<PAGE>
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 [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Com-
[ ] Definitive Proxy Statement mission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e) (2) )
[ ] Soliciting Material Pursuant to
Section 240.14a-11(c) or
Section 240.14a-12
NORTH COUNTY BANCORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MERRILL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person (s) Filing Proxy Statement, if other than the Registrant)
Payment Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 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 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>
NOTICE OF 1997 ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE>
NORTH COUNTY BANCORP
444 SOUTH ESCONDIDO BOULEVARD
ESCONDIDO, CALIFORNIA 92025
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1997
TO THE SHAREHOLDERS OF NORTH COUNTY BANCORP:
NOTICE IS HEREBY GIVEN that pursuant to its Bylaws and the call of its
Board of Directors, the 1997 Annual Meeting of Shareholders (the "Meeting") of
North County Bancorp (the "Company") will be held at the California Center for
the Arts, Escondido, 340 North Escondido Boulevard, Escondido, California 92025
on Wednesday, May 21, 1997 at 5:30 p.m., for the purpose of considering and
voting upon the following matters:
1. ELECTION OF DIRECTORS. Electing the following nine (9) persons to
the Board of Directors to serve until the next Annual Meeting of Shareholders
and until their successors are elected and have qualified:
Alan P. Chamberlain Jack Port
G. Bruce Dunn Clarence R. Smith
Ronald K. Goode Raymond V. Stone
James M. Gregg Burnet F. Wohlford
Rodney D. Jones
2. APPROVAL OF THE 1997 NORTH COUNTY BANCORP STOCK OPTION PLAN. To
approve the Company's 1997 Stock Option Plan as described more fully herein.
3. OTHER BUSINESS. Transacting such other business as may properly
come before the Meeting and at any and all adjournments thereof.
The bylaws of the Company provide for the nomination of directors in
the following manner:
" Nominations for election of members of the Board of Directors may be made by
the Board of Directors or by any shareholder of any outstanding class of voting
stock of the Corporation entitled to vote for the election of directors. Notice
of intention to make any nominations, other than by the Board of Directors,
shall be made in writing and shall be received by the President of the
Corporation no more than 60 days prior to any meeting of shareholders called for
the election of directors, and no more than ten days after the date the notice
of such meeting is sent to shareholders pursuant to Section 2.2(d) of these
bylaws; provided, however, that if only 10 days' notice of the meeting is given
to shareholders, such notice of intention to nominate shall be received by the
President of the Corporation not later than the time fixed in the notice of the
meeting for the opening of the meeting. Such notification shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the number of shares of voting stock of the Corporation
owned by each proposed nominee; (d) the name and residence address of the
notifying shareholder; and (e) the number of shares of voting stock of the
Corporation owned by the notifying shareholder. Nominations not made in
accordance herewith shall be disregarded by the chairman of the meeting, and the
inspectors of election shall then disregard all votes cast for each such
nominee. "
<PAGE>
Only those shareholders of record at the close of business on
April 18, 1997 will be entitled to notice of and to vote at the Meeting.
DATED: April 21, 1997
By Order of the Board of Directors
/s/ MICHAEL J. GILLIGAN
---------------------------------------------
Michael J. Gilligan
Assistant Secretary
IT IS VERY IMPORTANT THAT EVERY SHAREHOLDER VOTE. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR
PROXY. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
<PAGE>
`
NORTH COUNTY BANCORP
444 SOUTH ESCONDIDO BOULEVARD
ESCONDIDO, CALIFORNIA 92025
(760) 743-2200
-----------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21 1997
-----------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the 1997 Annual Meeting of Shareholders (the "Meeting") of
North County Bancorp (the "Company") to be held at the California Center for the
Arts, Escondido, 340 North Escondido Boulevard, Escondido, California 92025 on
Wednesday, May 21, 1997 at 5:30 p.m., and at any and all adjournments thereof.
The solicitation of the Proxy accompanying this Proxy Statement is made by the
Board of Directors of the Company, and the costs of such solicitation will be
borne by the Company.
It is expected that this Proxy Statement and accompanying Notice will
first be mailed to shareholders on approximately April 21, 1997.
The matters to be considered and voted upon at the Meeting will be:
1. ELECTION OF DIRECTORS. To elect nine (9) persons to the Board of
Directors to serve until the next Annual Meeting of Shareholders and until their
successors are elected and have qualified.
2. APPROVAL OF THE 1997 NORTH COUNTY BANCORP STOCK OPTION PLAN. To
approve the Company's 1997 Stock Option Plan as described more fully herein.
3. OTHER BUSINESS. Transacting such other business as may properly
come before the Meeting and at any and all adjournments thereof.
A Proxy for use at the Meeting is enclosed. Any shareholder who
executes and delivers such Proxy has the right to revoke it at any time before
it is exercised by delivering to the Secretary or the Assistant Secretary of the
Company an instrument revoking it or a duly executed Proxy bearing a later date,
or by attending the Meeting and voting in person. Subject to such revocation,
all shares represented by a properly executed Proxy received in time for the
Meeting will be voted by the Proxy Holders in accordance with the instructions
on the Proxy. If no instruction is specified with respect to a matter to be
acted upon, the shares represented by the Proxy will be voted in favor of the
election of the nominees for directors set forth herein, in favor of the
Company's 1997 Stock Option Plan, and, if any other business is properly
presented at the Meeting, in accordance with the recommendations of a majority
of the Board of Directors.
<PAGE>
The expense of preparing, assembling, printing and mailing this Proxy
Statement and the material used in this solicitation of Proxies will be borne by
the Company. It is contemplated that Proxies will be solicited through the
mails, but officers, directors and regular employees of the Company, or its
subsidiary, North County Bank (the "Bank") , may solicit Proxies personally. In
that event, the Company will pay such employees additional remuneration for such
services. Although there is no formal agreement to do so, the Company may
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses in forwarding these proxy materials to
shareholders whose stock in the Company is held of record by such entities. In
addition, the Company may use the services of individuals or companies it does
not regularly employ in connection with this solicitation of Proxies, if
Management determines it advisable.
VOTING SECURITIES
There were issued and outstanding 4,011,912 shares of the Company's
Common Stock on April 18, 1997, which has been set as the Record Date for the
purpose of determining the shareholders entitled to notice of and to vote at the
Meeting.
Each holder of Common Stock will be entitled to one vote, in person or
by proxy, for each share of Common Stock standing in his or her name on the
books of the Company as of the Record Date for the Meeting on any matter
submitted to the vote of the shareholders, except that in connection with the
election of directors, the shares are entitled to be voted cumulatively if a
candidate's or candidates' name(s) have been properly placed in nomination prior
to the voting and a shareholder present at the Meeting has given notice of his
or her intention to vote his or her shares cumulatively. If a shareholder has
given such notice, all shareholders may cumulate their votes for candidates in
nomination. Cumulative voting entitles a shareholder to give one nominee as many
votes as is equal to the number of directors to be elected multiplied by the
number of shares owned by such shareholder, or to distribute his or her votes on
the same principle between two or more nominees as he or she deems appropriate.
The nine (9) candidates receiving the highest number of votes will be elected.
If cumulative voting is declared at the Meeting, votes represented by Proxies
delivered pursuant to this Proxy Statement may be cumulated in the discretion of
the Proxy Holders, in accordance with the recommendations of the Board of
Directors.
Approval of the Company's 1997 Stock Option Plan requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of the Company's Common Stock.
2
<PAGE>
PRINCIPAL SHAREHOLDERS
The Board of Directors knows of no person who owns beneficially more
than five percent (5%) of the outstanding Common Stock of the Company, except
for Ronald K. Goode, James M. Gregg, and Burnet F. Wohlford, each of whom is a
nominee for director (see "ELECTION OF DIRECTORS" herein), the North County Bank
Employee Stock Ownership Plan (see "Employee Stock Ownership Plan" herein),
Financial Institution Partners, L.P. and Walter D. Buchanan.
The following table provides certain information, as of April 18,
1997, with respect to the Bank's Employee Stock Ownership Plan ("ESOP"),
Financial Institution Partners, L.P. and Walter D. Buchanan:
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature of Percent
of Class of Beneficial Owner Beneficial Ownership of Class
- -------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common North County Bank 250,146 (1) 6.2%
Stock Retirement Trust
444 South Escondido Boulevard
Escondido, California
Common Financial Institution Partners, L.P. 464,726 11.6%
Stock 1110 Lake Cook Road, Suite 165
Buffalo Grove, Illinois
Common Walter D. Buchanan 378,202 9.4%
Stock 4460 Century Dr., South
Salem, Oregon
</TABLE>
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors shall
be not fewer than seven (7) nor more than ten (10) until changed by amendment of
the Company's Articles of Incorporation or by a bylaw amendment duly adopted by
the vote or written consent of the Company's shareholders. The Bylaws further
provide that the exact number of directors shall be fixed from time to time,
within the foregoing range, by a bylaw or amendment thereof duly adopted by the
vote or written consent of the Company's shareholders or by the Company's Board
of Directors. The number of directors to be elected at the Meeting has been
fixed at nine (9).
The persons named below, all of whom are present members of the Board
of Directors of the Company, will be nominated for election to serve until the
next Annual Meeting of Shareholders and until their successors are elected and
have qualified. Votes will be cast pursuant to the enclosed Proxy in such a way
as to effect the election of said nine (9) nominees, or as many thereof as
possible under applicable voting rules. In the event that any of the nominees
should be unable to serve as a director, it is intended that the Proxy will be
voted for the election of such substitute nominee, if any, as shall be
designated by the Board of Directors. Management has no reason to believe that
any nominee will become unavailable.
(1) Michael J. Gilligan, Susan Springer and Lori E. Woolf, each of whom is an
employee of the Bank, are co-trustees of the North County Bank Retirement
Trust created to implement the North County Bank ESOP. The Bank and each of
these individuals may therefore be deemed to have shared voting and
investment power with respect to the shares of Common Stock held by the
ESOP. Mr. Gilligan, Ms. Springer and Ms. Woolf disclaim beneficial
ownership of these shares (See "Employee Stock Ownership Plan" herein).
3
<PAGE>
The following table sets forth, as of April 18, 1997, information with
respect to the beneficial ownership of the Common Stock of the Company held by
(i) each of the Company's directors, (ii) each of the persons to be nominated
by the Board of Directors for election as directors, (iii) executive officers
and for the directors and (iv) executive officers (1) of the Company as a group.
The shares "beneficially owned" are determined under Securities and
Exchange Commission Rules, and do not necessarily indicate ownership for any
other purpose. In general, beneficial ownership includes shares over which a
director, principal shareholder, or officer has sole or shared voting or
investment power and shares which such person has the right to acquire within 60
days of April 18, 1997 Unless otherwise indicated, the persons listed below
have sole voting and investment powers of the shares beneficially owned.
Management is not aware of any arrangements which may, at a subsequent date,
result in a change of control of the Company.
<TABLE>
<CAPTION>
Year First
Elected or Common Stock Bene-
Name and Offices Appointed ficially Owned on Percent
Held With Company Age Director April 18, 1997 (2) of Class
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan P. Chamberlain 67 1981 81,940 (3) 2.0%
Director
Gary T. Clem 56 N/A 21,346 (4) -- (5)
Exec. Vice President and
Credit Administrator
of North County Bank
G. Bruce Dunn 49 1988 105,325 (6) 2.6%
Director
Michael J. Gilligan 40 N/A 35,276 (7) -- (5)
Vice President and
Chief Financial Officer
Ronald K. Goode (8) 64 1983 278,798 (9) 6.9%
Director
James M. Gregg (8) 65 1981 382,731 (10) 9.5%
Chairman of the Board,
Chief Executive Officer
and Director
Rodney D. Jones 54 1988 92,096 (11) 2.3%
President, Chief Operating
Officer and Director
Jack Port 75 1981 89,081 (12) 2.2%
Director
</TABLE>
- -----------------------------------
(Footnotes on following page)
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Clarence R. Smith 64 1988 63,232 (13) 1.6%
Director
Raymond V. Stone 75 1988 28,246 (14) -- (5)
Director
Burnet F. Wohlford (8) 68 1981 304,406 (15) 7.5%
Director and
Corporate Secretary
Directors and Executive
Officers as a Group (11 persons) 1,482,477 (16) 34.6% (17)
</TABLE>
- -----------------------------------
(Footnotes from previous page)
(1) As used throughout this Proxy Statement the term "executive officer"
means, the Chairman of the Board and Chief Executive Officer,
President and Chief Operating Officer, Vice President and Chief
Financial Officer of the Company, and the Executive Vice President and
Credit Administrator of the Bank.
(2) Except as otherwise noted, includes shares held by such person's
spouse (except where legally separated) and minor children, and by any
other relative of such person who has the same home.
(3) Includes 37,916 shares held in trust for the benefit of Mr.
Chamberlain's Individual Retirement Account as to which Mr.
Chamberlain has sole voting and investment power and 14,706 shares and
11,660 shares which Mr. Chamberlain has the right to acquire within 60
days of April 18 1997 by conversion into common stock of the Company's
Convertible Subordinated Debentures and by the exercise of stock
options vested pursuant to the Company's 1991 Stock Option Plan,
respectively. (See "1991 Stock Option Plan" and "Convertible
Subordinated Debentures" herein.)
(4) Includes 4,594 shares allocated to Mr. Clem's account under the
Company's ESOP and 13,758 shares which Mr. Clem has the right to
acquire within 60 days of April 18, 1997 by the exercise of stock
options vested pursuant to the Company's stock option plans. (See
"1983 Incentive Stock Option Plan" and "1991 Stock Option Plan"
herein.)
(5) Less than 1%.
(6) Includes 50,535 shares and 11,660 shares which Mr. Dunn has the right
to acquire within 60 days of April 18, 1997 by conversion into common
stock of the Company's Convertible Subordinated Debentures and by the
exercise of stock options vested pursuant to the Company's 1991 Stock
Option Plan, respectively. (See "1991 Stock Option Plan" and
"Convertible Subordinated Debentures" herein.)
(7) Includes 11,794 shares allocated to Mr. Gilligan's account under the
Company's ESOP and 3,209 shares and 13,843 shares which Mr. Gilligan
has the right to acquire within 60 days of April 18, 1997 by
conversion into common stock of the Company's Convertible Subordinated
Debentures and by the exercise of stock options vested pursuant to the
Company's stock option plans, respectively.(See "1983 Incentive Stock
Option Plan", "1991 Stock Option Plan" and "Convertible Subordinated
Debentures" herein.)
(8) Mr. Goode's business address is 445 East Francisco Boulevard, San
Rafael, California 94901. Mr. Gregg's business address is 444 South
Escondido Boulevard, Escondido, California 92025. Mr. Wohlford's
business address is 444 South Escondido Boulevard, Escondido,
California 92025.
(9) Includes 8,934 shares which Mr. Goode has the right to acquire within
60 days of April 18, 1997 by the exercise of stock options vested
pursuant to the Company's 1991 Stock Option Plan. (See "1991 Stock
Option Plan" herein.)
(10) Consists of 319,966 shares held by Mr. Gregg and his spouse as co-
trustees of the Gregg 1980 Trust as to which Mr. Gregg shares voting
and investment power with his spouse; 38,854 shares allocated to Mr.
Gregg's account under the Company's ESOP; 7,438 shares held in trust
for the benefit of Mr. Gregg's Individual Retirement Account as to
which Mr. Gregg has sole voting and investment power; and 4,813
shares and 11,660 shares which Mr. Gregg has the right to acquire
within 60 days of April 18, 1997 by conversion into common stock of
the Company's Convertible Subordinated Debentures and by the exercise
of stock options vested pursuant to the Company's 1991 Stock Option
Plan, respectively. (See "1991 Stock Option Plan" and "Convertible
Subordinated Debentures" herein.)
- -----------------------------------
(Footnotes continue on following page)
5
<PAGE>
DIRECTOR AND EXECUTIVE OFFICER BIOGRAPHICAL INFORMATION
ALAN P. CHAMBERLAIN has been a real estate investor and construction consultant
since 1980. Prior to 1980, he was a principal shareholder of a construction
company. Mr. Chamberlain has been a director of the Bank since the Bank was
founded in 1973. He also served as a director of SKS, Inc., a petroleum product
distributorship based in Escondido, California until 1992. For the past year,
Mr. Chamberlain has served on the City of Escondido Franchise Commission.
GARY T. CLEM is not an officer of the Company but has been Executive Vice
President and Credit Administrator of the Bank since February 1994 and was
Senior Vice President and Credit Administrator since June 1988. Between May
1987 and June 1988, Mr. Clem was with Pacific Inland Bank as its Regional
Manager and Loan Production Officer. Between February 1985 and May 1987, Mr.
Clem was with Inland Empire National Bank, first as its Executive Vice President
and Cashier, until July 1986, and then as its President until May 1987.
G. BRUCE DUNN has been the owner and President of Mission Pools of Escondido,
Inc., an independent swimming pool contractor since 1978. Mr. Dunn has been a
director of the Bank since 1983.
MICHAEL J. GILLIGAN has been Vice President and Chief Financial Officer of the
Company since 1988. He has been Executive Vice President and Chief Financial
Officer of the Bank since February 1994 and was Vice President and Chief
Financial Officer of the Company and the Bank from March 1988 to February 1994.
Mr. Gilligan joined the Bank in August 1982 as its Assistant Cashier.
- -----------------------------------
(Footnotes continued from previous page)
(11) Includes 14,066 shares allocated to Mr. Jones' account under the
Company's ESOP and 3,209 shares and 32,940 shares which Mr. Jones has
the right to acquire within 60 days of April 18, 1997 by conversion
into common stock of the Company's Convertible Subordinated Debentures
and by the exercise of stock options vested pursuant to the Company's
stock option plans, respectively. (See "1983 Incentive Stock Option
Plan", "1991 Stock Option Plan" and "Convertible Subordinated
Debentures" herein.)
(12) Includes 40,168 shares held by Mr. Port as custodian for minor
children; 36,246 shares held by Mr. Port as co-trustee of the Jack
Port and Muriel Elaine Port 1981 Trust as to which Mr. Port shares
voting and investment powers and 12,003 shares which Mr. Port has the
right to acquire within 60 days of April 18, 1997 by the exercise of
stock options vested pursuant to the Company's 1991 Stock Option Plan.
(See "1991 Stock Option Plan" herein.)
(13) Consists of 15,946 shares held by the CRS Associates Money Purchase
Pension Plan as to which Mr. Smith has sole voting and investment
power and 33,422 shares and 11,660 shares which Mr. Smith has the
right to acquire within 60 days of April 18, 1997 by conversion into
common stock of the Company's Convertible Subordinated Debentures and
by the exercise of stock options vested pursuant to the Company's 1991
Stock Option Plan, respectively. (See "1991 Stock Option Plan" and
"Convertible Subordinated Debentures" herein.).
(14) Includes 11,660 shares which Mr. Stone has the right to acquire within
60 days of April 18, 1997 by the exercise of stock options vested
pursuant to the Company's 1991 Stock Option Plan. (See "1991 Stock
Option Plan" herein.)
(15) Includes 215,625 shares owned by certain of Mr. Wohlford's adult
children, as to which shares Mr. Wohlford has, through a power of
attorney, sole voting power and 10,695 shares and 11,660 shares which
Mr. Wohlford has the right to acquire within 60 days of April 18, 1997
by conversion into common stock of the Company's Convertible
Subordinated Debentures and by the exercise of stock options vested
pursuant to the Company's 1991 Stock Option Plan, respectively. (See
"1991 Stock Option Plan" and "Convertible Subordinated Debentures"
herein.)
(16) Does not include 250,146 shares held by Michael J. Gilligan, Susan
Springer and Lori E. Woolf as co-trustees of the North County Bank
Retirement Trust created to implement the North County Bank ESOP
except to the extent that such shares have been allocated to the
accounts of Executive Officers. (See "PRINCIPAL SHAREHOLDERS" and
"Employee Stock Ownership Plan" herein.)
(17) Percent of class is based on the total number of shares of the
Company's Common Stock outstanding, plus 120,588 shares which may be
issued upon conversion of the Company's Convertible Subordinated
Debentures and 151,438 shares subject to stock options which are
vested or will become exercisable within 60 days of April 18, 1997.
6
<PAGE>
RONALD K. GOODE is the President and owner of R & G Toyota - Volvo, Inc., a
retail automobile dealership in San Rafael, California. Mr. Goode was the
President and owner of Ron Goode Toyota, Inc. from 1963 until 1988, at which
time the dealership was sold. Mr. Goode has been a director of the Company and
the Bank since 1983.
JAMES M. GREGG has been in banking since December, 1949 and has been Chairman of
the Board and Chief Executive Officer of the Company and the Bank since May
1992; President, Chief Executive Officer and director of the Company from July
1981 to May 1992; and President, Chief Executive Officer and a director of the
Bank from 1978 to 1992. Mr. Gregg is also the President and a director of NCB
Mortgage, another subsidiary of the Company. Prior to joining the Bank, Mr.
Gregg was President of the Bank of Commerce.
RODNEY D. JONES has been a director of the Company since 1988, President and
Chief Operating Officer of the Company and the Bank since May 1992, and
Executive Vice President and Chief Operating Officer of the Company and the
Bank, and a director of the Bank from May 1985 to May 1992. Mr. Jones has also
served as a director and Executive Vice President of NCB Mortgage since 1988.
Mr. Jones was President and Chief Executive Officer of Peoples' Bank from 1981
through 1985.
JACK PORT has been a commercial property manager and private investor since the
sale of his retail menswear business in Escondido in 1975. Mr. Port has been a
director of the Bank since the Bank was founded in 1973.
CLARENCE R. SMITH was President and Chief Executive Officer of ATI Industries
from 1970 to 1987. Since 1988, Mr. Smith has been a rancher. From 1989 to
1992, Mr. Smith was Chairman of the Board of the Company, and from 1987 to 1992
was Chairman of the Board of the Bank. Mr. Smith has been a director of the
Company since 1988 and a director of the Bank since 1983.
RAYMOND V. STONE was a civil engineer and Executive Vice President of Neste
Brudin & Stone - Engineer and Planners until he retired in July 1984. He was
Chairman of the California State Water Resources Control Board from March, 1985
to March, 1986. Mr. Stone has been a director of the Bank since 1983.
BURNET F. WOHLFORD has been a self-employed rancher and investor for 40 years.
Mr. Wohlford has served as a director and corporate secretary of the Bank since
1973.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to rule 16a-3(e) during its most recent fiscal
year and Form 5 and amendments thereto furnished to the Company with respect to
its most recent fiscal year, no director, executive officer or beneficial owner
of more than ten percent (10%) of the outstanding Common Stock of the Company
failed to file any of the reports required by Section 16(a) of the Exchange Act
on a timely basis during 1996.
7
<PAGE>
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company has no standing Nominating or
Compensation Committees. The Audit Committee of the Company and the Bank,
consisting of Clarence R. Smith (Chairman), G. Bruce Dunn, Ronald K. Goode, Jack
Port, and Burnet F. Wohlford met five (5) times in 1996. The Audit Committee is
responsible for reviewing the general scope of audit services and the results of
the annual audit. It also approves all non-audit services to be performed by
the independent auditors.
The Board of Directors of the Bank has a standing Compensation
Committee, consisting of Ronald K. Goode (Chairman), Alan P. Chamberlain, G.
Bruce Dunn, James M. Gregg, and Clarence R. Smith which met six (6) times in
1996. The primary function of the Compensation Committee is to approve the
employment of officers and to recommend the compensation for all officers of the
Bank. Additionally, the Compensation Committee recommends salary ranges for
graded personnel and approves personnel policies recommended by senior officers
of the Bank.
During the fiscal year ended December 31, 1996, the Board of Directors
of the Company held a total of twelve (12) regular meetings and no special
meetings. Each of the persons who were directors of the Company during 1996
attended at least 75% of the aggregate of (i) the total number of such meetings
and (ii) the total number of meetings held by all committees of the Board on
which such directors served during 1996.
CONVERTIBLE SUBORDINATED DEBENTURES
At April 18, 1997, the Company had $1,519,000 in 9 1/4% Convertible
Subordinated Debentures (the "Debentures") due May 15, 2002. The Debentures are
convertible at the option of the holder into Common Stock of the Company at a
conversion price of $3.74 per share (retroactively adjusted for a stock dividend
paid on February 28, 1997 and a stock split effective March 14, 1997), subject
to adjustments for stock splits, stock dividends or other certain events. The
Debentures are redeemable, in whole or in part, at the option of the Company at
declining redemption prices that range from 103.25% at April 18, 1997 to par on
or after May 15, 1999. At April 18 1997, $451,000 in Debentures were held by
all directors as a group which were convertible into 120,588 shares of Common
Stock.
8
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
Executive officers of the Company and the Bank are elected on an
annual basis by the respective Boards of Directors and serve at the discretion
of such Boards. No executive officer of the Company received cash compensation
during the year ended December 31, 1996, except in his capacity as an executive
officer of the Bank, and except for director's fees paid by the Bank to members
of its Board of Directors.
The following information is furnished with respect to the i) the
Chief Executive Officer of the Company, and ii) the Company's other executive
officers whose total annual salary and bonus paid, accrued or distributed
exceeded $100,000 for the fiscal year ended December 31, 1996 (the "Named
Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-----------------------------------
Annual Compensation (1) Awards Payouts
----------------------------------- ----------------------- ---------
Other All
Annual Restricted Other
Compensa- Stock Options/ LTIP Compensa-
Name and Salary Bonus tion Award(s) SARs Payouts tion (2)
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
------------------ -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James M. Gregg 1996 $193,144 $106,600 (3) -- -- -- $16,025
Chairman of the Board 1995 183,546 -- (3) -- -- -- 4,620
Chief Executive Officer and 1994 183,546 -- (3) -- -- -- 6,589
Director of the Company
and the Bank
Rodney D. Jones 1996 152,782 82,300 (3) -- 22,050 -- 15,225
President, Chief Operating 1995 146,878 -- (3) -- -- -- 3,564
Officer and Director of the 1994 146,878 -- (3) -- -- -- 4,133
Company and the Bank
Gary T. Clem 1996 102,102 33,100 (3) -- 13,230 -- 4,421
Executive Vice President 1995 91,772 -- (3) -- -- -- 1,200
and Credit Administrator 1994 90,495 -- (3) -- -- -- 1,020
of the Bank
Michael J. Gilligan 1996 93,766 33,400 (3) -- 13,230 -- 4,636
Vice President and Chief 1995 83,259 -- (3) -- -- -- 1,566
Financial Officer of the 1994 88,244 -- (3) -- -- -- 1,581
Company and the Bank
</TABLE>
- ------------------------------
(1) The Company has no plans for granting restricted stock awards, or
stock appreciation rights, or making LTIP payouts.
(2) Amounts shown include the matching funds contributed by the Bank
pursuant to the North County Bancorp and Subsidiaries 401(k) Plan,
amounts allocated to the accounts of Mr. Gregg, Mr. Jones, Mr. Clem
and Mr. Gilligan under the Company's ESOP and director fees.
(3) Aggregate amount of perquisites and other personal benefits did not
exceed the lesser of $50,000 or 10% of total salary and bonus reported
in preceding columns.
9
<PAGE>
OPTION GRANTS, EXERCISES AND HOLDINGS
The following table is furnished with respect to stock options and
SARs granted during the last completed fiscal year to the Named Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent of
securities total options/
underlying SARs granted Exercise or Grant date
Options/SARs to employees base price Expiration present
granted (1) (2) in fiscal year (3) ($ per share)(2) date value (4)
--------------- ------------------ ---------------- ---- ---------
<S> <C> <C> <C> <C> <C>
Rodney D. Jones 22,050 21.7% $ 3.85 2/19/2006 $5.32
Gary T. Clem 13,230 13.0% 3.85 2/19/2006 5.32
Michael J. Gilligan 13,230 13.0% 3.85 2/19/2006 5.32
</TABLE>
The following table is furnished with respect to stock options and SARs held by
the Named Officers at December 31, 1996 and exercised stock options for the
fiscal year then ended.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options/SARs at In-the-Money Options/
on Value 1996 Year-End SARs at 1996 Year-End
Exercise Realized Exercisable/Unexercisable (2) Exercisable/Unexercisable (5)
-------- -------- ----------------------------- -------------------------------
<S> <C> <C> <C> <C>
James M. Gregg -- -- 11,660 / 11,660 $ 60,282 / $ 60,282
Rodney D. Jones -- -- 30,417 / 42,379 160,158 / 208,724
Gary T. Clem -- -- 11,879/ 20,999 64,686 / 104,934
Michael J. Gilligan -- -- 11,811 / 20,897 64,286 / 104,334
</TABLE>
- ------------------------------
(1) Options vest 30% after three years from date of grant and 10% per
year thereafter until fully vested after ten years. Upon exercise,
option holders may surrender shares to pay the option exercise price
and satisfy tax withholding requirements.
(2) Retroactively adjusted for a stock dividend paid on February 28, 1997
and a stock split effective March 14, 1997.
(3) In 1996, options for 52,916 shares were granted to all employees,
other than executive officers.
(4) The fair value of each option grant has been estimated on the date of
grant using the following assumptions: a dividend yield of 0.00%,;
expected option life of ten years; a risk free rate of return of
6.00%; and, a volatility factor of 20%.
(5) Market value of underlying securities at year-end minus the exercise
price.
10
<PAGE>
1983 INCENTIVE STOCK OPTION PLAN
The Company's 1983 Incentive Stock Option Plan (the "1983 Plan"), was
adopted by the Company's Board of Directors on February 17, 1983, was approved
by the Company's stockholders on March 31, 1983, and amended by the Board of
Directors on August 22, 1990. The 1983 Plan was designed to advance the
interests of the Company and its subsidiaries by encouraging stock ownership in
the Company by certain officers and key employees of the Company and its
subsidiaries, by promoting their interest in the success of the Company and by
encouraging them to remain in the employ of the Company and its subsidiaries.
The 1983 Plan provided for the granting of options which were designed to
qualify as incentive stock options under Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"). The 1983 Plan was administered by the
Company's Board of Directors. All options were granted at an exercise price of
not less than 100% of the fair market value of the Company's stock on the date
of grant (or 110% of the fair market value of such stock in the event that an
optionee owns more than 10% of the voting stock of the Company or any
subsidiary). The purchase price of any shares exercised shall be paid in full
in cash, cash equivalents, or outstanding common stock of the Company. The 1983
Plan provided that options were exercisable in installments as determined by the
Board of Directors, and would expire on such date as the Board of Directors may
determine, but not later than ten (10) years from the date the option is
granted, provided that in no event may any option granted to an optionee owning
more than 10% of the voting stock of the Company or any subsidiary expire later
than five (5) years from the date of grant. If an optionee fails to exercise
his or her rights under an option within the period such rights arise, the
optionee may accumulate them and exercise the same at any time thereafter during
the term of the option. However, no incentive stock option granted under the
1983 Plan is exercisable to any extent at any time while there is outstanding an
incentive stock option which was granted to the optionee at an earlier time.
The 1983 Plan terminated on February 17, 1993. As of December 31,
1996, there were options outstanding under the 1983 Plan to purchase a total of
88,052 shares of the Company's Common Stock with an average exercise price of
$3.10 per share (retroactively adjusted for a stock dividend paid on February
28, 1997 and a stock split effective March 14, 1997) with respect to all such
options.
1991 STOCK OPTION PLAN
The Company's 1991 Stock Option Plan, (the "1991 Plan"), was adopted
by the Company's Board of Directors on April 20, 1991, and was approved by the
Company's stockholders on May 22, 1991. The basic purpose of the 1991 Plan and
the 1983 Plan is the same, as are the provisions regarding option price,
adjustments upon changes in capitalization (such as a stock split or a stock
dividend), and option period. The 1991 Plan provides for the granting of
incentive stock options ("ISO's"), as defined by Section 422 of the Code, as
well as non-qualified stock options. The 1991 Plan is administered by a
committee of the Company's Board of Directors (the "Committee"). As with the
1983 Plan, the exercise price of stock subject to each option shall not be less
than one hundred percent (100%) of the fair market value (determined under any
reasonable valuation method) of such stock at the time such option is granted.
In the case of an ISO granted to an optionee who, immediately before the option
is granted, owns stock possessing more then ten percent (10%) of the total
combined voting power or value of all classes of the outstanding stock of the
Company (a "Ten Percent Employee Shareholder"), the option price must be at
least one hundred ten percent (110%) of the fair market value on the date of
grant. Options may be exercised by payment in cash or in shares of the
Company's common stock. Options shall be exercisable in such installments and
upon such conditions as the Committee shall determine; provided, however, that
the aggregate fair market value (determined as of the date of grant) of ISO's
granted to any one individual which are first exercisable during any one
calendar year cannot exceed $100,000. The 1991 Plan provides that options will
expire on such date as the Committee may determine, but not later than ten (10)
years from the date the option is granted, provided that in no event may any
option granted to a Ten Percent Employee Shareholder expire later than five (5)
years from the date of grant.
11
<PAGE>
Generally, all directors and full-time salaried employees of the
Company and its subsidiaries are eligible for participation in the 1991 Plan.
However, only full-time salaried officers or employees of the Company or its
subsidiaries are eligible to receive ISO's. Non-employee directors and all
officers and employees are eligible to receive non-qualified stock options.
Since the 1983 Plan provided only for the granting of ISO's, non-employee
directors were not eligible to receive options under the 1983 Plan. Unless
previously terminated by the Board of Directors, the 1991 Plan shall terminate
on April 20, 2001, ten years after it was adopted by the Board of Directors. As
of December 31, 1996, 470,706 shares of the Company's Common Stock were reserved
for issuance under the Company's 1991 Plan. As of December 31, 1996 there were
options outstanding under the 1991 Plan for a total of 331,816 shares with an
average exercise price of $3.42 per share (retroactively adjusted for a stock
dividend paid on February 28, 1997 and a stock split effective March 14, 1997)
with respect to all such options.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1980, North County Bank adopted an Employee Stock Ownership Plan
("ESOP") which was amended and restated as of January 1, 1989. The ESOP is
maintained for the benefit of the employees of the Bank, and its subsidiaries,
to assist the employees in accumulating capital ownership, economic security and
independent income through acquiring a proprietary interest in the Company. The
ESOP is a stock bonus plan intended to qualify under Sections 401 and 501 of the
Code. The ESOP is also designed to be an employee stock ownership plan under
Section 4975(e)(7) of the Code. The ESOP invests primarily in the Common Stock
of the Company and may acquire such stock directly from the Company or by means
of open market purchases or privately-negotiated transactions at fair market
value. The Bank is the trustee of the ESOP and has appointed three employees of
the Bank to act on its behalf in administering the ESOP.
Employees who have completed one year of service and attained the age
of 21 years are eligible to participate. The amount of the Bank's annual
contributions to the ESOP is determined at the discretion of the Board of
Directors of the Bank up to a maximum of 15% of the total annual base salaries
of all eligible participants. Allocation of employer contributions to
participants' accounts is based primarily upon employee compensation. Employer
contributions and trust fund growth allocated to a participant's account become
vested in an amount equal to 20% after the third year of eligibility and an
additional 20% for each year thereafter until fully vested. During the fiscal
year ended December 31, 1996, the Bank contributed $150,000 to the ESOP.
401(k) PLAN
The North County Bancorp and Subsidiaries 401(k) Plan (the "401(k)
Plan") was adopted on July 1, 1991. All employees of the Company are eligible
to participate in the 401(k) Plan after satisfaction of minimum service and age
requirements. Employees become eligible to participate upon completion of six
months of service and attainment of age 21. Eligible employees may elect to
defer from 1% to 15% of their earnings by contributing to the 401(k) Plan (the
"Savings Contribution"). Participants' contributions, if any, are invested by
the plan administrator into fixed income, Company stock or other permitted
investment alternatives selected by the participant. The interest earnings,
dividends, gains and losses from such investments are allocated to a
participant's Savings Contribution Account in the same proportion that each
account bears to the total accounts of all participants in that investment
alternative. Participants have a 100% non-forfeitable interest in the value of
their Savings Contribution Accounts at all times.
The amount of the Company's contribution in a fiscal year is
determined by the Board of Directors. Such contribution is allocated to each
participants's Employer Contribution Account, as defined in the 401(k) Plan, in
12
<PAGE>
proportion to each Participant's Savings Contribution for the calendar year.
The employee also selects the investment alternatives for the amount contributed
by the Company. Interest, earnings, dividends and gains and losses are
allocated to each Participant's Employer Contribution Account in the same
proportion the account bears to the total accounts of all participants in that
investment alternative. The amounts in the Participant's Employer Contribution
Account become 20% vested after the completion of three years of service. An
additional 20% becomes vested in each of the following years, until the
participant attains seven (7) years of service and the participant's interest in
the Employer Contribution Account becomes fully vested.
Benefits are payable under the 401(k) Plan, upon death or disability,
upon retirement at age 65 or upon early retirement at age 55. Upon termination
of employment for any other reason, participants receive the full amount in
their Savings Contribution Account and the vested portion of their Employer
Contribution Account. During the fiscal year ended December 31, 1996, the
Bank contributed $94,181 to the 401(k) Plan.
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION PHILOSOPHY
Compensation for the Company's and the Bank's executive officers, as
well as other middle management officers and business development officers is
comprised of a competitive base salary and offers incentive compensation if
established performance measures are achieved. Incentive compensation may
consist of direct bonus payments to individuals, Company-wide profit sharing
through the ESOP and long-term compensation in the form of stock options. The
Company's philosophy is that incentive compensation based upon individual and/or
group performance will encourage high performance, enhancing the profitability
of the Company, and thus shareholder value, by aligning the financial interests
of the Company's management with those of its shareholders.
The Compensation Committee (the "Committee") has developed
compensation programs which integrate the compensation of the executive officers
with the Company's annual and long-term performance goals. These programs are
designed to recognize achievement and to assist the Company in attracting and
retaining qualified executives. Annual base salaries are generally set at
competitive levels based upon a review of the executive compensation at similar
sized financial institutions (based upon the review of several published
executive salary survey's available) with executive incentive pay based upon the
achievement of annual goals in the areas of profitability, cost control and
productivity, loan volume and growth, credit quality and other relevant
performance criteria. Goals in these areas, tailored to individual executives or
business units, are established at the beginning of each fiscal year. For the
longer term, incentive stock options may be awarded by the Company. As a result
of the emphasis the Company places on tying the executive officers incentive
compensation to the Company's performance, in any particular year the total
compensation of the Company's executives may be more or less than that of the
Company's competitors, depending on the performance of the Company or its
individual business units.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In determining the Chief Executive Officer's compensation for 1996,
the Compensation Committee considered all of the factors discussed above. The
Chief Executive Officer's maximum bonus is determined by a sliding scale formula
which awards a maximum bonus of 100% of base salary at a return on equity of
20.0% or greater and no bonus at a return on equity of 10.0% or less.
Additionally, the Committee considered various subjective performance criteria,
such as, the overall performance of the Company compared to plan, the
performance of the Chief Executive Officer in comparison to specific management
objectives and the Company's performance as compared to its peers in Southern
California.
13
<PAGE>
The Committee considered the factors stated above in arriving at the
award of 1996 bonus compensation for the Chief Executive Officer as shown in the
Summary Compensation Table. The bonus compensation for 1996 reflects the
improved profitability of the Company, improved asset quality and improved
regulatory evaluations of the Bank.
COMPENSATION COMMITTEE
Ronald K. Goode, Chairman
Alan P. Chamberlain
G. Bruce Dunn
James M. Gregg
Clarence R. Smith
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph depicting the yearly percentage change
in the cumulative total shareholder return on the Company's Common Stock with
the cumulative total return of the Nasdaq Stock Market Index and a compiled peer
group (1) for the period of five fiscal years commencing December 31, 1991 and
ended December 31, 1996 (2).
This graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company incorporates this information by
reference, and shall not otherwise be deemed filed under such acts.
CUMULATIVE TOTAL SHAREHOLDER RETURN OF THE COMPANY
COMPARED WITH PERFORMANCE OF SELECTED INDEXES
[GRAPH]
[LINE GRAPH APPEARS HERE DEPICTING THE DATA SET FORTH BELOW]
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
The Company 100.0 136.5 73.5 143.3 196.8 413.3
Nasdaq Stock Market 100.0 116.4 133.6 130.6 184.7 227.1
Peer 100.0 107.6 118.5 120.0 165.1 202.9
</TABLE>
- -----------------------------------
(Footnotes on following page)
14
<PAGE>
DIRECTOR COMPENSATION
Directors of the Company were not paid any fees or other remuneration
during 1995. However, all directors of the Company are also directors of the
Bank. Directors of the Bank are currently paid fees of $500 for attendance at
monthly and special Bank Board meetings, with the exception of the Chairman of
the Board who is paid $1,000. In addition, non-salaried directors receive $100
for attendance at each meeting of a Board committee of which they are a member
except for members of the loan committee who receive $200 for attendance at each
committee meeting. Directors also receive an annual retainer of $3,000 provided
they have attended a minimum of 10 out of 12 regularly scheduled board meetings.
The Bank paid aggregate compensation of $102,300 to its directors during 1996
pursuant to the foregoing arrangements. At April 18, 1997 there were stock
options for the purchase of common stock outstanding to all directors as a group
totaling 254,598 at an average exercise price of $3.36 of which 151,438 were
fully vested.
CERTAIN TRANSACTIONS
Some of the directors, officers and principal stockholders of the
Company and the Bank and the companies with which they are associated have
financial dealings with, are customers of, and have had banking transactions
with the Bank in the ordinary course of the Bank's business during 1996, and the
Bank expects to have such transactions in the future. All loans and commitments
to lend included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons of similar creditworthiness and, in
the opinion of Management of the Bank, did not involve more than a normal risk
of collectibility or present other unfavorable features.
1997 STOCK OPTION PLAN
INTRODUCTION
Subject to approval by the holders of a majority of the outstanding
shares of the Company's Common Stock entitled to vote, the Company's directors
have approved and adopted the North County Bancorp 1997 Stock Option Plan (the
"1997 Plan"). The 1997 Plan provides for the issuance of both incentive stock
options ("ISO's" or "Incentive Options") as defined by Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and "non-qualified"
stock options ("Non-Qualified Options"), the tax consequences of both of which
are described herein below.
The following description is intended to highlight and summarize the
principal terms of the 1997 Plan. For further information, shareholders are
referred to the copy of the 1997 Plan which is available for inspection at the
corporate headquarters of the Company.
- -----------------------------------
(Footnotes from previous page)
(1) Source: SNL Securities, L.P. California Independent Bank Stock Index.
(2) Assumes $100 invested on December 31, 1991 in the Company's Common
Stock assuming the reinvestment of dividends.
15
<PAGE>
PURPOSE
The primary purpose of the 1997 Plan is to attract and retain the best
available personnel for positions of substantial responsibility, and to provide
participating employees and directors with an additional incentive to contribute
to the success of the Company by providing them with an opportunity to acquire
or increase their proprietary interest in the Company.
SHARES SUBJECT TO THE 1997 PLAN
The number of shares available for issuance under the 1997 Plan will
be 540,000 shares of authorized but unissued Common Stock of the Company. If
all shares of Common Stock subject to option under the 1997 Plan were optioned
and the options were exercised, the shares so issued would constitute
approximately 11.9% of the Company's Common Stock outstanding after such
issuance (based on the number of shares outstanding as of the Record Date).
While Management recognizes the possible dilutive effect on its shareholders, it
believes that, on balance, such dilutive effect will be outweighed by the
incentive to be provided by this program, which is important to the success of
the Company and should indirectly benefit all of its shareholders. All shares
subject to any option which remain unpurchased at the expiration of such option
become available again for purposes of the 1997 Plan.
ADMINISTRATION
The 1997 Plan shall be administered by the Board of Directors of the
Company, which will select from the eligible class and determine the individuals
who will receive options. Any action of the Board of Directors with respect to
administration of the 1997 Plan will be taken pursuant to a majority vote of its
members; provided, however, that with respect to action taken by the Board of
Directors in granting an option to an individual director, such action must be
authorized by the required number of directors without counting the interested
director, who will abstain as to any vote on his or her option.
ELIGIBILITY
All employees of the Company and its subsidiary corporations are
eligible for selection to receive both Incentive Options and Non-Qualified
Options. Directors of the Company and its subsidiary corporations who are not
also employees of the Company or a subsidiary corporation are eligible to
receive only Non-Qualified Options.
OPTION PRICE
The purchase price of stock subject to each option will be not less than
one hundred percent (100%) of the fair market value (determined under any
reasonable valuation method) of such stock at the time such option is granted.
As to any Incentive Option granted to an optionee who, immediately before the
option is granted, beneficially owns more than ten percent (10%) of the
outstanding stock of the Company, the purchase price will be at least one
hundred ten percent (110%) of the fair market value of the stock at the time
such option is granted. The purchase price of any shares must be paid in full
in cash at the time of the purchase.
16
<PAGE>
EXERCISABILITY; TERM OF OPTIONS
Options will be exercisable in such installments and upon such
conditions as the Board of Directors shall determine. However, the aggregate
fair market value (determined as of the date of grant) of Incentive Options
granted to any one individual which are FIRST EXERCISABLE during any one
calendar year cannot exceed $100,000. Options will expire on such date as the
Board of Directors may determine, but in no event may any option expire later
than ten (10) years from the date of grant. In the case of an ISO granted to an
optionee who, immediately before the option is granted, owns or controls more
than ten percent (10%) of the outstanding stock of the Company, the term of the
option is limited to five (5) years.
NONTRANSFERABILITY; EXERCISE FOLLOWING DEATH
Options under the 1997 Plan will not be assignable by the optionee
during the optionee's lifetime. In the event of the death of the optionee, the
option may be exercised within one (1) year after the date of such death by the
person or persons to whom his or her rights under the option shall have passed
by Will or by the laws of descent and distribution.
EXERCISE AFTER CESSATION OF EMPLOYMENT; DISABILITY
If an optionee's employment with the Company or service as a director
of the Company ceases for any reason other than the optionee's death, disability
or cause, the optionee will have the right, subject to earlier termination by
reason of expiration of the option, to exercise the option at any time within
the next ninety (90) days, to the extent the option was exercisable as of the
date the optionee ceased to be employed by or ceased to serve as a director of
the Company. In the case of disability, the same rule applies for a one (1)
year period. If an optionee's employment by or service as a director of the
Company is terminated for cause, his or her option will expire immediately,
unless the Board of Directors waives such expiration as provided in the 1997
Plan.
SALE OF ASSETS, MERGER OR LIQUIDATION
In the event of a merger or consolidation in which the Company is not
the surviving entity; or a reorganization, dissolution or liquidation of the
Company; or a sale of substantially all of the assets and property of the
Company to another person; or in the event of any other transaction involving
the Company where there is a change in ownership of at least twenty-five
percent (25%), except as may result from a transfer of shares to another
corporation in exchange for at least eighty percent (80%) control of that
corporation, the optionee may exercise his or her entire option or any portion
thereof within sixty (60) days of receiving notice from the Board of Directors
of the pendency of such an event. Upon the date sixty (60) days after delivery
of said notice, any option or portion thereof not exercised will terminate,
unless provision is made in connection with such terminating event for
assumption of options theretofore granted, or substitution for such options of
new options covering stock of a successor employer corporation (or parent or
subsidiary thereof), with appropriate adjustments as to the number and class of
shares and prices thereof.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of certain changes in the outstanding Common Stock of the
Company, without receipt of consideration by the Company, through
reorganizations, mergers, recapitalizations, reclassifications, stock splits,
17
<PAGE>
stock dividends, stock consolidations, or otherwise, appropriate and
proportionate adjustments will be made in the number or class of shares and the
purchase price per share as to options which may be granted or have been
granted.
DURATION OF THE 1997 PLAN
The Board of Directors, without further approval of the shareholders,
may at any time terminate the 1997 Plan, but such termination will not adversely
affect any options granted prior thereto without the consent of the optionees.
If the 1997 Plan is not so terminated by the Board of Directors, it will
terminate by its own terms on April 16, 2007.
AMENDMENT OF THE 1997 PLAN
The Board of Directors of the Company reserves the right to suspend,
amend or terminate the 1997 Plan and, with the consent of the optionee, to make
such modification of the terms and conditions of his or her option as it deems
advisable, except that the Board may not: increase the maximum number of shares
which may be purchased pursuant to options granted under the 1997 Plan; change
the minimum option price; increase the maximum term of options provided for in
the 1997 Plan; or permit options to be granted to anyone other than directors or
employees of the Company or its subsidiary corporations, without the approval of
shareholders of the Company holding not less than a majority of the voting
power.
ALLOCATION OF BENEFITS UNDER THE 1997 PLAN
The benefits or amounts that will be received by or allocated to any
participant in the 1997 Plan are not yet determinable except to the extent
described herein.
FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain expected
federal income tax consequences arising to optionees under the 1997 Plan under
the applicable provisions of the Code, the applicable treasury regulations
promulgated and proposed thereunder, judicial authority and current
administrative rulings and practice. This summary does not discuss all aspects
of federal income taxation which may be relevant to a particular optionee
subject to special tax treatment under the federal income tax laws and does not
discuss any aspect of state, local or foreign tax laws.
INCENTIVE STOCK OPTIONS ("ISO's"). The Company has been advised by
its legal counsel, Fried, Bird & Crumpacker, P.C., Los Angeles, California, that
under present law, neither receipt of an ISO nor receipt of shares of stock by
the optionee upon its exercise will result in taxable income to the optionee,
except that upon exercise the optionee will recognize alternative minimum
taxable income, as described herein below. Under present law (assuming an
option qualifies as an ISO as defined in the Code), the optionee will be
entitled for federal income tax purposes to treat any profit realized by the
optionee upon disposition of such stock as a capital gain rather than as
ordinary income, provided the optionee complies with specified "holding period"
requirements imposed by the Code, and was an employee of the Company or a
subsidiary corporation at all times during the period beginning with the date of
grant of the option and ending three (3) months before the date of exercise
(except in the event of death or disability). Assuming the above requirements
are met, upon exercise the optionee will recognize as alternative minimum
taxable
18
<PAGE>
income the "bargain element" of the ISO (i.e., the amount by which the fair
market value of the stock upon exercise exceeds the option price). Alternative
minimum taxable income forms the basis for the alternative minimum tax, which
may apply depending on the amount of the computed "regular tax" of the employee
for that year. Under certain circumstances the amount of alternative minimum
tax is allowed as a carryforward credit against regular tax liability in
subsequent years. If the "holding period" requirements are not met, the
optionee may realize compensation taxable as ordinary income rather than capital
gain. Optionees are advised to consult their own personal tax advisors with
respect to any "disqualifying dispositions," i.e., sales within two (2) years
after the grant of such option or within one (1) year after the date of
exercise, as well as with respect to the general tax consequences of ISO's.
The Code provides that a corporation issuing shares upon exercise of
ISO may not take a deduction for federal income tax purposes on account of such
issuance, except that, in the event of a subsequent disqualifying disposition of
such stock under circumstances resulting in taxable compensation to the
optionee, a corporation may take a deduction for federal income tax purposes
equal to the amount treated as taxable compensation to the optionee.
No assurance can be given that the tax treatment described herein will
continue to apply.
NON-QUALIFIED OPTIONS. At the time of grant of a Non-Qualified
Option, no income will be recognized by the optionee and the Company will not be
entitled to a deduction. Upon exercise of a Non-Qualified Option, under present
law the optionee will recognize ordinary taxable income (as opposed to a capital
gain) and the Company will be entitled to a deduction in the amount by which the
then fair market value of the shares of stock of the Company transferred to such
optionee exceeds the option price. Such ordinary income may be subject to the
maximum personal income tax rate. Such income also constitutes "wages" and thus
withholding is required under federal and state law. Upon subsequent
disposition of such shares, the optionee will recognize capital gain or loss in
an amount equal to the difference between the proceeds received upon such
disposition and the fair market value of such shares at the time of exercise.
As stated above, capital gains are currently taxed at a lower rate than ordinary
income.
No assurance can be given that the tax treatment described herein will
continue to apply.
BOARD OF DIRECTORS' RECOMMENDATION AND REQUIRED VOTE
Approval of the 1997 Plan requires the affirmative vote of the holders
of at least a majority of the outstanding shares of the Company's Common Stock.
The directors and executive officers of the Company, owning an aggregate of
1,184,639 voting shares or approximately 29.5% of the Company's outstanding
Common Stock as of the Record Date, are expected to vote in favor of approval of
the 1997 Plan.
The directors recognize that they have a personal interest in this
matter but they strongly believe that the approval of the 1997 Plan is in the
best interests of the Company and its shareholders because they feel that the
1997 Plan will be helpful in enabling the Company and its subsidiary
corporations to provide more meaningful incentives to encourage directors and
employees to remain with the Company, and to attract new qualified employees and
directors in today's competitive market.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
19
<PAGE>
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has not yet solicited proposals for an independent
accountant for the current fiscal year and consequently, none has yet been
selected. The Company's financial statements for the fiscal year ended December
31, 1996 were audited by Price Waterhouse, LLP. It is anticipated that a
representative or representatives of Price Waterhouse, LLP will be present at
the meeting, will have an opportunity to make a statement, if they desire to do
so, and will be available to respond to appropriate questions from shareholders.
All professional services rendered by Price Waterhouse, LLP during 1996 were
furnished at customary rates and terms.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present
proposals at shareholder meetings. Any such proposals to be included in the
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders must be
submitted by a shareholder prior to December 12, 1997 in a form that complies
with applicable regulations
OTHER MATTERS
Management does not know of any matters to be presented to the Meeting
other than those set forth above. However, if other matters properly come before
the Meeting, it is the intention of the persons named in the accompanying Proxy
to vote said Proxy in accordance with the recommendations of the Board of
Directors, and authority to do so is included in the Proxy.
DATED: April 21, 1997
NORTH COUNTY BANCORP
/s/ JAMES M. GREGG
-------------------------------------
James M. Gregg
Chairman of the Board and
Chief Executive Officer
THE COMPANY WILL PROVIDE FREE OF CHARGE TO ANY SHAREHOLDER HEREBY SOLICITED,
UPON WRITTEN REQUEST TO BURNET F. WOHLFORD, SECRETARY OF THE COMPANY, AT 444
SOUTH ESCONDIDO BOULEVARD, ESCONDIDO, CALIFORNIA 92025, A COPY OF THE COMPANY'S
1996 ANNUAL REPORT ON FORM 10-KSB INCLUDING FINANCIAL STATEMENTS (BUT WITHOUT
EXHIBITS) FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. IF A SHAREHOLDER
DESIRES COPIES OF THE EXHIBITS TO THE REPORT, THEY WILL BE PROVIDED UPON PAYMENT
BY THE SHAREHOLDER OF THE COST OF FURNISHING THE EXHIBITS. A COPY OF NORTH
COUNTY BANK'S ANNUAL DISCLOSURE STATEMENT PREPARED PURSUANT TO PART 350 OF THE
FEDERAL DEPOSIT INSURANCE CORPORATIONS RULES AND REGULATIONS WILL BE FURNISHED
UPON REQUEST BY WRITING THE BANK AT THE ADDRESS SHOWN ABOVE OR BY CALLING THE
BANK AT (760) 743-2200, EXTENSION 6620.
20
<PAGE>
NORTH COUNTY BANCORP
444 SOUTH ESCONDIDO BOULEVARD
ESCONDIDO, CALIFORNIA 92025
<PAGE>
APPENDIX A
NORTH COUNTY BANCORP
The undersigned shareholder(s) of North County Bancorp (the "Company)
hereby nominates, constitutes and appoints Clarence R. Smith, James M. Gregg and
Burnet F. Wohlford , and each of them, the attorney, agent and proxy of the
undersigned, with full power of substitution to vote all stock of the Company
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of the Company to be held on May 21, 1997 at 5:30 p.m. local time, and any and
all adjournments thereof, as fully and with the same force and effect as the
undersigned might or could do if personally present thereat as directed on the
reverse side. The proposals herein have been proposed by the Company
The Board of Directors recommends a vote of "Authority Given" for Proposal
1 and "For" Proposal 2. The proxy confers authority to and shall be voted
"Authority Given" for Proposal 1 and "For" Proposal 2 unless "Withhold
Authority", "Against", "Abstain" or other instructions are indicated, in which
case the Proxy shall be voted in accordance with such instructions. IF MATTERS
TO WHICH THE PERSONS MAKING THIS SOLICITATION DO NOT KNOW, A REASONABLE TIME
BEFORE THE SOLICITATION, ARE PRESENTED AT THE MEETING, THIS PROXY SHALL BE VOTED
IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
(To be signed on reverse side.)
A - 1
<PAGE>
[ X ] Please mark your votes as in this example
Authority Withhold Nominees: Alan P. Chamberlain
Given Authority G. Bruce Dunn
1. Election of Directors [ ] [ ] Ronald K. Goode
James M. Gregg
Authority given, except vote withheld from Rodney D. Jones
the following nominee(s): Jack Port
____________________________________________ Clarence R. Smith
____________________________________________ Raymond V. Stone
____________________________________________ Burnet F. Wohlford
____________________________________________
2. 1997 Stock Option Plan. Approving the Company's 1997 Stock Option Plan
which is described in the Company's Proxy Statement dated April 21, 1997.
[ ] For [ ] Against [ ] Abstain
3. To transact such other business as may properly come before the Meeting and
any adjournment or adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES AND FOR APPROVAL OF THE 1997 STOCK OPTION PLAN.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
SIGNATURE(S) _________________________________________________ DATE ___________
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
A - 2
<PAGE>
APPENDIX B
NORTH COUNTY BANCORP
1997 STOCK OPTION PLAN
ADOPTED APRIL___,1997
1. PURPOSE. The purpose of the North County Bancorp 1997 Stock Option
Plan (the "Plan") is to strengthen NORTH COUNTY BANCORP (the "Company") and
those corporations which are or hereafter become subsidiary corporations of the
Company, within the meaning of Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code"), by providing to participating employees and
directors added incentive for high levels of performance and for unusual
efforts to increase the earnings of the Company and its subsidiary
corporations. The Plan seeks to accomplish those purposes and results by
providing a means whereby such employees and directors may purchase shares of
the common stock of the Company pursuant to (a) options granted pursuant to the
Incentive Stock Option Plan (the "Incentive Plan") (Division A hereof) which
will qualify as incentive stock options under Section 422 of the Code
("Incentive Options"), or (b) options granted pursuant to the Non-Qualified
Stock Option Plan (the "Non-Qualified Plan") (Division B hereof) which are
intended to be non-qualified stock options as described in Treas. Reg. s 1.83-7
to which Section 421 of the Code does not apply ("Non-Qualified Options").
(Hereinafter, the term "Options" shall refer collectively to Incentive Options
and Non-Qualified Options.)
2. ADMINISTRATION. This Plan shall be administered by the Board of
Directors of the Company (the "Board of Directors"). Any action of the Board of
Directors with respect to administration of the Plan shall be taken pursuant to
a majority vote of its members; provided, however, that with respect to action
by the Board of Directors in granting an option to an individual director, such
action must be authorized by the required number of directors without counting
the interested director, who shall abstain as to any vote on his option. An
interested director may be counted in determining the presence of a quorum at a
meeting of the Board of Directors where such action will be taken.
Subject to the express provisions of the Plan, the Board of Directors
shall have the authority to construe and interpret the Plan, and to define the
terms used herein, to prescribe, amend, and rescind rules and regulations
relating to administration of the Plan, to determine the duration and purposes
of leaves of absence which may be granted to participants without constituting a
termination of their employment for purposes of the Plan, and to make all other
determinations necessary or advisable for administration of the Plan, including
without limitation, compliance with Rule 16b-3 promulgated pursuant to the
Securities Exchange Act of 1934, as amended. Determination of the Board of
Directors on matters referred to in this section shall be final and conclusive.
3. PARTICIPATION: LIMITATION ON AMOUNT OF OUTSTANDING OPTIONS. All
employees of the Company and its subsidiary shall be eligible for selection to
receive both Incentive Options and Non-Qualified under the Plan. Directors of
the Company and its subsidiary corporations who are not employees of the Company
or a subsidiary corporation shall be eligible to receive only Non-Qualified
Options under the Plan. Subject to the express provisions of the Plan, the
Board of Directors shall select from the eligible class and determine the
individuals who shall receive Options, whether such Options shall be Incentive
Options or Non-Qualified Options, and the terms and provisions of the Options (
which need not be identical), and shall grant such Options to such individuals.
An individual who has been granted an Option (an "Optionee") may, if such
individual is otherwise eligible, be granted additional Options if the Board of
Directors shall so determine.
4. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 13 hereof, the stock to be offered under the Plan shall be shares of the
Company's authorized but unissued common stock, no par value (hereinafter called
"stock") and the aggregate amount of stock to be delivered upon exercise of all
Options granted under the Plan, whether Incentive Options or Non-Qualified
Options, shall not exceed Four Hundred Thousand (400,000) shares. If any Option
shall expire for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for purposes of the
Plan.
B - 1
<PAGE>
5. OPTION PRICE. The purchase price of stock subject to each Option shall
be determined by the Board of Directors but shall not be less than one hundred
percent (100%) of the fair market value of such stock at the time such Option is
granted. As to any Incentive Option granted to an Optionee who, immediately
before the Option is granted, owns beneficially more than ten percent (10%) of
the outstanding stock of the Company, the purchase price must be at least one
hundred ten percent (110%) of the fair market value of the stock at the time
when such Option is granted. The fair market value of stock shall be determined
in accordance with any reasonable valuation method, including the valuation
methods described in Teas. Reg. s 20.2031-2. The purchase price of any shares
purchased shall be paid in full in cash at the time of each such purchase.
6. OPTION PERIOD. Each Option and all rights or obligations thereunder
shall expire on such date as Board of Directors may determine, but not later
than ten (10) years the date such Option is granted, an shall be subject to
earlier termination as provided elsewhere in the Plan. As to any Incentive
Option granted to an Optionee who, immediately before the option is granted,
owns beneficially more than ten percent (10%) of the outstanding stock of the
Company (whether acquired upon exercise of Options or otherwise ), such option
must not be exercisable by its terms after five (5) years form the date of its
grant.
7. CONTINUATION OF EMPLOYMENT. In the case of employees, nothing
contained in the Plan (or in any agreement) shall obligate the Company or its
subsidiary corporations to employ any Optionee for any period or interfere in
any way with the right of the Company or its subsidiary corporations to reduce
such Optionee's compensation.
8. EXERCISE OF OPTIONS. Each Option shall be exercisable in such
installments, which need not be equal, and upon such conditions as the Board of
Directors shall determine; provided ,however, that if an Optionee shall not in
any given installment period purchase all of the shares which such Optionee is
entitled to purchase in such installment period, such Optionee's right to
purchase any shares not purchase in such installment period shall continue until
the expiration such Option. No Option or installment thereof shall be
exercisable except in respect of whole shares, and fractional share interest
shall be disregarded except that they may be accumulated in accordance with the
next preceding sentence. Options may be exercised by ten (10) days written
notice delivered to the Company stating the number of shares with respect to
which the Option is being exercised, together with cash in the amount of the
purchase price for such shares. No fewer than ten(10) shares may be purchased
at one time unless the number purchased is the total number which may be
purchase under the Option. As a condition tot he exercise of a Non-Qualified
Option, in whole or in part, by an Optionee who is an employee of the company or
any of its subsidiary corporations ( or who was an employee during the term of
the Option), the Optionee shall be required to pay to the Company , in addition
to the purchase price for the shares being exercised, an amount equal to any
taxes required to be withheld by the Company in order to enable the Company to
claim a deduction in connection with the exercise of the Option.
9. NONTRANSFERABILITY OF OPTIONS. Each Option shall, by its terms, be
nontransferable by the Optionee, other than by Will or the laws of descent and
distribution , and shall be exercisable during such Optionee's lifetime only by
the Optionee.
10. CESSATION OF EMPLOYMENT; DISABILITY. Except as provided in Sections 6
and 11 hereof, if an Optionee ceases to be employed by or ceases to serve as a
director of the Company or a subsidiary corporation for any reason other than
death or disability, such Optionee's Option shall expire ninety (90) days
thereafter, and during such period after such Optionee ceases to be an employee
or director, such Option shall be exercisable only as to those shares with
respect to which installments, if any, had accrued as of the date on which the
Optionee ceased to be employed by or ceased to serve as a director of the
Company or such subsidiary corporation. Except as provided in Sections 6 and 11
hereof, if an Optionee ceases to be employed by or ceases to serve s a director
of the Company or as subsidiary corporation by reason of disability ( within the
meaning of Section 22(e) (3) of the Code ) , such Optionee's Option shall
expire not later than one (1) year thereafter, and during such period after such
Optionee ceases to be an employee or director, such Option shall be exercisable
only as to those shares with respect to which installments, if any, had accrued
as of the date on which the Optionee ceased to be employed by or ceased to serve
as a director of the Company or such subsidiary corporation.
B - 2
<PAGE>
11. TERMINATION OF EMPLOYMENT FOR CAUSE. If an employment by or service
as a director of the Company or a subsidiary corporation is terminated for
cause, such Optionee's Option shall expire immediately; provided, however, that
the Board of Directors may, in its sole discretion, within thirty (30) days so
such termination, waive the expiration of the Option by giving written notice of
such waiver to the Optionee at such Optionee's last know address. In the event
of such waiver, the Optionee may exercise the Option only to such extent, for
such time, and upon such terms and condition as if such optionee had ceased to
be employed by or ceased to serve as a director of the Company or such
subsidiary corporation upon the date of such termination for a reason other than
cause, disability, or death. In the case of an employee, termination for cause
shall include termination for malfeasance or gross misfeasance in the
performance of duties, conviction of illegal activity in connection therewith,
any conduct seriously detrimental to the interests of the Company or a
subsidiary corporation, or removal pursuant to the exercise of regulatory
authority by the Board of Governors of the Federal Reserve System (the "FRB") or
any applicable bank supervisory agency; and in any event, the determination of
the Board of Directors with respect thereto shall be final and conclusive. In
the case of a director, termination for cause shall include removal pursuant to
Section 302 or 304 of the California Corporations Code or removal pursuant to
the exercise of regulatory authority by the FRB or any applicable bank
supervisory agency.
12. DEATH OF OPTIONEE. Except as provided in Section 6 hereof, if any
Optionee dies while employed by or serving as a director of the Company or a
subsidiary corporation or during the 90-day or one year period referred to in
Section 10 hereof, such Optionee's Option shall expire one (1) year after the
date of such death. After such death but before such expiration, the persons to
whom the Optionee's rights under the Option shall have passed by Will or by the
applicable laws of descent and distribution shall have the right to exercise
such Option to the extent that installments ,if any, had accrued as of the date
on which the Optionee ceased to be employed by or ceased to serve as a director
of the Company or such subsidiary corporation.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the outstanding shares
of the stock of the Company are increased, decreased, or changed into, or
exchanged for a different number or class of shares or securities of the
Company, without receipt of consideration by the Company, through
reorganization, merger, recapitalization, reclassification, stock split, stock
dividend, stock consolidation, or otherwise, an appropriate and proportionate
adjustment shall me made in the number and class of shares as to which Options
may be granted. A corresponding adjustment changing the number or class of
shares and the exercise price per share allocated to unexercised Options, or
portions thereof, which shall have been granted prior to any such change shall
likewise be made. Any such adjustment, however, in an outstanding Option shall
be made without change in the total price applicable to the unexercised portion
of the Option but with a corresponding adjustment in the price for each share
subject to the Option. No fractional shares of stock shall be issued under the
Plan on account of any such adjustment.
14. TERMINATING EVENTS. Not less than thirty (30) days prior to a
"Terminating Event," i.e., a dissolution or liquidation of the Company; or a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company will not be the surviving entity;
or a sale of substantially all the assets and property of the Company to another
person; or in the event of any other transaction involving the Company where
there is a change in ownership of at least twenty-five percent (25%), except as
may result from a transfer of shares to another corporation in exchange for at
least eighty percent (80%) control of that corporation, the Board of Directors
shall notify each Optionee of the pendency of the Terminating Event. Upon
delivery of said notice, any Option granted prior to the Terminating Event shall
be, notwithstanding the provisions of Section 8 hereof, exercisable in full and
not only as to those shares with respect to which installments, if any, have
then accrued, subject, however, to earlier expiration or termination as provided
elsewhere in the Plan. Upon the date sixty (60) days after delivery of said
notice, any Option thereof not exercised shall terminate, and upon the effective
date of the Terminating Event, the Plan and any Options granted thereunder shall
terminate, unless provisions is made in connection with the Terminating Event
for assumption of Options therefore granted by the successor or acquiror, as
applicable, or substitution for such Options of new options covering stock of a
successor employer corporation , or a parent or subsidiary corporation thereof,
with appropriate adjustments as to number and class of shares and prices.
B - 3
<PAGE>
15. AMENDMENT AND TERMINATION BY BOARD OF DIRECTORS. The Board of
Directors may at any time suspend, amend, or terminate the Plan and may, with
the consent of an Optionee, make such modification of the terms and conditions
of such Optionee's Option as it shall deem advisable; provided that, except as
permitted under the provisions of Section 13 hereof, any amendment or
modification of the Plan which would:
(a) increase the maximum number of shares which may be purchased pursuant
to Options granted under the Plan.
(b) change the minimum option price;
(c) increase the maximum term of Options provided for herein; or
(d) permit Options to be granted to anyone other than a director or
employee of the Company or a subsidiary corporation,
requires the approval of the Company's shareholders as described below. Any
amendment or modification requiring share holder approval shall be deemed
adopted as of the date of the action of the Board of Directors effecting such
amendment or modification and shall be effective immediately, unless otherwise
provided therein, subject to approval thereof within twelve (12) months before
or after the effective date by shareholders of the company holding not less than
a majority of the voting power of the Company; provided, however, that the Board
of Directors may amend the Plan IN TOTO without shareholder approval if the Plan
has not yet been approved by the shareholders.
Notwithstanding the above, the Board of Directors may grant to an
Optionee, if such Optionee is otherwise eligible, additional Options or, with
the consent of the Optionee, grant a new Option in lieu of an outstanding Option
for a number of shares, at a purchase price and for a term which in any respect
in greater or less that of the earlier Option, subject to the limitations of
Sections 5,6 and A-2 hereof.
No Option may be granted during any suspension of the Plan or after
termination of the Plan. Amendment suspension, or termination of the Plan shall
not, without the consent of the Optionee, alter or impair any rights or
obligations under any Option outstanding prior to such amendment, suspension or
termination of the Plan.
16. TIME OF GRANTING OPTIONS. The time an Option is granted, sometimes
referred to as the date of grant, shall be the date of the action of the Board
of Directors described in the second sentence of Section 2 hereof; provided,
however, that if appropriate resolutions of the Board of Directors indicate that
an Option is to be granted as of and on some future date, the time such Option
is granted shall be such future date. If action by the Board of Directors is
taken by unanimous written consent of its members, the action of the Board of
Directors shall be deemed to be at the time the last Board member signs the
consent.
17. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAWS COMPLIANCE; NOTICE OF
SALE. No Optionee shall be entitled to the privileges of stock ownership as to
any shares of stock not actually issued and delivered. No shares shall be
issued upon the exercise of any Option unless and until any then applicable
requirements of any regulatory agencies having jurisdiction, and of any
exchanges upon which stock of the Company may be listed, shall have been fully
complied with. The Company will diligently endeavor to comply with all
applicable securities laws before any Options are granted under the Plan and
before any stock is issued pursuant to Options. The Company shall register the
underlying shares of common stock with the Securities and Exchange Commission
and deliver to each Optionee an Information Statement relating to the Plan which
meets the requirements of Section 10(a) of the securities Act of 1933, as
amended. With respect to Options granted to affiliates of the Company of its
subsidiary corporations, the Company shall file an offer prospectus and any
required prospectus supplements to facilitate the disposition of such shares of
stock owned by such affiliates after the exercise of Options granted thereto.
Additionally, the Optionee shall comply with all applicable federal and state
securities laws in connection with any sale or other disposition of such common
stock.
B - 4
<PAGE>
18. EFFECTIVE DATE OF THE PLAN. The Plan shall be deemed adopted as of
the date first shown herein and shall be effective immediately, subject to
approval hereof within twelve (12) months before or after said date by
shareholders holding not less than a majority of the voting power of the
Company.
19. TERMINATION. Unless previously terminated by the Board of Directors
or as provided in Section 14 hereof, the Plan shall terminate at the close of
business on April __, 2007 and no Options shall be granted under it thereafter,
but such termination shall not affect any Option theretofore granted.
20. OPTION AGREEMENT. Each Option shall be evidenced by a written
Stock Option Agreement executed by the Company and the Optionee and shall
contain each of the provisions and agreements herein specifically required to be
contained therein, including whether the Option is an Incentive Option or
Non-Qualified Option, and such other terms and conditions as are deemed
desirable and are not inconsistent with the Plan.
21. EXCULPATION AND INDEMNIFICATION. The Company shall indemnify and
hold harmless each member of the Board of Directors in any action brought
against such member or member to the maximum extent permitted by then applicable
law and the Articles of Incorporation and Bylaws of the Company and any
amendments thereto.
B - 5
<PAGE>
DIVISION A
INCENTIVE STOCK OPTION PLAN
A-1. ELIGIBLE PERSONS. All employees of the Company and its subsidiary
corporations shall be eligible for selection to participate in the Incentive
Plan. Notwithstanding any provision of this Plan to the contrary, no director
of the Company or any subsidiary corporation who is not an employee of the
Company or any subsidiary corporation may be granted options under the Incentive
Plan.
A-2. LIMIT EXERCISABILITY OF OPTIONS. The aggregate fair market value
(determined as of the time the Option is granted) of the stock for which any
full-time salaried employee may be granted Incentive Options which are FIRST
EXERCISABLE during any one calendar year (under all Incentive Stock Option Plans
of such employees's employer corporation and its parent and subsidiary
corporations) shall not exceed One Hundred Thousand Dollars ($100,000),
regardless of any unused limits of previous years.
A-3. INCORPORATION BY REFERENCE. The provisions of Section 5, 6, 9 and 18
of the Plan are hereby incorporated by this reference into this Incentive Stock
Option Plan.
A-4. INTERPRETATION OF PLAN. Options granted pursuant to the Incentive
Plan are intended to be "incentive stock options" within the meaning of Section
422 of the Code, and the Incentive Plan shall be construed to implement that
intent. If all or any part of an Incentive Option shall not be deemed an
"incentive stock option" within the meaning of Section 422 of the Code, said
Option shall nevertheless be valid and carried into effect as a Non-Qualified
Option.
DIVISION B
NON-QUALIFIED STOCK OPTION PLAN
B-1. ELIGIBLE PERSONS. All directors and employees of the Company and its
subsidiary corporations shall be eligible for selections to participate in the
Non-Qualified Plan.
B-2. INTERPRETATION OF PLAN. Options granted pursuant to the
Non-Qualified Plan are intended to be non-qualified stock options described in
Treas. 1.83-7 to which Section 421 of the Code does not apply, and the
Non-Qualified Plan shall be construed to implement that intent.
B - 6
