NORTHERN EMPIRE BANCSHARES
801 Fourth Street
Santa Rosa, California 95404
(707) 579-2265
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To Be Held on May 19, 1998
To the Shareholders of Northern Empire Bancshares:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Northern Empire Bancshares will be held at Sonoma National Bank, 801
Fourth Street, Santa Rosa, California, on May 19, 1998, at 5:00 P.M.
for the following purposes:
1. Electing directors to serve for the ensuing year.
2. To adopt the Company's 1997 Stock Option Plan.
3. Transacting such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on April 1, 1998, is the record date for the
determination of shareholders entitled to notice of and to vote at the
meeting or any adjournment thereof.
Nominees for director are named in the enclosed proxy statement.
Whether or not you plan to attend the meeting, you may vote by
completing, signing, and returning the enclosed proxy card promptly.
You may revoke your proxy at any time prior to the time it is voted.
By Order of the Board of Directors
James B. Keegan, Jr.
President
April 15, 1998
(Approximate mailing date of proxy materials)
Place and Time of Annual Meeting
--------------------------------
Sonoma National Bank
801 Fourth Street
Santa Rosa, California 95404
May 19, 1998, 5:00 P.M.
PROXY STATEMENT
NORTHERN EMPIRE BANCSHARES
--------------------------
Annual Meeting of Shareholders
May 19, 1998
INTRODUCTION
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of Northern Empire Bancshares
("Corporation"), a California corporation, for use at the Annual Meeting
of Shareholders to be held on May 19, 1998, at 5:00 p.m., at Sonoma
National Bank, 801 Fourth Street, Santa Rosa, California, and any
adjournment thereof. These proxy materials were mailed to shareholders
on or about April 15, 1998.
PURPOSE OF THE MEETING
The meeting is to be held for the purposes of:
1. Electing seven (7) directors (the entire Board of Directors) to
serve until the next annual meeting of shareholders and until their
successors are elected and have qualified.
2. To adopt the Company's 1997 Stock Option Plan.
3. Acting upon such other business as may properly come before the
meeting or any adjournments thereof.
GENERAL PROXY STATEMENT INFORMATION
Revocability of Proxies
- -----------------------
Any shareholder giving the enclosed proxy has the right to revoke it at
any time before it is exercised by filing with the Corporation's
Secretary, Robert V. Pauley, a written notice of revocation or by
presenting at the meeting a duly executed proxy bearing a later date. A
shareholder may also revoke the proxy by attending the meeting and
electing to vote in person, before any vote is taken.
Solicitation of Proxies
- -----------------------
This proxy solicitation is made by the Board of Directors of the
Corporation, and the cost of the solicitation is being borne by the
Corporation. Solicitation is being made by this Proxy Statement and may
also be made by employees of the Corporation who may communicate with
shareholders or their representatives in person, by telephone or by
additional mailings in connection with proxies. While there are no
present plans to do so, the Corporation may utilize the services of
non-employees in connection with the solicitation of proxies if
management determines that this is appropriate.
Outstanding Securities and Voting Rights
- ----------------------------------------
As of February 28, 1998, the Corporation has one class of equity
securities issued and outstanding, consisting of 1,567,765 shares of
common stock, no par value. Such shares are held by approximately 318
shareholders of record. All of the shares are voting shares and
entitled to vote at the annual meeting.
Only those shareholders of record of the Corporation's common stock as
of the record date, April 1, 1998, will be entitled to notice of and to
vote in person or by proxy at the meeting or any adjournment thereof,
unless a new record date is set for an adjourned meeting.
The Date of This Proxy Statement is April 15, 1998
--------------------------------------------------
On April 3, 1998, the Board of Directors of the Corporation declared a
5% stock dividend, which will be payable to shareholders of record of
the Corporation as of May 1, 1998. The dividend is payable on May 15,
1998. Since the record date for the determination of the shares
entitled to vote at this meeting is before the record date for the stock
dividend, the shares issued as a result of the 5% stock dividend cannot
be voted at the meeting. None of the share amounts in this proxy
statement have been adjusted for the 5% stock dividend.
Each share of common stock is entitled to one vote at the annual
meeting, except with respect to the election of the directors. In
elections for directors, California law provides that a shareholder, or
the shareholder's proxy, may cumulate votes, that is, each shareholder
has a number of votes equal to the number of shares owned by the
shareholder, multiplied by the number of directors to be elected, and he
or she may cumulate such votes for a single candidate, or distribute
such votes among as many candidates as he or she deems appropriate.
However, a shareholder may cumulate votes only for a candidate or
candidates whose names have been properly placed in nomination prior to
the voting, and only if the shareholder has given notice at the meeting,
prior to the voting, of the intention to cumulate votes. See
"Nomination of Directors", herein. If any one shareholder has given
such notice, all shareholders may cumulate their votes for the
nomination. The proxy holders are given, under the terms of the proxy,
discretionary authority to cumulate votes represented by shares for
which they are named proxy.
If a shareholder withholds authority to vote for directors on the
enclosed proxy, or attends the meeting, elects to vote in person, but
abstains from voting in the election of directors, that shareholder's
shares will not be counted in determining the candidates receiving the
highest number of votes. For shares held in street name, if the record
holder is a brokerage firm and the beneficial owner does not inform the
record holder how to vote the shares, the record holder will sign and
return a proxy with respect to the shares and vote in favor of
management of the Corporation with respect to routine matters.
For shares held in street name where the record holder is a bank, the
record holder will not return a proxy if the beneficial owner does not
inform the record holder how to vote the shares.
In the election of directors, the seven (7) candidates receiving the
highest number of votes will be elected.
If the enclosed proxy is completed in the appropriate spaces, signed,
dated and returned, the proxy will be voted as specified in the proxy.
If no specification is made, it will be voted FOR the election of
directors nominated by the Board, FOR the adoption of 1997 Stock Option
Plan and for such other matters as may come before the meeting at the
discretion of the proxy holders.
Management of the Corporation is not aware of any other matters to come
before the meeting and recommends that the shareholders vote FOR the
election of the directors nominated by the Board and FOR the 1997 Stock
Option Plan.
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
Other than as set forth below, the Corporation knows of no person who is
the beneficial owner of more than 5.0% of the Corporation's outstanding
shares as of February 28, 1998.
The following sets forth the numbers of shares of common stock
beneficially owned by each director of the Corporation and the Bank and
by the directors and officers (including vice presidents and above) of
the Corporation and the Bank as a group, as of February 28, 1998. The
numbers of shares beneficially owned include the numbers of shares which
each person has the right to acquire upon exercise of stock options
granted pursuant to the Corporation's Stock Option Plan. The percentages
of shares owned beneficially are calculated, pursuant to SEC Rule
13d-3(d) (1), based on the number of shares presently outstanding plus
the number of shares which the person or group has the right to acquire.
The number of shares have not been adjusted for the stock dividend
declared on April 3, 1998.
<TABLE>
<CAPTION> Shares
Name Address Beneficially Owned Pct
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clement C. Carinalli 520 Mendocino Ave., Santa Rosa, CA 95401 63,469 (1) 3.9%
Patrick R. Gallaher 6637 Oakmont Dr., Santa Rosa, CA 95409 44,301 2.7
William P. Gallaher 9066 Brooks Rd. South, Windsor, CA 95492 37,389 (2) 2.3
William E. Geary 37 Old Courthouse Sq., Santa Rosa, CA 95404 71,550 (3) 4.4
Dennis R. Hunter 2455 Bennett Valley Rd., Santa Rosa, CA 95404 140,623 (4) 8.6
James B. Keegan, Jr. 1355 North Dutton Ave., Santa Rosa, CA 95404 48,831 (5) 3.0
Deborah A. Meekins 801 Fourth Street, Santa Rosa, CA 95404 22,564 (6) 1.4
Robert V. Pauley 120 "D" Street, Santa Rosa, CA 95404 100,797 (7) 6.1
All other officers as a group
(13 people) 18,182 (8) 1.1
- ---------------------------------------------------------------------------------------------------------
Directors and Officers as a
group (21 persons) 547,706 33.5%
=========================================================================================================
<FN>
(1) Including 20,271 shares which Mr. Carinalli has the right to
purchase upon exercise of outstanding options and 3,160 shares
held by members of his immediate family residing at his home.
(2) Including 7,291 shares which Mr. W. Gallaher has the right to
purchase upon exercise of outstanding options and 18,300 shares
held in Mr. W. Gallaher's IRA.
(3) Including 9,724 shares which Mr. Geary has the right to purchase
upon exercise of outstanding options, 7,324 shares held for the
employee pension and profit sharing plan of Geary Shea &
O'Donnell, 8,195 shares held by Mrs. Geary and 3,949 shares held
in a trust account for which Mr. Geary serves as trustee but does
not have a beneficial interest.
(4) Including 39,147 shares held in the name of Kathrine Hunter, as to
which Mr. Hunter has voting rights, and 95,521 shares held in
trust accounts for which Mr. Hunter serves as trustee but does not
have a beneficial interest.
(5) Including 3,199 shares which Mr. Keegan has the right to purchase
upon exercise of outstanding options, 34,008 shares held by Keegan
& Coppin Company, Inc., 3,591 shares held by the Keegan & Coppin
Profit Sharing Plan and 5,241 held in trust accounts for which Mr.
Keegan is trustee or held in accounts for the benefit of his minor
children.
(6) Including 11,757 shares which Ms. Meekins has the right to
purchase upon exercise of outstanding options.
(7) Including 9,724 shares which Mr. Pauley has the right to purchase
upon exercise of outstanding options and 8,473 shares held by Mrs.
Pauley.
(8) Including 5,081 shares which officers have the right to purchase
upon exercise of outstanding options.
</TABLE>
As of February 28, 1998, Mr. James Ratto and Mrs. Deana Ratto, P.O. Box
768, Novato, CA 94948, owned 77,191 shares or 4.9% of the total shares
outstanding and held 24,917 shares in trust accounts for which either
Mr. Ratto or Mrs. Ratto serve as the trustee. The total number of
shares equaled 102,108 or 6.5% of the total shares outstanding.
ELECTION OF DIRECTORS
Nominees to the Board of Directors
Each of the directors is to be elected to serve for the ensuing year and
until his successor is elected and has qualified. The nominees for
director as proposed by the Board are as follows:
<TABLE>
<CAPTION>
Name and Positions with the Principal Occupation
Corporation and the Bank Age During the Past 5 Years
- --------------------------- --- --------------------------
<S> <C> <C>
Clement C. Carinalli
Director of the Corporation and the Bank 52 Retired CPA, local businessman, rancher
and real estate investor.
Patrick R. Gallaher,
Chief Accounting Officer of the Corporation and
Director of the Corporation and the Bank 52 Certified Public Accountant and local
businessman; major shareholder in
Oakmont Developers, a Santa Rosa
development company.
William P. Gallaher,
Director of the Corporation and the Bank 47 Real Estate developer and investor;
President of Oakmont Developers;
President of Gallaher Construction Company.
William E. Geary,
Director of the Corporation and the Bank 69 Senior Partner in Geary, Shea & O'Donnell,
a Santa Rosa law firm.
Dennis R. Hunter,
Chairman of the Board of the Corporation and
Vice Chairman of the Board of the Bank 55 Real estate investor and developer in Santa
Rosa; principal in Investment Development
Fund, a venture capital fund.
James B. Keegan, Jr.,
President & Director of the Corporation and
Chairman of the Board of the Bank 49 Partner in Keegan & Coppin Company, a Santa
Rosa real estate brokerage and development
firm, since 1976.
Robert V. "Buzz" Pauley,
Secretary/Treasurer of the Corporation and
Director of the Bank 53 Owner of Pauley Exports, Ltd., an exporter
of California food and beverage products to
the Pacific Rim; commercial properties
manager; trader of futures and options
contracts in Chicago and other
international market exchanges.
</TABLE>
William E. Geary, Dennis R. Hunter, James B. Keegan, Jr. and Robert V.
Pauley have served as a director of the Corporation since its initial
organization in 1982. Patrick R. Gallaher has been a director of the
Corporation since May 1992. William P. Gallaher has been a director of
the Corporation since June 1994. Clement C. Carinalli had previously
served on the Board for 10 years when he was reappointed to the Board in
May 1996. William P. Gallaher and Patrick R. Gallaher are brothers.
The enclosed proxy will be voted in favor of the election of the
above-named nominees as directors, unless authority to vote for
directors is withheld. If any of the nominees should be unable or
decline to serve, which is not anticipated, discretionary authority
is reserved for the proxy holders to vote for a substitute, to be
designated by the present Board of Directors.
In the event that additional persons are nominated as directors, the
proxy holders intend to vote all the proxies received by them in such
manner in accordance with cumulative voting as will assure the election
of as many of the nominees listed above as possible and, in that event,
the specific nominees to be voted for will be determined by the proxy
holders in their sole discretion.
Nomination of Directors
- -----------------------
The Corporation's Bylaws provide that nominations for directors by
shareholders may be made, provided that certain informational
requirements concerning the identities of the nominating shareholder and
the nominee are complied with in advance of the meeting. This
provision is intended to provide advance notice to management of any
attempt to effect an election contest or a change in control of the
Board of Directors. Specifically, the Bylaws provide that nominations
for directors, other than those made by or on behalf of existing
management, must be made in writing and mailed or delivered to the
President of the Corporation, not less than 14 nor more than 50 days
prior to any meeting of shareholders called for the election of
directors, except that if less than 21 days notice of the meeting is
given, such nomination must be mailed or delivered to the President of
the Corporation by the close of business on the 7th day following the
date on which the notice was mailed. The written nomination must
include the following information, to the extent known by the nominating
shareholder:
(a) the name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee;
(c) the total number of shares of common stock of the
Corporation that will be voted for each proposed nominee;
(d) the name and residence address of the nominating
shareholder; and
(e) the number of shares of common stock of the Corporation
owned by the nominating shareholder.
The Bylaws provide that nominations not made in accordance with the
above procedure may, in his discretion, 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.
Committees and Meetings of the Board
- ------------------------------------
The Board of Directors of the Corporation does not have standing audit,
compensation or nominating committees. The functions of the audit and
compensation committees are performed by the Audit and Personnel
Committees of the Bank, respectively. The Audit Committee of the Bank
is composed of Clement C. Carinalli, James B. Keegan, Jr., Patrick
R. Gallaher and Robert V. Pauley. The Audit Committee met two times in
1997 for the purpose of reviewing the scope of and planning for the
annual audit and the results of internal operations audits of the Bank,
and the Bank's compliance with consumer laws, regulatory agency reports
and securities reports.
The Personnel Committee of the Bank is composed of William E. Geary and
Robert V. Pauley. The Personnel Committee met once in 1997. The
purpose of the committee is for setting compensation levels of senior
officers and directors, reviewing and approving bonus plans and
payments, reviewing and approving employee benefit plans, and reviewing
and approving the Bank's personnel policy.
The Corporation's Board of Directors held a total of three meetings in
1997, including regular and special meetings. The Board of Directors of
the Bank held a total of thirteen meetings in 1997, including regular
and special meetings. No nominee for director of the Corporation, while
serving as a director, attended fewer than 75% of the total number of
meetings, of the Boards and of the committees of which he was a member,
except for Robert V. Pauley.
Transactions With Directors and Officers
- ----------------------------------------
The Corporation leased the main premises of the Bank from Clement C.
Carinalli, a director of the Corporation and the Bank, and Ann Marie
Carinalli. The Corporation subleases the premises to the Bank. During
1996, the building was sold and Mr. and Mrs Carinalli assigned the lease
obligation to the new owners. The Corporation's monthly lease payment
was $16,596 per month in 1997. The total rental expenses on this lease
for the year ended December 31, 1997 was $194,000.
The Corporation leased the Oakmont Branch premises from Oakmont
Investments of which Patrick Gallaher, a director of the Corporation and
Bank, is a partner. During 1997, Oakmont Investments sold the building
and assigned the lease obligation to the new owner. The monthly rental
for the Oakmont Branch was $7,122 at December 31, 1997. Total rental
expense on this lease for the year ended December 31, 1997 was $76,000.
The Bank has leased new facilities for the loan department and some
administrative offices from Mr. James Ratto, a major shareholder of the
Corporation. The monthly rent will be $12,875 per month commencing May
1, 1998.
The Bank has had in the ordinary course of business, and expects to have
in the future, banking transactions with its directors, officers and
their associates, including transactions with corporations of which such
persons are directors, officers or controlling shareholders. The
transactions involving loans have been and will be entered into
with such persons in the ordinary course of business, on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons,
and on terms not involving more than the normal risk of collectibility
or presenting other unfavorable features. At December 31, 1997, loans
by the Bank to directors, officers and their associates totaled
approximately $7,015,000, constituting 3.4% of total loans, 40.1% of the
Bank's shareholder's equity and 39.6% of the consolidated shareholders'
equity of the Corporation.
Loans to insiders, such as officers, directors, and certain other
persons are subject to the limitations and requirements of the Financial
Institutions Regulatory and Interest Rate Control Act of 1978 and
regulations thereunder.
Directors of the Bank and Executive Officers of the Bank
- --------------------------------------------------------
Information regarding the directors and the executive officers of the
Bank is reported in the Corporation's Annual Report on Form 10-KSB. A
shareholder may obtain a copy of the Annual Report on Form 10-KSB by
writing to Deborah A. Meekins, Northern Empire Bancshares,
801 Fourth Street, Santa Rosa, CA 95404, or calling Ms. Meekins at
(707)579-2265.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to or accrued
for the officers of the Bank whose cash compensation exceeded $100,000,
for services rendered for the periods indicated. The executive officers
of the Corporation, including the President, do not receive compensation
for their services as such. The President of the Corporation, James B.
Keegan, Jr., serves as the Chairman of the Board of the Bank and
receives $1,500 per month from the Bank for his services in that
capacity. All other executive officers of the Corporation are
considered outside directors of the Bank and, as such, they receive
directors fees. See, "Compensation of Directors," below.
<TABLE>
Summary Compensation Table
<CAPTION>
(dollars in thousands)
Long Term
Annual Compensation Compensation
---------------------- -------------
Options All Other
Name and Principal Position Year Salary Bonus (No. of Shares) (1)
- --------------------------- ---- ------ ----- ------------- ---
<S> <C> <C> <C> <C> <C>
Deborah A. Meekins, 1995 $128 $ 69 $27
President and Chief Executive Officer 1996 133 81 39
and Director of the Bank 1997 141 110 51
David F. Titus, Executive Vice President 1995 91 44 23
and Senior Loan Officer of the Bank 1996 96 54 34
1997 100 73 46
<FN>
(1) Includes contribution by the Bank for the benefit of the named
officer pursuant to the Bank's 401(k) plan and expenses incurred
with respect to the Salary Continuation Agreement for the named
officer, as described below.
</TABLE>
Salary Continuation Agreements
- ------------------------------
During 1993, the Bank entered into deferred compensation agreements with
Deborah A. Meekins, President & Chief Executive Officer, and David F.
Titus, Executive Vice President & Senior Loan Officer. Under these
agreements, the Bank is obligated to provide for them or their
beneficiaries, during a period of 15 years after the employee's death,
disability, or retirement, annual benefits ranging from $75,000 to
$100,000. Benefits are also provided to the officer if he/she resigns
following a change in control or if he/she voluntarily resigns after
June 1, 1995. The estimated present value of future benefits to be paid
is being accrued over the period from the effective date of the
agreements until their expected retirement dates. The accrued expense
is included in Other Liabilities in the financial statements. The Bank
is the beneficiary of life insurance policies that have been purchased
as a method of financing the benefits under the agreements. At December
31, 1997, the cash surrender value of these policies
were $876,000, which is included in other assets.
Stock Option Plan
- -----------------
Neither the Corporation nor the Bank award restricted stock or have long
term incentive plans, other than the Corporation's Stock Option Plan.
No stock options were granted to officers in 1997 or 1996. Stock
options granted under the Corporation's prior Stock Option Plan, which
expired on February 26, 1994, remain outstanding even though the Plan
has terminated. The Corporation's Board of Directors has adopted a new
stock option plan which is being brought to the shareholders for
approval at the May 19, 1998 shareholders meeting. No options
have been granted under the new plan.
<TABLE>
<CAPTION>
Aggregated Year-End Option Values
---------------------------------
December 31, 1997
------------------------------------------------------------------------
Number of Unexercised Securities Value of Unexercised Options (2)
Underling Options (No. of Exercisable/Unexercisable
Shares)(1)
Exercisable/Unexercisable
------------------------- -------------------------------
<S> <C> <C>
Deborah A. Meekins 21,464 / 0 $313,000 / $0
David F. Titus 1,214 / 0 31,000 / 0
<FN>
(1) Adjusted for stock dividends issued since date of the option
grant.
(2) Calculated based on the difference between the fair market value
of the stock and the exercise price of the options, as of
December 31, 1997.
</TABLE>
Directors Fees
- --------------
Outside Directors of the Bank (including directors who serve as
executive officers of the Corporation) receive director fees as follows:
$1,500 for each monthly board meeting attended, $500 per executive
committee meeting attended and $250 per all other committee meetings
attended. The Chairman of the Board of the Bank receives a fee of
$2,000 per month in addition to the committee fees described above.
The Corporation does not pay director's fees at this time, and does not
plan to in the near future.
Directors also were eligible to receive options under the Corporation's
Stock Option Plan. See, above "Security Ownership of Certain Beneficial
Owners and Management". During 1997, stock options for 4,700 shares
were exercised by directors, realizing a value of approximately $72,000.
Outside directors held on December 31, 1997 options for 62,905 shares,
which options had an estimated value of $1,647,000 based on the
difference between the fair market value of the stock as of that date
and the exercise price of the options.
During 1994, 1995 and 1996, the Corporation entered into deferred
compensation agreements with Patrick R. Gallaher, William P. Gallaher,
William Geary, and James B. Keegan, Jr. Under each of these agreements,
the Corporation is obligated to provide for the director or his
beneficiaries, during a period of between 10 to 15 years after the
director's death, disability or retirement, annual benefits ranging from
$13,000 to $55,000. The estimated present value of future benefits to
be paid is being accrued over the period from the effective date of the
agreements until the expected retirement dates. The Corporation is
beneficiary of life insurance policies that have been purchased as a
method of financing the benefits. At December 31, 1996, the cash
surrender value of these policies was $1,021,000, which is included in
other assets.
APPROVAL OF NORTHERN EMPIRE BANCSHARES
1997 STOCK OPTION PLAN
The Company had a Stock Option Plan that expired on February 26, 1994.
There are still outstanding under that Plan options to purchase 64,332
shares of stock, which will remain outstanding until they are exercised
or expire. However, no new options may be granted under the prior Plan.
At the meeting, the shareholders are being asked to approve the
adoption of the Northern Empire Bancshares 1997 Stock Option Plan (the
"Plan"). The new Plan will permit the Company to continue to utilize
this important type of employee and director incentive compensation.
The Board adopted the Plan on December 16 1997 and approved Amendment
No. 1 to the Plan on February 18, 1998. The shareholders are being
asked to approve the Plan, as amended, at the annual meeting. The
following disclosure with respect to the Plan describes the Plan, as
amended by the Board in February.
The purpose of the Plan is to provide a means whereby employees and
directors of the Company, Sonoma National Bank (the "Bank") and any
other corporation that may become a subsidiary of the Company, may be
given an opportunity to purchase shares of common stock of the Company.
The Plan is intended to advance the interests of the Company and the
Bank by enhancing their ability to attract and retain the best available
personnel for positions of substantial responsibility and to attract and
retain the best available persons to serve as directors at the Company
and the Bank, to provide additional incentive to employees and
directors, and to promote the success of the Company's business.
Principal Features of the Plan
- ------------------------------
The Plan provides for the grant of both non-statutory options and
options which are intended to qualify as "incentive stock options" as
defined in Section 422 of the Internal Revenue Code (the "Code"). The
Code provides that no income is recognized from the grant of an
incentive stock option or, as long as certain requirements are met, from
the exercise of an incentive stock option by the optionee. If the
employment requirements are not met, ordinary income will be recognized
at the time of exercise. On the sale of stock acquired through the
exercise of an option, long-term or short-term capital gain will be
recognized, depending upon how long the stock was held. The employer is
not allowed a business expense deduction with respect to an incentive
stock option unless income is recognized by the optionee.
Generally, the grant of an option which does not qualify as an incentive
stock option (a "non-qualified option") does not constitute ordinary
income to the optionee, unless the option has a readily ascertainable
fair market value. When a non-qualified option is exercised, the
optionee recognizes income in an amount equal to the difference between
the option price and the value of the stock at the time of exercise.
The employer is allowed a business expense deduction equal to the amount
included in the optionee's income in the employer's corresponding tax
year.
All employees and directors of the Company and any subsidiary of the
Company are eligible to be granted options pursuant to the Plan.
Options may be granted under the Plan from time to time, until the
termination date of the Plan. The Plan terminates on December 16, 2007,
which is ten (10) years after it is approved by the Board of Directors
of the Company.
The Plan also provides that the aggregate fair market value of the
shares for which an optionee may first exercise incentive stock options
in any calendar year may not exceed $100,000. This limitation on the
grant of incentive stock options does not apply to options granted under
the Plan which are designated as "non-incentive" or "non-statutory"
options.
The Plan will be administered by the Board of Directors of the Company.
The Board will have plenary authority in its discretion to make
decisions relating to the administration of the Plan and the granting of
options. In administering the terms of the Plan as they apply to any
participant who is also a director, the vote of such director will not
be counted in determining the vote required in connection with the grant
of an option to such optionee or in connection with any other
determination with respect to an option to such optionee. The Board is
permitted under the Plan to delegate the administration of the Plan
to a Committee of the Board.
To the extent that options are granted as incentive stock options, the
Plan will be administered so as to qualify such options as incentive
stock options as defined in Section 422 and other applicable sections of
the Code, as now in force or as amended in the future, and the
regulations promulgated thereunder.
Number of Shares to be Covered by the Plan
- ------------------------------------------
The Plan permits the grant of options for up to 600,000 shares, subject
to the limitation that the number of shares for which options may at any
time be outstanding, plus the total number of shares provided for under
any compensation plan under which shares of stock may be issued to
participants, shall not exceed 30% of the outstanding stock of the
Company. Based on the current number of shares outstanding and the
number of shares currently covered by options still outstanding under
the prior stock option plan, the number of shares for which the Board
may initially grant options under the Plan is 406,957. As the
number of outstanding shares increases (due to the exercise of options
or other issuances of shares), the number of shares for which options
may be outstanding under the Plan will increase. However, at no time
may options be granted (including options that are already exercised)
for more than 600,000 shares.
The number of shares for which options may be granted is subject to
certain adjustment provisions described below. All the shares issued
upon the exercise of an option (including shares, if any, withheld for
tax withholding requirements) are considered to have been used and may
not be made the subject of later options, even if shares of common
stock are delivered to the Company as payment for the exercise.
Shares of common stock applicable to the unexercised portions of options
which have terminated or expired may again be made subject to options
under the Plan if at such time options may still be granted under the
Plan. Shares of common stock applicable to expired or terminated
options under any other plans, such as the prior plan, may not be made
subject to options under the Plan.
Exercise Price and Term of Options
- ----------------------------------
For incentive stock options, the option price to be paid upon exercise
of an option may not be less than the fair market value of the Company's
common stock on the date the option is granted. For non-incentive stock
options, the option price may not be less than eighty-five percent (85%)
of the fair market value of the Company's common stock as determined
on the date the option is granted. The fair market value of the common
stock may be established by the Board of Directors by use of any
reasonable valuation method, taking into consideration prices at which
shares have recently traded, the number of shares traded and other
relevant factors. On March 31, 1998, the bid price was $31.00 per share.
The Plan permits the Board to reduce the exercise price of outstanding
options to the then current fair market value of the common stock, if
the fair market value of the common stock covered by the option has
declined since the option was granted. This permits the Company
to provide a new incentive to its directors and employees, even when the
stock price has fallen.
Each option granted under the Plan will expire not more than ten (10)
years from the date the option is granted. Each option may be exercised
upon such terms and conditions as the Board shall determine, however, if
an option is not fully exercisable at the time of grant, if must become
fully exercisable within five (5) years from the date it is granted, at
a rate of at least 20% per year following the date of grant.
Installments will be cumulative. However, the Company will not be
required to issue fractional shares.
Notwithstanding the above option price provisions, no option may be
granted to any participant who, on the date such option is granted, owns
stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, or its parent or
subsidiary corporations, if any, unless the exercise price of such
option is equal to at least one hundred and ten percent (110%) of the
fair market value of the shares of the Company's common stock on the
date such option is granted and the term of such an option (if it is an
incentive stock option) may not exceed five (5) years.
<PAGE>
Incentive stock options are not assignable or transferable otherwise
than by will or the laws of descent and distribution. During the
lifetime of an optionee, an incentive stock option is exercisable only
by the optionee. However, options that are granted as nonstatutory
options are transferable only to immediate family members. Nonstatutory
options may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any other manner by the optionee or by a family member
to whom such option has been transferred, other than by will or by the
laws of descent or distribution. A nonstatutory stock option may be
exercised, during the lifetime of the holder of the option, only by
the optionee or a family member who has received the option by a
permitted transfer from the optionee.
Such shares purchased pursuant to the exercise of options must, at the
time of exercise, be paid for in full, in cash, common stock already
owned by the optionee, a note secured by the common stock received on
exercise, or a properly executed exercise notice together with such
other documentation and the Company and a broker may require in order
for the stock to be immediately sold and the proceeds provided to the
Company. If shares of common stock are tendered as payment, such shares
shall be valued at their fair market value, as determined by the
Company, on the date of the notice given to the Company by the optionee
with respect to such exercise.
Termination of Employment or Service as a Director
- --------------------------------------------------
Upon termination of an optionee's status as an employee or director,
other than (i) due to the disability or death of the optionee, or (ii) a
leave of absence approved by the Company, which, in the case of an
Incentive Stock Option may not exceed 90 days, the optionee may exercise
his or her option, but only within such period of time as is specified
in the Notice of Grant, and only to the extent that the optionee was
entitled to exercise it at the date of termination (and in no event
later than the expiration of the term of such option as set forth in the
notice of grant). The time for exercise after termination of employment
shall be at least 30 days from the date of termination. In the case of
an Incentive Stock Option, such period of time shall not exceed 90 days
from the date of termination. In the absence of a specified time in the
notice of grant, the Option shall remain exercisable for 90 days
following the Optionee's termination of employment or service as a
director.
If the termination of employment or service as a director occurs as a
result of the death or disability of the optionee, the optionee may
exercise the option for the period of time specified in the Notice of
Grant, which period of time may not exceed the later of 12 months
following such death, termination of employment or service as a director
or the expiration of the term of such option as set forth in the option
agreement, provided, however that in no event may an option be exercised
more than 10 years after the date it is granted. The option may be
exercised only to the extent that the optionee was entitled to exercise
it at the date of termination (unless the optionee was an officer or
director of the Company and the option agreement provides that the
option will vest in full upon such death or disability). However, a
person whose employment is terminated due to his or her disability must
exercise an option that is designated as an incentive stock option
within one year following the termination of employment in order to
receive incentive stock option treatment.
Adjustments or Changes in Stock
- -------------------------------
Subject to any required action by the stockholders of the Company, the
number of shares of common stock covered by each outstanding option and
the number of shares of common stock which have been authorized for
issuance under the Plan but as to which no options have yet been granted
or which have been returned to the Plan upon cancellation or expiration
of an option, as well as the price per share of common stock covered by
each such outstanding option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of common stock
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the common stock, or any other
increase or decrease in the number of issued shares of common stock
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator,
whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided in the Plan, no issuance by
the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by
reason thereof shall be make with respect to, the number or price of
shares of common stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Administrator shall notify each optionee as soon as practicable
prior to the effective date of such proposed transaction. The
Administrator in its discretion may provide for an optionee to
have the right to exercise his or her option until ten (10) days prior
to such transaction as to all of the optioned stock covered thereby,
including shares as to which the option would not otherwise be
exercisable. To the extent it has not been previously exercised,
an option will terminate immediately prior to the consummation of such
proposed action.
In the event of a merger of the Company with or into another corporation
where the Company is not the successor corporation, or the sale of
substantially all of the assets of the Company, each outstanding option
shall be assumed or an equivalent option or right substituted by the
successor corporation or a parent or subsidiary of the successor
corporation. In the event that the successor corporation refuses to
assume or substitute for the option, the optionee shall fully vest in
and have the right to exercise the option as to all of the stock covered
by the option, including shares as to which it would not otherwise be
vested or exercisable. If an option becomes fully vested and
exercisable under the terms of the preceding sentence, the Plan
administrator (the Board of Directors, unless it delegates such
authority) shall notify the optionee in writing that the option
shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the option shall terminate upon the
expiration of such period. For the purposes of this paragraph, the
option shall be considered assumed if, following the merger or sale of
assets, the option confers on the optionee the right to purchase or
receive, for each share covered by the option, the consideration
(whether stock, cash, or other securities or property) received in the
merger or sale of assets by holders of common stock for each share held
on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however,
that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its parent, the
Plan administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the
option, for each share stock covered by the option to be solely common
stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of common
stock in the merger or sale of assets.
Additional Terms
- ----------------
The Plan will terminate by its terms on December 16, 2007.
The Plan may also be terminated at any time, or from time to time may be
modified, amended or suspended, by the Board of Directors. Shareholder
approval of any amendment must be obtained when necessary to comply with
the Internal Revenue Code provisions applicable to Incentive Stock
Options, Section 16(b) of the Securities Exchange Act of 1934, as
amended (which does not at this time apply to the Company but which may
apply in the future if the Company has over 500 shareholders), or other
applicable laws.
The proceeds from the sale of common stock pursuant to the exercise of
options will be used for the Company's general corporate purposes.
Benefits Under the Plan
- -----------------------
The Board has not yet determined the number of options to be granted to
any of the executive officers, directors or employees of the Company or
the Bank, or to any of these groups of individuals.
Required Approval
- -----------------
The favorable vote of a majority of the Company's outstanding shares
present or represented at the meeting is required for approval of the
adoption of the Plan, as amended by Amendment No. 1. The Board of
Directors recommends that the shareholders vote FOR the adoption of the
Plan, as amended, and, if the enclosed proxy is executed and returned,
it will be voted in favor of such adoption, unless otherwise indicated.
INDEPENDENT PUBLIC ACCOUNTANTS
The Corporation engaged Coopers & Lybrand L.L.P. to serve as the
independent public accountant for the Corporation for 1996 and 1997. It
is expected that Coopers & Lybrand L.L.P. will continue to serve as
independent accountants for 1998. Representatives of Coopers & Lybrand
L.L.P. will not be present at the annual meeting.
OTHER BUSINESS
If any other matters come before the meeting, not referred to in this
Proxy Statement, including matters incident to the conduct of the
meeting, the proxy holders will vote the shares represented by proxies
in accordance with their best judgment. Management is not aware of any
other business to come before the meeting and, as of the date of the
preparation of this Proxy Statement, no shareholder has submitted to
management any proposal to be acted upon at the meeting.
