<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:
[ ] 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
BAYLAKE CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
BAYLAKE CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
of
BAYLAKE CORP.
___________________________
This Proxy Statement is being furnished to the shareholders of
Baylake Corp. ("Baylake") in connection with the solicitation of proxies on
behalf of Baylake's Board of Directors to be voted at the Annual Meeting of
Baylake Shareholders to be held at 7:00 p.m., local time, on Monday, June 2,
1997, at the Cornerstone Conference Center, 222 North Third Avenue, Sturgeon
Bay, Wisconsin, and at any adjournment thereof (the "Annual Meeting"). This
Proxy Statement and the enclosed proxy card are being mailed to the
shareholders on or about April 30, 1997.
At the Annual Meeting, Baylake shareholders will be asked to elect
five (5) directors to serve as Class III directors, whose terms as directors
will expire in 2000. The Baylake Board of Directors also proposes an Amendment
to the Baylake Bank Stock Option Plan. Presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Baylake Common for any
matter constitutes a quorum for all matters to be considered at the Annual
Meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum. The Inspector of Election
appointed by the Board of Directors will determine the shares represented at
the Annual Meeting and the validity of proxies and ballots, and will count all
votes and ballots. The voting requirements and procedures described below are
based upon the provisions of the Wisconsin Business Corporation Law, Baylake's
charter documents and any other requirements applicable to the matters to be
voted upon. Each shareholder of record of Baylake Common at the close of
business on April 24, 1997, will be entitled to one vote for each share of
Baylake Common registered in such shareholder's name. At that date there were
2,458,537 shares of Baylake Common issued and outstanding, all of which are
entitled to vote.
Shares represented at the Annual Meeting by properly executed proxy
will be voted in accordance with the specifications made on the proxy. Unless
otherwise directed, proxies will be voted FOR the election of the named
individuals in Class III. If any of the nominees would decline or be unable to
act, which eventuality is not foreseen, proxies will be voted with
discretionary authority for a substitute nominee to be designated by the Board
of Directors.
Directors are elected by a plurality of the votes cast by holders of
Baylake Common entitled to vote in the election at a meeting at which a quorum
is present. "Plurality" means that the individuals who receive the largest
number of votes are elected as directors up to the maximum number of directors
to be chosen at the meeting. Therefore, any shares not voted, whether by
withheld authority, broker non-vote or otherwise, have no effect in the
election of directors except to the extent that the failure to vote for an
individual results in another individual receiving a larger number of votes.
Any shareholder submitting a proxy has the right to revoke the proxy
at any time before it is voted by giving written notice to the secretary of
Baylake, by giving oral notice to the presiding officer during the Annual
Meeting that the shareholder intends to vote in person, or by submitting a
subsequently dated proxy. Attendance by a shareholder at the Annual Meeting
will not in and of itself constitute revocation of a proxy.
<PAGE> 3
The expense of preparing, printing and mailing this Proxy Statement
and the solicitation of proxies will be borne by Baylake. In addition to
solicitation by mail, directors, officers and employees of Baylake may solicit
proxies by telephone, facsimile transmission or personal contact, but will
receive no additional compensation for such services.
Baylake shareholders of record or beneficially on April 24, 1997 may
obtain a copy (without exhibits) of Baylake's (i) Annual Report on Form 10-K,
as amended, for the year ended December 31, 1996, and (ii) Quarterly Report on
Form 10-Q, for the three months ended March 31, 1997, without charge, upon the
written request of such person to: Steven Jennerjohn, Chief Financial Officer,
Baylake Corp., 217 N. Fourth Avenue, P.O. Box 9, Sturgeon Bay, WI 54235.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
THE BOARD OF DIRECTORS OF BAYLAKE UNANIMOUSLY RECOMMENDS:
. a vote FOR each of the nominees for Class III director,
AS THE BOARD BELIEVES SUCH ACTION TO BE IN THE BEST INTERESTS
OF BAYLAKE AND ITS SHAREHOLDERS
Election of Directors
The Bylaws of Baylake provide for classification of the Board of
Directors into three classes as nearly equal in number as practicable, each to
serve staggered three-year terms, with the term of one class expiring each
year. The Bylaws also provide that the Board may consist of not less than five
(5) nor more than seventeen (17) directors as shall be determined from year to
year by the shareholders. The Board of Directors currently consists of twelve
(12) directors, including three (1) Class I directors, whose terms expire in
1998, four (4) Class II directors whose terms expire in 1999, and five (5)
Class III directors whose terms expire in 1997. The Board of Directors has
nominated the five (5) individuals named below for election as directors of
Class III, to serve for terms expiring at the 2000 Annual Meeting of
Shareholders and upon the election of their successors. All of the nominees
are currently directors of Baylake.
The following also sets forth information as to current directors of
Baylake who will serve as directors for the indicated terms. Except as
otherwise indicated, each of the directors has been employed in such director's
current occupation for at least five years. All of the directors of Baylake
also serve as directors of Baylake Bank.
Nominees for Election as Class III Directors for Term Expiring in 2000:
<TABLE>
<CAPTION>
Principal Occupation and Director
Name and Age Business Experience Since
------------ ------------------------ -----
<S> <C> <C>
Ronald D. Berg (62) Retired; formerly, Senior Vice President of 1979
(1)(3) Baylake Bank
Marie Bertschinger (69) Management of Alpine, Inc. 1979
(2)(3) (resort)
</TABLE>
2
<PAGE> 4
<TABLE>
<S> <C>
Richard A. Braun (54) Executive Vice President and Vice Chairman 1994
(1)(4)(5) of Baylake; previously President of Baylake
Ex officio:(2) Bank - Kewaunee and President of
Kewaunee County Banc-Shares, Inc.
Ruth Nelson (62) General Manager of Ephraim Shores 1983
(1)(5) (motel and restaurant)
William C. Parsons (60) President of Palmer Johnson Enterprises 1979
(1)(3)(4) (shipbuilding and marine components)
Continuing Class I Directors Whose Term Expires in 1998:
Principal Occupation and Director
Name and Age Business Experience Since
------------ ------------------------ -----
John W. Bunda (62) Owner and manager of Bunda's Hutch 1972
(3) (retail clothing)
L. George Evenson (68) Retired; formerly, dairy farmer 1978
(1)(4) (1949-1993)
Thomas L. Herlache (54) President, Chief Executive Officer and; 1970
(1)(2)(4) Chairman of Baylake; President, Chief
Ex officio:(3)(5) Executive Officer, Vice Chairman and
Trust Officer of Baylake Bank
Continuing Class II Directors Whose Term Expires in 1999:
Principal Occupation and Director
Name and Age Business Experience Since
------------ ------------------------ -----
John D. Collins (66) Owner of C&S Manufacturing 1979
(2) (metal production)
George Delveaux, Jr. (54) Dairy Farmer 1981
(3)(5)
Glenn Miller (66) Senior Vice President and Co-Owner of 1983
(2)(4) Sturgeon Bay Yacht Harbor; Co-Owner
of Ephraim Yacht Harbor; Retired
Joseph Morgan (54) President of Mary Morgan, Inc. (printing) 1995
(4)(5)
</TABLE>
3
<PAGE> 5
(1) Member of the Executive Committee, which reviews the financial,
administrative and regulatory, activities of Baylake and Baylake
Bank. It is authorized by the Board of Directors to act on its
behalf on any matter permitted by law. This committee generally meets
on a weekly basis (except for the third Tuesday of each month), and
held 37 meetings during 1996.
(2) Member of the Director Loan Committee which reviews certain loan
transactions of Baylake Bank. This committee generally meets on a
weekly basis, and held 52 meetings during 1996.
(3) Member of the Audit and Legal Committee which reviews financial and
legal matters of Baylake and held 12 meetings in 1996.
(4) Member of the Personnel and Compensation Committee, which reviews the
personnel policies and annual compensation levels of Baylake Bank.
Officers and employees of Baylake receive no separate compensation,
as all compensation is paid by Baylake Bank. This committee held 1
meeting during 1996.
(5) Member of the Special Services Committee, which reviews the functions
and administration of the trust and financial services departments
of Baylake Bank and Baylake's non-bank subsidiaries. This committee
meets on a monthly basis, and held 12 meetings during 1996.
Each member of the Board of Directors attended at least 75% of the
meetings of the Board of Directors and of all committees on which such
directors served during 1996 except that William C. Parsons attended 67% of
Board of Directors meetings, 70% of Executive Committee meetings, and 67% of
Audit & Legal Committee meetings.
Ownership of Baylake Common
The table below sets forth information regarding the beneficial
ownership of Baylake Common as of April 24, 1997 by each director and nominee
for director (including the named executive officer in the Summary Compensation
Table below) and by all executive officers and directors of Baylake and its
subsidiaries as a group. Such information, including addresses, is also given
for all persons who are known to Baylake to beneficially own more than 5% of
the outstanding shares of Baylake Common as of such date.
<TABLE>
<S> <C> <C>
Name (1) Number of Shares Percent
---------------------------- ---------------- -------
Thomas L. Herlache 37,260(2) 1.52%
Ronald D. Berg 4,034 *
Marie Bertschinger 52,080 2.12%
Richard A. Braun 25,300 1.03%
John W. Bunda 6,881 *
John D. Collins 21,417 *
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C> <C>
George Delveaux, Jr. 486 *
L. George Evenson 3,284 *
Glenn Miller 4,119 *
Joseph Morgan 1,861 *
Ruth Nelson 37,892 1.54%
William C. Parsons 27,688 1.13%
All executive officers and directors 239,755(3) 9.75%
as a group (21 persons)
Ellsworth L. Peterson 239,837 9.76%
55 Utopia Circle
Sturgeon Bay, WI 54235
Oliver Ulvilden 145,521 5.76%
P.O. Box 189
Ephraim, WI 54211
</TABLE>
_____________________________
* Less than 1%
(1) For all listed persons, the number includes shares held by,
jointly with, or in trust for the benefit of, spouse and
dependent children. Shares are reported in such cases on the
presumption that the individual may share voting and/or
investment power because of the family relationship.
(2) In addition, there are also options to purchase 8,800 shares
exercisable currently or within 60 days of the date hereof.
(3) In addition, there are also options to purchase aggregate of
62,000 shares exercisable currently or within 60 days of
the date hereof.
Directors' Fees and Benefits
Directors of Baylake or Baylake Bank are paid $350 for each general
board meeting attended, and $100 for each board meeting which is not attended.
Members of any of the identified committees also receive $150 for each
committee meeting attended.
Baylake also has deferred compensation agreements with certain of its
directors, including Marie Bertschinger, John W. Bunda, George Delveaux, Jr.,
L. George Evenson, Ruth Nelson, and William C. Parsons. Under these agreements,
participating directors may elect to defer their annual directors' fees until
retirement, termination, death or disability, at which time the deferred
amount, including any income or gains thereon, are payable in a lump sum or in
annual installments. At death, all sums held in the account of a participating
director are payable to designated beneficiaries. Although Baylake maintains
policies of insurance to support payments under these agreements, participating
directors have no interest in such policies or any benefits accruing under such
policies.
5
<PAGE> 7
Executive Compensation
Compensation Summary. The following table summarizes certain
information for each of the last three years concerning all compensation
awarded or paid to or earned by the Chief Executive Officer of Baylake. No
other executive officers of Baylake and/or Baylake Bank received total annual
salary and bonus exceeding $100,000 for fiscal year 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation(6)
----------------------
<S> <C> <C> <C>
Options/ All other
Name and Principal Salary Bonus SARs Compensation
Position Year ($)(1) ($)(2) (#)(3) ($)(4)
- ------------------------ ------ ------- ------
Thomas L. Herlache 1996 249,848(5) 45,938 4,000 13,312
President and Chief 1995 222,181(5) 43,750 4,000 15,000
Executive Officer 1994 172,120(5) 12,644 8,000 7,250
</TABLE>
(1) The salary amount set forth include base salaries, directors' fees and
employee contributions made to the account of the named executive
officer pursuant to the Baylake Bank's 401(k) Plan.
(2) Consists of bonuses earned during the year indicated pursuant to
Baylake Bank's Pay-for-Performance Program and prior bonus
plans, which amount were paid as soon as practicable in the following
year. See "Board of Directors/Compensation Committee Report on
Management Compensation -- Year-end Bonuses" below for more detailed
information.
(3) Consists solely of non-qualified stock options granted to the named
executive officer under Baylake's 1993 Stock Option Plan.
(4) Consists of employer matching and other contributions made to the
account of the named executive officer under Baylake Bank's 401(k)
Plan.
(5) Includes annual compensation deferred at Mr. Herlache's election
pursuant to the Thomas L. Herlache Deferred Compensation Plan, under
which Mr. Herlache may defer a portion of his annual compensation in
an amount equal to the greater of $20,500 or 15.6% of his base salary.
Amounts deferred are held in a rabbi trust for the benefit of Mr.
Herlache.
(6) Although the named individual received perquisites or other personal
benefits in the years shown, in accordance with SEC regulations the
value of these benefits is not shown because they did not in the
aggregate exceed 10% of the individual's salary and bonus in any year.
Mr. Herlache also has a Preferred Compensation Agreement with Baylake
Bank under which Mr. Herlache is entitled to receive a minimum cash benefit of
$20,000 per year (payable in monthly installments) upon his death, disability
or retirement at age 65. Such payment will be made for a period of at least
ten years. If Mr. Herlache decides to retire before age 65, he will be
entitled to reduced annual benefits (with the reduction equal to 6.5%
multiplied by the difference between his age at early retirement and age 65);
however, Mr. Herlache will not be entitled to any such benefits upon retirement
prior to age 65.
6
<PAGE> 8
Stock Options. The following tables set forth certain information
concerning grants of options to purchase Baylake Common made to the named
executive officer during 1996 and the number and value of options outstanding
at the end of 1996 for the named executive officer.
<TABLE>
<CAPTION>
Options/SAR Grants in Last Fiscal Year
Individual Grants(1)
Potential Realizable
Percent of Value at Assumed
Total Options/ Annual Rates of Stock
Options/ SARs Granted Exercise Market Price Price Appreciation
SARs to Employees or Base at Date Expiration For Option Term
Name Granted(#) in Fiscal Year Price($/sh) of Grant Date 5%($) 10%($)
---- ---------- -------------- ----------- -------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas L. Herlache 4,000 10.5% $26.75 $26.75 1/2/06 67,292 170,530
</TABLE>
(1) Consists entirely of non-qualified stock option granted pursuant to
Baylake's 1993 Stock Option Plan. All options granted after April
30, 1993 have and will have exercise prices equal to 100% of the
fair market value of the Baylake Common on the date of grant. The
options granted to date become exercisable 20% per year, commencing
one year from date of grant.
Aggregated Option/SAR Exercises in Last Fiscal Year
And Fiscal Year-End Option/SAR Values(1)
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options/SARs at Fiscal In-the-Money Options/SARs
Year-End (#) at Fiscal Year-End ($)(3)
<S> <C> <C> <C> <C> <C> <C>
Shares Acquired Value
Name on Exercise (#) Realized ($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- --------------- ----------- ------------ ----------- ------------
Thomas L. Herlache 4,800 $59,094.25 4,000 15,200 20,592 20,592
</TABLE>
(1) Consists entirely of non-qualified stock options; no SARs have been
granted or exercised.
(2) Market price at date of exercise of options, less option exercise
price, times number of shares, equals value realized.
(3) Calculated assuming market price of Baylake Common at fiscal year-end
of $26.87 per share.
Board of Directors/Compensation Committee Report on Management Compensation
The Board of Directors determines the compensation of Baylake Bank's
executive officers, based on the recommendations of the Personnel and
Compensation Committee (the "Committee). However, with respect to the
compensation of Thomas L. Herlache, Baylake Bank's President and Chief
Executive Officer, the Board of Directors determined his compensation based
upon an independent evaluation by Executive Studies Group, comparing financial
institutions of equivalent asset size. Criteria selected for salary
comparisons included return on assets and net income growth and, in addition,
return on assets and return on equity results. Directors and committee members
who are also executive officers of Baylake Bank do not participate in
discussions concerning their compensation. The Board of Directors unanimously
adopted the recommendations of the Committee without modifications.
7
<PAGE> 9
The Committee is comprised of seven persons, including four outside
directors, Thomas L. Herlache, Richard A. Braun, and Sharon Haines, Director of
Human Resources. Ms. Haines is substantially responsible for initially
formulating the Committee's recommended compensation levels of the salaried
employees and executive officers. The Committee generally meets one time
during the year to consider compensation levels and make recommendations to the
Board. It works with the human resources department which gathers and provides
useful information for the Committee's review.
The general philosophy of the Committee is to offer employees fair
and competitive compensation, based on the employee's individual contribution,
experience and performance and on Baylake Bank's overall growth and
performance. Baylake Bank's executive compensation policies are intended to
attract and retain competent management with a balance of short- and long-term
considerations and to provide incentives to individuals based upon the Bank's
growth and earnings and the attainment of certain goals. The Board of
Directors believes that this policy is critical to the long-term success and
competitiveness of Baylake.
In making its executive compensation recommendations for 1996, the
Committee considered various factors, including the following: (i) the
financial performance of Baylake Bank as a whole on both a short-term and
long-term basis (including net income, an increase in deposits and loans,
return on average shareholders' equity, and return on average asserts); (ii)
with respect to each individual executive officer, the financial performance of
that area of Baylake Bank, if any, for which such executive is responsible,
including whether or not that area of the Bank achieved its goals for 1996;
(iii) the length of service of the executive and an evaluation of the
executive's overall job performance; (iv) the compensation levels of executive
officers in similar positions with similar companies; and (v) other information
(such as cost of living increases) and subjective factors which the Committee
deems appropriate in the case of a particular executive. The Committee
subjectively analyzes these factors, and certain factors may weigh more heavily
than others with regard to any individual executive officer.
The main components of Baylake Bank's executive compensation program
consist of base salary, a year-end bonus, and stock options, in addition to
standard medical, life and disability benefits and a 401(k) profit sharing plan
made available to all employees.
Base Salary. The principal component of executive compensation is
base salary. The Committee believes that base salary is most important in
retaining highly qualified officers. Accordingly, it reviews compensation
surveys and comparisons collected by the human resources department and seeks
to recommend salaries at levels above those applicable to other financial
institutions and businesses similarly situated on the basis of type, size and
community, although the Committee and human resources department do not perform
any mathematical calculations or statistical analyses to arrive at any
percentile comparison. Salary surveys include both informal surveys conducted
by the human resources department with the cooperation of nearby community
financial institutions and businesses, and formal financial surveys conducted
by independent banking consultants and banking associations.
In recommending base salary levels for 1996, the Committee (and the
Board, as to the salary of Mr. Herlache) considered such factors as growth in
net income and earnings per share and return on average assets and average
stockholders' equity. With respect to Mr. Herlache's salary in particular, the
Board took into account the sustained top performance of Baylake under his
leadership as well as Baylake's most recent annual performance. In view of
these considerations, the Board and Committee determined that a salary increase
for the executive officers ranging from 2.45% to 11.35% including a salary
increase for Mr. Herlache of 5.00% would be appropriate.
8
<PAGE> 10
Year-End Bonuses. The Board of Directors, in conjunction with the
Committee, implemented a year-end bonus program, called the "Pay-
for-Performance Program," which commenced in 1993. The Pay-for-Performance
Program offers incentives to executive officers and other key employees to earn
bonuses which are directly dependent on the Bank's performance in numerous
select areas and in various divisions. The bonus plans reflect the philosophy
of the Board that a significant portion of executive compensation should be
related to the financial performance of the Bank.
The Pay-for-Performance Program is intended to motivate and reward
management and other employees by linking bonuses to critical financial
performance components of the Bank. Under the Program, key indicators have
been identified which are considered by the Board to have an impact on the
earnings of Baylake Bank. These indicators include the following: growth in
deposit and loan volumes; profit in terms of both net interest margin and fee
income; asset quality with respect to loans past due over 60 days and net
charge-offs; and productivity measured by net non-interest expense as a
percentage of average assets and pre-tax income as a percentage of salary and
employee benefits expense. Certain quantitative goals were assigned to each of
these indicators (ranging from goal 1 to goal 10), and each indicator was
assigned a weighted value based on its perceived influence on earnings. The
Board determined that achievement of the maximum goals (goal 10) across all
indicators in 1996 should generate at least $3,488,000 in additional pre-tax
income, and that the bonus pool should constitute 25% of additional net income
attributable to the performance indicators (resulting in a maximum potential
bonus pool of approximately $872,000 for 1996). However, it was agreed that no
bonuses would be awarded unless Baylake's return on average stockholders'
equity for 1996 was at least 12.50%.
After determining the bonus pool, a calculation is made as to the
size of the bonus pool set forth as a percentage of total salary expense, and
each employee is eligible to receive a bonus equal to such percentage
multiplied by their base salary. Half of the bonus is guaranteed to them, with
the other half constituting an additional pool from which bonuses may be paid
depending upon the achievement of qualitative criteria applicable to divisions
of the Bank in which such employees are associated. The Board of Directors,
however, determined that Mr. Herlache should be entitled to 100% of his bonus
based exclusively on the performance indicators and should not be subject to
divisional criteria because of his overall supervisory and other significant
responsibilities as President and Chief Executive Officer of Baylake and
Baylake Bank.
Based on actual results for 1996 among the various indicators which
achieved prescribed goals, a bonus pool of approximately $327,000 was
established. The goal level of at least 6 was achieved in components relating
to loan volume growth, fee income, and productivity indicators. The goal level
of 2 was achieved in asset quality and deposit growth indicators. The bonus
pool amounted to approximately 8.39% of total salaries. Executive officers of
Baylake Bank received bonuses ranging from 6.86% to 9.06% of their base
salaries (as a result of qualitative criteria affecting the divisions for which
they are responsible). However, Mr. Herlache did not receive any pay for
performance bonus. The payment of $45,938 or 25.00% of his base salary was
based on the recommendation for salary adjustment resulting from the study.
Stock Options. In April 1993, the Board of Directors approved
Baylake's 1993 Stock Option Plan (the "Option Plan"), which was later approved
by the shareholders in June 1993. The Option Plan was established to provide a
long-term incentive to the Bank's executive officers and other key employees,
to increase the overall value of Baylake in future years. The Board seeks to
further motivate management by granting them options to purchase shares of
Baylake Common and thus offering them a greater stake in Baylake's future. The
Board also views the Option Plan as a significant component of the Bank's
9
<PAGE> 11
overall compensation package and is a complement to base salary and bonus. The
Option Plan also enables the Bank to compensate its officer without having to
make any cash payments.
A total of 200,000 shares of Baylake Common has been reserved for
issuance upon exercise of options granted and to be granted under the Option
Plan. Options to purchase an additional 40,000 shares were granted in January
1997 at an exercise price of $26.87 per share, which approximate the then
current market value of the Baylake Common. To date, options to purchase up to
182,000 shares in aggregate have been granted to a total of eleven executive
officers of the Bank. All options granted will have an exercise price equal to
the market value of the Baylake Common at the date of grant. Option grants
have been and will be made at or near the current market value so that any
value is dependent upon an increase in the market value of the Baylake Common.
The options vest over five years (20% per year), commencing one year after date
of grant, and expire after 10 years if not exercised.
The total number of options granted to Baylake Bank's executive
officers in 1996 was generally based on the Bank's continued performance in
1996 as compared to 1995, and the number of options granted on an individual
basis took into account the executive officer's relative cash compensation,
experience, responsibilities and attribution to the Bank's past and future
performance. In 1997, Mr. Herlache was granted options to purchase 4,000
shares of Baylake Common, while other divisional vice presidents were granted
options to purchase 4000 shares and the Executive Vice-President and Director
of Marketing were granted options to purchase 2000 shares.
PROPOSAL TO AMEND STOCK OPTION PLAN
The Board of Directors has unanimously recommended approval by the
stockholders of an amendment to Stock Option Plan. Compensation of the
Company's employees will continue to be determined by the Compensation
Committee of the Board of Directors. The Stock Option Plan will continue to be
administered by the members of the Compensation Committee who are not employees
of the Company or any of its affiliates.
The Stock Option Plan was intended to enable the Company to attract,
motivate, reward and retain the management talent required to achieve
aggressive corporate objectives in a rapidly changing environment, and
constitutes part of the Company's overall efforts to improve performance and
increase stockholder value. The current Stock Option Plan provided that a total
of 200,000 shares of Baylake Common Stock would be reserved for issuance
pursuant to the exercise of options, subject to adjustment as provided in the
Plan for changes in the capital stock of the Company.
Options granted are reflected by an agreement between the employee
and the Company which will contain terms and conditions required by the Plan
and such other provisions as the Committee may deem appropriate, including
whether special Incentive Stock Options ("ISOs") or Nonqualified Stock Options
("NSOs") will be granted. Each year, the Compensation Committee determines the
exercise price of each option granted; provided, however, that the price shall
not be less than one hundred percent (100%) of the Fair Market Value (as
defined) of the Company's Common Stock at the time the option is granted.
Option agreements granted by the Compensation Committee will state
the period of time within which an option may be exercised, provided that (a)
no option may be exercised until at least six months have elapsed from the date
of grant or, if granted prior to stockholder approval of the Plan, from the
date of such stockholder approval, (b) the exercise period of an option may not
exceed ten years, and (c) no option may be treated as an ISO unless it is
exercised during the optionee's period of employment or
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within three months after termination of employment, or if termination is
caused by death or disability, within one year after such termination.
Summary of the Amendment. It is the opinion of the Board of
Directors that the number of shares authorized under the Plan be increased by
200,000 shares to continue its ability to offer non-cash compensation and
incentives to executive management. Out of the initial 200,000 shares
authorized to be issued subject to options, a total of 184,000 grants for
shares have been issued, leaving only 16,000 shares remaining for future
grants.
The Board of Directors proposes to amend Section 3.01 of the Plan
which will increase the number of shares authorized under the Plan from 100,000
to 300,000. In the opinion of the Board, Baylake Corp. has benefited from the
previous options offered under the Plan by fulfilling the goals of attracting
and retaining qualified management and has been successfully reflected in
Baylake's overall performance since the Plan was implemented.
The Board of Directors recommends that stockholders vote FOR the proposal. The
affirmative vote of the holders of a majority of the outstanding shares of the
Company's common stock is necessary to adopt the proposal.
Members of the Salary and Compensation Committee:
L. George Evenson, Sharon Haines (non-director), Thomas L. Herlache,
Glenn Miller, William C. Parsons, Joseph Morgan and Richard A. Braun
Compensation Committee Interlocks and Insider Participation
As indicated above, Thomas L. Herlache, President and Chief Executive
Officer of Baylake and Baylake Bank, and Sharon Haines, Director of Human
Resources, serve as members of the Personnel and Compensation Committee. Mr.
Herlache is a member of the Baylake Board of Directors, although he does not
participate on decisions affecting his own compensation. Mr. Herlache is also
a director of Alpine, Inc., the organization of which Marie Bertschinger, a
director of Baylake, was assistant manager until 1992. Alpine, Inc. does not
have a compensation committee, and Mr. Herlache has not otherwise participated
in decisions regarding compensation matters for that company.
Performance Graph
The following graph shows the cumulative stockholder return on the
Baylake Common over the last five fiscal years compared to the returns of
Standard & Poors 500 Stock Index and the Keefe, Bruyette & Woods 50 Bank Index
(the "KBW 50"). The KBW 50 is a market-capitalization-weighted index of the
market performance of the 50 largest U.S. banks, including all money center and
most major regional banks, and is published in various financial and banking
literature.
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Comparison of Five Year Cumulative Return
Among S & P Index, KBW 50 Bank Index
and Baylake Corp
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) S & P Index KBW 50 Bank Baylake Corp.
<S> <C> <C> <C>
Measurment Pt - 12/31/91 $100 $100 $100
FYE 1992 $108 $127 $124
FYE 1993 $118 $135 $253
FYE 1994 $120 $128 $315
FYE 1995 $165 $204 $254
FYE 1996 $203 $289 $264
</TABLE>
(1) Assumes $100 invested on December 31, 1989 in Baylake Corp. Common
Stock compared to the same amount invested in other funds shown at
the same time. Dividends are assumed to be reinvested.
Certain Transactions with Management
Baylake Bank has, and expects to continue to have, regular dealings
with officers and directors of Baylake as well as their associates. Since
January 1, 1996, several such persons have been indebted to Baylake Bank for
loans made in the ordinary course of business. Loans to all such persons
remain on substantially the same terms including interest rates and collateral,
on those prevailing at the time for comparable transactions with other persons,
are current with respect to payments, and do not involve more than the normal
risk of collectability or present other unfavorable features.
Compliance with Section 16(a) of the Exchange Act
Under Section 16(a) of the Exchange Act, Baylake's directors and
executive officers, and any persons holding more than 10% of the outstanding
Baylake Common are required to report their initial ownership of the Baylake
Common and any subsequent changes to such ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been
established, and Baylake is required to disclose in this Proxy
Statement/Prospectus any failure to file such reports by these dates during
1996.
EXPERTS
The Board of Directors intends to continue to use the accounting firm
of Smith & Gesteland as independent auditors to audit the financial statements
of Baylake for 1997. Representatives of Smith & Gesteland are expected to be
present at the Baylake Annual Meeting to respond to appropriate questions and
to make a statement if they desire to do so.
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