SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
_X_ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarter ended December 31, 1999
_________________
or
___ Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 1 - 14588
_________
Northeast Bancorp
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Maine 01 - 0425066
_____________________________________ ______________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
232 Center Street, Auburn, Maine 04210
_____________________________________ ______________________________________
(Address of principal executive (Zip Code)
offices)
(207) 777 - 6411
_______________________________________________________________________________
Registrant's telephone number, including area code
Not Applicable
<PAGE> 2
_______________________________________________________________________________
Former name, former address and former fiscal year,if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Shares outstanding as of
February 1, 2000: 2,742,898 of common stock, $1.00 par value per share.
_______________________________________________________________________________
NORTHEAST BANCORP
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
December 31, 1999 and June 30, 1999
Consolidated Statements of Income
Three Months ended December 31, 1999 and 1998
Consolidated Statements of Income
Six Months ended December 31, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity
Six Months ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows
Six Months ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
_______________ _______________
<S> <C> <C>
Assets
Cash and due from bank $ 7,776,735 $ 4,963,985
Interest bearing deposits 433,929 345,585
Federal Home Loan Bank overnight deposits 3,614,000 6,784,000
Available for sale securities 24,093,686 18,054,317
Federal Home Loan Bank stock 6,184,000 5,680,500
Loans held for sale 118,184 311,600
Loans 364,171,362 318,986,247
Less allowance for loan losses 3,167,000 2,924,000
_______________ _______________
Net loans 361,004,362 316,062,247
Bank premises and equipment, net 4,769,233 5,037,026
Assets acquired through foreclosure 130,225 193,850
Goodwill (net of accumulated amortization of
$1,799,718 at 12/31/99 and $1,662,588 at
6/30/99) 1,325,217 1,462,346
Other assets 6,364,148 5,487,449
_______________ _______________
Total Assets $ 415,813,719 $ 364,382,905
=============== ===============
Liabilities and Shareholders' Equity
Liabilities:
Deposits $ 238,727,661 $ 219,364,035
Securities Sold Under Repurchase Agreements 16,078,044 11,867,839
Advances from Federal Home Loan Bank 123,678,957 103,881,716
Notes payable 0 687,500
Other Liabilities 2,633,145 1,898,700
_______________ _______________
Total Liabilities 381,117,807 337,699,790
Guaranteed Preferred Beneficial Interests
in the Company's Junior Subordinated
Debentures 7,172,998 0
Shareholders' Equity:
Common stock, $1.00 par value, 15,000,000
shares authorized. 2,785,815 and 2,768,624
shares issued at 12/31/99 and 06/30/99,
respectively. 2,761,944 and 2,768,624
<PAGE> 4
shares outstanding at 12/31/99 and 6/30/99,
respectively. 2,785,815 2,768,624
Additional paid in capital 10,263,734 10,208,299
Retained earnings 15,490,494 14,145,720
Accumulated other comprehensive income (loss) (827,452) (439,528)
_______________ _______________
27,712,591 26,683,115
Treasury Stock at cost, 23,871 and 0 shares
outstanding at 12/31/99 and 6/30/99,
respectively. (189,677) 0
_______________ _______________
Total Shareholders' Equity 27,522,914 26,683,115
_______________ _______________
Total Liabilities and Shareholders' Equity $ 415,813,719 $ 364,382,905
=============== ===============
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
_______________ _______________
<S> <C> <C>
Interest and Dividend Income
Interest on FHLB overnight deposits $ 57,873 $ 73,860
Interest on loans & loans held for sale 7,444,148 6,179,727
Interest on available for sale securities 347,267 177,051
Dividends on Federal Home Loan Bank stock 101,140 91,635
Other Interest Income 3,741 5,443
_______________ _______________
Total Interest Income 7,954,169 6,527,716
Interest Expense
Deposits 2,550,342 2,157,908
Repurchase agreements 168,791 86,531
Trust preferred securities 73,932 0
Other borrowings 1,658,679 1,379,940
_______________ _______________
Total Interest Expense 4,451,744 3,624,379
_______________ _______________
Net Interest Income 3,502,425 2,903,337
Provision for loan losses 195,885 164,491
_______________ _______________
Net Interest Income after Provision for
Loan Losses 3,306,540 2,738,846
Other Income
Service charges 325,051 269,536
Net securities gains 20,697 47,699
<PAGE> 5
Net gain on trading securities 0 5,120
Other 267,960 519,115
_______________ _______________
Total Other Income 613,708 841,470
Other Expenses
Salaries and employee benefits 1,287,104 1,191,497
Net occupancy expense 221,494 219,399
Equipment expense 227,410 210,958
Goodwill amortization 68,564 74,094
Other 813,136 789,131
_______________ _______________
Total Other Expenses 2,617,708 2,485,079
_______________ _______________
Income Before Income Taxes 1,302,540 1,095,237
Income tax expense 465,796 394,669
_______________ _______________
Net Income $ 836,744 $ 700,568
=============== ===============
Earnings Per Common Share
Basic $ 0.30 $ 0.26
Diluted $ 0.30 $ 0.25
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
_______________ _______________
<S> <C> <C>
Interest and Dividend Income
Interest on FHLB overnight deposits $ 122,664 $ 190,094
Interest on loans & loans held for sale 14,455,123 12,488,988
Interest on available for sale securities 640,390 371,438
Dividends on Federal Home Loan Bank stock 195,410 181,838
Other Interest Income 9,352 10,515
_______________ _______________
Total Interest Income 15,422,939 13,242,873
Interest Expense
Deposits 4,886,065 4,287,652
Repurchase agreements 294,998 139,276
Trust preferred securities 73,932 0
Other borrowings 3,175,027 2,817,018
_______________ _______________
Total Interest Expense 8,430,022 7,243,946
Net Interest Income 6,992,917 5,998,927
<PAGE> 6
Provision for loan losses 491,114 369,421
_______________ _______________
Net Interest Income after Provision for
Loan Losses 6,501,803 5,629,506
Other Income
Service charges 590,232 522,921
Net securities gains 25,861 58,490
Net gain on trading securities 0 10,732
Other 624,939 670,997
_______________ _______________
Total Other Income 1,241,032 1,263,140
Other Expenses
Salaries and employee benefits 2,590,896 2,388,228
Net occupancy expense 448,943 354,309
Equipment expense 460,588 392,963
Goodwill amortization 137,129 148,187
Other 1,567,698 1,519,199
_______________ _______________
Total Other Expenses 5,205,254 4,802,886
Income Before Income Taxes 2,537,581 2,089,760
Income tax expense 899,116 753,155
_______________ _______________
Net Income $ 1,638,465 $ 1,336,605
=============== ===============
Earnings Per Common Share
Basic $ 0.59 $ 0.49
Diluted $ 0.59 $ 0.48
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Additional Comprehensive
Preferred Stock at Paid in Retained Income Treasury
Stock $1.00 Par Capital Earnings (Loss) Stock Total
_____________ ___________ ____________ _____________ _____________ ____________ _____________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 999,988 2,614,285 9,258,107 12,331,595 (64,448) -- 25,139,527
Net income for six months
<PAGE> 7
ended December 31, 1998 -- -- -- 1,336,605 -- -- 1,336,605
Other comprehensive income,
net of tax:
Adjustment of valuation
reserve for securities
available for sale -- -- -- -- (13,355) -- (13,355)
________
Comprehensive income -- -- -- -- -- -- 1,323,250
Cash dividends declared on
common stock -- -- -- (277,364) -- -- (277,364)
Cash dividends declared on
preferred stock -- -- -- (25,667) -- -- (25,667)
Preferred Stock Converted
to Common Stock (999,988) 136,362 863,626 -- -- -- 0
Common stock issued in
connection with employee
benefit and stock option
plans -- 4,429 35,081 -- -- -- 39,510
_____________ ___________ ____________ _____________ _____________ ____________ _____________
Balance December 31, 1998 $ 0 $2,755,076 $10,156,814 $ 13,365,169 $ (77,803) $ 0 $ 26,199,256
============= =========== ============ ============= ============= ============ =============
Balance at June 30, 1999 -- 2,768,624 10,208,299 14,145,720 (439,528) -- 26,683,115
Net income for six months
ended December 31, 1999 -- -- -- 1,638,465 -- -- 1,638,465
Other comprehensive income,
net of tax:
Adjustment of valuation
reserve for securities
available for sale -- -- -- -- (387,924) -- (387,924)
_________
Comprehensive income -- -- -- -- -- -- 1,250,541
Cash dividends declared on
common stock -- -- -- (293,691) -- -- (293,691)
Common stock issued in
connection with employee
benefit and option plans -- 17,191 55,435 -- -- 5,446 78,072
Treasury stock purchased -- -- -- -- -- (195,123) (195,123)
<PAGE> 8
_____________ ___________ ____________ _____________ _____________ ____________ _____________
Balance December 31, 1999 $ 0 $2,785,815 $10,263,734 $ 15,490,494 $ (827,452) $ (189,677) $ 27,522,914
============= =========== ============ ============= ============= ============ =============
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
_______________ _______________
<S> <C> <C>
Cash provided by (used in) operating
activities $ 1,990,699 $ (338,406)
Cash flows from investing activities:
FHLB stock purchased (503,500) --
Available for sale securities purchased (8,172,527) (8,699,888)
Available for sale securities matured 1,483,317 2,387,746
Available for sale securities sold 93,056 6,537,024
New loans, net of repayments & charge offs (44,304,671) (2,090,976)
Net capital expenditures (144,084) (672,016)
Assets acquired through foreclosure sold 276,324 299,163
Real estate held for investment sold 14,967 50,000
_______________ _______________
Net cash used in investing activities (51,257,118) (2,188,947)
Cash flows from financing activities:
Net change in deposits 19,363,626 17,906,866
Net change in repurchase agreements 4,210,205 4,073,125
Dividends paid (293,691) (303,031)
Proceeds from stock issuance 78,072 39,510
Treasury Stock purchased (195,123) 0
Net increase (decrease) in advances from
Federal Home Loan Bank of Boston 19,797,241 (12,330,408)
Proceeds from issuance of guaranteed
preferred beneficial interests in the
Company's junior subordinated debentures 7,172,998 0
Payments for debt issued costs (448,315) 0
Net change in notes payable (687,500) (152,778)
_______________ _______________
Net cash provided by financing activities 48,997,513 9,233,284
_______________ _______________
Net (decrease) increase in cash and cash
equivalents (268,906) 6,705,931
Cash and cash equivalents, beginning of
period 12,093,570 12,151,966
_______________ _______________
<PAGE> 9
Cash and cash equivalents, end of period $ 11,824,664 $ 18,857,897
=============== ===============
Cash and cash equivalents include cash on
hand, amounts due from banks, interest
bearing deposits.
Supplemental schedule of noncash activities:
Net change in valuation for unrealized market
value adjustments on available for sale
securities (387,924) (13,355)
Net transfer from Loans to Other Real Estate
Owned 0 153,657
Supplemental disclosure of cash paid during
the period for:
Income taxes paid, net of refunds 844,000 856,000
Interest paid 8,228,312 7,298,563
</TABLE>
NORTHEAST BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999
1. Basis of Presentation
_____________________
The accompanying unaudited condensed and consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six month
period ended December 31, 1999 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30, 2000. For further
information, refer to the audited consolidated financial statements and
footnotes thereto for the fiscal year ended June 30, 1999 included in the
Company's Annual Report on Form 10-K.
2. Guaranteed Preferred Beneficial Interests in the Company's Junior
_________________________________________________________________
Subordinated Debentures
_______________________
NBN Capital Trust ("NBNCT"), a Delaware statutory trust, was created on
October 4, 1999. The NBNCT exists for the exclusive purpose of (i) issuing
and selling Common Securities and Preferred Securities of NBNCT (together the
"Trust Securities"), (ii) using the proceeds of the sale of Trust Securities to
acquire 9.60% Junior Subordinated Deferrable Interest Debentures ("Junior
Subordinated Debentures") issued by the Company, and (iii) engaging only in
those other activities necessary, convenient, or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly the Junior
Subordinated Debentures will be the sole assets of the NBNCT. The preferred
securities accrue and pay distributions quarterly at an annual rate of 9.60% of
the stated liquidation amount of $7.00 per preferred security. The Company has
fully and unconditionally guaranteed all of the obligations of NBNCT. The
<PAGE> 10
guaranty covers the quarterly distributions and payment on liquidation or
redemption of the preferred securities, but only to the extent of funds held by
NBNCT. The preferred securities are mandatorily redeemable upon the maturity
of the Junior Subordinated Debentures on December 31, 2029 or upon earlier
redemption as provided in the Indenture. The Company has the right to redeem
the Junior Subordinated Debentures, in whole or in part on or after December
31, 2004 at a redemption price specified in the Indenture plus any accrued but
unpaid interest to the redemption date. The Company owns all of the Common
Securities of NBNCT, the only voting security, and as a result it is a
subsidiary of the Company.
3. Securities
__________
Securities available for sale at cost and approximate market values are
summarized below.
<TABLE>
<CAPTION>
December 31, 1999 June 30, 1999
_________________________ _________________________
Market Market
Cost Value Cost Value
____________ ____________ ____________ ____________
<S> <C> <C> <C> <C>
Debt securities issued by
the U.S. Treasury and
other U.S. Government
corporations and agencies $ 595,182 $ 592,885 $ 596,626 $ 598,445
Corporate bonds 201,393 195,441 201,916 199,527
Mortgage-backed securities 23,158,682 22,127,821 16,653,302 16,027,028
Equity securities 1,392,144 1,177,539 1,268,424 1,229,317
____________ ____________ ____________ ____________
$25,347,401 $24,093,686 $18,720,268 $18,054,317
============ ============ ============ ============
December 31, 1999 June 30, 1999
_________________________ _________________________
Market Market
Cost Value Cost Value
____________ ____________ ____________ ____________
Due in one year or less $ 495,182 $ 495,182 $ 496,626 $ 497,820
Due after one year through
five years 201,393 195,441 301,916 300,152
Due after five years
through ten years 100,000 97,703 -- --
Mortgage-backed securities
(including securities with
interest rates ranging
from 5.15% to 9.0%
maturing September 2003
to November 2029) 23,158,682 22,127,821 16,653,302 16,027,028
Equity securities 1,392,144 1,177,539 1,268,424 1,229,317
____________ ____________ ____________ ____________
$25,347,401 $24,093,686 $18,720,268 $18,054,317
============ ============ ============ ============
</TABLE>
<PAGE> 11
4. Allowance for Loan Losses
_________________________
The following is an analysis of transactions in the allowance for loan losses:
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
____________ ____________
<S> <C> <C>
Balance at beginning of year $ 2,924,000 $ 2,978,000
Add provision charged to operations 491,114 369,421
Recoveries on loans previously charged off 103,484 63,954
____________ ____________
3,518,598 3,411,375
Less loans charged off 351,598 542,375
____________ ____________
Balance at end of period $ 3,167,000 $ 2,869,000
============ ============
</TABLE>
5. Advances from Federal Home Loan Bank
____________________________________
A summary of borrowings from the Federal Home Loan Bank is as follows:
<TABLE>
<CAPTION>
December 31, 1999
_____________________________________________
Principal Interest Maturity
Amounts Rates Dates
______________ _______________ ____________
<C> <C> <C>
$ 84,000,000 4.49% - 6.78% 2000
3,761,031 5.38% - 6.49% 2001
7,385,660 5.97% - 6.30% 2002
5,739,305 5.69% - 6.67% 2003
1,792,961 5.55% 2004
9,000,000 5.25% - 6.65% 2005
12,000,000 5.40% - 5.68% 2008
______________
$ 123,678,957
==============
June 30, 1999
_____________________________________________
Principal Interest Maturity
Amounts Rates Dates
______________ _______________ ____________
$ 42,000,000 4.64% - 6.27% 2000
3,148,288 4.98% - 6.40% 2001
2,815,780 5.38% - 6.49% 2002
9,515,546 5.69% - 6.64% 2003
3,402,102 5.55% - 6.67% 2004
9,000,000 5.25% - 6.65% 2005
<PAGE> 12
34,000,000 4.89% - 5.68% 2008
______________
$ 103,881,716
==============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
_______________________________________________________________
Results of Operation
____________________
Description of Operations
_________________________
Northeast Bancorp (the "Company"), is a unitary savings and loan holding
company registered with the Office of Thrift Supervision ("OTS") its primary
regulator. The Company's principal asset is its wholly-owned banking
subsidiary, Northeast Bank, FSB (the "Bank"), which has branches located in
Auburn, Augusta, Bethel, Harrison, South Paris, Buckfield, Mechanic Falls,
Brunswick, Richmond, Lewiston, and Lisbon Falls, Maine. The Bank also
maintains a facility on Fundy Road in Falmouth, Maine, from which loan
applications are accepted and investment, insurance and financial planning
products services are offered. Although the Bank's deposits are primarily
insured through the Bank Insurance Fund ("BIF"), deposits at the Brunswick
branch, which represent approximately 22% of the Bank's total deposits at
December 31, 1999 are SAIF-insured.
Northeast Bancorp through its subsidiary, Northeast Bank and the Bank's
subsidiary Northeast Financial Services, Inc., provide a broad range of
financial services to individuals and companies in western, midcoast and
south-central Maine. Substantially all income and services are derived from
banking products and services in Maine.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations presents a review of the material changes in the financial condition
of the Company from June 30, 1999 to December 31, 1999, and the results of
operations for the three and six months ended December 31, 1999 and 1998. This
discussion and analysis is intended to assist in understanding the financial
condition and results of operations of the Company. Accordingly, this section
should be read in conjunction with the consolidated financial statements and
the related notes and other statistical information contained herein.
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, such as statements relating to financial
condition and future prospects, loan loss reserve adequacy, simulation of
changes in interest rates, prospective results of operations, capital spending
and financing sources, and revenue sources. These statements relate to
expectations concerning matters that are not historical facts. Forward-looking
statements, which are based on various assumptions (some of which are beyond
the Company's control), may be identified by reference to a future period or
periods, or by the use of forward-looking terminology such as "believe",
"expect", "estimate", "anticipate", "continue", "plan", "approximately",
"intend", or other similar terms or variations on those terms, or future or
conditional verbs such as "will", "may", "should", "could", and "would". Such
forward-looking statements reflect the current view of management and are based
on information currently available to them, and upon current expectations,
estimates, and projections regarding the Company and its industry, management's
<PAGE> 13
belief with respect there to, and certain assumptions made by management.
These forward-looking statements are not guarantees of future performance and
are subject to risks, uncertainties, and other factors. Accordingly, actual
results could differ materially from those set forth in forward-looking
statements due to a variety of factors, including, but not limited to, those
related to the economic environment, particularly in the market areas in which
the Company operates, competitive products and pricing, fiscal and monetary
policies of the U.S. Government, changes in government regulations affecting
financial institutions, including regulatory fees and capital requirements,
changes in prevailing interest rates, acquisitions and the integration of
acquired businesses, credit risk management, asset/liability management,
changes in technology, changes in the securities markets, and the availability
of and the costs associated with sources of liquidity. For a more complete
discussion of such risks, please refer to the Company's Form 10-K for the year
ended June 30, 1999 under the section entitled "Business-Forward-Looking
Statements".
Financial Condition
___________________
Total consolidated assets were $415,813,719 on December 31, 1999, which
represents an increase of $51,430,814 from June 30, 1999. The increase in
assets is primarily due to loan growth. Loan volume during the six month period
has been enhanced due to increased generation of consumer loans through the
Bank's participation in indirect automobile loans and mobile home loans as well
as increased volume in residential and commercial loans. The increase in loans
has been funded with increased deposits, repurchase agreements, and Federal
Home Loan Bank ("FHLB") borrowings. In this regard, total net loans and
securities increased by $44,942,115 and $6,039,369, respectively, from June
30, 1999 to December 31, 1999, while cash equivalents decreased by $268,906
during the same period. Total deposits and repurchase agreements increased by
$23,573,831 from June 30, 1999 to December 31, 1999. FHLB borrowings also
increased by $19,797,241 during the same period.
At December 31, 1999, the carrying value of securities available for sale by
the Company was $24,093,686, which is $1,253,715 less than the cost of the
underlying securities. The increase of $6,039,639 in the cost of securities
available for sale, from June 30, 1999 to December 31, 1999, was due to the
Company purchasing mortgage-backed securities, taking advantage of the higher
yields on these investments during the current increasing rate environment.
The difference between the carrying value and the cost of the securities was
primarily attributable to the decline in the market value of mortgage-backed
securities due to rising interest rates. The net unrealized loss on mortgage-
backed securities was $1,030,861 at December 31, 1999. Substantially all of
the mortgage-backed securities are high grade government backed securities. As
in any long term earning asset in which the earning rate is fixed, the market
value of mortgage-backed securities will fluctuate based on changes in market
interest rates from the time of purchase. Since these mortgage-backed
securities are backed by the U.S. Government, there is virtually no risk of
loss of principal. Management believes that the yields currently received on
this portfolio are satisfactory and intends to hold these securities for the
foreseeable future. Management attributes the reduction of $214,605 in the
market value of equity securities to the decline on the market value of the
Company's investments in preferred equity securities. Management reviews the
portfolio of investments on an ongoing basis to determine if there has been an
other-than-temporary decline in value. Some of the considerations management
makes in the determination are market valuations of particular securities and
economic analysis of the securities' sustainable market values based on the
<PAGE> 14
underlying companies' profitability.
FHLB stock increased by $503,500 from June 30, 1999 to December 31, 1999, due
to the increase in FHLB borrowings. The FHLB requires institutions to hold a
certain level of FHLB stock based on advances outstanding.
Total loans increased by $45,185,115 for the six months ended December 31,
1999. From June 30, 1999 to December 31, 1999, the loan portfolio increased by
$12,396,532 in real estate mortgage loans, $28,208,225 in consumer and other
loans, and by $4,580,358 in commercial loans. The increase in consumer loans
was primarily due to the increased volume in indirect automobile loans and
mobile home loans. The loan portfolio contains elements of credit and interest
rate risk. The Bank primarily lends within its local market areas, which
management believes helps them to better evaluate credit risk. The Bank's
local market, as well as the secondary market, continues to be very competitive
for loan origination volume. The local competitive environment and customer
response to favorable secondary market rates have affected the Bank's ability
to increase the loan portfolio. The Bank has supplemented its loan portfolio
by purchasing mortgage loans locally and from other states. In December, 1999
the Bank purchased approximately $3,200,000 of 1-4 family mortgages. The
purchase consisted of 1-4 family adjustable rate mortgages secured by property
located in the State of Tennessee. As the Bank expands its purchase of loans
in other states, management researches the strength of the economy in the
respective state and underwrites every loan before purchase. These steps are
taken to better evaluate and minimize the credit risk of out-of-state
purchases. Also, in an effort to increase loan volume, the Bank's offering
rates for its loan products have been reduced to compete in the various
markets. The Bank has experienced margin compression due to decreased loan
rates and anticipates that the margin compression will continue for the
foreseeable future until loan volume increases in the current rising interest
rate environment.
At December 31, 1999, residential real estate mortgages consisting of owner-
occupied residential loans made up 53% of the total loan portfolio, of which
38% of the residential loans are variable rate products, as compared to 60% and
48%, respectively, at December 31, 1998. Although the Bank has purchased fixed
rate loans, it is management's intent, where market opportunities arise, to
increase the volume in variable rate residential loans to reduce the interest
rate risk in this area.
At December 31, 1999, 16% of the Bank's total loan portfolio balance is
commercial real estate mortgages. Commercial real estate loans have minimal
interest rate risk as 86% of the portfolio consists of variable rate products.
At December 31, 1998, commercial real estate mortgages made up 18% of the total
loan portfolio, of which 88% were variable rate products. The Bank tries to
mitigate credit risk by lending in its local market area as well as maintaining
a well collateralized position in real estate.
Commercial loans made up 11% of the total loan portfolio, of which 44% are
variable rate instruments at December 31, 1999. At December 31, 1998
commercial loans made up 10% of the total loan portfolio, of which 53% were
variable rate instruments. The repayment ability of commercial loans is highly
dependent on the cash flow of the customer's business. The Bank mitigates
losses by strictly adhering to the Company's underwriting and credit policies.
Consumer and other loans made up 20% of the loan portfolio as of December 31,
1999 which compares to 12% at December 31, 1998. Since these loans are
<PAGE> 15
primarily fixed rate products, they have interest rate risk when market rates
increase. These loans also have credit risk with minimal security. The
increase in consumer loans was primarily due to increased volume in indirect
automobile loans and mobile home loans, which together comprise approximately
89% of the total consumer loans. The consumer loan department underwrites all
the indirect automobile loans and mobile home loans to mitigate credit risk.
The Bank primarily pays a nominal one time origination fee on the loans. The
fees are deferred and amortized over the life of the loans as a yield
adjustment. Management attempts to mitigate credit and interest rate risk by
keeping the products offered short-term, receiving a rate of return
commensurate with the risk, and lending to individuals in the Bank's known
market areas.
The Bank's allowance for loan losses was $3,167,000 as of December 31, 1999 as
compared to $2,924,000 as of June 30, 1999, representing 0.87% and 0.92% of
total loans, respectively. The Bank had non-performing loans totaling
$1,715,000 and $1,144,000 at December 31, 1999 and June 30, 1999, respectively,
which was 0.47% and 0.36% of total loans, respectively. The increase in the
1-4 family and commercial mortgage non-performing loan balances was due to the
increase of two loans in each category. Management anticipates that the
increase in non-performing commercial mortgages will be resolved during the
current quarter with no anticipated losses. The Bank's allowance for loan
losses was equal to 185% and 256% of the total non-performing loans at December
31, 1999 and June 30, 1999, respectively. At December 31, 1999, the Bank had
approximately $372,000 of loans classified substandard, exclusive of the non-
performing loans stated above, that could potentially become non-performing due
to delinquencies or marginal cash flows. These substandard loans decreased by
$369,000 when compared to the $741,000 at June 30, 1999.
The following table represents the Bank's non-performing loans as of December
31, 1999 and June 30, 1999, respectively:
<TABLE>
<CAPTION>
December 31, June 30,
Description 1999 1999
_________________________ _______________ _______________
<C> <C> <C>
1-4 Family Mortgages $ 448,000 $ 293,000
Commercial Mortgages 1,026,000 654,000
Commercial Loans 147,000 0
Consumer Installment 94,000 197,000
_______________ _______________
Total non-performing $ 1,715,000 $ 1,144,000
</TABLE>
The following table reflects the quarterly trend of total delinquencies 30 days
or more past due, including non-performing loans, for the Bank as a percentage
of total loans:
<TABLE>
12-31-99 09-30-99 06-30-99 03-31-99
__________ __________ __________ __________
<C> <C> <C> <C>
1.15% 0.72% 0.76% 1.09%
<PAGE> 16
</TABLE>
At December 31, 1999, loans classified as non-performing of $1,715,000 included
approximately $430,000 of loan balances that are current and paying as agreed,
but which the Bank maintains as non-performing until the borrower has
demonstrated a sustainable period of performance.
The level of the allowance for loan losses as a percentage of total loans has
decreased due to the increase of loan volume as well as the level of allowance
for loan losses as a percentage of non-performing loans decreased due to the
increase in non-performing loans at December 31, 1999, when compared to June
30,1999. The Company has experienced good growth in the commercial and
consumer loan portfolio during the December 31, 1999 quarter, however these
type of loans have additional credit risk as compared to real estate mortgage
loans. Although these types of loans have increased, the decrease in the
allowance for loan losses as a percentage of total loans was supported by
management's ongoing analysis of the adequacy of the allowance for loan losses.
The increase in the delinquency percentage from September 30,1999 to December
31,1999 was due to an increase in the 30 day delinquent category of 1-4 family
and commercial mortgages as well as consumer loans. Although delinquencies and
non-performing loans increased during the quarter, management does not consider
this to be a potential trend at this point in time. Classified loans are also
considered in management's analysis of the adequacy of the allowance for loan
losses. Based on reviewing the credit risk and collateral of classified loans,
management has considered the risks of the classified portfolio and believes
the allowance for loan losses is adequate.
On a regular and ongoing basis, management evaluates the adequacy of the
allowance for loan losses. The process to evaluate the allowance involves a
high degree of management judgement. The methods employed to evaluate the
allowance for loan losses are quantitative in nature and consider such factors
as the loan mix, the level of non-performing loans, delinquency trends, past
charge-off history, loan reviews and classifications, collateral, and the
current economic climate.
Management believes that the allowance for loan losses is adequate considering
the level of risk in the loan portfolio. While management uses its best
judgement in recognizing loan losses in light of available information, there
can be no assurance that the Company will not have to increase its provision
for loan losses in the future as a result of changing economic conditions,
adverse markets for real estate or other factors. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance for loan losses based
on their judgements about information available to them at the time of their
examination. The Bank's most recent examination by the OTS was on November 30,
1998. At the time of the exam the regulators proposed no additions to the
allowance for loan losses.
At December 31, 1999, the Bank had a total of $130,225 in assets acquired
through foreclosure as compared to $193,850 as of June 30, 1999. The reduction
in assets acquired through foreclosure was due to a sale of real estate
property that was acquired through foreclosure.
Other assets increased by $876,699 from June 30, 1999 to December 31, 1999.
The increase was due to the increase in capitalized loan servicing rights and
<PAGE> 17
the purchase of non-marketable investments as well as the deferred costs
associated with the Company's trust preferred security offering.
Other liabilities increased by $734,445 compared to June 30, 1999, due
primarily to increases in accrued expenses and escrow accounts.
Capital Resources and Liquidity
_______________________________
The Bank continues to attract new local deposit relationships. The Bank
utilizes, as alternative sources of funds, brokered certificate of deposits
("C.D.s") when national deposit interest rates are less than the interest rates
on local market deposits. Brokered C.D.s are also used to supplement the
growth in earning assets. Brokered C.D.s carry the same risk as local deposit
C.D.s, in that both are interest rate sensitive with respect to the Bank's
ability to retain the funds. The Bank also utilizes FHLB advances, as
alternative sources of funds, when the interest rates of the advances are less
than market deposit interest rates. FHLB advances are also used to fund short-
term liquidity demands.
Total deposits were $238,727,661 and securities sold under repurchase
agreements were $16,078,044 as of December 31, 1999. These amounts represent
an increase of $19,363,626 and $4,210,205, respectively, compared to June 30,
1999. The increase in deposits was primarily due to the increase in time
deposits. The increase in time deposits was attributable to various special
offerings as well as normal growth from the branch market areas. The Bank has
devoted additional staffing to increase its balances in repurchase agreements.
Repurchase agreements enhances the Bank's ability to attain additional
municipal and commercial deposits, improving its overall liquidity position in
a cost effective manner. Brokered deposits represented $19,068,780 of the
total deposits at December 31, 1999, which increased by $5,610,523 compared to
the $13,458,257 balance as of June 30, 1999. Cross selling strategies are
employed by the Bank to enhance deposit growth. Even though deposit interest
rates have remained competitive, the rates of return are potentially higher
with other financial instruments such as mutual funds and annuities. Like
other companies in the banking industry, the Bank will be challenged to
maintain and or increase its core deposits.
Total advances from the FHLB were $123,678,957 as of December 31, 1999, an
increase of $19,797,241 compared to June 30, 1999. The cash received from the
increase in FHLB advances were utilized to fund the Bank's loan growth. The
Bank has unused borrowing capacity from the FHLB through its advances program.
The Bank's current advance availability, subject to the satisfaction of certain
conditions, is approximately $9,500,000 over and above the December 31, 1999
advances. Mortgages, free of liens, pledges and encumbrances are required to
be pledged to secure FHLB advances. The Bank's ability to access principal
sources of funds is immediate and with the borrowing capacity at the Federal
Home Loan Bank, the normal growth in bank deposits and repurchase agreements
and the immediate availability of the Bank's cash equivalents as well as
securities available for sale, management believes that the Company's available
liquidity resources are sufficient to support the Company's needs.
Total equity of the Company was $27,522,914 as of December 31, 1999 as compared
to $26,683,115 at June 30, 1999. Book value per common share was $9.97 as of
December 31, 1999 as compared to $9.64 at June 30, 1999. The total equity to
total assets ratio of the Company was 6.62% as of December 31, 1999 and 7.32%
at June 30, 1999.
<PAGE> 18
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
contains various provisions intended to capitalize BIF and also affects a
number of regulatory reforms that impact all insured depository institutions,
regardless of the insurance fund in which they participate. Among other
things, FDICIA grants the OTS broader regulatory authority to take prompt
corrective action against insured institutions that do not meet capital
requirements, including placing undercapitalized institutions into
conservatorship or receivership. FDICIA also grants the OTS broader regulatory
authority to take corrective action against insured institutions that are
otherwise operating in an unsafe and unsound manner.
FDICIA defines specific capital categories based on an institution's capital
ratios. Although no capital requirements are imposed on the Company, the Bank
is subject to such requirements established by the OTS. The OTS has issued
regulations requiring a savings institution to maintain a minimum regulatory
tangible capital equal to 1.5% of adjusted total assets, core capital of 3.0%,
leverage capital of 4.0% and a risk-based capital standard of 8.0%. The prompt
corrective action regulations define specific capital categories based on an
institution's capital ratios. The capital categories, in declining order, are
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", and "critically undercapitalized". As of
December 31, 1999, the Bank met the definition of a well capitalized
institution. There are no conditions or events since that notification that
management believes has changed the institution's category.
At December 31, 1999, the Bank's regulatory capital, which includes capital
downstreamed of $4,000,000 by the parent as a result of a trust preferred
security offering as described below, was in compliance with regulatory capital
requirements as follows:
<TABLE>
<CAPTION>
To Be "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Capital Adequacy Action Provisions
Amount Ratio Amount Ratio Amount Ratio
_________ _______ _________ _______ __________ _______
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
As of December 31,
1999:
Tier 1 (Core) capital
(to risk weighted
assets) $ 31,212 10.64% $ 11,728 4.00% $ 17,593 6.00%
Tier 1 (Core) capital
(to total assets) $ 31,212 7.53% $ 16,588 4.00% $ 20,734 5.00%
Total Capital (to risk
weighted assets) $ 33,016 11.26% $ 23,457 8.00% $ 29,321 10.00%
</TABLE>
Management believes that there are adequate funding sources to meet its future
<PAGE> 19
liquidity needs for the foreseeable future. Primary among these funding
sources are the repayment of principal and interest on loans, the renewal of
time deposits, and the growth in the deposit base. Management does not believe
that the terms and conditions that will be present at the renewal of these
funding sources will significantly impact the Company's operations, due to its
management of the maturities of its assets and liabilities.
During the quarter ended December 31, 1999, the Company also generated
additional liquidity and funding through the issuance of certain debt
instruments. In this regard, on October 4, 1999, the Company formed NBN
Capital Trust, a Delaware statutory trust and a wholly-owned subsidiary of the
Company (the "Trust"), for the purpose of (i) issuing and selling in common
securities to the Company and its trust preferred securities to the public, and
(ii) using the proceeds therefrom to purchase 9.60% Junior Subordinated
Deferrable Interest Debentures ("Junior Subordinated Debentures") from the
Company. Accordingly, the Junior Subordinated Debentures are, and will be, the
sole asset of the Trust. In the quarter ended December 31, 1999, the Trust
sold $7,172,998 of its trust preferred securities to the public and $221,851 of
its common securities to the Company. The Trust used the proceeds to purchase
$7,394,849 in principal amount of the Junior Subordinated Debentures issued by
the Company. The Company will pay interest on the Junior Subordinated
Debentures at a rate of 9.60% to the Trust at the end of each quarter, which is
equal to the dividend rate payable to the holders of the Trust's preferred
securities. The cost of the issuance of the preferred securities was
approximately $485,000 and is treated as a deferred asset and will be amortized
over the life of the securities. Following the offer and sale of the Trust's
securities, the Company owned and currently holds all of the outstanding common
securities of the Trust, its only voting securities, and as a result the Trust
is a subsidiary of the Company. The Company used the net proceeds of the
offering, approximately $6,700,000, for the following purposes: (i) contributed
$4,000,000 as additional capital for the Bank, (ii) allocated $1,000,000 for
the Company's stock buy-back program, (iii) paid off the remaining principal
balance of $535,000 on its note payable, and (iv) retained the remaining
$1,200,000 for general corporate requirements as they may arise from time to
time.
The Company downstreamed $4,000,000 of the funds received from the junior
subordinated debentures to the Bank. The funds are allowed under the Office of
Thrift Supervision regulations to be used as capital at the Bank. As discussed
above, these funds have increased the regulatory capital position at the Bank
and is reported in the capital adequacy chart above. The increase in regulatory
capital will allow the Bank to fund loan growth for the foreseeable future.
In December 1999, the Board of Directors of Northeast Bancorp approved a plan
to repurchase up to $2,000,000 of its common stock. Under the common stock
repurchase plan, Northeast Bancorp may purchase shares of its common stock from
time to time in the open market at prevailing prices. Repurchased shares will
be held in treasury and may be used in connection with employee benefits and
other general corporate purposes. The Company does not believe that the
current market price for its common stock adequately reflects full value and
believes that the purchase of its common stock from time to time in the market
is a good investment and use of its funds.
Cash provided by operating activities in the consolidated statements of cash
flow increased by $2,329,105 from December 31, 1998 to December 31, 1999 as a
result of the increase in net income and the adjustments to reconcile net
income to net cash provided by operating activities. The reconciling items
<PAGE> 20
that increased operating activities were the market value adjustment of
available for sale securities, the provision and recoveries to the loan loss
allowance and the depreciation expense for premises and equipment.
Results of Operations
_____________________
Net income for the quarter ended December 31, 1999 was $836,744 or basic and
diluted earnings per share of $0.30, respectively. This compares to earnings
of $700,568 or basic earnings per share of $0.26 and diluted earnings per share
of $0.25 for the quarter ended December 31, 1998. Net income for the six
months ended December 31, 1999 was $1,638,465 versus $1,336,605 for the period
ended December 31, 1998. Basic and diluted earnings per share were $.59,
respectively, for the six months ended December 31, 1999 versus basic earnings
per share of $.49 and diluted earnings per share of $.48 for the period ended
December 31, 1998.
The Company's net interest income was $6,992,917 for the six months ended
December 31, 1999, as compared to $5,998,927 for the six months ended December
31, 1998, an increase of $993,990. Total interest income increased $2,180,066
during the six months ended December 31, 1999 compared to the six months ended
December 31, 1998. Loan interest income increased by $1,264,421 and $1,966,135
for the three and six months ended December 31, 1999 compared to December 31,
1998, respectively. The increase in loan interest income was primarily due to
the increased volume in consumer loans during the three and six month periods
ended December 31, 1999. The increase in interest income was due primarily
from an increase in the volume of loans offset in part by a decrease in rates.
The increase in total interest expense of $1,186,076 for the six months ended
December 31, 1999 was due primarily from the increased volume of deposits and
borrowings offset in part by the decrease in rates.
The changes in net interest income are presented in the schedule below.
Northeast Bancorp
Rate/Volume Analysis for the six months ended
December 31, 1999 versus December 31, 1998
<TABLE>
<CAPTION>
Difference Due to
Volume Rate Total
_______________ _______________ _______________
<S> <C> <C> <C>
Investments $ 252,211 $ 29,827 $ 282,038
Loans 2,276,065 (309,930) 1,966,135
FHLB & Other Deposits (62,999) (5,108) (68,107)
_________________________________________________
Total 2,465,277 (285,211) 2,180,066
Deposits 890,421 (292,008) 598,413
Repurchase Agreements 159,821 (4,099) 155,722
Borrowings 453,255 (21,314) 431,941
_________________________________________________
Total 1,503,497 (317,421) 1,186,076
_________________________________________________
Net Interest Income $ 961,780 $ 32,210 $ 993,990
<PAGE> 21
=================================================
</TABLE>
Rate/Volume amounts spread proportionately between volume and rate.
The Company's business primarily consists of the savings and loan activities of
the Bank. Accordingly, the success of the Company is largely dependent on its
ability to manage interest rate risk. This is the risk that changes in
interest rates may adversely affect net interest income. Generally, interest
rate risk results from differences in repricing intervals or maturities between
interest-earning assets and interest-bearing liabilities, the components of
which comprise the interest rate spread. When such differences exist, a change
in the level of interest rates will most likely result in an increase or
decrease in net interest income. The Bank has shifted to a slightly liability
sensitive position based on its own internal analysis which categorizes its
core deposits as long term liabilities which are then matched to long term
assets. As a result, the Bank will generally experience a contraction in its
net interest margins during a period of increasing rates. Management is
currently addressing the asset/liability mix to reposition the Bank to a
slightly asset sensitive position.
Approximately 19% of the Bank's loan portfolio is comprised of floating rate
loans based on a prime rate index. Interest income on these existing loans
will increase as the prime rate increases, as well as on approximately 20% of
other loans in the Bank's portfolio that are based on short-term rate indices
such as the one-year treasury bill. An increase in short-term interest rates
will also increase deposit and FHLB advance rates, increasing the Company's
interest expense. Although the Company has experienced some net interest
margin compression, the impact on net interest income will depend on, among
other things, actual rates charged on the Bank's loan portfolio, deposit and
advance rates paid by the Bank and loan volume.
The provision for loan losses for the six months ended December 31, 1999
increased by $121,693 when compared to December 31, 1998. Management believes
the increase in the provision for loan losses was prudent to mitigate potential
credit risk, based on the growth in the loan portfolio.
Total non-interest income was $613,708 and $1,241,032 for the three and six
months ended December 31, 1999 versus $841,470 and $1,263,140 for the three and
six months ended December 31, 1998. The decrease in total non-interest income
was primarily due to the decrease in other income. Service fee income was
$325,051 and $590,232 for the three and six months ended December 31, 1999
versus $269,536 and $522,921 for the three and six months ended December 31,
1998. The $55,515 and $67,311 service fee increase for the three and six
months ended December 31, 1999, respectively, was primarily due to an increase
in loan servicing and deposit fee income. Gains from available for sale
securities were $20,697 and $25,861 for the three and six months ended December
31, 1999 versus $47,699 and $58,490 for the three and six months ended December
31, 1998. The Company sold a larger volume of its available for sale
securities during the three and six month period ended December 31, 1998,
taking advantage of the fluctuation in market prices.
Other income was $267,960 and $624,939 for the three and six months ended
December 31, 1999, which was a decrease of $251,155 and $46,058 when compared
to other income of $519,115 and $670,997 for the three and six months ended
December 31, 1998, respectively. The decrease in other income in the three and
<PAGE> 22
six months ended December 31,1999, was primarily due to gains from 1-4 family
mortgage and indirect auto loan sales that occurred in 1998, which was offset
by the increased fee income from trust and investment services.
Total non-interest expense for the Company was $2,617,708 and $5,205,254 for
the three and six months ended December 31, 1999, which was an increase of
$132,629 and $402,368, respectively, when compared to total non-interest
expense of $2,485,079 and $4,802,886 for the three and six months ended
December 31, 1998. The increase in non-interest expense for the three and six
months ended December 31, 1999 as compared to the three and six months ended
December 31, 1998 was due, in part, to the following items: (I) compensation
expense increased for the three and six months ended December 31, 1999 and was
primarily due to the additional staffing for the new branch opened in Lewiston,
Maine, the increased commission paid to brokers in the investment sales
division due to growth in sales revenue and increased costs associated with the
Company's health insurance and benefit plans, (II) occupancy expense increased
for the three and six month period due to the additional lease expense in
opening the new Lewiston branch, (III) equipment expense increased for the
three and six month period due to the expenses associated with opening the new
Lewiston branch as well as the conversion of the mainframe hardware and
software and tele-communication system.
Other expenses increased by $24,005 and 48,499 for the three and six months
ended December 31, 1999 compared to the three and six months ended December 31,
1998. The increase was primarily due to the following: an increase in
professional fees due to increased legal and audit services, courier services
and data operations services; an increase due to the Company's growth in tele-
communication lines and fees; and an increase in loan and deposit expenses due
to the costs associated with the growth of loans and deposits. These increases
were offset by the reduction of the Company's other general expenses.
The Company's income tax expense increased by $71,127 and $145,961 for the
three and six months ended December 31, 1999, when compared to the three and
six months ended December 31, 1998. The increase in income tax expense is due
to increased earnings before tax.
Impact of Inflation
___________________
The consolidated financial statements and related notes herein have been
presented in terms of historic dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike
industrial companies, substantially all of the assets and virtually all of the
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the general
level of inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude as inflation.
Year 2000
_________
The Company addressed the Year 2000 issue and believes it has been successful.
The Company has had no adverse affects to date regarding the century rollover
period. There also has been no adverse implications from the Company's
borrowers or depositors. The Company will continue to monitor for any affects
of the Year 2000 issue during the current quarter, but management does not
expect any adverse implications. As of December 31, 1999, the Company had
<PAGE> 23
incurred approximately $39,000 of capitalized purchases and $106,600 of
cumulative Year 2000 expenses.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
_________________________________________________________
There have been no material changes in the Company's market risk from June 30,
1999. For information regarding the Company's market risk, refer to the
Company's Annual Report on Form 10-K dated as of June 30, 1999.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
_________________
None.
Item 2. Changes in Securities
_____________________
None.
Item 3. Defaults Upon Senior Securities
_______________________________
None.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
SUMMARY OF VOTING AT 11/09/99 ANNUAL SHAREHOLDERS' MEETING
__________________________________________________________
At the Annual Meeting of Shareholders held in Auburn, Maine on November 9,
1999, the following matters were submitted to a vote of, and approved by, the
Company's shareholders, each such proposal receiving the vote of the Company's
outstanding common shares, as follows:
Proposal 1 - Election of Directors:
Votes For Votes Withheld
_____________ ________________
John W. Trinward, D.M.D. 2,255,260 82,089
John B. Bouchard 2,256,960 80,389
A. William Cannan 2,256,863 80,486
James D. Delamater 2,256,960 80,389
Ronald J. Goguen 2,256,960 80,389
Judith W. Hayes 2,249,960 87,389
Philip Jackson 2,256,960 80,389
Roland C. Kendall 2,256,960 80,389
John Rosmarin 2,255,960 81,389
John Schiavi 2,249,110 88,239
Stephen W. Wight 2,251,635 85,714
Dennis A. Wilson 2,256,960 80,389
Proposal 2 - Approval of Stock Plan. Proposal to approve and adopt the
Northeast Bancorp 1999 stock Option Plan.
Votes For Votes Against Votes Abstain
_______________ _______________ _______________
2,166,676 151,717 18,956
<PAGE> 24
Proposal 3 - Ratification of Appointment of Auditors. Proposal to ratify the
appointment of Baker, Newman & Noyes, Limited Liability Company, as the
Company's auditors for the 2000 fiscal year.
Votes For Votes Against Votes Abstain
_______________ _______________ _______________
2,328,520 5,800 3,029
Item 5. Other Information
_________________
None.
Item 6. Exhibits and Reports on Form 8 - K
__________________________________
(a) Exhibits
________
10 1999 Stock Option Plan of Northeast Bancorp
11 Statement regarding computation of per share earnings.
27 Financial data schedule
(b) Reports on Form 8 - K
_____________________
On December 6, 1999, the Company filed a report on Form 8-K announcing
an adoption of a Stock Repurchase Program.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: February 11, 2000 NORTHEAST BANCORP
By: /s/ James D. Delamater
__________________________________
James D. Delamater
President and CEO
By: /s/ Richard Wyman
__________________________________
Richard Wyman
Chief Financial Officer
NORTHEAST BANCORP
Index to Exhibits
EXHIBIT NUMBER DESCRIPTION
10 1999 Stock Option Plan of Northeast Bancorp
11 Statement regarding computation of per share earnings
27 Financial data schedule
<PAGE> 25
NORTHEAST BANCORP
Exhibit 10. 1999 STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Establishment of the Plan.
______________________________
Northeast Bancorp, a Maine corporation (the "Company"), hereby establishes the
"Northeast Bancorp 1999 Stock Option Plan" (hereinafter referred to as the
"Plan"). The Plan permits the grant of incentives in the form of Nonqualified
Stock Options, Incentive Stock Options, and any combination thereof. Unless
otherwise defined, all capitalized terms have the meaning ascribed to them in
Article II.
1.2 Purpose.
____________
The purpose of the Plan is to advance the interests of the Company and its
stockholders by offering officers, employees, and directors incentives that
will promote the identification of their personal interests with the long-term
financial success of the Company and with growth in shareholder value. The
Plan is designed to strengthen the Company's ability to recruit, attract, and
retain, highly qualified managers, consultants, and staff, and qualified and
knowledgeable independent directors capable of furthering the future success of
the Company by encouraging the ownership of Shares (as defined below) by such
employees and directors and to strengthen the mutuality of interest between
employees and directors, on one hand, and the Company's stockholders, on the
other hand. The equity investments granted under the Plan are expected to
provide employees with an incentive for productivity and to provide both
employees and directors with an opportunity to share in the growth and value of
the Company.
ARTICLE II
Definitions
___________
As used in this Plan, unless the context otherwise requires, the following
capitalized terms are defined as follows:
2.1 "Award" shall mean any award under this Plan of any Stock Option. Each
separate grant of a Stock Option, and each group of Stock Options, which mature
on a separate date is treated as a separate Award.
2.2 "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
2.3 "Cause" means a determination by the Board of Directors that a
<PAGE> 26
Participant has: (a) engaged in any type of disloyalty to the Company,
including without limitation fraud, embezzlement, theft, or dishonesty in the
course of his or her employment or service, or has otherwise breached a duty
owed to the Company, (b) been convicted of a misdemeanor involving moral
turpitude or a felony, (c) pled nolo contendere to a felony, (d) disclosed
trade secrets or confidential information of the Company to unauthorized
parties, except as may be required by law, or (e) materially breached any
material agreement with the Company, unless such agreement was materially
breached first by the Company.
2.4 "Change of Control" shall have the meaning set forth in Section 7.2 of
this Plan.
2.5 "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder. Reference to any provision of the Code or
rule or regulation thereunder shall be deemed to include any amended or
successor provision, rule, or regulation.
2.6 "Committee" means the committee appointed by the Board in accordance
with Section 3.1 of the Plan, if one is appointed, to administer this Plan. If
no such committee has been appointed, the term Committee shall refer to the
Board of Directors.
2.7 "Common Stock" or "Shares" means the shares of common stock, $1.00 par
value per share, of the Company.
2.8 "Company" shall mean Northeast Bancorp or any successor thereto as
provided in Section 11.8 hereto.
2.9 "Date of Exercise" means the date on which the Company receives notice
of the exercise of a Stock Option in accordance with the terms of Section 6.8
of this Plan.
2.10 "Date of Grant" or "Award Date" shall be the date on which an Award is
made by the Committee under this Plan. Such date shall be the date designated
in a resolution adopted by the Committee pursuant to which the Award is made;
provided, however, that such date shall not be earlier than the date of such
resolution and action thereon by the Committee. In the absence of a date of
grant or award being specifically set forth in the Committee's resolution, or a
fixed method of computing such date, then the Date of Grant shall be the date
of the Committee's resolution and action.
2.11 "Director" means any person who is a member of the Board of Directors.
2.12 "Employee" means any person who is an officer or full-time employee of
the Company or any of its Subsidiaries and who receives from it regular
compensation (other than pension, retirement allowance, retainer, or fee under
contract). An Employee does not include independent contractors or temporary
employees.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
2.14 "Exercise Period" means the period during which a Stock Option may be
exercised.
2.15 "Exercise Price" means the price for Shares at which a Stock Option may
<PAGE> 27
be exercised.
2.16 "Fair Market Value" of a share of Common Stock on a particular date
shall be the closing price for a share of Common Stock as quoted on the
American Stock Exchange ("AMEX"), or the National Association of Securities
Dealers Automated Quotation System National Market ("Nasdaq-NMS"), or any other
national securities exchange on which the Common Stock is listed (as reported
by the Wall Street Journal or, if not reported thereby, any other authoritative
source selected by the Committee), or if there is no trading on that date, on
the next preceding date on which there were reported share prices. If the
Common Stock is quoted on any other inter-dealer quotation system (but not
quoted by Nasdaq-NMS or any national securities exchange), then the Fair Market
Value per Common Stock on a particular date shall be the mean of the bid and
asked prices for a share of Common Stock as reported in the Wall Street Journal
or, if not reported thereby, any other authoritative source selected by the
Committee. If the Common Stock is not quoted by the Nasdaq-NMS or any other
inter-dealer quotation system, and are not listed on any national securities
exchange, then the "Fair Market Value" of a share of Common Stock shall be
determined by the Committee pursuant to any reasonable method adopted by it in
good faith for such purpose. In the case of an Incentive Stock Option, if the
foregoing method of determining the fair market value is inconsistent with
Section 422 of the Code, "Fair Market Value" shall be determined by the
Committee in a manner consistent with the Code and shall mean the value as so
determined.
2.17 "Incentive Stock Option" or "ISO" means any Stock Option awarded under
this Plan intended to be and designated as an incentive stock option within the
meaning of Section 422 of the Code.
2.18 "Non-Employee Director" shall have the meaning as set forth in, and
interpreted under, Rule 16b-3(b)(3) promulgated by the SEC under the Exchange
Act, or any successor definition adopted by the SEC.
2.19 "Nonqualified Stock Option" means any Stock Option awarded under this
Plan which is not an Incentive Stock Option.
2.20 "Participant" means each Employee or Director to whom an Award has been
granted under this Plan.
2.21 "Payment Shares" shall have the meaning set forth in Section 6.8(b) of
this Plan.
2.22 "Person" shall mean an individual, partnership, corporation, limited
liability company or partnership, trust, joint venture, unincorporated
association, or other entity or association.
2.23 "Plan" means this Northeast Bancorp 1999 Stock Option Plan as defined
in Section 1.1 hereof.
2.24 "SEC" means the Securities and Exchange Commission.
2.25 "Securities Act" means the Securities Act of 1933, as amended from time
to time.
2.26 "Stock Option" means any Incentive Stock Option or Nonqualified Stock
Option to purchase Common Stock that is awarded under this Plan.
<PAGE> 28
2.27 "Stock Option Agreement" means the written agreement between the
Company and a Participant implementing the grant of, and evidencing and
reflecting the terms of, an Award.
2.28 "Subsidiary" or "Subsidiaries" means any corporation or corporations
other than the Company organized under the laws of the United States or any
other jurisdiction that the Board of Directors designates, in an unbroken chain
of corporations beginning with the Company if each corporation other than the
last corporation in the unbroken chain owns more than 50% of the total combined
voting power of all classes of stock in one of the other corporation in such
chain.
ARTICLE III
Administration of the Plan
__________________________
3.1 The Committee.
__________________
This Plan shall be administered by the Committee, subject to such terms and
conditions as the Board may prescribe from time to time. Pursuant to
applicable provisions of the Company's Articles of Incorporation, as amended,
and Bylaws, the Committee, which shall be appointed by the Board, shall consist
of no fewer than three (3) members of the Board. Members of the Committee
shall serve for such period of time as the Board may determine. From time to
time the Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause), and appoint new members, fill
vacancies however caused, and remove all members and thereafter directly
administer the Plan. During such times as the Company's Common Stock is
registered under the Exchange Act, all members of the Committee shall be Non-
Employee Directors and "outside directors" as defined under Section 162(m)(4)
(C)(i) of the Code.
3.2 Duties and Powers of the Committee.
_______________________________________
Subject to the express provisions of this Plan, the Committee shall have all
the power and authority to, and shall be authorized to take any and all actions
required, necessary, or desirable to administer the Plan. In addition to any
other powers, subject to the provisions of the Plan, the Committee shall have
the following powers:
(a) subject to Section 3.3 of this Plan, to select the Employees and
Directors to whom Awards may from time to time be granted pursuant to this
Plan;
(b) to determine all questions as to eligibility;
(c) to determine the number of shares of Common Stock to be covered by
each Award granted under this Plan;
(d) subject to the limitations set forth in Section 4.1 of this Plan, to
determine whether and to what extent Incentive Stock Options, Nonqualified
Stock Options, or any combination thereof, are to be granted or awarded
hereunder;
(e) to determine the terms and conditions (to the extent not
inconsistent with this Plan) of any Award granted hereunder, all provisions of
each Stock Option Agreement, which provisions need not be identical (including,
<PAGE> 29
but not limited to, the Exercise Price, the Exercise Period, any restriction or
limitation, any vesting schedule or acceleration thereof, or any forfeiture
restrictions or waiver thereof, regarding any Stock Option or other Award and
the Common Stock relating thereto, based on such factors as the Committee shall
determine, in its sole discretion);
(f) to determine whether, and to what extent, and under what
circumstances grants of Stock Options under this Plan are to operate on a
tandem basis and/or in conjunction with or apart from other cash awards made by
the Company outside of this Plan;
(g) to determine whether and under what circumstances a Stock Option may
be settled in cash, Common Stock, or any combination thereof under Section 6.8
of this Plan;
(h) to determine whether, and to what extent, and under what
circumstances shares of Common Stock under this Plan shall be deferred either
automatically or at the election of the Participant;
(i) to prescribe, amend, waive, or rescind rules or regulations relating
to the Plan's administration;
(j) to accelerate the vesting or Exercise Date of any Award, or to waive
compliance by a holder of an Award of any obligation to be performed by such
holder or the terms and conditions of an Award;
(k) to construe and interpret the provisions of the Plan or any Stock
Option Agreement;
(l) to amend the terms of previously granted Awards so long as the terms
as amended are consistent with the terms of the Plan and provided that the
consent of the Participant is obtained with respect to any amendment that would
be detrimental to the Participant;
(m) require, whether or not provided for in the pertinent Stock Option
Agreement, of any person exercising a Stock Option, or otherwise receiving an
Award, at the time of such exercise or receipt, the making of any
representations or agreements that the Board of Directors or Committee may deem
necessary or advisable in order to comply with the securities laws of the
United States or of any applicable jurisdiction;
(n) to delegate to an appropriate officer of the Corporation the
authority to select Employees for Awards and to recommend to the Committee the
components of the Award to each, including vesting requirements, subject in
each case to final approval by the Committee of the selection of the Employee
and the Award;
(o) to authorize any person to execute on behalf of the Company any
instrument required to effectuate an Award or to take such other actions as may
be necessary or appropriate with respect to the Company's rights pursuant to
Awards or agreements relating to the Awards or the exercise thereof; and
(p) to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan.
3.3 Awards to Members of the Committee.
_______________________________________
<PAGE> 30
Each Award granted to a Director or members of the Committee shall be approved
by the entire Board of Directors and shall be evidenced by minutes of a meeting
or the written consent of the Board of Directors and a Stock Option Agreement.
3.4 Requirements Relating to Section 162(m) of the Code.
________________________________________________________
Any provision of this Plan notwithstanding: (a) transactions with respect to
persons whose remuneration is subject to the provisions of Section 162(m) of
the Code shall conform to the requirements of Section 162(m)(4)(C) of the Code
unless the Committee determines otherwise; (b) the Plan is intended to give the
Committee the authority to grant Awards that qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code as well as Awards that do
not qualify; and (c) any provision of the Plan that would prevent the Committee
from exercising the authority referred to in Section 3.4(b) of this Plan or
that would prevent an Award that the Committee intends to qualify as
performance-based compensation under Section 162(m)(4)(C) of the Code from so
qualifying shall be administered, interpreted, and construed to carry out the
Committee's intention and any provision that cannot be so administered,
interpreted, and construed shall to that extent be disregarded.
3.5 Decisions Final and Binding.
________________________________
All decisions, determinations, and actions taken by the Committee, and the
interpretation and construction of any provision of the Plan or any Stock
Option Agreement by the Committee shall be final, conclusive, and binding,
unless otherwise determined by the Board.
3.6 Limitation on Liability.
____________________________
Notwithstanding anything herein to the contrary, except as otherwise provided
under applicable Maine law, no member of the Board of Directors or of the
Committee shall be liable for any good faith determination, act, or failure to
act in connection with the Plan or any Award hereunder.
ARTICLE IV
Shares Subject to the Plan
__________________________
4.1 Number of Shares.
_____________________
Subject to adjustment as provided in Section 4.4, the maximum aggregate number
of Shares that may be issued under this Plan shall not exceed 135,000 Shares,
which Shares may be either authorized but unissued Shares or Shares issued and
thereafter reacquired by the Company. Stock Options awarded under the Plan may
be either Incentive Stock Options or Nonqualified Stock Options, as determined
by the Committee. Except as provided in Sections 4.2 and 4.3 of this Plan,
Shares issued upon the exercise of an Award granted pursuant to the Plan shall
not again be available for the grant of an Award hereunder.
4.2 Lapsed Awards.
__________________
If any Award granted under this Plan shall terminate, expire, lapse, or be
cancelled for any reason without having been exercised in full, any unissued
Shares which had been subject to the Stock Option Agreement relating thereto
shall again become available for the grant of an Award under this Plan.
4.3 Delivery of Shares as Payment.
<PAGE> 31
__________________________________
In the event a Participant pays the Exercise Price for Shares pursuant to the
exercise of an Stock Option with previously acquired Shares, the number of
Shares available for future Awards under the Plan shall be reduced only by the
net number of new Shares issued upon the exercise of the Stock Option.
Notwithstanding anything to the contrary herein, no fractional Shares will be
delivered under the Plan.
4.4 Capital Adjustments.
________________________
(a) If by reason of a merger, consolidation, reorganization,
recapitalization, combination of Shares, stock split, reverse stock split,
stock dividend, separation (including a spin-off or split-off), or other such
similar event, the number of outstanding Shares of the Company are increased,
decreased, changed into, or been exchanged for a different number or kind of
shares, or if additional shares or new and different shares are issued in
respect of such Shares, the Committee in its sole discretion may adjust
proportionately (i) the aggregate maximum number of Shares available for
issuance under the Plan, (ii) the number and class of Shares covered by
outstanding Awards denominated in Shares or units of Shares, (iii) the Exercise
Price and grant prices related to outstanding Awards, and (iv) the appropriate
Fair Market Value and other price determinations for such Awards.
(b) In the event of any other change in corporate structure affecting
the Common Stock or any distribution (other than normal cash dividends) to
holders of shares of Common Stock, such adjustments in the number and kind of
shares and the exercise, grant, or conversion prices of the affected Awards as
may be deemed equitable by the Committee shall be made to give proper effect
to such event.
(c) In the event of a corporate merger, consolidation, or acquisition of
property or stock, separation (including spin-offs and split-offs),
reorganization or liquidation, the Committee shall be authorized to cause the
Company to issue or assume stock options, whether or not in a transaction to
which Section 424(a) of the Code applies, by means of substitution of new Stock
Options for previously issued stock options or an assumption of previously
issued stock options. In such event, the aggregate maximum number of Shares
available for issuance under Section 4.1 of the Plan will be increased to
reflect such substitution or assumption.
(d) If any adjustment made pursuant to this Article IV would result in
the possible issuance of fractional Shares under any then-outstanding Award,
the Committee may adjust the outstanding Awards so as to eliminate fractional
Shares.
(e) Any adjustment to be made with respect to Incentive Stock Options
shall comply with Sections 422 and 424 of the Code.
ARTICLE V
Eligibility
___________
Awards may be made to any Employee or Director, except that (a) only Employees
(including employees who also serve as Director) may receive Incentive Stock
Options, and (b) the grant of Awards to Directors must comply with Section 3.3.
A Participant who has been granted an Award may be granted additional Awards.
<PAGE> 32
ARTICLE VI
Stock Options
_____________
6.1 Stock Options.
__________________
Each Stock Option granted under this Plan shall be either an Incentive Stock
Option or a Nonqualified Stock Option.
6.2 Grant of Stock Options.
___________________________
Subject to the terms and provisions of this Plan, the Committee shall have the
authority to grant to any Participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both kinds of Stock Options. Subject to Section
4.1 and Article V, the Committee has complete and sole discretion in
determining the number of Shares subject to Stock Options to be granted to a
Participant; provided, however, that the aggregate Fair Market Value
(determined at the time the Award is made) of Shares with respect to which a
Participant may first exercise ISOs granted under the Plan during any calendar
year may not exceed $100,000 or such amount as shall be specified under Section
422 of the Code and the rules and regulations promulgated thereunder. To the
extent that any Stock Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time and manner of its exercise or
otherwise), such Stock Options or portion thereof which does not qualify shall
constitute a Nonqualified Stock Option. To the extent that a Stock Option is
to be treated in part as an Incentive Stock Option and in part as a
Nonqualified Stock Option, the Company may designate the Shares that are to be
treated as Shares acquired pursuant to an Incentive Stock Option by issuing a
separate certificate as Incentive Stock Option Shares in the stock transfer
records of the Company. Stock Options granted at different times need not
contain similar provisions.
6.3 Incentive Stock Options.
____________________________
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended, or altered,
nor shall any discretion or authority granted under this Plan be so exercised,
so as to disqualify the Plan under Section 422 of the Code, or, without the
consents of the Participants affected, to disqualify any Incentive Stock Option
under Section 422 of the Code.
6.4 Stock Option Agreement.
___________________________
Each Stock Option granted under this Plan shall be evidenced by a Stock Option
Agreement between the Company and the Participant in accordance with Section
6.2 that specifies the Exercise Price, the Exercise Period, the number of
Shares to which the Stock Option pertains, method of exercise and the form of
consideration payable therefor, any vesting requirements, any conditions
imposed upon the exercise of the Stock Options in the event of retirement,
death, disability, or other termination of service, and such other provisions
and conditions, not inconsistent with this Plan, as the Committee may
determine. Each Stock Option Agreement relating to a grant of Stock Options
shall clearly specify whether the Stock Option is intended to be an Incentive
Stock Option within the meaning of Section 422 of the Code, or a Nonqualified
Stock Option not intended to be within the provisions of Section 422 of the
Code.
<PAGE> 33
6.5 Exercise Price.
___________________
The Exercise Price per Share purchasable under any Stock Option granted under
this Plan shall be determined by the Committee at the Date of Grant, subject to
the following limitations:
(a) In the case of a Stock Option intended to be an Incentive Stock
Option, the Exercise Price shall not be less than 100% of the Fair Market Value
of the Common Stock on the Date of Grant or, in the case of any optionee who,
at the time such Incentive Stock Option is granted, owns Common Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent corporation or Subsidiaries, not less
than 110% of the of the Fair Market Value of the Common Stock on the Date of
Grant.
(b) In the case of a Stock Option intended to be a Nonqualified Stock
Option, the Exercise Price shall not be less than 85% of the Fair Market Value
of the Common Stock on the Date of Grant.
(c) In no event shall the Exercise Price of any Stock Option be less
than the par value of the Common Stock.
6.6 Exercise Period.
____________________
The Exercise Period of each Stock Option granted shall be fixed by the
Committee and shall be specified in the Stock Option Agreement; provided,
however, that no Incentive Stock Option shall be exercisable later than ten
years after the Award Date, and no Incentive Stock Option which is granted to
any optionee who, at the time such Stock Option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent corporation or Subsidiaries, shall be
exercisable after the expiration of five years from the Award Date.
6.7 Exercise of Stock Options.
______________________________
Stock Options granted under the Plan shall be exercisable at such time or times
and be subject to such terms and conditions as shall be set forth in the Stock
Option Agreement (as may determined by the Committee at the time of such
grant), which need not be the same for all Participants. Such terms and
conditions may include performance criteria with respect to the Company or the
Participant, and as shall be permissible under the other terms of the Plan. No
Stock Option, however, shall be exercisable until the expiration of the vesting
period, if any, set forth in the Stock Option Agreement. To the extent that no
vesting conditions are stated in the Stock Option Agreement, the Stock Options
represented thereby shall be fully vested at the Date of Grant.
6.8 Method of Exercise.
_______________________
(a) Subject to the provisions of the Stock Option Agreement, Stock
Options may be exercised in whole at any time, or in part from time to time
with respect to whole Shares only, during the Exercise Period by the delivery
to the Company of a written notice of intent to exercise the Stock Option, in
such form as the Committee may prescribe, setting forth the number of Shares
with respect to which the Stock Option is to be exercised; provided, however,
that the minimum exercise amount permitted at any time shall be one hundred
<PAGE> 34
(100) Shares. The Exercise Price, which shall accompany the written notice of
exercise, shall be payable to the Company in full (along with the taxes
described in the last sentence of this Section 6.8(a)) by the Participant who,
if so provided in the Stock Option Agreement, may: (i) deliver cash or a check
(acceptable to the Committee in accordance with guidelines established for this
purpose) in satisfaction of all or any part of the Exercise Price; (ii)
deliver, or cause to be withheld from the Stock Option, Shares valued at Fair
Market Value on the Date of Exercise in satisfaction of all or any part of the
Exercise Price, (iii) deliver any combination of cash and Shares, or (iv)
deliver any other consideration and method of payment permitted under any laws
to which the Company is subject, in each such case as the Committee may
determine.
(b) If the Exercise Price is to be paid by the surrender of previously
acquired and owned Common Stock, the Participant will make representations and
warranties satisfactory to the Company regarding his title to the Common Stock
used to effect the purchase (the "Payment Shares"), including, without
limitation, representations and warranties that the Participant has good and
marketable title to such Payment Shares free and clear of any and all liens,
encumbrances, charges, equities, claims, security interests, options or
restrictions, and has full power to deliver such Payment Shares without
obtaining the consent or approval of any person or governmental authority other
than those which have already given consent or approval in a manner
satisfactory to the Company. If such Payment Shares were acquired upon
previous exercise of Incentive Stock Options granted within two years prior to
the exercise of the Stock Option or acquired by the Participant within one year
prior to the exercise of the Stock Option, such Participant shall be required,
as a condition to using the Payment Shares in payment of the Exercise Price of
the Stock Option, to acknowledge the tax consequences of doing so, in that such
previously exercised Incentive Stock Options may have, by such action, lost
their status as Incentive Stock Options, and the Participant may recognize
ordinary income for tax purposes as a result.
6.8 Transfer Restrictions.
__________________________
Neither the Stock Options granted under the Plan nor any rights or interest in
such Stock Options may be sold, pledged, hypothecated, assigned, or otherwise
disposed of or transferred by such Participant, other than by will or by the
laws of descent and distribution. Except as permitted by the Committee, during
the lifetime of Participant to whom a Stock Option is granted, the Stock
Options shall be exercisable only by him or her or, in the event of the
Participant's permanent and total disability as determined by the Committee in
accordance with applicable Company policies, by his or her legal
representative.
6.10 Termination of Stock Options.
__________________________________
(a) Termination by Death. Unless the Committee provides otherwise in
the Stock Option Agreement, if a Participant's employment or service with the
Company or its Subsidiaries terminates by reason of death, then for a period of
one year (or such other period as the Committee may specify at grant) from the
date of such death or until the end of the Exercise Period of such Stock
Option, whichever period is shorter, the Award may be exercised by the legal
representative of the estate or by a person who acquires the right to exercise
such Stock Option by bequest or inheritance, subject to the limitations of
Section 6.11 with respect to Incentive Stock Options, to the extent that such
<PAGE> 35
Participant was entitled to exercise the Award at the date of such death.
(b) Termination by Disability. Unless the Committee provides otherwise
in the Stock Option Agreement, if a Participant's employment or service with
the Company or its Subsidiaries terminates by reason of permanent and total
disability, as determined by the Committee in accordance with applicable
Company personnel policies, then for a period of one year (or such other period
as the Committee may specify at grant) from the date of such termination of
employment or service, or until the end of the Exercise Period of such Stock
Option, whichever is shorter, the Award may be exercised by the Participant, or
his or her legal representative, subject to the limitations of Section 6.11
with respect to Incentive Stock Options, to the extent that such Participant
was entitled to exercise the Award at the date of such termination; provided,
however, that, if the Participant dies within such one year period (or such
other period as the Committee may specify at grant), then for a period of one
year from the date of death or until the end of the Exercise Period of such
Stock Option, whichever period is shorter, any unexercised Stock Options held
by such Participant shall thereafter be exercisable to the extent to which they
were exercisable at the time of such termination due to disability. In the
event of termination of employment by reason of permanent and total disability,
as determined by the Committee in accordance with applicable Company personnel
policies, if an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code (currently
one year from such termination), such Stock Option will thereafter be treated
as a Nonqualified Stock Option.
(c) Termination by Retirement. Unless the Committee provides otherwise
in the Stock Option Agreement, if a Participant's employment or service with
the Company or its Subsidiaries terminates by reason of normal or late
retirement under any retirement plan of the Company or its Subsidiaries or,
with the consent of Committee, then for a period of three months (or such other
period as the Committee may specify at grant) from the date of such termination
of employment or service, or until the end of the Exercise Period of such Stock
Option, whichever is shorter, the Award may be exercised by the Participant, or
his or her legal representative, subject to the limitations of Section 6.11
with respect to Incentive Stock Options, to the extent that such Participant
was entitled to exercise the Award at the date of such termination; provided,
however, that, if the Participant dies within such three month period, then
for a period of one year from the date of death or until the end of the
Exercise Period of such Stock Option, whichever period is shorter, any
unexercised Stock Options held by such Participant shall thereafter be
exercisable to the extent to which they were exercisable at the time of such
retirement. In the event of termination of employment by reason of retirement
pursuant to any retirement plan of the Company or its Subsidiaries or with the
consent of the Committee, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of
the Code (currently three months from such termination), such Stock Option will
thereafter be treated as a Nonqualified Stock Option.
(d) Other Termination of Employee. Unless otherwise determined by the
Committee at or after grant and except as provided in Section 7.1 hereof, if a
Participant's employment by the Company terminates for any reason other than
death, disability, or retirement covered by Sections (a), (b), or (c) of this
Plan: (i) any Stock Options that were not exercisable at the date of such
termination (which date shall be determined by the Committee in its sole
discretion) will expire automatically, and (ii) any Stock Options exercisable
on the date of termination will remain exercisable only for the lesser of three
<PAGE> 36
months or the balance of such Exercise Period of such Stock Option; provided,
however, that the Participant was not involuntarily terminated by the Company
for Cause. If the Participant dies within such three month period (or such
other period as the Committee may specify at grant), then for a period of one
year from the date of death or until the end of the Exercise Period of such
Stock Option, whichever period is shorter, any unexercised Stock Options held
by such Participant shall thereafter be exercisable to the extent to which they
were exercisable at the time of such termination. Notwithstanding any other
provision of this Plan except for Section 7.1 hereof, upon termination of a
Participant's employment with the Company or any of its Subsidiaries for Cause,
all of the Participant's unexercised Stock Options will terminate immediately
upon the date of such termination (which date shall be determined by the
Committee in its sole discretion) and the Participant shall forfeit all Shares
for which the Company has not yet delivered share certificates to the
Participant. In such event, the Company shall refund to the Participant the
Exercise Price paid to it, if any, in the same form as it was paid (or in cash
at the Company's discretion). The Company may withhold delivery of share
certificates pending resolution of any inquiry that could lead to a finding
that a termination of a Participant's employment was for Cause.
(e) Except as covered by Sections 6.10(a), (b), or (c) of this Plan, if
a Participant serving as a Non-Employee Director terminates his or her service
by resigning from the Board of Directors or by failing to run for election to
an additional term as a Director after being offered nomination for an
additional term by a nominating or similar committee of the Board of Directors
(or in lieu of such committee, by the entire Board of Directors), then (i) any
Stock Options that were not exercisable at the date of such termination of
service will expire automatically, and (ii) any exercisable Stock Options as of
such date held by the Participant may thereafter be exercised by the
Participant for a period of three months from the date of such resignation or,
in the case of a failure to run for election to an additional term, from (A)
the date of such stockholder meeting at which such election of Directors takes
place, or (B) until the end of the Exercise Period, whichever is shorter (or
such other period as the Committee may specify at grant). If a Participant
serving as a Non-Employee Director does not resign and is not offered
nomination for an additional term, all Stock Options held by such Participant
shall immediately vest on the date that the Participant's service as a Director
of the Company terminates and such Stock Options shall be exercisable until the
end of the Exercise Period for such Stock Options. Notwithstanding any other
provision of this Plan, upon removal of a Director by shareholders of the
Company for cause under applicable state law, all of the Participant's
unexercised Stock Options will terminate immediately upon the date of such
termination (which date shall be determined by the Committee in its sole
discretion) and the Participant shall forfeit all Shares for which the Company
has not yet delivered share certificates to the Participant. In such event,
the Company shall refund to the Participant the Exercise Price paid to it, if
any, in the same form as it was paid (or in cash at the Company's discretion).
6.11 Incentive Stock Option Limitations.
________________________________________
(a) To the extent that the aggregate Fair Market Value (determined as
of the Date of Grant) of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a Participant during any calendar
year under the Plan and/or any other stock option plan of the Company or any
Subsidiary or parent corporation (within the meaning of Section 425 of the
Code) exceeds $100,000, such Stock Options shall be treated as Stock Options
<PAGE> 37
which are not Incentive Stock Options.
(b) To the extent (if any) permitted under Section 422 of the Code, or
the applicable rules and regulations promulgated thereunder or any applicable
Internal Revenue Service pronouncement, if (i) a Participant's employment with
the Company or any Subsidiary is terminated by reason of death, disability, or
retirement covered by Section 6.10(a), (b), or (c) of this Plan, and (ii) the
portion of the Incentive Stock Option that is otherwise exercisable during the
post-termination period specified under Sections 6.10(a), (b), or (c), applied
without regard to the $100,000 limitation currently contained in Section 422(d)
of the Code, is greater than the portion of the Stock Option that is
immediately exercisable as an "incentive stock option" during such post-
termination period under Section 422 of the Code, such excess shall be treated
as a Nonqualified Stock Option.
(c) In the event that the application of any of the provisions of
Section 6.11 (a) or (b) of this Plan not be necessary in order for Stock
Options to qualify as Incentive Stock Options, or should additional provisions
be required, the Committee may amend the Plan accordingly, without the
necessity of obtaining the approval of the stockholders of the Company.
6.12 Buy-Out and Settlement Provisions.
_______________________________________
The Committee may at any time offer to buy-out a Stock Option previously
granted, based on such terms and conditions as the Committee shall establish
and communicate to the Participant at the time that such offer is made.
6.13 No Rights as Stockholder.
______________________________
No Participant or transferee of a Stock Option shall have any rights as a
stockholder of the Company with respect to any Shares subject to a Stock Option
(including without limitation, rights to receive dividends, vote, or receive
notice of meetings) prior to the purchase of such Shares by the exercise of
such Stock Option as provided in this Plan. A Stock Option shall be deemed to
be exercised and the Common Stock thereunder purchased when written notice of
exercise has been delivered to the Company in accordance with Section 6.8 of
the Plan and the full Exercise Price for the Shares with respect to which the
Stock Options is exercised has been received by the Company, accompanied with
any agreements required by the terms of the Plan and the applicable Stock
Option Agreement; provided, however, that if the Participant has been
terminated for Cause, only those shares of Common Stock for which a certificate
has been delivered to the Participant by the Company will be deemed to be
purchased by such Participant. Full payment may consist of such consideration
and method of payment allowable under this Article VI of the Plan. No
adjustment will be made for a cash dividend or other rights for which the
record date precedes the Date of Exercise, except as provided in Section 4.4
of the Plan.
6.14 Sale of Common Stock Upon Exercise of Stock Option.
________________________________________________________
Unless the Committee provides otherwise in the Stock Option Agreement, Common
Stock acquired pursuant to the exercise of Stock Option shall not be subject to
any restrictions on transferability under this Plan, except as provided in
Section 11.1 of this Plan. With respect to Common Stock acquired pursuant to
the exercise of an Incentive Stock Option, a transfer or other disposition of
such Common Stock by a Participant (other than by will or the laws of descent
and distribution) may not qualify for favorable tax treatment under Section
<PAGE> 38
421(a) of the Code if such transfer or other disposition shall occur before the
expiration of the later of (i) the two year period commencing on the Date of
Grant of the ISO, or (ii) the one year period commencing on the Date of
Exercise of the ISO.
ARTICLE VII
Change of Control
_________________
7.1 Acceleration of Options; Lapse of Restrictions.
___________________________________________________
(a) In the event of a Change of Control of the Company, (i) each Stock
Option then outstanding under the Plan shall be fully exercisable, regardless
of any unsatisfied vesting requirements established under the terms of the
pertinent Stock Option Agreements, and remain so for the duration of the Stock
Option as specified in the Stock Option Agreement, and (ii) all conditions or
restrictions related to an Award shall be accelerated or released; all in a
manner, in the case of persons subject to Section 16(b) of the Exchange Act, as
to conform with the provisions of Rule 16b-3 thereunder.
(b) Awards that remain outstanding after a Change of Control shall not
be terminated as a result of a termination of service covered by Section 6.10,
and shall continue to be exercisable until the end of the Exercise Period in
accordance with their original terms, except in the case of a Participant's
death in which case termination shall occur within one year from the date of
death.
(c) Notwithstanding the foregoing, if any right granted pursuant to
this Section 7.1 would make a Change of Control transaction ineligible for
pooling of interests accounting treatment under applicable accounting
principles that, but for this Section 7.1, would have been available for such
accounting treatment, then the Committee shall have the authority to substitute
stock for cash which would otherwise be payable pursuant to this Section 7.1
having a Fair Market Value equal to such cash.
7.2 Definition of Change of Control.
____________________________________
For purposes of this Plan, a "Change of Control" is deemed to have occurred if:
(a) any individual, entity, or group (within the meaning of Sections
13(d)(3) or 14(d)(2) of the Exchange Act), is or becomes, directly or
indirectly, the "beneficial owner" (as defined by Rule 13d-3 promulgated under
the Exchange Act) of 25% or more of the combined voting power of the then
outstanding securities of the Company entitled to vote generally in the
election of Directors ("Voting Securities"); provided, however, that any
acquisition by the following will not constitute a Change of Control:
(i) the Company or any of its Subsidiaries,
(ii) any employee benefit plan (or related trust) of the Company
or its Subsidiaries, or
(iii) any corporation with respect to which, following such
acquisition, more than 50% of the combined voting power of the
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
<PAGE> 39
beneficially owned by the Persons who were the beneficial
owners of the Voting Securities immediately prior to such
acquisition in substantially the same proportion as their
ownership immediately prior to such acquisition of the Voting
Securities; or
(b) (i) a tender offer or an exchange offer is made to acquire
securities of the Company whereby following such offer the offerees will hold,
control, or otherwise have the direct or indirect power to exercise voting
control over 50% or more of the Voting Securities, or (ii) Voting Securities
are first purchased pursuant to any other tender or exchange offer.
(c) as a result of a tender offer or exchange offer for the purchase of
securities of the Company (other than such an offer by the Company for its own
securities), or as a result of a proxy contest, merger, consolidation, or sale
of assets, or as a result of a combination of the foregoing, during any period
of two consecutive years, individuals who, at the beginning of such period
constitute the Board, plus any new Directors of the Company whose election or
nomination for election by the Company's stockholders was or is approved by a
vote of at least two-thirds of the Directors of the Company then still in
office who either were Directors of the Company at the beginning of such two
year period or whose election or nomination for election was previously so
approved (but excluding for this purpose, any individual whose initial
assumption of office was or is in connection with the actual or threatened
election contest relating to the election of Directors of the Company (as such
term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act)), cease for any reason during such two year period to constitute at least
two-thirds of the members of the Board; or
(d) the stockholders of the Company approve a reorganization, merger,
consolidation, or other combination, with or into any other corporation or
entity regardless of which entity is the survivor, other than a reorganization,
merger, consolidation, or other combination, which would result in the Voting
Securities outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or being converted into Voting Securities of
the surviving entity) at least 60% of the combined voting power of the Voting
Securities or of the voting securities of the surviving entity outstanding
immediately after such reorganization, merger, consolidation; or other
combination; or
(e) the stockholders of the Company approve a plan of liquidation or
winding-up of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets, or any
distribution to security holders of assets of the Company having a value equal
to 30% or more of the total value of all assets of the Company.
7.3 Occurrence of a Change of Control.
______________________________________
A Change of Control will be deemed to have occurred:
(a) with respect to any acquisition referred to in Section 7.2(a) above,
the date on which the acquisition of such percentage shall have been completed;
(b) with respect to a tender or exchange offer, the date the offer
referred to in Section 7.2(b)(i) above is made public or when documents are
filed with the SEC in connection therewith pursuant to Section 14(d) of the
Exchange Act, or the date of the purchase referenced in Section 7.2(b)(ii);
<PAGE> 40
(c) with respect to a change in the composition of the Board of
Directors referred to in Section 7.2(c), the date on which such change is
adopted or is otherwise effective, whichever first occurs; or
(d) with respect to any stockholder approval referred to in Section
7.2(d) or (e), the date of any approval.
7.4 Application of this Article VII.
____________________________________
The provisions of this Article VII shall apply to successive events that may
occur from time to time but shall only apply to a particular event if it occurs
prior to the expiration of this Plan and each Award issued pursuant to this
Plan.
ARTICLE VIII
Amendment, Modification, or Termination of Plan
_______________________________________________
Insofar as permitted by applicable law, the Board, by resolution, shall have
the power at any time, and from time to time, to amend, modify, suspend,
terminate or discontinue the Plan or any part thereof. The Board is
specifically authorized to amend the Plan and take such other action as it
deems necessary or appropriate to comply with Section 162(m) of the Code and
the rules and regulations promulgated thereunder. Such amendment or
modification may be without stockholder approval except to the extent that such
approval is required by the Code, or pursuant to the rules and regulations
under the Section 16 of the Exchange Act, by any national securities exchange
or inter-dealer quotation system on which the Shares are then listed, quoted,
or reported, by any regulatory authority or board having jurisdiction with
respect thereto, or under any applicable laws, rules, or regulations.
Notwithstanding the provisions of this Article VIII, no termination, amendment,
or modification of the Plan, other than those pursuant to Article IV hereof,
shall in any manner adversely affect any Award theretofore granted under the
Plan, without the written consent of the Participant so affected.
ARTICLE IX
Modification, Extension, and Renewal of Stock Options and Awards
________________________________________________________________
Subject to the terms and conditions, and within the limitations, of the Plan,
the Committee may modify, extend, or renew outstanding Stock Options,
prospectively or retroactively, or accept the surrender of outstanding Stock
Options (to the extent not theretofore exercised) granted under the Plan or any
other plan of the Company or a Subsidiary, and authorize the granting of new
Stock Options pursuant to the Plan in substitution therefor (to the extent not
theretofore exercised), and the substituted Stock Options may specify a lower
exercise price or a longer term than the surrendered Stock Options or have
any other provisions that are authorized by the Plan. Notwithstanding the
foregoing provisions of this Article IX, (a) no amendment or modification of an
Award which adversely affects the Participant shall not be made without the
consent of the affected Participant, and (b) no Incentive Stock Option may be
modified, amended, extended, or reissued if such action would cause it to cease
to be an "Incentive Stock Option" within the meaning of Section 422 of the
Code, unless the Participant specifically acknowledges and consents to the tax
consequences of such action.
<PAGE> 41
ARTICLE X
Indemnification of the Committee
________________________________
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall
not be liable for any act, omission, interpretation, construction, or
determination made in good faith in connection with their administration of and
responsibilities with respect to the Plan, and the Company hereby agrees to
indemnify the members of the Committee against any claim, loss, damage, or
reasonable expense, including attorneys' fees, actually and reasonably incurred
in connection with the defense of any action, suit, or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Award granted or made hereunder, and against all amounts reasonably
paid by them in settlement thereof or paid by them in satisfaction of a
judgment in any such action, suit, or proceeding, if such members acted in good
faith and in a manner which they believed to be in, and not opposed to, the
best interests of the Company and its Subsidiaries.
ARTICLE XI
General Provisions
__________________
11.1 Conditions Upon Issuance of Shares.
________________________________________
Shares shall not be issued pursuant to the exercise of an Stock Option unless
the exercise of such Stock Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
or inter-dealer quotation system upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance. The Committee may require each person purchasing
or otherwise acquiring Shares pursuant to a Stock Option under the Plan to
represent to and agree with the Company in writing to the effect that the
Participant: (a) is acquiring the Shares for his or her own personal account,
for investment purposes only, and not with an intent or a view to distribution
within the meaning of Section 2(11) of the Securities Act (unless such shares
have been issued to the Participant pursuant to a registration statement
declared effective by the SEC), and (b) will not sell, assign, pledge,
hypothecate, or otherwise dispose of or transfer the Shares to be issued upon
exercise of such Option except as permitted by this Plan and except in
compliance with the Securities Act and the securities laws of all other
applicable jurisdictions, as supported by an opinion of counsel if so requested
by the Committee. As a further condition to the issuance of such Shares, the
Participant shall provide any other representation, warranty, or covenant as
the Committee or its counsel deems necessary under the Securities Act and the
securities laws of all other applicable jurisdiction. In addition to any
legend required by this Plan, the certificates for the Shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer.
11.2 Reservation of Shares.
___________________________
The Company shall at all times reserve and keep available such number of Shares
as shall be sufficient to satisfy the requirements of the Plan. The Company
<PAGE> 42
shall use its best efforts to seek to obtain from appropriate regulatory
agencies any requisite authorization in order to issue and sell such number of
Shares as shall be sufficient to satisfy the requirements of the Plan. The
inability of the Company to obtain from any such regulatory agency having
jurisdiction the requisite authorization(s) deemed by the Company's counsel to
be necessary for the lawful issuance and sale of any Shares hereunder, or the
inability of the Company to confirm to its satisfaction that any issuance and
sale of any Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
11.3 Limitation on Legal Rights.
________________________________
The establishment of the Plan shall not confer upon any Employee or Director
any legal or equitable right against the Company, except as expressly provided
in the Plan.
11.4 Not a Contract of Employment.
__________________________________
This Plan is purely voluntary on the part of the Company, and the continuation
of the Plan shall not be deemed to constitute a contract between the Company
and any Participant, or to be consideration for or a condition of the
employment or service of any Participant. Participation in the Plan shall not
give any Employee or Director any right to be retained in the service of the
Company or any of its Subsidiaries, nor shall anything in this Plan affect the
right of the Company or any of its Subsidiaries to terminate any such Employee
with or without cause.
11.5 Other Compensation Plans.
______________________________
The adoption of the Plan shall not affect any other Stock Option or incentive
or other compensation plans in effect for the Company or any of its
Subsidiaries, nor shall the Plan preclude the Company or any Subsidiary from
establishing any other forms of incentive or other compensation plan or
arrangements for Employees or Director of the Company or any of its
Subsidiaries.
11.6 Assumption by the Company.
_______________________________
The Company or its Subsidiaries may assume options, warrants, or rights to
purchase shares issued or granted by other companies whose shares or assets
shall be acquired by the Company or its Subsidiaries or which shall be merged
into or consolidated with the Company or its Subsidiaries. The adoption of
this Plan shall not be taken to impose any limitations on the powers of the
Company or its Subsidiaries or affiliates to issue, grant, or assume options,
warrants, rights, or restricted shares, otherwise than under this Plan, or to
adopt other Stock Option or restricted share plans or to impose any
requirements of shareholder approval upon the same.
11.7 Creditors.
_______________
The interests of any Participant under this Plan is not subject to the claims
of creditors and may not, in any way, be assigned, alienated, or encumbered.
11.8 Plan Binding on Successors.
________________________________
All obligations of the Company under this Plan and any Awards granted hereunder
<PAGE> 43
shall be binding upon any successor and assign of the Company, whether the
existence of such successor or assign is a result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business or assets of the Company.
11.9 Unfunded Status of Plan.
_____________________________
This Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any Participant
any rights that are greater than those of a general creditor of the Company.
11.10 Withholding.
__________________
(a) Tax Withholding.
________________
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, and local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any grant, exercise, or payment
under or as a result of this Plan.
(b) Share Withholding.
__________________
To the extent the Code requires withholding upon the exercise of Nonqualified
Stock Options, or upon the occurrence of any other similar taxable event, the
Committee may permit or require, subject to any rules it deems appropriate, the
withholding requirement to be satisfied, in whole or in part, with or without
the consent of the participant, by having the Company withhold Shares having a
Fair Market Value equal to the amount required to be withheld. The value of
the Shares to be withheld shall be based on Fair Market Value of the Shares on
the date that the amount of tax to be withheld is to be determined.
11.10 Singular, Plural; Gender.
_______________________________
Whenever used in this Plan, nouns in the singular shall include the plural, and
vice versa, and the masculine pronoun shall include the feminine gender.
11.11 Headings.
_______________
Headings to the Sections and subsections are included for convenience and
reference and do not constitute part of the Plan.
11.12 Costs.
____________
The Company shall bear all expenses incurred in administrating this Plan,
including original issue, transfer, and documentary stamp taxes, and other
expenses of issuing the Shares pursuant to Awards granted hereunder.
11.13 Governing Law.
____________________
This Plan and the actions taken in connection herewith shall be governed,
construed, and administered in accordance with the laws of the State of Maine
(regardless of the law that might otherwise govern under applicable Maine
principles of conflicts of laws).
ARTICLE XII
Effectiveness of the Plan
_________________________
This Plan shall become effective on the date that it is adopted by both the
Board of Directors; provided, however, that it shall become limited to a
Nonqualified Stock Option Plan if it is not approved by the stockholders of the
Company within one year (365 days) of its adoption by the Board of Directors,
by a majority of the votes cast at a duly held stockholder meeting at which a
quorum representing a majority of the Company's outstanding voting shares is
present, either in person or by proxy. The Committee may make awards hereunder
prior to stockholder approval of the Plan; provided, however, that any and all
Stock Options awarded shall automatically be converted into Nonqualified Stock
Options if the Plan is not approved by such stockholders within 365 days of its
adoption by the Board of Directors.
<PAGE> 44
ARTICLE XIII
Term of the Plan
________________
Unless sooner terminated by the Board pursuant to Article VIII hereof, this
Plan shall terminate ten (10) years from its effective date and no Awards may
be granted after termination, but Awards granted prior to such termination may
extend beyond that date. The Board of Directors may terminate this Plan at any
time. The termination shall not affect the validity of any Stock Option
outstanding on the date of termination.
Date Approved by Board of Directors: September 17, 1999
/s/ Suzanne M. Carney
_____________________
Clerk Certification
Date Approved by the Stockholders: November 9, 1999
/s/ Suzanne M. Carney
_____________________
Clerk Certification
NORTHEAST BANCORP
Exhibit 11. Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1999 December 31, 1998
____________________ ____________________
<S> <C> <C>
<PAGE> 45
EQUIVALENT SHARES:
Weighted Average Shares Outstanding 2,774,885 2,692,802
Total Diluted Shares 2,788,188 2,786,889
Net Income $ 836,744 $ 700,568
Less Preferred Stock Dividend 0 8,167
____________________ ____________________
Income Available to Common
Stockholders $ 836,744 $ 692,401
==================== ====================
Basic Earnings Per Share $ 0.30 $ 0.26
Diluted Earnings Per Share $ 0.30 $ 0.25
Six Months Ended Six Months Ended
December 31, 1999 December 31, 1998
____________________ ____________________
EQUIVALENT SHARES:
Weighted Average Shares Outstanding 2,772,662 2,654,158
Total Diluted Shares 2,792,661 2,790,300
Net Income $ 1,638,465 $ 1,336,605
Less Preferred Stock Dividend 0 25,667
____________________ ____________________
Income Available to Common
Stockholders $ 1,638,465 $ 1,310,938
==================== ====================
Basic Earnings Per Share $ 0.59 $ 0.49
Diluted Earnings Per Share $ 0.59 $ 0.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 7,776,735
<INT-BEARING-DEPOSITS> 4,047,929
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,093,686
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 364,171,362
<ALLOWANCE> 3,167,000
<TOTAL-ASSETS> 415,813,719
<DEPOSITS> 238,727,661
<SHORT-TERM> 100,078,044
<LIABILITIES-OTHER> 2,633,145
<LONG-TERM> 46,851,955
0
0
<COMMON> 2,785,815
<OTHER-SE> 24,737,099
<TOTAL-LIABILITIES-AND-EQUITY> 415,813,719
<INTEREST-LOAN> 14,455,123
<INTEREST-INVEST> 640,390
<INTEREST-OTHER> 327,426
<INTEREST-TOTAL> 15,422,939
<INTEREST-DEPOSIT> 4,886,065
<INTEREST-EXPENSE> 8,430,022
<INTEREST-INCOME-NET> 6,992,917
<LOAN-LOSSES> 491,114
<SECURITIES-GAINS> 25,861
<EXPENSE-OTHER> 5,205,254
<INCOME-PRETAX> 2,537,581
<INCOME-PRE-EXTRAORDINARY> 2,537,581
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,638,465
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.59
<YIELD-ACTUAL> 3.509
<LOANS-NON> 1,715,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 180,293
<LOANS-PROBLEM> 372,000
<ALLOWANCE-OPEN> 2,924,000
<CHARGE-OFFS> 351,598
<RECOVERIES> 103,484
<ALLOWANCE-CLOSE> 3,167,000
<ALLOWANCE-DOMESTIC> 107,800
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,059,200
</TABLE>
