Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
North American Mortgage Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
LOGO
NORTH AMERICAN MORTGAGE COMPANY(R)
Executive Headquarters: Mailing Address:
3883 Airway Drive P.O. Box 808005
Santa Rosa, California Petaluma, California 94975-8008
(707) 546-3310
April 29, 1997
Dear Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
North American Mortgage Company(R). The meeting will be held on May 28, 1997 at
10:00 a.m., New York time, at The Chase Manhattan Bank, 270 Park Avenue, Third
Floor, New York, New York. We hope you will be able to attend and hear
management's report to stockholders. The formal notice and proxy statement for
this meeting are on the following pages. We request you read the proxy statement
carefully.
It is important that you sign, date, and return your proxy as soon as
possible, even if you currently plan to attend the Annual Meeting. You may still
attend the Annual Meeting and vote in person if you desire, but returning your
proxy card now will assure that your vote is counted if you are unable to
attend. Your vote, regardless of the number of shares you own, is important.
The directors and officers of the Company look forward to meeting with you.
/s/John F. Farrell, Jr. /s/Terrance G. Hodel
- ----------------------- --------------------
John F. Farrell, Jr. Terrance G. Hodel
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
<PAGE>
LOGO
NORTH AMERICAN MORTGAGE COMPANY(R)
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 28, 1997
To the Stockholders:
The Annual Meeting of Stockholders of North American Mortgage Company(R)
(the "Company") will be held at The Chase Manhattan Bank, 270 Park Avenue, Third
Floor, New York, New York on May 28, 1997 at 10:00 a.m., New York time, and at
any adjournment thereof, for the following purposes:
1. To elect eight directors to serve on the Board of Directors.
2. To approve an amendment to the Company's Employee Stock Purchase Plan.
3. To approve an amendment to the Company's Incentive Stock Option Plan.
4. To ratify the appointment of Ernst & Young LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1997.
5. To consider and transact such other business as may properly come
before the meeting and any adjournment thereof.
A complete list of the stockholders entitled to vote at the meeting,
including the address and number of shares registered in the name of each such
stockholder, will be open for examination by any such stockholder, for any
purpose germane to the meeting, at the Company's corporate office (3883 Airway
Drive, Santa Rosa, California) during ordinary business hours for ten days
before the date of the meeting. The list also will be available for inspection
at the meeting.
Only stockholders of record at the close of business on March 31, 1997 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournment or
adjournments thereof.
By Order of the Board of Directors
/s/Carolyn Owens Vogt
CAROLYN OWENS VOGT
Secretary
April 29, 1997
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE
OF FURTHER PROXY SOLICITATION. PLEASE MAIL YOUR PROXY TODAY.
<PAGE>
LOGO
NORTH AMERICAN MORTGAGE COMPANY(R)
3883 Airway Drive
Santa Rosa, CA 95403-1699
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
May 28, 1997
GENERAL
This proxy statement is furnished to stockholders of North American
Mortgage Company(R) (the "Company") in connection with the solicitation by its
Board of Directors (the "Board") of proxies to be voted at the 1997 Annual
Meeting of Stockholders to be held at The Chase Manhattan Bank, 270 Park Avenue,
Third Floor, New York, New York, on May 28, 1997 at 10:00 a.m., New York time,
and at any adjournment thereof (the "Annual Meeting"). The Company expects to
first mail its proxy soliciting materials for the Annual Meeting on or about
April 29, 1997 to all stockholders entitled to vote at the Annual Meeting.
The address of the principal executive office of the Company is 3883 Airway
Drive, Santa Rosa, California, 95403-1699, and its telephone number is (707)
546-3310.
Annual Report
The Annual Report of the Company for the year ended December 31, 1996 was
previously furnished to all stockholders entitled to vote at the Annual Meeting.
It is not to be regarded as proxy soliciting material or as a communication by
means of which any solicitation is to be made.
Solicitation by the Board of Directors; Revocation of Proxies
The proxy in the form enclosed is solicited by the Board of Directors. A
proxy may be revoked by the stockholder prior to exercise thereof by filing with
the Secretary of the Company a written revocation or a duly executed proxy
bearing a later date. The powers of the proxy holders will be suspended if the
person executing the proxy is present at the Annual Meeting and elects to vote
in person.
Costs of Solicitation
The entire cost of soliciting these proxies will be borne by the Company.
The Company may make arrangements with brokerage houses, nominees, fiduciaries
and other custodians to send proxies and proxy material to beneficial owners of
the Company's stock and may reimburse them for their expenses in so doing. The
Company has retained Morrow & Co. to assist in obtaining proxies from brokers
and nominees at an estimated cost of $6,000 plus out-of-pocket expenses.
Proxies may be solicited personally or by telephone, telegram or mail by
directors, officers and other employees of the Company without additional
compensation for such services.
1
<PAGE>
Voting of Board of Directors' Proxies
The shares represented by the Board of Directors' proxies will be voted FOR
the election of the Board of Directors' nominees for the Board of Directors, FOR
the approval of the amendment to the Company's Employee Stock Purchase Plan, FOR
the approval of the amendment to the Company's Incentive Stock Option Plan, FOR
the ratification of the appointment of Ernst & Young LLP as independent public
accountants and at the discretion of the proxy holders on any other matters that
may properly come before the Annual Meeting, if no contrary instruction is
indicated on the proxy.
Shares Outstanding, Voting Rights and Record Date
There were 14,059,485 shares of Common Stock, $0.01 par value, (the "Common
Stock") of the Company outstanding at the close of business on March 31, 1997.
Each share of Common Stock is entitled to one vote at the Annual Meeting. An
automated system administered by the Company's transfer agent tabulates the
votes. Abstentions and broker non-votes are each included in the determination
of the number of shares present and voting. Each is tabulated separately.
There are no cumulative voting rights.
Pursuant to the By-Laws of the Company, the Board of Directors has fixed
the close of business on March 31, 1997 as the record date for the determination
of stockholders entitled to notice of and to vote at the meeting.
Security Ownership of Certain Beneficial Owners
The following table sets forth information concerning the beneficial
ownership of Common Stock of the Company by each person (including any "group"
as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act")) who is known to the Company to be the beneficial owner of
more than five percent of such Common Stock.
<TABLE>
<CAPTION>
Amount and
Nature
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
-------------------------------------------------- ----------------- --------
<S> <C> <C> <C>
Wellington Management Company, LLP(1)............. 1,499,600 shares 10.7
75 State Street
Boston, MA 02109
FMR Corp.(2)...................................... 1,096,700 shares 7.8
82 Devonshire Street
Boston, MA 02109-3614
Private Capital Management(3)..................... 844,700 shares 6.0
3003 Tamiami Trail North
Naples, FL 34103
The Hartford Investment Management Company(4)..... 803,800 shares 5.7
Hartford Capital Appreciation Fund, Inc.
c/o ITT HARTFORD GROUP, INC.
Hartford Plaza
Hartford, CT 06115
</TABLE>
2
<PAGE>
- ---------------
(1) Based upon a Schedule 13G filing of Wellington Management Company, LLP
("WMC"), WMC is an investment advisor registered with the Securities and
Exchange Commission under the Investment Advisors Act of 1940, as amended.
As of December 31, 1996, WMC, in its capacity as investment advisor, may be
deemed to have beneficial ownership of 1,499,600 shares of Common Stock that
are owned by numerous investment advisory clients, none of which is known to
have such interest with respect to more than five percent of the class,
other than Hartford Capital Appreciation Fund, Inc., as described in
footnote (4), below. As of December 31, 1996, WMC shared voting power with
respect to 898,800 shares and shared dispositive power with respect to all
of such shares.
(2) Based solely upon information furnished to the Company by FMR Corp., as of
April 15, 1997. FMR Corp., the parent company to Fidelity Management &
Research Company ("Fidelity"), may be deemed to have beneficial ownership of
1,096,700 shares of Common Stock that are beneficially owned by Fidelity, in
its capacity as investment advisor to various investment companies and
certain other funds. The ownership of one investment company, Fidelity
Low-Priced Stock Fund, equals 840,500 shares of Common Stock. FMR Corp. has
no voting power and sole dispositive power with respect to all of the
1,096,700 shares of Common Stock. Sole voting power of all of said shares is
held by an independent board of trustees.
(3) Represents shares reported to the Company by Private Capital Management
("PCM") as being held by PCM as of February 28, 1997. PCM is an investment
advisor that has shared investment power with respect to all of the shares
it holds for its investment advisory clients. PCM disclaims voting power
with respect to all of said shares.
(4) Based upon a Schedule 13G filing of The Hartford Investment Management
Company ("HIMCO") and Hartford Capital Appreciation Fund, Inc., as of
December 31, 1996, HIMCO shared voting and dispositive power with respect to
all of the shares indicated above in its capacity as investment advisor of
Hartford Capital Appreciation Fund, Inc., a mutual fund that is the
beneficial owner of such shares. All of such shares are part of the
1,499,600 shares held by WMC, as noted in footnote (1), above.
3
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
A board of eight directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for management's eight nominees named below, all of whom are presently directors
of the Company. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy or the size of the Board of Directors will be
reduced. The term of office of each person elected as a director will continue
until the next Annual Meeting or until his or her successor has been elected and
qualified.
The names of the nominees, all of whom are currently directors of the
Company, and certain information about them, are set forth below.
<TABLE>
<CAPTION>
Name of Nominee Position Age
- --------------------- -------------------------------------------------------- ----
<S> <C> <C>
John F. Farrell, Jr.. Chairman of the Board, Chief Executive Officer and
Director 59
Terrance G. Hodel.... President, Chief Operating Officer and Director 54
William L. Brown..... Director 75
William F. Connell... Director 58
Magna L. Dodge....... Director 50
William O. Murphy.... Director 62
Robert J. Murray..... Director 55
James B. Nicholson... Director 53
</TABLE>
JOHN F. FARRELL, JR. has been Chairman of the Board, Chief Executive
Officer and Director of the Company and of the General Partner of the
predecessor of the Company (the "General Partner") since 1985. Mr. Farrell
practiced corporate law in New York City for six years and then joined Merrill
Lynch in its investment banking division. He was a partner of Oppenheimer & Co.
from 1971 to 1981. Since 1981, Mr. Farrell has been an investor involved in the
purchase and management of various companies. He presently is a director of
Automatic Service Company, a food services and vending company and also a member
of the Board of Trustees of Boston College and the Kennedy Library Foundation.
He holds a B.S. and M.S. from New York University and an L.L.M. and L.L.B. from
New York University Law School.
TERRANCE G. HODEL has been President, Chief Operating Officer and a
Director of the Company and of the General Partner since 1985. He joined Wells
Fargo Mortgage Company in 1979 as President and Chief Executive Officer. Prior
thereto, from 1975 to 1979, Mr. Hodel held the positions of Executive Vice
President of Sutro Mortgage Investment Trust and Senior Vice President of Ralph
C. Sutro Company. From 1972 to 1975, Mr. Hodel served as Vice President of Ralph
C. Sutro Company. Mr. Hodel was a member of the National Advisory Council of
FNMA from 1991 to 1994. He has been a member of the Board of Trustees of the
Mortgage Bankers Association of America since 1992 and a member of the Board of
Directors of the California Mortgage Bankers Association since 1991. Mr. Hodel
received an M.B.A. from Stanford University and a B.A. from Pomona College.
WILLIAM L. BROWN became a Director in March 1992. Mr. Brown served as
Chairman and Chief Executive Officer of both the First National Bank of Boston
("FNBB") and the Bank of Boston Corporation ("BKBC") from 1983 to 1987 and
continued as Chairman of the Board of both FNBB and BKBC until his retirement in
1989. He also served as a Director of FNBB from 1969 to 1992 and BKBC from 1970
to 1992. Mr. Brown is also a member of the Board of Directors of the following
organizations: G.C. Companies; Standex International Corporation; Ionics,
Incorporated; and Bradley Real Estate Trust. Mr. Brown received an M.B.A. from
Harvard Business School.
WILLIAM F. CONNELL became a Director in March 1993. Since 1987, Mr. Connell
has been Chairman and Chief Executive Officer of Connell Limited Partnership, a
company primarily involved in metals recycling and the manufacture of industrial
products. Prior to forming Connell Limited Partnership, Mr. Connell was
4
<PAGE>
Chairman and Chief Executive Officer of Avondale Industries, Inc., which was
spun off from the Ogden Corporation in 1985. Mr. Connell was appointed to the
Board of Directors of Ogden Corporation in 1973, became Executive Vice President
in 1980, and was appointed to the Management Committee of the Board of Directors
in 1983. Mr. Connell currently serves as a director of the Bank of Boston
Corporation and its subsidiary, The First National Bank of Boston; Arthur D.
Little, Inc.; Harcourt General, Inc. (formerly General Cinema Corporation); LCI
International, Inc.; and Teksid Aluminum Foundry, Inc., an affiliate of FIAT.
Mr. Connell is former chairman of the Greater Boston Chamber of Commerce and a
former director of the Massachusetts Business Roundtable. He also is a Trustee
Associate of Boston College and a former member of the Board of Directors of the
Associates of the Harvard Business School. Mr. Connell is active in numerous
community and cultural organizations in Boston, Massachusetts. He is a graduate
of Boston College and received an M.B.A. from Harvard Business School.
MAGNA L. DODGE became a Director in June 1995. In 1997, she joined Lehman
Brothers Inc. as a Senior Vice President, specializing in media and
telecommunications. From 1994 to 1996, she was a financial consultant and
President of Magna Dodge & Company, Inc., specializing in the telecommunications
industry. From 1975 to 1994, Ms. Dodge served as a Managing Director at
Manufacturers Hanover/Chemical Bank. Ms. Dodge currently serves on the Board of
Trustees of Middlebury College in Vermont. She is a graduate of Middlebury
College and received an M.B.A. from Harvard Business School.
WILLIAM O. MURPHY became a Director in July 1993. In 1960, he became
associated with the law firm of Simpson Thacher & Bartlett, New York City and
was a partner at such firm from 1969 to 1994. While at Simpson Thacher &
Bartlett, Mr. Murphy specialized in financing and credit-related transactions.
He is a graduate of Holy Cross College and received an L.L.B. degree from
Columbia Law School.
ROBERT J. MURRAY became a Director in March, 1995. Since December 1995, he
has been Chairman of the Board, Chief Executive Officer and President of New
England Business Services, Inc., a supplier of business forms and related
products. From 1991 to 1995, he was Executive Vice President, North Atlantic
Group of The Gillette Company, a manufacturer of grooming, stationery and oral
care products. Mr. Murray joined The Gillette Company ("Gillette") in 1961.
During 1990, he served as Vice President, Chairman's Office of Gillette and from
1985 to 1990 as Chairman of the Board of Management of Braun AG, one of
Gillette's German subsidiaries. In 1987, he was elected a Corporate Vice
President of Gillette. From 1982 to 1985, Mr. Murray was President of the
Gillette Paper Mate Division. From 1980 to 1982, he was Group General Manager
for Braun AG, Germany. From 1978 to 1980, he served as Managing Director for
Braun UK. Mr. Murray is also a director of Allmerica Financial Corporation;
Fleet National Bank; and LoJack Corporation. He also serves on the Board of
Trustees of Boston College and is an overseer of the Boston Symphony Orchestra.
Mr. Murray is a graduate of Boston College and received an M.B.A. from
Northeastern University. Mr. Murray is also a graduate of the Advanced
Management Program at Harvard University.
JAMES B. NICHOLSON became a Director in March 1992. Since 1979, Mr.
Nicholson has served as President and Chief Executive Officer of Pressure Vessel
Services, Inc., a manufacturer and distributor of inorganic chemicals and
related services. Mr. Nicholson currently serves as a director of the Handelman
Company. Mr. Nicholson received a B.A. in economics from Stanford University and
was awarded an M.B.A. from the University of Chicago and an M.S. from the London
School of Economics and Political Science.
There is no family relationship among the directors or executive officers.
Vote Required
Directors are elected by a plurality of the votes cast by the holders of
the Company's Common Stock at a meeting at which a quorum is present.
"Plurality" means that the individuals who receive the largest number of votes
cast are elected as directors up to the maximum number of directors to be chosen
at the Annual Meeting. Consequently, any shares not voted (whether by
abstention, broker non-vote or otherwise) have no impact on the election of
directors except to the extent the failure to vote for an individual results in
another individual receiving a relatively larger number of votes.
5
<PAGE>
Security Ownership of Management
The following table sets forth information as of April 15, 1997 concerning
the beneficial ownership of Common Stock of the Company by each director and
nominee, by each of the named executive officers and all directors and executive
officers of the Company as a group. Except as otherwise noted, each person has
sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership of Class
------------------------------------------------ -------------------- --------
<S> <C> <C>
John F. Farrell, Jr............................. 550,282(1) 3.9%
Terrance G. Hodel............................... 304,610(2) 2.2
William L. Brown................................ 15,000(3) *
William F. Connell.............................. 15,000(3) *
Magna L. Dodge.................................. 11,000(4) *
William O. Murphy............................... 14,000(3) *
Robert J. Murray................................ 13,000(5) *
James B. Nicholson.............................. 15,000(3) *
Harold B. Bonnikson............................. 95,423(6) *
Martin S. Hughes................................ 170,264(7) 1.2
Michael G. Conway............................... 124,032(8) *
Directors and Officers as a Group (14
persons)...................................... 1,464,405(9) 10.5
</TABLE>
- ---------------
* Less than one percent
(1) Includes options for 216,667 shares presently exercisable.
(2) Includes options for 216,667 shares presently exercisable. Also includes
3,800 shares held by Mr. Hodel for his children under the California Uniform
Transfers to Minors Act (the "Act"), as to which Mr. Hodel disclaims
beneficial ownership. Mr. Hodel has full power and authority, as custodian
under the Act, to vote and to dispose of such shares. Also includes 2,300
shares held by one of Mr. Hodel's children as to which Mr. Hodel disclaims
beneficial ownership. Mr. Hodel does not have the power to vote or dispose
of such shares.
(3) Includes options for 13,000 shares presently exercisable.
(4) Includes options for 11,000 shares presently exercisable.
(5) Includes options for 12,000 shares presently exercisable.
(6) Includes options for 84,999 shares presently exercisable.
(7) Includes options for 72,499 shares presently exercisable.
(8) Includes options for 84,166 shares presently exercisable.
(9) Includes options for 900,663 shares presently exercisable.
Board of Directors Meetings and Committees
The Board of Directors of the Company held a total of five meetings during
1996.
The Audit Committee of the Board of Directors, which currently consists of
Directors William L. Brown (Chairman), William F. Connell, Robert J. Murray, and
Magna L. Dodge, held two meetings during 1996. The Audit Committee is
responsible for the task of overseeing the Company's financial reporting and
internal financial controls. The Audit Committee's functions include, but are
not limited to, reviewing audit results and the adequacy of internal controls,
engaging and discharging auditors and reviewing the audit plan. Additionally,
the Audit Committee reviews and approves the services rendered by the auditors
and their fees for such services. The Audit Committee also reviews interim
financial statements and conducts corporate investigations where warranted and
it recommends engagement of the Company's independent public accountants.
6
<PAGE>
The Compensation Committee of the Board of Directors, which currently
consists of Directors James B. Nicholson (Chairman), William L. Brown, William
F. Connell, William O. Murphy, and Robert J. Murray, held three meetings during
1996. The Compensation Committee is responsible for recommending to the Board of
Directors policies and plans concerning the salaries, bonuses and other
compensation of the senior executives of the Company, including reviewing the
salaries of senior executives, and recommending bonuses and other forms of
additional compensation for them, for establishing and reviewing policies
regarding management perquisites and for administering the Company's Employee
Stock Purchase Plan and the Incentive Stock Option Plan.
In October 1995, the Board of Directors established a Nominating Committee
of the Board of Directors and appointed Director William O. Murphy as Chairman.
In July 1996, three additional directors were appointed to the Committee by the
Board of Directors, William F. Connell, Magna L. Dodge and Robert J. Murray. The
Nominating Committee is responsible for (i) considering potential candidates for
election to the Board of Directors, (ii) considering proposals to add members of
management to the Board of Directors, (iii) considering recommendations by
stockholders for election to the Board of Directors, (iv) recommending a slate
of candidates to be proposed for election to the Board of Directors at the
annual meeting of the Company or other appropriate meeting, (v) recommending a
person for election to the Board of Directors in order to fill a vacancy,
provided, the Board of Directors decides that the vacancy should be filled, and
(iv) such functions as shall be delegated to the Committee by the Board of
Directors. The Nominating Committee held no meetings in 1996. The Nominating
Committee has not established procedures to be followed by security holders in
submitting recommendations for election to the Board of Directors.
7
<PAGE>
Certain Transactions
The Company has made mortgage loans in the ordinary course of business to
certain of its executive officers as follows:
<TABLE>
<CAPTION>
Largest Aggregate Amount
Amount Outstanding as of
Outstanding of April 15, 1997
Nature of Indebtedness Since or Date of Interest
Name Relationship January 1, 1996 Sale(1) Rate
- ------------------------ -------------------------- ------------------ ----------------- --------
<S> <C> <C> <C> <C>
Terrance G. Hodel President, Chief Operating $584,688 $ 576,879 7.875%(2)
Officer, Director
Harold B. Bonnikson Executive Vice President, $427,300(3) $ 399,737 6.625%
Manager of Residential
Production
Michael G. Conway Executive Vice President, $131,814(4) $ 128,345 6.125%
Manager of Secondary
Marketing and Credit
Risk Management
Martin S. Hughes Executive Vice President, $411,210 $ 405,443 7.625%(2)
Chief Financial Officer
and Treasurer
Gary F. Moore Executive Vice President, $197,955 $ 195,604 7.5 %
Manager of Information
Technology, Human
Resources and Training
Robert A. Rosen Executive Vice President, $424,000 $ 422,367 7.375%(2)
Manager of Loan
Administration
</TABLE>
- ---------------
(1) For mortgage loans owned or serviced by the Company, the amount is as of
April 15, 1997. For all other mortgage loans, the amount is as of the date
of sale of the loan or the servicing of the loan to mortgage loan investors
or servicers. All mortgage loans have a 30-year term, unless otherwise noted
below.
(2) Interest on this mortgage loan is payable at a variable interest rate. The
beginning rate is shown.
(3) The mortgage loan is amortized over 15 years.
(4) The mortgage loan is amortized over 30 years with the unpaid principal
balance being due five years from the date of origination.
The terms of such mortgage loans are substantially similar to those
provided by the Company to other employees of the Company and to the public. A
one percent origination fee and approximately $585 of miscellaneous charges are
waived for mortgage loans to all employees of the Company for a principal
residence and were waived for loans made to the above-named officers. It is
Company policy not to waive such fees more than one time per calendar year.
Termination Agreements and Severance Pay Plan
Termination Agreements
Each of the executive officers named in the Summary Compensation Table
below has entered into an agreement with the Company which provides, in general,
that if employment is terminated for any reason other than cause or by reason of
death, disability or retirement, or a change of control occurs and the executive
voluntarily terminates his employment for good reason as provided in the
agreement, such executive will be entitled to certain severance payments. In the
case of termination for any reason other than cause or death, disability or
retirement, the Chief Executive Officer and the President of the Company will be
entitled to receive, in 12 substantially equal installments, an amount equal to
the sum of 12 months salary and the average of the sum of the last three annual
bonuses earned by him, in addition to any amounts payable under the Company's
severance plan for executives described below. Additionally, for a period of 12
months following such termination of employment, such executive will continue to
receive medical and life insurance
8
<PAGE>
benefits as if he were still employed by the Company. In the event of a change
of control and, within 12 months of such change, the Chief Executive Officer or
President voluntarily terminates his employment for good reason, upon prior
written notice, such executive will receive the amounts referenced above in one
lump sum payment. The agreements provide that in no event shall the aggregated
payments to the Chief Executive Officer be less than those which would be made
to the President under his agreement, if he were terminated for the same reason
at the same time.
All other executives named in the Summary Compensation Table will receive
payments under the same circumstances and subject to the same limitations;
however, the amount of payment will be equal to 75% of the sum of 12 months
salary and the average of the sum of the last three annual bonuses earned by
such executive. All of the agreements also provide that, during the term of
employment and for a period of one year after the termination of employment, the
executive shall keep certain information confidential and shall not solicit or
otherwise encourage employees, agents or representatives of the Company to
terminate their employment with the Company. The solicitation restriction will
terminate after nine months from the date of termination of employment, in the
case of an executive who is not the Chief Executive Officer or the President.
With respect to all termination agreements of executive officers, including the
Chief Executive Officer and the President, if the amount to be paid upon
termination pursuant to any agreement, when added to any other payments received
upon termination, are considered parachute payments resulting in a loss of a
deduction to the Company under the Internal Revenue Code, then payments shall be
limited to the greatest amount which may be paid to such executive without
causing any loss of deduction. In addition, severance benefits are not payable
under any termination agreement, unless the executive first executes a release
of all claims against the Company.
Severance Pay Plan
The Company also has in effect the Senior Executive Severance Pay Plan,
under which, in addition to the payments described above, in the event of an
involuntary termination of any of the named executive officers without cause,
except terminations upon death, disability or retirement, such executive shall
receive a lump sum amount equal to the sum of one year's salary and the average
of the sum of the last three annual bonuses earned by him multiplied by a
severance percentage as follows: (1) for the Chief Executive Officer and the
President, such percentage shall be 100%; and (2) for all other named executive
officers, such percentage shall be 75%. No executive shall receive such
severance payments unless the Company has received a release signed by such
executive, releasing and discharging the Company from any claim, liability or
obligation in respect of or arising out of employment or termination thereof. In
addition, if the Company fails to issue an oral or written notice of termination
to the executive at least two weeks prior to the termination, such executive
shall receive an additional lump sum amount equal to 2/52 of the severance
payment described above.
Director Compensation
Members of the Board of Directors who are not employees of the Company
("Non-employee Directors") receive $5,000 for each Board meeting attended.
Non-employee Directors who are members of committees of the Board receive $1,000
for each committee meeting attended. Directors are reimbursed for their expenses
incurred in attending meetings of the Board of Directors and Committees. Also,
pursuant to the Company's Incentive Stock Option Plan, Non-employee Directors
receive an option to purchase 10,000 shares of Common Stock of the Company when
each first becomes a member of the Board of Directors. Additionally, on each
date that the Company holds its annual meeting each year, each Non-employee
Director receives an option to purchase 1,000 shares of Common Stock at the
price of the Common Stock on the date of such meeting.
9
<PAGE>
Executive Compensation
The following table shows, as to the Chief Executive Officer and each of
the four other most highly compensated executive officers, information
concerning compensation paid for services to the Company in all capacities
during the years ended December 31, 1996, December 31, 1995 and December 31,
1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ------------
------------------------------ Securities All Other
Salary Bonus Underlying Compensation
Name and Principal Position Year $ $(1) Options (#) $(2)(3)
- ----------------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John F. Farrell, Jr. .............. 1996 $556,521 $225,000 50,000(4) $ 33,250(5)
Chairman of the Board and 1995 $399,996 $265,500 37,500(6) $ 26,600
Chief Executive Officer 1994 $399,996 $ 0 75,000(7) $ 16,000
Terrance G. Hodel.................. 1996 $558,696 $225,000 50,000(4) $ 33,250(5)
Director, President and Chief 1995 $399,996 $265,000 37,500(6) $ 26,600
Operating Officer 1994 $399,996 $ 0 75,000(7) $ 16,000
Harold B. Bonnikson................ 1996 $272,796 $155,000 10,000(4) $ 19,050(5)
Executive Vice President, 1995 $170,835 $298,709 10,000(6) $ 6,000
Manager of Residential 1994 $200,004 $ 0 20,000(7) $ 8,000
Production
Martin S. Hughes................... 1996 $271,521 $ 95,000 10,000(4) $ 14,400
Executive Vice President, 1995 $200,004 $110,000 10,000(6) $ 12,400
Chief Financial Officer 1994 $200,004 $ 0 20,000(7) $ 8,000
and Treasurer
Michael G. Conway.................. 1996 $233,700 $ 75,000 7,500(4) $ 14,250(5)
Executive Vice President, 1995 $200,004 $ 80,000 10,000(6) $ 11,200
Manager of Secondary 1994 $200,004 $ 0 20,000(7) $ 8,000
Marketing and Credit Risk
Management
</TABLE>
- ---------------
(1) With respect to all of the 1996 bonuses, amounts include payments made by
the Company in 1997 for 1996 and exclude payments made in 1996 for 1995.
With respect to 1995 bonuses, amounts include payments made by the Company
in 1996 for 1995.
(2) Includes contributions made by the Company on behalf of the named executive
officer under the retirement plan portion of the Company's Retirement and
401(k) Savings Plan, a defined contribution plan. Contributions for each of
the above executive officers were $6,000, 1996; $6,000, 1995; and $6,000,
1994.
(3) Includes amounts credited by the Company to the executive officer's account
established under the Company's Supplemental Executive Retirement Plan
("SERP"). Contributions for Mr. Farrell were $25,000, 1996; $20,600, 1995;
and $10,000, 1994; for Mr. Hodel were $25,000, 1996; $20,600, 1995; and
$10,000, 1994; for Mr. Bonnikson were $10,800, 1996; $0, 1995; and $2,000,
1994; for Mr. Hughes were $8,400, 1996; $6,400, 1995; and $2,000, 1994; and
for Mr. Conway were $6,000, 1996; $5,200, 1995; and $2,000, 1994. The amount
of the 1994 contributions to the Company's SERP for certain of the named
executive officers has changed from the 1994 proxy statement disclosure as a
result of recalculations of the 1994 contributions.
(4) Represents qualified stock options granted on February 14, 1996, under the
Company's Incentive Stock Option Plan, to purchase, subject to certain
conditions, the stated number of shares of Common Stock at an exercise price
of $25.875 per share.
(5) Includes a contribution of $2,250 for 1996 made by the Company on behalf of
each of the named executive officers under the 401(k) savings plan portion
of the Company's Retirement and 401(k) Savings Plan.
(6) Represents qualified stock options granted on February 14, 1995, under the
Company's Incentive Stock Option Plan, to purchase, subject to certain
conditions, the stated number of shares of Common Stock at an exercise price
of $16.1875 per share.
(7) Represents qualified stock options granted on February 9, 1994, under the
Company's Incentive Stock Option Plan, to purchase, subject to certain
conditions, the stated number of shares of Common Stock at an exercise price
of $24.19 per share.
10
<PAGE>
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning stock options granted during
the fiscal year ended December 31, 1996.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------- Grant Date
Number of % of Total Value(1)
Securities Options ------------
Underlying Granted Exercise Grant Date
Options to Employees Price Expiration Present
Name Granted (#)(2) in Fiscal Year ($/SH) Date Value ($)
- ---------------------------- -------------- -------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
John F. Farrell, Jr. ....... 50,000 21% $ 25.875 2/13/2006 $650,500
Terrance G. Hodel........... 50,000 21% $ 25.875 2/13/2006 $650,500
Harold B. Bonnikson......... 10,000 4% $ 25.875 2/13/2006 $130,100
Martin S. Hughes............ 10,000 4% $ 25.875 2/13/2006 $130,100
Michael G. Conway........... 7,500 3% $ 25.875 2/13/2006 $ 97,575
</TABLE>
- ---------------
(1) Grant date present value calculated using the Black-Scholes methodology
based on the following assumptions: date of grant February 14, 1996; vesting
of one-third each year for three years (calculation assumes 100% vesting of
options); expected dividend yield of 1.5% per annum; risk-free interest rate
utilized, applicable to seven-year government instruments, was 5.43%; and an
expected volatility of .501, as based upon a review of the 30 month period
preceding the grant date. Calculations are based on a seven-year option term
which reflects the Company's expectation that these options will be
exercised at seven years from date of grant. The result was a present value
of the option on the date of grant of $13.01. The Company does not advocate
or necessarily agree that the Black-Scholes model can properly determine the
value of an option granted under an employee stock option plan.
(2) These options become exercisable in installments of one-third of the total
grant on the first, second and third anniversary dates of the grant. The
options are qualified options. The exercise price was determined by the
Compensation Committee of the Board of Directors and was 100% of the fair
market value of the Common Stock on the date of the grant. The options
expire ten years from the date of grant. They may be exercised only when the
optionee is employed by the Company or, within six months of termination of
employment, unless such termination is by reason of retirement, disability
or death, in which case, such options shall remain exercisable for a period
of twelve months from the date of such termination. In the event of
retirement, disability, or death, all options held by the optionee become
fully and immediately exercisable. In the event of a change of control
affecting the Company, all options granted to employees which have not
expired shall become fully exercisable, except under certain circumstances
where the Board of Directors of the Company determines that a change of
control has not occurred for the purposes of option vesting. The
Compensation Committee of the Board of Directors ("Committee"), responsible
for administration of the North American Mortgage Company Incentive Stock
Option Plan, also may exercise its discretion in allowing any option to
remain exercisable (and continue to vest pursuant to the original vesting
schedule) following any optionee's termination of employment, including
death. At the February 14, 1995 meeting of the Committee, the Committee
determined that all options held by the chief executive officer, the chief
operating officer and any executive vice president of the Company shall
remain exercisable (and shall continue to vest pursuant to their original
vesting schedule) following such respective officer's termination of
employment with the Company without cause.
In addition, in connection with the grant of an option (the "initial
option"), the Committee may provide for the grant of one or more additional
options each of which (i) shall be deemed to have been granted on the date
on which the optionee exercises the initial option to which it relates, (ii)
covers that number of shares of Common Stock covered by the portion of the
initial option so exercised (or any lesser number), and (iii) provides for
an option price equal to the fair market value of a share of Common Stock on
the date of exercise of the initial option, a term equal to the remainder of
the term over which the initial option could have been exercised and such
other terms and conditions not inconsistent with the provisions of the
Incentive Stock Option Plan.
Footnote (2) continued on next page.
11
<PAGE>
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concerning stock options exercised during
the fiscal year ended December 31, 1996.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at FY-End (#): FY-End ($): (1)
Acquired Value --------------------------- ---------------------------
on Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Farrell, Jr............ -0- $-0- 162,500 100,000 $ 513,281 $89,062
Terrance G. Hodel.............. -0- $-0- 162,500 100,000 $ 513,281 $89,062
Harold B. Bonnikson............ -0- $-0- 71,667 23,333 $ 269,687 $23,751
Martin S. Hughes............... -0- $-0- 59,167 23,333 $ 166,562 $23,751
Michael G. Conway.............. -0- $-0- 71,667 20,833 $ 269,687 $23,751
</TABLE>
- ---------------
(1) Using $19.75 per share, the closing price of the Company's Common Stock on
the New York Stock Exchange on December 31, 1996 as reported in The Wall
Street Journal, the numbers shown reflect the value of options accumulated
in 1992, 1993, 1994, 1995 and 1996.
--------------------
Footnote (2) continued from previous page.
If the Company is a party to any merger or consolidation, or undergoes any
separation, reorganization or liquidation, the Board of Directors shall
have the power to make arrangements, which shall be binding upon the
holders of unexpired options, for (i) the substitution of new options for,
or the assumption by another corporation of, any unexpired options then
outstanding under the Incentive Stock Option Plan, or (ii) the cancellation
of such outstanding options and the payment by the Company of an amount
determined by the Board of Directors in consideration therefor.
12
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors is composed
exclusively of outside directors. It makes decisions on compensation for the
Chief Executive Officer, the President and the Executive Vice Presidents
(referred to in this report as the "Executive Officers"). Decisions by the
Committee relating to compensation of the Company's Executive Officers are
reviewed by the full Board of Directors, except for decisions about awards under
the Company's Incentive Stock Option Plan.
Compensation Policy Applicable to Executive Officers
The Committee established the following policy regarding compensation for
Executive Officers in 1995, which it revised slightly in 1996.
1. The Company desires to attract and retain capable and experienced
managers in a highly competitive and volatile industry where substantial
demand exists for skilled managers.
2. The Company will target total compensation for Executive Officers
at a rate which will relate to the market rate paid to executives in
similar positions at similar companies of comparable size. Actual total
compensation may be significantly below or above targeted compensation
based on the Company's performance and individual performance.
3. Total compensation will be delivered through a combination of base
salary, annual incentives and long-term incentives. Base salary will be
targeted at a rate which relates to Company performance and/or a market
base salary paid to executives holding similar positions in similar
companies of comparable size. Annual incentive awards are to be tied
directly to Company and/or to individual performance and will reflect
fluctuations in the Company's performance, both absolutely and in relation
to the similar companies. The Committee will use grants of stock options
for long-term incentive programs. Stock options are intended to retain and
motivate Executive Officers to improve the value of the Company to the
stockholders through appreciation of the Company's stock. Also, the
Committee desires to strengthen the common interest of the stockholders and
executives by encouraging Executive Officers to own and hold Company stock.
4. Internal Revenue Code Section 162(m) and the regulations thereunder
deny a federal income tax deduction to publicly-held corporations for
compensation in excess of $1 million in a taxable year to any of the
Executive Officers named in the Summary Compensation Table in the Proxy
Statement, unless certain conditions are satisfied. Section 162(m) and the
regulations thereunder permit the Committee to establish a performance plan
and performance targets at the beginning of a fiscal year before
performance is known in order to have any amounts paid under such plan and
targets deductible, even if such amounts exceed $1 million. The Committee
believes that it is not currently in the best interests of the Company and
the stockholders to limit the Committee's discretion over compensation
policy with respect to annual incentive awards in order to avoid the
limitations on deductibles imposed by Section 162(m). In 1996, no
employee's compensation exceeded $1 million. The Company's Incentive Stock
Option Plan has been amended so that amounts realized under such plan will
satisfy the exceptions for performance based compensation under Section
162(m) and the regulations thereunder. Thus, even if an Executive Officer's
other compensation exceeds $1 million in the year of an option exercise,
the Company will be able to deduct the portion of compensation related to
such option.
Principal Components of Compensation of the Executive Officers
In 1996, compensation of the Executive Officers was based on three
components, each of which was intended to implement the Committee's overall
compensation policy.
13
<PAGE>
Base Salary
In October 1995, the Chief Executive Officer proposed to the Compensation
Committee increases in base salaries for the Executive Officers. The proposed
increases in base salaries were based on the fact that base salaries had not
been increased since 1992 and the expectation that any increase would remain in
effect for several years. Additionally, in October 1995, the Company had one
less executive vice president than had been the Company's previous practice.
Shortly thereafter, the Committee hired Ernst & Young LLP to (1) research
and identify companies comparable to the Company for the purpose of comparing
the base salary level then in effect for the Executive Officers, as compared
with the proposed levels and (2) comment on the reasonableness of the proposed
recommendations of base salary levels. Ernst & Young LLP reported to the
Committee in a report dated December 1995 (the "Report").
The 1995 Report reviewed the proxy statements of a peer group of companies
in the mortgage banking business and several compensation surveys to determine
whether the proposed base salaries were reasonable. The proxy statements were
selected on the following bases: companies defined as the Company's competitive
market in the Company's 1994 proxy statement; companies with 6162 SIC Code of
similar size and comparable companies with similar 1994 or 1995 mortgage loan
originations or servicing as reported by the American Banker. The surveys were
selected as follows: a comparable labor market in terms of sales, industry and
mortgage originations and servicing was defined; jobs were matched by content
(responsibility, authority and functional job duties) to summaries in published
surveys; using the experience and expertise of Ernst & Young LLP, the relevance
of the surveys was weighted; adjustments were made to market pay levels where
necessary to reflect the unique requirements or skill sets needed for the job.
Due to the consolidation of companies in the mortgage banking industry, the 1995
Report relied on 1994 proxy statements for companies that were no longer public
in 1995.(1) The data in the proxy statements and surveys was trended forward to
1995 by using an annual 4.1% cost of living adjustment. Proposed base salaries
by position were examined against the surveys' and proxy statements' 75th
percentile (i.e., representing the compensation level at which 25% of the survey
population was above the proposed award and 75% was below). Based on the data
reviewed, the 1995 Report concluded that the base salary proposals were
reasonable. The Report found that the proposed base salaries would generally put
the Executive Officers within the 75th percentile of base salary in relationship
to the data reported in the published surveys and gathered from peer company
proxy statements when trended to 1996. Based on the 1995 Report, the Committee
decided to adjust the base salaries of the Executive Officers in the proposed
amounts.
Annual Incentive Awards
In setting the level of bonus payments for 1996 for the Chief Executive
Officer, the Chief Operating Officer and the Chief Financial Officer, the
Committee considered a number of factors, including the Company's earnings for
1996, as compared to 1995, and the strategic objectives accomplished during the
year. Based on these and other factors, the Committee decided to pay bonuses to
the Chief Executive Officer, the Chief Operating Officer and the Chief Financial
Officer in an amount approximately 85% of the bonus amount paid to each such
officer in 1995. Bonus amounts for the other Executive Officers were awarded in
an amount approximately equal to the amount recommended by the Chief Executive
Officer.
- ---------------
(1) Since the stock of only one company in the peer group is currently publicly
traded, the Company Stock Price Performance Graph uses different indexes for
comparison.
14
<PAGE>
Long-Term Compensation
Stock Options
In 1996, options to purchase Common Stock of the Company were granted to
the Executive Officers at current market price. The options vest in equal
amounts over three years. Decisions on grants of stock options for the 1996
fiscal year were made in February 1996. In granting such options, the Committee
did not consider grants made in the prior year. The size of the awards of
options were based on recommendations of the Chief Executive Officer whose
recommendations were aimed at providing the greatest incentive to those making
the most significant decisions which affect the Company's results. The Committee
accepted the recommendations of the Chief Executive Officer. The Committee
believes stock options provide rewards to executives for maintaining sustained
financial performance of the Company over all phases of the business cycle, and
retain key employees by providing a capital accumulation opportunity. Over time,
the long term value of the options will be directly tied to the achievement of
value for stockholders.
Dated as of April 18, 1997 James B. Nicholson, Chairman
William L. Brown
William F. Connell
William O. Murphy
Robert J. Murray
15
<PAGE>
Company Stock Price Performance
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the Standard & Poor's 500 Stock Index and the Mortgage
Bankers Association Index(1).
Comparison of 4 1/2 Year Cumulative Total Return(2)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) North American S&P Index MBA Index
<S> <C> <C> <C>
7/8/92 100 100
12/31/92 142 106 100
12/31/93 222 114 111
12/31/94 130 112 99
12/31/95 188 150 146
12/31/96 175 183 179
</TABLE>
- ---------------
(1) The Company and the Standard & Poor's 500 Stock Index are indexed to closing
prices on July 8, 1992, the date the Company's stock began to trade
publicly, to December 31, 1996. The Mortgage Bankers Association Index
begins on January 1, 1993, the date such index was started.
(2) Assumes $100 invested on July 8, 1992 in the Company's Common Stock and the
Standard & Poor's 500 Stock Index and $100 invested on January 1, 1993 in
the Mortgage Bankers Association Index and that all dividends were
reinvested.
16
<PAGE>
PROPOSAL TWO
AMENDMENT OF THE EMPLOYEE STOCK PURCHASE PLAN
General
The Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the
Board of Directors and approved by the Company's sole stockholder in 1992. On
October 16, 1996, the Compensation Committee of the Board of Directors approved
an amendment to the Purchase Plan to increase the number of shares issuable
under the Purchase Plan by 100,000 shares, from 418,659 shares presently
issuable to 518,659 shares. The Company's Incentive Stock Option Plan provides
that the number of shares issuable under the Incentive Stock Option Plan will be
reduced by the number of shares issuable under the Purchase Plan. Therefore, if
the proposed amendment is adopted, the number of shares issuable under the
Incentive Stock Option Plan will be reduced by 100,000. The purpose of the
amendment is to provide sufficient shares for the Company to continue to issue
shares to its employees under the Purchase Plan. Without the amendment, 6,883
shares remain available for issuance. Management believes employee ownership of
shares of Company stock is beneficial to the Company, and would like to make
shares available for issuance in 1997. On February 3, 1997, the Compensation
Committee approved an amendment to the Purchase Plan to amend Section 1 and the
first sentence of Section 4 of the Purchase Plan to clarify that employees of
subsidiaries of the Company may participate in the Purchase Plan if the Board of
Directors of the Company authorizes the subsidiary to adopt the Purchase Plan.
Management believes that ownership of shares of the Company by employees of
subsidiaries of the Company, authorized by the Board of Directors is beneficial
to the Company. The amendment to increase the number of shares issuable and
permit the Board of Directors to authorize subsidiaries to participate in the
Purchase Plan is subject to the approval of the stockholders.
Summary
The following summary of the material provisions of the Purchase Plan does
not purport to be complete and is qualified in its entirety by the full text of
the Purchase Plan, a copy of which may be obtained by stockholders of the
Company upon request directed to the Company's Corporate Secretary, 3883 Airway
Drive, Santa Rosa CA 95403-1699. The exact wording of the proposed amendment is
set forth in Annex A hereto.
Eligibility/Shares Available for Purchase
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended, (the
"Code"). All regular full-time employees of the Company (including officers),
and all other employees whose customary employment is for more than five months
in any calendar year or more than 20 hours per week, who in each case have been
employed by the Company (or its predecessor companies) for at least 12 months,
are eligible to participate in the Purchase Plan. As of January 1, 1997, the day
on which the most recent Purchase Period began, there were approximately 1,735
full-time employees, including officers, who were eligible to participate in the
Purchase Plan and approximately 49 of such other employees eligible to
participate in the Purchase Plan. Directors who are not employees are not
eligible to participate. Subject to adoption of the proposed amendment to
increase the number of shares issuable and available for purchase thereunder, an
aggregate of 518,659 shares of the Company's Common Stock will be reserved for
offering under the Purchase Plan of which 411,776 shares have been purchased and
106,883 shares will remain available for issuance. Such numbers are subject to
adjustment in the event of a stock split, stock dividend or other change in
Common Stock or the capital structure of the Company.
Administration
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors, all members of which are ineligible to participate in the
Purchase Plan and are disinterested persons for purposes of Rule 16b-3 under the
Exchange Act. The Compensation Committee has full discretion and exclusive power
17
<PAGE>
to determine the terms under which shares are offered under the Purchase Plan
and the administration of the Purchase Plan.
Purchase Period and Payroll Deductions
Under the Purchase Plan, offerings will be made at the commencement of each
calendar year (each a "Purchase Period") during which deductions are to be made
from the pay of participants (in accordance with their authorizations) and
credited to their accounts under the Purchase Plan. Payroll deductions may be
from 1% to 15% of the participant's total compensation as is required to be
reported on IRS Form W-2, subject to certain limitations set forth in the
Purchase Plan. Participants may not make direct cash payments to their accounts.
Purchase Price
The price per share at which shares of Common Stock are to be purchased
pursuant to the Purchase Plan for any Purchase Period is the lesser of (a) 85%
of the fair market value of Common Stock on the date of the grant of the option
(the commencement of the Purchase Period) or (b) 85% of the fair market value of
Common Stock on the date of exercise of the option (the last business day of a
Purchase Period). At the commencement of each Purchase Period, participants
elect the number of shares of Common Stock which they wish to purchase for such
Purchase Period, but such election does not become binding until the end of the
Purchase Period and provided there are sufficient shares then available for
issuance under the Purchase Plan. The Compensation Committee may establish a
maximum number of shares of Common Stock any participant can purchase for a
Purchase Period, which amount need not be the same for each Purchase Period. On
the last business day of each Purchase Period, amounts credited to the accounts
of the participants who have been neither terminated from the employ of the
Company and its subsidiaries nor withdrawn from the Purchase Plan for such
Purchase Period, are used to purchase shares of Common Stock in accordance with
the elections of such participants. Any amounts left over in the accounts of
participants at the end of any Purchase Period are refunded to the participants.
Only amounts credited to the accounts of participants may be applied to the
purchase of shares of Common Stock under the Purchase Plan. No participant may
be granted an option which permits his or her rights to purchase Common Stock
under all employee stock purchase plans of the Company to accrue at a rate which
exceeds $25,000 of fair market value of such stock for each calendar year in
which such option is outstanding at any time.
If for any Purchase Period the number of shares of Common Stock available
for Purchase Plan purposes shall be insufficient to accommodate the number of
shares which participants wish to purchase, the Board of Directors of the
Company is authorized to apportion the available shares pro rata among
participating employees on the basis of their elections in effect for such
Purchase Period.
Withdrawal
While each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest in a given offering may be terminated in whole, but not in part, by
signing and delivering to the Company a notice of withdrawal from the Purchase
Plan. Such withdrawal may be elected at any time prior to the end of the
applicable Purchase Period. All of a participant's payroll deductions credited
to his or her account for the Purchase Period from which he or she had withdrawn
will be paid to him or her, without interest, promptly after receipt by the
Company of a notice of withdrawal. The Company makes no cash contributions to
the Purchase Plan, but bears the expenses of administration.
Termination of Participation
An employee's right to continue participation in the Purchase Plan will
terminate on discontinuance of the Purchase Plan, transfer to ineligible
employment status, retirement, death, disability, or termination of employment.
In such event, the payroll deductions credited to the participant's account will
be returned, without interest, to such participant or, in the case of death, to
the person or persons entitled thereto as specified by the participant in the
subscription agreement.
18
<PAGE>
Capital Changes
In the event any change, such as stock splits or stock dividends, is made
in the capitalization of the Company which results in an increase or decrease in
the number of shares of Common Stock outstanding without receipt of
consideration by the Company, appropriate adjustment will be made by the
Compensation Committee in the number of shares subject to purchase and in the
purchase price per share. If the Company is a party to any merger,
reorganization or liquidation, the Board of Directors has the power to make
arrangements for (i) purchase of shares subject to outstanding participant
elections (ii) assumption of the Company's undertakings by another company, or
(iii) cancellation of outstanding participation elections and options to
purchase shares and payment of an amount to participants in exchange therefor.
Amendment
The Board of Directors may at any time amend or terminate the Purchase
Plan, except no amendment may be made to the Purchase Plan without prior
approval of the majority of the outstanding voting shares of the Company if such
amendment would increase the number of shares reserved for issuance under the
Purchase Plan, reduce the minimum purchase price for shares, extend the maximum
period during which shares may be purchased or change the class of employees
eligible to participate.
The Purchase Plan is scheduled to terminate on March 6, 2017.
Employee Purchases
Employees have purchased the following shares under the Purchase Plan at
the price, amount and time indicated below.
Employee Stock Purchase Plan Purchases
<TABLE>
<CAPTION>
Year No. of Employees No. of Shares Purchased Purchase Price
- ---- ---------------- ----------------------- ---------------
<S> <C> <C> <C>
1992 599 50,000 $ 13.60
1993 491 80,000 $ 13.8125
1994 391 88,659 $ 12.538
1995 404 95,193 $ 12.538
1996 385 97,924 $ 16.7875
</TABLE>
The Company cannot now determine the number of shares that will be received
in the future by any of its employees under the Purchase Plan.
Vote Required
The affirmative vote of the stockholders of a majority of the outstanding
shares of Common Stock of the Company will be required to approve the amendment
to the Employee Stock Purchase Plan. Both abstensions and broker non-votes have
the effect of negative votes.
The Board of Directors recommends a vote "FOR" the amendment of the
Employee Stock Purchase Plan.
19
<PAGE>
PROPOSAL THREE
AMENDMENT OF THE INCENTIVE STOCK OPTION PLAN
General
The Incentive Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and approved by the Company's sole stockholder in 1992. The
Board of Directors has approved an amendment to the Option Plan which would
increase the number of shares with respect to which options may be granted by
600,000 shares thereby increasing the maximum number of shares with respect to
which options may be granted under the Option Plan to 2,977,153 shares (such
number reduced by 518,659 shares which have been allocated for issuance under
the Company's Purchase Plan assuming approval of the amendment to the Purchase
Plan described in Proposal Two) of the Company's Common Stock. Without the
amendment to the Option Plan and assuming approval of the proposed amendment to
the Company's Purchase Plan above, as of April 15, 1997, options for 49,654
shares remain available for grant under the Option Plan. The purpose of the
proposed increase in the number of options issuable is to provide sufficient
options for future grants. The amendment to the Option Plan is subject to the
approval of the stockholders.
Summary
The following summary of the material provisions of the Option Plan does
not purport to be complete and is qualified in its entirety by the full text of
the Option Plan, a copy of which may be obtained by stockholders of the Company
upon request directed to the Company's Corporate Secretary, 3883 Airway Drive,
Santa Rosa, California 95403. For additional information regarding options
awarded to certain officers pursuant to the Option Plan, see "Executive
Compensation" above. The exact wording of the proposed amendment is set forth in
Annex B hereto.
Purpose
The purpose of the Option Plan is to promote growth and general prospects
of the Company by offering incentives to the employees of the Company who are
primarily responsible for the Company's growth and to attract and retain
qualified employees. Grants to non-employee directors are intended to provide an
opportunity for such directors to increase their interest as stockholders of the
Company which serves to align the interests of non-employee directors with other
stockholders.
Eligibility/Number of Options
The Option Plan is administered by a committee composed of the Board of
Directors, all members of which qualify as "non-employee directors" for purposes
of Rule 16b-3 promulgated by the SEC and as "outside directors" for purposes of
Section 162(m) of the Code. The Committee is authorized to grant options to
purchase shares of Common Stock, including options qualifying as "incentive
stock options" under Section 422 of the Code, to key employees (including
officers and employee directors) as additional compensation for their services
to the Company. Options granted to non-employee directors are granted
automatically as follows: An option to purchase 10,000 shares of the Company's
Common Stock is granted automatically to each person when he or she first
becomes a member of the Board as a non-employee director. Thereafter, each
non-employee director annually receives a grant of an option to purchase 1,000
shares of Common Stock. As of April 15, 1997, eight executive officers, and
approximately 48 other key employees, and six non-employee directors were
eligible to participate in the Option Plan. The number of shares with respect to
which options may be granted under the Option Plan is reduced by the maximum
number of shares available for issuance to employees pursuant to the Company's
Purchase Plan. Options, including "replacement options," described below, for
shares of the Company's Common Stock may be granted prior to termination of the
Plan (which shall occur on the date preceding the tenth anniversary of the date
of adoption of the Option Plan) to key employees and non-employee directors,
subject to adjustment in the event of a stock split, stock dividend or other
change in Common Stock or the capital structure of the Company, provided,
however, non-employee directors may not receive "replacement options." Options
that expire unexercised may be issued again under the Option Plan subject to the
foregoing limitation.
20
<PAGE>
Exercisability of Options Granted
Options granted to key employees (including officers and employee
directors) shall be exercisable over such period determined by the committee,
but no option may be exercised after ten years from the date of grant. Options
granted to non-employee directors shall expire ten years from the date of grant
and shall be fully and immediately exercisable. Vested options granted prior to
May 7, 1993 to key employees, but not non-employee directors, generally may be
exercised for up to three months following termination of service. However,
where such termination is due to retirement, permanent disability or death, all
options held become fully and immediately exercisable and may be exercised for
12 months following such termination of employment, subject in any case to the
foregoing limitation on the maximum term or options granted under the Option
Plan. Vested options granted to key employees after May 7, 1993 generally may be
exercised for up to six months following termination of service. However, where
such termination is due to retirement, permanent disability or death, all
options held become fully and immediately exercisable and may be exercised for
12 months following such termination of employment, subject in any case to the
foregoing limitation on the maximum term or options granted under the Option
Plan. The committee may, in its discretion, allow any option to remain
exercisable (and to continue to vest pursuant to its original vesting schedule)
following the key employee's termination of employment or death. Options granted
to non-employee directors may be exercised only while the optionee is a
director, except that upon death, voluntary retirement after age 65 or
resignation as a result of disability, the option may be exercised for a period
of 12 months after the date the non-employee director ceases to be a member of
the Board. If the non-employee director ceases to be a director as a result of
his failure to be elected by the stockholders, or as a result of such
non-employee director's resignation from the Board, the options may be exercised
prior to 12 months after the date the non-employee director ceases to be a
member of the Board.
Purchase Price
The purchase price of Common Stock subject to an option granted to key
employees, but not non-employee directors, shall not be less than (i) in the
case of an option intended to qualify as an incentive stock option, 100% of the
fair market value of such Common Stock on the date of grant, and (ii) in the
case of a non-qualifying option, 85% of the fair market value of such Common
Stock on the date of grant. Such purchase price may be paid in cash and/or stock
of the Company. The purchase price for shares of Common Stock granted to
non-employee directors shall be the mean between the high and the low prices of
the Company's Common Stock on the day the option is granted. To the extent the
Company issued options at less than fair market value on the date of grant, any
compensation resulting from the exercise of these options would not be
"performance-based compensation", as defined in Section 162(m) of the Code. To
date, all options the Company has issued under the Option Plan have been at fair
market value on the date of grant.
Replacement Options/Stock Tax Withholding
For key employees, but not non-employee directors, an option granted under
the Option Plan may include the contingent grant of a "replacement option" that
becomes exercisable following the exercise of the initial option, for the
remainder of the term of such initial option, at a purchase price equal to 100%
of the fair market value of the Common Stock on the date of exercise of the
initial option for a number of shares equal to the number of shares covered by
the option so exercised (or lesser number). The Option Plan also permits key
employees, but not non-employee directors, the satisfaction of Federal income
tax or other tax withholding obligations arising on the exercise of an option by
the withholding of shares of Common Stock acquired under such option. As of
April 15, 1997, no such replacement options have been issued.
Change of Control
All outstanding options to key employees, but not non-employee directors,
will become immediately exercisable upon a "change of control" affecting the
Company, which is defined to mean (i) the acquisition by a third person,
including a "group", as such term is used in Section 13(d)(3) of the Exchange
Act, of shares of the Company having 15% or more of the total number of votes
that may be cast for the election of directors of the Company, (ii) stockholder
approval of a transaction for the acquisition of the Company, or substantially
21
<PAGE>
all of its assets, by another entity or for a merger, reorganization,
consolidation or other business combination to which the Company is a party, or
(iii) the election during any period of 24 months or less of 50% or more of the
directors of the Company where such directors were not in office immediately
prior to such period; provided, however, that no "change of control" will occur
if the directors of the Company in office on the date of adoption of the Option
Plan, or their successors in office nominated by such directors or directors so
nominated, affirmatively approve a resolution to such effect.
Determination of Participation
The committee has discretion to determine the key employees, but not the
non-employee directors, who shall participate in the Option Plan, the number of
shares of Common Stock subject to options to be awarded to each, the terms and
conditions, if any, upon which such options may be awarded, and all other
matters arising in the administration of the Option Plan. Grants under the
Option Plan may be in addition to, or in lieu of, other forms of compensation.
To the extent the Option Plan relates to non-employee directors, it is intended
to operate automatically and not require administration. There is no discretion
with respect to the selection of non-employee director optionees, the
determination of the exercise price, timing of grants or number of shares
granted to non-employee directors.
Stock Closing Price
On April 11, 1997, the closing price on the New York Stock Exchange of a
share of Common Stock, was $19.875, as reported in The Wall Street Journal.
Amendment
The Board of Directors may amend the Option Plan at any time, however, no
change in any option theretofore granted may be made without the consent of the
holder and no amendment may be made increasing the aggregate number of shares of
Common Stock with respect to which options may be granted, reducing the maximum
option price at which options may be granted, extending the maximum period
during which options may be exercised, or changing the class of persons eligible
to receive options without the approval of the majority of the outstanding
voting shares of the Company. The provisions of the Option Plan applicable to
non-employee directors may not be amended more than once every six months other
than to comport with certain changes in the law.
Federal Income Tax Consequences
The following is a summary of the Federal income tax consequences to
employees participating in the Option Plan and to the Company, based upon
current provisions of the Code and regulations and rulings thereunder, and does
not address the consequences under any other applicable tax laws.
Incentive Stock Options. An optionee does not recognize income on the grant
of an incentive stock option. If an optionee exercises an incentive stock option
in accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option nor within
one year from the date of exercise, the optionee will not recognize any income
by reasons of the grant or exercise, and the Company and its subsidiaries will
not be entitled to any deduction as a result of the grant or exercise of such
option. The optionee's basis in the shares acquired upon exercise will be the
amount of cash paid upon exercise. See "Payment in Shares" below for the tax
consequences of the exercise of an option with stock already owned by the
optionee. Provided the optionee holds the shares as a capital asset at the time
of sale or other disposition of the shares, the gain or loss, if any, recognized
on the sale or other disposition will be a long term capital gain or loss. The
amount of gain or loss will be the difference between the amount realized on the
disposition of the shares and the optionee's basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will recognize ordinary income at the time of
disposition which will equal the excess, if any, of the lesser of (i) the amount
realized on the disposition over the adjusted basis in the shares or (ii) the
fair market value of the shares on the date of
22
<PAGE>
exercise over the option price of the shares. The Company or one of its
subsidiaries will be entitled to a deduction in an amount equal to such income.
The excess, if any, of the amount realized on disposition of such shares over
the fair market value of such shares on the date of exercise will be long- or
short-term capital gain, depending upon the holding period of the shares,
provided the optionee holds the shares as a capital asset at the time of the
disposition. If an optionee disposes of such shares for less than his or her
basis in the shares, the difference between the amount realized and such basis
will be a long- or short-term capital loss, depending upon the holding period of
the shares provided the optionee holds the shares as a capital asset at the time
of disposition.
The excess of the fair market value of the shares at the time the incentive
stock option is exercised over the exercise price for the shares is a tax
preference item (the "Incentive Stock Option Preference") for purposes of the
alternative minimum tax unless the optionee makes an Early Disposition of such
stock. See "Taxation of Preference Items" below.
Non-Qualified Stock Options. Options granted under the Option Plan may be
designated as not intended to qualify for the special tax treatment accorded to
incentive stock options under the Code. Although an optionee does not recognize
income at the time of the grant of the option, he recognizes ordinary
compensation income upon the exercise of a non-qualified stock option in an
amount equal to the difference between the fair market value of the stock on the
date of exercise and the amount of cash paid for the stock. If an optionee holds
the option for at least six months, then such income recognition consequences
will result even if the optionee is subject to the rules of Section 16 of the
Exchange Act. However, if such optionee does not hold the option for such period
and if the sale of the stock by the optionee would otherwise subject the
optionee to suit under the short-swing profit liability rules of Section 16(b)
of the Exchange Act, the optionee will not recognize income at the time of the
exercise of the option unless he makes an affirmative election to do so. Unless
this special election is made, the optionee will recognize ordinary compensation
income upon the lapse of the Section 16(b) liability period, in an amount equal
to the excess (if any) of the fair market value of the stock at the time of such
lapse over the option price.
As a result of the optionee's exercise of a non-qualified stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income, subject to the Company's compliance
with applicable income tax withholding requirements, and also subject to the
general rules regarding the reasonableness of compensation. The deduction will
be taken by the Company in the same taxable year as the taxable year in which
the optionee must include the amount in gross income.
The excess of the fair market value of the stock on the date of exercise of
a non-qualified stock option over the exercise price is not an item of "tax
preference" as such term is used in the Code.
Payment in Shares. If the optionee exercises an option using stock which is
already owned by the optionee, the following rules apply:
(1) If the options exercised are incentive stock options ("ISO's") and
the optionee receives more shares than are used to exercise the ISO's, no
gain or loss is recognized either on the shares used to exercise the ISO's
or on the shares which the optionee receives. This is the case regardless
of whether the shares used to exercise the ISO's were previously acquired
through the exercise of an ISO or a non-qualified stock option. The number
of shares received equal to the number of shares used to exercise the ISO's
will have a basis equal to the basis in the shares used to exercise the
ISO's. The holding period of these shares will be the same as the holding
period of the shares used to exercise the ISO's. The additional shares will
have a zero basis. If cash also is paid to exercise the ISO's, then the
additional shares will have a basis equal to the cash paid. The holding
period for these additional shares will begin on the date of their
acquisition. If the optionee receives the same number of shares as the
number of shares used to exercise the ISO's, then the optionee will not
recognize any gain or loss, either on the shares used to exercise the ISO's
or on the exercise of the ISO's and the basis in the shares received is
equal to the basis in the shares used to exercise the ISO's. The holding
period of the shares received will be the same as the holding period of the
shares used to exercise the ISO's.
23
<PAGE>
(2) If the options exercised are non-qualified stock options
("NQSO's") and the optionee receives more shares than are used to exercise
the NQSO's, the optionee will not recognize any gain on the shares used to
exercise the NQSO's. This is the case regardless of whether the shares used
to exercise the NQSO's were previously acquired through the exercise of an
ISO or a NQSO. The optionee will, however, recognize ordinary income on the
shares which the optionee receives that are in excess of the number of
shares used to exercise the option. The amount of ordinary income which the
optionee will recognize on the additional shares received is equal to their
fair market value, less any cash used to exercise the NQSO's. These
additional shares will have a basis equal to their fair market value on the
date they are transferred to the optionee. The holding period for these
additional shares will begin on the date of their acquisition. The Company
will be entitled to a deduction in an amount equal to the income recognized
by the employee, subject to the Company's compliance with income tax
withholding requirements and the rules regarding the reasonableness of
compensation. If the optionee receives the same number of shares as the
number of shares used to exercise the NQSO's, the optionee will not
recognize any gain or loss either on the shares used to exercise the NQSO's
or on the exercise of the NQSO's. The basis in the shares received is equal
to the basis in the shares used to exercise the NQSO's. The holding period
of the shares received will be the same as the holding period of the shares
used to exercise the NQSO's.
(3) Regardless if the options being exercised are ISO's or NQSO's, if
the optionee uses shares previously acquired through the exercise of an ISO
before the shares have been held for the required holding period, then the
optionee will recognize gain on the shares used to exercise the options
equal to their fair market value on the date of the option's exercise, less
the amount paid for such shares. (See the discussion regarding Early
Dispositions, above.)
Taxation of Preference Items. Section 55 of the Code imposes an alternative
minimum tax equal to the excess, if any, of the optionee's "alternative minimum
taxable income" over his or her "regular" Federal income tax. Alternative
minimum taxable income is determined by adding the optionee's Incentive Stock
Option Preference and any other items of tax preference to his or her adjusted
gross income and then subtracting certain allowable deductions and an exemption
amount.
New Plan Benefits Granted to Date
The following table sets forth for 1996 information concerning options
granted under the Option Plan to (a) the Company's Chief Executive Officer and
the four other most highly compensated executive officers of the Company; (b)
all current executive officers of the Company, as a group; (c) current directors
who are not executive officers as a group; (d) all employees of the Company who
received options, including current officers who are not executive officers, as
a group. Except as set forth in the following table, no other options under the
Option Plan were granted in 1996. Except for the automatic grants to be made to
non-employee directors (described above), the Company cannot now determine the
number of options that will be received
24
<PAGE>
by any of its key employees under the Option Plan. The number of such options
will be determined by the committee pursuant to the terms of the Option Plan.
<TABLE>
<CAPTION>
Exercise Price Number of
Name and Position (per share) $ Shares
- -------------------------------------------------------------------- -------------- ---------
<S> <C> <C>
John F. Farrell, Jr................................................. $ 25.875 50,000(1)
Chairman of the Board and
Chief Executive Officer
Terrance G. Hodel................................................... $ 25.875 50,000(1)
President, Chief Operating Officer and
Director
Harold B. Bonnikson................................................. $ 25.875 10,000(1)
Executive Vice President,
Manager of Residential Production
Martin S. Hughes.................................................... $ 25.875 10,000(1)
Executive Vice President,
Chief Financial Officer and Treasurer
Michael G. Conway................................................... $ 25.875 7,500(1)
Executive Vice President,
Manager of Secondary Marketing and Credit Risk Management
Executive Group (8 persons)......................................... $ 25.875 146,500(1)
Non-Executive Director Group (6 persons)............................ $ 16.3125 6,000(2)
Non-Executive Officer Employee Group (48 persons)................... $ 25.875 81,975(1)
</TABLE>
- ---------------
(1) Qualified options to purchase Common Stock granted on February 14, 1996
pursuant to the terms of the Option Plan. Such options are exercisable in
installments of one-third of the total grant on the first, second and third
anniversary dates of the grant and expire ten years from the date of the
grant.
(2) All such options vest immediately and expire ten years from the date of
grant.
Vote Required
The affirmative vote of the stockholders of a majority of the outstanding
shares of Common Stock of the Company will be required to approve the amendment
to the Incentive Stock Option Plan. Both abstentions and broker non-votes have
the effect of negative votes.
The Board of Directors recommends a vote "FOR" the amendment to the
Incentive Stock Option Plan.
25
<PAGE>
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP, independent public
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 1997. Ernst & Young LLP were the independent
accountants for the Company during the fiscal year ended December 31, 1996. The
selection of the Board of Directors is based upon the recommendation of the
Audit Committee of the Board of Directors, whose members are four outside
directors, Messrs. Brown, Connell and Murray, and Ms. Dodge. In making its
recommendations, the Audit Committee reviews both the audit scope and estimated
audit fees for the coming year. In addition, the Audit Committee reviews the
types of professional services provided by Ernst & Young LLP to determine
whether the rendering of such services would impair the independence of Ernst &
Young LLP. Should stockholder approval not be obtained, the Board of Directors
will consider it a directive to select and retain other independent public
accountants.
A representative or representatives of Ernst & Young LLP will be present at
the Annual Meeting and will be afforded an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions raised
orally at the meeting.
The Board of Directors recommends a vote "FOR" the ratification of the
appointment of Ernst & Young LLP as the Company's independent public
accountants.
PROPOSALS OF STOCKHOLDERS
The 1998 Annual Meeting of Stockholders will be held on or about May 28,
1998. Proposals of stockholders intended to be presented at the 1998 Annual
Meeting must be received by the Secretary, North American Mortgage Company, 3883
Airway Drive, Santa Rosa, California, 95403-1699 no later than December 30,
1997.
OTHER MATTERS
The management knows of no other business to be presented at the meeting.
If other matters do properly come before the meeting, then the persons named in
the enclosed form of proxy will have discretionary authority to vote all proxies
with respect thereto in accordance with their judgment.
By Order of the Board of Directors
/s/Carolyn Owens Vogt
CAROLYN OWENS VOGT
Secretary
Santa Rosa, California
April 29, 1997
26
<PAGE>
ANNEX A
Proposed Amendment of the North American Mortgage Company
Employee Stock Purchase Plan
1. Section 2 of the Employee Stock Purchase Plan will be amended in its
entirety to read as follows:
"2. Shares of Stock Subject to the Plan. Subject to the provisions of
Section 12, the maximum number of shares of Common Stock which may be
issued on the exercise of options granted under the Plan shall not exceed
518,659 shares of the Company's Common Stock. Any shares subject to an
option under the Plan, which option for any reason expires or is terminated
unexercised as to such shares, shall again be available for issuance on the
exercise of other options granted under the Plan. Shares delivered on the
exercise of options may, at the election of the Board of Directors of the
Company, be authorized but previously unissued stock or stock reacquired by
the Company, or both."
2. Section 1 and the first paragraph of Section 4 of the Employee Stock Purchase
Plan will each be amended in their entirety to read as follows:
"1. Purpose of Plan. The North American Mortgage Company Employee Stock
Purchase Plan (the "Plan") is intended to provide a suitable means by which
eligible employees of North American Mortgage Company (the "Company"), or
subsidiaries (as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code")) of the Company which the Board of Directors
has authorized to adopt this Plan (the "Eligible Subsidiaries"), may
accumulate, through voluntary, systematic payroll deductions amounts
regularly credited for their account to be applied to the purchase of
shares of the common stock of the Company (the "Common Stock") pursuant to
the exercise of options granted from time to time hereunder. The Plan
provides employees with opportunities to acquire proprietary interests in
the Company and will also provide them with additional incentives to
continue their employment and promote the best interest of the Company.
Options granted under the Plan are intended to qualify under Section 423 of
the Code."
"4. Eligibility to Participate. All regular full-time employees (including
officers) of the Company and Eligible Subsidiaries and all other employees
of the Company and Eligible Subsidiaries whose customary employment is for
more than five months in any calendar year or 20 hours per week, who in
each case have been employed by the Company (or its predecessor companies)
or Eligible Subsidiaries for a period of at least 12 months (an
"Employee"), shall be eligible to participate in the Plan."
- ---------------
* Changed or new language is indicated in bold.
A-1
<PAGE>
ANNEX B
Proposed Amendment of the North American Mortgage Company
Incentive Stock Option Plan
1. The third sentence of Section 2 of the Incentive Stock Option Plan will be
amended in its entirety to read as follows:
"Subject to the provisions of Section 11, the maximum number of shares with
respect to which options may be granted under the Plan (including any
replacement options granted pursuant to Section 6) shall not exceed
2,977,153 shares of the Company's Common Stock, such number reduced by the
maximum number of shares then available for issuance pursuant to the
Company's Employee Stock Purchase Plan."
- ---------------
* Changed language is indicated in bold; deleted language not indicated.
B-1
<PAGE>
Copies of North American Mortgage Company's Form 10-K Report, a
corporate operational and financial report
filed annually with the
Securities and Exchange Commission,
are available without charge but without exhibits
for those stockholders who wish to have more detailed information
about the Company.
A list of exhibits is included in the Form 10-K, and exhibits are
available from the Company upon the payment to the
Company of the costs of furnishing the exhibits.
If you would like a copy, or have any other inquiries about the
Company or your stockholder account, please write to:
Chief Financial Officer
North American Mortgage Company
3883 Airway Drive
Santa Rosa, California 95403-1699
<PAGE>
NORTH AMERICAN MORTGAGE COMPANY(R)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of North American Mortgage Company, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 29, 1997, and hereby appoints
JOHN F. FARRELL, JR., TERRANCE G. HODEL, and CAROLYN OWENS VOGT and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1997 Annual Meeting of Stockholders of North American Mortgage Company, to be
held on Wednesday, May 28, 1997, at 10:00 a.m., New York time, at The Chase
Manhattan Bank, 270 Park Avenue, Third Floor, New York, New York, and at any
adjournment(s) thereof, and to vote all shares of Common Stock, which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side. Any one of such attorneys or
substitutes shall have and may exercise all of the powers of said
attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE APPROVAL OF THE AMENDMENT
TO THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN, FOR THE APPROVAL OF THE AMENDMENT
TO THE COMPANY'S INCENTIVE STOCK OPTION PLAN, FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
(Continued and to be dated and signed on reverse side)
NORTH AMERICAN MORTGAGE COMPANY
P.O. BOX 11082
NEW YORK, NEW YORK 10203-0082
<PAGE>
1. Election of Directors
FOR X WITHHOLD X Exception X
all nominees AUTHORITY
listed below to vote for
all nominees
listed below
Nominees: John F. Farrell, Jr., Terrance G. Hodel, William L. Brown, William F.
Connell, Magna L. Dodge, William O. Murphy, Robert J. Murray, James B. Nicholson
(INSTRUCTIONS: TO WITHHOLD authority to vote for one or more individual
nominees, please mark the Exception box and write that nominee's name on the
line below.)
- -------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S
EMPLOYEE STOCK PURCHASE PLAN.
For X Against X Abstain X
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S
INCENTIVE STOCK OPTION PLAN.
For X Against X Abstain X
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG
LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF
THE COMPANY FOR THE 1997 FISCAL YEAR.
For X Against X Abstain X
CHANGE OF ADDRESS MARK HERE
X
(This proxy should be dated, signed by the stockholder(s) and returned promptly
in the enclosed envelope. Persons signing in a fiduciary capacity should so
indicate. If shares are held by joint tenants or as community property, both
should sign.)
DATED _______________________________, 19____
SIGNED ______________________________________
- ---------------------------------------------
(Please sign exactly as name appears hereon)
Vote MUST be indicated
(x) in Black or Blue ink. X
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
<PAGE>
NORTH AMERICAN MORTGAGE COMPANY
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of the Plan. The North American Mortgage Company Employee Stock
Purchase Plan (the "Plan") is intended to provide a suitable means by which
eligible employees of North American Mortgage Company (the "Company"), or
subsidiaries (as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code")) of the Company which the Board of Directors has
authorized to adopt this Plan (the "Eligible Subsidiaries") may accumulate,
through voluntary, systematic payroll deductions, amounts regularly credited for
their account to be applied to the purchase of shares of the common stock of the
Company (the "Common Stock") pursuant to the exercise of options granted from
time to time hereunder. The Plan provides employees with opportunities to
acquire proprietary interests in the Company, and will also provide them with
additional incentives to continue their employment and promote the best interest
of the Company. Options granted under the Plan are intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Shares of Stock Subject to the Plan. Subject to the provisions of
Section 12, the maximum number of shares of Common Stock which may be issued on
the exercise of options granted under the Plan shall not exceed 518,659 shares
of the Company's Common Stock. Any shares subject to an option under the Plan,
which option for any reason expires or is terminated unexercised as to such
shares, shall again be available for issuance on the exercise of other options
granted under the Plan. Shares delivered on the exercise of options may, at the
election of the Board of Directors of the Company, be authorized but previously
unissued stock or stock reacquired by the Company, or both.
3. Administration. The Plan shall be administered by a committee
("Committee") composed of not less than two members of the Board of Directors of
the Company, all of whom shall be ineligible to participate in this Plan and
shall otherwise qualify as disinterested persons for purposes of Rule
16b-3(c)(2)(i) promulgated by the Securities and Exchange Commission. Subject to
the provisions of the Plan, the Committee shall have full discretion and the
exclusive power (i) to determine the terms and conditions under which shares
shall be offered and corresponding options shall be granted under the Plan for
any Purchase Period consistent with the provisions of the Plan, and (ii) to
resolve all questions relating to the administration of the Plan. The Committee
may delegate such of its responsibilities under this Section 3 as it may deem
fit to officers of the Corporation to the extent that the exercise of such
responsibilities relates solely to employees of the Corporation who are not
subject to Section 16 of the Securities Exchange Act of 1934.
The interpretation and application by the Committee of any provision of the
Plan shall be final and conclusive on all employees and other persons having, or
claiming to have, an interest under the Plan. The Committee may in its
discretion establish such rules and guidelines relating to the Plan as it may
deem desirable.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. The Committee shall keep minutes of
its actions under the Plan.
No member of the Board of Directors of the committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
options granted hereunder.
Participants in the Plan may obtain additional information about the Plan
and the Committee by contacting the Company at its principal executive offices
at 3883 Airway Drive, Santa Rosa, California 95403; telephone: (707) 523-5199.
4. Eligibility to Participate. All regular full-time employees (including
officers) of the Company and Eligible Subsidiaries and all other employees of
the Company and Eligible Subsidiaries whose customary employment is for more
than five months in any calendar year or 20 hours per week, who in each case
have been employed by the Company (or its predecessor companies) or Eligible
Subsidiaries for a period of at least 12 months (an "Employee"), shall be
eligible to participate in the Plan.
At the beginning of each Purchase Period, the Company will furnish to each
Employee a form (hereinafter called a "Notice of Shares Offered") stating the
maximum number of shares which such Employee shall be eligible to purchase for
such Purchase Period in accordance with the provisions of clause (ii) in the
first paragraph of Section 5.
Nothing contained in the Plan shall confer upon any Employee any right to
continue in the employ of the Company or any of its subsidiaries, or interfere
in any way with the right of the Company or any of its subsidiaries to terminate
his employment at any time.
5. Participation in the Plan. An Employee may participate in the Plan only
as of the beginning of a Purchase Period. If an individual becomes an Employee
after the commencement of a Purchase Period, he may not participate in the Plan
until the beginning of the next Purchase Period. A copy of the Plan will be
furnished to each Employee prior to the beginning of the first Purchase Period
during which he is eligible to participate. To participate in the Plan an
Employee must deliver to the Company a contingent subscription for the Common
Stock and authorization for payroll deductions to effect the purchase of Common
Stock (hereinafter called a "Participation Election"). In his Participation
Election, an Employee must:
(i) authorize payroll deductions within the limits prescribed in
Sections 8 and 9 and specify the percentage to be deducted regularly from his
Compensation (as defined in Section 8);
(ii) elect and authorize the purchase by the Employee for each Purchase
Period of shares of Common Stock on the Exercise Date (as defined in Section 7)
with respect to the applicable Purchase Period, provided that the number of
shares which can be purchased shall not exceed the number of shares which may be
purchased at a price equal to 85% of the fair market value (determined in
accordance with Section 7) of the Common Stock on the first day of such Purchase
Period with the anticipated aggregate amount of payroll deductions authorized
for the Purchase Period (which shall be based upon the participant's rate of
Compensation (as defined in Section 8 hereof) in effect on the first day of the
Purchase Period, except that the amount of all compensation other than base pay
of such Participant taken into account for this purpose shall be based upon the
amount of such compensation other than base pay paid to the Participant in the
last calendar year ending prior to the first day of the Purchase Period.
(iii) furnish the exact name or names and address or addresses in which
stock certificates for Common Stock purchased by him under the Plan are to be
issued; and
(iv) agree to notify the Company if he should dispose of Common Stock
purchased through the Plan within two years of the commencement of the Purchase
Period in which he purchased such Common Stock.
Stock certificates for shares of Common Stock purchased under the Plan may
be issued in the Employee's name or, if so designated by the Employee, in his
name and the name of another person who is a member of his family, with right of
survivorship; for this purpose the "family" of an Employee shall include only
his spouse, his ancestors and lineal descendants and his brothers and sisters.
An Employee need not, and may not, make any down payment in order to
participate in the Plan.
Participation in the Plan is entirely voluntary, and a participating
Employee may withdraw from participation as provided in Section 15 during any
Purchase Period at any time prior to the Exercise Date for such Purchase Period.
Participation elections may be solicited from Employees prior to the
commencement of a Purchase Period.
The Committee may establish a maximum number of shares of Common Stock
which any Employee may purchase under the Plan for a Purchase Period, which
amount need not be the same for each Purchase Period.
6. Purchase Periods; Grant of Options. Each Purchase Period under the Plan
shall commence on January 1 of a calendar year (or, for the first Purchase
Period, such date established by the Committee following the effective date
specified in Section 20) and end on December 31 of such year, and shall include
all pay periods ending within it. During each Purchase Period, participating
Employees shall accumulate credits to a bookkeeping account maintained by the
Company (hereinafter referred to as a "Stock Purchase Account") through payroll
deductions to be made at the close of each pay period for the purchase of shares
of Common Stock under the Plan. For each Purchase Period the Company shall grant
options to participating Employees with respect to the number of shares of
Common Stock (subject to the provisions of Sections 2, 5, 11 and 12) which shall
be purchasable through the application of amounts credited to each such
Employee's Stock Purchase Account at the purchase price per share determined on
the Exercise Date for the Purchase Period (such number of shares to be subject
to reduction in the event of a pro rata apportionment provided for in Section
17).
7. Exercise Dates and Purchase Prices. The last business day of each
Purchase Period shall constitute the "Exercise Date" for such Purchase Period.
Subject to the provisions of Section 12, the purchase price per share of Common
Stock to be purchased on an Exercise Date pursuant to the exercise of options
granted for the Purchase Period, through the application of amounts credited
during such Purchase Period to the Stock Purchase Accounts of participating
Employees, shall be the lesser of:
(A) an amount equal to 85% of the fair market value of the Common Stock
at the time such option is granted (i.e., the first day of the Purchase Period),
or
(B) an amount equal to 85% of the fair market value of the Common Stock
at the time such option is exercised (i.e., the Exercise Date).
For purposes of the Plan, the fair market value of a share of the Common
Stock on any date shall be (1) if the Common Stock is traded on an established
securities market, the mean between the high and low prices of such Common Stock
for such date, as reported on the composite tape, and (2) if the Common Stock is
not so traded, an amount determined by the Committee in good faith and based
upon such factors as it deems relevant to such determination.
8. Payroll Deductions - Authorization and Amount. Employees shall deliver
(or cause to be delivered) to the Company their Participation elections within
seven days following the commencement of the first Purchase Period during which
they wish to participate in the Plan.
Employees shall authorize in their Participation Elections from 1% to 15%
(in whole percentage increments) of their Compensation to which such election
relates (subject to the limitations of Section 9). For purposes of the Plan, the
"Compensation" of an Employee for any Purchase Period shall mean the Employee's
total compensation, as required to be reported on IRS Form W-2, received during
the Purchase Period.
By delivering to the Company within seven days following the commencement
of the next Purchase Period a revised Participation Election, a participating
Employee may change the amount to be deducted from his Compensation during the
next Purchase Period and any subsequently Purchase Period subject to the
limitations of this Section 8 and Section 9.
A participating Employee's authorization for payroll deductions will remain
in effect for the duration of the Plan, subject to the provisions of Sections 11
and 14, unless his election to purchase Common Stock shall have been terminated
pursuant to the provisions of Section 13, the amount of the deduction is changed
as provided in this Section 8 or the Employee withdraws or is considered to have
withdrawn from the Plan under Section 15 or 16.
All amounts credited to the Stock Purchase Accounts of participating
Employees shall be held in the general funds of the Company but shall be used
from time to time in accordance with the provisions of the Plan.
9. Limitations on the Granting of Options. Anything in the Plan to the
contrary notwithstanding, no participating Employee may be granted an option
which permits his rights to purchase Common Stock under all employee stock
purchase plans of the Company and its parent and subsidiary companies (if any)
to accrue at a rate which exceeds $25,000 of fair market value of such Common
Stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time. For purposes of this Section 9:
(i) the right to purchase stock under an option accrues when the option
(or any portion thereof) first becomes exercisable during the calendar year;
(ii) the right to purchase stock under an option accrues at the rate
provided in the option, but in no case may such rate exceed $25,000 of fair
market value of such stock (determined at the time such option is granted) for
any one calendar year; and
(iii) a right to purchase stock which has accrued under one option
granted pursuant to the Plan may not be carried over to any other option.
No participating Employee may be granted an option hereunder if such
Employee, immediately after the option is granted, owns (within the meaning of
Section 423(b)(3) of the Code) stock possessing five percent or more of the
total combined voting power or value of all classes of stock of the Company or
of its parent or subsidiary Company. For purposes of the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the respective meanings set
forth in Section 424 of the Code.
10. Stock Purchase Accounts. The amount deducted from the Compensation of
each participating Employee shall be credited to his individual Stock Purchase
Account. Employees participating in the Plan may not make direct cash payments
to their Stock Purchase Accounts.
Following the close of each Purchase Period, the Company will furnish to
each participating Employee a statement of his individual Stock Purchase
Account. This statement shall show (i) the total amount of payroll deductions
for the Purchase Period just closed, (ii) the number for full shares (and the
purchase price per share) of Common Stock purchased pursuant to the provisions
of Section 11 by the participating Employee for the Purchase Period, and (iii)
any remaining balance of his payroll deductions which is to be refunded to the
employee following the close of the Purchase Period.
11. Issuance and Purchase of Common Stock. Shares of Common Stock may be
purchased by participating Employees only on the Exercise Date for each Purchase
Period; and the options which the Company grants to participating Employees to
purchase Common Stock for a Purchase Period may be exercised only on the
Exercise Date, and their elections to purchase Common Stock pursuant to the
Exercise of such options shall not become irrevocable until the close of
business on the day prior to the Exercise Date. No fractional shares of Common
Stock may be purchased hereunder. The purchase price per share shall be
determined as set forth in Section 7.
A participating Employee who purchases Common Stock pursuant to the
exercise of options granted under the Plan shall purchase as many full shares as
shall be stated by him in his Participation Election, subject to the limitations
set forth in Sections 8, 9, 12 and 17; provided that in no event may shares be
purchased other than by application of the balance in his Stock Purchase Account
on the Exercise Date and that in no event may a participating Employee purchase
a greater number of shares than would be purchasable at the purchase price
determined in accordance with Section 7 through the application of the balance
in his Stock Purchase Account on the Exercise Date for the Purchase Period to
which the option relates. Any balance remaining in such a participating
Employee's Stock Purchase Account following an Exercise Date shall be refunded
to the Employee as soon as practicable thereafter.
Certificates for Common Stock so purchased shall be delivered to the
Employee as soon as practicable.
All rights as an owner of shares of Common Stock purchased under the Plan
shall accrue to the participating Employee who purchased the shares effective as
of the Exercise Date on which amounts credited to his Stock Purchase Account
were applied to the purchase of the shares; and such Employee shall not have any
rights as a stockholder prior to such Exercise Date by reason of his having
elected to purchase such shares.
12. Dilution or other Adjustment. If the Company is a party to any merger
or consolidation, or undergoes any separation, reorganization or liquidation,
the Board of Directors of the Company shall have the power to make arrangements,
which shall be binding upon the Employees then participating in the Plan, for
(i) the purchase of shares subject to outstanding Participation Election for the
Purchase Period occurring at such time, (ii) for the assumption of the Company's
undertakings with respect to the Plan by another corporation, or (iii) for the
cancellation of outstanding Participation Election and options to purchase
shares and the payment by the Company of an amount (not less than the amount
then credited to Employees' respective Stock Purchase Accounts) determined by
the Board of Directors in consideration therefor. In addition, in the event of a
reclassification, stock split, combination of shares, separation, including a
spin-off), dividend on shares of the Common Stock payable in stock, or other
similar change in capitalization or in the corporate structure of shares of the
Common Stock of the Company, the Committee shall conclusively determine the
appropriate adjustment in the purchase price and other terms of purchase for
shares subject to outstanding Participation Elections for the Purchase Period
occurring at such time, in the number and kind of shares or other securities
which may be purchased for such Purchase Period and in the aggregate number of
shares which may be purchased under the Plan. Any such adjustment in the shares
or other securities subject to the outstanding options granted to such Employees
(including any adjustments in the option price) shall be made in such manner as
not to constitute a modification as defined by Section 424 (h)(3) of the Code
and only to the extent permitted by Sections 423 and 424 of the Code.
13. No Assignment of Plan Rights or of Purchased Stock. An Employee must
advise promptly the Company if a disposition shall be made of any shares of
Common Stock purchased by him under the Plan if such disposition shall have
occurred within two years of the commencement of the Purchase Period in which he
purchased such shares.
A participating Employee's privilege to purchase Common Stock under the
Plan can be exercised only by him; and he cannot purchase Common Stock for
someone else, although he may designate (in accordance with the provisions of
Section 5) that stock certificates for Common Stock purchased by him be issued
in the joint names of himself and a member of his family.
An Employee participating in the Plan may not sell, transfer, pledge or
assign to any other person any interest, privilege or right under the Plan or in
any amounts credited to his Stock Purchase Account; and if this provision shall
be violated, his election to purchase Common Stock shall terminate, and the only
right remaining thereunder will be to have paid to the person entitled thereto
the amount then credited to the Employee's Stock Purchase Account.
14. Suspension of Deductions. A participating Employee's payroll deductions
under the Plan shall be suspended if on account of a leave of absence, layoff or
other reason a participating Employee does not have sufficient Compensation in
any payroll period to permit his payroll deductions authorized under the Plan to
be made in full. The suspension will last until the participating Employee again
has sufficient Compensation to permit such payroll deductions to be made in
full; but if the suspension shall not have removed by the Exercised Date for the
Purchase Period in which it began, the participating Employee will be considered
to have withdrawn from the Plan as provided for in Section 15.
15. Withdrawal from, and Reparticipation in, the Plan. During any Purchase
Period a participating Employee may withdraw from the Plan at any time prior to
the Exercise Date for the Purchase Period; and, subject to, and in accordance
with, the provisions of Sections 5 and 8, he may again participate in the Plan
at the beginning of any Purchase Period subsequent to the Purchase Period in
which he withdrew. Withdrawal of a participating Employee shall be effected by
written notification prior to such Exercise Date to the Company on a form which
the Company shall provide for this purpose ("Notice of Withdrawal"). In the
event a participating Employee shall withdrawal from the Plan, all amounts then
credited to this Stock Purchase Account shall be returned to him as soon as
practicable after his Notice of Withdrawal shall have been received.
If an Employee's payroll deductions shall be interrupted by any legal
process, a Notice of Withdrawal will be considered as having been received from
him on the day the interruption shall occur.
16. Termination of Participation. A participating Employee's right to
continue participation in the Plan will terminate upon the earliest to occur of
(i) the Company's discontinuance of the Plan, (ii) his transfer to ineligible
employment status, or (iii) his retirement, disability, death or other
termination of employment with the Company. Upon the termination of an
Employee's right to continue participation in the Plan on account of the
occurrence of any of the foregoing events, all amounts then credited to his
Stock Purchase Account not already used for the purchase of Common Stock will be
repaid as soon as practicable.
17. Apportionment of Stock. If at any time shares of Common Stock
authorized for the purposes of the Plan shall not be available in sufficient
number to meet the purchase requirements under all outstanding Participation
Elections, the Committee shall apportion the remaining available shares among
participating Employees on a pro rata basis. In no case shall any apportionment
of shares be made with respect to a participating Employee's election to
purchase unless such election is then in effect (subject only to any suspension
provided for in the Plan). The Committee shall give notice of any such
apportionment and of the method of apportionment used to each participating
Employee to whom shares shall have been apportioned.
18. Government Regulations. The Plan and the obligation of the Company to
issue, sell and deliver Common Stock under the Plan are subject to all
applicable laws and to all applicable rules, regulations and approvals of
government agencies.
19. Amendment or Termination. The Board of Directors of the Company may at
any time amend, suspend or terminate the Plan; provided, however, that no
amendment (other than an amendment authorized by Section 12) may be made
increasing the aggregate number of shares of Common Stock which may be issued
pursuant to the Plan, reducing the minimum purchase price at which shares may be
purchased hereunder, extending the maximum period during which shares may be
purchased hereunder or changing the class of employees eligible to participate
hereunder, without the approval of the holders of a majority of the outstanding
voting shares of the Company.
20. Effective Date. The Plan shall become effective on the date of its
adoption by the Board of Directors of the Company subject to approval of the
Plan be the holders of a majority of the outstanding voting shares of the
Company within 12 months after the date of the Plan's adoption by said Board of
Directors. In the event of the failure to obtain such shareholder approval, the
Plan shall be null and void and the Company shall have no liability thereunder.
No shares of Common Stock may be issued under the Plan until such shareholder
approval has been obtained.
21. Termination. Subject to earlier discontinuance in accordance with
Section 19, the Plan shall terminate on the date preceding the date which is
five years following the effective date specified in Section 20. Any unexpired
Purchase Period that commenced prior to such termination date shall forthwith
expire on such termination date, which shall be deemed the Exercise Date for
such Purchase Period.
<PAGE>
NORTH AMERICAN MORTGAGE COMPANY
INCENTIVE STOCK OPTION PLAN
1. Purposes of the Plan. The North American Mortgage Company Incentive
Stock Option Plan ("Plan") maintained by North American Mortgage Company
("Company") is intended to promote the growth and general prosperity of the
Company by offering incentives to the employees of the Company who are primarily
responsible for the Company's growth, and to attract and retain qualified
employees and thereby benefit shareholders of the Company based on the growth of
the Company. Options granted under the Plan may be designated as "incentive
stock options" intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended ("Code"), or as "non-qualified options" not intended to
so qualify. In addition, this Plan provides for grants of non-qualified options
to members of the Board of Directors of the Company who are not officers or
other employees of the Company ("Non-employee Directors"), which are intended to
provide an opportunity for Non-employee Directors to increase their interest as
shareholders of the Company, which serves to align the interests of Non-employee
Directors with other Shareholders.
2. Shares of Stock Subject to the Plan. The shares of stock with respect to
which options may be granted shall be the common stock, par value $0.01 ("Common
Stock"), of the Company. Shares delivered on the exercise of options may, at the
election of the Board of Directors of the Company, be authorized but previously
unissued stock or stock reacquired by the Company, or both. Subject to the
provisions of Section 11, the maximum number of shares with respect to which
options may be granted under the Plan (including any replacement options granted
pursuant to Section 6) shall not exceed 2,977,153 shares of the Company's Common
Stock, such number reduced by the maximum number of shares then available for
issuance pursuant to the Company's Employee Stock Purchase Plan. The number of
shares of Common Stock which may be issued under options granted under this Plan
to any one individual in any year shall not exceed 150,000. Any shares subject
to an option under the Plan, which option for any reason expires or is
terminated unexercised as to such shares, shall again be available for the grant
of other options under the Plan.
3. Administration. Except with respect to options granted to Non-employee
Directors pursuant to Section 5(b) hereof, the Plan shall be administered by a
committee ("Committee") composed of not less than two members of the Board of
Directors of the Company, all of whom qualify as disinterested persons for
purposes of Rule 16b-3(c) (2) (i) promulgated by the Securities and Exchange
Commission. From and after the first meeting of stockholders at which directors
are to be elected that occurs after July 1, 1994, the Committee shall contain at
least two "Outside Directors" as that term is defined in Section 162(m) of the
Code. Subject to the provisions of the Plan, the Committee shall have full
discretion and the exclusive power (i) to select the employees who will
participate in the Plan and to grant options to such employees, (ii) to
determine the time at which such options shall be granted and any terms and
conditions with respect to such options as shall not be inconsistent with the
provisions of the Plan, and (iii) to resolve all questions relating to the
administration of the Plan (other than the portion of the Plan applicable to
Non-employee Directors). The Committee may delegate such of its responsibilities
under this Section 3 as it may deem fit to officers of the Corporation to the
extent that the exercise of such responsibilities relates solely to employees of
the Corporation who are not subject to Section 16 of the Securities Exchange Act
of 1934.
The interpretation and application by the Committee of any provision of
the Plan applicable to persons other than Non-employee Directors shall be final
and conclusive on all employees and other persons having, or claiming to have,
an interest under the Plan. The Committee may in its discretion establish such
rules and guidelines relating to options granted under the Plan to persons other
than Non-employee Directors as it may deem desirable.
The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. The Committee shall keep minutes of
its actions under the Plan.
No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any options granted hereunder.
To the extent the Plan relates to options granted to Non-employee
Directors, it is intended to operate automatically and not require
administration. However, to the extent that administration is necessary with
respect to such grants, the Plan shall be administered by the Secretary of the
Company. However, since the options are awarded automatically, this function
will be limited to ministerial matters. The plan administrator will have no
discretion with respect to the selection of Non-employee Director optionees, the
determination of the exercise price of options granted to Non-employee
Directors, the timing of such grants or the number of shares covered by the
options granted to Non-employee Directors.
Participants in the Plan may obtain additional information about the
Plan and the Committee by contacting the Company at its principal executive
offices at 3883 Airway Drive, Santa Rosa, California 95403; telephone: (707)
523-5429.
4. Eligibility. The individuals who shall be eligible to receive grants of
options under Section 5(a) of the Plan shall be officers, management and such
other key employees of the Company (including such persons who also serve as
directors of the Company) as the Committee may from time to time determine. An
employee who has been granted an option in one year shall not necessarily be
entitled to be granted options in subsequent years. Non-employee Directors will
be eligible to receive grants of options only under Section 5(b) of the Plan.
5. Granting of Options, Option Price and Terms of Options.
(a) Options Granted to Employees. The Committee, at any time and from
time to time, may grant options under this Section 5(a) of the Plan to any
eligible employee. Each option granted under this Section 5(a) of the Plan shall
be evidenced by a stock option agreement between the employee to whom the option
is granted and the Company, which shall indicate whether or not the option is an
incentive stock option, and shall set forth the option price for each share of
Common Stock subject to the option, the term over which the option may be
exercised, and such other terms and conditions (which may include
performance-based or other vesting requirements) not inconsistent with the Plan
as the Committee may deem appropriate.
The option price for each share of the Common Stock subject to an option
granted under this Section 5(a) of the Plan shall not be less than (i) in the
case of an option intended to qualify as an incentive stock option, 100 percent
of the fair market value of such Common Stock on the date the option is granted,
and (ii) in the case of a non-qualified option, 85 percent of the fair market
value of such Common Stock on the date the option is granted. For purposes of
this Section 5(a) of the Plan, the fair market value of a share of the Common
Stock shall be (1) if the Common Stock is traded on an established securities
market, the mean between the high and low prices of such Common Stock for the
day on which the option is granted, as reported on the composite tape, and (2)
if the Common-non Stock is not so traded, an amount determined by the Committee
in good faith and based upon such factors as it deems relevant to such
determination.
The term over which an option granted under this Section 5(a) of the
Plan may be exercised, subject to earlier termination of such option as provided
in Section 7(a), shall not exceed ten years from the date on which such option
is granted.
(b) Options Granted to Non-employee Directors. Each person who is an
Non-employee Director on January 25, 1993 shall be granted an option on that
date to purchase 10,000 shares of Common Stock. An option to purchase 10,000
shares of Common Stock of the Company shall also automatically be granted to
each person who first becomes a member of the Board as a Non-employee Director
after January 25, 1993, such grant to be effective on the date of his or her
first election or appointment as a director of the Company. Additionally, on
each date that the Company holds its annual meeting of stockholders commencing
with the meeting held in calendar year 1994, each Non-employee Director then in
office immediately after the annual election of directors (other than those
Non-employee Directors first elected at such meeting) will receive a grant of an
option to purchase 1,000 shares of Common Stock. All options granted under this
Section 5(b) shall be fully and immediately exercisable. The option price for
each share of Common Stock subject to an option granted under this Section 5(b)
shall be the mean between the high and low prices of such Common Stock for the
day on which the option is granted, as reported on the composite tape of the
principal securities market upon which it is traded.
Subject to earlier termination of such option as provided in Section
7(b), each option granted under this portion of the Plan shall expire ten years
after the date of grant.
6. Replacement Options. In connection with the grant of an option (the
"initial option"), under Section 5(a) of the Plan, the Committee may provide for
the conditional grant of one or more additional options ("replacement options")
each of which (i) shall be deemed to be granted on the date on which the
optionee exercises the initial option to which it relates, in whole or in part,
(ii) covers that number of shares of Common Stock covered by the portion of the
initial option so exercised (or any lesser number), and (iii) provides for (A)
an option price equal to 100 percent of the fair market value of a share of
Common Stock on the date of exercise of the initial option, (B) a term equal to
the remainder of the term over which the initial option could have been
exercised, and (C) such other terms and conditions not inconsistent with the
provisions of the Plan. In any case in which more than one replacement option
has been provided for with respect to an initial option, references in this
Section 6 (other than clause (B) above) to the initial option shall, with
respect to each replacement option other than the first such replacement option
deemed to be granted, be deemed to refer to the replacement option the exercise
of which causes such replacement option to be granted. Shares of Common Stock
issuable pursuant to the exercise of replacement options shall be applied toward
the maximum number of shares issuable under the Plan in accordance with Sections
2 and 1 1.
Notwithstanding the foregoing provisions of this Section 6, replacement
options may be granted with respect to incentive stock options only as permitted
by Section 422 of the Code.
7. Exercise of Options.
(a) Exercise by Employees. Options granted under Section 5(a) of the
Plan may be exercised by an optionee only while he is, and continuously since
the date the option was granted has been, an employee the Company or one of its
subsidiaries, except that (i) if the optionee's termination of employment is
other than for willful misconduct in the performance of his duties for the
Company or subsidiary, any options held by the optionee may be exercised, to the
extent then exercisable, for a period of three months after the date of such
termination of employment; (ii) if such termination of employment is by reason
of retirement or disability, any options held by the optionee will become fully
and immediately exercisable and may be exercised for a period of twelve months
after the date of such termination of employment; (iii) in the event of the
death of the optionee after the termination of his employment pursuant to (i) or
(ii) above, the person or persons to whom the optionee's rights are transferred
by will or the laws of descent and distribution shall have a period of twelve
months from the date of termination of the optionee's employment to exercise any
options which the optionee could have exercised during such period; and (iv) in
the event of the death of an optionee while employed, any options then held by
the optionee shall become fully and immediately exercisable and may be exercised
by the person or persons to whom the optionee's rights are transferred by will
or the laws of descent and distribution for a period of one year after the
optionee's death. Notwithstanding the previous sentence, options granted under
Section 5(a) after May 7, 1993 of the Plan may be exercised by an optionee only
while he is, and continuously since the date the option was granted has been, an
employee of the Company or one of its subsidiaries, except that (i) if the
optionee's termination of employment is other than for willful misconduct in the
performance of his duties for the Company or subsidiary, any options held by the
optionee may be exercised, to the extent then exercisable, for a period of six
months after the date of such termination of employment; (ii) if such
termination of employment is by reason of retirement or disability, any options
held by the optionee will become fully and immediately exercisable and may be
exercised for a period of twelve months after the date of such termination of
employment; (iii) in the event of the death of the optionee after the
termination of his employment pursuant to (i) or (ii) above, the person or
persons to whom the optionee's rights are transferred by will or the laws of
descent and distribution shall have a period of twelve months from the date of
termination of the optionee's employment to exercise any options which the
optionee could have exercised during such period; and (iv) in the event of the
death of an optionee while employed, any options then held by the optionee shall
become fully and immediately exercisable and may be exercised by the person or
persons to whom the optionee's rights are transferred by will or the laws of
descent and distribution for a period of one year after the optionee's death.
Notwithstanding the foregoing, the Committee may, in its discretion, allow any
such option to remain exercisable (and to continue to vest pursuant to its
original vesting schedule) following the optionee's termination of employment or
death. In no event, however, shall any option be exercisable after the date
specified in Section 5(a) or Section 9, as applicable.
(b) Exercise by Non-employee Directors. Options granted pursuant to
Section 5(b) hereof may be exercised only while the optionee is a director of
the Company, except that (i) if the optionee ceases to be a director of the
Company as a result of such optionee's death, voluntary retirement from the
Board after age 65, or resignation from the Board as a result of disability, the
option may be exercised for a period of twelve months after the date such
optionee ceases to be a member of the Board; and (ii) if the optionee ceases to
be a director of the Company as a result his failure to be reelected by the
shareholders in an election for the Board, or as a result of such optionee's
resignation from the Board, the option may be exercised by the optionee at any
time during its specified term prior to three months after the date such
optionee ceases to be a member of the Board. In no event, however, shall any
option be exercisable after the date specified in Section 5(b). An optionee
shall be considered to be disabled if the optionee, by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of not less than 12 consecutive months or more, is unable
to perform his or her usual duties as a director.
(c) General. An option granted hereunder shall be exercisable, in whole
or in part, only by written notice delivered in person or by mail to the Company
at its principal office, specifying the number of shares to be purchased and
accompanied by payment therefor and otherwise in accordance with the option
agreement pursuant to which the option was granted.
The person exercising an option granted under Section 5(a) may tender to
the Company shares of Common Stock in partial or full payment of the price of
the shares to be purchased pursuant to the option. Such shares shall be taken
into account at their fair market value (as determined by the Committee in
accordance with Section 5(a)) on the date of the exercise of the option, and the
amount of cash required to be paid by the person exercising the option shall be
the amount, if any, by which the total price of the shares to be purchased
exceeds the fair market value of the shares tendered by the person exercising
the option.
8. Tax Withholding. The Committee may establish such rules and procedures
as it considers desirable in order to satisfy any obligation of the Company or
any subsidiary to withhold Federal income taxes or other taxes with respect to
the exercise of an option granted under Section 5(a) hereof, including, without
limitation, rules and procedures permitting an optionee to elect that the
Company withhold shares of Common Stock otherwise issuable upon exercise of such
option in order to satisfy such withholding obligation.
9. Incentive Stock Option Limitations. No employee may be granted options
intended to qualify as incentive stock options under Section 422 of the Code
under the Plan and all other incentive stock option plans of the Company (and
its parent corporation or subsidiary corporation, if any) which are exercisable
for the first time during any calendar year with respect to stock having an
aggregate fair market value (determined as of the time the option is granted)
greater than $100,000. To the extent that options granted to an employee exceed
the limitation set forth in the preceding sentence, the later granted of such
options shall be treated as options which are not incentive stock options.
Nothing herein contained shall be deemed to prevent the Committee from granting
to an employee in any year options which qualify as incentive stock options and
options which do not so qualify. For purposes of the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the respective meanings set
forth in Section 424 of the Code.
Notwithstanding the foregoing provisions of the Plan, if an incentive
stock option is granted to an individual who owns (within the meaning of Section
422 (b) (6) of the Code), on the date the option is granted, stock possessing
more than ten percent of the total combined voting power of all classes of stock
of such individual's employer corporation or of its parent corporation or
subsidiary corporation, if any, then (i) the option price for each share of
Common Stock subject to an incentive stock option granted to such individual
shall not be less than 110 percent of the fair market value of such Common Stock
on the date the option is granted, and (ii) the incentive stock option by its
terms shall not be exercisable after the expiration of five years from the date
the option is granted.
10. Change of Control: Limited Rights. In the event of a Change of Control
affecting the Company, then, notwithstanding any provision of the Plan or any
provisions of any stock option agreements entered into between the Company and
any optionee to the contrary, all options granted under Section 5(a) of the Plan
which have not expired and which are then held by any optionee (or the person or
persons to whom any deceased optionee's rights have been transferred) shall, as
of such Change of Control, become fully and immediately exercisable and may be
exercised for the remaining term of such options. In addition, for the sixty-day
period following a Change of Control affecting the Company, each optionee who is
not then subject to the restrictions of Section 16(b) of the Securities Exchange
Act of 1934, as amended, (or the person or persons to whom any deceased
optionee's rights have been transferred) shall be entitled to elect to surrender
all or any portion of his options which were granted under Section 5(a) hereof
to the Company in consideration for a cash payment in an amount equal to, for
each share of Common Stock subject to the surrendered options, the excess of the
highest fair market value for the Common Stock during such sixty-day period (or,
if greater, the price offered for a share of Common Stock pursuant to a tender
offer pending during such period) over the option price for such share under the
surrendered options.
For the purpose of the Plan, a "Change of Control" affecting the Company
shall be deemed to have taken place upon (i) the acquisition by a third person,
including a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, of shares of the Company having 15% or more of the
total number of votes that may be cast for the election of Directors of the
Company, (ii) shareholder approval of a transaction for the acquisition of the
Company, or substantially all of its assets, by another entity or for a merger,
reorganization, consolidation or other business combination to which the Company
is a party or (iii) the election during any period of 24 months or less of 50%
or more of the Directors of the Company where such Directors were not in office
immediately prior to such period; provided, however, that no "Change of Control"
shall be deemed to have taken place by reason of any event or occurrence
described herein if the Directors of the Company in office on the date of
adoption of the Plan, or their successors in office nominated by such Directors
or Directors so nominated, affirmatively approve a resolution to such effect
within 30 days of such event or occurrence.
11. Dilution or Other Adjustment. If the Company is a party to any merger
or consolidation, or undergoes any separation, reorganization or liquidation,
the Board shall have the power to make arrangements, which shall be binding upon
the holders of unexpired options, for (i) the substitution of new options for,
or the assumption by another corporation of, any unexpired options then
outstanding hereunder, or (ii) the cancellation of such outstanding options and
the payment by the Company of an amount determined by the Board in consideration
therefor. In the case of any incentive stock option, an action described in
clause (i) of the preceding sentence shall be taken only in the manner and to
the extent permitted by Sections 422 and 424 of the Code. In addition, in the
event of a reclassification, stock split, combination of shares, separation
(including a spin-off), dividend on shares of the Common Stock payable in stock,
or other similar change in capitalization or in the corporate structure of
shares of the Common Stock of the Company, the Board shall conclusively
determine the appropriate adjustment in the option prices of outstanding
options, in the number and kind of shares or other securities as to which
outstanding options shall be exercisable and in the aggregate number of shares
with respect to which options may be granted with a view toward maintaining the
proportionate interest of the optionee and preserving the value of such options.
In the case of any incentive stock option, any such adjustment in the shares or
other securities subject to the option (including any adjustment in the option
price) shall be made in such manner as not to constitute a modification as
defined by Section 424(h)(3) of the Code and only to the extent permitted by
Sections 422 and 424 of the Code.
12. Assignability. No option granted under this Plan shall be sold,
pledged, assigned or transferred other than by will or the laws of descent and
distribution, and during an optionee's lifetime an option shall be exercisable
only by him (or, in the event of the optionee's incapacity, by his duly
appointed guardian or legal representative).
13. Amendment or Termination. The Board of Directors of the Company may at
any time amend, suspend or terminate the Plan; provided, however, that (i) no
change in any options theretofore granted may be made without the consent of the
holder thereof, and (ii) no amendment (other than an amendment authorized by
Section 1) may be made increasing the aggregate number of shares of the Common
Stock with respect to which options may be granted, reducing the minimum option
price at which options may be granted, extending the maximum period during which
options may be exercised or changing the class of persons eligible to receive
options hereunder, without the approval of the holders of a majority of the
outstanding voting shares of the Company. In addition, Section 5(b) and the
other provisions of this Plan applicable to Non- employee Directors may not be
amended more than once every six months other than to comport with changes in
the Code, the Employee Retirement Income Security Act of 1974, or the rules
thereunder.
14. General Provisions. No options may be exercised by the holder thereof
if such exercise, and the receipt of cash or stock thereunder, would be contrary
to law or the regulations of any duly constituted authority having jurisdiction
over the Plan.
Absence on leave approved by a duly constituted officer of the Company
or any of its subsidiaries shall not be considered interruption or termination
of service of any employee for any purposes of the Plan or options granted
hereunder, except that no options may be granted to an employee while he is
absent on leave.
No optionee shall have any rights as a shareholder with respect to any
shares subject to options granted to him under the Plan prior to the date as of
which he is actually recorded as the holder of such shares upon the stock
records of the Company.
Nothing contained in the Plan or in any options granted hereunder shall
confer upon any employee any right to continue in the employ of the Company or
any of its subsidiaries, or interfere in any way with the right of the Company
or any of its subsidiaries to terminate his employment at any time.
Any stock option agreement issued in connection with a grant of options
under Section 5(a) of the Plan may provide that stock issued upon exercise of
any options may be subject to such restrictions, including, without limitation,
restrictions as to transferability and restrictions constituting substantial
risks or forfeiture, as the Committee may determine at the time such option is
granted.
15. Effective Date. The effective date of the Plan is July 14, 1992.
16. Termination. The Plan shall terminate on the date preceding the date
which is ten years following the effective date specified in Section 15. No
option may be granted after the termination of the Plan but options previously
granted may be exercised in accordance with their terms.
