<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
[ ] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EMERALD FINANCIAL CORP.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11 (1) Title of each class of securities to which
transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
(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):
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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[ ] Fee paid previously with preliminary materials:
N/A
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[ ] 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:
N/A
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(2) Form, Schedule or Registration Statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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<PAGE> 2
[PRELIMINARY COPIES]
March 20, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Emerald Financial Corp. ("Emerald") to be held at 10:30 a.m. on
Thursday, April 16, 1998 at Quality Catering Party Center located at 9200 Pearl
Road, Strongsville, Ohio. The attached Notice of Annual Meeting of Shareholders
and Proxy Statement discuss the business to be conducted at the Meeting. In
addition to the specific matters to be acted upon, the Meeting will include
management's report to you on the 1997 financial and operating performance of
Emerald and its subsidiary, The Strongsville Savings Bank.
Your vote is very important, regardless of the number of shares you
own. PLEASE READ THE ENCLOSED PROXY STATEMENT AND THEN COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID RETURN
ENVELOPE AS PROMPTLY AS POSSIBLE so that your shares can be voted at the Meeting
in accordance with your instructions. This will not prevent you from voting in
person, but will assure that your vote is counted if you are unable to attend
the Meeting. Thank you for your consideration of this matter and please vote
today.
A copy of the Annual Report for the year ended December 31, 1997 is
enclosed.
Very truly yours,
EMERALD FINANCIAL CORP.
/s/ Thomas P. Perciak
Thomas P. Perciak
President and Chief Executive Officer
<PAGE> 3
EMERALD FINANCIAL CORP.
14092 PEARL ROAD
STRONGSVILLE, OHIO 44136
(440) 238-7311
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 16, 1998
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of Emerald Financial Corp. ("Emerald" or the "Company") will be held
at 10:30 a.m. on April 16, 1998 at Quality Catering Party Center, 9200 Pearl
Road, Strongsville, Ohio.
A proxy card and a Proxy Statement for the Meeting are enclosed. The
purpose of the Meeting is to consider and act upon:
1. election of three directors for three-year terms expiring in
the year 2001;
2. a proposal to amend the Amended and Restated Articles of
Incorporation of the Company in order to increase authorized
shares of Common Stock, without par value, from 10,000,000 to
20,000,000 shares;
3. a proposal to adopt the 1998 Stock Option and Incentive Plan;
4. ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending December 31,
1998; and
5. such other business as may properly come before the Meeting or
any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come
before the Meeting. Any action may be taken on the foregoing proposals at the
Meeting on the date specified above, or on any date or dates to which the
Meeting may be adjourned or postponed. As used herein, references to the Meeting
shall be deemed to include the Meeting and any adjournments or postponements
thereof. Shareholders of record at the close of business on March 6, 1998 are
the shareholders entitled to receive notice of and to vote at the Meeting.
You are requested to complete and sign the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to return it promptly in the
postage-paid return envelope provided. Please sign your name on the proxy
exactly as indicated thereon.
By Order of the Board of Directors
/s/ Paula M. Dewey
Paula M. Dewey
Secretary
Strongsville, Ohio
March 20, 1998
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
<PAGE> 4
PROXY STATEMENT
EMERALD FINANCIAL CORP.
14092 PEARL ROAD
STRONGSVILLE, OHIO 44136
ANNUAL MEETING OF SHAREHOLDERS
APRIL 16, 1998
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Emerald Financial Corp.
("Emerald" or the "Company") to be used at the Annual Meeting of Shareholders of
the Company to be held at 10:30 a.m. on Thursday, April 16, 1998, and at any
adjournments or postponements thereof (the "Meeting"). The Meeting will be held
at Quality Catering Party Center, 9200 Pearl Road, Strongsville, Ohio. The
accompanying Notice of Meeting and this Proxy Statement are first being mailed
to shareholders on or about March 20, 1998.
At the Meeting, shareholders of Emerald will be asked to consider and
vote upon election of three directors for a three-year term; adoption of the
1998 Stock Option and Incentive Plan; amendment of the Company's Amended and
Restated Articles of Incorporation in order to increase authorized shares of
common stock, without par value, from 10,000,000 to 20,000,000 shares;
ratification of the appointment by the Board of Directors of the firm of KPMG
Peat Marwick LLP as independent auditors for the fiscal year ending December 31,
1998; and the transaction of such other business as may properly come before the
Meeting or any adjournments thereof. The Company is not aware of any other
business to come before the Meeting.
VOTING RIGHTS AND PROXY INFORMATION
All shares of Emerald's common stock, no par value (the "Stock" or
"Emerald Stock"), represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, properly executed proxies will, unless revoked, be voted for election
of the nominees for directors named herein and for each of the other matters
presented herein.
Proxies solicited hereby may be used at the Meeting only and will not
be used for any other meeting. A proxy given pursuant to this solicitation may
be revoked at any time before it is voted. Proxies may be revoked by (i)
attending the Meeting and voting in person (although attendance at the Meeting
will not constitute revocation of a proxy), (ii) duly executing a subsequent
proxy relating to the same shares and delivering it to the Secretary of the
Company at or before the Meeting, (iii) filing with the Secretary at or before
the Meeting a written notice of revocation. Any written notice revoking a proxy
should be delivered to Paula M. Dewey, Secretary, Emerald Financial Corp., P. O.
Box 360515, Strongsville, Ohio 44136-0009.
A copy of the Annual Report to Shareholders for the fiscal year ended
December 31, 1997 accompanies this Proxy Statement. Such Annual Report to
Shareholders is not to be treated as part of the proxy solicitation material or
as having been incorporated herein by reference.
VOTE REQUIRED FOR APPROVAL
A plurality of the votes cast is sufficient to elect directors, meaning
that the nominees receiving the greatest number of votes will be elected as
directors. Approval of the 1998 Stock Option and Incentive Plan requires a
majority of the voting power of Emerald Stock. Approval of amendment of the
Company's Amended and Restated Articles of Incorporation requires two thirds of
the voting power of Emerald Stock. Broker non-votes and abstentions will have no
effect on the election of directors. With respect to the proposals to approve
the 1998 Stock Option and Incentive Plan and to approve amendment of the Amended
and Restated Articles of Incorporation, broker
<PAGE> 5
non-votes and abstentions will have the same effect as votes against those
proposals. Proxies marked as abstaining will be treated as present at the
Meeting but will not be counted as voting in favor of such proposal. Broker
non-votes will have no effect on whether a quorum is present at the Meeting,
because the Company's Code of Regulations provides that shareholders present in
person or by proxy at a meeting shall constitute a quorum.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Shareholders of record as of the close of business on March 6, 1998 are
entitled to notice of and to vote at the Meeting. Shareholders are entitled to
one vote for each share held. As of January 31, 1998, there were 5,075,600
shares of Emerald Stock issued and outstanding.
The following table sets forth certain information as to those persons
who were known by management to be beneficial owners of more than five percent
of Emerald Stock outstanding and as to the shares of Emerald Stock beneficially
owned by all executive officers and directors of Emerald as a group. Information
in the table below is as of January 31, 1998.
<TABLE>
<CAPTION>
Name and Address
of Beneficial Owner Shares Beneficially Owned Percent of Class
- ------------------- ------------------------- ----------------
<S> <C> <C>
Joan M. Dzurilla 1,246,670 (1) 24.54%
14092 Pearl Road
Strongsville, OH 44136
All directors and executive 1,920,621 (2) 35.54%
officers as a group (12 persons)
</TABLE>
- ---------------------
(1) Mrs. Dzurilla holds 88,070 shares through the Joan M. Dzurilla
Charitable Remainder Trust of which she is the settlor and sole
trustee. A charitable organization is the sole beneficiary of the
trust.
(2) This amount includes shares held directly as well as shares held in
retirement accounts, in a fiduciary capacity or by certain family
members, over which shares the respective directors and officers may be
deemed to have sole voting and investment power. Also includes shares
owned by all executive officers, including those executive officers
identified in the summary compensation table. See, "Executive
Compensation." Mr. William A. Harr, Jr., who is identified in that
table, beneficially owns directly or indirectly 44,429 shares,
including 43,000 shares that may be acquired upon exercise of options.
Includes an aggregate of 332,000 shares directors and executive
officers have the right to acquire pursuant to options granted under
The Strongsville Savings Bank 1994 Long-Term Incentive Plan. In
connection with the holding company reorganization of The Strongsville
Savings Bank that was completed on March 6, 1997, Emerald assumed the
obligations under the 1994 Long-Term Incentive Plan and adopted the
1994 Long-Term Incentive Plan. Accordingly, options issued under the
1994 Long-Term Incentive Plan to acquire stock of The Strongsville
Savings Bank have become options to acquire a like number of shares of
Emerald Stock, exercisable on the same terms and conditions. Does not
include shares as to which the respective directors and executive
officers have disclaimed beneficial ownership.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Board of Directors currently consists of nine members. The Board of
Directors is divided into three classes, each of which contains three members.
The directors are elected by the shareholders to serve for three-year terms or
until their successors are elected and qualified.
The following table sets forth certain information, as of December 31,
1997, regarding the composition of the Board of Directors of Emerald, including
term of office and the security ownership of the directors. It is intended that
the proxies solicited on behalf of the Board of Directors (other than proxies in
which the vote is withheld as to the nominees) will be voted at the Meeting FOR
the election of the following nominees. If any nominee is unable to serve, the
shares represented by all valid proxies will be voted for the election of such
substitute as the Board of Directors may recommend. At this time, the Board of
Directors knows of no reason any nominee might be unable to serve if elected.
Except as disclosed herein, there are no arrangements or understandings between
any nominee and any other person pursuant to which such nominee was selected.
2
<PAGE> 6
All of the individuals identified in the table below have been
directors of Emerald since its inception in 1996. The table indicates, among
other things, the period during which they have been directors also of Emerald's
subsidiary, The Strongsville Savings Bank. At the present time, the Boards of
Directors of Emerald and The Strongsville Savings Bank are comprised of the same
individuals, serving identical terms as directors of each company.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE FOLLOWING NOMINEES
<TABLE>
<CAPTION>
DIRECTOR EXPIRATION AMOUNT AND NATURE (1) PERCENT OF (2)
DIRECTOR'S NAME AND POSITION AGE SINCE OF TERM OF BENEFICIAL OWNERSHIP SHARE OWNERSHIP
- ---------------------------- --- ----- ------- ----------------------- ---------------
NOMINEES
<S> <C> <C> <C> <C> <C>
William A. Fraunfelder, Jr. 54 1989 2001 20,563 (3) (4)
Glenn W. Goist 57 1990 2001 23,075 (4)
John F. Ziegler 45 1987 2001 126,062 (5) 2.45%
Executive Vice President and
Chief Financial Officer
CONTINUING DIRECTORS
George P. Bohnert 57 1993 1999 8,700 (4)
Joan M. Dzurilla 71 1985 2000 1,246,670 (6) 24.54%
Mike Kalinich, Sr. 67 1967 2000 52,800 1.04%
Chairman of the Board
Thomas P. Perciak 50 1982 2000 221,902 (7) 4.28%
President and Chief Executive
Officer
Kenneth J. Piechowski 49 1996 1999 8,400 (4)
John J. Plucinsky 70 1978 1999 109,857 2.16%
</TABLE>
- ------------------
(1) All shares, except as may be noted herein, are owned directly or
indirectly by the named individuals or by their spouses and minor
children, over which shares the named individuals effectively exercise
voting and investment power. Includes shares exercisable under stock
option grants pursuant to the 1994 Long-Term Incentive Plan.
(2) The percentage ownership figures are inclusive of shares underlying
unexercised stock options. Each non-executive officer director holds a
stock option to acquire 8,000 shares. Messrs. Perciak and Ziegler hold
stock options to acquire 107,000 and 78,000 shares, respectively, and
three other executive officers hold stock options that in the aggregate
permit them to acquire 91,000 shares.
(3) Not shown are 1,900 shares owned by William A. Fraunfelder's wife,
Barbara Fraunfelder, as to which shares Mr. Fraunfelder disclaims
beneficial ownership.
(4) Less than one percent (1%) of the outstanding Stock.
(5) Of these shares, 8,500 represent shares Mr. Ziegler holds as custodian
for his minor children. Not shown are 8,000 shares Mr. Ziegler owns
jointly with his mother, as to which shares he disclaims beneficial
ownership.
(6) Mrs. Dzurilla holds 88,070 shares through the Joan M. Dzurilla
Charitable Remainder Trust of which she is the settlor and sole
trustee. A charitable organization is the sole beneficiary of this
trust.
(7) Mr. Perciak holds 113,400 shares through a trust of which he and his
wife, Deborah A. Perciak, a Vice President of The Strongsville Savings
Bank, are co-trustees with shared voting and investment power. Not
shown are 18,400 shares held jointly by Mrs. Perciak and her parents,
as to which shares Mr. and Mrs. Perciak disclaim beneficial ownership.
Mr. Perciak also disclaims beneficial ownership of 6,000 shares not
shown herein, and held jointly with his father, Walter J. Perciak, Sr.
The shares reported do not include 24,000 stock option shares and 620
shares held by Mr. Perciak's spouse, as to which shares Mr. Perciak
disclaims beneficial ownership.
3
<PAGE> 7
Thomas P. Perciak has been President and Chief Executive Officer of The
Strongsville Savings Bank since January 1985, and President and Chief Executive
Officer of Emerald since its inception in 1996. He has been Managing Officer of
The Strongsville Savings Bank since April 1979. Mr. Perciak is also active in
community organizations and serves on the Board of Trustees of the following
organizations: The Strongsville Chamber of Commerce, Advisory Board of St.
Andrew's Abbey and Southwest Community Health Center Foundation Board. Mr.
Perciak serves as the Chairman of the Southwest Health Center Foundation Board.
John F. Ziegler was first employed by The Strongsville Savings Bank in
1975, became the Treasurer in 1983 and has served as Vice President for the last
ten (10) years. Since January, 1992, Mr. Ziegler has served as Chief Financial
Officer, and he has served as Executive Vice President and Chief Financial
Officer of Emerald since its inception in 1996.
George P. Bohnert, Jr. is a certified public accountant who practiced
with his own firm from 1992 until February 1996. From February 1996 to the
present, Mr. Bohnert has been a partner in Foerster & Bohnert, Inc. From 1978
until 1992, Mr. Bohnert was a partner with a regional accounting firm, Hausser &
Taylor, where his practice concentrated on savings and loan association audits.
Joan M. Dzurilla served as Vice President of The Strongsville Savings
Bank from 1989 through February 9, 1994. Prior to that, Mrs. Dzurilla, who is a
registered nurse, was a housewife for over 30 years and raised a family.
William A. Fraunfelder, Jr., a lawyer, has served as a Referee in the
Juvenile Division of the Cuyahoga Court of Common Pleas for 29 years.
Glenn W. Goist, D.D.S. has been a practicing dentist for over 25 years.
Dr. Goist maintains a private dental practice in Berea.
Mike Kalinich, Sr. has been President of the Kalinich Fence Company,
Inc. for over 30 years and is active in numerous community organizations. Mr.
Kalinich has been Chairman of the Board from 1991 through the present. He serves
as a Director of Southwest Community Health Center, Middleburg Heights, Ohio,
and serves as a Trustee Emeritus of the Strongsville Chamber of Commerce.
Kenneth J. Piechowski is Director of the Diaconate of the Diocese of
Cleveland. Mr. Piechowski has been employed full time by the Diocese since 1988.
Prior to joining the Diocese full time, Mr. Piechowski worked for approximately
eighteen years with nationally recognized insurance companies.
John J. Plucinsky, M.D. has been a doctor of internal medicine with a
specialty in hematology and oncology for over 30 years.
COMMITTEES OF THE BOARD OF DIRECTORS AND BOARD ATTENDANCE
The Board of Directors, which is responsible for the overall affairs of
the Company, conducts its business through regular and special meetings and
through meetings and activities of its committees. All committees report their
activities to the Board monthly.
The Board of Directors of Emerald is comprised of the same people who
currently constitute the Board of Directors of The Strongsville Savings Bank.
The holding company reorganization of The Strongsville Savings Bank became
effective on March 6, 1997. Beginning in 1997, the Board of Directors of Emerald
and the Audit Committee of Emerald performs the functions of nominating and
audit committees, respectively. The Wage and Salary Committee of The
Strongsville Savings Bank's Board of Directors acts as compensation committee.
4
<PAGE> 8
The Board of Directors met thirteen times during the fiscal year ended
December 31, 1997. No director attended fewer than 75% of the aggregate number
of meetings of the Board of Directors (of The Strongsville Savings Bank or
Emerald) held during the last fiscal year and the total number of meetings held
by all committees of the Board of Directors on which he or she served during
such year.
The Board of Directors acts as a nominating committee for selecting
nominees for election as directors. Pursuant to the Company's Code of
Regulations, nominations may also be made by shareholders. Shareholder
nominations for directors must be made in writing and delivered to the Secretary
of the Company at least sixty (60) days prior to the Company's annual meeting,
and such written nominations of shareholders must contain certain information as
provided in the Company's Code of Regulations. Any shareholder recommendation
for director-nominee must contain background information concerning the
recommended nominee, including name, age, business and home address,
relationships with person making the recommendation, educational background,
description of nominee's principal occupation and business experience for the
last five years, directorships or trusteeships in public companies, the reasons
the person is being recommended, and a statement that such person would consent
to serve as director. The shareholder's notice of nomination must indicate the
name and address of the shareholder and the number of shares of Stock
beneficially owned by such shareholder on the date of such notice. Although the
Board of Directors will consider nominees recommended by shareholders, the
Company has not actively solicited nominations.
The Audit Committee, which is comprised of Messrs. Bohnert, Goist and
Fraunfelder, with Mr. Bohnert serving as Chairman, recommends the appointment of
the Company's independent public accountants, reviews and approves the audit
plan and fee estimate of the independent public accountants, appraises the
effectiveness of the internal and external audit efforts, evaluates the adequacy
and effectiveness of the Company's accounting policies and financial and
accounting management, supervises the Company's Internal Auditor, and reviews
and approves the annual financial statements. The Audit Committee met four times
during 1997.
The Wage and Salary Committee, which is comprised of Mr. Kalinich as
Chairman and Mr. Perciak and Mrs. Dzurilla, reviews the performance of managers,
employees and officers and recommends appropriate salaries, incentives and
benefits. The Wage and Salary Committee does not determine the compensation and
benefits paid to the senior executive officers. The compensation and benefits of
the senior executive officers is determined by the full Board of Directors, with
the two most senior executive officers excusing themselves from the
deliberations and voting upon their compensation and benefits. The Wage and
Salary Committee met twice during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Wage and Salary Committee of The Strongsville Savings
Bank's Board of Directors consisted of Messrs. Kalinich and Perciak and Mrs.
Dzurilla. Mr. Perciak is President and Chief Executive Officer of Emerald. Mr.
Kalinich served as Vice President from 1980 through 1991. Mr. Kalinich's
position of Vice President was an officer position in name only, without
operational authority. It was a tradition of the savings and loan industry of
that era to title senior board members as officers. Mrs. Dzurilla served as Vice
President from 1989 until her resignation on February 9, 1994. Neither Mr.
Kalinich nor Mrs. Dzurilla is an officer of Emerald or The Strongsville Savings
Bank.
DIRECTORS' COMPENSATION
As compensation for services rendered as a director, each director
other than Messrs. Perciak and Ziegler received $600 for attendance at Board of
Directors' meetings held January through April 1997 and $650 for attendance at
Board meetings held subsequent to April 1997. Mr. Kalinich received additional
compensation as Chairman of the Board totaling $20,000 during 1997. Directors
who serve on committees, including the Executive Committee, the Wage and Salary
Committee and the Audit Committee, received fees of $300 for attendance at each
committee meeting during the fiscal year ended December 31, 1997.
5
<PAGE> 9
The foregoing compensation of directors has been paid to directors for
their service on the Board of Directors of The Strongsville Savings Bank, and
committees thereof. Since the formation of Emerald, none of its executive
officers or directors has received any remuneration from Emerald, except that
directors who serve on Emerald's Option Committee receive fees for attendance at
Option Committee meetings. Because Emerald's business principally consists and
is expected to consist for the foreseeable future of acting as holding company
for The Strongsville Savings Bank, it is expected that no separate compensation
will be paid to officers of Emerald in addition to that paid to them by The
Strongsville Savings Bank. However, Emerald may determine that separate
compensation is appropriate in the future. At the present time, Emerald does not
intend to employ any persons other than its present management.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by The
Strongsville Savings Bank for services rendered in all capacities for the fiscal
years ended December 31, 1997, 1996 and 1995 to its three most highly
compensated executive officers, including its chief executive officer, with
total cash compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ------------------------ -------
($) (#)
($) Restricted Securities ($) ($)
Name and ($) (1) ($) Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Options Payouts Compensation
------------------ ---- ------ ----- ------------ ------ ------- ------- ------------
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Thomas P. Perciak 1997 199,200 103,431(2) (3) 0 7,000 0 [ ](4)
President and Chief 1996 191,500 101,274 (3) 0 0 0 12,155
Executive Officer 1995 183,200 100,055 (3) 0 0 0 15,710
John F. Ziegler 1997 130,900 67,967(2) (3) 0 6,000 0 [ ](4)
Executive Vice 1996 125,800 66,529 (3) 0 0 0 15,081
President and Chief 1995 120,300 65,702 (3) 0 0 0 18,473
Financial Officer
William J. Harr, Jr. 1997 88,400 27,524(2) (3) 0 3,000 0 10,112(4)
Vice President 1996 85,000 23,804 (3) 0 0 0 9,461
1995 72,060 29,308 (3) 0 0 0 11,413
</TABLE>
- -------------------------
(1) Includes amounts deferred at the election of the named executive
officers pursuant to The Strongsville Savings Bank's 401(k) plan.
(2) The Strongsville Savings Bank gave a 1997 Christmas bonus to each
employee, including the three officers named in the Summary
Compensation Table. The Christmas bonus of each of Messrs. Perciak,
Ziegler and Harr was $3,831, $2,517 and $1,700, respectively. These
amounts are included in the bonus figures in the table. In addition,
Mr. Harr earned a bonus of $10,824 in 1997 under The Strongsville
Savings Bank's incentive compensation plan for loan officers, which
bonus is also included in his total bonus amount shown in the table.
Mr. Harr was also awarded a year-end merit bonus of $15,000. The bonus
amounts reported are earned in the fiscal year noted even though such
amounts may be payable in subsequent years.
(3) Perquisites and other personal benefits would be included herein only
to the extent that the aggregate perquisites and personal benefits for
each named executive officer exceed the lesser of $50,000 or ten
percent (10%) of a named executive officer's salary and bonus. None of
the items that comprise perquisites and personal benefits represents
25% or more of the total for any named executive officer.
(4) Includes (i) the dollar amount of contributions by The Strongsville
Savings Bank to vested and unvested accounts under The Strongsville
Savings Bank's trusteed profit-sharing retirement plan and 401(k) Plan
and (ii) the dollar value of the benefit realized or realizable by
reason of The Strongsville Savings Bank's payment of the premiums on
split-dollar life insurance policies. The dollar value of such benefit
is calculated on an actuarial basis for the period between payment of
the premium by The Strongsville Savings Bank and the anticipated date
of repayment to The Strongsville Savings Bank of premiums previously
paid for the split-dollar life insurance policies. For Mr. Perciak,
$10,148 and $5,700 represent amounts contributed by The Strongsville
Savings Bank during 1997 on his behalf under the profit-sharing and
401(k) plans, respectively. For Mr. Ziegler, $10,148 and $5,700
represent amounts contributed by the Bank during 1997 on his behalf
under the Bank's profit-sharing and 401(k) plans, respectively. For Mr.
Harr, $6,634 and $3,478 represent amounts contributed by the Bank
during 1997 on his behalf under the Bank's profit-sharing and 401(k)
plans, respectively. [ ].
6
<PAGE> 10
STOCK OPTIONS
The following table sets forth information relating to options granted
during fiscal year 1997 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
----------------------------------------------------------------------------------------------- -------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (#) YEAR ($/SHARE)(2) DATE 5% 10%
--------------- ----- ------ ------------ ------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Perciak 7,000 9.46% $14.25 5/30/2007 $62,732 $158,976
John F. Ziegler 6,000 8.11% $14.25 5/30/2007 $53,771 $136,265
William J. Harr 3,000 4.05% $14.25 5/30/2007 $26,885 $ 68,132
</TABLE>
- ---------------
(1) The 5% and 10% assumed rates of appreciation are mandated by
the rules of the Securities and Exchange Commission and are
not an estimate or projection of future prices for Emerald's
Stock.
(2) The option exercise price equaled the average of the bid and
asked prices of a share of Emerald's Stock on the date of
grant.
The following table sets forth information concerning the number and
value of unexercised stock options held by the named executive officers at
December 31, 1997. These options expire ten years from the date of grant and
have exercise prices per share equal to the average of the closing bid and asked
prices of the Stock on the date of grant. The options were granted pursuant to
the 1994 Long-Term Incentive Plan of The Strongsville Savings Bank, which plan
was adopted and assumed by the Company in connection with the March 6, 1997
holding company reorganization of The Strongsville Savings Bank.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
---------------------------------
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR
YEAR END (#) END ($) (1)
SHARES ACQUIRED ON
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Perciak 0 0 100,000 7,000 $1,087,500 $40,250
John F. Ziegler 0 0 72,000 6,000 $783,000 $34,500
William J. Harr, Jr. 0 0 40,000 3,000 $435,000 $17,250
</TABLE>
- -------------------------
(1) Represents the aggregate market value of stock options to purchase
shares of stock (market price less the exercise price of $9.125 and
$14.25 per share), awarded the named executive officers, based upon the
fair market value of $20.00 per share on December 31, 1997.
PENSION AND RETIREMENT PLAN INFORMATION
Neither Emerald nor The Strongsville Savings Bank has a retirement plan
for officers or employees that would provide defined benefits based upon salary,
years of service or other measures. Instead, The Strongsville Savings Bank has
implemented a profit-sharing plan under which The Strongsville Savings Bank may
make entirely discretionary cash contributions. The Strongsville Savings Bank
also has implemented a 401(k) Plan whereby matching contributions will be made
for each participating officer or employee who elects to defer a portion of his
or her salary pursuant to the 401(k) Plan. The amount of salary that may be
deferred by any individual and the amount (and vesting) of the matching
contributions are subject to certain limitations (matching contributions of up
to 60% of the deferral, subject to maximum matching contribution amount; no
matching contributions for deferral in excess of 5% of salary; incremental
vesting of the matching contribution over a period of six years).
Recognizing the importance of building and retaining a competent
management team, effective January 1, 1995 The Strongsville Savings Bank entered
into Executive Supplemental Benefit Agreements with six of its officers,
including the three executive officers identified in the Summary Compensation
Table (collectively, the "Agreements" and individually as to each covered
executive, the "Agreement"). The Executive Supplemental Benefit Agreements were
adopted following Board review of a comprehensive compensation study presented
by KPMG Peat Marwick LLP as compensation consultants. Similar agreements with
three additional officers were entered into in 1996.
The Executive Supplemental Benefit Agreements provide for payments in
the event of retirement, death, disability or a change in control. Under the
terms of each agreement, different death, disability and post-
employment/retirement benefits are provided to each covered employee. By
defining the amounts each executive will receive upon formal retirement, each
executive has been given what the Board believes to be a reasonable incentive to
remain with The Strongsville Savings Bank until retirement. If, however, the
executive's employment is terminated for cause or the executive voluntarily
resigns (other than for "good reason," as defined below) following a change in
control, The Strongsville Savings Bank would be released from all payment
obligations to the executive.
Messrs. Perciak, Ziegler and Harr's Executive Supplemental Benefit
Agreements provide for payment of an annual benefit upon their retirement.
"Retirement Date" is defined in the Agreements to mean the first day of the
month following the executive officer's 65th birthday on which he or she elects
to retire (or an early retirement date that may be agreed to by the Board of
Directors). Mr. Perciak's Executive Supplemental Benefit Agreement provides for
annual payment for twenty years of $134,693 following retirement (assuming full
vesting). The retirement benefit vests ratably each year, becoming fully vested
at age 65 or, if sooner, (i) upon death or permanent disability or (ii) upon a
change in control of Emerald. Rather than receiving annual payment, Mr. Perciak
may
8
<PAGE> 12
petition the Board of Directors or the appropriate committee thereof for payment
of the entire retirement benefit in one lump sum (discounted to the present
value at that time, using a 6% discount rate). The benefit payable in the event
of a change in control would also be paid in a lump sum, similarly discounted to
present value. Likewise, under the Executive Supplemental Benefit Agreement Mr.
Perciak may petition for full vesting of his benefits if he chooses to retire
before reaching age 65. The annual retirement benefit paid under Mr. Ziegler's
Executive Supplemental Benefit Agreement will be $25,647. Mr. Harr would be
entitled to $23,585 annually for 20 years.
The disability payments provided under the Agreements are as follows
for each of the named executive officers: $65,635 annually in the event of total
disability prior to retirement, until age 65, for Mr. Perciak; $10,239 annually
in the event of total disability prior to retirement, until age 65, for Mr.
Ziegler; and $5,717 annually in the event of total disability prior to
retirement, until age 65, for Mr. Harr. Annual disability benefits payable under
the Agreements would be payable in monthly installments.
Under the Executive Supplemental Benefit Agreements, a payment in
respect of a change in control would be made if the executive officer is
involuntarily terminated (except for cause) or voluntarily terminates his or her
employment for "good reason." In general terms, "good reason" is defined to
include a change in the executive officer's status, title or responsibilities
that does not represent a promotion, a reduction in base salary, certain
relocations or a material reduction in benefits. Following the 1997 holding
company reorganization of The Strongsville Savings Bank, the Executive
Supplemental Benefit Agreements' definition of "change in control" was amended.
As amended, a "change in control" includes the following circumstances:
(i) the acquisition by a person or persons acting in concert of
the power to vote twenty five percent (25%) or more of a class
of Emerald's voting securities, or the acquisition by a person
of the power to direct Emerald's management or policies, if
the Board of Directors or the Office of Thrift Supervision has
made a determination that such acquisition constitutes or will
constitute an acquisition of control for the purposes of the
Savings and Loan Holding Company Act or the Change in Bank
Control Act and the regulations thereunder;
(ii) during any period of two (2) consecutive years, individuals
who at the beginning of the two-year period constitute the
Board of Directors of The Strongsville Savings Bank or Emerald
cease for any reason to constitute at least a majority
thereof, unless the election of each director who was not a
director at the beginning of the two-year period has been
approved in advance by directors representing at least two
thirds (2/3) of the directors then in office who were
directors in office at the beginning of the period;
(iii) Emerald shall have merged into or consolidated with another
corporation, or merged another corporation into Emerald, on a
basis whereby less than fifty percent (50%) of the total
voting power of the surviving corporation is represented by
shares held by former shareholders of Emerald prior to such
merger or consolidation; or
(iv) Emerald shall have sold substantially all of its assets to
another person. The term "person" refers to an individual,
corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated
organization or other entity.
In the event of a change in control in 1998 and involuntary termination
(except for cause) or voluntary termination for good reason within six months
thereafter, the benefit payable to Mr. Perciak would be $259,447, increasing in
amount for a change in control occurring in a subsequent year (from $335,939 in
1999 to $1,782,670 in 2012). For Mr. Ziegler, the benefit payable under similar
circumstances would be $36,699 in the event of a change in control in 1998 and
involuntary termination (except for cause) or voluntary termination for good
reason within six months thereafter, increasing in amount for a change in
control occurring in a subsequent year (from $48,875 in 1999 to $453,788 in
2017). Lastly, for Mr. Harr the benefit payable would be $19,022, increasing in
amount for a change in control occurring in a subsequent year (from $26,498 in
1999 to $625,710 in 2027). Under
9
<PAGE> 13
the Executive Supplemental Benefit Agreements, the change-in-control benefit
payment would be made in one lump sum for each affected officer.
The Strongsville Savings Bank has obtained life insurance policies
whose benefits, payable to The Strongsville Savings Bank as beneficiary, would
be sufficient to satisfy the obligations of The Strongsville Savings Bank and
Emerald under the Executive Supplemental Benefit Agreements. The Strongsville
Savings Bank is the sole owner of and beneficiary under the life insurance
policies, except that Messrs. Perciak and Ziegler are the owners of the
split-dollar life insurance policies discussed in " - Employment Agreements."
Notwithstanding that benefits payable under the Executive Supplemental Benefit
Agreements will be paid in the future, the estimated present value of future
benefits is being accrued over the period from the effective date of the
agreements until the expected retirement dates of the participants. The
insurance premium expense under the life insurance policies purchased to fund
contractual obligations to Messrs. Perciak, Ziegler and Harr in 1997, and their
approximate cash surrender value to The Strongsville Savings Bank, are an
aggregate of $90,439 and $235,201, respectively. See, " - Employment Agreements"
for a discussion of amendments adopted in 1997 to the employment agreements of
Messrs. Perciak and Ziegler.
BOARD REPORT ON EXECUTIVE COMPENSATION
The full Board determines the executive compensation to be paid to the
two most senior executive officers, Messrs. Perciak and Ziegler. Mr. Perciak and
Mr. Ziegler are excluded from discussion and board deliberation regarding
compensation paid to them as officers.
For other than the senior executive officers, the function of
administering executive compensation policies is currently performed by the Wage
and Salary Committee. In this process, officers are evaluated as to their
performance during the year compared to The Strongsville Savings Bank's
performance, thrift industry compensation surveys and comparable positions at
other thrift institutions. In future years, it is expected that the Wage and
Salary Committee will continue to perform the functions it performs currently.
The Strongsville Savings Bank is, and for the foreseeable future will be,
Emerald's sole operating subsidiary. The members and terms of the members of the
Boards of Directors of each of Emerald and The Strongsville Savings Bank are,
and for the foreseeable future will be, identical.
Because the Board views Messrs. Perciak and Ziegler as having the
greatest impact on corporate performance, the Board members have established a
compensation philosophy of providing base pay and incentive compensation for the
top two executive officers reflective of The Strongsville Savings Bank's
financial performance compared to situated thrifts. For individuals other than
Messrs. Perciak and Ziegler, the Board's Wage and Salary Committee seeks to
establish executive officer base salaries at a level commensurate with corporate
performance, peer group competitors and the individual officers' performance.
The Board and the Wage and Salary Committee continue to review all elements of
executive compensation in order to ensure that the total compensation program,
and each compensation element, meets Emerald's and The Strongsville Savings
Bank's business objectives and philosophy.
As a general rule, it has been the Board of Directors' and the
Committee's policy to take into account tax and financial accounting
considerations in connection with the granting of options or other forms of
grants and awards under The Strongsville Savings Bank 1994 Long-Term Incentive
Plan. Assuming shareholders approve the 1998 Stock Option and Incentive Plan, it
will continue to be the Board of Directors' and the Committee's policy to take
into account tax and financial accounting considerations in connection with the
granting of options and awards. Accordingly, the Board of Directors through its
Option Committee (in the case of stock option grants and other awards to
executive officers) does not expect that grants or awards will be made that
would exceed the limit on deductibility established by the Omnibus Budget
Reconciliation Act of 1993 ("OBRA"). In 1993, OBRA added Section 162(m) to the
Internal Revenue Code, the effect of which is generally to eliminate the
deductibility of compensation over $1 million paid to certain highly compensated
executive officers of publicly held
10
<PAGE> 14
corporations, such as the executive officers identified in the "Summary
Compensation Table." Section 162(m) applies to all remuneration (both cash and
non-cash) that would otherwise be deductible for tax years beginning on or after
January 1, 1994, unless expressly excluded. Although the Board and Committee
reserve the right to make grants and awards under the 1994 Long-Term Incentive
Plan and the 1998 Stock Option and Incentive Plan under circumstances in which
the compensation component thereof would not be fully deductible for federal
income tax purposes, it is not currently expected that they would do so.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Perciak received an increase in base salary for 1997 of $7,700, or
approximately 4.0%. This increase in base salary represents a similar percentage
increase as received by employees during 1997. While the Board generally takes
into consideration the overall performance of The Strongsville Savings Bank, the
Board does not use any specific measures or weighting of that performance in
establishing Mr. Perciak's base salary. Mr. Perciak's compensation package is
formalized in an employment agreement. See, "Employment Agreements." Mr. Perciak
and Executive Vice President Ziegler are eligible to receive 50% of base salary
in annual bonus under the terms of their employment contracts. Mr. Perciak
earned incentive compensation in fiscal year 1997 for the maximum amount
possible under his employment contract.
In reviewing Mr. Perciak's performance as President and Chief Executive
Officer and the justification for renewal of his employment contract for an
additional year, the directors favorably considered Mr. Perciak's performance
relative to the following factors: the increase in fee income, the growth in
deposits, loans and profitability attributable to The Strongsville Savings
Bank's corporate performance (return on assets and return on equity), the volume
of residential acquisition and development lending attributable to Mr. Perciak,
the market share performance of The Strongsville Savings Bank and The
Strongsville Savings Bank's compliance with safe and sound banking principles
and Community Reinvestment Act/consumer regulation requirements. At its December
17, 1997 meeting, the Board determined that each of Messrs. Perciak and Ziegler
had met the requirements and standards of the Board for executive officer
performance, and therefore their employment contracts were renewed for one
additional year.
The report of the Board shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Exchange Act of 1934, except to the extent that
Emerald specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such act.
Submitted by Emerald's Board of Directors:
Thomas P. Perciak, John F. Ziegler, George P. Bohnert, Jr., Joan M.
Dzurilla, William A. Fraunfelder, Jr., Glenn W. Goist, Mike Kalinich,
Sr., Kenneth J. Piechowski and John J. Plucinsky
PERFORMANCE GRAPH
The stock of The Strongsville Savings Bank began trading publicly on
October 5, 1993, having been sold in an initial public offering at the price of
$6.50 per share (adjusted for subsequent stock splits). Effective March 6, 1997,
each share of Bank capital stock was converted into one share of Emerald Stock,
and The Strongsville Savings Bank became a wholly owned subsidiary of Emerald.
Emerald Stock was approved for designation as a Nasdaq National Market security
on March 6, 1997.
The following graph compares the cumulative total shareholder return on
Emerald Stock to the cumulative total return of (i) a broad index of the
National Association of Securities Dealers, Inc. Automated Quotations ("Nasdaq")
System and (ii) the MG Savings and Loan Index, which is comprised of 386
publicly traded savings associations and thrift holding companies. The graph
compares cumulative total shareholder return for the period
11
<PAGE> 15
commencing October 5, 1993 and ending December 31, 1997, assuming that $100 was
invested on October 5, 1993 and that all dividends were reinvested.
COMPARISON OF THE CUMULATIVE TOTAL RETURN
AMONG EMERALD FINANCIAL CORP.
MG S&L INDEX, AND NASDAQ MARKET INDEX
(Performance Graph)
<TABLE>
<CAPTION>
10/5/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
Emerald Financial $100.00 $134.34 $141.60 $156.87 $185.17 $371.98
NASDAQ $100.00 $100.23 $105.23 $136.50 $169.62 $207.48
MG S&L PEER GROUP $100.00 $ 97.09 $ 93.00 $147.31 $192.25 $323.24
</TABLE>
This stock performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Exchange Act of 1934, except to
the extent Emerald specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such act.
EMPLOYMENT AGREEMENTS
Each of Mr. Perciak and Mr. Ziegler serves pursuant to an employment
agreement with The Strongsville Savings Bank. The employment agreements provide
for three-year terms, renewed and extended at each anniversary date for an
additional year upon a determination and resolution of the Board that the
performance of the executive has met the requirements and standards of the
Board. The effect of the annual renewal and extension is that each contract then
has a new three-year term. Each contract was renewed for an additional year by
Board action on December 17, 1997.
12
<PAGE> 16
Under the terms of his employment agreement, Mr. Perciak currently
receives a base salary of $219,200 per year, subject to annual adjustment by the
Board of Directors and annual incentive compensation of 2.5% of Emerald's
pre-tax profits (up to 50% of Mr. Perciak's base salary). In the event that (i)
Mr. Perciak is involuntarily terminated (other than for cause) within six months
following a change in control of Emerald or (ii) Mr. Perciak voluntarily
terminates his employment for good reason within six months after a change in
control of Emerald, Mr. Perciak will receive his base salary for the remaining
term of the agreement. For purposes of the change-in-control features of Mr.
Perciak's employment agreement, "change in control" is defined in the same
fashion as "change in control" for purposes of the Executive Supplemental
Benefit Agreements. See, " - Pension and Retirement Plan Information."
Until it was amended in July 1997, Mr. Perciak's employment agreement
had provided for an "equity appreciation bonus." Had it become payable to Mr.
Perciak, the equity appreciation bonus would have been an amount equal to ten
percent of the increase in The Strongsville Savings Bank's value, calculated as
the difference between The Strongsville Savings Bank's tangible book value as of
December 31, 1987 and the lesser of (i) the price paid in any acquisition of The
Strongsville Savings Bank or (ii) The Strongsville Savings Bank's tangible book
value as of December 31, 1992 (exclusive of capital raised from in a Fall 1990
private stock offering). Ten percent of the increase in The Strongsville Savings
Bank's value between December 31, 1987 and tangible book value as of December
31, 1992 is approximately $1,187,512. Prior to its elimination altogether in
July 1997, the equity appreciation bonus had previously been capped such that
equity appreciation occurring after December 31, 1992 would not have entitled
Mr. Perciak to any share of the subsequent increase in tangible net worth. Mr.
Perciak would have been entitled to the equity appreciation bonus in the event
of a change in control of Emerald even if he had retained his position.
In the years since adoption of the equity appreciation bonus provisions
of the employment agreement, numerous changes had occurred that, in the judgment
of the Board of Directors, could have undermined in whole or in part the
original intention of the equity appreciation bonus: to recognize the valuable
contributions that Mr. Perciak had made over many years of service to The
Strongsville Savings Bank and to create incentives for continued service to The
Strongsville Savings Bank (and Emerald). Changes in tax laws applicable to
employee benefit and executive compensation plans would have imposed
significantly adverse tax consequences on Mr. Perciak and The Strongsville
Savings Bank had the equity appreciation bonus been paid to Mr. Perciak as
required by his employment agreement. Payments under the employment agreement in
the event of a change in control of Emerald could have constituted an excess
parachute payment under the Internal Revenue Code, resulting in the imposition
of an excise tax on Mr. Perciak and denial of the deduction for such excess
amounts to Emerald or The Strongsville Savings Bank.
Additionally, the equity appreciation bonus feature of Mr. Perciak's
employment agreement was created at a time when The Strongsville Savings Bank
was a closely held private company, with little or no trading market for its
stock. In the years since 1988, when the employment agreement was originally
entered into, and 1997, when the equity appreciation bonus provisions of the
employment agreement were eliminated by amendment of the agreement, The
Strongsville Savings Bank had become a publicly traded company, with equity
securities registered under the Securities Exchange Act of 1934 and traded on
the Nasdaq SmallCap market. Additionally, The Strongsville Savings Bank
completed its holding company reorganization on March 6, 1997, becoming a wholly
owned subsidiary of Emerald, and Emerald Stock began trading on the
Nasdaq National Market in 1997. With the passage of time and these intervening
events and circumstances, the Board of Directors concluded that the equity
appreciation bonus provisions of Mr. Perciak's employment agreement needed to be
amended or replaced in their entirety. For these reasons, the equity
appreciation bonus was eliminated in July 1997 by amendment of Mr. Perciak's
employment agreement, following extensive discussions and consideration of a
variety of alternative compensation plans.
13
<PAGE> 17
As a replacement for the equity appreciation bonus, Mr. Perciak agreed
to a compensation arrangement having two principal features: (1) a split-dollar
life insurance policy on the life of Mr. Perciak and (ii) an additional
Executive Supplemental Benefit Agreement. See, " - Pension and Retirement Plan
Information" above.
Mr. Perciak's Executive Supplemental Benefit Agreement adopted in July
1997 provides for annual payment for twenty years following retirement (assuming
full vesting) based on a July 1997 present value of $645,000 plus earnings or
appreciation thereon. The retirement benefit vests ratably each year, becoming
fully vested at age 65 or, if sooner, (i) upon death or permanent disability or
(ii) upon a change in control of Emerald. Rather than receiving annual payment,
Mr. Perciak may petition the Board of Directors or the appropriate committee
thereof for payment of the entire retirement benefit in one lump sum. The
benefit payable in the event of a change in control would also be paid in a lump
sum. Likewise, under the Executive Supplemental Benefit Agreement adopted in
July 1997 Mr. Perciak may petition for full vesting of his benefits if he
chooses to retire before reaching age 65.
The other feature of the compensation plan Mr. Perciak agreed to as a
replacement for the equity appreciation bonus is a split-dollar policy on Mr.
Perciak's life with a net present value of $163,482. Mr. Perciak is the owner of
such policy and he and his successors or assigns are entitled to exercise all
rights thereunder. The policy has been collaterally assigned to The Strongsville
Savings Bank. The purpose of the collateral assignment is to secure repayment to
The Strongsville Savings Bank of premiums paid on the policy, which premiums
will be repaid from proceeds of the policy upon his death or earlier termination
of the policy.
Under the terms of his employment agreement, Mr. Ziegler currently
receives a base salary of $144,000 per year, subject to annual adjustment by the
Board of Directors, and annual incentive compensation of 1% of Emerald's pre-tax
profits (up to 50% of his base salary). Additionally, in the event Mr. Ziegler
(i) is terminated at any time other than for cause, (ii) voluntarily terminates
his employment for good reason within six months after a change in control
(defined in the same manner as in Mr. Perciak's agreement) or (iii) is
involuntarily terminated within six months following a change in control, Mr.
Ziegler will receive his base salary for the remaining term of the agreement.
In connection with the agreement between The Strongsville Savings Bank
and Mr. Perciak to eliminate his equity appreciation bonus and replace it with
an additional Executive Supplemental Benefit Agreement and split-dollar life
insurance policy, a similar arrangement was made for Mr. Ziegler. The Board of
Directors desired to recognize Mr. Ziegler as well for the value of
contributions made over many years of service to The Strongsville Savings Bank.
Mr. Ziegler has become the owner of a split-dollar policy on Mr. Ziegler's life
with a net present value of $71,203 but otherwise having the same terms and
conditions as the split-dollar policy owned by Mr. Perciak. Likewise, the Bank
entered into a second Executive Supplemental Benefit Agreement with Mr. Ziegler.
Mr. Ziegler's Executive Supplemental Benefit Agreement adopted in July 1997
provides for annual payment for twenty years following retirement (assuming full
vesting) based on a July 1997 present value of $307,827 plus earnings or
appreciation thereon. The retirement benefit vests ratably each year, becoming
fully vested at age 65 or, if sooner, (i) upon death or permanent disability or
(ii) upon a change in control of Emerald. Rather than receiving annual payment,
Mr. Ziegler may petition the Board of Directors or the appropriate committee
thereof for payment of the entire retirement benefit in one lump sum. The
benefit payable in the event of a change in control would also be paid in a lump
sum. Likewise, under the Executive Supplemental Benefit Agreement adopted in
July 1997 Mr. Ziegler may petition for full vesting of his benefits if he
chooses to retire before reaching age 65.
The Board of Directors concluded that the aggregate cost of and
benefits payable under the additional Executive Supplemental Benefit Agreements
of Messrs. Perciak and Ziegler and split-dollar life insurance policies are
commensurate with the anticipated costs and benefits under the equity
appreciation bonus that, together, they replaced. In the judgment of the Board
of Directors, the foregoing compensation arrangements are more consistent with
industry standards than the equity appreciation bonus and are in the best
interests of The Strongsville Savings Bank and Emerald.
14
<PAGE> 18
CHANGE-IN-CONTROL ARRANGEMENTS
Severance Agreements
The Strongsville Savings Bank entered into severance agreements in 1994
with four of its executive officers (including Mr. William J. Harr, Jr., an
executive officer identified in the Summary Compensation Table), other than
Messrs. Perciak and Ziegler. In addition, a similar severance agreement was
entered into in July 1997 with three executive officers, including Ms. Deborah
A. Perciak, Vice President of The Strongsville Savings Bank and spouse of
Emerald's and The Strongsville Savings Bank's President and Chief Executive
Officer. Each severance agreement has a term of one year, renewable each year
for an additional year upon a determination by the Board of Directors that the
executive has met the performance standards and requirements of the Board. Each
severance agreement terminates by its terms once the executive reaches the
retirement age of 65.
Each severance agreement provides that in the event of the involuntary
termination of the executive (other than for cause), or the executive's
voluntary termination for good reason, within six months after a change in
control, the executive would receive a lump sum payment equal to the executive's
annual base salary, plus the continuation of benefits until the earlier of the
executive's employment by another employer or the expiration of twelve months
from the executive's date of termination. In the event that the executive incurs
legal fees or expenses in enforcing the severance agreement, Emerald or The
Strongsville Savings Bank would pay all such fees and expenses if the executive
prevails, and an amount up to $25,000 if the executive does not prevail.
Payments to the executives under the severance agreements would not constitute
excess parachute payments under the Internal Revenue Code.
The definition in the severance agreements of "change in control" was
amended in 1997. As amended, a change in control is defined in the same manner
that term is defined for purposes of the Executive Supplemental Benefit
Agreements. See, " - Pension and Retirement Plan Information." above.
Executive Supplemental Benefit Agreements
The Strongsville Savings Bank has also entered into Executive
Supplemental Benefit Agreements with certain of its officers generally
corresponding to the level of Vice President or above, as discussed in "Pension
and Retirement Plan Information." The Executive Supplemental Benefit Agreements
provide for payments to the executive officers in certain events, including
involuntary termination (except for cause) or voluntary termination for good
reason (defined in the same fashion as under the severance agreements) within
six months after a change in control.
AMENDMENT OF THE COMPANY'S
AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL 2)
The second proposal to be acted upon at the Meeting is a proposal to
amend Article Fourth of the Company's Amended and Restated Articles of
Incorporation in order to increase the number of authorized shares of Emerald
Stock from 10,000,000 to 20,000,000 shares. As of January 31, 1998, there were
approximately 5,075,600 shares of Emerald Stock issued and outstanding. Assuming
the 1998 Stock Option and Incentive Plan is adopted at the Meeting, 250,000
shares will be reserved for issuance under the 1998 Stock Option and Incentive
Plan. In addition, no shares remain for issuance under the 1994 Long-Term
Incentive Plan.
15
<PAGE> 19
GENERAL
If the proposed amendment is approved by the shareholders, a total of
20,000,000 shares of Emerald Stock will be authorized for issuance. The purpose
of seeking approval to increase authorized shares is to provide additional
authorized shares of Emerald Stock for possible use in connection with future
financings, investment opportunities, acquisitions, employee benefit or dividend
reinvestment plan distributions, other distributions, such as stock dividends or
stock splits, or for other corporate purposes.
Authorized shares of Emerald Stock that are not issued or reserved for
issuance generally may be issued by the Company without any further action of
the shareholders. The additional authorized shares would enable the Company to
take advantage of market conditions to raise additional equity capital or issue
shares in connection with acquisitions without the delay and expense associated
with the holding of a shareholders' meeting to obtain approval for authorization
of additional shares. Unless required by law, regulatory authorities, or the
rules of any stock exchange on which the Company's securities may then be listed
or the rules of any national securities association on whose system Emerald
Stock may then be traded, no further authorization by vote of shareholders would
be required for any such share issuances.
The availability of authorized but unissued shares will enable the
Company to take advantage of market conditions by issuing stock as conditions
warrant, including issuance of stock as a dividend or in connection with a stock
split. As a general proposition, a stock split or the issuance of new shares as
stock dividends could reduce the per share market price of each outstanding
share, potentially stimulating additional investor interest due to the reduced
per share price.
The availability of authorized but unissued shares will enable the
Company to issue stock in connection with a public or private stock offering.
Shareholders do not have preemptive rights and therefore would not have a right
of first refusal to purchase any of the additional authorized shares of Emerald
Stock that may be offered and sold hereafter. The Company currently has no plans
to issue additional shares in a private or public stock offering, in connection
with any acquisitions or otherwise.
CERTAIN EFFECTS OF THE PROPOSED AMENDMENT
The increased availability for issuance of shares of Emerald Stock also
could enable the Board of Directors to render more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender offer or
other change-in-control transaction. For example, the issuance of shares of
Emerald Stock in a public or private sale, merger or similar transaction would
increase the number of outstanding shares, diluting the interest of a party
attempting to obtain control of the Company. Authorized but unissued shares of
Emerald Stock may be used to render more difficult or discourage an attempt to
change control of the Company, even under circumstances in which shareholders
believe such a change in control to be in their best interests. The Company is
not aware of any attempt, whether formal or informal, to acquire a controlling
interest in the Company.
VOTE REQUIRED
Under Ohio General Corporation Law, the affirmative vote of two thirds
of a corporation's shareholders is generally necessary in order to amend the
corporation's articles of incorporation and in order to take certain other
significant corporate actions, unless the corporation's articles of
incorporation provide for a lesser vote requirement. The Company's Amended and
Restated Articles of Incorporation do not provide for a lesser vote requirement.
Accordingly, amendment of Article Fourth of the Company's Amended and Restated
Articles of Incorporation for the purpose of increasing authorized shares of
Common Stock will require the affirmative vote of the holders of a two thirds of
the Company's issued and outstanding shares of Common Stock.
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THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ADOPTION OF THE
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION IN
ORDER TO INCREASE AUTHORIZED SHARES.
ADOPTION OF THE 1998 STOCK OPTION AND INCENTIVE PLAN
(PROPOSAL 3)
GENERAL
The 1998 Stock Option and Incentive Plan (the "Plan" or the "Stock
Option Plan") has been adopted by the Board of Directors of the Company,
effective upon approval by shareholders at the Meeting.
A total of 250,000 shares of Emerald Stock will be reserved for
issuance under the Stock Option Plan. In addition, the Stock Option Plan will
include any shares surrendered to the Company in payment of the exercise price
of options or stock appreciation rights issued under the Stock Option Plan. No
shares currently remain reserved for issuance under Emerald's 1994 Long-Term
Incentive Plan. The 1994 Long-Term Incentive Plan will not be affected in any
way by adoption of the 1998 Stock Option and Incentive Plan. Subject to
availability of shares, options may continue to be granted and other awards may
continue to be made under the terms of the 1994 Long-Term Incentive Plan until
termination of the 1994 Long-Term Incentive Plan. By its terms, the 1994 Long-
Term Incentive Plan will terminate in the year 2004 on the tenth anniversary of
adoption of the 1994 Long-Term Incentive Plan (but outstanding options granted
thereunder may be exercised after termination of the 1994 Long-Term Incentive
Plan, within the term of such options).
The Board of Directors believes that it is appropriate for the Company
to adopt a flexible and comprehensive stock option and incentive plan. The Plan
will permit the granting of a variety of long-term incentive awards to
directors, officers and employees as a means of enhancing and encouraging the
recruitment and retention of those individuals on whom the continued success of
the Company depends. The Board of Directors has approved the Stock Option Plan
in order to enhance the performance of the Company, to provide the opportunity
for directors, officers and employees to realize capital appreciation in
exchange for their contributions to the Company and The Strongsville Savings
Bank and to more thoroughly align the interests of directors, officers and
employees with the interests of shareholders generally. Because options granted
under the Stock Option Plan will be granted only to persons affiliated with the
Company as directors, officers or employees, the adoption of the Stock Option
Plan could make it more difficult for a third party to acquire control of the
Company and therefore could discourage offers for Emerald Stock that may be
viewed by the Company's shareholders to be in their best interest.
Attached as Appendix A to this Proxy Statement is the complete text of
the Stock Option Plan. The principal features of the Stock Option Plan are
summarized below.
AWARDS UNDER THE PLAN
The Stock Option Plan provides for awards in the form of stock options,
stock appreciation rights ("SARs"), other securities and property and restricted
stock. Each award shall be on such terms and conditions, consistent with the
Stock Option Plan, as the committee administering the Stock Option Plan may
determine.
Any shares subject to an award which expires or is terminated
unexercised will again be available for issuance under the Stock Option Plan or
any other plan of the Company or its subsidiaries. Generally, no award or any
right or interest therein is assignable or transferable except under certain
limited exceptions set forth in the Plan.
The Stock Option Plan will be administered by the Stock Option
Committee of the Board of Directors of the Company. Directors Bohnert,
Fraunfelder and Goist have been appointed as the present members of the Stock
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Option Committee. Pursuant to the terms of the Stock Option Plan, any director,
officer or employee of the Company or its affiliates is eligible to participate
in the Stock Option Plan, a group consisting of approximately 135 persons. In
granting awards under the Stock Option Plan, the Stock Option Committee will
consider, among other things, position and years of service, value of the
participant's services to the Company and its subsidiaries and the
responsibilities of such individuals as directors, officers and employees.
STOCK OPTIONS
The term of stock options will not exceed 10 years from the date of
grant. The Committee may grant either "Incentive Stock Options" as defined under
Section 422 of the Code or stock options not intended to qualify as such
("Non-Qualified Stock Options").
In general, stock options will not be exercisable after the expiration
of their terms. Unless otherwise determined by the Committee, in the event that
a participant terminates service to the Company or one of its affiliates for any
reason other than termination for cause, an exercisable stock option will
continue to be exercisable for three months, but in no event after the
expiration date of the option. A stock option will automatically terminate and
will no longer be exercisable as of the date a participant is terminated for
cause.
Stock Options and SARs Generally
The exercise price for the purchase of shares subject to a stock option
may not be less than 100% of the fair market value of the shares covered by the
option on the date of grant. The exercise price may be paid in cash or shares of
common stock or other awards, or a combination thereof. Because Emerald Stock is
traded on the Nasdaq National Market, the Stock Option Plan provides that the
exercise price of options will be determined by reference to the average of bid
and asked prices reported on the Nasdaq National Market. As of January 30, 1998,
the fair market value of Emerald Stock was $23.00 per share.
The Committee will have authority to prescribe the terms and conditions
of Options and SARs, including (i) the exercise price of any Option or SAR,
provided that the exercise price cannot be less than the fair market value of
Emerald Stock on the date of grant of the Option or SAR, (ii) the number of
shares of Emerald Stock subject to, and the expiration date of, any Option or
SAR, provided that the expiration date cannot be more than ten years from the
date of grant, (iii) the manner, time and rate (cumulative or otherwise) of
exercise of such Option or SAR, and (iv) the restrictions, if any, to be placed
upon Options or SARs or upon shares which may be issued upon exercise of an
Option or SAR. No individual may be granted awards under the Plan with respect
to more than 125,000 of the total shares subject to the Plan. No awards will
begin vesting and become exercisable earlier than one year from the date the
Plan is approved by shareholders of the Company.
In general, a recipient of an Option or SAR must have maintained
continuous service with the Company or The Strongsville Savings Bank since the
date of grant of the Option or SAR in order to exercise the Option or SAR.
Payment of the exercise price of an Option or SAR can be made either (i) in cash
or (ii) by delivering (A) shares of Emerald Stock already owned that have a fair
market value equal to the exercise price or (B) a combination of cash and
Emerald Stock.
If an individual to whom an Option or SAR was granted ceases to
maintain continuous service for any reason (excluding death or disability and
termination of employment by the Company or The Strongsville Savings Bank for
cause), that individual may exercise the Option or SAR (to the extent that the
Option or SAR is exercisable at that time) at any time within three months after
cessation of service, unless the Committee otherwise provides in the instrument
evidencing the grant of the Option or SAR. If the individual ceases to maintain
continuous service because of death or disability then, unless the Committee
otherwise provides in the instrument evidencing the Option or SAR, all of his or
her Options and SARs become exercisable in full remain exercisable (i) in the
event of death for a period of one year (but in no event later than ten years
from the date of grant of the Option or SAR) and (ii) in the event of
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disability for a period of three months. If the service of an individual is
terminated for cause, all rights under his or her Options or SARs expire
immediately upon such termination.
The 1993 Omnibus Budget Reconciliation Act ("OBRA") became law in
August, 1993. Under the new law, publicly held companies may be limited as to
income tax deductions to the extent total remuneration (including stock option
exercises) for certain executive officers exceeds $1 million in any one year.
However, OBRA provides an exception for "performance-based" remuneration,
including stock options. The new law requires that certain actions must be taken
by a compensation committee of two or more outside directors and that the
material terms of such remuneration must be approved by a majority vote of the
shareholders in order for stock options to qualify as "performance-based"
remuneration.
To ensure that stock options are treated as "performance-based"
compensation, Internal Revenue Service regulations issued in December, 1993
require a stock option grant to be made by the company's compensation committee
of two or more outside directors; the plan to include a per-employee limitation
on the number of shares for which options may be granted during a specified
period; and the exercise price of the option to be no less than the fair market
value of the stock on the date of the grant. As designed, the Stock Option Plan
provides that the maximum number of shares of Stock with respect to which
an award may be granted to an individual participant (i) in any one calendar
year is 50,000 and (ii) over the life of the Stock Option Plan is 125,000. The
Stock Option Plan has also been designed to comply with the other OBRA
restrictions noted herein. As such, shareholder approval of the Stock Option
Plan should qualify the Company for deductions of employees' compensation
attributable to stock option exercises by named executive officers in future
taxable years.
Incentive Stock Options
An Incentive Stock Option may not be transferred by the holder thereof
except by will or the laws of descent and distribution, and the Incentive Stock
Option will be exercisable during the holder's lifetime only. No Incentive Stock
Option may be granted to any individual who, at the time such Incentive Stock
Option is granted, owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company unless (i) the
exercise price of the Incentive Stock Option is at least 110 percent of the
Stock's fair market value per share at the date of grant and (ii) the Incentive
Stock Option is not exercisable after the expiration of five years from the date
of grant. The aggregate fair market value (determined as of the time any
Incentive Stock Option is granted) of the shares of Stock with respect to which
Incentive Stock Options are exercisable for the first time by a recipient of an
Incentive Stock Option award in any calendar year may not exceed $100,000.
No grants of Incentive Stock Options have been made under the 1998
Stock Option Plan.
STOCK APPRECIATION RIGHTS
The Stock Option Committee may grant SARs at any time, whether or not
the participant then holds stock options, granting the right to receive the
excess of the market value of the shares represented by the SARs on the date
exercised over the exercise price. SARs generally will be subject to the same
terms and conditions and exercisable to the same extent as stock options, as
described above. Upon the exercise of a SAR, the participant will receive the
amount due in cash or shares, or a combination of both, as determined by the
Stock Option Committee. SARs may be related to stock options ("tandem SARs"), in
which case the exercise of one will reduce to that extent the number of shares
represented by the other.
No grants of SARs have been made under the 1998 Stock Option Plan.
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RESTRICTED STOCK
The Stock Option Committee may grant Restricted Stock, subject to such
restrictions as the Stock Option Committee may impose. The holder of Restricted
Stock may have all of the rights of a shareholder, including the right to
receive dividends and the right to vote the shares. Unless otherwise determined
by the Stock Option Committee, all unvested shares of Restricted Stock are
forfeited upon termination of service of the recipient.
The Stock Option Committee may, in its discretion, accelerate the time
at which any or all restrictions will lapse, or may remove any or all of the
restrictions. Restrictions may lapse separately or in combination at such time
or times, in such installments or otherwise as the Stock Option Committee may
deem appropriate.
No awards of Restricted Stock have been made under the 1998 Stock
Option Plan.
PERFORMANCE AWARDS
The Committee may award Long-Term Performance Awards to participants in
the Stock Option Plan, either in conjunction with or separate from other awards
or grants under the Plan. Long-Term Performance Awards are payable based on the
attainment of performance goals within a period of time (the "performance
period"). The Committee determines the objective standards used to measure the
amount payable pursuant to a Long-Term Performance Award, the length of the
performance period (which must be at least two(2) years), and the extent to
which the participant has earned any amount. Any amount earned under a Long-Term
Performance Award is payable in Stock or cash as determined by the Committee.
A participant who separates from employment with The Strongsville
Savings Bank or Company as a result of death, disability or retirement prior to
the end of a performance period may earn a portion of the amount payable under a
Long-Term Performance award based in part on the participant's performance
during the performance period through separation. A participant who separates
from employment for any other reason is not entitled to any payment under a
Long-Term Performance Award, except as noted below.
No Long-Term Performance Awards have been made under the 1998 Stock
Option Plan.
EFFECT OF MERGER AND OTHER ADJUSTMENTS
Shares as to which awards may be granted under the Stock Option Plan,
and shares then subject to awards, will be adjusted by the Committee in the
event of any merger, consolidation, reorganization, recapitalization, stock
dividend, stock split or other change in the corporate structure of the Company.
In the case of any merger, consolidation or combination of the Company
in which the Company is not the continuing company or its outstanding shares are
converted into or exchanged for different securities, cash or property, or any
combination thereof, any participant to whom a stock option or SAR has been
granted will have the right upon exercise of the option or SAR to an amount
equal to the excess of the market value on the date of exercise of the
consideration receivable in the merger, consolidation or combination with
respect to the shares covered or represented by the stock option or SAR over the
exercise price of the option or SAR multiplied by the number of shares with
respect to which the option or SAR has been exercised.
The restricted period with respect to an award of Restricted Stock will
lapse, and the stock will become fully vested, after a change in control of the
Company. A change in control will be deemed to occur when (i) a person or group
becomes the beneficial owner of shares of the Company representing 25% or more
of the total number of votes which may be cast for the election of the Board of
Directors of the Company, (ii) in connection with any tender or exchange offer
(other than an offer by the Company), merger or other business combination, sale
of assets or contested election, or combination of the foregoing, the persons
who are Directors of the Company cease to be a majority of the Board of
Directors, or (iii) shareholders of the Company approve a transaction pursuant
to which
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the Company will cease to be an independent company or pursuant to which
substantially all of its assets will be sold.
In addition, unless the Stock Option Committee provides otherwise, in
the event of a tender or exchange offer (other than an offer made by the
Company) or if the event specified in clause (iii) above occurs, all outstanding
stock options and SARs not fully exercisable will become exercisable in full.
AMENDMENT AND TERMINATION
The Board of Directors of the Company may at any time amend, suspend or
terminate the Stock Option Plan or any portion thereof. However, without the
prior approval of the shareholders, the Board of Directors may not adopt any
amendment that (i) increases the aggregate number of shares with respect to
which awards may be made under the Plan (except pursuant to Section 11, which
section provides for adjustments in the event of changes in the Company's
capitalization), (ii) materially increases the benefits accruing to Plan
participants, (iii) materially changes the requirements as to eligibility for
participation in the Plan or (iv) changes the class of persons eligible to
participate in the Plan. In addition, the Board of Directors generally may not
impair the rights of any Plan participant, without his or her consent, in any
award made pursuant to the Plan.
FEDERAL INCOME TAX CONSEQUENCES
Under present federal income tax laws, awards under the Stock Option
Plan will have the following consequences:
(1) The grant of an award, by itself, will generally neither result in the
recognition of taxable income to the participant nor entitle the
Company to a deduction at the time of such grant.
(2) In order to qualify as an "Incentive Stock Option," a stock option
awarded under the Stock Option Plan must meet the conditions contained
in Section 422 of the Code, including the requirement that the shares
acquired upon the exercise of the stock option be held for one year
after the date of exercise and two years after the grant of the option
(the "ISO Holding Period"). Upon the disposition of shares of stock
acquired pursuant to the exercise of an Incentive Stock Option which
satisfies the requisite ISO Holding Period, the optionee will recognize
capital gain or loss, as the case may be, measured by the difference
between the stock's selling price and the exercise price. The Company
is not entitled to any tax deduction by reason of the grant or exercise
of an Incentive Stock Option, or by reason of a disposition of stock
received upon exercise of an Incentive Stock Option if the ISO Holding
Period is satisfied. Different rules apply if the optionee disposes of
the shares of stock acquired pursuant to the exercise of an Incentive
Stock Option before the expiration of the ISO Holding Period. Option
grants for shares which are exercisable for the first time by an
optionee during any calendar year (under all plans of the Company and
any parent corporation or subsidiary of the Company), which have a fair
market value in excess of $100,000, shall be treated as options which
are not Incentive Stock Options, and will be subject to the same tax
treatment as for the grant of nonqualified stock options, as discussed
below.
(3) The exercise of a stock option which is not an Incentive Stock Option
will result in the recognition of ordinary income by the participant on
the date of exercise in an amount equal to the difference between the
exercise price and the fair market value on the date of exercise of the
shares acquired pursuant to the stock option. The Company, in computing
its federal income tax, will generally be entitled to a deduction
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in an amount equal to the compensation taxable to the options in the
Company's taxable year in which the amount is included as income to the
optionee.
(4) The exercise of an SAR will result in the recognition of ordinary
income by the participant on the date of exercise in an amount of cash,
and/or the fair market value on that date of the shares, acquired
pursuant to the exercise.
(5) Holders of Restricted Stock will recognize ordinary income on the date
that the Restricted Stock is no longer subject to a substantial risk of
forfeiture, in an amount equal to the fair market value of the shares
on that date. In certain circumstances, a holder may elect to recognize
ordinary income and determine such fair market value on the date of the
grant of the Restricted Stock. Holders of Restricted Stock will also
recognize ordinary income equal to their dividend or dividend
equivalent payments when such payments are received. Generally, the
amount of income recognized by participants will be a deductible
expense for tax purposes for the Company.
(6) The Company will be allowed a deduction at the time, and in the amount
of, any ordinary income recognized by the participant under the various
circumstances described above, provided that the Company meets its
federal withholding tax obligations.
VOTE REQUIRED
A majority of the voting power of Emerald Stock is necessary in order
to adopt the Company's 1998 Stock Option and Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ADOPTION OF THE
1998 STOCK OPTION AND INCENTIVE PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 4)
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP
as the Company's auditors for the fiscal year ending December 31, 1998, subject
to ratification of such appointment by the shareholders. KPMG Peat Marwick LLP
has acted as Emerald's independent auditors since September 17, 1997. Unless
otherwise indicated, properly executed proxies will be voted in favor of
ratifying the appointment of KPMG Peat Marwick LLP, independent certified public
accountants, to audit the financial records and accounts of the Company for the
fiscal year ending December 31, 1998.
Effective September 17, 1997, the engagement of Deloitte & Touche LLP
as the Company's independent auditors was terminated by the Company. The
decision to change accountants was approved by the Board of Directors upon the
recommendation of the Audit Committee. The audit reports of Deloitte & Touche
LLP on the consolidated financial statements of the Company and subsidiaries as
of and for the years ended December 31, 1996 and 1995 did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles. In connection with the
audits of the two fiscal years ended December 31, 1996 and the subsequent
interim period through September 17, 1997, there were no disagreements with
Deloitte & Touche LLP on any matter of accounting principle or practices,
financial statement disclosure or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused Deloitte &
Touche LLP to reference to the subject matters of the disagreements in
connection with Deloitte & Touche LLP's opinion. Additionally, there were no
disagreements with Deloitte & Touche LLP regarding any of these matters, either
those resolved to their satisfaction or those not resolved to their
satisfaction. None of the events listed in Item 304(a)(1)(v)(A) through (D) of
the Securities and Exchange Commission's Regulation S-K occurred during the
fiscal years ended December 31, 1995 or 1996 or the subsequent interim period
from January 1, 1997 through September 17, 1997. During the fiscal years ended
December 31, 1995 and 1996 and the subsequent interim period from January 1,
1997 through September 17, 1997, there was no consultation with
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KPMG Peat Marwick LLP regarding: (1) application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements; or (2) any
matter that was the subject of disagreement (as defined in paragraph
304(a)(1)(iv) of the Securities and Exchange Commission's Regulation S-K) or a
reportable event (as defined in paragraph 304(a)(1)(v) of Regulation S-K).
Representatives of KPMG Peat Marwick LLP, which has acted as
independent auditors of the Company since September 17, 1997, will be present at
the Meeting. They will be given an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
Ratification of the appointment of auditors requires the affirmative vote of a
majority of the votes actually cast at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1998
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Strongsville Savings Bank refers certain title insurance business
to National Land Title Insurance Company ("National Land") and City Title
Company Agency, Inc. ("City Title"). Joseph and Michael Dzurilla, the adult sons
of Director Joan M. Dzurilla, own the stock of NLTI Financial, a holding company
which owns 100% of National Land. City Title is a real estate title insurance
agency wholly owned by National Land. City Title performs title searches, title
examinations and insurability determinations related to title insurance
commitments for mortgage loan transactions insured by National Land. City Title
and National Land are each charging for title business work at a rate consistent
with the standards for that industry.
During 1997, City Title performed services related to loan transactions
such as title insurance and commitments, title examinations, and post-closing
services. Borrowers of The Strongsville Savings Bank paid City Title $198,561.93
during 1997 for services related to the loan transactions.
Some of the directors and officers, as well as firms and companies with
which they are associated, are and have been customers of The Strongsville
Savings Bank, and as engaged in various banking transactions with The
Strongsville Savings Bank in 1997. Loan transactions with these persons were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, prevailing at the time for comparable
transactions with others, and did not present more than a normal risk of
collectibility or other unfavorable features.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, as well as persons who own more than
10% of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Emerald Stock and other equity securities of the
Company. Based solely on review of the copies of such reports furnished to the
Company and written representations to the Company, to the Company's knowledge
all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with during the
fiscal year ended December 31, 1997.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials
for the 1998 Annual Meeting of Shareholders, any shareholder proposal to take
action at such meeting must be received at the Company's executive
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offices, 14092 Pearl Road, Strongsville, Ohio 44136, no later than November 20,
1998. Any such proposal shall be subject to the requirements of the proxy rules
adopted under the Securities Exchange Act of 1934.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than the matters discussed in this Proxy Statement. However, if
any other matters should properly come before the Meeting, it is intended that
holders of the proxies will act in accordance with their best judgment. The
Company's Code of Regulations places restrictions on presentation at any
shareholders' meeting of new business that has not been stated in writing and
filed in advance with the secretary of the Company.
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Stock. In addition to solicitation by mail,
directors, officers and regular employees of the Company or The Strongsville
Savings Bank may solicit proxies personally or by telephone, without additional
compensation. [The Company has engaged the services of D.F. King & Company, Inc.
to assist in the solicitation of proxies at an anticipated cost of $2,000.00
plus expenses.]
Strongsville, Ohio
March 20, 1998
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EMERALD FINANCIAL CORP. APPENDIX A
1998 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its shareholders by providing a means for
attracting and retaining directors, officers and employees of the Corporation
and its Affiliates. It is intended that designated Options granted pursuant to
the provisions of this Plan to persons employed by the Corporation or its
Affiliates will qualify as Incentive Stock Options. Options granted to persons
who are not employees will be Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, Restricted Stock or other property or
securities, or any combination thereof, as provided in the Plan.
"Award Agreement" - means the agreement evidencing the grant of an
Award made under the Plan.
"Bank" - means The Strongsville Savings Bank, and any successor entity.
"Cause" or "cause" - means, in connection with termination or cessation
of service as a director, officer or employee of the Corporation or an
Affiliate, personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties or gross negligence.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, officer or employee of the Corporation or
an Affiliate, except that when used with respect to persons granted an Incentive
Option "Continuous Service" means the absence of any interruption or termination
of service as an employee of the Corporation or an Affiliate. Service shall not
be considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Corporation or in the case of transfers between
payroll locations of the Corporation or between the Corporation, its parent, its
subsidiaries or its successor.
"Corporation" - means Emerald Financial Corp., an Ohio corporation, or
any successor thereto as provided in Section 19 herein.
"Employee" - means any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price per
Share at which the Shares subject to such Option may be purchased upon exercise
of such Option and (ii) in the case of a Right, the price per Share which, upon
grant, the Committee determines shall be used to calculate the aggregate value a
Participant shall be entitled to receive pursuant to Sections 9 or 12 hereof
upon exercise of such Right.
"Incentive Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
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<PAGE> 29
under Section 422 of the Code. Unless otherwise set forth in the Award
Agreement, any Option that does not qualify as an Incentive Stock Option for any
reason shall be deemed a Non-Qualified Stock Option.
"Market Value" - means the average of the high and low quoted sales
prices on the date in question (or, if there is no reported sale on such date,
on the last preceding date on which any reported sale occurred) of a Share on
the Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the National Association of Securities
Dealers, Inc., Automated Quotations System, or any similar system then in use,
or, if no such quotations are available, the fair market value on such date of a
Share as the Board of Directors shall determine.
"Non-Employee Director" - means a director who (a) is an outside
director, as defined in Section 162(m) of the Code, and (b) is a Non-Employee
Director, as defined in Rule 16b-3(b)(3) of the Securities and Exchange
Commission or any successor rule thereto.
"Non-Qualified Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which does not qualify,
for any reason, as an Incentive Stock Option under Section 422(b) of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any director, officer or employee of the
Corporation or any Affiliate who is selected by the Committee to receive an
Award.
"Plan" - means the 1998 Stock Option and Incentive Plan of the
Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted
in connection with, and to the extent exercisable, in whole or in part, in lieu
of, an Option or another Right and (ii) in the case of an Option, an Option
which is granted in connection with, and to the extent exercisable, in whole or
in part, in lieu of, a Right or another Option.
"Restricted Stock" - means Shares awarded to a Participant by the
Committee pursuant to Section 10(a) hereof.
"Right" - means a Stock Appreciation Right.
"Shares" - means the shares of Common Stock of the Corporation, without
par value.
"Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to the Plan.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed from time to time by
the Board of Directors of the Corporation and shall serve at the discretion of
the Board of Directors. Except as limited by the express provisions of the Plan
or by resolutions adopted by the Board of Directors of the Corporation, the
Committee shall have sole and complete authority and discretion to (i) select
Participants and grant Awards; (ii) determine the number of Shares to be subject
to types of Awards generally, as well as to individual Awards granted under the
Plan; (iii) determine the terms and conditions upon which Awards shall be
granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; and (v) establish from time to
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time regulations for the administration of the Plan, interpret the Plan, and
make all determinations deemed necessary or advisable for the administration of
the Plan.
Without in any way limiting the authority of the Committee under the
terms of the Plan, the Committee may provide in any Award Agreement that the
recipient of the Award shall maintain in confidence the amount and terms of his
or her award, except as disclosure thereof may be required under applicable law.
An Award shall be subject to forfeiture at the Committee's discretion for
violation of the confidentiality provisions of an Award Agreement, except
insofar as such Award relates to Options or Rights that have been exercised or
Shares that have become vested by lapse of any applicable restrictions.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
4. Eligibility. The Committee may select from time to time Participants
in the Plan from those directors, officers and employees of the Corporation or
its Affiliates who, in the opinion of the Committee, are responsible for or
contribute to the management, growth and profitability of the Corporation and
its Affiliates. Subject to adjustment as set forth in Section 11, the maximum
number of Shares subject to an Award granted to any individual Participant in
any calendar year shall be Fifty Thousand (50,000) Shares.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 250,000, plus any Shares surrendered to the
Corporation in payment of the exercise price of Options or Rights issued under
the Plan. The Shares with respect to which Awards may be made under the Plan may
be authorized and unissued shares or issued shares heretofore or hereafter
reacquired and held as treasury shares. Shares that are subject to Related
Rights and Related Options shall be counted only once in determining whether the
maximum number of Shares with respect to which Awards may be granted under the
Plan has been exceeded. An Award shall not be considered to have been made under
the Plan with respect to any Option or Right that terminates. New Awards may be
granted under the Plan with respect to the number of Shares as to which such
termination has occurred.
6. General Terms and Conditions of Options and Rights. The Committee
shall have full and complete authority and discretion, except as expressly
limited by the Plan, to grant Options and/or Rights and to provide the terms and
conditions (which need not be identical among Participants) thereof. In
particular, the Committee shall prescribe the following terms and conditions:
(i) the Exercise Price of any Option or Right, which shall not be less than the
Market Value per Share at the date of grant of such Option or Right, (ii) the
number of Shares subject to, and the expiration date of, any Option or Right,
which expiration date shall not exceed ten years from the date of grant, (iii)
the manner, time and rate (cumulative or otherwise) of exercise of such Option
or Right, and (iv) the restrictions, if any, to be placed upon such Option or
Right or upon Shares which may be issued upon exercise of such Option or Right.
Notwithstanding the foregoing, subject to adjustment by the operation of Section
11 hereof, no individual shall be granted Awards with respect to more than
125,000 of the total shares subject to the Plan. No Awards shall vest and become
exercisable earlier than one year from the date the Plan is approved by
shareholders of the Corporation.
Furthermore, at the time of any Award, the Participant shall enter into
an agreement with the Corporation in a form specified by the Committee, agreeing
to the terms and conditions of the Award and such other matters as the
Committee, in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the
Plan shall be exercisable during the lifetime of the Participant to whom such
Option or Right was granted only by such Participant and, except as provided in
paragraphs (c) and (d) of this Section 7, no such Option or Right may be
exercised unless at the time
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such Participant exercises such Option or Right, such Participant has maintained
Continuous Service since the date of grant of such Option or Right.
(b) To exercise an Option or Right under the Plan, the Participant to
whom such Option or Right was granted shall give written notice to the
Corporation in form satisfactory to the Committee (and, if partial exercises
have been permitted by the Committee, by specifying the number of Shares with
respect to which such Participant elects to exercise such Option or Right)
together with full payment of the Exercise Price, if any and to the extent
required. The date of exercise shall be the date on which such notice is
received by the Corporation. Payment, if any is required, shall be made either
(i) in cash (including check, bank draft or money order) or (ii) by delivering
(A) Shares already owned by the Participant and having a fair market value equal
to the applicable exercise price, such fair market value to be determined in
such appropriate manner as may be provided by the Committee or as may be
required in order to comply with or to conform to requirements of any applicable
laws or regulations, or (B) a combination of cash and such Shares.
(c) If a Participant to whom an Option or Right was granted shall cease
to maintain Continuous Service for any reason (excluding death or disability and
termination of employment by the Corporation or any Affiliate for cause), such
Participant may, but only within the period of three months immediately
succeeding such cessation of Continuous Service and in no event after the
expiration date of such Option or Right, exercise such Option or Right to the
extent that such Participant was entitled to exercise such Option or Right at
the date of such cessation; provided, however, that such right of exercise after
cessation of Continuous Service shall not be available to a Participant if the
Committee otherwise determines and so provides in the applicable instrument or
instruments evidencing the grant of such Option or Right. If a Participant to
whom an Option or Right was granted shall cease to maintain Continuous Service
by reason of death or disability then, unless the Committee shall have otherwise
provided in the instrument evidencing the grant of an Option or Stock
Appreciation Right, all Options and Rights granted and not fully exercisable
shall become exercisable in full upon the happening of such event and shall
remain so exercisable (i) in the event of death for the period described in
paragraph (d) of this Section 7 and (ii) in the event of disability for a period
of three months following such date. If the Continuous Service of a Participant
to whom an Option or Right was granted by the Corporation is terminated for
cause, all rights under any Option or Right of such Participant shall expire
immediately upon the giving to the Participant of notice of such termination.
(d) In the event of the death of a Participant while in the Continuous
Service of the Corporation or an Affiliate or within the three month period
referred to in paragraph (c) of this Section 7, the person to whom any Option or
Right held by the Participant at the time of his death is transferred by will or
the laws of descent and distribution, or in the case of an Award other than an
Incentive Stock Option, pursuant to a qualified domestic relations order, as
defined in the Code or Title 1 of ERISA or the rules thereunder may, but only to
the extent such Participant was entitled to exercise such Option or Right as set
forth in paragraph (c) of this Section 7, exercise such Option or Right at any
time within a period of one year succeeding the date of death of such
Participant, but in no event later than ten years from the date of grant of such
Option or Right. Following the death of any Participant to whom an Option was
granted under the Plan, irrespective of whether any Related Right shall have
been granted to the Participant or whether the person entitled to exercise such
Related Right desires to do so, the Committee may, as an alternative means of
settlement of such Option, elect to pay to the person to whom such Option is
transferred by will or by the laws of descent and distribution, or in the case
of an Option other than an Incentive Stock Option, pursuant to a qualified
domestic relations order, as defined in the Code or Title I of ERISA or the
rules there under, the amount by which the Market Value per Share on the date of
exercise of such Option shall exceed the Exercise Price of such Option,
multiplied by the number of Shares with respect to which such Option is properly
exercised. Any such settlement of an Option shall be considered an exercise of
such Option for all purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only
to Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the
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<PAGE> 32
Participant to whom such Incentive Stock Option is granted other than by will or
the laws of descent and distribution, and shall be exercisable during such
Participant's lifetime only by such Participant, (iv) no Incentive Stock Option
shall be granted to any individual who, at the time such Incentive Stock Option
is granted, owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Corporation or any Affiliate unless
the Exercise Price of such Incentive Stock Option is at least 110 percent of the
Market Value per Share at the date of grant and such Incentive Stock Option is
not exercisable after the expiration of five years from the date such Incentive
Stock Option is granted, and (v) the aggregate Market Value (determined as of
the time any Incentive Stock Option is granted) of the Shares with respect to
which Incentive Stock Options are exercisable for the first time by a
Participant in any calendar year shall not exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon
its exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto; provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. Restricted Stock and Performance Awards.
(a) Restricted Stock. The Committee is hereby authorized to grant
Awards of Restricted Stock to Participants with the following terms and
conditions and with such additional terms and conditions not inconsistent with
the provisions of the Plan as the Committee shall determine:
(i) Restrictions. Shares of Restricted Stock shall be subject to such
restrictions as the Committee may impose (including, without
limitation, any limitation on the right to vote a Share of Restricted
Stock or the right to receive any dividend or other right or property
with respect thereto), which restrictions may lapse separately or in
combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates,
which certificate or certificates shall be held by the Corporation.
Such certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the
restrictions applicable to such Restricted Stock.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined by
the Committee, upon Termination of Service during the applicable
restriction period, all Shares of Restricted Stock at such time subject
to restriction shall be forfeited to the Corporation; provided,
however, that the Committee may waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock.
Shares representing Restricted Stock that is no longer subject to
restrictions shall be delivered to the holder thereof promptly after
the applicable restrictions lapse or are waived.
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<PAGE> 33
(b) Performance Awards. The Committee is hereby authorized to grant
performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
performance Award granted and the amount of any payment or transfer to be made
pursuant to any performance Award shall be determined by the Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards have
been granted under the Plan shall be appropriately adjusted by the Committee,
whose determination shall be conclusive. Creation of a class of Serial Preferred
Stock or issuance of such shares hereafter shall not be deemed to constitute a
change requiring adjustment under this Section.
12. Effect of Merger and Change in Control.
(a) Merger. In the event of any merger, consolidation or combination of
the Corporation (other than a merger, consolidation or combination in which the
Corporation is the continuing entity and which does not result in the
outstanding Shares being converted into or exchanged for different securities,
cash or other property, or any combination thereof) pursuant to a plan or
agreement the terms of which are binding upon all shareholders of the
Corporation (except to the extent that dissenting shareholders may be entitled,
under statutory provisions or provisions contained in the articles of
incorporation, to receive the appraised or fair value of their holdings), any
Participant to whom an Option or Right has been granted shall have the right
(subject to the provisions of the Plan and any limitation or vesting period
applicable to such Option or Right), thereafter and during the term of each such
Option or Right, to receive upon exercise of any such Option or Right an amount
equal to the excess of the fair market value on the date of such exercise of the
securities, cash or other property, or combination thereof, receivable upon such
merger, consolidation or combination in respect of a Share over the Exercise
Price of such Right or Option, multiplied by the number of Shares with respect
to which such Option or Right shall have been exercised. Such amount may be
payable fully in cash, fully in one or more of the kind or kinds of property
payable in such merger, consolidation or combination, or partly in cash and
partly in one or more of such kind or kinds of property, all in the discretion
of the Committee.
(b) Change in Control. Each of the events specified in the following
clauses (i) through (iii) of this Section 12(b) shall be deemed a "change in
control": (i) any third person, including a "group," as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Corporation with respect to which 25% or more of the
total number of votes for the election of the Board of Directors of the
Corporation may be cast (other than any person or group owning 25% or more of
the Common Stock as of the date of adoption of the Plan, and other than any
person who, together with members of his immediate family, owns 25% or more of
the Common Stock as of the date of adoption of the Plan), (ii) as a result of,
or in connection with, any cash tender offer, merger or other business
combination, sale of assets or contested election, or combination of the
foregoing, the persons who were directors of the Corporation shall cease to
constitute a majority of the Board of Directors of the Corporation, or (iii) the
shareholders of the Corporation shall approve an agreement providing either for
a transaction in which the Corporation will cease to be an independent, publicly
owned corporation or for a sale or other disposition of all or substantially all
the assets of the Corporation. Upon a change in control, unless the Committee
shall have otherwise provided in the Award Agreement, any restricted period with
respect to Restricted Stock awarded to such Participant shall lapse and all
Shares awarded as Restricted Stock shall become fully vested in the Participant
to whom such Shares were awarded. If a tender offer or exchange offer for Shares
(other than such an offer by the Corporation) is commenced, or if the event
specified in clause (iii) above shall
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<PAGE> 34
occur, unless the Committee shall have otherwise provided in the Award
Agreement, all Options and Stock Appreciation Rights granted and not fully
exercisable shall become exercisable in full upon the happening of such event;
provided, however, that no Option or Stock Appreciation Right that has
previously been exercised or otherwise terminated shall become exercisable.
13. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
14. Employee Rights Under the Plan. No director, officer or employee
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no director, officer, employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Corporation or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Corporation
or any Affiliate.
15. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under the Securities Act
of 1933 or other applicable securities law. The Corporation shall not be
required to deliver any Shares under the Plan prior to (i) the admission of such
shares to listing on any stock exchange on which Shares may then be listed, and
(ii) the completion of such registration or other qualification of such Shares
under any state or Federal law, rule or regulation, as the Committee shall
determine to be necessary or advisable.
16. Withholding Tax. Upon the termination of the restricted period with
respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in taxable
income), the Corporation shall have the right to require the Participant or
other person receiving such shares to pay the Corporation the amount of any
taxes which the Corporation is required to withhold with respect to such shares,
or, in lieu thereof, to retain or sell without notice, a sufficient number of
shares held by it to cover the amount required to be withheld. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Corporation is required to
withhold with respect to such dividend payments.
The Corporation shall have the right to deduct from all amounts paid in
cash with respect to the exercise of a Right under the Plan any taxes required
by law to be withheld with respect to such cash payments. Where a Participant or
other person is entitled to receive Shares pursuant to the exercise of an Option
or Right pursuant to the Plan, the Corporation shall have the right to require
the Participant or such other person to pay the Corporation the amount of any
taxes which the Corporation is required to withhold with respect to such Shares,
or, in lieu thereof, to retain, or sell without notice, a number of such Shares
sufficient to cover the amount required to be withheld.
All withholding decisions pursuant to this Section 16 shall be at the
sole discretion of the Committee or the Corporation.
17. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 11 hereof) no amendment shall be made without
approval of the shareholders of the Corporation which shall (i) increase the
aggregate number
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<PAGE> 35
of Shares with respect to which Awards may be made under the Plan (except
pursuant to Section 11), (ii) materially increase the benefits accruing to
Participants, (iii) materially change the requirements as to eligibility for
participation in the Plan or (iv) change the class of persons eligible to
participate in the Plan; provided, that no such amendment, suspension or
termination shall impair the rights of any Participant, without his consent, in
any Award made pursuant to the Plan.
18. Effective Date and Term of Plan. The Plan shall become effective
upon its adoption by shareholders of the Corporation. It shall continue in
effect for a term of ten years unless sooner terminated under Section 17 hereof.
19. Successors. All obligations of the Corporation under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Corporation, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Corporation.
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<PAGE> 36
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
P KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a
R shareholder of Emerald Financial Corp. (the "Company"), hereby appoints
O Mike Kalinich and Kenneth J. Piechowski, or either of them, with full
X power of substitution, my true and lawful Proxy to represent and vote
Y on behalf of the undersigned the same number of shares which the
undersigned is then entitled to vote, for the matters as may come before
the Annual Meeting of Shareholders of Emerald Financial Corp. to be held
on April 16, 1998 and at any adjournments or postponements thereof, as
follows:
The Board of Directors recommends a vote "FOR" the nominees as
directors and all the listed proposals.
William A. Fraunfelder, Jr., Glenn W. Goist and John F. Ziegler
THIS PROXY WILL BE VOTED AS DIRECTED. BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS STATED.
IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE
VOTED, BY THOSE NAMED IN THIS PROXY, IN ACCORDANCE WITH THEIR BEST
JUDGMENT. AT PRESENT, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE MEETING.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
SEE REVERSE
SIDE
<PAGE> 37
<TABLE>
<S> <C> <C>
[X] PLEASE MARK YOUR SHARES IN YOUR NAME REINVESTMENT SHARES
VOTES AS IN THIS
EXAMPLE.
VOTE
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. The approval of the amendment [ ] [ ] [ ]
Directors of Article Fourth of the Company's
(see reverse) Amended and Restated Articles of
Incorporation to increase authorized
shares of Common Stock, without par
INSTRUCTION: To withhold your vote for value, from 10,000,000 to 20,000,000
a nominee or more than one nominee,
write the name(s) of the nominee(s) below: 3. The approval of the [ ] [ ] [ ]
1998 Stock Option and
Incentive Plan
- ------------------------------------------
FOR AGAINST ABSTAIN
4. The approval of the [ ] [ ] [ ]
appointment of KPMG Peat
Marwick LLP as auditors
for the fiscal year
ending December 31, 1998.
5. In their discretion, the Proxies
are authorized to vote upon such
other business as may properly come
before the meeting.
</TABLE>
THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM
EMERALD FINANCIAL CORP. PRIOR TO THE
EXECUTION OF THIS PROXY OF A NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS, A PROXY
STATEMENT DATED MARCH 20, 1998, AND ANNUAL
REPORT TO SHAREHOLDERS FOR THE YEAR ENDING
DECEMBER 31, 1997.
Executed this ___ day of __________, 1998.
Please
mark here [ ]
if attending
meeting
Signature DATE
------------------------------------------------- ------------
(Signature of Shareholder or Authorized Representative)
Signature DATE
------------------------------------------------- ------------
(Signature if Held Jointly)
(When signing as executor, attorney, guardian, administrator, trustee or in any
other representative capacity, please give full title as such. If a corporation,
please sign in full corporate name by the President or other duly authorized
officer. If a partnership, please sign in partnership name by a duly authorized
person (general partner).)
