| 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 |
| [x] | Definitive proxy statement |
| [ ] | Definitive additional materials |
| [ ] | Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 |
| EMPIRE FEDERAL BANCORP, INC. | |
(Name of Registrant as Specified in Its Charter)
| |
EMPIRE FEDERAL BANCORP, INC. | |
| (Name of Person(s) Filing Proxy Statement) | |
| Payment of filing fee (Check the appropriate box): | |
| [x] | No fee required. |
| [ ] | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
N/A | |
| (2) | Aggregate number of securities to which transactions applies: |
N/A | |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: |
N/A | |
| (4) | Proposed maximum aggregate value of transaction: |
N/A | |
| [ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| (1) | Amount previously paid: |
N/A | |
| (2) | Form, schedule or registration statement no.: |
N/A | |
| (3) | Filing party: |
N/A | |
| (4) | Date filed: |
N/A | |
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Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Empire Federal Bancorp, Inc., the holding company for Empire Bank. The meeting will be held at the main office of Empire Bank, 123 South Main Street, Livingston, Montana, on Tuesday, May 21, 2002, at 12:30 p.m., Mountain Daylight Savings Time.
The attached Notice of the Annual Meeting of Stockholders and Proxy Statement describe the formal business to be transacted at the meeting. During the meeting, we will also report on the operations of the Company. Directors and officers of the Company, as well as a representative of KPMG LLP, the Company's independent auditors, will be present to respond to appropriate questions of stockholders.
To ensure proper representation of your shares at the meeting, the Board of Directors requests that you sign, date and return the enclosed proxy card in the enclosed postage-prepaid envelope as soon as possible, even if you currently plan to attend the meeting. This will not prevent you from voting in person, but will assure that your vote is counted if you are unable to attend the meeting.
We look forward to seeing you at the meeting.
Sincerely,
<PAGE>
EMPIRE FEDERAL BANCORP, INC.
123 SOUTH MAIN STREET
P.O. BOX 1099
LIVINGSTON, MONTANA 59047
(406) 222-1981
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Meeting") of Empire Federal Bancorp, Inc. ("Company") will be held at the main office of Empire Bank, 123 South Main Street, Livingston, Montana, on Tuesday, May 21, 2002, at 12:30 p.m., Mountain Daylight Savings Time.
| A Proxy Card and a Proxy Statement for the Meeting are enclosed. | |
| The Meeting is for the purpose of considering and acting upon: | |
| 1. | The election of two directors of the Company; |
| 2. | The approval of the appointment of KPMG LLP as the Company's independent auditors for the fiscal year ending December 31, 2002; and |
| 3. | Such other matters as may properly come before the Meeting or any adjournments thereof. |
| NOTE: The Board of Directors is not aware of any other business to come before the Meeting. | |
Any action may be taken on any one of the foregoing proposals at the Meeting on the date specified above or on any date or dates to which, by original or later adjournment, the Meeting may be adjourned. Pursuant to the Company's Bylaws, the Board of Directors has fixed the close of business on April 11, 2002 as the record date for the determination of stockholders entitled to notice of and to vote at the Meeting and any adjournments thereof.
You are requested to complete and sign the enclosed form of proxy, which is solicited by the Board of Directors, and to mail it promptly in the enclosed envelope. The proxy will not be used if you attend the Meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
Livingston, Montana
April 18, 2002
<PAGE>
PROXY STATEMENT
OF
EMPIRE FEDERAL BANCORP, INC.
123 SOUTH MAIN STREET
P.O. BOX 1099
LIVINGSTON, MONTANA 59047
(406) 222-1981
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Empire Federal Bancorp, Inc. ("Company") to be used at the Annual Meeting of Stockholders of the Company ("Meeting"). The Meeting will be held at the main office of Empire Bank ("Bank"), 123 South Main Street, Livingston, Montana, on Tuesday, May 21, 2002, at 12:30 p.m., Mountain Daylight Savings Time. The Company is the holding company for the Bank. The accompanying Notice of Annual Meeting of Stockholders and this Proxy Statement are being first mailed to stockholders on or about April 18, 2002.
Stockholders Entitled to Vote at Meeting. Only stockholders of record as of the close of business on April 11, 2002 ("Record Date") are entitled to vote at the Meeting, and are entitled to one vote for each share of common stock of the Company ("Common Stock") then held. As of the Record Date, the Company had 1,507,643 shares of Common Stock issued and outstanding. The Common Stock is the only outstanding class of securities of the Company.
As provided in the Company's Certificate of Incorporation, record holders of the Company's Common Stock who beneficially own, either directly or indirectly, in excess of 10% of the Company's outstanding shares are not entitled to any vote in respect of the shares held in excess of the 10% limit.
If you are a beneficial owner of Company Common Stock held by a broker, bank or other nominee (i.e., in "street name"), you will need proof of ownership to be admitted to the Meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote your shares of Company Common Stock held in street name in person at the Meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.
Quorum Requirement. According to the Company's Bylaws, the presence, in person or by proxy, of at least a majority of the total number of outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum at the Meeting. Abstentions and broker non-votes will be considered present and will be included in determining whether a quorum is present.
Proxies; Proxy Revocation Procedures. The Board of Directors solicits proxies so that each stockholder has the opportunity to vote on the proposals to be considered at the Meeting. When a proxy card is returned properly signed and dated, the shares represented thereby will be voted in accordance with the instructions on the proxy card. Where a proxy card is properly signed but no instructions are indicated, proxies will be voted FOR the nominees for directors set forth in this proxy statement and FOR the approval of the appointment of independent auditors. If a stockholder attends the Meeting, he or she may vote by ballot.
Stockholders who execute proxies retain the right to revoke them at any time. Proxies may be revoked by written notice delivered in person or mailed to the Secretary of the Company or by filing a later dated proxy before a
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vote being taken on a particular proposal at the Meeting. Attendance at the Meeting will not automatically revoke a proxy, but a stockholder in attendance may request a ballot and vote in person, thereby revoking a prior granted proxy.
If your Company Common Stock is held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. Your broker or bank may allow you to deliver your voting instructions via the telephone or the Internet. Please see the instruction form that accompanies this proxy statement. If you wish to change your voting instructions after you have returned your voting instruction form to your broker or bank, you must contact your broker or bank.
Participants in the Empire Bank ESOP. If a stockholder is a participant in the Empire Bank Employee Stock Ownership Plan ("ESOP"), the proxy card represents a voting instruction to the trustee of the ESOP as to the number of shares in the participant's plan account. Each participant may direct the trustee as to the manner in which shares of Common Stock allocated to the participant's plan account are to be voted. Unallocated shares of Common Stock held by the ESOP, and allocated shares for which no voting instructions are received from participants, will be voted by the trustee in the same proportion as shares for which the trustee has received voting instructions.
Vote Required. The two directors to be elected at the Meeting will be elected by a plurality of the votes cast by stockholders present in person or by proxy and entitled to vote. Votes may be cast for or withheld from each nominee for election as director. Votes that are withheld and broker non-votes will have no effect on the outcome of the election because directors will be elected by a plurality of votes cast. The Company's Certificate of Incorporation prohibits stockholders from cumulating their votes for the election of directors.
Approval of the appointment of independent auditors requires the affirmative vote of a majority of the outstanding shares of Common Stock present in person or by proxy and entitled to vote at the Meeting. In determining whether such proposal has received the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote against the proposal; broker non-votes will be disregarded and will have no effect on the outcome of the vote.
Persons and groups who beneficially own in excess of 5% of the Company's Common Stock are required to file certain reports with the Securities and Exchange Commission ("SEC"), and provide a copy to the Company, regarding such ownership pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"). Based upon such reports, the following table sets forth, as of the Record Date, certain information as to those persons who were beneficial owners of more than 5% of the outstanding shares of Common Stock. Management knows of no persons other than those set forth below who owned more than 5% of the outstanding shares of Common Stock as of the Record Date. The table also sets forth, as of the Record Date, information as to the shares of Common Stock beneficially owned by each director, the "named executive officers" of the Company, and all executive officers and directors of the Company as a group.
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| Amount and Nature | Percent of | |
| of Beneficial | Common Stock | |
| Beneficial Owner | Ownership(1) | Outstanding |
| Beneficial Owners of More Than 5% | ||
| Empire Bank Employee | 199,914 | 13.0% |
| Stock Ownership Plan Trust | ||
| Directors(3) | ||
| Edwin H. Doig | 15,185 | * |
| Walter R. Sales | 15,185 | * |
| Burton Wastcoat | 5,142 | * |
| Beverly D. Harris(3) | 69,663 | 4.0 |
| Lewis P. Zimmer | 200 | * |
| Named Executive Officers(4) | ||
| William H. Ruegamer(5) | 5,484 | * |
| Kenneth P. Cochran(5) | 2,592 | * |
| All Executive Officers and Directors as a Group (7 persons)(3) | ||
| 113,451 | 7.0% | |
_________________
| * | Less than 1 percent of shares outstanding. |
| (1) | In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner, for purposes of this table, of any shares of Common Stock if he or she has voting or investment power with respect to such security or has a right to acquire, through the exercise of outstanding options or otherwise, beneficial ownership at any time within 60 days from the Record Date. The table includes shares owned by spouses, other immediate family members in trust, shares held in retirement accounts or funds for the benefit of the named individuals, and other forms of ownership, over which shares the persons named in the table may possess voting and/or investment power. |
| (2) | Under the terms of the ESOP, the trustee will vote unallocated shares and allocated shares for which no voting instructions are received in the same proportion as shares for which the trustee has received voting instructions from participants. As of the Record Date, 47,843 shares have been allocated to participants' accounts. The trustee of the ESOP is First Bankers Trust Company, Quincy, Illinois. |
| (3) | Includes vested and unvested shares in the Company's Management Recognition and Development Plan ("MRDP"). Participants in the MRDP exercise all rights incidental to ownership, including voting rights. |
| (4) | Under SEC regulation, the term "named executive officer" includes the chief executive officer, regardless of compensation level, and the four most highly compensated executive officers, other than the chief executive officer, whose total annual salary and bonus for the last completed fiscal year exceeded $100,000. Messrs. Ruegamer and Cochran were the Company's only "named executive officers" for the fiscal year ended December 31, 2001. |
| (5) | Messrs. Ruegamer and Cochran are also directors of the Company. |
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The Company's Board of Directors currently consists of seven members. In accordance with the Company's Certificate of Incorporation, the Board is divided into three classes with staggered three-year terms.On November 14, 2001, Director John R. Boe retired from the Board of Directors after 22 years of service. Subsequently, Directors Walter J. Peterson, Jr. and Sanroe J. Kaisler retired from the Board of Directors, effective December 31, 2001. Messrs. Peterson and Kaisler each had served as a director of the Company and the Bank for 37 years. Effective February 26, 2002, the Board of Directors appointed Lewis P. Zimmer to the Board of Directors of the Bank and the Company, and voted to reduce the size of the Board from nine to seven members. Messrs. Peterson, Kaisler and Boe will continue to serve the Company and the Bank as Directors Emeriti.
The Board of Directors has nominated Kenneth P. Cochran and Burton Wastcoat for election as directors to serve for a three year period. Each of the nominees for director shall serve for their respective term, or until their successors have been elected and qualified. Each director of the Company is also a director of the Bank.
If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute(s) as the Board of Directors may recommend. At this time, the Board of Directors knows of no reason why any nominee might be unavailable to serve.
The Board of Directors recommends that stockholders vote "FOR" the election of Messrs. Cochran and Wastcoat.
The following table sets forth certain information regarding the nominees for election at the Meeting and the directors continuing in office after the Meeting.
| Year First | ||||
| Principal Occupation | Elected | Term to | ||
| Name | Age(1) | During Last Five Years | Director (2) | Expire |
BOARD NOMINEES | ||||
| Kenneth P. Cochran | 59 | Senior Vice President and Director of | 2000 | 2005 (3) |
| the Company and the Bank. Prior to that, | ||||
| Senior Vice President of First | ||||
| Interstate Bank, Billings, Montana | ||||
| from 1989 to March 1, 2000. | ||||
| Burton Wastcoat | 62 | Broker and owner of Coldwell- | 1998 | 2005 (3) |
| Banker/RCI Realty | ||||
DIRECTORS CONTINUING IN OFFICE AFTER MEETING | ||||
| Walter R. Sales | 73 | Retired rancher and former Montana | 1977 | 2003 |
| Legislator | ||||
| Lewis P. Zimmer | 57 | Vice President-Marketing of | 2002 | 2003 |
| Mountain West Farm Bureau | ||||
(table continues on following page) | ||||
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| Year First | ||||
| Principal Occupation | Elected | Term to | ||
| Name | Age(1) | During Last Five Years | Director (2) | Expire |
DIRECTORS CONTINUING IN OFFICE AFTER MEETING (continued) | ||||
| William H. Ruegamer | 57 | President and Chief Executive Officer | 1999 | 2004 |
| of the Bank and the Company | ||||
| effective January 1999. Prior to that, | ||||
| President and Chief Executive Officer | ||||
| of First Interstate Bank and Executive | ||||
| Vice President and Chief Operating | ||||
| Officer of First Interstate BancSystem, | ||||
| Billings, Montana | ||||
| Beverly D. Harris | 68 | Served as Vice Chairman of the | 1971 | 2004 |
| Board from January 1999 until | ||||
| December 1999. Prior to that, President | ||||
| of the Bank and President | ||||
| and Chief Executive Officer of the | ||||
| Company; President of Dime Insurance | ||||
| Agency, Livingston, Montana | ||||
| Edwin H. Doig | 70 | Retired pharmacist. Chairman of the | 1979 | 2004 |
| Board of the Company and the Bank | ||||
_____________
| (1) | At December 31, 2001. | (2) | Includes prior service on the Board of Directors of the Bank. | (3) | Assuming re-election at the Meeting. |
The Boards of Directors of the Company and the Bank conduct their business through meetings and committees of the Boards of Directors. During the fiscal year ended December 31, 2001, the Board of Directors of the Company held five meetings and the Board of Directors of the Bank held 12 meetings. Neither the Company nor the Bank held any special meetings. No director of the Company or the Bank attended fewer than 75% of the total meetings of the Boards and committees on which such Board member served during this period.
Committees of the Company's Board of Directors. The Company's Board of Directors has established Executive, Audit and Nominating Committees, among others.
The Executive Committee, consisting of Directors Ruegamer, Doig and Wastcoat, meets as needed. This Committee generally has the power and authority to act on behalf of the Board of Directors between scheduled Board meetings, unless specific matters are delegated to it for action by the Board. The Executive Committee did not meet during the fiscal year ended December 31, 2001.
The Audit Committee, consisting of Directors Sales, Doig and Wastcoat, meets as needed and is responsible for reviewing the external auditors' reports and results of their examination. The Audit Committee met four times during the fiscal year ended December 31, 2001.
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The full Board of Directors acts as a Nominating Committee to select management's nominees for election as directors of the Company. The Board of Directors met once in its capacity as the nominating committee during the fiscal year ended December 31, 2001.
Committees of the Bank's Board of Directors. The Bank's Board of Directors has established Executive, Audit and Compensation Committees, among others.
The Executive Committee, consisting of Directors Ruegamer, Doig and Wastcoat, meets as needed and generally has the authority to act on behalf of the Board of Directors between scheduled Board meetings, unless specific matters are delegated to it for action by the Board. The Executive Committee did not meet during the fiscal year ended December 31, 2001.
The full Board of Directors acts as the Bank's Compensation Committee. This Committee is responsible for reviewing and recommending compensation to be paid to executive officers. Mr. Ruegamer recuses himself from the Committee when it considers matters regarding his compensation. The Compensation Committee met once during the fiscal year ended December 31, 2001.
The full Board of Directors acts as a Nominating Committee to select management's nominees for election as directors of the Bank. The Board of Directors met once in its capacity as the nominating committee during the fiscal year ended December 31, 2001.
The Audit Committee, consisting of Directors Sales, Doig and Wastcoat meets as needed and is responsible for reviewing the external auditors' reports and results of their examination. The Audit Committee met four times during the fiscal year ended December 31, 2001.
Directors receive a retainer of $500 per month and a fee of $250 for attendance at regular Board meetings of the Bank and a fee of $250 per month, payable quarterly, for service on the Company's Board of Directors. In addition, Directors residing in Bozeman, Montana and Billings, Montana, receive $20 per meeting for travel expenses. No additional fees are paid to Directors for attendance at committee meetings. Directors' fees for the Bank and the Company totalled $80,630 and $26,750, respectively, for the fiscal year ended December 31, 2001.
On April 29, 1999, the Board of Directors granted Burton Wastcoat options under the Company's Stock Option Plan to purchase 5,184 shares of stock, at an exercise price of $11.69. The option has a five-year term and vests in 20% annual increments, with the first three increments having vested on April 29, 2000, 2001 and 2002 respectively, and the remaining 40% scheduled to vest on April 29, 2003 and 2004, respectively.
On April 29, 1999, the Board of Directors awarded Burton Wastcoat restricted stock awards under the Company's MRDP for 2,592 shares. The award vests over a five-year period in 20% annual increments, with the first three increments having vested on April 29, 2000, 2001 and April 29, 2002, respectively, and the remaining 40% scheduled to vest on April 29, 2003 and 2004, respectively.
For information regarding stock options granted, and MRDP shares awarded to Mr. Ruegamer, see "Executive Compensation."
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Summary Compensation Table
The following information is furnished for Mr. William H. Ruegamer and Mr. Kenneth P. Cochran. No other executive officers earned salary and bonus in excess of $100,000 during fiscal 2001.
| Long-term Compensation | ||||||
| Annual Compensation(1) | Awards | |||||
| Restricted | Number | All | ||||
| Name and | Stock | of | Other Annual | |||
| Position | Year | Salary(2) | Bonus | Awards(3) | Options(4) | Compensation |
| William H. Ruegamer | 2001 | $125,400 | $500 | $ -- | $ -- | $ -- |
| President and Chief | 2000 | 120,000 | -- | -- | -- | 34,722 |
| Executive Officer of | 1999 | 115,000 | 500 | 60,601 | 12,960 | -- |
| the Company and the | ||||||
| Bank | ||||||
| Kenneth P. Cochran | 2001 | 105,000 | 500 | 31,428 | -- | -- |
| Senior Vice President | 2000 | 105,000 | 500 | -- | -- | -- |
| of the Bank | 1999 | NM (5) | -- | -- | 5,000 | -- |
_______________
| (1) | Excludes certain additional benefits, the aggregate amounts of which do not exceed 10% of total salary and bonus. | (2) | Amount for 2001 excludes directors fees of $11,000 for Mr. Ruegamer and $11,000 for Mr. Cochran. | (3) | Represents the value of restricted stock awards at April 29, 1999 and January 26, 2001, the dates of grant, pursuant to the MRDP. Dividends are paid on such awards if and when declared and paid by the Company on the Common Stock. At December 31, 2001, the value of the unvested awards for Mr. Ruegamer (which vest pro rata over a five-year period with the third 20% installment having vested on April 29, 2002) was $45,873 (3,110 shares at $14.75 per share) and the value of Mr. Cochran's unvested awards (which vest pro rata over a five-year period with the first 20% installment having vested on January 26, 2002) was $38,232 (2,592 shares at $14.75 per share). | (4) | Represents the number of options granted on April 29, 1999, which vest at a rate of 20% per year over a five year period. At December 31, 2001, a total of 7,776 and 3,000 options remain unvested for Mr. Ruegamer and Mr. Cochran, respectively. | (5) | Not material. Mr. Cochran was employed only for two weeks in fiscal 1999 and received stock options in connection with his employment. |
Option Grants in Last Fiscal Year
No stock options were granted to the named executive officers during the fiscal year ended December 31, 2001.
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Option Exercise/Value Table
The following information with respect to options exercised during the fiscal year ended December 31, 2001, and remaining unexercised at the end of the fiscal year, is presented for the named executive officers.
Name | Shares Acquired on Exercise (#) |
_________________
| (1) | Value of unexercised in-the-money stock options equals the market value of shares covered by in-the-money options on December 31, 2001 less the option exercise price. Options are in-the-money if the market value of shares covered by the options is greater than the exercise price. The exercise price on the option grant dates for Messrs. Ruegamer and Cochran was $11.69 and $11.50, respectively. The price of the Common Stock at December 31, 2001 was $14.75. |
Employment Agreements. The Company and the Bank (collectively, the "Employers") have entered into three year employment agreements ("Employment Agreements") with William H. Ruegamer and Kenneth P. Cochran (together "Employees"). Under the Employment Agreements, the current base salary for Messrs. Ruegamer and Cochran is $125,000 and $105,000, respectively, which amounts are paid by the Bank and may be increased at the discretion of the Board of Directors or an authorized committee of the Board. In determining the salary levels for Messrs. Ruegamer and Cochran, the Board will consider compensation levels for similarly situated executives at comparable institutions, the financial performance of the Bank, as well as Messrs. Ruegamer's and Cochran's performance. Messrs. Ruegamer's and Cochran's Employment Agreements provide for a term of three years, which may be extended for an additional term. The Employment Agreements are terminable by the Employers at any time or upon the occurrence of certain events specified by federal regulations.
The Employment Agreements provide for severance payments and other benefits in the event of involuntary termination of employment in connection with any change in control of the Employers. Severance payments also are provided on a similar basis in connection with a voluntary termination of employment where, subsequent to a change in control, Employees are assigned duties inconsistent with their respective position, duties, responsibilities and status immediately prior to such change in control. The term "change in control" is defined in the Employment Agreements as having occurred when, among other things, (a) a person other than the Company purchases shares of Common Stock pursuant to a tender or exchange offer for such shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities, (c) the membership of the Board of Directors changes as the result of a contested election, or (d) stockholders of the Company approve a merger, consolidation, sale or disposition of all or substantially all of the Company's assets, or a plan of partial or complete liquidation.
The severance payments and benefits from the Employers will have a value equal to 2.99 times the Employees' average annual compensation during the five-year period preceding the change in control. Assuming that a change in control had occurred at December 31, 2001, Messrs. Ruegamer and Cochran would be entitled to severance payments and benefits with a value of approximately $364,780 and $313,950, respectively. Section 280G of the Internal Revenue Code states that severance payments and benefits that equal or exceed three times the base compensation of the individual are deemed to be "excess parachute payments" if they are contingent upon a change in control. Individuals receiving excess parachute payments are subject to a 20% excise tax on the amount of such excess payments, and the Employers would not be entitled to deduct the amount of such excess payments.
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The Employment Agreements restricts the Employees right to compete against the Employers for a period of one year from the date of termination of the agreement if it is terminated without cause, except in the event of a change in control.
The Company has entered into similar employment and severance agreements with other employees of the Company.
Compensation Committee Interlocks and Insider Participation
Mr. Ruegamer serves as a member of the Compensation Committee. Although Mr. Ruegamer recommends compensation to be paid to executive officers, the entire Board of Directors of the Bank reviews such recommendations and sets the compensation for Mr. Ruegamer.
Audit Committee Charter. The Audit Committee operates pursuant to a Charter approved by the Company's Board of Directors. The Audit Committee reports to the Board of Directors and is responsible for overseeing and monitoring financial accounting and reporting, the system of internal controls established by management and the audit process of the Company. The Audit Committee Charter sets out the responsibilities, authority and specific duties of the Audit Committee. The Charter specifies, among other things, the structure and membership requirements of the Audit Committee, as well as the relationship of the Audit Committee to the independent accountants, the internal audit department, and management of the Company. A copy of the Audit Committee Charter is filed as Appendix A hereto.
Audit Committee Report. The Company's Audit Committee has issued the following report with respect to the audited financial statements of the Company for the fiscal year ended December 31, 2001:
The Audit Committee has reviewed and discussed with the Company's management the Company's 2001 audited financial statements;
The Audit Committee has discussed with the Company's independent auditors (KPMG LLP) the matters required to be discussed by Statement on Auditing Standards No. 61;
The Audit Committee has received the written disclosures and letter from the independent auditors required by Independence Standards Board No. 1 (which relates to the auditors' independence from the Company and its related entities) and has discussed with the auditors their independence from the Company; and
Based on the review and discussions referred to in the three items above, the Audit Committee recommended to the Board of Directors that the fiscal 2001 audited financial statements be included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001.
Submitted by the Audit Committee of the Company's Board of Directors:
Burton Wastcoat, Chairman
Edwin H. Doig
Walter R. Sales
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Section 16(a) of the Exchange Act, requires the Company's executive officers and directors, and persons who own more than 10% of any registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% stockholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms it has received and written representations provided to the Company by the above referenced persons, the Company believes that all filing requirements applicable to its reporting officers, directors and greater than 10% stockholders were properly and timely complied with during the fiscal year ended December 31, 2001.
Applicable law and regulations require that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features, and the Bank has adopted a policy to this effect. At December 31, 2001, the Bank had only one outstanding loan to Mr. William Ruegamer in the amount of $77,335.
Mr. Joseph T. Swindlehurst, General Counsel to the Bank, is a partner with the law firm of Huppert & Swindlehurst, P.C. in Livingston, Montana. Mr. Swindlehurst is the brother of Mrs. Harris. During the year ended December 31, 2001, Huppert & Swindlehurst, P.C. was paid approximately $4,500 in fees and expense reimbursement for services rendered to the Company and the Bank, which amount did not exceed 5% of the law firm's annual gross revenues.
KPMG LLP served as the Company's independent auditors for the fiscal year ended December 31, 2001. The Board of Directors has appointed KPMG LLP as independent auditors for the fiscal year ending December 31, 2002, subject to approval by stockholders. A representative of KPMG LLP will be present at the Meeting to respond to stockholders' questions and will have the opportunity to make a statement if he so desires.
Audit Fees
Audit fees billed to the Company by KPMG LLP for the audit of the Company's financial statements for fiscal 2001 and the reviews of the financial statements included in the Company Forms 10-QSB for that year were $39,500.
Financial Information Systems Design and Implementation Fees
KPMG LLP performed no financial information system design or implementation work for the Company during the fiscal year ended December 31, 2001.
All Other Fees
Other than audit fees, the aggregate fees billed to the Company by KPMG LLP for fiscal 2001, none of which were financial information systems design and implementation fees, were $14,065. The other audit fees consist primarily of fees in connection with tax research and compliance services. The Audit Committee
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of the Board of Directors determined that the services performed by KPMG LLP other than audit services are not incompatible with KPMG LLP maintaining its independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2002.
The Board of Directors of the Company is not aware of any business to come before the Meeting other than the matters described in this Proxy Statement. However, if any other matters should properly come before the Meeting, it is intended that proxies in the accompanying form will be voted in respect thereof according to the judgment of the person or persons voting the proxies.
The cost of solicitation of proxies will be borne by the Company. In addition to solicitations by mail, directors, officers and regular employees of the Company may solicit proxies personally or by telephone or telecopier without additional compensation.
The Company's Annual Report to Stockholders, including financial statements, has been mailed to all stockholders of record as of the close of business on the Record Date. Any stockholder who has not received a copy of such Annual Report may obtain a copy by writing to the Secretary of the Company. The Annual Report is not to be treated as part of these proxy solicitation materials or as having been incorporated herein by reference.
In order to be eligible for inclusion in the Company's proxy materials for next year's Annual Meeting of Stockholders, any stockholder proposal to take action at such meeting must be received at the Company's main office at 123 South Main Street, Livingston, Montana, no later than December 21, 2002. Any such proposals shall be subject to the requirements of the proxy solicitation rules adopted under the Exchange Act.
The Company's Certificate of Incorporation provides that in order for a stockholder to make nominations for the election of directors or proposals for business to be brought before a meeting of stockholders, a stockholder must deliver written notice of such nominations and/or proposals to the Secretary not less than 30 nor more than 60 days prior to the date of the meeting; provided that if less than 31 days' notice of the meeting is given to stockholders, such notice must be delivered not later than the close of the tenth day following the day on which notice of the meeting was mailed to stockholders. As specified in the Certificate of Incorporation, the written notice with respect to nominations for election of directors must set forth certain information regarding each nominee for election as a director, including such person's written consent to being named in the proxy statement as a nominee and to serving as a director, if elected, and certain information regarding the stockholder giving such notice. The notice with respect to business proposals to be brought before the Meeting must state the stockholder's name, address and number of shares of Common Stock held,
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and briefly discuss the business to be brought before the Meeting, the reasons for conducting such business at the Meeting and any interest of the stockholder in the proposal.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Ann Worthington
ANN WORTHINGTON
SECRETARY
Livingston, Montana
April 18, 2002
A copy of the Company's Form 10-KSB for the fiscal year ended December 31, 2001, as filed with the Securities and Exchange Commission, will be furnished without charge to stockholders as of the record date upon written request to Ann Worthington, Corporate Secretary, Empire Federal Bancorp, Inc., 123 South Main Street, Livingston, Montana 59047.
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Appendix A
EMPIRE FEDERAL BANCORP, INC.
AUDIT COMMITTEE CHARTER
The Audit Committee ("the Committee"), of the Board of Directors ('the Board") of the Company ("the Company"), will have the oversight responsibility, authority and specific duties as described below.
ORGANIZATION
There shall be a committee of the Board of Directors to be known as the Audit Committee. The Committee shall be composed of directors who are independent of the management of the corporation and are free of any relationship that, in the opinion of the Board, would interfere with their exercise of independent judgment as a committee member.
STATEMENT OF POLICY
The Committee shall provide assistance to the corporate directors in fulfilling their responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, reporting practices of the corporation, and the quality and integrity of the financial reports of the corporation. In so doing, it is the responsibility of the Committee to maintain free and open means of communication between the directors, the independent auditors, the internal auditors, and the financial management of the corporation.
MEETINGS
The Committee shall meet at least four times annually, or more frequently as circumstances dictate. The Committee should meet at least annually with management, the internal auditing department and the independent auditors in separate executive sessions to discuss any matters that the Committee or each of these groups believe should be discussed privately. In addition, the Committee or at least its Chair should meet with the independent accountants and management quarterly to review the Corporations financials.
RESPONSIBILITIES AND DUTIES
In carrying out its responsibilities, the audit committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to ensure to the directors and shareholders that the corporate accounting and reporting practices of the corporation are in accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the Committee will:
| 1. | Review and update this Charter periodically, at least annually, as conditions dictate. |
| 2. | Review the organization's annual financial statements and any reports or other financial information submitted to any governmental body, or the public. |
| 3. | Review the regular internal reports to management prepared by the internal auditing department and management's response. |
| 4. | Review with financial management and the independent accountants the 10-Q prior to its filing or prior to the release of earnings. The Chair of the Committee may represent the entire Committee for the purposes of this review. |
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| 5. | Recommend to the Board the selection of the independent accountants, considering independence and effectiveness and approve the fees and other compensation to be paid to the independent accountants. On an annual basis, the Committee should review and discuss with the accountants all significant relationships the accountants have with the Corporation to determine the accountants' independence. |
| 6. | Review the performance of the independent accountants and approve any proposed discharge of the independent accountants when circumstances warrant. |
| 7. | Periodically consult with the independent accountants out of the presence of management about internal controls and the fullness and accuracy of the organization's financial statements. |
| 8. | Discuss with the independent accountants the quality of the Company's financial and accounting personnel. Also, elicit the comments of management regarding the responsiveness of the independent accountants to the Company's needs. |
| 9. | As part of the review of the annual financial statements, receive an oral report at least annually, from the Company's general counsel concerning legal and regulatory matters that may have a material impact on the financial statements. |
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REVOCABLE PROXY
EMPIRE FEDERAL BANCORP, INC.
The undersigned hereby appoints the entire Board of Directors as the official Proxy Committee with full powers of substitution, as attorneys and proxies for the undersigned, to vote all shares of common stock of Empire Federal Bancorp, Inc. which the undersigned is entitled to vote at the Annual Meeting of Stockholders, to be held at the main office of Empire Bank, 123 South Main Street, Livingston, Montana, on Tuesday, May 21, 2002, at 12:30 p.m., Mountain Daylight Savings Time, and at any and all adjournments thereof, as follows:
| FOR | VOTE WITHHELD | ||
| 1. | The election as director of the nominees listed below (except as marked to the contrary below) | [ ] | [ ] |
| Kenneth P. Cochran | |||
| Burton Wastcoat | |||
| INSTRUCTIONS: To withhold your vote for any individual nominee, write the nominee's name on the line below. | |||
| FOR | AGAINST | ABSTAIN | ||
| 2. | The approval of the appointment of KPMG LLP as independent auditors for the fiscal year ending December 31, 2002. | [ ] | [ ] | [ ] |
| 3. | Such other matters as may properly come before the Meeting or any adjournments thereof. | |||
| The Board of Directors recommends a vote "FOR" the listed propositions. | ||||
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Annual Meeting of Stockholders or at any adjournment thereof and after notification to the Secretary of the Company at the Meeting of the stockholder's decision to terminate this proxy, then the power of said attorneys and proxies shall be deemed terminated and of no further force and effect.
The undersigned acknowledges receipt from the Company prior to the execution of this proxy of the Notice of Annual Meeting of Stockholders, a proxy statement for the Annual Meeting of Stockholders, and the 2001 Annual Report to Stockholders.
Dated: ______________, 2002
| PRINT NAME OF STOCKHOLDER | PRINT NAME OF STOCKHOLDER | |
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| SIGNATURE OF STOCKHOLDER | SIGNATURE OF STOCKHOLDER | |
Please sign exactly as your name appears on this proxy card. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If shares are held jointly, only one signature is required but each holder should sign, if possible.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE- PAID ENVELOPE.
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