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SCHEDULE 14 A- INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Washington Banking Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Sandra L. Gallagher, Esq.
Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, P.L.L.C.
2200 First Interstate Plaza, Post Office Box 1157
Tacoma, Washington 98401-1157
- --------------------------------------------------------------------------------
(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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LOGO]
Washington Banking Company
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 1999
NOTICE IS HEREBY GIVEN that, pursuant to call of its directors, the
Annual Meeting of Shareholders of Washington Banking Company ("WBCO") will be
held at the Best Western Harbor Plaza, 33175 State Route 20, Oak Harbor,
Washington, on Thursday, April 29, 1999 at 3:00 p.m., to consider and to vote
upon the following matters:
1. ELECTION OF DIRECTORS. Election of three (3) persons to serve on the
Board of Directors until 2002.
2. WHATEVER OTHER BUSINESS as may properly be brought before the Annual
Meeting, or any adjournment thereof.
Only those shareholders of record at the close of business on March 10,
1999 are entitled to notice of and to vote at the Annual Meeting, or any
adjournment thereof.
By Order of the Board of Directors,
/s/ Orlan D. Dean
Orlan D. Dean
Secretary
Oak Harbor, Washington
March 26, 1999
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU DO ATTEND
THE ANNUAL MEETING, YOU THEN MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
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WASHINGTON BANKING COMPANY
1421 S.W. BARLOW STREET
OAK HARBOR, WASHINGTON 98277
PROXY STATEMENT
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying Proxy are being first sent to
shareholders on or about March 26, 1999, for use in connection with the Annual
Meeting of Shareholders of Washington Banking Company ("WBCO" or "Company") to
be held on Thursday, April 29, 1999 at 3:00 p.m. at the Best Western Harbor
Plaza, 33175 State Route 20, Oak Harbor, Washington (the "Annual Meeting"). Only
holders of record of WBCO's common stock, no par value, at the close of business
on March 10, 1999 (the "Record Date") will be entitled to notice of and to vote
at the Annual Meeting. The number of shares of common stock outstanding and
entitled to vote at the Annual Meeting is 4,200,300.
The enclosed Proxy is solicited by the Board of Directors of WBCO. The
costs of solicitation will be borne by WBCO. In addition to the use of the
mails, solicitation may be made, without additional compensation by directors
and officers of WBCO and regular employees of WBCO and/or its banking
subsidiary, Whidbey Island Bank (the "Bank"), by telephone, facsimile and/or
personal contact. WBCO does not expect to pay any compensation for the
solicitation of proxies, except to brokers, nominees and similar recordholders
for reasonable expenses in mailing proxy materials to beneficial owners.
On each matter before the Annual Meeting, including the election of
directors, shareholders have one vote for each share of common stock held.
Shareholders are not entitled to cumulate their votes in the election of
directors. Under Washington law, if a quorum is present at the Annual Meeting,
the nominees for election as directors who receive the greatest number of votes
cast for the election of directors by the holders of shares entitled to vote and
present in person or by proxy at the Annual Meeting will be elected directors.
With regard to the election of directors, votes may be cast in favor of
some or all of the nominees or withheld as to some or all of the nominees. Votes
withheld will have the effect of a negative vote. Abstentions may be specified
on all proposals except the election of directors. An abstention from voting
will have the practical effect of voting against a proposal since the shares
which are the subject of the abstention will be considered present and entitled
to vote but will not be voted in favor of the proposal. If shares are held in
"street name" through a broker or other nominee (that is, the broker or nominee
is the record holder but not the beneficial owner), the broker or nominee is
permitted to exercise voting discretion with respect to the election of
directors. Thus, if the broker or nominee is not given specific voting
instructions by the beneficial owner, shares may be voted on the election of
directors by the broker or nominee in their own discretion.
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If the enclosed Proxy is duly executed and received in time for the
Annual Meeting, it is the intention of the persons named in the Proxy to vote
the shares represented by the Proxy "FOR" the nominees for director listed in
this Proxy Statement, unless otherwise directed. Any Proxy given by a
shareholder may be revoked before its exercise by notice to WBCO in writing, by
a subsequently dated Proxy, or in open meeting prior to the taking of the
shareholder vote. The shares represented by properly executed Proxies that are
not revoked will be voted in accordance with the specifications in such Proxies,
or, if no preference is specified, in accordance with the recommendation of
management as specified above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 1999 with
respect to beneficial ownership of WBCO's common stock by (a) each director and
director nominee; (b) the chief executive officer of WBCO and each of WBCO's
four most highly compensated executive officers who's aggregate cash and cash
equivalent forms of compensation exceeded $100,000 during 1998 (the "Named
Executives"); (c) all directors and executive officers of WBCO as a group and
(d) all shareholders known by WBCO to be the beneficial owners of more than 5%
of the outstanding shares of WBCO common stock. Except as noted below, WBCO
believes that the beneficial owners of the shares listed below, based on
information furnished by such owners, have sole voting and investment power with
respect to such shares. The percentages shown are based on the number of shares
of WBCO common stock deemed to be outstanding, under applicable regulations
(including options exercisable within sixty days).
SHARES BENEFICIALLY OWNED AT
MARCH 1, 1999
-------------------------------
PERCENTAGE OF
OUTSTANDING
NAME NUMBER COMMON STOCK
- ---- ------ -------------
Michal D. Cann 72,451(1) 1.70%
Orlan D. Dean 32,097(2) *
Marlen L. Knutson 26,080(3) *
Karl C. Krieg, III 60,752(4) 1.44%
Jay T. Lien 56,013(5) 1.33%
Robert B. Olson 67,080(6) 1.59%
Anthony B. Pickering 21,180(7) *
Larry Scodeller 11,500(8) *
Alvin J. Sherman 22,196(9) *
Edward J. (Bud) Wallgren 82,841(10) 1.98%
Directors and executive officers
as a group (11 persons) 504,345(11) 11.53%
Frontier Financial Corporation
P.O. Box 2215
Everett, WA 98203 227,000 5.4%
- -----------------
* Represents less than 1.0% of WBCO's outstanding common stock.
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(1) Includes 57,000 shares issuable upon exercise of options, 37,500 of which
are exercisable at $2.93 per share, 6,000 of which are exercisable at $3.37
per share, 9,000 of which are exercisable at $4.08 per share, 3,000 of
which are exercisable at $5.37 per share and 1,500 of which are exercisable
at $9.26 per share.
(2) Includes 16,680 shares issuable upon exercise of options, 11,250 of which
are exercisable at $3.00 per share, 3,750 of which are exercisable at $3.07
per share, 900 of which are exercisable at $4.08 per share and 780 of which
are exercisable at $9.26 per share.
(3) All shares are owned by the Knutson Hauling, Inc. Profit Sharing Trust, for
which Mr. Knutson is the Trustee. Includes 780 shares issuable upon
exercise of options at $9.26 per share.
(4) Includes (a) 16,680 shares issuable upon exercise of options, 11,250 of
which are exercisable at $3.00 per share, 3,750 of which are exercisable at
$3.07 per share, 900 of which are exercisable at $4.08 per share and 780 of
which are exercisable at $9.26 per share and (b) 11,499 shares owned by the
Krieg Construction 401(k) Plan, for which Mr. Krieg is the Trustee.
(5) Includes (a) 16,680 shares issuable upon exercise of options, 11,250 of
which are exercisable at $3.00 per share, 3,750 of which are exercisable at
$3.07 per share, 900 of which are exercisable at $4.08 per share and 780 of
which are exercisable at $9.26 per share; and (b) 10,383 shares owned by
the Dan Garrison, Inc. Profit Sharing Plan, for which Mr. Lien is the
Trustee.
(6) Includes 16,680 shares issuable upon exercise of options, 11,250 of which
are exercisable at $3.00 per share, 3,750 of which are exercisable at $3.07
per share, 900 of which are exercisable at $4.08 per share and 780 of which
are exercisable at $9.26 per share.
(7) Includes 780 shares issuable upon exercise of options at $9.26 per share.
(8) Includes 3,000 shares issuable upon exercise of options at $9.26 per share.
(9) Includes 780 shares issuable upon exercise of options at $9.26 per share.
(10) Includes (a) 5,430 shares issuable upon exercise of options, 3,750 of which
are exercisable at $3.07 per share, 900 of which are exercisable at $4.08
per share and 780 of which are exercisable at $9.26 per share; and (b)
15,266 shares owned by Island O.K. Tires, Inc. Profit Sharing Plan, for
which Mr. Wallgren is the Trustee.
(11) Includes 172,890 shares issuable pursuant to options exercisable within 60
days.
ELECTION OF DIRECTORS
WBCO's Articles of Incorporation provide that the number of directors to
be elected by the shareholders shall be not less than five (5) nor more than
twelve (12) and that, within such minimum and maximum, the exact number of
directors shall be fixed by resolution of the Board of Directors. The Board of
Directors has fixed the number of directors at ten (10). Directors are divided
into three classes, each class serving for a period of three years. The terms of
Class 1 directors expire in the year 2000, of Class 2 directors expire in 2001,
and of Class 3 directors expire in 2002. Approximately one-third of the members
of the Board of Directors are elected by the shareholders annually. The
directors whose terms expire at the Annual Meeting are Jay T. Lien, Alvin J.
Sherman and Edward J. (Bud) Wallgren, all of whom have been nominated by the
Board of Directors for re-election at the Annual Meeting.
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If elected, such directors will hold office until the annual meeting of
shareholders in the year 2002 and until their successors are elected and
qualified.
Each nominee has indicated that he is able and willing to serve on the
Board of Directors. If any nominee should become unable or unwilling to serve,
the Proxy will be voted for such person as is designated by the Board of
Directors to replace any such nominee. The Board of Directors presently has no
knowledge that any of the nominees will be unable or unwilling to serve.
INFORMATION WITH RESPECT TO NOMINEES
The following information is provided with respect to the nominees for
election at the Annual Meeting as Class 3 directors whose terms will expire in
2002, and regarding all other incumbent directors, including their respective
names, ages, principal occupations during the past five years and the year first
elected a director of WBCO or the Bank. The address for each of the nominees and
all incumbent directors is 1421 S.W. Barlow Street, Oak Harbor, Washington
98277. All nominees are presently directors of WBCO and the Bank.
NOMINEES FOR ELECTION AS CLASS 3 DIRECTORS (TERMS EXPIRE IN 2002):
JAY T. LIEN Director since 1987
Mr. Lien, 55, has been the President of Dan Garrison, Inc., a real estate
company, since 1986. Mr. Lien has been Chairman of the Board of WBCO and the
Bank since September, 1998.
ALVIN J. SHERMAN Director since 1996
Mr. Sherman, 66, is currently retired, having served until 1997 as a co-owner of
Sherman Farms, Inc. Mr. Sherman also serves as a director of WIB Financial
Services, Inc., a subsidiary of the Bank, which offers for sale nondeposit
investment products.
EDWARD J. (BUD) WALLGREN Director since 1991
Mr. Wallgren, 60, has been the President of Island O.K. Tires, Inc. since 1968,
and is currently the owner of six Les Schwab Tire stores in Northwestern
Washington.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THESE NOMINEES.
CLASS 1 INCUMBENT DIRECTORS (TERMS EXPIRE IN 2000):
KARL C. KRIEG, III Director since 1990
Mr. Krieg, 62, has been the President of Krieg Construction, Inc. since 1979.
Mr. Krieg is also the President of Krieg Concrete Products, Inc. and serves as
the Vice Chairman of the Board of WBCO and the Bank.
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ROBERT B. OLSON Director since 1992
Mr. Olson, 63, has been the co-owner and co-managing director of H&H Properties,
Inc., a land development company, since 1991. Mr. Olson previously has served as
the President and Chief Executive Officer of four community banks in Washington
and Oregon. Mr. Olson also serves as a director of WIB Financial Services, Inc.
ANTHONY B. PICKERING Director since 1996
Mr. Pickering, 51, has been the owner of Max Dale's Restaurant since 1983. Mr.
Pickering currently serves as a director of Skagit Valley Hospital Foundation
and is a Trustee for the Washington State University Board of Trustees.
CLASS 3 INCUMBENT DIRECTORS (TERMS EXPIRE IN 2001):
MICHAL D. CANN Director since 1992
Mr. Cann, 50, has been the President and Chief Executive Officer of WBCO since
1996, and the President and Chief Executive Officer of the Bank, and President
and Secretary of WIB Financial Services, Inc., since 1993. Mr. Cann has 28 years
of banking experience, previously having served as the President of Valley Bank,
Mt. Vernon, Washington, and in other senior management positions in other banks
and/or bank holding companies.
ORLAN D. DEAN Director since 1985
Mr. Dean, 75, is the retired general manager of Don Boyer Chevrolet, where he
served from 1984 to 1993. He is the Secretary of WBCO and the Bank.
MARLEN L. KNUTSON Director since 1996
Mr. Knutson, 66, is the President of Knutson Hauling, Inc., an excavation
company. Mr. Knutson was also the owner of Knutson Distributors, Inc., having
retired in 1990. Mr. Knutson previously has served as Chairman of Valley Bank of
Mt. Vernon, Washington.
LARRY SCODELLER Director since August, 1998
Mr. Scodeller, 57, has served as the Executive Vice President and Chief
Operating Officer of the Bank since February 1998. Mr. Scodeller has 28 years of
banking experience, previously having served as Senior Vice President and Chief
Financial Officer of Bellingham National Bank in Bellingham, Washington and as
Executive Vice President and Chief Financial Officer of People's Bank in Lynden,
Washington. Mr. Scodeller also serves as a director of WIB Financial Services,
Inc.
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
The Board of Directors of WBCO has established certain standing
committees, including an Audit Committee and a Compensation Committee. There
presently is no standing nominating committee.
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AUDIT COMMITTEE. The main functions performed by the Audit Committee include
reviewing and approving the services of the independent auditors, reviewing the
plan, scope, and audit results of the internal auditors and the independent
auditors, and reviewing the reports of bank regulatory authorities. The Audit
Committee also reviews the annual and other reports to the Securities and
Exchange Commission and the annual report to WBCO shareholders. Current members
of the Audit Committee are Messrs. Olson (Chairman), Cann, Dean, Pickering and
Scodeller. Mr. Cann and Mr. Scodeller are officers and directors of WBCO and the
Bank. There were four (4) meetings of the Audit Committee during 1998.
COMPENSATION COMMITTEE. The Compensation Committee reviews and recommends
remuneration arrangements for senior management. Current members of the
Compensation Committee are Messrs. Wallgren (Chairman), Knutson, Krieg, Lien and
Olson. There were seven (7) meetings of the Compensation Committee during 1998.
BOARD OF DIRECTORS MEETINGS. There were sixteen (16) meetings of the Board of
Directors of WBCO during 1998. All directors attended at least 75% of the total
meetings of the Board and all committees of which they were members in 1998.
DIRECTOR COMPENSATION. During 1998, WBCO's directors received an annual retainer
in the amount of $8,400 except Mr. Scodeller, who became a director in August
1998, received a retainer in the amount of $3,500. In addition to their annual
retainer, such directors received $200 for each Special Board meeting of the
Company and meetings of the Board of WIB Financial Services, Inc. attended and
non-officer directors received $200 for each committee meeting attended.
A performance based bonus plan was implemented in 1993 whereby in
addition to the base fees directors receive bonuses based on WBCO's annual
performance. During the fiscal year 1998, each director was paid a bonus in the
amount of $4,400.
SHAREHOLDER NOMINATIONS FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
In accordance with WBCO's Bylaws, shareholder nominations for the 2000
Annual Meeting of Shareholders, if any, must be made in writing not less than 14
nor more than 50 days prior to the Annual Meeting, and must be delivered or
mailed to the Chairman of WBCO; provided, however, that if less than 21 days'
notice of the Annual Meeting is given to shareholders, the notification must be
mailed or delivered to the Chairman not later than the close of business on the
7th day following the day on which notice of the Annual Meeting was mailed. Such
notification should contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of stock of WBCO that will be voted for each proposed nominee; (d) the
name and address of the notifying shareholder; and (e) the number of shares of
stock of WBCO owned by the notifying shareholder. Nominations not made in
accordance with the above requirements may, in his discretion, be disregarded by
the Chairman of the Annual Meeting, and upon the Chairman's instruction, the
vote teller may disregard all votes cast for such a nominee.
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EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
This report of WBCO's Compensation Committee ("Committee") describes in
general terms the process the Committee undertakes and the factors it considers
in determining the appropriate compensation for WBCO's executive officers,
including the executive officers who are named in the Summary Compensation Table
that follows (the "Named Executives").
GENERAL
The Committee is responsible for establishing and monitoring
compensation programs for executive officers of WBCO and its subsidiaries. The
Committee reviews and approves individual executive officer salaries, bonuses
and stock option grants and other equity-based awards. The Committee is
responsible for establishing the compensation and evaluating the performance of
the Chief Executive Officer, while the Chief Executive Officer evaluates the
performance of the other executive officers and recommends individual
compensation levels for approval by the Committee.
COMPENSATION PHILOSOPHY
WBCO, acting through the Committee, believes that compensation of its
executive officers and other key personnel should reflect and support the goals
and strategies that WBCO establishes. The Company's objective is to continue,
over the next several years, to expand its geographical presence outside Whidbey
and Camano Islands, while solidifying its market position on the Island.
While continuing to geographically expand, management's strategy is to
continue to provide a high level of personal service to its customers and to
expand loans, deposits and other products and services that it offers its
customers. Maintenance of asset quality will be emphasized by controlling
nonperforming assets and adhering to prudent underwriting standards. In
addition, management will strive to improve operating efficiencies to further
manage non-interest expense and will continue to improve internal operating
systems.
WBCO's goals are intended to create long-term value for WBCO's
shareholders, consistent with protecting the interests of depositors. The
Committee believes that these goals are best supported by attracting and
retaining well-qualified executive officers and other personnel through
competitive compensation arrangements, with emphasis on rewards for significant
contributions to WBCO's success and on aligning the interests of the executive
officers and other personnel with those of WBCO's shareholders.
The Committee follows a compensation philosophy that emphasizes options
and other stock-based compensation. This emphasis is intended to create a close
link between the interests of employees and shareholders and to focus on growth
in assets and earnings while maintaining good asset quality and increasing
long-term shareholder value.
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The Committee anticipates that it will continue to emphasize stock-based
compensation in the future.
COMPENSATION PROGRAMS AND PRACTICES
WBCO's compensation program includes competitive salary and benefits, an
annual incentive cash bonus based upon attainment of Company and individual
performance goals, and opportunities for employee ownership of WBCO common stock
through a stock option program.
In determining compensation packages for individual executives, the
Committee considers various subjective and objective factors, including (1)
individual job responsibilities and experience; (2) individual performance in
terms of both qualitative and quantitative goals; (3) WBCO's overall
performance, as measured by attainment of strategic and budgeted financial goals
and prior performance; and (4) industry surveys of compensation for comparable
positions with similar institutions in the State of Washington, the Pacific
Northwest and the United States.
It is not anticipated that the limitations on deductibility, under
Internal Revenue Code Section 162(m), of compensation to any one executive that
exceeds $1,000,000 in a single year will apply to WBCO or its subsidiaries in
the foreseeable future. In the event that such limitation would apply, the
Committee will analyze the circumstances presented and act in a manner that, in
its judgment, is in the best interests of WBCO. This may or may not involve
actions to preserve deductibility.
Components of WBCO's compensation program are the following:
BASE SALARY. Salary levels of executive officers are designed to be
competitive within the banking industry. In setting competitive salary ranges,
the Committee works with management to periodically evaluate current salary
levels of other financial institutions with size, lines of business, geographic
locations and market place position similar to WBCO's. Base salaries for WBCO's
executive officers other than the Chief Executive Officer are based upon
recommendations by him, taking into account the subjective and objective factors
described above. The Committee reviews and approves or disapproves such
recommendations.
ANNUAL INCENTIVE BONUS. Executive officers have an annual incentive
opportunity with cash awards (bonuses) based on the overall performance of WBCO
and on attainment of individual performance targets. Performance targets may be
based on one or more of the following criteria: return on average assets, return
on average equity, core deposit growth, loan growth, asset quality, growth in
earnings. The annual bonus pool is determined by the Committee, with final
approval by the Board of Directors, each fiscal year and is based upon an
assessment of the Company's performance as compared to both budgeted and prior
fiscal year performance. Once the bonus pool has been established, the Chief
Executive Officer makes individual bonus recommendations to the Committee based
upon an evaluation of an executive's individual performance and contribution to
WBCO's overall performance.
STOCK OPTION AND OTHER STOCK-BASED COMPENSATION. Equity-based
compensation is intended to more closely align the financial interests of WBCO's
executives with long term
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shareholder value and to assist in the retention of executives who are key to
the success of WBCO and Whidbey Island Bank. Equity-based compensation generally
has been in the form of incentive stock options pursuant to existing stock
option plans. The Committee, with final approval by the Board, determines from
time to time which executives, if any, will receive stock options and determines
the number of shares subject to each option. Grants of stock options and awards
are based on the performance of WBCO and various subjective factors relating
primarily to the responsibilities of individual executives, their expected
future contributions to WBCO and prior option grants.
CHIEF EXECUTIVE OFFICER COMPENSATION
In evaluating the compensation of Mr. Cann for services rendered in
1998, the Committee considered both quantitative and qualitative factors.
In reviewing quantitative factors, the Committee reviewed WBCO's 1998
financial results and compared them with WBCO's budget and actual financial
results for 1997. Specifically, the Committee considered that (i) year-end net
income from operations increased 16.2% from 1997; (ii) total assets, total loans
and total deposits grew by 37.7%, 27.3% and 29.6%, respectively from year end
1997 to year end 1998; and (iii) despite rapid loan growth, credit quality
continued to improve in 1998.
The Committee also considered certain qualitative accomplishments by Mr.
Cann in 1998. The Committee recognized Mr. Cann's efforts in successfully
directing and carrying out the initial public offering of the Company which
closed in June, 1998. The Committee also recognized Mr. Cann's leadership in
strategically positioning WBCO for future significant developments in the
banking industry and in WBCO's market area and otherwise developing long term
strategies for the organization.
Based on the foregoing and consistent with the Committee's overall
compensation philosophy, the Committee made the following determinations with
respect to Mr. Cann's compensation in 1998. Mr. Cann's annual salary in 1998 was
set at $125,000 and he was awarded an incentive (bonus) payment of $25,000. Mr.
Cann was also granted an incentive stock option to purchase 10,000 shares of
WBCO's common stock at a price of $12 per share. The option shares vest and
become exercisable in annual 20% increments beginning on December 31, 1999 and
are exercisable until December 31, 2008.
CONCLUSION
The Committee believes that for the 1998 fiscal year, the compensation
for Mr. Cann, as well as for the other executive officers, were consistent with
WBCO's overall compensation philosophy and clearly related to the realization of
WBCO's goals and strategies for the year.
Respectfully submitted by:
Edward J. (Bud) Wallgren, Chairman Jay T. Lien
Marlen L. Knutson Robert B. Olson
Karl C. Krieg, III
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SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation for services
rendered to WBCO or its subsidiaries in all capacities paid or accrued for the
fiscal year ended December 31, 1998 to the Company's Chief Executive Officer and
the Company's Chief Operating Officer, who are the only executive officers of
WBCO whose aggregate cash and cash equivalent forms of compensation exceeded
$100,000 (the "Named Executives") during 1998.
LONG TERM
COMPENSATION
----------------
NUMBER OF SHARES
NAME AND ANNUAL COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS (1) OPTIONS COMPENSATION(2)
- ------------------ ------- -------- ---------------- ---------------
Michal D. Cann, $125,000 $25,000 10,000 $3,801
President & Chief
Executive Officer
Larry Scodeller $115,000 $17,500 5,000 $ 586
Executive Vice President
and Chief
Operating Officer
- ------------------
(1) Reflects bonuses earned in 1998 but paid in 1999.
(2) The amount disclosed in this column represents matching contributions under
WBCO's 401(k) Plan, together with term life insurance premiums.
OPTION GRANTS IN 1998
The following table sets forth certain information on option grants to
the Named Executives in 1998:
GRANT DATE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------------------------- ----------
NUMBER OF PERCENTAGE OF EXERCISE
SHARES TOTAL OPTIONS PRICE
UNDERLYING GRANTED TO PER EXPIRATION GRANT DATE
NAME OPTIONS GRANTED EMPLOYEES IN 1998 SHARE DATE VALUE(1)
- ---- --------------- ----------------- -------- ---------- ----------
Michal D. Cann 10,000(2) 24% $ 12.00 12/31/08 $3,500
Larry Scodeller 5,000(2) 12% $ 12.00 12/31/08 $1,750
- --------------------
(1) The fair market value of options granted during 1998 is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: expected volatility of 10%;
risk-free rates of 4.63%; expected annual dividend yield of 2%; and
expected lives of seven years.
(2) Represents incentive stock option granted on December 31, 1998. The option
shares vest and become exercisable in annual 20% increments beginning on
December 31, 1999 and are exercisable until December 31, 2008.
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OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table summarizes option exercises and the value of
unexercised options granted to the Named Executives:
NUMBER OF SHARES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES 12/31/98 AT 12/31/98
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE) (UNEXERCISABLE)(1)
---- ----------- -------- ---------------- ---------------------
Michal D. Cann -0- -0- 57,000/28,000 $287,685/$8,740
Larry Scodeller -0- -0- 3,000/17,000 ($2,280)/($26,620)
- ------------------
(1) In accordance with applicable rules of the Securities and Exchange
Commission, values are calculated by subtracting the exercise price from
the fair market value of the underlying stock. For purposes of this table,
fair market value is deemed to be $8.50, the last sale price of WBCO's
common stock reported on the Nasdaq National Market on December 31, 1998.
OTHER EMPLOYEE BENEFITS
The Company maintains a salary savings 401(k) Plan for its employees,
including its executive officers. All persons employed for at least one year who
are at least 21 years of age and have a minimum of 1,000 hours service may
participate in the 401(k) Plan. Employees who participate may contribute a
portion of their salary to the 401(k) Plan; contributions of up to 5% of salary
are matched 50% by the Company, subject to certain specified limits. WBCO
contributed approximately $64,000 in matching funds to the 401(k) Plan during
1998.
Certain employees and officers of the Company may participate in the
Company's discretionary bonus plan. Contributions by the Company are based upon
year end results of operations for the Company and attainment of goals by
individuals. In 1998, the Company contributed $316,000 to the bonus plan for
such employees and officers.
The Company provides a group health insurance plan along with the normal
vacation and sick pay benefits.
EXECUTIVE SEVERANCE AGREEMENT
The Bank has entered into executive severance agreements with Messrs.
Cann and Scodeller. The agreements provide that Messrs. Cann and Scodeller would
each receive a severance benefit in an amount equal to two times the amount of
their highest compensation paid during the previous three years, if their
employment is terminated in certain cases preceding, and for any reason
following by up to three years, a change in control of the Bank. The Bank has
also entered into severance agreements with four additional officers that
provide each officer with a severance benefit in an amount equal to one and one
half times the amount of their highest compensation paid during the previous
three years, if their employment is terminated in certain cases preceding, and
for any reason following by up to three years, a change in control of the Bank.
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The provisions of the severance agreements are triggered by a "change in
control," which means a change "in the ownership or effective control" or "in
the ownership of a substantial portion of the assets" of the Bank, as such
quoted terms are defined and used in Section 280 G(b)(2)(A) of the Internal
Revenue Code. Severance payments are conditioned on a termination of the
executive as a result of the change in control.
BENEFICIAL OWNERSHIP AND
SECTION 16(a) REPORTING COMPLIANCE
WBCO is a reporting company pursuant to Section 12 of the Securities
Exchange Act of 1934 ("Exchange Act"). Under Section 16(a) of the Exchange Act,
and the rules promulgated thereunder, directors, officers, greater than ten
percent shareholders, and certain other key personnel are required to report
their ownership and any change in ownership of WBCO securities to the Securities
and Exchange Commission ("SEC"). WBCO believes that its directors, officers, and
greater than ten percent shareholders have complied with all Section 16(a)
filing requirements applicable to them.
In making the foregoing statement, WBCO has relied solely upon written
representations of its directors and officers, its lack of knowledge of the
existence of any holder of greater than ten percent of WBCO outstanding common
stock, and copies of the reports WBCO's officers and directors have filed with
the SEC.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
During 1998, certain directors and executive officers of WBCO and the
Bank, and their associates, were customers of the Bank, and it is anticipated
that such individuals will be customers of the Bank in the future. All
transactions between the Bank and its executive officers and directors, and
their associates, were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other, unrelated persons. In the
opinion of management, such transactions with executive officers and directors
did not involve more than the normal risk of collectability or present other
unfavorable features.
Krieg Construction, Inc., a construction company of which Mr. Karl C.
Krieg, III a director of WBCO, is the President, has provided services as
subcontractor relating to construction at certain of the Bank's branch offices.
Mr. Krieg has also provided additional miscellaneous services directly for the
Bank. In 1998, the Bank paid $106,919 to Krieg Construction for such services.
RELATIONSHIP WITH
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG LLP ("KPMG") performed the audit of the consolidated
financial statements of WBCO and its subsidiaries for the year ended December
31, 1998. KPMG has been selected by WBCO to be its independent accountants for
the current year. Shareholders are not required to take action in this
selection. A representative of KPMG is expected to be
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present at the Annual Meeting to make a statement, if desired, and to be
available to respond to appropriate questions.
KPMG also served as WBCO's independent accountant and rendered their
report with respect to WBCO's financial statements for the year ended December
31, 1997. Prior to KPMG's engagement on December 15, 1997, David O. Christensen,
CPA & Consultant, PLLC ("David O. Christensen"), independent certified public
accountants, had served as the principal independent accountant for WBCO and
rendered its report with respect to WBCO's consolidated financial statements for
the year ended December 31, 1996. The recommendation to no longer appoint David
O. Christensen was made by management of WBCO and was approved by the Board of
Directors effective November 20, 1997.
In the two most recent fiscal years preceding the Board's action, and
through December 15, 1997, there were no disagreements with David O. Christensen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to David O.
Christensen's satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their report. David O.
Christensen's reports on WBCO's statements for such fiscal years did not contain
any adverse opinions or disclaimers of opinion, nor were such reports modified
or qualified in any respect. WBCO does not anticipate that a representative of
David O. Christensen will be present at the Annual Meeting.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
A shareholder proposing to transact business at WBCO's 2000 Annual
Meeting of Shareholders must provide notice of such proposal to WBCO no later
than February 1, 2000. For shareholder proposals to be considered for inclusion
in WBCO's proxy statement and form of proxy relating to its 2000 Annual Meeting
of Shareholders, such proposals must be received by WBCO no later than November
19, 1999. If WBCO receives notices of a shareholder proposal after February 1,
2000, the persons named as proxies in the proxy statement and/or form of proxy
will have discretionary authority to vote on such shareholder proposal.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting. If other matters should properly come before the Annual
Meeting, it is the intention of the persons appointed in the Proxy to vote the
shares represented by the Proxy in accordance with recommendations of management
on such matters.
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU
DO ATTEND THE ANNUAL MEETING, YOU THEN MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
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WASHINGTON BANKING COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- APRIL 29, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
WASHINGTON BANKING COMPANY
PLEASE SIGN AND RETURN IMMEDIATELY
The undersigned shareholder of WASHINGTON BANKING COMPANY ("WBCO") hereby
nominates, constitutes and appoints, Michal D. Cann and Karl C. Krieg, III and
each of them (with full power to act alone), the true and lawful attorneys and
proxies, each with full power of substitution, for me and in my name, place and
stead, to act and vote all the common stock of WBCO standing in my name and on
its books on March 10, 1999 at the Annual Meeting of Shareholders to be held at
the Best Western Harbor Plaza, 33175 State Route 20, Oak Harbor, Washington on
April 29, 1999, at 3:00 p.m., and at any adjournment thereof, with all the
powers the undersigned would possess if personally present, as follows:
1. Election of Directors. A proposal to elect as directors the persons listed
below to serve until the Annual Meeting of Shareholders in the year 2002 or
until their successors are duly elected and qualified.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY TO VOTE
for all nominees listed below
(in the manner described below)
Instructions: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name listed below.
Jay T. Lien, Alvin J. Sherman, Edward J. (Bud) Wallgren
2. In their discretion, upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET FORTH ABOVE.
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Management knows of no other matters that may properly be, or which are
likely to be, brought before the Annual Meeting. However, if any other matters
are properly presented at the Annual Meeting, this Proxy will be voted in
accordance with the recommendations of management.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders for the April 29, 1999 Annual Meeting, and the accompanying
documents forwarded therewith, and ratifies all lawful action taken by the
above-named attorneys and proxies.
Date: , 1999
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Signature
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Signature
NOTE: Signature(s) should
agree with name(s) on WBCO
stock certificate(s).
Executors, administrators,
trustees and other
fiduciaries, and persons
signing on behalf of
corporations or
partnerships should so
indicate when signing. All
joint owners must sign.