SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Monterey Bay Bancorp, Inc.
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N/A
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[X] No fee required.
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MONTEREY BAY BANCORP, INC.
567 Auto Center Drive
Watsonville, California 95076
(831)768-4800 main switchboard
April 11, 2003
Fellow Stockholders:
Please accept this invitation to attend our 2003 Annual Meeting of
Stockholders ("Annual Meeting"). The Annual Meeting will be held Thursday, May
22, 2003 at 9:00 am Pacific Time at the Watsonville Woman's Club in Watsonville,
California. If you were a stockholder of record of Monterey Bay Bancorp, Inc.
("Company") at the close of business on March 26, 2003, you may vote at the
Annual Meeting.
Our agenda will include the election of four directors and ratification
of the selection of our independent auditors. We will also take this opportunity
to provide you with a report on our 2002 performance and to answer any questions
you might have about the Company.
Please accept our thanks for your continued support and confidence in
Monterey Bay Bancorp, Inc. We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ McKenzie Moss /s/ C. Edward Holden
--------------------------------- -----------------------------
McKenzie Moss C. Edward Holden
Chairman Of The Board Vice Chairman Of The Board
Chief Executive Officer
President
MONTEREY BAY BANCORP, INC.
567 Auto Center Drive
Watsonville, California 95076
(831) 768 - 4800 main switchboard
--------------------------------------------------------------------------------
NOTICE OF THE 2003 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 22, 2003
April 11, 2003
To Our Stockholders:
We will hold an Annual Meeting of Stockholders of Monterey Bay Bancorp,
Inc. ("Company"), the holding company for Monterey Bay Bank ("Bank"), on
Thursday, May 22, 2003, at the Watsonville Woman's Club, 12 Brennan Street,
Watsonville, California, 95076 at 9:00 a.m. Pacific Time to consider and vote
upon the following proposals:
1. The election of four directors: Rita Alves, Josiah T. Austin, and
Diane Simpkins Bordoni for terms of three years, and McKenzie Moss
for a term of one year.
2. The ratification of Deloitte & Touche, LLP as independent auditors
of the Company for 2003.
3. Such other business as may properly come before the Annual Meeting,
or any adjournment or postponement thereof.
Stockholders who owned shares of our stock at the close of business on
March 26, 2003 are entitled to attend and vote at the Annual Meeting. This
notice, the proxy statement, a proxy and voting instruction card, and the 2002
Annual Report are being distributed on or about April 11, 2003.
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 Annual Meeting itself.
Regardless of whether you plan to attend the Annual Meeting in person,
we urge you to vote in favor of each of the proposals as soon as possible.
By Order Of The Board Of Directors,
/s/ Mary Anne Carson
-----------------------------------
Mary Anne Carson
Corporate Secretary
--------------------------------------------------------------------------------
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. 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.
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MONTEREY BAY BANCORP, INC.
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 2003
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QUESTIONS AND ANSWERS
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders who own our common stock as of the close of
business on March 26, 2003 (the "Record Date") may vote at the
Annual Meeting. Each share is entitled to one vote, except as
noted in the following paragraph. There were 3,460,974 shares
of our common stock outstanding on the Record Date.
In accordance with the provisions of the Company's Certificate
of Incorporation, record holders of our common stock who
beneficially own in excess of 10% of the outstanding shares of
our 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 Board of Directors is authorized
(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 enable the Board of
Directors to implement and apply the Limit.
Q: WHAT IS THE PROXY CARD?
A: The proxy card enables you to appoint Larry Daniels, C. Edward
Holden, and Gary Manfre (the "Proxy Committee") as your
representatives at the Annual Meeting. By completing and
returning the proxy card, you are authorizing them to vote
your shares at the Annual Meeting as you instructed on your
proxy card. This way, your shares will be voted whether or not
you attend the Annual Meeting. Even if you plan to attend the
Annual Meeting, it is a good idea to complete and return your
proxy card before the Annual Meeting date just in case your
plans change.
If a proposal properly comes up for vote at the Annual Meeting
that is not on the proxy card, the Proxy Committee will vote
your shares, under your proxy, according to their best
judgement.
1
Q: WHAT AM I VOTING ON?
A: You are voting on:
1. The election of four directors (Rita Alves, Josiah Austin,
Diane Simpkins Bordoni, and McKenzie Moss); and
2. Ratification of Deloitte & Touche, LLP as our independent
auditors for the 2003 fiscal year.
Please see the section entitled "Proposals To Be Voted Upon"
for more information.
Q: HOW DO I VOTE?
A: You may vote by mail. Mark your choices on the enclosed proxy
card and sign, date, and return it in the enclosed
pre-addressed, postage pre-paid envelope. If you sign your
proxy card but do not make any selections, your shares will be
voted:
- FOR the four named nominees for directors; and
- FOR the ratification of the independent auditors.
You may vote in person at the Annual Meeting. We will
distribute written ballots to anyone who wants to vote at the
Annual Meeting. However, if you hold your shares in street
name, you must request a proxy from your stockbroker in order
to vote at the Annual Meeting. Holding shares in "street name"
means you hold them in an account at a brokerage firm.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares are probably registered differently or are in more
than one account. Vote all proxy cards to ensure that all your
shares are voted. Unless you need multiple accounts for
specific purposes, we recommend that you consolidate as many
of your accounts as possible under the same name and address.
If the shares are registered in your name, contact our
transfer agent, Mellon Investor Services (800-356-2017);
otherwise, contact your brokerage firm.
2
Q: HOW DO I REVOKE MY PROXY?
A: You may revoke your proxy and change your vote at any time
before the polls close at the Annual Meeting. You may do this
by:
o signing another proxy with a later date; or
o voting at the Annual Meeting.
Q: WILL MY SHARES BE VOTED IF I DO NOT RETURN MY PROXY CARD?
A: If your shares are held in your name, they will not be voted
at the Annual Meeting unless you either complete and submit a
proxy, or attend the Annual Meeting and vote in person.
If your shares are held in street name, your brokerage firm,
under certain circumstances, may vote your shares. Under NASD
rules, brokerage firms have authority to vote customers'
unvoted shares on "routine" matters. We have determined that
all of our proposals are routine matters.
Q: HOW MANY SHARES MUST BE PRESENT TO HOLD THE ANNUAL MEETING?
A: To hold the Annual Meeting and conduct business, a majority of
our shares outstanding as of March 26, 2003, after giving
effect to the previously described Limit, must be present in
person or by proxy at the Annual Meeting. This is called a
quorum. Abstentions and broker non-votes will be counted for
purposes of satisfying the quorum requirement. If there are
not sufficient shares present in person or by proxy to
establish a quorum at the Annual Meeting, the Annual Meeting
may be adjourned to permit the further solicitation of
proxies.
Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED AS
DIRECTORS?
A: The four nominees receiving the highest number of FOR votes
will be elected as directors. This number is called a
plurality. Broker non-votes and proxies as to which authority
to vote for one or more of the nominees is withheld are not
considered in regard to the election of directors.
3
Q: HOW MANY VOTES MUST THE RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT AUDITORS RECEIVE IN ORDER TO BE APPROVED?
A: The ratification of the independent auditors must receive a
majority of the votes cast without regard to either broker
non-votes or proxies marked "ABSTAIN" as to that matter.
Q: WHAT HAPPENS IF A NOMINEE IS UNABLE TO STAND FOR ELECTION?
A: The Board of Directors may reduce the number of directors or
select a substitute nominee. In the latter case, if you have
completed and returned your proxy card, Messrs. Daniels,
Holden, and Manfre, constituting the Proxy Committee, can vote
your shares for a substitute nominee.
Q: HOW ARE VOTES COUNTED?
A: On the proposal to elect directors, you may vote "FOR" all
nominees (except as marked to withhold your vote for any
individual nominee), or "WITHOLD" your vote from all nominees.
On the proposal to ratify the independent auditors, you may
vote "FOR", "AGAINST", or "ABSTAIN." If you give your proxy
without voting instructions, your shares will be counted as
being voted FOR each nominee for director and FOR the
ratification of the independent auditors.
Voting results are tabulated and certified by our transfer
agent, Mellon Investor Services.
Q: IS MY VOTE KEPT CONFIDENTIAL?
A: Proxies, ballots, and voting tabulations identifying
stockholders are kept confidential and will not be disclosed
except as may be necessary to meet legal requirements.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will announce preliminary voting results at the Annual
Meeting. Final results will be published in our quarterly
report on Form 10-Q for the second quarter of 2003. We will
file that report with the Securities and Exchange Commission
("SEC"). You may obtain a copy by calling our Corporate
Secretary at (831) 768-4809 or the SEC at (800) SEC-0330 for
the location of its nearest public reference room. You can
also obtain a copy on the Internet through the SEC's
electronic data system called EDGAR at www.sec.gov or through
our website at www.montereybaybank.com.
4
PROPOSALS TO BE VOTED UPON
--------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
Nominees for election as directors this year are:
Rita Alves Josiah T. Austin
Diane Simpkins Bordoni McKenzie Moss
Each nominee is currently a director of the Company. All of the
nominees have consented to serve three-year terms, with the exception of Mr.
Moss, whose term is restricted to one year in accordance with our Bylaws due
to his age. Information on the nominees and directors continuing in office can
be found beginning on page 6.
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. We have 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.
The Board of Directors recommends a vote "FOR" these four nominees for director.
2. SELECTION OF INDEPENDENT AUDITORS
The firm of Deloitte & Touche, LLP served as independent certified
public accountants for the Company and its subsidiary for 2002. Your Board of
Directors has recommended the firm as our independent auditors for 2003. A
representative of Deloitte & Touche, LLP will be present at the Annual Meeting
and will have the opportunity to make a statement and to answer questions.
Audit services performed by Deloitte & Touche, LLP for the year ended
December 31, 2002 consisted of:
o attestation services for the 2002 fiscal year,
o certain services related to filings with the Securities and Exchange
Commission,
o consultation on matters related to accounting and financial reporting, and
o income tax preparation and tax consultation services
For further discussion on the services provided by our independent
auditor, please see the Audit Committee Report on beginning on page 24.
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, 2003.
The Board of Directors recommends a vote FOR the ratification of the
selection of the independent auditors.
5
THE BOARD OF DIRECTORS
(Beginning Of Service As Director Includes Service With Monterey Bay Bank)
--------------------------------------------------------------------------------
RITA ALVES
Director since 2002
Ms. Alves, age 47, is Chief Financial Officer and Vice President of
Granite Rock Company in Watsonville, California. Ms. Alves is a member
of the Audit Committee. She is a licensed CPA with over 20 years of
financial and accounting experience. She is a Board member of the Jean
& Ed Kelly Foundation, the 2002 Corporate Recruitment Chairperson for
Juvenile Diabetes Research Foundation, and a member of the Watsonville
YMCA Campaign Steering Committee.
JOSIAH T. AUSTIN
Director since 1999
Mr. Austin, age 55, is a rancher and private investor in Pearce,
Arizona. Mr. Austin serves on the Board Compensation and Benefits and
Executive Committees. Mr. Austin also serves on the Asset / Liability
Management Committee of the Bank.
EDWARD K. BANKS
Director since 1993
Mr. Banks, age 54, is Chief Executive Officer of Pajaro Valley
Insurance Agencies, Inc. in Watsonville, California. Mr. Banks is
Chairman of the Director's Loan Committee and a member of the Board
Executive Committee. Mr. Banks is Past President and a member of Rotary
Club of Watsonville, a member of the Pajaro Valley Historical
Association, and a member of the Agricultural History Project. Mr.
Banks serves as a reserve Lieutenant for the Watsonville Fire
Department and is Treasurer of the Watsonville Firefighters'
Association.
DIANE SIMPKINS BORDONI
Director since 1998
Ms. Bordoni, age 49, is Chief Financial Officer of System Studies
Incorporated in Santa Cruz, California. Ms. Bordoni is Chairman of the
Audit Committee and a member of the Executive Committee. Ms. Bordoni
has over 20 years of financial and accounting work experience. Ms.
Bordoni is Chairperson for the St. Simon Parish Finance Council,
Treasurer of Bellarmine College Preparatory School Mothers' Guild, and
a member of the Diocese Finance Task Force.
LARRY A. DANIELS
Director since 2001
Mr. Daniels, age 61, is Chairman and CEO of Daniels & House
Construction Co. in Monterey, California. Mr. Daniels serves as a
member of the Compensation and Benefits Committee and Directors Loan
Committee. Mr. Daniels is a Director of the Construction Employers'
Association, a Trustee for the Unity Church of Monterey Bay, and a
mission pilot for the Civil Air Patrol, California Wing.
6
STEVEN FRANICH
Director since 1989
Mr. Franich, age 56, is President of Marty Franich Auto Dealerships in
Watsonville, California. Mr. Franich is Chairman of the Compensation
and Benefits Committee, a member of the Executive Committee, a member
of the Audit Committee, and Chairman of the Nominating Committee. Mr.
Franich is Past President of Rotary Club of Watsonville, a past
Director of the Pajaro Valley Chamber of Commerce, and a past Director
of Boy Scouts of Monterey Bay. He currently serves as a Director for
the Cabrillo College Foundation.
STEPHEN G. HOFFMANN
Director since 1997
Mr. Hoffmann, age 58, is President and Chief Executive Officer and a
Director of Canyon National Bank of Palm Springs, California. Mr.
Hoffmann has an MBA in Finance / Economics and a BBA in Accounting. Mr.
Hoffmann is a member of Directors Loan, Nominating, and Compensation
and Benefits Committees. Mr. Hoffmann is a past President of the Palm
Springs Chamber of Commerce and currently serves as a Director of the
following organizations: Braille Institute, Desert Hospital, Palm
Springs Desert Museum, and Palm Springs Charities.
C. EDWARD HOLDEN
Director since 2000
Mr. Holden, age 56, is President and Chief Executive Officer of
Monterey Bay Bancorp, Inc. and Monterey Bay Bank and is Vice Chairman
of the Board of Directors. He has 28 years experience in banking in
various capacities including lending, retail banking, and corporate
finance. He is a Director of the Western Independent Bankers
Association, a member of Rotary International of Monterey, and a
Director of Central Coast Partnership, which serves Santa Cruz,
Monterey, San Benito, and Santa Clara counties, and Director of the
Santa Cruz Business Council. He also serves on the Finance Committee of
Boys and Girls Club of Monterey. Mr. Holden is a member of the
Executive Committee.
GARY L. MANFRE
Director since 1993
Mr. Manfre, age 49, is Treasurer of Watsonville Coast Produce, Inc. in
Watsonville, California. Mr. Manfre is a member of Directors Loan
Committee. Mr. Manfre coaches football and baseball for Monte Vista
High School in Watsonville, California.
McKENZIE MOSS
Director since 1996
Mr. Moss, age 72, is Chairman of the Board of Monterey Bay Bancorp,
Inc. and Monterey Bay Bank. Mr. Moss worked in the financial services
industry for over three decades, including as President and CEO of Bank
of the West from 1974 through 1983 and formerly Vice Chairman and CEO
of Walker Bank in Salt Lake City, Utah. Mr. Moss serves on the Board
Audit Committee, Compensation and Benefits Committee, Executive
Committee, and as an alternate for the Directors' Loan Committee. Mr.
Moss is on the faculty of Golden Gate University, a member of Carmel
Rotary Club, on the vestry of St. Dunstan's Church, and serves as a
mission pilot for Civil Air Patrol. He is a published fiction writer.
7
BOARD AND BOARD COMMITTEE MEETINGS
--------------------------------------------------------------------------------
The Board of Directors held twelve regular meetings and one special
meeting in 2002, and each director attended at least 75% of all Board and
Committee meetings. The table below describes the Board's committees and their
functions. The Audit, Executive, and Compensation and Benefits Committees meet
separately for the Company and the Bank, but the same directors serve on these
Committees for both the Company and the Bank. The Loan Committee meets only for
the Bank. The Nominating Committee meets only for the Company.
------------------------------------- --------------------------------------------------------- --------------------
Number of
Board Committee Name Meetings Held
And Members Functions Of The Board Committee In 2002
------------------------------------- --------------------------------------------------------- --------------------
Audit
------------------------------------- --------------------------------------------------------- --------------------
Diane Simpkins Bordoni, Responsible for reviewing the adequacy of 12
Chairman internal controls and the accuracy of
financial reporting.
Responsible for monitoring the Company's compliance
Rita Alves with laws and regulations. Coordinates corporate
Steven Franich governance topics for the full Board of Directors.
McKenzie Moss Approves the annual internal audit plan and all Company
engagements for the independent auditor. Reviews
reports by the internal auditors, the independent
auditors, and various regulatory bodies. Recommends
to the Board any changes in doing business or
corrective actions necessary for the safety and
soundness of the Bank and the Company.
All members are non-employee directors.
------------------------------------- --------------------------------------------------------- --------------------
Executive
------------------------------------- --------------------------------------------------------- --------------------
McKenzie Moss, Chairman Responsible for the transaction of business between 8
regular meetings of the Board, dealing with
Josiah Austin emergencies, and review of controversial, complex, or
Edward Banks sensitive issues to come before the full Board of
Diane Simpkins Bordoni Directors. Meets only as needed.
Steven Franich
C. Edward Holden
------------------------------------- --------------------------------------------------------- --------------------
Compensation & Benefits
------------------------------------- --------------------------------------------------------- --------------------
Steven Franich, Chairman Responsible for review and approval of compensation and 10
benefits programs and policies. Responsible for review
Josiah Austin and recommendation of compensation for the Chief
Larry Daniels Executive Officer. All members are non-employee
Stephen Hoffmann directors.
McKenzie Moss
------------------------------------- --------------------------------------------------------- --------------------
8
------------------------------------- --------------------------------------------------------- --------------------
Number of
Board Committee Name Meetings Held
And Members Functions Of The Board Committee In 2002
------------------------------------- --------------------------------------------------------- --------------------
Loan
------------------------------------- --------------------------------------------------------- --------------------
Edward Banks, Chairman Responsible for review and approval of loan and credit 28
requests exceeding certain thresholds.
Larry Daniels
Stephen Hoffmann
Gary L. Manfre
McKenzie Moss (alternate)
------------------------------------- --------------------------------------------------------- --------------------
Nominating
------------------------------------- --------------------------------------------------------- --------------------
Steven Franich, Chairman Considers and recommends candidates for director. 2
Nominates directors for annual stockholders meeting.
Larry Daniels For stockholder nominations, see "Submission Of
Stephen Hoffmann Stockholder Proposals".
------------------------------------- --------------------------------------------------------- --------------------
COMPENSATION COMMITTEE INTERLOCKS
--------------------------------------------------------------------------------
None of the members of the Compensation and Benefits Committee:
o is an officer (or former officer) or employee of the Company or its
subsidiary, and
o has entered into (or agreed to enter into) any transactions(s) with the
Company or any of its subsidiaries in which the amount involved exceeds
$60,000.
No executive officers of the Company or its subsidiary Monterey Bay
Bank had any interlocking relationship with any other for-profit entity during
2002, including serving on the compensation committee or serving as director of
another entity.
Mr. Hoffmann is President and CEO and a Director of a company that has
a class of securities registered under or which is subject to the periodic
reporting requirements of the Securities Exchange Act of 1934.
DIRECTOR COMPENSATION
--------------------------------------------------------------------------------
All director compensation of any type other than travel reimbursement
is paid quarterly exclusively in our common stock. A new director's compensation
program was adopted in November 2002, which reduced the base retainer fee and
set other fees in alignment with actual director participation in Board and
Committee meetings. For example, directors who serve as Chairman of Committees
receive higher compensation than Committee members in order to compensate for
the additional time and experience necessary to fulfill these responsibilities.
Additionally, directors are only paid for meetings in which they physically
attend (versus attendance by conference phone). We do not pay directors who are
also officers of the Company any additional compensation for their services as
directors. No stock options were awarded to directors in 2002.
9
All of the following meeting fees (fees other than base retainer fees)
require that directors be physically present at Board or Board Committee
meetings. Should there be more than one meeting of the full Board or any
particular Board Committee meeting during a calendar month, meeting fees are
paid only for the first such meeting at which directors are physically present.
In 2002, compensation for non-employee directors included the following:
o Monthly base retainer fee of $1,325 for directors other than the
Chairman, $2,575 for the Chairman of the Board.
o $400 per regular or special full Board of Director meeting.
o $350 per Audit Committee meeting for the Audit Committee Chairman
and $100 per Audit Committee meeting for other directors serving on
the Audit Committee.
o $200 per Loan Committee meeting for the Loan Committee Chairman and
$100 per Loan Committee meeting for other directors serving on the
Loan Committee.
o $200 per Compensation and Benefits Committee meeting for the
Compensation and Benefits Committee Chairman and $100 per
Compensation and Benefits Committee meeting for other directors
serving on the Compensation and Benefits Committee.
o $100 per Bank Asset / Liability Management Committee meeting for
directors serving on that Bank management committee. This fee
requires physical attendance. In 2002, Mr. Austin served on the
Bank's Asset / Liability Management Committee.
o Reimbursement for out-of -pocket travel expenses up to $300 per
regular or special Board meeting.
DIRECTOR EMERITUS PROGRAM
Effective May 25, 2000, the Board of Directors adopted the Director
Emeritus Program to recognize and reward directors for their years of service
and overall contribution to the Company. 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. Our Bylaws provide that all directors must retire
from the Board of Directors no later than December 31 of the year in which they
attain the age of 73. 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, stock option 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, with no change in expiration
date.
10
EXECUTIVE OFFICERS
--------------------------------------------------------------------------------
C. EDWARD HOLDEN
Mr. Holden, age 56, joined the Company in 2000 as President and Chief Executive
Officer of both Monterey Bay Bancorp, Inc. and Monterey Bay Bank. Prior to
joining the Company, Mr. Holden was Executive Vice President and Senior Lending
Officer for The Pacific Bank from 1999-2000 and Executive Vice President and
Senior Lending Officer for Santa Monica Bank from 1998-1999. Mr. Holden has
worked in the financial services industry since 1975.
MARK R. ANDINO
Mr. Andino, age 43, is Chief Financial Officer and Treasurer of Monterey Bay
Bancorp, Inc. and Monterey Bay Bank. Mr. Andino joined the Company in 2000.
Prior to joining the Company, Mr. Andino was Treasurer for Chela Financial in
1999 and Chief Financial Officer for HF Bancorp and its subsidiary Hemet Federal
from 1996-1999. Mr. Andino has worked in the financial services industry since
1984 and has been a Chief Financial Officer for ten years, with six years of
experience as the Chief Financial Officer of a publicly traded financial
institution holding company.
SUSAN M. CARLSON
Ms. Carlson, age 51, joined the Bank in 2001 as Senior Vice President and Chief
Administrative Officer. Prior to joining the Bank, Ms. Carlson was the President
and owner of C & S Carlson Enterprises, Inc., Aptos, California, a strategic
marketing and business development consulting firm. Ms. Carlson served as a
consultant to the Bank from October of 1996 to June of 2001.
DAVID E. PORTER
Mr. Porter, age 53, is Senior Vice President and Director of Commercial Banking
of Monterey Bay Bank. Prior to joining the Bank in 2000, Mr. Porter was
Executive Vice President and Chief Credit Officer of Southern Pacific Bank,
Torrance, California.
BEN A. TINKEY
Mr. Tinkey, age 50, has been Senior Vice President and Chief Loan Officer since
joining Monterey Bay Bank in 1994. Mr. Tinkey has worked in the financial
services industry since 1978, with a particular emphasis upon real estate
lending.
11
BENEFICIAL OWNERSHIP TABLES
--------------------------------------------------------------------------------
All information in the following tables is as of March 26, 2003 and
includes share ownership for each director, the Named Executive Officers (as
defined on page 14), and owners of more than five percent of our outstanding
common stock. Other than those persons listed below, we are not aware of any
person, as such term is defined in the Exchange Act, who owns more than 5% of
our common stock as of the Record Date.
----------------------------------------------- ---------------------- ---------------------- ----------------------
Number Of Right To Percent Of
Name And Address Of Shares Acquire Outstanding
Beneficial Owner Owned Shares Shares
----------------------------------------------- ---------------------- ---------------------- ----------------------
Josiah T. Austin 544,186 1,500 15.8%
El Coronado Holdings, LLC
Star Route 395
Pearce, AZ. 85625
----------------------------------------------- ---------------------- ---------------------- ----------------------
Endicott Partners (1) 291,975 -- 8.4%
237 Park Avenue, Suite 801
New York, NY. 10017
----------------------------------------------- ---------------------- ---------------------- ----------------------
Monterey Bay Bank Employee 255,956 -- 7.4%
Stock Ownership Plan ("ESOP") (2)
567 Auto Center Drive
Watsonville, CA 95076
----------------------------------------------- ---------------------- ---------------------- ----------------------
Kahn Brothers & Company, Inc. (3) 236,824 -- 6.8%
555 Madison Avenue, 22nd Floor
New York, NY. 10022
----------------------------------------------- ---------------------- ---------------------- ----------------------
--------------------------------------------------------------------------------
(1) Based upon information contained in Schedule 13G on February 14, 2003
pursuant to the Securities and Exchange Act of 1934.
(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, 2002,
there were 255,956 total shares retained under the ESOP, comprised of
184,079 allocated shares and 71,877 unallocated shares. 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 Schedule 13G on February 6, 2003
pursuant to the Securities and Exchange Act of 1934.
12
OWNERSHIP OF NOMINEES, CONTINUING DIRECTORS, AND EXECUTIVE OFFICERS
--------------------------------------------------------------------------------
------------------------------------------ ----------------------- ------------------------ -----------------------
Number Of Shares Right to Acquire Percent Of
Name Of Owned Shares Outstanding Shares
Beneficial Owner (1) (2) (3)
------------------------------------------ ----------------------- ------------------------ ------------------------
NOMINEES:
Rita Alves 401 -- *
Josiah T. Austin 544,186 1,500 15.8%
Diane Simpkins Bordoni 6,062 3,500 *
McKenzie Moss 11,250 7,457 *
CONTINUING DIRECTORS:
Edward K. Banks 6,901 15,501 *
Larry A. Daniels 5,641 1,500 *
Steven Franich 68,339 8,000 2.2%
Stephen G. Hoffmann 5,866 3,958 *
C. Edward Holden 29,554 66,344 2.8%
Gary L. Manfre 28,312 9,000 1.1%
NON-DIRECTOR
EXECUTIVE OFFICERS:
Mark R. Andino 33,599 33,500 1.9%
Susan M. Carlson 1,211 2,600 *
David E. Porter 1,831 8,300 *
Ben A. Tinkey 35,202 44,750 2.3%
Other Executive Officers (4) 18,663 12,432 *
Directors And Executive Officers
As A Group (19 Persons) 797,018 218,342 29.3%
------------------------------------------ ----------------------- ------------------------ ------------------------
--------------------------------------------------------------------------------------------------------------------
*Less than 1.00%
(1) Includes shares for which the named person:
o has sole voting and investment power; or
o has shared voting and investment power with his or her spouse; or
o holds in an account under the Bank's Employee Stock Ownership Plan
("ESOP") or 401(k) Plan.
(2) Includes stock acquirable by exercise of stock options exercisable within 60
days following March 26, 2003.
(3) Percentages are stated to include stock acquirable by exercise of stock
options exercisable within 60 days following March 26, 2003. There were
3,460,974 shares of our common stock outstanding on March 26, 2003, the
Record Date.
(4) Includes five Executive Officers that are not Named Executive Officers.
13
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
This table shows the annual and long-term compensation for the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company or Bank (the "Named Executive Officers"). The information is
presented for the years ended December 31, 2002, 2001, and 2000.
------------------------------ ---------------------------------------------- ------------------------- --------------
(In Whole Dollars) Long-Term
Annual Compensation Compensation Awards
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
Securities
Underlying
Other Annual Restricted Options All Other
Name And Principal Year Salary Bonus Compensation Stock (Number) Compensation
Positions (1) (2) (3) (4) (5) (6)
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
C. Edward Holden (7) 2002 $ 255,747 $ 173,600 $ 49,084 $ -- -- $ 36,808
Chief Executive Officer 2001 252,605 89,460 84,767 -- 15,000 40,223
President 2000 150,000 45,000 29,046 -- 75,000 --
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
Mark R. Andino (8) 2002 156,250 18,000 60,135 -- -- 36,808
Chief Financial Officer 2001 140,188 12,785 62,763 -- 7,500 40,223
Treasurer 2000 135,000 15,000 37,373 151,950 45,000 --
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
Susan M. Carlson (9) 2002 94,940 14,963 -- -- -- 18,174
Chief Administrative Officer 2001 45,962 -- -- -- 8,000 --
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
David E. Porter (10) 2002 155,813 38,000 6,915 -- -- 36,258
Director Of Commercial 2001 151,667 -- 11,403 -- 1,500 --
Banking 2000 26,042 -- 1,000 -- 20,000 --
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
Ben A. Tinkey (11) 2002 131,708 35,000 2,547 -- -- 28,987
Chief Loan Officer 2001 122,673 -- 7,049 -- 1,500 29,652
2000 116,112 20,078 41,482 -- 5,000 20,878
------------------------------ ------- ----------- ----------- -------------- ------------ ------------ --------------
--------------------------------------------------------------------------------
(1) 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 25% of their compensation, up to the maximum limits of the
Internal Revenue Code of 1986, as amended.
(2) Includes cash that was awarded through the Company's Officer Incentive
Compensation Plan ("OICP") and any other cash incentive payments.
(3) Includes auto allowance, cash paid in lieu of vacation, incentive
compensation paid in our common stock, our common stock taken in lieu
of salary, taxable relocation benefits, dividends on restricted stock,
and gains on the sale of restricted stock.
(4) No time-based restricted stock grants were made to Named Executive
Officers in 2002 or 2001. Performance based stock grants were utilized
by the Company in lieu of certain cash incentive and / or salary in
2002, 2001, and 2000.
14
(5) Includes options awarded under the 1995 Incentive Option Plan, both
prior and subsequent to amendments to the Plan on May 25, 2000. 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 of shares allocated to the ESOP
participant accounts of the Named Executive Officers in December of
each year.
(7) Other annual compensation for Mr. Holden in 2002 includes $13,865 in
pay in lieu of vacation, $8,400 in auto allowance, and $26,819 in our
common stock paid in lieu of cash bonus. Other annual compensation for
Mr. Holden in 2001 includes $4,972 in pay in lieu of vacation, $8,400
in auto allowance, $13,395 in our common stock paid in lieu of salary,
and $58,000 in our common stock paid in lieu of cash bonus. Other
annual compensation for Mr. Holden in 2000 includes $5,600 in auto
allowance, $13,256 in taxable relocation benefits, and $10,190 in our
common stock paid in lieu of cash bonus. Mr. Holden received annual
ESOP share allocations of 1,845 and 2,595 shares of our common stock in
2002 and 2001, respectively. Mr. Holden was 100.0% vested in his ESOP
benefit at December 31, 2002.
(8) Other annual compensation for Mr. Andino in 2002 includes $7,875 in pay
in lieu of vacation and $52,260 in vesting of previously granted
restricted shares. Other annual compensation for Mr. Andino in 2001
includes $8,654 in pay in lieu of vacation, $8,813 in our common stock
paid in lieu of salary, $5,046 in our common stock paid in lieu of cash
bonus, and $40,250 in vesting of previously granted restricted stock.
Other annual compensation for Mr. Andino in 2000 includes $9,865 in pay
in lieu of vacation, $7,128 in taxable relocation benefits, and $20,380
in vesting of previously granted restricted stock. Mr. Andino received
annual ESOP share allocations of 1,845 and 2,595 shares of our common
stock in 2002 and 2001, respectively. Mr. Andino was 100.0% vested in
his ESOP benefit at December 31, 2002.
(9) Ms. Carlson received an annual ESOP share allocation of 911 shares in
2002 and was 60% vested in her ESOP benefit at December 31, 2002.
(10) Other annual compensation for Mr. Porter in 2002 includes $915 in pay
in lieu of vacation and $6,000 in auto allowance. Other annual
compensation for Mr. Porter in 2001 includes $5,403 in taxable
relocation benefits and $6,000 in auto allowance. Other annual
compensation for Mr. Porter in 2000 includes $1,000 in auto allowance.
Mr. Porter received an annual ESOP share allocation of 1,831 shares in
2002. Mr. Porter was 60.0% vested in his ESOP benefit at December 31,
2002.
(11) Other annual compensation for Mr. Tinkey in 2002 includes $2,547 in pay
in lieu of vacation. Other annual compensation for Mr. Tinkey in 2001
includes $2,255 in pay in lieu of vacation and $4,794 in our common
stock paid in lieu of salary. Other annual compensation for Mr. Tinkey
in 2000 includes $5,769 in pay in lieu of vacation, $8,998 in our
common stock paid in lieu of cash bonus, $1,336 in dividends on
restricted stock, $2,558 in gain on sale of restricted stock, and
$22,821 in vesting of previously granted restricted stock. Mr. Tinkey
received annual ESOP share allocations of 1,453, 1,913, and 1,953
shares in 2002, 2001, and 2000, respectively. Mr. Tinkey was 100.0%
vested in his ESOP benefit at December 31, 2002.
15
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
Mr. Holden and Mr. Andino each have employment agreements among the
individual, the Company, and the Bank. These agreements provide for base
compensation and other compensation and benefits applicable to executive
personnel, which would be paid over the course of the two year term of the
agreements. Mr. Holden's current base compensation is $265,225 per year, and Mr.
Andino's is $162,225 per year. These base compensation amounts cannot be
decreased per the terms of the agreements. In addition, these agreements provide
additional benefits in the event of a change in control of the Company or Bank.
In the event of a change in control, Mr. Holden and Mr. Andino would be entitled
to receive aggregate payments of $1.4 million and $649 thousand, respectively,
subject to certain limitations and restrictions. These two executives can be
terminated at any time by the Company or the Bank for cause, as defined in the
agreements. In such case, the executives do not have the right to receive
compensation or other benefits for any period after termination for cause.
SUPPLEMENTAL RETIREMENT BENEFITS
In January 2003, the Company executed supplemental, non-qualified
retirement benefit agreements with Mr. Holden and Mr. Andino. These agreements
provide monthly retirement income to the two executives upon reaching age 65.
The annual retirement benefits for Mr. Holden and Mr. Andino are $120,000 and
$90,000, respectively. The two executive officers are fully vested in their
right to receive these benefits. The two executives are unsecured creditors of
the Company, and no Company assets have been segregated in this regard.
LIFE INSURANCE BENEFITS
In January 2003, the Company executed split dollar life insurance
agreements with Mr. Holden and Mr. Andino. These agreements provide death
benefits to the beneficiaries or estates of the two executives. The death
benefit for Mr. Holden is $1,521,586. The death benefit for Mr. Andino is
$1,148,122. In December 2002, the Bank invested $9.0 million in Bank owned
universal life policies, with the two executives being the insured individuals
under the insurance policies. The death benefits provided to the executives
under the life insurance agreements are a fraction of the total death benefit
the Company would receive. The Company thus implemented significant key man
insurance in conjunction with the investment in Bank owned life insurance.
EXECUTIVE BONUS AGREEMENTS
In January 2003, the Company executed executive bonus agreements with
Mr. Holden and Mr. Andino. These agreements provide annual bonus payments to the
executives calculated based upon the imputed income derived from the above life
insurance agreements, as determined by the Internal Revenue Code of 1986, as
amended.
16
CHANGE IN CONTROL AGREEMENTS
In March 2003, the Company executed change in control agreements with a
one year term with five Bank employees. Four of these agreements were renewals
of expiring agreements, and one was a new agreement (Ms. Carson). These
agreements provide for compensation and benefits as presented in the following
table. Compensation and benefits are payable in the event of a change in control
of the Company or Bank, as defined in the agreements. In order to receive
compensation and benefits under these agreements, the employee must have
suffered a loss of employment, a material detrimental alteration in authority, a
reduction in compensation by 5% or more, or be relocated from his or her
principal place of employment by more than 30 miles.
---------------------------- ------------------------------------------- -------------------- --------------------
Number Number
Of Of
Bank Bank Months Months
Employee Positions Compensation Benefits
---------------------------- ------------------------------------------- -------------------- --------------------
Carlene F. Anderson Vice President 12 12
Compliance Officer
Assistant Corporate Secretary
Susan M. Carlson Senior Vice President 6 6
Chief Administrative Officer
Mary Anne Carson Vice President 6 6
Corporate Secretary
Director Of Community Relations
David Porter Senior Vice President 18 12
Director Of Commercial Lending
Ben A. Tinkey Senior Vice President 12 12
Chief Loan Officer
---------------------------- ------------------------------------------- -------------------- --------------------
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock option grants to Named Executive Officers in 2002.
OPTION EXERCISES IN LAST FISCAL YEAR
None of the Named Executive Officers exercised stock options in 2002.
17
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, 2002. Also reported are the values
for "in-the-money" options that represent the positive spread between the
exercise price of any such existing stock options and the $19.95 year-end 2002
price of the Common Stock.
-------------------------- -------------------------------------- --------- --------------------------------------
Number Of Value Of Unexercised
Unexercised Options In-The-Money Options
Named At December 31, 2002 At December 31, 2002
Executive -------------------------------------- --------------------------------------
Officer Exercisable Unexercisable Exercisable Unexercisable
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
C. Edward Holden 55,344 34,656 $ 463,168 $ 391,383
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
Mark R. Andino 25,500 27,000 $ 205,125 $ 261,900
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
Susan M. Carlson 1,600 6,400 $ 9,772 $ 39,088
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
David E. Porter 8,300 13,200 $ 71,141 $ 109,764
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
Ben A. Tinkey 35,092 4,200 $ 374,494 $ 31,104
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
Total 125,836 85,456 $ 1,123,700 $ 833,239
-------------------------- ------------------ ------------------- --------- ------------------- ------------------
EQUITY COMPENSATION PLAN INFORMATION
( c )
Number Of Securities
As Of December 31, 2002 Remaining Available
----------------------- For Future Issuance
( a ) ( b ) Under Equity
Number Of Securities To Weighted Average Compensation Plans
Be Issued Upon Exercise Exercise Price Of (Excluding Securities
Equity Compensation Of Outstanding Options, Outstanding Options, Reflected In
Plan Category Warrants, And Rights Warrants, And Rights Column ( a ) )
------------------------------- -------------------------- ------------------------ ------------------------
Equity compensation plans
approved by security
holders 369,892 $ 11.31 143,813
Equity compensation plans
not approved by security
holders None Not Applicable Not Applicable
Total 369,892 $ 11.31 143,813
DESCRIPTION OF STOCK PLANS NOT APPROVED BY STOCKHOLDERS
Our only stock plan not approved by stockholders is the Director Fee
Stock Unit Plan, under which our directors are paid their fees in our common
stock instead of cash. We utilize previously repurchased shares of stock
("Treasury shares") for this purpose. For additional information regarding the
Director Stock Fee Unit Plan, please refer to the discussion of director
compensation beginning on page 9. We believe that paying directors with our
common stock enhances stockholder value by aligning director interests with
those of stockholders and by communicating the directors' support of the
Company. During the year ended December 31, 2002, we issued a total of 10,755
shares of our common stock to directors pursuant to the Director Fee Stock Unit
Plan.
18
STOCK PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The following graph shows a five-year comparison of cumulative total
stockholder returns for our common stock, the NASDAQ National Market, and the
SNL Thrift Stock Index for the period beginning on December 31, 1997. The graph
assumes an initial value of 100 and reinvestment of dividends. The graph
reflects historical performance, and as a result should not be relied upon as
being indicative of possible future performance. The data was supplied by SNL
Securities.
[Graphic Omitted]
--------------------------------------------------------------------------------------------------------------------
Period Ending
--------------------------------------------------------------------------------------------------------------------
Index 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
--------------------------------------------------------------------------------------------------------------------
Monterey Bay Bancorp, Inc. 100.00 92.46 66.07 70.31 101.97 131.24
--------------------------------------------------------------------------------------------------------------------
NASDAQ - Total US* 100.00 140.99 261.48 157.42 124.89 86.33
--------------------------------------------------------------------------------------------------------------------
SNL Thrift Index 100.00 87.95 71.85 114.72 122.62 146.28
--------------------------------------------------------------------------------------------------------------------
*Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago 2003.
Used with permission. All rights reserved. crsp.com.
SNL Financial LC (434) 977-1600
(C) 2003
19
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
--------------------------------------------------------------------------------
The Compensation and Benefits Committee is composed exclusively of
independent, outside directors. The key function of this Committee is to ensure
that executive officers are compensated in a manner consistent with the
Company's compensation strategies, internal equity considerations, competitive
practices, and the requirements of the appropriate regulatory bodies. This
Committee has overall responsibility for compensation and benefit programs and
reviews recommendations of executive management for compensation and benefits
for other officers and employees of the Bank. Committee functions also include:
o Develops the Company's overall compensation strategies.
o Reviews the effectiveness of the Company's compensation strategies in
ensuring that executive management is rewarded and incented appropriately,
with a balance between short term and long term objectives and remuneration,
and with an effective integration with increases in stockholder value.
o Determines the individual elements of compensation and benefits for the Chief
Executive Officer.
o Reviews executive management's recommendations for corporate titles and stock
option grants to employees and makes appropriate recommendations to the full
Board of Directors.
o Reviews and approves the Officers Incentive Compensation Plan ("OICP") annual
corporate objectives, payment formula, and budget.
o Reviews other incentive compensation programs, including those for
relationship officers, branch staff, and commissioned salespeople.
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 our common stock.
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.
o To maintain reasonable fixed compensation costs by targeting base salaries at
a competitive average.
20
There are four key elements to the Company's compensation program for
executives:
o Base salary
o Incentive compensation plans
o Stock options
o Participation in non-qualified benefit plans
The Compensation and Benefits Committee believes that this four part
program best serves the interests of the Company and its stockholders. This
program allows us to be competitive within the industry, ensures retention of
our high quality executive officers, and maintains a "team approach" to meeting
Company goals, which is heavily weighted along with individual performance
goals. At the same time, it advances both the short term and the long term
interests of stockholders.
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 and
Benefits Committee reviews comparable salary and other compensation arrangements
in effect for peer companies. This is accomplished in part through the purchase
of various financial industry compensation surveys. Further, the Compensation
and Benefits Committee considers the entire compensation package, including the
equity compensation to be provided under the Company's stock plans, of the
executive officers.
CASH INCENTIVE BONUS PLAN
The Company's Officers Incentive Compensation Plan provides annual
financial recognition of corporate and individual performance. Officers of the
Bank are eligible for cash incentive awards based upon:
o The Company's financial performance for the fiscal year as measured by a
series of numerical goals and financial ratio objectives approved by the
Board of Directors.
o The individual's performance for the fiscal year as measured by quantitative
and tactical goals established at the start of the year that are applicable
to the position and are generally closely integrated with augmenting
stockholder value.
In 2002, the Company exceeded its target objectives for corporate financial
results. A significant portion of the incentive compensation for the Chief
Executive Officer and Chief Financial Officer has in recent years been paid in
our common stock at the voluntary election of those officers.
21
STOCK OPTIONS
Stock options are granted periodically to employees throughout the
organization, generally commencing at the department management level, primarily
to align employee interests with those of stockholders, provide long-term
incentives to encourage long term commitment, and to facilitate employee
retention.
Directors and employees of the Company or its affiliates are eligible
to participate in the Amended 1995 Incentive Stock Option Plan. Incentive or
non-statutory stock options are awarded based upon, in part, the employee's
level of responsibility and contributions to the Company and the Bank. Under the
amended Plan, each option entitles the holder to purchase one share of our
common stock at 110% of the fair market value of the common stock on the date of
the 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 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. No stock options were granted
to Named Executive Officers in 2002.
STOCK AWARD PLAN
The Company maintains a Performance Equity Program ("PEP") for officers
and employees that was originally adopted in 1995. The PEP provides for two
types of stock awards: time-based grants and performance-based grants. This
award plan was designed to provide officers and employees with a proprietary
interest in the Company in a manner designed to encourage these individuals to
remain with the Company and to improve the overall financial performance of the
Company. Benefits under the PEP are integrated with the OICP to ensure a fair
level of aggregate incentive compensation. Vesting of stock awards under the PEP
accelerates in the event of a change in control of the Company or the Bank.
In 2002, Mr. Holden elected to receive 1,483 PEP shares in lieu of
certain cash incentive compensation through the OICP. In 2002, Mr. Andino
received 3,000 PEP shares in lieu of certain cash incentive compensation through
the OICP and in integration with a previously issued restricted stock grant.
EMPLOYEE STOCK OWNERSHIP PLAN
The Bank maintains an Employee Stock Ownership Plan ("ESOP") as a tax
qualified retirement benefit for all eligible employees. Employees are eligible
for the ESOP if they are at least 21 years of age and work at least 1,000 hours
per year. Employees may enter the ESOP on the first entry date following the
completion of three months of service. There are four entry dates each year, on
the first day of each calendar quarter. ESOP benefits vest at 30% after one year
of service, 60% after two years of service, and become fully vested following
three years of service. The fair market value of ESOP benefits for Named
Executive Officers are presented under the "All Other Compensation" column of
the "Summary Compensation Table". The Bank is currently scheduled to make two
additional annual contributions to the ESOP in December 2003 and December 2004.
By the end of 2004, all shares currently within the ESOP are scheduled to be
allocated to employee accounts.
22
SECTION 401(k) PLAN
The Bank maintains a tax-qualified Section 401(k) plan for the benefit
of eligible employees. Eligible employees include those of at least 21 years of
age and who work 1,000 or more hours per year. Employees may enter the 401(k)
Plan following thirty days of service. While the 401(k) Plan provides for Bank
matching or profit-sharing contributions, no such contributions were made in
2002, 2001, or 2000. The Bank has not made such contributions due to the
significant employee retirement benefit plan expenditures associated with the
ESOP.
Employees may defer up to 25% of their salary into the 401(k) Plan,
subject to certain nominal limits established by the Internal Revenue Code of
1986, as amended. The Bank allows "catch up" contributions for those employees
age 50 or more as allowed by the Internal Revenue Code. The 401(k) Plan allows
participants to borrow against their Plan balances. Employees may invest in any
one or more of twelve investment alternatives. Our common stock is one of the
twelve investment alternatives.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND PRESIDENT
After taking into consideration the total compensation review as
described earlier, the Compensation and Benefits Committee determined to pay the
Chief Executive Officer and President, C. Edward Holden, a base salary of
$257,500 effective March 1, 2002, representing an increase from his prior annual
salary of $247,500. In 2002, Mr. Holden also received bonuses and other
compensation as presented in the "Summary Compensation Table." In addition, in
early 2003, Mr. Holden received an extraordinary cash bonus of $40,000. On March
1, 2003, Mr. Holden's annual base salary was increased to $265,225 in
recognition of his performance and his contributions to the Company and Bank.
Compensation and Benefits Committee
Steven Franich, Chairman
Josiah T. Austin
Larry Daniels
Stephen G. Hoffmann
McKenzie Moss
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.
23
REPORT OF THE AUDIT COMMITTEE
--------------------------------------------------------------------------------
The following Report of the Audit Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filings under the Securities Act of 1933 or under the
Securities Act of 1934, except to the extent we specifically incorporate this
Report by reference.
The Audit Committee is comprised of four non-employee directors and
operates under a written charter approved by the Board of Directors. The Audit
Committee is responsible for providing independent, objective oversight of the
Company's financial reporting, internal controls, and disclosure quality,
content, and controls. Members of the Audit Committee are "independent" as
defined by standards established by the SEC and the NASDAQ National Market.
The Company's management is responsible for internal controls, the
financial reporting process, and the preparation of the consolidated financial
statements. 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. Deloitte & Touche, LLP is also
responsible for attesting to management's assertion that the Bank maintained
effective internal control over financial reporting. The Audit Committee's
responsibility is to monitor and oversee these processes.
The Audit Committee holds discussions with management, the internal
auditors, and the independent auditors, Deloitte & Touche, LLP, including
discussions with Deloitte & Touche, LLP without management being present. The
Audit Committee has reviewed and discussed the audited financial statement for
fiscal year 2002 with management and the independent auditors and management has
represented that these reports were prepared in accordance with accounting
principles generally accepted in the United States.
Discussions were also held with the independent auditors concerning
matters required by Statement on Auditing Standards No. 61 ("Communication with
Audit Committees"). In addition, the Committee has received and reviewed the
disclosures required by Independence Standards Board Standard No. 1
("Independence Discussions With Audit Committees") and has discussed the
auditor's independence from the Company and its management. The Audit Committee
believes Deloitte and Touche, LLP to be independent.
The Audit Committee has established whistle-blower notification
procedures to allow employees to anonymously and confidentially notify the Audit
Committee of any complaints or potential fraudulent activity. In addition, the
Audit Committee discusses fraud notification with management and the independent
auditors. The Committee has received no notifications regarding fraudulent
activity.
24
We provided a copy of our Audit Committee Charter as an exhibit to our
proxy statement dated April 16, 2001. Recent legislation and final or proposed
rules issued by the SEC and NASDAQ National Market will impose additional
requirements on the Audit Committee, including, but not limited to, a new
definition of independence, required whistleblower procedures, and disclosure of
an audit committee financial expert. We are in the process of reviewing these
requirements and intend to amend our Audit Committee Charter as necessary upon
implementation of such requirements.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board of Directors has
approved, the inclusion of the audited consolidated financial statements in the
Company's Annual Report for the year ended December 31, 2002 on Form 10-K. This
Form 10-K has been filed with the SEC.
The Audit Committee also recommended the reappointment, subject to
stockholder approval, of Deloitte & Touche, LLP as the Company's independent
auditors for 2003. The Board of Directors concurred with this recommendation.
The Audit Committee has discussed with management and the independent
auditors independence issues regarding the following fees that were paid to
Deloitte & Touche, LLP during fiscal year 2002 (no independence issues were
noted):
(In Whole Dollars) Amount
Paid In
Type Of Fees Paid To Deloitte & Touche, LLP 2002
--------------------------------------------------------- ----------
Audit / Attestation $ 229,900
Financial Information Systems Design And Implementation $ --
All Other $ 26,535
---------
Total $ 256,435
=========
The "All Other" fees presented in the above table were associated with
tax return preparation and tax planning services.
Audit Committee
Diane Simpkins Bordoni, Chairman
Rita Alves
Steven Franich
McKenzie Moss
25
OTHER INFORMATION
--------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
The Company does not directly extend credit in the form of personal
loans to its directors or executive officers, or to members of their immediate
families. Any such credit that may be extended indirectly through the Bank is
restricted to that allowed by the laws governing insured financial institutions.
Some of our directors and executive officers, as well as the companies
and organizations with which they are associated, are also customers of Monterey
Bay Bank, and we expect to continue to have banking transactions with them in
the future.
Loans with terms that are more favorable than those generally available
to the public (e.g. preferential rates or fees) may be made to executive
officers pursuant to a benefit program widely available to employees of the Bank
that does not discriminate in favor of the executive officers. The Bank
maintains an employee loan benefit program. Under this program, employees
receive certain reductions in interest rates and / or loan fees on loans
depending upon the type of loan product selected. Rate reductions under this
program are only available during the term of employment. Upon termination,
resignation, or retirement, the loan rate reverts to the market rate that
existed at the time the loan was originated.
In our opinion, all loans and commitments to lend to our directors,
executive officers, and principal stockholders:
o have been made in the ordinary course of business and in compliance with
applicable laws
o were made on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the Bank's other customers
o do not involve more than the normal risk of collectibility or present other
unfavorable features
In addition, the Bank has strong policies regarding such loans to
ensure that they are made using credit underwriting procedures that are no less
stringent than those applicable for comparable transactions with persons outside
the Bank. The aggregate amount of all loans and credit extensions by the Bank to
all directors and executive officers, including the companies with which they
are associated, was approximately $3,608,000 as of December 31, 2002.
Mr. Hoffmann is CEO, President, and Director of a national bank
headquartered in California, although outside our primary market area. The Bank
and this national bank from time to time buy and sell loan participations with
each other, service loans for each other, and maintain deposits with each other.
All transactions among the Bank and this national bank are made in the ordinary
course of the Bank's business, in compliance with applicable laws, and are
approved by disinterested directors and / or management.
26
During 2002, the Company utilized the professional services of a
marketing and advertising corporation with which one executive officer is a
co-owner. All business orders and all invoices associated with this corporation
were approved by disinterested executive officers. Total payments to this
marketing and advertising corporation in 2002 were $190 thousand. Our use of
services by this corporation was discontinued effective February 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities Exchange Act of 1934 as amended require
that we disclose late filings of reports of stock ownership (and changes in
stock ownership) by our directors and executive officers. Based on review of
copies of reports furnished to us and written representations that no other
reports were required during the fiscal year ended December 31, 2002, all
Section 16(a) filing requirements applicable to officers, directors and greater
than ten-percent beneficial owners were timely filed.
SUBMISSION OF STOCKHOLDER PROPOSALS
To be included in next year's proxy statement, stockholder proposals
must be submitted in writing to the Secretary of the Company not later than
December 13, 2003. Any such proposal will be subject to Rule 14a-8 under the
Exchange Act. Our Bylaws contain specific procedural requirements regarding a
stockholder's ability to nominate a director or submit a proposal to be
considered at a meeting of stockholders. If you would like a copy of the
procedures contained in our Bylaws, please contact Monterey Bay Bancorp, Inc,
567 Auto Center Drive, Watsonville, CA. 95076, Attention: Corporate Secretary.
No stockholder proposals were submitted for the 2003 Annual Meeting.
SOLICITATION EXPENSES
We are paying for the distribution of proxies. As part of this process,
we reimburse brokers, nominees, fiduciaries, and other custodians' reasonable
fees and expenses in forwarding proxy materials to stockholders. Employees do
not receive additional compensation for soliciting proxies.
27
FINANCIAL MATERIALS
Stockholders may request free copies of our financial materials (annual
report, Form 10-K, and proxy statement) from Monterey Bay Bancorp, Inc. 567 Auto
Center Drive, Watsonville, CA. 95076, Attention: Corporate Secretary. Our SEC
filings are also available on our Internet site, www.montereybaybank.com, at no
charge.
By Order Of The Board Of Directors,
/s/ Mary Anne Carson
-----------------------------------
Mary Anne Carson
Corporate Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO SIGN, DATE, AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
28
PROXY MONTEREY BAY BANCORP, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS
May 22, 2003
9:00 a.m. Pacific Time
The undersigned hereby appoints the Board of Directors of Monterey Bay
Bancorp, Inc. (the "Company") to act as proxy for the undersigned, and to vote
all shares of Common Stock of the Company which the undersigned is entitled to
vote only at the Annual Meeting of Stockholders, to be held on May 22, 2003, at
9:00 a.m. Pacific Time, at the Watsonville Woman's Club, 12 Brennan Street,
Watsonville, California, and at any and all adjournments thereof, as set forth
on the reverse side.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF MONTEREY BAY BANCORP, INC.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" EACH OF THE PROPOSALS PRESENTED.
(Continued, and to be signed on the other side)
Please mark
your votes [X]
as indicated in
this example
FOR WITHHOLD
1. The election as directors of all nominees [ ] [ ]
listed (except as marked to the contrary
below). 01. Rita Alves, 02. Josiah Austin,
03. Diane Simpkins Bordoni, 04. McKenzie Moss
INSTRUCTION: To withhold your vote for any
individual nominee, write that nominee's name on
the line provided.________________________________
2. The ratification of the appointment of FOR AGAINST ABSTAIN
Deloitte & Touche LLP as independent auditors [ ] [ ] [ ]
of Monterey Bay Bancorp, Inc. for the year
ending December 31, 2003.
This proxy is revocable and will be voted as
directed, but if no instructions are specified,
this proxy will be voted FOR each of the proposals
listed. If any other business is presented at the
Annual Meeting, including whether or not to
adjourn the meeting, this proxy will be voted by
the Board of Directors in their best judgment. At
the present time, the Board of Directors knows of
no other business to be presented at the Annual
Meeting.
The Undersigned acknowledges receipt from the
Company prior to the execution of this proxy of a
Notice of Annual Meeting of Stockholders and of a
Proxy Statement dated April 11, 2003 and of the
Annual Report to Stockholders.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Signature(s) __________________________________________ Dated _________ , 2003
NOTE: Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title.
If shares are held jointly, each holder may sign but only one signature is
required.