income for the Three and Six
Months Ended December 31, 1998 and 1997 (unaudited).................2
Consolidated Statement of Changes in Equity
for the Six Months Ended December 31, 1998..........................5
Consolidated Statement of Cash Flows for the
Six Months Ended December 31, 1998 and 1997.........................6
Notes to Consolidated Financial Statements..........................7
Item 2. Management's Discussion and Analysis or Plan of Operation...........8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..................................................15
Item 2. Changes in Securities and Use of Proceeds..........................15
Item 3. Defaults Upon Senior Securities....................................15
Item 4. Submission of Matters to a Vote of Security Holders................15
Item 5. Other Information..................................................15
Item 6. Exhibits and Reports on Form 8-K...................................16
SIGNATURES....................................................................17
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
<TABLE>
<CAPTION>
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 (UNAUDITED) AND JUNE 30, 1998
(In thousands, except share and per share information)
DECEMBER 31, JUNE 30,
1998 1998
-------------- --------------
(UNAUDITED)
Assets:
<S> <C> <C>
Cash and cash equivalents........................................... $ 28,010 $ 11,858
Held-to-maturity securities
(fair value of $20,807 in 6/98 and $18,984 in 12/98)............. 17,641 20,783
Available for sale securities....................................... 8,016 7,900
Loans (less allowance for loan loss of $427 in 12/98
and $496 in 6/98)................................................ 71,929 69,211
Property and equipment, net......................................... 1,302 1,364
Accrued interest receivable......................................... 521 619
Real estate owned, net.............................................. 383 221
Other assets........................................................ 1,423 34
-------- --------
Total assets..................................................... $129,225 $111,990
======== ========
Liabilities and Equity:
Deposits............................................................ $104,964 $102,604
Advances from borrowers for taxes and insurance..................... 17 34
Borrowed funds...................................................... 1,261 --
Accrued interest payable and other liabilities...................... 406 122
-------- --------
Total liabilities................................................ 106,648 102,760
Common Stock ($.01 par value; 6,000,000 authorized shares,
1,587,000 shares issued.......................................... 16 --
Additional paid-in capital.......................................... 14,868 --
Unearned Employee Stock Ownership Plan (ESOP) shares................ (1,261) --
Retained earnings - substantially restricted........................ 9,083 9,361
Accumulated other comprehensive income.............................. (129) (131)
-------- --------
Total equity..................................................... 22,577 9,230
-------- --------
Total liabilities and equity..................................... $129,225 $111,990
======== ========
</TABLE>
1
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<TABLE>
<CAPTION>
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(in thousands)
DECEMBER 31, DECEMBER 31,
1998 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans.................................................................. $1,294 $1,356
Interest and dividends on securities:
Taxable............................................................. 299 356
Non-taxable......................................................... 11 --
Dividends........................................................... 10 9
Interest-bearing deposits with banks................................ 240 211
-------- --------
Total interest income........................................... 1,854 1,932
Interest expense:
Deposits............................................................... 1,066 1,065
FHLB advances and other borrowings..................................... -- --
--------- ---------
Total interest expense.............................................. 1,066 1,065
Net interest income.................................................... 788 867
Provision for loan losses.............................................. 50 65
--------- ---------
Net interest income after provision for loan losses.................... 738 802
Noninterest income:
Other loan fees and service charges.................................... 75 68
Gain (loss) on sale of:
Real estate owned................................................... (113) 16
Investments......................................................... -- 1
Other............................................................... 10 7
--------- ----------
Total noninterest income........................................ (28) 92
Noninterest Expense:
Salaries and net employee benefits..................................... 357 361
Occupancy costs........................................................ 67 52
Federal deposit insurance premiums..................................... 15 15
Data processing........................................................ 36 34
Professional fees...................................................... 16 11
Foreclosed real estate expenses, net................................... 40 28
Charitable contributions............................................... 755 7
Other noninterest expense.............................................. 122 124
-------- --------
Total noninterest expense....................................... 1,408 632
Income (Loss) before provision for income taxes............................ (698) 262
Income tax provision (benefit)............................................. (222) 108
-------- --------
Net income (loss).......................................................... $ (476) $ 154
======== =======
</TABLE>
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<TABLE>
<CAPTION>
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(in thousands)
DECEMBER 31, DECEMBER 31,
1998 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans.................................................................. $ 2,630 $ 2,657
Interest and dividends on securities:
Taxable............................................................. 620 748
Non-taxable......................................................... 18 --
Dividends........................................................... 19 18
Interest-bearing deposits with banks................................ 485 406
-------- --------
Total interest income........................................... 3,772 3,829
Interest expense:
Deposits............................................................... 2,151 2,114
FHLB advances and other borrowings..................................... -- --
-------- ---------
Total interest expense.............................................. 2,151 2,114
Net interest income.................................................... 1,621 1,715
Provision for loan losses.............................................. 55 73
--------- ---------
Net interest income after provision for loan losses.................... 1,566 1,642
Noninterest income:
Other loan fees and service charges.................................... 145 139
Gain (loss) on sale of:
Real estate owned................................................... (111) 16
Investments......................................................... -- 1
Other............................................................... 21 21
-------- ----------
Total noninterest income........................................ 55 177
Noninterest Expense:
Salaries and net employee benefits..................................... 679 676
Occupancy costs........................................................ 136 114
Federal deposit insurance premiums..................................... 30 31
Data processing........................................................ 74 68
Professional fees...................................................... 53 41
Foreclosed real estate expenses, net................................... 72 38
Charitable contributions............................................... 757 9
Other noninterest expense.............................................. 228 234
-------- --------
Total noninterest expense....................................... 2,029 1,211
Income (Loss) before provision for income taxes............................ (408) 608
Income tax provision (benefit)............................................. (130) 246
-------- --------
Net income (loss).......................................................... $ (278) $ 362
======== =======
</TABLE>
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<TABLE>
<CAPTION>
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(in thousands)
DECEMBER 31, DECEMBER 31,
1998 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Net income (loss).......................................................... $(476) $154
Increase (decrease) in unrealized losses available-for-sale securities..... (47) (12)
------- ------
Comprehensive income (loss)................................................ $(523) $166
===== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(in thousands)
DECEMBER 31, DECEMBER 31,
1998 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Net income (loss).......................................................... $(278) $362
Increase (decrease) in unrealized losses available-for-sale securities..... 2 50
-------- ------
Comprehensive income (loss)................................................ $(276) $412
===== ====
</TABLE>
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<TABLE>
<CAPTION>
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(in thousands)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE NET
STOCK CAPITAL ESOP EARNINGS INCOME (LOSS) EQUITY
-------- --------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998................ $-- $ -- $ -- $9,361 $(131) $ 9,230
Net Income/(Loss)....................... (278) (278)
Proceeds from sale of stock............. 16 14,868 14,884
(Increase)/Decrease in unrealized
losses on Available-for-Sale
Securities........................... 2 2
Unearned ESOP Shares.................... (1,261) (1,261)
--- ------- ------- ------ ----- -------
Balance at December 31, 1998............ $16 $14,868 $(1,261) $9,083 $(129) $22,577
=== ======= ======= ====== ===== =======
</TABLE>
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<TABLE>
<CAPTION>
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
(in thousands)
DECEMBER 31, DECEMBER 31,
1998 1997
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................................... $ (279) $ 361
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses and foreclosed real estate....................... 55 73
Amortization and accretion on investment securities........................ 81 (1)
Depreciation and amortization.............................................. 74 37
Deferred income taxes...................................................... -- --
(Gain) Loss on sale of:
Real estate acquired through foreclosure............................... 4 8
Securities............................................................. -- (63)
Change in assets and liabilities:
Accrued interest receivable............................................ 98 (1)
Other assets........................................................... (1,388) (41)
Accrued interest payable and other liabilities......................... 284 34
------- ----
Net cash provided by operating activities.................................. $(1,071) $ 407
======= ===
INVESTMENT ACTIVITIES:
Purchase of held-to-maturity securities.................................... $ -- $ --
Purchase of available-for-sale securities.................................. (8,120) (5,150)
Proceeds from maturities of held-to-maturity securities.................... -- --
Proceeds from the call of held-to-maturity securities...................... 6,435 2,741
Proceeds from maturities and principal paydowns on
available-for-sale securities.......................................... 600 500
Proceeds from principal paydowns of held-to-maturity securities............ 715 484
Proceeds from sale of available-for-sale securities........................ -- --
Loans made to customers, net of principal collected........................ (2,773) (3,147)
Acquisition of office premises and equipment............................... (12) (186)
Proceeds from sale of foreclosed real estate............................... 349 623
------ ------
Net cash used in investing activities...................................... $(2,806) $(4,135)
======= =======
FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts................................ $ 2,360 $ 2,391
Net increase (decrease) in advances from borrowers
for taxes and insurance................................................ (17) (99)
Repayments of borrowed funds............................................... -- --
Net proceeds from issuance of common stock................................. 16,145 --
------ ------
Net cash provided by financing activities.................................. 18,488 2,292
------ ------
Increase (decrease) by cash and equivalents................................ 16,152 (1,900)
Cash and equivalent - beginning of the year................................ 11,858 9,034
------ ------
Cash and equivalent - end of year.......................................... $28,010 $ 7,134
====== ======
Supplemental Disclosure of Cash Flow Information:
Interest paid on deposits.............................................. $ 2,151 $ 2,114
Income taxes paid...................................................... $ (130) $ 246
Supplemental Disclosure of Non-Cash Information:
Transfer from loans to real estate owned............................... $ 638 $ 270
</TABLE>
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SECURITY OF PENNSYLVANIA FINANCIAL CORP.
Notes to Consolidated Financial Statements
(1) Organization
------------
Security of Pennsylvania Financial Corp. (the Company") was
incorporated under the laws of Delaware in August 1998 for the purpose of
serving as the holding company of Security Savings Association of Hazleton (the
"Association") as part of the Association's conversion from the mutual to stock
form of organization (the "Conversion"). The Company is a savings and loan
holding company and is subject to regulation by the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and the Securities and
Exchange Commission. The Conversion, completed on December 30, 1998 resulted in
the Company issuing an aggregate of 1,587,000 shares of its common stock, par
value $.01 per share, at a price of $10 per share, of which 1,511,617 shares
were issued in a subscription offering and 75,383 shares were issued and sold to
Security Savings Charitable Foundation. Prior to the Conversion, the Company had
not engaged in any material operations.
(2) Accounting Principles
---------------------
The accompanying unaudited financial statements of Security of
Pennsylvania Financial Corp. Have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-QSB and of Regulation S-B. Accordingly, the financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the current
fiscal year.
For further information, refer to the consolidated financial statements
included in the Company's offering prospectus prepared in connection with the
Conversion filed with the Securities and Exchange Commission.
7
<PAGE> 10
Item 2. Management's Discussion and Analysis or Plan of Operation.
---------------------------------------------------------
The following analysis discusses changes in the financial condition and
results of operations at and for the three and six months ended December 31,
1998, and should be read in conjunction with the Bank's Consolidated Financial
Statements and the notes thereto, appearing in Part I, Item 1 of this document.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward -looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations of the Company and the subsidiaries include, but are not limited to,
changes in: interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the SEC.
The Company does not undertake - and specifically disclaims any
obligation - to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
GENERAL
Security of Pennsylvania Financial Corp. (the "Company") is the holding
company for Security Savings Association of Hazleton (the "Association"), a
Pennsylvania chartered capital stock savings association. The Association's
results of operations are dependent primarily on net interest income, which is
the difference between the income earned on its loan and investment portfolios
and its cost of funds, consisting of the interest paid on deposits and
borrowings. Results of operations are also affected by the Association's
provision for loan losses, loan and security sales activities, service charges
and other fee income, and noninterest expense. The Association's noninterest
expense principally consists of compensation and employee benefits, office
occupancy and equipment expense, federal deposit insurance premiums, data
processing, advertising and business
8
<PAGE> 11
promotion and other expenses. Results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
interest rates, government policies and actions of regulatory authorities.
MANAGEMENT STRATEGY
The Association's operating strategy has been that of a community-based
banking institution, offering a wide variety of savings products to its retail
customers, while concentrating on residential and consumer lending and, to a
lesser extent, multi-family and commercial real estate and construction lending.
Additionally, as of February 1999, the Association has opened a commercial loan
department and expects to expand its services in that area. It is expected that
these loans will provide a higher spread in our lending portfolio. In order to
promote long-term financial strength and profitability, the Association's
operating strategy has focused on: (i) maintaining strong asset quality by
originating primarily one- to four-family mortgage loans and home equity loans
and lines of credit secured by residential real estate located in its market
area; (ii) managing its interest rate risk within the context of its significant
fixed-rate one- to four-family mortgage lending activity; (iii) providing
products and delivery systems directed at the needs and expectations of its
customer base, including through taking advantage of technological advances when
appropriate; and (iv) maintaining a strong regulatory capital position.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND JUNE 30, 1998
Total assets increased $17.2 million, or 15.4%, from $112.0 million at
June 30, 1998 to $129.2 at December 31, 1998. This increase was primarily due a
$16.2 million, or 136%, increase in cash and cash equivalents from $11.9 million
at June 30, 1998 to $28.0 million at December 31, 1998 primarily due to the
gross proceeds retained through the sale of the Company's common stock in the
Company's initial public offering. The increase in cash and cash equivalents was
also attributable to a growth in deposits. Additionally, loans increased $2.7
million, or 3.9%, from $69.2 million at June 30, 1998 to $71.2 million at
December 31, 1998. The increase was due to a $2.7 million increase in real
estate loans offset by a $337,000 decrease in consumer loans.
Total deposits increased $2.4 million from $102.6 million at June 30,
1998 to $105.0 million at December 31, 1998. Such increase was attributable to
an increase in the balance of NOW and money market accounts primarily due to an
account opened at the Association for the Company's portion of the gross
proceeds from the stock offering.
Total equity increased $13.3 million, or 145%, from $9.2 million at
June 30, 1998 to $22.6 million at December 31, 1998 due to the proceeds received
through the Company's initial public offering.
9
<PAGE> 12
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND
1997
GENERAL. The Company reported a $476,000 net loss for the three months
ended December 31, 1998 compared to net income of $154,000 for the three months
ended December 31, 1997. This loss was due to a one-time $753,000 expense
relating to the funding of Security Savings Charitable Foundation (the
"Foundation"), a charitable foundation established in connection with the
Association's conversion.
INTEREST INCOME. Total interest income decreased $78,000, or 4.0%, for
the three month period ended December 31, 1998 as compared to the comparable
period for the previous year. The decrease was attributable to a $64,000
decrease in interest income on loans due to a decrease in the weighted average
yield during the period and a $45,000 decrease in interest and dividends on
securities due to a lower rate of return. However, the decreases were offset by
an $29,000, or 13.7%, increase in interest on interest-bearing deposits with
banks. Such increase was attributable to the increased funds received through
stock subscriptions in connection with the Company's stock offering.
INTEREST EXPENSE. Interest expense for the quarter ended December 31,
1998 was virtually the same as the previous year's quarter. This was due to the
Relative stability of the Company's deposit base.
PROVISION FOR LOAN LOSSES. The Company reduced its provision for loan
losses from $65,000 for the three months ended December 31, 1997 to $50,000 for
the three months ended December 31, 1998. The decrease was based on the
Company's periodic review of the loan portfolio, the level of charge-offs and
nonperforming loans, real estate owned, loan commitments, unused lines of credit
as well as an evaluation of the general economic conditions in the Company's
market areas.
NONINTEREST INCOME. Noninterest income decreased from $92,000 for the
three months ended December 31, 1997 to a $28,000 loss for the three months
ended December 31, 1998. This decrease was attributable to $113,000 in losses on
the sale of real estate owned, offset by a $7,000, or 10.3%, increase in loan
fees and service charge income.
NONINTEREST EXPENSES. Total noninterest expenses increased from
$632,000 to $1.4 million for the three months ended December 31, 1997 and
December 31, 1998, respectively, due primarily to the one-time costs with the
establishment and funding of the Foundation. A $12,000, or 42.9%, increase in
the expenses associated with foreclosing on real estate and a $15,000, or 28.9%,
increase in occupancy costs associated with increased rental costs associated
with one of the Association's branch offices, also contributed to the increase.
PROVISION FOR INCOME TAXES. The Company had an income tax benefit of
$222,000 for the three months ended December 31, 1998, compared to an expense of
$108,000 for the three months ended December 31, 1997. The decrease in the
income tax expense was attributable to the net operating loss relating to the
one-time charitable donation to the Foundation.
10
<PAGE> 13
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND
1997
GENERAL. The Company had a net loss of $278,000 compared to net income
of $362,000 for the six months ended December 31, 1998 and December 31, 1997,
respectively. This loss was due to a one-time $753,000 expense relating to the
funding of the Foundation and $111,000 in losses on real estate owned.
INTEREST INCOME. Total interest income decreased $57,000, or 1.5%, for
the six months ended December 31, 1998 as compared to the same period for the
previous year. The decrease was primarily attributable to $109,000 decrease in
interest income and dividends on securities due to a lower rate of return on
those investments. A $27,000 decrease in interest income on loans for the six
months ended December 31, 1998 as compared to the same period for the previous
year due to a lower weighted average yield on loans also contributed to the
decrease in interest income. The decrease in total interest income was offset by
a $79,000 increase in interest income earned on interest-bearing deposits, from
$405,000 for the six months ended December 31, 1997 to $485,000 for the six
months ended December 31, 1998.
INTEREST EXPENSE. Interest expense for the six months ended December
31, 1998 increased $37,000 as compared to the six month period in 1997. The 1.8%
increase reflected a small increase in the Company's deposit base over the
preceding year.
PROVISION FOR LOAN LOSSES. The Company reduced its provision for loan
losses from $73,000 for the six months ended December 31, 1997 to $55,000 for
the six months ended December 31, 1998. The decrease was based on the Company's
periodic review of the loan portfolio, the level of charge-offs and
nonperforming loans, real estate owned, loan commitments, unused lines of
credit, as well as an evaluation of the general economic conditions in the
Company's market areas.
NONINTEREST INCOME. Noninterest income decreased $122,000 from $177,000
for the six months ended December 31, 1997 to $55,000 for the six months ended
December 31, 1998, primarily due to a $111,000 loss on the sale of real estate
owned offset by a $6,000, or 4.3%, increase on loan fees and service charges.
NONINTEREST EXPENSES. Total noninterest expenses increased $818,000, or
67.5%, from $1.2 million to $2.0 million for the six months ended December 31,
1997 and December 31, 1998, respectively, due primarily to the one-time costs
with the establishment and funding of Security Savings Charitable Foundation.
PROVISION FOR INCOME TAX EXPENSES. The Company had an income tax
benefit of $130,000 for the six months ended December 31, 1998, compared to an
expense of $246,000 for the three months ended December 31, 1997. The decrease
in the income tax expense was attributable to the net operating loss relating to
the one-time charitable donation to the Foundation.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed and investment securities. The
Association uses the funds generated to support its lending and investment
activities as well as any other demands for liquidity such as deposit outflows.
While maturities and scheduled amortization of loans are predictable sources of
funds, deposit flows, mortgage prepayments and the exercise of call features are
greatly influenced by general interest rates, economic conditions and
competition. The Association has continued to maintain the required levels of
liquid assets as defined by OTS regulations. This requirement of the OTS, which
may be varied at the direction of the OTS depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term borrowings.
The Association's currently required liquidity ratio is 4.0%. At December 31,
1998 and 1997, the Association's liquidity ratios were 31.7% and 22.9%,
respectively.
At December 31, 1998, the Association exceeded all of its regulatory
capital requirements with a tangible capital level of $15.4 million, or 12.6% of
total adjusted assets, which is above the required level of $3.7 million, or
3.0%; core capital of $15.4 million, or 12.6% of total adjusted assets, which is
above the required level of $4.8 million, or 4.0%; and risk-based capital of
$15.8 million, or 29.4% of risk-weighted assets, which is above the required
level of $4.3 million, or 8.0%.
The Association has other sources of liquidity if a need for additional
funds arises, including Federal Home Loan Bank ("FHLB") advances. At December
31, 1998, the Association did not have any advances outstanding from the FHLB,
and at June 30, 1998 had an overall borrowing capacity from the FHLB of $53.7
million.
The Association's most liquid assets are cash and due from banks,
interest-bearing deposits with banks and its investment and mortgage-related
securities available-for-sale. The levels of these assets are dependent on the
Association's operating, financing, lending and investing activities during any
given period. At December 31, 1998, cash and due from banks, interest-bearing
deposits with banks and investment securities available for sale totaled $36.0
million, or 27.9% of total assets.
At December 31, 1998, the Association had commitments to originate
loans and unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totaling $4.1 million. The Association anticipates that
it will have sufficient funds available to meet its current loan origination
commitments. Certificate accounts, which are scheduled to mature in less than
one year from December 31, 1998, totaled $35.2 million. The Association expects
that substantially all of the maturing certificate accounts will be retained by
the Association at maturity.
The initial impact of the Conversion on the liquidity and capital
resources of the Company was significant as it substantially increased the
liquid assets of the Company and the capital base on which the Company operates.
Further the additional capital resulting from the stock offering increased the
capital base of the Association. At December 31, 1998, the Association had total
equity, determined in accordance with generally accepted accounting principles,
of $16.6 million, or 13.7% of total assets, which approximated the Association's
regulatory tangible capital at that date
12
<PAGE> 15
of 12.6% of assets. An institution with a ratio of tangible capital to total
assets of greater than or equal to 5% is considered to be "well-capitalized"
pursuant to OTS regulations.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "96" is stored on the
system and represents 1996. The Association relies significantly on an outside
service bureau. The Association has not received any guarantee from the outside
service bureau that the bureau will be Year 2000 compliant. However, the service
bureau has completed its inventory and assessment of its Year 2000 compliance
and is scheduled to have resolved all identified problems by the end of 1998.
The Association's service bureau has completed its proxy testing of their system
and the Association will conduct on-line testing at each of its offices on
February 14, 1999. Any problems encountered during this testing can be addressed
and remedied in time for the second round of testing scheduled for May 1999. The
Association has completed its inventory and assessment and has completed
upgrading its internal system to handle the Year 2000 problem. The Association
currently is testing its upgraded system. The cost to the Association for the
internal system upgrade, not including staff time, has been less than $50,000.
There can be no assurances, however, that the performance by the Association and
its service bureau will be effective to remedy all potential problems. To the
extent the Company's systems are not fully Year 2000 compliant, there can be no
assurance that potential systems interruptions or the cost necessary to update
software would not have a materially adverse effect on the Company's business,
financial condition, results of operations and business prospects. The
Association has prepared a contingency plan in the event there are any system
interruptions. Any Year 2000 failure on the part of the Association's customers
could result in additional expense or loss to the Association. The Association
plans to work with its customers to address any potential Year 2000 problems.
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a secured borrowing with a
pledge of collateral. The Statement became effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996, and is to be applied prospectively. Adoption of this
13
<PAGE> 16
Statement did not have a material impact on the net income, equity, or financial
position of the Association.
ACCOUNTING FOR EARNINGS PER SHARE. In February 1997, the FASB issued
SFAS No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly-held common stock or potential common stock. This statement simplifies
the standards for computing earnings per share previously found in APB Opinion
No. 15, "Earnings Per Share," and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods, and earlier application is
not permitted.
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. Management has not yet determined the impact,
if any, of this statement on the Association.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
connection with the implementation of SFAS No. 133, the Association may transfer
debt securities classified as held-to-maturity to the available-for-sale
category. Such a transfer will not call into question the Association's
intention to hold other debt to maturity in the future. SFAS No. 133 is
effective for financial statements for periods beginning after June 15, 1999.
Management has not yet determined the impact, if any, of this statement on the
Association. Management plans to adopt SFAS No. 133 during its fiscal year
ending June 30, 1999 in order to use the special provision allowing the transfer
of debt securities classified as held-to-maturity to the available-for-sale
category. Management has not identified which securities might be transferred to
the available-for-sale category; and, as a result, is not able to determine
whether such transfer could have a material impact on its financial condition.
If the Association had transferred all of its held-to-maturity securities to
available-for-sale securities as of December 31, 1998, its shareholders' equity
would have increased by approximately $866,000.
14
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
The following information is provided in connection with the Company's
sale of its common stock as part of the Bank's conversion:
a. The effective date of the Registration Statement on Form SB-2
(File No. 333-63271) was November 12, 1998.
b. The offering was consummated on December 30, 1998 with the
sale of all securities registered pursuant to the Registration
Statement. Sandler O'Neill & Partners, L.P.
acting as marketing agent for the offering.
c. The class of securities registered was common stock, par value
$.01 per share. The aggregate amount of such securities
registered was 1,587,000 shares which represented an aggregate
amount of $15,870,000. That amount included 1,511,617 shares
(or $15,116,170) sold in the offering and 75,383 shares (or
$753,830) issued to Security Savings Charitable Foundation.
d. The expenses incurred in connection with the Conversion and
offering of $985,872, including expenses paid to or for
underwriters of $330,643, attorney and accounting fees of
$351,876 and other expenses of $303,353. The net proceeds
resulting from the offering after deducting expenses was
$14,130,298.
e. The net proceeds are temporarily invested in an
interest-bearing deposit account at Security Savings
Association of Hazleton. The Company intend to use these funds
to invest in various securities.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5. Other Information.
-----------------
None.
15
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
2.1 Amended Plan of Conversion (including the Stock Articles
of Incorporation and Bylaws of the Security Savings
Association of Hazleton)*
3.1 Certificate of Incorporation of Security of Pennsylvania
Financial Corp.*
3.2 Bylaws of Security of Pennsylvania Financial Corp.*
10.1 Employment Agreement between Richard C. Laubach and Security
of Pennsylvania Financial Corp.
10.2 Employment Agreement between David P. Marchetti, Sr. and
Security of Pennsylvania Financial Corp.
10.3 Employment Agreement between Richard C. Laubach and Security
of Pennsylvania Financial Corp.
10.4 Employment Agreement between David P. Marchetti, Sr. and
Security of Pennsylvania Financial Corp.
10.5 Change in Control Agreement between Joseph P. Correale and
Security Savings Association of Hazleton
10.6 Change in Control Agreement between Nicoline Evans and
Security Savings Association of Hazleton
10.7 Form of Security Savings Association Supplemental Executive
Retirement Plan*
10.8 Form of Security Savings Association of Hazleton Employee
Severance Compensation Plan*
11.0 Statement regarding Computation of Per Share Earnings**
27.0 Financial Data Schedule
-----------------------------
* Incorporated by reference into this document from the Exhibits to the Form
SB-2, Registration Statement, and any amendments thereto, Registration No.
333-63271
** Not applicable as the Company did not have earnings in the quarter ended
December 31, 1998.
(b) Reports on Form 8-K
None.
16
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
Dated: February 16, 1999 By: /s/ Richard C. Laubach
----------------------------------
Richard C. Laubach
President and Chief Executive Officer
(principal executive officer)
Dated: February 16, 1999 By: /s/ David P. Marchetti, Sr.
----------------------------------
David P. Marchetti, Sr.
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
<PAGE> 1
Exhibit 10.1
Employment Agreement between Richard C. Laubach
and Security of Pennsylvania Financial Corp.
<PAGE> 2
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of December 30, 1998,
by and between Security of Pennsylvania Financial Corp. (the "Holding Company"),
a corporation organized under the laws of Delaware, with its principal
administrative office at 31 W. Broad Street, Hazleton, PA 18201 and Richard C.
Laubach (the "Executive"). Any reference to "Institution" herein shall mean
Security Savings Association of Hazleton or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees
to serve as President and Chief Executive Officer of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer and director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that,
1
<PAGE> 3
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Holding Company or its Subsidiaries, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement. Moreover, in the event the Executive is terminated
or suspended from his position with the Institution, Executive shall not
perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Institution, duties
and responsibilities formerly performed at the Institution as part of his duties
and responsibilities as President and Chief Executive Officer of the Holding
Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding
Company or its Subsidiaries of $125,000 per year ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
qualified or non-qualified plan maintained by the Holding Company and its
Subsidiaries. Such Base Salary shall be payable weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary. Any increase in Base Salary shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide Executive,
at no premium cost to Executive, with all such other benefits as provided
uniformly to permanent full-time employees of the Holding Company and its
Subsidiaries.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Holding Company
and its Subsidiaries will not, without Executive's prior written consent, make
any changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such
2
<PAGE> 4
plans and arrangements. Executive shall be entitled to incentive compensation
and bonuses as provided in any plan of the Holding Company and its Subsidiaries
in which Executive is eligible to participate. Nothing paid to the Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement. In
addition, Executive shall be entitled to receive fees for serving as a director
of the Holding Company.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel, including reasonable expenses for spouses travel, and other
reasonable expenses incurred in the performance of Executive's obligations under
this Agreement and may provide such additional compensation in such form and
such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as President and Chief Executive Officer, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities with the Holding Company or its Subsidiaries, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A), (B),
(C), (D) (E) or (F), above, Executive shall have the right to elect to terminate
his employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full calendar months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if he
had continued his employment with the Institution during the remaining term of
this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the
3
<PAGE> 5
Institution or the Holding Company during the remaining term of this Agreement
based on contributions made (on an annualized basis) at the Date of Termination.
At the election of the Executive, which election is to be made prior to an Event
of Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event of a nature that; (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, or the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries; or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods; or (D) a proxy statement has been distributed
soliciting
4
<PAGE> 6
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed; or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or Termination for Cause (as
defined herein).
(c) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions, bonuses,
contributions on behalf of Executive to any pension and profit sharing plan,
severance payments, directors or committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Company will cause to be continued life, medical, dental and
disability coverage substantially equivalent to the coverage maintained by the
Institution for Executive at no premium cost to Executive prior to his
severance. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive, which are deemed to be
parachute payments as defined in Section 280G of
5
<PAGE> 7
the Internal Revenue Code of 1986, as amended (the
"Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess
parachute payment" under Section 280G of the Code;
and
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal
to three (3) times Executive's "base amount," as
determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the
marginal rate of any applicable state and federal
income tax and the Non Triggering Amount would be
greater than the aggregate value of the Termination
Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive
thereon by Section 4999 of the Code and further minus
(ii) the product of the Termination Benefits and the
marginal rate of any applicable state and federal
income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall
be determined by the Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its Subsidiaries caused by the
Executive's intentional failure to perform stated duties, personal dishonesty,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Holding Company or its Subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Holding Company or its Subsidiaries vest. At
the Date of Termination, such stock options and related limited rights and such
unvested awards shall become null and void and shall not be exercisable by or
delivered to Executive at any time subsequent to such Date of Termination for
Cause.
6
<PAGE> 8
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant
to Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's
7
<PAGE> 9
normal business office is located and the Holding Company or any of its
Subsidiaries has an office or has filed an application for regulatory approval
to establish an office and any county adjacent to such city, town or county,
determined as of the effective date of such termination, except as agreed to
pursuant to a resolution duly adopted by the Board. Executive agrees that during
such period and within said cities, towns and counties, Executive shall not work
for or advise, consult or otherwise serve with, directly or indirectly, any
entity whose business materially competes with the depository, lending or other
business activities of the Holding Company or its Subsidiaries. The parties
hereto, recognizing that irreparable injury will result to the Holding Company
or its Subsidiaries, its business and property in the event of Executive's
breach of this Subsection 10(a) agree that in the event of any such breach by
Executive, the Holding Company or its Subsidiaries will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants, employees
and all persons acting for or under the direction of Executive. Executive
represents and admits that in the event of the termination of his employment
pursuant to Section 7 hereof, Executive's experience and capabilities are such
that Executive can obtain employment in a business engaged in other lines and/or
of a different nature than the Holding Company or its Subsidiaries, and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the
Holding Company or its Subsidiaries from pursuing any other remedies available
to the Holding Company or its Subsidiaries for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to Section
11(b).
8
<PAGE> 10
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated December 30, 1998,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any predecessor of the Holding Company and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors, heirs and
assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
9
<PAGE> 11
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law, unless otherwise specified herein.
18. ARBITRATION.
Notwithstanding any right to enforcement under Section 10(a), any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by the Executive within fifty (50)
miles from the location of the Institution, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
10
<PAGE> 12
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of him having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject
to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
11
<PAGE> 13
SIGNATURES
IN WITNESS WHEREOF, Security of Pennsylvania Financial Corp. has caused
this Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 14th day of January, 1999.
ATTEST: SECURITY OF PENNSYLVANIA
FINANCIAL CORP.
/s/ Nancy Latoff By: /s/ Richard C. Laubach
- -------------------------- -----------------------------------
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Nancy Latoff By: /s/ Richard C. Laubach
- -------------------------- -----------------------------------
Richard C. Laubach
12
<PAGE> 1
Exhibit 10.2
Employment Agreement between David P. Marchetti, Sr.
and Security of Pennsylvania Financial Corp.
<PAGE> 2
Exhibit 10.2
Mr. Marchetti's Employment Agreement is the same as the Employment
Agreement in Exhibit 10.1, which is incorporated herein by reference except as
to: (i) the name of the signatory, which is David P. Marchetti, Sr.; (ii) the
position in Section 1, which is Chief Executive Officer and Treasurer; (iii) the
signatory for the Company, which is Richard C. Laubach; and (iv) the amount of
the base salary in Section 3(a), which is $75,000.
<PAGE> 1
Exhibit 10.3
Employment Agreement between Richard C. Laubach
and Security Savings Association of Hazleton
<PAGE> 2
SECURITY SAVINGS ASSOCIATION OF HAZLETON
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of December 30, 1998, by and among
Security Savings Association of Hazleton (the "Association"), a
Pennsylvania-chartered financial institution, with its principal administrative
office at 31 W. Broad Street, Hazleton, PA 18201, Security of Pennsylvania
Financial Corp., a corporation organized under the laws of the State of
Delaware, the holding company for the Association (the "Holding Company"), and
Richard C. Laubach ("Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Association
for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Association. Executive
shall render administrative and management services to the Association such as
are customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Association.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the
Association ("Board") may extend the Agreement an additional year such that the
remaining term of the Agreement shall be three (3) years unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the Agreement
and Executive's performance annually for purposes of determining whether to
extend the Agreement and the rationale and results thereof shall be included in
the minutes of the Board's meeting. The Board shall give notice to the Executive
as soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
<PAGE> 3
operation and management of the Association and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Association, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Association may be terminated by the Association or the
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Association shall pay Executive as compensation a salary of
$125,000 per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or non-qualified plan
maintained by the Association. Such Base Salary shall be payable weekly. During
the period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Association shall
also provide Executive, at no premium cost to Executive, with all such other
benefits as are provided uniformly to permanent full-time employees of the
Association.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Association will
not, without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Association employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Association in the future to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Executive shall be entitled to incentive compensation and bonuses
as provided in any plan of the Association in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement. In addition, Executive shall be entitled to
receive fees for serving as a director of the Association.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Association shall pay or
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<PAGE> 4
reimburse Executive for all reasonable travel and other reasonable expenses
incurred in the performance of Executive's obligations under this Agreement and
may provide such additional compensation in such form and such amounts as the
Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Association of Executive's full-time employment hereunder for
any reason other than a termination governed by Section 5(a) hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Association's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as President and Chief Executive
Officer, unless consented to by the Executive, (B) a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 25 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, or (E) a liquidation or dissolution of the Association or Holding
Company, or (F) breach of this Agreement by the Association. Upon the occurrence
of any event described in clauses (A), (B), (C), (D), (E) or (F), above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be an amount equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Association during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Association or the
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination;
provided, however, that any payments pursuant to this subsection and subsection
4(c) below, shall not, in the aggregate, exceed three (3) times Executive's
average annual compensation for the five most recent taxable years that
Executive has been employed by the Association or such lesser number of years in
the event that Executive shall have been employed by the Association for less
than five years. In the event the Association is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Association's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Association or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to an Event of Termination,
such payments shall be made in a lump sum as of the Executive's Date of
Termination. In the event that no election is made, payment to Executive will be
made on a monthly basis in approximately equal installments during the remaining
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<PAGE> 5
term of the Agreement. Such payments shall not be reduced in the event the
Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Association
will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Association or the
Holding Company for Executive prior to his termination at no premium cost to the
Executive, except to the extent such coverage may be changed in its application
to all Association or Holding Company employees. Such coverage shall cease upon
the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act or the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 25% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Association or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Association or the Holding Company or similar transaction
occurs in which the Association or Holding Company is not the resulting entity;
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or
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<PAGE> 6
responsibility, material reduction in annual compensation or benefits or
relocation of his principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control, unless such termination is
because of his death or Termination for Cause (as defined herein).
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Association shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to the greater of: (1) the payments due for the remaining term of the Agreement;
or 2) three (3) times Executive's average Annual Compensation for the five (5)
most recent taxable years that Executive has been employed by the Association or
such lesser number of years in the event that Executive shall have been employed
by the Association for less than five (5) years. Such average Annual
Compensation shall include Base Salary, commissions, bonuses, contributions on
Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees, fringe benefits paid
or to be paid to the Executive in any such year, and payment of expense items
without accountability or business purpose or that do not meet the IRS
requirements for deductibility by the Institution; provided however, that any
payment under this provision and subsection 5(d) below shall not exceed three
(3) times the Executive's average annual compensation. In the event the
Association is not in compliance with its minimum capital requirements or if
such payments would cause the Association's capital to be reduced below its
minimum regulatory capital requirements, such payments shall be deferred until
such time as the Association or successor thereto is in capital compliance. At
the election of the Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum as of the Executive's Date of
Termination. In the event that no election is made, payment to the Executive
will be made in approximately equal installments on a monthly basis over a
period of thirty-six (36) months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Association will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Association for Executive prior to his severance at no premium cost to the
Executive, except to the extent that such coverage may be changed in its
application for all Association employees on a non-discriminatory basis. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be determined
by Executive.
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<PAGE> 7
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any 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 or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive's conduct justified a finding of
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination for Cause, stock options and related limited rights granted
to Executive under any stock option plan shall not be exercisable, nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Association, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Association or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause the Association will
continue to pay Executive his Base Salary in effect when the notice
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<PAGE> 8
giving rise to the dispute was given until the earlier of: 1) the resolution of
the dispute in accordance with this Agreement or 2) the expiration of the
remaining term of this Agreement as determined as of the Date of Termination.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Association. Executive shall, upon reasonable
notice, furnish such information and assistance to the Association as may
reasonably be required by the Association in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant
to Section 4 hereof, Executive agrees not to compete with the Association for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Association has
an office or has filed an application for regulatory approval to establish an
office and any county adjacent to such city, town or county, determined as of
the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work for or
advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Association. The parties hereto, recognizing that
irreparable injury will result to the Association, its business and property in
the event of Executive's breach of this Subsection 10(a) agree that in the event
of any such breach by Executive, the Association will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants, employees
and all persons acting for or under the direction of Executive. Nothing herein
will be construed as prohibiting the Association from pursuing any other
remedies available to the Association for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association. Further, Executive may disclose
information regarding the business activities of the Association to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section,
- 7 -
<PAGE> 9
the Association will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Association or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Association from
pursuing any other remedies available to the Association for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Association. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Association are not timely paid or provided by the Association, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated December 30, 1999,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement. Payments
pursuant to this Agreement and the Holding Company Agreement shall be allocated
in proportion to the services rendered and time expended on such activities by
Executive as determined by the Holding Company and the Association on a
quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Association or
any predecessor of the Association and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors, heirs, and
assigns.
- 8 -
<PAGE> 10
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) The Association may terminate Executive's employment at any time,
but any termination by the Association, other than Termination for Cause, shall
not prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 7
hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(3) or (g)(1); the Association's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion: (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended; and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1) all obligations of
the Association under this contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(e) All obligations of the Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution: (i) by the Director of
the OTS (or her designee), the FDIC or the Resolution Trust Corporation, at the
time the FDIC enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the OTS
(or her designee) at the time the Director (or
- 9 -
<PAGE> 11
her designee) approves a supervisory merger to resolve problems related to the
operations of the Association or when the Association is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated
thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
Wherever any words are used herein in the masculine, feminine or neutor
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of Pennsylvania, but only
to the extent not superseded by federal law.
20. ARBITRATION.
Notwithstanding any right to enforcement under Section 10(a), any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by Executive within fifty (50) miles
from the location of the Association, in accordance with the rules of the
American
- 10 -
<PAGE> 12
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement, other than in the case of a
Termination for Cause.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Association if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) Subject to the provisions of Section 15 hereof, the Association
shall provide Executive (including his heirs, executors and administrators) with
coverage under a standard directors' and officers' liability insurance policy at
its expense, and shall indemnify Executive (and his heirs, executors and
administrators) to the fullest extent permitted under Pennsylvania law against
all expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of him having been a director or officer of the Association (whether or
not he continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
23. SUCCESSOR TO THE ASSOCIATION.
The Association shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's obligations under this Agreement, in the same manner and to the
same extent that the Association would be required to perform if no such
succession or assignment had taken place.
- 11 -
<PAGE> 13
SIGNATURES
IN WITNESS WHEREOF, Security Savings Association of Hazleton and
Security of Pennsylvania Financial Corp. have caused this Agreement to be
executed and their seals to be affixed hereunto by their duly authorized
officers and directors, and Executive has signed this Agreement, on the 14th day
of January, 1999.
ATTEST: SECURITY SAVINGS ASSOCIATION OF
HAZLETON
/s/ Nancy Latoff By: /s/ Richard C. Laubach
- -------------------------------- ---------------------------------
For the Entire Board of Directors
[SEAL]
ATTEST: SECURITY OF PENNSYLVANIA FINANCIAL
CORP.
(Guarantor)
/s/ Nancy Latoff By: /s/ Richard C. Laubach
- -------------------------------- ---------------------------------
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Nancy Latoff By: /s/ Richard C. Laubach
- -------------------------------- ---------------------------------
Richard C. Laubach
- 12 -
<PAGE> 1
Exhibit 10.4
Employment Agreement between David P. Marchetti, Sr.
and Security Savings Association of Hazleton
<PAGE> 2
Exhibit 10.4
Mr. Marchetti's Employment Agreement is the same as the Employment
Agreement in Exhibit 10.3, which is incorporated herein by reference except as
to: (i) the name of the signatory, which is David P. Marchetti; (ii) the
position in Section 1, which is Vice President and Chief Operating Officer;
(iii) the signatory for the Association, which is Richard C. Laubach; (iv) the
guarantor for the Company, which is Richard C. Laubach; and (v) the amount of
the base salary in Section 3(a), which is $75,000.
<PAGE> 1
Exhibit 10.5
Change in Control Agreement between Joseph P. Correale
and Security Savings Association of Hazleton
<PAGE> 2
SECURITY SAVINGS ASSOCIATION OF HAZLETON
THREE-YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of December 30, 1998, by and
between Security Savings Association of Hazleton (the "Association"), a
Pennsylvania-chartered savings institution, with its principal administrative
office at 31 W. Broad Street, Hazleton, PA 18201, Joseph P. Correale
("Executive"), and Security of Pennsylvania Financial Corp. (the "Holding
Company"), a corporation organized under the laws of the State of Delaware which
is the holding company of the Association.
WHEREAS, the Association recognizes the substantial contribution
Executive has made to the Association and wishes to protect Executive's position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the
Association.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this Security Savings Association of Hazleton Change in
Control Agreement (the "Agreement") shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the Association ("Board") may extend the Agreement for an
additional year. The Board will review the Agreement and Executive's performance
annually for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
(a) If a Change in Control (as defined herein) has occurred or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in Section 3 upon his subsequent termination
of employment at any time during the term of this Agreement due to (i)
Executive's dismissal, or (ii) Executive's voluntary resignation following any
demotion, loss of title, office or significant authority or responsibility,
reduction in the annual compensation or material reduction in benefits or
relocation of his principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control, unless such termination is
because of his death or Termination for Cause (as defined herein).
<PAGE> 3
(b) For purposes of this Plan, a "Change in Control" of the Association
or Holding Company shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Association or the Holding Company within the meaning of the Home
Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, or the
Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS")
(or its predecessor agency), as in effect on the date hereof (provided, that in
applying the definition of change in control as set forth under the Rules and
Regulations of the OTS, the Board shall substitute its judgment for that of the
OTS); or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Association or the Holding Company representing 25% or more of
the Association's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Association purchased by the Holding Company in connection with the conversion
of the Association to the stock form and any voting securities purchased by any
employee benefit plan of the Association or the Holding Company, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Association or the Holding Company or similar transaction occurs in which the
Association or Holding Company is not the resulting entity; provided, however,
that such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory periods.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any 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, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the Board of Directors of the Association at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive's conduct justified a finding of
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
2
<PAGE> 4
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 4 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Association, the Company or any subsidiary or affiliate thereof, vest. At
the Date of Termination for Cause, such stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Association and the Holding Company shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, a sum equal to three (3) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Association or such lesser number of years in the event that
Executive shall have been employed by the Association for less than five years.
Such average annual compensation shall include Base Salary, commissions,
bonuses, contributions on Executive's behalf to any pension and/or profit
sharing plan, severance payments, retirement payments, directors or committee
fees, fringe benefits paid or to be paid to the Executive in any such year and
payment of any expense items without accountability or business purpose or that
do not meet the Internal Revenue Service requirements for deductibility by the
Association; provided however, that any payment under this provision and
subsection 3(b) below shall not exceed three (3) times the Executive's average
annual compensation. At the election of Executive, which election is to be made
prior to a Change in Control, such payment shall be made in a lump sum. In the
event that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of this
Agreement.
(b) Upon the occurrence of a Change in Control of the Association or
the Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Association shall cause to be continued life, medical
and disability coverage substantially identical to the coverage maintained by
the Association or Holding Company for Executive prior to his severance, except
to the extent such coverage may be changed in its application to all Association
or Holding Company employees on a nondiscriminatory basis. Such coverage and
payments shall cease upon the expiration of thirty-six (36) full calendar months
from the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the
3
<PAGE> 5
Code or any successor thereto, and in order to avoid such a result Termination
Benefits will be reduced, if necessary, to an amount (the "Non-Triggering
Amount"), the value of which is one dollar ($1.00) less than an amount equal to
three (3) times Executive's "base amount," as determined in accordance with said
Section 280G. The allocation of the reduction required hereby among the
Termination Benefits provided by the preceding paragraphs of this Section 3
shall be determined by Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Association or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the instance of Termination for Cause, shall not be
less than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event the Executive is terminated for reasons other than
Termination for Cause, the Association will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Association. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Association are not timely paid or provided by the
Association, such amounts and benefits shall be paid or provided by the Holding
Company.
4
<PAGE> 6
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Association and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Association or shall impose on the Association any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Association and their respective successors, heirs and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 2(c) hereinabove.
5
<PAGE> 7
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss.1818(e)(3) or (g)(1)), the Association's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
ss.1818(c)(4) or (g)(1)), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act, all obligations of the Association under this
contract shall terminate as of the date of default, but this paragraph shall not
affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to
the extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or her designee) at the time the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (or her designee) at the time the Director (or her designee)
approves a supervisory merger to resolve problems related to operation of the
Association or when the Association is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
6
<PAGE> 8
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Pennsylvania but only to
the extent not preempted by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Association's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement, other
than in the case of a Termination for Cause.
15. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Association (which payments are guaranteed by
the Holding Company pursuant to Section 5 hereof) if Executive is successful on
the merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
(a) The Association shall provide Executive (including his
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Pennsylvania law against all expenses and liabilities
7
<PAGE> 9
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the Association (whether or not he continues to be a
director or officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
17. SUCCESSOR TO THE ASSOCIATION
The Association shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this Agreement, in the same manner and to the same extent that the
Association would be required to perform if no such succession or assignment had
taken place.
8
<PAGE> 10
SIGNATURES
IN WITNESS WHEREOF, Security Savings Association of Hazleton and
Security of Pennsylvania Financial Corp. have caused this Agreement to be
executed by their duly authorized officers, and Executive has signed this
Agreement, on the 14th day of January, 1999.
ATTEST: SECURITY SAVINGS ASSOCIATION OF
HAZLETON
/s/ Nancy Latoff By: /s/ Richard Laubach
- ------------------------------------ --------------------------------
For the Entire Board of Directors
SEAL
ATTEST: SECURITY OF PENNSYLVANIA FINANCIAL
CORP.
(Guarantor)
/s/ Nancy Latoff By: /s/ Richard Laubach
- ------------------------------------ ---------------------------------
For the Entire Board of Directors
SEAL
WITNESS:
/s/ Nancy Latoff /s/ Joseph P. Correale
- ------------------------------------ ---------------------------------
Joseph P. Correale
9
<PAGE> 1
Exhibit 10.6
Change in Control Agreement between Nicoline Evans
and Security Savings Association of Hazleton
<PAGE> 2
Exhibit 10.6
Ms. Evans' Change in Control Agreement is the same as the Change in
Control Agreement in Exhibit 10.5, which is incorporated herein by reference,
except as to the name of the signatory, which is Nicoline Evans.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRANCTED FROM THE
FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<CIK> 0001069880
<NAME> SECURITY OF PENNSYLVANIA FINANCIAL CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<INT-BEARING-DEPOSITS> 26,760
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,016
<INVESTMENTS-CARRYING> 17,641
<INVESTMENTS-MARKET> 18,984
<LOANS> 72,356
<ALLOWANCE> 427
<TOTAL-ASSETS> 129,225
<DEPOSITS> 104,964
<SHORT-TERM> 1,261
<LIABILITIES-OTHER> 406
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 22,561
<TOTAL-LIABILITIES-AND-EQUITY> 129,225
<INTEREST-LOAN> 2,630
<INTEREST-INVEST> 657
<INTEREST-OTHER> 485
<INTEREST-TOTAL> 3,772
<INTEREST-DEPOSIT> 2,151
<INTEREST-EXPENSE> 2,151
<INTEREST-INCOME-NET> 1,621
<LOAN-LOSSES> 55
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,029
<INCOME-PRETAX> (408)
<INCOME-PRE-EXTRAORDINARY> (408)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (278)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,284
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 496
<CHARGE-OFFS> 52
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 427
<ALLOWANCE-DOMESTIC> 427
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
