SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FALMOUTH BANCORP, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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[ ] 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:
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FALMOUTH BANCORP, INC.
20 DAVIS STRAITS
FALMOUTH, MASSACHUSETTS 02540
508-548-3500
December 17, 2003
Dear Stockholder:
You are cordially invited to attend the 2004 Annual Meeting of
Stockholders of Falmouth Bancorp, Inc. (the "Company"), the holding company
for Falmouth Bank (the "Bank") which will be held on January 20, 2004 at
4:30 p.m., local time, at the main office of the Bank, 20 Davis Straits,
Falmouth, Massachusetts 02540 (the "Annual Meeting").
The attached Notice of Annual Meeting and Proxy Statement describes
the formal business that we will transact at the Annual Meeting. In
addition to the formal items of business, management will report on the
operations and activities of the Company and the Bank and you will have an
opportunity to ask questions.
The Board of Directors of the Company has determined that an
affirmative vote on each matter to be considered at the Annual Meeting is
in the best interests of the Company and its stockholders and unanimously
recommends a vote "FOR" each of these matters.
Please complete, sign and return the enclosed proxy card promptly,
whether or not you plan to attend the Annual Meeting. Your vote is
important regardless of the number of shares you own. Voting by proxy will
not prevent you from voting in person at the Annual Meeting but will assure
that your vote is counted if you cannot attend.
On behalf of the Board of Directors and the employees of Falmouth
Bancorp, Inc. and Falmouth Bank, we thank you for your continued support
and look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Santo P. Pasqualucci
Santo P. Pasqualucci
President and Chief Executive Officer
FALMOUTH BANCORP, INC.
20 DAVIS STRAITS
FALMOUTH, MASSACHUSETTS 02540
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: Tuesday, January 20, 2004
Time: 4:30 p.m., local time
Place: Falmouth Bank
20 Davis Straits
Falmouth, Massachusetts 02540
At our 2004 Annual Meeting, we will ask you to:
* Elect three directors to serve for a three-year term expiring
at the 2007 annual meeting. The following three directors are
the Board of Director's nominees:
John J. Lynch, Jr. William E. Newton Santo P. Pasqualucci
* Ratify the appointment of Shatswell, MacLeod & Company, P.C. as
our independent public accountants for the fiscal year ending
September 30, 2004; and
* Transact any other business as may properly come before the
Annual Meeting.
You may vote at the Annual Meeting if you were a stockholder of the
Company at the close of business on December 8, 2003, the record date.
By Order of the Board of Directors,
/s/ Jeanne E. Alves
Jeanne E. Alves
Secretary
Falmouth, Massachusetts
December 17, 2003
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You are cordially invited to attend the Annual Meeting. It is important
that your shares be represented regardless of the number of shares you own.
The Board of Directors urges you to sign, date and mark the enclosed proxy
card promptly and return it in the enclosed envelope. Returning the proxy
card will not prevent you from voting in person if you attend the Annual
Meeting.
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GENERAL INFORMATION
General
We have sent you this Proxy Statement and enclosed proxy card because
the Board of Directors is soliciting your proxy to vote at the Annual
Meeting. This Proxy Statement summarizes the information you will need to
know to cast an informed vote at the Annual Meeting. You do not need to
attend the Annual Meeting to vote your shares. You may simply complete,
sign and return the enclosed proxy card and your votes will be cast for you
at the Annual Meeting. This process is described below in the section
entitled "Voting Rights."
We began mailing this Proxy Statement, the Notice of Annual Meeting
and the enclosed proxy card on or about December 17, 2003 to all
stockholders entitled to vote. If you owned the Company's common stock at
the close of business on December 8, 2003, the record date, you are
entitled to vote at the Annual Meeting. On the record date, there were
914,827 shares of common stock outstanding.
Quorum
A quorum of stockholders is necessary to hold a valid meeting. If the
holders of at least a majority of the total number of the outstanding
shares of common stock entitled to vote are represented in person or by
proxy at the Annual Meeting, a quorum will exist. We will include proxies
marked as abstentions and broker non-votes to determine the number of
shares present at the Annual Meeting.
Voting Rights
You are entitled to one vote at the Annual Meeting for each share of
the Company's common stock that you owned as of record at the close of
business on December 8, 2003. The number of shares you own (and may vote)
is listed at the top of the back of the proxy card.
You may vote your shares at the Annual Meeting in person or by proxy.
To vote in person, you must attend the Annual Meeting and obtain and submit
a ballot, which we will provide to you at the Annual Meeting. To vote by
proxy, you must complete, sign and return the enclosed proxy card. If you
properly complete your proxy card and send it to us in time to vote, your
"proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares FOR each of the
proposals identified in the Notice of the Annual Meeting.
If any other matter is presented, your proxy will vote the shares
represented by all properly executed proxies on such matters as a majority
of the Board of Directors determines. As of the date of this Proxy
Statement, we know of no other matters that may be presented at the Annual
Meeting, other than those listed in the Notice of the Annual Meeting.
-2-
Vote Required
Proposal 1: The three nominees for director who receive the
Elect Three Directors most votes will be elected. So, if you do not vote
for a nominee, or you indicate "withhold authority"
for any nominee on your proxy card, your vote will
not count "for" or "against" the nominee. You may
not vote your shares cumulatively for the election
of directors.
Proposal 2: The affirmative vote of a majority of the shares
Ratify Appointment of present in person or by proxy at the Annual Meeting
Independent Public and entitled to vote on this proposal is required
Accountants to ratify the appointment of Shatswell, MacLeod &
Company, P.C. as the Company's independent public
accountants. So, if you "abstain" from voting, it
has the same effect as if you voted "against" this
proposal.
Effect of Broker Non-Votes
If your broker holds shares that you own in "street name," the broker
may vote your shares on the two proposals listed above even if the broker
does not receive instructions from you. If your broker does not vote on any
of the proposals, this will constitute a "broker non-vote." Broker non-
votes will be treated as shares that are not represented on Proposals 1 and
2 and will have no effect on the outcome of the votes.
Confidential Voting Policy
The Company maintains a policy of keeping stockholder votes
confidential. We only let our Inspector of Election and certain employees
of our independent tabulating agent examine the voting materials. We will
not disclose your vote to management unless it is necessary to meet legal
requirements. We will, however, forward any written comments that you may
have to management.
Revoking Your Proxy
You may revoke your proxy at any time before it is exercised by:
* Filing with the Secretary of the Company a letter revoking the proxy;
* Submitting another signed proxy with a later date; and
* Attending the Annual Meeting and voting in person, provided you file
a written revocation with the Secretary of the Annual Meeting prior
to the voting of such proxy.
If your shares are not registered in your own name, you will need
appropriate documentation from your stockholder of record to vote
personally at the Annual Meeting. Examples of such documentation include a
broker's statement, letter or other document that will confirm your
ownership of shares of the Company.
Solicitation of Proxies
The Company will pay the costs of soliciting proxies from its
stockholders. Directors, officers or employees of the Company and the Bank
may solicit proxies by:
* mail;
* telephone; and
* other forms of communication.
-3-
We will also reimburse banks, brokers, nominees and other fiduciaries
for the expenses they incur in forwarding the proxy materials to you.
Obtaining an Annual Report on Form 10-KSB
If you would like a copy of our Annual Report on Form 10-KSB for the
year ended September 30, 2003, which will be filed with the SEC, we will
send you one (without exhibits) free of charge. Please write to:
George E. Young, III
Senior Vice President and Chief Financial Officer
Falmouth Bancorp, Inc.
20 Davis Straits
Falmouth, Massachusetts 02540
Security Ownership of Certain Beneficial Owners
The following table contains common stock ownership information for
persons known to the Company to "beneficially own" 5% or more of the
Company's common stock as of December 8, 2003. In general, beneficial
ownership includes those shares that a person has the power to vote, sell,
or otherwise dispose. Beneficial ownership also includes that number of
shares which an individual has the right to acquire within 60 days (such as
stock options) of the date this table was prepared. Two or more persons may
be considered the beneficial owner of the same shares. We obtained the
information provided in the following table from filings with the SEC and
with the Company. In this proxy statement, "voting power" is the power to
vote or direct the voting of shares, and "investment power" includes the
power to dispose or direct the disposition of shares.
Amount of Percent of Shares
Name and Address Beneficial of Common Stock
Title of Class of Beneficial Owner Ownership Outstanding (1)
-------------- ------------------- ---------- -----------------
Common Stock The Cape Cod Five Cents 131,800(2) 14.41%
Savings Bank
P.O. Box 10
19 West Road
Orleans, Massachusetts 02653
Common Stock Santo P. Pasqualucci 87,603 9.00%
c/o Falmouth Bancorp, Inc.
20 Davis Straits
Falmouth, Massachusetts 02540
Common Stock Falmouth Bancorp, Inc. 82,120 8.98%
Employee Stock Ownership
Plan Trust
20 Davis Straits
Falmouth, Massachusetts 02540
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The total number of shares of the Company's common stock outstanding
on December 8, 2003 was 914,827 shares.
Based on information in a Schedule 13G/A filed with the SEC on July
30, 1999, The Cape Cod Five Cents Savings Bank is deemed to be the
beneficial owner of these shares.
-4-
Stock Ownership of Management
The following table shows the number of shares of the Company's
common stock beneficially owned by each director and executive officer
named in the summary compensation table, and all directors and executive
officers of the Company as a group, as of December 8, 2003. Beneficial
ownership also includes that number of shares which an individual has the
right to acquire within 60 days (such as stock options) of the date this
table was prepared. Except as otherwise indicated, each person and each
group shown in the table has sole voting and investment power with respect
to the shares of common stock listed next to their name.
Amount and
Nature of Percent of Common
Beneficial Stock
Name Title(1) Ownership(2)(3) Outstanding(13)
---- -------- --------------- -----------------
Peter A. Frizzell, DMD Director 506 0.06%
Ronald Garcia(4) Vice President, Senior 15,033 1.63%
Loan Officer
Wayne C. Lamson Director 4,153 0.45%
Gardner L. Lewis(5) Director 11,856 1.29%
John J. Lynch, Jr.(6) Director, Chairman of 36,996 4.03%
the Board
Eileen C. Miskell(7) Director 11,017 1.20%
Robert H. Moore(8) Director 5,048 0.55%
Henry D. Newman, III Director 1,000 0.11%
William E. Newton(9) Director 16,017 1.74%
Santo P. Pasqualucci(10) President, Chief 87,603 9.00%
Executive Officer and
Director
George E. Young(11) Senior Vice President 16,553 1.80%
and Chief Financial
Officer
All directors and executive 224,805 22.4%
officers as a group (15
persons)(12)
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Titles are for both the Company and the Bank.
Includes unvested restricted stock awards of 642 shares of common
stock made to each of the outside directors, with the exception of
Mr. Lynch, who has an unvested restricted stock award of 1,287
shares, under the 1997 Recognition and Retention Plan for Outside
Directors, Officers and Employees of Falmouth Bancorp, Inc. ("RRP").
Mr. Pasqualucci also has an unvested restricted stock award of 3,231
shares under the RRP. Messrs. Garcia and Young have unvested
restricted stock awards of 1,185 shares and 1,977 shares,
respectively. Each recipient of a RRP restricted share award has sole
voting power, but no investment power, over the unvested shares of
common stock covered by the award.
(footnotes continued on following page)
-5-
The figures above include stock options granted to the following
officers and directors under the 1997 Stock Option Plan for Outside
Directors, Officers and Employees of Falmouth Bancorp, Inc. ("Stock
Option Plan"), which may be acquired pursuant to the following vested
options (or options that will vest within 60 days of December 8,
2003): Mr. Garcia, 5,000 shares; Mr. Lynch, 4,216 shares; Mr. Lamson,
2,507 shares, Mr. Lewis, 3,095 shares; Ms. Miskell, 919 shares; Mr.
Moore, 126 shares; Mr. Newton, 4,095 shares; Mr. Pasqualucci, 58,258
shares; and Mr. Young, 5,047 shares.
Includes the total of 5,551 shares that have been allocated to Mr.
Garcia under the ESOP as of September 30, 2003, as to which he has
sole voting power, but no investment power, except in limited
circumstances.
Includes 2,489 shares held in spouse's IRA, 4,000 shares held in Mr.
Lewis's IRA and 250 shares held individually by spouse. Mr. Lewis
disclaims beneficial ownership over the shares held by his spouse.
Includes 25,000 shares held in an IRA and 5,000 shares owned by the
corporation of which Mr. Lynch serves as president.
Includes 1,000 shares held in an IRA, 1,500 shares held solely by
spouse and 2,500 shares owned by a corporation of which Ms. Miskell
serves as treasurer.
Includes 3,000 shares held in an IRA.
Includes 5,000 shares held by Mr. Newton as trustee for a Profit
Sharing Trust, 2,500 shares held in an IRA, and 2,500 shares held by
Mr. Newton for a corporation of which Mr. Newton is a principal.
Includes the total of 9,879 shares that have been allocated to Mr.
Pasqualucci under the ESOP as of September 30, 2003, as to which he
has sole voting power, but no investment power, except in limited
circumstances, 9,000 shares held in an IRA in Mr. Pasqualucci's name,
and 3,018 shares held in trust for the benefit of Mr. Pasqualucci's
minor children. Mr. Pasqualucci disclaims beneficial ownership over
the shares held for his minor children.
Includes the total of 5,770 shares that have been allocated to Mr.
Young under the ESOP as of September 30, 2003, as to which he has
sole voting power, but no investment power, except in limited
circumstances, 500 shares held in an IRA in Mr. Young's name, 2,559
shares held jointly with his spouse and 700 shares held in his
spouse's IRA.
Includes 31,500 shares held by the ESOP Trust that have been
allocated as of September 30, 2003 to the individual accounts of the
executive officers under the ESOP as to which such executive officers
have sole voting power, but no investment power, except in limited
circumstances. Also includes 21,822 unallocated shares held by the
ESOP Trust as to which the ESOP Trustee may be deemed to share voting
and investment power.
Based on a total of 914,827 shares of the Company's common stock
outstanding as of December 8, 2003.
-6-
DISCUSSION OF PROPOSALS RECOMMENDED BY BOARD
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PROPOSAL 1
ELECTION OF DIRECTORS
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General
The Board has nominated three persons for election as directors at
the Annual Meeting. The nominees are currently serving on the Company's
Board of Directors. If you elect the nominees, they will hold office until
the Annual Meeting in 2007, or until their successors have been elected.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for
another nominee proposed by the Board. If for any reason these nominees
prove unable or unwilling to stand for election, the Board will nominate
alternates or reduce the size of the Board of Directors to eliminate the
vacancy. The Board has no reason to believe that its nominees would prove
unable to serve if elected.
Nominees and Continuing Directors
Position(s)
Held with
Nominees Age(1) Term Expires the Company Director Since(2)
-------- ------ ------------ ----------- -----------------
John J. Lynch, Jr. 76 2007 Director, Chairman of the 1970
Board
William E. Newton 64 2007 Director 1974
Santo P. Pasqualucci 64 2007 President, Chief Executive 1993
Officer and Director
Continuing Directors
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Peter A. Frizzell, DMD 56 2006 Director 2003
Wayne C. Lamson 53 2005 Director 1999
Gardner L. Lewis 66 2005 Director 1993
Eileen C. Miskell 45 2005 Director 1994
Robert H. Moore 70 2006 Director 1976
Henry D. Newman, III 48 2006 Director 2003
--------------------
As of November 1, 2003.
Includes service as director of the Bank prior to the formation of
the Company in 1996.
-7-
The principal occupation and business experience of each nominee for
election as director and each Continuing Director is set forth below.
Nominees
John J. Lynch, Jr. has served as President of Paul Peters Agency,
Inc., a general insurance agency located in Falmouth, since 1957.
William E. Newton has worked as a contractor and has been a principal
of C. H. Newton Builders, Inc. in West Falmouth since 1965.
Santo P. Pasqualucci has served as President of the Bank since
December, 1992 and as President and Chief Executive Officer of the Company
since its formation in 1996. Prior to that time, he served as the President
of a savings bank for six years. He has served the banking community of
Massachusetts for over 39 years.
Continuing Directors
Peter A. Frizzell, DMD has owned and operated a dental practice in
Falmouth, Massachusetts for approximately 25 years.
Wayne C. Lamson, has been Treasurer/Comptroller of the Woods Hole,
Martha's Vineyard and Nantucket Steamship Authority since 1982. As
Treasurer/Comptroller, Mr. Lamson is responsible for the Authority's
accounting, treasury, finance, internal audit, insurance, payroll, credit
and collection, procurement and pension plan administration functions.
Gardner L. Lewis is currently retired. He owned and operated The
Pancake Man, a full-service restaurant located in Falmouth, from 1964 to
1993. In 1993, the restaurant was leased to a third party.
Eileen C. Miskell, CPA, has an MBA from Boston University and is
currently the Treasurer of Wood Lumber Company, a family-owned company
located in Falmouth, Massachusetts. She has former accounting experience
with the regional public accounting firms of Livingston & Haynes and Wolf &
Company.
Robert H. Moore has worked as an agent with the Paul Peters Agency,
Inc., a general insurance agency located in Falmouth, since May of 1960.
Mr. Moore retired from the insurance agency in 1999.
Henry D. Newman, III is, and has been, the owner of Newman
Associates, a plumbing and heating supply distribution company located in
Canton, Massachusetts since 1993, and Westwood Systems, a steel fabrication
company located in Canton, Massachusetts since 1994.
===========================================================================
The Board of Directors unanimously recommends a vote "For" all of the
nominees for election as directors.
===========================================================================
-8-
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PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The Board of Directors has appointed Shatswell, MacLeod & Company,
P.C. as our independent public accountants for the Company for the fiscal
year ending September 30, 2004, and we are asking stockholders to ratify
the appointment. Representatives of Shatswell, MacLeod & Company, P.C. are
not expected to attend the Annual Meeting.
===========================================================================
The Board of Directors unanimously recommends a vote "For" the ratification
of the appointment of Shatswell, MacLeod & Company, P.C. as independent
public accountants for the Company.
===========================================================================
Audit Fees
Audit Fees. The aggregate fees paid to Shatswell, MacLeod & Company,
P.C. for professional services rendered for the audit of our annual
financial statements for the fiscal year ended September 30, 2003, and for
the reviews of the financial statements included in our quarterly reports
on Form 10-QSB for that fiscal year, were $59,246.
Financial Information Systems Design and Implementation Fees. We did
not engage Shatswell, MacLeod & Company, P.C. for any professional services
related to financial information systems design and implementation during
the fiscal year ended September 30, 2003.
All Other Fees. The aggregate fees paid to Shatswell, MacLeod &
Company, P.C. for services rendered to use, other than the services
described under "Audit Fees" for the fiscal year ended September 30, 2003
were $8,100.
INFORMATION ABOUT BOARD OF DIRECTORS AND MANAGEMENT
Board of Directors
As of the date of this proxy statement, the Company's Board of
Directors consists of nine members. The Company's Certificate of
Incorporation provides that the Board of Directors shall be divided into
three classes, as nearly equal in number as possible. The term of three
directors expire at the Annual Meeting.
The Board of Directors oversees our business and monitors the
performance of our management. In accordance with our corporate governance
procedures, the Board of Directors does not involve itself in the day-to-
day operations of the Company. The Company's executive officers and
management oversee the day-to-day operations of the Company. Our directors
fulfill their duties and responsibilities by attending regular meetings of
the Board which are held on a monthly basis. Our directors also discuss
business and other matters with the Chairman and the President, other key
executives, and our principal external advisors (legal counsel, auditors,
financial advisors and other consultants).
-9-
The Board of Directors held 12 regular meetings during the fiscal
year ended September 30, 2003. Each incumbent director attended at least
75% of the meetings of the Board of Directors plus committee meetings on
which that particular director served during this period.
Corporate Governance
Falmouth Bancorp, Inc. and Falmouth Bank are committed to
establishing and maintaining high standards of corporate governance. Our
executive officers and the Board have worked together to construct a
comprehensive set of corporate governance initiatives that we believe will
serve the long-term interests of our stockholders and employees. As
discussed in more detail below, we believe these initiatives comply fully
with the Sarbanes-Oxley Act of 2002 and the rules and regulations of the
SEC adopted thereunder. In addition, we believe our corporate governance
initiatives will comply fully with recent reforms to the American Stock
Exchange rules. The Board will continue to evaluate, and improve upon as
appropriate, our corporate governance principles and policies.
Code of Ethics for Senior Financial Officers
The Board has adopted a Code of Ethics for Senior Financial Officers
that applies to each of our senior financial officers, including our
principal executive officer, principal financial officer and principal
accounting officer. The Code of Ethics for Senior Financial Officers sets
forth our policies and expectations on a number of topics, including:
* personal conduct, including ethical behavior and personal
integrity;
* conflicts of interest;
* compliance with laws, rules and regulations;
* preservation of confidential information;
* proper use of corporate assets and opportunities; and
* compliance and compliance monitoring.
The Audit Committee will review the Code of Ethics for Senior Financial
Officers on a regular basis, and propose or adopt additions or amendments
to the Code of Ethics for Senior Financial Officers as appropriate.
Independent Directors
The American Stock Exchange's rules include a requirement that a
majority of directors of American Stock Exchange-listed companies be
"independent." For a director to be "independent" under the American Stock
Exchange's rules, the director must not be an officer or employee of
Falmouth Bancorp or any of its subsidiaries, and must not have a material
relationship which, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. The American Stock Exchange's rules also
expressly provide that the following persons cannot be considered
independent:
* a director who is, or during the past three years was, employed
by Falmouth Bancorp or by any subsidiary of Falmouth Bancorp
other than prior employment as an interim Chairman or CEO;
-10-
* a director who accepts or who has an immediate family member
who accepts any payments from Falmouth Bancorp or any
subsidiary of Falmouth Bancorp in excess of $60,000 during the
current fiscal year or any of the past three fiscal years,
other than (a) compensation for board service, (b) payments
arising solely from investments in Falmouth Bancorp's
securities, (c) compensation paid to an immediate family member
who is a non-executive employee of Falmouth Bancorp or a
subsidiary, (d) compensation received for former service as an
interim Chairman or CEO, (e) benefits under a tax-qualified
retirement plan, or non-discretionary compensation, (f) loans
to directors permitted under Section 13(k) of the Exchange Act;
* a director who is an immediate family member of an individual
who is, or during the past three years was, employed by
Falmouth Bancorp or by any subsidiary of Falmouth Bancorp as an
executive officer;
* a director who is, or has an immediate family member who is, a
partner in, or a controlling stockholder or an executive
officer of, any organization to which Falmouth Bancorp made, or
from which Falmouth Bancorp received payments (other than those
arising solely from investments in Falmouth Bancorp's
securities or payments under non-discretionary charitable
contribution matching schemes) that exceed 5% of the
recipient's consolidated gross revenues for that year, or
$200,000, whichever is more, in any of the most recent three
fiscal years;
* a director of Falmouth Bancorp who is employed, or has an
immediate family member who is employed, as an executive
officer of another entity where at any time during the most
recent three fiscal years any of the executive officers of
Falmouth Bancorp serve on the compensation committee of such
other entity; or
* a director who is, or has an immediate family member who is, a
current partner of Falmouth Bancorp's outside auditor, or was a
partner or employee of Falmouth Bancorp's outside auditor, and
worked on Falmouth Bancorp's audit during the past three years.
The Board of Directors has determined that all of the Board's current
non-management members, a majority of the board, are "independent"
directors for the purposes of the American Stock Exchange's rules.
Consistent with the American Stock Exchange's rules, independent
directors meet in regularly scheduled executive sessions without non-
independent directors. The independent directors have selected John J.
Lynch, Jr. Chairman of the Board of Directors, to serve as the presiding
director at the executive sessions for the 2004 fiscal year. The presiding
director will take a lead role in the Board's self-evaluation process.
The American Stock Exchange's rules, as well as recently adopted SEC
rules, impose additional independence requirements for all members of the
Audit Committee. The American Stock Exchange's rules add to the
"independence" requirement for audit committee membership the requirement
that directors be able to read and understand fundamental financial
statements, including Falmouth Bancorp's balance sheet, income statement,
and cash flow statement. The Board of Directors believes that the current
members of the Audit Committee meet this additional standard for
independence. Furthermore, the American Stock Exchange rules require that
Falmouth Bancorp certify that the Audit Committee has, and will continue to
have, at least one member who is financially sophisticated, in that he or
she has past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable
experience or background which results in the individual's financial
sophistication,
-11-
including, but not limited to, being or having been a chief executive
officer, chief financial officer, or other senior officer with financial
oversight responsibilities.
In addition, the rules recently adopted by the SEC for determining
whether an audit committee member is "independent" set forth two basic
criteria. First, audit committee members would be barred from accepting-
directly or indirectly- any consulting, advisory or other compensatory fee
from the issuer or an affiliate of the issuer, other than in the member's
capacity as a member of the board of directors and any board committee. The
SEC indicated that payments for services to law firms, accounting firms,
consulting firms, investment banks or similar entities in which audit
committee members are partners or hold similar positions are the kinds of
compensatory payments that were intended to be precluded. The second basic
criterion for determining independence provides that a member of an audit
committee of a company may not be an affiliated person of the issuer or any
subsidiary of the issuer apart from his or her capacity as a member of the
board and any board committee. For this purpose, designees of affiliated
persons are also disqualified.
Committees of the Board
The Board of Directors of the Company and the Bank have established
the following committees:
EXECUTIVE COMMITTEE The Committee provides advice and recommendations to
the Board in areas of employee salaries and
directors' compensation. The Executive Committee
considers strategic planning and industry issues and
is authorized to act as appropriate between meetings
of the Board of Directors.
Directors Lynch, Miskell, Newton, Lewis and
Pasqualucci serve as members of the committee.
The Executive Committee met two times in the 2003
fiscal year.
AUDIT COMMITTEE The Audit Committee is responsible for review of the
annual audit with the Company's outside auditors and
to report any substantive issues found during the
audit to the Board. The Audit Committee adopted a
written charter, which is attached to this Proxy
Statement as Appendix A.
Directors Miskell, Lamson and Lewis serve as members
of the committee and are "independent" as defined in
Section 121(A) of the American Stock Exchange's
listing standards.
The Audit Committee met four times during the 2003
fiscal year.
COMPENSATION The Compensation Committee is responsible for
COMMITTEE establishing guidelines for management and employee
compensation.
Directors Miskell, Lewis, Lynch and Newton serve as
members of the committee.
The Compensation Committee met three times in the
2003 fiscal year.
-12-
SECURITY COMMITTEE The Security Committee reviews the loan collateral,
appraisal reports on real estate, and authorizes the
funding of real estate loans. In addition, the
Committee authorizes the release of periodic draws
on construction loans.
Directors Lewis, Moore and Pasqualucci serve as
members of the committee.
The Security Committee met fifty-two times in the
2003 fiscal year.
The Board of Directors, acting as the nominating committee, met in
October, 2003 to select the nominees for election as directors at the
Annual Meeting. The Company's bylaws also set forth a procedure for
shareholders to nominate directors by notifying the Secretary of the
Company in writing and meeting other requirements as set forth in the
bylaws.
-13-
Audit Committee Report
The following Report of the Company's Audit Committee is provided in
accordance with the rules and regulations of the SEC. Pursuant to such
rules and regulations, this report shall not be deemed "soliciting
material," filed with the SEC, subject to Regulation 14A or 14C of the SEC
or subject to the liabilities of section 18 of the Exchange Act.
FALMOUTH BANCORP, INC. AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended September 30, 2003 with
management. The Audit Committee has also reviewed and discussed with
Shatswell, MacLeod & Company, P.C. ("Shatswell"), the Company's independent
auditors, the matters required to be discussed by SAS 61, as may be
modified or supplemented.
The Audit Committee has received the written disclosures and the
letter from Shatswell required by Independence Standards Board Standard No.
1 (Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees), as may be modified or supplemented, and has
discussed Shatswell's independence with respect to the Company with
Shatswell and considered whether the provision of non-audit services
provided by Shatswell is compatible with maintaining the auditor's
independence.
Based on the review and discussions referred to in this audit
committee report, the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Annual
Report on Form 10-KSB for the year ended September 30, 2003 for filing with
the SEC.
FALMOUTH BANCORP, INC.
AUDIT COMMITTEE
Eileen C. Miskell, Chairperson
Wayne C. Lamson
Gardner L. Lewis, III
Director Compensation
Meeting Fees. Each non-employee of the Bank receives a fee of $600
for attendance at each board meeting. The Chairman of the Board receives a
fee of $900 per Board meeting attended. The Bank also pays each non-
employee director fees ranging from $120 to $300 for each committee meeting
attended, as well as an annual retainer of $3,600 to each non-employee
director member of the Executive Compensation Committees.
Total directors' meeting and committee fees for fiscal 2003 were
$104,595. We do not compensate our employees for service as directors.
Directors are also entitled to the protection of certain indemnification
provisions in our Certificate of Incorporation and Bylaws.
Recognition and Retention Plan and Stock Option Plan. In addition,
our directors are eligible to participate in the Stock Option Plan and
Recognition and Retention Plan. These stock benefit plans are discussed
under "-Benefits," "Stock Option Plans" and "Recognition and Retention
Plan."
-14-
Executive Officers
The following individuals are executive officers of the Company and
hold the offices set forth opposite their names.
Name Position Held with the Company
---- ------------------------------
Santo P. Pasqualucci President and Chief Executive Officer
George E. Young, III Senior Vice President and Chief Financial Officer
Jeanne E. Alves Secretary
The following individuals are executive officers of the Bank and hold
the offices set forth below opposite their names.
Name Position Held with the Bank
---- ---------------------------
Santo P. Pasqualucci President and Chief Executive Officer
George E. Young, III Senior Vice President
William H. Cassidy Treasurer
Ronald Garcia Vice President/Senior Loan Officer
Sharon L. Shoner Vice President/Auditor/Compliance Officer
Jacqueline B. Nolan Vice President/Retail Operations
Jeanne E. Alves Clerk/Assistant Treasurer
The Board of Directors annually elects the executive officers of the
Company and the Bank. The elected officers hold office until their
respective successors have been elected and qualified, or until death,
resignation or removal by the Board of Directors. The Company has entered
into Employment Agreements with certain of its executive officers which set
forth the terms of their employment. See "Employment Agreements."
Biographical information of executive officers of the Company and the
Bank is set forth below.
Santo P. Pasqualucci, age 64, has served as President and Chief
Executive Officer of the Bank since December, 1992 and President and Chief
Executive Officer of the Company since 1996. Prior to that time, he served
as the President of a savings bank for six years. He has served the banking
community of Massachusetts for over 39 years.
George E. Young, III, age 58, has served as Senior Vice President of
the Bank since 2001 and as Senior Vice President and Chief Financial
Officer of the Company since 1998. Mr. Young also served as Treasurer of
the Bank from 2001 to 2003. Mr. Young served as Vice President & Treasurer
of the Company from 1994 to 1996 and Treasurer from 1992 to 1994. Prior
thereto, he was Treasurer and Auditor/Compliance Officer from 1973 to 1991
with another financial institution. Mr. Young has over 30 years of banking
experience.
Jeanne E. Alves, age 59, has served as the Secretary of the Company
and Clerk of the Bank since November 1997. Ms. Alves joined the Bank in
1984 and was promoted to Assistant Treasurer in 1992.
-15-
William H. Cassidy III, age 57, joined the Bank in 1998. He was named
Accounting Manager in 2001 and was elected Treasurer in October 2003. Mr.
Cassidy held various positions with the Federal Deposit Insurance
Corporation from 1990 through 1998. Prior to that, he served as the
Assistant Treasurer of another financial institution. Mr. Cassidy has 25
years of experience in the banking industry.
Ronald Garcia, age 53, has served as Vice President/Senior Loan
Officer of the Bank since April 1997. Mr. Garcia served as Vice
President/Commercial Lending of the Bank from 1994 through April 1997.
Prior thereto, he was a Vice President and Commercial Loan Officer for
Falmouth National Bank/Bank of Boston.
Sharon L. Shoner, age 53, is currently Vice President/Audit and
Compliance Officer of the Bank, overseeing the Bank's internal audit and
compliance functions. Ms. Shoner has served with the Loan Department of the
Bank since 1977.
Jacqueline B. Nolan, age 42, has served as Vice President, Retail
Operations & Marketing of the Bank since 2001. She served as Assistant Vice
President of the Bank from October 1998 to 2001, and Branch Administrator
from 1996 to 1998. Prior thereto, she served as a loan originator with
Fleet Bank and another former Cape Cod Bank. She has also served as
Assistant Vice President for the former BayBank, now Fleet Bank. Ms. Nolan
has over 20 years of banking experience.
Executive Compensation
The following table sets forth cash and noncash compensation for the
fiscal years ended September 30, 2003, 2002 and 2001 awarded to or earned
by Santo P. Pasqualucci, the Company's President and Chief Executive
Officer; George E. Young, III, the Company's Senior Vice President and
Chief Financial Officer; and Ronald Garcia, the Bank's Vice President and
Senior Loan Officer. No other executive officer earned salary plus bonus in
excess of $100,000 during the fiscal year ended September 30, 2003.
Summary Compensation Table
Long Term
Compensation
Annual Compensation(1) Awards
------------------------------------- ---------------------
Other Restricted
Annual Stock All Other
Name and Principal Compensation Awards Options Compensation
Positions Year Salary($) Bonus($) ($) ($)(2) (#)(3) ($)(4)
------------------ ---- --------- -------- ------------ ---------- ------- ------------
Santo P. Pasqualucci, 2003 187,444 12,089 - - - 38,932
President and Chief 2002 166,949 - - 94,820 3,778 34,986
Executive Officer 2001 155,000 - - - - 31,682
George E. Young, III, 2003 109,549 14,171 - - - 26,805
Senior Vice 2002 99,112 - - 57,992 2,500 20,449
President and Chief 2001 85,152 - - - - 18,237
Financial Officer
Ronald Garcia, 2003 110,539 4,305 - - - 24,280
Vice President and 2002 90,578 - - 34,804 2,000 17,778
Senior Loan 2001 85,152 - - - - 16,526
Officer
--------------------
(footnotes on following page)
-16-
Under Annual Compensation, the column titled "Salary" includes base
salary, amounts deferred under the Company's 401(k) plan (but not
matching contributions made by the Company) and payroll deductions
for health insurance under the Company's health insurance plan.
Mr. Pasqualucci was awarded 4,310 shares of restricted stock, which
vest as follows: 1,079 shares on February 1, 2003 and 1,077 shares on
each of February 1, 2004, 2005 and 2006. Mr. Young was awarded 2,636
shares of restricted stock which vest in 25% annual increments
beginning on February 1, 2003. Mr. Garcia was awarded 1,582 shares of
restricted stock, which vest as follows: 397 shares on February 1,
2003 and 395 shares on each of February 1, 2004, 2005 and 2006. The
values of the restricted share awards shown in the table above are
based on a price of $22.00, which is the closing price of a share of
common stock on March 19, 2002, the effective date of the award. At
September 30, 2003, the aggregate fair market values of the
restricted stock awards made to Messrs. Pasqualucci, Young and Garcia
were $124,344, $76,049 and $45,641, respectively, based on a closing
price of $28.85 on September 30, 2003. Any cash dividends or
distributions declared and paid with respect to awarded shares shall
be paid to participants. In the case of death, disability,
retirement, or a change in control, as defined by the RRP, all
restricted stock awards become immediately vested.
The 2002 stock options vest as follows: Mr. Pasqualucci - 946 shares
on February 1, 2003, and 944 shares on each of February 1, 2004, 2005
and 2006; Mr. Young - 625 shares on February 1, 2003 and each
February 1st thereafter; and Mr. Garcia - 500 shares on February 1,
2003 and each February 1st thereafter. These grants generally remain
exercisable until the tenth anniversary of the grant.
Includes (i) the dollar value of premiums paid by the Company for the
2003 fiscal year with respect to term life insurance (other than
group term insurance coverage under a plan available to substantially
all salaried employees) for the benefit of Messrs. Pasqualucci, Young
and Garcia amounting to $1,356, $816 and $819, respectively; (ii) the
Company's contributions for fiscal 2003 on behalf of Messrs.
Pasqualucci, Young and Garcia to the Company's 401(k) plan consisting
of $4,458, $2,707 and $2,747, respectively; and (iii) 1,148, 807 and
718 shares of common stock allocated to each of Messrs. Pasqualucci,
Young and Garcia, respectively, under the ESOP for fiscal 2003. The
value of the shares were based on a price of $28.85, the closing
price on September 30, 2003.
Employment Agreement. The Company is party to an employment agreement
(the "Employment Agreement") with Mr. Santo Pasqualucci, the Bank's
President and Chief Executive Officer (the "Executive"). This Employment
Agreement sets forth the duties and compensation of the Executive and is
intended to ensure that the Bank and the Company will have experienced and
competent management personnel.
The Employment Agreement provides for a term of four years. On each
anniversary date from the date of commencement of the Employment Agreement,
the term of employment will be extended for an additional one-year period
beyond the then effective expiration date, upon a determination by the
Board of Directors that the performance of the Executive has met the
required performance standards and that such Employment Agreement should be
extended. The Employment Agreement provides the Executive with a salary
review by the Board of Directors not less often than annually, as well as
with participation in any discretionary bonus plans, retirement and medical
plans, customary fringe benefits and vacation and sick leave maintained by
the Company or the Bank. The Employment Agreement will terminate upon the
Executive's death or disability, and is terminable by the Bank or the
Company for "cause" as defined in the Employment Agreement. In the event of
termination for cause, no severance benefits are available. If the Bank or
the Company terminates the Executive without cause, the Executive will be
entitled to a continuation of his salary and benefits from the date of
termination through the remaining term of the Employment Agreement. If the
Employment Agreement is terminated due to the
-17-
Executive's "disability" (as defined in the Employment Agreement), the
Executive will be entitled to a continuation of his salary at three-
quarters level and benefits until the Executive becomes employed again,
reaches age 65 or dies. In the event of the Executive's death during the
term of the Employment Agreement, his estate will be entitled to receive
his salary through the end of the month of his death.
The Employment Agreement contains provisions stating that in the
event of the Executive's involuntary termination of employment in
connection with, or within one year after, any "change in control" (as
defined in the Employment Agreement), Mr. Pasqualucci will be paid, within
10 days of such termination, an amount equal to 2.99 times his "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code, as
amended (the "Code"). The Employment Agreement also provides for a lump sum
payment of the payments due to the Executive for the remaining term of the
Employment Agreement to be made in the event of the Executive's voluntary
termination of employment, upon the occurrence, or within 60 days
thereafter, of certain specified events which have not been consented to in
writing by the Executive, including:
* the requirement that the Executive perform his principal executive
functions more than 35 miles from the Bank's or the Company's current
primary office;
* material reduction in the Executive's authority and responsibility;
* liquidation or dissolution of the Bank or the Company; and
* a breach of the Employment Agreement by the Bank or the Company.
Change of Control Agreement. The Company has entered into a change of
control agreement ("Change of Control Agreement") with George E. Young,
III. The term of the Change of Control Agreement is perpetual, until the
Company gives notice of non-extension, at which time the term is fixed for
two years. Generally, the Bank or the Company may terminate the employment
of the Executive, with or without cause, at any time, prior to a change of
control without obligation for severance benefits. However, if the Bank or
the Company executes a merger or other business combination agreement, or
if a third party makes a tender offer or initiates a proxy contest, the
Executive's employment could not be terminated without cause without
liability for severance benefits. The severance benefits would generally be
equal to two times the Executive's Section 280G base amount, the value of
employer contributions to the 401(k) Plan and ESOP that would have been
made over two plan years plus insurance continuation of up to twenty-four
(24) months. The Company would pay the same severance benefits if the
Executive resigns after a change of control.
Stock Option Plan
The Company has a Stock Option Plan in effect which was previously
approved by its stockholders. The purpose of the Stock Option Plan is to
promote the growth of the Company, the Bank and other affiliates by linking
the incentive compensation of officers, key executives and directors with
the profitability of the Company. The Stock Option Plan is not subject to
ERISA and is not a tax-qualified plan. The Company has reserved an
aggregate of 145,475 shares of common stock for issuance upon the exercise
of stock options granted under the Stock Option Plan. The Company also
maintains a stock option plan not approved by stockholders that is also not
subject to ERISA and is not a tax-qualified plan. The Company has reserved
an aggregate of 23,778 shares of common stock for issuance upon the
exercise of stock options granted under this plan.
The following table provides the value for "in-the-money" options,
which represent the positive spread between the exercise price of any such
existing stock options held by the named executive officers and the year-
end price of the common stock.
-18-
Aggregated Options in 2003 Fiscal Year and 2003 Fiscal Year End Options
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Options/SARs at Fiscal Options/SARs at Fiscal
on Value Year-end Year-end(2)
Exercise Realized(1) (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- ----------- ------------------------- -------------------------
Santo P. Pasqualucci,
President and Chief
Executive Officer - - 57,314/2,832 846,275/19,399
George E. Young, III,
Senior Vice President
and Chief Financial
Officer 400 4,450 4,422/1,875 63,040/12,844
Ronald Garcia,
Vice President and
Senior Loan Officer - - 4,500/1,500 65,325/10,275
--------------------
Based on closing price of $24.50 on December 19, 2002, the date of
exercise.
The closing price per share of common stock on September 30, 2003 was
$28.85. For Mr. Pasqualucci: 36,368 exercisable options have an
exercise price of $13.375 per share, 20,000 exercisable options have
an exercise price of $15.00 per share, and 946 exercisable options
have an exercise price of $22.00 per share, which equal spreads of
$15.475, $13.85 and $6.85, respectively. For Mr. Young: 3,797
exercisable options have an exercise price of $13.375 per share and
625 exercisable options have an exercise price of $22.00 per share,
which equal spreads of $15.425 and $6.85, respectively. For Mr.
Garcia: 4,000 exercisable options have an exercise price of $13,375
per share and 500 exercisable options have an exercise price of
$22.00 per share, which equal spreads of $15.475 and $6.85,
respectively. The unexercisable options have an exercise price of
$22.00 per share, which equals a spread of $6.85.
Recognition and Retention Plan
Similar to the Stock Option Plan, the RRP functions as a long-term
incentive compensation program for eligible officers, employees and outside
directors of the Company, the Bank and other affiliates. The members of the
Board's Compensation Committee who are disinterested directors ("RRP
Committee") administer the RRP. The Company pays all costs and expenses of
administering the RRP.
As required by the terms of the RRP, the Company has established a
trust and will contribute, or cause to be contributed, to the trust, from
time to time, funds sufficient to purchase up to 58,190 shares of common
stock, the maximum number of restricted stock awards that may be granted
under the RRP. Shares of common stock subject to a restricted stock award
are held in the trust until the award vests at which time the shares of
common stock attributable to the portion of the award that have vested are
distributed to the award holder. An award recipient is entitled to exercise
voting rights and receive cash dividends with respect to the shares of
common stock subject to the award, whether or not the underlying shares
have vested.
Restricted stock awards are granted under the RRP on a discretionary
basis to eligible officers and executives selected by the RRP Committee and
are awarded to outside directors pursuant to the terms of the RRP. All
outstanding restricted stock awards are automatic full vesting on the date
of the award holder's death, disability or retirement or upon a change in
control of the Company.
The Company may amend or terminate the RRP, in whole or in part, at
any time, subject to the requirements of all applicable laws.
-19-
Transactions with Certain Related Persons
Under applicable federal law, all loans or extensions of credit to
executive officers and directors must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not
involve more than the normal risk of repayment or present other unfavorable
features. The Bank has made loans or extended credit to executive officers
and directors and also to certain persons related to executive officers and
directors. All such loans were made by the Bank in the ordinary course of
business and were not made with more favorable terms nor did they involve
more than the normal risk of collectibility or present unfavorable
features. At September 30, 2003, the Bank had a total of $1,588,000 in
loans outstanding to its directors and no loans to its executive officers.
In addition to these provisions of federal law, Massachusetts law
requires that loans by a co-operative bank to its officers and directors be
made on non-preferential terms and receive the prior approval of a
disinterested majority of the board of directors. Further, loans by a co-
operative bank to its own officers may not exceed $20,000 for general
purposes; $75,000 for educational purposes; and $275,000 for residential
home mortgage purposes. All loans by a co-operative bank to its officers
and directors must be reported annually to the Commissioner.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that the Company's
directors, executive officers, and any person holding more than ten percent
of the Company's Common Stock file with the SEC reports of ownership
changes, and that such individuals furnish the Company with copies of the
reports.
On November 14, 2003, the Company filed an amended Form 3 for Dr.
Frizzell reporting the ownership of an additional 406 shares of Company
common stock. Other than the foregoing and based solely on its review of
the copies of such forms received by it, or written representations from
certain reporting persons, the Company believes that all other executive
officers and directors complied with all Section 16(a) filing requirements
applicable to them.
-20-
ADDITIONAL INFORMATION
Information About Stockholder Proposals
If you wish to submit proposals to be included in our 2004 proxy
statement for the 2005 Annual Meeting of Stockholders, we must receive them
by August 17, 2004, pursuant to the proxy soliciting regulations of the
SEC. SEC rules contain standards as to what stockholder proposals are
required to be in the proxy statement. Any such proposal will be subject to
17 C.F.R. [SECTION]240.14a-8 of the rules and regulations promulgated by
the SEC.
In addition, under the Company's Bylaws, if you wish to nominate a
director or bring other business before an annual meeting (which is not
included in the proxy statement for the 2005 Annual Meeting), you must be a
shareholder of record and have given timely notice in writing to the
Secretary of the Company, according to the procedures set forth in our
Bylaws. If our 2005 Annual Meeting is held on a day that is within thirty
(30) days preceding the anniversary of this year's meeting, we must receive
your notice at least sixty days (60) days in advance of the 2005 Annual
Meeting. For example, if the 2005 Annual Meeting is held on January 19,
2005, we must receive your notice by November 20, 2004. If our 2004 Annual
Meeting is held on or after January 20, 2004, we must receive your notice
at least ninety (90) days in advance of the 2005 Annual Meeting. Finally,
if our 2005 Annual Meeting is held on a date which is outside the time
periods set forth above, we must receive your notice by the close of
business on the tenth (10th) day following the date on which the notice of
the 2005 Annual Meeting is first given to shareholders as provided in the
Bylaws.
By Order of the Board of Directors,
/s/ Jeanne E. Alves
Jeanne E. Alves
Secretary
Falmouth, Massachusetts
December 17, 2003
===========================================================================
To assure that your shares are represented at the Annual Meeting, please
complete, sign, date and promptly return the accompanying proxy card in the
postage-paid envelope provided.
===========================================================================
-21-
Appendix A
----------
FALMOUTH CO-OPERATIVE BANK
AUDIT POLICY
Revised and Voted 2/18/2003
TABLE OF CONTENTS
Page
AUTHORITY A-2
RESPONSIBILITIES A-2
Financial Reporting A-2
Corporate Governance A-3
Internal Control A-4
A-1
FALMOUTH CO-OPERATIVE BANK
AUDIT POLICY
AUTHORITY
Primary responsibility for Falmouth Co-operative Bank's financial
reporting and internal operating controls is vested in senior operating
management as overseen by the Audit Committee and the Board of Directors. The
Audit Committee, composed of the independent directors was established to
assist the board in fulfilling its statutory and fiduciary responsibilities.
The committee shall be composed of independent directors, including at least
one designated "financial expert", all of which are defined by the Sarbanes-
Oxley Act of 2002.
The Audit Committee shall have unrestricted access to bank personnel
and documents and will be given the resources necessary to discharge its
responsibilities.
RESPONSIBILITIES
Financial Reporting
-------------------
The responsibility of the Audit Committee in the area of financial
reporting is to provide assurance that financial disclosures made by
management reasonably portray the bank's financial condition, results of
operations and plans for long term commitments. To accomplish this the
Committee will:
* Have ultimate authority and responsibility to select, evaluate,
and where appropriate, replace the outside auditor and/or to
nominate the outside auditor to be proposed for shareholder
approval in any proxy statement.
* Insure that the external audit coverage is timely and complete to
comply within regulatory guidelines.
* Assume responsibility for ensuring its receipt from the outside
auditors, a formal written statement delineating all
relationships between the auditor and the company, consistent
with Independence Standards Board Standard 1, and the audit
committee's responsibility for actively engaging in a dialogue
with the auditor with respect to any disclosed relationships or
services that may impact the objectivity and independence of the
auditor and for taking, or recommending that the full board take,
appropriate action to oversee the independence of the outside
auditor.
A-2
* Monitor audit results.
* Review auditors' performance.
* Insure income tax returns have been prepared and filed.
* Question any material items in the tax returns.
* Insure appropriate tax reserves are maintained.
* Review management responses to external auditors and examiners.
Corporate Governance
--------------------
The responsibility of the Audit Committee in the area of corporate
governance is to provide assurance that the corporation is in reasonable
compliance with pertinent laws and regulations, is conducting its affairs
ethically and is maintaining effective controls against conflict of interest
and fraud. To accomplish this the Committee will:
* Review bank policies relating to compliance with laws and
regulations, ethics, conflicts of interest and the investigation
of misconduct or fraud.
* Review current or pending litigation in which the bank is a
party.
* Review serious cases of employee, management and director
conflict of interest, misconduct and fraud.
* The Audit Committee shall have the power to engage independent
consultants and counsel if it determines that their services are
necessary to carry out the audit committee's duties. The Bank, in
such instances, must provide appropriate funding.
A-3
Internal Control
----------------
It is incumbent on the Audit Committee to fulfill its oversight
responsibilities without unnecessary or inappropriate intervention with the
prerogatives of bank management. Nevertheless, to carry out its
responsibility, the Committee must:
* Meet privately with the external auditors to discuss pertinent
matters, including quality of management and determine if any
restrictions have been placed by management on the scope of their
examination or if there are other matters that should be
discussed with the Audit Committee.
* Determine if the scope of the audit is of sufficient depth to
detect weaknesses in internal controls and fraud.
* Review management's procedures to monitor compliance with the
internal controls.
* Verify and approve all related party transactions.
* Pre-approve all non-audit services provided by the Bank's
external audit firm.
* Provide "Whistle Blower" protection procedures to each employee,
including anonymous employee complaints regarding accounting,
internal control or audit.
* Review SEC reports 10-QSB and 10-K, and other related SEC
periodic reports prior to filing.
* Direct special investigations into significant matters brought to
its attention within the scope of its duties.
* Review this policy annually.
* Report Audit Committee activities to the Board on a timely basis.
A-4
ADDENDA
AUDIT POLICY
February 10, 2003 - Page 1
FROM:
Primary responsibility for Falmouth Co-operative Bank's financial reporting
and internal operating controls is vested in senior operating management as
overseen by the Audit Committee and the Board of Directors. The Audit
Committee, composed of the independent directors was established to assist
the board in fulfilling its statutory and fiduciary responsibilities.
TO:
Primary responsibility for Falmouth Co-operative Bank's financial reporting
and internal operating controls is vested in senior operating management as
overseen by the Audit Committee and the Board of Directors. The Audit
Committee, composed of the independent directors was established to assist
the board in fulfilling its statutory and fiduciary responsibilities. The
committee shall be composed of independent directors, including at least one
designated "financial expert", all of which are defined by the Sarbanes-Oxley
Act of 2002.
Page 2
Remove:
* Review annual financial Statements.
ADD:
* The Audit Committee shall have the power to engage independent
consultants and counsel if it determines that their services are
necessary to carry out the audit committee's duties. The Bank, in
such instances, must provide appropriate funding.
Page 3
ADD:
* Verify and approve all related party transactions.
* Pre-approve all non-audit services provided by the Bank's
external audit firm.
* Provide "Whistle Blower" protection procedures to each employee,
including anonymous employee complaints regarding accounting,
internal control or audit.
* Review SEC reports 10-QSB and 10-K, and other related SEC
periodic reports prior to filing.
A-5
REVOCABLE PROXY
This proxy is solicited on behalf of the Board of Directors of
Falmouth Bancorp, Inc.
for the Annual Meeting of Stockholders to be held on Tuesday, January 20, 2004.
The undersigned stockholder of Falmouth Bancorp, Inc. hereby appoints
Eileen C. Miskell and Gardner L. Lewis, and each of them, with full powers
of substitution, to represent and vote as proxy, as designated, all shares
of common stock of Falmouth Bancorp, Inc. held of record by the undersigned
on December 8, 2003, at the 2004 Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 4:30 p.m., Eastern Standard Time, on
January 20, 2004, or at any adjournment or postponement thereof, upon the
matters described in the accompanying Notice of the 2004 Annual Meeting of
Stockholders and Proxy Statement, dated December 17, 2003, and upon such
other matters as may properly come before the annual meeting. The
undersigned hereby revokes all prior proxies.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If you do not give us any
direction, this Proxy will be voted FOR the proposals in Items 1 and 2.
(Continued on Reverse Side)
PLEASE COMPLETE, SIGN AND DATE THIS PROXY CARD ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
1. Election of three Directors for terms of three years each.
Nominees: John J. Lynch, Jr., William E. Newton and
Santo P. Pasqualucci.
Instruction: TO WITHHOLD AUTHORITY to vote for any individual
nominee, write that nominee's name in the space provided:
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Please mark your votes like this
[X]
FOR WITHHOLD AUTHORITY
all nominees (except as for all nominees
otherwise indicated) [ ]
[ ]
2. Ratification of the appointment of Shatswell, MacLeod & Co., P.C. as
independent public accountants for the fiscal year ending September
30, 2004.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors unanimously recommends a vote "FOR" all of the
nominees named in Item 1 and a vote "FOR" the proposal in Item 2. This
proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is given, this Proxy will
be voted FOR the election of all nominees listed in Item 1 and FOR the
proposal listed in Item 2.
The undersigned hereby acknowledges
receipt of the Notice of the 2004
Annual Meeting of Stockholders and
the Proxy Statement, dated December
17, 2003 for the 2004 Annual
Meeting.
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Signature
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Date
Please sign exactly as your name
appears on this proxy, Joint owners
should each sign personally. If
signing as attorney, executor,
administrator, trustee or guardian,
please include your full title.
Corporate or partnership proxies
should be signed by an authorized
officer.