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.
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(Name of Registrant as Specified in Its Charter)
EMPIRE FEDERAL BANCORP, INC.
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(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
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
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(2) Form, schedule or registration statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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May 8, 2000
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 Wednesday, June 7, 2000, at 11:00 a.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.
For the reasons set forth in the proxy statement, the Board unanimously
recommends a vote "FOR" each of the nominees as directors specified under
Proposal I and "FOR" Proposal II, the ratification of auditors, and "AGAINST"
Proposal III, the shareholder proposal described in the proxy statement.
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,
/s/ William H. Ruegamer
William H. Ruegamer
President and Chief Executive Officer
EMPIRE FEDERAL BANCORP, INC.
123 SOUTH MAIN STREET
P.O. BOX 1099
LIVINGSTON, MONTANA 59047
(406) 222-1981
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 2000
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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
Wednesday, June 7, 2000, at 11:00 a.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 four 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, 2000;
3. If properly presented, a stockholder proposal as set forth in the
attached Proxy Statement; and
4. 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 14, 2000 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
/s/ Ann Worthington
ANN WORTHINGTON
SECRETARY
Livingston, Montana
May 8, 2000
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
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PROXY STATEMENT
OF
EMPIRE FEDERAL BANCORP, INC.
123 SOUTH MAIN STREET
P.O. BOX 1099
LIVINGSTON, MONTANA 59047
(406) 222-1981
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ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2000
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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 Wednesday, June 7, 2000, at 11:00 a.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 May 8,
2000.
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VOTING AND PROXY PROCEDURE
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Stockholders Entitled to Vote at Meeting. Only stockholders of record as
of the close of business on April 14, 2000 ("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 1,801,143 shares of Common Stock issued and outstanding. The
Common Stock is the only outstanding class of securities of the Company.
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. Broker non-votes will not be considered present and will not 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, FOR the approval of
the appointment of independent auditors and AGAINST the stockholder's proposal
included as Proposal III. If a stockholder attends the Meeting, he or she may
vote by ballot.
If a stockholder is a participant in the Empire Bank Employee Stock
Ownership Plan ("ESOP"), the proxy card represents a voting instruction to the
trustees of the ESOP as to the number of shares in the participant's plan
account. Each participant may direct the trustees 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 trustees in the same proportion as shares for which the
trustees have received voting instructions.
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 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.
Vote Required. The four 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 and the stockholder's
proposal 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.
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VOTING SECURITIES AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
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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.
Amount and Nature Percent of
of Beneficial Common Stock
Beneficial Owner Ownership(1) Outstanding
- ---------------- ------------ -----------
Beneficial Owners of More Than 5%
Empire Bank Employee 201,432 11.18%
Stock Ownership Plan Trust
Directors(2)
Walter J. Peterson, Jr. 25,968 *
John R. Boe 14,368 *
Edwin H. Doig 35,844 1.99
Sanroe J. Kaisler, Jr. 15,368 *
Walter R. Sales 20,368 *
Burton Wastcoat 2,069 *
Named Executive Officers(3)
William H. Ruegamer(4) 1,337 *
Beverly D. Harris(2)(4) 69,663 3.87
All Executive Officers and Directors 184,985 10.27
as a Group (8 persons)(2)
2
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* 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) 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.
(3) 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. Mr. William H. Ruegamer and Mrs. Beverly D.
Harris were the Company's only "named executive officers" for the fiscal
year ended December 31, 1999.
(4) Mr. Ruegamer and Mrs. Harris are also directors of the Company.
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PROPOSAL I - ELECTION OF DIRECTORS
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The Company's Board of Directors currently consists of eight members. In
accordance with the Company's Certificate of Incorporation, the Board is
divided into three classes with staggered three-year terms.
In connection with the Meeting, the Board of Directors has determined to
increase the size of the Board from eight to nine members. The Board of
Directors has nominated Walter J. Peterson, Jr., Sanroe J. Kaisler, Jr. and
Walter R. Sales for election as directors to serve for a three year period, or
until their respective successors have been elected and qualified. In
addition, the Board of Directors has nominated Kenneth P. Cochran, to serve
for a two year period, or until his successor has been elected and qualified.
Except for Mr. Kenneth P. Cochran, all nominees are current members of the
Board of Directors of the Company. 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. Peterson, Kaisler, Sales and Cochran.
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
Walter J.
Peterson, Jr. 76 Chairman of the Board of the 1964 2003(3)
Company and the Bank; Vice
President of Dime Insurance
Agency, Livingston, Montana.
3
Year First
Principal Occupation Elected Term to
Name Age(1) During Last Five Years Director(2) Expire
---- ------ ---------------------- ----------- ------
BOARD NOMINEES (continued)
Sanroe J.
Kaisler, Jr. 75 Retired insurance broker. 1964 2003(3)
Director of Dime Insurance
Agency, Livingston, Montana.
Walter R. Sales 72 Retired rancher and former 1977 2003(3)
Montana Legislator.
Kenneth P.
Cochran 57 Senior Vice President of the 2000(3) 2002(3)
Bank. Prior to that, Senior
Vice President, First Inter-
state Bank, Billings, Montana,
from 1989 to March 1, 2000.
DIRECTORS CONTINUING IN OFFICE AFTER MEETING
William H.
Ruegamer 55 President and Chief Executive 1999 2001
Officer 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 66 Vice Chairman of the Board 1971 2001
effective January 1999. Prior
to that, President of the Bank
and President and Chief Execu-
tive Officer of the Corporation;
President of Dime Insurance
Agency, Livingston, Montana;
Director of Montana Power
Company, a NYSE-listed company,
since 1992.
Edwin H. Doig 68 Retired pharmacist. 1979 2001
John R. Boe 75 Retired junior high school 1979 2002
teacher and vice principal.
Burton Wastcoat 60 Broker and owner of Coldwell- 1998 2002
Banker/RCI Realty.
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(1) At December 31, 1999.
(2) Includes prior service on the Board of Directors of the Bank.
(3) Assuming election or re-election at the Meeting.
4
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
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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, 1999, the Board of Directors of the Company
held nine meetings and the Board of Directors of the Bank held 12 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 Harris, Peterson and
Kaisler, 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,
1999.
The Audit Committee, consisting of Directors Peterson, Kaisler, Sales,
Doig, Boe and Wastcoat, meets as needed and is responsible for reviewing the
external auditors' reports and results of their examination. The Audit
Committee met one time during the fiscal year ended December 31, 1999.
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, 1999.
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 Harris, Peterson and
Kaisler, 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, 1999.
The Audit Committee, consisting of Directors Peterson, Kaisler, Sales,
Doig, Boe and Wastcoat meets as needed and is responsible for reviewing the
external auditors' reports and results of their examination. The Audit
Committee met once during the fiscal year ended December 31, 1999.
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,
1999.
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, 1999.
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DIRECTORS' COMPENSATION
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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 Big Timber, Montana,
receive $20 per meeting for travel expenses. No
5
additional fees are paid to Directors for attendance at committee meetings.
Directors' fees for the Bank and the Company totalled $71,500 and $23,750,
respectively, for the fiscal year ended December 31, 1999.
In fiscal 1999, each non-employee director, with the exception of Mr.
Burton Wastcoat, received an option under the Company's Stock Option Plan to
purchase 12,960 shares at an exercise price of $11.50, the market value per
share of the Common Stock on the date of grant. Each option has a ten-year
term and vests in 20% annual increments, with the second increment having
vested on January 26, 2000, and the remaining 60% scheduled to vest on January
26, 2001, 2002 and 2003, respectively.
On April 29, 2000, the Board of Directors awarded William H. Ruegamer and
Burton Wastcoat an option under the Company's Stock Option Plan to purchase
12,960 shares of stock and 5,184 shares of stock, respectively, at an exercise
price of $11.69. Each option has a five-year term and vests in 20% annual
increments, with the first increment having vested on April 29, 2000, and the
remaining 80% scheduled to vest on April 29, 2001, 2002, 2003 and 2004,
respectively.
In fiscal 1999, each non-employee director, with the exception of Burton
Wastcoat, received a restricted stock award under the Company's MRDP
(Management Recognition and Development Plan) for 5,184 shares. Each award
vests over a five-year period in 20% annual increments, with the second
increment having vested on January 26, 2000, and the remaining 60% scheduled
to vest on January 26, 2001, 2002 and 2003, respectively.
On April 29, 2000, the Board of Directors granted William H. Ruegamer and
Burton Wastcoat a restricted stock award under the Company's MRDP for 5,184
shares and 2,592 shares, respectively. Each award vests over a five-year
period in 20% annual increments, with the first increment having vested on
April 29, 2000, and the remaining 80% scheduled to vest on April 29, 2001,
2002, 2003 and 2004, respectively.
For information regarding stock options granted, and MRDP shares awarded
to Mr. Ruegamer and Mrs. Harris, see "Executive Compensation."
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EXECUTIVE COMPENSATION
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Summary Compensation Table
The following information is furnished for Mr. William H. Ruegamer and
Mrs. Beverly D. Harris. Mrs. Harris served as the Company's President and
Chief Executive Officer until January 1999. Mr. Ruegamer was appointed
President and Chief Executive Officer of the Company and the Bank effective as
of January 1999. No other executive officer earned salary and bonus in excess
of $100,000 during fiscal 1999.
Long-term Compensation
Annual Compensation(1) Awards All
--------------------------------- ------------------------- Other
Restricted Number Annual
Name and Stock of Compen-
Position Year Salary(2) Bonus Awards(3) Options(4) sation(5)
- -------- ---- --------- ----- --------- ---------- ---------
William H. Ruegamer 1999 $115,000 $ 500 $ 60,601 12,960 $ --
President and Chief
Executive Officer of
the Company and the
Bank
Beverly D. Harris 1999 115,000 500 -- -- 22,436
Former President and 1998 110,952 500 430,937 51,842 25,900
Chief Executive Officer 1997 106,680 9,605 -- -- 36,455
of the Company and
the Bank
6
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(1) Excludes certain additional benefits, the aggregate amounts of which do
not exceed 10% of total salary and bonus.
(2) Amount for 1999 excludes directors fees of $11,000 and $12,000 for Mr.
Ruegamer and Mrs. Harris, respectively.
(3) Represents the value of restricted stock awards at January 26, 2000, the
date 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, 1999, the value of the unvested awards (which vest pro rata
over a five-year period with the second 20% installment having vested
on January 26, 2000) for Mrs. Harris was $180,804 (15,553 shares at
$11.625 per share), and for Mr. Ruegamer (which vest pro rata over a
five-year period with the first 20% installment having vested in April
29, 2000) was $60,264 (5,184 shares at $11.625 per share).
(4) Subject to pro rata vesting over a five year period with the first 20%
installment vesting on January 26, 2000 for Mrs. Harris, and on April 29,
2000 for Mr. Ruegamer.
(5) Amount reflects employer contribution to the ESOP on behalf of Mrs.
Harris.
Options Grants Table. The following information is provided for Mr.
William H. Ruegamer and Mrs. Beverly D. Harris.
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date
- ---- ------- ----------- ----- ----
William H. Ruegamer 12,960 18.3% $11.69 4/29/10(1)
Beverly D. Harris 51,842 23.7 16.625 1/26/08(2)
- ------------
(1) Subject to pro rata vesting over a five year period with the first 20%
installment having vested on April 29, 2000.
(2) Subject to pro rata vesting over a five year period with the second 20%
installment having vested on January 26, 2000.
Option Exercise/Value Table. The following information is provided for
Mr. William H. Ruegamer and Mrs. Beverly D. Harris.
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal Year End(#) at Fiscal Year End($)
Acquired on Value -------------------------- --------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
William H.
Ruegamer -- -- -- 12,960 -- $ -- (1)
Beverly D.
Harris -- -- -- 51,842 -- -- (2)
- ---------------
(1) The exercise price on the option grant date was $11.69. The price of the
Common Stock at December 31, 1999 was $11.625.
(2) The exercise price on the option grant date was $16.625. The price of
the Common Stock at December 31, 1999 was $11.625.
Employment Agreements. The Company and the Bank (collectively, the
"Employers") have entered into a three year employment agreement ("Employment
Agreement") with William H. Ruegamer. Under the Employment Agreement, the
current base salary for Mr. Ruegamer is $115,000, which amount is paid by the
Bank and may be
7
increased at the discretion of the Board of Directors or an authorized
committee of the Board. In determining the salary level for Mr. Ruegamer, the
Board will consider compensation levels for similarly situated executives at
comparable institutions, the financial performance of the Bank, as well as Mr.
Ruegamer's performance. Mr. Ruegamer's Employment Agreement provides for a
term of three years, which may be extended for an additional term. The
Employment Agreement is terminable by the Employers at any time or upon the
occurrence of certain events specified by federal regulations.
The Employment Agreement provides 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, Mr. Ruegamer is assigned
duties inconsistent with his respective position, duties, responsibilities and
status immediately prior to such change in control. The term "change in
control" is defined in the Employment Agreement 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 Mr. Ruegamer's average annual compensation during the
five-year period preceding the change in control. Assuming that a change in
control had occurred at December 31, 1999, Mr. Ruegamer would be entitled to
severance payments and benefits with a value of approximately $343,850.
Section 280G of the 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.
The Employment Agreement restricts Mr. Ruegamer's 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.
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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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
8
reporting officers, directors and greater than 10% stockholders were properly
and timely complied with during the fiscal year ended December 31, 1999.
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TRANSACTIONS WITH MANAGEMENT
- ------------------------------------------------------------------------------
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. The Bank had no outstanding
loans to its executive officers and directors at December 31, 1999.
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, 1999, Huppert & Swindlehurst, P.C. was paid approximately $10,104 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.
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PROPOSAL II -- APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
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KPMG LLP served as the Company's independent auditors for the fiscal
year ended December 31, 1999. The Board of Directors has appointed KPMG LLP
as independent auditors for the fiscal year ending December 31, 2000, 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.
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, 2000.
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PROPOSAL III -- STOCKHOLDER PROPOSAL
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Jewelcor Management, Inc. is the record owner of 300 shares of Common
Stock of the Company and the beneficial owner of an additional 21,700 shares
of the Company's Common Stock, and its address is 100 North Wilkes-Barre
Boulevard, Wilkes-Barre, Pennsylvania 18702. Jewelcor Management, Inc. has
submitted the following proposal:
RESOLVED, it is recommended that the Board of Directors of Empire Federal
Bancorp, Inc. (the "Company") engage an investment banking firm to advise the
Company on ways to maximize shareholder value, including a potential sale or
merger of the Company.
Supporting Statement
If the Board of Directors took the necessary steps to achieve a sale or
merger, Jewelcor Management, Inc. ("JMI") believes that the Company could
potentially achieve an acquisition price well in excess of its current stock
price. As set forth below, if the Company achieved the acquisition multiples
obtained in 1999 by other thrifts of a comparable asset-size, the Company
could possibly obtain an acquisition price between $16.37 and $25.77 per
share.
Analysis. JMI compared the Company's book value and earnings per share
("EPS") with the acquisition ratios for the Company's "Asset-Size Peer Group".
Based upon summary statistics for mergers announced in 1999, JMI derived the
Average Announced Price/Book Ratio ("Average Asset-Size Price/Book") and the
Median Announced Price/Last Twelve Months EPS Ratio ("Average Asset-Size
Price/EPS") for the Asset-Size Peer Group. JMI then multiplied the applicable
Average Asset-Size ratios times the Company's (a) book value and (b) last
twelve months diluted EPS ("Company EPS").
9
BOOK VALUE APPROACH
Company Stock Price (12/23/99) $11.56
Company Book Value (9/30/99) $16.47
Company Price/Book 70.19%
Average Asset-Size Price/Book 156.47%
COMPANY'S POSSIBLE ACQUISITION PRICE $25.77
EARNINGS APPROACH
Company's EPS (9/30/99) $0.7
Company's Price/EPS 16.51X
Average Asset-Size Price/EPS 23.39X
COMPANY'S POSSIBLE ACQUISITION PRICE $16.37
The "Asset-Size Peer Group" consists of thrifts with an asset size less
than $250 million for which acquisitions were announced in 1999 and for which
multiples were available. The above referenced information was obtained from
SNL Securities LC.
Although the Company could possibly achieve any of the individual
acquisition multiples achieved within the peer group, JMI believes that the
more reliable way to apply these acquisition multiples to the Company is to
use an average of such multiples. In JMI's opinion, the use of average
multiples within the peer group lessens any potential skewing effect that may
result from individual multiples. None of the thrifts that comprise the peer
group are identical to the Company and no independent evaluation of the
Company's assets and liabilities has been made. The "Potential Acquisition
Price" is based entirely on the mathematical calculations set forth above.
Assumptions need to be made with regard to industry performance, business and
economic conditions.
Board of Directors Statement in Opposition to the Proposal
Your Board of Directors believes that this proposal would not serve the
best interests of the Company's stockholders and, in fact, believes that
adoption of the proposal would be detrimental to their interests. Since 1998,
there has been a dramatic decline in thrift merger and acquisition volume,
which your Board of Directors believes is due in large part to the dramatic
decline in thrift equity prices. The interests of the stockholders of the
Company would not be served by initiating a sale or merger process at a time
when pricing multiples have been adversely affected by the very poor market
for bank and thrift stocks.
Your Board of Directors unanimously recommends that you VOTE AGAINST the
above stockholder proposal for the reasons set forth below.
Your Board of Directors is Committed to Enhancing Stockholder Value. The
Board of Directors is committed to enhancing stockholder value and acting in
accordance with its duties to ALL stockholders. We disagree with JMI on the
best way to achieve this objective. Based upon our experience, we urge you to
support us in our ongoing efforts to enhance stockholder value. In connection
with our recommendation that you vote against the stockholder proposal, we
urge you to consider the growth-oriented expansion strategy that the Company
has undertaken, which is being implemented by pursuing internal and external
growth opportunities, when appropriate. In order to augment its management
and to increase loan production, on January 1, 1999, the Company hired Mr.
William H. Ruegamer as the Company's new President and Chief Executive
Officer. Mr. Ruegamer has more than 30 years of experience in all areas of
community banking and served as President and Chief Executive Officer of First
Interstate Bank, Billings, Montana, for ten years prior to joining the
Company. Since Mr. Ruegamer's arrival, the Company has added new loan
products and there has been a significant increase in loan originations,
particularly commercial loans and home equity loans which
10
have higher yields than one- to- four family loans. The application of this
strategy is reflected in the increase in the Company's origination of
commercial and business loans, which increased from $2.2 million in 1998 to
$7.1 million in 1999. More importantly, these activities should assist the
Company in its strategy of becoming a commercial bank, which will, in turn
enhance its value since, historically, banks and bank holding companies have
traded in the public markets at earnings per share multiples considerably
higher than those of thrift holding companies. Thus, if the change to a
community bank is successful it should have a long-term favorable impact on
the Company's ultimate acquisition value.
The Board of Directors has also taken the following actions to increase
stockholder value:
Reducing Excess Capital Through Stock Repurchases. Management has
adopted a strategy of reducing the Company's excess capital through stock
repurchases, which increases the value of your investment because with fewer
shares outstanding there is higher earnings per share and a greater return on
equity. Since its initial public offering, the Company has repurchased
790,957 shares of Common Stock, which is the maximum amount permitted by OTS
regulations during the three year period after the conversion from mutual to
stock form.
Increases in Regular Cash Dividend. A key component of providing you with
an attractive return on your investment has been the consistent payment of
quarterly cash dividends. The Company has paid a quarterly cash dividend in
every quarter since the second quarter following its initial public offering
and has increased the dividend amount -- from $.075 to $.080 (in the second
quarter of 1998), from $.080 to $.085 (in the fourth quarter of 1998), from
$.085 to $.100 (in the first quarter of 1999). This increase in the regular
cash dividend in turn boosted the Company's dividend payout ratio (dividends
declared per share divided by net income per share) from 33.58% for the year
ended December 31, 1997 to 57.14% for each of the years ended December 31,
1998 and 1999. The Company increased the dividend amount again in the first
quarter of 2000, from $.100 to $.110.
Expansion of Operations. The Board believes that shareholder value can
be significantly enhanced by the expansion of the Company through the
acquisition of other institutions, including community banks, the
establishment or acquisition of additional branch offices and internal growth.
Mr. Ruegamer has extensive bank acquisition experience, having overseen the
acquisition of six institutions and approximately 12 branch offices during his
tenure at First Interstate Bank. The Company has expanded its network of
offices with the opening of its new branch in Billings, Montana. In addition,
in 1999 the Company hired three commercial bankers in Billings with over 50
years of combined experience.
The Board of Directors believes that stockholders have been well served
by its leadership and guidance, and it is in a much better position than JMI
to determine what is in the best interests of the Company's stockholders. The
Board of Directors will carefully consider any appropriate action that would
serve the best interests of all of its stockholders. In light of the Company's
increasing profitability and future prospects, we believe that a forced sale
in today's environment is not in the best interests of its stockholders. As
previously mentioned, the stock prices of many prospective acquirors are
significantly down over the past year, and acquisition premiums have also
declined.
The Proposal Is Based on Valuation Methodology That is Flawed. We
believe that the two potential acquisition prices shown by the proponent are
unreliable. Even JMI indicated that its analysis was based entirely on
mathematical calculations without taking into account (1) the differences
between the Company and the other companies selected, (2) the value of the
Company's assets and liabilities, and (3) industry performance, business and
economic conditions. The valuation methodologies used in the shareholder's
supporting statement rely on the average multiples of a number of thrift
acquisition transactions, none one of which was in the Company's market area.
The use of implied ranges of acquisition values for the Company is, at best,
an incomplete method of deriving a realistic estimate of a thrift's
acquisition value. It is fundamentally inadequate to rely solely on valuation
methodologies such as these to estimate acquisition prices. A comparable
multiple type analysis such as that set forth by JMI is useful only in the
context of a larger analytical exercise which involves research on potential
purchasers, their acquisition strategies and their financial ability to pay
for a target, as well as alternative measures of value such as the value of
the Company's deposits and lending franchises and various discounted cash flow
analyses.
11
The Company's Directors and Officers Have a Significant Ownership
Interest. As you know, all directors of the Company are also stockholders and
share a commonality of interest with the Company's other stockholders. As of
the Record Date, the eight directors and executive officers of the Company own
184,955 shares of the Common Stock, or approximately 10% of the issued and
outstanding shares, excluding restricted stock awards and stock options.
These shares had an aggregate market value of $2.0 million, which represents a
significant investment by our directors and executive officers. This compares
with JMI's ownership of record of 300 shares and the beneficial ownership of
an additional 21,700 shares of the Company's Common Stock, which, as of the
Record Date, represented approximately 1% of the Company's issued and
outstanding shares.
Adoption of the Proposal Would be Detrimental to the Board's Efforts.
Your Board of Directors believes that adoption of the proposal could prejudice
the financial interests of stockholders. Although the proposal only requests
that certain action be taken by the Board of Directors and does not obligate
the Board of Directors to take action, the announcement that the proposal has
been adopted could adversely affect the Company's relationships with its
customers and employees by creating uncertainty about its future. In that
event, revenues and profits and, in turn, stockholder value could decline.
Most importantly, your Board of Directors should retain full discretion to
consider all possible strategic alternatives for the Company's future in the
best interests of all stockholders and should not be urged to pursue only one
course of action at a time when the equity prices for the thrift industry, as
well as the entire financial industry, are depressed and therefore at a price
that do not reflect the true long-term value of the Company. In addition, the
uncertain atmosphere that could be created by adoption of this proposal could
result in the Company losing valuable customer relationships and employees,
which could impair the value of our franchise.
For the reasons set forth above, the Board of Directors believes that the
stockholder proposal is not in the best interests of the Company and its
stockholders. Accordingly, the Board of Directors unanimously recommends that
you VOTE AGAINST Proposal III.
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OTHER MATTERS
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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.
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MISCELLANEOUS
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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.
12
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SHAREHOLDER PROPOSALS
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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 29, 2000.
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, 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
May 8, 2000
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FORM 10-KSB
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A copy of the Company's Form 10-KSB for the fiscal year ended December 31,
1999, 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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13
REVOCABLE PROXY
EMPIRE FEDERAL BANCORP, INC.
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ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2000
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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 Wednesday, June 7, 2000, at 11:00
a.m., Mountain Daylight Savings Time, and at any and all adjournments thereof,
as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as directors of [ ] [ ]
all nominees listed below
(except as marked to the
contrary below).
For a three year term:
Walter J. Peterson, Jr.
Sanroe J. Kaisler, Jr.
Walter R. Sales
For a two year term:
Kenneth P. Cochran
INSTRUCTION: To withhold your vote
for any individual nominee, write
that 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,
2000.
3. A stockholder proposal as more fully [ ] [ ] [ ]
described in the Proxy Statement.
4. Such other matters as may properly
come before the Meeting or any
adjournments thereof.
The Board of Directors recommends a vote "FOR" Proposal 1 and 2 and
"AGAINST" Proposal 3.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1 AND 2 AND "AGAINST" PROPOSAL 3. 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 1999 Annual
Report to Stockholders.
Dated: , 2000
---------------------
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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.
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PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
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