<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Monarch 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
MONARCH BANCORP
30000 TOWN CENTER DRIVE
LAGUNA NIGUEL, CALIFORNIA 92677
(714) 495 3300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 20, 1996
INTRODUCTION
TO THE SHAREHOLDERS OF MONARCH BANCORP:
NOTICE IS HEREBY GIVEN that, pursuant to the call of its Board of
Directors, the Annual Meeting of Shareholders (the "Meeting") of Monarch Bancorp
(the "Company") will be held at South Coast Medical Center, 31872 Pacific Coast
Highway, Laguna Beach, California, on Tuesday, August 20, 1996 at 7:00 p.m., and
at any and all adjournments thereof.
The matters to be considered and voted upon at the Meeting will include:
1. ELECTION OF DIRECTORS. Election of the following nine (9) individuals
to the Board of Directors to serve until the next Annual Meeting of Shareholders
and until their successors are elected and have qualified:
Rice E. Brown
E. Lynn Caswell
Raymond B. Cox
Alfred H. Jannard
Cheryl Moore
Margaret A. Redmond
Henry E. Schielein
John W. Rose
David C. Wooten
2. APPROVAL OF A "QUASI-REORGANIZATION" OF THE COMPANY. To consider and
vote upon a proposal for a corporate readjustment that eliminates the
accumulated deficit from past unprofitable operations using accounting standards
that allow for a "quasi-reorganization", as described in this Proxy Statement.
3. APPROVAL OF AMENDMENTS TO MONARCH BANCORP 1993 STOCK OPTION PLAN. To
approve proposed amendments to the Company's 1993 Stock Option Plan that would
(i) increase the number of shares subject to the Plan to 10% of the issued and
outstanding shares of the Company following the Company's acquisition of Western
Bank and the issuance of additional shares, (ii) allow the exercise of options
by surrendering a portion of the option being exercised and applying the
appreciated value of the shares being surrendered to payment of the
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exercised price, and (iii) remove certain termination provisions relating to
options granted to consultants, business associates and others with important
business relationships with the Company, in each case as described in this Proxy
Statement and subject to any necessary changes required by any regulatory
agency.
4. OTHER BUSINESS. Transacting such other business as may properly come
before the Meeting, and any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on July 1, 1996 as
the record date for determination of shareholders entitled to notice of, and to
vote at, the Meeting or any adjournment thereof.
The Bylaws (as amended by the Board of Directors on April 23, 1986) of the
Company set forth the following procedures for nominations to the Board of
Directors:
Nominations for election of members of the Board of Directors may be made
by the Board of Directors or by any stockholder of any outstanding class of
voting stock of the Corporation entitled to vote for the election of directors.
Notice of intention to make any nominations, other than by the Board of
Directors, shall be made in writing and shall be delivered or mailed to the
President of the Corporation not less than 30 days nor more than 60 days prior
to any meeting of stockholders called for the election of directors; provided,
however, that if less than 30 days notice of the meeting is given to
shareholders, such notice of intention to nominate shall be mailed or delivered
to the President of the Corporation not later than the close of business on the
seventh day following the day on which the notice of the meeting is sent to
shareholders. Such notification shall contain the following information to the
extent known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c)
the number of shares of capital stock of the Corporation owned by each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Corporation owned by the
notifying shareholder. Nominations not made in accordance herewith shall be
disregarded by the Chairman of the meeting, and the Inspector of Election shall
then disregard all votes cast for each such nominee.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ E. Lynn Caswell
E. LYNN CASWELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JULY 29, 1996
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MONARCH BANCORP
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
AUGUST 20, 1996
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
Proxies for use at the 1996 Annual Meeting of Shareholders (the "Meeting") of
Monarch Bancorp (the "Company") to be held at South Coast Medical Center, 31872
Pacific Coast Highway, Laguna Beach, California, on Tuesday, August 20, 1996 at
7:00 p.m., and at any and all adjournments thereof.
It is expected that this Proxy Statement and accompanying Notice and Proxy
will be mailed to shareholders on or about July 29, 1996.
REVOCABILITY OF PROXIES
A Proxy for use at the Meeting is enclosed. Any shareholder who executes
and delivers such proxy has the right to revoke it at any time before it is
exercised by filing with the Company an instrument revoking it or by filing a
duly-executed Proxy bearing a later date. In addition, the powers of the proxy
holders will be revoked if the person executing the Proxy is present at the
Meeting and elects to vote in person. Subject to such revocation, all shares
represented by a properly executed Proxy received in time for the Meeting will
be voted by the proxy holders in accordance with the instruction on the Proxy.
All Proxies voted against the quasi-reorganization will not be voted in favor of
any postponement to solicit additional proxies.
IF NO INSTRUCTION IS SPECIFIED WITH REGARD TO A MATTER TO BE ACTED UPON,
THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF MANAGEMENT AND IN FAVOR OF SUCH MATTER.
PERSONS MAKING THE SOLICITATION
This solicitation of Proxies is being made by the Board of Directors of the
Company. The expense of preparing, assembling, printing, and mailing this Proxy
Statement and the material used in the solicitation of proxies for the Meeting
will be borne by the Company. It is contemplated that proxies will be solicited
principally through the use of mail, but officers, directors, and employees of
the Company may solicit proxies personally or by telephone, without receiving
special compensation therefor. Although there is no formal agreement to do so,
the Company may reimburse banks, brokerage houses, and other custodians,
nominees
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and fiduciaries for the reasonable expense in forwarding these proxy materials
to their principals. In addition, the Company may utilize the services of
individuals or companies not regularly employed by the Company in connection
with the solicitation of proxies if Management of the Company determines that
this is advisable.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
There were issued and outstanding 8,228,436 shares of the Company's common
stock on July 1, 1996, which has been set as the record date for the purpose of
determining the shareholders entitled to notice of and to vote at the Meeting
(the "Record Date"). Each holder of common stock will be entitled to one vote,
in person or by the proxy, for each share of 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, the shares may be voted cumulatively if a candidate's or candidates'
name(s) have been properly placed in nomination prior to the voting and a
shareholder present at the meeting has given notice of his or her intention to
vote his or her shares cumulatively. If a shareholder has given such notice,
then all shareholders entitled to vote for the election of directors may
cumulate their votes, and discretionary authority to cumulate votes, if
necessary, is being solicited. Cumulative voting entitles a shareholder to give
one or more nominees as many votes as is equal to the number of directors to be
elected multiplied by the number of shares owned by such shareholder, or to
distribute his or her votes on the same principle between two or more nominees
as he or she sees fit. In the election of directors, nine (9) receiving the
highest number of votes will be elected. If cumulative voting occurs, proxies
provided to managements's proxyholders will be voted to elect as many Company
nominees as possible.
The following table lists any known shareholders with a beneficial
ownership of five percent of the Company's common stock as of April 30, 1996.
All shares are common stock, the only class of security outstanding.
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AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNERSHIP CLASS
------------------------------------- --------- ----------
Basswood Partners(1)
Paramus, NJ 07652 530,000 6.44%
Mutual Discovery Fund (2)
Short Hills, NJ 07078 800,000 9.72%
Peter Huizenga Testamentary Trust(3)
Huizenga Capital Management Oak Brook, 800,000 9.72%
IL 60521
NB Bank Partners II
Chicago, IL 60611 592,000 7.20%
Rainbow Partners, Keefe Managers, Inc.
New York, NY 800,000 9.72%
Robert A. Schoellhorn
c/o Bryan & Gross Northbrook, IL 60062 750,000 9.11%
All nine (9) directors as a group(4) 552,627 6.55%
PROPOSAL 1: ELECTION OF DIRECTORS
At the Annual Meeting, nine (9) persons are to be elected to the Board of
Directors of the Company to serve until the next Annual Meeting of Shareholders
and until their successors are elected and have qualified.
The Bylaws of the Company provide that the authorized number of directors
shall not be less than seven (7) nor more than thirteen (13) with the exact
number of directors to be fixed from time to time by resolution of majority of
the full Board
- -------------------------
(1) Company shares owned by Basswood Partners are held in affiliated entities
as follows: 462,147 share are beneficially owned by Basswood Financial
Partners, LP. and 67,853 shares beneficially owned by Basswood
International Fund, Inc.
(2) Company shares owned are held in entities as follows: 530,000 Launch & Co.,
Mutual Discovery Fund and 270,000 Mutual Discovery Fund, Mutual Series Fund
Inc.
(3) Company shares of Peter Huizenga are held in affiliated entities as
follows: 400,000 shares beneficially owned by Peter H. Huizenga Huizenga
Capital Management, and 400,000 shares beneficially owned by the Peter
Huizenga Testamentary Trust.
(4) Beneficial ownership for the Directors includes their beneficial ownership
in stock options which are exercisable within 60 days.
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of Directors or by resolution of the shareholders. The number of directors to
be elected at the Annual Meeting has been fixed at nine (9).
A shareholder may withhold authority for the proxy holders to vote for the
nominees identified below by so indicating in the enclosed Proxy. Further, a
shareholder may withhold authority for the proxy holders to vote for any
individual nominee by writing that nominee's name in the appropriate space
provided on the Proxy. Unless authority to vote for the nominees is so withheld,
the proxy holders will vote the proxies received by them for the election of the
nominees identified below as directors of the Company. If any of the nominees
should be unable to or declines to serve, which is not now anticipated, the
proxy holders shall have discretionary authority to vote for a substitute who
shall be designated by the present Board of Directors to fill the vacancy. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all of the proxies received by them for the
election of the nominees identified below as directors of the Company.
Each person who was a director, executive officer, or beneficial owner of
more than ten percent of any class of equity securities pursuant to Section 12
of the Securities Exchange Act of 1934 has represented, in writing, to the
Company that they have disclosed on a Form 3 or Form 4 on a timely basis all
reports required by Section 16 during the most recent fiscal year.
PROPOSED ACQUISITION OF WESTERN BANK
On March 21, 1996, the Company entered into an Agreement and Plan of
Reorganization to acquire all of the issued and outstanding shares of Western
Bank, a California state chartered commercial bank located in West Los Angeles,
California for a cash purchase price equal to $17.25 per share if the closing
date occurs on or before September 30, 1996, and $17.50 per share if the closing
date occurs after September 30, 1996 and by December 31, 1996. The aggregate
purchase price for Western Bank is expected to be approximately $68.5 million.
As of March 31, 1996, Western Bank had $374.8 million in assets, $334.8 million
in deposits, and $38.1 million of shareholders' equity. The Company intends to
operate Western Bank, which has branch offices in Westwood, Beverly Hills,
Century City, Santa Monica and Encino, California, as a wholly-owned subsidiary
of the Company as a separate entity from Monarch Bank.
The Company is actively moving forward with the acquisition plans and, as
of May 31, 1996, has filed all of the necessary regulatory applications, and
these applications are currently in the review process. The Company intends to
fund the proposed acquisition of Western Bank from the proceeds of a private
placement offering (approximately $39.0 million), acquisition indebtedness
($26.5 million), and cash from the Company (up to $4.1 million). Following the
acquisition of Western Bank, the Company intends to reduce the acquisition
indebtedness to $11.0 million with a $15.5 million cash dividend from Western
Bank. The acquisition of Western Bank will increase the size of the Company from
$73.8
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million to $448.6 million based on financial results for the period ended March
31, 1996.
Consummation of the acquisition, which is subject to completion of the
regulatory approval process and completion of the funding structure, is expected
on or before September 30, 1996 but not later than December 31, 1996. Upon
consummation of the acquisition, Mr. Hugh Smith, Jr., Chairman and Chief
Executive Officer of Western Bank, will become Chairman and Chief Executive
Officer of the Company. Mr. Joseph Digange, President of Western Bank, will
become Chairman of Western Bank. Mr. E. Lynn Caswell, President and Chief
Executive Officer of the Company and Monarch Bank, will remain as President and
Chief Executive Officer of the Bank. In addition, following the consummation of
the acquisition, Mr. Matthew P. Wagner will become President and Chief Executive
Officer of Western. The Board of Directors of the Company is anticipated to be
composed of Messrs. Smith, Digange, Wagner, Caswell, Mr. Rice Brown, a current
director of the Company and Monarch Bank, Mr. John Rose, current Chairman of the
Board and a director of the Company and Monarch Bank, and two outside directors
not currently affiliated with the Company, Monarch Bank, or Western Bank. Upon
consummation of the acquisition of Western Bank, the remaining board members of
the Company are expected to resign.
The Board of Directors in nominating the existing slate of directors has
carefully reviewed the proposed acquisition of Western Bank including the
anticipated change in structure of the Company's Board and is in unanimous
agreement with the proposed acquisition of Western Bank and the proposed changes
once the acquisition has been completed.
Historically, the Company and Monarch Bank have had identical Boards and
the slate of Bank candidates for the Bank's July Annual Meeting are the same as
the candidates proposed in the proxy for the Company. No change is expected in
the composition of the Board of Directors of Monarch Bank as a result of the
pending acquisition of Western Bank.
DIRECTORS AND NOMINEES
The following table sets forth as to each of the persons nominated for
election as a director of the Company, such person's age, such person's
principal occupations during the past five years, and the period during which
such person has served as a director of the Company and also Monarch Bank (the
"Bank"), its wholly-owned subsidiary.
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DIRECTOR OF
PRINCIPAL OCCUPATION COMPANY DIRECTOR OF
NAME AND OFFICE HELD AGE FOR PAST FIVE YEARS SINCE BANK SINCE
- -------------------- --- -------------------- ----------- ------------
Rice E. Brown 58 Owner & President of 1988 1988
Rice Brown Financial
Services
E. Lynn Caswell 51 Commercial Banking and 1987 1987
Chairman of the Board, Bank Holding Company
President, and Chief Management
Executive Officer
Raymond B. Cox 87 President, Cox Marketing 1983 1979
Associates, marketing
consultants for real estate
investments
Alfred H. Jannard 56 Pharmacist/Investments 1993 1993
Cheryl Moore 48 Owner/Operator of a retail 1993 1993
women's apparel store
Margaret A. Redmond 54 Vice President & Office 1986 1987
Manager of Professional
Orthodontia Practice Firm
John W. Rose(1) 46 President/McAllen Capital
Partners, Inc. 1995 1995
Henry E. Schielein(2) 61 President and COO 1995 1995
The Balboa Bay Club
David C. Wooten(3) 58 President of International 1995 1995
Bay Clubs, Inc.
- -------------------------
(1) Mr. Rose has been an Executive Vice President in charge of community banks
for FNB Corporation, Hermitage, PA since mid 1995. He formerly worked as
President of McAllen Capital Partners, an investor in and advisor to
community banks.
(2) Mr. Schielein, since the start of 1995 has served as President and COO of
the Balboa Bay Club in Newport Beach. From 1993 until 1995 he was President
of the Grand Wailea Resort Hotel in Hawaii and previously served as Vice
President and General Manager of The Ritz Carlton at Laguna Niguel. Mr.
Schielein previously served on the boards of both the Company and Bank from
1988 until June 1993 when he relocated to Hawaii.
(3) Mr. Wooten has been the President of International Bay Clubs, Inc. in
Newport Beach since March 1993; previously he was President of Integrated
Protein Technology.
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COMMITTEES OF THE BOARD OF DIRECTORS
During 1995, the Board of Directors of the Company held 8 meetings. The
Bank, during 1995, held 12 regular meetings, and 3 special meetings. All
Directors attended at least 70% of the Board meetings of the Company. All
Directors attended at least 80% of the Board meetings of the Bank.
The Bank Loan Committee, which is responsible for reviewing and approving
loans, held 24 meetings during 1995. Members of the Bank Loan Committee also
function as the Bank's Investment Committee.
The Board of Directors' Audit Committee had 4 meetings in 1995, and also
reviewed quarterly reports. The members of the Audit Committee are: Rice E.
Brown, Raymond B. Cox, Alfred H. Jannard, Cheryl Moore, and Margaret A. Redmond.
The duties of the Committee include meetings and discussions with the Company's
external auditors, and meeting with outside operational auditors who are engaged
to perform internal control audits and review and approve various financial
reports.
The Company and Bank do not have separate standing Compensation or
Nominating committees and handle matters that might otherwise be delegated to
these committees in executive session or on an as needed basis by specific
subcommittee meeting.
EXECUTIVE OFFICERS
The following table sets forth as to each of the persons who currently
serves as an Executive Officer(1)of the Company and the Bank, such person's age,
such person's principal occupation during the past five years, such person's
current position with the Bank, and the period during which the person has
served in such position:
- -------------------------
(1) William C. Demmin served as Executive Vice President and Chief Financial
Officer of the Company and the Bank from August 1987 to June 1996 when he
resigned to accept a position in another financial institution.
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PRINCIPAL
POSITION WITH OCCUPATION FOR YEAR APPOINTED TO
NAME AGE COMPANY AND BANK PAST FIVE YEARS COMPANY BANK
- ---- --- ---------------- --------------- ------- ----
E. Lynn Caswell 51 Chairman, President Commercial Bank- 1987 1987
and Chief Executive ing and Bank
Officer Holding Company
Management(1)
Louis F. Cumming 57 Executive Vice Bank Management(2) 1995
President and
Senior Credit
Officer
SECURITY OWNERSHIP OF MANAGEMENT
The following table reflects as of April 30, 1996 the beneficial ownership
of management of the Company's common stock including stock options which have
been vested or stock options that will be vested within 60 days.
- -------------------------
(1) Mr. Caswell was formerly the President and Chief Executive Officer of the
Bank of San Diego, and Chief Operating Officer of BSD Bancorp, its parent
Company, from 1984 to 1987, and he has over 27 years of banking
experience.
(2) On April 28, 1995, Mr. Cumming was appointed Executive Vice President and
Senior Credit Officer of the Bank. Mr. Cumming was formerly the Executive
Vice President and Senior Credit Officer of Cuyamaca Bank from 1992 to
April 1995, Senior Vice President of First National Bank from 1989 to 1992,
and he has over 30 years of banking experience.
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AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------------------------ --------- --------
Rice E. Brown
Laguna Niguel, CA 92677 12,345 0.15%
E. Lynn Caswell(1)
Laguna Niguel, CA 92677 145,311 1.72%
Raymond B. Cox
Monarch Beach, CA 92629 30,000 0.35%
Louis F. Cumming(2)
La Jolla, CA 92037 38,500 0.46%
William C. Demmin(3)
Laguna Niguel, CA 92677 29,663 0.35%
Alfred H. Jannard
Laguna Niguel, CA 92677 27,842 0.33%
Cheryl Moore
Laguna Niguel, CA 92677 12,708 0.15%
Margaret A. Redmond
San Clemente, CA 92672 28,996 0.34%
John W. Rose(4)
Hermitage, PA 276,644 3.27%
Henry E. Schielein
Newport Beach, CA 9,000 0.11%
David C. Wooten
Newport Beach, CA 9,235 0.11%
EXECUTIVE COMPENSATION
The Company's executive officers are John W. Rose, Chairman of the Board
and E. Lynn Caswell, President and Chief Executive Officer.
- -------------------------
(1) Mr. Caswell is President and CEO of the Bank and Company.
(2) Mr. Cumming is an executive officer but not a Director.
(3) Mr. Demmin resigned on May 31, 1996 effective June 30, 1996.
(4) Mr. Rose serves as Chairman of the Board.
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The following table reflects all compensation paid to Mr. E. Lynn Caswell,
the Company's and Bank's Chief Executive Officer. No other executive officer(s)
received a total annual salary and bonus of $100,000 or more.
SUMMARY COMPENSATION TABLE
--------------------------
PROFIT OTHER ANNUAL OPTION/
NAME AND POSITION YEAR SALARY SHARING COMPENSATION SAR'S #
- ----------------- ---- ------ ------- ------------ -------
E. Lynn Caswell 1995 $128,182 $ 17,500 $11,530 -
1994 $128,182 $ -- $21,324 -
1993 $124,730 $ -- $21,324 55,620
Mr. E. Lynn Caswell executed an Employment Agreement dated July 23, 1987,
amended effective July 23, 1989 and July 23, 1991, with the Company and the
Bank. The Agreement was effective for a three (3) year period with automatic,
subsequent three (3) year renewals, unless notice is given thirty (30) days
prior to the end of any given period. The Agreement was extended for one
additional year in 1994 until June, 1995. The Agreement provides for a base
salary with annual cost of living adjustments to a maximum of 8%. Mr. Caswell's
current base annual salary as of May 16, 1996 is $132,028. In addition, Mr.
Caswell receives an automobile allowance, reimbursement for various business
expenses, use of the Bank's club memberships, four weeks annual vacation,
insurance, including disability and life insurance equal to four (4) times
annual salary, and other health and Company benefits. A review or renewal of
the Agreement was postponed in 1995 until after the Company and Bank completed
their capital activities. In December 1995, the Board appointed a special
committee to review Mr. Caswell's Agreement and to recommend a new Agreement.
The new agreement has not as yet been finalized due to the pending acquisition
of Western Bank.
Neither the Company nor Bank paid director fees in 1995.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------
INDIVIDUAL GRANTS
OPTIONS/SARS OPTIONS/SARS GRANTED TO EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) EMPLOYEES IN FISCAL YEAR PRICE ($/SH) DATE
- ---- ------------ ------------------------ ---------------- ----------
None in 1995
All stock options previously issued under the Company's Stock Option Plan,
which were all at exercise prices significantly above the $1.35 price for the
shares sold in 1995, were canceled in November 1995. In January 1996, the Board
issued options totaling 553,439 shares to a total of 16 individuals at a grant
price of $1.62 per share. On May 15, 1996, the Board issued new options to three
key Bank officers totaling 32,038 shares at a grant price of $1.62. These
options are
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fully vested and can be exercised during the next ten years. Refer to proposed
changes in the Stock Option Plan detailed in Proposal 2 in this Proxy Statement.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
-----------------------------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END (#)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------------ ------------- -------------
None in 1995
There were no options exercised during the fiscal year 1995, and all
options, which were significantly out-of-the-money, were canceled in November
1995.
On May 16, 1995, the Board of Directors approved the 1995 Directors
Deferred Compensation Plan which was approved by shareholders on July 17, 1995.
The plan is effective for fees earned on and after July 1, 1995. No compensation
has been awarded under the plan.
During 1992, the Company adopted an employee stock and ownership and salary
deferral plan (KSOP). In 1992, the KSOP obtained a $250,000 loan from another
financial institution, which is guaranteed by the Company, and between 1992 and
1993 acquired approximately 50,000 shares of the Company's common stock.
Repayments on the loan are made by employee salary deductions and from possible
matching contributions by the Bank. The loan has a term of five years and an
interest rate of 8%. The Bank's contributions to the KSOP totaled approximately
$20,000 and $46,000 in 1995 and 1994, respectively. Mr. Caswell is a participant
of the KSOP; however, the KSOP has not as yet vested any shares for 1995.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE NOMINEES
PROPOSAL 2: PROPOSED QUASI-REORGANIZATION
INTRODUCTION
The Board of Directors of Monarch Bancorp (the "Company") is soliciting the
approval of its shareholders to a proposed readjustment of the Company's capital
accounts in a "Quasi-Reorganization" to be effective as determined by the Board
of Directors in its absolute discretion and by December 31, 1996. Adoption of
such a plan is made at the election of the Company and is not required by
generally accepted accounting principles. Accounting rules permit
quasi-reorganizations when there has been a significant change in an existing
business, either through a
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discontinuance of a substantial portion of a business or a substantial new
direction to an existing business. In general, the principal effect of the
quasi-reorganization is to eliminate the accumulated deficit. In addition, the
recorded values of certain assets will be adjusted to reflect fair market value.
Increases in recorded values, however, are limited to recorded decreases in the
fair market value of other assets.
The affirmative approval by the holders of a majority of the Company's
outstanding shares of the Company's common stock is required. The
quasi-reorganization is not a requirement of or understanding precedent to
the consummation of the acquisition of Western Bank. The
quasi-reorganization is designed to enhance the Company's ability to pay
dividends.
REASONS FOR AND BACKGROUND TO THE QUASI-REORGANIZATION
Largely because of operating losses sustained by the Company and the Bank
in fiscal years 1993 and 1994, and despite net earnings of $683,000 in 1995, the
Company had deficit retained earnings of approximately $5,454,000 as of December
31, 1995, and the Bank had deficit retained earnings of $1,310,000 as of
December 31, 1995.
Based on a need to increase the capital of Monarch Bank (the "Bank"), the
wholly-owned subsidiary of the Company, to meet various regulatory orders that
were issued to the Bank in 1994, on March 31, 1995, the Company completed a
private placement offering of approximately $6.1 million whereby it issued
4,547,111 new shares of common stock. As a result of the private placement
offering, the Bank's Tier-1 capital ratio increased to 7.85%, which exceeded the
Bank's commitments to the FDIC and the Superintendent. In addition, the Company
completed in the third quarter of 1995 a rights and public offering of 2,886,898
shares of common stock. The Company increased its capital by an additional
$3,464,000 in net proceeds and increased its leverage capital ratio as of
September 30, 1995 to 15.4%. Since March 31, 1995, the Bank has been in full
compliance with the provisions of the Orders relating to capital and capital
ratios.
Management of the Bank also took specific action to improve the Bank's
credit administration including the adoption of revised policies for lending and
loan administration, the appointment of Mr. Louis Cumming as Executive Vice
President and Senior Credit Officer and other staffing changes designed to
improve overall lending skills. The Board complied with the Orders by
increasing its participation in the affairs of the Bank. Further, the Bank has
aggressively worked to reduce the level of classified assets in order to comply
with the Orders. The Bank also amended its policies and procedures, the Board
has reviewed the Allowance for Loan Losses (the "Allowance"), and additional
provisions were made in 1995 in order to establish an adequate Allowance.
In the fourth quarter of 1995, the Superintendent conducted an examination
of the Bank and determined that the Bank was in compliance with the 1913 Order,
and on December 28, 1995 the 1913 Order was terminated. Also in the fourth
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quarter of 1995, the FDIC conducted a visitation of the Bank, which resulted in
the termination of the 8(b) Order on March 11, 1996. The termination of the
Orders reflects the improved condition of the Bank. The Bank agreed to a
Memorandum of Understanding (the "Memorandum") with the FDIC that became
effective March 11, 1996. Under the terms of the Memorandum, the Bank agreed to
the following items: (i) have and retain qualified management; (ii) maintain
Tier 1 capital of at least 7% of the Bank's total assets; (iii) continue to
reduce classified assets; (iv) maintain an adequate loan loss reserve; (v) adopt
and implement a three-year strategic plan; and (vi) not pay cash dividends
except in accordance with State and Federal laws, that the ratio of Tier 1
capital to total assets will not be less than 7% after payment of the dividend,
and that the Bank must certify to the FDIC its compliance with the above
restrictions.
The Bank's application to become a member of the Federal Reserve System was
approved, and the Bank became a member of the Federal Reserve System on April
24, 1996. As a consequence of this change, the Federal Reserve Bank ("FRB") has
become the primary federal regulator of the Bank. The FRB has not required the
Bank to execute any enforcement action after conducting a premembership
examination. On July 3, 1996, the FDIC terminated the Memorandum, which removed
the Memorandum's restrictions on the Bank.
Since December 31, 1994 the Company and the Bank have operated profitably,
and the management and the Directors of the Company believe that significant
progress has been made in taking the required actions to sustain future
profitability. The Bank intends to apply to the Federal Reserve Bank and the
California Superintendent of Banks pursuant to Financial Code Section 663 to
complete a quasi-reorganization.
Section 663 of the California Financial Code permits a bank with deficit
returned earnings, with the prior approval of a majority of its outstanding
shares and the California Superintendent of Banks, to readjust its capital
accounts pursuant to a quasi-reorganization, eliminating the deficit in a bank's
retained earnings and reducing its contributed capital in like amount.
The Board of Directors has carefully reviewed the financial position and
outlook of the Company and the Bank. Based upon (i) capital raising activities
that substantially increased the shareholder's equity of both the Company and
the Bank; (ii) a return to profitability that was led by the implementation of
an extensive earnings improvement program, (iii) lending staff changes that were
made to strengthen credit administration, (iv) recognition of deferred tax
benefits, (v) a stabilization of the local economy and, (vi) a reasonable
expectation for future profitability, the Board has elected to solicit
shareholder approval to complete a quasi-reorganization.
The proposed quasi-reorganization will effectively reorganize the Company's
capital accounts and reduce the deficit retained earnings to zero. The
Company's ability to pay dividends is governed by the laws of the State of
California and the
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Company is currently ineligible to pay dividends because of its deficit
retained earnings. By policy, the Company does not anticipate payment of
dividends on common stock and plans to use future retained earnings for
continued growth. Completion of the proposed quasi-reorganization may enable
the Company to pay dividends should the Company generate net income in the
future or should the Company elect to change its dividend policy in the future.
Under accounting guidelines, a quasi-reorganization must meet all of the
following conditions: (1) there are no retained earnings, (2) upon consummation,
there is no deficit in retained earnings carried forward, (3) the quasi-
reorganization accomplishes what might otherwise be accomplished in a
reorganization by legal proceedings in term of the write-down of assets to meet
realizable values, (4) for a period of at least three years from the quasi-
reorganization date, the amount of accumulated deficit eliminated should be
disclosed on the face of the balance sheet, (5) the plan of quasi-reorganization
has been approved by stockholders, and (6) consents have been obtained in
advance in accordance with applicable law and corporate charter provisions.
In the absence of a quasi reorganization, the Company would recognize the
potential tax benefits of its existing NOL carryforwards and deductible
temporary difference as a reduction of income tax expense in future periods when
it became known that it was more likely than not that the potential deferred tax
asset would be realized. The tax benefits of deductible temporary differences
and NOL carryforwards existing as of the date of a quasi reorganization are
reported as a direct addition to contributed capital if the tax benefits are
recognized in subsequent years.
The Company intends to implement an accounting adjustment to eliminate its
accumulated deficit by December 31,1996 and, in connection therewith, will
implement accounting entries for the adjustment of certain of its assets to
their estimated fair market values. The net amount, if any, of such valuation
adjustments together with the amount of the accumulated deficit as of the date
thereof, will be transferred to paid-in capital in accordance with the
accounting principles applicable to quasi-reorganizations. The estimated fair
market values of the assets will be based upon appraisals performed by
independent appraisers or based upon estimates and assumptions of management.
The rules of the Securities and Exchange Commission on quasi-reorganizations
limit the increases in the recorded values of specific assets to no more than
the decreases in the fair value recorded for other assets. Although the
adjustment is intended to be effective as determined by the Board of Directors
and by December 31, 1996, management is accumulating the information to
determine the fair market values as of various dates.
Using the unaudited financial statements as of March 31, 1996, the
following table shows FOR INFORMATION PURPOSES the effect of the proposed
quasi-reorganization as if it had occurred on that date:
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MONARCH BANCORP
MARCH 31, 1996 PROFORMA
-------------- --------
Serial Preferred Stock,
no par value authorized
5,000,000 shares, no shares
issued and outstanding -0- -0-
Common stock, no par value
authorized 100,000,000 shares,
8,228,436 shares issued and
outstanding(1) $16,500,000 $11,126,000
Accumulated Deficit 5,374,000 -0-(2)(3)
Unrealized appreciation on
investment securities available
for sale 77,000 77,000
Deferred Charge related to KSOP (121,000) (121,000)
Total Shareholders Equity $11,082,000 $11,082,000
It is anticipated that the actual quasi-reorganization will be completed as
determined by the Board of Directors and by December 31, 1996, and it would be
reflected in the final audited financial statement of the Company as of December
31, 1996.
ACQUISITION OF WESTERN BANK
As described in Proposal 1 regarding the Election of Directors, on March
21, 1996, the Company entered into an Agreement and Plan of Reorganization (the
- -------------------------
(1) Does not include shares reserved for issuance upon exercise of outstanding
stock options of the Company.
(2) Generally accepted accounting principles state that after a readjustment of
accounts to eliminate an accumulated deficit in retained earnings, a new
retained earnings account should be established, dated to show that it
commences from the effective date of the readjustment. This dating is to
be disclosed until such time as the effective date no longer possesses any
special significance.
(3) Following shareholder approval of the quasi-reorganization, the Company
will eliminate its deficit retained earnings by charging the amount thereof
against its common stock account. This accounting adjustment does not take
into account any adjustments that may be necessary as described in this
Proposal 2.
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<PAGE>
"Agreement") to acquire all of the issued and outstanding shares of Western
Bank. The Agreement is subject to the receipt of all necessary regulatory
approvals and the Company raising sufficient capital in the private placement
offering which is scheduled to be completed in the third quarter of 1996.
The Company intends to fund the proposed acquisition of Western from the
proceeds of the private placement offering (minimum of $39.0 million),
acquisition indebtedness ($26.5 million), and cash from the Company (up to $4.1
million). Following the acquisition of Western, the Company intends to reduce
the acquisition indebtedness to $11.0 million with a $15.5 million cash dividend
from Western. The acquisition of Western will increase the size of the Company
from $73.8 million to $448.6 million based on financial results for the period
ended March 31, 1996.
While the Company expects to complete the acquisition of Western, no
assurances can be given that the acquisition, if completed as planned, will
produce increased profitability, shareholder or franchise value.
DIVIDENDS
The Company has not paid a cash dividend on its Common Stock, and the
Company is currently prohibited from paying cash dividends unless it can effect
a quasi-reorganization, which would eliminate the current retained earnings
deficit. Declarations or payments of dividends by the Board of Directors in
the future will depend on a number of factors, including capital requirements,
regulatory limitations, the Company's financial condition and results of
operations, compliance with legal requirements, tax considerations and general
economic conditions. No assurances can be given that any dividends will be
declared or, if declared what the amount of dividends will be or whether such
dividends, once declared, will continue. Management currently intends to retain
all future earnings, if any, to increase the capital of the Company in order to
affect planned expansion and increases in the assets of the Bank and Western.
The ability of the Company to pay a cash dividend depends largely on the Bank's
ability to pay a cash dividend, and if the proposed acquisition of Western is
completed, on Western's ability to pay a cash dividend.
The Bank is currently prohibited from paying any dividends on its
securities, unless the Bank can effect a proposed quasi-reorganization.
Declarations or payments of dividends by the Board of Directors of the Bank and
Western in the future will depend upon a number of factors, including capital
requirements, regulatory limitations, the Bank's and Western's financial
condition and results of operations, compliance with legal requirements, tax
considerations and general economic conditions. The Company expects the Bank
and Western to assist the Company in the repayment of the acquisition
indebtedness through the payment of dividends.
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<PAGE>
Holders of Company Common Stock are entitled to receive dividends declared
by the Company's Board of Directors out of funds legally available therefore
under the laws of the State of California. Under California law, the Company
would be prohibited from paying dividends unless: (1) its retained earnings
immediately prior to the dividend payment equals or exceeds the amount of the
dividend; or (2) immediately after giving effect to the dividend (i) the sum of
the Company's assets would be at least equal to 125% of its liabilities and (ii)
the current assets of the Company would be at least equal to its current
liabilities, or if the average of its earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
its interest expense for the two preceding fiscal years, at least 125% of its
current liabilities. The Company is currently ineligible to declare a dividend
to the Company's shareholders.
In summation, there has been substantial changes in the management, in the
capital positions of the Company and the Bank, and renewed expectations for
positive growth in retained earnings. The quasi-reorganization will continue
the restructuring process of the Company and give it the flexibility to maximize
future financial options including the possible payment of dividends. The
quasi-reorganization is strongly recommended by the management and the Board of
Directors as an important step in restructuring the Company.
The quasi-reorganization does not have any effect on the Company's
organization, operations, net assets or financial condition other than a
reclassification of certain line items on the Company's financial statements.
The quasi-reorganization changes the Company's balance sheet to eliminate the
accumulated deficit and establishes a new retained earnings account against
which the Company's future operations can be measured. The Company's balance
sheet will, however, prominently disclose for ten years following the
quasi-reorganization the point in time from which the new retained earnings
dates and for three years following the quasi-reorganization the total amount of
the accumulated deficit eliminated pursuant to the quasi-reorganization. The
Company believes that the quasi-reorganization does not, as of the date thereof,
alter the amount available for distribution to the holders of its equity
securities. The Company believes that the financial statements after the
implementation of the quasi-reorganization will more accurately reflect the
Company's operations in its new businesses and will assist investors and lenders
in evaluating the Company's current and future businesses.
IN VIEW OF THE FOREGOING, THE BOARD OF DIRECTORS AND MANAGEMENT OF THE COMPANY
STRONGLY URGE YOU TO APPROVE THE PROPOSED QUASI-REORGANIZATION.
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<PAGE>
PROPOSAL 3: APPROVAL OF AMENDMENTS TO MONARCH
BANCORP 1993 STOCK OPTION PLAN
INTRODUCTION
Shareholders of Monarch Bancorp are being asked to approve proposed
amendments to the Monarch Bancorp 1993 Stock Option Plan (the "1993 Plan"),
which was originally adopted by the Board of Directors of Monarch Bancorp (the
"Company") on March 16, 1993 and approved at the 1993 Annual Meeting of
Shareholders. On May 23, 1995, the Board of Directors amended the 1993 Plan to
increase the number of shares of Common Stock reserved for issuance under the
1993 Plan to approximately 10% of the issued and outstanding shares of Common
Stock of the Company upon the conclusion of the recapitalization plans in 1995,
which resulted in the number of shares subject to the 1993 Plan being increased
to 824,394 shares, and such amendment was approved by the shareholders at the
1995 Annual Meeting of Shareholders.
The Board of Directors on May 15, 1996 approved additional amendments to
the 1993 Plan, subject to the approval of the California Commissioner of
Corporations and the holders of the majority of the issued and outstanding
shares of the Company. These amendments: (i) increase the number of shares
reserved for issuance under the 1993 Plan to 10% of the issued and outstanding
shares of Common Stock following the completion of a private placement offering
of a minimum of 24,242,425 shares and a maximum of 27,272,728 shares (the "1996
Private Placement"); (ii) allow an optionee upon exercise of an option to
surrender a portion of the option being exercised to apply the appreciated value
of the shares being surrendered to payment of the exercise price; and (iii)
remove certain termination provisions for options granted to a consultants,
business associates or other persons or entities with important business
relationships with the Company ("Advisors").
BACKGROUND
When originally adopted in 1993, a total of 520,069 shares of Common Stock
were reserved for issuance under the 1993 Plan and represented approximately
15.29% of the issued and outstanding shares of Common Stock. At that time, the
Company also had 500,082 shares reserved for issuance under the 1983 Stock
Option Plan (the "1983 Plan"), and, when added to the number of shares reserved
under the 1993 Plan, the total number of shares reserved under the Company's
option plans represented 30% of the then issued and outstanding shares of the
Company.
On March 31, 1995, the Company completed a private placement offering of
4,547,111 shares of its Common Stock at a price of $1.35 per share (the "1995
Private Placement") to several accredited investors as defined in SEC Regulation
D. The Company raised approximately $5,669,000 in net proceeds in the 1995
Private Placement. In addition, the Company completed in the third quarter of
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<PAGE>
1995 a rights and public offering (the "1995 Public Offering") of 2,886,898
shares of Common Stock and raised net proceeds of approximately $3,464,000. The
1995 Private Placement and the 1995 Public Offering are known hereinafter as the
1995 Offerings. As of September 30, 1995, the Company had 8,228,436 shares of
Common Stock that were issued and outstanding, which are the same number of
shares of Common Stock that are issued and outstanding as of the date of this
Proxy Statement. As of the date of this Proxy Statement, the Company also had
granted 585,462 shares under the 1993 Plan.
The acquisition of Western as described in Proposal 1 will also result in
the increase in the number of issued and outstanding shares of common stock of
the Company. The Agreement is subject to the receipt of all necessary
regulatory approvals and the Company raising sufficient capital in the 1996
Private Placement which is scheduled to be completed in the third quarter of
1996. A minimum of 24,242,425 shares and a maximum of 27,272,728 shares of
Common Stock of the Company may be issued pursuant to the 1996 Private
Placement. If all such shares are issued, the Company will have a total of
35,501,164 shares issued and outstanding. In addition, the Company will issue a
warrant to purchase 818,182 shares of Common Stock to Belle Plaine Financial,
LLC ("BPF"), the Company's financial advisor, upon the completion of the 1996
Private Placement and the acquisition of Western. The BPF warrant is intended
to be for a term of 5 years at an exercise price of $1.98 per share.
Pursuant to the rules and regulations of the California Commissioner of
Corporations, the Company is entitled to have up to 30% of its issued and
outstanding shares contained in its stock option plan. Assuming the 1996
Private Placement is completely sold, the Company would be allowed to have
10,650,349 shares under its stock option plans. However, the Board of Directors
of the Company desires to limit the number of shares of Common Stock subject to
the 1993 Plan to 10% of the issued and outstanding shares following the
completion of the 1996 Private Placement and the consummation of the acquisition
of Western. If the maximum number of shares offered in the 1996 Private
Placement are sold, the Company would have 35,501,164 shares issued and
outstanding, and the number of shares reserved for issuance under the 1993 Plan
would increase to 3,550,164 shares.
SUMMARY OF 1993 PLAN
The purpose of the 1993 Plan is to strengthen the Company and the Bank by
providing an additional means of attracting and retaining competent managerial
personnel and obtaining the services of Advisors. The 1993 Plan provides to
participants added incentive for high levels of performance and for unusual
efforts to increase the earnings of the Company and the Bank. The Board of
Directors believes that the 1993 Plan has assisted and will continue to assist
in accomplishing these objectives and facilitate in achieving these results by
providing a means whereby directors, officers, key employees, and Advisors
("Eligible Participants"), may purchase shares of the Common Stock of the
Company
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<PAGE>
pursuant to options granted in accordance with the 1993 Plan. 824,394 shares of
Common Stock of the Company are reserved for issuance to Eligible Participants,
and as of the date of this Proxy Statement, options have been granted under the
1993 Plan on an aggregate of 585,462 shares of Common Stock. Options granted
pursuant to the 1993 Plan may be non-qualified options or incentive stock
options within the meaning of Section 422A of the Internal Revenue Code.
The 1993 Plan is administered by the Board of Directors of the Company or
by a committee appointed from time to time by the Board. The Board of
Directors or the committee determines the Eligible Participants in the 1993 Plan
and the extent of their participation.
The purchase price of stock subject to each option may not be less than one
hundred percent (100%) of the fair market value of such stock at the time such
option is granted. An Eligible Participant owning more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company may
only be granted an option with an exercise price at least 110% of the fair value
of Company stock at the date of grant. The purchase price of any shares
exercised shall be paid in full in cash or, with the prior written approval of
the committee, in shares of the Company or on a deferred basis evidenced by a
promissory note. Options may be granted pursuant to the 1993 Plan for a term of
up to ten (10) years. Each option shall be exercisable according to the rate
determination of the Board or committee, except that options shall be
exercisable at a minimum rate of 20% per year over a five year period.
Options granted under the 1993 Plan are not transferable by the optionee
during the optionee's lifetime. Under the current terms of the 1993 Plan, in
the event of termination of employment as a result of the optionee's disability
or in the event of an employee's death during the exercise period, the option
shall, to the extent exercisable, remain exercisable for up to one (1) year (but
not beyond the end of the original option term) by the disabled optionee or, in
the event of death, by the person or persons to whom rights under the option
shall have passed by will or the laws of descent and distribution.
Under the current terms of the 1993 Plan, if an optionee's employment is
terminated, unless termination was by reason of disability or death, the
optionee shall have the right, during the three months after termination, to
exercise that portion of the option which was exercisable immediately prior to
such termination. If an optionee's employment is terminated for cause, except
for consultants and business advisors that were granted options, the optionee
shall have the right for 30 days after termination to exercise that portion of
the option which was exercisable immediately prior to such termination. In no
event may the option be exercised after the end of the original option term.
In the event of certain changes in the outstanding Common Stock of the
Company without receipt of consideration by the Company, such as stock
dividends, stock splits, recapitalization, reclassification, reorganization,
merger,
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<PAGE>
stock consolidation, or otherwise, appropriate and proportionate adjustments
shall be made in the number, kind and exercise price of shares covered by any
unexercised or partially unexercised options which were already granted.
Optionees will receive prior notice of any pending dissolution or liquidation of
the Company, or reorganization, merger dissolution or liquidation of the
Company, or reorganization, merger or dissolution or liquidation of the Company,
or reorganization, merger or consolidation where the Company is not the
surviving corporation or sale of substantially all the assets of the Company or
other form of corporate reorganization in which the Company is not a surviving
entity, or the acquisition of stock representing more than 50% of the voting
power of the stock of the Company then outstanding ("Terminating Event").
Optionees have thirty (30) days from the date of mailing of such notices to
exercise any option in full. After such thirty (30) days, any option not
exercised shall terminate and upon the occurrence of the Terminating Event, the
1993 Plan shall terminate, unless some other provision is made in connection
with the Terminating Event.
The Board reserves the right to suspend, amend, or terminate the 1993 Plan,
and, with the consent of the optionee, make such modifications, of the terms and
conditions of his or her option as it deems advisable, except that the Board may
not, without further approval of a majority of the shares, increase the maximum
number of shares covered by the 1993 Plan, change the minimum option price,
increase the maximum term of options under the 1993 Plan or permit options to be
granted to any one other than an officer, employee or director, or consultant,
advisor or other person having a business relationship with the Company or the
Bank.
Unless previously terminated by the Board of Directors, the 1993 Plan
terminates ten years from the date the 1993 Plan was adopted by the Board of
Directors of the Company, or March 16, 2003.
Shares of the Company's Common Stock to be issued upon exercise of stock
options need not be registered with the SEC. However, the Company has applied
for a permit from the California Commissioner of Corporations and the Company
intends to register the Common Stock reserved for issuance under the Plan with
the SEC prior to issuing any of its Common Stock upon exercise thereof.
FEDERAL INCOME TAX CONSEQUENCES
To the extent that options granted under the 1993 Plan qualify as incentive
stock options and (i) the optionee does not sell the stock acquired upon
exercise of the options within two (2) years of the date of grant and one (1)
year from the date of exercise and (ii) the optionee was employed by the Company
or a subsidiary for the entire period beginning on the date of grant of option
and ending three (3) months prior to the exercise of the option, then the
optionee will not recognize compensation income to the extent of any "bargain
element" determined as of the time of grant or exercise, and the Company will
not be entitled to a corresponding
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<PAGE>
tax deduction. However, the bargain element is a time of tax preference for the
purpose of determining the employee's alternative minimum tax.
If the optionee disposes of the stock acquired through the exercise of the
incentive stock option prior to satisfaction of the holding period or fails to
satisfy the employment requirement, the optionee will recognize compensation
income and the Company will be entitled to a corresponding tax deduction to the
extent of the lesser of (i) the excess of the fair market value of the stock at
the date of exercise over the exercise price or (ii) the amount realized in
excess of the tax basis of the stock if disposed in a taxable transaction.
If the options granted under the 1993 Plan are non-qualified, the optionee
will not recognize taxable income, and the Company will not be entitled to a
corresponding tax deduction, at the time of grant or exchange. Upon the
exercise of a non-qualified stock option, however, the optionee will recognize
taxable income equal to the "bargain element" or the "spread", the difference
between the fair market value determined as of the time of exercise of the
Company's Common Stock acquired by the optionee and the option price paid for
the stock. The Company will be entitled to a corresponding tax deduction equal
to the income recognized by the optionee provided that the income tax
withholding attributable to the optionee's recognized income is collected from
the optionee.
SUMMARY OF AMENDMENTS TO 1993 PLAN SUBMITTED FOR APPROVAL TO SHAREHOLDERS
Due to the increase in the number of outstanding shares of Common Stock
after completion of the Western acquisition and the 1996 Private Placement, the
Board of Directors has determined that additional shares should be reserved for
issuance of options under the 1993 Plan to continue to attract and retain
directors, officers, key employees, and Advisors. The Board of Directors has
approved an increase in the number of shares of Common Stock reserved for
issuance under the 1993 Plan from 824,394 shares to 10% of the total issued and
outstanding shares aver completion of the Western acquisition and the 1996
Private Placement.
The Board of Directors also determined that it is appropriate to amend the
1993 Plan in certain other respects to better fulfill the objectives of the 1993
Plan. First, in addition to the current methods of exercising stock options
granted under the 1993 Plan, the amendments provide that an optionee may
exercise an option by surrendering a portion of the option being exercised and
apply the appreciated value of the shares subject to the surrendered portion of
the option to payment of the exercise price. The appreciated value is the
excess of the fair market value of the surrendered shares at the time of
exercise over the exercise price of the shares. The Board of Directors believes
that this additional method of exercise will encourage optionees to retain the
shares of Common Stock upon exercise of the option which would continue to
provide the optionee with an interest in the success of the Company.
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<PAGE>
The other changes in the amendment to the 1993 Plan relate to options
granted to Advisors who are not employed by the Company as employees but provide
significant services or other benefits to the Company. The Board of Directors
determined that certain provisions of the 1993 Plan should not be applicable to
Advisors since they are not employees of the Company. Under the amendments,
options granted to Advisors will not terminate upon the termination of the
Advisor's business relationship with the Company or upon the death or disability
of the Advisor. In each case, the option will continue for the stated term of
the option.
If the changes effected by the proposed amendments are approved by the
shareholders of the Company and the California Department of Corporations, the
Company may modify the outstanding options under the 1993 Plan consistent with
the proposed amendments.
The description of the 1993 Plan and the proposed amendments contained in
this Proxy Statement is intended to summarize the material provisions of the
1993 Plan and proposed amendments, and does not purport to be a complete
description of all provisions. A copy of the 1993 Plan as proposed to be
amended is available for inspection at the Company.
APPROVALS REQUIRED
Approval of the proposed amendments to the 1993 Plan requires the
affirmative vote of a majority of the issued and outstanding shares of the
Company, and the amendment is subject to the approval of the California
Department of Corporations. The Board of Directors reserves the right to modify
the proposed amendments to comply with any requirements of the California
Department of Corporations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3
INDEPENDENT ACCOUNTANTS
Audit services performed by Dayton & Associates for the year ended December
31, 1995, consisted of examination of the financial statements of the Bank, and
consultation matters related to account and financial reporting. Before each
professional service provided by Dayton & Associates was rendered, said services
were approved by, and the possible effect on the independence of the accountant
was considered by the Board of Directors Audit Committee.
It is expected that a representative of Dayton & Associates will be present
at the Meeting to respond to all appropriate questions.
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<PAGE>
ADDITIONAL MATTERS
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 1997 Annual
Meeting of Shareholders, which is desired to be presented in the Company's Proxy
Statement with respect to such meeting, should submit such proposal to the
Company at its principal place of business no later than 9:00 a.m., March 1,
1997. Matters pertaining to such proposal, including the number and length
thereof, eligibility of persons entitled to have such proposals included and
other aspects, are regulated by the Securities Exchange Act of 1934, rules and
regulations, to which interested persons should refer.
ANNUAL REPORT ON FORM 10-KSB
The Annual Report to Shareholders of the Company for the year ended
December 31, 1995 is being mailed concurrently with this proxy statement to all
shareholders of record as of July 1, 1996. The Annual Report is not to be
regarded as proxy soliciting material nor as a communication by means of which
any solicitation is to be made. A complete copy of the Company's Form 10-KSB
which was filed with the Securities and Exchange Commission can be obtained by
contacting the Corporate Secretary of Monarch Bancorp at 30000 Town Center
Drive, Laguna Niguel, CA 92677 or by calling the Company at (714) 495 3300.
REGULATORY ORDERS
Details of certain agreements with the Bank's primary regulators and the
termination of said Orders in December 1995 and March 1996 by the State Banking
Department and FDIC, respectively, are contained in the Company's Annual Report
and hereby incorporated by reference.
OTHER MATTERS
Management is not aware of any matters to be presented at the Meeting other
than those set forth above. However, if other matters come before the Meeting,
it is the intention of the persons named in the accompanying Proxy to vote said
Proxy in accordance with the recommendations of Management on such matters, and
discretionary authority to do so is included in the Proxy.
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THE ENCLOSED PROXY SHOULD BE COMPLETED, DATED, SIGNED AND RETURNED IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOUR PROMPT MAILING OF THE SIGNED PROXY WILL BE
APPRECIATED.
MONARCH BANCORP
/s/ E. Lynn Caswell
E. LYNN CASWELL
PRESIDENT, AND CHIEF EXECUTIVE OFFICER
DATED: JULY 29, 1996
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MONARCH BANCORP
30000 TOWN CENTER DRIVE
LAGUNA NIGUEL, CALIFORNIA 92677
The undersigned Shareholders of Monarch Bancorp hereby appoint Rice E. Brown,
Raymond B. Cox, and Margaret A. Redmond, or any one of them, as Proxies, each
with the power to appoint his or her substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
Monarch Bancorp held of record by the undersigned on July 1, 1996 at the Annual
Meeting of Shareholders to be held at South Coast Medical Center, 31872 Pacific
Coast Highway, Laguna Beach, California on Monday, August 20, 1996, at 7:00 p.m.
or any adjournment thereof, as fully and with the same force and effect as the
undersigned might or could do if personally present thereat, as follows:
1. ELECTION OF DIRECTORS. / / FOR all nominees listed below (except as
indicated to the contrary below).
/ / WITHHOLD AUTHORITY to vote for all nominees
listed below.
Rice E. Brown, E. Lynn Caswell, Raymond B. Cox, Alfred H. Jannard, Cheryl
Moore, Margaret A. Redmond, John W. Rose, Henry E. Schielein, and David C.
Wooten.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name in the space below.)
2. APPROVAL OF A "QUASI-REORGANIZATION" OF THE COMPANY. To consider and vote
upon a proposal for a corporate readjustment that eliminates the
accumulated deficit from past unprofitable operations using accounting
standards that allow for a "quasi-reorganization", as described in this
Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
3. APPROVAL OF AMENDMENT TO MONARCH BANCORP 1993 STOCK OPTION PLAN. To
approve proposed amendments to the Company's 1993 Stock Option Plan that
would (i) increase the number of shares subject to the Plan to 10% of the
issued and outstanding shares of the Company following the Company's
acquisition of Western Bank and the issuance of additional shares, (ii)
allow the exercise of options by surrendering a portion of the option being
exercised and applying the appreciated value of the shares being
surrendered to payment of the exercised price, and (iii) remove certain
termination provisions relating to options granted to consultants, business
associates and others with important business relationships with the
Company, in each case as described in this Proxy Statement and subject to
any necessary changes required by any regulatory agency.
/ / FOR / / AGAINST / / ABSTAIN
4. OTHER BUSINESS. Transacting such other business as may properly come
before the Meeting, and any adjournment or adjournments thereof.
The Board of Directors recommends a vote "FOR" all of the proposals as
presented. The Proxy confers authority and shall be voted in accordance with
the recommendation of the Board of Directors unless a contrary instruction is
indicated, in which case the Proxy shall be voted in accordance with such
instructions. In all other matters, if any, presented at the meeting, this
Proxy shall be voted in accordance with the recommendations of the Board of
Directors.
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Dated
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Signature
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Signature
(Please date this Proxy and sign your name as it appears on you stock
certificates. When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If more than one trustee, all should sign.
All joint owners should sign.)
/ / I DO / / I DO NOT expect to attend the meeting.
Please mark, sign, date and return the proxy.
