[LAB SERVICE MARK]
Notice of 1999
Annual Meeting
of Stockholders
and Proxy Statement
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PLEASE COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY PROMPTLY
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Tuesday, April 27, 1999
11:00 A.M.
The Waterfront Banquet and
Conference Center at Ehrhardt's
Hawley, Pennsylvania
<PAGE>
[LAB SERVICE MARK]
March 25, 1999
Dear Stockholder:
You are cordially invited to join us at the 1999 Annual Meeting of Stockholders
at The Waterfront Banquet and Conference Center at Ehrhardt's in Hawley,
Pennsylvania on April 27, 1999.
Enclosed with this Proxy Statement are your voting instructions and the 1998
Annual Report.
At this meeting, we will vote on the matters described in the Proxy Statement.
We know that it is not practical for most stockholders to attend the Annual
Meeting in person. In addition, annual meetings are not the most efficient way
to communicate with our stockholders. Therefore, we encourage you to visit our
site on the Worldwide Web at http://www.labank.com for up-to-the-moment news
about the Corporation. As an alternative, you may call for current news releases
via our facsimile on demand service at (570) 348-8374.
Whether or not you plan to attend the Annual Meeting, we strongly encourage you
to designate the proxies shown on the enclosed card to vote your shares. Please
complete, sign, date and return the enclosed proxy card in the postage pre-paid
envelope provided. Lake Ariel Bancorp, Inc. is reconstructing its Website and is
not yet capable of providing SEC filings on it, or for the use of electronic
media to vote. This capability will be available in the near future.
We have also asked you to indicate your wish to receive future mailings to
stockholders via electronic mail (when available) instead of paper copies by
regular mail. You should know that if you initially select electronic delivery
and then change your mind, you will always be able to obtain a paper copy from
the Corporation.
In response to the SEC's recent emphasis on clear and simple communications to
stockholders and investors, the Corporation has redrafted its proxy statement in
"plain English." We hope you like this simplified format and welcome your
comments.
I would like to take this opportunity to remind you that your vote is important.
Sincerely,
/s/ Bruce D. Howe
Bruce D. Howe
President
<PAGE>
[LAB SERVICE MARK]
LAKE ARIEL BANCORP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DATE: April 27, 1999
TIME: 11:00 A.M.
PLACE: The Waterfront Banquet and Conference Center at Ehrhardt's
Hawley, Pennsylvania
MATTERS TO BE VOTED UPON:
1. Election of three Class 3 directors to hold office for a three-year term;
2. Ratification of the appointment of PricewaterhouseCoopers LLP as our
independent auditors for the year 1999; and
3. Any other matters that may properly come before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE IN FAVOR OF THE ELECTION OF
DIRECTORS AND THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP.
Stockholders who are holders of record of the Common Stock at the close of
business on March 16, 1999, will be entitled to vote at the meeting.
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IF YOU PLAN TO ATTEND: Please note that space limitations make it necessary to
limit attendance to stockholders. If you wish to attend, please indicate so by
completing the enclosed invitation and returning it with your proxy in the
envelope provided. "Street name" holders will need to bring a copy of a
brokerage statement reflecting stock ownership as of the record date.
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It will be helpful to us if you will read the Proxy Statement and the voting
instructions on the proxy card, and then vote by filling out, signing and dating
the proxy card and returning it in the postage pre-paid envelope provided.
/s/ Bruce D. Howe
BRUCE D. HOWE Lake Ariel, Pennsylvania
President March 25, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
QUESTIONS AND ANSWERS............................................ 1
BOARD OF DIRECTORS............................................... 2
o Election of Directors (Item 1 on Proxy Card)................... 2
Committees of the Board of Directors........................... 4
Board of Directors' Compensation............................... 5
STOCK OWNERSHIP.................................................. 5
Stock Owned by Directors and Executive Officers................ 5
Compliance with Section 16(a) of the Securities Exchange
Act of 1934.................................................. 6
Voting Stock Owned by "Beneficial Owner"....................... 6
EXECUTIVE COMPENSATION........................................... 6
Summary Compensation Table..................................... 6
Benefit/Compensation Committee Report.......................... 7
1994 and 1997 Stock Option Plans............................... 10
Five-Year Performance Graph.................................... 12
INDEPENDENT AUDITORS............................................. 13
o Proposal to Approve the Appointment of
PricewaterhouseCoopers LLP
(Item 2 on Proxy Card).................................. 13
OTHER INFORMATION................................................ 13
Transactions Involving the Corporation's Directors
and Executive Officers...................................... 13
No Significant Legal Proceedings............................... 14
Other Proposed Action.......................................... 14
Stockholder Proposals and Nominations for 2000 Annual Meeting.. 14
Additional Information Available............................... 14
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o Matters to be voted upon
<PAGE>
QUESTIONS AND ANSWERS
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Q: What am I voting on?
A: Two proposals. Item numbers refer to item numbers on the proxy card.
Item 1. Election of three Class 3 directors
Item 2. Ratification of appointment of PricewaterhouseCoopers
LLP as independent auditors of the Corporation
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Q: Who can vote?
A: All stockholders of record at the close of business on March 16, 1999, are
entitled to vote. Holders of Common Stock are entitled to one vote per
share. Fractional shares, such as those in the dividend reinvestment plan,
may not be voted.
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Q: How do I vote for directors?
A: Each share is entitled to cast one vote for each nominee. For example, if
you can vote 100 shares, you can cast up to 100 votes for each nominee for
director.
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Q: Who can attend the meeting?
A: All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Seating, however, is limited. You will be
admitted only if you previously indicated your wish to attend on the
proxy card. Please note that if you hold your shares in "street name"
(that is, through a broker or other nominee), you will need to bring a
copy of a brokerage statement reflecting your stock ownership as of the
record date. Everyone must check in at the registration desk at the
meeting.
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Q: How do I vote?
A: Complete, date, sign and mail the proxy card in the enclosed postage
pre-paid envelope.
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Q: What happens if I do not indicate my preference for one of the items?
A: If you do not indicate how you wish to vote for one or more of the
nominees for director, the proxies will vote FOR election of all the
nominees for Director (Item 1). If you "withhold" your vote for any of
the nominees, this will be counted as a vote AGAINST that nominee. If you
leave Item 2 blank, the proxies will vote FOR ratification of the
appointment of PricewaterhouseCoopers LLP (Item 2).
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Q: What if I vote and then change my mind?
A: You can revoke your proxy by writing to us, by voting again via mail, or by
attending the meeting and casting your vote in person. Your last vote will
be the vote that is counted.
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Q: What constitutes a quorum?
A: As of the record date, March 16, 1999, the Corporation had 4,838,386 shares
of Common Stock outstanding. The holders of Common Stock have the right to
cast a total of 4,838,386 votes. The presence, in person or by proxy, of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast constitutes a quorum for adopting the
proposals at the meeting. If you have properly designated the proxies and
indicated your voting preferences by mail, you will be considered part of
the quorum, and the proxies will vote your shares as you have instructed
them. If a broker holding your shares in "street" name indicates to us on a
proxy card that the broker lacks discretionary authority to vote your
shares, we will not consider your shares as present or entitled to vote for
any purpose.
1
<PAGE>
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Q: Is my vote confidential?
A: Yes. Proxy cards, ballots and voting tabulations that identify individual
stockholders are kept confidential except in certain circumstances where it
is important to protect the interests of the Corporation and its
stockholders. Generally, only the judge of election and the employees of
American Stock Transfer and Trust Company processing the votes will have
access to your name. They will not disclose your name as the author of any
comments you include on the proxy card unless you ask that your name be
disclosed to management.
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Q: Who will count the votes?
A: Employees of American Stock Transfer and Trust Company will tabulate the
votes and the judge of election will review their tabulation process.
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Q: What shares are included in the proxy card?
A: The shares listed on your card sent by the Corporation represent all the
shares of Common Stock held in your name (as distinguished from those held
in "street" name), including those held in the dividend reinvestment plan.
You will receive a separate card or cards from your broker if you hold
shares in "street" name.
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Q: What does it mean if I get more than one proxy card?
A: It indicates that your shares are held in more than one account, such as
two brokerage accounts and registered in different names. You should vote
each of the proxy cards to ensure that all of your shares are voted. We
encourage you to register all of your brokerage accounts in the same name
and address for better stockholder service. You may do this by contacting
our transfer agent, American Stock Transfer and Trust Company, at
1-800-937-5449.
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Q: How much did this proxy solicitation cost?
A: The Corporation has retained American Stock Transfer and Trust Company to
solicit and tabulate proxies from stockholders at an estimated fee of
$1,000, plus expenses. (Note that this fee does not include the costs of
printing and mailing the proxy statements.) Some of the officers and other
employees of the Corporation also may solicit proxies personally, by
telephone and by mail. The Corporation will also reimburse brokerage houses
and other custodians for their reasonable out-of-pocket expenses for
forwarding proxy and solicitation material to the beneficial owners of
Common Stock.
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Q: Whom can I call with any questions?
A: You may call the American Stock Transfer and Trust Company at
1-800-937-5449.
BOARD OF DIRECTORS
THIS SECTION GIVES BIOGRAPHICAL INFORMATION ABOUT OUR DIRECTORS AND DESCRIBES
THEIR MEMBERSHIP ON BOARD OF DIRECTORS' COMMITTEES, THEIR ATTENDANCE AT MEETINGS
AND THEIR COMPENSATION.
ELECTION OF DIRECTORS
Item 1 on Proxy Card
The Corporation has eight directors who are divided into three classes: three
directors are in Class 1; two directors are in Class 2; and three directors are
in Class 3. Each director holds office for a three-year term. The terms of the
classes are staggered, so that the term of office of one class expires each
year.
2
<PAGE>
At this meeting, the stockholders elect three Class 3 directors. Unless you
withhold authority to vote for one or more of the nominees, the persons named as
proxies intend to vote for the election of the three nominees for Class 3
director. All of the nominees are recommended by the Board of Directors:
John G. Martines
Kenneth M. Pollock
Harry F. Schoenagel
All nominees have consented to serve as directors. The Board of Directors has no
reason to believe that any of the nominees should be unable to act as a
director. However, if any director is unable to stand for re-election, the Board
of Directors will designate a substitute. If a substitute nominee is named, the
proxies will vote for the election of the substitute.
The following information includes the age of each nominee and current director
as of the date of the meeting.
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Class 3 Directors And Nominees For Class 3 Director Whose Term Expires In 2002
JOHN G. MARTINES, 52
Director of the Corporation since 1983 and LA Bank since 1979; and President of
LA Bank and Chief Executive Officer of the Corporation.
KENNETH M. POLLOCK, 41
Director of the Corporation and LA Bank since 1999. President of HUD Inc. (a
coal operations and sales company).
HARRY F. SCHOENAGEL, 63
Director of the Corporation and LA Bank since 1985. Partner in Schoenagel and
Schoenagel (general civil engineering and surveying).
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Class 2 Directors Whose Term Expires in 2000
BRUCE D. HOWE, 67
Director of the Corporation and LA Bank since 1977; and President of the
Corporation. President of John T. Howe, Inc. (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, 69
Director of the Corporation and LA Bank since 1988. Former President of C&D
Builders, Inc. (construction of residential and light commercial buildings).
Retired.
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Class 1 Directors Whose Term Expires in 2001
DONALD E. CHAPMAN, 62
Director of the Corporation since 1983 and LA Bank since 1972. Self-employed
insurance broker and real estate developer.
PAUL D. HORGER, 61
Director of the Corporation since 1998 and LA Bank since 1997. Partner in the
law firm of Oliver, Price & Rhodes.
WILLIAM C. GUMBLE, 61
Director of the Corporation and LA Bank since 1985. Retired attorney-at-law.
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3
<PAGE>
Required Vote
Nominees will be elected who receive a vote equal to a plurality of the shares
of stock represented at the meeting. Your Board of Directors recommends a vote
FOR the nominees for Class 3 director listed above. Abstentions and votes
withheld for directors will have the same effect as votes against.
COMMITTEES OF THE BOARD OF DIRECTORS
The Corporation has no standing committees. The following information is for
committees of LA Bank.
<TABLE>
<CAPTION>
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
Board of Asset/Liability Loan Benefit
Name Directors Executive Audit Management Loan 401(K) Review Compensation
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald E. Chapman |X| |X| |X| |X| |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
Peter O. Clauss |X| |X| |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
William C. Gumble |X| |X| |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
Paul D. Horger |X| |X| |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
Bruce D. Howe |X|(1) |X|(1) |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
John G. Martines |X| |X| |X| |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
Kenneth M. Pollock |X| |X| |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
Harry F. Schoenagel |X| |X| |X| |X| |X|
- ---------------------- ----------- ---------- --------- --------------- --------- ---------- --------- --------------
<FN>
(1) Chairman.
</FN>
</TABLE>
Number of Meetings
The Board of Directors met 12 times during 1998. All of the Corporation's
directors attended 75% or more of all Board of Directors and Committee meetings
during 1998.
Executive Committee
The Executive Committee reviews the operations of the Board of Directors with
respect to directors' fees and frequency of Board of Directors' meetings as well
as the Corporation's capital structure, stock position and earnings. In
addition, the Executive Committee analyzes other management issues and
periodically makes recommendations to the Board of Directors based on its
findings.
Audit Committee
The Audit Committee is responsible for the review and evaluation of the system
of internal controls and corporate compliance with applicable rules, regulations
and laws. The Audit Committee meets with the Corporation's internal auditor,
outside independent auditors and senior management to review the scope of the
internal and external audit engagements, the adequacy of the internal and
external auditors, corporate policies to ensure compliance and significant
changes in accounting principles.
Asset/Liability Management Committee
The Asset/Liability Management Committee reviews quarterly the asset/liability
management report, the investment portfolio, interest rate risk management,
liquidity, tax position and various profitability ratios.
Loan Committee
The Loan Committee reviews and recommends approval of loans in excess of
$100,000.
401(K) Committee
The 401(K) Committee reviews semi-annual investment results of plan funds; makes
recommendations and changes to available investment options; reviews legal
compliance issues; and recommends annual contributions to the plan.
4
<PAGE>
Loan Review Committee
The Loan Review Committee reviews past due and classified loans and actions to
be taken. This committee determines the adequacy of the loan loss reserve and
the amount to be charged for the provision of loan losses.
Benefit/Compensation Committee
The Benefit/Compensation Committee performs an annual review of executive and
senior management compensation.
BOARD OF DIRECTORS' COMPENSATION
Directors' Fees
Directors' fees are as follows:
Monthly fee for each director, except the Chairman.............. $1,250
Monthly fee for the Chairman.................................... $1,875
All directors were allowed one paid absence per year. The Corporation's
directors received no additional fee for attendance at 12 meetings in 1998 for
the Corporation. Directors of LA Bank received, in the aggregate, in 1998,
$90,000 in fees.
STOCK OWNERSHIP
THIS SECTION DESCRIBES HOW MUCH STOCK OUR DIRECTORS AND EXECUTIVE OFFICERS OWN.
IT ALSO DESCRIBES THE PERSONS OR ENTITIES THAT OWN MORE THAN 5% OF OUR VOTING
STOCK.
STOCK OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
This table indicates the number of shares of Common Stock owned by the executive
officers and directors as of March 16, 1999. The aggregate number of shares
owned by all directors and executive officers is 22.91%. Unless otherwise noted,
each individual has sole voting and investment power for the shares indicated
below.
<TABLE>
<CAPTION>
- ---------------------------------------- ----------------------------------------------------------------------------
Amount and Nature of Shares Beneficially Owned as of March 16, 1999
----------------------------------------------------------------------------
Aggregate Number of
Name Options (1) Shares Beneficially Owned (2)
- ---------------------------------------- ------------------------------------- --------------------------------------
<S> <C> <C>
Donald E. Chapman ---- 132,816
- ---------------------------------------- ------------------------------------- --------------------------------------
Peter O. Clauss ---- 56,724
- ---------------------------------------- ------------------------------------- --------------------------------------
William C. Gumble ---- 119,701
- ---------------------------------------- ------------------------------------- --------------------------------------
Paul D. Horger ---- 10,546
- ---------------------------------------- ------------------------------------- --------------------------------------
Bruce D. Howe ---- 389,428
- ---------------------------------------- ------------------------------------- --------------------------------------
John G. Martines 158,201 221,199
- ---------------------------------------- ------------------------------------- --------------------------------------
Kenneth M. Pollock ---- 11,000
- ---------------------------------------- ------------------------------------- --------------------------------------
Harry F. Schoenagel ---- 91,404
- ---------------------------------------- ------------------------------------- --------------------------------------
Directors and Officers as a Group (3) 246,138 1,164,784
- ---------------------------------------- ------------------------------------- --------------------------------------
<FN>
(1) Includes options exercisable within 60 days of March 16, 1999.
(2) Includes amounts listed in the options column plus shares held (a)
directly, (b) jointly with a spouse, (c) individually by a spouse, (d) by
the transfer agent in the Corporation's dividend reinvestment account, and
(e) in various trust and custodian accounts.
(3) Includes 8 directors, 3 nominees for director, 5 officers - 10 persons in
total.
</FN>
</TABLE>
5
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Executive officers and directors and "beneficial owners" of more than ten
percent of the Common Stock must file initial reports of ownership and reports
of changes in ownership with the SEC and The NASDAQ Stock Market pursuant to
Section 16(a).
We have reviewed the reports and written representations from the executive
officers and directors. Based on this review, the Corporation believes that all
filing requirements were met during 1998.
VOTING STOCK OWNED BY "BENEFICIAL OWNER"
The following is the only person known by the Corporation to own beneficially
more than five percent of the Common Stock as of March 16, 1999.
- ------------------------------------------------------ ------------------------
Name and Address Number of Shares Percent of Class
- ------------------------------------------------------ ------------------------
Bruce D. Howe 389,428 7.65%
R.D. #6, Box 6332
Lake Ariel, PA 18436
EXECUTIVE COMPENSATION
THIS SECTION CONTAINS CHARTS THAT SHOW THE AMOUNT OF COMPENSATION EARNED BY OUR
EXECUTIVE OFFICERS WHOSE SALARY AND BONUS EXCEEDED $100,000 FOR 1998. IT ALSO
CONTAINS THE PERFORMANCE GRAPH COMPARING THE CORPORATION'S PERFORMANCE RELATIVE
TO ITS PEER GROUP AND THE REPORT OF OUR BENEFIT/COMPENSATION COMMITTEE
EXPLAINING THE COMPENSATION PHILOSOPHY FOR OUR MOST HIGHLY PAID OFFICERS.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------- ---------------------------------------------- --------------------- ----------------
Annual Compensation Long-Term
Compensation
- -------------------------------- ---------------------------------------------- ---------------------
Other Annual Securities All Other
Name and Position Year Salary($) Bonus($) Compensation($) Underlying Compensation($)
Options/SARs(#)(1)
- -------------------------------- ------- ---------- ---------- ---------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John G. Martines 1998 178,462 70,312 109,079(2) -0- 36,682(3)
President of LA Bank and Chief 1997 168,461 78,312 72,587(4) -0- 25,963(5)
Executive Officer of the 1996 157,972 44,000 25,564(6) -0- 22,612(7)
Corporation
- -------------------------------- ------- ---------- ---------- ---------------- --------------------- ----------------
Louis M. Martarano 1998 118,577 35,275 35,180(8) -0- 22,595(9)
Executive Vice President and 1997 112,249 34,625 21,253(10) -0- 23,189(11)
Chief Operating Officer of LA 1996 109,056 20,000 4,260(12) -0- 19,601(13)
Bank and Vice President of the
Corporation
- -------------------------------- ------- ---------- ---------- ---------------- --------------------- ----------------
Joseph J. Earyes 1998 99,577 29,575 23,177(14) -0- 18,697(15)
Executive Vice President and 1997 93,903 31,250 15,205(16) -0- 20,569(17)
Chief Financial Officer of LA 1996 87,521 16,000 6,147(18) -0- 16,225(19)
Bank and Vice President and
Treasurer of the Corporation
- -------------------------------- ------- ---------- ---------- ---------------- --------------------- ----------------
<FN>
(1) For further information on these stock options, see "1994 and 1997 Stock
Option Plans" below.
(2) Includes $2,214 paid on behalf of Mr. Martines for periodic club dues;
$11,250 paid to Mr. Martines for directors' fees; $4,368 accrued pursuant
to the Directors' Compensation Continuation Plan; $88,227 accrued pursuant
to the Supplemental Executive Retirement Plan; and $3,020 representing the
personal use value of a company-owned automobile.
(3) Of the $36,682 paid to Mr. Martines in 1998 as All Other Compensation,
$4,705 was for medical insurance premiums; and $31,977 was accrued by the
Corporation for the benefit of Mr. Martines pursuant to a profit-sharing
retirement plan.
6
<PAGE>
(4) Includes $4,606 paid on behalf of Mr. Martines for periodic club dues;
$12,000 paid to Mr. Martines for directors' fees; $3,986 accrued pursuant
to the Directors' Compensation Continuation Plan; $48,447 accrued pursuant
to the Supplemental Executive Retirement Plan; and $3,548 representing the
personal use value of a company-owned automobile.
(5) 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.
(6) Includes $6,825 paid on behalf of Mr. Martines for initial and periodic
club dues; $12,000 paid to Mr. Martines for directors' fees; $3,440 accrued
pursuant to the Directors' Compensation Continuation Plan; and $3,299
representing the personal use value of a company-owned automobile.
(7) 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.
(8) Includes $1,375 paid on behalf of Mr. Martarano for periodic club dues;
$31,272 accrued pursuant to the Supplemental Executive Retirement Plan; and
$2,533 representing the personal use value of a company-owned automobile.
(9) Of the $22,596 paid to Mr. Martarano in 1998 as All Other Compensation,
$4,855 was for medical insurance premiums; and $17,740 was accrued by the
Corporation for the benefit of Mr. Martarano pursuant to a profit-sharing
retirement plan.
(10) Includes $1,640 paid on behalf of Mr. Martarano for periodic club dues;
$17,171 accrued pursuant to the Supplemental Executive Retirement Plan; and
$2,442 representing the personal use value of a company-owned automobile.
(11) 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.
(12) 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.
(13) 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.
(14) Includes $4,500 paid on behalf of Mr. Earyes for periodic club dues;
$16,571 accrued pursuant to the Supplemental Executive Retirement Plan; and
$2,106 representing the personal use value of a company-owned automobile.
(15) Of the $18,698 paid to Mr. Earyes in 1998 as All Other Compensation, $5,111
was for medical insurance premiums; and $13,586 was accrued by the
Corporation for the benefit of Mr. Earyes pursuant to a
profit-sharing/401(K) plan.
(16) Includes $4,200 paid on behalf of Mr. Earyes for periodic club dues; $9,100
accrued pursuant to the Supplemental Executive Retirement Plan; and $1,905
representing the personal use value of a company-owned automobile.
(17) 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.
(18) 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.
(19) 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.
</FN>
</TABLE>
BENEFIT/COMPENSATION COMMITTEE REPORT*
The Benefit/Compensation Committee is responsible for all matters pertaining to
executive and senior management compensation. This committee has defined
compensation policies to properly analyze, describe and evaluate various
positions in the Corporation and LA 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. This 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 it is contemplated that these studies will
continue
9. Number of branches
10. Any other factors deemed by this 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.
- --------
* Pursuant to the Proxy Rules, this section of the proxy statement is not
deemed "filed" with the SEC and is not incorporated by reference into the
Corporation's Report on Form 10-K.
7
<PAGE>
This 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.
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 this 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.
LA 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 payout under the incentive plan is based upon the combined actual
performance against the established performance targets for LA Bank.
Submitted by the members of the
Benefit/Compensation Committee:
Harry F. Schoenagel, William C. Gumble, and Donald E. Chapman
Directors' Compensation Continuation Plan
LA Bank has entered into an agreement with its directors to establish a
Compensation Continuation Plan. In earlier proxy statements, this plan was
referred to as the salary continuation plan. If a director continues to serve
until he attains 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 his
65th birthday. Each director's guaranteed annual payment is based upon the
future value of life insurance purchased with the funds which would otherwise be
used to pay the directors' compensation. If a director attains 65 years of age,
but dies before receiving ten annual payments, then the Corporation will
continue to make these payments to the director's designated beneficiary or to
the representative of his estate. In the event that a director dies while
serving as a director, but prior to the attainment of 65 years of age, then the
Corporation shall remit a guaranteed annual payment for a period of ten years to
the director's designated beneficiary or to the representative of his estate. LA
Bank has obtained life insurance (designating LA Bank as the beneficiary) on
each participating director in an amount which will cover LA Bank's obligations
under the plan. This plan is based upon certain actuarial assumptions in seeking
funding through life insurance policies. In 1998, LA Bank accrued $67,503 as an
expense for the plan, of which approximately $4,368 was allocated to Mr.
Martines.
The salary continuation plan for Messrs. Martines, Howe and Chapman was
established in July, 1987; for Messrs. Gumble and Schoenagel in July, 1990; and
for Mr. Clauss, in July, 1993.
Directors' Deferred Fee Agreement
LA Bank has available for its directors an optional deferred fee arrangement. A
participating director elects the amount of fees to be deferred. Upon reaching
the normal retirement age of 70 years of age, LA Bank pays the director 120
equal monthly payments commencing on the first day of the month following the
director's normal retirement date.
8
<PAGE>
LA Bank invested in a life insurance policy on the life of Director Paul Horger
in order to fund its obligation to Mr. Horger. LA Bank is the owner of this
policy and is the designated beneficiary. This policy is recorded as an asset of
LA Bank. In 1999, LA Bank accrued $13,194 as an expense to record its
accumulated accrual obligation under the Director Deferred Fee Agreement.
Employment Agreement with Mr. Martines
The Corporation and LA Bank entered into a 5-year employment agreement with Mr.
Martines, the Chief Executive Officer of the Corporation and the President and
Chief Executive Officer of LA Bank. Mr. Martines' salary will increase each year
in accordance with a merit review by the Board of Directors. 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 LA 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.
Mr. Martines may unilaterally terminate his employment with the Corporation and
LA 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 25% of the Corporation's voting
securities or all or substantially all of the assets of the Corporation or LA
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 LA
Bank or both with an unaffiliated corporation in which the directors of the
Corporation or LA 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 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, LA 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, then
in effect, and compounded semi-annually.
Employment Agreement with Louis M. Martarano
The Corporation and LA 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 LA Bank. Mr. Martarano's salary
will increase each year in accordance with the terms of 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 LA 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.
9
<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
LA Bank entered into a supplemental executive retirement plan with each of the
following 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 this plan is to encourage these key executives to continue their
employment with LA Bank and to provide a salary continuation benefit upon their
termination of employment from LA Bank. Upon reaching the age of 62 years, these
executives may retire from employment with LA Bank and receive an annual benefit
payable in twelve equal monthly installments for a period of 180 months. 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.
LA Bank invested in insurance policies on the lives of each of these executives
in order to fund its obligation under this plan. LA Bank is the owner of these
policies and is the designated beneficiary for each policy. These policies are
recorded as an asset of LA Bank. In 1998, LA Bank accrued $157,423 as an expense
to record its accumulated accrued obligations under the SERP.
Termination Benefits
If an executive terminates his employment with LA Bank prior to 62 years of 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 LA Bank prior to
62 years of 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 this plan, if, without the prior
written consent of LA 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 LA Bank to be competitive with any
business carried on by LA Bank as of the date of termination of employment or
his 62nd year of age, except in the event of a change of control.
1994 AND 1997 STOCK OPTION PLANS
These Option Plans are 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 LA Bank who will be responsible for the
Corporation's future growth and continued success. The following tables present
the grants that were made under the 1994 Stock Option Plan in 1995 and 1994 to
the persons so indicated, which represents all of the options approved under
that plan, and the grants that were made under the 1997 Stock Option Plan in
1998 to the persons so indicated. All of these grants have a 10-year period of
time from the date of the grant, during which the holder may exercise them and
purchase the underlying shares at the exercise or base price so indicated.
These options expire at the end of the 10-year period.
10
<PAGE>
Grants Under the 1994 Stock Option Plan
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------- --------------------------
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Individual Grants(1) Appreciation for Option
Term(2)
- ------------------------------------------------------------------------------------------- --------------------------
Number of Percentage
Securities of Total
Underlying Options Exercise
Options Granted to or Base Expiration
Name Granted(3) Employees Price Date 5.0%($) 10.0%($)
in Fiscal ($/Sh)(3)
Year
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John G. Martines 92,610 62.0% $6.26 August 8, 364,266 923,454
President of LA Bank and Chief 2005
Executive Officer of the Corporation 57,882 71.0% $6.53 237,589 602,516
August 7,
2004
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
Louis M. Martarano 34,728 23.0% $6.26 August 8, 136,600 346,295
Executive Vice President and Chief 2005
Executive Officer of LA Bank and 23,153 29.0% $6.53 95,036 241,007
Vice President of the Corporation August 7,
2004
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
Joseph J. Earyes, CPA 23,152 15.0% $6.26 August 8, 91,067 230,864
Executive Vice President and Chief 2005
Financial Officer of LA Bank and
Vice President and Treasurer of the
Corporation
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
<FN>
(1) No options have been exercised by Messrs. Martines, Martarano, and Earyes
as of March 16, 1999.
(2) These columns present hypothetical future values that might be realized
upon exercise of the options, minus the exercise price. These values assume
that the market price of the Corporation's stock appreciates at a five and
ten percent compound annual rate over the 10-year term of options. The five
and ten percent rates of stock price appreciation are presented as examples
pursuant to the SEC's Proxy Rules and do not necessarily reflect
management's assessment of the Corporation's future stock price
performance. These potential realizable values presented are not intended
to indicate the value of the options.
(3) All outstanding options are adjusted to reflect stock dividends and stock
splits.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Grants Under the 1997 Stock Option Plan
- ------------------------------------------------------------------------------------------- --------------------------
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Individual Grants(1) Appreciation for Option
Term(2)
- ------------------------------------------------------------------------------------------- --------------------------
Number of Percentage
Securities of Total
Underlying Options Exercise
Options Granted to or Base Expiration
Name Granted(3) Employees Price Date 5.0%($) 10.0%($)
in Fiscal ($/Sh)(3)
Year
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John G. Martines 4,562 39.1% $16.28 January 2, 46,706 118,363
President of LA Bank and Chief 2008
Executive Officer of the Corporation
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
Louis M. Martarano 2,366 20.2% $16.28 January 2, 24,223 61,387
Executive Vice President and Chief 2008
Executive Officer of LA Bank and
Vice President of the Corporation
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
Joseph J. Earyes, CPA 1,978 16.9% $16.28 January 2, 20,251 51,320
Executive Vice President and Chief 2008
Financial Officer of LA Bank and
Vice President and Treasurer of the
Corporation
- -------------------------------------- ----------- ------------- ----------- -------------- ------------ -------------
<FN>
(1) No options have been exercised by Messrs. Martines, Martarano, and Earyes
as of March 16, 1999.
(2) These columns present hypothetical future values that might be realized
upon exercise of the options, minus the exercise price. These values assume
that the market price of the Corporation's stock appreciates at a five and
ten percent compound annual rate over the 10-year term of options. The five
and ten percent rates of stock price appreciation are presented as examples
pursuant to the SEC's Proxy Rules and do not necessarily reflect
management's assessment of the Corporation's future stock price
performance. These potential realizable values presented are not intended
to indicate the value of the options.
(3) All outstanding options are adjusted to reflect stock dividends and stock
splits.
</FN>
</TABLE>
11
<PAGE>
FIVE-YEAR PERFORMANCE GRAPH*
The following graph and table compare the cumulative total stockholder return on
the Corporation's Common Stock during the period December 31, 1993, through and
including December 31, 1998, with (i) the cumulative total return on the SNL
Securities Corporate Performance Index(1) for 41 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, 1993, and 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
stockholder return shown on the graph and table below is not necessarily
indicative of future performance.
[GRAPH]
<TABLE>
<CAPTION>
Period Ending
-------------------------------------------------------------------------------
Index 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ------------------------------------- ------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lake Ariel Bancorp, Inc. 100.00 122.90 110.27 188.94 305.48 229.96
NASDAQ - Total US 100.00 97.75 138.26 170.01 208.58 293.21
Lake Ariel Peer Group(3) 100.00 115.71 139.96 174.82 277.40 272.82
- -------------------------
<FN>
(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 and New York, the District of Columbia and Puerto
Rico.
(3) LABN Peer Group consists of 41 traded banks in the MidAtlantic region with
less than $500M in total assets.
</FN>
</TABLE>
* Pursuant to the Proxy Rules, this section of the proxy statement is
deemed "filed" with the SEC and is not incorporated by reference into the
Corporation's Report on Form 10-K.
12
<PAGE>
INDEPENDENT AUDITORS
PROPOSAL TO APPROVE THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP
Item 2 on Proxy Card
The Board of Directors has appointed PricewaterhouseCoopers LLP, Certified
Public Accountants, as the independent auditors for 1999. This firm has no
relationship with the Corporation and LA Bank.
For many years, Parente, Randolph, Orlando, Carey & Associates, Certified Public
Accountants, have audited the financial statements of the Corporation and LA
Bank. This firm audited the 1998 financial statements. The Board of Directors
requested Parente, Randolph, Orlando, Carey & Associates to become the internal
auditors for the Corporation and LA Bank to commence in 1999. This firm accepted
this engagement and, therefore, could no longer be the external auditors. There
was no disagreement between the Corporation and Parente, Randolph, Orlando,
Carey & Associates with respect to accounting principles and the presentation of
the Corporation's financial statements. The Board of Directors considered the
long-term knowledge obtained by this accounting firm to be valuable in its
selection of the firm to handle internal audit matters.
A representative of Parente, Randolph, Orlando, Carey & Associates will attend
the meeting and will have the opportunity to make a statement concerning the
1998 financial statements, if he desires to do so. This representative will also
be available to respond to appropriate questions.
Required Vote
The proposal will be approved if it receives the affirmative vote of a majority
of the shares of Common Stock represented in person or by proxy at the meeting.
The Board of Directors recommends that you vote FOR approval of the appointment
of PricewaterhouseCoopers LLP. Proxies solicited by the Board of Directors will
be so voted unless you specify otherwise.
OTHER INFORMATION
THIS SECTION SETS OUT OTHER INFORMATION YOU SHOULD KNOW BEFORE YOU VOTE.
TRANSACTIONS INVOLVING THE CORPORATION'S
DIRECTORS AND EXECUTIVE OFFICERS
The Corporation encourages its directors and executive officers to have banking
and financial transactions with its bank subsidiary. All of these transactions
are made on comparable terms and with similar interest rates as those prevailing
for other customers.
The total consolidated loans made by the Corporation at December 31, 1998, to
its directors and officers as a group, members of their immediate families and
companies in which they have a 10% or more ownership interest was $1.2 million
or 3.1% of the Corporation's total consolidated capital accounts. The largest
amount for all of these loans in 1998 was $1.4 million or 3.6% of the
Corporation's total consolidated capital accounts. The interest income earned by
the Corporation on these loans was $97 thousand in 1998. During 1998, advances
and repayments on these loans were $645 thousand and $481 thousand,
respectively. These loans did not involve more than the normal risk of
collectibility nor did they present other unfavorable features.
Paul D. Horger is a class 1 director. Mr. Horger is a partner in the law firm of
Oliver, Price & Rhodes of Scranton, Pennsylvania. During 1998, LA Bank engaged
Oliver, Price & Rhodes to represent it on various legal matters. In addition,
customers of LA Bank paid fees to Oliver, Price & Rhodes in connection with
commercial loan transactions and mortgage foreclosures. In 1998, Oliver, Price &
Rhodes received $38,810 in fees on such matters involving LA Bank. The
Corporation and LA Bank intend, during 1999, to continue to engage Oliver, Price
& Rhodes in such legal matters as they arise.
13
<PAGE>
NO SIGNIFICANT LEGAL PROCEEDINGS
The Corporation and LA Bank are not parties to any legal proceedings that could
have any significant effect upon the Corporation's financial condition or
income. In addition, the Corporation and LA Bank are not parties to any legal
proceedings under federal and state environmental laws.
OTHER PROPOSED ACTION
The Board of Directors is not aware of any other matters to be presented at the
meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed proxy form will vote the proxies in accordance
with their best judgment.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 2000 ANNUAL MEETING
Stockholder proposals for the 2000 Annual Meeting must be received by November
24, 1999, to be considered for inclusion in the Corporation's 2000 Proxy
Statement. Stockholder proposals for the 2000 Annual Meeting for which the
proponents do not desire them to be included in the Corporation's 2000 Proxy
Statement must be received by February 10, 2000. Such proposals should be
addressed to the Secretary. Under the Corporation's Bylaws, notice of any
stockholder nomination for director must be given by mail or by personal
delivery to the Secretary no later than 20 days in advance of the meeting.
Stockholders wishing to make nominations should contact the Secretary as to
information required to be supplied in such notice.
ADDITIONAL INFORMATION AVAILABLE
The Corporation files an Annual Report on Form 10-K with the SEC. Stockholders
may obtain a paper copy of this report (without exhibits), without charge, by
writing to Joseph J. Earyes, CPA, Chief Financial Officer, Lake Ariel Bancorp,
Inc., Financial Center - Oppenheim Building, 409 Lackawanna Avenue, Suite 201,
Scranton, Pennsylvania; Telephone: (570) 343-8200 or 1-800-4LA-BANK.
A copy of the Annual Disclosure Statement of LA Bank, N.A., may also be
obtained, without charge, from Mr. Earyes.
By order of the Board of Directors
/s/ Bruce D. Howe
Bruce D. Howe
President
Lake Ariel, Pennsylvania
March 25, 1999
