SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section240.14a-11(c) or
Section240.14a-12
NATIONAL MERCANTILE 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.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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NATIONAL MERCANTILE BANCORP
1840 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(310) 277-2265
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 1998
---------------------
TO THE SHAREHOLDERS OF NATIONAL MERCANTILE BANCORP:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders for the
fiscal year ended December 31, 1997 (the "Meeting") of National Mercantile
Bancorp, a California corporation and a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "Company"), will be held
on April 23, 1998, at 7:00 p.m., local time, at Mercantile National Bank, 1840
Century Park East, Main Floor, Los Angeles, California 90067, for the following
purposes as set forth in the attached Proxy Statement:
1. ELECTION OF DIRECTORS. To elect seven persons to the Board of
Directors of the Company, to serve until the next annual meeting of
shareholders and until their successors have been elected and qualified. The
following persons are the Board of Directors' nominees:
Donald E. Benson Scott A. Montgomery
Robert E. Gipson Dion G. Morrow
Alan Grahm Robert E. Thomson
Joseph W. Kiley III
2. APPROVAL OF AN AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN. To
approve an amendment to the Company's 1996 Stock Incentive Plan to increase
the number of shares authorized under the Plan;
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. To
ratify the appointment of Deloitte & Touche LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1998; and
4. OTHER BUSINESS. To transact such other business as may properly
come before the Meeting or any adjournment thereof.
ONLY PERSONS WHO ARE HOLDERS OF STOCK OF THE COMPANY (THE "SHAREHOLDERS") AT
THE CLOSE OF BUSINESS ON MARCH 9, 1998 ARE ENTITLED TO NOTICE OF AND TO VOTE IN
PERSON OR BY PROXY AT THE MEETING OR ANY ADJOURNMENT THEREOF.
The Proxy Statement which accompanies this Notice contains additional
information regarding the proposals to be considered and voted upon at the
Meeting, and Shareholders are encouraged to read it in its entirety.
As set forth in the enclosed Proxy Statement, proxies are being solicited by
and on behalf of the Board of Directors of the Company. All proposals set forth
above are proposals of the Company. It is expected that these materials will be
mailed to Shareholders on or about March 19, 1998.
Pursuant to the Company's Bylaws, nominations for election of individuals to
the Board of Directors may be made by the Board of Directors or by any
shareholder of any outstanding class of voting stock of the Company entitled to
vote for the election of directors. Nominations, other than those made by the
Board of Directors, must be made in writing and must be received by the
President of the Company no more than sixty (60) days prior to any meeting of
Shareholders called for the election of directors nor more
than ten (10) days after the date the notice of such meeting is sent to
Shareholders. If notice of such meeting is sent to Shareholders ten (10) days
prior to such meeting, then notice by a Shareholder of intention to make a
nomination to the Board of Directors must be given no later than the time fixed
in the notice of the meeting for the opening of the meeting. Such notification
must contain the following information to the extent known to the notifying
Shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the number of shares of
voting stock of the Company owned by each proposed nominee; (d) the name and
residence address of the notifying Shareholder; and (e) the number of shares of
voting stock of the Company owned by the notifying Shareholder. Nominations not
made in accordance herewith may be disregarded by the Chairman of the Meeting,
and, upon his instructions, the inspectors of election shall disregard all votes
cast for each such nominee.
IT IS IMPORTANT THAT ALL SHAREHOLDERS VOTE. PLEASE SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU THEN MAY WITHDRAW YOUR
PROXY AND VOTE IN PERSON IF YOU WISH TO DO SO. THE PROXY MAY BE REVOKED AT ANY
TIME PRIOR TO ITS EXERCISE.
By Order of the Board of Directors
/s/ ALAN GRAHM
-------------------------------------------
Alan Grahm
SECRETARY
Dated: March 19, 1998
NATIONAL MERCANTILE BANCORP
1840 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(310) 277-2265
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 1998
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies ("Proxies") by the Board of Directors of National Mercantile Bancorp, a
California corporation and a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Company"), for use at the Annual
Meeting of Shareholders (the "Meeting") to be held on April 23, 1998 at 7:00
p.m., local time, at Mercantile National Bank (the "Bank"), 1840 Century Park
East, Main Floor, Los Angeles, California 90067, and at any adjournment thereof.
Only persons who are holders of stock of the Company (the "Shareholders") at the
close of business on March 9, 1998 (the "Record Date") are entitled to notice of
and to vote in person or by proxy at the Meeting or any adjournment thereof.
Scott A. Montgomery and Robert E. Thomson, the designated proxy holders (the
"Proxy Holders"), are directors of the Company. The Proxies are being solicited
by and on behalf of the Board of Directors of the Company. All proposals set
forth below are proposals of the Company. It is expected that this Proxy
Statement and the accompanying Notice and Form of Proxy will be mailed to
Shareholders on or about March 19, 1998.
MATTERS TO BE CONSIDERED
The matters to be considered and voted upon at the Meeting will be:
1. ELECTION OF DIRECTORS. To elect seven persons to the Board of
Directors of the Company, to serve until the next annual meeting of
shareholders and until their successors have been elected and qualified. The
following persons are the Board of Directors' nominees:
Donald E. Benson Scott A. Montgomery
Robert E. Gipson Dion G. Morrow
Alan Grahm Robert E. Thomson
Joseph W. Kiley III
2. APPROVAL OF AN AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN. To
approve an amendment to the Company's 1996 Stock Incentive Plan (the "1996
Plan") to increase the number of shares authorized under the 1996 Plan;
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. To
ratify the appointment of Deloitte & Touche LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1998; and
4. OTHER BUSINESS. To transact such other business as may properly
come before the Meeting or any adjournment thereof.
VOTING AND REVOCABILITY OF PROXIES
A form of Proxy (the "Proxy") for voting shares at the Meeting is enclosed.
The Proxy must be signed and dated by the Shareholder of record. Any Shareholder
who executes and delivers a Proxy has the right
to revoke it at any time before it is exercised by (i) filing, with the
Secretary of the Company, an instrument revoking it or a duly executed Proxy
bearing a later date, or (ii) voting in person at the Meeting. IF ANY OTHER
BUSINESS IS PROPERLY PRESENTED AT THE MEETING, THE PROXY WILL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE COMPANY'S BOARD OF DIRECTORS. Proxies
voting in favor of Proposals 1, 2 and 3 will be voted in favor of any
adjournment of the Meeting.
SOLICITATION OF PROXIES
The cost of soliciting Proxies will be paid by the Company. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to forward proxy materials to the beneficial owners of the Company's
common stock (the "Common Stock") and the Company's 6.5% Series A noncumulative
perpetual convertible preferred stock (the "Preferred Stock") and such persons
will be reimbursed for their reasonable expenses. Proxies may be solicited by
directors, officers and regular employees of the Company and its wholly owned
subsidiary, Mercantile National Bank (the "Bank"), in person or by telephone or
telegraph, for which such persons will receive no special compensation.
OUTSTANDING SECURITIES AND VOTING RIGHTS
The authorized and outstanding capital of the Company consists of (i)
10,000,000 shares of Common Stock, of which 677,048 shares were issued and
outstanding on the Record Date and (ii) 1,000,000 shares of Preferred Stock, of
which 900,000 shares were issued and outstanding on the Record Date. A majority
of the outstanding shares of the Common and Preferred Stock constitutes a quorum
for the conduct of business at the Meeting.
Each Shareholder will be entitled to one vote, in person or by proxy, for
each share of the Company's Common Stock and two votes, in person or by proxy,
for each share of the Company's Preferred Stock standing in his or her name on
the books of the Company as of the Record Date on any matter submitted to the
vote of the Shareholders, except that in connection with the election of
directors such Shareholder shall be entitled to vote his or her shares
cumulatively. Cumulative voting entitles a Shareholder to cast that number of
votes equal to the number of directors to be elected multiplied by the number of
votes to which the Shareholder's shares are entitled, and to give one nominee
all of such votes or to distribute such votes between two or more nominees as
such Shareholder sees fit. No Shareholder is entitled to cumulate votes unless
such nominee's name has been properly placed in nomination prior to the vote and
the Shareholder has given notice at the Meeting and before the voting, of his or
her intention to vote shares cumulatively. If any Shareholder has given such
notice, all Shareholders may cumulate their votes for nominees. The Proxy
Holders may, in their discretion, cumulate votes pursuant to the Proxies for any
one or more nominees. Proxies may not be voted for a greater number of persons
than the number of nominees named herein.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a plurality of the votes of the
shares present in person or represented by proxy at the Meeting is required for
the election of directors. The affirmative vote of the holders of a majority of
the votes of the shares present in person or represented by proxy at the Meeting
is required for Proposals 2 and 3.
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SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the shares of
Common Stock and Preferred Stock beneficially owned as of the Record Date by (a)
each person known to the Company to be the beneficial owner of more than five
percent (5%) of the outstanding Common Stock and Preferred Stock of the Company,
(b) each executive officer, director and nominee for director of the Company,
(c) certain executive officers of the Bank, and (d) all directors and executive
officers of the Company as a group.
NUMBER OF
NUMBER OF PREFERRED
COMMON SHARES SHARES AND PERCENT OF CLASS OF
AND NATURE OF NATURE OF COMMON AND
NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF PREFERRED SHARES
BENEFICIAL OWNER(1) OWNERSHIP(2) CLASS(3) OWNERSHIP(2)(4) CLASS(4) COMBINED(4)
- ----------------------------------------- --------------- ----------- --------------- ----------- -------------------
Conrad Company........................... 26,244 3.9 907,914 50.4 37.7
9830 Investments No. 1, a California
Limited Partnership.................... -0- -0- 126,564 7.0 5.1
Wildwood Enterprises Inc. Profit Sharing
Plan & Trust........................... -0- -0- 100,880 5.6 4.1
Donald E. Benson......................... 2,000 * -0- -0- *
Robert E. Gipson......................... 37,256 5.5 446 * 1.5
Alan Grahm............................... 10,818 1.6 10,000 * *
Joseph W. Kiley III...................... 1,320(5) * -0- * *
Scott A. Montgomery...................... 88,888(6) 13.1 1,758 * 3.7
Dion G. Morrow........................... 150 * -0- -0- *
Robert E. Thomson........................ 136 * 278 * *
Carol A. Ward............................ 550(7) * -0- * *
All directors and executive officers as a
group(8)............................... 141,118(8) 20.8 12,482 * 6.2
- ------------------------
* Less than one percent (1%)
(1) The business address of each director and executive officer is c/o National
Mercantile Bancorp, 1840 Century Park East, Los Angeles, California 90067.
The business address of Conrad Company is 3800 Dain Bosworth Plaza, 60 South
Sixth Street, Minneapolis, Minnesota 55402. The business address of 9830
Investments No. 1, Ltd., a California limited partnership, is 9830 Wilshire
Boulevard, Beverly Hills, California 90212. The business address for
Wildwood Enterprises Inc. Profit Sharing Plan & Trust is 1901 Avenue of the
Stars, Suite 1100, Los Angeles, California 90067.
(2) Except as otherwise noted below, each person has sole voting and investment
power over the shares of Common Stock and Preferred Stock shown as
beneficially owned, subject to community property laws where applicable.
(3) Shares which the person has the right to acquire within sixty (60) days
after the Record Date are deemed to be outstanding in calculating the
percentage ownership of the person, but are not deemed to be outstanding in
calculating the percentage ownership of any other person (or group).
(4) These calculations and number of shares assume conversion of the Preferred
Stock into Common Stock on a two for one basis as a result of the 100%
Common Stock dividend paid on or about February 13, 1998.
(5) Includes 1,100 shares which may be purchased by Mr. Kiley upon exercise of
options which became exercisable on August 5, 1997.
(6) Includes 88,008 shares which may be purchased by Mr. Montgomery upon
exercise of options which became exercisable on June 20, 1997 with respect
to 44,004 shares and on April 3, 1998 with respect to 44,004 shares.
(7) Includes 550 shares which may be purchased by Ms. Ward upon exercise of an
option which became exercisable on July 26, 1997.
(8) Includes 89,658 shares which may be purchased by the directors and executive
officers as a group within 60 days of the Record Date.
3
PROPOSALS
PROPOSAL 1: NOMINATION AND ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors shall be
determined from time to time by the Board of Directors but may not be less than
six (6) nor more than eleven (11). The number of directors is currently fixed at
eight (8).
Under the terms of the stock purchase agreement between the Company and the
Conrad Company dated February 6, 1997, as amended, Conrad Company or any
affiliate thereof is entitled to elect between one and three directors based on
the percentage ownership Conrad Company acquired in the Private Offering and
further based on a Board of Directors of the Company consisting of eight (8)
directors. Conrad Company nominated Donald E. Benson, Executive Vice President
of Marquette Bancshares, Inc., an affiliate of Conrad Company, as a director of
the Company. Mr. Benson was elected a director of the Company and of the Bank on
January 15, 1998. Mr. Joseph W. Kiley III, a current member of the Board, has
indicated he would resign if necessary to provide a seat for an outside
director.
The following table sets forth certain information regarding the nominees.
All of the persons identified below as current members of the Board of Directors
have been nominated for re-election by the Board of Directors to serve until the
next annual meeting of shareholders and until their successors are elected and
have qualified. All nominees for director have indicated their willingness to
serve and, unless otherwise instructed, votes will be cast pursuant to the
Proxies in such a way as to elect as many of the Board of Directors' nominees as
possible under applicable voting rules. It is intended that each person elected
a director of the Company also will be elected a director of the Bank. In the
event that any of the nominees should be unable to serve as a director, the
Proxy Holders will vote for the election of such substitute nominees, if any, as
shall be designated by the Board of Directors. The Board of Directors has no
reason to believe that any nominee will be unable to serve if elected.
NAME AGE POSITION WITH THE COMPANY AND THE BANK
- -------------------------------- --- ------------------------------------------------------
Donald E. Benson................ 67 Director
Robert E. Gipson................ 51 Chairman of the Board
Alan Grahm...................... 75 Director and Secretary
Joseph W. Kiley III............. 42 Director, Executive Vice President and Chief Financial
Officer
Scott A. Montgomery............. 55 Director, President and Chief Executive Officer
Dion G. Morrow.................. 65 Director
Robert E. Thomson............... 56 Vice Chair
DONALD E. BENSON is Executive Vice President and a director of Marquette
Bancshares, Inc., an affiliate of the Conrad Company, and has served in that
capacity for more than five years. He was Executive Vice President and a
director of Bank Shares, Inc., a bank holding company, from 1968 to 1992. From
1986 to 1994, Mr. Benson served as President and a director of MEI Diversified
Inc., medical products manufacturer and distributor. In February 1993, MEI
Diversified Inc. filed a petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. A Plan of Reorganization was confirmed and became
effective October 14, 1994. Mr. Benson is also a director of Mesaba Holdings,
Inc., commuter airline, Delta Beverage Group, Inc., soft drink bottler and
distributor, Mass Mutual Corporate Investors, a mutual fund, and Mass Mutual
Participation Investors, a mutual fund. Mr. Benson was elected a director of the
Company and the Bank by the Board of Directors in January 1998.
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ROBERT E. GIPSON is Principal of the law firm of Gipson Hoffman & Pancione,
A.P.C. and has served in that capacity for more than five years. He has also
been President of Corporate Management Group, Inc., a financial management
company, since 1988. He is also a trustee of Meyers Sheppard Investment Trust.
Mr. Gipson has been a director of the Company and the Bank since October 1996,
and Chairman of the Board since June 1997.
ALAN GRAHM has served as Chairman of the Board of Associated Sales, an
import company, from 1954 to 1996. He also has been a 50% owner of Bonny Doon
Vineyards, a winery, since 1981. Mr. Grahm has been a director of the Company
since 1983 and a director of the Bank since 1982. Mr. Grahm also has served as
Secretary of the Company and the Bank since June 1997.
JOSEPH W. KILEY III has served as Executive Vice President and Chief
Financial Officer of the Company and the Bank since August 1996. Prior thereto,
from July 1992 to August 1996, he was Executive Vice President and Chief
Financial Officer of Hancock Savings Bank, FSB, in Los Angeles. From June 1990
to July 1992 Mr. Kiley served as Executive Vice President--Operations and Chief
Financial Officer of Compensation Resource Group, Inc., a benefits consulting
company, in Pasadena, California. Mr. Kiley has been a director of the Company
and the Bank since April 1997.
SCOTT A. MONTGOMERY has served as President and Chief Executive Officer of
the Bank since November 1995 and as Executive Vice President and Chief
Administrative Officer of the Company from June 1996 to June 1997. He has served
as President and Chief Executive Officer of the Company since June 1997. Prior
thereto, from September 1990 to September 1994, he was President and Chief
Operating Officer of Cupertino National Bank, Cupertino, California. From
September 1994 until November 1995, Mr. Montgomery was a consultant for various
banks. Mr. Montgomery served as a director of Tracy Federal Bank F.S.B. ("Tracy
Bank"), Tracy, California from March 1995 to May 1997 and served as the Vice
Chairman of the Board of Directors from April 1996 to May 1997. Mr. Montgomery
has been a director of the Company and the Bank since November 1995.
DION G. MORROW has served as a private judge since November 1995. Prior
thereto, from October 1978 to October 1995, he served as Judge of the Los
Angeles Superior Court. Mr. Morrow was elected a director of the Company and the
Bank by the Board of Directors in February 1998.
ROBERT E. THOMSON has served as Of Counsel at Jekel & Howard since August
1996. Prior thereto, he was an Executive Consultant to Sterling Forest
Corporation ("Sterling"), a real estate development company, from August 1994 to
August 1996, and served as Chairman of the Board and Chief Executive Officer of
Sterling from January 1989 to August 1994. Mr. Thomson has served as a director
of the Company since 1983 and of the Bank since 1982 and has served as Vice
Chair of the Company and the Bank since June 1991. He also served as Interim
Chief Executive Officer of the Bank from June to October, 1991 and as Interim
President and Chief Executive Officer of the Bank from August to November 1995.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES.
PROPOSAL 2: APPROVAL OF AN AMENDMENT TO THE 1996 STOCK INCENTIVE PLAN
The Board of Directors of the Company adopted the 1996 Stock Incentive Plan
(the "1996 Plan") on April 25, 1997, and the 1996 Plan was approved by the
shareholders of the Company on June 18, 1997. The purpose of the 1996 Plan was
to enable the Company to attract, retain and motivate its officers, directors,
employees and independent contractors by providing for or increasing their
proprietary interests in the Company and, in the case of nonemployee directors,
to attract such directors and further align their interests with those of the
Company's Shareholders by providing for or increasing their proprietary
5
interests in the Company. Currently, the 1996 Plan provides for the issuance of
a maximum 110,010 shares (after giving effect to the 9.09 to 1 reverse stock
split effective June 20, 1997 and the 100% common stock dividend, to be
accounted for as a 2-for-1 stock split, paid on or about February 13, 1998 to
holders of record on February 4, 1998). As of March 9, 1998, options to purchase
93,278 shares were outstanding, and 16,732 shares were available for grant under
the 1996 Plan.
On October 3, 1997 the Board of Directors, upon recommendation of the Stock
Option Committee, adopted subject to shareholder approval an amendment to the
1996 Plan to increase the number of shares reserved for issuance under the 1996
Plan to 283,510. If the amendment to the 1996 Plan is approved by the
shareholders, options to purchase such additional shares will be subject to the
same terms and provisions as provided in the Plan.
Subject to shareholder approval of the amendment to the 1996 Plan increasing
by 173,500 shares the authorized number of shares under the 1996 Plan, the total
number of option shares authorized under the Company's 1990, 1994 and 1996 stock
option plans will be 371,518 shares, representing less than 15% of the Company's
fully diluted outstanding capital stock.
The Board of Directors believes that the Company's policy of encouraging
stock ownership by its officers, employees and directors has and will be a
positive factor in its growth and success by enabling the Company to attract and
retain directors and key employees, to stimulate the efforts of such employees
towards achievement of the Company's objectives and to align the interests of
such directors and employees with those of the Company's shareholders. The Board
of Directors believes that the number of shares presently available for grant
under the 1996 Plan is insufficient to enable the Company to retain or attract
high caliber directors and employees in today's competitive market. While the
Board recognizes the possible dilutive effect on the shareholders, it believes,
on balance, the incentive that can be provided by the opportunity to participate
in the growth and earnings of the Company through the granting of stock options
to directors and employees is important to the success of the Company and,
accordingly, will benefit the Company and its shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1996 PLAN
AMENDMENT.
Set forth below is a description of the material features of the 1996 Plan
and the Plan Amendment.
ADMINISTRATION. The 1996 Plan is administered by a committee of two or more
disinterested directors appointed by the Board of Directors of the Company (the
"Committee"), except that grants to nonemployee directors will be made by the
Board of Directors pursuant to a predetermined formula. The Committee has full
and final authority to select the recipients of awards and to grant such awards.
Subject to the provisions of the 1996 Plan, the Committee has sole and absolute
discretion in determining the terms and conditions of awards and the number of
shares to be issued pursuant thereto, including the exercise price and
conditioning the receipt or vesting of awards upon the achievement by the
Company of specified performance criteria. Subject to limitations imposed by
law, the Board of Directors may amend or terminate the 1996 Plan at any time and
in any manner. However, no such amendment or termination may deprive the
recipient of an award previously granted under the 1996 Plan of any rights
thereunder without his consent. The expenses of administering the 1996 Plan are
and will continue to be borne by the Company.
TERMS OF AWARDS. The 1996 Plan authorizes the Committee to enter into any
type of arrangement with an eligible recipient that, by its terms, involves or
might involve the issuance of Common Stock or any other security or benefit with
a value derived from the value of Common Stock. Awards are not restricted to any
specified form or structure and may include, without limitation, sales or
bonuses of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock, securities
6
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. The
Committee may determine the exercise price of any award to be below fair market
value. Such awards will result in a compensation cost to the Company equal to
the difference between the fair market value and the cost to the recipient at
the date of issuance. An award may consist of one such security or benefit or
two or more of them in tandem or in the alternative. The 1996 Plan provides
that, any person elected or appointed to serve as a director of the Company on
or after October 1, 1996, who was not employed by the Company (a "Nonemployee
Director") and who has not previously served as a Nonemployee Director of the
Company shall be granted, on the first business day following the later of the
date of such election or appointment or the date the 1996 Plan was approved by
the Shareholders, an option to purchase 1,100 shares of Common Stock (after
giving effect to the 9.09 to 1 reverse stock split effective June 20, 1997 and
the 100% common stock dividend paid on or about February 13, 1998) without
further action by the Committee. On the first business day following the date of
the annual meeting of shareholders held in 1998 (the "1998 Meeting"), all
Nonemployee Directors who were directors on or after the effective date of the
1996 Plan and who are re-elected to the Board at the 1998 Meeting will be
granted, without further action by the Committee, an option to purchase 550
shares of Common Stock. Nonemployee director options have an exercise price
equal to the fair market value of such shares on the date of grant and shall
become fully exercisable one year from the Date of Grant.
An award granted under the 1996 Plan may include a provision accelerating
the receipt of benefits upon the occurrence of specified events, such as a
change of control of the Company or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of the
Company or other significant corporate transactions. Options granted to
nonemployee directors must be exercised by the sixth anniversary of the date of
grant. Any stock option granted to an employee may be a tax-benefited incentive
stock option or a non-qualified stock option that is not tax-benefited. Awards
to nonemployee directors may only be non-qualified stock options.
An award may permit the recipient to pay all or part of the purchase price
of the shares or other property issuable pursuant thereto, or to pay all or part
of such employee's tax withholding obligation with respect to such issuance, by
(a) delivering previously owned shares of capital stock of the Company or other
property, (b) reducing the amount of shares or other property otherwise issuable
pursuant to the award or (c) delivering a promissory note, the terms and
conditions of which will be determined by the Committee. If an option permits
the recipient to pay for the shares issuable pursuant thereto with previously
owned shares, the recipient would be able to exercise the option in successive
transactions, starting with a relatively small number of shares and, by a series
of exercises using shares acquired from each such transaction to pay the
purchase price of the shares acquired in the following transaction, to exercise
an option for a large number of shares with no more investment than the original
share or shares delivered. The exercise price and any withholding taxes are
payable in cash by nonemployee directors, although the Board of Directors at its
discretion may permit such payment by delivery of shares of Common Stock, or by
delivery of broker instructions authorizing a loan secured by the shares
acquired upon exercise or payment to the Company of proceeds from the sale of
such shares.
Pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), directors, certain officers and ten percent stockholders
of the Company are generally liable to the Company for repayment of any
"short-swing" profits realized from any non-exempt purchase and sale of Common
Stock occurring within a six-month period. Rule 16b-3, promulgated under the
Exchange Act, provides an exemption from Section 16(b) liability for certain
transactions by an officer or director pursuant to an employee benefit plan that
complies with such Rule. Specifically, the grant of an option under an employee
benefit plan that complies with Rule 16b-3 will not be deemed a purchase of a
security for purposes of Section 16(b). The 1996 Plan is designed to comply with
Rule 16b-3.
Awards may not be granted under the 1996 Plan after the tenth anniversary of
the adoption of the 1996 Plan. Although any award that was duly granted on or
prior to such date may thereafter be exercised
7
or settled in accordance with its terms, no shares of Common Stock may be issued
pursuant to any award after the twentieth anniversary of the adoption of the
1996 Plan.
FEDERAL INCOME TAX TREATMENT. The following is a brief description of the
federal income tax treatment that generally will apply to awards made under the
1996 Plan, based on federal income tax laws in effect on the date hereof. The
exact federal income tax treatment of any award will depend on the specific
nature of such award. Such an award may, depending on the conditions applicable
to the award, be taxable as an option, an award of restricted or unrestricted
stock, an award which is payable in cash or otherwise.
Pursuant to the 1996 Plan, participants may be granted options which are
intended to qualify as incentive stock options. Generally, the optionee is not
taxed, and the Company is not entitled to a deduction, on the grant or exercise
of an incentive stock option. However, if the optionee sells the shares acquired
upon the exercise of an incentive stock option at any time within (i) one year
after the date of exercise of the option or (ii) two years after the date of
grant of the option, then the optionee will recognize ordinary income in an
amount equal to the excess, if any, of the lesser of the sale price or the fair
market value of the shares sold on the date of exercise over the exercise price
of the option. The Company will generally be entitled to a deduction in an
amount equal to the amount of ordinary income recognized by the optionee.
The grant of an option or other similar right to acquire stock generally is
not a taxable event for the optionee. Upon exercise of the option, the optionee
generally will recognize ordinary income in an amount equal to the excess of the
fair market value of the stock acquired upon exercise (determined as of the date
of exercise) over the exercise price of such option, and the Company will be
entitled to a deduction equal to such amount.
Special rules will apply, however, if the optionee is subject to Section 16
of the Exchange Act. During any period of time (the "Section 16(b) Period") in
which a sale of the stock acquired upon exercise of the option could subject
such optionee to suit under Section 16, the optionee will not recognize ordinary
income and the Company will not be entitled to a deduction. Upon the expiration
of the Section 16(b) Period, the optionee will recognize ordinary income, and
the Company will be entitled to a deduction, equal to the excess of the fair
market value of the stock (determined as of the expiration of the Section 16(b)
Period) over the option exercise price. As described below, such an optionee may
elect under Section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), to recognize ordinary income on the date of exercise, in which case the
Company would be entitled to a deduction at that time equal to the amount of the
ordinary income recognized.
Awards under the 1996 Plan also may include stock sales, stock bonuses or
other grants of stock. Stock issued pursuant to these awards may be subject to
certain restrictions. Pursuant to Section 83 of the Code, stock sold or granted
under the 1996 Plan will give rise to taxable income at the earliest time at
which such stock is not subject to a substantial risk of forfeiture or is freely
transferable for purposes of Section 83. At that time, the holder will recognize
ordinary income equal to the excess of the fair market value of the shares
(determined as of such time) over the purchase price, and the Company will be
entitled to a deduction equal to such amount. Holders may elect to report income
upon receipt of the award rather than wait until the restrictions lapse. In such
case, the holder has no additional income to report when the restrictions lapse.
If the holder of the stock is a person subject to Section 16(b) and if the sale
of the stock at a profit could subject such person to suit under Section 16(b),
income will be recognized in accordance with the rules described above regarding
stock issued to such persons upon the exercise of an option, unless the holder
makes an election under Section 83(b) to recognize income on the date the stock
is issued.
Awards may be granted under the 1996 Plan that do not fall clearly into the
categories described above. The federal income tax treatment of these awards
will depend upon the specific terms of such
8
awards. The Company may be required to withhold applicable taxes with respect to
any ordinary income recognized by a participant in connection with awards made
under the 1996 Plan.
The terms of the agreements pursuant to which specific awards are made under
the 1996 Plan may provide for accelerated vesting or payment of an award in
connection with a change in ownership or control of the Company. Such awards may
constitute "excess parachute payments" under the golden parachute provisions of
the Code. Pursuant to such provisions, an employee will be subject to a 20%
excise tax on any "excess parachute payment," and the Company will be denied any
deduction with respect to such excess parachute payment.
In October 1997, the Board of Directors approved a grant of 73,000 stock
options at fair market value on the date of grant to Mr. Montgomery, the
President and Chief Executive Officer of the Company, under the 1996 Plan
subject to shareholder approval of the proposed amendment to the 1996 Plan, the
purpose of which was to fulfill the Company's obligations to Mr. Montgomery
under his employment agreement.
The Company has registered the sale of the shares of its common stock
pursuant to the 1996 Plan and intends to register under the Securities Act of
1933, as amended, the sale of the additional shares of its Common Stock pursuant
to the 1996 Plan.
PROPOSED FIRST AMENDMENT TO THE PLAN.
The National Mercantile Bancorp 1996 Stock Incentive Plan is hereby amended
as follows:
"1. Section 4 of the Plan is hereby amended to increase the number of
Common Shares available for grant under the Plan from 110,010 shares to
283,510 shares."
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP ("Deloitte") has been the independent public auditors
of the Company since 1990. Upon recommendation of the Audit Committee, Deloitte
has been appointed by the Board of Directors as the auditors of the Company for
1998. The shareholders of the Company are requested to ratify this appointment.
A representative from Deloitte is expected to be present at the Annual Meeting
with the opportunity to make a statement if he or she so desires and to respond
to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR 1998.
9
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company and the Bank that are not already described under the
section entitled "Proposal 1: Nomination and Election of Directors."
NAME AGE POSITION WITH THE COMPANY AND THE BANK
- ---------------------------------------- --- ----------------------------------------------
Carol A. Ward........................... 43 Executive Vice President and Administrator of
Operations
BUSINESS EXPERIENCE
Information concerning the business experience of Messrs. Gipson, Grahm,
Kiley, Montgomery and Thomson is provided under the section entitled "Nomination
and Election of Directors."
CAROL A. WARD has served as Executive Vice President and Administrator of
Operations of the Bank since July 1996. Prior thereto, from January 1996 to July
1996, she served as a consultant to financial institutions. From November 1993
to January 1996, Ms. Ward served as Vice President and General Auditor, and as
Executive Vice President and Chief Operating Officer of Ventura County National
Bancorp in Oxnard, California. From March 1990 to November 1993 she was Vice
President and Director of Risk Management and Senior Vice President and General
Auditor at Community Bank in Pasadena, California.
There are no family relationships among directors or executive officers of
the Company and, except as described in the Proxy Statement as of the date
hereof, no directorships are held by any director in a company which has a class
of securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940. None of the directors,
nominees for director or executive officers were selected pursuant to any
arrangement or understanding, other than with the directors and executive
officers of the Company acting within their capacity as such.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee and a Nominating and
Compensation Committee. The Audit Committee is chaired by Mr. Benson and its
members are Messrs. Benson, Gipson and Thomson. The primary purposes of the
Audit Committee are to (i) make recommendations to the Board regarding the
selection of the Company's independent auditors, (ii) to monitor the
effectiveness of the audit effort and financial reporting and (iii) to inquire
into the adequacy of financial and operating controls and regulatory compliance
of the Company. The Audit Committee met two times during 1997.
The Nominating and Compensation Committee is chaired by Mr. Grahm and its
members are Messrs. Grahm, Gipson, Montgomery and Thomson. The purpose of the
Nominating and Compensation Committee is to (i) propose nominees for director to
the Board of Directors, (ii) to oversee and direct the overall compensation
policy for the Company and the Bank and (iii) to review and recommend to the
Board of Directors the salaries, bonuses and perquisites of the Company's
executive officers. The Nominating and Compensation Committee met four times
during 1997.
The Nominating and Compensation Committee will consider nominees for the
Company's Board of Directors recommended by any shareholder of the Company. Such
recommendations must be submitted in writing to the President of the Company and
contain the following information to the extent known to the shareholder: (a)
the name and address of each proposed nominee; (b) the principal occupation of
each proposed nominee; (c) the number of shares of Common Stock of the Company
owned by each proposed nominee; (d) the name and residence address of the
notifying shareholder; and (e) the number of shares of Common Stock of the
Company owned by the notifying shareholder.
10
COMPENSATION OF DIRECTORS
The directors of the Company received no compensation for their services as
directors or members of any committee on which they served from January 1997
through October 1997.
Since November 1997 the monthly retainer paid to directors of the Company is
$500 for the Chairman of the Board and $400 for other directors. For each
meeting of the Board attended, the Chairman receives $500 and the other
directors $400. For each committee meeting attended, the Chairman of each
committee receives $150 and other committee members receive $100.
MEETINGS OF DIRECTORS
The Board of Directors met sixteen times during 1997. All of the persons who
were directors of the Company during 1997 attended at least 75% of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees on which they served during 1997.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid to or earned by each person who acted in the capacity of an
executive officer of the Company and certain executive officers of the Bank for
services rendered in all capacities during each of the last three fiscal years.
SUMMARY COMPENSATION
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS/SAR'S COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ------------------------------------------------ --------- ------------ ------------ -------------- ---------------
Scott A. Montgomery ............................ 1997 213,333(1) 11,600(3) 60,504(5) 2,724(6)
President and Chief Executive Officer of the 1996 193,333 -- 44,004 2,444(6)
Company and the Bank 1995 31,667(2) 31,667(4) -- 2,393(6)
Howard P. Ladd ................................. 1997 -- (7) -- -- --
President and Chief Executive Officer of the 1996 -- -- -- --
Company 1995 -- -- -- --
Joseph W. Kiley III ............................ 1997 122,917 14,000(9) 8,800 14,400(10)
Executive Vice President and Chief Financial 1996 49,154(8) -- 4,400 6,000(10)
Officer of the Company and the Bank 1995 -- -- -- --
Carol A. Ward .................................. 1997 115,554 10,000(9) 4,400 6,000(12)
Executive Vice President and Administrator of 1996 43,013(11) -- 2,200 2,500(12)
Operations 1995 -- -- -- --
- ------------------------
(1) Mr. Montgomery's salary increased to $230,000 effective November 1, 1997.
See "Employment Agreement."
(2) Mr. Montgomery commenced employment with the Bank on November 1, 1995 at an
annual salary of $190,000. The salary shown was paid to him between November
1 and December 31, 1995.
(3) Includes a discretionary bonus of $5,000 and an incentive bonus of $6,600
based on five percent (5%) of the Bank's pretax net profit for the fiscal
year 1997. See "Employment Agreement."
(4) Consists of a bonus paid to Mr. Montgomery upon commencement of his
employment with the Bank.
11
(5) Includes a non-qualified stock option and tandem stock appreciation right
("SAR") with respect to 16,500 shares of Common Stock. Does not include an
incentive stock option of 73,000 shares of Common Stock that have been
approved by the Board of Directors for grant to Mr. Montgomery upon
shareholder approval of an amendment to the 1996 Stock Incentive Plan. See
"Employment Agreement."
(6) Consists of health club membership dues and the value of use of a Company
automobile.
(7) Mr. Ladd served as President and Chief Executive Officer of the Company from
August 28, 1995 to June 18, 1997. Mr. Ladd received no compensation for his
services in these positions.
(8) Mr. Kiley commenced employment with the Company and the Bank on August 6,
1996 at an annual salary of $120,000. The salary shown was paid to him
between August 6 and December 31, 1996.
(9) Consists of discretionary bonuses paid or earned in 1997.
(10) Consists of club membership fees and automobile allowance.
(11) Ms. Ward commenced employment with the Bank on July 1, 1996 at an annual
salary of $110,000. The salary shown was paid to her between July 1 and
December 31, 1996.
(12) Consists of automobile allowance.
EMPLOYMENT AGREEMENT
Effective June 21, 1996, the Company and Mr. Montgomery entered into an
employment agreement which provides for: (i) a term of employment commencing on
November 1, 1995 and expiring on December 31, 1999; (ii) an annual base salary
of $190,000 for the first year, $210,000 for the second year, $230,000 for the
third year and $250,000 for the remaining term; (iii) an incentive bonus in an
amount equal to five percent (5%) of the Bank's pretax net profit in any
calendar year of the term in which the Bank achieves a pretax net profit and an
additional incentive bonus in an amount equal to two percent (2%) of the Bank's
pretax net profit in any calendar year of the term in which the Bank achieves
both a pretax net profit and a return ratio of at least one and one-half percent
(1.5%) of pretax net profit to assets, both bonuses subject to a cap on total
cash compensation during any calendar year of $350,000; (iv) the grant of
options to purchase shares of up to 6.5% of the Company's outstanding capital
stock and an option to purchase 16,500 shares of the Company's common stock with
tandem stock appreciation rights; (v) use of a Company automobile, payment of
club membership dues, and other perquisites; (vi) severance pay; and (vii) a
signing bonus equal to two months' salary.
STOCK OPTION GRANTS
The following table presents certain information regarding the grant of
stock options to executive officers during 1997. The number of options and stock
appreciation rights and the exercise prices have been adjusted to reflect the
100% common stock dividend, paid on or about February 13, 1998 to holders of
record on February 4, 1998.
12
OPTION/SAR GRANTS IN FISCAL YEAR 1997
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- ------------------------- --------------- ------------ ----------- ----------------- ---------- ----------
Scott A. Montgomery...... 16,500(2) 14.8% 7.225 1/31/2000(2) $ 18,791 $ 39,459
Scott A. Montgomery...... 44,004(3) 39.6% 6.595 10/03/2007 $ 182,509 $ 462,514
Howard P. Ladd........... -- -- -- -- -- --
Joseph W. Kiley III...... 6,600 5.9% 6.82 05/28/2007 $ 28,308 $ 71,738
Joseph W. Kiley III...... 2,200 2.0% 5.00 06/18/2007 $ 6,918 $ 17,531
Carol A. Ward............ 4,400 4.0% 6.82 05/28/2007 $ 18,872 $ 47,825
Carol A. Ward............ 2,200 2.0% 5.00 06/18/2007 $ 6,918 $ 17,531
- ------------------------
(1) The Potential Realizable Value is the product of (a) the difference between
(i) the product of the closing sale price per share at the date of grant and
the sum of (A) 1 plus (B) the assumed rate of appreciation of the Common
Stock compounded annually over the term of the option and (ii) the per share
exercise price of the option and (b) the number of shares of Common Stock
underlying the option at December 31, 1997. These amounts represent certain
assumed rates of appreciation only. Actual gains, if any, on stock option
exercises are dependent on a variety of factors, including market conditions
and the price performance of the Common Stock. There can be no assurance
that the rate of appreciation presented in this table can be achieved.
(2) Includes a non-qualified stock option and tandem stock appreciation right
("SAR") with an expiration date of January 1, 2000 with respect to 8,250
shares and an expiration date of January 31, 2000 with respect to 8,250
shares of Common Stock.
(3) Does not include an incentive stock option with respect to 73,000 shares of
Common Stock that have been approved by the Board of Directors for grant to
Mr. Montgomery upon shareholder approval of the proposed amendment to the
1996 Stock Incentive Plan.
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information regarding the exercise of
options by executive officers during the fiscal year ended December 31, 1997 and
unexercised options held by the executive officers as of December 31, 1997. All
options and exercise prices have been adjusted to reflect the 100% stock
dividend, accounted for as a two-for-one stock split, paid on or about February
13, 1998 to holders of record on February 4, 1998.
13
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT FISCAL THE-MONEY OPTIONS/SARS AT
YEAR END(#) FISCAL YEAR END($)(2)
SHARES ACQUIRED ---------------------------- --------------------------
NAME ON EXERCISE(#)(1) VALUE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------------- ----------------- ------------ -------------- ----------- -------------
Scott A. Montgomery........ -- -- 44,004(3) 60,504(4) $ 14,081 --
Howard P. Ladd............. -- -- -- -- -- --
Joseph W. Kiley III........ -- -- 1,100 12,100 $ 974 $ 5,121
Carol A. Ward.............. -- -- 550 8,250 -- $ 2,200
- ------------------------
1) No options were exercised by any executive officer during 1997.
(2) In accordance with the rules promulgated by the Securities and Exchange
Commission, the value of unexercised "in-the-money" options is the
difference between the closing sale price of the Common Stock on December
31, 1997 ($6.00 per share) and the exercise price of the option, multiplied
by the number of shares subject to the option.
(3) Includes a non-qualified stock option with tandem stock appreciation rights
(SARs) with respect to 16,500 shares of Common Stock granted under the 1996
Stock Incentive Plan.
(4) Does not include an incentive stock option with respect to 73,000 shares of
common stock that has been approved by the Board of Directors for grant to
Mr. Montgomery upon shareholder approval of the proposed amendment to the
1996 Stock Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997 Messrs. Gipson, Grahm, Hickey, Montgomery and Thomson served as
members of the Nominating and Compensation Committee (the "Committee"). Except
for Mr. Montgomery, President and Chief Executive Officer of the Company and the
Bank, all members of the Committee during fiscal 1997 were outside directors.
Mr. Montgomery was excluded from participation in any action taken by the
Committee or the full Board of Directors in any matter relating to his own
compensation.
14
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report of the Committee shall not be deemed incorporated by reference
by any general statement incorporating this proxy statement into any filing
under the Securities Act of 1933, as amended or the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference.
This report addresses the Company's compensation policies for 1997
applicable to the Company's and the Bank's executive officers.
COMPENSATION POLICY. The Committee held four meetings in 1997. The
Committee, subject to approval by the Board of Directors (the "Board"), is
responsible for evaluating and establishing the level of executive compensation.
The executive compensation program is administered by the Committee or the
Board. The main objective of the compensation program is to offer competitive
levels of compensation in order to attract and retain qualified executives, to
motivate performance and to achieve the long-term success of the Company to
protect and enhance shareholder value.
The Company's executive compensation program is not directly performance
related. The executive compensation program consists of base salary, stock
options and bonuses. The Committee or the Board may authorize the payment of
discretionary bonuses to executives and other key personnel for outstanding
contributions to the Company's and the Bank's growth and profitability or to
attract or retain qualified executives.
BASE SALARY. The Company's remuneration philosophy is to provide executive
compensation levels that are competitive with those paid by other banks and
financial institutions of similar size and performance and located in the same
general geographic area, to attract and retain qualified executives critical to
achieving the Company's short-term goals and long-term success. Peer group
compensation data is obtained from various sources, including compensation
surveys, industry studies and proxy statements of other publicly held financial
institutions. Salary ranges are reviewed and established annually to ensure that
base salary ranges reflect competitive job market conditions.
The Company's general approach is to pay competitive cash compensation based
upon the executive's experience, past and potential future contributions to the
Company and the Bank. Annual increases to the executive officers' base salary
are based on responsibilities, performance and achievement of pre-established
goals.
STOCK OPTIONS. The Committee and the Board believe that stock ownership by
executives and employees provides valuable performance incentive and the Company
has granted stock options under various stock option plans since 1983 to secure
for the Company and its shareholders the benefits arising from stock ownership
by executives and employees of the Company or the Bank, including retaining and
attracting qualified executives and key employees and helping to insure equity
between recently hired executives and longer tenured employees. The Board and
the Committee view stock options as a strong incentive and an important
component for management to increase shareholder value. Stock options are
granted at fair market value of the Company's Common Stock at the date of grant
and have generally been granted as non-qualified stock options with some
exceptions. It is the intention of the Board and the Committee to grant
incentive stock options in 1998. The number of options granted is based on the
performance and subjective evaluation of the employee's ability to influence the
Company's and the Bank's long-term growth and profitability.
CEO COMPENSATION. Mr. Montgomery commenced employment as President and CEO
of the Bank on November 1, 1995 and was appointed President and CEO of the
Company on June 18, 1997. His base salary for the first year was $190,000.
Pursuant to the terms of an employment agreement between the Bank and Mr.
Montgomery, his salary from November 1, 1996 until October 31, 1997 was $210,000
and from November 1, 1997 until October 31, 1998 is $230,000. In determining Mr.
Montgomery's base salary
15
at the commencement of his employment, the Board considered numerous factors in
an effort to bring to the Bank a CEO with considerable experience and expertise
who could provide leadership for the future. The Board sought to attract a CEO
capable of guiding the Company through its restructuring efforts and beyond, to
provide dynamic and long-term leadership to strengthen its relationship with
shareholders and employees and to improve product lines and quality of service.
Given the complex nature of the recapitalization of the Company, which was
successfully completed in June of 1997, the Board granted Mr. Montgomery a
discretionary bonus of $5,000 in August of 1997.
Pursuant to his employment agreement, Mr. Montgomery is entitled and was
granted a non-qualified stock option with tandem stock appreciation rights of
16,500 shares of the Company's common stock at an exercise price of $7.225 (The
number of shares and exercise price are calculated after giving effect to the
9.09 to 1 reverse stock split, effective June 20, 1997 and the 100% common stock
dividend paid on February 13, 1998 to holders of record of common stock on
February 4, 1998). In addition, pursuant to the terms of his employment
agreement, Mr. Montgomery is entitled to stock option grants of up to 6.5% of
the outstanding capital stock of the Company. In fulfilling its obligations
under Mr. Montgomery's employment contract, the Committee and the Board have
made the following grants of option shares (after giving effect to the reverse
stock split and the common stock dividend mentioned above): In December 1996 Mr.
Montgomery was granted an incentive stock option to purchase 44,004 shares of
the Company's Common Stock at an exercise price of $5.68 per share. In October
1997 Mr. Montgomery was granted an incentive stock option to purchase 44,004
shares of the Company's common stock at an exercise price of $6.595 per share.
In addition, in October 1997, Mr. Montgomery was granted an incentive stock
option to purchase approximately 73,000 shares of the Company's common stock at
an exercise price of $6.595 per share, subject to approval by the shareholders
of an amendment to the 1996 Stock Incentive Plan to increase the number of
shares authorized under the Plan. See "Proposal 2. Approval of an Amendment to
the 1996 Stock Incentive Plan."
The incentive bonus component of Mr. Montgomery's compensation is dependent
primarily upon the Bank's pre-tax net profit and provides no dollar guarantees.
See "Employment Agreement." A bonus of $6,600 was earned in 1997 and paid in
January 1998, based on 5% pre-tax income of the Company of $132,000 for the
fiscal year ended December 31, 1997. This bonus was paid in addition to the
discretionary bonus paid in August 1997.
The Board of Directors evaluated Mr. Montgomery's performance and the
actions taken under his leadership in November 1997 against targets established
by the Board. The Board determined that Mr. Montgomery achieved the goals in
returning the Company to profitability, strengthening the management team,
enhancing client service, increasing market share in the Bank's niche markets
and performed his role in an outstanding manner.
Dated: February 27, 1998 NOMINATING AND COMPENSATION COMMITTEE
Alan Grahm, Chairman
Robert E. Gipson
Scott A. Montgomery
Robert E. Thomson
16
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock (assuming reinvestment of
dividends) for the past five fiscal years covering the period from January 1,
1993 to December 31, 1997 with the cumulative total return of (i) the NASDAQ
market index and (ii) the cumulative total return of a selected peer group
("Peer Group"). The Peer Group includes the following companies: Bank of Los
Angeles, City National Corporation, First Charter Corporation, First Regional
Bancorp and Imperial Bancorp. The Company changed the composition of its peer
group from 1996 because several banks included in last year's peer group were
sold or have merged with other financial institutions. The Company's peer group
for 1996 consisted of City National Corporation, CU Bancorp, First Charter Bank
NA, Imperial Bank, Santa Monica Bank and Transworld Bancorp.
The closing price for the Company's Common Stock on December 31, 1997 was
$12.00 per share ($6.00 per share after giving effect to the 100% common stock
dividend paid on or about February 13, 1998 to holders of record on February 4,
1998). The stock price performance of the Company's Common Stock depicted in the
graph below represents past performance only and is not necessarily indicative
of future performance.
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
AMONG NATIONAL MERCANTILE BANCORP, NASDAQ
MARKET INDEX AND PEER GROUP INDEX
FOR THE PERIOD JANUARY 1, 1993 THROUGH DECEMBER 31, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NATIONAL NASDAQ MARKET PEER GROUP
MERCANTILE INDEX INDEX
1992 $ 100.00 $ 100.00 $ 100.00
1993 240.00 119.95 126.31
1994 140.00 125.94 160.04
1995 80.00 163.35 246.06
1996 56.67 202.99 371.65
1997 70.48 248.30 707.07
Assumes $100 is invested on January 1, 1993 and that dividends are
reinvested through the fiscal year ending December 31, 1997. As of December 31,
1997, a $100 investment made January 1, 1993 would have increased to $707.07 if
invested in the Peer Group Index, and $70.48 if invested in the Company.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Bank have made loans to certain directors (or in one
case to the law firm in which the director is a principal) from time to time.
All such loans have been made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. These
loans do not involve more than the normal risk of collectability or present
other unfavorable features.
Gipson Hoffman & Pancione, A.P.C., a Los Angeles law firm, of which Mr.
Gipson is a partner, performs some legal services for the Bank.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any person holding ten percent or more of the Common Stock are
required to report their ownership of Common Stock and any changes in that
ownership to the Securities and Exchange Commission (the "SEC") and to furnish
the Company with copies of such reports. Specific due dates for these reports
have been established, and the Company is required to report in this Proxy
Statement any failure to file on a timely basis by such persons. Based solely
upon a review of copies of reports filed with the SEC prior to the Record Date,
the Company believes that all persons subject to the reporting requirements of
Section 16(a), with the exception of 9830 Investments No. 1, Ltd., a California
limited partnership (with respect to one late report involving one transaction)
and Scott A. Montgomery (with respect to one late report involving one stock
option grant), have filed all required reports on a timely basis in 1997.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present proposals
at shareholder meetings. The 1999 annual meeting of shareholders will be held on
or about April 29, 1999. Any shareholder proposal to be included in the proxy
statement for the Company's 1999 annual meeting of shareholders must be received
by the Secretary of the Company, 1840 Century Park East, Los Angeles, California
90067, on or before December 30, 1998, in a form that complies with applicable
regulations.
ANNUAL REPORT
The Company's Summary Annual Report and Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 required to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
accompanies this Proxy Statement. The Company's Annual Report contains financial
information required to be included in the report.
OTHER BUSINESS
Management knows of no business which will be presented for consideration at
the Meeting other than as stated in the Notice of Meeting. If, however, other
matters are properly brought before the Meeting, it is the intention of the
Proxy Holders to vote the shares represented thereby on such matters in
accordance with the recommendations of the Board of Directors.
By Order of the Board of Directors,
/s/ ALAN GRAHM
-------------------------------------------
Alan Grahm
SECRETARY
Dated: March 19, 1998
18
NATIONAL MERCANTILE BANCORP
PROXY
ANNUAL MEETING OF SHAREHOLDERS, APRIL 23, 1998, 7:00 P.M. LOCAL TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Scott A. Montgomery and Robert E. Thomson,
and each of them, the proxy or proxies of the undersigned with full powers of
substitution to each, to attend the Annual Meeting of Shareholders of National
Mercantile Bancorp (the "Meeting") to be held on April 23, 1998 at Mercantile
National Bank, 1840 Century Park East, Main Floor, Los Angeles, CA 90067,
beginning at 7:00 p.m. local time, and any adjournments thereof, and to vote all
shares of stock that the undersigned would be entitled to vote if personally
present in the manner indicated below and on the reverse side, and on any other
matters properly brought before the Meeting or any adjournments thereof, all as
set forth in the March 19, 1998 proxy statement.
PLEASE MARK YOUR CHOICE LIKE THIS /X/ IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR ALL NOMINEES" AND FOR PROPOSALS 2 AND 3
1. Election of the following nominees as directors: Donald E. Benson, Robert E.
Gipson, Alan Grahm, Joseph W. Kiley III, Scott A. Montgomery, Dion G. Morrow
and Robert E. Thomson.
/ / FOR / / WITHHOLD
(Authority to vote for any nominee may be withheld by lining through or
otherwise striking out the name of such nominee).
2. Approval of an Amendment to the 1996 Stock Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of Appointment of Independent Public Accountants
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE DATE, SIGN AND RETURN
PROMPTLY.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF NATIONAL MERCANTILE BANCORP.
(Signature should be exactly
as name or names appear on
this proxy. If stock is held
jointly each holder should
sign. If signature is by
attorney, executor,
administrator, trustee or
guardian, please give full
title.)
Dated: ________________, 1998
_____________________________
Signature
_____________________________
Signature if held jointly
I plan to attend the Meeting:
Yes / / No / /
This proxy will be voted FOR
the nominees and the above
matters unless otherwise
indicated, and in the
discretion of the proxies on
all other matters properly
brought before the Meeting.