SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6
(6)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ection 240.14a-11(c) or Section 240.
14a-12
Monterey Bay Bancorp, Inc.
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(Name of Registrant as Specified in Its Charter)
N/A
------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)(4) and
0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
[ ] 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
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1) Amount Previously Paid:
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4) Date Filed:
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MONTEREY BAY BANCORP, INC.
567 Auto Center Drive
Watsonville, California 95076
(831) 768-4800
April 16, 2001
Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of Monterey Bay Bancorp, Inc. (the "Company"), the
holding company for Monterey Bay Bank (the "Bank"), which will be held on
Thursday, May 24, 2001, at 9:00 a.m., Pacific Time, at the Watsonville Women's
Club, 12 Brennan Street, Watsonville, California 95076.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement describe the formal business to be transacted at the Annual Meeting.
The Company's Directors and Officers, as well as a representative of Deloitte &
Touche LLP, the Company's independent auditors, will be present at the Annual
Meeting to respond to any questions that stockholders may have regarding the
business to be transacted. A copy of the Company's 2000 Annual Report to
Stockholders, which contains audited financial statements and certain other
information about the Company's business, is also enclosed.
The Company's Board of Directors has determined that the matters to be
considered at the Annual Meeting are in the best interests of the Company and
its stockholders. For the reasons set forth in the Proxy Statement, the Board
unanimously recommends that you vote "FOR" each matter to be considered.
Your cooperation is appreciated because a majority of the common stock
must be represented, either in person or by proxy, to constitute a quorum for
the conduct of business. Whether or not you expect to attend, please sign, date,
and return the enclosed proxy card promptly in the postage-paid envelope
provided so that your shares will be represented.
On behalf of the Board of Directors and all of the employees of the
Company and the Bank, I thank you for your continued interest and support.
Sincerely yours,
McKenzie Moss
Chairman of the Board
MONTEREY BAY BANCORP, INC.
567 Auto Center Drive
Watsonville, California 95076
(831) 768-4800
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 24, 2001
-------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Monterey Bay Bancorp, Inc. (the "Company") will be held on
May 24, 2001 at 9:00 a.m., Pacific Time, at the Watsonville Women's Club, 12
Brennan Street, Watsonville, California, 95076.
The purpose of the Annual Meeting is to consider and vote upon the
following matters:
1. The election of five Directors to terms of office that will expire in
2002, 2003, or 2004;
2. The ratification of the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending December
31, 2001; and
3. Such other matters as may properly come before the Annual Meeting and
at any adjournments thereof, including whether or not to adjourn the
meeting.
Only record holders of the Company's common stock as of the close of
business on April 2, 2001 will be entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof. If there are not sufficient votes
for a quorum or to approve or ratify any of the foregoing proposals at the time
of the Annual Meeting, the Annual Meeting may be adjourned to permit further
solicitation of proxies by the Company. A list of stockholders entitled to vote
at the Annual Meeting will be available at Monterey Bay Bancorp, Inc., 567 Auto
Center Drive, Watsonville, California 95076, for a period of ten days prior to
the Annual Meeting and will also be available at the meeting itself.
By Order of the Board of Directors
Carlene F. Anderson
Assistant Corporate Secretary
Watsonville, California
April 16, 2001
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Whether or not you expect to be present at the Annual Meeting, please fill in,
date, sign, and promptly return the enclosed proxy card in the enclosed business
reply envelope, which requires no postage if mailed in the United States. The
proxy may be revoked at any time prior to exercise, and if you are present at
the annual meeting, you may, if you wish, revoke your proxy at that time and
exercise the right to vote your shares personally.
--------------------------------------------------------------------------------
MONTEREY BAY BANCORP, INC.
--------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2001
--------------------------
Solicitation and Voting of Proxies
This Proxy Statement is being furnished to stockholders of Monterey Bay
Bancorp, Inc. (the "Company") in connection with the solicitation by the Board
of Directors of the Company (the "Board" or "Board of Directors") of proxies to
be used at the annual meeting of stockholders (the "Annual Meeting"), to be held
on May 24, 2001, at 9:00 a.m., Pacific Time, at the Watsonville Women's Club, 12
Brennan Street, Watsonville, California, 95076, and at any adjournments thereof.
The 2000 Annual Report to Stockholders, including consolidated financial
statements for the fiscal year ended December 31, 2000, and a proxy card
accompanies this Proxy Statement, which is first being mailed to record holders
on or about April 16, 2001.
Regardless of the number of shares of common stock owned, it is
important that record holders of a majority of the outstanding shares of common
stock be represented by proxy or in person at the Annual Meeting. Stockholders
are requested to vote by completing the enclosed proxy card and returning it
signed and dated in the enclosed postage-paid envelope. Stockholders are urged
to indicate their vote in the spaces provided on the proxy card. Proxies
solicited by the Company's Board of Directors will be voted in accordance with
the directions given therein. Where no instructions are indicated, signed proxy
cards will be voted FOR the election of each of the nominees for Director named
in this Proxy Statement and FOR the approval of each of the specific proposals
presented in this Proxy Statement.
Other than the matters set forth on the attached Notice of Annual
Meeting of Stockholders, the Board of Directors knows of no additional matters
that will be presented for consideration at the Annual Meeting. Execution of a
proxy, however, confers on the designated proxy holders discretionary authority
to vote the shares in accordance with their best judgment on such other
business, if any, that may properly come before the Annual Meeting and at any
adjournments thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. If you are a stockholder
whose shares are not registered in your own name, however, you will need
appropriate documentation from your record holder to vote personally at the
Annual Meeting.
The cost of solicitation of proxies on behalf of the Board of Directors
will be borne by the Company. Proxies will also be solicited personally or by
mail or telephone by Directors, Officers, and other employees of the Company and
its subsidiary, the Bank, without additional compensation therefor. The Company
will also request persons, firms, and corporations holding shares in their
names, or in the name of their nominees, that are beneficially owned by others
to send proxy material to and obtain proxies from such beneficial owners and
will reimburse such holders for their reasonable expenses in doing so.
1
Voting Securities
The securities that may be voted at the Annual Meeting consist of
shares of the Company's common stock, par value $0.01 per share ("Common
Stock"), with each share entitling its owner to one vote on all matters to be
voted on at the Annual Meeting, except as described below. There is no
cumulative voting for the election of Directors.
The close of business on April 2, 2001, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
entitled to vote on the Record Date was 3,419,764 shares.
In accordance with the provisions of the Company's Certificate of
Incorporation, record holders of Common Stock who beneficially own in excess of
10% of the outstanding shares of Common Stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. A person or
entity is deemed to beneficially own shares owned by an affiliate of, as well as
by persons acting in concert with, such person or entity. The Company's
Certificate of Incorporation authorizes the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit, including determining
whether persons or entities are acting in concert, and (ii) to demand that any
person who is reasonably believed to beneficially own stock in excess of the
Limit supply information to the Company to enable the Board of Directors to
implement and apply the Limit.
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to vote (after
giving effect to the Limit described above, if applicable) is necessary to
constitute a quorum at the Annual Meeting. If there are not sufficient votes for
a quorum, or to approve or ratify any matter being presented at the time of the
Annual Meeting, the Annual Meeting may be adjourned to permit the further
solicitation of proxies.
As to the election of Directors, the proxy card being provided by the
Board of Directors enables a stockholder to vote "FOR" the election of the
nominees proposed by the Board of Directors or to "WITHHOLD AUTHORITY" to vote
for one or more of the nominees being proposed. Under Delaware law and the
Company's Bylaws, Directors are elected by a plurality of votes cast, without
regard to either broker non-votes or proxies as to which authority to vote for
one or more of the nominees being proposed is withheld.
As to the ratification of Deloitte & Touche LLP as independent auditors
of the Company and all other matters that may properly come before the Annual
Meeting, by checking the appropriate box, a stockholder may: (i) vote "FOR" the
item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on the item.
Under the Company's Bylaws, unless otherwise required by the Certificate of
Incorporation or by law, the ratification of auditors and other matters shall be
determined by a majority of the votes cast, without regard to either broker
non-votes or proxies marked "ABSTAIN" as to that matter.
Proxies solicited hereby will be returned to the Company's transfer
agent and will be tabulated by inspectors of election designated by the Board of
Directors, who will not be employed by, or a Director of, the Company or any of
its affiliates.
2
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to those persons believed
by the Company to be beneficial owners of more than 5% of the Company's
outstanding shares of Common Stock on the Record Date or as disclosed in certain
reports regarding such ownership filed by such persons with the Company and with
the Securities and Exchange Commission ("SEC"), in accordance with Sections
13(d) and 13(g) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"). Other than those persons listed below, the Company is not aware of any
person, as such term is defined in the Exchange Act, who owns more than 5% of
the Company's Common Stock as of the Record Date.
Name and Address Amount and Nature of Percent of
Title of Class of Beneficial Owner Beneficial Ownership Class
--------------------- ------------------------------------- ----------------------------- ---------------
Common Stock Josiah T. Austin 388,994(1) 11.37%
Valer C. Austin
HC01 Box 395
Pearce, Arizona 85625
Common Stock Monterey Bay Bank Employee 334,683(2) 9.79%
Stock Ownership Plan ("ESOP")
567 Auto Center Drive
Watsonville, California 95076
Common Stock Findim Inv., SA 320,000(3) 9.36%
Gradinata Forghee 2
Massagno, Switzerland
011-41-91-568916
Common Stock Kahn Brothers & Company 187,724(4) 5.49%
555 Madison Avenue, 22nd Floor
New York, New York 10022
(1) Based upon information contained in a Schedule 13D filed by Mr. Austin
with the SEC on March 16, 2001 pursuant to the Securities Exchange Act
of 1934 and upon other information supplied by Mr. Austin to the
Company.
(2) CNA Trust Corporation, Costa Mesa, California has been appointed as the
corporate trustee for the ESOP ("ESOP Trustee"). The ESOP Trustee,
subject to its fiduciary duty, must vote all allocated shares held in
the ESOP in accordance with the instructions of the participants. At
December 31, 2000, 190,932 shares had been allocated and retained under
the ESOP. Unallocated shares and allocated shares for which no voting
instructions are received will be voted by the ESOP Trustee in a manner
calculated to most accurately reflect the instructions received from
participants regarding the allocated stock so long as such vote is in
accordance with the ESOP Trustee's fiduciary duty.
(3) Based upon information contained in Amendment No. 5 to Schedule 13D
filed by Findim Investments, SA in April of 2000, and other information
supplied by Findim Investments to the Company.
(4) Based up information contained in Schedule 13G/A filed by Kahn Brothers
on January 31, 2001.
3
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors of the Company consists of twelve Directors and
is divided into three classes. Each of the twelve members of the Board of
Directors of the Company also presently serve as Directors of the Bank. Except
as noted below, Directors are elected for staggered terms of three years each,
with the term of office of only one of the three classes of Directors expiring
each year. Directors serve until their successors are elected and qualified.
The Board has nominated Larry A. Daniels for election to a one-year
term, Josiah T. Austin for election to a two-year term, and Edward K. Banks,
Nicholas C. Biase, and C. Edward Holden for election to three-year terms.
Information on these nominees is set forth below. P.W. Bachan and Eugene R.
Friend have informed the Board of Directors that they will retire as Directors
of the Company and the Bank at the conclusion of this Annual Meeting, becoming
Directors Emeritus.
If any nominee is unable to serve or declines to serve for any reason,
it is intended that the proxies will be voted for the election of such other
person as may be designated by the present Board of Directors. The Board of
Directors has no reason to believe that any of the persons named will be unable
or unwilling to serve. Unless otherwise indicated or authority to vote for the
election of any nominee is withheld, it is intended that the shares represented
by the enclosed proxy card, if executed and returned, will be voted FOR the
election of the nominees proposed by the Board of Directors.
Directors are elected by a plurality of the votes cast by the holders
of the shares entitled to vote in an election at a meeting at which a quorum is
present. A majority of the votes entitled to be cast on a matter constitutes a
quorum. Abstentions and broker non-votes would be included in determining
whether a quorum is present at a meeting, but would not have an effect on the
outcome of a vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
Information with Respect to the Nominees, Continuing Directors, and
Non-Continuing Directors
The following table sets forth, as of the Record Date, the names of the
nominees and continuing and non-continuing Directors of the Company; their ages;
a brief description of their recent business experience, including present
occupations and employment; certain directorships held by each; the year in
which each became a Director of the Company; and the year in which their terms
(or in the case of the nominees, their proposed terms) as Director of the
Company expire. The table also sets forth the amount of Common Stock, and the
percent thereof, beneficially owned by each and by all Directors and Executive
Officers as a group as of the Record Date. Unless otherwise noted, each person
exercises sole (or shares with an immediate family member) voting or dispositive
power as to the shares reported. Percentages are based upon 3,419,764 shares
outstanding as of the Record Date.
4
In conjunction with the expiration of the terms of the two
non-continuing Directors, it is the current intention of the Board of Directors
to reduce the number of Directors from the current twelve to ten as of May 24,
2001.
Name and Principal Expiration Shares of Common
Occupation at Present Director of Term as Stock Beneficially Percent
And for Past Five Years Age Since(1) Director Owned of Class
----------------------------------------------- ------- ----------- -------------- ---------------------- -----------
NOMINEES
Josiah T. Austin 53 1999 2003 388,994 11.37%
Rancher and private investor, El Coronado
Ranch, Pearce, Arizona
Edward K. Banks 52 1993 2004 18,152(2) *
Chief Executive Officer of Pajaro Valley
Insurance Agencies, Inc.; Watsonville,
California.
Nicholas C. Biase 33 1997 2004 7,469(3) *
Representative of Findim Investments, S.A.;
President of Omabuild, Inc., a real estate
company, New York, New York
Larry A. Daniels 59 2001 2002 349 *
President, Daniels and House Construction
Company
Monterey, California
C. Edward Holden (Vice Chairman) 53 2000 2004 40,240(4) 1.17%
Chief Executive Officer and President of the
Company and the Bank
CONTINUING DIRECTORS
Diane Simpkins Bordoni 47 1998 2003 3,454 *
Chief Financial Officer of System Studies
Incorporated, Santa Cruz, California
McKenzie Moss (Chairman) 70 1996 2003 8,195(5) *
Financial & Strategic Planning Consultant;
University Instructor and Lecturer; Writer;
Retired bank executive
Steven Franich 54 1989 2002 72,236(6) 2.11%
President of Marty Franich Auto Dealerships,
Watsonville, California
Stephen G. Hoffmann 56 1997 2002 4,754(7) *
President/CEO of Canyon National Bank, Palm
Springs, California
Gary L. Manfre 47 1993 2002 32,231(8) *
Treasurer, Watsonville Coast Produce, Inc.,
Watsonville, California
5
Name and Principal Expiration Shares of Common
Occupation at Present Director of Term as Stock Beneficially Percent
And for Past Five Years Age Since(1) Director Owned of Class
NON-CONTINUING DIRECTORS
P.W. Bachan (Vice Chairman) 74 1954 2001 36,059(9) 1.05%
Partner in the law firm of Bachan,
Skillicorn, and Marinovich, Watsonville,
California
Eugene R. Friend (Vice Chairman) 77 1969 2001 5 2,945(10) 1.54%
Chairman of the Board of the Company and
the Bank through 2000; Retired Chief
Executive Officer of the Company and the Bank
Stock Ownership of all Directors and 819,062(11) 22.95%
Executive Officers as a Group (21 persons)
-------------------------------------------------
*Represents less than 1% of the Company's voting securities.
(1) Includes years of service as a Director of the Bank prior to the formation
of the Company.
(2) Includes 13,001 stock options that are either vested or will vest within
60 days of the Record Date. Mr. Banks is the son-in-law of Mr. Friend.
(3) Includes 1,474 stock options that are either vested or will vest within 60
days of the Record Date. Findim Investments, S.A. is the beneficial owner
of 320,000 shares of Company Common stock of which Mr. Biase disclaims
beneficial ownership. See "Security Ownership of Certain Beneficial
Owners."
(4) Includes 28,240 stock options that are either vested or will vest within
60 days of the Record Date.
(5) Includes 1,473 stock options that are either vested or will vest within 60
days of the Record Date.
(6) Includes 6,500 stock options that are either vested or will vest within 60
days of the Record Date.
(7) Includes 1,474 stock options that are either vested or will vest within 60
days of the Record Date.
(8) Includes 6,500 stock options that are either vested or will vest within 60
days of the Record Date.
(9) Includes 906 shares owned by Mr. Bachan's spouse and 12,293 stock options
that are either vested or will vest within 60 days of the Record Date.
(10) Includes 14,375 stock options that are either vested or will vest within
60 days of the Record Date.
(11) Includes 149,175 stock options that are either vested or will vest within
60 days of the Record Date.
6
Meetings of the Board of Directors and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the
Board of Directors and through activities of its committees. The Board of
Directors meets monthly and may have additional meetings as needed. During
fiscal 2000, the Company's Board of Directors held twelve regular meetings and
five special meetings. With the exception of Mr. Bachan, all of the Directors of
the Company attended at least 75% of the Company's regular monthly Board
meetings held during fiscal 2000. The Boards of Directors of the Company and the
Bank maintain committees, the nature and composition of which are described
below:
Audit Committee. The Audit Committee of the Company currently consists
of Ms. Bordoni (Chairman), Mr. Bachan, Mr. Franich, and Mr. Moss, all of whom
are outside Directors. Membership of the Audit Committee was restructured in
2000 due to the retirement of two Directors and to comply with the new
requirements for corporate audit committees. The Audit Committee meets as called
by the Chairman and met eight times in fiscal year 2000. The purpose of the
Audit Committee is to provide assurance that financial disclosures made by
management portray the financial condition and results of operations. The Audit
Committee also maintains a liaison with the outside auditors and reviews the
adequacy of internal controls. The Audit Committee of the Bank met eleven times
in fiscal 2000. The Audit Committee Report is set forth on page 18.
Nominating Committee. The Company's Nominating Committee for the 2001
Annual Meeting consists of Mr. Moss (Chairman), Mr. Biase, Mr. Franich, and Mr.
Hoffmann. The Nominating Committee considers and recommends the nominees for
Director to stand for election at the Company's annual meeting of stockholders.
The Company's Certificate of Incorporation and Bylaws also provide for
stockholder nominations of Directors. These provisions require such nominations
to be made pursuant to timely notice in writing to the Secretary of the Company.
The stockholder's notice of nomination must contain all information relating to
the nominee that is required to be disclosed by the Company's Bylaws and by the
Exchange Act. The Nominating Committee met on January 11, 2001.
Compensation/Benefits Committee. The Compensation/Benefits Committee of
the Company consisted of Messrs. Henrichsen (Chairman), Hoffmann, Manfre,
Bachan, and Banks through May 25, 2000, at which time the membership was
restructured to its current composition of Messrs. Bachan (Chairman), Austin,
Banks, Hoffmann, and Manfre. The Compensation/Benefits Committee also serves as
the ESOP Committee. This Committee meets to establish compensation for the Chief
Executive Officer, to approve compensation and benefits to be paid to employees,
as needed, and to review the incentive compensation programs when necessary. The
Compensation/Benefits Committee met ten times in fiscal 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, Officers, Directors, and
beneficial owners of more than 10% of the Common Stock are required to file
reports on Forms 3, 4, and 5 with the SEC concerning their beneficial ownership
of the Common Stock, as well as to report certain changes in such beneficial
ownership. Based upon the Company's review of such reports, no Officer,
Director, or beneficial owner of more than 10% of the Common Stock failed to
file required reports on Forms 3, 4, or 5 on a timely basis for the fiscal year
ended December 31, 2000, except that Messrs. Banks, Davis, and Poole each made
one inadvertent late filing with respect to an acquisition or disposition of
shares of Common Stock.
Directors' Compensation
Boards of Directors hold a significant and unique position in corporate
governance. To appropriately represent the interest of the stockholders, the
Company retained the services of an independent third party
7
with substantial experience in compensation structure to perform the following:
review and outline the key responsibilities performed by Directors in
organizations of similar size and scope; determine competitive compensation for
Directors service and contribution; review Board composition versus similar
organizations; and review overall compensation and benefit practices.
There are a number of different elements associated with Director
compensation including: Directors' Fees, Stock Options, and Stock Awards.
Directors' Fees. Directors of the Company who are not also employees of
the Company receive a retainer of $200.00 per month for serving on the Company's
Board of Directors. In 2000, the monthly retainer for service on the Board of
Directors of the Bank by Directors who are not also employees of the Bank was
$1,500.00. All members of the Board of Directors of the Bank are also members of
the Board of Directors of Portola Investment Corporation, a wholly-owned
subsidiary of the Bank ("Portola"). All members of the Board of Directors of
Portola, if they are not also employees of the Bank, receive a monthly retainer
fee of $200.00. The Chairman of the Board receives an additional $1,100 per
month in total Directors fees. No committee meeting fees are paid and committee
Chairmen receive no additional compensation. Directors are also eligible to
receive travel reimbursement of up to $300.00 for each regular or special board
meeting attended.
Stock Award Plan for Outside Directors. The Company maintains the
Monterey Bay Bancorp Stock Award Plan for Outside Directors which provides
Directors with the opportunity to elect to receive shares of stock of the
Company in lieu of cash retainer fees for serving as a Director of the Company
or any of its subsidiaries as an additional incentive to promote the Company's
success. All current Directors have made the election to receive the regular
monthly retainer fees in the form of Company Common Stock.
Directors' Option Plan. Until December 31, 1999, the Company granted
options under the 1995 Stock Option Plan for Outside Directors (the "Directors'
Option Plan"). Under the Directors' Option Plan, Directors who were not Officers
or employees of the Company or Bank could be granted non-statutory stock options
to purchase shares of the Company's Common Stock. Each option awarded entitled
the holder to purchase one share of Common Stock at the fair market value of the
Common Stock on the date of grant. All options granted under the Directors'
Option Plan began vesting in five equal annual installments on the first
anniversary of the date of the grant, provided, however, that in the event of
death or disability of the participant or, to the extent not prohibited by the
Office of Thrift Supervision ("OTS)", upon a change in control of the Company or
the Bank, all options previously granted would automatically become exercisable.
As of December 31, 1999 all non-statutory stock options available for grant
under the Directors Option Plan had been granted. After this date, option awards
to Directors have been and will be made from the 1995 Incentive Stock Option
Plan, as amended and restated as of May 25, 2000 to provide for option awards to
Directors. Please refer to Incentive Stock Option Program, which is more fully
described on page 10.
Recognition and Retention Plan for Outside Directors. The Company
historically maintained a Recognition and Retention Plan ("RRP") to grant awards
of Common Stock to all Directors who are not also employees of the Company or
the Bank. As of December 31, 1999, there were no additional shares available for
grant under the RRP. There are currently no outstanding but unvested awards
under the RRP because, during the calendar year of 2000, the Company accelerated
the vesting of awards granted to outside Directors Biase, Hoffmann, and Moss
that had been forfeited by a retiring Director on March 13, 1998. All awards
granted prior to that date vested per the original schedule, which called for
awards to Directors to vest in five equal annual installments commencing on the
first anniversary of the effective date of the award. RRP awards were 100%
vested upon termination of service as a Director due to death or disability of
the Director or, to the extent not prohibited by the OTS, upon a change in
control of the Company or the Bank. If a Director terminated service with the
Company or the Bank before his or her Awards were fully vested, the
8
Director's non-vested awards were to be forfeited, unless the Director becomes a
participant in the Director Emeritus Program, in which event non-vested awards
would continue to vest on their original schedule. The RRP was terminated
effective December 31, 2000.
Directors' Retirement Plan. The Bank historically maintained a
non-qualified Directors' Retirement Plan for the benefit of certain Directors of
the Bank. Under this Plan, Directors of the Bank who have served on the Board of
Directors for a minimum of nine years (three consecutive terms of three years
each) were entitled to receive a quarterly payment equal to the amount of the
quarterly retainer fee in effect at the date of retirement, continuing for a
period of ten years. The Directors' Retirement Plan provides that payments will
be accelerated upon the death of the Participant. In March 1999, the Board of
Directors of the Bank amended the Directors' Retirement Plan to close the Plan
to new participants and to permit participants to make an irrevocable election
to receive their Plan benefit in the form of shares of the Common Stock. During
2000, the Company offered a lump sum settlement to all remaining Plan
participants. All but two participants elected to receive a lump sum
distribution. Such distributions were effected in either cash or Common Stock,
as applicable, prior to the end of 2000. At December 31, 2000, one of the two
remaining participants had elected to receive a lump sum distribution in 2001 in
satisfaction of the Company's obligations to him under the Plan. The heirs of
the other remaining participant at December 31, 2000 are receiving periodic cash
payments under the Plan.
Director Emeritus Program. To recognize and reward Directors for their
years of service and overall contribution to the Company, in March of 2000, the
Board of Directors adopted the Director Emeritus Program, effective as of May
25, 2000. The Program allows individual Directors who have served at least nine
years (three terms of three years) to retire between the ages of 65 and 72.
Retirement from the Board of Directors would be mandatory at age 72. Eligible
Directors receive a title of Director Emeritus and a cash payment equal to the
annual retainer at the current rate as recognition of their contribution and
years of service to the Company and the Bank. In addition, options awards made
to a Director that have not yet vested when the Director becomes a Director
Emeritus will continue to vest in accordance with their original vesting
schedule. Messrs. Henrichsen and Resetar made the election to participate in the
Director Emeritus Program during 2000, and Messrs. Bachan and Friend plan to
make the election to participate in the Director Emeritus Program after the
Annual Meeting date of May 24, 2001.
Compensation Benefits Committee Report on Executive Compensation
Administration/General
The Compensation/Benefits Committee of the Board provides overall
guidance regarding executive compensation programs and reviews recommendations
of management for compensation and benefits for other officers and employees of
the Bank.
The current members of the Compensation/Benefits Committee are: Messrs.
Bachan (Chairman), Austin, Banks, Hoffmann, and Manfre. The President/Chief
Executive Officer and the Vice President, Human Resources currently serve as
non-voting advisors to the Compensation/Benefits Committee.
Compensation Philosophy
The goals and objectives of the Bank's compensation program include:
o To provide motivation for the Executive Officers to enhance stockholder
value by linking their compensation to the value of the Common Stock;
9
o To integrate total compensation with the Company's short-term and
long-term performance goals and the objective of increasing stockholder
value;
o To attract high performing Executive Officers by providing total
compensation opportunities which are consistent with externally
competitive norms of the financial services industry and the Company's
level of performance;
o To retain qualified executives vital to the success of the
organization;
o To reward above average individual and corporate performance as
measured by financial results and strategic achievements; and
o To maintain reasonable fixed compensation costs by targeting base
salaries at a competitive average.
The Company's compensation strategy includes a mix of compensation
elements, including: base salary; short-term incentive compensation; and
long-term incentives (including stock options and stock awards). Executive
Officers also participate in various qualified and non-qualified employee
benefit plans designed to provide retirement income, such as the ESOP and the
401(k) plan.
Base Salary. The relative levels of base salary for the Executive
Officers are designed to reflect each Executive Officer's scope of
responsibility and accountability within the organization. To determine the
necessary amounts of base salary to attract and retain top quality management,
the Compensation/Benefits Committee reviews comparable salary and other
compensation arrangements in effect. Further, the Compensation/Benefits
Committee considers the entire compensation package, including the equity
compensation to be provided under the Company's stock plans, of the Executive
Officers.
In the first quarter of 2000, a competitive review of the current total
compensation for Company Officers was performed by an independent outside
consulting firm specializing in compensation planning. Various industry survey
materials were used in this review. The resulting findings were used by the
Compensation/Benefits Committee in its executive salary reviews for the year
2000.
Incentive Stock Option Program. The Company's 1995 Incentive Stock
Option Plan was amended and restated as of May 25, 2000, with stockholder
approval, to create one comprehensive option program. These amendments included:
(1) an increase in the number of shares reserved for issuance under the Plan
from 414,107 shares to 660,000 shares; (2) an increase in the strike price of
options granted to at least 110% of the fair market value of the common stock on
the date of the grant for all grants occurring on or after May 25, 2000; (3)
provisions for added flexibility in vesting schedules for both incentive and
non-statutory stock options; and (4) allowing non-employee Directors eligibility
for grants of non-statutory stock options under the Plan.
The Compensation/Benefits Committee believes that stock ownership is a
significant incentive in building stockholders' wealth and aligning the
interests of Directors, employees, and stockholders. Officers and other
employees of the Company or its Affiliates and Directors are eligible to
participate in the Incentive Stock Option Program. Options are awarded to
Officers based upon, in part, the Officers' level of responsibility and
contributions to the Company and the Bank. Under the Incentive Stock Option
Program, as amended, each option entitles the holder to purchase one share of
the Common Stock at 110% of the fair market value of the Common Stock on the
date of the grant. Each option awarded prior to the Plan's amendment on May 25,
2000 entitled the holder to purchase one share of the Common Stock at the fair
market value of the Common Stock on the date of grant. Stock options vest over a
time period determined by the Board of Directors, typically ratably over five
years commencing at the first anniversary of the date of
10
the grant. The vesting of awarded stock options is accelerated in the event of a
change in control of the Company or of the Bank. Information regarding grants of
options or stock appreciation rights to the Named Executive Officers is set
forth in the "Option Grants in Last Fiscal Year" table below.
Stock Award Program. The Company maintains a Performance Equity Program
("PEP") for Officers that was originally adopted in 1995. The purpose of PEP is
to provide Officers with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with the Company and to improve the
financial performance of the Company.
The PEP provides for two types of awards: time-based grants and
performance-based grants. Time-based grants vest pro-rata on each anniversary of
the grant date and become fully vested over the applicable time period as
determined by the Board of Directors, typically over five years. Vesting of
performance-based grants is dependent upon achievement of criteria established
by the Board of Directors for each stock award. During calendar year 2000,
certain performance-based awards lapsed because goals were not met. During
calendar year 2000, Mr. Andino, one of the Named Executive Officers, received
15,000 PEP shares pursuant to both time and performance based grants. Vesting of
stock awards under the PEP is accelerated in the event of a change in control of
the Company or the Bank.
Cash Incentive Bonus Plan. The Compensation/Benefits Committee approved
the Cash Incentive Bonus Plan in June 2000 for the calendar year 2000. Qualified
Officers of the Bank may be eligible for cash incentive awards if the Company
achieves at least 75% of the goals established under the Plan or certain minimum
thresholds. The Company's results were less than the minimum threshold required
for calendar year 2000, so the Plan did not fund for 2000. The Cash Incentive
Bonus Plan is subject to annual approval and has been approved for 2001.
Officers' Salary Continuation Plan. The Company historically maintained
a non-qualified Salary Continuation Plan for the benefit of certain Officers of
the Bank. Officers participating in the Plan are entitled to receive a fixed
monthly payment for a period of ten years upon retirement. The Plan provides
that payments will be accelerated upon the death of the Participant or in the
event of a change in control of Monterey Bay Bancorp, Inc. or Monterey Bay Bank.
In March of 1999, the Board of Directors closed the Plan to new participants.
Further, in March of 1999, the Board of Directors amended the Plan to permit
participants to make an irrevocable election to convert their Plan benefit into
shares of Common Stock. At December 31, 2000, there were two remaining
participants in the Plan, both of whom were receiving periodic cash benefits.
Compensation of the President and Chief Executive Officer. After taking
into consideration the total compensation review as described earlier, the
Compensation/Benefits Committee determined to pay its new Chief Executive
Officer, C. Edward Holden, an annual salary of $225,000. The special bonus
granted to Mr. Holden in 2000, as well as new and existing stock options or
stock awards granted to certain Executive Officers in 2000, are listed in the
"Summary Compensation Table."
Employment Agreements. The Bank and the Company have entered into
employment agreements with the current Chief Executive Officer and President,
Mr. Holden, the Former President and Chief Operating Officer, Mr. Delk, and the
Senior Vice President and Chief Financial Officer, Mr. Andino. In addition, the
Bank and the Company have entered into a Change in Control Agreement with the
Senior Vice-President and Chief Loan Officer, Ben Tinkey. These agreements are
described below.
11
Mr. Holden's Employment Agreements
Mr. Holden's Bank and Company employment agreements are substantially
similar. Mr. Holden's Employment Agreements provide for two year terms. The
Company's employment agreement with Mr. Holden provides for yearly extensions
such that the remaining term of the agreement shall be two years after notice of
non-renewal is provided. Under the employment agreements, Mr. Holden's base
salary will be reviewed annually. In this regard, for fiscal 2001, the base
salary of Mr. Holden is $225,000. In addition to base salary, the employment
agreements provide for, among other things, participation in stock benefit plans
and other fringe benefits applicable to executive personnel.
Mr. Holden's employment agreements provide for termination of Mr.
Holden by the Bank or the Company for cause, as defined in the employment
agreements, at any time. If the Bank or the Company chooses to terminate Mr.
Holden's employment for reasons other than for cause, or in the event of
resignation from the Bank and the Company upon (i) failure to re-elect Mr.
Holden to his current offices, (ii) a material change in Mr. Holden's functions,
duties, or responsibilities, (iii) a relocation of his principal place of
employment by more than fifty miles, (iv) liquidation or dissolution of the Bank
or the Company, or (v) a breach of the employment agreement by the Bank or the
Company, Mr. Holden or, in the event of death, his beneficiaries would be
entitled to severance pay in an amount equal to the greater of his remaining
salary payments under the employment agreement or his base salary for one year
plus an amount equal to the cost of providing medical and dental coverage
through COBRA continuation coverage for a period of one year.
Under Mr. Holden's employment agreements, if termination, voluntary or
involuntary, follows a change in control of the Bank or the Company, as defined
in the employment agreements, he or, in the event of death, his beneficiary,
would be entitled to a severance payment equal to the greater of (i) the
payments due for the remaining terms of the agreements or (ii) three times the
average of the three preceding years' annual compensation, including bonuses and
any other cash compensation paid or to be paid to him during such years, and the
amount of any contributions made or to be made to any employee benefit plan. In
addition, the Bank and the Company would continue, his life, health, and
disability coverage for thirty-six months. Payments to Mr. Holden under the
Bank's employment agreement are guaranteed by the Company if payments or
benefits are not paid by the Bank. If a change in control occurs, based upon
three years of the past fiscal years' salary and bonus, Mr. Holden would receive
approximately $866,568 in severance payments in addition to other cash and
non-cash benefits provided for under the employment agreements.
Mr. Delk's Employment Agreements
Mr. Delk resigned his position of President and Chief Operating Officer
of the Company and the Bank effective September 29, 2000. The Bank and Company
had entered into employment agreements with Mr. Delk that are substantially
similar. The employment agreements provide for two year terms and for Mr. Delk's
base salary to be reviewed annually. In addition to base salary, the employment
agreements provide for, among other things, participation in stock benefit plans
and other fringe benefits applicable to executive personnel.
Mr. Delk's employment agreements provide for termination of Mr. Delk by
the Bank or the Company for cause, as defined in the employment agreements, at
any time. If the Bank or the Company chooses to terminate Mr. Delk's employment
for reasons other than for cause, or in the event of the Executive's resignation
from the Bank and the Company upon (i) failure to re-elect Mr. Delk to his
current offices, (ii) a material change in Mr. Delk's functions, duties, or
responsibilities, (iii) a relocation of his principal place of employment by
more than fifty miles, (iv) liquidation or dissolution of the Bank or the
Company, or (v) a breach of the employment agreement by the Bank or the Company,
Mr. Delk or, in the event of death, his beneficiary would be entitled to
severance pay in an amount equal to the remaining salary
12
payments under the employment agreements, including base salary, bonuses, other
payments, and health benefits due under the remaining terms of the employment
agreements to Mr. Delk.
Under Mr. Delk's employment agreements, if termination, voluntary or
involuntary, follows a change in control of the Bank or the Company, as defined
in the employment agreement, Mr. Delk or, in the event of death, his
beneficiary, would be entitled to a severance payment equal to the greater of
(i) the payments due for the remaining terms of the agreements or (ii) three
times the average of the three preceding years' annual compensation, including
bonuses and any other cash compensation paid or to be paid to Mr. Delk during
such years, and the amount of any contributions made or to be made to any
employee benefit plan. In addition, the Bank and the Company would continue the
Executive's life, health, and disability coverage for the remaining term of the
agreements. The Bank's agreement has a similar change in control provision,
however, Mr. Delk would only be entitled to receive a severance payment under
one agreement. Payments to Mr. Delk under the Bank's employment agreement are
guaranteed by the Company if payments or benefits are not paid by the Bank.
At December 31, 2000, Mr. Delk, the Company, and the Bank were in the
process of settling the severance terms of Mr. Delk's employment. The Employment
Agreements require settlement exclusively by arbitration, which the Company was
pursuing at December 31, 2000.
Mr. Andino's Employment Agreements
Mr. Andino's Bank and Company employment agreements are substantially
similar and provide for two year terms. The employment agreements provide that
Mr. Andino's base annual salary shall not be less than $135,000.00. In addition
to base salary, the employment agreements provide for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel.
Mr. Andino's employment agreements provide for his termination by the
Bank or the Company for cause, as defined in the employment agreements, at any
time. If the Bank or the Company chooses to terminate Mr. Andino's employment
for reasons other than for cause, Mr. Andino or, in the event of death, his
beneficiary would be entitled to severance pay in an amount equal to his base
salary for one year, plus an amount equal to the cost of providing health
benefits for one year.
Under Mr. Andino's employment agreements, if termination, voluntary or
involuntary, follows a change in control of the Bank or the Company, as defined
in the employment agreements, he or, in the event of death, his beneficiary,
would be entitled to a severance payment equal to the greater of (i) the
payments due for the remaining terms of the agreements or (ii) two times the
average of the three preceding years' annual compensation, including bonuses and
any other cash compensation paid or to be paid to him during such years, and the
amount of any contributions made or to be made to any employee benefit plan. In
addition, the Bank and the Company would continue his life, health, and
disability coverage for two years. Payments to Mr. Andino under the Bank's
employment agreement are guaranteed by the Company if payments or benefits are
not paid by the Bank. If a change in control occurred, based upon two years of
the past fiscal years' salary and bonus, Mr. Andino would receive approximately
$300,000 in severance payments in addition to other cash and non-cash benefits
provided for under the employment agreements.
Mr. Tinkey's Change in Control Agreements
Mr. Tinkey's Change in Control Agreement with the Company and the Bank
provides for a one year term which may be extended for a one year term on each
anniversary date of the agreement. Under the Change in Control Agreement, a
"Change in Control" means, with certain exceptions, an event of a nature that
(1) would be required to be reported in response to Item 1(a) of the Current
Report on Form 8-K
13
pursuant to section 13 or 15(d) of the Exchange Act or (2) results in a Change
in Control within the meaning of the Home Owners' Loan Act of 1933 and the Rules
and Regulations promulgated by the OTS. In addition, a Change in Control will be
deemed to have occurred at such time as (1) any person is or becomes the
beneficial owner of 25% or more of the Company's or the Bank's outstanding
securities, (2) the Board of Directors in place on the date of the Agreement
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, unless such subsequent members are approved by a vote of at least
three-fourths of the Incumbent Board, (3) a plan of reorganization, merger,
consolidation, or sale of all or substantially all of the assets of the Company
or the Bank occurs, or a proxy is filed by someone other than current management
relating thereto, in which the Company or Bank is not the resulting entity, or
(4) a tender offer is made for 25% or more of the voting securities of the
Company or the Bank.
Mr. Tinkey will be eligible for change in control benefits if, within
six months following a Change in Control, (1) his employment is terminated other
than for cause (as defined in the Agreement), (2) he suffers a material
detrimental alteration in authority or responsibility, demotion, or loss of
title, (3) his compensation is reduced by 5% or more, or (4) he is relocated
from his principal place of employment by more than 30 miles. The change in
control benefit will be equal to Mr. Tinkey's then current annual compensation
plus medical, dental, vision, short-term disability, and long-term disability
coverage for twelve months.
Executive Compensation
The report of the Compensation Committee and the 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 Act of 1933 or the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
Compensation/Benefits Committee
P. W. Bachan; Josiah Austin; Edward K. Banks; Stephen Hoffmann; Gary
Manfre
Stock Performance Graph. The following graph shows a comparison of
cumulative total shareholder return on the Common Stock, based on the market
price of the Common Stock with the cumulative total return of companies in the
Nasdaq National Market and SNL Thrift Stocks for the period beginning on
February 15, 1995, the day the Common Stock began trading, through December 31,
2000. The graph reflects the historical performance of the Common Stock, and, as
a result, may not be indicative of possible future performance of the Common
Stock. The data was supplied by SNL Securities.
Comparison of Cumulative Total Returns
February 15, 1995 - December 31, 2000
14
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Period Ending
-------------------------------------------------------------------
Index 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
--------------------------------------------------------------------------------------------------
Monterey Bay Bancorp, Inc 100.00 127.39 169.58 156.79 112.04 119.23
NASDAQ - Total US* 100.00 123.04 150.69 212.51 394.94 237.68
SNL Thrift Index 100.00 130.30 221.71 195.00 159.29 254.35
*Source: CRSP, Center for Research in Securitiy Prices, Graduate School of
Business, The University of Chicago 2001.
Used with permission. All rights reserved. crsp.com.
SNL Securities LC (804) 977-1600
15
Summary Compensation Table. The following table shows, for the years ended
December 31, 2000, 1999, and 1998, the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for those years, to the
current and former Chief Executive Officer and those Executive Officers of the
Company and the Bank who earned in excess of $100,000 during the fiscal year
2000 (the "Named Executive Officers").
------------------------- ------------------------------------------------- ------------------------------------------------
Annual Compensation(1) Long-Term Compensation
------------------------------ -----------------
Awards
------------------------- --------- ----------- ----------- --------------- ------------ ----------------- -----------------
Securities
Name and Other Underlying
Principal Annual Restricted Awards All Other
Positions Year Salary Bonus(2) Compensation(3) Stock(4) Options (#)(5) Compensation(6)
------------------------- --------- ----------- ----------- --------------- ------------ ----------------- -----------------
C. Edward Holden 2000 150,000 58,256 - - 75,000 -
Chief Executive Officer
and President
------------------------- --------- ----------- ----------- --------------- ------------ ----------------- -----------------
Eugene R. Friend 2000 24,000 - - - - -
Former Chief Executive 1999 71,333 - - - - 9,771
Officer 1998 67,456 - - - - 16,328
------------------------- --------- ----------- ----------- --------------- ------------ ----------------- -----------------
Marshall G. Delk 2000 116,666 - - - - -
Former President and 1999 134,775 - - - - 17,648
Chief Operating Officer 1998 107,462 - - - - 30,466
------------------------- --------- ----------- ----------- --------------- ------------ ----------------- -----------------
Mark Andino 2000 135,000 15,000 - 151,950 45,000 -
SVP and Chief Financial
Officer
------------------------- --------- ----------- ----------- --------------- ------------ ----------------- -----------------
Ben Tinkey 2000 116,111 20,078 - - 5,000 20,876
SVP and Chief Loan 1999 91,980 - - - - 13,850
Officer 1998 91,250 - - - - 23,544
------------------------- --------- ----------- ----------- --------------- ------------ ----------------- -----------------
----------------------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the named Executive Officer pursuant to the Bank's 401(k)
Plan pursuant to which employees may defer up to 15% of their
compensation, up to the maximum limits under the Internal Revenue Code
of 1986 as amended.
(2) Reflects bonuses awarded in recognition of extraordinary efforts on the
part of the Named Executive Officers or as consideration for reductions
in benefits under Change in Control Agreements. No bonuses were awarded
in 2000 pursuant to the Cash Incentive Bonus Plan.
(3) For fiscal years ending in 2000, 1999, and 1998, there were no (a)
perquisites over the lesser of $50,000 or 10% of the individual's total
salary and bonus for the year; (b) payments of above-market
preferential earnings on deferred compensation; (c) payments of
earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock.
(4) Mr. Andino was awarded 15,000 shares of common stock on January 26,
2000, pursuant to the 1995 Performance Equity Program ("PEP"). Awards
vest based upon the passage of time and the achievement of performance
goals, consistent with the provisions of the PEP. The market value of
the PEP shares awarded was $151,950 as of the date of the grant
(5) Includes options awarded under the 1995 Incentive Option Plan, both
prior and subsequent to amendments to the plan on May 25, 2000. Options
generally vest in annual installments of 20%, beginning on the first
anniversary of the date of the grant, and are exercisable through the
tenth anniversary of the grant, except as noted on the Option Grants in
Last Fiscal Year table, below. To the extent not already exercisable,
the options become exercisable upon death or disability or, to the
extent not prohibited by the OTS, upon the occurrence of a change in
control.
(6) Includes the fair market value, for each respective year, of shares of
Common Stock allocated pursuant to the ESOP.
16
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options
granted to the Named Executive Officers during 2000 and the projected value of
those options at assumed annual rates of appreciation. Messrs. Delk and Friend
were not granted any stock options during 2000.
--------------------------------------------------------------------------------------------------- ------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Individual Grants Stock Price Appreciation for
Option Term(3)
--------------------------------------------------------------------------------------------------- ------------------------------
Number of Securities Percent of Total
Underlying Options Options Granted to Exercise
Granted(1) Employees in Price Per Expiration
Name Fiscal Year Share Date 5% 10%
----------------------- ---------------------- --------------------- --------------- -------------- ----------------- ------------
C. Edward Holden 45,000 23 8.19 05/01/10 $231,779 $587,374
10,000 5 9.90 05/25/10 47,601 134,437
2,760 1 11.76 12/28/10 15,602 44,069
17,240(2) 9 11.76 12/28/05 32,471 94,068
----------------------- ---------------------- --------------------- --------------- -------------- ----------------- ------------
Mark. Andino 40,000 20 10.13 01/26/10 254,828 645,784
5,000 3 11.21 11/30/10 26,942 76,101
----------------------- ---------------------- --------------------- --------------- -------------- ----------------- ------------
Ben Tinkey 5,000 3 11.21 11/30/10 26,942 76,101
----------------------- ---------------------- --------------------- --------------- -------------- ----------------- ------------
--------------------------
(1) Options vest in 20% annual increments, beginning one year from the date of
grant, except as noted. Options are exercisable through the tenth
anniversary of the date of grant, except as noted.
(2) Represents non-statutory stock options that except as noted were fully
vested on the date of grant. These options are exercisable through the
fifth anniversary of the date of grant.
(3) "Potential Realizable Value" is disclosed in response to SEC regulations
that require such disclosure for illustration only. The values disclosed
are not intended to be, and should not be interpreted as, representations
or projections of the future value of the Common Stock or of the stock
price. Amounts are calculated at 5% and 10% assumed appreciation of the
value of the Common Stock (compounded annually over the option term) and
are not intended to forecast actual expected future appreciation, if any,
of the Common Stock. The potential realizable value is the difference
between the exercise price and the appreciated stock price at the assumed
annual rates of appreciation multiplied by the number of shares underlying
the options.
FISCAL YEAR END OPTION/SAR VALUES
The following table provides certain information with respect to the
number of shares of Common Stock represented by outstanding options held by the
Named Executive Officers as of December 31, 2000. Also reported are the values
for "in-the-money" options which represent the positive spread between the
exercise price of any such existing stock options and the year-end price of the
Common Stock. At December 31, 2000, 136,282 options were exercisable by the
Named Executive Officers.
------------------- ---------------------------------- ------------------------------------
Securities Underlying Number of Value of Unexercised In-the-Money
Unexercised Options/SARs at Options/SARs at Fiscal Year End
Fiscal Year End (#) ($) (1)
------------------- ---------------------------------- ------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------- --------------- ------------------ -------------- ---------------------
C. Edward Holden 17,240 57,760 0 120,513
------------------- --------------- ------------------ -------------- ---------------------
Eugene R. Friend 14,375 0 22,856 0
------------------- --------------- ------------------ -------------- ---------------------
Marshall G. Delk 71,875 0 114,281 0
------------------- --------------- ------------------ -------------- ---------------------
Mark Andino 0 45,000 0 25,200
------------------- --------------- ------------------ -------------- ---------------------
Ben Tinkey 32,792 5,000 52,139 0
------------------- --------------- ------------------ -------------- ---------------------
-------------------------------
(1) Market value of underlying securities at fiscal year end ($10.69) minus the
exercise price per share of each option.
17
Transactions With Certain Related Persons
The Bank's current policy provides that all loans made by the Bank to
its Directors and Officers are made using credit underwriting procedures that
are no less stringent than those applicable for comparable transactions by the
Bank with other persons outside the Bank and do not involve more than the normal
risk of collectibility or present other unfavorable features. Loans with terms
that are more favorable than those generally available may be made to Directors
and Executive Officers pursuant to a benefit program generally available to
employees of the Bank that does not discriminate in favor of Directors or
Executive Officers.
Commencing on November 20, 2000 and ending on December 28, 2000, the
Directors and Executive Officers of the Company loaned the Company an aggregate
of $1,670,000 pursuant to individual promissory notes in varying amounts. The
purpose of the loans, which were structured on an arm's length non-preferential
basis at the prime rate of interest as quoted by the Wall Street Journal, was to
provide the Company interim financing until a third party line of credit could
be established and a loan owed to the Company was repaid. On December 28, 2000,
the Directors and Executive Officers were repaid the principal of $1,670,000 and
interest of $18,000 from the proceeds from the pay-off of a loan owed the
Company.
Audit Committee Report
The Board of Directors, in its business judgment, has determined that
each member of the Audit Committee is "independent," as defined under the
listing standards of The NASDAQ Stock Market, Inc. The Audit Committee operates
pursuant to an Audit Committee Charter, that was revised and adopted by the
Board on June 14, 2000, to comply with the new requirements for corporate audit
committees, a copy of which is attached to this Proxy Statement as Appendix A.
The Company's management is responsible for its internal accounting controls and
the financial reporting process. The Company's independent accountants, Deloitte
& Touche, LLP, are responsible for performing an audit of the Company's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States and for expressing an opinion as to
their conformity with generally accepted accounting principles. The Audit
Committee's responsibility is to monitor and oversee these processes.
In keeping with that responsibility, the Audit Committee has reviewed
and discussed the Company's audited consolidated financial statements as of and
for the fiscal year ended December 31, 2000 with management and the independent
accountants. In addition, the Audit Committee has discussed and reviewed with
the independent auditors all communications required by generally accepted
auditing standards, including those described in Statement on Auditing Standards
No. 61, "Communications with Audit Committee," as currently in effect, and with
and without management present, discussed and reviewed the results of the
independent auditors' examination of the financial statements. The Audit
Committee has also received the written disclosures from the independent
accountants required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and has discussed with the
independent accountants their independence. The Audit Committee has also
considered whether the provision of non-audit services by the independent
accountants is compatible with maintaining independence between the Company and
the independent accountants.
The members of the Audit Committee are not professionally engaged in
the practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not
18
assure that the audit of the Company's financial statements has been carried out
in accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that the Company's auditors are in fact "independent."
Based on the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Audit
Committee referred to above and in the Audit Committee Charter, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the audited consolidated financial statements of the Company be included in
the Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for
filing with the Securities and Exchange Commission. The Audit Committee also
recommended the reappointment, subject to stockholder approval, of the
independent auditors and the Board concurred with such recommendation.
This report is respectfully submitted by the Audit Committee of the
Board of Directors.
Diane S. Bordoni, Chair
P.W. Bachan
Steven Franich
McKenzie Moss
19
PROPOSAL 2. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December
31, 2000 were Deloitte & Touche LLP ("Deloitte"). The Audit Committee has
determined that the provision of non-audit services is compatible with
maintaining the principal accountants' independence. Upon recommendation of the
Audit Committee, the Company's Board of Directors has reappointed Deloitte to
continue as independent auditors for the Company and the Bank for the fiscal
year ending December 31, 2001, subject to ratification of such appointment by
the stockholders.
Representatives of Deloitte will be present at the Annual 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 from stockholders present
at the Annual Meeting.
During 2000, the Company was billed the following amounts for services
rendered by Deloitte.
Audit Fees. In connection with the audit of the Company's annual
consolidated financial statements and review of its Form 10-K and the review of
the Company's interim consolidated financial statements included within Forms
10-Q, the Company was billed approximately $155,250 by Deloitte. This figure
includes fees for services that were billed to the Company in 2001 in connection
with the 2000 fiscal year audit and out-of-pocket expenses associated with
travel costs.
Financial Information Systems Design and Implementation Fees. Deloitte
did not perform financial systems design or implementation services in fiscal
year 2000.
Other Fees. During 2000, the Company was billed $202,240 for services
that were not related to the audit of the Company's financial statements. These
services included income tax advice, tax return preparation, and other
compliance and consulting services, including the provision of certain internal
audit services.
Unless marked to the contrary, the shares represented by the enclosed
proxy card will be voted FOR ratification of the appointment of Deloitte &
Touche LLP as the independent auditors of the Company for the fiscal year ending
December 31, 2001.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
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ADDITIONAL INFORMATION
Stockholder Proposals
To be considered for inclusion in the Company's proxy statement and
form of proxy relating to the 2002 Annual Meeting of Stockholders, a stockholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice to the Proxy Statement not later than December 18, 2001. Any
such proposal will be subject to Rule 14a-8 under the Exchange Act.
The Bylaws of the Company provide an advance notice procedure for a
stockholder to properly bring business before an Annual Meeting. The stockholder
must give written advance notice to the Secretary of the Company not less than
one hundred 120 days before the date the Company's proxy statement is released
to stockholders in connection with the previous year's annual meeting. If no
annual meeting was held the previous year or the meeting has been changed by
more than 30 calendar days from the previous year's proxy statement, notice must
be received no later than the tenth day following the day on which notice of the
annual meeting was sent by the Company. The advance notice by stockholder must
include the stockholder's name and address, as they appear on the Company's
record of stockholders, a brief description of the proposed business, and the
class and number of shares of the Company's capital stock that are beneficially
owned by such stockholder. In the case of nominations to the Board of Directors,
certain information regarding each nominee must be provided. Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
statement or the proxy relating to an annual meeting any stockholder proposal
that does not meet all of the requirements for inclusion established by the SEC
in effect at the time such proposal is received.
Other Matters Which May Properly Come Before the Meeting
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are then present at the Annual
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Annual Meeting.
By Order of the Board of Directors
Carlene F. Anderson
Assistant Corporate Secretary
April 16, 2001
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
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APPENDIX A
AUDIT COMMITTEE CHARTER
This Audit Committee Charter has been adopted by the Board of Directors of
Monterey Bay Bancorp, Inc. ("Company") and Monterey Bay Bank ("Bank"). The Audit
Committee of the Board of Directors shall review and assess this Charter at
least annually and recommend any proposed changes to the full Board of Directors
for approval.
STATEMENT OF POLICY
The Audit Committee shall assist the Board of Directors in fulfilling its
responsibilities of oversight to:
o Ensure the accuracy of financial reports to the regulators, stockholders,
and the public
o Ensure that the financial reports conform to generally accepted accounting
principles
o Monitor the adequacy of internal controls and accounting procedures
o Monitor compliance with applicable laws, regulations, internal policies and
procedures, and the Company's code of ethical conduct
In so doing, it is the responsibility of the Audit Committee to maintain free
and open communication amongst the Directors, the independent auditors, the
internal auditors, outside legal counsel, and the financial management of the
Company and Bank.
AUDIT COMMITTEE COMPOSITION AND AUTHORITY
The Audit Committee is composed of no less than four outside directors who are
fully independent of management and free from any relationship that, in the
opinion of the Board of Directors, would interfere with the exercise of his or
her independent judgement as a member of the Audit Committee, and as defined in
Rules 4310, 4320, and 4460 of the NASDAQ listing standards. Audit Committee
members are to be financially literate, or become financially literate within a
reasonable period of time after appointment to the Audit Committee. At least one
member must have accounting or related financial management expertise. Audit
Committee members, and the Audit Committee's Chairman, are appointed by the
Chairman of the Board with their respective appointments ratified by the full
Board of Directors. The composition of the Company's Audit Committee and the
Bank's Audit Committee is identical.
The Audit Committee acts with the full authority of the Board of Directors and
is authorized to engage any resources necessary to fulfill its responsibilities
of oversight.
AUDIT COMMITTEE MEETINGS
The Audit Committee for the Company shall meet at least four times annually, or
more frequently as circumstances dictate. At least once each year the Audit
Committee shall have separate private meetings with the independent auditors,
management, and the internal auditors. The Bank's Audit Committee generally
meets on the third Tuesday of each month, or more frequently as determined by
the Audit Committee Chairman. One member of the Committee shall be appointed as
chairman. The chairman shall be responsible for leadership of the Committee,
including scheduling and presiding over meetings, preparing agendas, and making
regular reports to the full Board of Directors. The chairman will also maintain
regular liaison with the CEO, CFO, the lead independent audit partner, the
Compliance Officer, the Director of Internal Audit, and the lead Internal Audit
partner.
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PRINCIPAL RESPONSIBILITIES, DUTIES, AND ACTIVITIES OF AUDIT COMMITTEE
1. Recommend to the Board of Directors the independent auditors to be retained
and nominated for stockholder approval to audit the financial statements of
the Company. Clarify that such auditors are ultimately accountable to the
Board of Directors and the Audit Committee, as representatives of the
stockholder. Monitor the independent auditor's performance versus
expectations, in connection with financial attestation, tax, or other
services rendered on behalf of the Company, and recommend the replacement
of the current audit firm, as appropriate, or whether a rotation of the
audit firm's senior partner is advisable or required by statute.
2. Consider, in consultation with the independent auditor, the adequacy of the
Company's internal financial controls to provide reasonable assurance that
publicly reported financial statements and/or reports are presented fairly
and in conformance with generally accepted accounting principles, and that
such reports are prepared with adequate timeliness to allow sufficient
review by legal counsel.
3. Consider, in consultation with the independent auditor, major changes to
financial standards and/or other major questions of choice regarding the
appropriate auditing and accounting principles and practices followed when
preparing the financial statements. Discuss "appropriateness", rather than
what is merely "acceptable", when choosing principles used in the
preparation of financial statements.
4. Obtain a formal written statement annually from the independent auditors
describing all relationships between the auditors and the Company
consistent with Independence Standards Board Standard Number 1. Actively
engage in a dialogue with the independent auditors with respect to any
relationship that may impact the objectivity and independence of the
auditors and take, or recommend that the Board of Directors take,
appropriate actions to oversee and satisfy itself as to the auditors
independence.
5. Discuss with a representative of management and the independent auditors:
(1) the interim financial information contained in the Company's Quarterly
Reports on Form 10-Q prior to their filing, (2) the quarterly earnings
announcement prior to its release (if practicable), (3) any interim SEC
filing on Form 8-K that involves material information, if practicable, and
(4) the results of the review of such information by the independent
auditors. (These discussions may be held with the Committee as a whole or
with the Chairman in person or by telephone.)
6. Review the audited financial statements and discuss them with management
and the independent auditors. These discussions shall include the matters
required to be discussed under Statement of Auditing Standards No. 61 and
consideration of the quality of the Company's accounting principles as
applied in its financial reporting, including a review of particularly
sensitive accounting estimates, reserves, accruals, judgement areas, audit
adjustments (whether or not recorded), and other such inquiries as the
Committee or the independent auditors shall deem appropriate. Based on such
review, the Committee shall make its recommendation to the Board of
Directors as to the inclusion of the Company's audited financial statements
in the Company's Annual Report on Form 10-K (or the Annual Report to
Stockholders if distributed prior to the filing of the Form 10-K).
7. Issue the annual Audit Committee report to be included in the Company's
Proxy Statement as required by the rules of the Securities and Exchange
Commission.
8. Discuss with management and/or the Company's general counsel any legal
matters (including pending litigation) that may have a material impact on
the Company's financial statements and any material reports or inquiries
from regulatory or governmental agencies.
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9. Review the Company's consolidated annual tax returns as prepared by
management and the independent audit firm.
10. Separately recommend the appointment of a competent, qualified, and
experienced audit firm selected to provide the co-sourced Internal Audit
functions for the Bank. If the selected firm is the same as that chosen to
perform the financial statement audit or some other service for the Company
or the Bank, the Committee should exercise care to maintain "independence
requirements" consistent with AICPA guidance to such firms. (Reference:
Interagency Policy Statement on the Internal Audit Function and Its
Outsourcing, dated December 22, 1997.) Periodically consider whether the
replacement of the audit firm performing co-sourced Internal Audit services
is appropriate or whether a rotation of the independent audit firm's senior
partner is advisable or required by statute.
11. Participate in the annual Internal Audit "risk-assessment" process, in
conjunction with management, to determine the scope of internal audit for
the plan year, determine the compensation for the services provided, and
clarify the terms of engagement with the firm selected to provide
co-sourced Internal Audit services.
12. Review the audit reports produced by the Bank's Internal Audit function on
each area selected for audit, discuss such reports with management, and
monitor management's timely and appropriate response to such findings.
13. Review audit reports prepared by any third-party audit firm on any of the
Bank's functions that have been outsourced to a third party, such as
outsourced data processing services; and review reports produced by any
regulatory agency (i.e. FFIEC) to assess the adequacy of internal controls
related to functions outsourced to a third party.
14. Review and respond to reports of examination generated by regulatory
authorities. Monitor management's appropriate and timely progress in
addressing each issue contained within such reports of examination.
15. Provide regular reports to the Board of Directors on the activities of the
Audit Committee. Serve as a channel of communication between any external
auditor or examiner and the Board of Directors.
16. Recommend the appointment of a qualified Compliance Officer, determine the
responsibilities of the Compliance Officer as Chair of the Compliance
Committee, and clarify the independence of the Compliance Officer and the
Compliance Committee, as necessary.
17. Establish, review, and periodically update the Code of Ethical Conduct and
ensure that management has established a system to enforce this code.
Periodically review relevant aspects of the performance and ethical conduct
of the CEO, CFO, Compliance Officer, and other management personnel in
Executive Session.
18. Periodically evaluate the performance of the CFO in regards to financial
reporting and financial controls.
19. Obtain an annual "Management Letter" from the Company's independent
external auditors. Discuss this letter with the independent external audit
firm and management. Monitor opportunities for corrective actions or
improvement highlighted in the letter.
20. Review and monitor internally generated reports, minutes, or other relevant
material prepared by management and/or the Compliance Officer.
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21. Solicit input from the Board of Directors and independent audit firms on
enhancing Audit Committee performance, and perform periodic
self-assessments of the Committee's activities and effectiveness.
22. Schedule periodic briefings by top management and operating officers on
financial performance and condition, internal control issues, and laws and
regulations.
23. Effectively communicate Audit Committee expectations to external auditors
and to key members of management.
24. Evaluate whether the Company and Bank have allocated a sufficient quality
and quantity of resources to generate quality financial reporting while
also maintaining a suitable level of internal controls.
RESPONSIBILITIES OF AUDIT COMMITTEE MEMBERS
o Review orientation materials provided new Audit Committee members and
become familiar with the principal duties and activities of the Audit
Committee which are detailed in this Audit Committee Charter.
o Review all reports prepared for submission to the Audit Committee: by the
firm engaged to conduct the financial attestation audit; by the firm
engaged to perform Internal Audit functions; by any regulatory agency; by
the Compliance Officer or management; and by any firm that conducts "third
party" audits pertinent to the operations of the Company or the Bank.
o Attend Audit Committee meetings, and participate in Committee duties and
activities as defined in this Audit Committee Charter.
o Achieve and maintain the "financial literacy" required of corporate Audit
Committee members by periodically attending outside seminars and other more
formal training vehicles to enhance knowledge and proficiency in fulfilling
Audit Committee responsibilities.
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