NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF LAKE ARIEL BANCORP, INC.:
Notice is hereby given that the Annual Meeting of Shareholders
of Lake Ariel Bancorp, Inc. (the "Corporation") will be held at 11:00 a.m.,
prevailing time, on Tuesday, April 28, 1998, at The Waterfront Banquet and
Conference Center at Ehrhardt's, Hawley, Pennsylvania 18428, for the following
purposes:
1. To elect three Class 1 directors to serve for a three-year term and until
their successors are duly elected and qualified;
2. To ratify the selection of Parente, Randolph, Orlando, Carey & Associates,
Certified Public Accountants of Scranton, Pennsylvania as the independent
auditors of the Corporation for the fiscal year ending December 31, 1998;
and
3. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
Only those shareholders of record at the close of business, at 5:00 p.m.,
on Tuesday, March 17, 1998, will be entitled to notice of and to vote at the
Annual Meeting.
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1997, is being mailed with this notice.
You are urged to mark, sign, date and promptly return your proxy in the
enclosed envelope so that your shares may be voted in accordance with your
wishes and in order that the presence of a quorum may be assured. The prompt
return of your signed proxy, regardless of the number of shares you hold, will
aid the Corporation in reducing the expense of additional proxy solicitation.
The giving of such proxy does not affect your right to vote in person if you
attend the meeting.
By Order of the Board of Directors
Bruce D. Howe, President
March 26, 1998
<PAGE>
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 28, 1998
GENERAL
Introduction, Date, Place and Time of Meeting
This Proxy Statement is being furnished for the solicitation by the
Board of Directors of Lake Ariel Bancorp, Inc. (the "Corporation"), a
Pennsylvania business corporation, of proxies to be voted at the Annual Meeting
of Shareholders of the Corporation to be held at The Waterfront Banquet and
Conference Center at Ehrhardt's, Hawley, Pennsylvania 18428, on Tuesday, April
28, 1998, at 11:00 a.m., prevailing time, or at any adjournment or postponement
of the Annual Meeting.
The main office of the Corporation is located at LA Bank, N.A., Route
191, Lake Ariel, Pennsylvania 18436. The telephone number for the Corporation is
(717) 698-5695. All inquiries should be directed to Louis M. Martarano, Vice
President of the Corporation. This Proxy Statement and the enclosed form of
proxy (the "Proxy") are first being sent to shareholders of the Corporation on
March 26, 1998.
Solicitation
Shares represented by proxies on the accompanying Proxy, if properly
signed and returned, will be voted in accordance with the specifications made
thereon by the shareholders. Any Proxy not specifying to the contrary will be
voted for the election of the three nominees for Class 1 director named below,
and for the approval of Parente, Randolph, Orlando, Carey & Associates,
Certified Public Accountants, as the independent auditors for the fiscal year
ending December 31, 1998. Execution and return of the enclosed Proxy will not
affect a shareholder's right to attend the Annual Meeting and vote in person.
The cost of preparing, assembling, mailing and soliciting proxies will
be borne by the Corporation. In addition to the use of the mails, certain
directors, officers and employees of the Corporation intend to solicit proxies
personally, by telephone and by telefacsimile. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to forward proxy
solicitation material to the beneficial owners of stock held of record by these
persons, and, upon request therefor, the Corporation will reimburse them for
their reasonable forwarding expenses.
Right of Revocation
A shareholder who returns a Proxy may revoke it at any time before it
is voted by: (1) delivering written notice of revocation to Louis M. Martarano,
Vice President and Assistant Secretary, Lake Ariel Bancorp, Inc., Post Office
Box 67, Route 191, Lake Ariel, Pennsylvania 18436, telephone: (717) 698-5695;
(2) executing a later-dated Proxy and giving written notice thereof to the
Assistant Secretary of the Corporation or (3) voting in person after given
written notice to the Assistant Secretary of the Corporation.
<PAGE>
Voting Securities, Record Date and Quorum
At the close of business on March 17, 1998, the Corporation had
outstanding 4,562,148 shares of common stock, $.21 par value per share. No
shares of preferred stock, $1.25 par value per share, were issued and
outstanding. A majority of the outstanding shares of the common stock will
constitute a quorum at the Annual Meeting.
Only holders of common stock of record at the close of business on
March 17, 1998, will be entitled to notice of and to vote at the Annual Meeting.
Cumulative voting rights do not exist with respect to the election of directors.
On all matters to come before the Annual Meeting, each share of common stock is
entitled to one vote.
Under Pennsylvania law, the presence of a quorum is required for each
matter to be acted upon at the Annual Meeting. The presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes which
all shareholders are entitled to cast shall constitute a quorum for the
transaction of business at the Annual Meeting. Votes withheld and abstentions
will be counted in determining the presence of a quorum for the particular
matter. Broker non-votes will not be counted in determining the presence of a
quorum for the particular matter as to which the broker withheld authority.
Assuming the presence of a quorum, the three nominees for director
receiving the highest number of votes cast by shareholders entitled to vote for
the election of directors shall be elected. Votes withheld from a nominee and
broker non-votes will not be cast for such nominee.
Assuming the presence of a quorum, the affirmative vote of a majority
of all votes cast by shareholders is required for the ratification of the
selection of independent auditors. Abstentions and broker non-votes are not
votes cast and therefore do not count either for or against such respective
approval and ratification. Abstentions and broker non-votes, however, have the
practical effect of reducing the number of affirmative votes required to achieve
a majority for each such matter by reducing the total number of shares voted
from which the required majority is calculated.
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
Principal Owners
The following table sets forth, as of March 17, 1998, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than five percent (5%) of the
Corporation's outstanding Common Stock, the number of shares beneficially owned
by such person and the percentage of the Corporation's outstanding Common Stock
so owned.
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned (1) Beneficially Owned
Bruce D. Howe(2) ... 376,428 8.3%
R.D. #6, Box 6332
Lake Ariel, PA 18436
---
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission
("SEC") and may include securities owned by or for the individual's spouse
and minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after March
17, 1998. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Of the 376,428 shares beneficially owned by Bruce D. Howe, 244,716 are
owned by him individually; 127,902 are owned jointly with his spouse; and
3,810 are owned individually by his spouse.
<PAGE>
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth as of March 17, 1998, the amount and
percentage of the Common Stock of the Corporation beneficially owned by each
director, each nominee, each executive officer, and all officers and directors
of the Corporation as a group.
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership(1)(2) of Class
Donald E. Chapman(3)(4) ........ 125,589 2.8%
Peter O. Clauss(5)(6) .......... 53,999 1.2%
Arthur M. Davis(15)(16) ........ 75,920 1.7%
Joseph J. Earyes(8) ............ 40,427 0.9%
William C. Gumble(3)(9) ........ 113,702 2.5%
Paul D. Horger(3)(7) ........... 10,044 0.2%
Bruce D. Howe(5)(10) ........... 376,428 8.3%
Louis M. Martarano(11) ......... 81,938 1.8%
John G. Martines(12)(13) ....... 199,984 4.2%
Harry F. Schoenagel(12)(14) .... 87,052 1.9%
All Officers and Directors
as a Group (7 directors,
5 officers, 9 persons in total) 1,165,083 24.3%
- ----
(1) See footnote (1) under the caption entitled "Principal Owners" for the
definition of "beneficial ownership."
(2) Information furnished by the directors and the Corporation. (3) Nominees
for Class 1 Director Whose Term Will Expire in 2001 and current Class 1
Directors Whose Term Expires in 1998.
(4) Of the 125,589 shares beneficially owned by Donald E. Chapman, 36,288 are
owned by him individually; 79,594 are owned jointly with his spouse; 5,782
are held individually by his spouse; 2,524 are held jointly with his son;
and 1,401 shares are held individually by his son who has the same home.
(5) A Class 2 Director Whose Term Expires in 2000.
(6) Of the 53,999 shares beneficially owned by Peter O. Clauss, 19,231 are held
by him individually; 27,188 are owned jointly with his wife; and 7,580 are
owned individually by his spouse.
(7) All shares are held individually.
(8) Of the 40,427 shares beneficially owned by Joseph J. Earyes, 13,117 are
owned by him individually; 3,376 are held jointly with his spouse; and
23,934 shares may be acquired at any time by the exercise of stock options.
(9) All shares are held individually.
(10) See footnote (2) under the caption entitled "Principal Owners" for the
definition of "beneficial ownership."
(11) Of the 81,938 shares beneficially owned by Louis M. Martarano, 2,482 are
owned by him individually; 20,090 are owned jointly with his wife; 1,751
shares held as custodian for his two sons; 237 shares as custodian for his
daughter; and 57,378 shares may be acquired at any time by the exercise of
stock options.
(12) A Class 3 Director Whose Term Expires in 1999.
(13) Of the 199,984 shares beneficially owned by John G. Martines, 16,284 are
owned by him individually; 23,600 are held jointly with his spouse; 13,430
are held individually by his spouse; and 146,670 shares may be acquired at
any time by the exercise of stock options.
(14) Of the 87,052 shares beneficially owned by Harry F. Schoenagel, 33,681 are
owned by him individually; 6,614 are owned jointly with his spouse; and
46,757 are owned by his spouse individually.
(15) A Class 1 Director whose term expires in 1998.
(16) Of the 75,920 shares beneficially owned by Arthur M. Davis, 33,524 are
owned by him individually; 37,414 are owned jointly with his wife; 1,756
are owned by his spouse; and 3,226 are owned by Lake Ariel Hardware and
Supply Co., Inc., of which Mr. Davis is President. Section 16(a) Beneficial
Ownership Reporting Compliance
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who own more than ten percent
of a registered class of the Corporation's equity securities (in this case the
Corporation's Common Stock), to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Corporation with
copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Corporation believes that, during the period
January 1, 1997 through December 31, 1997, all filing requirements applicable to
its officers, directors and greater than ten-percent shareholders were complied
with.
ELECTION OF DIRECTORS
(ITEM 1)
The Corporation has a classified Board of Directors with staggered
three-year terms of office. In a classified board, the directors are generally
divided into separate classes of equal number. The terms of the separate classes
expire in successive years. Thus, at each Annual Meeting of Shareholders
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term of three years, so that the term of office of
one class of directors shall expire in each year.
In addition, there is no cumulative voting for the election of
directors. Each share of common stock is entitled to cast only one vote for each
nominee. For example, if a shareholder owns 100 shares of common stock, he or
she may cast up to 100 votes for each of the nominees for director in the class
to be elected.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the election of the three nominees for Class 1 Director
named below. If any nominee should become unavailable for any reason, proxies
will be voted in favor of a substitute nominee as the Board of Directors of the
Corporation shall determine. The Board of Directors has no reason to believe the
nominees named will be unable to serve if elected. Any vacancy occurring on the
Board of Directors of the Corporation for any reason may be filled by a majority
of the directors then in office until the expiration of the term of vacancy.
Election of a nominee to the office of director will require an affirmative vote
of a majority of the shares of Common Stock represented at the Annual Meeting.
<PAGE>
INFORMATION AS TO NOMINEES,
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information with respect to the
nominees and the directors whose terms of office expire in 1998, 1999 and 2000,
respectively.
Principal Occupation Director Since
Name Age for Past Five Years Corporation/Bank
Class 1 Directors Whose Term Expires In 1998 And
Nominees For Class 1 Director Whose Term Expires in 2001
Donald E. Chapman 61 Self-employed insurance broker and 1983/1972
(1)(2)(4)(6)(7) real estate developer
Paul D. Horger 60 Partner in the Law Firm of Oliver, 1998/1997
(3)(5)(7) Price & Rhodes
William C. Gumble 60 Retired Attorney-at-law 1985/1985
(3)(4)(5)(6)(7)
Class 1 Director Whose Term Expires In 1998
Arthur M. Davis 70 President of Lake Ariel Hardware and 1983/1969
(3)(5)(8) Supply Co., Inc.
Class 3 Directors Whose Term Expires In 1999
John G. Martines 51 President of the Bank and Chief 1983/1979
(1)(3)(5)(7) Executive Officer of the Corporation
Harry F. Schoenagel 62 Partner of Schoenagel and Schoenagel 1985/1985
(1)(2)(6)(7) (general civil engineering and surveying)
Class 2 Directors Whose Term Expires In 2000
Bruce D. Howe 66 President of John T. Howe, Inc. 1983/1977
(3)(4)(5) (a company that operates local fuel and heating oil
companies, a motel and an interstate truck
stop) and President of Howe's Twin Rocks,
Inc. (a local restaurant).
Peter O. Clauss 68 Retired; Former President of C & D 1988/1988
(1)(2) Builders Inc. (construction of residential
and light commercial buildings)
- -------------------------
(1) Member of the Loan Review Committee of the Bank. This committee reviews
past due and classified loans and actions to be taken. Moreover, this
committee determines the adequacy of the loan loss reserve and the amount
to be charged for the provision of loan losses. The committee met four (4)
times in 1997.
(2) Member of the Audit Committee of the Bank. This committee reviews the
reports of the auditors and the results of examinations by the Federal
Reserve System and Comptroller of the Currency. This committee makes
recommendations to the Board based upon a review of the reports and
regulatory examinations. This committee met four (4) times in 1997.
<PAGE>
(3) Member of the Asset/Liability Management Committee of the Bank. This
committee reviews quarterly the asset/liability management report and the
investment portfolio. In addition, this committee reviews strategies for
GAP analysis, liquidity, tax position and various profitability ratios.
Moreover, this committee determines product pricing and development, and
budgeting. This committee met four (4) times in 1997.
(4) Member of the Executive Committee of the Bank. This committee reviews
annually the profit sharing and benefit plans of the Bank as well as
salaries and promotions. The committee makes recommendations to the Board
of Directors of the Bank on changes in the employee benefit plans,
compensation, promotions and the contribution to the profit sharing plan.
This committee also reviews non-personnel matters such as bank expansion
and profitability. This committee met two (2) in 1997.
(5) Member of the Loan Committee of the Bank. This committee meets to consider
and recommend approval of loans in the principal amount of $100,000 or
more. Directors receive no additional compensation for attendance at
meetings of this committee. This committee met twenty-four (24) times in
1997.
(6) Member of Benefit/Compensation Committee of the Bank. This committee meets
to perform on annual review of executive salary increases and executive
stock option grants. This committee met two (2) times in 1997.
(7) Member of 401(k) Committee of the Bank. This committee meets to review
semi-annual investment results of plan funds, makes recommendations and
changes to available investment options, reviews IRS and DOL legal
participation, discrimination and other issues, and recommends annual Bank
contributions to plan. This committee met two (2) times in 1997.
(8) Mr. Davis has reached the mandatory retirement age and will automatically
no longer be a member of the Board of Directors as of April 27, 1998.
During 1997, the Board of Directors of the Corporation held six (6)
meetings. Directors received no additional remuneration for attendance at
meetings of the Board of Directors of the Corporation.
Each of the Directors attended at least 75% of the combined total
number of meetings of the Corporation's and Bank's Board of Directors and of the
committees on which they serve.
The Board of Directors of the Corporation has at present no standing
committees. The Corporation does not have a nominating committee. A shareholder
who desires to propose an individual for consideration by the Board of Directors
as a nominee for director should submit a proposal in writing to the Secretary
of the Corporation in accordance with Section 202 of the Corporation's By-laws.
On January 3, 1997, Mr. Martines voluntarily entered into a consent
decree with respect to a complaint filed by the SEC in connection with the
purchase by Mr. Martines of securities of First Eastern Corporation ("First
Eastern") prior to the announcement by PNC Bank Corp. ("PNC") that PNC would
purchase First Eastern. The complaint alleged that Mr. Martines purchased such
securities based upon information given to him by a director of First Eastern.
In order to avoid the costs of pursuing a successful defense and upon advice of
his counsel, Mr. Martines agreed to enter into such consent decree without
admitting or denying any of the allegations in the SEC's complaint.
The Board of Directors considered this matter and concluded that this
action by Mr. Martines had no effect on his ability to successfully manage the
Corporation and the Bank and had no detrimental effect on the short-term and
long-term prospects of the Corporation and the Bank.
Executive Compensation
The following table sets forth the total compensation for services in
all capacities paid by the Corporation and the Bank during 1997, 1996, and 1995,
to the Corporation's Chief Executive Officer and the Bank's President, the
Corporation's Vice President and the Bank's Executive Vice President and Chief
Operating Officer, the Corporation's Vice President and the Bank's Executive
Vice President and Chief Financial Officer. No other executive officer's annual
salary and bonus exceeded $100,000 for the years presented and therefore is not
required to be presented. <PAGE> <TABLE> <CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Securities
Other Annual Underlying All Other
Name and Fiscal Salary Bonus Compensation Options/ Compensa
Principal Position Year ($) ($) ($) SARs(#) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John G. Martines (President of 1997 168,461 78,312 72,587 -- 25,963
the Bank and Chief
Executive 1996 157,972 44,000 25,564 -- 22,612
Officer of
the Corporation) 1995 138,007 35,000 26,108 88,200 19,498
Louis M. Martarano (Executive 1997 112,249 34,625 21,253 -- 23,189
Vice President and
Chief Operating 1996 109,056 20,000 4,260 -- 19,602
Officer of
the Bank and Vice 1995 97,154 13,500 8,796 33,075 15,013
President
of the Corporation)
Joseph J. Earyes (Executive Vice 1997 93,903 31,250 15,205 -- 20,569
President
and Chief Financial 1996 87,521 16,000 6,147 -- 16,225
Officer of
the Bank and Vice 1995 70,207 6,500 4,345 22,050(2) 11,398
President
and Treasurer of the
Corporation)
<FN>
(1) Includes $4,606 paid on behalf of Mr. Martines for periodic club dues;
$12,000 paid to Mr. Martines for directors' fees; $3,986 paid pursuant to
the Salary Continuation Plan; $48,447 paid pursuant to the Supplemental
Executive Retirement Plan and $3,548 representing the personal use value of
a company-owned automobile.
(2) For further information on these stock options, see "Stock Option Plan"
below.
(3) Of the $25,963 paid to Mr. Martines in 1997 as All Other Compensation,
$3,658 and $4,755 was for life and medical insurance premiums,
respectively; and $17,550 was accrued by the Corporation for the benefit of
Mr. Martines pursuant to a profit-sharing retirement plan.
(4) Includes $6,825 paid on behalf of Mr. Martines for periodic club dues;
$12,000 paid to Mr. Martines for directors' fees; $3,440 paid pursuant to
the Salary Continuation Plan; and $3,299 representing the personal use
value of a company-owned automobile.
(5) Of the $22,612 paid to Mr. Martines in 1996 as All Other Compensation,
$2,632 and $3,230 was for life and medical insurance premiums,
respectively; and $16,750 was accrued by the Corporation for the benefit of
Mr. Martines pursuant to a profit-sharing/401(k) plan.
(6) Includes $6,148 paid on behalf of Mr. Martines for initial and periodic
club dues; $12,000 paid to Mr. Martines for directors' fees; $4,791 paid
pursuant to the Salary Continuation Plan; and $3,169 repre senting the
personal use value of a company-owned automobile.
(7) Of the $19,498 paid to Mr. Martines in 1995 as All Other Compensation,
$2,098 and $3,888 was for life and medical insurance premiums,
respectively; and $13,512 was accrued by the Corporation for the benefit of
Mr. Martines pursuant to a profit-sharing/401(k) plan.
(8) Includes $1,640 paid on behalf of Mr. Martarano for periodic club dues;
$17,171 paid pursuant to the Supplemental Executive Retirement Plan; and
$2,442 representing the personal use value of a company- owned automobile.
(9) Of the $23,189 paid to Mr. Martarano in 1997 as All Other Compensation,
$1,987 and $5,046 was for life and medical insurance premiums,
respectively; and $16,156 was accrued by the Corporation for the benefit of
Mr. Martarano pursuant to a profit-sharing retirement plan.
(10) Includes $1,852 paid on behalf of Mr. Martarano for periodic club dues and
$2,408 representing the personal use value of a company-owned automobile.
(11) Of the $19,602 paid to Mr. Martarano in 1996 as All Other Compensation,
$1,448 and $3,886 was for life and medical insurance premiums,
respectively; and $14,268 was accrued by the Corporation for the benefit of
Mr. Martarano pursuant to a profit-sharing/401(k) plan.
<PAGE>
(12) Includes $6,500 paid on behalf of Mr. Martarano for initial and periodic
club dues and $2,296 representing the personal use value of a company-owned
automobile.
(13) Of the $15,013 paid to Mr. Martarano in 1995 as All Other Compensation,
$1,022 and $4,281 was for life and medical insurance premiums,
respectively; and $9,710 was accrued by the Corporation for the benefit of
Mr. Martarano pursuant to a profit-sharing/401(k) plan.
(14) Includes $4,200 paid on behalf of Mr. Earyes for periodic club dues, $9,100
paid pursuant to the Supplemental Executive Retirement Plan; and $1,905
representing the personal use value of a company- owned automobile.
(15) Of the $20,569 paid to Mr. Earyes in 1997 as All Other Compensation, $1,757
and $5,046 was for life and medical insurance premiums, respectively; and
$13,766 was accrued by the Corporation for the benefit of Mr. Earyes
pursuant to a profit-sharing/401(k) plan.
(16) Includes $4,317 paid on behalf of Mr. Earyes for periodic club dues and
$1,830 representing the personal use value of a company-owned automobile.
(17) Of the $16,225 paid to Mr. Earyes in 1996 as All Other Compensation, $747
and $4,036 was for life and medical insurance premiums, respectively; and
$11,442 was accrued by the Corporation for the benefit of Mr. Earyes
pursuant to a profit-sharing/401(k) plan.
(18) Includes $3,580 paid on behalf of Mr. Earyes for periodic club dues and
$765 representing the personal use value of a company-owned automobile.
(19) Of the $11,398 paid to Mr. Earyes in 1995 as All Other Compensation, $406
and $4,280 was for life and medical insurance premiums, respectively; and
$6,712 was accrued by the Corporation for the benefit of Mr. Earyes
pursuant to a profit-sharing/401(k) plan.
</FN>
</TABLE>
Report of the Benefit/Compensation Committee on Executive Compensation
The Benefit/Compensation Committee ("Committee"), as directed by the
Corporation's Board of Directors, is responsible for all matters pertaining to
executive compensation. The Committee is entirely composed of directors of the
Corporation. The members of the Committee have compiled the following report and
presented the same to the entire Board of Directors for their approval.
Through the Bank, defined compensation policies have been implemented
to properly analyze, describe and evaluate various positions in the Corporation
and the Bank for the determination of their relative worth. This basis is used
to establish a salary structure for executive officers and senior management
that is both internally equitable and externally competitive. The Committee
takes into consideration the following ten factors in making recommendations to
the Board of Directors, on an annual basis, as to base salary for the Chief
Executive Officer and other members of senior management:
1. Return on assets
2. Return on equity
3. Earnings
4. Growth in deposits
5. Current economic climate
6. Familiarity with market area
7. Length of service, experience and age
8. Comparison with peer and core groups -- currently the committee relies
upon an independent study to determine these comparisons and itis
contemplated that these studies will continue.
9. Number of branches
10. Any other factors deemed by the Committee to be beneficial to the
Corporation.
No set numerical figure has been fixed to any of the factors so as to
allow the greatest flexibility to adjust to changing economic conditions.
The Committee meets without the Chief Executive Officer's presence to
evaluate his performance and reports on the evaluation to the outside Directors
of the Board of Directors.
<PAGE>
The Board of Directors in January, 1997 approved an incentive bonus
plan for the Chief Executive Officer and other members of senior management.
This plan, which includes at-risk compensation payable in cash and stock
options, was approved and recommended by the Benefit/Compensation Committee.
At-Risk compensation is determined on an annual basis by analyzing specific
goals that are established at the beginning of the year. The at-risk
compensation for the Chief Executive Officer and other members of senior
management is based on the performance of the Corporation and its success in
attaining specific strategic goals. The at-risk compensation plan includes both
short-term and long-term incentives. The short-term incentives are accomplished
through potential payment of the annual cash bonus. Equity ownership,
representing long-term incentive compensation, is achieved through the stock
options.
The bank must maintain a current CAMELS rating of "2" before any
at-risk compensation is considered. Performance targets are established for
certain strategic performance factors. The targets integrate commonly-accepted
industry standards with specific goals established for LA Bank. In addition, the
strategic performance factors are weighted to reflect the relative importance of
each, as established by the Board of Directors.
The potential payout under the Incentive Plan is based upon the
combined actual performance against the established performance targets for the
Bank.
Submitted by the members of the Benefit/Compensation
Committee:
Harry F. Schoenagel, William C. Gumble, and
Donald E. Chapman
Directors' Compensation
During 1997, the Bank's Board of Directors met on a monthly basis;
Directors received $1,000 per month and were allowed one paid absence per year;
and Bruce D. Howe, the Chairman, received $500 in addition to his monthly
Directors' fee of $1,000 or $1,500 per month in the aggregate. Mr. Howe was also
allowed one paid absence per year from a meeting of the Bank's Board of
Directors. During 1997, the Board of Directors of the Corporation held six (6)
meetings. Directors received no remuneration for attendance at meetings of the
Board of Directors of the Corporation in excess of remuneration each of them
received for attendance at meetings of the Board of Directors of the Bank.
Salary Continuation Plan for Directors
The Bank has entered into an agreement with its directors to establish
a non-qualified salary continuation plan (the "Salary Continuation Plan"). If
such director continues to serve as a director of the Corporation until he
attains sixty-five (65) years of age, the Corporation agrees to pay him a
guaranteed annual payment in each of ten years on the first day of the month
following such director's 65th birthday. Each director's guaranteed annual
payment is based upon the future value of the life insurance purchased with the
funds which would otherwise be used to pay the directors' compensation. If such
director attains sixty-five (65) years of age, but dies before receiving ten
annual payments, then the Corporation will continue to make these payments to
such director's designated beneficiary or to the representative of his estate.
In the event that such director dies while serving as a director but prior to
the attainment of sixty-five (65) years of age, then the Corporation shall remit
a guaranteed annual payment for a period of ten years to such director's
designated beneficiary or to the representative of his estate. The Bank has
obtained life insurance (designating the Bank as the beneficiary) on each
participating director in an amount which will cover the Bank's obligations
under the Salary Continuation Plan. This plan is based upon certain actuarial
assumptions in seeking funding through life insurance policies. In 1997, the
Bank accrued $81,111 as an expense for the Salary Continuation Plan, of which
approximately $3,986 was allocated to Mr. Martines.
The salary continuation plan for Messrs. Martines, Howe, Chapman and
Davis was established in July, 1987; for Messrs. Gumble and Schoenagel in July,
1990; and for Mr. Clauss, in July, 1993.
<PAGE>
Employment Agreement with John G. Martines
The Corporation and the Bank entered into a 5-year employment agreement
with John G. Martines, the Chief Executive Officer of the Corporation and the
President and Chief Executive Officer of the Bank. Mr. Martines' annual base
salary at September 1, 1993, the date of commencement of the agreement, was
$125,000. His salary will increase each year in accordance with a merit review
by the Board of Directors. Under the agreement, his salary is increased each
year by not less than the minimum average increase of other senior executive
personnel. Mr. Martines receives the employee fringe benefits that are received
by all personnel of the Bank as well as standard perquisites that are given to
officers of comparable financial institutions in similar capacities. Mr.
Martines has agreed to serve as the Chief Executive Officer of the Corporation
without any additional compensation. At the end of the first year of the term of
the agreement, the term is automatically extended for one additional year;
therefore, there is a constant 5-year term in effect on the first day of
September of each year.
Mr. Martines may unilaterally terminate his employment with the
Corporation and the Bank if: (1) his health should become impaired to an extent
that it makes continued performance of his duties hazardous to his physical or
mental health or his life; (2) without his consent, any assignment of duties or
limitation of powers is made that is not contemplated by the agreement; (3) he
is removed or is not re-elected to any of the positions that he holds currently
(except if terminated for cause); (4) a reduction in the rate of compensation is
made; (5) without his consent, the current fringe benefits and perquisites are
modified or terminated; and (6) there is a "change in control."
For purposes of the agreement, a "change in control" means: (1) the
acquisition of the beneficial ownership of at least twenty-five percent (25%) of
the Corporation's voting securities or all or substantially all of the assets of
the Corporation or the Bank or both by a single person or entity or a group of
affiliated persons or entities; (2) the merger, consolidation or combination of
the Corporation or the Bank or both with an unaffiliated corporation in which
the directors of the Corporation or the Bank or both, immediately prior to such
merger, consolidation or combination constitute less than a majority of the
board of directors of the surviving, new or combined entity; or (3) during any
period of two consecutive years during the term of the agreement, persons who at
the beginning of such period constitute the Board of Directors of the
Corporation cease for any reason to constitute at least a majority thereof. The
date of a change in control shall mean the earlier of: (1) the first date on
which a person, entity, or group of affiliated persons or entities, acquire the
beneficial ownership of twenty-five percent (25%) or more of the Corporation's
voting securities; (2) the date of the transfer of all or substantially all of
the Corporation's or the Bank's assets; (3) the date on which a merger,
consolidation or combination is consummated; or (4) the date on which persons
who formerly constituted a majority of the Board of Directors of the Corporation
ceased to be a majority.
Upon termination of employment by Mr. Martines for the above reasons,
the Bank shall pay to him, no later than 30 days after the date of termination
and for a period of three years, annual compensation prorated into monthly
payments equal to his annual base salary on the date of termination or on the
date six months prior to the date of termination, whichever is greater. In the
event of termination as a result of a change in control, Mr. Martines may, at
his option, elect to receive in one lump sum the aggregate present value of the
above termination payments. The present value shall be determined by the federal
discount rate published under Section 1274(d) of the Internal Revenue Code of
1986, as amended, then in effect, and compounded semi-annually.
Employment Agreement with Louis M. Martarano
The Corporation and the Bank entered into a 5-year employment agreement
with Louis M. Martarano, the Vice President and Assistant Secretary of the
Corporation and the Executive Vice President of the Bank. Mr. Martarano's annual
base salary at September 1, 1993, the date of commencement of the agreement, was
$87,500. His salary will increase each year in accordance with the terms of the
agreement. Under the agreement, his salary is increased each year by not less
than the minimum average increase of other senior executive personnel. Mr.
Martarano receives the employee fringe benefits that are received by all
personnel of the Bank, as well as standard perquisites that are given to
officers of comparable financial institutions in similar capacities. Mr.
Martarano has agreed to serve as Vice President and Assistant Secretary of the
Corporation without any additional compensation. At the end of the first year of
the term of the agreement, the term is automatically extended for one additional
year; therefore, there is a constant 5-year term in effect on the first day of
September of each year. <PAGE>
The agreement with Mr. Martarano has the same terms and conditions as
described above, with respect to the agreement with Mr. Martines relating to
voluntary termination by Mr. Martarano, to a change in control of the
Corporation and to termination payments.
Supplemental Executive Retirement Plan
General. The Bank entered into a supplemental executive retirement plan
("SERP") with each of the following Bank officers: John G. Martines, the
President and Chief Executive Officer, Louis M. Martarano, the Executive Vice
President and Chief Operating Officer, and Joseph J. Earyes, the Executive Vice
President and Chief Financial Officer. The purpose of the SERP is to encourage
these key executives to continue their employment with the Bank and to provide a
salary continuation benefit upon their termination of employment from the Bank.
Upon reaching the age of 62 years ("Normal Retirement Age"), these executives
may retire from employment with the Bank and receive an annual benefit payable
in twelve equal monthly installments for a period of 180 months (15 years). If
an executive dies prior to the expiration of the 180-month, then these payments
are paid to his designated beneficiary or his estate. The annual benefit for Mr.
Martines will be $184,000; for Mr. Martarano will be $105,000; and for Mr.
Earyes will be $103,000.
The Bank invested in insurance policies on the lives of each of these
executives in order to fund its obligation under the SERP. The Bank is the owner
of these policies and is the designated beneficiary for each policy. These
policies are recorded as an asset of the Bank. In 1997, the Bank accrued $75,000
as an expense to record its accumulated accrued obligations under the SERP.
Termination Benefits. If an executive terminates his employment with
the Bank prior to Normal Retirement Age, he or his estate, as the case may be,
is entitled to an amount of money based upon certain actuarial assumptions at
the time of such termination. The following table illustrates the termination
payments to an executive or his estate, as the case may be, upon termination of
employment with the Bank prior to Normal Retirement Age:
Reason For Termination Type of Payment(s)
Disability Lump Sum Payment
Change of Control 12 equal monthly payments for 180 months
Death 12 equal monthly payments for 180 months to the
executive's designated
beneficiary or his estate
Prohibition on Payments. No payments shall be made to an executive
under the SERP, if, without the prior written consent of the Bank, the executive
becomes involved, in any capacity, in any enterprise conducted in a 25-mile
radius of Lake Ariel or Scranton, Pennsylvania, or both, which may be deemed by
the Bank to be competitive with any business carried on by the Bank as of the
date of termination of employment or the Normal Retirement Age of such
executive, except in the event of a change of control.
1997 Stock Option Plan
There were no stock option grants pursuant to the 1997 Stock Option
Plan in 1997.
1994 Stock Option Plan
The Option Plan is intended to secure for the Corporation and its
shareholders the benefits arising from share ownership by those officers and key
employees of the Corporation and the Bank who will be responsible for the
Corporation's future growth and continued success. The following table presents
the grants that were made in 1995 and 1994 to the persons so indicated, which
represents all of the options approved under the plan.
<PAGE>
<TABLE>
<CAPTION>
STOCK OPTION GRANTS
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Apprecia-
Individual Grants(1) tion for Option Term(3)
Number of Percentage of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (2) Fiscal Year ($/Sh) (2) Date 5.0%($) 10.0%($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John G. Martines 88,200 62.0% $6.57 August 8, 364,266 923,454
(President of LA (Granted- 2005
Bank and Chief August 8,1995)
Executive Officer
of the Company) 55,125 71.0% $6.86 August 7, 237,589 602,516
(Granted- 2004
August 7, 1994)
Louis M 33,075 23.0% $6.57 August 8, 136,600 346,295
Martarano (Granted- 2005
(Executive Vice August 8, 1995)
President and Chief
Operating Officer 22,050 29.0% $6.86 August 7, 95,036 241,007
of LA Bank and (Granted- 2004
Vice President August 7, 1994)
of the Company)
Joseph J. Earyes, CPA 22,050 15.0% $6.57 August 8, 91,067 230,864
(Executive Vice (Granted- 2005
President and August 8, 1995)
Chief Financial
Officer of LA
Bank and Vice
President and
Treasurer of the
Company)
- ----------------------------
<FN>
(1) No options have been exercised by Messrs. Martines, Martarano, and Earyes
as of March 17, 1998.
(2) All outstanding options are adjusted to reflect the 5% dividend payable in
Common Stock on October 1, 1996 and 1997, and the two-for-one stock split
effective November 10, 1997.
(3) All amounts are calculated by multiplying the difference in the assumed
stock price appreciation and base price by the number of securities
underlying the options granted.
</FN>
</TABLE>
<PAGE>
Stock Performance Graph and Table
The following graph and table compare the cumulative total shareholder
return on the Corporation's Common Stock during the period December 31, 1992,
through and including December 31, 1997, with (i) the cumulative total return on
the SNL Securities Corporate Performance Index (1) for 45 publicly-traded banks
with less than $500 million in total assets in the Middle Atlantic area (2), and
(ii) the cumulative total return for all United States stocks traded on the
NASDAQ Stock Market. The comparison assumes $100 was invested on December 31,
1992, in the Corporation's Common Stock and in each of the below indices and
assumes further the reinvestment of dividends into the applicable securities.
The shareholder return shown on the graph and table below is not necessarily
indicative of future performance.
Lake Ariel Bancorp, Inc.
Total Return Performance
[GRAPH]
Period Ended
Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
SNL <$500M Bank Index 100.00 125.77 133.45 166.36 208.91 356.94
Nasdaq Total Return 100.00 114.80 112.21 158.70 195.19 239.53
Lake Ariel Bancorp, Inc. 100.00 129.28 158.87 142.55 244.25 394.89
- -----------------------
(1) SNL Securities is a research and publishing firm specializing in the
collection and dissemination of data on the banking, thrift and financial
services industries. (2) The Middle Atlantic area comprises the states of
Delaware, Pennsylvania, Maryland, New Jersey, New York, the District of Columbia
and Puerto Rico.
Certain Relationships and Related Transactions
Paul D. Horger is a current Class 1 director and nominee for Class 1
director. Mr. Horger is a partner in the law firm of Oliver, Price & Rhodes of
Scranton, Pennsylvania. During 1997, the Bank engaged Oliver, Price & Rhodes to
represent it on various legal matters. In addition, customers of the Bank paid
fees to Oliver, Price & Rhodes in connection with commercial loan transactions
and mortgage foreclosures involving the Bank. In 1997, Oliver, Price & Rhodes
received $123,952.22 in fees on such matters involving the Bank. The Corporation
and the Bank intend, during 1998, to continue to engage Oliver, Price & Rhodes
in such legal matters as they arise. <PAGE>
Except as described above, there have been no material transactions
since January 1, 1997, nor are any such transactions currently proposed, to
which the Corporation or the Bank was or is to be a party and in which any
director or executive officer of the Corporation, or any beneficial owner of
more than 5% of the Common Stock of the Corporation (or any associate thereof,
respectively), had or will have a material interest. The Corporation and the
Bank have had and intend to continue to have banking and financial transactions
in the ordinary course of business with directors and executive officers of the
Corporation and the Bank and their respective associates on comparable terms and
with similar interest rates as those prevailing from time to time for other
non-affiliated customers of the Corporation and the Bank. Total loans
outstanding from the Corporation and the Bank, at December 31, 1997, to the
Corporation's and the Bank's officers and directors as a group and members of
their immediate families and companies in which they had an ownership interest
of 10% or more was $996,000 million or 2.8% of the Bank's total equity capital
accounts. The largest amount of indebtedness outstanding at any time during
fiscal year 1997 to the above identified group was $1.2 million or 3.4% of the
Bank's total equity capital accounts. Such loans do not involve more than the
normal risk of collectibility nor do they present other unfavorable features.
Principal Officers of the Corporation
The following table sets forth selected information about the principal
officers of the Corporation, each of whom is selected by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors:
Bank
Held Employee Number of Shares Age as of
Name Since Since Beneficially March 17,
Owned(1) 1998
- -------------------------------------------------------------------------------
Bruce D. Howe, President 1983 (2) 376,428 66
John G. Martines, Chief 1983 (3) 199,984 51
Executive Officer
Donald E. Chapman, Secretary 1983 (2) 125,589 61
Louis M. Martarano, Vice 1989 (3) 81,938 47
President and Assistant Secretary
Joseph J. Earyes, Vice President 1995 (3) 40,427 41
and Treasurer
- -------------------------
(1) See notes under the caption "Beneficial Ownership by Officers, Directors
and Nominees" for shareholdings of these officers.
(2) Messrs. Howe and Chapman are not employees of the Corporation. (3) Messrs.
Martines, Martarano, and Earyes are full-time salaried employees of
the Bank.
<PAGE>
Principal Officers of the Bank
The following table sets forth selected information about the principal
officers of the Bank, each of whom is elected by the Board of Directors of the
Bank and each of whom holds office at the discretion of the Board of Directors
of the Bank: <TABLE> <CAPTION>
Bank Number Age as of
Held Employee of Shares March 17,
Name Office/Position with Bank Since Since Owned 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bruce D. Howe Chairman of the Board 1986 (1) 376,428(2) 66
John G. Martines President and CEO 1986 1979 199,984(2) 51
Louis M. Martarano Executive Vice President and 1990 1981 81,938(2) 47
Chief Operating Officer
Joseph J. Earyes Executive Vice President and 1995 1995 40,427(2) 41
Chief Financial Officer
Donald E. Chapman Secretary 1983 (1) 125,589(2) 61
- ----------------------------
<FN>
(1) Mr. Howe and Mr. Chapman are not employees of the Bank.
(2) See notes under the caption "Beneficial Ownership by Officers,
Directors and Nominees" for shareholdings of these officers.
</FN>
</TABLE>
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2)
Unless instructed to the contrary, it is intended that votes will be
cast pursuant to the proxies for the ratification of the selection of Parente,
Randolph, Orlando, Carey & Associates, Certified Public Accountants, of
Scranton, Pennsylvania ("Parente Randolph"), as the Corporation's independent
public accountants for its fiscal year ending December 31, 1998. The Corporation
has been advised by Parente Randolph that none of its members has any financial
interest in the Corporation. Ratification of Parente Randolph will require an
affirmative vote of a majority of the shares of Common Stock represented at the
Annual Meeting. Parente Randolph served as the Corporation's independent public
accountants for the Corporation's 1997 fiscal year.
In addition to performing customary audit services, Parente Randolph
assisted the Corporation with the preparation of its federal and state tax
returns, and provided assistance in connection with regulatory matters, charging
the Corporation for such services at its customary hourly billing rates. These
non-audit services were approved by the Corporation's and the Bank's Board of
Directors, after due consideration of the effect of the performance thereof on
the independence of the accountants and after the conclusion by the
Corporation's and the Bank's Board of Directors that there was no effect on the
independence of the accountants.
In the event that the shareholders do not ratify the selection of
Parente Randolph as the Corporation's independent public accountants for the
1998 fiscal year, another accounting firm will be chosen to provide independent
public accountant audit services for the 1998 fiscal year. The Board of
Directors recommends that the shareholders vote FOR the ratification of the
selection of Parente Randolph as the auditors for the Corporation for the year
ending December 31, 1998. <PAGE>
It is understood that even if the selection of Parente Randolph is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a new independent auditing firm at any time during the year if the Board of
Directors determines that such a change would be in the best interests of the
Corporation and its shareholders.
LEGAL PROCEEDINGS
General
The nature of the Corporation's and the Bank's business generates a
certain amount of litigation involving matters arising in the ordinary course of
business. However, in the opinion of management of the Corporation and the Bank,
there are no proceedings pending to which the Corporation and the Bank is a
party or to which their property is subject, which, if determined adversely to
the Corporation and the Bank, would be material in relation to the Corporation's
and the Bank's undivided profits or financial condition, nor are there any
proceedings pending other than ordinary routine litigation incident to the
business of the Corporation and the Bank, In addition, no material proceedings
are pending or are known to be threatened or contemplated against the
Corporation and the Bank by government authorities or others.
Environmental Issues
There are several federal and state statutes that govern the
obligations of financial institutions with respect to environmental issues.
Besides being responsible under such statutes for its own conduct, a bank also
may be held liable under certain circumstances for actions of borrowers or other
third parties on properties that collateralize loans held by the bank. Such
potential liability may far exceed the original amount of the loan made by the
bank. Currently, the Bank is not a party to any pending legal proceedings under
any environmental statute nor is the Bank aware of any circumstances that may
give rise to liability of the Bank under any such statute.
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year ended
December 31, 1997, is being mailed with this Proxy Statement. A representative
of Parente Randolph, the accounting firm which examined the financial statements
in the Annual Report, will attend the Annual Meeting. This representative of
Parente Randolph will have the opportunity to make a statement, if he or she
desires to do so, and will be available to respond to any appropriate questions
presented by shareholders at the Annual Meeting.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the provisions
of the proxy rules of the SEC, wishes to submit a proposal for inclusion in the
Corporation's proxy statement for its 1999 Annual Meeting of Shareholders must
deliver such proposal in writing to the Secretary of Lake Ariel Bancorp, Inc. at
the principal executive offices of the Corporation on Route 191, Post Office Box
67, Lake Ariel, Pennsylvania 18436, not later than Wednesday, November 25, 1998.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting
of Shareholders, but if any matters are properly presented, it is the intention
of the persons named in the accompanying Proxy to vote on such matters in
accordance with their judgment. <PAGE>
ADDITIONAL INFORMATION
Upon written request of any shareholder, a copy of the Corporation's
report on Form 10-K for its fiscal year ended December 31, 1997, including the
financial statements and the schedules thereto, required to be filed with the
SEC, may be obtained, without charge, from Joseph J. Earyes, CPA, Vice President
and Treasurer, Lake Ariel Bancorp, Inc., 409 Lackawanna Avenue, Suite 201,
Scranton, Pennsylvania 18503, telephone: (717) 343-8200.
In addition, a copy of the Annual Disclosure Statement of LA Bank, N.A. may
be also obtained, without charge, from Joseph J. Earyes, CPA, Chief Financial
Officer of the Bank.
