<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1999.
Registration No. 333-___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
FORM S-8
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
_______________________________________
HERITAGE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1857900
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification number)
201 5th AVENUE S.W., OLYMPIA, WASHINGTON 98501
(Address, including zip code and telephone number, including
area code of registrant's principal executive offices)
1998 STOCK OPTION AND RESTRICTED STOCK AWARD PLAN
(Full title of the plan)
DONALD V. RHODES
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
HERITAGE FINANCIAL CORPORATION
201 5TH AVENUE S.W.
OLYMPIA, WASHINGTON 98501
(360) 943-1500
Copies of communications to:
Jeffrey C. Gerrish, Esq.
GERRISH & MCCREARY, P.C.
700 Colonial Road - Suite 200
Memphis, Tennessee 38117
(901) 767-0900
(Name, address, including zip code and telephone number, including area code,
of agent for service)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum
Title of Securities to be Amount to be Maximum Offering Price Aggregate Offering Amount of
Registered Registered(1) Per Share(2) Price(2) Registration Fee
_____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Common Stock, 461,125 $9.75 $4,495,969 $1,249.88
no par value
_____________________________________________________________________________________________________________________
</TABLE>
_____________________________
(1) The Registration Statement also includes an indeterminable number of
additional shares that may become issuable as a result of terminated, expired or
surrendered options for Common Stock, or pursuant to the antidilution provisions
of the Plan. This Registration Statement covers, pursuant to Rule 416(a), any
increases in the number of shares offered under the Plan to prevent dilution
resulting from stock splits, stock dividends or similar transactions.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (h), based upon the average of the high and low
prices reported on January 25, 1999, as reported on the Nasdaq Stock Market.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
The documents containing the information required by PART I of this
Registration Statement on Form S-8 (the "Registration Statement") will be sent
or given to Plan participants as specified by Rule 428(b)(1) under the
Securities Act of 1933, as amended. Such documents and the documents
incorporated by reference herein pursuant to Item 3 of PART II hereof, taken
together, constitute a prospectus that meets the requirements of Section 10(a)
of the Securities Act.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents have been filed with the Securities and Exchange
Commission by Heritage Financial Corporation (the "Company") and are
incorporated herein by reference and made a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended June 30,
1998, provided that any information included or incorporated by
reference in response to Items 402(a)(8), (i), (k) or (l) of
Regulation S-K of the Securities and Exchange Commission shall not be
deemed to be incorporated herein and is not a part of the Registration
Statement.
2. The description of the Common Stock of the Company contained in the
Company's Registration Statement on Form 8-A filed with the
Commission.
3. All reports filed by the Company pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 since the end of the fiscal year
covered by the financial statements in the Annual Report on Form 10-K
referred to in paragraph 1 above.
4. All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934 subsequent to the
date hereof and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference herein and to be part hereof
from the date of the filing of such documents. Any statement contained
in a document incorporated by reference herein and filed prior to the
filing hereof shall be deemed to be modified or superseded for
purposes of this Registration Statement to the extent that a statement
contained herein modifies or supersedes such statement, and any
statement contained herein or in any other document incorporated by
reference herein shall be deemed to be modified or superseded for
purposes of this Registration Statement to the extent that a statement
contained in
2
<PAGE>
any other subsequently filed document which also is incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration
Statement.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the Common Stock to be offered hereby will be passed upon
for the Company by Gerrish & McCreary, P.C. Attorneys who are members or who are
employed by Gerrish & McCreary, P.C., who have provided advice with respect to
this matter in the aggregate own, directly and indirectly 10,000 shares of the
Common Stock of the Company.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Washington Business Corporation Act, RCW Chapter 23B.08, authorizes
indemnification of directors, officers and employees under certain
circumstances. The Company's Articles of Incorporation provide, among other
things, for the indemnification of directors and authorize the Board to pay
reasonable expenses incurred by, or to satisfy a judgment or fine against a
current or former director in connection with any personal legal liability
incurred by the individual while acting for the Company within the scope of his
or her employment, and which was not the result of conduct finally adjudged to
be "egregious" conduct. "Egregious" conduct is defined as intentional
misconduct, a knowing violation of law, or participation in any transaction from
which the person will personally receive a benefit in money, property or
services to which that person is not legally entitled. The Articles of
Incorporation also include a provision that limits the liability of directors of
the Company from any personal liability to the Company or its shareholders for
conduct not found to have been egregious. The Company has purchased an officers
and directors liability insurance policy which provides for insurance of
directors and officers of the Company against certain liabilities they may incur
in their capacities as such.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
ITEM 8. EXHIBITS
See the Exhibit Index which is incorporated herein by reference.
3
<PAGE>
ITEM 9. UNDERTAKINGS
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
Provided, however, that paragraph (a)(1)(i) and (a)(1)(ii)
shall not apply if the Registration Statement is on Form S-
3, Form S-8 or Form F-3 and the information required to be
included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the Company
pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in
this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
4
<PAGE>
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Company's Annual Report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or
controlling persons of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling persons in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Olympia, State of Washington, on January 29, 1999.
HERITAGE FINANCIAL CORPORATION
(Registrant)
By: /s/ Donald V. Rhodes
_________________________________
Donald V. Rhodes
Chairman, President and
Chief Executive Officer
5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated, on January 29, 1999.
Signature Title
/s/ Donald V. Rhodes Chairman, President and Chief
_______________________________ Executive Officer
Donald V. Rhodes (Principal Executive Officer)
/s/ James Hastings Vice President/Treasurer
_______________________________ (Principal Financial Officer)
James Hastings
Donald V. Rhodes Director
Lynn M. Brunton Director
John A. Clees Director
Daryl D. Jensen Director
H. Edward Odegard Director
James P. Senna Director
Peter K. Wallerich Director
Philip S. Weigand Director
Donald V. Rhodes, by signing his name hereto, does hereby sign this
document in his capacity as a director and pursuant to powers of attorney duly
executed by the persons named, filed with the Securities and Exchange Commission
as an exhibit to this document, on behalf of such persons, all in the capacities
and on the date stated, such persons including a majority of the directors of
the Registrant.
/s/ Donald V. Rhodes
_______________________________
Donald V. Rhodes
Attorney-in-Fact
6
<PAGE>
EXHIBIT INDEX
TO REGISTRATION STATEMENT ON FORM S-8
4.1 Articles of Incorporation filed as an exhibit to the Company's
Registration Statement on Form S-1 (Registration No. 333-35573) and
incorporated by this reference.
5.1 Opinion of Gerrish & McCreary, P.C. as to the legality of the
securities being registered (including consent of counsel).*
23.1 Consent of KPMG LLP.*
23.2 Consent of Counsel (included in the opinion of Gerrish & McCreary,
P.C. filed as Exhibit 5.1)*
24.1 Power of Attorney pursuant to which certain directors have signed
this Form S-8 Registration Statement.*
99.1 1998 Stock Option and Restricted Stock Award Plan.*
- -----------------------------------------------
* Filed herewith.
7
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GERRISH & MCCREARY, P.C.]
Washington Square
222 Second Avenue North, Suite 424
Nashville, Tennessee 37201
Telephone: (615) 251-0900
Telecopier: (615) 251-0975
January 29, 1999
Heritage Financial Corporation
201 5th Avenue S.W.
Olympia, WA 98501
Re: Legality of Securities to be Issued
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration by
Heritage Financial Corporation (the "Company") under the Securities Act of 1933,
as amended (the "Act"), of up to 461,125 shares of the Company's Common Stock,
no par value (the "Shares"), to be issued by the Company pursuant to the
exercise of options or awards under the Company's 1998 Stock Option and
Restricted Stock Award Plan ("Options"). The shares will be sold in the manner
set forth in the Registration Statement on Form S-8 ("Registration Statement")
that is being filed under the Act with respect to the offering of the shares.
In connection with the offering of the shares, we have examined (1) the
Company's Restated Articles of Incorporation and amendments filed thereto, (2)
the Registration Statement, (3) the Company's 1998 Stock Option and Restricted
Stock Award Plan (the "Plan"), and (4) such other documents as we have deemed
necessary to form the opinion expressed below. As to various questions of fact
independently established, we have relied upon statements of officers of the
Company.
Based on this examination, we advise you that, in our opinion, the shares
to be issued upon exercise of Options have been duly authorized and, when issued
by the Company in the manner described in the Registration Statement and the
Plan, will be validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the federal laws of the United States
and the laws of the State of Washington and we express no opinion as to the
effect of the laws of any other jurisdiction.
<PAGE>
Heritage Financial Corporation
January 29, 1999
Page Two
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference in the prospectus delivered pursuant to Form S-8
to this firm under the caption "Legal Matters" as having passed upon the
validity of the shares. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Securities and Exchange Commission
adopted under the Act.
Very truly yours,
/s/ Gerrish & McCreary, P.C.
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF KPMG]
Consent of Independent Auditors
The Board of Directors
Heritage Financial Corporation:
We consent to the use of our report dated July 30, 1998, with respect to the
consolidated financial statements of Heritage Financial Corporation as of
June 30, 1997 and 1998, and for each of the years in the three-year period ended
June 30, 1998, incorporated by reference herein.
/s/ KPMG LLP
Seattle, Washington
January 28, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Each director of Heritage Financial Corporation (the "Company") whose
signature appears below, hereby appoints Donald V. Rhodes, as his or her
attorney to sign, in his or her name and behalf and in any and all capacities
stated below, the Company's Registration Statement on Form S-8 (the
"Registration Statement(s)") for the registration of securities in connection
with the participation of directors and employees in and acquisition of
securities through the Company's 1998 Stock Option and Registered Stock Award
Plan and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary to cause the Registration Statement(s) to become
effective (including post-effective amendments) and to sign any and all such
documents upon the advice of legal counsel to carry out the exercise and sale of
the option shares, each such person hereby granting to each such attorney power
to act with or without the other and full power of substitution and revocation
and hereby ratifying all of that any such attorney or his substitute may do by
virtue hereof. This Power of Attorney has been signed by the following persons
in the capacities indicated on the 29th day of January, 1999.
Signature Title
--------- -----
/s/ Donald V. Rhodes
___________________________ Director
Donald V. Rhodes
___________________________ Director
Lynn M. Brunton
/s/ John A. Clees
___________________________ Director
John A. Clees
/s/ Daryl D. Jensen
___________________________ Director
Daryl D. Jensen
/s/ H. Edward Odegard
___________________________ Director
H. Edward Odegard
/s/ James P. Senna
___________________________ Director
James P. Senna
___________________________ Director
Peter K. Wallerich
___________________________ Director
Philip S. Weigand
<PAGE>
EXHIBIT 99.1
1998 STOCK OPTION AND RESTRICTED STOCK
AWARD PLAN
OF
HERITAGE FINANCIAL CORPORATION
1. PURPOSE OF THE PLAN. The purpose of this Plan is to provide
additional incentives to and recognition of employees and directors of Heritage
Financial Corporation, Heritage Savings Bank, North Pacific Bank and future
Subsidiaries, if any, thereby helping to attract and retain the best available
personnel for positions of responsibility with said corporations and otherwise
promoting the success of the business activities of said corporations. It is
intended that the incentives will be in the form of Options which shall
constitute either "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code or nonqualified stock options, or restricted stock
awards of Common Stock, or both.
2. DEFINITIONS. As used herein, the following definitions shall apply:
a. "Award" means an award or grant made to a Participant pursuant to
the Plan, including awards or grants of Options, Restricted Stock Awards or
any combination of the foregoing.
b. "Board" shall mean the Board of Directors of the Employer.
c. "Bank" shall mean Heritage Savings Bank, a Washington savings
bank.
d. "Change in Control" shall mean an event deemed to occur if and
when:
(1) an offeror other than the Employer purchases shares of the
Common Stock of the Employer or the Bank pursuant to a tender or
exchange offer for such shares;
(2) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of the Employer or the Bank
representing twenty five (25%) percent or more of the combined voting
power of the Employer's or the Bank's then outstanding securities;
(3) the membership of the Board of Directors of the Employer or
the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four
(24) month period (whether commencing before or after the date of
adoption
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<PAGE>
of this Plan) do not constitute a majority of the Board at the end of
such period; or
(4) shareholders of the Employer or the Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the
Employer's or the Bank's assets or a plan of partial or complete
liquidation. If any of such events (1) - (4) occur, the Board shall
determine the effective date of the Change in Control resulting
therefrom.
e. "Code" shall mean the Internal Revenue Code of 1986, as amended.
f. "Common Stock" shall mean the Employer's no par value common
stock.
g. "Committee" shall mean the Board or the Committee appointed by
the Board in accordance with subsection 4.a. of the Plan.
h. "Continuous Status" shall mean the absence of any interruption or
termination of service as an Employee or Director, as the case may be.
Continuous Status shall not be considered interrupted in the case of sick
leave, military leave, or any other approved leave of absence, except, in
the case of Employees, as provided under applicable Incentive Stock Option
Rules.
i. "Director" shall mean any person who has been elected or
appointed as a member of the Board of Directors of the Employer and who
occupied that position at the date an Award was granted to such person.
j. "Employee" shall mean any person employed by the Employer or any
Parent or Subsidiary of the Employer which now exists or is hereafter
organized or is acquired by the Employer.
k. "Employer" shall mean Heritage Financial Corporation, a
Washington corporation.
l. "Exchange Act" shall mean the Securities Exchange Act of 1934.
m. "Holder" means a Participant to whom an Award is granted or, for
a Holder who has died, the personal representative of the Holder's estate,
or the person(s) to whom the Holder's rights under the Award have passed by
will or the applicable laws of descent and distribution.
n. "Incentive Stock Option" shall mean an Option intended to satisfy
Section 422 of the Code.
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<PAGE>
o. "Nonqualified Stock Option" shall mean an Option other than an
Incentive Stock Option.
p. "Option" shall mean a stock option granted pursuant to the Plan.
Options shall include both Incentive Stock Options and Nonqualified Stock
Options, as the context requires.
q. "Optioned Stock" shall mean the Common Stock subject to an
Option.
r. "Optionee" shall mean a Participant who is granted an Option.
s. "Parent" shall mean any corporation having a relationship with
the Employer as described in Section 424(e) of the Code.
t. "Participant" means an Employee or Director of, and any
individual to whom an offer of employment has been made by, the Employer or
any Parent or Subsidiary of the Employer, and to whom an Award has been
made.
u. "Plan" shall mean this Stock Option and Restricted Stock Award
Plan.
v. "Restricted Stock Award" shall mean shares of Common Stock
granted under Section 7 of the Plan, the rights of ownership of which are
subject to restrictions prescribed by the Committee.
w. "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted
by the SEC under the Exchange Act, or any successor rule in effect from
time to time.
x. "SEC" shall mean the Securities and Exchange Commission.
y. "Shareholder-Employee" shall mean an Employee who owns, at the
time an Incentive Stock Option is granted, stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Employer or of any Parent or Subsidiary. For this purpose, the
attribution of stock ownership rules provided in Section 424(d) of the Code
shall apply.
z. "Subsidiary" shall mean any corporation having a relationship
with the Employer as described in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
a. Number of Shares Available for Delivery. The maximum number of
shares available for delivery to a Participant pursuant to the Plan shall
be equal to the sum of (i) 461,125 shares of the Common Stock of the
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<PAGE>
Employer (subject to adjustment as provided in Section 9 of the Plan) and
(ii) any shares of Common Stock that are subject to options or awards
granted under any prior stock option or award plan of the Employer which
are forfeited, expire or are canceled without the delivery of shares of
Common Stock or which result in the forfeiture of shares of Common Stock
back to the Employer. The maximum number of shares that may be delivered
through exercise of Options is 395,000 plus any forfeited, expired or
canceled option shares granted under any prior stock option or award plan
of the Employer. The maximum number of shares that may be issued as
Restricted Stock Awards as part of a Management Recognition Plan is 66,125
plus any forfeited, expired or canceled award shares granted under any
prior stock option or award plan of the Employer. During the term of this
Plan, the Employer will at all times reserve and keep available a
sufficient number of shares of its Common Stock to satisfy the requirements
of the Plan.
b. EXPIRED, FORFEITED, TERMINATED OR CANCELED OPTIONS OR AWARDS. All
as may be limited by Rule 16b-3 or Code Section 162(m): (1) if any
outstanding Option expires, is forfeited, canceled, terminated, otherwise
becomes unexercisable for any reason without having been exercised in full,
or is exercised through the delivery of Common Stock, the shares of Common
Stock allocable to the unexercised portion of such Option shall again
become available for delivery as Awards under the Plan; (2) any Restricted
Stock Award shares granted under the Plan that are forfeited back to the
Employer because of the failure to meet an award contingency or condition
shall again be available for delivery pursuant to new Awards granted under
the Plan; and (3) shares issued under the Plan through the settlement,
assumption or substitution of outstanding Awards, or obligations to grant
future Awards as a result of acquiring another entity, shall not reduce the
maximum number of shares available for delivery under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. THE COMMITTEE. The Plan shall be administered by the Board
directly, acting as a Committee of the whole, or, if the Board elects, by a
separate Committee appointed by the Board for that purpose and consisting
of at least three Board members. All references in the Plan to the
"Committee" shall refer to such separate Committee, if any is established,
or, if none is then in existence, shall refer to the Board as a whole.
Once appointed, any such Committee shall continue to serve until otherwise
directed by the Board. From time to time the Board may increase the size
of the Committee and appoint additional members thereof, remove members
(with or without cause), appoint new members in substitution therefor, and
fill vacancies however caused. In appointing members to such Committee, the
Board shall consider whether to appoint individuals qualifying as (1)
"outside directors," as such term is used in
-4-
<PAGE>
Section 162(m) of the Code, and (2) "non-employee directors" as such term
is used in Rule 16b-3.
The Committee shall select one of its members as chairman, and shall
hold meetings at such times and places as the chairman or a majority of the
Committee may determine.
At least annually, the Committee shall present a written report to the
Board indicating the Participants to whom Awards have been granted since
the date of the last such report, and in each case the date or dates of
Awards granted, the number of shares awarded, and the Award price per
share.
At all times, the Board shall have the power to remove all members of
the Committee and thereafter to administer the Plan directly as a Committee
of the whole.
b. POWERS OF THE COMMITTEE. Except for the terms and conditions
explicitly set forth in the Plan, the Committee shall have the authority
and discretion to:
(1) determine the Participants to whom Awards are to be granted,
the type of Awards granted, the times of grant, and the number of
shares to be represented by each Award;
(2) determine the Award price for the shares of Common Stock to
be issued pursuant to each Award, subject to the provisions of
subsection 6.b. of the Plan, and the date and other conditions upon
which each Option becomes exercisable (including provisions related to
vesting) and each Restricted Stock Award is granted;
(3) determine all other terms and conditions of each Award
granted under the Plan, which need not be identical;
(4) determine whether, and to what extent, and under what
circumstances, Awards may be settled or exercised in cash, Common
Stock, other securities, other Awards or other property, or canceled,
forfeited or suspended;
(5) modify or amend the terms of any Award previously granted, or
to grant a substitute Award, subject to the provisions of Sections 12
and 13 of the Plan;
(6) interpret the Plan;
-5-
<PAGE>
(7) authorize any person or persons to execute and deliver Award
agreements or to take any other actions deemed by the Committee to be
necessary or appropriate to effectuate the grant of Awards;
(8) make all other determinations and take all other actions
which the Committee deems necessary or appropriate, including without
limitation adopting rules and procedures regarding the Plan and
administering the Plan in accordance with its terms and conditions,
and
(9) determine whether an Award contemplated to be made by the
Committee might result in the payment of employee remuneration which
might exceed the limit on employee remuneration deductible by the
Employer under Code Section 162(m), and in such event, to elect to
grant such Award and administer the Plan consistent with the
requirements for ensuring deductibility of remuneration associated
therein.
All actions of the Committee shall be either by (i) a majority vote of the
members of the full Committee at a meeting of the Committee, or (ii) by
unanimous written consent of all members of the full Committee without a meeting
thereof, or in such other manner as is authorized by Rule 16b-3.
All decisions, determinations and interpretations of the Committee shall be
final and binding upon all persons, including all Participants receiving Awards
and any other Holders or persons interested in any Awards, unless otherwise
expressly determined by a vote of the majority of the entire Board. No member
of the Committee or of the Board shall be liable for any action or determination
made in good faith regarding the Plan or any Award.
5. ELIGIBILITY. Awards may be granted only to Participants who the
Committee, in its discretion, from time to time selects; provided that only
Employees may be awarded Incentive Stock Options.
Granting of Awards pursuant to the Plan shall be entirely discretionary
with the Committee, without any obligation to provide uniform treatment to
Participants. The adoption of this Plan shall not confer upon any Participant
any right to receive any Award or Awards pursuant to the Plan unless and until
said Awards are granted by the Committee, in its sole discretion. Neither the
adoption of the Plan nor the granting of any Awards pursuant to the Plan shall
confer upon any Participant any right with respect to continuation of employment
or other relationship with the Employer or any Parent or Subsidiary of the
Employer, nor shall same interfere in any way with the Participant's right or
with the right of the Employer or any Parent or Subsidiary of the Employer to
terminate the employment or other relationship at any time.
6. TERMS AND OTHER CONDITIONS OF OPTIONS. All Options granted pursuant to
the Plan must be authorized by the Committee, and must be documented in written
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<PAGE>
agreements in such form as the Committee shall from time to time approve, which
agreements shall comply with and be subject to all of the following terms and
conditions, unless waived or modified by the Committee:
a. NUMBER OF SHARES; ANNUAL LIMITATION. Each Option agreement shall
state whether the Option is an Incentive Stock Option or a Nonqualified
Stock Option and the number of shares subject to Option. The aggregate
number of shares of common stock that may be issued to any Participant
pursuant to any Award under this Plan, during any one calendar year, shall
not exceed 20% of the aggregate number of shares specified in Section 3a,
and, in addition, in the case of Incentive Stock Options, the aggregate
fair market value (determined as of the time each Option is granted) of all
shares of Common Stock with respect to which Incentive Stock Options become
exercisable for the first time by an Employee in any one calendar year
(under all incentive stock option plans of the Employer, its Parent and all
of its Subsidiaries taken together) shall not exceed $100,000.
b. OPTION PRICE AND CONSIDERATION. The Option price for the shares
of Common Stock to be issued pursuant to the Option shall be such price as
is determined by the Committee, but shall in no event be less than the fair
market value of the Common Stock on the date of grant of an Incentive Stock
Option. Further, in the case of an Incentive Stock Option granted to an
Employee who, immediately before the grant of such Incentive Stock Option,
is a Shareholder-Employee, the Incentive Stock Option price shall be at
least 110% of the fair market value of the Common Stock on the date of
grant of the Incentive Stock Option. The fair market value shall be
determined by the Committee in its discretion; provided, however, that in
the event that there is a public market for the Common Stock, the fair
market value shall be the closing transaction price of the Common Stock as
of the date of grant as reported on the National Association of Securities
Dealers Automated Quotation System (Nasdaq), or, in the event the Common
Stock is listed on a stock exchange, fair market value shall be the closing
transaction price on the exchange as of the date of grant of the Option.
The Option price shall be payable either:
(1) in United States dollars; or
(2) such other consideration of comparable value deemed to be
acceptable by the Committee, including without limitation Common Stock
(by either actual delivery of shares or by attestation) with such
Common Stock valued at fair market value as of the day of exercise,
other securities, other Options or other property.
c. TERM OF OPTIONS. Notwithstanding anything to the contrary in
this Plan or in any Options, no Incentive Stock Option granted pursuant to
the
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Plan shall in any event be exercisable after the expiration of ten (10)
years from the date such Option is granted, except that the term of an
Incentive Stock Option granted to an Employee who, immediately before such
Incentive Stock Option is granted, is a Shareholder-Employee, shall be for
not more than five (5) years from the date of grant thereof. Subject to the
foregoing and other applicable provisions of the Plan, including, but not
limited to, subsection 6.e. herein, the term of each Option, and other
conditions with respect to exercise, shall be determined by the Committee
in its discretion.
Except as otherwise specifically provided in this Plan, all Options
granted hereunder:
(1) shall require that the Optionee maintain Continuous Status from
the date of grant through and including the date of exercise; and
(2) shall terminate upon termination of the Optionee's Continuous
Status, notwithstanding any contrary term in the Option, except as such
term is consistent with this Plan.
d. MANNER OF EXERCISE; CASHLESS EXERCISE. An Option shall be deemed
to be exercised when written notice of exercise has been given to the
Employer in accordance with the terms of the Option by the person entitled
to exercise the Option. The full Option price for the shares of Common
Stock purchased upon the exercise of any Option shall be paid at the time
of such exercise, except that, in the case of a cashless exercise
arrangement approved by the Committee (and described below), payment may be
made as soon as practicable after the exercise.
The Committee may, in its discretion, allow for the cashless exercise
of an Option whereby an Optionee can exercise an Option or a portion
thereof by authorizing a third party to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the Option and
remit to the Employer a sufficient portion of the sale proceeds to pay the
entire exercise price and any tax withholding resulting from such exercise.
Any cashless exercise shall be subject to:
(1) the requirements of Rule 16b-3, federal income tax laws, and
any other applicable laws;
(2) the terms of any written agreements executed in connection
with the grant of any such Option; and
(3) any procedures and policies established from time to time by
the Committee.
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e. DEATH OF OPTIONEE. In the event of the death of an Optionee who,
until death, had been in Continuous Status since the date of grant of the
Option, the Option shall terminate on the earlier of (1) one year after the
date of death of the Optionee or such later date as may be set in the
discretion of the Committee and (2) the expiration date otherwise provided
in the Option agreement, but in no event sooner than three months following
the Optionee's death. Any Option exercisable under this subsection 6.e.,
may be exercised by the Holder.
f. DISABILITY OF OPTIONEE. If an Optionee's Continuous Status is
terminated at any time during the Option period by reason of a disability
(within the meaning of Section 22(e)(3) of the Code) any Incentive Stock
Option then held by the Optionee shall terminate one year after the date of
termination or, if earlier, the expiration date otherwise provided in the
Option agreement. If the Optionee's Continuous Status terminates by reason
of disability, any Nonqualified Stock Option held by the Optionee shall
terminate on the expiration date provided in the Option, or if no such date
is provided, then such Option shall terminate one year after the date of
termination.
g. TERMINATION OF STATUS AS A PARTICIPANT. If an Optionee's
Continuous Status is terminated at any time after the grant of an Option
for any reason other than death or disability as provided in subsections
6.e. and f. above, and not by reason of fraud or willful misconduct as
provided below, such Optionee's Option(s) shall terminate on the expiration
date(s) provided in the Option(s), or, if no such date is provided, then
such Option(s) shall terminate on the same day of the third month after the
date of termination.
If an Optionee's Continuous Status is terminated at any time after the
grant of an Option by reason of fraud or willful misconduct, then all of
such Optionee's Options shall terminate on such termination date.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
The Committee is authorized to make Restricted Stock Awards as part of a
Management Recognition Plan to Participants on such terms and conditions and
subject to such restrictions, if any (whether based on performance standards,
periods of service or otherwise), as the Committee shall determine, which terms,
conditions and restrictions shall be documented in written agreements in such
form as the Committee shall from time to time approve. The terms, conditions
and restrictions that the Committee shall have the power to determine shall
include, without limitation, the manner in which shares subject to Restricted
Stock Awards are held during the periods they are subject to restrictions and
the circumstances under which forfeiture of Restricted Stock Award shares shall
occur by reason of termination of Participant's relationship with the Employer
or any Parent or Subsidiary of the Employer.
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Notwithstanding any other provisions of the Plan, the Committee may, in its
sole discretion, waive the forfeiture period and any other terms, conditions or
restrictions on any Restricted Stock Award under such circumstances and subject
to such terms and conditions as the Committee shall deem appropriate.
8. NON-TRANSFERABILITY OF AWARDS. No Award granted pursuant to the Plan
may be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Participant, only by the Participant.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Employer, the number of shares of Common Stock
covered by each outstanding Award, the number of shares of Common Stock
available for grant of additional Awards, and the price per share of Common
Stock specified in each outstanding Award, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from any stock split or other subdivision or consolidation of shares,
the payment of any stock dividend (but only on the Common Stock) or any other
increase or decrease in the number of such shares of Common Stock effected
without receipt of consideration by the Employer; provided, however, that
conversion of any convertible securities of the Employer shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive.
No Incentive Stock Option shall be adjusted by the Committee pursuant to
this Section 9 in a manner that causes the Incentive Stock Option to fail to
continue to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
Except as otherwise expressly provided in this Section 9, no Holder of an
Award shall have any rights by reason of any stock split or the payment of any
stock dividend or any other increase or decrease in the number of shares of
Common Stock. Except as otherwise expressly provided in this Section 9, any
issuance by the Employer of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect the number of
shares or price of Common Stock subject to any Awards, and no adjustments in
Awards shall be made by reason thereof. The grant of an Award pursuant to the
Plan shall not affect in any way the right or power of the Employer to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure.
10. DATE OF GRANT OF AWARD. The date of grant of an Award shall be, for
all purposes, the date on which the Committee makes the determination granting
such Award. The date of grant shall be specified in the Award agreement
evidencing the Award.
11. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock shall not
be issued with respect to an Award granted under the Plan unless the issuance
and
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delivery of such shares pursuant thereto complies with all applicable provisions
of law, including without limitation the Securities Act of 1933, as amended, the
Exchange Act, as amended, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Common Stock then may be
listed, and shall be further subject to the approval of counsel for the Employer
regarding such compliance.
As a condition to the exercise of an Option or release of Restricted Stock
Award shares from escrow, the Employer may require the person exercising such
Option or receiving such Restricted Stock Award to represent and warrant at the
time of exercise or receipt of the shares that the shares of Common Stock are
being acquired only for investment and without any present intention to sell or
distribute such Common Stock if, in the opinion of counsel for the Employer,
such a representation is required by any provisions of law.
12. CHANGE IN CONTROL. Except as otherwise provided in the written
agreement that evidences an Award, in the event of a Change in Control, all then
outstanding Options shall become fully vested and exercisable and all Restricted
Stock Award shares be released from escrow as of the effective date of the
Change in Control. If, in connection with or as a consequence of a Change in
Control the Employer or the Bank is merged into or consolidated with another
corporation, or if the Employer or the Bank sells or otherwise disposes of
substantially all of its assets to another corporation, then, unless provisions
are made in connection with such transaction for the continuance of the Plan or
the assumption or substitution of then outstanding Awards with new Awards
covering the stock of the successor corporation, or parent or subsidiary
thereof, or both, with appropriate adjustments as to the number and kind of
shares and prices, the Committee may, in its sole discretion, terminate all
outstanding Awards as of a date fixed by the Committee which may be sooner than
the originally stated term of the Award. In such event, the Committee shall
notify each Holder of such action in writing not less than sixty (60) days prior
to the termination dated fixed by the Committee, and each Holder shall have the
right to exercise his or her Option up to and including said termination date.
13. SUBSTITUTE STOCK OPTIONS. In connection with the acquisition or
proposed acquisition by the Employer or any Subsidiary, whether by merger,
acquisition of stock or assets, or other reorganization transaction, of a
business any employees of which have been granted Incentive Stock Options, the
Committee is authorized to issue, in substitution of any such unexercised stock
option, a new Option under this Plan which confers upon the Optionee
substantially the same benefits as the old option; provided, however, that the
issuance of any new Option for an old Incentive Stock Option shall satisfy the
requirements of Section 424(a) of the Code.
14. TAX COMPLIANCE. The Employer, in its sole discretion, may take any
actions reasonably believed by it to be required to comply with any local, state
or federal tax laws relating to the reporting or withholding of taxes
attributable to the grant, exercise, payment or settlement of any Award or the
disposition of any shares of
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Common Stock issued upon exercise, payment or settlement of an Award, including,
but not limited, to:
(1) withholding from any Employee a number of shares of Common Stock
having a fair market value equal to the amount required to be withheld by
Employer under applicable tax laws, and
(2) withholding from any form of compensation or other amount due an
Employee or holder of shares of Common Stock issued upon exercise of an
Option or payment of a Restricted Stock Award, any amount required to be
withheld by Employer under applicable tax laws. Withholding or reporting
shall be considered required for purposes of this Section 14 if any tax
deduction or other favorable tax treatment available to Employer is
conditioned upon such withholding or reporting.
15. OTHER PROVISIONS. The agreements evidencing an Award and executed
pursuant to the Plan may contain such other provisions as the Committee shall
deem advisable, provided, in the case of Incentive Stock Options, that the
provisions are not inconsistent with the provisions of Section 422(b) of the
Code or with any of the other terms and conditions of this Plan.
16. TERM OF THE PLAN. The Plan shall become effective (and grants of
Awards may thereafter be made) on the date of adoption of the Plan by the Board
or the date of shareholder approval of the Plan as provided in Section 18 of the
Plan, whichever is earlier. Any Award granted prior to shareholder approval is
fully contingent on such approval being obtained, and shall become void ab
initio if shareholder approval is not timely obtained. The Plan will have no
fixed expiration date, provided, however, that no Incentive Stock Options may be
granted more than ten years after the Plan's effective date.
17. AMENDMENT OR TERMINATION.
a. AMENDMENT OR TERMINATION OF THE PLAN. The Board or shareholders may
terminate the Plan at any time. The Board may amend the Plan at any time and
from time to time in such respects as the Board may deem advisable, except that,
without approval of the holders of a majority of the outstanding shares of the
Common Stock present and entitled to vote at a duly convened meeting of the
shareholders of the Employer, no such revision or amendment shall:
(1) increase the number of shares of Common Stock subject to the Plan,
other than in connection with an adjustment under Section 9 of the Plan; or
(2) make any other amendments to the Plan that would require shareholder
approval under any applicable law or regulation.
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b. AMENDMENT OR TERMINATION OF OUTSTANDING AWARDS. Except as otherwise
provided in this Plan or in an agreement evidencing an Award pursuant to the
Plan, the Committee may retroactively or prospectively waive any condition or
rights under, amend any terms of, or alter, accelerate, suspend, discontinue,
cancel or terminate, any Award previously granted; provided, that if any such
action would impair the rights of any Holder of the Option, it shall have no
effect without the consent of the affected Holder.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the outstanding shares of Common Stock of the Employer present and
entitled to vote at a duly convened meeting of the shareholders of the Employer.
CERTIFICATE OF ADOPTION
I certify that the foregoing Plan was adopted by the Board of Directors of
Heritage Financial Corporation, on August 17, 1998 and was approved by its
shareholders on October 15, 1998.
/s/ Wendy K. Gauksheim
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Wendy K. Gauksheim, Secretary
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