SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NORTHEAST BANCORP
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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(1) Amount previously paid:
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NORTHEAST BANCORP
232 Center Street
Auburn, Maine 04210
October 5, 2001
Dear Shareholder:
On behalf of the Board of Directors, we cordially invite you to attend the
Annual Meeting of Shareholders of Northeast Bancorp (the "Company") which will
be held at the Martindale Country Club located at 527 Beech Hill Road, Auburn,
Maine on Tuesday, November 13, 2001, at 6:00 p.m., local time.
At the Annual Meeting, shareholders will be asked (i) to elect twelve
directors as members of the Board of Directors of the Company, (ii) to
consider and approve the adoption of the Company's 2001 Stock Option Plan (the
"2001 Stock Plan"), (iii) to ratify the appointment of Baker Newman & Noyes,
Limited Liability Company, as the Company's independent auditors for fiscal
year 2002, and (iv) to transact such other business as may properly come
before the Annual Meeting or any adjournment thereof. On the following pages
you will find the Notice of the Annual Meeting of Shareholders and the Proxy
Statement giving information concerning matters to be acted upon at the
meeting. Of course, we will be present at the Annual Meeting to answer any
questions you might have.
I sincerely hope you will be able to attend the Annual Meeting. HOWEVER,
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE ANNUAL MEETING, IT IS VERY IMPORTANT
THAT YOUR SHARES BE REPRESENTED. Accordingly, please sign, date, and return
the enclosed proxy card which will indicate your vote upon the various matters
to be considered. If you do attend the meeting and desire to vote in person,
you may do so by withdrawing your proxy at that time.
We thank you for your continued support and look forward to seeing you at
the Annual Meeting.
Very truly yours,
/s/ James D. Delamater
James D. Delamater
President and Chief Executive
Officer
NORTHEAST BANCORP
232 Center Street
Auburn, Maine 04210
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on November 13, 2001
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To the Shareholders of Northeast Bancorp:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of the Shareholders of
Northeast Bancorp, a Maine corporation (the "Company"), will be held at the
Martindale Country Club located at 527 Beech Hill Road, Auburn, Maine on
Tuesday, November 13, 2001, at 6:00 p.m., local time, for the following
purposes:
1. To elect twelve directors to serve on the Board of
Directors of the Company;
2. Approval and adoption of the Northeast Bancorp 2001 Stock
Option Plan in the form attached as Appendix B to this
Proxy Statement;
3. To ratify the appointment of Baker Newman & Noyes, Limited
Liability Company, as the Company's independent auditors
for the fiscal year ending June 30, 2002; and
4. To transact such other business as may properly come before
the meeting or adjournment thereof.
Only shareholders of record at the close of business on September 24, 2001
are entitled to receive notice of, and to vote at, the Annual Meeting or any
adjournments thereof. Please sign and date the accompanying proxy card and
return it promptly to the enclosed postage-paid envelope whether or not you
plan to attend the Annual Meeting in person. If you attend the Annual Meeting,
you may withdraw your proxy and vote in person on each matter brought before
the Annual Meeting. The proxy may be revoked at any time prior to its
exercise.
By Order of the Board of Directors
and the President
/s/ Suzanne M. Carney
Suzanne M. Carney
Clerk
Auburn, Maine
October 5, 2001
NORTHEAST BANCORP
232 Center Street
Auburn, Maine 04210
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 13, 2001
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INTRODUCTION
This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of Northeast Bancorp, a Maine corporation (the
"Company"), of proxies to be voted at the Annual Meeting of Shareholders to be
held on Tuesday, November 13, 2001, at 6:00 p.m. local time (the "Annual
Meeting"), and at any adjournment thereof. The Annual Meeting will be held at
the Martindale Country Club located at 527 Beech Hill Road, Auburn, Maine.
At the Annual Meeting, shareholders will be asked to consider and vote on
the election of twelve nominees to serve as directors of the Company, to
approve and adopt the Company's 2001 Stock Option Plan (the "2001 Stock
Plan"), to ratify the appointment of Baker Newman & Noyes, Limited Liability
Company, as the Company's auditors for fiscal year ending June 30, 2002, and
such other business as may properly come before the meeting.
This Proxy Statement and the enclosed form of proxy are first being sent to
shareholders, together with the Notice of Annual Meeting, on or about October
5, 2001.
A copy of the Company's Annual Report to Shareholders on Form 10-K for the
fiscal year ended June 30, 2001 (the "2001 Annual Report"), including
financial statements, accompanies this Proxy Statement, but is not part of the
proxy solicitation materials.
Shareholders are urged to complete, date, and sign the accompanying form of
proxy and return it promptly in the envelope provided with these materials. No
postage is necessary if the proxy is mailed in the United States in the
accompanying envelope.
PROXIES AND VOTING AT THE MEETING
Record Date and Voting Rights
The Board of Directors has fixed the close of business on September 24, 2001
as the record date (the "Record Date") for the determination of the
shareholders of record entitled to receive notice of, and to vote at, the
Annual Meeting or any adjournment thereof. As of the Record Date, the Company
had issued 2,786,095 shares of common stock, $1.00 par value per share
("Common Stock"), of which 2,579,188 shares were outstanding and 206,907
shares were held as treasury stock. The Common Stock is the only class of
voting securities outstanding entitled to vote at the Annual Meeting. Each
share of Common Stock outstanding on the Record Date entitles the record
holder to cast one vote with respect to each matter to be voted upon at the
Annual Meeting. The presence of a majority of the Company's outstanding Common
Stock as of the Record Date, in person or represented by proxy, will
constitute a quorum at the Annual Meeting.
With respect to the election of directors, directors are elected by a
plurality of the votes cast at a meeting in which a quorum is present. In
connection with the election of directors, votes may be cast in favor of or
withheld
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from each nominee. Votes withheld from director nominees will be counted in
determining whether a quorum has been reached. However, since directors are
elected by a plurality, a vote against a director nominee and votes withheld
from a nominee or nominees generally will not affect the outcome of the
election.
Approval of other matters submitted to shareholders at a meeting where a
quorum is present requires a majority of the votes which are cast at the
meeting by holders of shares entitled to vote on the subject matter, unless
the Company's articles of incorporation or bylaws or state law requires a
greater number of votes.
In the event of any abstentions or broker non-votes with respect to any
proposal coming before the Annual Meeting, the proxy will be counted as
present for purposes of determining the existence of a quorum; but since they
are neither a vote cast in favor of, nor a vote cast opposing, a proposed
action, abstentions and broker non-votes typically will not be counted as a
vote cast on any routine matter. A broker non-vote generally occurs when a
broker who holds shares in street name for a customer does not have authority
to vote on certain non-routine matters because its customer has not provided
any voting instructions on the matter. Therefore, abstentions and broker non-
votes generally have no effect under Maine law with respect to the election of
directors or other matters requiring the approval of only those casting a vote
at the meeting.
Voting and Revocation of Proxies
All properly executed proxies received prior to or at the Annual Meeting
will be voted in accordance with the instructions indicated on such proxies,
if any. If no instructions are indicated with respect to any shares for which
properly executed proxies have been received, such proxies will be voted FOR
the election of the Board of Directors' nominees for directors, FOR approval
and adoption of the 2001 Stock Plan, and FOR the ratification of Baker Newman
& Noyes, Limited Liability Company, as its auditors. The Company is not aware
of any matter to be presented at the Annual Meeting other than those matters
described in the Notice of Annual Meeting. If, however, any other matters are
properly brought before the Annual Meeting for consideration, the persons
appointed as proxies will have the discretion to vote or act thereon according
to their best judgment.
Any shareholder giving a proxy may revoke it at any time before it is
exercised by duly executing and submitting a later-dated proxy, by delivering
written notice of revocation to the Company which is received at or before the
Annual Meeting, or by voting in person at the Annual Meeting (although
attendance at the Annual Meeting will not, in and of itself, constitute a
revocation of the proxy). Any written notice revoking a proxy should be sent
to the Clerk of the Company at the Company's principal executive offices,
located at the address set forth above.
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PROPOSAL I
ELECTION OF DIRECTORS
In accordance with the Company's Articles of Incorporation, the Board of
Directors has fixed the number of directors to be elected at the Annual
Meeting at twelve. All of the Company's current directors are standing for
election as directors of the Company to hold office until the 2002 Annual
Meeting of Shareholders and until their successors have been duly elected and
qualified.
It is intended that the proxies received from shareholders, unless contrary
instructions are given therein, will be voted FOR the election of the nominees
named below, each of whom has consented to being named herein and has
indicated his or her intention to serve if elected. If any nominee for any
reason should become unavailable for election or if a vacancy should occur
before the election, it is intended that the shares represented by the proxies
will be voted for such other person as the Company's Board of Directors shall
designate to replace such nominee. The Board of Directors has no reason to
believe that any of the nominees will not be available or prove unable to
serve if so elected.
Nominees for Director
The age of each nominee, their positions and offices with the Company and
its wholly-owned subsidiary, Northeast Bank, F.S.B. (the "Bank"), their term
of office as a director, their business experience during the past five years
or more, and additional biographical data is set forth below. Information with
respect to the nominees is as of August 15, 2001, except as otherwise stated.
Director
Name of Nominee Age Position with Company Since
--------------- --- --------------------- --------
John W. Trinward,
D.M.D.................. 76 Chairman of the Board 1987
President, Chief Executive Officer, and
James D. Delamater...... 50 Director 1987
John B. Bouchard........ 65 Director 1996
A. William Cannan....... 59 Executive Vice President, Chief Operating 1996
Officer and Director
Ronald J. Goguen........ 56 Director 1990
Philip C. Jackson....... 57 Senior Vice President of Bank--Trust 1987
Operations and Director
Judith W. Kelley........ 45 Director 1994
Ronald C. Kendall....... 69 Director 1987
John Rosmarin........... 53 Director 1997
John Schiavi............ 61 Director 1998
Stephen W. Wight........ 57 Director 1987
Dennis A. Wilson........ 66 Director 1989
All directors of the Company hold office until the earlier of the next
annual meeting of shareholders and until their successors have been duly
elected and qualified, or their death, resignation, or removal.
John W. Trinward, D.M.D., has been Chairman of the Board of Directors of the
Company and a director of the Bank since 1987. Dr. Trinward is a retired
dentist.
James D. Delamater has been President, Chief Executive Officer, and a
director of the Company and the Bank since 1987.
John B. Bouchard has served as a director of the Company and the Bank since
1996. Mr. Bouchard is the owner of John B. Bouchard Builder, a construction
contractor.
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A. William Cannan has been Executive Vice President and Chief Operating
Officer of the Company and the Bank since 1993, and a director of the Company
and the Bank since 1996. From 1991 to 1993 Mr. Cannan served as President of
Casco Northern Bank, N.A., located in Portland, Maine.
Ronald J. Goguen has been a director of the Company and the Bank since 1990.
He is a director and Co-Chairman of the board of Major Drilling Group
International Inc., a Canadian corporation that provides contract drilling
services primarily to companies in the mineral and metals industries ("Major
Drilling"). Major Drilling common shares are traded on the Toronto Stock
Exchange.
Philip C. Jackson has been a director of the Company and the Bank since
1987. Mr. Jackson also has served as the Senior Vice President of the Bank's
Trust Operations since 1997. From 1991 to 1994, Mr. Jackson served as
President of Bethel Savings, the predecessor to the Bank.
Judith W. Kelley has been a director of the Company and the Bank since 1994.
Ms. Kelley is the President of Consumers Maine Water Company, a water utility
serving various communities in Maine.
Ronald C. Kendall has been a director of the Company and the Bank since
1987. He is the current Chairman of the Board of Directors of the Bank and has
served as a vice president of Northeast Financial Services Corporation, a
wholly-owned subsidiary of the Bank, since 1997. Mr. Kendall also is the
President and sole owner of Kendall Insurance, Inc.
John Rosmarin has been a director of the Company and the Bank since 1997.
Mr. Rosmarin has been the President and Chief Executive Officer of Saunders
Manufacturing Company, Inc., an office products manufacturer and distributor,
since 1982.
John Schiavi has been a director of the Company and the Bank since 1997. Mr.
Schiavi has been the President and sole owner of Schiavi Enterprises, a real
estate development firm, since 1962. He also serves on the boards of directors
of both Major Drilling and Roycefield Resources.
Stephen W. Wight has been a director of the Company and the Bank since 1987.
Mr. Wight is the Manager of Sunday River Inn, LLC, a resort hotel operator,
and the Manager of Wight Enterprises LLC, a property management company.
Dennis A. Wilson has been a director of the Company and the Bank since 1989.
Mr. Wilson is the President and sole owner of D.A. Wilson & Co., a trucking
company.
Each of the Company's directors serve the Bank in the same capacities
indicated above, except that Mr. Kendall serves as the Chairman of the Board
of the Bank.
There is no family relationship between any of the Company's directors,
nominees to serve as director, or executive officers. There are no
arrangements between any director or director nominee of the Company and any
other person pursuant to which he or she was, or will be, selected as a
director.
Director Meetings and Committees
During the fiscal year ended June 30, 2001 (the "2001 fiscal year"), the
Board of Directors of the Company held a total of 13 meetings. In addition,
certain directors attended meetings of standing committees. Except for John
Schiavi and Ronald Goguen, all incumbent directors attended at least 75% of
the total number of meetings of the Board of Directors and the respective
committees on which they serve.
The Board of Directors of the Company maintains three standing committees:
an Audit Committee, a Personnel and Compensation Committee, and an Executive
Committee. Members of these committees are elected annually at the Board of
Directors' meeting following the annual meeting of shareholders.
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The Audit Committee, comprised of Messrs. Bouchard, Goguen, Schiavi, and
Rosmarin, and Ms. Kelley, held 4 meetings during the 2001 fiscal year. The
Audit Committee is responsible for ensuring that an adequate audit program and
controls exist and its duties include: (i) recommending to the Board of
Directors the engagement or discharge of the independent public accountants,
(ii) meeting with the independent public accountants to review the plans and
results of the audit engagement, to review all reports of independent auditors
and bank regulatory examinations, and to respond to such reports, (iii)
approving the services to be performed by the independent public accountants
and giving consideration to the range of the audit and non-audit fees, (iv)
ensuring the integrity of the Company's internal loan review system, and (v)
conducting an annual review of the adequacy of the Company's system of
internal accounting and its audit program, including a review of the
activities of the subsidiary Bank's examining committees, maintaining direct
reporting responsibility and regular communication with the Company's internal
audit staff, and reviewing the scope and results of the internal audit
procedures of the Company and its subsidiary. Additional information regarding
the functions performed by the Audit Committee and its membership is set forth
in the "Report of Audit Committee," included below. The Audit Committee is
governed by the Company's audit committee charter included as Appendix A to
this proxy statement.
The Personnel and Compensation Committee of the Board of Directors, which
also serves as the nominating committee and compensation committee, makes
recommendations to the Board of Directors with respect to the Company's
compensation policies and the compensation of executive officers. In addition,
the Personnel and Compensation Committee is responsible for selecting and
recommending to the Board of Directors nominees for election as directors.
Shareholders also may nominate persons for election as directors at an annual
shareholders' meeting if such nominations are made in accordance with the
procedures set forth in the Company's Articles of Incorporation. The Articles
of Incorporation require, among other things, that written notice of such
nominees must be given to the Company not less than 30 nor more than 60 days
prior to such meeting (with certain exceptions). For a description of the full
procedure governing such nominations, reference is made to the Articles of
Incorporation, a copy of which is available from the Clerk of the Company. The
Personnel and Compensation Committee which is comprised of Messrs. Bouchard,
Goguen, Wight, and Wilson, met 4 times during the 2001 fiscal year.
The Executive Committee of the Board of Directors is empowered to act on
behalf of, and to exercise all the powers of, the full Board of Directors in
the management of the business and affairs of the Company when the Board of
Directors is not in session, except to the extent limited by the Company's
Articles of Incorporation or Bylaws, or by Maine law. The Executive Committee,
which is comprised of Dr. Trinward and Messrs. Bouchard, Cannan, Delamater,
and Kendall, did not meet during the 2001 fiscal year.
Audit Committee Report
The audited financial statements of the Company at and for the three year
period ended on June 30, 2001, are included in the 2001 Annual Report. The
Audit Committee oversees the Company's financial reporting process, public
financial reports, internal accounting and financial controls, and the
independent audit of the annual consolidated financial statements. The Board
of Directors, in its business judgment, has determined that the membership of
the Audit Committee satisfies the independence requirements of the American
Stock Exchange and the Company's Audit Committee Charter. None of the members
of the Audit Committee are professionally engaged in the practice of
accounting or auditing and are not experts in either of these fields or in
auditor independence.
The Company, acting through its management and Board of Directors, has the
primary responsibility for the financial statements and reporting process,
including the systems of internal accounting controls. Management is
responsible for the preparation, presentation, and integrity of the Company's
financial statements, the financial reporting process, and internal controls.
Baker Newman & Noyes, Limited Liability Company ("BNN"), independent auditors
engaged by the Company, are responsible for auditing the Company's annual
financial statements in accordance with auditing standards generally accepted
in the United States of America and
5
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles in the United States.
In performing its oversight function, the Audit Committee has reviewed the
audited financial statements with the Company's management, including a
discussion of the quality, not just the acceptability, of the accounting
principles used, the reasonableness of significant judgments, and the clarity
of disclosures in the financial statements. The Audit Committee also has
reviewed with BNN their judgments as to the quality and acceptability of the
Company's accounting principles. Management and BNN have advised the Audit
Committee that the Company's consolidated financial statements were fairly
stated in accordance with accounting principles generally accepted in the
United States. The Audit Committee discussed with BNN matters covered by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Audit Committee also discussed with BNN their independence from the
Company and management, including those matters in Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees) and the
letter and disclosures from BNN to the Audit Committee pursuant to Standard
No. 1. The Audit Committee considered whether the non-audit services provided
by BNN to the Company are compatible with maintaining the auditor's
independence.
In addition, the Audit Committee discussed with its internal auditors and
BNN the overall scope and plans for their respective audits. The Audit
Committee met with the internal auditors and BNN, with and without management
present, to discuss the results of their examinations, their evaluations of
the Company's internal controls, and the overall quality of the Company's
financial reporting.
Based on the reviews and the discussions referred to above, in reliance on
management and BNN, and subject to the limitations of the role of the Audit
Committee, the Audit Committee recommended to the Board of Directors, and the
Board of Directors has approved, the inclusion of the audited financial
statements in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2001, for filing with the Securities and Exchange Commission.
The Audit Committee also has recommended to the Board of Directors, and the
Board of Directors has appointed, BNN to audit the Company's financial
statements for 2002 fiscal year, subject to shareholder ratification of that
appointment.
SUBMITTED BY THE FISCAL 2001 AUDIT COMMITTEE
John Rosmarin, Chairman Judith W. Kelley
Ronald J. Goguen John Schiavi
John B. Bouchard
Compensation of Directors
Directors of the Company also are directors of the Bank. Each director
receives a combined annual retainer from the Company and the Bank in the
amount of $1,000. In addition, each director receives $700 for each meeting of
the Board of Directors of the Company or the Bank that they attend, and an
additional $200 for each committee meeting that they attend (only if such
committee meeting is held on a day other than one on which a Board of
Directors' meeting is held). Directors receive only one meeting fee when
meetings of the Board of Directors of the Company and the Bank are held on the
same day. The Chairman of the Board of the Company and the Bank each receives
an additional annual retainer of $1,000 for services rendered in such
capacity.
The Board of Directors recommends a vote FOR
the election of all 12 nominees.
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6
PROPOSAL II
APPROVAL OF THE 2001 STOCK OPTION PLAN
On September 21, 2001, the Board of Directors adopted the 2001 Stock Plan
subject to approval of the shareholders of the Company, and at the Annual
Meeting, shareholders will be asked to consider and vote on the approval and
adoption of the 2001 Stock Plan. The Board of Directors believes that granting
stock options will assist the Company in its efforts to recruit, attract and
retain highly qualified persons to serve as officers, employees, consultants,
and directors. Approximately 93% of the Common Stock authorized under the
Company's existing stock option plans have been granted. The 2001 Stock Plan
will increase the number of shares of Common Stock available for the grant of
future equity awards and will provide additional flexibility in structuring
the type of equity awards which can be made by the Company.
The 2001 Stock Plan, which is essentially the same as the Company's 1999
Stock Option Plan, permits the grant of both incentive and nonqualified stock
options to officers, employees, and directors of the Company and its
subsidiaries. Non-employee directors of the Company are eligible to receive
nonqualified stock options. The 2001 Stock Plan is designed to motivate
officers, employees, and directors of the Company to continue their efforts to
improve the success and growth of the Company and to encourage them to remain
with the Company. Accordingly, the Board recommends that the shareholders vote
FOR approval of the 2001 Stock Plan, and the proxies will be so voted unless a
shareholder specifies otherwise. Approval and adoption of the 2001 Stock Plan,
will require a majority of the votes cast at the Annual Meeting assuming a
quorum is present.
The following summary description of the 2001 Stock Plan is qualified in its
entirety by reference to the text of the 2001 Stock Plan which is set forth as
Appendix B to this Proxy Statement and is incorporated herein by reference.
The 2001 Stock Plan
Purpose. The purpose of the 2001 Stock Plan is to strengthen the ability of
the Company to recruit, attract, and retain the services of experienced and
knowledgeable directors, officers and employees of the Company for the benefit
of the Company and its shareholders and to provide performance incentives for
the directors, officers, and employees to work for the best interests of the
Company and its shareholders through continuing ownership of its Common Stock.
Shares Available for Awards. Subject to adjustments upon certain changes in
the Company's capitalization as set forth in Section 4.4 of the 2001 Stock
Plan, an aggregate of up to 150,000 shares of Common Stock may be issued under
the 2001 Stock Plan. The Common Stock to be issued upon exercise of awards
under the plan may include authorized but unissued shares and shares
previously reserved for issuance upon exercise of options which have expired
or terminated. Shares subject to an award that cease to be exercisable or
which are forfeited for any reason are available for subsequent award grants.
Administration of the Plan. The 2001 Stock Plan shall be administered
initially by a committee of the Board of Directors comprised of at least three
directors of the Company (the "Committee"). The Committee has the power and
authority, subject to the express provisions of the 2001 Stock Plan, to (a)
select the officers, employees, and directors who will receive awards under
the plan, (b) grant awards, (c) determine the type of award to be made
(incentive stock option, nonqualified options, or a combination thereof), (d)
set the exercise price of the options, (e) determine the number of shares
subject to each such award, and (f) to establish the other terms and
conditions of such awards. For awards made to directors, the entire Board of
Directors must approve the grant.
The Committee also shall have the power to construe the 2001 Stock Plan, to
determine all questions as to eligibility, and to adopt and amend such rules
and regulations for the administration of the 2001 Stock Plan. The terms of
each award to be granted under the 2001 Stock Plan shall be as determined from
time to time by the Committee and shall be set forth in an award agreement in
a form approved by the Committee or the Board of Directors.
7
Eligibility. Officers, employees and directors of the Company and its
subsidiaries who are designated as participants by the Committee will be
eligible to receive awards under the 2001 Stock Plan, but only employees will
be entitled to receive Incentive Stock Options. The total number of officers,
employees, and directors who could receive awards under the 2001 Stock Plan is
not presently determinable. Such determination shall be made by the Committee
after the 2001 Stock Plan becomes effective.
Types of Awards. The Committee will have broad discretion under the 2001
Stock Plan to establish stock-based incentive awards designed to attract and
retain key personnel and directors, and to motivate them to maximize
shareholder value by more closely aligning their interests with those of the
shareholders. The awards may be in the form of incentive stock options and
nonqualified stock options. The Committee has the authority to select the
employees and directors who will receive awards and to determine the amounts
and types of awards, and the terms, conditions, and restrictions applicable to
the awards. The specific terms of each award will be set forth in a Stock
Option Agreement with the participant.
Neither the dollar value nor the benefits nor total amounts that will be
received by or allocated to the Named Executive Officers named in the Summary
Compensation Table below, to all employees--including all current officers who
are not executive officers--as a group, and to all non-employee directors as a
group is presently determinable. It also is not possible to determine the
dollar value, the benefits, or the amounts that would have been received by or
allocated to the Named Executive Officers or the groups identified in the
preceding sentence if the 2001 Stock Plan had been in effect in 2001 fiscal
year.
Exercise and Purchase Prices. Incentive stock options granted under the 2001
Stock Plan will be required to have an exercise price per share equal to at
least the fair market value of the Common Stock on the date the option is
granted. Nonqualified stock options may have an exercise price not less than
85% of the fair market value of the Common Stock on the date of grant, but in
no event shall the price be less than the par value of the shares. If an
incentive stock option is awarded to a person who at the time of the award
owns more than 10% of the combined voting power of all classes of the
Company's stock, the price per share of the option shall be equal to at least
110% of the fair market value of the Common Stock on the date the option is
granted. Fair market value for purposes of the 2001 Stock Plan is the closing
sales price of the Common Stock as quoted on the American Stock Exchange or
the National Association of Securities Dealers Automated Quotation System
National Market, or any other national securities exchange on which the Common
Stock is listed on the date of grant. The closing price of the Common Stock on
September 21, 2001 was $12.25.
Payment of the Exercise Price. Payment of the exercise price ("Exercise
Price") for vested stock options issued under the 2001 Stock Plan, together
with the amount of any tax or excise due in respect of the sale of the Common
Stock subject to a stock option, must be made in full upon exercise of an
option in whole or in part (i) in cash or by check, (ii) by delivery of, or
withholding from the Stock Option, Common Stock, (iii) any combination of cash
and Common Stock as the Committee may determine, or (iv) any other
consideration permitted under applicable laws which is approved by the
Committee. The Company will not issue a certificate for Common Stock until
full payment for such shares has been made and until all legal requirements
applicable to the issuance and transfer of such shares have been satisfied. An
option holder has none of the rights of a shareholder until shares are issued
to him or her.
Award Term. Stock options granted under the 2001 Stock Plan generally will
vest as set forth in the Stock Option Agreement as may be determined by the
Committee at the time of grant. To the extent that no vesting conditions are
stated in the Stock Option Agreement, the stock options represented thereby
shall be fully vested at the time of grant. Incentive Stock Options will
terminate at the earliest of: (a) ten years after the date of grant, (b) three
months after termination of employment due to reasons other than death, or
disability, or (c) one year after termination of employment due to death or
disability. The Committee, in its sole discretion, may require termination at
such earlier or later date as it may determine. To the extent that the
Committee should permit the exercise of an option at a later date than set
forth above, such option will be disqualified as an incentive stock option if
exercised after the time periods indicated above.
8
Transfer Restrictions. An option is exercisable only by the option holder
during his or her lifetime, and no option or right or interest in an option is
assignable or transferable by the holder except by will or the laws of descent
and distribution.
Change in Common Stock. If the Company is a party to any merger or
consolidation, purchase, or acquisition of property or stock, or any
separation, reorganization or liquidation, the Committee has the power to make
arrangements for the substitution of new options for, or the assumption by
another corporation of, any unexpired options. If the Committee causes the
Company to assume stock options of another party by substituting Stock Options
under the 2001 Stock Plan for such options, or by merely assuming the
obligations of such other party's stock options, the aggregate number of
shares available for issuance under the 2001 Stock Plan shall be increased to
reflect such assumption or substitution.
If by reason of a merger, consolidation, reorganization, recapitalization,
reclassification, stock split, combination of shares, or dividend payable in
Common Stock, the outstanding shares of Common Stock are increased or
decreased or changed into or been exchanged for a different number or kind of
shares or other securities of the Company, the Committee will conclusively
determine the appropriate adjustment in aggregate maximum number of shares of
Common Stock available for issuance under the 2001 Stock Plan, the aggregate
maximum number of shares of Common Stock which may be awarded to non-employee
directors under the 2001 Stock Plan, the exercise price of outstanding
options, and the number and kind of shares as to which outstanding options
will be exercisable.
In the event of any of the foregoing transactions, the total number of
shares of Common Stock for which options may be granted will be appropriately
adjusted by the Committee.
Change in Control. Upon the occurrence of a "change of control", as defined
by the 2001 Stock Plan, all outstanding Stock Options shall become fully
vested and exercisable, and all conditions or restrictions relating to an
award issued under the 2001 Stock Plan shall be accelerated or released.
Indemnity. Neither the Board of Directors nor the Committee shall be liable
for any act, omission, interpretation, construction, or determination made in
good faith in connection with their responsibilities under the 2001 Plan. The
Company has agreed to indemnify the Board of Directors and members of the
Committee, in respect of any claim, loss, damage, or expense (including
counsel fees) arising from any such act, omission, interpretation,
construction, or determination to the fullest extent permitted by law.
Amendment, Modification, or Termination of the 2001 Stock Plan. The
Committee may at any time amend, modify, suspend, or terminate the 2001 Stock
Plan (as provided by Article VIII thereof). Except in connection with certain
capital adjustments described under "Change in Common Stock" above (Section
4.4 of the 2001 Stock Plan), the Committee may not amend the 2001 Stock Plan
to increase the number of shares subject to the Plan without shareholder
approval. No amendment, modification, suspension, or termination of the 2001
Stock Plan, except as described herein, may affect the rights of an option
holder without his or her consent.
Term of the 2001 Stock Plan. Unless sooner terminated under Article VIII of
the 2001 Stock Plan, it will terminate on the tenth anniversary from the date
of its adoption by the Board of Directors, and no options may be granted under
the 2001 Stock Plan after such date. Termination will not affect the validity
of options granted prior to the date of termination.
Federal Tax Consequences
The federal income tax consequences to a participant and the Company will
vary depending on the type of award granted under the 2001 Stock Plan.
Generally there are no federal income tax consequences to the recipient or the
Company upon the grant or exercise of "incentive stock options" qualifying
under Section 422A of the Internal Revenue Code (the "Code"). Incentive stock
options may be granted only to employees of the Company and its subsidiaries.
The market value of the shares covered by the incentive stock options
(determined as of the
9
date of grant) first exercisable under incentive stock options is limited to
$100,000 per calendar year. If the participant holds the shares purchased
through the exercise of an incentive stock option for more than one year after
the exercise date and two years after the option was granted (the "holding
period"), any gain realized at the time of sale of such shares will constitute
long-term capital gain to the participant. The Company will not receive an
income tax deduction in the event the participant disposes of the shares after
completion of the holding period. If, however, the participant sells the
shares before the expiration of the holding period, the participant will
recognize ordinary income on the date of sale equal to the difference between
the exercise price and the fair market value of the Common Stock on the
exercise date. The balance of the participant's gain, if any, will be subject
to capital gains treatment. The Company will receive an income tax deduction
in the same amount and at the same time as the participant recognizes ordinary
income.
Under existing law and regulations, the grant of a nonqualified stock option
which may be granted to employees and non-employee directors, will not result
in taxable income to the participant or provide deductions to the Company.
However, the exercise of nonqualified stock options results in taxable income
to the holder, and the Company generally is entitled to a corresponding
deduction. A participant will be deemed to have received taxable income at
ordinary income tax rates upon exercise of a nonqualified stock option in an
amount equal to the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise. The amount of such taxable
income will be a tax deductible expense to the Company. Upon the subsequent
sale of such shares by the participant, depending on the holding period after
exercise of the option, appreciation or depreciation in the value of the
shares after the exercise date may be treated as a capital gain or a loss.
The foregoing discussion is not a complete description of the federal income
tax consequences of an award under the 2001 Stock Plan and is qualified in its
entirety by reference to the Code and the rules promulgated thereunder. This
discussion is intended for the information of shareholders considering how to
vote with respect to this Proposal II and not as tax guidance to participants
in the 2001 Stock Plan. Different tax rules may apply to specific participants
and transactions under the 2001 Stock Plan.
Section 16 of the Exchange Act
It is intended that the grant and exercise of nonqualified stock options
under the 2001 Stock Plan will be exempt under Section 16(b) of the Securities
Exchange Act of 1934 (the "Exchange Act"). Section 16(b) generally provides,
among other things, that an executive officer, director, or 10% or greater
shareholder who purchases and sells the stock of a corporation of which he or
she is such an executive officer, director or 10% or greater shareholder
within a six (6) month period is liable to the corporation for the difference
between the purchase price and the sales price. Rule 16b-3 under the Exchange
Act provides that the acquisition of a stock option, or its subsequent
exercise, by such person which grant has been approved by either the
shareholders or the full board of directors of the corporation is not subject
to Section 16(b).
Reason for Shareholder Approval
Shareholder approval of the 2001 Stock Plan is required by the American
Stock Exchange and the Code, and to satisfy the requirements of Rule 16b-3
described above. The American Stock Exchange requires companies whose shares
are quoted on the American Stock Exchange to obtain shareholder approval of
stock plans for directors, officers, and key employees. The Code requires
shareholder approval of the 2001 Stock Plan to permit options granted to
qualify as incentive stock options to the extent so designated. If the
requirements of Rule 16b-3 are satisfied, then neither the grant of an option
under the 2001 Stock Plan nor the transfer of shares to pay the Exercise Price
(subject to certain conditions) under the plan will trigger the provisions of
Section 16(b) of the Exchange Act regarding "short-swing" profits.
The Board of Directors recommends a vote FOR
the adoption of the 2001 Stock Plan.
----------------
10
PROPOSAL III
APPROVAL AND RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Baker Newman & Noyes,
Limited Liability Company, independent public accountants, to be the Company's
auditors for the fiscal year ending June 30, 2002 and recommends that
shareholders vote to ratify that appointment. Although submission of this
matter to shareholders is not required by law, in the event of a negative vote
the Board of Directors will reconsider its selection. Ratification of the
appointment will require approval by a majority of the votes cast at the
Annual Meeting, assuming a quorum is present.
Audit Fees
The aggregate fees paid to BNN for professional services rendered for the
audit of the Company's consolidated annual financial statements for the fiscal
year ended June 30, 2001, for the reviews of the financial statements included
in our quarterly reports on Form 10-Q for that fiscal year, and a trust audit
and 401(k) Plan audit are estimated to be $96,000.
All Other Fees
The aggregate fees billed by BNN for services rendered to the Company, other
than the services described above under "Audit Fees" for the fiscal year ended
June 30, 2001 were $24,000.
BNN has been the Company's independent auditing firm for many years, and the
Board of Directors believe that they are well qualified for the job. BNN is
expected to have a representative at the Annual Meeting who will be available
to respond to appropriate questions from shareholders attending the meeting.
The Board of Directors recommends a vote FOR this proposal.
----------------
11
COMPENSATION OF EXECUTIVE OFFICERS
Executive Compensation
The following summary compensation table sets forth the cash and non-cash
compensation paid to or accrued for the past three fiscal years for the
Company's Chief Executive Officer, and all other executive officers whose
total compensation exceeded $100,000 for the fiscal year ended June 30, 2001
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation
Compensation Awards(1)
---------------- ------------
Securities
Name and Principal Fiscal Underlying All Other
Occupation Year Salary Bonus Options(#) Compensation(2)
------------------ ------ -------- ------- ------------ ---------------
James D. Delamater....... 2001 $155,410 $10,000 3,000 $5,371
President and Chief 2000 149,432 0 8,500 5,545
Executive Officer 1999 149,432 0 1,500 8,754
A. William Cannan........ 2001 $142,202 $10,000 3,000 $6,503
Executive Vice 2000 136,733 0 7,000 6,188
President and Chief 1999 136,733 0 1,500 7,779
Operating Officer
--------
(1) The Company does not have a long-term compensation program that includes
long-term incentive payments. However, the Company's stock option plans
provide participants with performance-based compensation in the form of
incentive stock options. See "-- Stock Option Plans".
(2) These amounts include payments made in 2001, 2000, and 1999, respectively,
as follows: (i) term life insurance premiums of $883, $735, and $646 for
Mr. Delamater and $791, $658, and $592 for Mr. Cannan, (ii) profit sharing
contributions of $-0-, $-0-, and $4,695 for Mr. Delamater, and $-0-, $-0-,
and $4,248 for Mr. Cannan, (iii) matching 401(k) contributions of $2,905,
$3,276, and $3,413, for Mr. Delamater, and $4,263, $4,122, and $2,939, for
Mr. Cannan, and (iv) additional performance based compensation paid in the
2001 and 2000 fiscal years of $1,583 and $1,534 to Mr. Delamater and
$1,449 and $1,408 to Mr. Cannan.
12
Stock Option Grants
As of June 30, 2001, the Company did not have any long-term incentive plans
nor had it awarded any restricted shares. The table set forth below contains
information with respect to the award of stock options during the fiscal year
ended June 30, 2001 to the Named Executive Officers covered by the Summary
Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------------------------
% of Total Options
Number of Securities Granted to
Underlying Employees in Exercise Price Expiration Grant Date
Name Options Granted(1) 2001 Fiscal Year(2) or Base Price Date Present Value(3)
---- -------------------- ------------------- -------------- ---------- ----------------
James D. Delamater 3,000 7.40% $8.25 08/18/10 $8,586
A. William Cannan 3,000 7.40% $8.25 08/18/10 $8,586
--------
(1) These options were granted to employees under the Northeast Bancorp 1999
Stock Option Plan (the "1999 Stock Option Plan"). The material terms of
all options granted during the 2001 fiscal year are as follows: (i) all
options are incentive stock options, (ii) all have an exercise price equal
to the fair market value on the date of grant, (iii) all have a ten year
term and are fully exercisable, (iv) no options will be exercisable more
than three months following the termination of employment (except in the
case of disability, in which case such options will be exercisable for up
to one year thereafter), and (v) all options are otherwise subject to the
1999 Stock Option Plan.
(2) During the fiscal year ended June 30, 2001, employees of the Company were
granted an aggregate of 40,500 options under the Company's 1999 Stock
Option Plan. See "--Stock Option Plans" below for a description of these
plans.
(3) Hypothetical value using the Black-Scholes option pricing model based on
the following assumptions: (i) an expected stock price volatility of
0.2802, (ii) an expected dividend yield of 1.94%, (iii) a risk free rate
of return of 5.39%, (iv) an option term of 8 years, and (v) no discounts
for non-transferability or risk of forfeiture. This is a theoretical value
for the options developed solely for the purpose of comparison disclosures
as required by applicable SEC rules and regulations, and does not reflect
the Company's views of the appropriate value or methodology for financial
reporting purposes, or the future price of the Common Stock. The actual
value of the options will depend on the market value of the Common Stock
on the date the options are exercised.
(4) Granted on August 18, 2000.
Aggregated Options Exercised in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth, for each of the Named Executive Officers in
the Summary Compensation Table above who holds stock options, the number of
shares of Common Stock acquired pursuant to the exercise of stock options
during fiscal 2001, the number of the stock options held at June 30, 2001, and
the realizable gain of the stock options that are "in-the-money." The in-the-
money stock options are those with exercise prices that are below the year-end
stock price because the stock value grew since the date of the grant.
13
Aggregated Option/SAR Exercises In Last Fiscal Year
And Fiscal Year-end Options Values
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End(1)
Shares ------------------------- -------------------------
Acquired on Value Exercisable Unexercisable Exercisable Unexercisable
Name Exercised (#) Realized (#) (#) ($) ($)
---- ------------- -------- ----------- ------------- ----------- -------------
James D. Delamater 0 0 22,500 0 $ 94,330 $ 0
A. William Cannan 0 0 45,000 0 $217,893 $ 0
--------
(1) Based upon the closing price of the Common Stock as quoted by the American
Stock Exchange on June 30, 2001 of $12.90 per share.
(2) Value represents fair market value at exercise minus exercise price.
Employment Agreements
The Company has no employment agreements with any of the Named Executive
Officers.
401(k) Plan Employees Savings Plan
The Company maintains a tax-deferred profit sharing plan (the "401(k) Plan")
for its employees. All employees who are scheduled to work at least 1,000
hours per year and are at least 21 years of age may elect to participate in
the 401(k) Plan once he or she has completed ninety days of service. Under the
401(k) Plan, a participating employee is given an opportunity to make an
elective contribution under a salary deferral savings arrangement of up to a
maximum of 15% of the participant's pre-tax compensation up to a maximum of
$10,000 per year. Each such contribution is fully vested in the participant.
In addition, the Company may, in its sole discretion, make a separate matching
contribution on behalf of employees who elect to participate in the plan by
contributing a portion of their compensation to the plan. Messrs. Delamater
and Cannan participated in the 401(k) Plan at approximately 15% and 8% of
their salaries, respectively. For the year ended June 30, 2001, the Company
made 401(k) matching contributions on behalf of its employees in the amount of
approximately $117,046. No profit sharing contributions were paid under the
plan for the fiscal year ended June 30, 2001.
REPORT ON EXECUTIVE COMPENSATION
Overview
The Personnel and Compensation Committee of the Board of Directors (the
"Compensation Committee") is comprised entirely of outside directors, none of
whom is a current officer or employee of the Company or any of its
subsidiaries. The Compensation Committee is responsible for the establishment
of policies governing and for the implementation, administration, and
interpretation of all aspects of executive compensation, which includes base
salary, bonuses, and stock option grants. Executives also participate in
benefit programs that are generally available to employees of the Company,
including medical benefits and a 401(k) Plan and profit sharing plan. The
Compensation Committee also evaluates executive performance.
Objectives of the Executive Compensation Program
The objectives of the compensation program are to attract and retain a high
quality executive team and to encourage that team to achieve profitable growth
and thereby increase shareholder value. To meet these objectives, the
Company's compensation packages are intended to provide (i) an overall level
of compensation that is competitive, and (ii) bonuses and stock-related
compensation that reflect business results. The Compensation Committee
believes that a recognition of, and reward for, individual and collective
contributions maximizes shareholder value by encouraging and fostering
consistently improving financial performance.
14
Base Salaries
The Compensation Committee regularly reviews the base salary of its
executives, including its Chief Executive Officer and Executive Vice
President, with a view to providing both a competitive compensation package
and to providing appropriate incentives to seek long-term growth in
shareholder values. Base salaries are targeted at market levels and are
determined by evaluating the executive's levels of responsibility, prior
experience, breadth of knowledge, internal equity issues, and external pay
practices. In evaluating the compensation packages provided to its executives,
the Compensation Committee reviews compensation and financial data provided in
annual surveys conducted by the American Bankers' Association and by Executive
Compensation Services to compare its compensation practices with those
provided to executives performing similar jobs as the Company's executives.
Base salaries offer security to executives and allow the Company to attract
competent executive talent and maintain a stable management team.
Increases to base salaries, when given, are driven primarily by individual
performance, evaluated based on sustained levels of individual contribution to
the Company. The Compensation Committee considers the executive's efforts in
promoting the Company objectives, continuing educational and management
training, improving product quality, developing relationships with customers,
vendors, and employees, and demonstrating leadership abilities and other
goals.
Bonus Program
On an annual basis, the Compensation Committee has the discretion to propose
and recommends to the Board of Directors the payment of bonuses to the Chief
Executive Officer and Executive Vice President of the Company. These awards
are to be based upon job responsibilities, attainment of corporate financial
goals, contributions to the business and other goals of the Company, including
overall performance. The payment of a bonus to such individuals is subject to
the sole discretion of the Compensation Committee and the Board of Directors
of the Company. There is no specific formula, performance target, or other
required performance measures that must be achieved in order to receive a
bonus. On the other hand, achievement of certain financial results will not
ensure the payment of bonuses either. Instead, bonuses are used as a tool for
maintaining the competitiveness of the overall compensation paid to its Chief
Executive Officer and Executive Vice President in light of current market
conditions, and the Company's overall performance. To the extent that the base
salary or adjustments in base salary are sufficient for these purposes,
bonuses may not be recommended despite a strong performance, and vice versa.
Stock Option Plans
The key officers and employees of the Company, including the Named Executive
Officers, are eligible to receive stock option awards under the Company's
stock option plans. Stock options are granted at an option exercise price
equal to the fair market value of the Common Stock on the date of the grant.
Accordingly, stock options have value only if the stock price appreciates in
value from the date that the options are granted. The stock option plans focus
executives and other participants on the creation of shareholder value over
the long-term and encourage equity ownership in the Company. Individual grants
in the 2001 fiscal year were based on corporate performance and on individual
levels of responsibility, performance, and contributions to the Company. This
determination was made based on the Compensation Committee's assessment of the
performance of each individual.
Compensation of Chief Executive Officer
The Company's Board of Directors relies on its Chief Executive Officer to
provide effective leadership and to successfully execute the Company's
business plan and strategies. Subject to the approval of the Board of
Directors, the Compensation Committee establishes Mr. Delamater's base salary,
bonuses, and stock option grants in accordance with the Company's compensation
philosophy. In making its determination of the appropriate base salary, the
Compensation Committee reviewed and analyzed surveys of compensation paid to
chief executive officers of similarly sized institutions, and it evaluated the
performance of Mr. Delamater. The Compensation Committee determined that an
increase in Mr. Delamater's base salary was warranted in order to
15
maintain the competitiveness of the Company's compensation package and to
reflect Mr. Delamater's contributions to the Company's growth and operating
results. Overall, the Chief Executive Officer's compensation is in keeping
with the average compensation paid to chief executive officers at similarly
sized financial institutions. In addition, the Compensation Committee
determined that, based on Mr. Delamater's past and continued performance, it
was appropriate to award incentive stock options to Mr. Delamater. The grant
of such stock options are viewed by the Compensation Committee as both an
award for prior business results and as an incentive to achieve future
positive results which directly enhance shareholder value.
Conclusion
The Compensation Committee believes that its executive compensation policies
and programs effectively serve the interests of the Company and its
shareholders. The compensation packages are appropriately balanced to provide
security and competitive levels of compensation to its executives while
simultaneously providing increased motivation to contribute to the Company's
overall future success and long-term enhancement of shareholder value. We will
continue to monitor the effectiveness of our total compensation policies and
programs to insure that they continue to meet the needs of the Company.
This report is respectfully submitted by:
PERSONNEL AND COMPENSATION COMMITTEE
John B. Bouchard, Chairman Stephen W. Wight
Ronald J. Goguen Dennis A. Wilson
16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 2001 fiscal year, Messrs. Bouchard, Goguen, Wight, and Wilson
served on the Personnel and Compensation Committee which, among other things,
functions as the Company's compensation committee. None of the individuals is,
or has been, an officer or an employee of the Company or the Bank.
Messrs. Goguen and Schiavi, directors of Northeast Bancorp, each hold a
22.5% equity interest, or an aggregate of 45%, in Saratoga Capital Management
("SCM"), a Delaware general partnership, which serves as the investment
manager of Saratoga Advantage Trust ("SAT"). SAT, an investment company
organized under the Investment Company Act of 1940, operates several mutual
fund investments. SCM has granted a license to the Bank's trust department to
use the Saratoga Capital Management Asset Allocation Software which assists
its customers in selecting an asset allocation mix which is tailored to the
customers' specific needs and investment goals. In addition, the SAT mutual
funds are offered to the trust department's customers on a non-exclusive
basis. As a result of this relationship, through June 30, 2001, the trust
department had placed approximately $12.0 million in SAT mutual fund
investments, which are indirectly under management by SCM. SCM receives an
annual asset allocation fee of 15 basis points, based on the aggregate
placement of funds in SAT portfolios, for the trust department's use of its
asset allocation software.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, various loans and other
banking transactions in the ordinary course of business with the directors,
executive officers, and principal shareholders of the Bank and the Company (or
associate of such person). All such transactions: (i) have been and will be
made in the ordinary course of business; (ii) have been and will be made on
substantially the same terms, including interest rates and collateral on
loans, as those prevailing at the time for comparable transactions with
unrelated persons; and (iii) in the opinion of management do not and will not
involve more than the normal risk of collectability or present other
unfavorable features. At June 30, 2001 and 2000, the total dollar amount of
extensions of credit to directors and executive officers identified above, and
their associates (excluding extensions of credit which were less than $60,000
to any one such person and their associates) were $3,043,000 and $3,436,000,
respectively, which represented approximately 10% and 12% respectively, of
total shareholders' equity.
In providing the Bank's customers with investment and insurance products,
certain directors of Northeast Bancorp have an interest in businesses which
have furnished such products to the Bank's customers on a non-exclusive basis.
Except as described in this Proxy Statement, outside of normal customer
relationships none of the directors or officers of the Company, and no
shareholder holding over 5% of the Company's common stock and no corporations
or firms with which such persons or entities are associated, currently
maintains or has maintained since the beginning of the last fiscal year, any
significant business or personal relationship with the Company or the Bank,
other than such as arises by virtue of such position or ownership interest in
the Company or the Bank.
17
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly percentage change in the
cumulative total return of the Company's Common Stock, including stock and
cash dividends, against the cumulative total return of the S & P 500 Composite
Index and the KBW 50 Bank Index for the last five years. The KBW Bank Index,
compiled by Keefe, Bruyette & Woods, Inc., is comprised of fifty American
banking companies, including all money-center and most major regional banks.
This presentation assumes that $100 was invested on June 30, 1996 in the
Common Stock and all other indices, and that all dividends were reinvested.
[Graph appears here]
Fiscal Years Ended June 30
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Northeast Bancorp................................ $100 114 180 118 101 166
S & P 500 Index.................................. $100 148 200 195 140 182
PHLX KBW 50 Bank Index........................... $100 147 198 208 170 211
18
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of August 15, 2001, by:
(i) each director and nominee for director of the Company, (ii) each of the
Named Executive Officers covered by the Summary Compensation Table, (iii) all
directors and executive officers of the Company as a group, and (iv) each
person known to the Company beneficially owning more than 5% of the
outstanding Common Stock. Except as otherwise indicated, the persons named in
the table have sole voting and investment power with respect to all of the
Common Stock owned by them.
Current Beneficial Ownership
---------------------------------
Percent
Name of Beneficial Owner Number of Shares(1) of Class(2)
------------------------ ------------------- -----------
Directors and Certain Executive Officers
John W. Trinward, D.M.D..................... 15,801 (3)(4) *
James D. Delamater.......................... 85,020 (5) 3.26%
John B. Bouchard............................ 11,166 (4) *
A. William Cannan........................... 50,608 (6) 1.92%
Ronald J. Goguen............................ 6,825 (4)(7) *
Philip C. Jackson........................... 35,960 (8) 1.39%
Judith W. Kelley............................ 7,000 (4) *
Ronald C. Kendall........................... 47,918 (4)(9) 1.85%
John Rosmarin............................... 6,000 (4)(10) *
John Schiavi................................ 3,500 (11) *
Stephen W. Wight............................ 21,750 (4)(12) *
Dennis A. Wilson............................ 46,850 (4) 1.78%
All directors and executive officers as a
group (15 persons)......................... 355,369 (13) 12.99%
Other Beneficial Holders
Albert H. Desnoyers(14)..................... 199,041 7.71%
210 Washington Drive
Watchung, NJ 07060
Claude E. Savoie(15)........................ 152,550 5.91%
550 Sheldiac Road
Moncton, New Brunswick, Canada
E1C 1T7
Tontine Financial Partners, LP(16).......... 236,500 9.17%
200 Park Avenue, Suite 3900
New York, NY 10166
Sandler O'Neill Asset Management LLC(17).... 148,100 5.74%
780 Third Avenue, 30th Floor
New York, NY 10017
--------
* Less than 1%
(1) In accordance with Rule 13d-3 promulgated pursuant to the Securities
Exchange Act of 1934, a person is deemed to be the beneficial owner of a
security for purposes of the rule if he or she has or shares voting power
or dispositive power with respect to such security or has the right to
acquire such ownership within sixty days. As used herein, "voting power"
is the power to vote or direct the voting of shares, and "dispositive
power" is the power to dispose or direct the disposition of shares,
irrespective of any economic interest therein.
19
(2) In calculating the percentage ownership for a given individual or group,
the number of shares of Common Stock outstanding includes unissued shares
subject to options, warrants, rights or conversion privileges exercisable
within sixty days held by such individual or group, but are not deemed
outstanding by any other person or group.
(3) Includes 801 shares of Common Stock held by Dr. Trinward's spouse as to
which Dr. Trinward disclaims beneficial ownership.
(4) Includes 4,500 shares of Common Stock which may be acquired pursuant to
currently exercisable options held by such person.
(5) Includes 27,500 shares of Common Stock which may be acquired pursuant to
currently exercisable options.
(6) Includes 50,000 shares of Common Stock which may be acquired pursuant to
currently exercisable options.
(7) Includes 2,325 shares of Common Stock held by Blue Chip Investments,
Inc., a New Brunswick corporation wholly-owned by Mr. Goguen.
(8) Includes 15,000 shares of Common Stock which may be acquired pursuant to
currently exercisable options, 5,850 shares of Common Stock held by Mr.
Jackson's spouse, as to which Mr. Jackson disclaims beneficial ownership,
and 1,350 shares of Common Stock held by his children.
(9) Includes 41,357 shares of Common Stock held in trusts in which Mr.
Kendall either serves as a trustee or is a beneficiary (as to which Mr.
Kendall disclaims beneficial ownership of 20,198 of such shares).
(10) Includes 875 shares of Common Stock held by Mr. Rosmarin's spouse as to
which Mr. Rosmarin disclaims beneficial ownership.
(11) Includes 3,500 shares of Common Stock which may be acquired pursuant to
currently exercisable options.
(12) Includes 7,350 shares of Common Stock held by Mr. Wight's spouse as to
which Mr. Wight disclaims beneficial ownership, and 2,250 shares of
Common Stock held by his children.
(13) Includes 157,000 shares of Common Stock subject to options which may be
acquired by such directors and executive officers as a group pursuant to
currently exercisable options.
(14) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13D, dated March 6, 1995, filed with the
SEC by Mr. Desnoyers, as adjusted to reflect the payment of a 50% stock
dividend in December 1997.
(15) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13D, dated June 5, 1995, filed with the
SEC by Mr. Savoie, as adjusted to reflect the payment of a 50% stock
dividend in December 1997.
(16) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13G, dated January 31, 2001, filed with
the SEC by a group consisting of Tontine Financial Partners, LP ("TFP"),
Tontine Management, LLC the general partner of TFP ("TM"), and Jeffrey L.
Gendell, the managing member of TM.
(17) The ownership information set forth herein is based in its entirety on
material contained in a Schedule 13D, dated April 10, 2001, filed with
the SEC consisting of a group partnerships of which SOAM Holdings, LLC, a
Delaware limited liability company ("Holdings"), is the sole general
partner and to which Sandler, O'Neill Asset Management, Inc. ("SOAM")
provides administrative and management services, and Terry Maltese, the
managing member and president of SOAM and Holdings.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires all executive officers, directors, and persons who are the
beneficial owner of more than 10% of the Common stock of the Company to file
reports of ownership with the Securities and Exchange Commission (the "SEC")
indicating their ownership of the Company's equity securities and to report
any changes in that ownership. Specific due dates for these reports have been
established, and the Company is required to report in this Proxy Statement any
failure to comply therewith during the fiscal year ended June 30, 2001. The
Company believes that all of these filing requirements were satisfied by its
executive officers, directors, and by the beneficial owners of more than 10%
of the Common Stock. In making this statement, the Company has relied on
copies of the reporting forms received by it or on the written representations
from certain reporting persons that no Forms 5 (Annual Statement of Changes in
Beneficial Ownership) were required to be filed under applicable rules of the
SEC.
20
SHAREHOLDER PROPOSALS
Eligible shareholders who wish to present proposals for action at the 2002
Annual Meeting of Shareholders should submit their proposals in writing to the
Clerk of the Company at the address of the Company set forth on the first page
of this Proxy Statement. Proposals must be received by the Secretary no later
than June 7, 2002 for inclusion in next year's proxy statement and proxy card.
A shareholder is eligible to present proposals if, at the time he or she
submits the proposals, the shareholder owns at least 1% or $2,000 in market
value of Common Stock and has held such shares for at least one year, and the
shareholder continues to own such shares through the date of the 2002 Annual
Meeting.
SOLICITATION COSTS
The Company will bear the costs of preparing, assembling, and mailing the
Proxy Statement, the form of proxy, and the 2001 Annual Report in connection
with the Annual Meeting. In addition to solicitation by use of mail, employees
of the Company may solicit proxies personally or by telephone, by facsimile
copy, or telegraph, but will not receive additional compensation therefor.
Arrangements may be made with banks, brokerage houses, and other institutions,
nominees, and fiduciaries to forward the solicitation materials to beneficial
owners and to obtain authorizations for the execution of proxies. The Company
will, upon request, reimburse those persons and entities for expenses incurred
in forwarding proxy materials for the Annual Meeting to beneficial owners.
ANNUAL REPORT
The Company's 2001 Annual Report for the fiscal year ended June 30, 2001,
which includes financial statements, was mailed to shareholders together with
the Notice of the Annual Meeting of Shareholders and Proxy Statement.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, the Board of
Directors of the Company had not been informed of any matters which would be
presented for action at the Annual Meeting other than the proposals
specifically set forth in the Notice of Annual Meeting and referred to herein.
If any other matters are properly presented for action at the Annual Meeting,
it is intended that the persons named in the accompanying proxy card will vote
or refrain from voting in accordance with their best judgment on such matters
after consultation with the Board of Directors.
The Company will provide without charge to any shareholder upon written
request, a copy of the Company's Annual Report on Form 10-K, including
financial statements and schedules thereto for the fiscal year ended June 30,
2001, as filed with the Securities and Exchange Commission (without exhibits).
All such requests should be delivered to Suzanne Carney, Clerk, Northeast
Bancorp, 232 Center Street, Auburn, Maine 04210. Copies of exhibits will be
provided upon written request and payment of a reasonable fee to cover the
costs of reproduction and mailing.
By Order of the Board of Directors
and President
/s/ Suzanne M. Carney
Suzanne M. Carney
Clerk
Auburn, Maine
October 5, 2001
21
APPENDIX A
NORTHEAST BANCORP
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The Audit Committee (the "Committee") assists the Board of Directors (the
"Board") of Northeast Bancorp (the "Company) in their responsibilities to
oversee the independent auditor and evaluate the Company's financial reporting
practices, accounting policies and internal control structure.
The Audit Committee fulfills these responsibilities by carrying out the
activities enumerated in Section VII of the Charter.
II. COMPOSITION
The Committee will be comprised of three or more directors as determined by
the Board. The members of the Committee will meet the independence and
experience requirements specified in Section 121 of the Amex Company Guide.
The Board will, at its discretion, elect the members of the Committee. The
Board will elect one Committee member to the Committee Chair.
III. RESPONSIBILITY
The Committee is a part of the Board. Its primary function is to assist the
Board in fulfilling its oversight responsibilities with respect to (i) the
annual financial information to be provided to shareholders and the Securities
and Exchange Commission (SEC); (ii) the system of internal controls that
management has established; and (iii) the internal and external audit process.
In addition, the Committee provides an avenue for communication between the
internal auditor, the independent auditor, financial management and the Board.
The Committee should have a clear understanding with the independent auditor
that they must maintain an open and transparent relationship with the
Committee, and that the ultimate accountability of the independent auditor is
to the Board and the Committee. The Committee will make regular reports to the
Board concerning its activities.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. This is the responsibility of management and the independent
auditor. Nor is it the duty of the Audit Committee to conduct investigations,
to resolve disagreements, if any, between management and the independent
auditor or to assure compliance with laws and regulations and the Company's
business conduct guidelines.
IV. AUTHORITY
Subject to prior approval of the Board, the Committee is granted authority to
investigate any matter or activity involving financial accounting and
financial reporting, as well as the internal controls of the Company. In that
regard, the Committee will have the authority to approve the retention of
external professionals to render advice and counsel in such matters. All
employees will be directed to cooperate with respect thereto as requested by
members of the Committee.
V. MEETINGS
The Committee will meet at least four times annually, or more frequently as
circumstances dictate. The Committee may, at its discretion, meet in separate
executive sessions with the chief financial officer, independent auditor and
the internal auditor.
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VI. ATTENDANCE
Committee members will strive to be present at all meetings. The Committee
Chair, may as necessary or desirable, request that members of management and
representatives of the independent auditor and the internal auditor be present
at Committee meetings.
VII. SPECIFIC DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
1. Review and reassess the adequacy of this charter annually and recommend
any proposed changes to the Board for approval. This should be done in
compliance with applicable Amex Audit Committee requirements. The
charter is to be published as an appendix to the proxy statement every
three years.
2. Evaluate, select, and where appropriate, replace an independent auditor
who is ultimately accountable to the Audit Committee and Board of
Directors as representatives of the Company's shareholders.
3. Review the scope and general extent of the independent auditor's annual
audit. The Committee's review should include an explanation from the
independent auditor of the factors considered in determining the audit
scope, including the major risk factors. The independent auditor should
confirm to the Committee that no limitations have been placed on the
scope or nature of their audit procedures. The Committee will review
annually with management the fee arrangement with the independent
auditor.
4. Review with management, the internal auditor and the independent auditor
the Company's accounting and financial reporting controls.
5. Review with management, the internal auditor and the independent auditor
significant accounting and reporting principles, practices and
procedures applied by the Company in preparing its financial statements.
Discuss with the independent auditor their judgments about the quality,
not just the acceptability, of the Company's accounting principles used
in financial reporting. Review legal and regulatory matters that may
significantly impact the financial affairs or operations of the Company.
6. Inquire as to the independence of the independent auditor and obtain
from the independent auditor, at least annually, a formal written
statement delineating all relationships between the independent auditor
and the Company as contemplated by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees.
7. Have a predetermined arrangement with the independent auditor that they
will advise the Committee through its Chair and management of any
reportable matters (significant events, transactions and changes in
accounting estimates) identified through procedures followed for interim
quarterly financial statements, and that such notification is to be made
prior to the related press release, or, if nor practicable, prior to
filing Forms 10-Q.
8. At the completion of the annual audit, review with management and the
independent auditor the following:
. The annual financial statements and related footnotes and financial
information to be included in the Company's annual report to
shareholders and on Form 10-K.
. Results of the audit of the financial statements and the related
report thereon and, if applicable, a report on changes during the
year in accounting principles and their application.
. Significant changes to the audit plan, if any, and any serious
disputes or difficulties with management encountered during the
audit. Inquire about the cooperation received by the independent
auditor during the audit, including access to all requested records,
data and information. Inquire of the independent auditor whether
there have been any disagreements with
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management, which, if not satisfactorily resolved, would have caused
them to issue a nonstandard report on the Company's financial
statements.
. Other communications as required to be communicated by the
independent auditor by Statement of Auditing Standards (SAS) 61 as
amended by SAS 90 relating to the conduct of the audit. Such
communication should include a discussion of the independent
auditor's judgment about the quality of the Company's accounting
principles.
If deemed appropriate after such review and discussion, recommend to the
Board that the financial statements be included in the Company's annual
report on Form 10-K.
9. Meet with management, the internal auditor and the independent auditor
to discuss any relevant significant recommendations that the independent
auditor may have, particularly those characterized as "reportable
conditions". The Committee should review responses from management to
the reportable conditions and receive follow-up reports on action taken
concerning the aforementioned recommendations.
10. Review the appointment, replacement and compensation of the internal
auditor. The internal auditor will report directly to the Audit
Committee chairman and administratively to a designated senior officer.
11. Review the scope of the internal audit plan for the year. Evaluate the
internal auditor's risk assessment of the Company's activities used in
developing the annual plan.
12. Receive reports of major findings from the internal auditor and
evaluate management's response in addressing the reported conditions.
13. Evaluate the performance of and, where appropriate, replace the
internal auditor.
14. The audit committee shall have the power to conduct or authorize
investigations into any matters within the committee's scope of
responsibilities. The committee shall be empowered to retain
independent counsel, accountants, or others to assist it in the conduct
of any investigation.
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APPENDIX B
NORTHEAST BANCORP
2001 STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Establishment of the Plan. Northeast Bancorp, a Maine corporation (the
"Company"), hereby establishes the "Northeast Bancorp 2001 Stock Option Plan"
(hereinafter referred to as the "Plan"). The Plan permits the grant of
incentives in the form of Nonqualified Stock Options, Incentive Stock Options,
and any combination thereof. Unless otherwise defined, all capitalized terms
have the meaning ascribed to them in Article II.
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its stockholders by offering officers, employees, and directors
incentives that will promote the identification of their personal interests
with the long-term financial success of the Company and with growth in
shareholder value. The Plan is designed to strengthen the Company's ability to
recruit, attract, and retain, highly qualified managers, consultants, and
staff, and qualified and knowledgeable independent directors capable of
furthering the future success of the Company by encouraging the ownership of
Shares (as defined below) by such employees and directors and to strengthen
the mutuality of interest between employees and directors, on one hand, and
the Company's stockholders, on the other hand. The equity investments granted
under the Plan are expected to provide employees with an incentive for
productivity and to provide both employees and directors with an opportunity
to share in the growth and value of the Company.
ARTICLE II
Definitions
As used in this Plan, unless the context otherwise requires, the following
capitalized terms are defined as follows:
2.1 "Award" shall mean any award under this Plan of any Stock Option. Each
separate grant of a Stock Option, and each group of Stock Options, which
mature on a separate date is treated as a separate Award.
2.2 "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
2.3 "Cause" means a determination by the Board of Directors that a
Participant has: (a) engaged in any type of disloyalty to the Company,
including without limitation fraud, embezzlement, theft, or dishonesty in the
course of his or her employment or service, or has otherwise breached a duty
owed to the Company, (b) been convicted of a misdemeanor involving moral
turpitude or a felony, (c) pled nolo contendere to a felony, (d) disclosed
trade secrets or confidential information of the Company to unauthorized
parties, except as may be required by law, or (e) materially breached any
material agreement with the Company, unless such agreement was materially
breached first by the Company.
2.4 "Change of Control" shall have the meaning set forth in Section 7.2 of
this Plan.
2.5 "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder. Reference to any provision of the Code or
rule or regulation thereunder shall be deemed to include any amended or
successor provision, rule, or regulation.
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2.6 "Committee" means the committee appointed by the Board in accordance
with Section 3.1 of the Plan, if one is appointed, to administer this Plan. If
no such committee has been appointed, the term Committee shall refer to the
Board of Directors.
2.7 "Common Stock" or "Shares" means the shares of common stock, $1.00 par
value per share, of the Company.
2.8 "Company" shall mean Northeast Bancorp or any successor thereto as
provided in Section 11.8 hereto.
2.9 "Date of Exercise" means the date on which the Company receives notice
of the exercise of a Stock Option in accordance with the terms of Section 6.8
of this Plan.
2.10 "Date of Grant" or "Award Date" shall be the date on which an Award is
made by the Committee under this Plan. Such date shall be the date designated
in a resolution adopted by the Committee pursuant to which the Award is made;
provided, however, that such date shall not be earlier than the date of such
resolution and action thereon by the Committee. In the absence of a date of
grant or award being specifically set forth in the Committee's resolution, or
a fixed method of computing such date, then the Date of Grant shall be the
date of the Committee's resolution and action.
2.11 "Director" means any person who is a member of the Board of Directors.
2.12 "Employee" means any person who is an officer or full-time employee of
the Company or any of its Subsidiaries and who receives from it regular
compensation (other than pension, retirement allowance, retainer, or fee under
contract). An Employee does not include independent contractors or temporary
employees.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
2.14 "Exercise Period" means the period during which a Stock Option may be
exercised.
2.15 "Exercise Price" means the price for Shares at which a Stock Option may
be exercised.
2.16 "Fair Market Value" of a share of Common Stock on a particular date
shall be the closing price for a share of Common Stock as quoted on the
American Stock Exchange ("AMEX"), or the National Association of Securities
Dealers Automated Quotation System National Market ("Nasdaq-NMS"), or any
other national securities exchange on which the Common Stock is listed (as
reported by the Wall Street Journal or, if not reported thereby, any other
authoritative source selected by the Committee), or if there is no trading on
that date, on the next preceding date on which there were reported share
prices. If the Common Stock is quoted on any other inter-dealer quotation
system (but not quoted by Nasdaq-NMS or any national securities exchange),
then the Fair Market Value per Common Stock on a particular date shall be the
mean of the bid and asked prices for a share of Common Stock as reported in
the Wall Street Journal or, if not reported thereby, any other authoritative
source selected by the Committee. If the Common Stock is not quoted by the
Nasdaq-NMS or any other inter-dealer quotation system, and are not listed on
any national securities exchange, then the "Fair Market Value" of a share of
Common Stock shall be determined by the Committee pursuant to any reasonable
method adopted by it in good faith for such purpose. In the case of an
Incentive Stock Option, if the foregoing method of determining the fair market
value is inconsistent with Section 422 of the Code, "Fair Market Value" shall
be determined by the Committee in a manner consistent with the Code and shall
mean the value as so determined.
2.17 "Incentive Stock Option" or "ISO" means any Stock Option awarded under
this Plan intended to be and designated as an incentive stock option within
the meaning of Section 422 of the Code.
2.18 "Non-Employee Director" shall have the meaning as set forth in, and
interpreted under, Rule 16b-3(b)(3) promulgated by the SEC under the Exchange
Act, or any successor definition adopted by the SEC.
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2.19 "Nonqualified Stock Option" means any Stock Option awarded under this
Plan which is not an Incentive Stock Option.
2.20 "Participant" means each Employee or Director to whom an Award has been
granted under this Plan.
2.21 "Payment Shares" shall have the meaning set forth in Section 6.8(b) of
this Plan.
2.22 "Person" shall mean an individual, partnership, corporation, limited
liability company or partnership, trust, joint venture, unincorporated
association, or other entity or association.
2.23 "Plan" means this Northeast Bancorp 2001 Stock Option Plan as defined
in Section 1.1 hereof.
2.24 "SEC" means the Securities and Exchange Commission.
2.25 "Securities Act" means the Securities Act of 1933, as amended from time
to time.
2.26 "Stock Option" means any Incentive Stock Option or Nonqualified Stock
Option to purchase Common Stock that is awarded under this Plan.
2.27 "Stock Option Agreement" means the written agreement between the
Company and a Participant implementing the grant of, and evidencing and
reflecting the terms of, an Award.
2.28 "Subsidiary" or "Subsidiaries" means any corporation or corporations
other than the Company organized under the laws of the United States or any
other jurisdiction that the Board of Directors designates, in an unbroken
chain of corporations beginning with the Company if each corporation other
than the last corporation in the unbroken chain owns more than 50% of the
total combined voting power of all classes of stock in one of the other
corporation in such chain.
ARTICLE III
Administration of the Plan
3.1 The Committee. This Plan shall be administered by the Committee, subject
to such terms and conditions as the Board may prescribe from time to time.
Pursuant to applicable provisions of the Company's Articles of Incorporation,
as amended, and Bylaws, the Committee, which shall be appointed by the Board,
shall consist of no fewer than three (3) members of the Board. Members of the
Committee shall serve for such period of time as the Board may determine. From
time to time the Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause), and appoint new
members, fill vacancies however caused, and remove all members and thereafter
directly administer the Plan. During such times as the Company's Common Stock
is registered under the Exchange Act, all members of the Committee shall be
Non-Employee Directors and "outside directors" as defined under Section
162(m)(4)(C)(i) of the Code.
3.2 Duties and Powers of the Committee. Subject to the express provisions of
this Plan, the Committee shall have all the power and authority to, and shall
be authorized to take any and all actions required, necessary, or desirable to
administer the Plan. In addition to any other powers, subject to the
provisions of the Plan, the Committee shall have the following powers:
(a) subject to Section 3.3 of this Plan, to select the Employees and Directors
to whom Awards may from time to time be granted pursuant to this Plan;
(b) to determine all questions as to eligibility;
(c) to determine the number of shares of Common Stock to be covered by each
Award granted under this Plan;
(d) subject to the limitations set forth in Section 4.1 of this Plan, to
determine whether and to what extent Incentive Stock Options, Nonqualified
Stock Options, or any combination thereof, are to be granted or awarded
hereunder;
B-3
(e) to determine the terms and conditions (to the extent not inconsistent with
this Plan) of any Award granted hereunder, all provisions of each Stock Option
Agreement, which provisions need not be identical (including, but not limited
to, the Exercise Price, the Exercise Period, any restriction or limitation,
any vesting schedule or acceleration thereof, or any forfeiture restrictions
or waiver thereof, regarding any Stock Option and the Common Stock relating
thereto, based on such factors as the Committee shall determine, in its sole
discretion);
(f) to determine whether, and to what extent, and under what circumstances
grants of Stock Options under this Plan are to operate on a tandem basis
and/or in conjunction with or apart from other cash awards made by the Company
outside of this Plan;
(g) to determine whether and under what circumstances a Stock Option may be
settled in cash, Common Stock, or any combination thereof under Section 6.8 of
this Plan;
(h) to determine whether, and to what extent, and under what circumstances
shares of Common Stock under this Plan shall be deferred either automatically
or at the election of the Participant;
(i) to prescribe, amend, waive, or rescind rules or regulations relating to
the Plan's administration;
(j) to accelerate the vesting or Date of Exercise of any Award, or to waive
compliance by a holder of an Award of any obligation to be performed by such
holder or the terms and conditions of an Award;
(k) to construe and interpret the provisions of the Plan or any Stock Option
Agreement;
(l) to amend the terms of previously granted Awards so long as the terms as
amended are consistent with the terms of the Plan and provided that the
consent of the Participant is obtained with respect to any amendment that
would be detrimental to the Participant;
(m) to require, whether or not provided for in the pertinent Stock Option
Agreement, of any person exercising a Stock Option, or otherwise receiving an
Award, at the time of such exercise or receipt, the making of any
representations or agreements that the Board of Directors or Committee may
deem necessary or advisable in order to comply with the securities laws of the
United States or of any applicable jurisdiction;
(n) to delegate to an appropriate officer of the Company the authority to
select Employees for Awards and to recommend to the Committee the components
of the Award to each, including vesting requirements, subject in each case to
final approval by the Committee of the selection of the Employee and the
Award;
(o) to authorize any person to execute on behalf of the Company any instrument
required to effectuate an Award or to take such other actions as may be
necessary or appropriate with respect to the Company's rights pursuant to
Awards or agreements relating to the Awards or the exercise thereof; and
(p) to make all other determinations and take all other actions necessary or
advisable for the administration of the Plan.
3.3 Awards to Members of the Committee. Each Award granted to a Director or
members of the Committee shall be approved by the entire Board of Directors
(rather than just a committee thereof) and shall be evidenced by minutes of a
meeting or the written consent of the Board of Directors and a Stock Option
Agreement.
3.4 Requirements Relating to Section 162(m) of the Code. Any provision of
this Plan notwithstanding: (a) transactions with respect to persons whose
remuneration is subject to the provisions of Section 162(m) of the Code shall
conform to the requirements of Section 162(m)(4)(C) of the Code unless the
Committee determines otherwise; (b) the Plan is intended to give the Committee
the authority to grant Awards that qualify as performance-based compensation
under Section 162(m)(4)(C) of the Code as well as Awards that do not qualify;
and (c) any provision of the Plan that would prevent the Committee from
exercising the authority referred to in Section 3.4(b) of this Plan or that
would prevent an Award that the Committee intends to qualify as
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performance-based compensation under Section 162(m)(4)(C) of the Code from so
qualifying shall be administered, interpreted, and construed to carry out the
Committee's intention and any provision that cannot be so administered,
interpreted, and construed shall to that extent be disregarded.
3.5 Decisions Final and Binding. All decisions, determinations, and actions
taken by the Committee, and the interpretation and construction of any
provision of the Plan or any Stock Option Agreement by the Committee shall be
final, conclusive, and binding, unless otherwise determined by the Board.
3.6 Limitation on Liability. Notwithstanding anything herein to the
contrary, except as otherwise provided under applicable Maine law, no member
of the Board of Directors or of the Committee shall be liable for any good
faith determination, act, or failure to act in connection with the Plan or any
Award hereunder.
ARTICLE IV
Shares Subject to the Plan
4.1 Number of Shares. Subject to adjustment as provided in Section 4.4, the
maximum aggregate number of Shares that may be issued under this Plan shall
not exceed 150,000 Shares, which Shares may be either authorized but unissued
Shares or Shares issued and thereafter reacquired by the Company. Stock
Options awarded under the Plan may be either Incentive Stock Options or
Nonqualified Stock Options, as determined by the Committee. Except as provided
in Sections 4.2 and 4.3 of this Plan, Shares issued upon the exercise of an
Award granted pursuant to the Plan shall not again be available for the grant
of an Award hereunder.
4.2 Lapsed Awards. If any Award granted under this Plan shall terminate,
expire, lapse, or be cancelled for any reason without having been exercised in
full, any unissued Shares which had been subject to the Stock Option Agreement
relating thereto shall again become available for the grant of an Award under
this Plan.
4.3 Delivery of Shares as Payment. In the event a Participant pays the
Exercise Price for Shares pursuant to the exercise of an Stock Option with
previously acquired Shares, the number of Shares available for future Awards
under the Plan shall be reduced only by the net number of new Shares issued
upon the exercise of the Stock Option. Notwithstanding anything to the
contrary herein, no fractional Shares will be delivered under the Plan.
4.4 Capital Adjustments.
(a) If by reason of a merger, consolidation, reorganization, recapitalization,
combination of Shares, stock split, reverse stock split, stock dividend,
separation (including a spin-off or split-off), or other such similar event,
the number of outstanding Shares of the Company are increased, decreased,
changed into, or been exchanged for a different number or kind of shares, or
if additional shares or new and different shares are issued in respect of such
Shares, the Committee in its sole discretion may adjust proportionately (i)
the aggregate maximum number of Shares available for issuance under the Plan,
(ii) the number and class of Shares covered by outstanding Awards denominated
in Shares or units of Shares, (iii) the Exercise Price and grant prices
related to outstanding Awards, and (iv) the appropriate Fair Market Value and
other price determinations for such Awards.
(b) In the event of any other change in corporate structure affecting the
Common Stock or any distribution (other than normal cash dividends) to holders
of shares of Common Stock, such adjustments in the number and kind of shares
and the exercise, grant, or conversion prices of the affected Awards as may be
deemed equitable by the Committee shall be made to give proper effect to such
event.
(c) In the event of a corporate merger, consolidation, or acquisition of
property or stock, separation (including spin-offs and split-offs),
reorganization or liquidation, the Committee shall be authorized to cause the
Company to issue or assume stock options, whether or not in a transaction to
which Section 424(a) of the Code
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applies, by means of substitution of new Stock Options for previously issued
stock options or an assumption of previously issued stock options. In such
event, the aggregate maximum number of Shares available for issuance under
Section 4.1 of the Plan will be increased to reflect such substitution or
assumption.
(d) If any adjustment made pursuant to this Article IV would result in the
possible issuance of fractional Shares under any then-outstanding Award, the
Committee may adjust the outstanding Awards so as to eliminate fractional
Shares.
(e) Any adjustment to be made with respect to Incentive Stock Options shall
comply with Sections 422 and 424 of the Code.
ARTICLE V
Eligibility
Awards may be made to any Employee or Director, except that (a) only
Employees (including Employees who also serve as Directors) may receive
Incentive Stock Options, and (b) the grant of Awards to Directors must comply
with Section 3.3 of the Plan. A Participant who has been granted an Award may
be granted additional Awards.
ARTICLE VI
Stock Options
6.1 Stock Options. Each Stock Option granted under this Plan shall be either
an Incentive Stock Option or a Nonqualified Stock Option.
6.2 Grant of Stock Options.
(a) Subject to the terms and provisions of this Plan, the Committee shall have
the authority to grant to any Participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both kinds of Stock Options. Subject to Section
4.1 and Article V, the Committee has complete and sole discretion in
determining the number of Shares subject to Stock Options to be granted to a
Participant; provided, however, that the aggregate Fair Market Value
(determined at the time the Award is made) of Shares with respect to which a
Participant may first exercise ISOs granted under the Plan during any calendar
year may not exceed $100,000 or such amount as shall be specified under
Section 422 of the Code and the rules and regulations promulgated thereunder.
To the extent that any Stock Option does not qualify as an Incentive Stock
Option (whether because of its provisions or the time and manner of its
exercise or otherwise), such Stock Options or portion thereof which does not
qualify shall constitute a Nonqualified Stock Option. Stock Options granted at
different times need not contain similar provisions.
(b) Non-Employee Directors may only be granted Stock Options under this
Article VI which are Nonqualified Stock Options.
6.3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options
shall be interpreted, amended, or altered, nor shall any discretion or
authority granted under this Plan be so exercised, so as to disqualify the
Plan under Section 422 of the Code, or, without the consents of the
Participants affected, to disqualify any Incentive Stock Option under Section
422 of the Code.
6.4 Stock Option Agreement. Each Stock Option granted under this Plan shall
be evidenced by a Stock Option Agreement between the Company and the
Participant in accordance with Section 6.2 that specifies the Exercise Price,
the Exercise Period, the number of Shares to which the Stock Option pertains,
method of exercise and the form of consideration payable therefor, any vesting
requirements, any conditions imposed upon the exercise of the Stock Options in
the event of retirement, death, disability, or other termination of employment
or service, and such other provisions and conditions, not inconsistent with
this Plan, as the Committee may determine. Each Stock Option Agreement
relating to a grant of Stock Options shall clearly specify whether the Stock
Option is intended to be an Incentive Stock Option within the meaning of
Section 422 of the Code, or a Nonqualified Stock Option not intended to be
within the provisions of Section 422 of the Code.
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6.5 Exercise Price. The Exercise Price per Share purchasable under any Stock
Option granted under this Plan shall be determined by the Committee at the
Date of Grant, subject to the following limitations:
(a) In the case of a Stock Option intended to be an Incentive Stock Option,
the Exercise Price shall not be less than 100% of the Fair Market Value of the
Common Stock on the Date of Grant or, in the case of any optionee who, at the
time such Incentive Stock Option is granted, owns Common Stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent corporation or Subsidiaries, not less than 110% of
the of the Fair Market Value of the Common Stock on the Date of Grant.
(b) In the case of a Stock Option intended to be a Nonqualified Stock Option,
the Exercise Price shall not be less than 85% of the Fair Market Value of the
Common Stock on the Date of Grant.
(c) In no event shall the Exercise Price of any Stock Option be less than the
par value of the Common Stock.
6.6 Exercise Period. The Exercise Period of each Stock Option granted shall
be fixed by the Committee and shall be specified in the Stock Option
Agreement; provided, however, that no Incentive Stock Option shall be
exercisable later than ten years after the Award Date, and no Incentive Stock
Option which is granted to any optionee who, at the time such Incentive Stock
Option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of its parent
corporation or Subsidiaries, shall be exercisable after the expiration of five
years from the Award Date.
6.7 Exercise of Stock Options. Stock Options granted under the Plan shall be
exercisable at such time or times and be subject to such terms and conditions
as shall be set forth in the Stock Option Agreement (as may determined by the
Committee at the time of such grant), which need not be the same for all
Participants. Such terms and conditions may include performance criteria with
respect to the Company or the Participant, and as shall be permissible under
the other terms of the Plan. No Stock Option, however, shall be exercisable
until the expiration of the vesting period, if any, set forth in the Stock
Option Agreement, except to the extent such vesting period is accelerated
pursuant to Article VII of this Plan. To the extent that no vesting conditions
are stated in the Stock Option Agreement, the Stock Options represented
thereby shall be fully vested at the Date of Grant.
6.8 Method of Exercise.
(a) Subject to the provisions of the Stock Option Agreement, Stock Options may
be exercised in whole at any time, or in part from time to time with respect
to whole Shares only, during the Exercise Period by the delivery to the
Company of a written notice of intent to exercise the Stock Option, in such
form as the Committee may prescribe, setting forth the number of Shares with
respect to which the Stock Option is to be exercised; provided, however, that
the minimum exercise amount permitted at any time shall be one hundred (100)
Shares. Upon exercise of a Stock Option, the Exercise Price, which shall
accompany the written notice of exercise, shall become immediately due and
payable to the Company in full (along with the taxes described in the last
sentence of this Section 6.8(a)) by the Participant who, if so provided in the
Stock Option Agreement, may: (i) deliver cash or a check (acceptable to the
Committee in accordance with guidelines established for this purpose) in
satisfaction of all or any part of the Exercise Price; (ii) deliver, or cause
to be withheld from the Stock Option, Shares valued at Fair Market Value on
the Date of Exercise in satisfaction of all or any part of the Exercise Price,
(iii) deliver any combination of cash and Shares, or (iv) deliver any other
consideration and method of payment permitted under any laws to which the
Company is subject, in each such case as the Committee may determine. In
addition to the payment of the Exercise Price, unless satisfied in accordance
with Section 11.10 of this Plan, the Participant shall pay to the Company in
cash the full amount of all federal and state withholding or other employment
taxes applicable to the taxable income of the Participant resulting from the
exercise.
(b) If the Exercise Price is to be paid by the surrender of previously
acquired and owned Common Stock, the Participant will make representations and
warranties satisfactory to the Company regarding his title to the Common Stock
used to effect the purchase (the "Payment Shares"), including, without
limitation, representations and warranties that the Participant has good and
marketable title to such Payment Shares free
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and clear of any and all liens, encumbrances, charges, equities, claims,
security interests, options or restrictions, and has full power to deliver
such Payment Shares without obtaining the consent or approval of any person or
governmental authority other than those which have already given consent or
approval in a manner satisfactory to the Company. If such Payment Shares were
acquired upon previous exercise of Incentive Stock Options granted within two
years prior to the exercise of the Stock Option or acquired by the Participant
within one year prior to the exercise of the Stock Option, such Participant
shall be required, as a condition to using the Payment Shares in payment of
the Exercise Price of the Stock Option, to acknowledge the tax consequences of
doing so, in that such previously exercised Incentive Stock Options may have,
by such action, lost their status as Incentive Stock Options, and the
Participant may recognize ordinary income for tax purposes as a result.
6.9 Transfer Restrictions. Neither the Stock Options granted under the Plan
nor any rights or interest in such Stock Options may be sold, pledged,
hypothecated, assigned, or otherwise disposed of or transferred by such
Participant, other than by will or by the laws of descent and distribution.
Except as permitted by the Committee, during the lifetime of Participant to
whom a Stock Option is granted, the Stock Options shall be exercisable only by
him or her or, in the event of the Participant's permanent and total
disability as determined by the Committee in accordance with applicable
Company policies, by his or her legal representative.
6.10 Termination of Stock Options. Subject to the applicable provisions of
the Stock Option Agreement and this Article VI, upon termination of a
Participant's employment with the Company for any reason, all stock options
shall vest or expire in accordance with the terms and conditions established
by the Committee at or after grant. Unless otherwise provided in the Stock
Option Agreement:
(a) Termination by Death. If a Participant's employment or service with the
Company or its Subsidiaries terminates by reason of death, then for a period
of one year (or such other period as the Committee may specify at grant) from
the date of such death or until the end of the Exercise Period of such Stock
Option, whichever period is shorter, the Award may be exercised by the legal
representative of the estate or by a person who acquires the right to exercise
such Stock Options by bequest or inheritance, subject to the limitations of
Section 6.11 with respect to Incentive Stock Options, to the extent that such
Participant was entitled to exercise the Award at the date of such death.
(b) Termination by Disability. If a Participant's employment or service with
the Company or its Subsidiaries terminates by reason of permanent and total
disability, as determined by the Committee in accordance with applicable
Company personnel policies, then for a period of one year (or such other
period as the Committee may specify at grant) from the date of such
termination of employment or service, or until the end of the Exercise Period
of such Stock Option, whichever is shorter, the Award may be exercised by the
Participant, or his or her legal representative, subject to the limitations of
Section 6.11 with respect to Incentive Stock Options, to the extent that such
Participant was entitled to exercise the Award at the date of such
termination; provided, however, that, if the Participant dies within such one
year period (or such other period as the Committee may specify at grant), then
for a period of one year from the date of death or until the end of the
Exercise Period of such Stock Option, whichever period is shorter, any
unexercised Stock Options held by such Participant shall thereafter be
exercisable to the extent to which they were exercisable at the time of such
termination due to disability. In the event of termination of employment by
reason of permanent and total disability, as determined by the Committee in
accordance with applicable Company personnel policies, if a n Incentive Stock
Option is exercised after the expiration of the exercise periods that apply
for purposes of Section 422 of the Code (currently one year from such
termination), such Stock Option will thereafter be treated as a Nonqualified
Stock Option.
(c) Termination by Retirement. If a Participant's employment or service with
the Company or its Subsidiaries terminates by reason of normal or late
retirement under any retirement plan of the Company or its Subsidiaries or,
with the consent of Committee, then for a period of three months (or such
other period as the Committee may specify at grant) from the date of such
termination of employment or service, or until the end of the Exercise Period
of such Stock Option, whichever is shorter, the Award may be exercised by the
Participant, or his or her legal representative, subject to the limitations of
Section 6.11 with respect to Incentive Stock
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Options, to the extent that such Participant was entitled to exercise the
Award at the date of such termination; provided, however, that, if the
Participant dies within such three month period, then for a period of one year
from the date of death or until the end of the Exercise Period of such Stock
Option, whichever period is shorter, any unexercised Stock Options held by
such Participant shall thereafter be exercisable to the extent to which they
were exercisable at the time of such retirement. In the event of termination
of employment by reason of retirement pursuant to any retirement plan of the
Company or its Subsidiaries or with the consent of the Committee, if an
Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code (currently three
months from such termination), such Stock Option will thereafter be treated as
a Nonqualified Stock Option.
(d) Other Termination of Employee. Unless otherwise determined by the
Committee at or after grant and except as provided in Section 7.1 hereof, if a
Participant's employment by the Company terminates for any reason other than
death, disability, or retirement covered by Sections 6.10 (a), (b), or (c) of
this Plan: (i) any Stock Options that were not exercisable at the date of such
termination (which date shall be determined by the Committee in its sole
discretion) will expire automatically, and (ii) any Stock Options exercisable
on the date of termination will remain exercisable only for the lesser of
three months or the balance of such Exercise Period of such Stock Option;
provided, however, that the Participant was not involuntarily terminated by
the Company for Cause. If the Participant dies within such three month period
(or such other period as the Committee may specify at grant), then for a
period of one year from the date of death or until the end of the Exercise
Period of such Stock Option, whichever period is shorter, any unexercised
Stock Options held by such Participant shall thereafter be exercisable to the
extent to which they were exercisable at the time of such termination.
Notwithstanding any other provision of this Plan except for Section 7.1
hereof, upon termination of a Participant's employment with the Company or any
of its Subsidiaries for Cause, all of the Participant's unexercised Stock
Options will terminate immediately upon the date of such termination (which
date shall be determined by the Committee in its sole discretion) and the
Participant shall forfeit all Shares for which the Company has not yet
delivered share certificates to the Participant. In such event, the Company
shall refund to the Participant the Exercise Price paid to it, if any, in the
same form as it was paid (or in cash at the Company's discretion). The Company
may withhold delivery of share certificates pending resolution of any inquiry
that could lead to a finding that a termination of a Participant's employment
was for Cause.
(e) Resignation of Director. Except as covered by Sections 6.10(a), (b), or
(c) of this Plan, if a Participant serving as a Non-Employee Director
terminates his or her service by resigning from the Board of Directors or by
failing to run for election to an additional term as a Director after being
offered nomination for an additional term by a nominating or similar committee
of the Board of Directors (or in lieu of such Committee, by the entire Board
of Directors), then (i) any Stock Options that were not exercisable at the
date of such termination of service will expire automatically, and (ii) any
exercisable Stock Options, as of such date held by the Participant may
thereafter be exercised by the Participant (A) for a period of three months
from the date of such resignation or, in the case of a failure to run for
election to an additional term, from the date of such stockholder meeting at
which such election of Directors takes place, or (B) until the end of the
Stock Option's Exercise Period, whichever period is shorter (or such other
period as the Committee may specify at grant). If a Participant serving as a
Non-Employee Director does not resign and is not offered nomination for an
additional term, all Stock Options held by such Participant shall immediately
vest on the date that the Participant's service as a Director of the Company
terminates and such Stock Options shall be exercisable until the end of the
Exercise Period for such Stock Options. Notwithstanding any other provision of
this Plan, upon removal of a Director by shareholders of the Company for cause
under applicable state law, all of the Participant's unexercised Stock Options
will terminate immediately upon the date of such termination (which date shall
be determined by the Committee in its sole discretion) and the Participant
shall forfeit all Shares for which the Company has not yet delivered share
certificates to the Participant. In such event, the Company shall refund to
the Participant the Exercise Price paid to it, if any, in the same form as it
was paid (or in cash at the Company's discretion).
6.11 Incentive Stock Option Limitations.
(a) To the extent that the aggregate Fair Market Value (determined as of the
Date of Grant) of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a Participant
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during any calendar year under the Plan and/or any other stock option plan of
the Company or any Subsidiary or parent corporation (within the meaning of
Section 425 of the Code) exceeds $100,000, such Stock Options shall be treated
as Stock Options which are not Incentive Stock Options.
(b) To the extent (if any) permitted under Section 422 of the Code, or the
applicable rules and regulations promulgated thereunder or any applicable
Internal Revenue Service pronouncement, if (i) a Participant's employment with
the Company or any Subsidiary is terminated by reason of death, disability, or
retirement covered by Section 6.10(a), (b), or (c) of this Plan, and (ii) the
portion of the Incentive Stock Option that is otherwise exercisable during the
post-termination period specified under Sections 6.10(a), (b), or (c), applied
without regard to the $100,000 limitation currently contained in Section
422(d) of the Code, is greater than the portion of the Stock Option that is
immediately exercisable as an "incentive stock option" during such post-
termination period under Section 422 of the Code, such excess shall be treated
as a Nonqualified Stock Option.
(c) In the event that the application of any of the provisions of Section 6.11
(a) or (b) of this Plan not be necessary in order for Stock Options to qualify
as Incentive Stock Options, or should additional provisions be required, the
Committee may amend the Plan accordingly, without the necessity of obtaining
the approval of the stockholders of the Company.
6.12 Buy-Out and Settlement Provisions. The Committee may at any time offer
to buy-out a Stock Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.
6.13 No Rights as Stockholder. No Participant or transferee of a Stock
Option shall have any rights as a stockholder of the Company with respect to
any Shares subject to a Stock Option (including without limitation, rights to
receive dividends, vote, or receive notice of meetings) prior to the purchase
of such Shares by the exercise of such Stock Option as provided in this Plan.
A Stock Option shall be deemed to be exercised and the Common Stock thereunder
purchased when written notice of exercise has been delivered to the Company in
accordance with Section 6.8 of the Plan and the full Exercise Price for the
Shares with respect to which the Stock Option is exercised has been received
by the Company, accompanied with any agreements required by the terms of the
Plan and the applicable Stock Option Agreement; provided, however, that if the
Participant has been terminated for Cause, only those shares of Common Stock
for which a certificate has been delivered to the Participant by the Company
will be deemed to be purchased by such Participant. Full payment may consist
of such consideration and method of payment allowable under this Article VI of
the Plan. No adjustment will be made for a cash dividend or other rights for
which the record date precedes the Date of Exercise, except as provided in
Section 4.4 of the Plan.
6.14 Sale of Common Stock Upon Exercise of Stock Option. Unless the
Committee provides otherwise in the Stock Option Agreement, Common Stock
acquired pursuant to the exercise of Stock Option shall not be subject to any
restrictions on transferability under this Plan, except as provided in Section
11.1 of this Plan. With respect to Common Stock acquired pursuant to the
exercise of an Incentive Stock Option, a transfer or other disposition of such
Common Stock by a Participant (other than by will or the laws of descent and
distribution) may not qualify for favorable tax treatment under Section 421(a)
of the Code if such transfer or other disposition shall occur before the
expiration of the later of (i) the two year period commencing on the Date of
Grant of the ISO, or (ii) the one year period commencing on the Date of
Exercise of the ISO.
ARTICLE VII
Change of Control
7.1 Acceleration of Options; Lapse of Restrictions.
(a) In the event of a Change of Control of the Company, (i) each Stock Option
then outstanding under the Plan shall be fully exercisable, regardless of any
unsatisfied vesting requirements established under the terms of the pertinent
Stock Option Agreements, and remain so for the duration of the Stock Option as
specified in the
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Stock Option Agreement, and (ii) all conditions or restrictions related to an
Award shall be accelerated or released; all in a manner, in the case of
persons subject to Section 16(b) of the Exchange Act, as to conform with the
provisions of Rule 16b-3 thereunder.
(b) Awards that remain outstanding after a Change of Control shall not be
terminated as a result of a termination of service covered by Section 6.10,
and shall continue to be exercisable until the end of the Exercise Period in
accordance with their original terms, except in the case of a Participant's
death in which case termination shall occur within one year from the date of
death.
(c) Notwithstanding the foregoing, if any right granted pursuant to this
Section 7.1 would make a Change of Control transaction ineligible for pooling
of interests accounting treatment under applicable accounting principles that,
but for this Section 7.1, would have been available for such accounting
treatment, then the Committee shall have the authority to substitute stock for
cash which would otherwise be payable pursuant to this Section 7.1 having a
Fair Market Value equal to such cash.
7.2 Definition of Change of Control. For purposes of this Plan, a "Change of
Control" is deemed to have occurred if:
(a) any individual, entity, or group (within the meaning of Sections 13(d)(3)
or 14(d)(2) of the Exchange Act), is or becomes, directly or indirectly, the
"beneficial owner" (as defined by Rule 13d-3 promulgated under the Exchange
Act) of 25% or more of the combined voting power of the then outstanding
securities of the Company entitled to vote generally in the election of
Directors ("Voting Securities"); provided, however, that any acquisition by
the following will not constitute a Change of Control:
(i) the Company or any of its Subsidiaries,
(ii) any employee benefit plan (or related trust) of the Company or its
Subsidiaries, or
(iii) any corporation with respect to which, following such
acquisition, more than 50% of the combined voting power of the
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned by the Persons who were the beneficial owners of the Voting
Securities immediately prior to such acquisition in substantially
the same proportion as their ownership immediately prior to such
acquisition of the Voting Securities; or
(b) (i) a tender offer or an exchange offer is made to acquire securities of
the Company whereby following such offer the offerees will hold, control, or
otherwise have the direct or indirect power to exercise voting control over
50% or more of the Voting Securities, or (ii) Voting Securities are first
purchased pursuant to any other tender or exchange offer.
(c) as a result of a tender offer or exchange offer for the purchase of
securities of the Company (other than such an offer by the Company for its own
securities), or as a result of a proxy contest, merger, consolidation, or sale
of assets, or as a result of a combination of the foregoing, during any period
of two consecutive years, individuals who, at the beginning of such period
constitute the Board, plus any new Directors of the Company whose election or
nomination for election by the Company's stockholders was or is approved by a
vote of at least two-thirds of the Directors of the Company then still in
office who either were Directors of the Company at the beginning of such two
year period or whose election or nomination for election was previously so
approved (but excluding for this purpose, any individual whose initial
assumption of office was or is in connection with the actual or threatened
election contest relating to the election of Directors of the Company (as such
term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act)), cease for any reason during such two year period to constitute at least
two-thirds of the members of the Board; or
(d) the stockholders of the Company approve a reorganization, merger,
consolidation, or other combination, with or into any other corporation or
entity regardless of which entity is the survivor, other than a
reorganization, merger, consolidation, or other combination, which would
result in the Voting Securities
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outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or being converted into Voting Securities of the
surviving entity) at least 60% of the combined voting power of the Voting
Securities or of the voting securities of the surviving entity outstanding
immediately after such reorganization, merger, consolidation; or other
combination; or
(e) the stockholders of the Company approve a plan of liquidation or winding-
up of the Company or an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets, or any distribution to
security holders of assets of the Company having a value equal to 30% or more
of the total value of all assets of the Company.
7.3 Occurrence of a Change of Control. A Change of Control will be deemed to
have occurred:
(a) with respect to any acquisition referred to in Section 7.2(a) above, the
date on which the acquisition of such percentage shall have been completed;
(b) with respect to a tender or exchange offer, the date the offer referred to
in Section 7.2(b)(i) above is made public or when documents are filed with the
SEC in connection therewith pursuant to Section 14(d) of the Exchange Act, or
the date of the purchase referenced in Section 7.2(b)(ii);
(c) with respect to a change in the composition of the Board of Directors
referred to in Section 7.2(c), the date on which such change is adopted or is
otherwise effective, whichever first occurs; or
(d) with respect to any stockholder approval referred to in Section 7.2(d) or
(e), the date of any approval.
7.4 Application of this Article VII. The provisions of this Article VII
shall apply to successive events that may occur from time to time but shall
only apply to a particular event if it occurs prior to the expiration of this
Plan and each Award issued pursuant to this Plan.
ARTICLE VIII
Amendment, Modification, or Termination of Plan
Insofar as permitted by applicable law, the Board, by resolution, shall have
the power at any time, and from time to time, to amend, modify, suspend,
terminate or discontinue the Plan or any part thereof. The Board is
specifically authorized to amend the Plan and take such other action as it
deems necessary or appropriate to comply with Section 162(m) of the Code and
the rules and regulations promulgated thereunder. Such amendment or
modification may be without stockholder approval except to the extent that
such approval is required by the Code, or pursuant to the rules and
regulations under Section 16 of the Exchange Act, by any national securities
exchange or inter-dealer quotation system on which the Shares are then listed,
quoted, or reported, by any regulatory authority or board having jurisdiction
with respect thereto, or under any applicable laws, rules, or regulations.
Notwithstanding the provisions of this Article VIII, no termination,
amendment, or modification of the Plan, other than those pursuant to Article
IV hereof, shall in any manner adversely affect any Award theretofore granted
under the Plan, without the written consent of the Participant so affected.
ARTICLE IX
Modification, Extension, and Renewal of Stock Options and Awards
Subject to the terms and conditions, and within the limitations, of the
Plan, the Committee may modify, extend, or renew outstanding Stock Options,
prospectively or retroactively, or accept the surrender of outstanding Stock
Options (to the extent not theretofore exercised) granted under the Plan or
any other plan of the Company or a Subsidiary, and authorize the granting of
new Stock Options pursuant to the Plan in substitution therefor (to the extent
not theretofore exercised), and the substituted Stock Options may specify a
lower exercise price or a longer term than the surrendered Stock Options or
have any other provisions that are authorized by the Plan. Notwithstanding the
foregoing provisions of this Article IX, (a) no amendment or modification of
an Award which adversely affects the Participant shall not be made without the
consent of the affected Participant, and
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(b) no Incentive Stock Option may be modified, amended, extended, or reissued
if such action would cause it to cease to be an "Incentive Stock Option"
within the meaning of Section 422 of the Code, unless the Participant
specifically acknowledges and consents to the tax consequences of such action.
ARTICLE X
Indemnification of the Committee
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall
not be liable for any act, omission, interpretation, construction, or
determination made in good faith in connection with their administration of
and responsibilities with respect to the Plan, and the Company hereby agrees
to indemnify the members of the Committee against any claim, loss, damage, or
reasonable expense, including attorneys' fees, actually and reasonably
incurred in connection with the defense of any action, suit, or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any Award granted or made hereunder, and against all amounts
reasonably paid by them in settlement thereof or paid by them in satisfaction
of a judgment in any such action, suit, or proceeding, if such members acted
in good faith and in a manner which they believed to be in, and not opposed
to, the best interests of the Company and its Subsidiaries.
ARTICLE XI
General Provisions
11.1 Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of a Stock Option unless the exercise of such Stock Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange or inter-dealer quotation system upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may require each person purchasing or otherwise acquiring Shares
pursuant to a Stock Option under the Plan to represent to and agree with the
Company in writing to the effect that the Participant: (a) is acquiring the
Shares for his or her own personal account, for investment purposes only, and
not with an intent or a view to distribution within the meaning of Section
2(11) of the Securities Act (unless such shares have been issued to the
Participant pursuant to a registration statement declared effective by the
SEC), and (b) will not sell, assign, pledge, hypothecate, or otherwise dispose
of or transfer the Shares to be issued upon exercise of such Option except as
permitted by this Plan and except in compliance with the Securities Act and
the securities laws of all other applicable jurisdictions, as supported by an
opinion of counsel if so requested by the Committee. As a further condition to
the issuance of such Shares, the Participant shall provide any other
representation, warranty, or covenant as the Committee or its counsel deems
necessary under the Securities Act and the securities laws of all other
applicable jurisdiction. In addition to any legend required by this Plan, the
certificates for the Shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
11.2 Reservation of Shares. The Company shall at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan. The Company shall use its best efforts to seek to
obtain from appropriate regulatory agencies any requisite authorization in
order to issue and sell such number of Shares as shall be sufficient to
satisfy the requirements of the Plan. The inability of the Company to obtain
from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the
lawful issuance and sale of any Shares hereunder, or the inability of the
Company to confirm to its satisfaction that any issuance and sale of any
Shares hereunder will meet applicable legal requirements, shall relieve the
Company of any liability in respect to the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
11.3 Limitation on Legal Rights. The establishment of the Plan shall not
confer upon any Employee or Director any legal or equitable right against the
Company, except as expressly provided in the Plan.
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11.4 Not a Contract of Employment. This Plan is purely voluntary on the part
of the Company, and the continuation of the Plan shall not be deemed to
constitute a contract between the Company and any Participant, or to be
consideration for or a condition of the employment or service of any
Participant. Participation in the Plan shall not give any Employee or Director
any right to be retained in the service of the Company or any of its
Subsidiaries, nor shall anything in this Plan affect the right of the Company
or any of its Subsidiaries to terminate any such Employee with or without
cause.
11.5 Other Compensation Plans. The adoption of the Plan shall not affect any
other Stock Option or incentive or other compensation plans in effect for the
Company or any of its Subsidiaries, nor shall the Plan preclude the Company or
any Subsidiary from establishing any other forms of incentive or other
compensation plan or arrangements for Employees or Directors of the Company or
any of its Subsidiaries.
11.6 Assumption by the Company. The Company or its Subsidiaries may assume
options, warrants, or rights to purchase shares issued or granted by other
companies whose shares or assets shall be acquired by the Company or its
Subsidiaries or which shall be merged into or consolidated with the Company or
its Subsidiaries. The adoption of this Plan shall not be taken to impose any
limitations on the powers of the Company or its Subsidiaries or affiliates to
issue, grant, or assume options, warrants, rights, or restricted shares,
otherwise than under this Plan, or to adopt other Stock Option or restricted
share plans or to impose any requirements of shareholder approval upon the
same.
11.7 Creditors. The interests of any Participant under this Plan is not
subject to the claims of creditors and may not, in any way, be assigned,
alienated, or encumbered.
11.8 Plan Binding on Successors. All obligations of the Company under this
Plan and any Awards granted hereunder shall be binding upon any successor and
assign of the Company, whether the existence of such successor or assign is a
result of a direct or indirect purchase, merger, consolidation, or otherwise,
of all or substantially all of the business or assets of the Company.
11.9 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant by the Company, nothing contained
herein shall give any Participant any rights that are greater than those of a
general creditor of the Company.
11.10 Withholding.
(a) Tax Withholding. The Company shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any grant, exercise, or payment under or as a result of this Plan.
(b) Share Withholding. To the extent the Code requires withholding upon the
exercise of Nonqualified Stock Options, or upon the occurrence of any other
similar taxable event, the Committee may permit or require, subject to any
rules it deems appropriate, the withholding requirement to be satisfied, in
whole or in part, with or without the consent of the participant, by having
the Company withhold Shares having a Fair Market Value equal to the amount
required to be withheld. The value of the Shares to be withheld shall be based
on Fair Market Value of the Shares on the date that the amount of tax to be
withheld is to be determined.
11.11 Singular, Plural; Gender. Whenever used in this Plan, nouns in the
singular shall include the plural, and vice versa, and the masculine pronoun
shall include the feminine gender.
11.12 Headings. Headings to the Sections and subsections are included for
convenience and reference and do not constitute part of the Plan.
11.13 Costs. The Company shall bear all expenses incurred in administrating
this Plan, including original issue, transfer, and documentary stamp taxes,
and other expenses of issuing the Shares pursuant to Awards granted hereunder.
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11.14 Governing Law. This Plan and the actions taken in connection herewith
shall be governed, construed, and administered in accordance with the laws of
the State of Maine (regardless of the law that might otherwise govern under
applicable Maine principles of conflicts of laws).
ARTICLE XII
Effectiveness of the Plan
This Plan shall become effective on the date that it is adopted by the Board
of Directors; provided, however, that it shall become limited to a
Nonqualified Stock Option Plan if it is not approved by the stockholders of
the Company within one year (365 days) of its adoption by the Board of
Directors, by a majority of the votes cast at a duly held stockholder meeting
at which a quorum representing a majority of the Company's outstanding voting
shares is present, either in person or by proxy. The Committee may make Awards
hereunder prior to stockholder approval of the Plan; provided, however, that
any and all Stock Options awarded automatically shall be converted into
Nonqualified Stock Options if the Plan is not approved by such stockholders
within 365 days of its adoption.
ARTICLE XIII
Term of the Plan
Unless sooner terminated by the Board pursuant to Article VIII hereof, this
Plan shall terminate ten (10) years from its effective date and no Awards may
be granted after termination, but Awards granted prior to such termination may
extend beyond that date. The Board of Directors may terminate this Plan at any
time. The termination shall not affect the validity of any Stock Option
outstanding on the date of termination.
Date Approved by Board of Directors: September 21, 2001
/s/ Suzanne Carney
_____________________________________
Clerk Certification
Date Approved by the Stockholders: ___________, 2001
_____________________________________
Clerk Certification
B-15
NORTHEAST BANCORP
Annual Meeting of Shareholders, November 13, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of shares of common stock of Northeast Bancorp
("Northeast"), a Maine corporation, does hereby appoint John W. Trinward,
D.M.D., and James D. Delamater, and each of them, as due and lawful attorneys-
in-fact (each of whom shall have full power of substitution), to represent and
vote as designated below all of the Northeast common stock that the
undersigned held of record at 5:00 p.m., local time, on September 24, 2001, at
the Annual Meeting of Shareholders of Northeast Bancorp to be held at the
Martindale Country Club located at 527 Beech Hill Road, Auburn, Maine on
Tuesday, November 13, 2001 at 6:00 p.m. or any adjournment thereof, on the
following matters, and on such other business as may properly come before the
meeting:
1.ELECTION OF DIRECTORS
Nominees: John W. Trinward, D.M.D., James D. Delamater, John B.
Bouchard, A. William Cannan, Ronald J. Goguen, Philip C. Jackson,
Judith W. Kelley, Ronald C. Kendall, John Rosmarin, John Schiavi,
Stephen W. Wight, Dennis A. Wilson
[_]FOR ALL NOMINEES LISTED ABOVE [_]WITHHOLD AUTHORITY TO VOTE FOR
(except as marked to the contrary below) ALL NOMINEES LISTED ABOVE
(Instructions: to withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
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2. Approval of 2001 Stock Plan. Proposal to approve and adopt the
Northeast Bancorp 2001 Stock Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Ratification of Appointment of Auditors. Proposal to ratify the
appointment of Baker Newman & Noyes, Limited Liability Company, as the
Company's auditors for the fiscal year ending June 30, 2002.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, on such other business as may properly come
before the meeting (the Board of Directors is not aware of any matter
other than the above proposals which is to be presented for action at
the Annual Meeting).
All of the above proposals are described in greater detail in the
accompanying Proxy Statement dated October 5, 2001, which descriptions are
incorporated herein by reference.
(Please Sign and Date on Reverse Side)
(Continued from other side)
PLEASE SIGN AND RETURN PROMPTLY.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. If no direction is given, this proxy will be voted FOR the
election of all nominees as directors and FOR the ratification of the
Company's auditors.
PLEASE ENTER THE NUMBER OF SHARES OF NORTHEAST COMMON STOCK YOU OWN:
(Please sign, date, and return this proxy form exactly as your name or names
appear below whether or not you plan to attend the meeting.)
[_] I plan to attend the
Annual Meeting.
[_] I do not plan to attend
the Annual Meeting.
Date __________________________, 2001
Signature(s): _______________________
_____________________________________
_____________________________________
Title or Authority (if applicable)
Please sign your name here exactly
as it appears hereon. Joint owners
should each sign. When signing as an
attorney, executor, administrator,
trustee, guardian, corporate officer
or other similar capacity, so
indicate. If the owner is a
corporation, an authorized officer
should sign for the corporation and
state his or her title. If shares
are held in more than one capacity,
this Proxy shall be deemed valid for
all shares held in all capacities.