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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
National Mercantile Bancorp
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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NATIONAL MERCANTILE BANCORP
1840 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(310) 277-2265
____________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 20, 1997
____________
TO THE SHAREHOLDERS OF NATIONAL MERCANTILE BANCORP:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders for the
fiscal year ended December 31, 1995 (the "Meeting") of National Mercantile
Bancorp, a California corporation and a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "Company"), will be held
on March 20, 1997, at 6:00 p.m., local time, at Mercantile National Bank, 1840
Century Park East, Main Floor, Los Angeles, California 90067, for the following
purposes as set forth in the attached Proxy Statement:
1. ELECTION OF DIRECTORS. To elect five persons to the Board of
Directors of the Company, to serve until the next annual meeting of
shareholders and until their successors have been elected and
qualified. The following persons are the Board of Directors' nominees:
Robert E. Gipson Scott A. Montgomery
Alan Grahm Robert E. Thomson
Joseph W. Kiley III
2. APPROVAL OF 1996 STOCK INCENTIVE PLAN. To approve the Company's 1996
Stock Incentive Plan;
3. APPROVAL OF REVERSE STOCK SPLIT. To approve a 9.09 to 1 reverse stock
split by reducing the number of outstanding (but not the authorized)
shares of the Company's common stock;
4. APPROVAL OF TRANSFER RESTRICTION. To approve a restriction to
prohibit, until May 31, 2000 the transfer of shares of common or
preferred stock currently outstanding or issued in the future by the
Company to any person (with certain exceptions for prior contractual
obligations of the Company) if such person is or would become by
reason of such transfer the beneficial owner of more than 4.5% of the
Company's stock as the term "stock" is defined, and such ownership is
determined, under Section 382 of the Internal Revenue Code of 1986, as
amended.
5. APPROVAL OF TERMS OF PREFERRED STOCK. To approve the terms and
conditions of the Company's preferred stock to be issued pursuant to a
rights offering to the Company's shareholders and pursuant to a
private offering; and
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6. OTHER BUSINESS. To transact such other business as may properly come
before the Meeting or any adjournment thereof.
ONLY PERSONS WHO ARE HOLDERS OF STOCK OF THE COMPANY (THE "SHAREHOLDERS")
AT THE CLOSE OF BUSINESS ON FEBRUARY 10, 1997 ARE ENTITLED TO NOTICE OF AND TO
VOTE IN PERSON OR BY PROXY AT THE MEETING OR ANY ADJOURNMENT THEREOF.
The Proxy Statement which accompanies this Notice contains additional
information regarding the proposals to be considered and voted upon at the
Meeting, and Shareholders are encouraged to read it in its entirety.
As set forth in the enclosed Proxy Statement, proxies are being solicited
by and on behalf of the Board of Directors of the Company. All proposals set
forth above are proposals of the Company. It is expected that these materials
will be mailed to Shareholders on or about February 12, 1997.
Pursuant to the Company's Bylaws, nominations for election of individuals
to 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 Company entitled to
vote for the election of directors. Nominations, other than those made by the
Board of Directors, must be made in writing and must be received by the
President of the Company no more than sixty (60) days prior to any meeting of
Shareholders called for the election of directors nor more than ten (10) days
after the date the notice of such meeting is sent to Shareholders. If notice of
such meeting is sent to Shareholders ten (10) days prior to such meeting, then
notice by a Shareholder of intention to make a nomination to the Board of
Directors must be given no later than the time fixed in the notice of the
meeting for the opening of the meeting. Such notification must 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 Company 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 Company owned
by the notifying Shareholder. Nominations not made in accordance herewith may be
disregarded by the Chairman of the Meeting, and, upon his instructions, the
inspectors of election shall disregard all votes cast for each such nominee.
IT IS IMPORTANT THAT ALL SHAREHOLDERS VOTE. PLEASE 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 THEN MAY WITHDRAW YOUR
PROXY AND VOTE IN PERSON IF YOU WISH TO DO SO. THE PROXY MAY BE REVOKED AT ANY
TIME PRIOR TO ITS EXERCISE.
By Order of the Board of Directors
A. Thomas Hickey
Secretary
Dated: February 7, 1997
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NATIONAL MERCANTILE BANCORP
1840 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(310) 277-2265
____________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 20, 1997
____________
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies ("Proxies") by the Board of Directors of National Mercantile Bancorp, a
California corporation and a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Company"), for use at the Annual
Meeting of Shareholders (the "Meeting") to be held on March 20, 1997 at 6:00
p.m., local time, at Mercantile National Bank (the "Bank"), 1840 Century Park
East, Main Floor, Los Angeles, California 90067, and at any adjournment
thereof. Only persons who are holders of stock of the Company (the
"Shareholders") at the close of business on February 10, 1997 (the "Record
Date") are entitled to notice of and to vote in person or by proxy at the
Meeting or any adjournment thereof. Scott A. Montgomery and Robert E. Thomson,
the designated proxy holders (the "Proxy Holders"), are directors of the
Company. The Proxies are being solicited by and on behalf of the Board of
Directors of the Company. All proposals set forth below are proposals of the
Company. It is expected that this Proxy Statement and the accompanying Notice
and Form of Proxy will be mailed to Shareholders on or about February 12, 1997.
MATTERS TO BE CONSIDERED
The matters to be considered and voted upon at the Meeting will be:
1. ELECTION OF DIRECTORS. To elect five persons to the Board of Directors
of the Company, to serve until the next annual meeting of shareholders
and until their successors have been elected and qualified. The
following persons are the Board of Directors' nominees:
Robert E. Gipson Scott A. Montgomery
Alan Grahm Robert E. Thomson
Joseph W. Kiley III
2. APPROVAL OF 1996 STOCK INCENTIVE PLAN. To approve the Company's 1996
Stock Incentive Plan (the "1996 Plan");
3. APPROVAL OF REVERSE STOCK SPLIT. To approve a 9.09 to 1 reverse stock
split ("Reverse Stock Split") by reducing the number of outstanding
shares (but not the authorized) of the Company's common stock;
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4. APPROVAL OF TRANSFER RESTRICTION. To approve a restriction to
prohibit, until May 31, 2000, the transfer of shares of common or
preferred stock currently outstanding or issued in the future by the
Company (the "Transfer Restriction"), to any person (with certain
exceptions for prior contractual obligations of the Company) if such
person is or would become by reason of such transfer the beneficial
owner of more than 4.5% of the Company's stock as the term "stock" is
defined, and such ownership is determined, under Section 382 of the
Internal Revenue Code of 1986, as amended ("Section 382");
5. APPROVAL OF TERMS OF PREFERRED STOCK. To approve the terms and
conditions of the Company's preferred stock to be issued pursuant to a
rights offering to the Company's shareholders and pursuant to a
private offering; and
6. OTHER BUSINESS. To transact such other business as may properly come
before the Meeting or any adjournment thereof.
VOTING AND REVOCABILITY OF PROXIES
A form of Proxy (the "Proxy") for voting shares at the Meeting is enclosed.
The Proxy must be signed and dated by the Shareholder of record. Any
Shareholder who executes and delivers a Proxy has the right to revoke it at any
time before it is exercised by (i) filing, with the Secretary of the Company, an
instrument revoking it or a duly executed Proxy bearing a later date, or (ii)
voting in person at the Meeting. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT
THE MEETING, THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE COMPANY'S BOARD OF DIRECTORS.
SOLICITATION OF PROXIES
The cost of soliciting Proxies will be paid by the Company. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to forward proxy materials to the beneficial owners of the Company's
common stock (the "Common Stock") and such persons will be reimbursed for their
reasonable expenses. Proxies may be solicited by directors, officers and
regular employees of the Company and its wholly owned subsidiary, Mercantile
National Bank (the "Bank"), in person or by telephone or telegraph, for which
such persons will receive no special compensation.
The Company has retained ____________ to assist in the solicitation of
Proxies for a fee of approximately $_______, plus reimbursements of reasonable
out-of-pocket expenses incurred in connection with this solicitation. The
Company may pay for and use the services of other individuals or companies not
regularly employed by the Company in connection with the solicitation of Proxies
if the Board of Directors of the Company determines that it is advisable.
OUTSTANDING SECURITIES AND VOTING RIGHTS
The authorized and outstanding capital of the Company consists of (i)
10,000,000 shares of Common Stock, of which 3,078,146 shares were issued and
outstanding on the Record Date and (ii) 1,000,000 shares of preferred stock (the
"Preferred Stock"), none of which were issued and outstanding on the Record
Date. A majority of the outstanding shares of the Common Stock constitutes a
quorum for the conduct of business at the Meeting.
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Each Shareholder will be entitled to one vote, in person or by proxy, for
each share of the Company's Common Stock standing in his or her name on the
books of the Company as of the Record Date on any matter submitted to the vote
of the Shareholders, except that in connection with the election of directors
such Shareholder shall be entitled to vote his or her shares cumulatively.
Cumulative voting entitles a Shareholder to cast that number of votes equal to
the number of directors to be elected multiplied by the number of votes to which
the Shareholder's shares are entitled, and to give one nominee all of such votes
or to distribute such votes between two or more nominees as such Shareholder
sees fit. No Shareholder is entitled to cumulate votes unless such nominee's
name has been properly placed in nomination prior to the vote and the
Shareholder has given notice at the Meeting and before the voting, of his or her
intention to vote shares cumulatively. If any Shareholder has given such
notice, all Shareholders may cumulate their votes for nominees. The Proxy
holders may, in their discretion, cumulate votes pursuant to the Proxies for any
one or more nominees.
The affirmative vote of the holders of a plurality of the votes of the
shares present in person or represented by proxy at the Meeting is required for
the election of directors. The affirmative vote of a majority of shares present
in person or represented by proxy at the Meeting and entitled to vote thereon is
required for the approval of the 1996 Plan. The affirmative vote of a majority
of outstanding shares is required for the approval of each of the Reverse Stock
Split and the Transfer Restriction. Shares represented by proxies that reflect
abstentions or "broker non-votes" (i.e., shares held by a broker or nominee
which are represented at the Meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular proposal) will be counted for
the purpose of determining a quorum and therefore (a) neither will have any
effect on Proposal 1, (b) abstentions will have the effect of a vote "against"
Proposal 2 and (c) each will have the effect of a vote "against" Proposals 3, 4
and 5.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of the Record Date by (a) each person known
to the Company to be the beneficial owner of more than five percent (5%) of the
outstanding Common Stock of the Company, (b) each executive officer, director
and nominee for director of the Company, (c) certain executive officers of the
Bank, and (d) all directors and executive officers of the Company as a group.
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<TABLE>
<CAPTION>
Number of
Number of Shares and Shares after Percent of
Nature of Beneficial Reverse ----------
Name and Address of Beneficial Owner (1) Ownership (2) Stock Split Class (3)
- ---------------------------------------- ------------- ----------- ---------
<S> <C> <C> <C>
9830 Investments No. 1, Ltd., a California limited partnership. 287,615 31,640 9.3%
Conrad Company 2,045,455 225,000 18.2% (4)
James F. Gardunio (5) -0- -0- -
Robert E. Gipson 228,273(6) 28,273 2.0%
Alan Grahm 80,993 8,910 2.6%
A. Thomas Hickey 13,000(7) 1,430 *
Joseph W. Kiley III (8) -0- -0- -
Howard P. Ladd 57,827 6,361 1.9%
Scott A. Montgomery 4,000(9) 440 *
Paddy C. Steffey (10) -0- -0- -
Robert E. Thomson 625 68 *
Donald D. Thornburg (11) -0- -0- -
All directors and executive officers as a group (10 persons) 157,445(12) 17,320 5.1%
</TABLE>
_________
* Less than one percent (1%).
(1) The business address of each director and executive officer is c/o National
Mercantile Bancorp, 1840 Century Park East, Los Angeles, California 90067.
The business address of 9830 Investments No. 1, Ltd., a California limited
partnership, is 9830 Wilshire Boulevard, Beverly Hills, California 90212.
The business address of the Conrad Company is 3800 Dain Bosworth Plaza,
60 South Sixth Street, Minneapolis, MN 55402-1000.
(2) Except as otherwise noted below, each person has sole voting and investment
power over the shares of Common Stock shown as beneficially owned, subject
to community property laws where applicable.
(3) Shares which the person has the right to acquire within sixty (60) days
after the Record Date are deemed to be outstanding in calculating the
percentage ownership of the person, but are not deemed to be outstanding in
calculating the percentage ownership of any other person (or group).
(4) Percentage ownership if the Conrad Company purchases $2.25 million of
Preferred Stock and $9.0 million Preferred Stock is sold in the Offerings.
If the Conrad Company purchases the maximum amount it has agreed to
purchase ($4.95 million Preferred Stock) and $9.0 million Preferred Stock
is sold in the Offerings, it would own 4,000,000 shares (pre Reverse Stock
Split) (or 495,000 shares after the Reverse Stock Split), representing
40.0% of the class.
(5) Mr. Gardunio's employment with the Bank terminated on August 26, 1996.
(6) Includes 227,273 shares if Wildwood Enterprises purchases $250,000
Preferred Stock and $9.0 milion Preferred Stock is sold in the Offerings.
If Wildwood Enterprises purchases the maximum amount it has agreed to
purchase ($550,000 Preferred Stock) and $9.0 million Preferred Stock is
sold in the Offerings, it would own 500,000 shares (pre Reverse Stock
Split) (or 55,006 shares after the Reverse Stock Split), representing 4.4%
of the class. Mr. Gipson is a member of the Advisory Committee for the
Wildwood Enterprises, Inc. and as such may be deemed to have shared
investment power or shared voting power over securities acquired by
Wildwood Enterprises.
(7) Includes 12,000 shares Mr. Hickey currently has the right to acquire upon
the exercise of stock options.
(8) Mr. Kiley's employment with the Company and the Bank commenced in August
1996.
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(9) Excludes 200,000 shares (pre Reverse Stock Split) which may be purchased by
Mr. Montgomery upon exercise of an option which becomes exercisable on
June 20, 1997.
(10) Ms. Steffey's employment with the Bank terminated on August 31, 1995.
(11) Mr. Thornburg's employment with the Company and the Bank terminated on
August 31, 1995.
(12) Includes 12,000 shares (pre Reverse Stock Split) which may be purchased
upon exercise of currently exercisable options or upon exercise of options
that will become exercisable within 60 days.
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PROPOSALS
PROPOSAL 1: NOMINATION AND ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors shall be
determined from time to time by the Board of Directors but may not be less than
six (6) nor more than eleven (11). The number of directors is currently fixed
at eight (8). Currently, there are two vacancies on the Board of Directors.
Pursuant to a settlement (the "Settlement") of a derivative and class
action case commenced on or about October 7, 1992 by two of the Company's
Shareholders, Messrs. Berlin and Zlotnick (collectively, the "plaintiff"),
against the Company and certain of its directors and officers, the Company
agreed that the membership of the Board of Directors would be changed so that
there would be two (2) new members. One new member was scheduled to be chosen
during the first year after the effective date of the settlement, June 2, 1995
(the "Effective Date"). A second new member would be chosen during the second
year after the Effective Date. Both of the new directors would be independent
of the present or former directors of the Company. Pursuant to the Settlement,
each of the two new directors would be elected by the following process: (a)
counsel for the plaintiff would submit a list to the then-existing Board of
Directors of the Company of not less than two individuals (one of whom must be a
person residing in the Los Angeles area), with business or professional
backgrounds and who are willing to serve; and (b) the then-existing Board of
Directors will attempt to select an individual from the list. The Board of
Directors must vote on each list within sixty (60) days of receiving the list,
and the Board of Directors may reject the entire list only for cause. The list
would be submitted to the Board of Directors according to a predetermined
schedule each of the two years, which may be modified by agreement of counsel
for the Company and the plaintiff. Each such new member of the Board of
Directors must be appointed to at least one important Board committee, as
determined by mutual agreement. While the plaintiff did not supply a list of
candidates during the period June 2, 1995 through June 1, 1996, the Company and
the plaintiff's counsel agreed that the plaintiff's counsel would have the right
to review and approve two candidates for the Board of Directors suggested by the
Company or the plaintiff's counsel. Robert E. Gipson, a Company candidate, was
approved by the plaintiff's counsel. The Company plans to continue to seek (and
will consider candidates suggested by plaintiff's counsel) qualified candidates
to serve as directors of the Company, which candidates will require bank
regulatory approval. Upon the approval of one more candidate by the plaintiff's
counsel, the Company's obligation under the Settlement to add two (2) new
members to the Board of Directors will be satisfied.
Under the terms of the Private Purchase Agreement (see Proposal 5: Approval
of the Terms of the Preferred Stock) with Conrad Company, following the purchase
of the shares of Preferred Stock, the Company is obligated to use its reasonable
best efforts to cause to be elected that number of persons designated by Conrad
Company which Conrad Company or any affiliate thereof is entitled to elect based
on cumulative voting in the election of directors. Such persons are subject to
bank regulatory approval. Until Conrad Company has designated one or more
directors or a designee of Conrad Company is otherwise a director of the
Company, the Conrad Company is entitled to notice of and attendance at all
regular meetings and special meetings of the Board of Directors.
The following table sets forth certain information regarding the nominees.
All of the persons identified below as current members of the Board of Directors
have been nominated for re-election by the Board of Directors to serve until the
next annual meeting of shareholders and until their successors are elected and
have qualified. All nominees for director have indicated their willingness to
serve and, unless
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otherwise instructed, votes will be cast pursuant to the Proxies in such a way
as to elect as many of the Board of Directors' nominees as possible under
applicable voting rules. It is intended that each person elected a director of
the Company also will be elected a director of the Bank. In the event that any
of the nominees should be unable to serve as a director, the Proxy holders will
vote for the election of such substitute nominees, if any, as shall be
designated by the Board of Directors. The Board of Directors has no reason to
believe that any nominee will be unable to serve if elected.
<TABLE>
<CAPTION>
Name Age Position with the Company and the Bank
- ---- --- --------------------------------------
<S> <C> <C>
Robert E. Gipson 50 Director
Alan Grahm 74 Director
Joseph W. Kiley III 41 Executive Vice President and Chief Financial
Officer
Scott A. Montgomery 54 Director; Executive Vice President and Chief
Administrative Officer of the Company and President and
Chief Executive Officer of the Bank
Robert E. Thomson 55 Vice Chair
</TABLE>
ROBERT E. GIPSON is Principal of the law firm of Gipson Hoffman & Pancione,
A.P.C. and has served in that capacity for more than five years. He has also
been President of Corporate Management Group, Inc., a financial management
company, since 1988. Mr. Gipson was elected a director of the Company and the
Bank by the Board of Directors on October 2, 1996. Mr. Gipson is a trustee of
Meyers Investment Trust.
ALAN GRAHM has served as Chairman of the Board of Trade Zone Connection
(formerly Associated Sales), an import company, for more than five years. He
has also been the owner of Bonny Doon Vineyards since 1981. Mr. Grahm has been
a director of the Company since 1983 and a director of the Bank since 1982.
JOSEPH W. KILEY III has served as Executive Vice President and Chief
Financial Officer of the Company and the Bank since August 1996. Prior thereto,
from July 1992 to August 1996, he was Executive Vice President and Chief
Financial Officer of Hancock Savings Bank, FSB, in Los Angeles. From June 1990
to June 1992 Mr. Kiley served as Executive Vice President - Operations and Chief
Financial Officer of Compensation Resource Group, Inc., a benefits consulting
company, in Pasadena, California.
SCOTT A. MONTGOMERY has served as President and Chief Executive Officer of
the Bank since November 1995 and as Executive Vice President and Chief
Administrative Officer of the Company since June 1996. Prior thereto, from
September 1990 to September 1994, he was President and Chief Operating Officer
of Cupertino National Bank, Cupertino, California. Mr. Montgomery has been a
director of Tracy Federal Bank F.S.B. ("Tracy Bank"), Tracy, California since
March 1995 and has been the Vice Chairman of the Board of Directors since April
1996. Mr. Montgomery has been a director of the Company and the Bank since
November 1995.
ROBERT E. THOMSON is serving as Of Counsel at Jekel & Howard since August
1996. Prior thereto, he has been an Executive Consultant to Sterling Forest
Corporation ("Sterling"), a real estate development company, from August 1994 to
August 1995, and served as Chairman of the Board and Chief Executive Officer of
Sterling from January 1989 to August 1994. Mr. Thomson has served as a
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director of the Company since 1983 and of the Bank since 1982 and has served as
Vice Chair of the Company and the Bank since June 1991. He also served as
Interim Chief Executive Officer of the Bank from June to October, 1991 and as
Interim President and Chief Executive Officer of the Bank from August to
November 1995.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a plurality of the votes of the
shares present in person or represented by proxy at the Annual Meeting is
required for the election of directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES.
PROPOSAL 2: APPROVAL OF THE 1996 STOCK INCENTIVE PLAN
General. The Board of Directors of the Company has adopted the 1996 Plan
pursuant to which officers, directors, employees and independent contractors of
the Company will be eligible to receive options to purchase shares of the Common
Stock of the Company or other securities or benefits with a value derived from
the value of the Common Stock of the Company.
The purpose of the 1996 Plan is to enable the Company to attract, retain
and motivate its officers, directors, employees and independent contractors by
providing for or increasing their proprietary interests in the Company and, in
the case of nonemployee directors, to attract such directors and further align
their interests with those of the Company's Shareholders by providing for or
increasing their proprietary interests in the Company.
The maximum number of shares of Common Stock that may be issued pursuant to
awards granted under the 1996 Plan is 500,000, subject to adjustments to prevent
dilution and to reflect the Reverse Stock Split. The 1996 Plan restricts the
number of shares of Common Stock that may be issued to directors pursuant to
awards granted to 125,000 in the aggregate.
The description of the 1996 Plan provided below is qualified in its
entirety by the full text of the 1996 Plan which is attached hereto as Appendix
A.
Administration. The 1996 Plan is administered by a committee of two or
more disinterested directors appointed by the Board of Directors of the Company
(the "Committee"), except that grants to nonemployee directors will be made by
the Board of Directors pursuant to a predetermined formula. The Committee has
full and final authority to select the recipients of awards and to grant such
awards. Subject to the provisions of the 1996 Plan, the Committee has a wide
degree of flexibility in determining the terms and conditions of awards and the
number of shares to be issued pursuant thereto, including conditioning the
receipt or vesting of awards upon the achievement by the Company of specified
performance criteria. Subject to limitations imposed by law, the Board of
Directors may amend or terminate the 1996 Plan at any time and in any manner.
However, no such amendment or termination may deprive the recipient of an award
previously granted under the 1996 Plan of any rights thereunder without his
consent. The expenses of administering the 1996 Plan will be borne by the
Company.
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Terms of Awards. The 1996 Plan authorizes the Committee to enter into any
type of arrangement with an eligible recipient that, by its terms, involves or
might involve the issuance of Common Stock or any other security or benefit with
a value derived from the value of Common Stock. Awards are not restricted to
any specified form or structure and may include, without limitation, sales or
bonuses of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock, securities convertible into or
redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares. An award may consist of
one such security or benefit or two or more of them in tandem or in the
alternative. The 1996 Plan provides that, on the first business day following
the date of the annual meeting of shareholders of the Company at which directors
are elected, an option to purchase 5,000 shares of Common Stock (subject to
adjustment for the Reverse Stock Split) will be granted without further action
by the Committee to directors who are not employed by the Company and have not
previously served as directors of the Company. Only one director, Robert E.
Gipson, will qualify for this award. In addition, on the first business day
following the date of the annual meeting of shareholders held in 1997 (the "1997
Meeting"), all nonemployee directors who were directors on the effective date of
the 1996 Plan and who are re-elected to the Board at the 1997 Meeting will be
granted, without further action by the Committee, an option to purchase 2,500
shares of Common Stock. Nonemployee director options have an exercise price
equal to the fair market value of such shares on the date of grant and are
immediately exercisable.
An award granted under the 1996 Plan may include a provision accelerating
the receipt of benefits upon the occurrence of specified events, such as a
change of control of the Company or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of the
Company or other significant corporate transactions. Options granted to
nonemployee directors must be exercised by the fifth anniversary of the date of
grant. Any stock option granted to an employee may be a tax-benefited incentive
stock option or a non-qualified stock option that is not tax-benefited. Awards
to nonemployee directors may only be non-qualified stock options.
An award may permit the recipient to pay all or part of the purchase price
of the shares or other property issuable pursuant thereto, or to pay all or part
of such employee's tax withholding obligation with respect to such issuance, by
(a) delivering previously owned shares of capital stock of the Company or other
property, (b) reducing the amount of shares or other property otherwise issuable
pursuant to the award or (c) delivering a promissory note, the terms and
conditions of which will be determined by the Committee. If an option permits
the recipient to pay for the shares issuable pursuant thereto with previously
owned shares, the recipient would be able to exercise the option in successive
transactions, starting with a relatively small number of shares and, by a series
of exercises using shares acquired from each such transaction to pay the
purchase price of the shares acquired in the following transaction, to exercise
an option for a large number of shares with no more investment than the original
share or shares delivered. The exercise price and any withholding taxes are
payable in cash by nonemployee directors, although the Board of Directors at its
discretion may permit such payment by delivery of shares of Common Stock, or by
delivery of broker instructions authorizing a loan secured by the shares
acquired upon exercise or payment to the Company of proceeds from the sale of
such shares.
Pursuant to Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), directors, certain officers and ten percent
stockholders of the Company are generally liable to the Company for repayment of
any "short-swing" profits realized from any non-exempt purchase and sale of
Common Stock occurring within a six-month period. Rule 16b-3, promulgated under
the Exchange Act, provides an exemption from Section 16(b) liability for certain
transactions by an officer or director pursuant to an employee benefit plan that
complies with such Rule. Specifically, the grant of an option
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under an employee benefit plan that complies with Rule 16b-3 will not be deemed
a purchase of a security for purposes of Section 16(b). The 1996 Plan is
designed to comply with Rule 16b-3.
Awards may not be granted under the 1996 Plan after the tenth anniversary
of the adoption of the 1996 Plan. Although any award that was duly granted on
or prior to such date may thereafter be exercised or settled in accordance with
its terms, no shares of Common Stock may be issued pursuant to any award after
the twentieth anniversary of the adoption of the 1996 Plan.
Federal Income Tax Treatment. The following is a brief description of the
federal income tax treatment that generally will apply to awards made under the
1996 Plan, based on federal income tax laws in effect on the date hereof. The
exact federal income tax treatment of any award will depend on the specific
nature of such award. Such an award may, depending on the conditions applicable
to the award, be taxable as an option, an award of restricted or unrestricted
stock, an award which is payable in cash or otherwise.
Pursuant to the 1996 Plan, participants may be granted options which are
intended to qualify as incentive stock options. Generally, the optionee is not
taxed, and the Company is not entitled to a deduction, on the grant or exercise
of an incentive stock option. However, if the optionee sells the shares
acquired upon the exercise of an incentive stock option at any time within (i)
one year after the date of exercise of the option or (ii) two years after the
date of grant of the option, then the optionee will recognize ordinary income in
an amount equal to the excess, if any, of the lesser of the sale price or the
fair market value of the shares sold on the date of exercise over the exercise
price of the option. The Company will generally be entitled to a deduction in
an amount equal to the amount of ordinary income recognized by the optionee.
The grant of an option or other similar right to acquire stock that does
not qualify for treatment as an incentive stock option generally is not a
taxable event for the optionee. Upon exercise of the option, the optionee
generally will recognize ordinary income in an amount equal to the excess of the
fair market value of the stock acquired upon exercise (determined as of the date
of exercise) over the exercise price of such option, and the Company will be
entitled to a deduction equal to such amount.
Special rules will apply, however, if the optionee is subject to Section 16
of the Exchange Act. During any period of time (the "Section 16(b) Period") in
which a sale of the stock acquired upon exercise of the option could subject
such optionee to suit under Section 16, the optionee will not recognize ordinary
income and the Company will not be entitled to a deduction. Upon the expiration
of the Section 16(b) Period, the optionee will recognize ordinary income, and
the Company will be entitled to a deduction, equal to the excess of the fair
market value of the stock (determined as of the expiration of the Section 16(b)
Period) over the option exercise price. As described below, such an optionee
may elect under Section 83(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), to recognize ordinary income of the date of exercise, in which the
case the Company would be entitled to a deduction at that time equal to the
amount of the ordinary income recognized.
Awards under the 1996 Plan also may include stock sales, stock bonuses or
other grants of stock. Stock issued pursuant to these awards may be subject to
certain restrictions. Pursuant to Section 83 of the Code, stock sold or granted
under the 1996 Plan will give rise to taxable income at the earliest time at
which such stock is not subject to a substantial risk of forfeiture or is freely
transferable for purposes of Section 83. At that time, the holder will
recognize ordinary income equal to the excess of the fair market value of the
shares (determined as of such time) over the purchase price, and the Company
will be entitled
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to a deduction equal to such amount. Holders may elect to report income upon
receipt of the award rather than wait until the restrictions lapse. In such
case, the holder has no additional income to report when the restrictions lapse.
If the holder of the stock is a person subject to Section 16(b) and if the sale
of the stock at a profit could subject such person to suit under Section 16(b),
income will be recognized in accordance with the rules described above regarding
stock issued to such persons upon the exercise of an option, unless the holder
makes an election under Section 83(b) to recognize income on the date the stock
issued.
Awards may be granted under the 1996 Plan that do not fall clearly into the
categories described above. The federal income tax treatment of these awards
will depend upon the specific terms of such awards. The Company may be required
to withhold applicable taxes with respect to any ordinary income recognized by a
participant in connection with awards made under the 1996 Plan.
The terms of the agreements pursuant to which specific awards are made
under the 1996 Plan may provide for accelerated vesting or payment of an award
in connection with a change in ownership or control of the Company. In that
event and depending upon the individual circumstances of the recipient, certain
amounts with respect to such awards may constitute "excess parachute payments"
under the golden parachute provisions of the Code. Pursuant to such provisions,
an employee will be subject to a 20% excise tax on any "excess parachute
payment," and the Company will be denied any deduction with respect to such
excess parachute payment.
The Company intends to register under the Securities Act of 1933, as
amended, the sale of the shares of its Common Stock pursuant to the 1996 Plan.
VOTE REQUIRED FOR APPROVAL
This proposal requires the affirmative vote of a majority of the shares of
Common Stock represented and entitled to vote at the Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1996
STOCK INCENTIVE PLAN.
PROPOSAL 3: APPROVAL OF THE REVERSE STOCK SPLIT
The Board of Directors has approved, and recommends that the Shareholders
approve, the Reverse Stock Split. The Reverse Stock Split will reduce the
number of outstanding (but not the authorized) shares of the Company's Common
Stock through the filing of the Amended and Restated Articles of Incorporation
(the "Restatement"), attached hereto as Appendix B.
In connection with this proposal, Shareholders are encouraged to review the
financial statements of the Company and management's discussion and analysis
thereof contained in the Company's Registration Statement on Form S-2 with
respect to the offering by the Company of nontransferable rights to purchase
shares of Preferred Stock to the Shareholders of record on February 10, 1997
(the "Registration Statement") that is being distributed simultaneously with
this Proxy Statement.
The Articles of Incorporation authorize 10,000,000 shares of Common Stock,
of which 3,078,146 shares were issued and outstanding on the Record Date and
1,000,000 shares of Preferred Stock, of which
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no shares were issued and outstanding on the Record Date. In addition, as of the
Record Date, 279,175 shares were subject to outstanding options granted pursuant
to the Company's 1983, 1990 and 1994 Stock Option Plans.
DESCRIPTION OF THE REVERSE STOCK SPLIT. If the Reverse Stock Split is
approved, it will become effective upon the filing of the Restatement with the
California Secretary of State. At that time, each 9.09 shares of Common Stock
outstanding ("Old Common Stock") shall be converted into one (1) share of fully
paid Common Stock ("New Common Stock"), subject to the required payment for
fractional shares, and the Company shall issue one (1) share of New Common Stock
for each 9.09 shares of Old Common Stock outstanding on that date. From and
after the date the Reverse Stock Split becomes effective, certificates
representing shares of Old Common Stock shall be deemed to represent only the
right to receive shares of New Common Stock and cash in lieu of any fractional
share of New Common Stock to which an individual Shareholder would otherwise be
entitled.
The Company does not intend to issue fractional shares of New Common Stock
but intends to pay, subject to regulatory approval, cash in lieu of any fraction
of a share of New Common Stock which a Shareholder would otherwise be entitled
to receive. Payment of cash in lieu of fractional shares may be deemed to be a
dividend on the Common Stock. On October 25, 1995, the Company entered into a
Memorandum of Understanding with the Federal Reserve Bank of San Francisco (the
"Reserve Bank") which, among other things, requires the Company to refrain from
paying or declaring any cash dividends without the prior approval of the Reserve
Bank. The Company intends to seek the approval of the Reserve Bank to pay cash
in lieu of fractional shares if the Reverse Stock Split is approved. A special
three (3) member Pricing Committee of the Board of Directors has been formed for
the sole purpose of determining on behalf of the Company the amount to be paid
to the shareholders in lieu of fractional shares. The amount to be paid in lieu
of fractional shares will be based on the market price of the Old Common Stock
at the time the Reverse Stock Split is effected. On ____________, 1997, the
closing sale price of the Common Stock as reported by the Nasdaq Stock Market
was $________. The Company estimates that it will cost less than $________ to
pay for fractional shares.
REASONS FOR THE REVERSE STOCK SPLIT. The Private Offering (as defined
below) is conditioned upon the Reverse Stock Split occurring. Thus, before the
Private Offering may be consummated, the Reverse Stock Split must be approved
and consummated. The number of authorized shares of the Company's Common Stock
will not be changed by the proposed Reverse Stock Split and, consequently, the
Company would be able to issue a substantial number of additional shares of
Common Stock without further Shareholder approval. Although the Board of
Directors does not have any present plans to issue additional shares of Common
Stock (other than shares of Common Stock into which the Preferred Stock may be
converted), it believes it is desirable for the Company to have additional
authorized but unissued Common Stock to provide flexibility to act promptly with
respect to acquisitions, public and private financings and for other appropriate
purposes. Such availability will eliminate the delays and expense which
otherwise might be incurred if Shareholder approval were required for certain
transactions involving the issuance of securities.
The Board of Directors believes that it is difficult to attract new
investors to the Company due to the fact that the Common Stock trades at a
relatively low price (generally less than $1.50 per share). Institutional
investors are typically restricted from investing in companies whose stocks
trade at relatively low prices per share. Brokers also are sometimes subject to
internal restrictions on their ability to recommend lower-priced stocks because
of the general presumption that such stocks may be highly speculative. Further,
stock which trades in the trading range of the Company's Common Stock may not
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be marginable. In addition, an increase in market price per share would enable
continued listing of the Company's Common Stock on the Nasdaq Stock Market,
which requires a per share sales price of $1.00 per share. The Board of
Directors believes that the Reverse Stock Split may have the effect of
increasing the market price per share of the Company's Common Stock. An increase
in the per share price of Company's Common Stock may, over time, alleviate some
or all of these conditions, although such alleviation cannot be assured.
Shareholders should be aware that the Reverse Stock Split may result in a
decrease in the trading volume of the Company's Common Stock due to the decrease
in the number of outstanding shares.
Finally, in connection with the Bank's restructure of its lease for its
headquarters, the Company issued to the Bank's landlord a seven-year warrant
(the "Warrant") to purchase up to 9.9% of the outstanding shares of Company
capital stock at the lower of $1.50 per share or the lowest price at which such
shares are offered in a public offering (with certain exceptions) or may be
purchased by any other person pursuant to an option, warrant or other right
granted by the Company (with certain exceptions) on or before December 31, 1997.
If the Reverse Stock Split does not occur, and the Company proceeds with the
Offerings (as defined below), the Company would be required to sell to the
Bank's landlord Preferred Stock at $1.50 per share as opposed to the $10.00 per
share price contemplated by the Offerings or would be required to seek
shareholder approval to authorize additional shares of Preferred Stock so as to
sell more shares of Preferred Stock in the Offerings at $1.50 per share.
EFFECT OF THE REVERSE STOCK SPLIT. The principal effect of the Reverse
Stock Split will be to decrease the number of shares of Common Stock outstanding
from approximately 3,078,146 shares to approximately 338,630 shares. The Common
Stock to be issued pursuant to the Reverse Stock Split will be fully paid and
nonassessable. The voting and other rights of holders of Common Stock will not
be altered by the Reverse Stock Split.
Under the terms of the Company's 1983, 1990 and 1994 Stock Option Plans and
the 1996 Plan, the Reverse Stock Split will reduce the number of shares reserved
for issuance under those Plans by a factor of 9.09, will reduce the number of
shares to be issued upon the exercise of outstanding options thereunder by a
factor of 9.09 and will increase the exercise price of outstanding options by a
factor of 9.09.
The Company does not anticipate that the Reverse Stock Split will result in
any material reduction in the number of holders of Common Stock. Although the
outstanding shares will be reduced if the Reverse Stock Split is approved by the
Shareholders, the total number of shares of Common Stock authorized for issuance
will not be affected.
EXCHANGE PROCEDURES. If the Reverse Stock Split is approved and effected,
Shareholders will be required to deliver to the Company's exchange agent
certificates representing their shares of Old Common Stock outstanding
immediately prior to the time the Reverse Stock Split becomes effective against
which the exchange agent would issue a certificate representing such
shareholder's shares of New Common Stock and would deliver a check for the
amount necessary to pay such shareholder for any fraction of a whole share of
New Common Stock to which an individual Shareholder is entitled. DO NOT SEND
ANY STOCK CERTIFICATES TO THE COMPANY OR TO THE EXCHANGE AGENT NOW.
NOTIFICATION OF THE DETAILED PROCEDURES FOR EFFECTING THE EXCHANGE IF THE
RESTATEMENT AND REVERSE STOCK SPLIT ARE APPROVED AND EFFECTED WILL BE PROVIDED
AT A LATER DATE.
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FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the
material anticipated federal income tax consequences of the Reverse Stock Split
to Shareholders of the Company. This summary is based upon federal income tax
laws now in effect and as currently interpreted. It does not take into account
possible changes in such laws or interpretations, including amendments to
applicable statutes, regulations and proposed regulations or changes in judicial
or administrative rulings, some of which may have retroactive effect. This
summary is provided for general information only and does not purport to address
all aspects of the possible federal income tax consequences of the Reverse Stock
Split. THE FOLLOWING DISCUSSION IS NOT INTENDED AS TAX ADVICE TO ANY PERSON.
ACCORDINGLY, EACH SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT TO
SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN INCOME TAX AND OTHER LAWS.
The Company believes that the Reverse Stock Split will be a tax-free
recapitalization to the Company and its Shareholders. If the Reverse Stock
Split qualifies as a recapitalization under Section 386(a)(1)(E) of the Code, a
Shareholder of the Company who exchanges his or her Old Common Stock solely for
New Common Stock should recognize no gain or loss for federal income tax
purposes. A Shareholder's aggregate tax basis in his or her shares of New
Common Stock received from the Company should be the same as his or her
aggregate tax basis in the Old Common Stock exchanged therefor. The holding
period of the New Common Stock received by such Shareholder should include the
period during which the Old Common Stock surrender in exchange therefor was
held, provided all such Old Common Stock was held as a capital asset on the date
of the exchange.
Shareholders who receive cash in lieu of fractional shares of New Common
Stock will be treated as having received a cash payment in exchange of their
fractional shares of New Common Stock. If the transaction qualifies as a "sale
or exchange" under the rules of Section 302 of the Code, such Shareholders will
recognize capital gain or loss in an amount equal to the difference between the
amount of cash received and the adjusted basis of the fractional shares of New
Common Stock that they otherwise would have received. The application of
Section 302 will be determined on a Shareholder-by-Shareholder basis. For any
Shareholder not qualifying for "sale or exchange" treatment under Section 302
with respect to the payment for fractional shares, the payment will be treated
for income tax purposes as a distribution by the Company to such persons with
respect to their shares.
MISCELLANEOUS. The Board of Directors may abandon the proposed Reverse
Stock Split at any time before or after the Meeting and prior to the filing of
the Restatement if for any reason the Board of Directors deems it advisable to
do so. In addition, the Board of Directors may make any and all changes to the
Restatement that it deems necessary to file the Restatement with the California
Secretary of State and give effect to the Reverse Stock Split.
TEXT OF THE RESTATEMENT
The text of the Restatement which would effect the Reverse Stock Split (in
addition to other changes described below) is attached hereto as Appendix B and
is incorporated herein by this reference. Shareholders are urged to read the
Restatement in its entirety.
VOTE REQUIRED FOR APPROVAL
Approval of the Reverse Stock Split requires the affirmative vote of a
majority of the outstanding shares of Common Stock.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE REVERSE
STOCK SPLIT.
PROPOSAL 4: APPROVAL OF THE TRANSFER RESTRICTION
The Board of Directors has approved, and recommends that the Shareholders
approve, a restriction which would prohibit the transfer of shares of Common
Stock and Preferred Stock currently outstanding or issued in the future by the
Company, to any person (other than persons to whom the Company is contractually
obligated on or before the date of issuance (the "Date of Issuance") of the
Preferred Stock in the Offerings (as defined herein) to transfer up to 4.9% of
the Company's Stock) if such person is or would become by reason of such
transfer the beneficial owner of more than 4.5% (or 4.9% as described above) of
the Company's stock as the term "stock" is defined, and such ownership is
determined, under Section 382 through the filing of the Restatement. The
Transfer Restriction would expire (i) on or after three years from the Date of
Issuance and (ii) upon the occurrence of any transaction in which holders of all
outstanding shares of capital stock receive, or are offered the opportunity to
receive, cash, stock or other property for all such shares and upon the
consummation of which the acquiror will own at least a majority of the
outstanding shares of capital stock. In addition, the Board of Directors of the
Company is expressly empowered to waive application of the Transfer Restriction
to any specific transaction provided that such waiver is by resolution of the
Board of Directors duly considered and approved by at least a majority of the
Board of Directors prior to any such transfer of stock.
REASONS FOR TRANSFER RESTRICTION. The Company currently has substantial
tax net operating loss carryforwards ("NOLs"). Section 382 restricts a
corporation's use of NOLs upon a change in ownership as defined in Section 382.
The Board of Directors wishes to avoid any limitation under Section 382 on the
use of these NOLs, and it believes it is in the best interests of the Company
and the Shareholders to impose a restriction on the transfer of shares of
capital stock of the Company to help avoid a change in ownership under Section
382. The Restatement shall prohibit, and the certificates evidencing any newly
issued shares of capital stock of the Company will contain a legend prohibiting,
transfer of any capital stock to any person if such person is or would become by
reason of such transfer the beneficial owner of more than 4.5% of the Company's
stock as the term "stock" is defined, and such ownership is determined, under
Section 382.
TEXT OF THE RESTATEMENT
The text of the Restatement, which includes the Transfer Restriction, is
attached hereto as Appendix B. Shareholders are urged to read the Restatement
in its entirety.
VOTE REQUIRED FOR APPROVAL
Approval of the Transfer Restriction requires the affirmative vote of a
majority of the outstanding shares of Common Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE TRANSFER
RESTRICTION.
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PROPOSAL 5: APPROVAL OF THE TERMS OF THE PREFERRED STOCK
The Board of Directors has approved, and recommends that the Shareholders
approve, the terms of Preferred Stock to be issued in connection with the
Offerings.
DESCRIPTION OF THE OFFERINGS. Pursuant to a Prospectus dated February 6,
1997 (the "Prospectus"), the Company is distributing to the Shareholders of
record at the close of business on February 20, 1997 (the "Rights Date"),
nontransferable rights (the "Rights") to subscribe for and purchase up to $5.5
million (_______ shares) of 6.5% noncumulative convertible preferred stock,
$10.00 stated value, at a price of $_____ per share (the "Subscription Price"),
subject to reduction by the Company under certain circumstances (the "Rights
Offering"). Shareholders will receive one Right for each share of Common Stock
held as of the Rights Record Date. Holders of Rights (the "Rights Holders") may
exercise their Rights until 5:00 p.m., Pacific time, on ___________, 1997,
unless extended by the Company (the "Expiration Time"). Each Right entitles the
Rights Holder to subscribe for 1.624 shares (the "Underlying Shares") of
Preferred Stock (the "Basic Subscription Privilege"). Each Rights Holder who
elects to exercise the Basic Subscription Privilege in full also will be
eligible to subscribe at the Subscription Price for 0.376 share of Preferred
Stock for each Right held, that are not otherwise subscribed for pursuant to the
exercise of the Basic Subscription Privilege and are not purchased by the
Private Purchasers (defined below) pursuant to the Private Offering (defined
below), subject to availability, proration and reduction by the Company under
certain circumstances.
Pursuant to a private offering exemption from the registration requirements
of the Securities Act of 1933, as amended, the Company entered into purchase
agreements (the "Private Purchase Agreements") with Conrad Company, a bank
holding company, and Wildwood Enterprises Inc. Profit Sharing Plan and Trust
(collectively, the "Private Purchasers"). The Private Purchasers have severally
agreed, subject to certain conditions, to purchase, in the aggregate, up to $5.5
million (______ shares) (the "Maximum Private Offering") of Preferred Stock
(i.e. $5.0 million for Conrad Company and $500,000 for Wildwood Enterprises Inc.
- -----
Profit Sharing Plan and Trust) at a purchase price equal to the lower of $1.10
per share (equal to $10.00 after giving effect to the Reverse Stock Split) or
the Subscription Price (the "Private Purchasers Price"), subject to reduction
under certain circumstances. If a sufficient number of shares of Preferred
Stock is not available after the exercise of the Basic Subscription Privilege,
the Private Purchasers have severally agreed to purchase and the Company has
guaranteed the availability of an aggregate minimum of $2.5 million (______
shares) of Preferred Stock to the Private Purchasers (i.e. $2.25 million to the
----
Conrad Company and $250,000 to Wildwood Enterprises Inc. Profit Sharing Plan and
Trust) at the Private Purchasers Price (the "Private Purchasers Minimum
Obligation"). The offer and sale of shares pursuant to the Private Purchase
Agreements is hereinafter referred to as the "Private Offering."
The Company has entered into purchase agreements (the "Standby Purchase
Agreements") pursuant to which certain institutional investors (the "Standby
Purchasers") have severally agreed, subject to certain conditions, to purchase
$2.5 million (_______ shares) of Preferred Stock at the Subscription Price, to
the extent available after the exercise of the Basic Subscription Privilege, the
Private Offering and the exercise of the Oversubscription Privilege (the
"Standby Purchase Offering"). The Standby Purchasers have agreed to purchase
and the Company has guaranteed the availability of an aggregate minimum of $1.0
million (______ shares) of Preferred Stock at the Subscription Price if a
sufficient number of shares of Preferred Stock is not available after the
exercise of the Basic Subscription Privilege, the Private Offering and the
exercise of the Oversubscription Privilege (the "Minimum Standby Obligation").
The Rights Offering and the Standby Purchase Offering may sometimes be referred
to
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collectively as the "Public Offering." The Public Offering and the Private
Offering may sometimes be referred to collectively as the "Offerings." The
minimum amount to be raised in the Offerings will be $8.0 million (assuming no
rights are exercised in the Rights Offering), consisting of $5.5 million (______
shares) of Preferred Stock purchased by the Private Purchasers and $2.5 million
(______ shares) of Preferred Stock purchased by the Standby Purchasers. The
maximum amount to be raised in the Offerings will be $9.0 million, consisting of
$5.5 million pursuant to the Rights Offering, $2.5 million (______ shares) of
Preferred Stock purchased by the Private Purchasers and $1.0 million (______
shares) of Preferred Stock purchased by the Standby Purchasers.
The Restatement sets forth the terms and conditions of the Preferred Stock
which will enable the Company to consummate the Offerings and raise required
capital. For a detailed description of the Offerings, see the Prospectus.
PRINCIPAL TERMS OF THE PREFERRED STOCK
The following summary description of the terms of the Preferred Stock does
not purport to be complete and is qualified in its entirety by reference to the
Restatement, a copy of which is filed as Appendix B hereto. Shareholders are
urged to read the Restatement in its entirety.
General. The Preferred Stock, upon issuance in the Offerings against full
payment of the purchase price therefor, will be fully paid and nonassessable,
and will have the terms as described below. The rights of holders of shares of
Preferred Stock will be subordinate to the rights of general creditors and there
is no sinking fund with respect to the Preferred Stock nor any other obligation
of the Company to redeem or retire the Preferred Stock. Unless redeemed by the
Company or converted, the Preferred Stock will be perpetual. The Private
Purchasers and Standby Purchasers have certain additional rights with respect to
their shares of Preferred Stock.
Dividends. The terms of the Preferred Stock provide that dividends may be
paid commencing two years after the Date of Issuance. Holders of shares of
Preferred Stock will be entitled to receive, if, when and as declared by the
Board of Directors of the Company out of assets of the Company legally available
for payment, non-cumulative cash dividends, payable quarterly on the ___ day of
January, April, July, and October in each year, with respect to the three months
then ending, at the rate of 6.5% per share per annum, before any distribution by
way of dividend or otherwise shall be declared or paid upon, or set apart, for
the shares of Common Stock or any other class of shares of the Company ranking
junior to the Preferred Stock with respect to the payment of dividends or upon
liquidation, dissolution or winding up of the Company ("Junior Stock"). Each
such dividend will be payable to holders of record as they appear on the books
of the Company on or about the fifteenth day of the month preceding the payment
dates thereof, as shall be fixed by the Board of Directors of the Company. The
amount of dividends payable for each quarterly dividend period shall be computed
by dividing by four the dividend due on the basis of the 6.5% annual rate.
Dividends payable on the Preferred Stock for any period shorter than a full
three months shall be computed on the basis of 30-day months and a 360-day year.
Notwithstanding the foregoing, the Company may not pay dividends unless the Bank
is in full compliance with federal regulatory capital requirements, the Company
and the Bank are permitted to pay dividends by their regulators and the Company
meets the Retained Earnings Test. The ability of the Company to pay dividends
on the Preferred Stock will depend on the Company's ability to obtain funds for
such purpose from the Bank. The Company has no funds otherwise available for
the payment of dividends. Both the Bank's ability to pay dividends to the
Company and the Company's ability to pay dividends on
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the Preferred Stock are subject to significant regulatory restrictions.
Dividends on the Preferred Stock will not accumulate.
No dividend (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, such class
or series of stock ranking on parity with the Preferred Stock as to dividends)
may be paid upon, or declared or set apart for, any class or series of stock
ranking on a parity with the Preferred Stock as to dividends, for any dividend
period, prior to two years after the Date of Issuance, and thereafter, unless
there shall be or have been declared on the Preferred Stock dividends for the
then current quarterly period coinciding with or ending before such quarterly
period, ratably in proportion to the respective annual dividend rates fixed
therefor. Except with respect to the foregoing, for a period of two years after
the Date of Issuance and thereafter, whenever full quarterly dividends are in
arrears for the Preferred Stock for a current dividend period, the Company may
not declare or pay or set aside for payment dividends or make any other
distributions (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of Junior Stock
or Parity Stock (as defined below)) (i) on any Junior Stock or (ii) on any
shares of stock ranking on a parity (whether as to dividends or upon
liquidation, dissolution or winding up) with the Preferred Stock ("Parity
Stock"). In addition, the Company may not redeem or purchase or otherwise
acquire for consideration shares of any Junior Stock or Parity Stock unless in
exchange for shares of Junior Stock or Parity Stock. Dividends on the Preferred
Stock are not cumulative.
Voting. The Preferred Stock will vote together with the Common Stock on
all matters submitted to a vote of the holders of the Common Stock, with voting
power equal to the number of shares of Common Stock into which the Preferred
Stock is then convertible. In addition, the Preferred Stock will have the right
to vote as a separate class with respect to (a) the authorization of any
additional shares of Preferred Stock or the authorization or issuance of any
class or series of the Company's capital stock which would rank senior to or on
a parity with the Preferred Stock as to distribution of (i) assets upon the
liquidation or dissolution, voluntary or involuntary, of the Company or (ii)
dividends, (b) any other action to amend, alter or repeal any provisions of the
Restatement so as to adversely affect the rights, preferences and privileges of
the Preferred Stock or the holders thereof or waive any of the rights granted to
the holders of the Preferred Stock, (c) amend, alter or repeal any of the
provisions of the restatement, or the bylaws of the Company with respect to the
election of directors by cumulative voting or (d) the issuance of any authorized
shares of the Preferred Stock except in connection with the Offerings or
pursuant to the Warrant. Except as required by law, the Preferred Stock, will
not have special voting rights in the event of a default on the payment of
dividends.
Conversion. Each share of the Preferred Stock will be immediately
convertible at the option of the holder thereof at the initial rate of one share
of Common Stock for each share of Preferred Stock based on an initial conversion
price of $10.00 per share which shall be subject to adjustment for any stock
dividend or stock split or other recapitalization involving the Common Stock or
the consolidation or merger of the Company or the sale of all or substantially
all of the Company's assets. No adjustment or allowance will be made for
dividends on shares of Preferred Stock surrendered for conversion whether
declared or otherwise. To exercise the conversion privilege with respect to any
shares of Preferred Stock, the holder thereof shall surrender the certificate or
certificates therefor to the transfer agent of the Company for the Preferred
Stock, duly endorsed to the Company in blank for transfer, accompanied by
written notice of election to convert such shares of Preferred Stock or a
portion thereof executed on the form set forth on such certificates or on such
other form as may be provided from time to time by the Company. As soon as
practicable after the surrender of such certificates, the Company shall cause to
be issued and delivered to or on the order of the holder of the certificates
thus surrendered, a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such shares. No fractional shares
of Common Stock shall be issued upon conversion, but, instead of any fraction of
a share which would otherwise be issuable, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the market price (as defined in the Restatement) per
20
<PAGE>
share of Common Stock as of the close of business on the day of conversion. Such
conversion shall be deemed to have been effected on the date on which the
certificates for such shares of Preferred Stock have been surrendered as
provided above, and the person in whose name any certificate or certificates for
shares of Common Stock are issuable upon such conversion shall be deemed to have
become on such date the holder of record of the shares represented thereby.
In the event the Company shall (i) declare a dividend upon the Common Stock
payable in Common Stock (other than a dividend declared to effect a subdivision
of the outstanding shares of Common Stock) or Convertible Securities, or in any
rights or options to purchase Common Stock or Convertible Securities, or (ii)
declare any other dividend or make any other distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus, then thereafter each
holder of shares of Preferred Stock upon the conversion thereof will be entitled
to receive the number of shares of Common Stock into which such shares of
Preferred Stock have been converted, and, in addition and without payment
therefor, each dividend described in clause (i) above and each dividend or
distribution described in clause (ii) above which such holder would have
received by way of dividends or distributions if continuously since such holder
became the record holder of such shares of Preferred Stock such holder (i) had
been the record holder of the number of shares of Common Stock then received,
and (ii) had retained all dividends or distributions in stock or securities
(including Common Stock or Convertible Securities, and any rights or options to
purchase any Common Stock or Convertible Securities) payable in respect of such
Common Stock or in respect to any stock or securities paid as dividends or
distributions and originating directly or indirectly from such Common Stock.
For the purposes of the foregoing, a dividend or distribution other than in cash
shall be considered payable out of earnings or earned surplus that such earnings
or earned surplus only to the extent are charged an amount equal to the fair
value of such dividend or distribution as determined by the Board of Directors
of the Company.
Liquidation Rights. The Preferred Stock will be entitled to, prior to any
distribution to holders of the Company's other capital stock, $10.00 per share
upon any liquidation, dissolution or winding up of the Company, plus an amount
equal to any declared but unpaid dividends (the "Liquidation Amount"). In the
event of either an involuntary or a voluntary liquidation or dissolution of the
Company payment shall be made to the holders of shares of Preferred Stock in an
amount equal to the Liquidation Amount before any payment shall be made or any
assets distributed to the holders of the Common Stock or any other class or
series of capital stock of the Company ranking junior to the Preferred Stock
with respect to payment upon dissolution or liquidation of the Company. If upon
any liquidation or dissolution of the Company the assets available for
distribution shall be insufficient to pay the holders of all outstanding shares
of Preferred Stock and any other class or series of capital stock ranking on a
parity with the Preferred Stock as to payments upon dissolution or liquidation
of the Company the full amounts to which they respectively shall be entitled,
then such assets or the proceeds thereof shall be distributed amount such
holders ratably in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full. After the
payment of such amounts, the Preferred Stock will not be entitled to any further
payment. The liquidation rights of the Preferred Stock will be subordinate to
all indebtedness of the Company.
At any time, in the event of the merger or consolidation of the Company
into or with another company or the merger or consolidation of any company into
or with the Company or plan of exchange between the Company and any other
company (in which consolidation or merger or plan of exchange any shareholders
of the Company receive distributions of cash or securities or other property) or
the sale, transfer or other disposition of all or substantially all of the
assets of the Company, then, such transaction
21
<PAGE>
shall be deemed, solely for purposes of determining the amounts to be received
by the holders of the Preferred Stock in such merger, consolidation, plan of
exchange, sale, transfer or other disposition, and for purposes of determining
the priority of receipt of such amounts as between the holders of the Preferred
Stock and the holders of other class or series of capital, stock, to be a
liquidation or dissolution of the Company.
Redemption. The Preferred Stock will be redeemable by the Company, in
whole or in part, at the option of the Company at any time after three years
from the Date of Issuance (the "Beginning Redemption Date"), at a redemption
price per share in cash equal to 105% of the original purchase price of
$________ per share, plus declared but unpaid dividends. The applicable
percentage of the original purchase price will decline by one percentage point
every anniversary of the Date of Issuance thereafter until five years after the
Beginning Redemption Date, and thereafter the Preferred Stock may be redeemed at
100% of the original purchase price per share, plus declared but unpaid
dividends. If less than all of the outstanding shares of Preferred Stock are
redeemed, the Company will select the shares to be redeemed by lot, pro rata (as
nearly may be determined), or in such other equitable manner as the Board of
Directors of the Company may determine.
In no event shall the Company redeem less than all the outstanding shares
of the Preferred Stock, unless dividends for the then-current dividend period
(without accumulation of any accrued and unpaid dividends for prior dividend
periods unless previously declared and without interest) to the date fixed for
redemption shall have been declared and paid or set apart for payment on all
outstanding shares of Preferred Stock; provided, however, that the foregoing
shall not prevent, if otherwise permitted, the purchase or acquisition by the
Company of shares of Preferred Stock pursuant to a tender or exchange offer made
on the same terms to holders of all the outstanding shares of Preferred Stock
and mailed to the holders of record of all such outstanding shares at such
holders' addresses as the same appear on the books of the Company; and provided
further that if some, but less than all, of the shares of Preferred Stock are to
be purchased or otherwise acquired pursuant to such a tender or exchange offer
and the number of such shares so tendered exceeds the number of shares so to be
purchased or otherwise acquired by the Company, the shares of Preferred Stock so
tendered shall be purchased or otherwise acquired by the Company on a pro rata
basis (with adjustments to eliminate fractions) according to the number of such
shares duly tendered by each holder so tendering shares of Preferred Stock for
such purchase or exchange. If less than all of the outstanding shares of
Preferred Stock are to be redeemed, the Company will select the shares to be
redeemed by lot, pro rata (as nearly may be determined), or in such other
equitable manner as the Board of Directors of the Company may determine.
Notice of such redemption shall be given by first-class mail, postage paid,
mailed not less than 15 nor more than 60 days prior to the Redemption Date, to
each record holder of the shares to be redeemed, at such holder's address as the
same appears on the books of the Company. Each such notice shall state: (i) the
date as of which the redemption shall occur; (ii) the total number of shares of
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the Redemption Price; (iv) that the shares of Preferred Stock
called for redemption may be converted at any time prior to the date fixed for
redemption; (v) the applicable conversion price or rate; (vi) the place or
places where certificates for such shares are to be surrendered for payment of
the Redemption Price; and (vii) that dividends on the shares to be redeemed will
cease to accrue on such Redemption Date.
There is no sinking fund requirement for redemption of the Preferred Stock.
22
<PAGE>
Preemptive Rights. Rights Holders and the Standby Purchasers who receive
shares of Preferred Stock in the Public Offering shall not have any preemptive
right to acquire any unissued shares of any stock of the Company, now or
hereafter authorized, or any other securities of the Company, whether or not
convertible into shares of stock of the Company or carrying a right to subscribe
to or acquire any such shares of stock. Pursuant to the terms of the Private
Offering, Conrad Company, a Private Purchaser, shall have a right of first
refusal, under certain circumstances, to acquire additional shares of capital
stock of the Company upon the same terms and conditions pursuant to which the
Company may propose to offer shares of its capital stock for sale in the future.
Transfer Restriction. The Preferred Stock will contain restrictions on
transfer. See Proposal 4 discussed above.
VOTE REQUIRED FOR APPROVAL
Approval of the terms of the Preferred Stock contained in the Restatement
requires the affirmative vote of a majority of the outstanding shares of Common
Stock.
REASONS FOR SEEKING SHAREHOLDER APPROVAL
Approval of the terms of the Preferred Stock is not required under
California law. The Company is seeking Shareholder approval of the terms of the
Preferred Stock because it is contractually required under the terms of the
Private Purchase Agreements. The Board of Directors intends to abide by the
vote of the Shareholders, irrespective of the outcome.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE TERMS OF
THE PREFERRED STOCK.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company and the Bank (who are not nominees for the Board of
Directors described above):
<TABLE>
<CAPTION>
Name Age Position with the Company and the Bank
- ---- --- --------------------------------------
<S> <C> <C>
A. Thomas Hickey 55 Director and Secretary
Howard P. Ladd 75 Chairman; President and Chief Executive Officer of the
Company
Carol A. Ward 42 Executive Vice President and Administrator of
Operations of the Bank
</TABLE>
A. THOMAS HICKEY has been President and Chief Executive Officer of Tea
Garden Products, Inc., a manufacturer and distributor of consumer products, from
1992 to 1995 and from June 1996 to the present. From November 1995 until June
1996 Mr. Hickey was an Investor. Mr. Hickey was also Vice Chairman of
Continental Airlines from 1990 to 1992. Mr. Hickey has been a director of the
Company and the Bank since 1991.
HOWARD P. LADD serves as Chairman of the Board of Directors of the Company
and the Bank. He has been a director of the Company since 1983 and of the Bank
since 1982. He has also served
23
<PAGE>
as President and Chief Executive Officer of the Company since August 1995. Mr.
Ladd was Chairman of the Board of Concord Technology Development ("Concord
Technology"), an information systems company, from 1991 to 1995. Prior to
forming Concord Technology (formerly Concord Media Systems) in 1991, Mr. Ladd
was Chairman of Ladd Electronics since 1989.
CAROL WARD has served as Executive Vice President and Administrator of
Operations of the Bank since July 1996. Prior thereto, from January 1996 to
July 1996, she served as a consultant to financial institutions. From November
1993 to January 1996, Ms. Ward served as Vice President and General Auditor, and
as Executive Vice President and Chief Operating Officer of Ventura County
National Bancorp in Oxnard, California. From March 1990 to November 1993 she
was Vice President and Director of Risk Management and Senior Vice President and
General Auditor at Community Bank in Pasadena, California.
There are no family relationships among directors or executive officers of
the Company and, except as described in the Proxy Statement as of the date
hereof, no directorships are held by any director in a company which has a class
of securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940. None of the directors,
nominees for director or executive officers were selected pursuant to any
arrangement or understanding, other than with the directors and executive
officers of the Company acting within their capacity as such.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee and a Nominating and
Compensation Committee. The Audit Committee is chaired by Mr. Thomson and its
members are Messrs. Thomson, Grahm and Hickey. The primary purposes of the
Audit Committee are to (i) make recommendations to the Board regarding the
selection of the Company's independent auditors, (ii) to monitor the
effectiveness of the audit effort and financial reporting and (iii) to inquire
into the adequacy of financial and operating controls and regulatory compliance
of the Company. The Audit Committee met three times during 1995 and did not
meet during 1996. Actions relating to the audit effort, financial reporting and
adequacy of financial and operating controls and regulatory compliance during
1996 were taken by the Board of Directors.
The Nominating and Compensation Committee is chaired by Mr. Grahm and its
members are Messrs. Grahm, Hickey, Montgomery and Thomson. The purpose of the
Nominating and Compensation Committee is to (i) propose nominees for director to
the Board of Directors, (ii) to oversee and direct the overall compensation
policy for the Company and the Bank and (iii) to review and recommend to the
Board of Directors the salaries, bonuses and perquisites of the Company's
executive officers. The Nominating and Compensation Committee met three times
during 1995 and did not meet during 1996. Actions relating to executive
compensation taken during 1996 were approved by the Board of Directors.
24
<PAGE>
The Nominating and Compensation Committee will consider nominees for the
Company's Board of Directors recommended by any Shareholder of the Company.
Such recommendations must be submitted in writing to the President of the
Company and contain the following information to the extent known to the
Shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the number of shares of
Common Stock of the Company owned by each proposed nominee; (d) the name and
residence address of the notifying Shareholder; and (e) the number of shares of
Common Stock of the Company owned by the notifying Shareholder.
COMPENSATION OF DIRECTORS
Since October 1, 1995 through the present, the directors of the Company
receive no compensation for their services as directors or members of any
committee on which they serve.
From January through April 1995, directors of the Company received a
monthly fee in the amount of $1,250 for the Chairman of the Board and $1,000 for
other directors. No compensation was paid to directors for Company committee
meetings attended. The Chairman of the Board of the Bank also received $600 as
compensation for his services in that capacity and other nonemployee directors
were paid $450 for each meeting of the Bank's Board of Director attended. For
each committee meeting attended, the Bank's Chairman received $350 and other
directors were paid $250.
On May 1, 1995, the monthly retainer paid to directors of the Company was
reduced to $750 for all directors. From May 1, 1995 to October 1, 1995, for
each meeting of the Bank's Board of Directors attended, the Chairman received
$600 and other nonemployee directors were paid $400. Fees for committee
meetings were reduced to $250 for the Chairman and $200 for other directors.
Fees for attendance of special or ad hoc committee meetings of the Board of
Directors were reduced to $200 for each director.
MEETINGS OF DIRECTORS
The Board of Directors met 21 times during 1995 and 17 times during 1996.
All of the persons who were directors of the Company during each of 1995 and
1996 attended at least 75% of (i) the total number of meetings of the Board of
Directors and (ii) the total number of meetings held by all committees on which
they served during each of 1995 and 1996.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid to or earned by each person who acted in the capacity of an
executive officer of the Company and certain executive officers of the Bank for
services rendered in all capacities during each of the last four fiscal years.
The Company has included information relating to 1996 due to the time that has
elapsed before holding the Meeting and providing this Proxy Statement to the
Shareholders.
25
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------- ----------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary ($) Bonus($) Compensation ($) Options/SARs(#) Compensation ($)
- --------------------------- ---- ---------- -------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Howard P. Ladd 1996
President and Chief 1995 --(1) -- -- -- --
Executive
Officer of the Company 1994 -- -- -- -- --
1993 -- -- -- -- --
Scott A. Montgomery 1996 193,333(2) -- 200,000(5) 2,444(6)
Executive Vice President 1995 31,667(3) 31,667(4) -- -- 2,393(6)
and Chief Administrative 1994 -- -- -- -- --
Officer of the Company 1993 -- -- -- -- --
and President and
Chief Executive
Officer of the Bank
James F. Gardunio 1996 90,176(7) -- -- 3,900(8)
Executive Vice President 1995 158,221 -- -- -- 16,440(9)
and Chief Credit Officer 1994 82,500(10) -- -- 25,000(11) 3,000(12)
of the Bank 1993 -- -- -- -- --
Robert E. Thomson 1996 -- -- -- -- --
Interim President and 1995 --(13) -- -- -- --
Chief Executive Officer 1994 -- -- -- -- --
of the Bank 1993 -- -- -- -- --
Donald D. Thornburg 1996 -- -- -- --
President and Chief 1995 220,890(14) -- 13,120(15) -- 88,376(16)
Executive Officer of the 1994 297,500 -- -- -- 20,780
Company and the Bank 1993 300,000 -- -- -- 18,469
Paddy C. Steffey 1996 -- -- -- --
Senior Vice President and 1995 78,217(17) -- -- -- 25,174(19)
Director of Operations of 1994 -- -- -- --
the Bank 1993 --(18) -- -- --
</TABLE>
___________________
(1) Mr. Ladd has served as President and Chief Executive Officer of the Company
since August 28, 1995. Mr. Ladd receives no compensation for his services
as such.
(2) Mr. Montgomery's annual salary increased to $210,000 effective November 1,
1996. See "Employment Agreements."
(3) Mr. Montgomery commenced employment with the Bank on November 1, 1995 at an
annual salary of $190,000. The salary shown was paid to him between
November 1 and December 31, 1995. Mr. Montgomery was appointed Executive
Vice President and Chief Administrative Officer of the Company on July 11,
1996.
(4) Consists of a bonus paid to Mr. Montgomery upon commencement of his
employment with the Bank.
(5) Does not include a non-qualified stock option and tandem stock appreciation
right ("SAR") with respect to 75,000 shares of Common Stock that have been
approved by the Board of Directors for grant to Mr. Montgomery upon
shareholder approval of the 1996 Plan.
(6) Consists of health club membership dues and the value of use of a Company
automobile.
(7) Mr. Gardunio's employment with the Bank terminated on July 26, 1996.
(8) Consists of a car allowance.
26
<PAGE>
(9) Consists of a $7,200 automobile allowance and a $9,240 for Company 401(k)
matching contribution.
(10) Mr. Gardunio commenced employment with the Company and the Bank on August
26, 1994 at an annual salary of $150,000. The salary shown was paid to him
between August 26 and December 31, 1994.
(11) Consists of options to purchase 25,000 shares of the Company's Common Stock
granted to Mr. Gardunio pursuant to the Company's 1994 Stock Option Plan,
which expired August 26, 1996.
(12) Consists of automobile allowance.
(13) Mr. Thomson served as Interim President and Chief Executive Officer of the
Bank from August 3, 1995 to October 31, 1995. During that time frame, he
was paid $45,500. Mr. Thomson was also engaged by the Company and the Bank
as a consultant from April through July 1995 at a consulting fee of $12,500
per month. See "Certain Relationships and Related Transactions."
(14) Mr. Thornburg's employment with the Company and the Bank terminated on
August 31, 1995. The salary shown was paid to him between January 1 and
August 31, 1995.
(15) Consists of cash compensation earned by Mr. Thornburg but deferred at his
election pursuant to his employment agreement with the Company. See
"Employment Agreements."
(16) Includes (i) a $67,500 severance payment made to Mr. Thornburg upon the
termination of his employment with the Company and the Bank, (ii) a $6,000
automobile allowance, (iii) $5,636 club membership dues and personal
benefit in club membership allocated to Mr. Thornburg, and (iv) a $9,240
Company 401(k) matching contribution.
(17) Ms. Steffey's employment with the Bank terminated on August 31, 1995. The
salary shown was paid to her between January 1 and August 31, 1995.
(18) Ms. Steffey's employment with the Bank commenced in July 1993. In each of
1993 and 1994, respectively, Ms. Steffey was entitled to or was paid less
than $100,000 in annual salary.
(19) Consists of a severance payment made to Ms. Steffey upon the termination of
her employment with the Bank.
(20) Mr. Kiley commenced employment with the Company and the Bank in August 1996
at an annual salary of $120,000.
EMPLOYMENT AGREEMENTS
Mr. Thornburg, whose employment with the Company terminated on August 31,
1995, and Mr. Montgomery, whose employment with the Company commenced on
November 1, 1995, were employed by the Company pursuant to employment
agreements.
Effective December 1, 1991, the Company entered into a three-year
employment agreement with Mr. Thornburg pursuant to which he was entitled to (i)
receive an annual base salary of $300,000, (ii) deferred compensation of $20,000
per year accruing as of the end of each full year of employment, (iii) receive a
monthly automobile allowance and payment of club membership dues, (iv)
participate in any pension or other retirement plans sponsored by the Company
for its executive officers, (v) receive an option to purchase up to 200,000
shares of the Company's Common Stock, vesting at the rate of 20% per year
beginning on the first anniversary of his date of hire, and (vi) severance pay.
Effective December 1, 1994, Mr. Thornburg's employment was extended for an
additional nine months to August 31, 1995 pursuant to an agreement (i) reducing
his annual base salary to $285,000, (ii) changing the vesting date of his
deferred compensation from the fourth to the third anniversary of his date of
hire, (iii) and extending the period for exercise of his stock options. Mr.
Thornburg was entitled to a severance payment upon the expiration of the term of
the extended agreement equal to three months base salary.
Effective June 21, 1996, the Company and Mr. Montgomery entered into an
employment agreement which provides for: (i) a term of employment commencing on
November 1, 1995 and expiring on December 31, 1999; (ii) an annual base salary
of $190,000 for the first year, $210,000 for the second year, $230,000 for the
third year and $250,000 for the fourth year of the term; (iii) an incentive
bonus in an amount equal to five percent (5%) of the Bank's pretax net profit in
any calendar year of the term in which the Bank achieves a pretax net profit and
an additional incentive bonus in an amount equal to two percent (2%) of the
Bank's pretax net profit in any calendar year of the term in which the Bank
achieves
27
<PAGE>
both a pretax net profit and a return ratio of at least one and one-half percent
(1.5%) of pretax net profit to assets, both bonuses subject to a cap on total
cash compensation during any calendar year of $350,000; (iv) the grant of
options to purchase up to 200,000 shares of the Company's Common Stock and
tandem stock appreciation rights with respect to 75,000 of such shares; (v) use
of a Company automobile, payment of club membership dues, and other perquisites;
(vi) severance pay; and (vii) a signing bonus equal to two months' salary.
STOCK OPTION GRANTS
The following table presents certain information regarding the grant of
stock options to executive officers during 1995 and 1996.
OPTION/SAR GRANTS IN FISCAL YEARS 1995 AND 1996
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(1)
--------------------------------------------------------- ------------------------------
Percent of
Number of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Year Granted (#) FY ($/Sh) Date 5% ($) 10% ($)
- ------------------- ---- --------------- ---------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Paddy C. Steffey 1996 - - - - - -
1995 10,000 (2) 12.5% 3.125 03/09/2005 15,282 36,767
Scott A. Montgomery 1996 200,000 (3) 73.2% 1.25 12/19/2006 94,792 296,984
1995 - - - - - -
</TABLE>
__________
(1) The Potential Realizable Value is the product of (a) the difference
between (i) the product of the closing sale price per share at the date
of grant and the sum of (A) 1 plus (B) the assumed rate of appreciation
of the Common Stock compounded annually over the term of the option and
(ii) the per share exercise price of the option and (b) the number of
shares of Common Stock underlying the option at December 31, 1995. These
amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on a variety of
factors, including market conditions and the price performance of the
Common Stock. There can be no assurance that the rate of appreciation
presented in this table can be achieved.
(2) Consists of shares which Ms. Steffey had the right to purchase upon the
exercise of stock options granted pursuant to the Company's 1994 Stock
Option Plan, which options expired unexercised in September 1995.
(3) Does not include a non-qualified stock option and tandem stock
appreciation right ("SAR") with respect to 75,000 shares of Common Stock
that have been approved by the Board of Directors for grant to Mr.
Montgomery upon shareholder approval of the 1996 Plan.
28
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information regarding the
exercise of options by executive officers during the fiscal years ended
December 31, 1995 and December 31, 1996 and unexercised options held by the
executive officers as of December 31, 1995 and December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEARS 1995 AND 1996
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/SARs at
Fiscal Year End (#)(2) Fiscal Year End ($)(3)
--------------------------------- ------------------------------
Shares Value
Acquired on Realized
Name Year Exercise(1) (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------- ------ ----------------- -------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald D.
Thornburg 1996 -- -- -- -- -- --
1995 -- -- 160,000(4) 40,000
James F.
Gardunio 1996 -- -- -- -- -- --
1995 -- -- 6,250(5) 18,750
Scott A.
Montgomery 1996 -- -- 0 200,000(6)
1995 -- -- -- -- -- --
</TABLE>
______________________
(1) No options were exercised by any executive officers during 1995 or 1996.
(2) The Company has no incentive plan pursuant to which SARs may be granted. If
the 1996 Plan is approved by Shareholders at the Meeting, SARs may be
granted to participants under the 1996 Plan in the future.
(3) In accordance with the rules of the Securities and Exchange Commission, the
value of unexercised "in-the-money" options is the difference between the
closing sale price of the Common Stock on December 31, 1995 ($1.50 per
share) and December 31, 1996 ($1.0625 per share) and the exercise price of
the option, multiplied by the number of shares subject to the option.
(4) Consists of shares Mr. Thornburg had the right to purchase upon the
exercise of stock options granted pursuant to the 1990 Plan at an exercise
price of $3.75 per share. These stock options expired February 29, 1996.
(5) Consists of shares Mr. Gardunio had the right to purchase upon the exercise
of stock options granted pursuant to the 1994 Plan at an exercise price of
$1.875 per share. These stock options expired August 26, 1996.
(6) Does not include a non-qualified stock option and tandem stock appreciation
right ("SAR") with respect to 75,000 shares of Common Stock that have been
approved by the Board of Directors for grant to Mr. Montgomery upon
shareholder approval of the 1996 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995 Messrs. Peevey, Grahm, Hickey, Montgomery, Winner, Thomson
and Thornburg served as members of the Nominating and Compensation
Committee (the "Committee"). Except for Mr. Thornburg, who served as
President and Chief Executive Officer of the Company and the Bank until
August 31, 1995, Mr. Thomson, who served as Interim President and Chief
Executive Officer of the Company and the Bank from August 3, 1995 to
October 31, 1995, and Mr. Montgomery, who has served as President and Chief
Executive Officer of the Bank since November 1, 1995, all members of the
Committee during fiscal 1995 were outside directors. Messrs. Thornburg,
Thomson and Montgomery were excluded from participation in any action taken
by the Committee or the full Board of Directors in any matter relating to
their own compensation. During 1996, Messrs. Grahm, Hickey, Montgomery and
Thomson served as members of the Committee. Except for Mr. Montgomery, all
members were outside
29
<PAGE>
directors. Mr. Montgomery is excluded from participation in any action taken by
the Committee with respect to his compensation.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report of the Committee shall not be deemed incorporated by reference
by any general statement incorporating this proxy statement into any filing
under the Securities Act of 1933, as amended or the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference.
This report addresses the Company's compensation policies for 1995 and 1996
applicable to the Company's and the Bank's executive officers.
COMPENSATION POLICY. The Committee held three meetings in 1995 and no
meetings in 1996. Actions in 1996 relating to executive compensation were taken
by the Board of Directors. The Board of Directors (the "Board") or the
Committee, subject to approval by the Board, is responsible for evaluating and
establishing the level of executive compensation. The executive compensation
program is administered by the Committee or the Board. The main objective of
the compensation program is to offer competitive levels of compensation in order
to attract and retain qualified executives, to motivate performance and to
achieve the long-term success of the Company to protect and enhance shareholder
value.
The Company's executive compensation program is not directly performance
related. The executive compensation program consists of base salary, stock
options and bonuses. The Committee or the Board may authorize the payment of
discretionary bonuses to executives and other key personnel for outstanding
contributions to the Company's and the Bank's growth and profitability or to
attract or retain qualified executives.
BASE SALARY. The Company's remuneration philosophy is to provide executive
compensation levels that are competitive with those paid by other banks and
financial institutions of similar size and performance and located in the same
general geographic area, to attract and retain qualified executives critical to
achieving the Company's short-term goals and long-term success. Peer group
compensation data is obtained from various sources, including compensation
surveys, industry studies and proxy statements of other publicly held financial
institutions. Salary ranges are reviewed and established annually to ensure
that base salary ranges reflect competitive job market conditions.
The Company's general approach is to pay competitive cash compensation
based upon the executive's experience and past and potential future
contributions to the Company and the Bank. Annual increases to the executive
officers' base salary are based on responsibilities, performance and achievement
of pre-established goals.
STOCK OPTIONS. The Committee and the Board believe that stock ownership by
executives and other key employees provides valuable performance incentive and
the Company has granted stock options under various stock option plans since
1983 to secure for the Company and its shareholders the benefits arising from
stock ownership by selected executives and other key employees of the Company or
the Bank, including retaining and attracting qualified executives and key
employees and helping to insure equity between recently hired executives and
longer tenured employees. The Board and the Committee view stock options as a
strong incentive and an important component for management to increase
30
<PAGE>
shareholder value. Stock options are granted at fair market value of the
Company's Common Stock at the date of grant and have historically been granted
as non-qualified stock options. The number of options granted is based on past
performance and subjective evaluation of the employee's ability to influence the
Company's and the Bank's long-term growth.
CEO COMPENSATION. Mr. Thornburg's employment as President and CEO of the
Company and the Bank terminated on August 31, 1995. No adjustment was made to
his compensation in 1992 or 1993 or during the eleven months ended November 30,
1994. As of December 1, 1994, Mr. Thornburg's salary was adjusted downward
based upon the overall performance of the Company. At the same time, the
initial vesting date of his deferred compensation was amended to be the third
anniversary of Mr. Thornburg's employment. See "Employment Agreements."
Mr. Montgomery commenced employment as President and CEO of the Bank on
November 1, 1995. In determining Mr. Montgomery's base salary, the Board
considered numerous factors. Mr. Montgomery's base salary of $190,000 for the
first year was determined pursuant to the "CEO Term Sheet" and subsequent
Employment Agreement negotiated by the Bank and approved by the Board in an
effort to bring to the Bank a CEO with considerable experience and expertise who
could provide leadership for the future. The Board also considered salaries
paid to other Bank CEOs of similar size and determined that Mr. Montgomery's
base salary was at or near mid-point of salaries paid to peer group CEOs. The
Board sought to attract a CEO capable of guiding the Company through its
restructuring efforts and beyond and to provide dynamic and long-term leadership
to strengthen its relationship with shareholders and employees and to improve
product lines and quality of service. Given the complex and ongoing nature of
the recapitalization efforts of the Company and to provide further incentive for
increasing shareholder value, the Stock Option Committee, with the approval of
the Board, granted Mr. Montgomery non-qualified stock options to purchase
200,000 shares of the Company's Common Stock at an exercise price of $1.25 per
share. The Board later canceled such options and reissued them with the same
exercise price but a different vesting schedule that began six months later than
previously granted. In addition, Mr. Montgomery also will be entitled to an
option to purchase additional shares and non-qualified stock options and tandem
stock appreciation rights with respect to 75,000 shares of the Company's Common
Stock. The incentive bonus component of Mr. Montgomery's compensation is
dependent primarily upon the Bank's pre-tax net profit and provides no dollar
guarantees. No bonus was earned in 1995 or 1996. See "Employment Agreements."
The Board of Directors evaluated Mr. Montgomery's performance and the
actions taken under his leadership during November and December of 1995 and
during 1996 against goals set by the Board and determined that he performed his
role in an outstanding manner.
Dated: February 6, 1997 NOMINATING AND COMPENSATION COMMITTEE
Alan Grahm
A. Thomas Hickey
Scott A. Montgomery
Robert E. Thomson
31
<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock (assuming reinvestment of
dividends) for the past five fiscal years with the cumulative total return of
(i) the NASDAQ market index and (ii) the cumulative total return of a selected
peer group. The peer group includes the following companies: City National
Corporation, CU Bancorp, First Charter Bank NA, Imperial Bancorp, Santa Monica
Bank, Transworld Bancorp and Ventura County National Bancorp.
The closing price for the Company's Common Stock on December 29, 1995 was
$1.50 per share and on December 31, 1996 was $1.0625 per share. The stock price
performance of the Company's Common Stock depicted in the graph below represents
past performance only and is not necessarily indicative of future performance.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
AMONG NATIONAL MERCANTILE BANCORP, NASDAQ STOCK
MARKET AND A SELECTED PEER GROUP INDEX
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NMB 48.81 35.71 85.71 50.00 28.57
NASD 128.38 129.64 155.50 163.26 211.77
PEER 92.60 51.52 72.19 86.99 136.46
</TABLE>
As of December 31, 1995, a $100 investment made January 1, 1990 would have
increased to $136.46 if invested in the Peer Group Index, and $28.57 if invested
in the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Bank have made loans to certain directors from time to
time. All such loans have been made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. These
loans do not involve more than the normal risk of collectability or present
other unfavorable features.
On March 28, 1995 (prior to the time Robert E. Gipson was a director), the
Bank extended a personal loan to Mr. Gipson, currently a director of the
Company, in the amount of $270,000 bearing a
32
<PAGE>
current interest rate of 10.25%, and on December 20, 1996, approved a loan for
Gipson Hoffman & Pancione, A.P.C., a law firm in which Mr. Gipson is a
principal, in the amount of $75,000 at the annual interest rate of 11%, with
payment due in four years.
The Bank has retained Gipson Hoffman & Pancione, A.P.C. to provide legal
services.
Robert E. Thomson was engaged by the Company in March 1995 as a consultant
to provide management services. From April until July 1995, Mr. Thomson was
paid $53,000 for such services. In August 1995, Mr. Thomson became Interim
President and Chief Executive Officer of the Bank and served in that capacity
until October 31, 1995. See "Executive Compensation."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any person holding ten percent or more of the Common Stock are
required to report their ownership of Common Stock and any changes in that
ownership to the Securities and Exchange Commission (the "SEC") and to furnish
the Company with copies of such reports. Specific due dates for these reports
have been established, and the Company is required to report in this Proxy
Statement any failure to file on a timely basis by such persons. Based solely
upon a review of copies of reports filed with the SEC prior to the Record Date,
all persons subject to the reporting requirements of Section 16(a) have filed
all required reports on a timely basis in 1995 and 1996.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present proposals
at shareholder meetings. The 1997 annual meeting of shareholders will be held
on or about ____________, 1997. Any shareholder proposal to be included in the
proxy statement for the Company's 1997 annual meeting of shareholders must be
received by the Secretary of the Company, 1840 Century Park East, Los Angeles,
California 90067, on or before ____________, 1997, in a form that complies with
applicable regulations.
ANNUAL REPORT
The Company's Annual Report of the fiscal year ended December 31, 1995
accompanies this Proxy Statement. The Annual Report contains the Company's
Annual Report on Form 10-K including financial statements required to be filed
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended.
ACCOUNTANTS
Deloitte & Touche LLP is the independent accountant of the Company. A
representative of Deloitte & Touche LLP is expected to be present at the
Meeting, and will be available to respond to appropriate questions.
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<PAGE>
OTHER BUSINESS
Management knows of no business which will be presented for consideration
at the Meeting other than as stated in the Notice of Meeting. If, however,
other matters are properly brought before the Meeting, it is the intention of
the Proxy Holders to vote the shares represented thereby on such matters in
accordance with the recommendations of the Board of Directors.
By Order of the Board of Directors,
A. Thomas Hickey
Secretary
Dated: February 7, 1997
34
<PAGE>
PROXY NATIONAL MERCANTILE BANCORP
ANNUAL MEETING OF SHAREHOLDERS, MARCH 20, 1997, 6:00 P.M. LOCAL TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Scott A. Montgomery and Robert E. Thomson,
and each of them, the proxy or proxies of the undersigned with full powers of
substitution to each, to attend the Annual Meeting of Shareholders of National
Mercantile Bancorp (the "Meeting") to be held on March 20, 1997 at Mercantile
National Bank, 1840 Century Park East, Main Floor, Los Angeles, CA 90067,
beginning at 6:00 p.m. local time, and any adjournments thereof, and to vote
all shares of stock that the undersigned would be entitled to vote if
personally present in the manner indicated below and on the reverse side, and
on any other matters properly brought before the Meeting or any adjournments
thereof, all as set forth in the , 1997 proxy statement.
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR ALL NOMINEES", FOR PROPOSAL 2, FOR PROPOSAL 3, FOR
PROPOSAL 4 AND FOR PROPOSAL 5.
1. Election of the following nominees as directors: Robert E. Gipson, Alan
Grahm, Joseph W. Kiley III, Scott A. Montgomery and Robert E. Thomson.
[_] FOR [_] WITHHOLD
(Authority to vote for any nominee may be withheld by lining through or
otherwise striking out the name of such nominee.)
2. Approval of the 1996 Stock Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Approval of 9.09 to 1 reverse stock split.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Approval of restriction on the transfer of shares of capital stock.
[_] FOR [_] AGAINST [_] ABSTAIN
5. Approval of the terms of the Preferred Stock.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE DATE, SIGN AND RETURN
PROMPTLY.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF NATIONAL MERCANTILE BANCORP.
(Signature should be exactly
as name or names appear on
this proxy. If stock is held
jointly each holder should
sign. If signature is by
attorney, executor,
administrator, trustee or
guardian, please give full
title.)
Dated: _________________ , 1997
-------------------------------
Signature
-------------------------------
Signature if held jointly
I plan to attend the Meeting:
Yes [_] No [_]
This proxy will be
voted FOR the
nominees and the
above matters unless
otherwise indicated,
and in the discretion
of the proxies on all
other matters
properly brought
before the Meeting.
