<PAGE>
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
Columbia Banking System, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
J. James Gallagher
Vice Chairman and Chief Executive Officer
Columbia Banking System, Inc.
1102 Broadway Plaza
Tacoma, Washington 98402
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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 OF COLUMBIA BANKING SYSTEM]
1102 Broadway Plaza
Tacoma, Washington 98402
March 10, 2000
Dear Shareholder:
I am pleased to invite you to Columbia Banking System's Annual Meeting of
Shareholders. The meeting will be at 1:00 p.m. on Tuesday, April 25, 2000 at
the Sheraton Tacoma Hotel, 1320 Broadway, Tacoma, Washington.
At the meeting, you and the other shareholders will be asked to approve the
election of 15 directors to the Columbia Board, and will be asked to approve
the amendment of Columbia's Stock Option Plan. You also will have the
opportunity to hear what has happened in our business in the past year and to
ask questions. You will find additional information concerning Columbia and its
operations, including its audited financial statements, in the enclosed Annual
Report for the year ended December 31, 1999.
I hope that you can join us on April 25th. Whether or not you plan to
attend, please sign and return your proxy card as soon as possible. Your
opinion and your vote are important to us. Voting by proxy will not prevent you
from voting in person if you attend the meeting, but it will ensure that your
vote is counted if you are unable to attend.
Sincerely,
/s/ W.W. Philip
W.W. Philip
Chairman
<PAGE>
[LOGO OF COLUMBIA BANKING SYSTEM]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2000
The 2000 Annual Meeting of Shareholders of Columbia Banking System, Inc.
will be held at the Sheraton Tacoma Hotel, 1320 Broadway, Tacoma, Washington,
on Tuesday, April 25, 2000, for the following purposes:
1. To elect 15 directors to serve on the Board until the 2001 Annual
Meeting of Shareholders.
2. To approve the amendment of Columbia's Stock Option Plan which
amendment would, among other things, increase the number of shares
available under the plan.
3. To transact any other business that properly comes before the meeting
or any adjournment of the meeting.
Shareholders owning Columbia's shares at the close of business on the
record date of March 1, 2000 are entitled to vote at the meeting.
By Order of the Board of Directors
/s/ Jill L. Myers
Jill L. Myers
Secretary
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROXY STATEMENT..................................................... 1
ABOUT THE MEETING................................................... 1
STOCK OWNERSHIP..................................................... 3
PROPOSAL 1: ELECTION OF DIRECTORS................................... 5
PROPOSAL 2: AMENDMENT OF STOCK OPTION PLAN.......................... 8
EXECUTIVE COMPENSATION.............................................. 12
Report of the Personnel and Compensation Committee on Executive
Compensation....................................................... 12
Stock Performance Graph............................................. 16
Summary Compensation Table.......................................... 17
Option Grants in 1999............................................... 18
Option Exercises and Year-End Option Values......................... 18
Restricted Stock Awards............................................. 18
Other Employee Benefits............................................. 19
Executive Employment and Severance Agreements....................... 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............. 20
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS...................... 20
INDEPENDENT PUBLIC ACCOUNTANTS...................................... 20
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10K.......................... 21
</TABLE>
i
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
1102 Broadway Plaza
Tacoma, Washington 98402
PROXY STATEMENT
The Board of Directors is soliciting proxies for this year's Annual Meeting
of Shareholders. This Proxy Statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
The Board set March 1, 2000 as the record date for the meeting. Shareholders
who owned Columbia common stock on that date are entitled to vote at the
meeting, with each share entitled to one vote. There were 10,603,064 shares of
Columbia common stock outstanding on the record date.
Voting materials, which include this Proxy Statement, a proxy card, and the
1999 Annual Report, are first being mailed to shareholders on or about March
15, 2000.
ABOUT THE MEETING
Why am I receiving this Proxy Statement and proxy card?
You are receiving this Proxy Statement and proxy card because you own shares
of Columbia common stock. This Proxy Statement describes issues on which we
would like you to vote.
When you sign the proxy card you appoint W.W. Philip and J. James Gallagher
as your representatives at the meeting. Mr. Philip and Mr. Gallagher will vote
your shares at the meeting as you have instructed on the proxy card. This way,
your shares will be voted even if you cannot attend the meeting.
Who is soliciting my proxy and who is paying the cost of solicitation?
Columbia's Board of Directors is sending you this Proxy Statement in
connection with its solicitation of proxies for use at the 2000 Annual Meeting.
Certain directors, officers and employees of Columbia and/or its banking
subsidiary, Columbia Bank, may solicit proxies by mail, telephone, facsimile or
in person.
Columbia will pay for the costs of solicitation. Columbia does not expect to
pay any compensation for the solicitation of proxies, except to brokers,
nominees and similar recordholders for reasonable expenses in mailing proxy
materials to beneficial owners of Columbia common stock.
What am I voting on?
At the Annual Meeting you will be asked to vote on the election of 15
directors to serve on the Board until the 2001 Annual Meeting of Shareholders
and on a proposal to amend Columbia's Stock Option Plan.
Who is entitled to vote?
Only shareholders who owned Columbia common stock as of the close of
business on the record date, March 1, 2000, are entitled to receive notice of
the Annual Meeting and to vote the shares that they held on that date at the
meeting, or any postponement or adjournment of the meeting.
How do I vote?
You may vote your shares either in person at the Annual Meeting or by proxy.
To vote by proxy, you should mark, date, sign and mail the enclosed proxy in
the prepaid envelope provided. If you are a registered shareholder and attend
the meeting, you may deliver your completed proxy card in person. "Street name"
<PAGE>
shareholders, that is, those shareholders whose shares are held in the name of
and through a broker or nominee, who wish to vote at the meeting will need to
obtain a proxy form from the institution that holds their shares.
Can I change my vote after I return my proxy card?
Yes. You may revoke your proxy and change your vote at any time before the
proxy is exercised by filing with Columbia's Secretary either a notice of
revocation or a duly executed proxy bearing a later date. The powers of the
proxy holders will be suspended if you attend the meeting in person and so
request, although attendance at the meeting will not by itself revoke a
previously granted proxy.
What are the Board's recommendations?
Unless you give other instructions on your proxy card, Mr. Philip and Mr.
Gallagher, as the persons named as proxy holders on the proxy card, will vote
as recommended by the Board of Directors. The Board recommends a vote FOR the
election of the nominated directors listed in this Proxy Statement, and FOR the
amendment of Columbia's Stock Option Plan.
If any other matters are considered at the meeting, Mr. Philip and Mr.
Gallagher will vote as recommended by the Board of Directors. If the Board does
not give a recommendation, Mr. Philip and Mr. Gallagher will have discretion to
vote as they wish.
Will my shares be voted if I do not sign and return my proxy card?
If you are a shareholder of record and do not return your proxy card or do
not vote in person at the Annual Meeting, your shares will not be voted.
If your shares are held in street name and you do not submit voting
instructions to your broker, your broker may vote your shares under certain
circumstances. At this meeting, brokers may vote on the election of directors
and on the amendment of Columbia's Stock Option Plan.
How many votes are needed to hold the Annual Meeting?
A majority of Columbia's outstanding shares as of the record date (a quorum)
must be present at the Annual Meeting in order to hold the meeting and conduct
business. Shares are counted as present at the meeting if a shareholder is
present and votes in person at the meeting or has properly submitted a proxy
card. As of the record date for the Annual Meeting, 10,603,064 shares of
Columbia common stock were outstanding and eligible to vote. Broker non-votes
(where the beneficial owner of the shares does not give the broker or nominee
specific voting instructions and the broker or nominee does not have voting
discretion) and proxies received but marked as abstentions will be included in
the calculation of the number of shares considered to be present at the
meeting.
What vote is required to approve each item?
Election of Directors. The 15 nominees who receive the highest number of FOR
votes will be elected. You may vote FOR some or all of the nominees or WITHHOLD
AUTHORITY for all or some of the nominees. Votes withheld are counted as "no"
votes for the individual director.
Amendment of Stock Option Plan. The amendments of Columbia's Stock Option
Plan will be approved if the votes cast FOR amendment of the Stock Option Plan
exceed votes cast AGAINST amendment of the Stock Option Plan. You may ABSTAIN
from voting on this proposal. An abstention from voting will have no effect on
the proposal since such shares are present at the Meeting and entitled to vote
but are not considered votes cast.
Can I vote on other matters?
Columbia has not received timely notice of any shareholder proposals to be
considered at the Annual Meeting, and the Board of Directors does not know of
any other matters to be brought before the Annual Meeting.
2
<PAGE>
When are proposals for the 2001 Annual Meeting due?
Proposals by shareholders to transact business at Columbia's 2001 Annual
Meeting must be delivered to Columbia's Secretary no later than February 9,
2001. For shareholder proposals to be considered for inclusion in Columbia's
proxy statement and proxy card for the 2001 Annual Meeting, such proposals must
be received by Columbia's Secretary no later than November 27, 2000. If
Columbia receives notice of a shareholder proposal after February 9, 2001, the
persons named as proxies will have discretion on how to vote on such proposals.
How do I nominate someone to be a director?
If you wish to nominate someone for election to the Board at the 2001 Annual
Meeting of Shareholders you must give written notice to Columbia's Chairman not
less than 14 nor more than 50 days prior to the date of the 2001 Annual
Meeting. If Columbia gives less than 21 days' notice of the Annual Meeting,
your notification must be mailed or delivered to the Chairman not later than
the close of business on the seventh day following the day that notice of the
Annual Meeting was mailed. Your notification should contain the following
information to the extent known: (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the total
number of shares of stock of Columbia that will be voted for each proposed
nominee; (d) your name and address; and (e) the number of shares of stock of
Columbia you own. Columbia's Chairman may disregard your nomination if it does
not meet these requirements.
STOCK OWNERSHIP
Are there any owners of more than 5% of Columbia's stock?
Columbia does not know of any single shareholder or group that is the
beneficial owner of more than 5% of Columbia's common stock.
How much stock do Columbia's directors and executive officers own?
The following table shows, as of March 1, 2000, the amount of Columbia
common stock beneficially owned (unless otherwise indicated) by (a) each
director and director nominee; (b) the executive officers named in the Summary
Compensation Table below; and (c) all of Columbia's directors and executive
officers as a group. Except as otherwise noted, Columbia believes that the
beneficial owners of the shares listed below, based on information furnished by
such owners, have or share with a spouse voting and investment power with
respect to the shares.
<TABLE>
<CAPTION>
Shares Beneficially
Owned
--------------------------
Name Number Percentage(1)
---- ------- ------------
<S> <C> <C>
Richard S. DeVine.............................. 43,583(2) *
Melanie J. Dressel............................. 35,637(3) *
Jack Fabulich.................................. 10,543(2) *
Jonathan Fine.................................. 25,015(2)(4) *
John P. Folsom................................. 14,134(2) *
J. James Gallagher............................. 139,833(5) 1.3%
John A. Halleran............................... 16,775(2) *
Thomas M. Hulbert.............................. 6,250 *
Thomas L. Matson............................... 94,922 *
William W. Philip.............................. 267,504(6) 2.5%
John H. Powell................................. 37,402(2)(7) *
Robert E. Quoidbach............................ 8,746(2) *
Donald Rodman.................................. 10,245(2) *
Harald R. Russell.............................. 29,051(8) *
Sidney R. Snyder............................... 28,444(2) *
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned
------------------------
Name Number Percentage(1)
---- ------- ------------
<S> <C> <C>
William T. Weyerhaeuser........................ 36,475(9) *
Evans Q. Whitney............................... 42,322(10) *
James M. Will.................................. 10,544(2) *
Directors and executive officers as a group (21
persons)...................................... 909,624(11) 8.5%
</TABLE>
- --------
* Represents less than 1.0% of Columbia's outstanding common stock.
(1) Percentages shown are based on the number of shares of Columbia common
stock deemed outstanding under applicable regulations, including options
exercisable within sixty days.
(2) Includes 1,654 shares issuable upon exercise of options that become
exercisable on April 23, 2000 at $9.60 per share.
(3) Includes: (i) 1,806 shares held by a corporation owned by Ms. Dressel and
her spouse; (ii) 12,120 shares issuable upon exercise of options that
became exercisable on September 22, 1996 at $6.77 per share; (iii) 1,738
shares issuable upon exercise of options that became exercisable on
January 26, 1997 at $6.77 per share; (iv) 3,473 shares issuable upon
exercise of options that became exercisable on December 16, 1997 at $5.62
per share; (v) 2,481 shares issuable upon exercise of options that become
exercisable on April 23, 2000; and (vi) 7,875 shares (adjusted for
applicable stock splits and dividends) issued to Ms. Dressel in January
1998 as a restricted stock award and held in escrow until certain
conditions are met.
(4) Includes 6,300 shares owned by a family trust for which Mr. Fine is co-
trustee and shares voting and investment power.
(5) Includes: (i) 6,881 shares held by C&G Partnership, a Washington General
Partnership, of which Mr. Gallagher is a general partner; (ii) 28,879
shares held by the J. James Gallagher & Co. Profit Sharing Trust, for
which Mr. Gallagher is the trustee; (iii)15,750 shares (adjusted for
applicable stock splits and dividends) issued to Mr. Gallagher in April
1998 as a restricted stock award and held in escrow until certain
conditions are met; (iv) 1,654 shares issuable to Mr. Gallagher's spouse,
Ms. Margel Gallagher, a former director of Columbia, upon exercise of
options that became exercisable upon her retirement from the Board on
December 31, 1999 at $9.60 per share; and (v) 1,575 shares issuable to
Ms. Margel Gallagher upon exercise of options that became exercisable
upon her retirement from the Board on December 31, 1999 at $24.76 per
share.
(6) Includes: (i) 111,074 shares held by Kelcin, LLC, of which Mr. Philip is
a member; (ii) 33,075 shares (adjusted for applicable stock splits and
dividends) issued to Mr. Philip in August 1996 as a restricted stock
award and held in escrow until certain conditions are met; and (iii)
31,500 shares (adjusted for applicable stock splits and dividends) issued
to Mr. Philip in January 1998 as a restricted stock award and held in
escrow until certain conditions are met.
(7) Includes: (i) 1,575 shares issuable upon exercise of options that become
exercisable on April 25, 2000 at $24.76 per share; and (ii) 5,288 shares
issuable upon exercise of options that became exercisable on September
25, 1993 (and until September 26, 2000) at $3.72 per share as to 3,827
shares and $5.32 per share as to 1,461 shares, assigned to Mr. Powell as
a result of the 1998 liquidation of NorCap L.L.C., a company controlled
by Mr. A.G. Espe, Columbia's former Chairman and Chief Executive Officer.
Mr. Powell reached the age of 75 prior to the Annual Meeting of
Shareholders to be held on April 25, 2000, and thus is retiring from the
Board in accordance with the Company's Bylaws.
(8) Includes: (i) 4,344 shares issuable upon exercise of options that became
exercisable on January 26, 1997 at $6.77 per share; (ii) 2,605 shares
issuable upon exercise of options that became exercisable on December 16,
1997 at $5.62 per share; (iii) 3,473 shares issuable upon exercise of
options that became exercisable on April 24, 1999 at $7.59 per share;
(iv) 4,466 shares issuable upon exercise of options that become
exercisable on April 23, 2000; and (v) 7,875 shares (adjusted for
applicable stock splits and dividends) issued to Mr. Russell in January
1998 as a restricted stock award and held in escrow until certain
conditions are met.
4
<PAGE>
(9) All shares are owned by the WBW Trust No. One for which Mr. Weyerhaeuser
is the trustee with sole voting and investment power.
(10) Includes: (i) 107 shares held by Mr. Whitney as custodian for his
grandchildren; (ii) 2,100 shares held in a brokerage account for Mr.
Whitney's mother, over which Mr. Whitney exercises investment power;
(iii) 13,890 shares issuable upon exercise of options that became
exercisable on September 22, 1996 at $6.77 per share; (iv) 3,476 shares
issuable upon exercise of options that became exercisable on January 26,
1997 at $6.77 per share; (v) 3,473 shares issuable upon exercise of
options that became exercisable on December 16, 1997 at $5.62 per share;
(vi) 2,481 shares issuable upon exercise of options that become
exercisable on April 23, 2000 at $9.60 per share; and (vii) 7,875 shares
(adjusted for applicable stock splits and dividends) issued to Mr.
Whitney in January 1998 as a restricted stock award and held in escrow
until certain conditions are met.
(11) Includes 106,362 shares issuable upon exercise of options.
PROPOSAL 1: ELECTION OF DIRECTORS
How many directors are nominated?
Columbia's Bylaws provide that the number of directors to be elected by the
shareholders shall be at least five and not more than 25. Under the Bylaws, the
Board has authority to decide the exact number of directors to be elected
within these limits. The Bylaws further provide that up to two directors may be
added by the Board between annual meetings of the shareholders. Columbia's
Board has fixed the number of directors to be elected at the Annual Meeting at
15 and has nominated the persons listed on the following pages for election as
directors to serve until the 2001 Annual Meeting or until their successors are
elected.
What happens if a nominee refuses or is unable to stand for election?
The Board may reduce the number of seats on the Board or designate a
replacement nominee. If the Board designates a substitute, shares represented
by proxy will be voted FOR the substitute nominee. The Board presently has no
knowledge that any of the nominees will refuse or be unable to serve.
Who are the nominees?
Information regarding each of the nominees is provided below, including
their name and age, their principal occupation during the past five years, and
the year first elected a director of Columbia or its predecessor corporation or
one of its former or current subsidiaries. The address for all of the nominees
is 1102 Broadway Plaza, Tacoma, Washington, 98402. All of the nominees are
presently directors of Columbia and Columbia Bank.
Richard S. DeVine Director since 1993
Mr. DeVine, 72, has served as President of Chinook Resources, Inc. (timber
acquisition and sales) since 1992. Mr. DeVine currently serves as Chairman of
Raleigh Schwarz & Powell, Inc. (insurance brokers), Tacoma, Washington, having
served as President of that company from 1976 to 1989.
Melanie J. Dressel Director since July
1998
Ms. Dressel, 47, has served as President and Chief Executive Officer of
Columbia Bank since January 2000, having served prior to that time and since
July, 1998 as President and Chief Operating Officer, and since May 1997, as
Executive Vice President. Ms. Dressel has also served as the President and
Chief Operating Officer of Columbia since January 2000, having served prior to
that time and since May 1997 as Executive Vice President. Ms. Dressel, who has
over 20 years of banking experience, joined Columbia Bank in 1993, serving as
Senior Vice President and Private Banking Manager until May 1997.
5
<PAGE>
Jack Fabulich Director since 1993
Mr. Fabulich, 71, is Chairman of Parker Paint Manufacturing Co., Inc.,
Tacoma, Washington, having served as President from 1982 to 1993. He is also
currently a director and is past-President of Washington Public Ports, and he
is a Commissioner of the Port of Tacoma.
Jonathan Fine Director since 1993
Mr. Fine, 45, is the Chief Executive Officer of the American Red Cross,
Seattle-King County Chapter. From January 1993 until April 1996, Mr. Fine was a
private investor and from 1986 until December 1992, he served as Senior Vice
President and Treasurer of Puget Sound Bancorp, Inc., Tacoma, Washington.
John P. Folsom Director since 1997
Mr. Folsom, 56, has been President and Chief Executive Officer of Raleigh,
Schwarz & Powell, Inc. (insurance brokers), Tacoma, Washington, since 1989.
J. James Gallagher Director since July
1998
Mr. Gallagher, 61, has served as Vice Chairman and Chief Executive Officer
of Columbia since January, 2000, having served prior to that time and since
July 1998 as Vice Chairman of Columbia and Columbia Bank. From January 1994
until his appointment at Columbia, Mr. Gallagher was a principal of Gordon,
Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C., a law firm
headquartered in Tacoma, Washington, where he served as outside legal counsel
for Columbia. Mr. Gallagher, who is a former bank regulator, has over 30 years
of experience as legal counsel to financial institutions throughout the
Northwest.
John A. Halleran Director since 1992
Mr. Halleran, 71, has been a private investor since 1992. Prior to that time
he was a general contractor with headquarters in Bellevue, Washington.
Thomas M. Hulbert Director since
October 1999
Mr. Hulbert, 53, is the President and Chief Executive Officer of Winsor
Corporation (lighting technologies), Olympia, Washington, and the President and
Chief Executive Officer of Hulco, Inc. (real estate investments), Olympia,
Washington. From 1986 to 1996, Mr. Hulbert was the President of Log
Contractors, Inc. (timber contracting and logging), Olympia, Washington, and
from 1994 to 1998, was also the President of Techwood (furniture panel
manufacturer), Shelton, Washington.
Thomas L. Matson Director since 1998
Mr. Matson, 62, has been the owner and President of Tom Matson Dodge, Inc.
(automobile dealership), Auburn, Washington, since 1963. Mr. Matson served as
the Chairman of Cascade Bancorp, Inc. and its subsidiary, Cascade Community
Bank, Auburn, Washington, from 1990 to 1997, when those institutions were
acquired by Columbia.
William W. Philip Director since 1993
Mr. Philip, 73, is the Chairman of Columbia and Columbia Bank. Since
November 1997 until his retirement as an active officer on December 31, 1999,
Mr. Philip served as Chairman, President and Chief Executive Officer of
Columbia and Chairman and Chief Executive Officer of Columbia Bank. Prior to
that time and since 1993, he served as President and Chief Operating Officer of
Columbia and as President and Chief Executive Officer of Columbia Bank. Until
December 1992, Mr. Philip was Chairman of the Board and Chief Executive Officer
of Puget Sound Bancorp, Tacoma, Washington ("PSB") since its inception in 1981
and was
6
<PAGE>
Chairman and Chief Executive Officer of Puget Sound National Bank prior to and
after the inception of PSB, having served with that institution for more than
40 years.
Robert E. Quoidbach Director since 1988
Mr. Quoidbach, 74, has been a private investor and tree farmer since 1990.
Prior to that time he was an industrial contractor in Longview, Washington.
Donald Rodman Director since 1991
Mr. Rodman, 61, has been the owner and an executive officer of Rodman
Realty, Longview, Washington, since 1961.
Sidney R. Snyder Director since 1988
Mr. Snyder, 73, has been the owner of Sid's Food Market in Seaview,
Washington since 1953. Mr. Snyder is the Vice-Chairman of the Board and a
principal shareholder of Pacific Financial Corporation, Aberdeen, Washington,
parent of The Bank of Grays Harbor and Bank of the Pacific. Mr. Snyder has been
a member of the Washington State Senate since 1990, currently serving as the
Senate Democratic Leader.
William T. Weyerhaeuser Director since 1998
Mr. Weyerhaeuser, 56, is a clinical psychologist who has been in private
practice in Tacoma, Washington since 1975. Since 1984, Mr. Weyerhaeuser has
also been the owner and Chairman of the Board of Comerco, Inc. (holding company
for the Yelm Telephone Company), Tacoma, Washington, and, from 1994 until June
1998, served as the Chairman of the Board of Rock Island Company (private
investment company), St. Paul, Minnesota. Since 1990, Mr. Weyerhaeuser has also
been a director of Potlatch Corporation (forest products), a company with a
class of securities registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934, as amended, located in Spokane, Washington.
James M. Will Director since 1993
Mr. Will, 53, has served as the President of Titus-Will Enterprises
(automobile leasing, rental and property management), Tacoma, Washington, since
1997, and also currently serves as President of that company's subsidiary,
Titus-Will Chevrolet, Oldsmobile and Cadillac, Olympia, Washington. Prior to
that time and since 1969, Mr. Will was the President of Tam Manufacturing Co.
(automotive reengineering), Tacoma, Washington.
What committees has the Board established?
The Board of Directors has established an Audit Committee and a Personnel
and Compensation Committee. Columbia does not have a standing nominating
committee.
Audit Committee. The Audit Committee reviews and approves the services of
the independent auditors, reviews the plan, scope, and audit results of the
internal auditors and the independent auditors, and reviews the reports of bank
regulatory authorities. The Audit Committee also reviews the annual and other
reports to the Securities and Exchange Commission and the annual report to the
shareholders. Current members of the Audit Committee, none of whom are officers
or employees of Columbia or Columbia Bank, are: Messrs. Fine (Chairman),
Folsom, Halleran, Hulbert, Matson and Powell. There were five meetings of the
Audit Committee during 1999.
Personnel and Compensation Committee. The Personnel and Compensation
Committee reviews and recommends remuneration arrangements for senior
management. Current members of the Personnel and Compensation Committee, none
of whom are officers or employees of Columbia or Columbia Bank, are:
Messrs. DeVine (Chairman), Fabulich, Quoidbach, Rodman, Snyder, Weyerhaeuser
and Will. Subsequent to his retirement, Mr. Philip has served as a non-voting
member of the Personnel and Compensation Committee. There were five meetings of
the Personnel and Compensation Committee during 1999.
7
<PAGE>
How often did the Board of Directors meet during 1999?
The Board met ten times during 1999. Each director attended at least 75% of
the total number of meetings of the Board and committees on which he or she
served, except Mr. Powell.
How are directors compensated?
Columbia does not pay directors who are also employees of Columbia or
Columbia Bank additional compensation for their service as directors. During
1999, each of Columbia's non-officer directors received an annual retainer of
$6,000 for serving on the Board and a committee of the Board, with the
exception of Mr. Hulbert, who received a retainer payment of $1,500 for his
service as a director and committee member since his appointment in October
1999.
Beginning in 2000, Mr. Philip is being compensated in the amount of $50,000
for serving as the non-executive Chairman of Columbia's Board.
In 1997, all non-officer directors of Columbia were granted a non-qualified
stock option to purchase 1,654 shares (as adjusted for applicable stock
dividends and splits) of Columbia common stock at an exercise price of $9.60
per share (as adjusted for applicable stock dividends and splits). In 1998,
all non-officer directors were granted a non-qualified stock option to
purchase 1,575 shares (as adjusted) of Columbia's common stock at an exercise
price of $24.76 per share (as adjusted). The options vest (i.e. become
exercisable) three years from the date of grant, unless earlier vesting is
approved by the Personnel and Compensation Committee. The options may be
exercised for a period of five years after they vest. If a director dies,
becomes disabled, or retires (defined to mean a termination of directorship
with at least five years of service or after attaining the age of 75), all
options (whether or not vested) become immediately exercisable and may be
exercised by the director or the director's estate for a period of five years
or until the expiration of the stated term of the option. If a director
terminates service on the Board for any reason other than death, disability or
retirement, all options, to the extent then exercisable, must be exercised
within 90 days unless the term for exercise is extended by the Board. If any
director is terminated for cause, all options will immediately terminate. Any
additional option grants, which may be approved from time to time in the
discretion of the Personnel and Compensation Committee and the Board are
subject to a director's unexcused absence for the year from no more than 25%
of the total meetings of the Board and all committees of which the director is
a member.
PROPOSAL 2: AMENDMENT OF STOCK OPTION PLAN
The Board of Directors proposes that the shareholders approve an amendment
and restatement of Columbia's Stock Option Plan. The amendments to the Stock
Option Plan include, among other things:
(i) increasing the number of shares available for issuance under the
Plan by 325,000 shares of common stock to 995,734 shares of common stock
plus up to 100,000 shares of common stock if reacquired by Columbia in the
open market or in private transactions;
(ii) extending the term of the Stock Option Plan;
(iii) adding and clarifying definitions and making implementing changes
throughout the Plan, including amending the definition of employee to
provide authority to grant options to new hires prior to the employees
start date (provided that the options do not vest prior to the start date);
(iv) clarifying the authority and composition of the Committee empowered
to administer the Plan;
(v) clarifying the manner in which options may be exercised and the
authority the Committee has to determine procedures and conditions for
exercises of options; and
(vi) implementing miscellaneous technical changes throughout the Plan.
8
<PAGE>
The proposed amendments to the Stock Option Plan are detailed in the
following description. A copy of the proposed amendments may be obtained by
sending a written request to Columbia's Marketing Director at the address
listed on the last page of this Proxy Statement.
Columbia adopted its Stock Option Plan in 1988, and subsequently amended it
with shareholder approval, in July 1993 and April 1997. Columbia is presently
authorized to issue 670,734 shares of common stock upon the exercise of
incentive stock options and nonqualified stock options granted under the Plan
to officers and employees of Columbia and its present and any future
subsidiaries.
The Board believes that stock options are essential to attract and retain
the services of individuals who are likely to make significant contributions to
Columbia's success, to encourage ownership of Columbia's common stock by
employees and directors of Columbia and its Subsidiaries and to promote
Columbia's success by providing both rewards for exceptional performance and
long-term incentives for future contributions. The Board of Directors believes
that the number of shares of common stock currently available for issuance will
be insufficient to achieve the purposes of the Stock Option Plan unless
additional shares are authorized. The Board approved the amendment to the
number of shares reserved under the Stock Option Plan, from 670,734 to 995,734,
on January 26, 2000. The Board adopted this increase in shares reserved for
issuance under the Stock Option Plan, and recommends its approval by the
shareholders, in order to allow Columbia to continue to offer stock options to
employees as part of its overall compensation package.
Description of the Amended and Restated Stock Option Plan
The following is a summary of the principal provisions of the Amended and
Restated Stock Option Plan and is subject to and qualified by reference to such
Plan.
Administration. The Board or a committee comprised of two or more persons
may administer the Stock Option Plan. The Stock Option Plan is presently
administered by Columbia's Personnel and Compensation Committee (the
"Committee"). The Committee has been authorized by the Board of Directors to
act in this capacity, and all members of the Committee serve for such terms as
the Board of Directors determines and are appointed and may be removed by the
Board of Directors. In addition to its authority to grant options the Board or
Committee has authority to administer and interpret the Stock Option Plan and
to determine the form and substance of agreements, instruments and guidelines
for the administration of the Stock Option Plan. The Board or Committee has
authority to determine the employees and directors to be granted stock options
and to determine the size, type and applicable terms and conditions of such
grants. The proposed amendment and restatement of the Stock Option Plan would
permit the Board or Committee to delegate its powers and responsibilities to
one or more of its members or other persons selected by it, to the extent
permitted under applicable law. This provision is designed to facilitate the
approval and processing of routine stock option grants to newly hired or
promoted individuals in a timely manner.
Shares Subject to the Plan. The number of shares of common stock currently
available for issuance under the Plan is 670,734. As of December 31, 1999,
options to purchase 613,768 shares (at prices ranging from $2.33 to $24.76 per
share) were outstanding, and there are 56,966 shares of common stock available
for future grants. Approval of the Amended and Restated Plan would increase the
number of shares currently available for issuance under the Plan from 670,734
to 995,734. Not more than 50,000 shares may be subject to grants of options
under the Plan to any one participant in any one fiscal year.
Persons Who May Participate. Options may be granted under the Plan to those
employees (including persons newly hired but not yet working) and directors as
the Committee from time to time selects, provided that non-employee directors
and newly hired employees that have not begun work may not be granted Incentive
Stock Options. Approximately 525 employees are eligible to participate in the
Stock Option Plan, and all 15 directors if elected at the Annual Meeting will
be eligible to participate.
Types of Options. Options granted under the Stock Option Plan may include
incentive stock options ("ISOs") intended to meet all of the requirements of an
"incentive stock option" as defined in Section 422 of the Internal Revenue Code
(the "Code") and nonqualified stock options ("NSOs").
9
<PAGE>
Terms and Conditions of Options. The option price for each option granted
under the Stock Option Plan will be determined by the Committee, but will not
be less than 100% of the fair market value of Columbia's common stock on the
date of grant. For purposes of the Stock Option Plan, "fair market value" means
the closing sales price of such stock (or the closing bid if no sales were
reported) as reported on the Nasdaq National Market. As of December 31, 1999,
the closing sales price for Columbia's common stock as reported on the Nasdaq
National Market was $13.125 per share.
The exercise price for shares purchased upon the exercise of an option must
be paid in cash or such other consideration, including already owned shares of
Columbia common stock, acceptable to the Committee.
The term of outstanding options will be fixed by the Committee. No ISO
granted pursuant to the Plan will be exercisable after 10 years from the date
of grant. Each option will be exercisable pursuant to a vesting schedule to be
determined by the Committee.
The Plan currently sets forth various expiration dates in the event of
termination of employment by an optionee. The Plan provides that options
generally will be exercisable for up to one year after termination of service
as a result of disability or death, and for up to three months after all other
terminations (except for terminations for "cause" (as defined in the Plan) in
which case an option will be immediately terminate). The Committee may
establish later expiration dates for options in such circumstances, provided
that the Committee may not extend an option beyond the original term of such
option. Expiration dates for options granted to non-employee directors who
cease to be directors are established in the option agreements entered into at
the date of grant of such options unless amended by the Committee.
Transferability. No option will be assignable or otherwise transferable
other than by will or the laws of descent and distribution and, during the
optionee's lifetime, may be exercised only by the optionee.
Amendment and Termination of the Plan and Options. The Plan may be modified,
amended or terminated by the Board of Directors, except that shareholder
approval is required for any amendment which (i) increases the number of shares
subject to the Plan (other than in connection with certain automatic
adjustments such as changes in capitalization) or (ii) whenever applicable law
requires that a proposed amendment to the Plan receive shareholder approval.
The Board or Committee may amend the terms and conditions of outstanding stock
options as long as such amendments do not terminate the option or otherwise
adversely affect the holders of such stock options without such holders'
consent.
Adjustment of Shares. In the event of any changes in the outstanding stock
of Columbia by reason of stock dividends, stock splits, or any other increase
or decrease in the number of shares of Columbia's common stock, the Stock
Options Plan provides for appropriate adjustments to the number of shares
reserved for issuance pursuant to the exercise of stock options, the number of
stock options previously granted and the exercise price of stock options
previously granted.
Corporate Transaction. In the event of a merger or other reorganization of
Columbia where Columbia is not the surviving company (other than a
reorganization where the ownership of the surviving company is substantially
the same as that of Columbia) or in the event of a sale of substantially all
the assets or a liquidation or dissolution of Columbia, all outstanding options
shall become immediately exercisable. If the options are not assumed by the
successor corporation or replaced with a comparable award the Committee may, in
its sole discretion, terminate all outstanding options after proper notice
affording optionees a 60 day period in which to exercise their options.
Federal Income Tax Consequences.
The federal income tax consequences to Columbia and to any person granted an
option under the Stock Option Plan are complex and subject to change. The
following discussion is a summary of the general rules applicable to stock
options.
10
<PAGE>
NSOs. NSOs do not qualify for any special tax benefits to the optionee. No
income will be recognized by a participant upon the grant of NSO. On the
exercise of an NSO, the optionee will recognize taxable ordinary income in an
amount equal to the excess of the fair market value of the shares acquired over
the option price. Upon a later sale of those shares, the optionee will have
short-term or long-term capital gain or loss, as the case may be, in an amount
equal to the difference between the amount realized on such sale and the tax
basis of the shares sold.
The income realized by the optionee will be subject to income tax
withholding by Columbia out of the current earnings paid to the optionee.
Columbia may also withhold from any person exercising an option a number of
shares of common stock having a fair market value equal to the amount required
to be withheld under applicable tax laws.
If payment of the option price is made entirely in cash, the tax basis of
the shares will be equal to their fair market value on the exercise date (but
not less than the option price), and the shares' holding period will begin on
the day after the exercise date. If the optionee uses already-owned shares to
exercise an option in whole or in part, the transaction will not be considered
to be a taxable disposition of the already owned shares. The optionee's tax
basis of the already-owned shares will be carried over to the equivalent number
of shares received upon exercise. The tax basis of the additional shares
received upon exercise will be the fair market value of the shares on the
exercise date (but not less than the amount of cash, if any, used in payment),
and the holding period for such additional shares will begin on the date after
the exercise date.
In general, there will be no federal tax consequences to Columbia upon the
grant or termination of NSOs or a sale or disposition of the shares acquired
upon the exercise of NSOs. Upon the exercise of NSOs, however, Columbia will be
entitled to a deduction for federal income tax purposes equal to the amount of
ordinary income that an optionee is required to recognize as a result of the
exercise, provided that the deduction is not otherwise disallowed under the
Code. Under Section 162(m) of the Code, certain compensation payments in excess
of $1 million are subject to a limitation on deductibility for Columbia. The
limitation on deductibility applies with respect to that portion of a
compensation payment for a taxable year in excess of $1 million to either
Columbia's Chief Executive Officer or any one of the other four most highly
compensated executive officers. Certain performance-based compensation is not
subject to the limitation on deductibility. Options can qualify for this
performance-based exception, but only if they are granted at fair market value,
the total number of shares that can be granted to an executive for any period
is stated, and stockholder and Board approval is obtained. The Amended and
Restated Plan has been drafted to allow compliance with those performance-based
criteria.
ISOs. Incentive stock options qualify for favorable tax treatment for the
optionee under Section 422 of the Code. Optionees will not recognize any income
upon either the grant or the exercise of ISOs, and Columbia may not take a
deduction for federal tax purposes with respect to such grant or exercise. Upon
the sale of the shares of common stock obtained through the exercise of ISOs by
the optionee, the tax treatment to the optionee and Columbia will depend
primarily upon whether the optionee has met certain holding period requirements
at the time he or she sells the shares. In addition, as discussed below, the
exercise of incentive stock options may subject the optionee to alternative
minimum tax liability.
If an optionee exercises incentive stock options and does not dispose of the
shares received within two years after the date of the grant of such stock
options or within one year after the issuance of the shares to him or her, any
gain realized upon disposition will be characterized as long-term capital gain.
In such case, Columbia will not be entitled to a federal tax deduction. If the
optionee disposes of the shares either within two years after the date that the
options are granted or within one year after the issuance of the shares to him
or her, such disposition will be treated as a disqualifying disposition and an
amount equal to the lesser of (i) the fair market value of the shares on the
date of exercise minus the exercise price, or (ii) the amount realized on the
disposition minus the exercise price, will be taxed as ordinary income to the
optionee in the taxable year in which the disposition occurs. The excess, if
any, of the amount realized upon disposition over the fair market value at the
time of the exercise of the stock options will be treated as long-term capital
gain if the shares have been held for more than one year following the exercise
of the stock options. In the event of a disqualifying
11
<PAGE>
disposition, Columbia may withhold income taxes from the optionee's
compensation with respect to the ordinary income realized by the optionee as a
result of the disqualifying disposition.
The exercise of incentive stock options may subject an optionee to
alternative minimum tax liability because the excess of the fair market value
of the shares at the time incentive stock options are exercised over the
exercise price of the stock options is included in income for purposes of the
alternative minimum tax, even though it is not included in the taxable income
for purposes of determining the regular tax liability of an optionee.
Consequently, an optionee may be obligated to pay alternative minimum tax in
the year he or she exercises incentive stock options.
In general, there will be no federal income tax deductions allowed to
Columbia upon the grant, exercise, or termination of incentive stock options.
However, in the event an optionee sells or disposes of stock received upon the
exercise of incentive stock options in a disqualifying disposition, Columbia is
entitled to a deduction for federal income tax purposes in an amount equal to
the ordinary income, if any, recognized by the optionee upon disposition of the
shares, provided that the deduction is not otherwise disallowed under the Code.
Term of Plan. Prior to amendment the Stock Option Plan had a term of ten
years from the date of Shareholder approval. The proposed amendment and
restatement of the Stock Option Plan would provide for a term of unlimited
duration but continues to provide that to the extent required by the Code no
Incentive Stock Option may be granted more than ten years from the earlier of
the date the Plan is adopted by the Board of Directors or approved by
shareholders.
Options Granted. Since options granted under the Stock Option Plan are
discretionary, Columbia cannot currently determine the number of options which
will be issued pursuant to the Plan in the future. During 1999, options to
purchase an aggregate of 29,400 shares at an average exercise price of $15.71
per share were granted under the Plan to all executive officers as a group, and
options to purchase an aggregate of 93,579 shares at an average exercise price
of $15.49 per share were granted to all other employees of Columbia or Columbia
Bank as a group (including officers who are not executive officers). Options
granted during 1999 to Columbia's Named Executives are set forth under
"EXECUTIVE COMPENSATION--Option Grants in 1999." No options were granted to
non-officer directors during 1999.
The Board of Directors recommends a vote "FOR" approval of the Amended and
Restated Plan.
EXECUTIVE COMPENSATION
The following section describes the compensation that Columbia pays its
Chief Executive Officer and the next four most highly compensated executive
officers (the "Named Executives"). This section includes:
. a report of Columbia's Personnel and Compensation Committee on executive
compensation;
. a graph showing comparative performance of Columbia's common stock;
. a detailed table showing compensation of the Named Executives for the
last three years; and
. information about stock options and other benefits.
Report of the Personnel and Compensation
Committee on Executive Compensation
The Personnel and Compensation Committee of the Board of Directors of
Columbia (the "Committee") has furnished the following report on executive
compensation for fiscal year 1999. The Committee report is intended to describe
in general terms the process the Committee undertakes and the matters it
considers in determining the appropriate compensation for Columbia's executive
officers, including the Named Executives.
12
<PAGE>
Responsibilities and Composition of the Committee
The Committee is responsible for (1) establishing compensation programs for
executive officers of Columbia designed to attract, motivate and retain key
executives responsible for the success of Columbia as a whole; (2)
administering and maintaining such programs in a manner that will benefit the
long-term interests of Columbia and its shareholders; and (3) determining the
salary, bonus, stock option and other compensation of Columbia's executive
officers. The Committee serves pursuant to a Charter adopted by the Board of
Directors.
The Committee is composed of Richard S. DeVine (Chairman), Jack Fabulich,
Robert E. Quoidbach, Donald Rodman, Sidney R. Snyder, William T. Weyerhaeuser,
and James M. Will, Jr. None of the members are officers or employees of
Columbia or Columbia Bank. Mr. DeVine has served on the Committee of Columbia
since 1993. Messrs. Fabulich, Quoidbach, Rodman, Snyder and Will were
appointed to the Committee in 1997. Mr. Weyerhaeuser was appointed to the
Committee in April 1998. Upon his retirement at year-end 1999, Mr. Philip was
appointed a non-voting member of the Committee.
Compensation Philosophy
Columbia's long-term goal is to continue to create and maintain a well-
capitalized, customer-focused Pacific Northwest banking institution with a
significant presence in selected markets. Management believes that the ongoing
consolidation in its principal market area affords an opportunity for
aggressive growth in loans and deposits. Columbia's growth strategy consists
of the following elements:
. Focus on relationship lending to small and medium-sized businesses,
professionals and other individuals whom Columbia believes are under-
served by larger banks in its market area and are attracted by Columbia's
emphasis on relationship banking.
. Fund loan growth through the creation of a branch system catering
primarily to retail depositors, supplemented by business banking customer
deposits and other borrowings.
. Continue growth through a combination of growth at existing offices,
selective new branch openings in Tacoma/Pierce County and into
neighboring King, Kitsap, and Thurston Counties, and expansion by
acquisition in these and other markets as promising opportunities arise.
. Control credit risk through established loan underwriting and monitoring
procedures, loan concentration limits, product and industry
diversification, and the hiring of experienced lending personnel with a
high degree of familiarity with their market area.
The achievement of these goals is intended to create long-term value for
Columbia's shareholders, consistent with protecting the interests of
depositors.
The Committee believes that compensation of its Chief Executive Officer,
other executive officers and key personnel should be based to a substantial
extent on achievement of the goals and strategies that Columbia has
established and enunciated.
When establishing salaries, bonus levels and stock option awards for
executive officers, the Committee considers (1) Columbia's financial
performance during the past year and recent quarters; (2) the individual's
performance during the past year and recent quarters; and (3) the salaries of
executive officers in similar positions with companies of comparable size and
other companies within the financial institutions industry. With respect to
executive officers other than the Chief Executive Officer, the Committee takes
into consideration the recommendations of the Chief Executive Officer. The
method for determining compensation varies from case to case based on a
discretionary and subjective determination of what is appropriate at the time.
Compensation Programs and Practices
Columbia's compensation program for executives consists of three key
elements: (1) base salary; (2) a performance-based annual bonus; and (3)
periodic grants of options and other stock-based compensation.
13
<PAGE>
The Committee believes that this three-part approach best serves the
interests of Columbia and its shareholders. It enables Columbia to meet the
requirements of the highly competitive banking environment in which it
operates, while ensuring that executive officers are compensated in a way that
advances both the short- and long-term interests of shareholders. The variable
annual bonus permits individual performance to be recognized and is based, in
significant part, on an evaluation of the contribution made by the officer to
Columbia's overall performance. Options and other stock-based compensation
relate a significant portion of long-term remuneration directly to stock price
appreciation realized by Columbia's shareholders, and further serve to promote
an executive's continued service to the organization.
Base Salary. Base salaries for Columbia's executive officers are based upon
recommendations by the Chief Executive Officer, taking into account such
factors as competitive industry salaries, an executive's scope of
responsibilities, and individual performance and contribution to the
organization. Columbia's Human Resources department obtains executive
compensation data from salary surveys that reflect a peer group of other
banking companies, including companies of different sizes, and provides this
data to the Committee for its consideration in connection with the
determination of levels of compensation. To the extent it deems appropriate,
the Committee also considers general economic conditions within the area and
within the industry. The Committee also meets periodically with an outside
compensation consultant to evaluate the information obtained in light of
Columbia's stated compensation objectives.
Annual Bonus. Executive officers have an annual incentive (bonus)
opportunity with awards based on the overall financial performance of Columbia
and on specific individual performance targets. The performance targets may be
based on one or more of the following criteria: growth in assets and deposits,
asset quality, growth in earnings, and return on equity.
The size of the bonus pool is based upon an assessment of Columbia's
performance as compared to both budgeted and prior fiscal year performance and
the extent to which Columbia achieved its overall financial goals. Once the
bonus pool is determined, the Chief Executive Officer or other executive
officers, as appropriate, make individual bonus recommendations to the
Compensation Committee, within the limits of the pool, for eligible employees
based upon an evaluation of their individual performance and contribution to
Columbia's overall performance.
Options and Other Stock-Based Compensation. Since Columbia's significant
reorganization in 1993, the Committee has followed a compensation philosophy
that emphasizes options and other stock-based compensation. Columbia's use of
stock-based compensation focuses on the following guiding principles:
(1) stock-based compensation has been and will continue to be an important
element of employee pay; (2) the grant of stock options given will be based on
performance measures within the employee's control; (3) owning stock is an
important ingredient in forming the partnership between all employees and the
organization; and (4) ownership of significant amounts of Columbia's stock by
executives and senior officers of Columbia will facilitate putting management's
goals in line with shareholders. The Committee anticipates that it will
continue to emphasize stock-based compensation in the future.
Columbia's performance since 1994 has, in the Committee's opinion, shown the
value of this approach. In particular, the Committee has taken note that, as
shown on the Stock Performance Graph that follows, the total annual returns for
Columbia's shareholders as compared to total annual returns for the Nasdaq U.S.
Stock Index and for Columbia's peer group, the SNL Securities Western Bank
Stock Index (currently, assets of $1 billion to $5 billion, and prior to 1999,
assets of $250 million to $1 billion) has shown good performance through 1998.
Performance in 1999 was below the Western Bank Stock Index. It lagged to a
greater extent the Nasdaq U.S. Stock Index which reflected very large gains by
many technology stocks which are included in that index.
Stock Ownership Guidelines
In 1997, the Committee approved stock ownership guidelines, which were
amended in January 1999, for its executive officers as a way to help closely
align the financial interests of these officers with those of Columbia's
shareholders. Officers are expected to make continuing progress towards
compliance with the
14
<PAGE>
guidelines during the five-year period that began in April 1997 (or, as
appropriate, January 1999) or the date designated as an executive officer,
whichever is later.
The ownership guidelines are as follows: (1) senior executive officers
(currently including the positions of Vice Chairman, Chief Executive Officer,
President, and Chief Operating Officer) have a required minimum ownership of
20,000 shares; (2) executive vice presidents in charge of commercial lending
and retail banking, and the Chief Financial Officer have a required minimum
ownership requirement of 15,000 shares; and (3) other designated executive
officers have a minimum ownership requirement of 5,000 shares.
The Board has also approved stock ownership guidelines which call for
directors to achieve a stock ownership position of at least 5,000 shares by the
year 2002 or within five years of joining the Board.
At year-end 1999, all of the directors had exceeded the ownership
guidelines, the top three executive officers as a group far exceeded the
guidelines and the other executive officers as a whole had achieved substantial
compliance with the guidelines.
Chief Executive Officer Compensation
Mr. W.W. Philip served as Columbia's Chairman, President and Chief Executive
Officer for the 1999 fiscal year. In evaluating the compensation of Mr. Philip
for services rendered in 1999, the Committee considered both quantitative and
qualitative factors.
In looking at quantitative factors, the Committee reviewed Columbia's 1999
financial results and compared them with Columbia's budget and actual financial
results for 1998. Specifically, the Committee considered that (i) year-end net
income increased 14% from 1998 net income; (ii) year-end earnings per share
(diluted) increased 15% from 1998; (iii) average total assets, total loans and
total deposits grew by 20%, 24% and 27%, respectively, from year-end 1998 to
1999; (iv) the 1999 return on average total assets decreased compared to 1998;
and (v) despite rapid loan growth, credit quality continued to compare
favorably with peer group comparisons.
In addition to these quantitative accomplishments, the Committee also
considered certain qualitative accomplishments by Mr. Philip in 1999.
Specifically, the Committee recognized Mr. Philip's leadership in strategically
positioning Columbia for future significant developments in the banking
industry and in Columbia's market area, and otherwise developing long-term
strategies for the organization. The Committee recognized Mr. Philip's efforts
in successfully managing the continued expansion of Columbia Bank's retail
branch system. The Committee also recognized Mr. Philip's efforts in training
other executive officers for future leadership of the organization following
his planned retirement as an executive officer at year end 1999.
Despite the many accomplishments achieved by the Company in 1999, management
recommended and the Committee agreed that since the Company performed slightly
below its internal targets, bonuses not be paid to senior executives, including
Mr. Philip. Mr. Philip's annual salary in 1999 was $225,000.
Policy With Respect to $1 Million Deduction Limit
It is not anticipated that the limitations on deductibility, under Internal
Revenue Code Section 162(m), of compensation to any one executive that exceeds
$1,000,000 in a single year will apply to Columbia or its subsidiaries in the
foreseeable future. In the event that such limitations would apply, the
Committee will analyze the circumstances presented and act in a manner that, in
its judgment, is in the best interests of Columbia. This may or may not involve
actions to preserve deductibility.
15
<PAGE>
Conclusion
The Committee believes that for 1999, the compensation terms for Mr. Philip,
as well as for the other executive officers, were clearly related to the
realization of the goals and strategies established by Columbia.
Richard S. DeVine, Chairman
Jack Fabulich
Robert E. Quoidbach
Donald Rodman
Sidney R. Snyder
William T. Weyerhaeuser
James M. Will
Stock Performance Graph
The following graph shows a five year comparison of the total return to
shareholders of Columbia's common stock, the Nasdaq U.S. Stock Index (which is
a broad nationally recognized index of stock performance by companies traded on
the Nasdaq National Market and the Nasdaq Small Cap Market) and the SNL
Securities Western Bank Stock Index (comprised of publicly-traded banks with
assets of $1 billion to $5 billion, all of which are located in the western
United States). The definition of total return includes appreciation in market
value of the stock as well as the actual cash and stock dividends paid to
shareholders. The graph assumes that the value of the investment in Columbia's
common stock and each of the two indices was $100 on December 31, 1994, and
that all dividends were reinvested.
<TABLE>
<CAPTION>
Period Ending
----------------------------------------------------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ---------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Columbia Banking
System, Inc. 100.00 131.54 187.00 326.26 335.33 249.80
NASDAQ - Total
US 100.00 141.33 173.89 213.07 300.25 542.43
SNL $1B-$5B
Western Bank
Index 100.00 130.62 168.06 310.40 308.66 331.53
</TABLE>
16
<PAGE>
Compensation Tables
Summary Compensation Table
The following table shows compensation paid or accrued for the last three
fiscal years to Columbia's Chief Executive Officer and each of the Named
Executives.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------- -----------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Year Salary(1) Bonus(1) Awards($)(2) Options(#) Compensation(3)
- ------------------ ---- --------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
W.W. Philip, 1999 $230,573 $ -0- $ -0- -0- $ 8,000
Chairman, President 1998 233,410 20,000 555,000 -0- 8,000
and Chief Executive
Officer(4) 1997 181,675 75,000 -0- -0- 8,000
J. James Gallagher, 1999 $179,777 $ -0- $ -0- -0- $10,745
Vice Chairman(5) 1998 175,000 20,000 390,000 37,500 1,755
1997 -0- -0- -0- -0- -0-
Melanie J. Dressel, 1999 $175,000 $ -0- $ -0- 10,500 $13,679
Executive Vice 1998 116,250 20,000 138,750 -0- 11,948
President(5) 1997 86,951 25,000 -0- 1,575 8,543
Harold R. Russell, 1999 $140,000 $ -0- $ -0- 5,250 $13,257
Executive Vice 1998 110,000 20,000 138,750 -0- 11,166
President 1997 87,084 25,000 -0- 2,835 8,420
Evans Q. Whitney, 1999 $140,000 $ -0- $ -0- 5,250 $14,128
Executive Vice 1998 101,250 20,000 138,750 -0- 11,328
President 1997 83,000 23,000 -0- 1,575 8,508
</TABLE>
- --------
(1) Represents total cash compensation earned, including interest on deferred
compensation accruals. The 1998 salary for Mr. Gallagher represents his
annual salary for the full fiscal year. Since Mr. Gallagher did not begin
serving as Vice Chairman until July 1998, actual salary paid to Mr.
Gallagher for services rendered in 1998 was $87,250.
(2) At year-end 1999, the value of the aggregate 103,950 shares (as adjusted
for applicable stock dividends and splits) representing restricted stock
holdings by Columbia's Named Executives was $1,364,344.
(3) Amounts in 1999 represent: (i) profit sharing and matching contributions
under Columbia's 401(k) Plan in the amount of $8,000, $8,000, $13,000,
$12,650, and $12,500 for Mr. Philip, Mr. Gallagher, Ms. Dressel, Mr.
Russell and Mr. Whitney, respectively; and (ii) premiums on group life
insurance paid by Columbia for the benefit of Mr. Gallagher, Ms. Dressel,
Mr. Russell, and Mr. Whitney in the amount of $2,745, $679, $607, and
$1,628, respectively.
(4) Effective January 1, 2000, Mr. Philip retired as President and Chief
Executive Officer and now serves as non-executive Chairman.
(5) Effective January 1, 2000, Mr. Gallagher was appointed Chief Executive
Officer of Columbia, in addition to his role as Vice Chairman of Columbia
and Columbia Bank. Also effective January 1, 2000, Ms. Dressel was
appointed President and Chief Operating Officer of Columbia and President
and Chief Executive Officer of Columbia Bank.
17
<PAGE>
Option Grants in 1999
The following table shows the stock options granted to the Named Executives
during 1999.
<TABLE>
<CAPTION>
Grant
Date
Individual Grants Value
------------------------------------------ --------
Percentage
Number of of Total
Securities Options
Underlying Granted to Exercise Grant
Options Employees Price Expiration Date
Name Granted in 1999 Per Share Date Value(1)
- ---- ---------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
W.W. Philip................. -0- N/A N/A N/A N/A
J. James Gallagher.......... -0- N/A N/A N/A N/A
Melanie J. Dressel.......... 10,500 11.2% $15.71 1/20/2007 $74,634
Harald R. Russell........... 5,250 5.6% $15.71 1/20/2007 $37,317
Evans Q. Whitney............ 5,250 5.6% $15.71 1/20/2007 $37,317
</TABLE>
- --------
(1) The fair market value of options granted during 1999 is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: expected volatility of 42%; risk-
free rates of 5.79%; no annual dividend yields; and expected lives of five
years.
Option Exercises and Year-End Option Values
The following table summarizes option exercises by and the value of
unexercised options held by the Named Executives during 1999:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options at Money Options at December 31,
Shares Acquired Value December 31, 1999 1999
Name On Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)(1)
- ---- --------------- -------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
W.W. Philip............. -0- -0- -0-/-0- -0-/-0-
J. James Gallagher...... -0- -0- -0-/39,375 -0-/-0-
Melanie J. Dressel...... 1,688 $16,378 17,331/12,981 $114,220/$8,758
Harald R. Russell....... -0- -0- 10,422/9,716 $66,432/$15,765
Evans Q. Whitney........ -0- -0- 20,839/7,731 $136,544/$8,758
</TABLE>
- --------
(1) In accordance with applicable rules of the Securities and Exchange
Commission, values are calculated by subtracting the exercise price from
the fair market value of the underlying stock. For purposes of this table,
fair market value is deemed to be $13.125, the closing sale price of
Columbia's common stock reported on the Nasdaq National Market on December
31, 1999.
Restricted Stock Awards
Columbia did not grant any restricted stock awards to its Named Executives
in 1999. Columbia has previously granted restricted stock awards to its Named
Executives. The purpose of such awards is to reward the executives for prior
service to Columbia and to incent such executives to continue to serve Columbia
in the future. In each case, the awards provide for the immediate issuance of
shares of Columbia common stock to the executive, with such shares held in
escrow until the executive meets certain conditions. The condition to the
awards is continued service as an executive officer (or, in the case of Mr.
Philip, as a member of the Board) of Columbia and/or Columbia Bank for at least
five years from the date of grant of the award. If an executive does not meet
the required condition, the executive forfeits his or her right to the shares.
The term of the escrow may be reduced by action of the Board or the Committee,
by reason of a change in control of Columbia or Columbia Bank, or by the death
or disability of the executive. The executives have the right to vote the award
shares and to receive dividends or other distributions on the shares while they
remain in escrow.
18
<PAGE>
Other Employee Benefits
Columbia maintains a defined contribution plan, in the form of a 401(k)
plan, that allows employees, including executive officers, to contribute up to
15% of their compensation each year. Columbia currently makes matching
contributions to the extent of 50% of employees' contributions up to 3% of
each employee's total compensation and is authorized to make a discretionary
contribution as determined by the Committee each year. Columbia contributed
approximately $317,838 in matching funds to the 401(k) Plan during 1999, and
made a discretionary contribution of approximately $720,000 for the year 1999.
Columbia also maintains an Employee Stock Purchase Plan (the "ESPP") that
was adopted in 1995 and amended in January 2000. The ESPP allows eligible
employees to purchase shares of Columbia common stock at 90% of the lower of
the market price at either the beginning or the end of the offering period by
means of payroll deductions.
Beginning in 1994, Columbia established a discretionary Incentive Bonus
Plan for the benefit of certain employees. Contributions by Columbia are based
upon year end results of operations for Columbia and attainment of goals by
individuals. In 1999, Columbia contributed $575,450 to the Plan.
Columbia provides a group health insurance plan along with the normal
vacation and sick pay benefits.
Executive Employment and Severance Agreements
Mr. Philip served as Chairman, President and Chief Executive Officer of
Columbia and as Chairman and Chief Executive Officer of Columbia Bank pursuant
to an amended employment agreement that expired on December 31, 1999. That
agreement established Mr. Philip's minimum annual salary at $225,000 and
provided for the January 1998 grant of a restricted stock award of 31,500
shares (as adjusted) of Columbia common stock.
Mr. Gallagher serves as Vice Chairman of Columbia and Columbia Bank and
Chief Executive Officer of Columbia pursuant to an employment agreement
entered into effective July 1, 1998 and as amended effective January 1, 2000.
The term of the employment agreement with Mr. Gallagher expires June 30, 2003,
unless extended or sooner terminated as provided in such agreement. The
employment agreement with Mr. Gallagher establishes his minimum annual salary
at $175,000. In addition, the employment agreement with Mr. Gallagher also
provided for the 1998 grant of a restricted stock award of 15,750 shares (as
adjusted) of Columbia's common stock.
Ms. Dressel serves as President and Chief Operating Officer of Columbia and
as President and Chief Executive Officer of Columbia Bank pursuant to an
employment agreement entered into effective July 1, 1999 and as amended
effective January 1, 2000. The term of the employment agreement with Ms.
Dressel expires on June 30, 2004, unless extended or sooner terminated as
provided in such agreement. The employment agreement with Ms. Dressel
established her minimum annual salary at $150,000 until December 31, 1999, and
at $175,000 beginning January 1, 2000.
The employment agreements with both Mr. Gallagher and Ms. Dressel contain
covenants by such executives that they will not compete with Columbia in the
State of Washington for two years after voluntarily terminating employment
without "good reason" (as defined in the agreements).
The employment agreements with both Mr. Gallagher and Ms. Dressel also
contain provisions that require payments in the event of a change in control
(as defined therein) and termination of employment without cause (as defined
therein). The payments would be due if such termination followed by up to two
years and in certain cases preceded the change in control. Generally, in such
circumstances, all contingent payments payable to Mr. Gallagher and Ms.
Dressel are deemed earned. Under the terms of the agreements, Mr. Gallagher
and Ms. Dressel are entitled to receive their base salary for two years
following such termination or until the term of their respective employment
agreement, whichever is longer. In such circumstances, Mr. Gallagher and
Ms. Dressel are also entitled to all benefits provided for in their respective
agreement, to be fully vested as to any nonvested options and to have
restrictions lapse with regard to any restricted stock or other restricted
19
<PAGE>
securities. In the event that either Mr. Gallagher or Ms. Dressel receives an
amount under these provisions which result in imposition of a tax on the
executive under the provisions of Internal Revenue Code Section 4999 (relating
to Golden Parachute payments) Columbia is obligated to reimburse such executive
for that amount exclusive of any tax imposed by reason of receipt of
reimbursement under their employment agreement.
In July 1999, Columbia entered into Severance Agreements with H.R. Russell,
Executive Vice President--Senior Credit Officer, Evans Q. Whitney, Executive
Vice President--Retail Banking, Gary R. Schminkey, Executive Vice President and
Chief Financial Officer, Donald A. Andersen, Senior Vice President--Senior Loan
Production Officer, and Janet D. Hildebrand, Senior Vice President--Credit
Administrator. The severance agreements contain provisions, similar to those
contained in the employment agreements discussed above, that require payments
in the event of a change in control and termination of employment without
cause. Under the terms of the respective agreements, the executives are
entitled to receive their base salary for varying terms of up to three years
following termination arising out of a change in control situation, and are
also entitled to be fully vested as to any nonvested options and to have
restrictions lapse with regard to any restricted stock or other restricted
securities. Such agreements also contain convenants by such executives that
they will not compete with Columbia in the State of Washington for varying
periods of up to two years after payment of a severance benefit. The terms of
the severance agreements become operable only certain circumstances involving a
change in control and do not constitute contracts for continued employment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Columbia's
directors and executive officers to send reports of their ownership of
Columbia's stock to the Securities and Exchange Commission. Columbia believes
that all Section 16(a) filing requirements that apply to its directors and
executive officers were complied with for the fiscal year ending December 31,
1999. In making this disclosure, Columbia has relied solely on written
representations of its directors and executive officers, and copies of the
reports that they have filed with the SEC.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
During 1999, certain directors and executive officers of Columbia and
Columbia Bank, and their associates, were customers of Columbia Bank, and it is
anticipated that such individuals will continue to be customers of Columbia
Bank in the future. All transactions between Columbia Bank and its executive
officers and directors, and their associates, were made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and, in the opinion of management, did not involve more than the
normal risk of collectability or present other unfavorable features.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte and Touche L.L.P. performed the audit of the
consolidated financial statements of Columbia and its subsidiary for the year
ended December 31, 1999. Columbia's Board has selected Deloitte & Touche to be
Columbia's independent accountants for the current fiscal year. Shareholders
are not required to take action on this selection. A representative of Deloitte
& Touche is expected to be present at the Annual Meeting to make a statement,
if desired, and to be available to respond to appropriate questions.
20
<PAGE>
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10K
Columbia's Annual Report and Form 10-K for the year ended December 31, 1999
(which is not a part of Columbia's proxy soliciting materials) is being mailed
to Columbia's Shareholders with this Proxy Statement. Additional copies of the
Annual Report and Form 10-K will be furnished to Shareholders upon request to:
JoAnne Coy
Marketing Director
P. O. Box 2156, MS 8300
Tacoma, WA 98401-2156
Fax: (253) 305-0317
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU DO
ATTEND THE ANNUAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY. THE PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
21
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
April 25, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF
COLUMBIA BANKING SYSTEM, INC.
PLEASE SIGN AND RETURN IMMEDIATELY
----------------------------------
The undersigned shareholder of COLUMBIA BANKING SYSTEM, INC. ("Columbia")
hereby nominates, constitutes and appoints J. James Gallagher and W.W. Philip
and each of them (with full power to act alone), the true and lawful attorneys
and proxies, each with full power of substitution, for me and in my name, place
and stead, to act and vote all the common stock of Columbia standing in my name
and on its books on March 1, 2000, at the Annual Meeting of Shareholders to be
held at the Sheraton Tacoma Hotel, Tacoma, Washington on April 25, 2000, at 1:00
p.m., and at any adjournment thereof, with all the powers the undersigned would
possess if personally present, as follows:
1. ELECTION OF DIRECTORS. A proposal to elect as directors the persons listed
at right to serve until the Annual Meeting of Shareholders in the year 2001
or until their successors are duly elected and qualified:
[ ] FOR all nominees listed at right [ ] WITHHOLD AUTHORITY TO VOTE
for all nominees listed at
right (in the manner
described below)
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name listed at right.
Nominees: Richard S. DeVine, Melanie J. Dressel, Jack Fabulich, Jonathan
Fine, John P. Folsom, J. James Gallagher, John A. Halleran, Thomas M.
Hulbert, Thomas L. Matson, William W. Philip, Robert E. Quoidbach, Donald
Rodman, Sidney R. Snyder, William T. Weyerhaeuser, James M. Will
2. AMENDMENT OF STOCK OPTION PLAN. A proposal to approve Columbia's Stock
Option Plan, as amended and restated.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other business as may properly come before
the Annual Meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET FORTH
HEREIN.
<PAGE>
Management knows of no other matters that may properly be, or which are
likely to be, brought before the Annual Meeting. However, if any other matters
are properly presented at the Annual Meeting, this Proxy will be voted in
accordance with the recommendations of management.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders for the April 25, 2000, Annual Meeting, and the accompanying
documents forwarded therewith, and ratifies all lawful action taken by the
above-named attorneys and proxies.
Date: , 2000
----------------------------
------------------------------------------------
Signature
------------------------------------------------
Signature
NOTE: Signature(s) should agree with name(s) on
Columbia stock certificate(s). Executors,
administrators, trustees and other fiduciaries,
and persons signing on behalf of corporations or
partnerships should so indicate when signing. All
joint owners must sign.
<PAGE>
AMENDED AND RESTATED
STOCK OPTION PLAN
OF
COLUMBIA BANKING SYSTEM, INC.
Recital
The original Employee Stock Option Plan (the "Plan") of First Federal
Corporation, the predecessor to Columbia Banking System, Inc., was adopted by
the Board of Directors and Shareholders on August 2, 1988. The Plan was
subsequently amended and approved by the Shareholders on July 19, 1993 and
April 23, 1997. The Plan is now being amended and restated, subject to
shareholder approval, for the purpose of (1) extending the term of the Plan;
(2) adding and clarifying definitions and making implementing changes
throughout the Plan, including amending the definition of employee to provide
authority to grant options to new hires prior to the employees start date
(provided that the options may not vest prior to the start date); (3)
increasing the number of shares available for issuance under the Plan by
325,000 shares of common stock to 995,734 shares of Common Stock plus up to
100,000 shares of Common Stock that are reacquired by the Company in the open
market or in private transactions (by amending Section 3); (4) clarifying the
authority and composition of the Committee empowered to administer the Plan
(by amending Section 4); (5) clarifying the manner in which options may be
exercised and the authority the Committee has to determine procedures and
conditions for exercises of options (by amending Section 6); and (6)
implementing miscellaneous technical changes throughout the Plan.
In all other respects, this Amended and Restated Stock Option Plan is as
adopted by the Board and approved by the Shareholders on April 23, 1997.
Plan
1. Purpose of the Plan. The purpose of this Plan is to provide additional
incentives to Employees and Directors of Columbia Banking System, Inc. and its
present and future Subsidiaries, thereby helping to attract and retain the
best available personnel for positions of responsibility with said
corporations and otherwise promoting the success of the business activities of
said corporations. It is intended that Options issued pursuant to this Plan
shall constitute either Incentive Stock Options or Nonqualified Stock Options.
2. Definitions. As used herein, the following definitions shall apply:
a. "Board" shall mean the Board of Directors of the Employer.
b. "Code" means the Internal Revenue Code of 1986, as amended. A
reference to any provision of the Code shall include reference to any
successor provision of the Code.
c. "Common Stock" shall mean the Employer's no par value common stock.
d. "Committee" shall mean the Board or the Committee appointed by the
Board in accordance with subsection 4(a) of the Plan.
e. "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other approved leave of absence, except as provided
under applicable Incentive Stock Option rules.
f. "Director" shall mean any person who has been elected or appointed as
a member of the Board of Directors of the Employer and who occupied that
position at the date an Option was granted to such person.
g. "Employee" shall mean any person employed by the Employer or any
Subsidiary of the Employer which now exists or is hereafter organized or is
acquired by the Employer. An Option may be granted to an Employee, in
connection with hiring, retention or otherwise, prior to the date the
Employee first performs services for Employer or a Subsidiary, provided
that such Option shall not become vested prior to the date the Employee
first performs such services.
1
<PAGE>
h. "Employer" shall mean Columbia Banking System, Inc., a Washington
corporation.
i. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
j. "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation The Nasdaq
National Market or The Nasdaq Small Market of the Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day on the date of such
determination, as reported in The Wall Street Journal or other source
as the Committee deems reliable, or,
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean of the closing bid and asked prices for such
stock on the date of such determination, as reported in The Wall Street
Journal or other source as the Committee deems reliable, or,
(3) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Committee.
k."Incentive Stock Option" means an Option with the intention that it
qualify as an "incentive stock option" as that term is defined in Section
422 of the Code.
l. "Nonqualified Stock Option" shall mean an Option other than an
Incentive Stock Option.
m. "Option" shall mean a right to purchase Common Stock granted under the
Plan. Options shall include both Incentive Stock Options and Nonqualified
Stock Options as the context requires.
n. "Optioned Stock" shall mean the Common Stock subject to an Option.
o. "Optionee" shall mean an Employee or Director who receives an Option.
p. "Plan" shall mean this Amended and Restated Stock Option Plan.
q. "SEC" means the United States Securities and Exchange Commission.
r. "Shareholder-Employee" shall mean an Employee who owns, at the time an
Incentive Stock Option is granted, stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Employer or Subsidiary. For this purpose, the attribution of stock
ownership rules provided in Section 424(d) of the Internal Revenue Code
shall apply.
s. "Subsidiary" shall mean any corporation having a relationship with the
Employer as described in Section 424(f) of the Internal Revenue Code.
3. Stock Subject to Options.
Subject to Section 6(a), the maximum number of shares that may be delivered
to Optionees and their beneficiaries under the Plan shall be equal to the sum
of: (i) 995,734 (subject to adjustment as provided in subsection 6(i) of the
Plan); and (ii) up to 100,000 shares, to the extent authorized by the Board of
Directors, which are reacquired by the Employer in the open market or in
private transactions after the effective date of this Plan.
To the extent any shares covered by an Option are not delivered to an
Optionee or beneficiary because the Option is forfeited or cancelled, or the
shares are not delivered because the Employer settles the Option in cash or
the Option is used to satisfy applicable tax withholding obligations, such
shares shall not be deemed to have been delivered for purposes of determining
the maximum number of shares available for delivery under the Plan. If the
exercise price of any Option granted under the Plan is satisfied by tendering
shares to the Employer (by either actual delivery or by attestation), only the
number of shares issued net of the shares tendered shall be deemed delivered
for purposes of determining the maximum number of shares available for
delivery under the Plan.
2
<PAGE>
4. Administration of the Plan.
a. The Committee. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee")
in accordance with this Section 4. The Committee shall be selected by the
Board and shall consist solely of two or more members of the Board. If the
Committee does not exist, or if for any other reason as determined by the
Board, the Board desires to directly exercise its powers under this Plan,
then the Board may take any action under the Plan that would otherwise be
the responsibility of the Committee. Once appointed, any such Committee
shall continue to serve until otherwise directed by the Board. From time to
time, the Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause), appoint
individuals in substitution therefor, and fill vacancies however caused.
The Committee shall select one of its members as chairman, and shall hold
meetings at such times and places as the chairman or a majority of the
Committee may determine.
Except to the extent prohibited by applicable law or the applicable rules of
a stock exchange, the Committee may allocate all or a portion of its
responsibilities and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it. Any such allocation or delegation may be revoked by the
Committee at any time.
At least annually, the Committee shall present a written report to the Board
indicating the persons to whom Options have been granted since the date of the
last such report, and in each case the date or dates of Options granted, the
number of shares optioned, and the Option price per share.
b. Powers of the Committee. Except for the terms and conditions
explicitly set forth in the Plan, the Committee shall have the authority
and discretion:
(1) to determine the persons to whom Options are to be granted, the
times of grant, and the number of shares to be represented by each
Option;
(2) to determine the Option price for the shares of Common Stock to
be issued pursuant to each Option, subject to the provisions of
subsection 6(b) of the Plan;
(3) to determine all other terms and conditions of each Option
granted under the Plan, which need not be identical;
(4) to modify or amend the terms of any Option previously granted, or
to grant substitute Options, subject to the provisions of subsections
6(l) and 6(m) and Section 8 of the Plan; provided that the Committee
shall not have the authority to reprice or exchange Options in an
aggregate amount which will exceed 10% of the number of shares subject
to outstanding Options at such date;
(5) to cancel or suspend Options, subject to the restrictions imposed
by Section 8 of the Plan;
(6) to interpret the Plan;
(7) to authorize any person or persons to execute and deliver Option
agreements or to take any other actions deemed by the Committee to be
necessary or appropriate to effectuate the grant of Options;
(8) to make all other determinations and take all other actions which
the Committee deems necessary or appropriate to administer the Plan in
accordance with its terms and conditions.
All decisions, determinations and interpretations of the Committee shall be
final and binding upon all persons, including all Optionees and any other
holders or persons interested in any Options, unless otherwise expressly
determined by a vote of the majority of the entire Board. No member of the
Committee or of the Board shall be liable for any action or determination made
in good faith with respect to the Plan or any Option.
c. Section 16(b) Compliance and Bifurcation of Plan. It is the intention
of the Company that this Plan, and Options granted under this Plan, comply
in all respects with Rule 16b-3 under the Exchange Act
3
<PAGE>
and, if any Plan provision is later found not to be in compliance with such
Rule, the provision shall be deemed null and void, and in all events this
Plan will be construed in favor of its meeting the requirements of Rule
16b-3. Notwithstanding anything in this Plan to the contrary, the Board, in
its absolute discretion, may bifurcate this Plan so as to restrict, limit
or condition the use of any provision of this Plan to participants who are
officers and directors subject to Section 16(b) of the Exchange Act without
so restricting, limiting, or conditioning other Plan participants.
5. Eligibility. Options may be granted only to Employees and Directors who
the Committee, in its discretion, from time to time selects; provided that
Directors who are not also Employees may not be granted Incentive Stock
Options.
Granting of Options pursuant to the Plan shall be entirely discretionary
with the Committee or its designee(s), and the adoption of this Plan shall not
confer upon any person any right to receive any Option or Options pursuant to
the Plan unless and until said Options are granted by the Committee or its
designee(s), in its sole discretion. Neither the adoption of the Plan nor the
granting of any Options pursuant to the Plan shall confer upon any Employee
any right with respect to continuation of employment, nor shall the same
interfere in any way with the Employee's right or with the right of the
Employer or any Subsidiary to terminate the employment relationship at any
time.
6. Terms and Conditions of Options. All Options granted pursuant to the Plan
must be authorized by the Committee or its designee(s) and shall be subject to
such terms and conditions, not inconsistent with this Plan, as the Committee
shall, in its sole discretion, prescribe. The terms and conditions of any
Option shall be reflected in such form of written document as is determined by
the Committee. Unless waived or modified by the Committee, all Options shall
be subject to the following terms and conditions:
a. Number of Shares; Annual Limitation. Each Option agreement shall state
whether the Option is an Incentive Stock Option or a Nonqualified Stock
Option and the number of shares subject to Option. Any number of Options
may be granted to a single eligible person at any time and from time to
time, except that (i) in the case of Incentive Stock Options, the aggregate
fair market value (determined as of the time each Option is granted) of all
shares of Common Stock with respect to which Incentive Stock Options become
exercisable for the first time by an Employee in any one calendar year
(under all incentive stock option plans of the Employer, and all of its
Subsidiaries taken together) shall not exceed $100,000, and (ii) not more
than 50,000 shares of Common Stock, as adjusted pursuant to Section 6(i),
in the aggregate may be made subject to grants under the Plan to any
participant in any one fiscal year.
b. Option Price and Consideration. The exercise price of each Option
shall be established by the Committee or shall be determined by a method
established by the Committee at the time the Option is granted. The
exercise price shall not be less than 100% of the Fair Market Value of a
share of Common Stock on the date of grant of the Option. In the case of an
Incentive Stock Option granted to an Employee who, immediately before the
grant of such Incentive Stock Option, is a Shareholder-Employee, the
Incentive Stock Option exercise price shall be at least 110% of the Fair
Market Value of the Common Stock on the date of grant of the Incentive
Stock Option.
c. Term of Option. No Incentive Stock Option granted pursuant to the Plan
shall in any event be exercisable after the expiration of ten (10) years
from the date such Option is granted, except that the term of an Incentive
Stock Option granted to an Employee who, immediately before such Incentive
Stock Option is granted, is a Shareholder-Employee shall be for not more
than five (5) years from the date of grant thereof. Subject to the
foregoing and other applicable provisions of the Plan including but not
limited to subsection 6(e) herein, the term of each Option shall be
determined by the Committee in its discretion.
d. Manner of Exercise. An Option shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by
the Committee.
The payment of the exercise price of an Option shall be subject to the
following:
(i) subject to the following provisions of this subsection 6(d), the
full exercise price for shares of Common Stock purchased upon the
exercise of any Option shall be paid at the time of such exercise
4
<PAGE>
(except that, in the case of an exercise arrangement approved by the
Committee and described in paragraph (iii) below, payment may be made
as soon as practicable after the exercise).
(ii) the exercise price shall be payable in cash or such other
consideration of comparable value deemed to be acceptable by the
Committee, including tendering, by either actual delivery of shares or
by attestation, shares of Common Stock acceptable to the Committee, and
valued at Fair Market Value as of the day of exercise, or in any
combination thereof, as determined by the Committee.
(iii) the Committee may permit an Optionee to elect to pay the
exercise price upon the exercise of an Option by irrevocably
authorizing a third party to sell shares of Common Stock (or a
sufficient portion of the shares of Common Stock) acquired upon
exercise of the Option and remit to Employer a sufficient portion of
the sale proceeds to pay the entire exercise price and any tax
withholding resulting from such exercise.
Shares of Common Stock delivered pursuant to the exercise of an Option shall
be subject to such conditions, restrictions and contingencies as the Committee
may establish. The Committee may impose such conditions, restrictions and
contingencies with respect to shares of Common Stock acquired pursuant to the
exercise of an Option as the Committee determines to be desirable.
e. Death of Optionee. In the event of the death of an Optionee who at the
time of his death was an Employee and who had been in Continuous Status as
an Employee since the date of grant of the Option, the Option shall
terminate on the earlier of (1)(a) one year after the date of death of the
Optionee or (b) such later date as may be set in the discretion of the
Committee; or (2) the expiration date otherwise provided in the Option
agreement, except that if the expiration date of an Option should occur
during the 90-day period immediately following the Optionee's death, such
Option shall terminate at the end of such 90-day period. The Option shall
be exercisable at any time prior to such termination by the Optionee's
estate, or by such person or persons who have acquired the right to
exercise the Option by bequest or by inheritance or by reason of the death
of the Optionee.
f. Disability of Optionee. If an Optionee's status as an Employee is
terminated at any time during the Option period by reason of a disability
(within the meaning of Section 22(e) (3) of the Internal Revenue Code) and
if said Optionee had been in Continuous Status as an Employee at all times
between the date of grant of the Option and the termination of his status
as an Employee, his Incentive Stock Option shall terminate on the earlier
of (i) one year after the date of termination of his status as an Employee,
or (ii) the expiration date otherwise provided in his Option agreement.
g. Termination of Status as an Employee. If an Optionee's status as an
Employee is terminated at any time after the grant of his Option for any
reason other than death or disability, as provided in subparagraphs (e) and
(f) above, and not by reason of fraud or willful misconduct, as provided
below:
(1) His Incentive Stock Option shall terminate on the earlier of (i)
the same day of the third month after the date of termination of his
status as an Employee, or (ii) the expiration date otherwise provided
in his Option agreement;
(2) His Nonqualified Stock Option shall terminate on the expiration
date as provided in his Option Agreement, or if no such expiration date
is provided, then such Option shall terminate on the same day of the
third month after the date of termination of his status as an Employee.
If an Optionee's status as an Employee is terminated at any time after the
grant of his Option by reason of fraud or willful misconduct, then his Option
shall terminate on the date of termination of his status as an Employee.
h. Non-transferability of Options. No Option granted pursuant to the Plan
may be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the
Optionee.
i. Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Employer, the number of shares of Common
Stock covered by each outstanding Option, the number
5
<PAGE>
of shares of Common Stock available for grant of additional Options, and
the price per share of Common Stock specified in each outstanding Option,
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from any stock split or
other subdivision or consolidation of shares, the payment of any stock
dividend (but only on the Common Stock) or any other increase or decrease
in the number of such shares of Common Stock effected without receipt of
consideration by the Employer; provided, however, that conversion of any
convertible securities of the Employer shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Committee, whose determination in that respect shall be final,
binding and conclusive.
No Incentive Stock Option shall be adjusted by the Committee pursuant to
this subparagraph 6(i) in a manner which causes the Incentive Stock Option to
fail to continue to qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code.
Except as otherwise expressly provided in this subsection 6(i), no Optionee
shall have any rights by reason of any stock split or the payment of any stock
dividend or any other increase or decrease in the number of shares of Common
Stock. Except as otherwise expressly provided in this subsection 6(i), any
issue by the Employer of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect the number of
shares or price of Common Stock subject to any Options, and no adjustments in
Options shall be made by reason thereof. The grant of an Option pursuant to
the Plan shall not affect in any way the right or power of the Employer to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure.
j. Date of Grant of Option. The date of grant of an Option shall, for all
purposes, be the date on which the Committee or its designee makes the
determination granting such Option. Said date of grant shall be specified
in the Option agreement.
k. Conditions Upon Issuance of Shares. Shares of Common Stock shall not
be issued with respect to an Option granted under the Plan unless the
exercise of such Option and the issuance and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, as amended, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the Common Stock may
then be listed, and shall be further subject to the approval of counsel for
the Employer with respect to such compliance.
l. Merger, Sale of Assets, Etc. Except as otherwise provided in the
written agreement that evidences an Option, in the event of the merger or
other reorganization of the Employer with and into any other corporation
with the Employer not surviving (other than a reorganization where the
ownership of the surviving company is substantially the same as that of the
Employer), or in the event of a proposed sale of substantially all of the
assets of the Employer, or in the event of a proposed dissolution or
liquidation of the Employer, (i) all outstanding and unexercised Options
shall become immediately exercisable, and (ii) such Options shall either be
assumed by the successor corporation, or parent thereof, in the
reorganization transaction described above or be replaced with a comparable
award for the purchase of shares of the capital stock of the successor
corporation, except that if such Options are not so assumed or replaced,
then (iii) the Committee may, in the exercise of its sole discretion,
terminate all outstanding Options as of a date fixed by the Committee,
which may be sooner than the originally stated Option term. The Committee
shall notify each Optionee of such action in writing not less than sixty
(60) days prior to the termination date fixed by the Committee, and each
Optionee shall have the right to exercise his Option prior to said
termination date.
m. Substitute Stock Options. In connection with the acquisition or
proposed acquisition by the Employer or any Subsidiary, whether by merger,
acquisition of stock or assets, or other reorganization transaction, of a
business any employees of which have been granted Incentive Stock Options,
the Committee is authorized to issue, in substitution of any such
unexercised stock option, a new Option under this Plan which confers upon
the Optionee substantially the same benefits as the old option; provided,
however, that the issuance of any new Option for an old Incentive Stock
Option shall satisfy the requirements of Section 424(a) of the Internal
Revenue Code.
6
<PAGE>
n. Tax Compliance. The Employer, in its sole discretion, may take any
actions reasonably believed by it to be required to comply with any local,
state, or federal tax laws relating to the reporting or withholding of
taxes attributable to the grant or exercise of any Option or the
disposition of any shares of Common Stock issued upon exercise of an
Option, including, but not limited to, (i) withholding from any person
exercising an Option a number of shares of Common Stock having a fair
market value equal to the amount required to be withheld by Employer under
applicable tax laws, and (ii) withholding from any form of compensation or
other amount due an Optionee or holder of shares of Common Stock issued
upon exercise of an Option any amount required to be withheld by Employer
under applicable tax laws. Withholding or reporting shall be considered
required for purposes of this subparagraph if any tax deduction or other
favorable tax treatment available to Employer is conditioned upon such
reporting or withholding.
o. Other Provisions. Option agreements executed pursuant to the Plan may
contain such other provisions as the Committee shall deem advisable,
provided in the case of Incentive Stock Options that the provisions are not
inconsistent with the provisions of Section 422(b) of the Internal Revenue
Code or with any of the other terms and conditions of this Plan.
p. Director Options. Notwithstanding the terms and conditions set forth
above in this section 6, (i) no Director who is not also an Employee shall
be granted an Incentive Stock Option, and (ii) Non-Qualified Stock Options
granted to a Director who ceases to be a member of the Board of Employer or
any Subsidiary shall be exercisable on such terms and conditions as the
Committee shall determine.
7. Term of the Plan. The Plan shall become effective on the earlier of (a)
the date of adoption of the Plan by the Board; or (b) the date of shareholder
approval of the Plan. The Plan shall be unlimited in duration and, in the
event of a Plan termination as provided in Section 8 of the Plan, shall remain
in effect as long as any Options under it are outstanding; provided, however,
that, to the extent required by the Code, no Incentive Stock Option may be
granted under the Plan on a date that is more than ten years from the date the
Plan (or amendment increasing shares available under the Plan) is adopted or,
if earlier, the date the Plan (or amendment increasing shares available under
the Plan) is approved by shareholders.
8. Amendment or Early Termination of the Plan.
a. Amendment or Early Termination. The Board may terminate the Plan at
any time. The Board may amend the Plan at any time and from time to time in
such respects as the Board may deem advisable, except that, without proper
approval of the shareholders, no such revision or amendment shall:
(1) increase the number of shares of Common Stock subject to the Plan
other than in connection with an adjustment under subsection 6(i) of
the Plan; or
(2) make any amendment to the Plan which would require shareholder
approval under any applicable law or regulation.
Any amendment made to this Plan which would constitute a "modification" to
Incentive Stock Options outstanding on the date of such amendment, shall not
be applicable to such outstanding Incentive Stock Options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
b. Modification and Amendment of Option. Subject to the requirements of
Code Section 422 with respect to incentive stock options and to the terms
and conditions and within the limitations of this Plan, the Board or
Committee may modify or amend outstanding Options granted under this Plan.
The modification or amendment of an outstanding Option shall not, without
the consent of the Optionee, impair or diminish any of his or her rights or
any of the obligations of the Company under such Option. Except as
otherwise provided in this Plan, no outstanding Option shall be terminated
without the consent of the Optionee. Unless the Optionee agrees otherwise,
any changes or adjustments made to outstanding Incentive Stock Options
granted under this Plan shall be made in such manner so as not to
constitute a "modification" as defined in Code Section 424(h) and so as not
to cause any Incentive Stock Option issued hereunder to fail to continue to
qualify as an Incentive Stock Option as defined in Code Section 422(b).
7
<PAGE>
CERTIFICATE OF ADOPTION
I certify that the foregoing Plan was adopted by the Board of Directors of
Columbia Banking System, Inc. on January 26, 2000, and approved by the
shareholders of Columbia Banking System, Inc. on April 25, 2000.
-------------------------------------
Secretary
8
