SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 1)
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
(1) |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________
COMMISSION FILE NUMBER 0-24562
CARNEGIE BANCORP
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-3257100
- --------------------------------- -------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
619 ALEXANDER ROAD, PRINCETON, N.J. 08540
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 609-243-7500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
--------------------------
(TITLE OF CLASS)
WARRANTS TO PURCHASE COMMON STOCK
---------------------------------
(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE ISSUER
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO |_|
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. |X|
AS OF FEBRUARY 28, 1998, THERE WERE 2,753,030 SHARES OF THE REGISTRANT'S
COMMON STOCK, NO PAR VALUE PER SHARE, OUTSTANDING, AND BASED ON THE LAST
REPORTED SALE PRICE OF $33.375 PER SHARE ON THE NASDAQ STOCK MARKET, THE
AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY THOSE PERSONS
DEEMED BY THE REGISTRANT TO BE NONAFFILIATES WAS APPROXIMATELY $85,355,403.
DOCUMENTS INCORPORATED BY REFERENCE
None
The Annual Report on Form 10-K for the year ended December 31, 1997 is amended
by replacing the Items listed below as set forth herein.
1. Part I, Item 1., Business, is amended to add Somerset County, New Jersey to
the list of counties serviced by Registrant, and to correct the Adjusted Maximum
Exchange Ratio (from 2.366 to 2.367) described in the fourth paragraph of such
Item. As so amended, Part I, Item 1, reads as follows:
PART I
------
ITEM 1. BUSINESS
----------------
GENERAL
Carnegie Bancorp (the "Company" or "Registrant") is a New Jersey
business corporation and a bank holding company registered with the Board
of Governors of the Federal Reserve System (the "FRB") under the Bank
Holding Company Act of 1956, as amended (the "BHCA"). The Company was
incorporated on October 6, 1993 for the purpose of acquiring Carnegie Bank,
N.A. (the "Bank") and thereby enabling the Bank to operate within the bank
holding company structure. On April 12, 1994, the Company acquired one
hundred percent (100%) of the outstanding shares of the Bank. The principal
activities of the Company are owning and supervising the Bank, which
engages in a commercial banking business in Mercer, Burlington, Hunterdon,
Morris, Ocean and Somerset counties, New Jersey and Bucks County,
Pennsylvania. The Company directs the policies and coordinates the
financial resources of the Bank.
On December 15, 1997, the Company and Sovereign Bancorp, Inc.
("Sovereign"), the parent company of Sovereign Bank, a federal savings
bank, jointly announced the execution of an Agreement and Plan of Merger,
dated as of December 12, 1997 (the "Merger Agreement"). Under the initial
terms of the Merger Agreement, if the Sovereign Market Value (as defined
below) as of the effective date of the merger is greater than or equal to
$18 per share and less than or equal to $22 per share, each outstanding
share of the Company's Common Stock would be converted into such number of
shares of common stock, no par value, of Sovereign (the "Sovereign Common
Stock") as would equal $35.50 divided by the average of the last reported
sales prices of a share of Sovereign Common Stock for the 15 consecutive
trading day period immediately preceding the effective date (the "Sovereign
Market Value"). However, if the Sovereign Market Value as of the effective
date is less than $18 per share, each share of the Company's Common Stock
would be converted into 1.972 shares (the "Maximum Exchange Ratio") of
Sovereign Common Stock and if the Sovereign Market Value as of the
effective date is greater than $22 per share, each share of the Company's
Common Stock would be converted into 1.614 shares (the "Minimum Exchange
Ratio") of Sovereign Common Stock.
The Merger Agreement also provides that the Company has the right to
terminate the Merger Agreement if the Sovereign Market Value as of the
Effective Date (i) is less than $14.47 per share and (ii) has declined in
value since the date of the Merger Agreement by an amount which is at least
15% more than any decline in the weighted average per share prices of
shares of common
3
stock ("Peer Group Common Stock") of a peer group of nine publicly-traded
savings bank holding companies, unless Sovereign elects to increase the
number of shares issuable in exchange for the Company's Common Stock in
order to result in a minimum price of $28.53 of Sovereign Common Stock per
share of the Company's Common Stock.
On January 23, 1998, Sovereign announced a 20% stock dividend to its
shareholders. Under the terms of the Merger Agreement, as a result of the
dividend, the exchange ratios and relevant Sovereign Market Values
discussed above were adjusted but the value of the consideration to be
received by Carnegie shareholders in the Merger was unchanged. Following
Sovereign's stock dividend, if the Sovereign Market Value is greater than
or equal to $15 per share and less than or equal to $18.33 per share, each
outstanding share of the Company's Common Stock will be converted into such
number of shares of Sovereign Common Stock as shall equal $35.50 divided by
the Sovereign Market Value. If the Sovereign Market Value as of the
effective date is less than $15.00 per share, each share of the Company's
Common Stock would be converted into 2.367 shares (the "Adjusted Maximum
Exchange Ratio") of Sovereign Common Stock and if the Sovereign Market
Value as of the effective date is greater than $18.33 per share, each share
of the Company's Common Stock would be converted into 1.937 shares (the
"Adjusted Minimum Exchange Ratio") of Sovereign Common Stock.
The effective date of the adjustment in the merger consideration to be
received by the Company's shareholders is March 27, 1998 (the "ex-dividend
date"). As a result of the Sovereign Stock Dividend, after March 27, 1998,
Carnegie will have the right to terminate the Merger Agreement if the
Sovereign Market Value as of the Effective Date (i) is less than $12.06 per
share and (ii) has declined in value since the date of the Merger Agreement
by an amount which is at least 15% more than any decline in the weighted
average per share prices of the Peer Group Common Stock, unless Sovereign
elects to increase the number of shares issuable in exchange for the
Company's Common Stock in order to result in a minimum price of $28.53 of
Sovereign Common Stock per share of the Company's Common Stock.
The proposed Merger is subject to the approval of various regulatory
authorities and a majority of the votes cast by holders of Common Stock at
a duly convened meeting of the Company's shareholders.
Additionally, Carnegie Bancorp's common stock purchase warrants
expired on August 18, 1997. All but 1,293 were exercised prior to the
expiration date which added 711,948 new shares of common stock and $8.8
million of new Stockholders' equity in 1997.
BUSINESS OF THE COMPANY
The Company's primary business is ownership of the Bank. The Bank is a
national bank, which commenced business in 1988 as a New Jersey state
chartered commercial bank. The Bank currently operates from its main office
in Princeton, New Jersey and from seven branch offices in Hamilton
Township, Denville, Flemington, Marlton, Montgomery and Toms River, New
Jersey and Langhorne, Pennsylvania. The deposits of the Bank are insured by
the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a member of the
4
Federal Reserve System.
The Company conducts a general commercial banking business. The
Company's loan products consist primarily of commercial loans (a majority
of which are secured by mortgages on owner-occupied properties), commercial
mortgages, loans to professionals (a majority of which are secured by
business or personal assets), and to a lesser extent residential mortgage
loans. The Company offers a full array of deposit accounts including time
deposits, checking and other demand deposit accounts, savings accounts and
money market accounts. The Company targets small businesses, professionals,
and high net worth individuals as its prime customers, and as a general
course of business, does not engage in high volume, consumer banking. The
Company believes it competes successfully for its target market by offering
superior service. This service includes having loan officers intimately
involved in the loan approval process and delivering prompt responses to
customer loan applications. Because management believes its target
customers are more concerned with service and the availability of loans
than price, the Company does not try to be the lowest cost source of funds
in its market area.
SERVICE AREAS
The Company's service areas consist of Mercer, Morris, Burlington,
Hunterdon, Ocean and Somerset counties in New Jersey and Bucks County,
Pennsylvania. The Company operates its main office in Princeton, New Jersey
and seven branch offices in Marlton, Denville, Hamilton Township,
Montgomery, Flemington and Toms River, New Jersey and Langhorne,
Pennsylvania. Each of these locations was selected by management based upon
the demographics of the area and a perceived need for the services rendered
by the Company. In addition, management of the Company is familiar with the
business communities in each of these market areas. The Company also
selects branch locations based on having a perceived "edge" or advantage in
these locations, usually based on relationships that exist in that market
place.
COMPETITION
The Company operates in a highly competitive environment competing for
deposits and loans with commercial banks, thrifts and other financial
institutions, many of which have greater financial resources than the
Company. Many large financial institutions in New York City and
Philadelphia compete for the business of New Jersey residents and
businesses located in the Company's primary areas of trade. Certain of
these institutions have significantly higher lending limits than the
Company and provide services to their customers which the Company does not
offer.
Management believes the Company is able to compete on a substantially
equal basis with its competitors because it provides responsive
personalized services through management's knowledge and awareness of the
Company's service areas, customers and business. Management believes that
this knowledge and awareness provide a clear business advantage in
servicing the commercial and retail banking needs of the professional
communities that comprise the Company's service areas.
5
EMPLOYEES
At December 31, 1997, the Company employed 123 full-time employees and
2 part-time employees. None of these employees is covered by a collective
bargaining agreement and the Company believes that its employee relations
are good.
6
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its
entirety by reference to the particular statutory and regulatory
provisions. Any change in the applicable law or regulation may have a
material effect on the business and prospects of the Company and the Bank.
BANK HOLDING COMPANY REGULATION
General. As a bank holding company registered under the BHCA, the
Company is subject to the regulation and supervision of the FRB. The
Company is required to file with the FRB annual reports and other
information regarding its business operations and those of its
subsidiaries. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries or
engaging in any other activity which the FRB determines to be so closely
related to banking or managing or controlling banks as to be properly
incident thereto.
The BHCA requires, among other things, the prior approval of the FRB
in any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of any other bank, (ii) acquire direct or
indirect ownership or control of more than 5% of the outstanding voting
stock of any bank (unless it owns a majority of such bank's voting shares)
or (iii) merge or consolidate with any other bank holding company. The FRB
will not approve any acquisition, merger, or consolidation that would have
a substantially anti-competitive effect, unless the anti- competitive
impact of the proposed transaction is clearly outweighed by a greater
public interest in meeting the convenience and needs of the community to be
served. The FRB also considers capital adequacy and other financial and
managerial resources and future prospects of the companies and the banks
concerned, together with the convenience and needs of the community to be
served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect
ownership or control of more than 5% of the outstanding voting stock of any
company which is not a bank or bank holding company, or (ii) engaging
directly or indirectly in activities other than those of banking, managing
or controlling banks, or performing services for its subsidiaries; unless
such non-banking business is determined by the FRB to be so closely related
to banking or managing or controlling banks as to be properly incident
thereto. In making such determinations, the FRB is required to weigh the
expected benefits to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse effects,
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the
depositors of such depository institutions and the FDIC insurance funds in
the
7
event the depository institution becomes in danger of default. Under a
policy of the FRB with respect to bank holding company operations, a bank
holding company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit resources to support
such institutions in circumstances where it might not do so absent such
policy. The FRB also has the authority under the BHCA to require a bank
holding company to terminate any activity or to relinquish control of a
non-bank subsidiary upon the FRB's determination that such activity or
control constitutes a serious risk to the financial soundness and stability
of any bank subsidiary of the bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies. In January
1989, the FRB adopted risk-based capital guidelines for bank holding
companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-balance
sheet exposure, and to minimize disincentives for holding liquid assets.
Under these guidelines, assets and off-balance sheet items are assigned to
broad risk categories each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is
8%. At least 4% of the total capital is required to be "Tier I Capital,"
consisting of common stockholders' equity, and qualifying preferred stock,
less certain goodwill items and other intangible assets. The remainder
("Tier II Capital") may consist of (a) the allowance for loan losses of up
to 1.25% of risk-weighted assets, (b) excess of qualifying preferred stock,
(c) hybrid capital instruments, (d) perpetual debt, (e) mandatory
convertible securities, and (f) subordinated debt and intermediate-term
preferred stock up to 50% of Tier I capital. Total capital is the sum of
Tier I and Tier II capital less reciprocal holdings of other banking
organizations' capital instruments, investments in unconsolidated
subsidiaries and any other deductions as determined by the FRB (determined
on a case by case basis or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category,
except for performing first mortgage loans fully secured by residential
property which carry a 50% risk-weighting. Most investment securities
(including, primarily, general obligation claims of states or other
political subdivisions of the United States) are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50%
risk-weight, and direct obligations of the U.S. treasury or obligations
backed by the full faith and credit of the U.S. Government, which have a 0%
risk-weight. In converting off-balance sheet items, direct credit
substitutes including general guarantees and standby letters of credit
backing financial obligations, are given a 100% risk-weighting. Transaction
related contingencies such as bid bonds, standby letters of credit backing
nonfinancial obligations, and undrawn commitments (including commercial
credit lines with an initial maturity or more than one year) have a 50%
risk-weighting. Short term commercial letters of credit have a 20%
risk-weighting and certain short-term unconditionally cancelable
commitments
8
have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted
a minimum Tier I capital (leverage) ratio, under which a bank holding
company must maintain a minimum level of Tier I capital to average total
consolidated assets of at least 3% in the case of a bank holding company
that has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other bank holding companies are
expected to maintain a leverage ratio of at least 100 to 200 basis points
above the stated minimum.
BANK REGULATION
The Bank is a national bank subject to the supervision of, and regular
examination by, the Comptroller of the Currency (the "OCC"), as well as to
the supervision of the FDIC. The FDIC insures the deposits of the Bank to
the current maximum allowed by law through the BIF.
The operations of the Bank are subject to state and federal statutes
applicable to banks which are members of the Federal Reserve System and to
the regulations of the FRB, the FDIC and the OCC. Such statutes and
regulations relate to required reserves against deposits, investments,
loans, mergers and consolidations, issuance of securities, payment of
dividends, establishment of branches, and other aspects of the Bank's
operations. Various consumer laws and regulations also affect the
operations of the Bank, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit and fair credit reporting.
Under the provisions of the Federal Reserve Act, the Bank is subject to
certain restrictions on any extensions of credit to the Company or, with
certain exceptions, other affiliates, on investments in the stock or other
securities of national banks, and on the taking of such stock or securities
as collateral. These regulations and restrictions may limit the Company's
ability to obtain funds from the Bank for its cash needs, including funds
for acquisitions, and the payment of dividends, interest and operating
expenses. Further, the Bank is prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, the Bank may not generally
require a customer to obtain other services from the Bank or the Company,
and may not require the customer to promise not to obtain other services
from a competitor, as a condition to an extension of credit. The Bank also
is subject to certain restrictions imposed by the Federal Reserve Act on
extensions of credit to executive officers, directors, principal
stockholders or any related interest of such persons. Extensions of credit
(i) must be made on substantially the same terms (including interest rates
and collateral) as, and following credit underwriting procedures that are
not less stringent than those prevailing at the time for, comparable
transactions with persons not covered above and who are not employees and
(ii) must not involve more than the normal risk of repayment or present
other unfavorable features. In addition extensions of credit to such
persons beyond limits set by FRB regulations must be approved by the Board
of Directors. The Bank also is subject to certain lending limits and
restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the Bank or any officer, director, employee, agent or other
person participating in the conduct of the affairs of the Bank or the
imposition of a cease and desist order.
As an institution whose deposits are insured by the FDIC, the Bank
also is subject to
9
insurance assessments imposed by the FDIC. Under current law, the insurance
assessment to be paid by BIF insured institutions is as specified in
schedules issued by the FDIC from time to time. The amount of the
assessment is determined in part to allow for a minimum BIF reserve ratio
of 1.25% of estimated insured deposits. The current premium assessment
schedule is from 0% to 0.31% of an institution's average assessment base.
The actual assessment to be paid by each BIF member is based on the
institution's assessment risk classification, which is determined based
upon whether the institution is considered "well capitalized," "adequately
capitalized," or "under-capitalized," as those terms have been defined in
applicable federal regulations adopted to implement the prompt corrective
action provisions of the Federal Deposit Insurance Act, and whether such
institution is considered by its supervising agency to be financially sound
or to have supervisory concerns.
Recent Regulatory Enactments. On September 30, 1996, the Deposit
Insurance Funds Act of 1996 (the "Deposit Act") became law. The primary
purpose of the Deposit Act is to recapitalize the Savings Association
Insurance Fund of the FDIC (the "SAIF") by charging all SAIF member
institutions a one-time special assessment. The Deposit Act will lead to
equalization of the deposit insurance assessments between Bank and SAIF
insured institutions, and will also separate out from insurance assessment
payments required for debt service and principal repayment on bonds issued
by the Federal Finance Corporation ("FICO") in the mid-1980s to fund a
portion of the thrift bailout. Under the Deposit Act, BIF-insured
institutions will, for the first time, be required to pay a portion of the
obligations owed under the FICO bonds. The rate of contribution has been
set for SAIF members at 6.4 basis points on assessed deposits while BIF
institutions will only be required to pay 1.3 basis points on assessed
deposits. This disparity will stay in effect until such time as the Federal
thrift and commercial bank charters are merged and the deposit insurance
funds are thereafter merged. Under the Deposit Act, this may occur by
January 1, 1999. At that time, all federally insured institutions should
have the same total FDIC assessment.
On September 29, 1994, the Riegle-Neal Interstate Banking and
Branching Efficiency Act (the "Interstate Act") was enacted. The Interstate
Act generally enhances the ability of bank holding companies to conduct
their banking business across state boarders. The Interstate Act has two
main provisions. The first provision generally provides that commencing on
September 29, 1995, bank holding companies may acquire banks located in any
state regardless of the provisions of state law. These acquisitions are
subject to certain restrictions, including caps on the total percentage of
deposits that a bank holding company may control both nationally and in any
single state.
The second major provision of the Interstate Act permits banks located
in different states to merge and continue to operate as a single
institution in more than one state, so long as any state involved did not
opt out of the interstate bank merger provisions prior to June 1, 1997.
A final provision of the Interstate Act permits banks located in one
state to establish new branches in another state without obtaining a
separate bank charter in that state, but only if the state in which the
branch is located has adopted legislation specifically allowing interstate
de novo branching.
In April, 1996, the New Jersey legislature passed legislation that
permits an out-of-state
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institution to acquire an existing branch of a New Jersey-based
institution, and thereby conduct a business in New Jersey. The legislation
does not permit interstate de novo branches. This Legislation is likely to
enhance competition in the New Jersey marketplace as bank holding companies
located outside of New Jersey become freer to acquire institutions located
within the state of New Jersey.
2. Part III, Item 11, is amended to state the correct 1997 bonus amount for Mr.
Wolters and to correct the per share value in the caption to the fifth column of
the Aggregated Option/SAR Exercises table. As so amended, Item 11 reads as
follows:
PART III
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The following table sets forth a summary for the last three (3) fiscal
years of the cash and non-cash compensation awarded to, earned by, or paid
to, the Chief Executive Officer of the Company and each of the most highly
compensated executive officers who were serving as executive officers of
the Registrant at December 31, 1997 and whose individual remuneration
exceeded $100,000 for the last fiscal year (collectively, "Named
Officers").
SUMMARY COMPENSATION TABLE
Cash and Cash Equivalent Forms
of Remuneration
---------------
Long Term
Compensation
------------
Securities
Name and Current Annual Annual Other Annual Underlying
Principal Position Year Salary Bonus(1) Compensation(2) Options
------------------ ---- ------ -------- --------------- ------------
Thomas L. Gray, Jr. 1997 $210,000 $449,508 $20,900(3) $19,425
President and Chief 1996 $130,000 $173,133 $20,872 -0-
Executive Officer 1995 $130,000 $142,585 $19,409 $54,475
Mark A. Wolters, 1997 $100,000 $ 84,000 $14,420(3) $14,175
Executive Vice 1996 $ 80,000 $ 57,711 $14,467 -0-
President 1995 $ 80,000 $ 47,528 $12,932 $13,114
11
Richard P. Rosa 1997 $ 85,000 $ 30,000 $ 5,000 $ 8,925
Senior Vice
President Chief
Financial Officer
- -----------------
(1) Bonuses earned for services rendered in the indicated years although
payment may have been made in subsequent years.
(2) Other annual compensation includes director fees, insurance premiums
and the personal use of Company automobiles, or automobile allowance.
(3) In 1997, Mr. Gray received $18,450 for attending meetings of the Board
of Directors and special committees of the Board and Mr. Wolters received
$11,550 for attending meetings of the Board of Direcors and special committees
of the Board.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth with respect to grants of stock options made
during 1997 to each of the Named Officers; (i) the name of such officer;
(ii) the number of options granted; (iii) the percent the grant represents
of the total options granted to all employees during 1997; (iv) the per
share exercise price of the options granted; (v) the expiration date of the
options; and (vi) the Black-Scholes value of the options at grant date.
Percent of Total
No. of Securities Options/SARs Exercise of
Underlying Granted to Base Price
Options/SARs Employees in ($/Share) Expiration Grant Date Present
Name Granted (#) Fiscal Year 1/15/07 Date Value (1)
---- ----------------- ---------------- ----------- ---------- ------------------
Thomas L. Gray, Jr. 19,425 15.42% $17.86 1/15/07 $59,810
Mark A. Wolters 14,175 11.25% $17.86 1/15/07 $43,645
Richard P. Rosa 8,925 7.08% $17.86 1/15/07 $27,480
(1) The values shown reflect standard application of the Black-Scholes
pricing model using (i) a 20% stock price volatility, (ii) an expected term
of five years, (iii) a risk-free interest rate of 6.17%, and (iv) a
dividend yield of 3.00%. The values do not take into account risk factors
such as non-transferability and limits on exercisability. In assessing the
values indicated in the above table, it should be kept in mind that no
matter what theoretical value is placed on a stock option on the date of
grant, the ultimate value of the option is dependent on the market value of
the Common Stock at a future date, which will depend to a large degree on
the efforts of the named officers to bring future success to the
corporation for the benefit of all stockholders.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES
The following table sets forth with respect to each exercise of stock
options during 1997 by each of the Named Officers and the year-end value of
unexercised options on an aggregated basis: (i) the name of each such
officer; (ii) the number of shares received upon exercise; (iii) the
aggregate dollar value realized upon exercise; (iv) the total value of
unexercised options held at December 31, 1997 separately identifying the
exercisable and unexercisable options; and (v) the aggregate dollar value
of in-the-money, unexercised options held at December 31, 1997, separately
identifying the exercisable and unexercisable options.
No. of Securities Value of Unexercised
Underlying In-the-Money Options
Unexercised Options at FY End ($) (based
Shares at FY End (#) on $34.37 per share)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
---- ------------ -------- ------------------- --------------------
Thomas L. Gray, Jr. 13,208 $291,745 73,822/29,584 $1,705,875/$578,412
Mark A. Wolters -- -- 32,181/14,247 $ 742,051/$256,907
Richard P. Rosa -- -- 7,235/ 8,363 $ 149,410/$148,096
COMPENSATION OF DIRECTORS
Directors of the Company receive no remuneration for their service on the
Board of Directors of the Company. Directors of the Bank, other than
full-time employees of the Bank, receive a $5,000 annual retainer, payable
quarterly. All directors of the Bank receive fees of $750 per Board meeting
attended and $300 per committee meeting attended, except that the Chairman
of the Audit Committee receives $600 per Audit Committee meeting attended.
In addition, Mr. Michael Golden, in his capacity as Vice Chairman of the
Bank, receives an annual stipend of $12,000. Mr. Gray does receive Board
meeting and Loan Committee (of the Bank) meeting fees and Mr. Wolters does
receive Board meeting fees.
The Company has entered into a consulting agreement with Mr. Bruce Mahon,
Chairman of the Board of the Company. Pursuant to the consulting agreement,
Mr. Mahon receives an annual consulting fee of $100,000. The consulting
agreement has a term of two years. The consulting agreement can be
terminated by the Company at any time for cause. Cause is defined in the
consulting agreement as consultant's willful and continued failure to
perform his duties; (ii) fraud, misappropriation or other intentional
damage to the property or business of the Company or (iii) the consultant's
admission or conviction of, or plea of nolo contendere to, any felony that
adversely affects the Company. In the event of Mr. Mahon's death, the
Company is obligated to reimburse his estate for any unpaid fees and
13
expenses for services rendered prior to his death. In addition, Mr. Mahon
also receives certain insurance benefits directly from the Company which
are not included in the consulting agreement.
The Company maintains a 1995 Directors Stock Option Plan ("1995 Directors
Plan"). Under the 1995 Directors' Plan, 151,315 shares of Common Stock have
been reserved for issuance, as adjusted to reflect stock dividends declared
by the Company from time to time. Directors of the Company, the Bank and
any other subsidiaries which the Company may acquire or incorporate are
eligible to participate in the 1995 Directors Plan. The 1995 Directors Plan
is administered by the Company's Board of Directors which has the power to
designate which directors will receive options and the terms of such
options. No option may be exercised more than ten years after the date of
its grant.
The Company maintains the 1993 Stock Option Plan for Non-Employee Directors
(the "Outside Directors' Plan"). Under the Outside Directors' Plan, 42,000
shares of Common Stock have been reserved for issuance, adjusted to reflect
stock dividends declared subsequent to the adoption of the Outside
Directors' Plan. Non-employee Directors of the Company, the Bank and any
other subsidiaries which the company may acquire or incorporate participate
in the Outside Directors' Plan. Each participant in the Outside Directors'
Plan automatically receives an option to purchase 5,000 shares of Common
Stock effective as of the date such participant commences his service on
the Board of Directors. No option may be exercised more than ten years
after the date of its grant. The purchase price of the shares of Common
Stock subject to options under the Outside Directors' Plan is 100% of the
fair market value on the date such option is granted. There are no more
shares available for issuance under the Outside Directors' Plan.
On January 15, 1997, the Board of Directors adopted the Carnegie Bancorp
1997 Stock Option Plan which provides for grants of stock options to
officers, directors and employees of the Company.
The 1997 Plan is administered by the Company's Board of Directors, which
has the authority to designate the optionees and to determine the number of
shares subject to each option, the date of grant and the terms and
conditions governing the option, including any vesting schedule. The Board
of Directors also designates whether options granted under the 1997 Plan
are non-statutory stock options or incentive stock options. In addition,
the Board is charged with the responsibility of interpreting the 1997 Plan
and making all administrative determinations thereunder.
All directors, officers and employees of the Company or its subsidiaries
are eligible to receive options under the 1997 Plan.
The 1997 Plan authorized the Company to issue 274,000 shares of the Common
Stock pursuant to options. However, pursuant to the terms of the 1997 Plan,
no options may first become exercisable if on such date options to purchase
in excess of 15% of the Company's outstanding common stock to be
outstanding under all of the Company's stock option plans in the aggregate.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Thomas L. Gray,
its President and Chief Executive Officer, and Mr. Mark A. Wolters, its
Executive Vice President. The employment
14
agreements are intended to ensure that the Company will be able to maintain
a stable and competent management base. The continued success of the
Company depends, to a significant degree, on the skills and competence of
Mr. Gray and Mr. Wolters.
The employment agreement with Mr. Gray (the "Gray Employment Agreement")
provides for a three-year term, and further provides that it will
automatically be renewed for a one-year term on each anniversary date
unless, ninety days prior to such anniversary date, either party provides
written notice of its intention not to renew. The Gray Employment Agreement
provides that Mr. Gray will receive an annual base salary of $210,000 for
fiscal 1997, and that his base salary will be reviewed annually by the
Board of Directors. In addition, the Gray Employment Agreement provides
that Mr. Gray is to receive an annual bonus of not less than 6% of the
adjusted net after tax income of the Company and such other compensation as
determined by the Board of Directors. The Gray Employment Agreement permits
the Company to terminate Mr. Gray's employment for cause at any time. The
Gray Employment Agreement defines cause to mean (i) willful and continued
failure to perform duties; (ii) fraud, misappropriate or material damage to
the property or business of the Company; (iii) willful violation of law or
conviction or admission of, or plea of nolo contendere to, any felony which
would adversely affect the executive's ability to perform his duties; or
(iv) willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order issued by,
or regulatory consent agreement with, any banking regulatory agency having
jurisdiction over the Company or any of its subsidiaries. In the event Mr.
Gray is terminated for reasons other than cause prior to the expiration of
the term of the Agreement, Mr. Gray shall be entitled to receive his base
salary and bonus for the remaining term. In addition, the Company is to
maintain medical and life insurance benefits for Mr. Gray for the remaining
term. Mr. Gray may terminate his employment upon sixty (60) days' notice to
the Company. Upon the occurrence of a change in control (as defined in the
Gray Employment Agreement) which results in Mr. Gray's involuntary
termination without cause or Mr. Gray's voluntary resignation within 18
months of such change in control because (i) he is reassigned to a position
of lesser rank or status than chief Executive Officer; (ii) his place of
employment is relocated by more than thirty miles from its location as of
the date of the Employment Agreement; or (iii) his compensation or other
benefits are reduced, Mr. Gray will be entitled to receive his base salary
and bonuses for a period of thirty (30) months after such termination. In
addition, the Company will continue to maintain Mr. Gray's medical and
dental insurance and other benefits in effect through the end of such
30-month period.
The Company has entered into an employment agreement with Mark A. Wolters,
the Executive Vice President of the Company (the "Wolters Employment
Agreement"). Pursuant to the Wolters Employment Agreement, Mr. Wolters is
to be employed for a term of three years and his employment is subject to
automatic renewal of an additional one-year term on each anniversary date
unless, ninety days prior to such anniversary date, either party provides
written notice of its intention not to renew. Mr. Wolters' annual base
salary is $100,000 for fiscal 1997 and this base salary is subject to
annual review by the Board of Directors. In addition, Mr. Wolters is
entitled to receive a bonus in an amount equal to 2% of the adjusted net
after-tax income of the Company and such other compensation as determined
by the Board of Directors. The Wolters Employment Agreement permits the
Company to terminate Mr. Wolters' employment for cause. Cause is defined
under the Wolters Employment Agreement in the same manner as it is defined
under the Gray Employment Agreement. In the event Mr. Wolters is terminated
for reasons other than cause prior to the expiration of the initial
three-year term, Mr. Wolters shall be entitled to receive his base salary
and bonus for the remaining term. Mr. Wolters may terminate
15
his employment upon sixty (60) days' written notice to the Company. In
addition, the Company shall maintain his medical and dental insurance and
other benefits for the remaining term. Upon the occurrence of a change in
control (as defined in the Wolters Employment Agreement) and the subsequent
involuntary termination of Mr. Wolters without cause or his voluntary
resignation within 18 months of such change in control because (i) he is
reassigned to a position of lesser rank or status than Executive Vice
President, (ii) his principal place of employment is moved by more than 30
miles from its current place, or (iii) his compensation or other benefits
are reduced, Mr. Wolters will be entitled to receive his then current base
salary and bonus for 18 months after such termination. In addition, the
Company will continue to maintain Mr. Wolters' medical and dental insurance
and other benefits in effect through the end of such 18-month period.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Company does not maintain a standing Compensation Committee. The
compensation payable to the Company's executive officers is determined by
the Board of Directors of the Company, without the participation of Messrs.
Gray and Wolters on any compensation matter directly related to them
individually.
EXECUTIVE COMPENSATION POLICY
The Company's policy is to compensate its executives fairly and adequately
for the responsibility assumed by them for the success and direction of the
Company, the effort expended in discharging that responsibility and the
results achieved directly or indirectly from each executive's performance.
"Fair and adequate compensation" is established after careful review of:
1. The Company's earnings;
2. The Company's performance as compared to other companies of similar
size and market area; and
3. Comparison of what the market demands for compensation of similarly
situated and experienced executives.
Total compensation takes into consideration a mix of base salary, bonus,
perquisites and stock options. The particular mix is established in order
to competitively attract competent professionals, retain those
professionals, and reward extraordinary achievement.
The Board of Directors also considers net income for the year and earnings
per share of the Company before finalizing officer increases for the coming
year.
Based upon its current levels of compensation, the Company is not affected
by the provisions of the Internal Revenue Code which limits the
deductibility to a company of compensation in excess of $1 million paid to
any of its top five executives. Thus, the Company has no policy as to that
subject.
16
BASE SALARY
The Board of Directors bears the responsibility for establishing base
salary.
Salary is minimum compensation for any particular position and is not tied
to any performance formula or standard. However, that is not to say that
poor performance will not result in termination. Acceptable performance is
expected of all executive officers as a minimum standard.
To establish salary, the following criteria are used:
1. Position description.
2. Direct responsibility assumed.
3. Comparative studies of peer group compensation. Special weight is
given to local factors as opposed to national averages.
4. Earnings performance of the Company resulting in availability of
funds for payment of salary expense.
5. Competitive level of salary to be maintained to attract and retain
qualified and experienced executives.
ANNUAL BONUSES
Each year the Board establishes the parameters for the award of a bonus and
the size of the pool of available bonus money. The current parameters are
related to the Company's net income after taxes.
STOCK OPTIONS
Stock option awards are determined by the Board's Stock Option Committee.
The Stock Option Committee meets to evaluate meritorious performance of all
officers and employees for consideration to receive stock options.
The Stock Option Committee makes awards based upon the following criteria:
1. Position of the officer or employee in the Company.
2. The benefit which the Company has derived as a result of the
efforts of the award candidate under consideration.
3. The Company's desire to encourage long-term employment of the award
candidate.
17
PERQUISITES
Perks, such as company automobiles and their related expenses, country club
memberships, auxiliary insurance benefits and other perks which the Board
may approve from time to time are determined and awarded pursuant to
evaluation under the same criteria used to establish base salary.
The Company has long believed that a strong, explicit link should exist
between executive compensation and the value delivered to shareholders. The
bonus program and the stock option awards both provide competitive
compensation while mirroring the Company's performance. Since the bonus is
based on a direct, explicit link to the Company's performance, it is
directly and explicitly linked to the value received by shareholders. The
Company's profitability inures to the benefit of shareholders, and is a
direct result of the direction established by management.
MEMBERS OF THE BOARD OF DIRECTORS
Bruce A. Mahon James E. Quackenbush
Theodore H. Dolci, Jr. Steven L. Shapiro
Thomas L. Gray, Jr. Mark A. Wolters
Michael E. Golden Shelly M. Zeiger
Joseph J. Oakes, III
PERFORMANCE GRAPH
Set forth below is a graph and table comparing the yearly percentage change in
the cumulative total shareholder return on the Commpany's Common Stock
against (1) the cumulative total return on the NASDAQ Total U.S. Bank Index, and
(2) the cumulative total return on the SNL $250M-$500M Bank Index for the period
commencing September 8, 1994, the date on which the Company commenced trading on
the NASDAQ National Market, and ending December 31, 1997.
Cumulative total return on the Company's Common Stock, the NASDAQ Total U.S.
Index and the SNL $250M-$500M Bank Index equals the total increase in value
since September 8, 1994, assuming reinvestment of all dividends. The graph and
table were prepared assuming that $100.00 was invested on September 8, 1994, in
the Company's Common Stock, the NASDAQ Total U.S. Index and the SNL $250M-$500M
Bank Index.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
PERIOD ENDING
---------------------------------------------------
INDEX 9/8/94 12/31/94 12/31/95 12/31/96 12/31/97
- -------------------------------------------------------------------------------
Carnegie Bancorp 100.00 78.04 125.76 154.45 305.61
NASDAQ - Total US 100.00 98.13 138.79 170.70 209.47
SNL $250M-$500M Bank Index 100.00 97.22 131.20 170.36 294.65
The NASDAQ Total US Index consists of all NASDAQ National Market and SmallCap
Stocks. The SNL $250M-$500M Bank Index consists of all publicly traded banks
with assets between $250M and $500M
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to the
registrant's Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARNEGIE BANCORP
By: /s/ THOMAS L. GRAY, JR.
-----------------------
Thomas L. Gray, Jr.,
President and Chief
Executive Officer
May 7, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ THEODORE H. DOLCI, JR.
- ----------------------------- May 7, 1998
Theodore H. Dolci, Jr.
/s/ MICHAEL E. GOLDEN
- ----------------------------- May 7, 1998
Michael E. Golden
/s/ THOMAS L. GRAY, JR.
- ----------------------------- May 7, 1998
Thomas L. Gray, Jr.
(Principal Executive Officer)
/s/ BRUCE A. MAHON
- ----------------------------- May 7, 1998
Bruce A. Mahon
/s/ JOSEPH J. OAKES, III
- ----------------------------- May 7, 1998
Joseph J. Oakes, III
/s/ JAMES E. QUACKENBUSH
- ----------------------------- May 7, 1998
James E. Quackenbush
/s/ STEVEN L. SHAPIRO
- ----------------------------- May 7, 1998
Steven L. Shapiro
/s/ MARK A. WOLTERS
- ----------------------------- May 7, 1998
Mark A. Wolters
/s/ SHELLEY M. ZEIGER
- ----------------------------- May 7, 1998
Shelley M. Zeiger
/s/ RICHARD ROSA
- ----------------------------- May 7, 1998
Richard Rosa
(Principal Financial Officer
and Principal Accounting Officer)