<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
WASHINGTON BANKING COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
WASHINGTON BANKING COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 24, 1998
NOTICE IS HEREBY GIVEN that, pursuant to call of its directors, the
Annual Meeting of Shareholders of Washington Banking Company ("WBC") will be
held at the Best Western Harbor Plaza, 33175 State Route 20, Oak Harbor,
Washington, on Thursday, September 24, 1998 at 7:00 p.m., to consider and to
vote upon the following matters:
1. ELECTION OF DIRECTORS. Election of four (4) persons to serve on the
Board of Directors until 2001.
2. APPROVAL OF 1998 STOCK OPTION AND RESTRICTED STOCK AWARD PLAN. Approval
of WBC's 1998 Stock Option and Restricted Stock Award Plan, a copy of
which is included as Exhibit A to the attached Proxy Statement.
3. WHATEVER OTHER BUSINESS as may properly be brought before the Annual
Meeting, or any adjournment thereof.
Only those shareholders of record at the close of business on August
14, 1998 are entitled to notice of and to vote at the Annual Meeting, or any
adjournment thereof.
By Order of the Board of Directors,
/s/ SHELLY L ANGUS
Shelly Angus
Secretary
Oak Harbor, Washington
August 19, 1998
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU DO ATTEND
THE ANNUAL MEETING, YOU THEN MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
<PAGE> 3
WASHINGTON BANKING COMPANY
1421 S.W. BARLOW STREET
OAK HARBOR, WASHINGTON 98277
PROXY STATEMENT
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying Proxy are being first sent to
shareholders on or about August 19, 1998, in connection with the Annual Meeting
of Shareholders of Washington Banking Company ("WBC" or "Company") to be held on
September 24, 1998 at 7:00 p.m. at the Best Western Harbor Plaza, 33175 State
Route 20, Oak Harbor, Washington (the "Annual Meeting"). Only holders of record
of WBC's common stock, no par value, at the close of business on August 14, 1998
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
The number of shares of common stock outstanding and entitled to vote at the
Annual Meeting is 4,189,050.
The enclosed Proxy is solicited by the Board of Directors of WBC. The
costs of solicitation will be borne by WBC. In addition to the use of the mails,
solicitation may be made by telephone, facsimile and personal contact by
directors and officers of WBC and regular employees of WBC and its banking
subsidiary, Whidbey Island Bank (the "Bank"). Such persons will receive no
compensation for their solicitation of Proxies other than their usual
compensation for the positions they hold with their employers. WBC does not
intend to pay any compensation to any other persons for the solicitation of
Proxies, although it will reimburse brokers, nominees and similar non-beneficial
record holders for reasonable expenses to mail proxy materials to beneficial
owners.
Under Washington law, a quorum must be present, in person or
represented by Proxy, at the Annual Meeting for matters to come before and be
voted upon at the meeting, or any adjournment of it. Holders of a majority of
the shares outstanding as of the Record Date, or 2,094,526 shares, will
constitute a quorum at the Annual Meeting.
On each matter that properly comes before the Annual Meeting,
shareholders are entitled to cast one vote for each share of common stock held,
including one vote for each director to be elected. Shareholders are not
entitled to cumulate their votes in the election of directors. The four nominees
for election as directors who receive the greatest number of votes will be
elected directors. Votes may be cast in favor of some or all of the nominees for
election to the Board of Directors or withheld as to some or all of the
nominees; votes withheld will have the same effect as a negative vote.
Abstentions may be specified on all proposals except the election of directors;
an abstention will have the practical effect of voting against a proposal since
the shares represented by the abstention will be considered present and entitled
to vote but will not be voted in favor of the proposal. Approval of the 1998
Stock Option and Restricted Stock Award Plan requires the affirmative vote of
holders of a majority of WBC's
<PAGE> 4
shares of common stock present in person or by Proxy and entitled to vote at the
Annual Meeting.
If shares are held in "street name" through a broker or other nominee
(that is, the broker or nominee is the record holder but not the beneficial
owner), and if the broker or nominee is not given specific voting instructions,
the broker or nominee is permitted to exercise voting discretion regarding the
matters to be acted upon at the Annual Meeting.
If the enclosed Proxy is duly executed and received from a record
holder in time for the Annual Meeting, it is the intention of the persons named
in the Proxy to represent the holder to vote "FOR" the four nominees for
director listed in this Proxy Statement and "FOR" approval of the 1998 Stock
Option and Restricted Stock Award Plan, unless otherwise instructed. Any Proxy
given by a shareholder may be revoked before its exercise by notice to WBC in
writing, or by a subsequently dated Proxy, or by the shareholder's personal
presence and vote at the Annual Meeting. Shares represented by properly executed
Proxies not revoked will be voted in accordance with the instructions indicated
in such Proxies, or, if no instructions are given, in accordance with the
recommendation of management described above.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of August 14, 1998 with
respect to beneficial ownership of WBC's common stock by (a) each director and
director nominee; (b) WBC's Chief Executive Officer; and (c) all directors and
executive officers of WBC as a group. Except as noted below, WBC believes that
the beneficial owners of the shares listed below, based on information furnished
by such owners, have sole voting and investment power with respect to such
shares. The percentages shown are based on the number of shares of WBC common
stock outstanding on August 14, 1998, plus, as to each such person and all
executive officers and directors as a group, all rights to acquire shares within
60 days thereafter, including all stock options exercisable within such 60-day
period. The number of shares has been adjusted for the 100-for-1 stock split
effective March 26, 1998, and for the 3-for-2 stock split effective April 24,
1998 ("1998 Stock Splits"). As of August 14, 1998 there were no shareholders
known by WBC to be the beneficial owners of more than 5% of WBC's outstanding
shares of common stock
2
<PAGE> 5
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED AT
AUGUST 14, 1998
-----------------------------------
PERCENTAGE OF
OUTSTANDING
NAME NUMBER COMMON STOCK
- ---- ------ -------------
<S> <C> <C>
Michal D. Cann (1) 62,951 1.49%
Orlan Dean (2) 30,267 *
Marlen Knutson (3) 20,300 *
Karl C. Krieg (4) 58,922 1.40%
Jay T. Lien (5) 54,183 1.29%
Robert B. Olson (6) 65,250 1.55%
Anthony B. Pickering 20,400 *
Larry Scodeller 6,000 *
Alvin J. Sherman 21,416 *
Edward J. (Bud) Wallgren (7) 76,011 1.81%
Directors and executive officers 464,705 10.69%
as a group (11 persons) (8)
</TABLE>
- -------------
* Represents less than 1.0% of WBC's outstanding common stock.
(1) Includes 49,500 shares issuable upon exercise of options, 37,500 of which
are exercisable at $2.93 per share, 4,500 of which are exercisable at
$3.37 per share, 6,000 of which are exercisable at $4.08 per share and
1,500 of which are exercisable at $5.37 per share.
(2) Includes 14,850 shares issuable upon exercise of options, 11,250 of which
are exercisable at $3.00 per share, 3,000 of which are exercisable at
$3.07 per share, and 600 of which are exercisable at $4.08 per share.
(3) All shares are owned by the Knutson Hauling, Inc. Profit Sharing Trust,
for which Mr. Knutson is the Trustee.
(4) Includes 14,850 shares issuable upon exercise of options, 11,250 of which
are exercisable at $3.00 per share, 3,000 of which are exercisable at
$3.07 per share, and 600 of which are exercisable at $4.08 per share.
(5) Includes (a) 14,850 shares issuable upon exercise of options, 11,250 of
which are exercisable at $3.00 per share, 3,000 of which are exercisable
at $3.07 per share, and 600 of which are exercisable at $4.08 per share;
and (b) 10,383 shares owned by the Dan Garrison, Inc. Profit Sharing Plan,
for which Mr. Lien is the Trustee.
(6) Includes 14,850 shares issuable upon exercise of options, 11,250 of which
are exercisable at $3.00 per share, 3,000 of which are exercisable at
$3.07 per share, and 600 of which are exercisable at $4.08 per share.
(7) Includes (a) 14,850 shares issuable upon exercise of options, 11,250 of
which are exercisable at $3.00 per share, 3,000 of which are exercisable
at $3.07 per share, and 600 of which are exercisable at $4.08 per share;
and (b) 10,266 shares owned by Island O.K. Tires, Inc. Profit Sharing
Plan, for which Mr. Wallgren is the Trustee.
(8) Includes 159,000 shares issuable pursuant to options exercisable within 60
days.
3
<PAGE> 6
PROPOSAL 1: ELECTION OF DIRECTORS
WBC's Articles of Incorporation provide that the number of directors to
be elected by the shareholders shall be not less than five (5) nor more than
twelve (12) and that, within such minimum and maximum, the exact number of
directors shall be fixed by resolution of the Board of Directors. The Board of
Directors has fixed the number of directors at ten (10). Directors are divided
into three classes, each class serving for a period of three years. The terms of
Class 1 directors expire in the year 2000, of Class 2 directors expire in 2001,
and of Class 3 directors expire in 1999. Approximately one-third of the members
of the Board of Directors are elected by the shareholders annually. The
directors whose terms expire at the Annual Meeting are Michal D. Cann, Orlan
Dean, Marlen Knutson and Larry Scodeller, all of whom have been nominated by the
Board of Directors for re-election at the Annual Meeting. If elected, such
directors will hold office until the annual meeting of shareholders in the year
2001 and until their successors are elected and qualified.
Each nominee has indicated that he is able and willing to serve on the
Board of Directors. If any nominee should become unable or unwilling to serve,
the Proxy will be voted for such person as is designated by the Board of
Directors to replace any such nominee. The Board of Directors presently has no
knowledge that any of the nominees will be unable or unwilling to serve.
The following information is provided with respect to the nominees for
election at the Annual Meeting as Class 2 directors whose terms will expire in
2001, and regarding all other incumbent directors, including their respective
names, ages, principal occupations during the past five years and the year first
elected a director of WBC or the Bank. The address for each of the nominees and
all incumbent directors is 1421 S.W. Barlow Street, Oak Harbor, Washington
98277. All nominees are presently directors of WBC and Whidbey Island Bank;
Larry Scodeller was appointed as a director by the Board of Directors on August
6, 1998.
NOMINEES FOR ELECTION AS CLASS 2 DIRECTORS (TERMS EXPIRE IN 2001):
MICHAL D. CANN Director since 1992
Mr. Cann, 50, has been the President and Chief Executive Officer of WBC since
1996, and the President and Chief Executive Officer of the Bank, and President
and Secretary of WIB Financial Services, Inc., since 1993. Mr. Cann has 27 years
of banking experience, previously having served as the President of Valley Bank,
Mt. Vernon, Washington, and in other senior management positions in other banks
and/or bank holding companies.
ORLAN DEAN Director since 1985
Mr. Dean, 74, is the retired general manager of Don Boyer Chevrolet, where he
served from 1984 to 1993.
4
<PAGE> 7
MARLEN KNUTSON Director since 1996
Mr. Knutson, 65, is the President of Knutson Hauling, Inc., an excavation
company. Mr. Knutson was also the owner of Knutson Distributors, Inc., having
retired in 1990. Mr. Knutson previously has served as Chairman of Valley Bank of
Mt. Vernon, Washington.
LARRY SCODELLER Director since 1998
Mr. Scodeller, 56, has served as the Executive Vice President and Chief
Operating Officer of the Bank since February 1998. Mr. Scodeller has been a
director since August 6, 1998. Mr. Scodeller has 27 years of banking experience,
previously having served as Senior Vice President and Chief Financial Officer of
Bellingham National Bank and as Executive Vice President and Chief Financial
Officer of People's Bank in Lynden, Washington.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES.
CLASS 3 INCUMBENT DIRECTORS (TERMS EXPIRE IN 1999):
JAY T. LIEN Director since 1987
Mr. Lien, 54, has been the President of Dan Garrison, Inc., a real estate
company, since 1986.
ALVIN J. SHERMAN Director since 1996
Mr. Sherman, 66, is currently retired, having served until 1997 as a co-owner of
Sherman Farms, Inc.
EDWARD J. (BUD) WALLGREN Director since 1991
Mr. Wallgren, 60, has been the President of Island O.K. Tires, Inc. since 1968,
and is currently the owner of six Les Schwab Tire stores in Northwestern
Washington. Mr. Wallgren has been the Chairman of the Board of WBC since 1996.
CLASS 1 INCUMBENT DIRECTORS (TERMS EXPIRE IN 2000):
KARL C. KRIEG, III Director since 1990
Mr. Krieg, 62, has been the President of Krieg Construction, Inc. since 1979.
Mr. Krieg is also the President of Krieg Concrete Products, Inc., Krieg
Development Group, Inc. and KK&D Developments, Inc.
ROBERT B. OLSON Director since 1992
Mr. Olson, 62, has been the co-owner and co-managing director of H&H Properties,
Inc., a land development company, since 1991. Mr. Olson previously has served as
the President and Chief Executive Officer of four community banks in Washington
and Oregon. Mr. Olson also serves as a director of WIB Financial Services, Inc.
5
<PAGE> 8
ANTHONY B. PICKERING Director since 1996
Mr. Pickering, 50, has been the owner of Max Dale's Restaurant since 1983.
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
The Board of Directors of WBC has established certain standing
committees, including an Audit Committee and a Compensation Committee. There
presently is no standing nominating committee.
AUDIT COMMITTEE. The main functions performed by the Audit Committee include
reviewing and approving the services of the independent auditors, reviewing the
plan, scope, and audit results of the internal auditors and the independent
auditors, and reviewing the reports of bank regulatory authorities. The Audit
Committee also reviews the annual and other reports to the Securities and
Exchange Commission and the annual report to WBC shareholders. Current members
of the Audit Committee, none of whom are officers or employees of WBC or the
Bank, are Messrs. Dean, Lien, Olson and Pickering. There were four (4) meetings
of the Audit Committee during 1997.
COMPENSATION COMMITTEE. The Compensation Committee reviews and recommends
remuneration arrangements for senior management. Current members of the
Compensation Committee are Messrs. Cann, Knutson, Krieg, Lien, Olson and
Wallgren. Mr. Cann is an officer and director of WBC and the Bank. There were
three (3) meetings of the Compensation Committee during 1997.
BOARD OF DIRECTORS MEETINGS. There were fourteen (14) meetings of the Board of
Directors of WBC during 1997. All directors attended at least 75% of the total
meetings of the Board and all committees of which they were members in 1997.
DIRECTOR COMPENSATION. During 1997, members of the Board of Directors received a
fee of $700 for each regular Board meeting and $200 for each special Board
meeting and meeting of the WIB Financial Services, Inc. Board attended, plus, as
to non-employee directors only, an additional $200 per meeting for each
committee meeting that such director attended.
In 1997, each non-employee director was granted an option to purchase
3,900 shares of the Company's common stock, as adjusted for the 1998 Stock
Splits, pursuant to the Director Stock Option Plan adopted by the Board of
Directors and WBC shareholders in 1993 (the "1993 Plan"). The exercise price for
each option, as adjusted for the 1998 Stock Splits, is $9.25 per share. All
director options vest and become exercisable in annual 20% increments beginning
one year after the date of grant. The options are exercisable for a period of
ten years from the date of grant.
6
<PAGE> 9
EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers of the Company. See also, "PROPOSAL 1: ELECTION OF DIRECTORS" for
background information concerning Messrs. Cann and Scodeller.
<TABLE>
<CAPTION>
HAS SERVED AS AN EXECUTIVE
OFFICER
NAME AGE POSITION OF WBC SINCE
- ---- --- -------- ------------
<S> <C> <C> <C>
Michal D. Cann 50 Director, President and Chief 1996
Executive Officer
Phyllis A. Hawkins (1) 49 Senior Vice President and 1998
Chief Financial Officer
Larry Scodeller 56 Director, Executive Vice 1998
President and Chief Operating
Officer
</TABLE>
- ------------------
(1) Ms. Hawkins has served as Senior Vice President and Chief Financial
Officer of the Bank since 1996. Prior to that time, Ms. Hawkins served as
Senior Vice President and Cashier. Ms. Hawkins began working for the Bank
in 1969 and has held various positions in operations, human resources and
auditing since that term.
All officers are appointed by the Board of Directors and serve at the
pleasure of the Board for an unspecified term.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
This report of WBC's Compensation Committee ("Committee") describes in
general terms the process the Committee undertakes and the factors it considers
in determining the appropriate compensation for WBC's executive officers,
including the executive officer who is named in the Summary Compensation Table
that follows (the "Named Executive").
GENERAL
The Committee is responsible for establishing and monitoring
compensation programs for executive officers of WBC and its subsidiaries. The
Committee reviews and approves individual executive officer salaries, bonuses
and stock option grants and other equity-based awards. The Committee is
responsible for establishing the compensation and evaluating the performance of
the Chief Executive Officer, while the Chief Executive Officer evaluates the
performance of the other executive officers and recommends individual
compensation levels for approval by the Committee. Mr. Cann is the only member
of the Committee who is an officer or employee of WBC or its subsidiaries.
7
<PAGE> 10
COMPENSATION PHILOSOPHY
WBC, acting through the Committee, believes that compensation of its executive
officers and other key personnel should reflect and support the goals and
strategies that WBC establishes. The Company's objective is to continue, over
the next several years, to expand its geographical presence outside Whidbey
Island, while solidifying its market position on the Island. To deliver the
Company's products more effectively and efficiently, the Company's market
strategy is to locate full service branch offices that provide all of the
Company's products and services in its targeted growth areas, and mini-branches,
grocery or retail store branches and automated teller machines ("ATM's") in the
areas surrounding those central locations in order to further service customers.
Acquisition of banks or branches also will be used as a means of expansion if
appropriate opportunities are presented. The Company also expects to invest in
technology to facilitate telephone, personal computer and Internet banking, but
with its primary commitment being to provide exceptional personal service.
While continuing to geographically expand, management's strategy is to
continue to provide a high level of personal service to its customers and to
expand loans, deposits and other products and services that it offers its
customers. Maintenance of asset quality will be emphasized by controlling
nonperforming assets and adhering to prudent underwriting standards. In
addition, management will strive to improve operating efficiencies to further
manage non-interest expense and will continue to improve internal operating
systems.
WBC's goals are intended to create long-term value for WBC's
shareholders, consistent with protecting the interests of depositors. The
Committee believes that these goals are best supported by attracting and
retaining well-qualified executive officers and other personnel through
competitive compensation arrangements, with emphasis on rewards for outstanding
contributions to WBC's success and on aligning the interests of the executive
officers and other personnel with those of WBC's shareholders.
The Committee follows a compensation philosophy that emphasizes options
and other stock-based compensation. This emphasis is intended to create a close
link between the interests of employees and shareholders and to focus on
exceptional growth in assets and earnings and superior asset quality, with the
intent of producing significant increases in shareholder value.
WBC's performance since 1995 has, in the Committee's opinion, shown the
value of this approach. Company assets have increased to $203.6 million at June
30, 1998 from $99.5 million at year end 1995. During the same period, loans
receivable increased to $130.2 million from $63.1 million, deposits grew to
$173.8 million from $88.5 million and shareholders' equity increased to $28.7
million from $10.4 million. Net income for the year ended December 31, 1997
increased to $1.9 million from $1.3 million for the year ended December 31,
1995. Net income for the six months ended June 30, 1998 was $936,000 as compared
to $838,000 for the six months ended June 30, 1997.
The Committee anticipates that it will continue to emphasize
stock-based compensation in the future. Consequently, the Committee expects that
the Board of Directors periodically
8
<PAGE> 11
will request shareholder approval for additional shares to be made available for
issuance upon exercise of options, as is being done in Proposal 2 presented to
shareholders at this Annual Meeting.
COMPENSATION PROGRAMS AND PRACTICES
WBC's compensation program includes competitive salary and benefits, an
annual incentive cash bonus based upon attainment of Company and individual
performance goals, and opportunities for employee ownership of WBC common stock
through a stock option program in which all employees are eligible to
participate.
In determining compensation packages for individual executives, the
Committee considers various subjective and objective factors, including (1)
individual job responsibilities and experience; (2) individual performance in
terms of both qualitative and quantitative goals; (3) WBC's overall performance,
as measured by attainment of strategic and budgeted financial goals and prior
performance; and (4) industry surveys of compensation for comparable positions
with similar institutions in the State of Washington, the Pacific Northwest and
the United States.
It is not anticipated that the limitations on deductibility, under
Internal Revenue Code Section 162(m), of compensation to any one executive that
exceeds $1,000,000 in a single year will apply to WBC or its subsidiaries in the
foreseeable future. In the event that such limitation would apply, the Committee
will analyze the circumstances presented and act in a manner that, in its
judgment, is in the best interests of WBC. This may or may not involve actions
to preserve deductibility.
Components of WBC's compensation program are the following:
BASE SALARY. Salary levels of executive officers are designed to be
competitive within the banking industry. In setting competitive salary ranges,
the Committee works with management to periodically evaluate current salary
levels of other financial institutions with size, lines of business, geographic
dispersion and market place position similar to WBC's. Base salaries for WBC's
executive officers other than the Chief Executive Officer are based upon
recommendations by him, taking into account the subjective and objective factors
described above. The Committee reviews and approves or disapproves such
recommendations.
ANNUAL INCENTIVE BONUS. Executive officers have an annual incentive
opportunity with cash awards (bonuses) based on the overall performance of WBC
and on attainment of individual performance targets. Performance targets may be
based on one or more of the following criteria: return on average assets, return
on average equity, core deposit growth, loan growth, asset quality, growth in
earnings. The annual bonus pool is determined by the Committee, with final
approval by the Board of Directors, each fiscal year and is based upon an
assessment of the Company's performance as compared to both budgeted and prior
fiscal year performance. Once the bonus pool has been established, the Chief
Executive Officer makes individual bonus recommendations to the Committee based
upon an evaluation of an executive's individual performance and contribution to
WBC's overall performance.
9
<PAGE> 12
STOCK OPTION AND OTHER STOCK-BASED COMPENSATION. Equity-based
compensation generally has been in the form of incentive and nonqualified stock
options pursuant to existing stock option plans. (See the discussion under
"PROPOSAL 2: APPROVAL OF 1998 STOCK OPTION AND RESTRICTED STOCK AWARD PLAN -
Background" and the table under Option Grants in 1997, below, for additional
information.) The Committee, with final approval by the Board, determines from
time to time which executives, if any, will receive stock options and determines
the number of shares subject to each option. Grants of stock options and awards
are based on various subjective factors relating primarily to the
responsibilities of individual executives, their expected future contributions
to WBC and prior option grants.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary and bonus for WBC's President and Chief Executive
Officer, Michal D. Cann, is determined by the Committee, with final approval by
the Board, based on the same criteria as the compensation for the other
executive officers. In 1997, Mr. Cann received a base salary of $109,590 and a
bonus of $20,000.
CONCLUSION
The Committee believes that for the 1997 fiscal year, the compensation
for Mr. Cann, as well as for the other executive officers, were consistent with
WBC's overall compensation philosophy and clearly related to the realization of
WBC's goals and strategies for the year.
Respectfully submitted by:
Edward J. (Bud) Wallgren, Chairman Karl C. Krieg
Michal D. Cann Jay T. Lien
Marlen Knutson Robert B. Olson
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation for services
rendered to WBC or its subsidiaries in all capacities paid or accrued for the
fiscal year ended December 31, 1997 to the Company's Chief Executive Officer,
who is the only executive officer of WBC whose aggregate cash and cash
equivalent forms of compensation exceeded $100,000 (the "Named Executive").
10
<PAGE> 13
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-------------------------- ----------------------
NUMBER OF
SHARES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
------ ----- ------- ------------
<S> <C> <C> <C> <C>
Michal D. Cann, $109,590 $20,000 7,500(1) $4,078(2)
President & Chief
Executive Officer
</TABLE>
- ------------------
(1) As adjusted for the 1998 Stock Splits.
(2) The amount disclosed in this column includes matching contributions under
the Company's 401(k) Plan in the amount of $3,115 and profit sharing
contributions in the amount of $963.
OPTION GRANTS IN 1997
The following table sets forth certain information on option grants to
the Named Executive in 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION
FOR OPTION TERM
-----------------------------------------------
PERCENTAGE OF
NUMBER OF SHARES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE PER EXPIRATION 5% 10%
NAME OPTIONS GRANTED EMPLOYEES IN 1997 SHARE DATE ($) ($)
- ------------------ ------------------- -------------------- ------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michal D. Cann 7,500(1) 14.5% $9.25(1) 12/31/07 $4,800 $40,725
</TABLE>
- --------------------
(1) Represents incentive stock option granted on December 31, 1997. The number
of securities and exercise price per share have been adjusted for the 1998
Stock Splits. The option shares vest and become exercisable in annual 20%
increments beginning on December 31, 1998 and are exercisable until
December 31, 2007.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table summarizes option exercises during 1997 by the
Named Executive and the fiscal year-end value of unexercised options granted to
the Named Executive:
11
<PAGE> 14
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT 12/31/97 AT 12/31/97
SHARES ACQUIRED (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE)(1) (UNEXERCISABLE)(1)
- ------------------- ------------------- --------------- ---------------------- --------------------------------
<S> <C> <C> <C> <C>
Michal D. Cann -0- -0- 49,500/25,500 $304,160/$89,511
</TABLE>
- ------------------
(1) As adjusted for the 1998 Stock Splits.
OTHER EMPLOYEE BENEFITS
The Company maintains a salary savings 401(k) Plan for its employees,
including its executive officers. All persons employed for at least one year who
are at least 21 years of age and have a minimum of 1,000 hours service may
participate in the 401(k) Plan. Employees who participate may contribute a
portion of their salary to the 401(k) Plan; contributions of up to 5% of salary
are matched 50% by the Company, subject to certain specified limits.
EXECUTIVE SEVERANCE AGREEMENT
The Bank has entered into an Executive Severance Agreement with Mr.
Michal Cann, effective as of July 1, 1992. The purpose of this agreement is to
ensure that Mr. Cann will be available to assist the Board of Directors in
responding to and, if appropriate, in completing any proposed change in control
of the Bank.
The provisions of the Severance Agreement are triggered by a "change in
control," which means a change "in the ownership or effective control" or "in
the ownership of a substantial portion of the assets" of the Bank, as such
quoted terms are defined and used in Section 280 G(b)(2)(A) of the Internal
Revenue Code. Severance payments are conditioned on a termination of Mr. Cann as
a result of the change in control. The severance payment to Mr. Cann is equal to
two times his highest annual compensation paid during the previous three years
($259,180 based on his current salary).
BENEFICIAL OWNERSHIP AND
SECTION 16(a) REPORTING COMPLIANCE
WBC is a reporting company pursuant to Section 12 of the Securities
Exchange Act of 1934 ("Exchange Act"). Under Section 16(a) of the Exchange Act,
and the rules promulgated thereunder, directors, officers, greater than ten
percent shareholders, and certain other key personnel are required to report
their ownership and any change in ownership of WBC securities to the Securities
and Exchange Commission ("SEC"). WBC believes that its directors, officers, and
greater than ten percent shareholders have complied with all Section 16(a)
filing requirements applicable to them.
In making the foregoing statement, WBC has relied solely upon written
representations of its directors and officers, its lack of knowledge of the
existence of any holder of greater than
12
<PAGE> 15
ten percent of WBC outstanding common stock, and copies of the reports WBC's
officers and directors have filed with the SEC.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
During 1997, certain directors and executive officers of WBC and the
Bank, and their associates, were customers of the Bank, and it is anticipated
that such individuals will be customers of the Bank in the future. All
transactions between the Bank and its executive officers and directors, and
their associates, were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other, unrelated persons. In the
opinion of management, such transactions with executive officers and directors
did not involve more than the normal risk of collectability or present other
unfavorable features.
PROPOSAL 2: APPROVAL OF 1998 STOCK OPTION AND
RESTRICTED STOCK AWARD PLAN
BACKGROUND
The Company adopted its employee stock option plan in 1992 ("1992
Plan"). Under the 1992 Plan, WBC is authorized to issue up to 450,000 shares of
common stock upon the exercise of incentive stock options and nonqualified stock
options granted under the 1992 Plan, of which, as of the Record Date, 354,000
shares currently are subject to options granted but not exercised and 96,000
shares have been issued upon exercise of options granted. As discussed above, in
1993 the Company adopted the 1993 Plan that permits grants of nonqualified stock
options to directors for up to 150,000 shares of WBC stock, of which, as of the
Record Date, 113,700 shares currently are subject to options granted but not
exercised and 35,550 shares have been issued upon exercise of options granted.
ADOPTION OF 1998 PLAN
Subject to shareholder approval, the Board of Directors has terminated
the 1992 and 1993 Plans as to further grants of options and has adopted a 1998
Stock Option and Restricted Stock Award Plan ("1998 Plan"). Shareholders will be
requested at the Annual Meeting to approve the 1998 Plan.
The Board of Directors believes the 1998 Plan will enhance the
Company's ability to attract and to retain the services of individuals who are
likely to make a significant contribution to WBC's success. The purpose of the
1998 Plan is to promote WBC's success by aligning the financial interests of
Plan participants with long-term shareholder value. A copy of the 1998 Plan is
attached to this Proxy Statement as EXHIBIT A.
13
<PAGE> 16
DESCRIPTION OF 1998 PLAN
The following is a summary of the principal provisions of the 1998
Stock Option and Restricted Stock Award Plan and is subject to and qualified in
its entirety by the express terms of the 1998 Plan, which is incorporated herein
by reference.
PURPOSE. The purpose of the 1998 Plan is to (i) enhance the long-term
profitability and shareholder value of WBC by offering stock-based incentives to
employees, directors, consultants and agents of, and individuals to whom offers
of employment have been made by, WBC or its subsidiaries; (ii) attract and
retain the best available personnel for positions of responsibility with WBC and
its subsidiaries; and (iii) encourage employees and directors to acquire and
maintain stock ownership in WBC.
ADMINISTRATION. The 1998 Plan will be administered by WBC's Compensation
Committee ("Committee"). The Committee has been authorized by the Board of
Directors to act in this capacity, and all members of the Committee serve for
such terms as the Board of Directors determines, and may be removed by the Board
of Directors. In addition to its authority to grant options and restricted stock
awards (collectively, "Awards"), the Committee will be authorized to administer
and interpret the 1998 Plan, subject to its express provisions. To be consistent
with recent changes to the securities laws, the 1998 Plan directs that the Board
of Directors consider appointing individuals to the Committee who qualify as
"non-employee directors" or "outside directors" as defined, respectively, in the
securities laws and the Internal Revenue Code of 1986, as amended (the "Code").
SHARES SUBJECT TO 1998 PLAN. The 1998 Plan authorizes Awards covering a maximum
of 161,000 shares of WBC common stock plus any shares subject to stock options
that are forfeited, expire or are canceled under the 1992 and 1993 Plans.
Approval of the 1998 Plan would terminate the 1992 and 1993 Plans as to further
stock option grants and would increase the number of shares previously available
for stock option grants under the 1992 and 1993 Plans (restricted stock awards
are not permitted under those plans) from 750 to 161,000 under the 1998 Plan. To
the extent permitted by applicable law, expired, forfeited, terminated or
canceled Award shares under the 1998 Plan will again become available for
delivery as Awards pursuant to the 1998 Plan.
LIMITATIONS. Not more than 25% of the aggregate number of shares available for
delivery pursuant to an Award granted under the Plan may be issued to any
participant during any one calendar year. In addition, in the case of Incentive
Stock Options, the aggregate fair market value of all shares becoming
exercisable in any one year shall not exceed $100,000.
PERSONS WHO MAY PARTICIPATE. Awards may be granted under the 1998 Plan to those
employees, directors, consultants and agents of, and persons offered employment
by, WBC or its subsidiaries as the Committee from time to time selects, provided
that only employees may be granted incentive stock options. If the 1998 Plan is
approved by shareholders at the Annual Meeting, there will be approximately 138
employees eligible to participate in the 1998 Plan; all eight non-employee
directors, including those to be elected at the Annual Meeting, also will be
eligible to participate.
14
<PAGE> 17
TYPES OF AWARDS. Awards granted under the 1998 Plan may include incentive stock
options ("ISOs") intended to meet all the requirements of an "Incentive Stock
Option" as defined in Section 422 of Code, nonqualified stock options ("NSOs"),
and restricted stock awards.
TERMS AND CONDITIONS OF AWARDS
AGREEMENTS. Each Award granted under the 1998 Plan must be evidenced by an
agreement duly executed on behalf of WBC. Each agreement will comply with and be
subject to the terms and conditions of the 1998 Plan. An agreement may also
contain such other terms, provisions and conditions not inconsistent with the
1998 Plan as may be determined by the Committee.
STOCK OPTION GRANTS. The exercise price for each option granted under the 1998
Plan will be determined by the Committee, but will be not less than 100% of the
fair market value of WBC common stock on the date of grant of an ISO. For
purposes of the 1998 Plan, "fair market value" means the closing transaction
price of the common stock on the date of grant as reported on the Nasdaq
National Market. As of the June 30, 1998, the closing transaction price for
WBC's common stock as reported on the Nasdaq National Market was $13.50 per
share.
Upon exercise of an option, the option price for shares purchased must
be paid in cash or such other consideration of comparable value deemed
acceptable by the Committee, including already-owned shares of WBC common stock,
other securities, other options or other property. The Committee also, in its
discretion, may allow for the cashless exercise of an option whereby an optionee
can authorize a third party to sell shares of WBC's common stock acquired upon
exercise of an option and remit to WBC a sufficient amount of the sale proceeds
to pay the exercise price and any applicable tax withholding.
The term of options granted under the 1998 Plan will be fixed by the
Committee. No ISO granted under the 1998 Plan can be exercisable after 10 years
from the date of grant. Each option will be exercisable pursuant to a vesting
schedule to be determined by the Committee.
The 1998 Plan provides that options generally will be exercisable for
up to one year after termination of service as a result of death or disability
and, unless otherwise provided in the option agreement, three months after all
other terminations (except for terminations for "cause" as defined in the 1998
Plan, in which case an option will terminate immediately). The 1998 Plan further
authorizes the Committee to establish later expiration dates for options in
certain circumstances, provided that the Committee may not extend an option
beyond the original term of such option.
RESTRICTED STOCK AWARDS. The Committee is authorized to make awards of common
stock 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 may determine. Restrictions may include repurchase or forfeiture
rights in favor of WBC.
TRANSFERABILITY. No Award under the 1998 Plan will be assignable or otherwise
transferable,
15
<PAGE> 18
other than by will or the laws of descent and distribution, and, during the
recipient's lifetime, all options may be exercised only by the recipient.
AMENDMENT AND TERMINATION OF 1998 PLAN. The 1998 Plan may be modified, amended
or terminated by the shareholders or the Board of Directors at any time, except
that shareholder approval is required for any amendment that (i) increases the
number of shares subject to the 1998 Plan (other than in connection with certain
automatic adjustments such as stock splits) or (ii) requires shareholder
approval under any applicable law or regulation.
ADJUSTMENT OF SHARES. In the event of any changes in the outstanding stock of
WBC by reason of stock dividends, stock splits, or any other increase or
decrease in the number of shares of WBC's common stock effected without receipt
of consideration by WBC (except conversion of convertible securities), the
Committee, subject to any required action by the shareholders, shall make
proportional adjustments in (i) the maximum number of shares subject to the 1998
Plan; (ii) the number of securities subject to any outstanding Award; and (iii)
the per share price of such securities. The determination by the Committee of
the applicable adjustments is final.
CORPORATE TRANSACTIONS. In the event of a merger or consolidation or a sale of
substantially all the assets or a liquidation or dissolution of WBC, the
Committee may, in certain circumstances and in its sole discretion, terminate
all outstanding Awards after proper notice affording optionees a 60-day period
in which to exercise their options.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to WBC and to any person granted an
option under the 1998 Plan under the existing applicable provisions of the Code
and the regulations thereunder are substantially as follows:
NONQUALIFIED STOCK OPTIONS. No income will be recognized by a participant upon
the grant of an NSO. Upon the exercise of an NSO, the optionee will recognize
taxable ordinary income in an amount equal to the excess of the fair market
value of the shares acquired over the option exercise price and WBC will be
allowed a deduction in such amount. Upon a later sale of those shares, the
optionee will have short-term or long-term capital gain or loss, as the case may
be, in an amount equal to the difference between the amount realized on such
sale and the tax basis of the shares sold. If payment of the option exercise
price is made entirely in cash, the tax basis of the shares will be equal to
their fair market value on the exercise date (but not less than the option
exercise price), and the shares' holding period will begin on the day after the
exercise date. If the optionee uses already-owned shares to exercise an option
in whole or in part, the transaction will not be considered to be a taxable
disposition of the already-owned shares. The optionee's tax basis of the
already-owned shares will be carried over to the equivalent number of shares
received upon exercise; the tax basis of the additional shares received upon
exercise will be the fair market value of the shares on the exercise date (but
not less than the amount of cash, if any, used in payment), and the holding
period for such additional shares will begin on the date after the exercise
date.
16
<PAGE> 19
Under Section 162(m) of the Code, certain compensation payments in
excess of $1 million are subject to a limitation on deductibility for WBC. The
limitation on deductibility applies with respect to that portion of a
compensation payment for a taxable year in excess of $1 million to either WBC's
Chief Executive Officer or any one of the other four most highly compensated
executive officers of WBC. Certain performance-based compensation is not subject
to the limitation on deductibility. Options can qualify for this
performance-based exception, but only if they are granted at fair market value,
the total number of shares that can be granted to an executive for any period is
stated, and shareholder and Board of Directors' approval is obtained. The 1998
Plan has been drafted to allow compliance with those performance-based criteria.
INCENTIVE STOCK OPTIONS. The same rules apply to an ISO that is exercised more
than three months after the optionee's termination of employment (or more than
twelve months thereafter in the case of permanent and total disability, as
defined in the Code). No income will be recognized by a participant upon the
grant of an ISO. Upon the exercise of an ISO during employment or within three
months after the optionee's termination of employment (or within twelve months
thereafter in the case of permanent and total disability as defined in the
Code), for federal tax purposes the optionee will recognize no income at the
time of exercise (although the optionee will have income at that time for
alternative minimum income tax purposes as if the option were an ISO) and no
deduction will be allowed to WBC for federal income tax purposes in connection
with the grant or exercise of the option. If the acquired shares are sold or
exchanged after the later of (a) one year after the date of exercise of the
option and (b) two years after the date of grant of the option, the difference
between the amount realized by the optionee on that sale or exchange and the
option price will be taxed to the optionee as a long-term capital gain or loss.
If the shares are disposed of before such holding period requirements are
satisfied, then the optionee will recognize taxable ordinary income in the year
of disposition in an amount equal to the excess, on the date of exercise of the
option, of the fair market value of the shares received over the option exercise
price paid (or, generally, if less, the excess of the amount realized on the
sale of the shares over such price), and the optionee will have capital gain or
loss, long-term or short-term, as the case may be, in an amount equal to the
difference between (i) the amount realized by the optionee upon disposition of
the shares and (ii) the option exercise price paid by the optionee (increased by
the amount of ordinary income, if any, recognized by the optionee on the
transaction).
RESTRICTED STOCK AWARDS. Upon the receipt of shares under stock awards subject
to vesting and other substantial restrictions, a participant generally will
recognize taxable ordinary income when the shares cease to be subject to such
restrictions in an amount equal to the excess of the fair market value of the
shares at that time over the amount, if any, paid for such shares. Within 30
days after the date the shares are awarded, a participant may elect under
Section 83(b) of the Code to recognize taxable ordinary income at the time of
award in an amount equal to the excess of the fair market value of the shares at
such time over the amount, if any, paid for such shares and any appreciation
after the date of the transfer will be taxed as long-term or short-term capital
gain when the shares are sold. In that case, no additional income will be
recognized by a participant upon the lapse of restrictions on the shares and any
appreciation after the date of award will be taxed as long-term or short-term
capital gain when
17
<PAGE> 20
the shares are sold. If the shares are subsequently forfeited, however, a
participant may not deduct the ordinary income recognized at the time of award
of the shares and the participant will have a capital loss equal to the amount,
if any, paid for such shares.
Upon the award of shares that are not subject to restrictions, other
than restrictions on transfer, a participant generally will recognize taxable
ordinary income at the time of such award. The participant's holding period for
the shares will begin at the time taxable income is recognized under these
rules, and the tax basis in the shares will be the amount of ordinary income so
recognized plus the amount, if any, paid for the shares. Any dividends received
on the restricted shares prior to the date the participant recognizes income as
described above will be taxable ordinary income when received.
AWARDS UNDER THE 1998 PLAN
No Awards have been made under the 1998 Plan. Since option grants and
stock awards under the 1998 Plan are discretionary, WBC cannot currently
determine the number of shares that will be subject to Awards in the future
pursuant to the 1998 Plan. The Committee currently intends to make Awards under
the 1998 Plan primarily to officers and key employees of WBC and the Bank.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1998
STOCK OPTION AND RESTRICTED STOCK AWARD PLAN.
RELATIONSHIP WITH
INDEPENDENT PUBLIC ACCOUNTANTS
On December 15, 1997, WBC engaged KPMG Peat Marwick LLP as the
Company's principal accountant. A representative of KPMG Peat Marwick LLP is
expected to be present at the Annual Meeting to make a statement, if desired,
and to be available to respond to appropriate questions.
Prior to KPMG Peat Marwick LLP's engagement, David O. Christensen,
Certified Public Accountants & Consultants (now know as David Christensen, CPA &
Consultant, PLLC) ("David O. Christensen"), independent certified public
accountants, had served as the principal independent accountant for WBC and
rendered its report with respect to WBC's consolidated financial statements for
the years ended December 31, 1996 and 1995. The recommendation to no longer
appoint David O. Christensen was made by management of WBC and was approved by
the Board of Directors effective November 20, 1997.
In the two most recent fiscal years preceding the Board's action, and
through December 15, 1997, there were no disagreements with David O. Christensen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to David O.
Christensen's satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their report. David O.
Christensen's reports on WBC's statements for such fiscal years did not contain
any adverse opinions or disclaimers of opinion, nor were such reports modified
or qualified in any respect.
18
<PAGE> 21
WBC does not anticipate that a representative of David O. Christensen will be
present at the Annual Meeting.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders of WBC, anticipated to be held on or about April 29,
1999, must be received by WBC for inclusion in the Proxy Statement and form of
Proxy relating to that meeting by December 31, 1998.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. If other matters should properly come before the Annual
Meeting, it is the intention of the persons appointed in the Proxy to vote the
shares represented by the Proxy in accordance with recommendations of management
on such matters.
ADDITIONAL INFORMATION
WBC WILL PROVIDE WITHOUT CHARGE, UPON WRITTEN REQUEST, TO EACH
SHAREHOLDER ENTITLED TO VOTE AT THE ANNUAL MEETING, A COPY OF WBC'S PROSPECTUS
DATED JUNE 23, 1998, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES INCLUDED THEREIN. REQUESTS MUST BE ADDRESSED TO WASHINGTON BANKING
COMPANY, PO BOX 990, OAK HARBOR, WASHINGTON 98227. COPIES OF EXHIBITS TO THE
REGISTRATION STATEMENT CONTAINING SUCH PROSPECTUS WILL BE PROVIDED UPON PAYMENT
OF WBC'S REASONABLE EXPENSES IN FURNISHING SUCH COPIES.
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU DO ATTEND
THE ANNUAL MEETING, YOU THEN MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
19
<PAGE> 22
EXHIBIT A
1998 STOCK OPTION
AND RESTRICTED STOCK AWARD PLAN
OF
WASHINGTON BANKING COMPANY
1. PURPOSE OF THE PLAN. The purpose of this Plan is to provide
additional incentives to employees, directors, consultants and agents of
Washington Banking Company, Whidbey Island 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 Whidbey Island Bank, a Washington
commercial 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
<PAGE> 23
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, Director, consultant or
agent, 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 Washington Banking Company, 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 or distribution.
n. "Incentive Stock Option" shall mean an Option intended to
satisfy Section 422 of the Code.
-2-
<PAGE> 24
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, Director, consultant or
agent 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 pursuant to the Plan shall be equal to the sum
of (i) 161,000 shares of the Common Stock of the Employer (subject to adjustment
as
-3-
<PAGE> 25
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 employee 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. 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 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.
-4-
<PAGE> 26
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;
(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 Employer under Code Section 162(m),
and in such event, to elect to grant such Award and administer
the Plan consistent with the
-5-
<PAGE> 27
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. Awards may also be made to
consultants and agents who provide services to the Employer, or any Parent or
Subsidiary of the Employer.
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 CONDITIONS OF OPTIONS. All Options granted pursuant to the
Plan must be authorized by the Committee, and must be documented in written
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 25% of the
aggregate number of shares specified in Section 3a. 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
-6-
<PAGE> 28
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 AND OTHER CONDITIONS OF OPTIONS. Notwithstanding
anything to the contrary in this Plan or in any Options, no Incentive Stock
Option granted pursuant to the 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
date of exercise; and
-7-
<PAGE> 29
(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.
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.
-8-
<PAGE> 30
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 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.
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
-9-
<PAGE> 31
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 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
-10-
<PAGE> 32
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. 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 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.
-11-
<PAGE> 33
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.
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.
-12-
<PAGE> 34
CERTIFICATE OF ADOPTION
I hereby certify that the foregoing Plan was adopted by the Board of
Directors of Washington Banking Company, on August 6, 1998 and was approved by
its shareholders on ______________, 1998.
___________________________________
Secretary
-13-
<PAGE> 35
WASHINGTON BANKING COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- SEPTEMBER 24, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
WASHINGTON BANKING COMPANY
PLEASE SIGN AND RETURN IMMEDIATELY
The undersigned shareholder of WASHINGTON BANKING COMPANY ("WBC") hereby
nominates, constitutes and appoints Michal D. Cann and Edward J. (Bud) Wallgren
and each of them (with full power to act alone), the true and lawful attorneys
and proxies, each with full power of substitution, for me and in my name, place
and stead, to act and vote all the common stock of WBC standing in my name and
on its books on August 14, 1998 at the Annual Meeting of Shareholders to be held
at the Best Western Harbor Plaza, Oak Harbor, Washington, on September 24, 1998,
at 7:00 p.m., and at any adjournment thereof, with all the powers the
undersigned would possess if personally present, as follows:
1. Election of Directors. Election of four (4) persons to serve on the Board of
Directors until 2001.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY TO VOTE for
all
nominees listed below (in the manner
described below)
Instructions: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name listed below.
Michal D. Cann, Orlan Dean, Marlen Knutson, Larry Scodeller
2. Approval of the 1998 Stock Option and Restricted Stock Award Plan. Approval
of WBC's 1998 Stock Option and Restricted Stock Award Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other business as may properly come before
the Annual Meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET FORTH ABOVE.
<PAGE> 36
Management knows of no other matters that may properly be, or which are
likely to be, brought before the Annual Meeting. However, if any other matters
are properly presented at the Annual Meeting, this Proxy will be voted in
accordance with the recommendations of management.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders for the September 24, 1998 Annual Meeting, and the accompanying
documents forwarded therewith, and ratifies all lawful action taken by the
above-named attorneys and proxies.
Date:
---------------------------------------------------------------------------,
1998
---------------------------
Signature
---------------------------
Signature
NOTE: Signature(s) should
agree with name(s) on WBC
stock certificate(s).
Executors, administrators,
trustees and other
fiduciaries, and persons
signing on behalf of
corporations or
partnerships should so
indicate when signing. ALL
JOINT OWNERS MUST SIGN.
