<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- --------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
WARREN BANCORP, INC.
(Name of Registrant as Specified In Its Charter)
WARREN BANCORP, INC.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
WARREN BANCORP, INC.
10 Main Street, Peabody, Massachusetts 01960
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Warren Bancorp, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of the stockholders of Warren
Bancorp, Inc. (the "Annual Meeting") will be held at the King's Grant Inn, Route
128, Danvers, Massachusetts, on Wednesday, May 6, 1998, at 10:00 A.M., local
time, for the purpose of considering and voting upon the following matters:
1. Election of seven Directors, each to serve for a three-year
term until the 2001 Annual Meeting of stockholders;
2. Approval of the Warren Bancorp, Inc. 1998 Incentive and
Nonqualified Stock Option Plan; and
3. Such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on March 9, 1998 as the
record date for determining the stockholders entitled to notice of and to vote
at the Annual Meeting and any adjournments thereof. Only holders of common stock
at the record date will be entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.
By the order of the Board of Directors
Susan G. Ouellette, Clerk
Peabody, Massachusetts
March 27, 1998
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO ATTEND THE
MEETING, YOU MAY THEN REVOKE YOUR PROXY AND VOTE IN PERSON.
<PAGE> 3
WARREN BANCORP, INC.
10 Main Street, Peabody, Massachusetts 01960
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS - MAY 6, 1998
This Proxy Statement is furnished to stockholders of Warren Bancorp,
Inc. ("Bancorp" or the "Corporation") in connection with the solicitation of
proxies by the Board of Directors of Bancorp for the Annual Meeting of
Stockholders of Bancorp (the "Annual Meeting") on Wednesday, May 6, 1998, and
any adjournments thereof.
Stockholders are requested to complete, date, sign and promptly return
the accompanying proxy card in the enclosed envelope. If the enclosed form of
proxy is properly executed and returned to Bancorp in time to be voted at the
Annual Meeting, the shares represented thereby will, unless such proxy has
previously been revoked, be voted in accordance with the instructions marked
thereon. Executed proxies with no instructions indicated thereon will be voted
FOR the election of the nominees for Directors named below and FOR approval of
the Warren Bancorp, Inc., 1998 Incentive and Nonqualified Stock Option Plan.
Distribution of the Proxy Statement and the accompanying proxy materials
commenced on or about April 1, 1998.
The presence of a stockholder at the Annual Meeting will not
automatically revoke that stockholder's proxy. A stockholder may, however,
revoke a proxy at any time prior to the voting thereof on any matter (without,
however, affecting any vote taken prior to such revocation) by filing with the
Clerk of Bancorp a written notice of revocation, by delivering to Bancorp a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of proxies in connection with the Annual Meeting
should be addressed as follows: Warren Bancorp, Inc., Post Office Box 6159, 10
Main Street, Peabody, Massachusetts 01961-6159, attention:
Shareholder Relations Department.
Bancorp's Annual Report to Stockholders for the year ended December 31,
1997, which includes Bancorp's Annual Report to the Securities and Exchange
Commission on Form 10-K (without exhibits), is being mailed to stockholders with
this Proxy Statement. The Annual Report to Stockholders is not part of the proxy
materials. Bancorp will provide without charge to each person receiving a copy
of this Proxy Statement a copy of the exhibits to its Annual Report on Form
10-K, upon written request. Request should be directed to Warren Bancorp, Inc.,
Post Office Box 6159, 10 Main Street, Peabody, Massachusetts 01961-6159,
attention: Shareholder Relations Department.
2
<PAGE> 4
VOTING SECURITIES
The Board of Directors has fixed the close of business on March 9, 1998
as the record date (the "Record Date") for determining the stockholders entitled
to notice of and to vote at the Annual Meeting and any adjournments thereof. On
the Record Date there were 3,816,992 shares of Common Stock ("Common Stock") of
Bancorp outstanding. As of the Record Date there were approximately 663 holders
of record of the Common Stock. All such shares carry voting rights and all
stockholders are entitled to cast one vote for each such share held of record at
the close of business on the Record Date upon each matter properly brought
before the Annual Meeting or any adjournment thereof. Holders of the Common
Stock are not entitled to cumulative voting in the election of directors. A
majority of the outstanding shares of Common Stock present in person or by proxy
will constitute a quorum for transaction of business at the Annual Meeting.
Shares with respect to which votes have been withheld from any director
and shares abstaining from voting, and broker non-votes (i.e., shares
represented in the meeting held by brokers on nominees as to which instructions
have not been received from the beneficial owners entitled to vote such shares
and with respect to which one or more but not all proposals, such brokers or
nominees do not have discretionary voting power), will be counted for purposes
of determining whether a quorum is present at the Annual Meeting for the
transaction of business. Abstentions and broker non-votes will have no effect on
the election of directors or approval of Proposal 2 (approval of the 1998
Incentive and Nonqualified Stock Option Plan).
3
<PAGE> 5
BENEFICIAL OWNERSHIP OF COMMON STOCK
The table below sets forth, as of March 1, 1998, certain information
about persons known to Bancorp to own, directly or beneficially, more than five
percent of Bancorp's outstanding Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------- --------- --------
<S> <C> <C>
Dimensional Fund Advisors, Inc................ 280,900 (1) 7.36% (3)
1299 Ocean Avenue
Suite 650
Santa Monica, California 90401
Franklin Resources, Inc....................... 215,500 (2) 5.65% (3)
777 Mariners Island Boulevard
P.O. Box 7777
San Mateo, California 94404-7777
</TABLE>
- ----------------------------------
(1) Based on information contained in Amendment No. 7 to a Schedule 13G
filed by them with the Securities and Exchange Commission (the
"Commission") on February 10, 1998, Dimensional Fund Advisors, Inc.
("Dimensional"), a registered investment advisor, is deemed to have
beneficial ownership of 280,900 shares of Warren Bancorp, Inc. stock as
of December 31, 1997, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(2) Based on information contained in a Schedule 13G filed with the
Commission on February 11, 1998 by Franklin Resources, Inc. and certain
affiliated persons and entities, reporting beneficial ownership as of
December 31, 1997. This Schedule 13G indicates that Franklin Resources,
Inc., registered under the Investment Company Act of 1940, is the
beneficial owner of 215,500 shares of the Common Stock outstanding of
Warren Bancorp, Inc. as a result of acting as an investment advisor to
several investment companies registered under Section 8 of the
Investment Company Act of 1940.
(3) Percentages as reported are based on the number of shares issued and
outstanding at March 1, 1998.
4
<PAGE> 6
The following table shows as of March 1, 1998, the number of shares of
Bancorp's Common Stock owned beneficially by each nominee for director, each
director, each of the individuals named in the Summary Compensation Table, and
by all nominees, directors and executive officers of Bancorp as a group.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OF CLASS
NAME OWNED (1) (IF OVER 1%)
- ---- --------- ------------
<S> <C> <C>
Peter V. Bent ............................. 9,800(2)
Stephen J. Connolly, IV ................... 53,400(3) 1.40%
Francis L. Conway ......................... 8,600(4)
Paul J. Curtin ............................ 8,600(5)
Leo C. Donahue ............................ 52,785(6) 1.37%
Robert R. Fanning, Jr. .................... 6,400(7)
Arthur E. Holden .......................... 13,300(8)
Stephen R. Howe ........................... 21,200(9)
John C. Jeffers ........................... 5,800(10)
Stephen G. Kasnet ......................... 56,600(11) 1.48%
Linda Lerner .............................. 5,700(12)
Arthur E. McCarthy ........................ 32,400(13)
Arthur J. Pappathanasi .................... 3,900(14)
Paul M. Peduto ............................ 57,762(15) 1.51%
George W. Phillips ........................ 105,654(16) 2.77%
John R. Putney ............................ 51,695(17) 1.35%
John D. Smidt ............................. 26,100(18)
Mark J. Terry ............................. 2,913(19)
John H. Womack ............................ 6,600(20)
All nominees, directors and
executive officers as a
group (19 persons) ...................... 529,209 13.38%
</TABLE>
- ----------------------
(1) Beneficial ownership of Common Stock has been determined in accordance
with Rule 13d-3 under the Securities Act of 1934, as amended (the "1934
Act"). For purposes of this table a person is deemed to be the
beneficial owner of Common Stock if that person has or shares voting
power or investment power in respect of such Common Stock or has the
right to acquire ownership within 60 days after March 1, 1998.
Accordingly, the amounts shown on the table do not purport to represent
beneficial ownership for any purpose other than compliance with the
reporting requirements of the 1934 Act. Further, beneficial ownership
as determined in this matter does not necessarily bear on the economic
incidence of ownership of Common Stock. Voting power or investment
power with respect to shares reflected on the table is not shared with
others except as otherwise indicated.
(2) Includes 2,100 shares held in a retirement trust for Mr. Bent. Also
includes 5,000 shares held in a residuary trust of which Mr. Bent is a
one-third beneficiary. Also includes options presently exercisable or
exercisable within 60 days to purchase 2,700 shares under the Warren
Bancorp, Inc. 1995 Incentive and Nonqualified Stock Option Plan.
(3) Shares owned in the name of Connolly Brothers, Inc., of which Mr.
Connolly is President and sole stockholder. Also includes options
presently exercisable or exercisable within 60 days to purchase 5,600
shares under the Warren Bancorp, Inc. 1986 and 1995 Incentive and
Nonqualified Stock Option Plans.
5
<PAGE> 7
(4) Includes 1,500 shares as to which Mr. Conway shares voting and
investment power with his wife. Also includes options presently
exercisable or exercisable within 60 days to purchase 5,600 shares
under the Warren Bancorp, Inc. 1986 and 1995 Incentive and Nonqualified
Stock Option Plans.
(5) Includes 3,000 shares held in trust for the pension plan of Mr. Curtin.
Also includes options presently exercisable or exercisable within 60
days to purchase 5,600 shares under the Warren Bancorp, Inc. 1986 and
1995 Incentive and Nonqualified Stock Option Plans. Mr. Curtin's wife
owns an additional 7,000 shares as to which he disclaims beneficial
ownership.
(6) Voting and investment power is shared with his wife. Includes presently
exercisable or exercisable within 60 days options to purchase 41,760
shares under the Warren Bancorp, Inc. 1986, 1991 and 1995 Incentive and
Nonqualified Stock Option Plans. Also includes 2,205 shares allocated
to the account of Mr. Donahue under the Bank's 401(k) Savings Plan.
(7) Voting and investment power is shared with his wife. Includes options
presently exercisable or exercisable within 60 days to purchase 1,700
shares under the Warren Bancorp, Inc. 1986 and 1995 Incentive and
Nonqualified Stock Option Plans.
(8) Includes 12,200 shares as to which Mr. Holden shares voting and
investment power with his wife. Also, includes options presently
exercisable or exercisable within 60 days to purchase 1,100 shares
under the Warren Bancorp, Inc. 1986 and 1995 Incentive and Nonqualified
Stock Option Plans.
(9) Includes options presently exercisable or exercisable within 60 days to
purchase 1,100 shares under the Warren Bancorp, Inc. 1986 and 1995
Incentive and Nonqualified Stock Option Plans.
(10) Includes options presently exercisable or exercisable within 60 days to
purchase 3,800 shares under the Warren Bancorp, Inc. 1986 and 1995
Incentive and Nonqualified Stock Option Plans.
(11) Includes 40,000 shares as to which Mr. Kasnet shares voting rights with
his wife. Also includes 11,000 shares held in retirement trust for the
benefit of Mr. Kasnet. Also includes options presently exercisable or
exercisable within 60 days to purchase 5,600 shares under the Warren
Bancorp, Inc. 1986 and 1995 Incentive and Nonqualified Stock Option
Plans. Mr. Kasnet's children own an additional 5,550 shares as to which
he disclaims beneficial ownership.
(12) Includes options presently exercisable or exercisable within 60 days to
purchase 2,700 shares under the Warren Bancorp, Inc. 1995 Incentive and
Nonqualified Stock Option Plan.
(13) Includes options presently exercisable or exercisable within 60 days to
purchase 5,600 shares under the Warren Bancorp, Inc. 1986 and 1995
Incentive and Nonqualified Stock Option Plans. Mr. McCarthy's wife owns
an additional 15,000 shares as to which he disclaims beneficial
ownership.
(14) Includes options presently exercisable or exercisable within 60 days to
purchase 2,700 shares under the Warren Bancorp, Inc. 1995 Incentive and
Nonqualified Stock Option Plan.
(15) Includes 32,600 shares as to which Mr. Peduto shares voting and
investment power with his wife. Also includes options presently
exercisable or exercisable within 60 days to purchase 20,360 shares
under the Warren Bancorp, Inc. 1986, 1991 and 1995 Incentive and
Nonqualified Stock Option Plans. Also includes 2,602 shares allocated
to the account of Mr. Peduto under the Bank's 401(k) Savings Plan.
6
<PAGE> 8
(16) Includes 654 shares allocated to the account of Mr. Phillips under the
Bank's 401(k) Savings Plan.
(17) Includes 15,000 shares as to which Mr. Putney shares voting and
investment power with his wife. Also includes 3,200 shares held in
retirement trust for the benefit of Mr. Putney. Also includes presently
exercisable options to purchase 22,100 shares under the Warren Bancorp,
Inc. 1986, 1991 and 1995 Incentive and Nonqualified Stock Option Plans.
Also includes 1,395 shares allocated to the account of Mr. Putney under
the Bank's 401(k) Savings Plan.
(18) Includes 18,000 shares as to which Mr. Smidt shares voting and
investment power with his wife. Also includes 6,100 shares held in
retirement trust for the benefit of Mr. Smidt. Also includes options
presently exercisable or exercisable within 60 days to purchase 2,000
shares under the Warren Bancorp, Inc. 1986 and 1995 Incentive and
Nonqualified Stock Option Plans. Mr. Smidt's wife owns an additional
500 shares in a retirement trust as to which he disclaims beneficial
ownership.
(19) Includes options presently exercisable within 60 days to purchase 2,800
shares under the Warren Bancorp, Inc. 1995 Incentive and Nonqualified
Stock Option Plan. Also includes 113 shares allocated to the account of
Mr. Terry under the Bank's 401(k) Savings Plan.
(20) Includes options presently exercisable or exercisable within 60 days to
purchase 5,600 shares under the Warren Bancorp, Inc. 1986 and 1995
Incentive and Nonqualified Stock Option Plans.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Bancorp's
executive officers and directors, and persons who own more than 10% of a
registered class of Bancorp's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers, Inc. Officers, directors and greater
than 10% shareholders are required by SEC regulations to furnish Bancorp with
copies of all Section 16(a) reports they file. To Bancorp's knowledge, based
solely on review of the copies of such reports furnished to Bancorp and written
representations that no other reports were required during the fiscal year ended
December 31, 1997, all Section 16(a) filing requirements applicable to its
executive officers, directors, and greater than 10% beneficial owners were
satisfied except for the following late filings: Mr. Pappathanasi filed one Form
4 reporting the sale of 5,000 shares of Warren Bancorp, Inc. stock in the name
of Richdale Dairy Stores, Inc., of which Mr. Pappathanasi is President and Chief
Executive Officer; Mr. Terry filed one Form 3 upon his election as Senior Vice
President and a policy-making officer of Warren Bancorp, Inc. subsidiary, Warren
Five Cents Savings Bank.
7
<PAGE> 9
PROPOSAL 1
ELECTION OF A CLASS OF DIRECTORS
The Board of Directors of Bancorp presently consists of seventeen
members and is divided into three classes as nearly equal in number as possible.
The term of office of one class of Directors expires each year and their
successors are elected at each annual meeting of stockholders for a term of
three years and until their successors are duly elected and qualified.
At the Annual Meeting, seven Directors will be elected to serve until
the 2001 annual meeting and until their respective successors are duly elected
and qualified. The Board of Directors has nominated Francis L. Conway, Arthur E.
Holden, Stephen G. Kasnet, Linda Lerner, Arthur J. Pappathanasi, George W.
Phillips and John H. Womack for election as Directors to serve until the 2001
annual meeting. Unless otherwise specified in the proxy, it is the intention of
the persons named in the proxy to vote the shares represented by each properly
executed proxy for the election of Ms. Lerner and Messrs. Conway, Holden,
Kasnet, Pappathanasi, Phillips and Womack as Directors. Each of Ms. Lerner and
Messrs. Conway, Holden, Kasnet, Pappathanasi, Phillips and Womack has agreed to
stand for election and to serve if elected as a Director. However, if any person
nominated by the Board of Directors fails to stand for election or is unable to
accept election, the proxies will be voted for the election of such other person
as the Board of Directors may recommend.
The affirmative vote of holders of a plurality of the shares of Common
Stock represented in person or by proxy at the Annual Meeting is necessary to
elect the nominees as Directors.
INFORMATION REGARDING NOMINEES AND DIRECTORS
The following table sets forth for each of the seven nominees for
election as Directors at the Annual Meeting the nominee's name, age as of March
1, 1998, the nominee's principal occupation for at least the past five years and
the year in which the nominee was first elected as a Director of Bancorp, based
on information furnished by the nominee to Bancorp. Similar information is
provided for those Directors whose terms expire at the annual meetings of the
stockholders of Bancorp in 1999 and 2000.
NOMINEES
(TERMS TO EXPIRE IN 2001)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION FOR DIRECTOR
PAST FIVE YEARS; DIRECTORSHIPS AGE SINCE(1)
- ------------------------------ --- --------
<S> <C> <C>
Francis L. Conway(3) ......................................................... 57 1978
President and Treasurer, F.L. Conway & Sons, Inc. (funeral home) since prior
to 1993.
Arthur E. Holden(2)(4) ....................................................... 69 1978
President, Holden Oil., Inc. and Vice President, Holden Bottled Gas, Inc.
since prior to 1993.
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION FOR DIRECTOR
PAST FIVE YEARS; DIRECTORSHIPS AGE SINCE(1)
- ------------------------------ --- --------
<S> <C> <C>
Stephen G. Kasnet(2)(4)............................................................. 52 1983
Chairman of the Board of Bancorp and Bancorp's wholly-owned subsidiary, Warren
Five Cents Savings Bank (the "Bank"), since prior to 1993; President, Pioneer
Real Estate Advisors, Inc. since 1995 to present; President, Pioneer Global
Institutional Advisors and President, Management Board, Pioneer Polish Real
Estate Fund, since 1997 to present; Vice President, Pioneer Group, (mutual
fund complex, real estate investment management), 1995 to present; Managing
Director of First Winthrop Corporation and Winthrop Financial Associates (real
estate investment and management), 1993 to 1995; Director, Bradley Real Estate
Inc.; Trustee and Vice President, Pioneer Real Estate Shares; Trustee and Vice
President, Pioneer Real Estate Shares (Dublin).
Linda Lerner(3)..................................................................... 59 1995
Retired since 1995. President of Jilcraft, Inc. (business communications)
since prior to 1993 to 1995.
Arthur J. Pappathanasi(3)........................................................... 59 1995
President and Chief Executive Officer of West Lynn Creamery, Inc. and
Richdale Dairy Stores, Inc. since prior to 1993.
George W. Phillips.................................................................. 59 1991
Retired; President and Chief Executive Officer of Bancorp and the Bank since
prior to 1993 to 1997.
John H. Womack...................................................................... 53 1989
President and Chief Executive Officer, JJS Services, Inc. (janitorial
services) since prior to 1993; President, Peabody Paper & Industrial Supply
since prior to 1993. Mr. Womack was President of Classical Foods, Inc.
which filed for bankruptcy on June 20, 1996.
</TABLE>
OTHER DIRECTORS
(TERMS TO EXPIRE IN 1999)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION FOR DIRECTOR
PAST FIVE YEARS; DIRECTORSHIPS AGE SINCE(1)
- ------------------------------ --- --------
<S> <C> <C>
Peter V. Bent(3)........................................................................ 54 1995
Owner/Manager of Brown's Yacht Yard since prior to 1993.
Paul J. Curtin(2)....................................................................... 53 1976
Certified public accountant in private practice since prior to 1993.
Stephen R. Howe(3)...................................................................... 62 1976
Certified public accountant in private practice since prior to 1993.
Arthur E. McCarthy(2)(4)................................................................ 62 1979
Vice President and Managing Director, Tucker Anthony, Inc. (investment
advisors) since prior to 1993; Director, Tucker Anthony, Inc.
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION FOR DIRECTOR
PAST FIVE YEARS; DIRECTORSHIPS AGE SINCE(1)
- ------------------------------ --- --------
<S> <C> <C>
John D. Smidt....................................................................... 55 1989
President and Treasurer, John Smidt Co., Inc. (contract leather
finishing) since prior to 1993.
</TABLE>
OTHER DIRECTORS
(TERMS TO EXPIRE IN 2000)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION FOR DIRECTOR
PAST FIVE YEARS; DIRECTORSHIPS AGE SINCE(1)
- ------------------------------ --- --------
<S> <C> <C>
Stephen J. Connolly, IV(4).......................................................... 48 1989
President, Connolly Brothers, Inc. (building contractors) since prior to
1993.
Robert R. Fanning, Jr.(2)(3)(4)..................................................... 55 1988
President and Chief Executive Officer of Northeast Health Systems, Inc. since
1995; President and Chief Executive Officer of Cape Ann and Northeast Health
Systems, Inc., 1994 to 1995; President and Chief Executive Officer, Beverly
Hospital Corporation since prior to 1993; President and Chief Executive
Officer, Northeast Health Systems since prior to 1993 to 1994; Director,
Health Care Property Investors since prior to 1993.
John C. Jeffers(3).................................................................. 67 1968
Vice President, Jeffers Millwork, since 1994. Mr. Jeffers was President and
Treasurer of Jeffers Lumber Corporation since prior to 1993 to 1994 which
filed for bankruptcy on February 1, 1994.
Paul M. Peduto...................................................................... 48 1988
Treasurer of Bancorp and Executive Vice President, Chief Financial Officer and
Treasurer of the Bank since prior to 1993.
John R. Putney...................................................................... 54 1997
President and Chief Executive Officer of Bancorp and the Bank since 1998;
Executive Vice President of Bancorp and the Bank, 1997; Senior Vice President
for Corporate Banking and Senior Lending Officer of the Bank since prior to
1993 to 1997.
</TABLE>
- -------------------------------
(1) The year shown indicates the beginning of the period during which each
of the above-named persons has continuously served as a Director of
Bancorp. When used in this Proxy Statement, the term "Director" shall
include Directors of Bancorp who were Directors of the Bank prior to
its reorganization into holding company form in 1988 and Trustees of
the Bank prior to the Bank's conversion to stock form of organization
in 1986.
(2) Member of the Executive Committee.
(3) Member of the Finance, Audit and Compliance Committee.
(4) Member of the Nominating Committee.
10
<PAGE> 12
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors of Bancorp held 11 meetings during 1997. During
1997 each incumbent Director, except Robert R. Fanning, Jr. and Arthur E.
Holden, attended 75 percent or more of the total of all meetings of the Board of
Directors and the committees of the Board of Directors on which each served
during the period for which he served. The standing committees of the Board
include: an Executive Committee; a Finance, Audit and Compliance Committee and a
Nominating Committee. The Finance, Audit and Compliance Committee and the
Nominating Committee are described below. The Executive Committee of Bancorp,
acting jointly with the Executive Committee of the Bank, of which no employee
Director is a member, is responsible for all compensation matters.
FINANCE, AUDIT AND COMPLIANCE COMMITTEE. At December 31, 1997, the
Finance, Audit and Compliance Committee consisted of Peter V. Bent, Francis L.
Conway, Robert R. Fanning, Jr., Stephen R. Howe, Chairman, John C. Jeffers,
Linda Lerner, and Arthur J. Pappathanasi. The Finance, Audit and Compliance
Committee reviews and approves the adequacy of management reporting and
financial and accounting control systems, as well as monitoring compliance with
state and federal laws and regulations. The Committee also approves the
selection of independent public accountants, reviews audit and compliance
examinations and reports, and approves and monitors appropriate action based
upon these reports, and reviews and advises with respect to material
transactions with Directors or officers. In addition, the Committee reviews and
approves matters relating to financial management and the capital markets.
Meetings are held as necessary to accomplish the objectives of the Committee,
and in 1997 the Committee met twice.
NOMINATING COMMITTEE. At December 31, 1997, the Nominating Committee
consisted of Stephen J. Connolly, IV, Robert R. Fanning, Jr., Arthur E. Holden,
Stephen G. Kasnet and Arthur E. McCarthy, Chairman. The Nominating Committee met
once during 1997. The Nominating Committee selects nominees for election as
Directors; determines committee assignments and recommends for Board approval
the policy regarding directors' compensation. Meetings are held as necessary to
accomplish the objectives of the Nominating Committee. The Nominating Committee
will consider written recommendations from any stockholder of record with
respect to nominees for Directors of Bancorp. Such nominations must be delivered
to or mailed to and received by Bancorp at its principal executive office no
later than March 7, 1999 and no earlier than December 7, 1998 to be considered
at the 1999 annual meeting. To submit a nomination, a stockholder should send
the nominee's name and appropriate supporting information as provided in
Bancorp's By-Laws to Susan G. Ouellette, Clerk, at Bancorp's principal executive
office (see "Stockholder Proposals").
11
<PAGE> 13
EXECUTIVE OFFICERS
The following table sets forth as of March 1, 1998 the names and ages
of all executive officers of Bancorp and its subsidiary, the Bank, the positions
and offices held by each of them with Bancorp and the Bank, the period during
which he has served as such, and the business experience of each during the
previous five years.
<TABLE>
<CAPTION>
POSITIONS HELD AND
BUSINESS EXPERIENCE DURING
NAME THE PREVIOUS FIVE YEARS AGE
- ---- ----------------------- ---
<S> <C> <C>
John R. Putney President and Chief Executive Officer of Bancorp 54
and the Bank since 1998; Director of Bancorp and
the Bank since 1997; Executive Vice President of
Bancorp and the Bank, 1997; Senior Vice President
for Corporate Banking and Senior Lending Officer
of the Bank since prior to 1993 to 1997.
Paul M. Peduto Treasurer and Director of Bancorp and Executive 48
Vice President, Chief Financial Officer, Treasurer
and Director of the Bank since prior to 1993.
Leo C. Donahue Senior Vice President for Personal Banking of the 48
Bank since prior to 1993.
Mark J. Terry Senior Vice President for Corporate Banking and 47
Senior Lending Officer of the Bank since 1998;
Senior Vice President, Commercial Real Estate,
1996-1997; Senior Vice President, Commercial Real
Estate, Eastern Bank, since prior to 1993 to 1996.
</TABLE>
12
<PAGE> 14
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Executive Committees (the "Committees") of the Boards of Directors
of Bancorp and the Bank, which are comprised of the same individuals, are
responsible for compensation policies and decisions. Bancorp does not pay any
separate compensation to the Chief Executive Officer or executive officers of
Bancorp, all of whom are executive officers of the Bank and receive compensation
in such capacities. Neither George W. Phillips, Paul M. Peduto nor John R.
Putney is or was a member of the Executive Committee of Bancorp or the Bank.
The Committees' policy with regard to executive compensation is as
follows: Salaries and perquisites, other than bonuses and option grants, are
based in part on the Committees' subjective evaluation of (a) publicly available
information concerning salaries and perquisites earned by individuals with
comparable responsibilities and positions at other public companies and (b) the
performance of Bancorp and the Bank and individual executive officers. In the
case of compensation for executive officers other than the Chief Executive
Officer, the Committees rely to a large extent upon the recommendations of the
Chief Executive Officer. Because the Committees believe that employment
opportunities for executive officers are not necessarily limited to or
coextensive with the financial institutions included in the Keefe, Bruyette &
Woods New England Bank Index shown in the performance graph below, its review of
compensation information includes companies not included in this industry index.
Bonuses and option grants are intended to provide annual and long-term
compensation incentives. Bonuses and option grants are awarded to executive
officers based mainly on the financial performance of Bancorp and the Bank
compared to targets for the business segment for which each executive is
responsible. Bonuses were paid after the Committees reviewed the financial
performance of the Bank for 1997. Stock option grants are intended to create
incentives for the long-term growth and financial success of Bancorp and the
Bank and to increase the commonality of interest between management and
Bancorp's shareholders and are granted as and when determined appropriate by the
Committees. The level of bonuses and stock options awarded to individuals is not
based on any formula; instead, a general determination is made based on the
above factors and, in the case of executive officers other than the Chief
Executive Officer, the recommendations of the Chief Executive Officer. Stock
option awards during 1997 reflect the Committees' review of the Bank's financial
performance.
The salary and perquisites paid to the Chief Executive Officer in 1997
are specified in a 1995 employment agreement between the Chief Executive Officer
and Bancorp and the Bank (see Executive Compensation (Salary and Bonus Payments,
Options Granted and Other) - Employment Agreement - George W. Phillips, below).
Effective July 1, 1995, as part of the employment agreement, the Committee
established a supplemental retirement benefit arrangement for Mr. Phillips,
including the purchase of a split-dollar life insurance policy, in recognition
of the improved financial performance of the Bank. Also, as part of the
employment agreement, Mr. Phillips did not participate in any allocation of
stock options and was not eligible for any year-end bonus compensation payments
except for discretionary payments to the Bank's 401(k) Plan in which all Plan
members participate.
MEMBERS OF THE EXECUTIVE COMMITTEE(S)
Paul J. Curtin
Robert R. Fanning, Jr.
Arthur E. Holden, Chairman
Stephen G. Kasnet
Arthur E. McCarthy
13
<PAGE> 15
EXECUTIVE COMPENSATION (SALARY AND BONUS PAYMENTS, OPTIONS GRANTED AND OTHER)
The following table sets forth the executive compensation paid for
services in all capacities to Bancorp, the Bank and its subsidiaries during
calendar years 1995, 1996 and 1997 for the Chief Executive Officer and all other
executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- ----------------------
NAME AND PRINCIPAL POSITION AWARDS
- --------------------------------- OTHER ANNUAL ---------------------- ALL OTHER
DECEMBER 31, 1997 YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(# OF SHS.) COMPENSATION($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George W. Phillips* 1997 151,236 0 37,684(1) 0 156,760(5)
President, Chief Executive 1996 150,000 0 47,899(2) 0 153,664
Officer and Director of 1995 150,000 0 27,710(3) 0 152,060
Warren Bancorp, Inc., and
Warren Five Cents Savings Bank
- ---------------------------------------------------------------------------------------------------------------------------------
John R. Putney** 1997 126,815 32,000 - 7,000 21,184(4)(6)
Executive Vice President and 1996 100,846 24,000 - 5,300 13,258
Director of Warren Bancorp, 1995 97,400 12,000 - 5,800 11,942
Inc.; Executive Vice President
for Corporate Banking and
Senior Lending Officer of
Warren Five Cents Savings Bank
- ---------------------------------------------------------------------------------------------------------------------------------
Paul M. Peduto 1997 133,019 14,000 - 5,800 21,889(4)(7)
Treasurer and Director of 1996 124,277 12,500 - 5,300 16,608
Warren Bancorp, Inc.; 1995 120,400 10,000 - 5,300 14,118
Executive Vice President,
Chief Financial Officer,
Treasurer and Director of
Warren Five Cents Savings Bank
- ---------------------------------------------------------------------------------------------------------------------------------
Leo C. Donahue 1997 103,617 9,000 - 5,300 16,364(4)(8)
Senior Vice President for 1996 96,700 10,000 - 5,300 10,645
Personal Banking of 1995 93,700 7,250 - 5,800 9,989
Warren Five Cents Savings Bank
- ---------------------------------------------------------------------------------------------------------------------------------
Mark J. Terry*** 1997 111,000 37,000 - 4,000 19,084(9)
Senior Vice President for 1996 2,827 - - 5,000 -
Corporate Banking of
Warren Five Cents Savings Bank
</TABLE>
* Effective December 31, 1997 Mr. Phillips retired as President and CEO of
Bancorp and the Bank and Director of the Bank. Mr. Phillips will remain as a
Director of Bancorp.
** Mr. Putney was elected President and CEO of Bancorp and the Bank effective
January 1, 1998.
*** Mr. Terry was employed as of December, 1996. He was elected Senior Vice
President and Senior Lending Officer of the Bank effective January 1, 1998.
- ------------------
(1) Consists of the following: reimbursement for use of automobile, $7,814;
provision of financial planning service, $12,067; reimbursement for personal
taxes due on the above items, $17,803.
(2) Consists of the following: reimbursement for use of automobile, $7,820;
provision of financial planning service, $8,551; reimbursement for personal
taxes due on the above items and certain prior-year items, $31,528.
(3) Consists of the following: reimbursement for use of automobile, $7,887;
provision of financial planning service, $7,592; reimbursement for personal
taxes due on the above items, $12,231.
(4) Includes premiums paid for split-dollar life insurance policies. The
ownership of the policies is structured so that upon the death of the
executive, Bancorp will be reimbursed for the cumulative premium amounts
paid. The result is that over the life of the program there is minimal cost
to Bancorp.
(5) Consists of contribution of $16,360 to Mr. Phillips' 401(k) account and
premium paid for a split-dollar life insurance policy in the amount of
$140,400. The split-dollar life insurance policy is structured so that upon
the death of Mr. Phillips, Bancorp will be reimbursed for the cumulative
premium amounts paid and, depending on the timing of Mr. Phillips' death,
Bancorp could be paid up to $500,000 in excess of the cumulative premium
amounts paid.
(6) Consists of contribution of $14,991 to Mr. Putney's 401(k) account and
premium paid for a split-dollar life insurance policy in the amount of
$6,193.
(7) Consists of contribution of $14,137 to Mr. Peduto's 401(k) account and
premium paid for a split-dollar life insurance policy in the amount of
$7,752.
(8) Consists of contribution of $11,093 to Mr. Donahue's 401(k) account and
premium paid for a split-dollar life insurance policy in the amount of
$5,271.
(9) Consists of contribution of $9,084 to Mr. Terry's 401(k) account and a
one-time relocation bonus of $10,000.
14
<PAGE> 16
EMPLOYMENT AGREEMENT - GEORGE W. PHILLIPS. Mr. Phillips, who served as
the President and Chief Executive Officer and a director of Bancorp and the Bank
during 1997, entered into an agreement in 1995 with Bancorp and the Bank
relative to the terms of his employment which was terminable at will by the
parties, subject to an obligation to maintain the confidentiality of trade
secrets, including confidential business information, of Bancorp and the Bank.
Mr. Phillips was paid at a rate of $150,000 per year. The Bank also provided Mr.
Phillips with reimbursement for use of an automobile and a financial planning
service. In addition, the Bank provides Mr. Phillips a supplemental retirement
benefit arrangement, including a split-dollar life insurance policy (see
Retirement Benefits - Executive Supplemental Retirement Arrangement, below).
EMPLOYMENT AGREEMENT - JOHN R. PUTNEY. Mr. Putney, who currently serves
as President and Chief Executive Officer and a director of Bancorp and the Bank,
entered into an agreement effective January 1, 1998, the date he began serving
as President and Chief Executive Officer, relative to the terms of his
employment. The agreement is for an initial two-year term and automatically
extends for an additional one-year period on each anniversary. Mr. Putney may
terminate the agreement upon 90 days notice to the Bank subject to an obligation
not to solicit Bank customers on behalf of businesses engaged in banking or
mortgage lending or encourage Bank customers to terminate or adversely modify
their business relationship with the Bank. Mr. Putney is currently paid at a
rate of $182,000 per year. The agreement provides for base salary adjustments
and bonuses each year. Under the agreement the Bank also provides Mr. Putney
with the use of an automobile and customary insurance and retirement benefits.
CONSULTING AGREEMENT
CONSULTING AGREEMENT - GEORGE W. PHILLIPS. Mr. Phillips, who served as
President, Chief Executive Officer and director of Bancorp and the Bank from
prior to 1993 to 1997 and currently serves as a director of Bancorp, entered
into an agreement with Bancorp effective January 1, 1998 relative to certain of
his responsibilities as a director of and consultant to Bancorp. For his
services Mr. Phillips is paid at a rate of $50,000 per year and has agreed to
waive director fees and other benefits. The agreement expires May 31, 2000, and
may be terminated for any reason by either party with 60 days prior notice.
15
<PAGE> 17
SEVERANCE ARRANGEMENTS
EMPLOYMENT AGREEMENT - JOHN R. PUTNEY. The employment agreement between
John R. Putney and the Bank described above, provides that upon a "non-hostile
change of control" the term of the employment agreement shall automatically
convert to a term of three years from the date of the "change of control" and
automatically extend for an additional one-year period on each anniversary.
"Non-hostile change of control" is defined in the agreement and generally refers
to a 25 percent or more change in ownership of the Common Stock of Bancorp which
is consented to by a two-thirds vote of the directors of Bancorp.
SPECIAL TERMINATION AGREEMENTS. Bancorp and the Bank have entered into
severance agreements with Leo C. Donahue, Paul M. Peduto, John R. Putney and
Mark J. Terry. Each severance agreement provides severance pay benefits to the
relevant officer if his employment is terminated under certain circumstances
following a "change of control." "Change of control" is defined in each
agreement and generally refers to a 25 percent or more change in ownership of
the Common Stock of Bancorp or the Bank which, in some cases, is not consented
to by the Board of Directors. If there is such a "change of control" at any time
during the term of the agreement, and thereafter the officer's employment were
terminated either by Bancorp or the Bank other than for "cause" or by the
officer following the officer's demotion, the officer's loss of title or office,
or a reduction in the officer's annual compensation, the officer would generally
be entitled to receive a lump sum cash payment equal to approximately three
times his average annual compensation over his five most recent years of
employment with Bancorp or the Bank. The agreements terminate upon the earliest
of termination of the officer's employment by Bancorp and the Bank for cause,
the officer's resignation or termination for any reason prior to a change in
control, or resignation after a change in control except for reasons just
described.
STOCK OPTION AGREEMENTS. Stock option agreements with Leo C. Donahue,
Paul M. Peduto, John R. Putney and Mark J. Terry provide that currently
exercisable stock options shall immediately vest in full and become exercisable
upon a "change of control," as defined in such stock option agreements.
STOCK OPTIONS
The following tables show, as to the executive officers named in the
Summary Compensation Table, information regarding options granted during 1997
and option values at December 31, 1997.
16
<PAGE> 18
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Individual Grants
- -------------------------------------------------------------------------------------------- Potential realizable value
at assumed annual rates
Percent of of stock price appreciation
total for option term
Options options granted Exercise or ------------------------------------
Granted to employees base price Expiration
(# of Shs.) in 1997 ($/Sh) date 5%($) 10%($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George W. Phillips 0 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
John R. Putney 7,000 6.83% 15.75 5/14/07 $69,336 $175,710
- --------------------------------------------------------------------------------------------------------------------------------
Paul M. Peduto 5,800 5.66% 15.75 5/14/07 $57,450 $145,588
- --------------------------------------------------------------------------------------------------------------------------------
Leo C. Donahue 5,300 5.17% 15.75 5/14/07 $52,497 $133,037
- --------------------------------------------------------------------------------------------------------------------------------
Mark J. Terry 4,000 3.90% 15.75 5/14/07 $39,621 $100,406
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AGGREGATED OPTIONS EXERCISED IN 1997 AND
THE YEAR-END VALUE OF UNEXERCISED OPTIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Value of
Number of unexercised in-the-
unexercised options money options
Shares at year-end 1997(#) at year-end 1997($)
acquired on ------------------------------------------------------------
exercise Value Exercisable/ Exercisable/
Name (# of Shs.) Realized($) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George W. Phillips 0 0 0/0 0/0
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Putney 20,100 261,488 22,100/13,000 321,035/137,253
- ------------------------------------------------------------------------------------------------------------------------------------
Paul M. Peduto 22,800 281,325 20,360/11,540 296,851/122,830
- ------------------------------------------------------------------------------------------------------------------------------------
Leo C. Donahue 0 0 41,760/11,640 719,195/127,393
- ------------------------------------------------------------------------------------------------------------------------------------
Mark J. Terry 0 0 2,800/6,200 21,550/46,825
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 19
RETIREMENT BENEFITS
EXECUTIVE SUPPLEMENTAL RETIREMENT ARRANGEMENT. An Executive
Supplemental Retirement Arrangement between George W. Phillips and Bancorp and
the Bank provides that Mr. Phillips is entitled to receive annual pension
benefits of $62,400 beginning January 1, 1998.
DIRECTORS' COMPENSATION
Directors of Bancorp receive $300 for each Board meeting that they
attend. Members of the Board committees and committee chairmen receive $250 for
each meeting that they attend.
Directors of the Bank receive $300 for each Board meeting they attend.
Committee members and committee chairmen receive $250 for each committee meeting
they attend. In addition, each Director receives an annual fee of $2,000.
Stephen G. Kasnet, who is Chairman of the Board of Bancorp and the
Bank, in addition to receiving compensation for Board and committee meeting
attendance, also receives an annual fee of $10,000.
Employees of Bancorp or the Bank who are also Directors of Bancorp or
the Bank do not receive directoral fees.
Each Director receives stock options for 1,500 shares of Bancorp Common
Stock per year under the 1995 Incentive and Nonqualified Stock Option Plan,
exercisable at the fair market value of Bancorp's Common Stock on the date of
grant. In addition, any new directors will receive a one-time grant of stock
options for 3,000 shares of Bancorp Common Stock.
George W. Phillips, who is a director of Bancorp, has agreed to waive
director fees and receipt of options. (See Consulting Agreement - George W.
Phillips, above).
Copies of the aforementioned agreements, plans and documents discussed
under "Executive Compensation" are available for inspection at Bancorp's office,
10 Main Street, Peabody, Massachusetts 01960.
18
<PAGE> 20
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG WARREN BANCORP, INC., THE TOTAL
RETURN INDEX FOR THE NASDAQ STOCK MARKETS (U.S. COMPANIES), AND THE KEEFE,
BRUYETTE AND WOODS TOTAL RETURN INDEX FOR NEW ENGLAND BANKS.
[LINE GRAPH]
<TABLE>
<CAPTION>
WARREN
BANCORP, WARREN NASDAQ KB&W (1)
INC. PRICE PLUS BANCORP, U.S. COMPANIES NEW ENGLAND
CUMULATIVE DIVIDENDS INC. (Indexed) INDEX BANK INDEX
-------------------- -------------- ----- ----------
<S> <C> <C> <C> <C>
12/31/92 $3.875 100.00 100.00 100.00
12/31/93 7.250 187.10 114.80 133.51
12/31/94 8.000 206.45 112.21 134.40
12/31/95 11.605 299.47 158.70 209.77
12/31/96 16.132 416.31 195.19 289.74
12/31/97 25.911 668.67 239.53 498.12
</TABLE>
- ----------
(1) Keefe, Bruyette & Woods, Inc.(KB&W) is an investment banking firm
specializing in banks and bank stock. Included in its published index
are total returns for 18 New England banks which were chosen by Keefe
Bruyette & Woods for their range of asset size, market capitalization
and geographical dispersion.
19
<PAGE> 21
PROPOSAL 2
PROPOSAL TO APPROVE
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
PROPOSAL
The Board of Directors has adopted the 1998 Incentive and Nonqualified
Stock Option Plan (the "1998 Plan") for Directors, officers, employees and other
key persons of the Corporation and its subsidiaries, subject to the approval of
the 1998 Plan by the stockholders.
The 1998 Plan will be administered by the Executive Committee (the
"Committee") of the Board of Directors. The Committee, at its discretion, may
grant incentive and nonqualified stock options to purchase shares of the Common
Stock of the Corporation. These awards are described in greater detail below.
Subject to adjustment for stock splits, stock dividends and similar
events, the total number of shares of Common Stock that can be issued under the
1998 Plan is 300,000 shares. Based solely upon the closing price of the Common
Stock as reported by the NASDAQ National Market on March 2, 1998, the maximum
aggregate market value of the securities to be issued under the 1998 Plan would
be $6.9 million. In order to satisfy the performance-based compensation
exception to the $1 million cap on the Corporation's tax deduction imposed by
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
the 1998 Plan also provides that stock options with respect to no more than
100,000 shares of Common Stock may be granted to any one individual in any
calendar year. The shares issued by the Corporation under the 1998 Plan may be
authorized but unissued shares, or shares reacquired by the Corporation. To the
extent that awards under the 1998 Plan do not vest or otherwise revert to the
Corporation, the shares of Common Stock represented by such awards may be the
subject of subsequent awards.
RECOMMENDATION
The Board of Directors believes that stock option awards can play an
important role in the success of the Corporation by encouraging and enabling the
officers and other employees of the Corporation and its subsidiaries upon whose
judgment, initiative and efforts the Corporation largely depends for the
successful conduct of its business to acquire a proprietary interest in the
Corporation. The Board of Directors anticipates that providing such persons with
a direct stake in the Corporation will assure a closer identification of the
interests of participants in the 1998 Plan with those of the Corporation,
thereby stimulating their efforts on the Corporation's behalf and strengthening
their desire to remain with the Corporation. However, under the Corporation's
1991 and 1995 Incentive and Nonqualified Stock Option Plans (collectively, the
"Existing Plans"), there are only a total of 59,000 shares remaining available
for grant.
The Board of Directors believes that the proposed 1998 Plan, which
provides for stock options on substantially the same terms as the Existing
Plans, will help the Corporation to achieve its goals by keeping the
Corporation's incentive compensation program dynamic and competitive with those
of other companies. Accordingly, the Board of Directors believes that the 1998
Plan is in the best interests of the Corporation and its stockholders and
recommends that the stockholders approve the 1998 Plan.
20
<PAGE> 22
THE BOARD OF DIRECTORS RECOMMENDS THAT THE 1998 PLAN BE APPROVED, AND
THEREFORE RECOMMENDS A VOTE FOR THIS PROPOSAL.
SUMMARY OF THE 1998 PLAN
The following description of certain features of the 1998 Plan is
intended to be a summary only. The summary is qualified in its entirety by the
full text of the 1998 Plan which is attached hereto as Exhibit A.
Plan Administration; Eligibility. The 1998 Plan is administered by the
Committee. All members of the Committee must be "non-employee directors" as that
term is defined under the rules promulgated by the Securities and Exchange
Commission and "outside directors" as that term is defined in Section 162 of the
Code and the regulations promulgated thereunder.
The Committee has full power to select, from among the employees
eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms and
conditions of each award, subject to the provisions of the 1998 Plan. The
Committee may permit Common Stock, and other amounts payable pursuant to stock
options, to be deferred. In such instances, the Committee may permit interest,
dividend or deemed dividends to be credited to the amount of deferrals.
Persons eligible to participate in the 1998 Plan will be those
employees and other key persons of the Corporation and its subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
Corporation and its subsidiaries, as selected from time to time by the
Committee. Directors of the Corporation who are not employed by the Corporation
or its subsidiaries ("Independent Directors") will also be eligible for certain
awards under the 1998 Plan.
Stock Options. The 1998 Plan permits the granting of (i) options to
purchase Common Stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Code and (ii) options that do not so qualify
("Nonqualified Options"). The option exercise price of each option will be
determined by the Committee but may not be less than 100% of the fair market
value of the Common Stock on the date of grant.
The term of each option will be fixed by the Committee and may not
exceed ten years from date of grant in the case of an Incentive Option. The
Committee will determine at what time or times each option may be exercised and,
subject to the provisions of the 1998 Plan, the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee.
Upon exercise of options, the option exercise price must be paid in
full either in cash or by certified or bank check or other instrument acceptable
to the Committee or, if the Committee so permits, by delivery of shares of
Common Stock already owned by the optionee. The exercise price may also be
delivered to the Corporation by a broker pursuant to irrevocable instructions to
the broker from the optionee.
To qualify as Incentive Options, options must meet additional Federal
tax requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.
The 1998 Plan provides for the grant of Nonqualified Options to
Independent Directors in the discretion of the Committee. The exercise price of
each such Nonqualified Option is the fair market value of the Common Stock on
the date of grant.
21
<PAGE> 23
Adjustments for Stock Dividends, Mergers, Etc. The Committee will make
appropriate adjustments in outstanding awards to reflect stock dividends, stock
splits and similar events. In the event of a merger, liquidation, sale of the
Corporation or similar event, the Committee, in its discretion, may provide for
substitution or adjustments of outstanding options, or may terminate all
unvested options with or without payment of cash consideration.
Amendments and Termination. The Board of Directors may at any time
amend or discontinue the 1998 Plan and the Committee may at any time amend or
cancel outstanding awards for the purpose of satisfying changes in the law or
for any other lawful purpose. However, no such action may be taken which
adversely affects any rights under outstanding awards without the holder's
consent. In addition, the Committee may amend any outstanding Stock Option to
reduce the exercise price in order to fulfill a legitimate corporate purpose
(e.g., to retain a key employee) or to maintain the value of such outstanding
Stock Option under circumstances beyond the control of the Corporation's
management, but in no event shall such amendments be made to outstanding Stock
Options representing greater than 10% of the total number of shares of Stock
authorized for issuance pursuant to the Plan. Further, Plan amendments shall be
subject to approval by the Corporation's stockholders if and to the extent
required by the Code to preserve the qualified status of Incentive Options or to
ensure that compensation under the Plan qualifies as performance-based under
Section 162(m) of the Code.
Change of Control Provisions. The 1998 Plan provides that in the event
of a "Change of Control" (as defined in the 1998 Plan) of the Corporation, all
stock options shall automatically become fully exercisable. In addition, at any
time prior to or after a Change of Control, the Committee may accelerate awards
and waive conditions and restrictions on any awards to the extent it may
determine appropriate.
EFFECTIVE DATE OF 1998 PLAN
The 1998 Plan will become effective upon the affirmative vote of the
holders of at least a majority of the shares of Common Stock present or
represented and voting on the proposal at the Annual Meeting. For purposes of
the vote on the 1998 Plan, abstentions and broker non-votes will have no effect
on the results of the vote. Both abstentions and broker non-votes will count
towards the presence of a quorum. Awards of Incentive Stock Options may be
granted under the 1998 Plan until May 6, 2008.
NEW PLAN BENEFITS
Approximately 165 employees and Independent Directors are currently
eligible to participate in the 1998 Plan. The number of shares that may be
granted to executive officers, non-executive officers and directors is
undeterminable at this time, as such grants are subject to the discretion of the
Committee.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal Federal income tax
consequences of option grants under the 1998 Plan. It does not describe all
Federal tax consequences under the 1998 Plan, nor does it describe state or
local tax consequences.
22
<PAGE> 24
Incentive Options. Under the Code, an employee will not realize taxable
income by reason of the grant or the exercise of an Incentive Option. If an
employee exercises an Incentive Option and does not dispose of the shares until
the later of (a) two years from the date the option was granted or (b) one year
from the date the shares were transferred to the employee, the entire gain, if
any, realized upon disposition of such shares will be taxable to the employee as
long-term or mid-term capital gain (depending on the holding period of the
shares), and the Corporation will not be entitled to any deduction. The exercise
of an Incentive Option will give rise to an item of tax preference that may
result in alternative minimum tax liability for the employee.
If an employee disposes of the shares within such one-year or two-year
period in a manner so as to violate the holding period requirements (a
"disqualifying disposition"), the employee generally will realize ordinary
income in the year of disposition, and, provided the Corporation complies with
applicable withholding requirements, the Corporation will receive a
corresponding deduction, in an amount equal to the excess of (1) the lesser of
(x) the amount, if any, realized on the disposition and (y) the fair market
value of the shares on the date the option was exercised over (2) the option
price. Any additional gain realized by the employee on the disposition of the
shares acquired upon exercise of the option will be long-term, mid-term or
short-term capital gain and any loss will be long-term, mid-term or short-term
capital loss depending upon the holding period for such shares.
The employee will be considered to have disposed of his shares if he
sells, exchanges, makes a gift of or transfers legal title to the shares (except
by pledge or by transfer on death). If the disposition of shares is by gift and
violates the holding period requirements, the amount of the employee's ordinary
income (and the Corporation's deduction) is equal to the fair market value of
the shares on the date of exercise less the option price. If the disposition is
by sale or exchange, the employee's tax basis will equal the amount paid for the
shares plus any ordinary income realized as a result of the disqualifying
distribution.
An employee who surrenders shares of Common Stock in payment of the
exercise price of his Incentive Option generally will not, under proposed
Treasury Regulations, recognize gain or loss on his surrender of such shares.
The surrender of shares previously acquired upon exercise of an Incentive Option
in payment of the exercise price of another Incentive Option is, however, a
"disposition" of such stock. If the incentive stock option holding period
requirements described above have not been satisfied with respect to such stock,
such disposition will be a disqualifying disposition that may cause the employee
to recognize ordinary income as discussed above.
All of the shares received by an employee upon exercise of an Incentive
Option by surrendering shares of Common Stock will be subject to the incentive
stock option holding period requirements. Of those shares, a number of shares
(the "Exchange Shares") equal to the number of shares of Common Stock
surrendered by the employee will have the same tax basis for capital gains
purposes (increased by any ordinary income recognized as a result of any
disqualifying disposition of the surrendered shares if they were Incentive
Option shares) and the same capital gains holding period as the shares
surrendered. For purposes of determining ordinary income upon a subsequent
disqualifying disposition of the Exchange Shares, the amount paid for such
shares will be deemed to be the fair market value of the shares surrendered. The
balance of the shares received by the employee will have a tax basis (and a
deemed purchase price) of zero and a capital gains holding period beginning on
the date of exercise. The incentive stock option holding period for all shares
will be the same as if the option had been exercised for cash.
An Incentive Option that is exercised by an employee more than three
months after an employee's employment terminates will be treated as a
Nonqualified Option for Federal income tax purposes. In the case of an employee
who is disabled, the three-month period is extended to one year and in the case
of an employee who dies, the three-month employment rule does not apply.
23
<PAGE> 25
Nonqualified Options. There are no Federal income tax consequences to
either the optionee, or the Corporation on the grant of a Nonqualified Option.
On the exercise of a Nonqualified Option, the optionee has taxable ordinary
income equal to the excess of the fair market value of the shares of Common
Stock received on the exercise date over the option price of the shares. The
optionee's tax basis for the shares acquired upon exercise of a Nonqualified
Option is increased by the amount of such taxable income. The Corporation will
be entitled to a Federal income tax deduction in an amount equal to the ordinary
income recognized by the optionee. Upon the sale of the shares acquired by
exercise of a Nonqualified Option, optionees will realize long-term, mid-term or
short-term capital gain or loss depending upon his or her holding period for
such shares.
An optionee who surrenders shares of Common Stock in payment of the
exercise price of a Nonqualified Option will not recognize gain or loss on his
surrender of such shares. (Such an optionee will recognize ordinary income on
the exercise of the Nonqualified Option as described above.) Of the shares
received in such an exchange, that number of shares equal to the number of
shares surrendered will have the same tax basis and capital gains holding period
as the shares surrendered. The balance of the shares received will have a tax
basis equal to their fair market value on the date of exercise, and the capital
gains holding period will begin on the date of exercise.
Parachute Payments. The exercise of any portion of any option that is
accelerated due to the occurrence of a change of control may cause a portion of
the payments with respect to such accelerated options to be treated as
"parachute payments" as defined in the Code. Any such parachute payments may be
non-deductible to the Corporation, in whole or in part, and may subject the
recipient to a non-deductible 20% Federal excise tax on all or portion of such
payment (in addition to other taxes ordinarily payable).
LIMITATION ON COMPANY'S DEDUCTIONS
As a result of Section 162(m) of the Code, the Corporation's Federal
tax deduction for certain awards under the Plan may be limited to the extent
that the Chief Executive Officer or other executive officer whose compensation
is required to be reported in the summary compensation table receives
compensation (other than performance-based compensation) in excess of $1 million
a year.
24
<PAGE> 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank makes and has made loans to certain of its officers and
Directors and their associates. All of such loans were made in the ordinary
course of business and were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons. Management believes that such loans did not
involve more than the normal risk of collectibility or present other unfavorable
features.
Certain loans or other extensions of credit to principal officers and
Directors must be approved by the Bank's Loan Committee and the Board of
Directors, and reported annually to the Massachusetts Commissioner of Banks. In
addition, the Bank is subject to regulations of the Federal Deposit Insurance
Corporation which (i) require that such loans to principal officers be made on
the same rates, terms and conditions as loans to unaffiliated persons, and (ii)
impose reporting requirements, approval procedures and limits on the amounts of
such loans. As a matter of policy, the Bank also makes certain loans to other
employees.
The Bank engages John's Janitorial Services (JJS Services), of which
Bancorp Director John H. Womack is President, to perform janitorial work at its
six offices. Fees paid in 1997 to JJS Services were approximately $48,000.
25
<PAGE> 27
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP has served as Bancorp's independent
public accountants since 1997. Representatives of Arthur Andersen LLP have
accepted an invitation to attend the Annual Meeting. They will have an
opportunity to make a statement should they so desire and will be available to
respond to appropriate questions.
OTHER MATTERS
The cost of soliciting proxies will be paid by Bancorp. In addition to
solicitation by mail, officers and employees of the Bank, who will receive no
compensation for their services other than their salaries, may solicit proxies
by telephone, telegraph or personal interview. Brokerage houses, nominees,
fiduciaries and other custodians are requested to forward soliciting material to
the beneficial owners of shares held of record by them and will be reimbursed
for their expenses. Bancorp also intends to employ the services of D.F. King &
Co., Inc. to solicit proxies. It is estimated that D.F. King & Co., Inc. will
receive approximately $3,000 plus reimbursement of certain out-of-pocket
expenses for its services in connection with such solicitation of proxies.
It is not anticipated that matters other than those set forth in the
Notice of Annual Meeting and described in this Proxy Statement will be brought
before the Annual Meeting, but if any such matters are properly presented, the
persons named in the proxy will vote in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Bancorp intended to be presented at the
1999 annual meeting of Bancorp's stockholders must be received by Bancorp not
later than November 27, 1998, to be included in Bancorp's proxy statement and
form of proxy relating to that annual meeting. If the date of the 1999 annual
meeting is subsequently changed by more than 30 calendar days from the date of
this year's annual meeting, Bancorp will, in a timely manner, inform its
stockholders of such change and the date by which proposals of stockholders must
be received. Nominations and proposals of stockholders may be submitted to
Bancorp for consideration at the 1999 Annual Meeting if certain conditions set
forth in Bancorp's By-Laws are satisfied, although such nominations and
proposals will not be included in the proxy statement and form of proxy relating
to that meeting unless submitted in accordance with the time limits set forth
above and related rules of the Securities and Exchange Commission. See "Election
Of a Class of Directors - The Board of Directors and its Committees - Nominating
Committee."
By order of the Board of Directors
Susan G. Ouellette, Clerk
March 27, 1998
26
<PAGE> 28
EXHIBIT A
WARREN BANCORP, INC.
1998 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Warren Bancorp, Inc. 1998 Incentive and
Non-qualified Stock Option Plan (the "Plan"). The purpose of this Plan is to
encourage and enable the officers, employees, Independent Directors and other
key persons (including consultants) of Warren Bancorp, Inc. (the "Corporation")
and its Subsidiaries upon whose judgment, initiative and efforts the Corporation
largely depends for the successful conduct of its business to acquire a
proprietary interest in the Corporation. It is anticipated that providing such
persons with a direct stake in the Corporation's welfare will assure a closer
identification of their interests with those of the Corporation, thereby
stimulating their efforts on the Corporation's behalf and strengthening their
desire to remain with the Corporation.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" is defined in Section 2(a).
"Board" means the Board of Directors of the Corporation.
"Change of Control" is defined in Section 10.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Effective Date" means the date on which the Plan is approved by the
stockholders as set forth in Section 12.
"Fair Market Value" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Administrator;
provided, however, that (i) if the Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the Fair Market Value on any given date shall not be less than the
average of the highest bid and lowest asked prices of the Stock reported for
such date or, if no bid and asked prices were reported for such date, for the
last day preceding such date for which such prices were reported, or (ii) if the
Stock is admitted to trading on a national securities exchange or the NASDAQ
National Market System, the Fair Market Value on any date shall not be less than
the closing price reported for the Stock on such exchange or system for such
date or, if no sales were reported for such date, for the last date preceding
the date for such a sale was reported.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Corporation or any Subsidiary.
A-1
<PAGE> 29
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Stock" means the Common Stock, par value $.10 per share, of the
Corporation, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Corporation) in any unbroken chain of corporations or other entities beginning
with the Corporation if each of the corporations or entities (other than the
last corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
SECTION 2 ADMINISTRATION OF THE PLAN; ADMINISTRATOR AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered either by the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator"). Each member of the Committee shall be an "outside director"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder and a "non-employee director" within the meaning of Rule
16b-3(b)(3)(i) promulgated under the Act, or any successor definition under said
rule.
(b) Powers of Administrator. The Administrator shall have the power and
authority to grant Stock Options consistent with the terms of the Plan,
including the power and authority:
(i) to select the individuals to whom Stock Options may from
time to time be granted;
(ii) to determine the time or times of grant, and the extent,
if any, of Incentive Stock Options and Non-Qualified Stock Options, or
any combination of the foregoing, granted to any one or more
participants;
(iii) to determine the number of shares of Stock to be covered
by any Stock Option;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Stock Option, which terms and conditions may differ
among individual Stock Options and participants, and to approve the
form of written instruments evidencing the Stock Options;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Stock Option:
(vi) subject to the provisions of Section 5(a)(ii), to extend
at any time the period in which Stock Options may be exercised:
(vii) to determine at any time whether, to what extent, and
under what circumstances distribution or the receipt of Stock and other
amounts payable with respect to a Stock Option shall be deferred either
automatically or at the election of the participant and whether and to
what extent the Corporation shall pay or credit amounts constituting
interest (at rates determined by the Administrator) or dividends or
deemed dividends on such deferrals; and
A-2
<PAGE> 30
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Stock Option (including related
written instruments); to make all determinations it deems advisable for
the administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Corporation and Plan participants.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 300,000 shares. For purposes of
this limitation, the shares of Stock underlying any Stock Options which are
forfeited, canceled, reacquired by the Corporation, satisfied without the
issuance of Stock or otherwise terminated (other than by exercise) shall be
added back to the shares of Stock available for issuance under the Plan. Subject
to such overall limitation, shares of Stock may be issued up to such maximum
number pursuant to any Stock Options; provided, however, that Stock Options with
respect to no more than 100,000 shares of stock may be granted to any one
individual participant during any calendar year period. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Corporation and held in its treasury.
(b) Changes in Stock. If, as a result of any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Corporation's capital stock, the
outstanding shares of Stock are increased or decreased or are exchanged for a
different number or kind of shares or other securities of the Corporation, or
additional shares or new or different shares or other securities of the
Corporation or other non-cash assets are distributed with respect to such shares
of Stock or other securities, the Administrator shall make an appropriate or
proportionate adjustment in (i) the maximum number of shares reserved for
issuance under the Plan, (ii) the number of Stock Options that can be granted to
any one individual participant, (iii) the number and kind of shares or other
securities subject to any then outstanding Stock Options under the Plan, and
(iv) the price for each share subject to any then outstanding Stock Options
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options as to which such Stock
Options remain exercisable). The adjustment by the Administrator shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Administrator in its discretion
may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Stock Options and the exercise price and the terms of outstanding
Stock Options to take into consideration material changes in accounting
practices or principles, extraordinary dividends, acquisitions or dispositions
of stock or property or any other event if it is determined by the Administrator
that such adjustment is appropriate to avoid distortion in the operation of the
Plan, provided that no such adjustment shall be made in the case of an Incentive
Stock Option, without the consent of the participant, if it would constitute a
modification, extension or renewal of the Option within the meaning of Section
424(h) of the Code.
(c) Mergers. In contemplation of and subject to the consummation of a
consolidation or merger or sale of all or substantially all of the assets of the
Corporation in which outstanding shares of Stock are exchanged for securities,
cash or other property of an unrelated corporation or business entity or in the
event of a liquidation of the Corporation (in each case, a "Transaction"), the
Board, or the board of directors of any corporation assuming the obligations of
the Corporation, may, in its
A-3
<PAGE> 31
discretion, take any one or more of the following actions, as to outstanding
Stock Options: (i) provide that such Stock Options shall be assumed or
equivalent awards shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), and/or (ii) upon written notice to the
participants, provide that all Stock Options will terminate immediately prior
to the consummation of the Transaction. In the event that, pursuant to clause
(ii) above, Stock Options will terminate immediately prior to the consummation
of the Transaction, all vested Stock Options, shall be fully settled, in cash
or in kind, in an amount equal to the difference between (A) the Merger Price
times the number of shares of Stock subject to such outstanding Stock Options
and (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding Stock
Options; provided, however, that each participant shall be permitted, within a
specified period determined by the Administrator prior to the consummation of
the Transaction, to exercise all outstanding Stock Options and, including those
that are not then exercisable, subject to the consummation of the Transaction.
(d) Substitute Stock Options. The Administrator may grant Stock Options
under the Plan in substitution for stock and stock based awards held by
employees of another corporation who become employees of the Corporation or a
Subsidiary as the result of a merger or consolidation of the employing
corporation with the Corporation or a subsidiary or the acquisition by the
Corporation or a Subsidiary of property or stock of the employing corporation.
The Administrator may direct that the substitute awards be granted on such terms
and conditions as the Administrator considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and
other employees, Independent Directors and key persons of the Corporation and
its Subsidiaries who are responsible for or contribute to the management, growth
or profitability of the Corporation and its Subsidiaries as are selected from
time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Corporation or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after May 6,
2008.
(a) Stock Options Granted to Employees and Key Persons. The
Administrator in its discretion may grant Stock Options to eligible employees
and key persons of the Corporation or any Subsidiary. Stock Options granted
pursuant to this Section 5(a) shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable. If the Administrator so determines, Stock Options may be granted in
lieu of cash compensation at the participant's election, subject to
A-4
<PAGE> 32
such terms and conditions as the Administrator may establish, as well as in
addition to other compensation.
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Administrator at the time of grant but shall not
be less than 100% of the Fair Market Value on the date of grant. If an
employee owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Corporation or any parent or
subsidiary corporation and an Incentive Stock Option is granted to such
employee, the option price of such Incentive Stock Option shall be not
less than 110% of the Fair Market Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed
by the Administrator, but no Incentive Stock Option shall be
exercisable more than ten years after the date the option is granted.
If an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Corporation or any parent
or subsidiary corporation and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years
from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options
shall become exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after
the grant date; provided, however, that Stock Options granted in lieu
of compensation shall be exercisable in full as of the grant date. The
Administrator may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in
whole or in part by giving written notice of exercise to the
Corporation, specifying the number of shares to be purchased. Payment
of the purchase price may be made by one or more of the following
methods to the extent provided in the Option agreement:
(A) In cash, by certified or bank check or other
instrument acceptable to the Administrator;
(B) Through the delivery (or attestation to the
ownership) of shares of Stock that have been purchased by the
optionee on the open market or that are not then subject to
restrictions under any Corporation plan and that have been
beneficially owned by the optionee for at least six months, if
permitted by the Administrator in its discretion. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date; or
(C) By the optionee delivering to the Corporation a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the
Corporation cash or a check payable and acceptable to the
Corporation for the purchase price; provided that in the event
the optionee chooses to pay the purchase price as so provided,
the optionee and the broker shall comply with such procedures
and enter into such agreements of indemnity and other
agreements as the Administrator shall prescribe as a condition
of such payment procedure.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option
A-5
<PAGE> 33
will be contingent upon receipt from the optionee (or a purchaser
acting in his stead in accordance with the provisions of the Stock
Option) by the Corporation of the full purchase price for such shares
and the fulfillment of any other requirements contained in the Stock
Option or applicable provisions of laws. In the event an optionee
chooses to pay the purchase price by previously-owned shares of Stock
through the attestation method, the shares of Stock transferred to the
optionee upon the exercise of the Stock Option shall be net of the
number of shares attested to.
(v) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Corporation
or its parent and subsidiary corporations become exercisable for the
first time by any optionee during any calendar year shall not exceed
$100,000. To the extent that any Stock Option exceeds this limit, it
shall constitute a Non-Qualified Stock Option.
(b) Stock Options Granted to Independent Directors.
(i) Grant of Options.
(A) The Administrator, in its discretion, may grant
Non-Qualified Stock Options to Independent Directors. Any such
grant may vary among individual Independent Directors.
(B) The exercise price per share for the Stock
covered by a Stock Option granted under this Section 5(b)
shall be equal to the Fair Market Value of the Stock on the
date the Stock Option is granted.
(ii) Exercise; Termination.
(A) An Option issued under this Section 5(b) shall
not be exercisable after the expiration of ten years from the
date of grant.
(B) Options granted under this Section 5(b) may be
exercised only by written notice to the Corporation specifying
the number of shares to be purchased. Payment of the full
purchase price of the shares to be purchased may be made by
one or more of the methods specified in Section 5(a)(iv). An
optionee shall have the rights of a stockholder only as to
shares acquired upon the exercise of a Stock Option and not as
to unexercised Stock Options.
(c) Non-transferability of Options. No Stock Options shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Administrator, in its sole discretion, may provide in the Stock Option agreement
regarding a given Option that the optionee may transfer, without consideration
for the transfer, his Non-Qualified Stock Options to members of his immediate
family, to trusts for the benefit of such family members, or to partnerships in
which such family members are the only partners, provided that the transferee
agrees in writing with the Corporation to be bound by all of the terms and
conditions of this Plan and the applicable Option.
A-6
<PAGE> 34
(d) Termination. Except as may otherwise be provided below in this
Section 5(d) or by the Administrator either in the Stock Option Agreement or
subject to Section 10 below, in writing after the Stock Option agreement is
issued, an optionee's rights in all Stock Options shall automatically terminate
upon the participant's termination of employment (or cessation of business
relationship) with the Corporation and its Subsidiaries for any reason, in
accordance with the following provisions:
(i) if the optionee's employment shall have been terminated by
the Corporation or a subsidiary, at any time, involuntarily for cause,
the option shall immediately terminate and may no longer be exercised;
and
(ii) if the optionee's employment by the Corporation and its
subsidiaries shall have been terminated for any reason other than for
cause, the optionee may, at any time within a period of two (2) years
after such termination of employment, exercise the option to the extent
that it was exercisable on the date of termination of the optionee's
employment, provided, however that no option may be exercised to any
extent by anyone after the date of expiration of the option.
Each Director option shall, to the extent it was exercisable
on the date on which the director ceases to perform services for
Bancorp or a subsidiary, terminate on the date two (2) years after such
date.
Notwithstanding the above, however, no option may be exercised
to any extent by anyone after the date of expiration of the option.
SECTION 6. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the
date as of which the value of a Stock Option or of any Stock or other amounts
received thereunder first becomes includable in the gross income of the
participant for Federal income tax purposes, pay to the Corporation, or make
arrangements satisfactory to the Administrator regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such income. The Corporation and its Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant. The Corporation's
obligation to deliver stock certificates to any participant is subject to and
conditioned on tax obligations being satisfied by the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Corporation to withhold from shares of
Stock to be issued pursuant to any Stock Option a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the
Corporation shares of Stock owned by the participant with an aggregate Fair
Market Value (as of the date the withholding is effected) that would satisfy the
withholding amount due.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
A-7
<PAGE> 35
(a) a transfer to the employment of the Corporation from a Subsidiary
or from the Corporation to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Corporation, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 8. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Stock Option for
the purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Stock Option
without the holder's consent. In addition the Administrator may amend any
outstanding Stock Option to reduce the exercise price in order to fulfill a
legitimate corporate purpose (e.g., to retain a key employee) or to maintain the
value of such outstanding Stock Option under circumstances beyond the control of
the Corporation's management, but in no event shall such amendments be made to
outstanding Stock Options representing greater than 10% of the total number of
shares of Stock authorized for issuance pursuant to the Plan. If and to the
extent determined by the Administrator to be required by the Code to ensure that
Incentive Stock Options granted under the Plan are qualified under Section 422
of the Code or to ensure that compensation earned under Stock Options qualifies
as performance-based compensation under Section 162(m) of the Code, if and to
the extent intended to so qualify, Plan amendments shall be subject to approval
by the Corporation stockholders entitled to vote at a meeting of stockholders.
Nothing in this Section 8 shall limit the Board's authority to take any action
permitted pursuant to Section 3(c).
SECTION 9. STATUS OF PLAN
With respect to the portion of any Stock Option that has not been
exercised and any payments in cash, Stock or other consideration not received by
a participant, a participant shall have no rights greater than those of a
general creditor of the Corporation unless the Administrator shall otherwise
expressly determine in connection with any Stock Option or Stock Options.
SECTION 10. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
10:
(a) Except as otherwise provided in the applicable Stock Option
agreement, each outstanding Stock Option shall automatically become fully
exercisable.
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Corporation, any of its Subsidiaries,
or any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Corporation or any of
its Subsidiaries), together with all "affiliates" and "associates" (as
such terms are defined in Rule 12b-2 under the Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of
the Corporation's then outstanding
A-8
<PAGE> 36
securities having the right to vote in an election of the Corporation's
Board of Directors ("Voting Securities") (in such case other than as a
result of an acquisition of securities directly from the Corporation);
or
(ii) persons who, as of the Effective Date, constitute the
Corporation's Board of Directors (the "Incumbent Directors") cease for
any reason, including, without limitation, as a result of a tender
offer, proxy contest, merger or similar transaction, to constitute at
least a majority of the Board, provided that any person becoming a
director of the Corporation subsequent to the Effective Date shall be
considered an Incumbent Director if such person's election was approved
by or such person was nominated for election by either (A) a vote of at
least a majority of the Incumbent Directors or (B) a vote of at least a
majority of the Incumbent Directors who are members of a nominating
committee comprised, in the majority, of Incumbent Directors; or
(iii) the stockholders of the Corporation shall approve (A)
any consolidation or merger of the Corporation where the stockholders
of the Corporation, immediately prior to the consolidation or merger,
would not, immediately after the consolidation or merger, beneficially
own (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate 50% or more of the
voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Corporation or (C) any plan or proposal for the liquidation or
dissolution of the Corporation.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Corporation which, by reducing the
number of shares of Voting Securities outstanding, increases the proportionate
number of shares of Voting Securities beneficially owned by any person to 25% or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Corporation), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
SECTION 11. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Administrator may require each person acquiring Stock pursuant to a Stock Option
to represent to and agree with the Corporation in writing that such person is
acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to a Stock Option until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Stock
Options as it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to participants
under this Plan shall be deemed delivered for all purposes when the Corporation
or a stock transfer agent of the Corporation shall have mailed such certificates
in the United States mail, addressed to the participant, at the participant's
last known address on file with the Corporation.
A-9
<PAGE> 37
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Stock Options do not confer upon any employee any right to
continued employment with the Corporation or any Subsidiary.
(d) Trading Policy Restrictions. The Board of Directors or the
Administrator may establish insider-trading-policy-related restrictions, terms
and conditions, or other related policies, and may change these from time to
time, and all Stock Option shall be subject to these restrictions, terms,
conditions or other related policies.
SECTION 12. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the votes cast at a meeting of stockholders at which a quorum is
present. Subject to such approval by the stockholders and to the requirement
that no Stock may be issued hereunder prior to such approval, Stock Options may
be granted hereunder on and after adoption of this Plan by the Board.
SECTION 13. GOVERNING LAW
This Plan and all Stock Options and actions taken thereunder shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts, applied without regard to conflict of law principles.
DATE APPROVED BY THE BOARD OF DIRECTORS: MARCH 18, 1998
DATE APPROVED BY THE STOCKHOLDERS:
A-10
<PAGE> 38
<TABLE>
<CAPTION>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE WARREN BANCORP, INC.
<S> <C> <C> <C> <C>
FOR ALL
PROPOSAL # 1 FOR WITHHOLD EXCEPT
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS To elect SEVEN Directors to hold [ ] [ ] [ ]
TO BE HELD ON MAY 6, 1998 until the 2001 Annual Meeting of
Stockholders and until their successors are duly elected and
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS qualified:
The undersigned hereby constitutes and appoints Stephen G. FRANCIS L. CONWAY ARTHUR J. PAPPATHANASI
Kasnet, John R. Putney and Paul M. Peduto, and each of them, ARTHUR E. HOLDEN GEORGE W. PHILLIPS
as Proxies of the undersigned, with full power of substitution, STEPHEN G. KASNET JOHN H. WOMACK
and authorizes each of them to represent and to vote all shares LINDA LERNER
of Common Stock of Warren Bancorp, Inc. (the "Company"), held
by the undersigned at its close of business on March 9, 1998, INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
at the Annual Meeting of Stockholders to be held on Wednesday, NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME
May 6, 1998, at 10:00 a.m., at the King's Grant Inn, Route 128, IN THE SPACE PROVIDED BELOW:
Danvers, Massachusetts, or at any adjournments or postponements
thereof. -----------------------------------------------------------------
PROPOSAL # 2 FOR AGAINST ABSTAIN
Proposal to approve the Company's [ ] [ ] [ ]
1998 Incentive and Nonqualified
Stock Option Plan as more fully
described in the Proxy Statement
for the Annual Meeting.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION
IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2, AND THE
PROXIES ARE EACH AUTHORIZED IN THEIR DISCRETION TO VOTE UPON SUCH
Please be sure to sign and state ------------------ OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
this Proxy in the box below. Date ADJOURNMENTS OR POSTPONEMENTS THEREOF. A STOCKHOLDER WISHING TO
- -------------------------------------------------------------- VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS
NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE POSTAGE-
PAID ENVELOPE PROVIDED.
- ---Stockholder sign above --- Co-holder (if any) sign above---
- -----------------------------------------------------------------------------------------------------------------------------------
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
WARREN BANCORP, INC.
10 MAIN STREET, PEABODY, MASSACHUSETTS 01960
- -----------------------------------------------------------------------------------------------------------------------------------
The above signed hereby acknowledge(s) receipt of the accompanying Notice of Annual Meeting of Stockholders and the Proxy
Statement with respect thereof and hereby revoke(s) any proxy or proxies heretofore given. This proxy may be revoked at any time
before it is exercised.
Please sign name exactly as shown. When there is more than one holder, each should sign. When signing as attorney, administrator,
executor, guardian or trustee, please add your title as such. If executed by a corporation, the proxy should be signed by a duly
authorized person, stating his or her title or authority.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
