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 Under Rule 14a-12
TierOne Corporation
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(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:_____
(2) Aggregate number of securities to which transaction applies:_____
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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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(5) Total fee paid:___________________________________________
[ ] 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:______________________________________________
(2) Form, schedule or registration statement no.:________________________
(3) Filing party:________________________________________________________
(4) Date filed:__________________________________________________________
[TierOne Corporation Logo]
1235 N Street
Lincoln, Nebraska 68508
March 10, 2003
Dear Shareholder:
You are cordially invited to attend the first annual meeting of
shareholders of TierOne Corporation. The meeting will be held in the Regents
A Room at the Embassy Suites Hotel located at 1040 P Street, Lincoln,
Nebraska, on Wednesday, April 23, 2003 at 10:00 a.m., Central Daylight Time.
At the annual meeting, you will be asked to elect two (2) directors for
a one-year term, two (2) directors for a two-year term and two (2) directors
for a three-year term, adopt our 2003 Stock Option Plan, adopt our 2003
Recognition and Retention Plan and Trust Agreement and ratify the appointment
of KPMG LLP as our independent auditors for the year ending December 31, 2003.
Each of these matters is more fully described in the accompanying materials.
It is very important that you be represented at the annual meeting
regardless of the number of shares you own or whether you are able to attend
the meeting in person. We urge you to mark, sign, and date your proxy card
today and return it in the envelope provided, or you may utilize our toll-free
telephone voting option by calling 1-800-PROXIES, even if you plan to attend
the annual meeting. This will not prevent you from voting in person, but will
ensure that your vote is counted if you are unable to attend.
Your continued support of TierOne Corporation is sincerely appreciated.
Very truly yours,
/s/ Gilbert G. Lundstrom
Gilbert G. Lundstrom
Chairman of the Board and Chief Executive Officer
TierOne Corporation
1235 N Street
Lincoln, Nebraska 68508
(402) 475-0521
____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 23, 2003
____________________
NOTICE IS HEREBY GIVEN that the first annual meeting of shareholders of
TierOne Corporation will be held in the Regents A Room at the Embassy Suites
Hotel located at 1040 P Street, Lincoln, Nebraska, on Wednesday, April 23,
2003 at 10:00 a.m., Central Daylight Time, for the following purposes, all of
which are more completely set forth in the accompanying Proxy Statement:
(1) To elect two (2) directors for a one-year term, two (2) directors
for a two-year term and two (2) directors for a three-year term,
and in each case until their successors are elected and qualified;
(2) To consider and approve the adoption of the 2003 Stock Option
Plan;
(3) To consider and approve the adoption of the 2003 Recognition and
Retention Plan and Trust Agreement;
(4) To ratify the appointment by the Audit Committee of the Board of
Directors of KPMG LLP as our independent auditors for the fiscal
year ending December 31, 2003; and
(5) To transact such other business as may properly come before the
meeting or at any adjournment thereof. We are not aware of any
other such business.
Our shareholders of record as of February 24, 2003 are entitled to
notice of and to vote at the annual meeting and at any adjournment of the
annual meeting. Only those shareholders of record as of the close of business
on that date will be entitled to vote at the annual meeting or at any such
adjournment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Eugene B. Witkowicz
Eugene B. Witkowicz
Corporate Secretary
Lincoln, Nebraska
March 10, 2003
___________________________________________________________________________
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF
YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED OR UTILIZE OUR TOLL-
FREE TELEPHONE VOTING OPTION BY CALLING 1-800-PROXIES. IF YOU ATTEND THE
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE OF
THE PROXY.
___________________________________________________________________________
Table of Contents
Page
----
Questions and Answers About Voting Procedures for the Annual Meeting. . . . ii
Annual Meeting of Shareholders. . . . . . . . . . . . . . . . . . . . . . . 1
Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Information with Respect to Nominees for Director and Executive Officers. . 2
Election of Directors. . . . . . . . . . . . . . . . . . . . . . . . . 2
Director Nominations; Meetings of the Board of Directors of TierOne
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shareholder Nominations. . . . . . . . . . . . . . . . . . . . . . . . 4
Executive Officers Who Are Not Directors . . . . . . . . . . . . . . . 4
Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Director Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 5
Management Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . 6
Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Transactions with Certain Related Persons. . . . . . . . . . . . . . . 12
Report of the Compensation Committee. . . . . . . . . . . . . . . . . . . . 12
General Compensation Objectives and Policies . . . . . . . . . . . . . 12
Chief Executive Officer and Chief Operating Officer Compensation . . . 13
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Beneficial Ownership of Common Stock by Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 16(a) Beneficial Ownership Reporting Compliance. . . . . . . . 16
Proposal to Adopt the 2003 Stock Option Plan. . . . . . . . . . . . . . . . 17
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Description of the Option Plan . . . . . . . . . . . . . . . . . . . . 17
Proposal to Adopt the 2003 Recognition and Retention Plan and Trust
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Description of the Recognition Plan. . . . . . . . . . . . . . . . . . 21
Ratification of Appointment of Auditors . . . . . . . . . . . . . . . . . . 23
Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Information Systems Design and Implementation. . . . . . . . 24
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . 24
Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Annual Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appendix A - Amended & Restated Audit Committee Charter . . . . . . . . . . A-1
Appendix B - 2003 Stock Option Plan . . . . . . . . . . . . . . . . . . . . B-1
Appendix C - 2003 Recognition and Retention Plan and Trust Agreement. . . . C-1
-i-
________________________________________________________________________________
QUESTIONS AND ANSWERS
ABOUT VOTING PROCEDURES FOR THE ANNUAL MEETING
________________________________________________________________________________
Q: Who is entitled to vote? discretion on the election of
directors and ratification of the
A: Each shareholder of record as auditors if you do not furnish
of the close of business on the instructions.
record date for the meeting,
February 24, 2003, is entitled Q: Can I attend the meeting and vote
to vote at the meeting. On the my shares in person?
record date, we had 22,575,075
shares of common stock, issued A: Yes. All shareholders are
and outstanding. For each invited to attend the annual
issued and outstanding share of meeting. Shareholders of record
common stock you own on the can vote in person at the annual
record date, you will be meeting. If your shares are held
entitled to one vote each matter in street name, then you are not
to be voted on at the meeting, the shareholder of record and you
in person or by proxy. must ask your broker or other
nominee how you can vote at the
Q: How do I submit my proxy? annual meeting.
A: After you have carefully read Q: Can I change my vote?
this Proxy Statement, indicate on
your proxy form how you want your A: Yes. If you have not voted
shares to be voted. Then sign, through your broker or other
date and mail your proxy form in nominee, there are three ways you
the enclosed prepaid return can change your vote after you
envelope as soon as possible or have sent in your proxy form.
utilize our toll-free telephone
voting option by calling 1-800- * First, you may send a
PROXIES. This will enable your written notice to the person
shares to be represented and to whom you submitted your
voted at the annual meeting. proxy stating that you would
like to revoke your proxy.
Q: Why is my vote important?
A: Shareholder involvement is * Second, you may complete and
important to us and we appreciate submit a new proxy form.
you taking the time to submit Any earlier proxies will be
your vote. The 2003 Option Plan revoked automatically.
and 2003 Recognition Plan needs a
majority of the outstanding * Third, you may attend the
shares of TierOne Corporation annual meeting and vote in
common stock eligible to vote at person. Any earlier proxy
the annual meeting to be adopted. will be revoked. However,
If you do not return your proxy simply attending the annual
form or vote in person at the meeting without voting in
annual meeting or if you mark person will not revoke your
"Abstain," it will have the same proxy.
effect as a vote against the 2003
Option Plan and 2003 Recognition If you have instructed a broker
Plan. or other nominee to vote your
shares, you must follow
Q: If my shares are held in "street directions you receive from your
name" by my broker, will my broker or other nominee to change
broker automatically vote my your vote.
shares for me?
Q: Whom should I call with questions?
A: No. Your broker will not be able
to vote your shares on the 2003 A: You should call our proxy
Option Plan or the 2003 solicitor, Georgeson Shareholder
Recognition Plan without Communications, Inc., toll-free
instructions from you. You at 1-866-274-2450.
should instruct your broker to
vote your shares, following the
directions your broker provides.
Your broker may vote in his or her
-ii-
TierOne Corporation
PROXY STATEMENT
______________________________________________________________________________
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 23, 2003
______________________________________________________________________________
This Proxy Statement is furnished to holders of common stock of TierOne
Corporation, the parent holding company of TierOne Bank. On October 1, 2002,
we completed the conversion of TierOne Bank from the mutual to stock form of
organization. Our Board of Directors is soliciting proxies to be used at the
annual meeting of shareholders to be held in the Regents A Room at the Embassy
Suites Hotel located at 1040 P Street, Lincoln, Nebraska, on Wednesday, April
23, 2003, at 10:00 a.m., Central Daylight Time, and at any adjournment of the
annual meeting for the purposes set forth in the Notice of Annual Meeting of
Shareholders. This Proxy Statement is first being mailed to shareholders on
or about March 10, 2003.
The proxy solicited hereby, if properly signed and returned to us and
not revoked prior to its use, will be voted in accordance with your
instructions contained in the proxy. If no contrary instructions are given,
each proxy received will be voted for the nominees for director described
herein, for adoption of the 2003 Option Plan, for adoption of the 2003
Recognition Plan, for ratification of the appointment of KPMG LLP as our
independent auditors for fiscal 2003, and, upon the transaction of such other
business as may properly come before the meeting, in accordance with the best
judgment of the persons appointed as proxies. Any shareholder giving a proxy
has the power to revoke it at any time before it is exercised by (a) filing
with the Secretary of TierOne Corporation written notice thereof (Mr. Eugene
B. Witkowicz, Corporate Secretary, TierOne Corporation, 1235 N Street,
Lincoln, Nebraska 68508); (b) submitting a duly-executed proxy bearing a later
date; or (c) appearing at the annual meeting and giving the Secretary notice
of his or her intention to vote in person. Proxies solicited hereby may be
exercised only at the annual meeting and any adjournment of the annual meeting
and will not be used for any other meeting.
______________________________________________________________________________
VOTING
______________________________________________________________________________
Only our shareholders of record at the close of business on the voting
record date, February 24, 2003, are entitled to notice of and to vote at the
annual meeting. On the voting record date, there were 22,575,075 shares of
common stock issued and outstanding and we had no other class of equity
securities outstanding. Each share of common stock is entitled to one vote at
the annual meeting on all matters properly presented at the meeting.
Directors are elected by a plurality of the votes cast with a quorum (a
majority of the outstanding shares entitled to vote represented in person or
by proxy) present. The six persons who have been nominated to our Board of
Directors will be elected directors if a quorum is present. The affirmative
vote of a majority of the total votes cast at the annual meeting is required
for approval of the proposal to ratify the appointment of the independent
auditors. The affirmative vote of a majority of the total votes eligible to
be cast at the annual meeting is required for approval of the proposals to
adopt the 2003 Option Plan and the 2003 Recognition Plan. Abstentions are
considered in determining the presence of a quorum, but will not affect the
plurality vote required for the election of directors. Under rules of the New
York Stock Exchange, the proposals to elect directors and ratify to the
appointment of the independent auditors are considered "discretionary" items
upon which brokerage firms may vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions. Abstentions
will have the effect of a vote against the proposal to ratify the appointment
of the independent auditors. The proposals to approve the 2003 Option Plan
and approve the 2003 Recognition Plan are considered "non-discretionary" items
upon which brokerage firms may not vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions and for which
there may be "broker non-votes" at the meeting. Because of the required vote,
abstentions and broker non-votes will have the same effect as a vote against
the proposal to approve both the 2003 Option Plan and the 2003 Recognition
Plan.
-1-
______________________________________________________________________________
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR
AND EXECUTIVE OFFICERS
______________________________________________________________________________
Election of Directors
Our Articles of Incorporation provide that the Board of Directors shall
be divided into three classes as nearly equal in number as possible. The
directors are elected by our shareholders for staggered terms and until their
successors are elected and qualified.
At this first annual meeting, you will be asked to elect the first class
of directors, consisting of two directors, for a one-year term expiring in
2004, the second class of directors, consisting of two directors, for a two-
year term expiring in 2005 and the third class of directors, consisting of two
directors, for a three-year term expiring in 2006 and in each case until their
respective successors are elected and qualified. At each subsequent annual
meeting of shareholders, one class of directors is to be elected for a term of
three years. No nominee for director is related to any other director or
executive officer by blood, marriage or adoption. Shareholders of the Company
are not permitted to use cumulative voting for the election of directors.
Each nominee currently serves as a director of us and of TierOne Bank.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted for the election of the nominees for director listed
below. If any person named as a nominee should be unable or unwilling to
stand for election at the time of the annual meeting, the proxies will
nominate and vote for any replacement nominee or nominees recommended by our
Board of Directors. At this time, the Board of Directors knows of no reason
why any of the nominees listed below may not be able to serve as a director if
elected.
The following tables present information concerning the nominees for
director, all of whom also serve as directors of TierOne Bank (formerly known
as First Federal Lincoln Bank). Each of the directors also has served as one
of our initial directors since April 2002 when TierOne Corporation was formed.
Ages are reflected as of February 24, 2003.
================================================================================
NOMINEES FOR DIRECTOR FOR ONE-YEAR TERM EXPIRING IN 2004
Position with TierOne
Corporation and Principal Director of
Occupation During TierOne
Name Age the Past Five Years Bank Since
- --------------------- -------- ----------------------------------- ----------
LaVern F. Roschewski 72 Director. Vice Chairman of the 1982
Board of TierOne Bank since 1999
and prior thereto, Chairman of
the Board from 1996 to 1999.
Ann Lindley Spence 68 Director. Retired; previously, 1989
President of Spence Title
Services, Inc., a title insurance
company located in Omaha,
Nebraska.
================================================================================
-2-
================================================================================
NOMINEES FOR DIRECTOR FOR TWO-YEAR TERM EXPIRING IN 2005
Position with TierOne
Corporation and Principal Director of
Occupation During TierOne
Name Age the Past Five Years Bank Since
- --------------------- --------- ------------------------------------ --------
James A. Laphen 54 Director. President and Chief 2001
Operating Officer of TierOne
Corporation since April 2002 and
TierOne Bank since October 2001.
Previously, he served as Senior
Executive Vice President and Chief
Operating Officer since joining
TierOne Bank in September 2000.
Prior thereto he served as
President and Chief Operating
Officer of Commercial Federal
Bank, Omaha, Nebraska from 1994 to
July 2000.
Campbell R. McConnell, Ph.D. 74 Director. Retired; currently 1974
Professor Emeritus of the
Economics Department of the
University of Nebraska-Lincoln.
================================================================================
================================================================================
NOMINEES FOR DIRECTOR FOR THREE-YEAR TERM EXPIRING IN 2006
Position with TierOne
Corporation and Principal Director of
Occupation During TierOne
Name Age the Past Five Years Bank Since
- ------------------------- ---- ------------------------------------ ---------
Gilbert G. Lundstrom, Esq. 64 Chairman of the Board and Chief 1994
Executive Officer of TierOne
Corporation since April 2002 and
TierOne Bank since October 2001.
Previously, Chairman of the Board,
President and Chief Executive
Officer from September 1999. From
1996 to 1999, he served as
director, President and Chief
Executive Officer. He joined
TierOne Bank in 1994. He was a
director of the Federal Home Loan
Bank of Topeka and serves on the
Board of Directors of Sahara
Enterprises, Inc., Chicago,
Illinois. Prior to 1994, he was
the managing partner of Woods &
Aitken Law Firm, Lincoln,
Nebraska, where he practiced law
for 25 years. Woods & Aitken
serves as general counsel to
TierOne Bank.
Joyce Person Pocras 60 Director. CPA (inactive), 1994
independent investor, retired in
1993 as the internal auditor of
First Federal Lincoln Bank.
================================================================================
The Board of Directors recommends that you vote FOR election
of the nominees for director.
-3-
Director Nominations; Meetings of the Board of Directors of TierOne Corporation
Nominations for director of TierOne Corporation are made by the entire
Board of Directors. During the fiscal year ended December 31, 2002, the Board
of Directors of TierOne Corporation met 11 times. The Board of Directors of
TierOne Bank, whose members are also members of our Board, met 15 times in
2002. No director of TierOne Corporation attended fewer than 75% of the
aggregate of the total number of Board meetings held during the period for
which he/she has been a director and the total number of meetings held by all
committees of the Board on which he/she served during the periods that he/she
served.
Shareholder Nominations
Our Bylaws provide that, subject to the rights of the holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, all nominations for election to the Board of
Directors, other than those made by the Board or a committee thereof, shall be
made by a shareholder who has complied with the notice provisions in the
Bylaws. Written notice of a shareholder nomination generally must be
communicated to the attention of the Corporate Secretary and either delivered
to, or mailed and received at, our principal executive offices not later than,
with respect to an annual meeting of shareholders, 120 days prior to the
anniversary date of the mailing of proxy materials by us in connection with
the immediately preceding annual meeting of shareholders. Since this is our
first annual meeting following the conversion, such notice must have been
delivered to us by November 15, 2002. We did not receive any shareholder
nominations.
Executive Officers Who Are Not Directors
Set forth below is the information with respect to the principal
occupations during the last five years for the six executive officers of
TierOne Bank who do not serve as directors. Mr. Witkowicz also serves as an
officer of TierOne Corporation. Ages are reflected as of February 24, 2003.
Name Age Principal Occupation During the Past Five years
- -------------------- ------- -------------------------------------------------
Eugene B. Witkowicz 55 Executive Vice President, Chief Financial
Officer and Corporate Secretary of TierOne
Corporation. Executive Vice President,
Corporate Secretary, Treasurer and Director of
Finance of TierOne Bank. Previously, Executive
Vice President, Treasurer and Chief Financial
Officer since 1992. Mr. Witkowicz joined
TierOne Bank in 1972.
Gale R. Furnas 49 Executive Vice President and Director of
Lending of TierOne Bank since 1998. Previously,
Senior Vice President/Loan Sales Manager and
Assistant Director of Lending since 1996. Mr.
Furnas joined TierOne Bank in 1976.
Roger R. Ludemann 54 Executive Vice President and Director of Retail
Banking since 1997. Previously, Executive Vice
President and Director of Consumer Services
since September 1997. Mr. Ludemann joined
TierOne Bank in 1995.
Larry L. Pfeil 60 Executive Vice President and Director of
Administration of TierOne Bank since 2000.
Previously, Executive Vice President and
Director of Financial Services of TierOne Bank
since 1982. Mr. Pfeil joined TierOne Bank in
1971.
-4-
Name Age Principal Occupation During the Past Five years
- -------------------- ------- -------------------------------------------------
James R. McLaughlin 48 Senior Vice President and Controller of TierOne
Bank since February 2000; and prior thereto,
Controller. Mr. McLaughlin joined TierOne
Bank in 1984.
Edward J. Swotek 41 Senior Vice President and Strategic Planning
Officer of TierOne Bank since February 2000;
prior thereto, First Vice President and
Strategic Planning and Special Projects
Manager. Mr. Swotek joined TierOne Bank in
1987.
Committees
The Board of Directors of TierOne Corporation has established an Audit
Committee. Members of the Board also serve on committees of TierOne Bank,
including the Audit Committee and Compensation Committee. TierOne Corporation
has not paid separate compensation to its executive officers or directors.
Audit Committee. The Audit Committee reviews with management and the
independent auditors the systems of internal control, reviews the annual
financial statements, including the Form 10-K and monitors TierOne
Corporation's adherence in accounting and financial reporting to generally
accepted accounting principles. The Audit Committee is comprised of three
directors who are independent directors as defined in Rule 4200(a)(14) of the
National Association of Securities Dealers' listing standards as currently in
effect. The current members of the Audit Committee are Directors McConnell,
Spence and Pocras. The Audit Committee of TierOne Corporation met once in
2002 and the Audit Committee of the Bank met five times in 2002. The Audit
Committee of TierOne Corporation has adopted a charter which is attached
hereto as Appendix A.
Compensation Committee. It is the responsibility of the Compensation
Committee of the Board of Directors of TierOne Bank to institute a program
which effectively provides incentive for executive management to lead TierOne
Bank to its full potential. The current members of the committee are
Directors Pocras, McConnell and Spence. No member of the Compensation
Committee is a current officer or employee of TierOne Corporation, TierOne
Bank or any subsidiary of us. The report of the Compensation Committee of
TierOne Bank with respect to compensation and benefits for the Chief Executive
Officer and all other executive officers is set forth below. The Compensation
Committee met three times in fiscal 2002.
Director Compensation
Our directors currently receive a fee of $2,500 for each regularly
scheduled monthly and special board meeting, regardless of attendance. In
addition, Mr. Roschewski receives an additional $2,500 for each regularly
scheduled monthly and special board meeting for service as the Vice Chairman
of the Board. Members of the Audit and Compensation Committees receive a fee
of one-half the regular board meeting fee. Directors also currently receive
life, health and dental insurance benefits through TierOne Bank. Directors
currently do not receive additional fees for service as directors of TierOne
Corporation.
We maintain a deferred compensation program for our directors. Under
the deferred compensation program, each director may defer, until retirement,
any portion of his or her annual remuneration for serving as a director. Each
director has the right, under the program, to direct the investment of his or
her deferred fees. A director may change his or her investment direction
quarterly. Payments commence under the program upon the earlier of death,
termination from service, disability, or a change in control of TierOne Bank.
Each director may elect, at the time he or she makes the deferral election, to
receive benefits in the form of a single lump sum payment, a life annuity, a
joint and survivor annuity, or monthly installments (over a period from 2 to
240 months). In the absence of any election, the benefits will be paid over a
240 month period. Our obligation to make or continue to make any payments to
a participant in the program terminates if, after the commencement of
benefits, the
-5-
participant directly acts as an officer, director, employee or agent of or
performs consulting services for any firm, person, corporation or entity
which (a) directly competes with our primary business as then conducted
by us and (b) has an office within the boundaries of or within 50 miles from
the boundaries of any city in which we have an office. In addition, under the
terms of TierOne Bank's Consultation Plan for Directors, any retiring director
with 10 or more years of service who agrees to provide consulting or advisory
services to the Board of Directors will be entitled to receive an annual
benefit equal to the average of the annual monthly board fees and yearly
retainer, if any, paid to such retiring director for the last three years of
service prior to his or her retirement reduced by twenty percent for each
subsequent year in which the director provides consulting or advisory services
to our Board of Directors. The maximum duration for which benefits can be
received is five years. An additional benefit in the same amount as paid to
retired directors participating in the plan will be paid to any participant in
the plan who served as chairman of the board for at least three years. No
persons are currently receiving any benefits under this plan.
_______________________________________________________________________________
MANAGEMENT COMPENSATION
_______________________________________________________________________________
Summary Compensation Table
The following table sets forth a summary of certain information
concerning the compensation paid by TierOne Bank (including amounts deferred
to future periods by the officers) for services rendered in all capacities
during the years ended December 31, 2002 and 2001, to the Chairman of the
Board and Chief Executive Officer and the next four highest paid officers of
TierOne Bank whose salary plus bonus exceeded $100,000 in 2002.
===============================================================================================================
Annual Compensation(1)
--------------------------------
All Other
Name and Principal Position Year Salary(2) Bonus(3) Compensation(4)
- ---------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Gilbert G. Lundstrom, Chairman of the Board 2002 $528,284 $368,641 $16,840
and Chief Executive Officer 2001 506,050 330,659 20,077
James A. Laphen, President and Chief 2002 335,194 202,501 8,478
Operating Officer 2001 275,000 134,400 8,160
Eugene B. Witkowicz, Executive Vice President, 2002 152,247 72,108 7,596
Chief Financial Officer, Corporate 2001 142,585 59,220 7,132
Secretary/Treasurer and Director of Finance
Gale R. Furnas, Executive Vice President and 2002 157,993 77,542 7,872
Director of Lending 2001 143,554 59,850 7,179
Larry L. Pfeil, Executive Vice President and 2002 142,581 50,406 7,132
Director of Administration 2001 136,870 41,142 6,858
===============================================================================================================
___________________
(1) We provide various miscellaneous benefits to the named executive
officers. The costs of providing such benefits to the named executive
officers did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported for each of such individuals.
(2) Includes with respect to Messrs. Lundstrom and Laphen director's fees
totaling $37,500 each in 2002 and $35,000 each in 2001.
(3) Represents bonuses earned under the Management Incentive Compensation
Plan which were paid in the following year.
(footnotes continued on following page)
-6-
____________________
(4) Under TierOne Bank's 401(k) profit sharing plan for fiscal 2002, $8,478,
8,478, $7,596, $7,872 and $7,132 was allocated to the accounts of
Messrs. Lundstrom, Laphen, Witkowicz, Furnas and Pfeil, respectively.
In addition, includes with respect to Mr. Lundstrom, the present value
of the premiums paid for split dollar life insurance purchased by
TierOne Bank. Under the terms of the policies, Mr. Lundstrom is
entitled to receive the difference between the cash surrender value of
the policy and the aggregate amount of premiums paid by TierOne Bank.
Employment Agreements. TierOne Bank entered into an employment agreement
with Mr. Lundstrom effective January 1, 1994, as amended, which provides for a
three-year term which is extended on an annual basis, unless either the Board
or Mr. Lundstrom gives written notice of non-renewal. The term of Mr.
Lundstrom's contract will expire in December 2005 unless extended. Mr.
Lundstrom's employment agreement provides for an annual base salary review by
the Board of Directors. Mr. Lundstrom's base salary for 2003 is $491,521. In
addition to the base salary, Mr. Lundstrom's employment agreement provides
for, among other things, participation in retirement and executive benefit
plans, and other fringe benefits applicable to executive personnel. Our Board
of Directors may terminate Mr. Lundstrom's employment agreement at any time,
but any termination, other than termination for "cause" (as defined in the
agreement) will not prejudice Mr. Lundstrom's right to compensation or other
benefits under his agreement. In the event of termination for cause, Mr.
Lundstrom has no right to receive compensation or other benefits, for any
period after termination for cause with the exception of vested benefits under
TierOne Bank's benefit plans or policies and incentive plans for the benefit
of the executive. In the event TierOne Bank chooses to terminate Mr.
Lundstrom's employment for reasons other than for cause, or in the event Mr.
Lundstrom resigns for "good reason" (as defined in the agreement), Mr.
Lundstrom or, in the event of his death, his beneficiary or estate, would be
entitled to receive (i) an amount equal to the remaining base salary payments
and bonus due under the agreement in addition to all life, health and
disability benefits provided under the agreement for the remaining term of
employment; (ii) a lump sum cash payment equal to Mr. Lundstrom's "base
amount" of compensation, as defined under Section 280G(b)(3) of the Internal
Revenue Code, times the number of years or fractional portion thereof
remaining in the term of the agreement as of the termination date; and (iii)
ownership of any split dollar life insurance policy on Mr. Lundstrom's life;
provided that such payments and benefits do not constitute a parachute payment
under Section 280G of the Internal Revenue Code.
TierOne Bank entered into an employment agreement with Mr. Laphen
effective September 25, 2000. The employment agreement provides for a three
year term which is extended on an annual basis, unless either the Board or Mr.
Laphen gives written notice of termination. The term of Mr. Laphen's contract
will expire in September 2005 unless extended. Mr. Laphen's employment
agreement provides for an annual base salary review by the Board of Directors.
Mr. Laphen's base salary for 2003 is $315,001. In addition to the base
salary, Mr. Laphen's employment agreement provides for, among other things,
participation in retirement and executive benefit plans, and other fringe
benefits applicable to executive personnel. TierOne Bank's Board of Directors
or Mr. Laphen may terminate Mr. Laphen's employment agreement at any time,
upon the occurrence of an "event of termination" (as defined in the
agreement). In the event of termination for cause, Mr. Laphen has no right to
receive compensation or other benefits for any period after termination for
cause. In the event of termination due to death or disability, Mr. Laphen, or
his beneficiary or estate, would be entitled to receive a payment equal to
twelve months "base salary" (as defined). In the event Mr. Laphen's
employment is terminated for reasons other than for cause, death, disability
or retirement, Mr. Laphen or, in the event of his subsequent death, his
beneficiary or estate, would be entitled to receive an amount equal to thirty-
six months "base salary" (as defined); provided that the payments do not
exceed three times his average annual compensation for the preceding five
years he was employed by TierOne Bank or such lesser period in the event he
was employed less than five years at the time of termination.
In connection with the conversion, TierOne Corporation entered into
employment agreements with Messrs. Lundstrom and Laphen. Mr. Lundstrom's
employment agreement has a term of three years, beginning on the date the
conversion was completed, October 1, 2002. The term will be extended daily
thereafter unless either we or Mr. Lundstrom give notice that the daily
extensions will cease. Extension of the term also will cease automatically if
Mr. Lundstrom's employment is terminated for any reason. Mr. Lundstrom's
employment agreement provides that
-7-
he will serve as the Chairman of the Board and Chief Executive Officer of
TierOne Corporation during the term of his employment agreement. As Chairman
of the Board and Chief Executive Officer, he has the authority and
responsibilities prescribed by our Bylaws and that are customary for such
positions.
Under the terms of the employment agreement, Mr. Lundstrom's annual
salary is reviewed by the Board of Directors. Mr. Lundstrom's salary for 2003
is $491,521. Mr. Lundstrom is entitled to participate in our benefit plans
and programs and receive an automobile allowance. However, under the terms of
the employment agreement with TierOne Corporation, to the extent that any of
the payments and benefits provided by the agreement are paid to or received by
Mr. Lundstrom under his employment agreement with TierOne Bank, such payments
and benefits provided by TierOne Bank are subtracted from any amounts due him
under similar provisions of the employment agreement with TierOne Corporation.
In the event that, during the term of his employment agreement, Mr.
Lundstrom's employment is terminated by us without cause or for other than
death or disability, or if Mr. Lundstrom resigns for any of the reasons
specified below, he will be entitled to receive as liquidated damages
continued group life, health and disability benefits and a cash lump sum
payment to compensate him for the loss of salary (on a present value basis),
cash bonus and incentive compensation and qualified and non-qualified
retirement plan benefits (on a present value basis) for the period of the
remaining term of his employment agreement, but not more than three years. To
the extent that Mr. Lundstrom earns salary, cash bonus or incentive
compensation, fees or comparable fringe benefits from another employer during
this period, the liquidated damages for loss of this type of compensation will
be subject to repayment by Mr. Lundstrom. In addition, if Mr. Lundstrom
surrenders his then outstanding options and shares of restricted stock within
30 days of the termination of his employment, we will pay him the value of his
outstanding options and his shares of restricted stock.
The reasons specified in Mr. Lundstrom's employment agreement that would
justify his resigning and receiving the liquidated damages described above are
a material breach of the agreement by us (including a reduction in his salary
or a material reduction in his fringe benefits), a failure to elect him to the
positions in which he has a right to serve under his employment agreement, a
failure to vest in him the authority and responsibilities associated with
those positions, a failure to nominate or elect him as a director of TierOne
Corporation or TierOne Bank, a change in his principal place of employment to
a location more than 25 miles from our corporate headquarters in Lincoln,
Nebraska, or the liquidation, dissolution, bankruptcy or insolvency of TierOne
Corporation or TierOne Bank, a termination by him of his employment with
TierOne Bank for good reason or a termination of his employment by TierOne
Bank for other than cause, regulatory action, death or disability.
If a change in control of us occurs prior to the end of the term of his
employment agreement, Mr. Lundstrom will be entitled to receive, in addition
to any liquidated damages if his employment is terminated, a lump sum payment
equal to the greater of (i) the salary and cash bonus or incentive
compensation he would have received if his employment had continued until the
expiration of the term of his employment agreement or (ii) three times his
average annual gross income from us or our subsidiaries during the past five
full calendar years before the change in control. In the event that due to a
change in control, any amount paid or payable to Mr. Lundstrom is subject to
the 20% excise tax under Section 4999 of the Internal Revenue Code, then he
will be entitled to an additional payment such that on an after-tax basis, he
is indemnified for the excise tax.
Mr. Lundstrom's employment agreement contains a covenant not to compete,
under which he agrees that if his employment terminates before the expiration
of the term of his employment agreement, he will not compete with us in any
county in which we maintain an office until the expiration of the earlier of
two years from the date on which his employment terminates or the date on
which the term of his employment agreement would otherwise expire. In
addition, for two years after his employment terminates, he agrees to not
solicit our customers or solicit our employees to accept other employment in
the counties where we maintain offices.
In connection with the conversion, TierOne Corporation also entered into
a three year employment agreement with Mr. Laphen as President and Chief
Operating Officer at a base salary for 2003 of $315,001. The
-8-
provisions of Mr. Laphen's contract, including the non-duplication provisions,
are substantially identical to Mr. Lundstrom's except that in the event of a
change of control of us which occurs prior to the expiration of the term of
his employment agreement, he will be entitled to receive the greater of the
amount of liquidated damages provided by the employment agreement or the
amount due as a result of a change in control. Mr. Laphen will not receive
both liquidated damages and change in control benefits.
In the event of a change in control of TierOne Corporation, as defined,
the total payment that would be due under the employment agreements of Messrs.
Lundstrom and Laphen, based solely on the current annual compensation paid to
such officers, assuming that they do not meet the requirements to receive
liquidated damages, and excluding any tax indemnification payments or benefits
under any employee benefit plan which may be payable, would be approximately
$4.4 million. Such payments, as well as those under the change in control
agreements and the employee severance plan, may tend to discourage takeover
attempts by increasing the costs to be incurred in the event of a takeover.
Change in Control Agreements. In connection with the conversion, we
entered into three-year change in control agreements with Messrs. Furnas,
Ludemann, Pfeil and Witkowicz and two-year change in control agreements with
Messrs. James R. McLaughlin, Edward J. Swotek and Delmar E. Williams and
Mesdames Paula J. Luther and Patricia A. Young, none of whom are covered by an
employment agreement. The terms of the change in control agreements will be
renewed on an annual basis unless written notice of non-renewal is given by
our Board of Directors. The change in control agreements provide that in the
event of a change in control of us, as defined, the officer, upon his
voluntary (for good reason as defined in the change in control agreement) or
involuntary termination, would be entitled to receive a severance payment
equal to either three times or two times (depending on whether the officer has
a three year or a two year change in control agreement) the officer's highest
level of aggregate base salary and cash incentive compensation paid to him or
her during the calendar year in which the termination occurs (determined on an
annualized basis) or either of the two calendar years immediately preceding
the calendar year in which the termination occurs. We also maintain and
provide, at no cost to the officer, for his or her continued participation in
all group insurance, life insurance, health and accident insurance, disability
insurance and other employee benefit plans and arrangements (excluding the
employee stock ownership plan and any other stock benefit plans as well as any
cash incentive compensation) for the period ending the earlier of the
expiration of the remaining term of the change in control agreement or the
date of the officer's full-time employment with another party pursuant to
which he or she receives substantially similar benefits.
In the event payments and benefits under the change in control
agreements, together with other payments and benefits the officers may
receive, would constitute an excess parachute payment under Section 280G of
the Internal Revenue Code, such payments would be reduced to an amount
necessary to avoid such payments constituting parachute payment. In the event
of a change in control of us, as defined, the total payments that would be due
under the change in control agreements, based solely on the current annual
compensation paid to the officers covered by the change in control agreements
and excluding any benefits under any employee benefit plan which may be
payable, would be approximately $3.9 million, subject to reduction to the
extent necessary to avoid such payments being deemed parachute payments.
Benefit Plans
Retirement Plan. We maintain the TierOne Retirement Plan, a defined
benefit plan intended to satisfy the tax-qualification requirements of Section
401(a) of the Internal Revenue Code. Employees, other than employees paid
solely on a retainer or fee basis, became eligible to participate in the
retirement plan upon the attainment of age 21 and the completion of one year
of eligibility service. Effective December 31, 2002, there was a plan
curtailment resulting in a freeze of future accrual of benefits under the
plan.
The retirement plan provided for a monthly benefit upon a participant's
retirement at the age of 65, or if later, the fifth anniversary of the
participant's initial participation in the retirement plan (i.e., the
participant's "normal retirement date"). A participant may also receive a
benefit on his early retirement date, which is the date
-9-
on which he attains age 60 and completes ten years of vesting service.
Benefits received prior to a participant's normal retirement date are reduced
by certain factors set forth in the retirement plan. All participants are now
fully vested in their benefits under the retirement plan upon termination.
The following table sets forth the estimated annual benefits payable
upon normal retirement at age 65 at various levels of compensation and years
of service.
Years of Benefit Service
- --------------------------------------------------------------------------------
Final Average
Earnings 15 20 25 30 35
- ------------- ---------- ---------- ---------- ---------- ----------
$50,000 $7,500 $10,000 $13,000 $18,000 $23,000
75,000 11,250 15,000 19,500 27,000 34,500
100,000 15,000 20,000 26,000 36,000 46,000
125,000 18,750 25,000 32,500 45,000 57,500
150,000 22,500 30,000 39,000 54,000 69,000
175,000 25,500 34,000 44,200 61,200 78,200
200,000(1) 25,500 34,000 44,200 61,200 78,200
____________________
(1) The maximum amount of annual compensation which the retirement
plan can consider in computing benefits is $200,000 for plan years
beginning on or after January 1, 2002 pursuant to Section
401(a)(17) of the Internal Revenue Code.
The approximate full years of credited service, as of December 31, 2002,
for the named executive officers is listed below. Due to the curtailment of
the retirement plan, the named executive officers will not accrue additional
years of service after 2002.
Name Years of Service
------------------------- ----------------
Gilbert G. Lundstrom 8
James A. Laphen 1
Eugene B. Witkowicz 27
Gale R. Furnas 22
Larry L. Pfeil 28
Management Incentive Compensation Plan. We maintain the TierOne Bank
Management Incentive Compensation Plan. The plan is administered by a
committee currently consisting of four executive officers (including two who
serve as directors) appointed by the Board. The Management Incentive
Compensation Plan is designed to give officers and key employees an incentive
for effectively operating TierOne Bank and to further its earning power by
providing cash payments, equal to a certain percentage of their base salaries,
based on individual and organization performance. The Board of Directors
establishes incentive compensation for any member of the committee who
participates in the plan. Eligibility in the Management Incentive
Compensation Plan is limited to individuals that the committee believes have a
significant opportunity to improve our profits and growth. Individuals
participating in this plan cannot participate in any other annual incentive
plan of TierOne Bank. For 2003, six performance criteria are being used:
profitability and earnings per share of TierOne Corporation, the Bank's return
on average assets, net interest margin, non-performing assets to tangible
capital ratio and efficiency ratio. Other than the profitability and earnings
per share criteria, each of the other criteria are measured against a peer
group set forth in the plan currently consisting of 12 similarly-sized
financial institutions. The criteria are reviewed by the committee annually
and may be revised by the Board upon the recommendation of the committee. The
level of payment under the terms of the plan is expressed in terms of a range
from minimum to maximum depending upon performance. The amount of a
participant's award is a function of the performance of TierOne
-10-
Bank compared to the organizational criteria as well as the participant's
performance compared to a series of individual goals. No awards (except a
discretionary award) may be made if TierOne Bank does not achieve the minimum
profitability criterion. In the event TierOne Bank does not satisfy the
organizational criteria, the Board of Directors may authorize a discretionary
bonus to an individual in the plan. However, the discretionary award may not
exceed the midpoint (target) level of payment from the plan.
Supplemental Executive Retirement Plans. We currently maintain a
supplemental executive retirement plan for Mr. Lundstrom. Under the plan, in
consideration for remaining in our employ until his retirement (upon or after
attaining age 65), Mr. Lundstrom will receive a supplemental benefit for a
period of 15 years. Mr. Lundstrom's annual supplemental benefit will equal
his average annual compensation (excluding bonuses and incentive compensation)
during the three years of employment affording the highest average
compensation, reduced by amounts paid under the retirement plan or any
disability benefits paid by us, multiplied by 50%. If Mr. Lundstrom dies
after he retires but before the supplemental benefits are paid for 15 years,
the remaining supplemental benefits will be paid to his beneficiary or estate.
In the event he dies before retirement, he will be covered by a split dollar
life insurance agreement funded by us. The supplemental executive retirement
plan requires Mr. Lundstrom to continue his services with us and not to
compete with us in order to receive the benefits thereunder. The unfunded
plan represents only a promise on our part to pay the benefits thereunder and
is subject to the claims of our creditors.
In the event of disability, we may pay an annual supplemental benefit
for up to ten years or until (i) the discontinuance of such disability and
employment is fully restored, (ii) Mr. Lundstrom becomes eligible for benefits
provided at retirement under the plan, which benefits shall be exclusive of
and in addition to any disability payments, or (iii) death.
We have also implemented two additional supplemental executive
retirement plans to provide for supplemental benefits to certain employees
(initially Messrs. Lundstrom and Laphen) whose benefits under the employee
stock ownership plan and the 401(k) Plan are reduced by limitations imposed by
the Internal Revenue Code. The supplemental benefits will equal the amount of
the additional benefits the participants would receive if there were no income
limitations imposed by the Internal Revenue Code. From time to time, our
Board of Directors will designate which employees may participate in these
additional supplemental executive retirement plans. We may establish a
grantor trust in connection with the plan to satisfy our obligations under the
plans. The assets of the grantor trust would be subject to the claims of our
general creditors in the event of our insolvency. The grantor trust would be
permitted to invest in a wide-variety of investments, including TierOne
Corporation common stock.
Deferred Compensation Arrangements. We currently maintain deferred
compensation arrangements with approximately 16 individuals, including some
former employees who currently receive benefits pursuant to such arrangements.
The deferred compensation arrangements were established to reward employees
for their valuable services to us. Among the individuals with whom we
maintain deferred compensation arrangements are Messrs. Witkowicz, Pfeil and
Roschewski.
The arrangements generally provide that the employees will receive a
monthly benefit, beginning at their retirement, for a fixed number of years.
The agreements require the employees to continue their employment with us
until their retirement (other than as a result of death), or they will forfeit
any benefit they had under the terms of the arrangement. In addition, the
employee agrees that after his retirement, he will not engage nor become
associated with any other employer engaged in competition with us, either
directly or indirectly. The majority of the arrangements provide for a
monthly benefit of approximately $100 to $600 for a period of 120 months.
The deferred compensation arrangements are unfunded, represent only
promises on our part to pay amounts in the future and are subject to the
claims of our creditors. As of December 31, 2002, the approximate present
value of the benefits payable pursuant to the 16 deferred compensation
arrangements was $412,000.
-11-
Transactions With Certain Related Persons
In accordance with applicable federal laws and regulations, TierOne Bank
offers mortgage loans to its directors, officers and employees as well as
members of their immediate families for the financing of their primary
residences and certain other loans. These loans are generally made on
substantially the same terms as those prevailing at the time for comparable
transactions with non-affiliated persons. It is the belief of management that
these loans neither involve more than the normal risk of collectibility nor
present other unfavorable features.
Section 22(h) of the Federal Reserve Act generally provides that any
credit extended by a savings institution, such as TierOne Bank, to its
executive officers, directors and, to the extent otherwise permitted,
principal shareholder(s), or any related interest of the foregoing, must be on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions by the savings
institution with non-affiliated parties; unless the loans are made pursuant to
a benefit or compensation program that (a) is widely available to employees of
the institution and (b) does not give preference to any director, executive
officer or principal shareholder, or certain affiliated interests of either,
over other employees of the savings institution, and must not involve more
than the normal risk of repayment or present other unfavorable features.
TierOne Bank's policy is in compliance with Section 22(h) of the Federal
Reserve Act.
_______________________________________________________________________________
REPORT OF THE COMPENSATION COMMITTEE
_______________________________________________________________________________
The Compensation Committee of the Board is responsible for developing
executive compensation policies for TierOne Corporation and TierOne Bank and
for setting the compensation for the Chief Executive Officer and Chief
Operating Officer. Executive officers of TierOne Corporation who hold
identical positions with TierOne Bank do not receive any compensation for
service as officers of TierOne Corporation. The Chief Executive Officer of
TierOne Bank, under the direction and pursuant to the policies of the
Compensation Committee, implements the executive compensation policies for the
remainder of TierOne Bank's executive officers.
The Compensation Committee of the Board is comprised entirely of
independent outside directors. During the year ended December 31, 2002, the
Compensation Committee met three times.
General Compensation Objectives and Policies
The Committee seeks to ensure that:
* the interests of TierOne Corporation's employees are aligned with
those of its shareholders through potential stock ownership;
* rewards are closely linked to company-wide and individual
performance;
* incentives are provided for executive officers to work towards
achieving successful annual results as a step in fulfilling
* TierOne Corporation's long-term operating results and strategic
objectives; and
* TierOne Bank and TierOne Corporation can attract, retain and
motivate top performing executive officers in a cost effective
manner for the long-term success of TierOne Corporation.
The Compensation Committee applies these objectives through a compensation
structure comprised of both base salary and incentive-based compensation.
Since a large part of total compensation is incentive based, a direct link is
established between executive compensation and the long-term performance of
TierOne Bank and the newly formed TierOne Corporation. In the future, the
Compensation Committee will also focus on developing a long-term incentive
compensation plan utilizing the proposed Option and Recognition Plans.
-12-
In determining the broad general salary and benefit policies, and to
arrive at base salary and bonus pay levels, the Compensation Committee
utilizes outside consultants and labor market studies. The compensation
survey information is drawn from both national and regional financial research
organizations that report compensation practices and salary levels for
executive positions at comparably sized financial institutions, specifically
community banks and thrifts. The Compensation Committee's objective is to
provide base salaries as well as the appropriate mix of total compensation
that is reasonably competitive with total compensation paid by TierOne
Corporation's peers as identified in such surveys. TierOne Corporation
recently adopted updated compensation guidelines recommended by an outside
national professional consulting firm in fiscal year 2002.
The Compensation Committee considers a variety of subjective and
objective factors in determining the performance evaluation of the Chief
Executive Officer and Chief Operating Officer including (1) the performance of
TierOne Corporation and TierOne Bank as a whole with emphasis on annual
performance factors and long-term objectives, (2) performance of the executive
officers reporting to them, and (3) other annual and long-term operating
goals.
The Compensation Committee uses the Management Incentive Compensation
Plan which emphasizes profitability, return on average assets, net interest
margin, non-performing asset ratios and operational efficiency (efficiency
ratio) to determine bonus payments to the executive officers of TierOne Bank
and TierOne Corporation. The Management Incentive Compensation Plan utilizes
a comparison of TierOne Bank's performance to that of a peer group which
includes community thrifts and savings banks of similar size, organizational
complexity and structure.
As a result of the conversion, the Compensation Committee will look to
use various stock plans, in particular, the 2003 Stock Option Plan and the
2003 Recognition and Retention Plan and Trust Agreement being presented to
shareholders at the Annual Meeting, to provide long-term incentive structures
to align the executive officers' interests with those of shareholders and
provide economic rewards commensurate with executive officers' performance.
Chief Executive Officer and Chief Operating Officer Compensation
The compensation paid for the year ended December 31, 2002 to Gilbert G.
Lundstrom, Chief Executive Officer of the TierOne Corporation and TierOne Bank
and James A. Laphen, President and Chief Operating Officer of TierOne
Corporation and TierOne Bank, reflects the considered judgment of the
Compensation Committee embracing the policies and processes described above.
Mr. Lundstrom's base salary was $491,521 for 2002, an increase of 4.0%
over 2001. Mr. Laphen's base salary was $300,001 for 2002, an increase of
25.0% over 2001. In determining the Chief Executive Officer's and Chief
Operating Officer's fiscal 2002 salary, the Compensation Committee considered
salaries offered by stock savings institutions and banks nationwide as
provided by the consultant study discussed above. The Compensation Committee
also took into account the 15.5% growth in total assets, the 12.9% increase in
TierOne Bank's retained earning between December 31, 2000 and December 31,
2001 as well as the 44.5% increase in net income for 2001 as compared to 2000.
The Compensation Committee also considered Mr. Lundstrom's and Mr. Laphen's
contributions in controlling TierOne Bank's operating expenses.
Based upon attaining TierOne Bank's goals and targets as described in
the Management Incentive Compensation Plan above, Mr. Lundstrom also earned a
bonus of $368,641 or 75% of his base salary in 2002 and Mr. Laphen earned a
bonus of $202,501 or 68% of his 2002 base salary.
Joyce Person Pocras
Campbell R. McConnell
Ann Lindley Spence
-13-
_______________________________________________________________________________
PERFORMANCE GRAPH
_______________________________________________________________________________
TierOne Corporation completed its initial public offering on October 1,
2002, during which we sold an aggregate of 22,075,075 shares of our common
stock at a price of $10.00 per share. The following graph represents $100
invested in our common stock at the $14.00 per share closing price of the
common stock on the Nasdaq National Market on October 2, 2002, the date our
common stock commenced trading on the Nasdaq. The graph demonstrates
comparison of the cumulative total returns for the common stock of TierOne
Corporation, the Russell 2000 Index and the SNL Securities $1B-$5B Thrift
Index for the periods indicated.
[Total Return Performance Graph*]
Period Ending
--------------------------
Index 10/02/02 12/31/02
- -----------------------------------------------------------------------------
TierOne Corporation 100.00 108.29
Russell 2000 100.00 106.75
SNL $1B-$5B Thrift Index 100.00 103.32
____________________
* Data derived from SNL Financial LC.
-14-
_______________________________________________________________________________
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
_______________________________________________________________________________
The following table sets forth as of February 24, 2003, the voting
record date, certain information as to the common stock beneficially owned by
(a) each person or entity, including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, who or which was
known to us to be the beneficial owner of more than 5% of the issued and
outstanding common stock, (b) the directors of TierOne Corporation, (c)
certain executive officers of TierOne Corporation named in the Summary
Compensation Table; and (d) all directors and executive officers of TierOne
Corporation as a group.
Amount and Nature
Name of Beneficial of Beneficial
Owner or Number of Ownership as of Percent of
Persons in Group February 24, 2003(1) Common Stock
- ---------------------------------------------------------------------------------------------------
<s> <c> <c>
TierOne Corporation Employee Stock Ownership Plan Trust
1235 N Street
Lincoln, Nebraska 68508 1,806,006(2) 8.0%
Directors:
James A. Laphen 28,644(3) *
Gilbert G. Lundstrom 181,444(4) *
Campbell R. McConnell 50,000(5) *
Joyce Person Pocras 25,500(6) *
LaVern F. Roschewski 30,200(7) *
Ann Lindley Spence 50,000(8) *
Other Named Executive Officers:
Gale R. Furnas 35,299(9) *
Larry L. Pfeil 40,330(10) *
Eugene B. Witkowicz 35,351(11) *
All Directors and Executive Officers of the
Company and the Bank as a group (12 persons) 549,466 2.4%
_______________________________
* Represents less than 1% of the outstanding stock.
(1) Based upon filings made pursuant to the Securities Exchange Act of 1934
and information furnished by the respective individuals. Under
regulations promulgated pursuant to the Securities Exchange Act of 1934,
shares of common stock are deemed to be beneficially owned by a person
if he or she directly or indirectly has or shares (i) voting power,
which includes the power to vote or to direct the voting of the shares,
or (ii) investment power, which includes the power to dispose or to
direct the disposition of the shares. Unless otherwise indicated, the
named beneficial owner has sole voting and dispositive power with
respect to the shares.
(2) The TierOne Corporation Employee Stock Ownership Plan Trust was
established pursuant to the TierOne Corporation employee stock ownership
plan by an agreement between TierOne Corporation and RSGroup Trust
Company who acts as trustee of the plan.
(footnotes continued on following page)
-15-
____________________
As of December 31, 2002, a total of 37,625 shares held in the trust had
been allocated to the accounts of participating employees. Under the
terms of the employee stock ownership plan, the trustee votes all
allocated shares held in the employee stock ownership plan in accordance
with the instructions of the participating employees. Allocated shares
for which employees do not give instructions generally will not be
voted, subject to the fiduciary duties of the trustee and unallocated
shares generally are voted in the same ratio on any matter as to those
shares for which instructions are given.
(3) Includes 25,850 shares held jointly with Mr. Laphen's wife, 50 shares
held in Mr. Laphen's account in TierOne Bank's 401(k) savings plan, 444
shares which have been allocated to Mr. Laphen's account in the employee
stock ownership plan and 2,300 shares held by Mr. Laphen in his IRA
account.
(4) Includes 80,000 shares held jointly with Mr. Lundstrom's wife, 5,000
shares held in Mr. Lundstrom's account in TierOne Bank's 401(k) savings
plan, 15,000 shares held in Mr. Lundstrom's IRA account, 81,000 shares
held in two trusts in which Mr. Lundstrom's spouse has a pecuniary
interest and 444 shares which have been allocated to Mr. Lundstrom's
account in the employee stock ownership plan.
(5) The 50,000 shares are held jointly with Mr. McConnell's wife.
(6) Includes 11,000 shares held by Ms. Pocras' husband, 2,500 shares held in
Ms. Pocras' IRA account and 12,000 shares held in Ms. Pocras' account in
TierOne Bank's 401(k) savings plan.
(7) Includes 30,000 shares held in Mr. Roschewski's account in TierOne
Bank's 401(k) savings plan and 200 shares held in two trusts for the
benefit of Mr. Roschewski's children of which Mr. Roschewski is a co-
trustee.
(8) The 50,000 shares are held jointly with Ms. Spence's husband.
(9) Includes 17,500 shares held jointly with Mr. Furnas' wife, 15,500 shares
held in Mr. Furnas' account in TierOne Bank's 401(k) savings plan, 364
shares which have been allocated to Mr. Furnas' account in the employee
stock ownership plan and 1,935 shares held by Mr. Furnas in his IRA
account.
(10) Includes 40,000 shares are held in Mr. Pfeil's account in TierOne Bank's
401(k) savings plan and 330 shares allocated to Mr. Pfeil's account in
the employee stock ownership plan.
(11) Includes 8,500 shares held jointly with Mr. Witkowicz's wife, 26,500
shares held in Mr. Witkowicz's account in TierOne Bank's 401(k) savings
plan and 351 shares which have been allocated to Mr. Witkowicz's account
in the employee stock ownership plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the officers and directors, and persons who own more than 10% of
TierOne Corporation's common stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors
and greater than 10% shareholders are required by regulation to furnish us
with copies of all Section 16(a) forms they file. We know of no person who
owns 10% or more of TierOne Corporation's common stock.
Based solely on our review of the copies of such forms furnished to us,
or written representations from our officers and directors, we believe that
during, and with respect to, the fiscal year ended December 31, 2002, our
officers and directors complied in all respects with the reporting
requirements promulgated under Section 16(a) of the Securities Exchange Act of
1934.
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_______________________________________________________________________________
PROPOSAL TO ADOPT THE 2003 STOCK OPTION PLAN
_______________________________________________________________________________
General
On February 28, 2003, the Board of Directors adopted the 2003 Stock
Option Plan which is designed to attract and retain qualified officers and
other employees, provide officers and other employees with a proprietary
interest in TierOne Corporation as an incentive to contribute to our success
and reward officers and other employees for outstanding performance. The
Option Plan provides for the grant of incentive stock options intended to
comply with the requirements of Section 422 of the Internal Revenue Code and
non-qualified or compensatory stock options (the incentive stock options and
the non-qualified (compensatory) options are together called, the "options").
Options will be available for grant to officers, employees and directors of
TierOne Corporation and any subsidiary except that non-employee directors will
be eligible to receive only awards of non-qualified options. The Board of
Directors believes that the Option Plan is in the best interest of TierOne
Corporation and our shareholders. If shareholder approval is obtained,
options to acquire shares of common stock will be awarded to officers,
employees and directors of TierOne Corporation and TierOne Bank with an
exercise price equal to the fair market value of the common stock on the date
of grant.
Description of the Option Plan
The following description of the Option Plan is a summary of its terms
and is qualified in its entirety by reference to the Option Plan, a copy of
which is attached hereto as Appendix B.
Administration. The Option Plan will be administered and interpreted by
a committee of the Board of Directors that is comprised solely of two or more
non-employee directors of TierOne Corporation.
Stock Options. Under the Option Plan, the Board of Directors or the
committee will determine which employees, including officers, and non-employee
directors (including directors emeritus and advisory directors) will be
granted options, whether such options will be incentive or compensatory
options (in the case of options granted to employees), the number of shares
subject to each option, the exercise price of each option and whether such
options may be exercised by delivering other shares of common stock. Under
the Option Plan, the per share exercise price of both an incentive and a
compensatory stock option must at least equal the fair market value of a share
of common stock on the date the option is granted (110% of fair market value
in the case of incentive stock options granted to individuals who beneficially
own 10% or more of TierOne Corporation common stock shareholders).
Under the Option Plan, options will become vested and exercisable at the
rate of 20% per year over five years, commencing one year from the date of
grant. The right to exercise will be cumulative. However, no vesting may
occur on or after a participant's employment or service with TierOne
Corporation or any of our subsidiaries is terminated for any reason other than
his death or disability. Unless the committee or Board of Directors specifies
otherwise at the time an option is granted, all options granted to
participants will become vested and exercisable in full on the date an
optionee terminates his employment or service with TierOne Corporation or a
subsidiary company because of his death or disability or as of the effective
date of our change in control. In addition, all stock options will become
vested and exercisable in full as of the effective date of the optionee's
retirement, provided that as of the date of such retirement: (i) such
treatment is either authorized or is not prohibited by applicable laws and
regulations, or (ii) an amendment to the Option Plan providing for such
treatment has been approved by the shareholders of TierOne Corporation at a
meeting of shareholders held more than one year after the consummation of the
conversion of TierOne Bank.
Each stock option or portion thereof will be exercisable at any time on
or after it vests and is exercisable until the earlier of either: (1) ten
years after its date of grant or (2) six months after the date on which the
optionee's
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employment or service terminates, unless extended by the committee or the
Board of Directors for a period of up to three years from such termination.
Unless stated otherwise at the time an option is granted, (a) if an optionee
terminates his employment or service with TierOne Corporation or a subsidiary
company as a result of disability or retirement without having fully
exercised his options, the optionee will have three years following his
termination due to disability or retirement to exercise such options, and (b)
if an optionee terminates his employment or service with TierOne Corporation
following a change in control of TierOne Corporation without having fully
exercised his options, the optionee shall have the right to exercise such
options during the remainder of the original ten year term of the option.
However, failure to exercise incentive stock options within three months after
the date on which the optionee's employment terminates may result in adverse
tax consequences to the optionee. If an optionee dies while serving as an
employee or a non-employee director or terminates employment or service as a
result of disability or retirement and dies without having fully exercised his
options, the optionee's executors, administrators, legatees or distributees of
his estate will have the right to exercise such options during the one year
period following his death. In no event may any option be exercisable more
than ten years from the date it was granted.
Stock options generally are non-transferable except by will or the laws
of descent and distribution, and during an optionee's lifetime, may be
exercisable only by the optionee or his guardian or legal representative.
However, an optionee who holds non-qualified options may transfer such options
to his or her immediate family, including the optionee's spouse, children,
step children, parents, grandchildren and great grandchildren, or to a duly
established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the optionee who
originally received the grant or to an individual or trust to whom the
optionee could have initially transferred the option. Options which are so
transferred will be exercisable by the transferee according to the same terms
and conditions as applied to the optionee.
Payment for shares purchased upon the exercise of options may be made
(a) in cash or by check, (b) by delivery of a properly executed exercise
notice, together with irrevocable instructions to a broker to sell the shares
and then to properly deliver to TierOne Corporation the amount of sale
proceeds to pay the exercise price, all in accordance with applicable laws and
regulations or (c) if permitted by the committee or the Board of Directors, by
delivering shares of common stock (including shares acquired pursuant to the
exercise of an option) with a fair market value equal to the total purchase
price of the shares being acquired pursuant to the option, by withholding some
of the shares of common stock which are being purchased upon exercise of an
option, or any combination of the foregoing. With respect to subclause (c) in
the preceding sentence, the shares of common stock delivered to pay the
purchase price must have either been (x) purchased in open market transactions
or (y) issued by TierOne Corporation pursuant to a plan thereof, in each case
more than six months prior to the exercise date of the option, or one year in
the case of previously exercised incentive stock options.
If the fair market value of a share of common stock at the time of
exercise is greater than the exercise price per share, paying the exercise
price using shares of already owned TierOne Corporation common stock would
enable the optionee to acquire a number of shares of common stock upon
exercise of the option, which is greater than the number of shares delivered
as payment for the exercise price. In addition, an optionee can exercise his
or her option in whole or in part and then deliver the shares acquired upon
such exercise (if permitted by the committee or the Board of Directors) as
payment for the exercise price of all or part of his options. Again, if the
fair market value of a share of common stock at the time of exercise is
greater than the exercise price per share, this feature would enable the
optionee to either (a) reduce the amount of cash required to receive a fixed
number of shares upon exercise of the option or (b) receive a greater number
of shares upon exercise of the option for the same amount of cash that would
have otherwise been used. Because options may be exercised in part from time
to time, the ability to deliver common stock as payment of the exercise price
could enable the optionee to turn a relatively small number of shares into a
large number of shares.
Number of Shares Covered by the Stock Option Plan. A total of 2,257,508
shares of common stock have been reserved for future issuance pursuant to the
Option Plan which is equal to 10% of the shares of common stock issued in
connection with the conversion (including shares issued to TierOne Charitable
Foundation) in October 2002. The Option Plan provides that grants to each
employee and each non-employee director shall not exceed 25%
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and 5% of the shares of common stock available under the Option Plan,
respectively. Option grants made to non-employee directors in the aggregate
may not exceed 30% of the number of shares available under the Option Plan. In
the event of a stock split, subdivision, stock dividend or any other capital
adjustment, the number of shares of common stock under the Option Plan, the
number of shares to which any option grant relates and the exercise price per
share under any option shall be adjusted to reflect such increase or decrease
in the total number of shares of common stock outstanding or such capital
adjustment.
Term of the Stock Option Plan. Unless sooner terminated, the Option
Plan shall continue in effect for a period of ten years from February 28, 2003
assuming approval of the Option Plan by our shareholders. Termination of the
Option Plan shall not affect any previously granted options.
Federal Income Tax Consequences. Under current provisions of the
Internal Revenue Code, the federal income tax treatment of incentive stock
options and compensatory stock options is different. As regards incentive
stock options, an optionee who meets certain holding period requirements will
not recognize income at the time the option is granted or at the time the
option is exercised, and a federal income tax deduction generally will not be
available to TierOne Corporation at any time as a result of such grant or
exercise. With respect to compensatory stock options, the difference between
the fair market value on the date of exercise and the option exercise price
generally will be treated as compensation income upon exercise, and TierOne
Corporation will be entitled to a deduction in the amount of income so
recognized by the optionee.
Section 162(m) of the Internal Revenue Code generally limits the
deduction for certain compensation in excess of $1.0 million per year paid by
a publicly-traded corporation to its chief executive officer and the four
other most highly compensated executive officers ("covered executives").
Certain types of compensation, including compensation based on performance
goals, are excluded from the $1.0 million deduction limitation. In order for
compensation to qualify for this exception: (a) it must be paid solely on
account of the attainment of one or more preestablished, objective performance
goals; (b) the performance goal must be established by a Compensation
Committee consisting solely of two or more outside directors, as defined; (c)
the material terms under which the compensation is to be paid, including
performance goals, must be disclosed to, and approved by, shareholders in a
separate vote prior to payment; and (d) prior to payment, the Compensation
Committee must certify that the performance goals and any other material terms
were in fact satisfied (the "certification requirement").
Treasury regulations provide that compensation attributable to a stock
option is deemed to satisfy the requirement that compensation be paid solely
on account of the attainment of one or more performance goals if: (a) the
grant is made by a Compensation Committee consisting solely of two or more
outside directors, as defined; (b) the plan under which the option right is
granted states the maximum number of shares with respect to which options may
be granted during a specified period to any employee; and (c) under the terms
of the option, the amount of compensation the employee could receive is based
solely on an increase in the value of the stock after the date of grant. The
certification requirement is not necessary if these other requirements are
satisfied.
The Option Plan has been designed to meet the requirements of Section
162(m) of the Internal Revenue Code and, as a result, we believe that
compensation attributable to stock options granted under the Stock Option Plan
in accordance with the foregoing requirements will be fully deductible under
Section 162(m) of the Internal Revenue Code. If the non-excluded compensation
of a covered executive exceeded $1.0 million, however, compensation
attributable to other compensation, may not be fully deductible unless the
grant or vesting of such other compensation is contingent on the attainment of
a performance goal determined by a Compensation Committee meeting specified
requirements and disclosed to and approved by the shareholders of TierOne
Corporation. The Board of Directors believes that the likelihood of any
impact on TierOne Corporation from the deduction limitation contained in
Section 162(m) of the Internal Revenue Code is remote at this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their
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application may vary in individual circumstances. Finally, the consequences
under applicable state and local income tax laws may not be the same as under
the federal income tax laws.
Accounting Treatment. Neither the grant nor the exercise of an
incentive stock option or a non-qualified stock option under the Option Plan
currently requires any charge against earnings under generally accepted
accounting principles. In October 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which is effective for
transactions entered into after December 15, 1995. This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This Statement defines a fair value method of accounting
for an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. TierOne Corporation anticipates that it will
use the intrinsic value method, in which event pro forma disclosure will be
included in the footnotes to TierOne Corporation's financial statements (both
its annual audited financial statements as well as its interim period
financial statements) to show what net income and earnings per share would
have been if the fair value method had been utilized. If TierOne Corporation,
however, elects to utilize the fair value method, its net income and earnings
per share may be adversely affected.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation --Transition and Disclosure, an amendment of FASB
Statement No. 123." Statement No. 148 amends SFAS No. 123 to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
Shareholder Approval. No options will be granted under the Option Plan
unless the Option Plan is approved by shareholders. Shareholder ratification
of the Option Plan will also satisfy The Nasdaq Stock Market listing and
federal tax requirements.
Options to be Granted. The Board of Directors of TierOne Corporation
adopted the Option Plan, and the committee established thereunder intends to
meet promptly after approval by shareholders to determine the specific terms
of options, including the allocation of options to executive officers,
employees and non-employee directors of TierOne Corporation and TierOne Bank.
At the present time, no specific determination has been made as to allocation
of grants. The committee is also considering awarding options to certain non-
executive officers and employees of TierOne Bank.
The Board of Directors recommends that you vote FOR adoption
of the 2003 Stock Option Plan.
_______________________________________________________________________________
PROPOSAL TO ADOPT THE 2003 RECOGNITION AND
RETENTION PLAN AND TRUST AGREEMENT
_______________________________________________________________________________
General
The Board of Directors has adopted the 2003 Recognition and Retention
Plan and Trust Agreement, the objective of which is to enable TierOne
Corporation to provide officers, employees and directors with a proprietary
interest in TierOne Corporation and as an incentive to contribute to its
success. Officers, employees and directors of
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TierOne Corporation and TierOne Bank who are selected by the Board of Directors
of TierOne Corporation or members of a committee appointed by the Board will be
eligible to receive benefits under the Recognition Plan. If shareholder
approval is obtained, shares will be granted to officers, employees and
directors as determined by the committee or the Board of Directors.
Description of the Recognition Plan
The following description of the Recognition Plan is a summary of its
terms and is qualified in its entirety by reference to the Recognition Plan, a
copy of which is attached hereto as Appendix C.
Administration. A committee of the Board of Directors of TierOne
Corporation will administer the Recognition Plan, which shall consist of two
or more members of the Board, each of whom shall be a non-employee director of
TierOne Corporation. The members of the committee will also serve as initial
trustees of the trust established pursuant to the Recognition Plan. The
trustees will have the responsibility to invest all funds contributed by
TierOne Corporation to the Trust.
Upon shareholder approval of the Recognition Plan, TierOne Corporation
will contribute sufficient funds to the Recognition Plan Trust so that the
Trust can purchase a number of shares of common stock equal to 4% of the
common stock issued in connection with the conversion (including shares
contributed to the TierOne Charitable Foundation) completed in October 2002,
or 903,003 shares. It is currently anticipated that these shares will be
acquired through open market purchases to the extent available, although
TierOne Corporation reserves the right to issue previously unissued shares or
treasury shares to the Recognition Plan. The issuance of new shares by
TierOne Corporation would be dilutive to the voting rights of existing
shareholders and to TierOne Corporation's book value per share and earnings
per share.
Grants. Shares of common stock granted pursuant to the Recognition Plan
will be in the form of restricted stock payable over a five-year period at a
rate of 20% per year, beginning one year from the anniversary date of the
grant. A recipient will be entitled to all shareholder rights with respect to
shares which have been earned and allocated under the Recognition Plan. In
addition, recipients of shares of restricted stock that have been granted
pursuant to the Recognition Plan that have not yet been earned and distributed
(other than shares granted pursuant to Performance Share Awards (as defined
below)) are entitled to direct the trustees of the Trust as to the voting of
such shares on the recipient's behalf. However, until such shares have been
earned and allocated, they may not be sold, assigned, pledged or otherwise
disposed of and are required to be held in the Trust. In addition, any cash
dividends or stock dividends declared in respect of unvested share awards
(except Performance Share awards) will be paid out proportionately by the
Trust to the recipients thereof as soon as practicable after the Trust
receives the dividends with respect to unearned Performance Share Awards, any
cash dividends declared with respect to them will be held in the Trust for the
benefit of the recipients of such Performance Shares Awards and such dividends
will be held by the Trust for the benefit of the recipients and such
dividends, including any interest thereon, will be paid out proportionately by
the Trust to the recipients thereof as soon as practicable after the
Performance Share Awards do become earned.
If a recipient terminates employment or service with TierOne Corporation
for reasons other than death or disability, the recipient will forfeit all
rights to the allocated shares under restriction. All shares subject to an
award held by a recipient whose employment or service with TierOne Corporation
or any subsidiary terminates due to death or disability shall be deemed earned
as of the recipient's last day of employment or service with TierOne
Corporation or any subsidiary and shall be distributed as soon as practicable
thereafter. In the event of a change in control of TierOne Corporation, all
shares subject to an award shall be deemed earned as of the effective date of
such change in control. In addition, in the event that a recipient's
employment or service with TierOne Corporation or any subsidiary terminates
due to retirement, all shares subject to an award held by a recipient shall be
deemed earned as of the recipient's last day of employment with or service to
TierOne Corporation or any subsidiary and shall be distributed as soon as
practicable thereafter, provided that as of the date of such retirement: (i)
such treatment is either authorized or is not prohibited by applicable laws
and regulations, or (ii) an amendment to the
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Recognition Plan providing for such treatment has been approved by the
shareholders of TierOne Corporation at a meeting of shareholders held more than
one year after the consummation of the conversion.
Performance Share Awards. The Recognition Plan provides the committee
with the ability to condition or restrict the vesting or exercisability of any
Recognition Plan award upon the achievement of performance targets or goals as
set forth under the Recognition Plan. Any Recognition Plan award subject to
such conditions or restrictions is considered to be a "Performance Share
Award." Subject to the express provisions of the Recognition Plan and as
discussed in this paragraph, the committee has discretion to determine the
terms of any Performance Share Award, including the amount of the award, or a
formula for determining such, the performance criteria and level of
achievement related to these criteria which determine the amount of the award
granted, issued, retainable and/or vested, the period as to which performance
shall be measured for determining achievement of performance (a "performance
period"), the timing of delivery of any awards earned, forfeiture provisions,
the effect of termination of timing of delivery of any awards earned,
forfeiture provisions, the effect of termination of employment for various
reasons, and such further terms and conditions, in each case not inconsistent
with the Recognition Plan, as may be determined from time to time by the
committee. Each Performance Share Award shall be granted and administered to
comply with the requirements of Section 162(m) of the Internal Revenue Code.
Accordingly, the performance criteria upon which Performance Share Awards are
granted, issued, retained and/or vested shall be a measure based on one or
more Performance Goals (as defined below). Notwithstanding satisfaction of
any Performance Goals, the number of shares granted, issued, retainable and/or
vested under a Performance Share Award may be reduced or eliminated, but not
increased, by the committee on the basis of such further considerations as the
committee in its sole discretion shall determine.
Subject to shareholder approval of the Recognition Plan, the Performance
Goals for any Performance Share Award shall be based upon any one or more of
the following performance criteria, either individually, alternatively or any
combination, applied to either TierOne Corporation as a whole or to a business
unit or subsidiary, either individually, alternatively or in any combination,
and measured either on an absolute basis or relative to a pre-established
target, to previous years' results or to a designated comparison group, in
each case as preestablished by the committee under the terms of the
Performance Share Award: net income, as adjusted for non-recurring items; cash
earnings; earnings per share; cash earnings per share; return on average
equity; return on average assets; assets; stock price; total shareholder
return; capital; net interest income; market share; cost control or efficiency
ratio; and asset growth. To the extent the committee considers granting a
Performance Share Award, it may engage outside compensation consultants to
assist it in establishing such performance-based targets.
Federal Income Tax Consequences. Pursuant to Section 83 of the Internal
Revenue Code, recipients of Recognition Plan awards will recognize ordinary
income in an amount equal to the fair market value of the shares of common
stock granted to them at the time that the shares vest and become
transferable. A recipient of a Recognition Plan award may also elect,
however, to accelerate the recognition of income with respect to his or her
grant to the time when shares of common stock are first transferred to him or
her, notwithstanding the vesting schedule of such awards. TierOne Corporation
will be entitled to deduct as a compensation expense for tax purposes the same
amounts recognized as income by recipients of Recognition Plan awards in the
year in which such amounts are included in income.
Section 162(m) of the Internal Revenue Code generally limits the
deduction for certain compensation in excess of $1.0 million per year paid by
a publicly-traded corporation to its covered executives. Certain types of
compensation, including compensation based on performance goals, are excluded
from the $1.0 million deduction limitation. In order for compensation to
qualify for this exception: (a) it must be paid solely on account of the
attainment of one or more preestablished, objective performance goals; (b) the
performance goal must be established by a Compensation Committee consisting
solely of two or more outside directors, as defined; (c) the material terms
under which the compensation is to be paid, including performance goals, must
be disclosed to and approved by shareholders in a separate vote prior to
payment; and (d) prior to payment, the Compensation Committee must certify
that the performance goals and any other material terms were in fact
satisfied.
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The Recognition Plan has been designed to meet the requirements of
Section 162(m) of the Internal Revenue Code and, as a result, we believe that
compensation attributable to Performance Share Awards granted under the
Recognition Plan in accordance with the foregoing requirements will be fully
deductible under Section 162(m) of the Internal Revenue Code. The Board of
Directors believes that the likelihood of any impact on TierOne Corporation
from the deduction limitation contained in Section 162(m) of the Internal
Revenue Code is remote at this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
Accounting Treatment. For a discussion of Statement of Financial
Accounting Standards No. 123, see "Proposal to Adopt the 2003 Stock Option
Plan - Description of the Stock Option Plan - Accounting Treatment." Under
the intrinsic value method, TierOne Corporation will recognize a compensation
expense as shares of common stock granted pursuant to the Recognition Plan
vest. The amount of compensation expense recognized for accounting purposes
is based upon the fair market value of the common stock at the date of grant
to recipients, rather than the fair market value at the time of vesting for
tax purposes. The vesting of plan share awards will have the effect of
increasing TierOne Corporation's compensation expense.
Shareholder Approval. No awards will be granted under the Recognition
Plan unless the Recognition Plan is approved by our shareholders.
Shares to be Granted. The Board of Directors of TierOne Corporation
adopted the Recognition Plan and the committee established thereunder intends
to grant shares to executive officers, employees and non-employee directors of
TierOne Corporation and TierOne Bank. The Recognition Plan provides that
grants to each employee and each non-employee director shall not exceed 25%
and 5% of the shares of common stock available under the Recognition Plan,
respectively. Awards made to non-employee directors in the aggregate may not
exceed 30% of the number of shares available under the Recognition Plan.
Although, the committee expects to act promptly after receipt of shareholder
approval to issue awards under the Recognition Plan, the timing of any such
grants, the individual recipients and the specific amounts of such grants have
not been determined.
The Board of Directors recommends that you vote FOR adoption of the 2003
Recognition and Retention Plan and Trust Agreement.
_______________________________________________________________________________
RATIFICATION OF APPOINTMENT OF AUDITORS
_______________________________________________________________________________
The Audit Committee of the Board of Directors of TierOne Corporation has
appointed KPMG LLP, independent certified public accountants, to perform the
audit of our financial statements for the year ending December 31, 2003, and
further directed that the selection of auditors be submitted for ratification
by the shareholders at the annual meeting.
We have been advised by KPMG LLP that neither that firm nor any of its
associates has any relationship with TierOne Corporation or its subsidiaries
other than the usual relationship that exists between independent certified
public accountants and clients. KPMG LLP will have one or more
representatives at the annual meeting who will have an opportunity to make a
statement, if they so desire, and will be available to respond to appropriate
questions.
In determining whether to appoint KPMG LLP as our auditors, TierOne
Corporation's Audit Committee considered whether the provision of services,
other than auditing services, by KPMG LLP is compatible with
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maintaining the auditors' independence. In addition to performing auditing
services as well as reviewing TierOne Corporation's public filings, our
auditors performed tax-related services, including the completion of TierOne
Corporation's corporate tax returns, in fiscal 2002. The Audit Committee
believes that KPMG LLP's performance of these other services is compatible
with maintaining the auditor's independence.
Audit Fees
The aggregate amount of fees billed by KPMG LLP for its audit of TierOne
Corporation's annual financial statements for fiscal 2002 and for its reviews
of TierOne Corporation's unaudited interim financial statements included in
the Forms 10-Q filed by us during fiscal 2002 was $87,000.
Financial Information Systems Design and Implementation
We did not engage or pay any fees to KPMG LLP with respect to the
provision of financial information systems design and implementation services
during fiscal 2002.
All Other Fees
The aggregate amount of fees billed by KPMG LLP for all other services
rendered to TierOne Corporation during fiscal 2002 was $368,380. The majority
of these services were related to the conversion to stock form of organization
of TierOne Bank completed during the fiscal year with a lesser amount
attributable to the provision of tax related services, audit of our employee
benefit plans and a cost segregation study.
The Board of Directors recommends that you vote FOR the ratification of
the appointment of KPMG LLP as our independent auditors for the fiscal year
ending December 31, 2003.
_______________________________________________________________________________
REPORT OF THE AUDIT COMMITTEE
_______________________________________________________________________________
The functions of the TierOne Corporation Audit Committee include the
following: performing all duties assigned by the Board of Directors; selecting
our independent auditors; reviewing with TierOne Corporation's management and
our independent public accountants the financial statements issued by TierOne
Corporation and TierOne Bank pursuant to federal regulatory requirements;
meeting with the independent public accountants to review the scope of audit
services, significant accounting changes and audit conclusions regarding
significant accounting estimates; assessments as to the adequacy of internal
controls and the resolution of any significant deficiencies or material
control weaknesses; and assessing compliance with laws and regulations and
overseeing the internal audit function.
The Audit Committee has reviewed and discussed TierOne Corporation's
audited financial statements with management. The Audit Committee has
discussed with TierOne Corporation's independent auditors, KPMG LLP, the
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees." The Audit Committee has received the
written disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees" and has discussed with KPMG LLP, the independent auditors'
independence. Based on the review and discussions referred to above in this
report, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in TierOne Corporation's Annual
Report on Form 10-K for fiscal year 2002 for filing with the Securities and
Exchange Commission.
Campbell R. McConnell
Ann Lindley Spence
Joyce Person Pocras
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_______________________________________________________________________________
STOCKHOLDER PROPOSALS
_______________________________________________________________________________
Any proposal which a shareholder wishes to have included in the proxy
materials of TierOne Corporation relating to the next annual meeting of
shareholders of TierOne Corporation, which is currently expected to be held in
May 2004, must be received at the principal executive offices of TierOne
Corporation, 1235 N Street, Lincoln, Nebraska 68508, Attention: Eugene B.
Witkowicz, Corporate Secretary, no later than November 10, 2003. If such
proposal is in compliance with all of the requirements of Rule 14a-8 under the
Securities Exchange Act of 1934, as amended, it will be included in the Proxy
Statement and set forth on the form of proxy issued for such annual meeting of
shareholders. It is urged that any such proposals be sent certified mail,
return receipt requested.
Stockholder proposals which are not submitted for inclusion in TierOne
Corporation's proxy materials pursuant to Rule 14a-8 may be brought before an
annual meeting pursuant to Section 2.14 of TierOne Corporation's Bylaws.
Notice of the proposal must also be given in writing and delivered to, or
mailed and received at, our principal executive offices by November 10, 2003.
The notice must include the information required by Section 2.14 of our
Bylaws.
_______________________________________________________________________________
ANNUAL REPORTS
_______________________________________________________________________________
A copy of TierOne Corporation's Annual Report to Shareholders for the
year ended December 31, 2002 accompanies this Proxy Statement. Such annual
report is not part of the proxy solicitation materials.
Upon receipt of a written request, we will furnish to any shareholder
without charge a copy of TierOne Corporation's Annual Report on Form 10-K for
fiscal 2002 required to be filed with the SEC. Such written requests should
be directed to Mr. Edward J. Swotek, TierOne Corporation, 1235 N Street,
Lincoln, Nebraska 68508. The Form 10-K is not part of the proxy solicitation
materials.
_______________________________________________________________________________
OTHER MATTERS
_______________________________________________________________________________
Management is not aware of any business to come before the annual
meeting other than the matters described above in this Proxy Statement.
However, if any other matters should properly come before the meeting, it is
intended that the proxies solicited hereby will be voted with respect to those
other matters in accordance with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by TierOne
Corporation. TierOne Corporation will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them
in sending the proxy materials to the beneficial owners of TierOne
Corporation's common stock. In addition to solicitations by mail, directors,
officers and employees of TierOne Corporation may solicit proxies personally
or by telephone without additional compensation. We have also engaged
Georgeson Shareholder Communications, Inc., a professional proxy solicitation
firm, to assist in the solicitation of proxies. Such firm will be paid a fee
of $7,500.00, plus reimbursement of out-of-pocket expenses.
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APPENDIX A
TierOne Corporation
AMENDED & RESTATED
AUDIT COMMITTEE CHARTER
AS OF JANUARY 23, 2003
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
* Appoint the Company's independent auditors.
* Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting,
legal, and regulatory compliance.
* Monitor the qualifications, independence, and performance of the
Company's independent auditors and internal auditing department.
* Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of
Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee has the ability to retain, at the Company's expense, special legal,
accounting, or other consultants or experts it deems necessary within the
Audit Committee's scope of responsibilities.
The Audit Committee shall be directly responsible for appointing,
determining funding for, and overseeing the independent auditors in accordance
with Section 301 of the Sarbanes-Oxley Act of 2002 (the "Act").
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the NASDAQ Stock
Exchange (the "Nasdaq"). The Audit Committee shall be comprised of three or
more directors, as determined by the Board, each of whom shall be independent,
as such term is defined in the Rules of the Nasdaq, free from any relationship
that would interfere with the exercise of his or her independent judgment. In
order to maintain independent judgment, Audit Committee members are prohibited
from receiving any consulting, advisory, or other compensatory fee from the
Company, other than payment for board or committee service, and Audit
Committee members are prohibited from owning 20% or more of the Company's
voting securities. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements at the time of their appointment, and at
least one member of the Committee shall have accounting or related financial
management expertise within the meaning of Rules of the Nasdaq.
Audit Committee members shall be appointed by the Board. If an audit
committee Chair is not designated or present, the members of the Committee may
designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee Chair shall approve
an agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the director of the
internal auditing department, the independent auditors, and as a committee to
discuss any matters that the Committee or each of these groups believe should
be discussed. In addition, the Committee, or at least its Chair, should
communicate with management and
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the independent auditors no less than quarterly to review the Company's
financial statements and significant findings based upon the auditor's limited
review procedures. In addition, the Committee Chair or another member of the
Committee selected thereby should review the Company's earnings releases with
management and the independent auditors prior to their release.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval. Have the charter
published at least every three years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements and unaudited
interim financial statements prior to filing or distribution. Review should
include discussion with management and independent auditors of significant
issues regarding accounting principles including critical accounting policies,
practices, and judgments (see Item 10).
3. In consultation with the management, the independent auditors, and the
internal auditors, consider the integrity of the Company's financial reporting
processes and controls. Discuss significant financial risk exposures and the
steps management has taken to monitor, control, and report such exposures.
Review significant findings prepared by the independent auditors and the
internal auditing department together with management's responses.
4. Review with management and the independent auditors the Company's
quarterly financial results prior to the release of earnings and/or the
Company's quarterly financial statements prior to filing or distribution of
the Quarterly Report on Form 10-Q. Discuss any significant changes to the
Company's accounting principles and any items required to be communicated by
the independent auditors in accordance with AICPA SAS 61 (see Item 9). The
Chair of the Committee may represent the entire Audit Committee for purposes
of this review.
Independent Auditors
5. The Audit Committee shall be directly responsible for the appointment,
compensation, oversight of the work, evaluation, and termination of the
independent auditors (subject, if applicable, to shareholder ratification).
The independent auditors report directly to the Audit Committee and the Audit
Committee will be responsible for the resolution of any disagreements between
management and the independent auditor regarding financial reporting. The
Audit Committee shall also review the independence of the auditors.
6. All auditing services and all non-audit services, which are not
prohibited by law, shall be pre-approved by the Audit Committee pursuant to
such processes as are determined to be advisable.
Exception - The pre-approval requirement set forth in the first sentence
above, shall not be applicable with respect to the provision of non-
audit services, if:
(i) the aggregate amount of all such non-audit services provided
to the Company constitutes not more than five percent of the
total amount of revenues paid by the Company to its
independent auditor during the calendar year in which the
non-audit services are provided;
(ii) such services were not recognized by the Company at the time
of the engagement to be non-audit services; and
(iii)such services are promptly brought to the attention of the
Committee and approved prior to the completion of the audit
by the Committee or by one or more members of the Committee
to whom authority to grant such approvals has been delegated
by the Committee.
Delegation - The Committee may delegate to one or more designated
members of the Committee the authority to grant required pre-approvals.
The decisions of any member to whom authority is delegated
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under this paragraph to pre-approve an activity under this subsection
shall be presented to the full Committee at its next scheduled meeting.
The pre-approval policies and procedures will be disclosed in the
Company's proxy statements and annual reports in the manner directed by the
regulations of the SEC or the Rules of the Nasdaq, as applicable.
7. On an annual basis, review and discuss with the independent auditors all
significant relationships they have with the Company that could impair the
auditors' independence. Consider whether the provision of any non-audit
services by the independent auditors is compatible with maintaining the
auditor's independence.
8. Review the independent auditors' audit plan including discussions of
audit scope, staffing, locations, reliance upon management, and internal audit
and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61 and obtain
the written disclosures and the letter from the independent auditors required
by Independence Standards Board Standard No. 1.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting. Prior to releasing the year-end earnings, obtain a
report from the independent auditors containing (a) all critical accounting
policies used by the Company, (b) alternative accounting treatments that have
been discussed with management along with the potential ramifications of using
those alternatives, and (c) other written communications provided by the
independent auditor to management, such as any management letter and schedule
of unadjusted audit differences.
11. Require independent auditor partner (including both the audit partner
having primary responsibility for the audit and the audit partner responsible
for reviewing the audit) rotation for a period of no less than five years
after each such partner serves in this capacity for five years.
12. Ensure no former upper level employees of the independent auditor who
could influence the independent auditor serve in an accounting role or
financial reporting oversight role of the Company, as such terms are defined
by the regulation.
13. Inquire of the independent auditors whether any member of the audit
engagement team received bonuses or incentive compensation based on the sale
of non-audit products or services to the Company, which is prohibited by the
Act and the provisions of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act") and the regulations promulgated there under.
14. Review the audit engagement team to determine appropriate qualifications
as well as to determine whether any members would be disqualified under the
independence provisions of the Exchange Act and the regulations promulgated
there under, including, but not limited to, Regulation S-X.
15. Ensure that the Company provides the required proxy statement and annual
report disclosure of the fees paid to the independent auditors.
Internal Audit Department
16. Review the annual internal audit plan and recommend any changes.
17. Review the activities, organizational structure, and qualifications of
the internal audit department, as needed.
A-3
18. Review the appointment, performance, and replacement of the senior
internal audit executive.
19. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
Other Audit Committee Responsibilities
20. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report must be included in the Company's annual
proxy statement. The Audit Committee will also make a specific
recommendation, disclosed in the proxy statement, whether or not the Company's
audited financial statements be included in the Company's annual report to
shareholders.
21. Establish procedures for the receipt, retention, and treatment of
internal and external complaints received by the Company regarding accounting,
internal accounting controls, or auditing matters. In establishing such
procedures, the Committee must provide for the ability of the Company's
employees to submit by confidential, anonymous submission any concerns
regarding questionable accounting or auditing matters.
22. Review and approve all related-party transactions (e.g. Company
transactions with any director or executive officer of the Company or any
Company security holder with more than five percent of the voting securities,
including immediate family members or associates or affiliates of any of the
above).
23. Perform any other activities consistent with this Charter, the Company's
Articles of Incorporation and By-laws, and governing law, as the Committee or
the Board deems necessary or appropriate.
24. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
A-4
APPENDIX B
TierOne Corporation
2003 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
TierOne Corporation (the "Corporation") hereby establishes this 2003
Stock Option Plan (the "Plan") upon the terms and conditions hereinafter
stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation and its Subsidiary Companies by providing Employees and Non-
Employee Directors with a proprietary interest in the Corporation as an
incentive to contribute to the success of the Corporation and its Subsidiary
Companies, and rewarding Employees and Non-Employee Directors for outstanding
performance. All Incentive Stock Options issued under this Plan are intended
to comply with the requirements of Section 422 of the Code, and the
regulations thereunder, and all provisions hereunder shall be read,
interpreted and applied with that purpose in mind. Each recipient of an
Option hereunder is advised to consult with his or her personal tax advisor
with respect to the tax consequences under federal, state, local and other tax
laws of the receipt and/or exercise of an Option hereunder.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronouns shall
include the feminine pronouns and the singular shall include the plural.
3.01 "Bank" means TierOne Bank, the wholly owned subsidiary of the
Corporation.
3.02 "Beneficiary" means the person or persons designated by an
Optionee to receive any benefits payable under the Plan in the event of such
Optionee's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time
to time by similar written notice to the Committee. In the absence of a
written designation, the Beneficiary shall be the Optionee's surviving spouse,
if any, or if none, his estate.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the occurrence
of any of the following: (i) the acquisition of control of the Corporation as
defined in 12 C.F.R. Section 574.4, or any successor thereto, unless a
presumption of control is successfully rebutted or unless the transaction is
exempted by 12 C.F.R. Section 574.3(c)(vii), or any successor thereto; (ii)
an event that would be required to be reported in response to either Item 1(a)
of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the
Exchange Act, or any successor to such respective items, whether or not any
class of securities of the Corporation is registered under the Exchange Act;
(iii) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities except for any securities purchased
by the Corporation or the Bank; or (iv) during any period of thirty-six
consecutive months during the term of an Option, individuals who at the
beginning of such period constitute the Board of Directors of
B-1
the Corporation cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by shareholders, of each
new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors appointed
by the Board pursuant to Article IV hereof, each of whom shall be a Non-
Employee Director (i) as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or
any successor thereto, and (ii) within the meaning of Section 162(m) of the
Code or any successor thereto.
3.07 "Common Stock" means shares of the common stock, $0.01 par value
per share, of the Corporation.
3.08 "Director" means a member of the Board of Directors of the
Corporation or a Subsidiary Corporation or any successors thereto, including
Non-Employee Directors as well as Officer and Employees serving as Directors.
3.09 "Director Emeritus" and "Advisory Director" means a person
appointed to serve in such capacity by the Board of either the Corporation or
the Bank or the successors thereto.
3.10 "Disability" means any physical or mental impairment which
qualifies an Optionee for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company, or, if
no such plan applies, which would qualify such Optionee for disability
benefits under the long-term disability plan maintained by the Corporation, if
such individual were covered by that plan.
3.11 "Effective Date" means the day upon which the Board adopts this
Plan.
3.12 "Employee" means any person who is employed by the Corporation or
a Subsidiary Company, or is an Officer of the Corporation or a Subsidiary
Company, but not including directors who are not also Officers of or otherwise
employed by the Corporation or a Subsidiary Company.
3.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.14 "Exercise Price" means the price at which a share of Common Stock
may be purchased by an Optionee pursuant to an Option.
3.15 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Option is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the
composite of the markets, if more than one) or national quotation system in
which such shares are then traded, or if no such closing prices are reported,
the mean between the high bid and low asked prices that day on the principal
market or national quotation system then in use, or if no such quotations are
available, the price furnished by a professional securities dealer making a
market in such shares selected by the Committee.
3.16 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.17 "Non-Employee Director" means a member of the Board (including
advisory boards, if any) of the Corporation or any Subsidiary Company or any
successor thereto, including an Advisory Director or a Director
B-2
Emeritus of the Board of the Corporation and/or any Subsidiary Company, or a
former Officer or Employee of the Corporation and/or any Subsidiary Company
serving as a Director, Advisory Director or Director Emeritus, who is not an
Officer or Employee of the Corporation or any Subsidiary Company.
3.18 "Non-Qualified Option" means any Option granted under this Plan
which is not an Incentive Stock Option.
3.19 "Offering" means the offering of Common Stock to the public during
2002 in connection with the conversion of the Bank from the mutual to the
stock form of organization and the issuance of the capital stock of the Bank
to the Corporation.
3.20 "Officer" means an Employee whose position in the Corporation or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.21 "OTS" means the Office of Thrift Supervision.
3.22 "Option" means a right granted under this Plan to purchase Common
Stock.
3.23 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
3.24 "Retirement" means:
(a) A termination of employment which constitutes a "retirement" at the
"normal retirement age" or later under the TierOne Bank Savings Plan or such
other qualified pension benefit plan maintained by the Corporation or a
Subsidiary Company as may be designated by the Board or the Committee, or, if
no such plan is applicable, which would constitute "retirement" under the
TierOne Bank Savings Plan, if such individual were a participant in that plan,
provided, however, that the provisions of this subsection (a) will not apply
as long as an Optionee continues to serve as a Non-Employee Director.
(b) With respect to Non-Employee Directors, retirement means retirement
from service on the Board of Directors of the Corporation or a Subsidiary
Company or any successors thereto (including service as a Director Emeritus or
Advisory Director to the Corporation or any Subsidiary Company) after reaching
age 65 and having served as a member of the Board Directors of the Corporation
and/or the Bank for a period of 10 years or more.
3.25 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Bank, which meet the definition of "subsidiary
corporations" set forth in Section 424(f) of the Code, at the time of granting
of the Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt,
amend and rescind such rules, regulations and procedures as, in its opinion,
may be advisable in the administration of the Plan, including, without
limitation, rules, regulations and procedures which (i) address matters
regarding the satisfaction of an Optionee's tax withholding obligation
pursuant to Section 12.02 hereof, (ii) to the extent permissible by applicable
law and regulation, include arrangements to facilitate the Optionee's ability
to borrow funds for payment of the exercise or purchase price of an Option, if
applicable, from securities brokers and dealers, and (iii) subject to any
legal or regulatory restrictions or limitations, include arrangements which
provide for the payment of some or all of such exercise or purchase price by
delivery of previously owned shares of Common Stock or other property and/or
by withholding some of the shares of Common Stock which are being
B-3
acquired. The interpretation and construction by the Committee of any
provisions of the Plan, any rule, regulation or procedure adopted by it
pursuant thereto or of any Option shall be final and binding in the absence
of action by the Board.
4.02 Appointment and Operation of the Committee. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director, as
defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto.
In addition, each member of the Committee shall be an "outside director"
within the meaning of Section 162(m) of the Code and regulations thereunder at
such times as is required under such regulations. The Committee shall act by
vote or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. It may appoint one of its members to be chairman and any person,
whether or not a member, to be its secretary or agent. The Committee shall
report its actions and decisions to the Board at appropriate times but in no
event less than one time per calendar year.
4.03 Revocation for Misconduct. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, previously granted or awarded under
this Plan to an Employee who is discharged from the employ of the Corporation
or a Subsidiary Company for cause, which, for purposes hereof, shall mean
termination because of the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order. Options granted to a Non-Employee Director who
is removed for cause pursuant to the Corporation's Articles of Incorporation
or Bylaws or the Bank's Charter and Bylaws or the constituent documents of
such other Subsidiary Company on whose board he serves shall terminate as of
the effective date of such removal.
4.04 Limitation on Liability. Neither the members of the Board nor any
member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan, any rule, regulation or procedure
adopted by it pursuant thereto or any Options granted under it. If a member
of the Board or the Committee is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of anything done
or not done by him in such capacity under or with respect to the Plan, the
Corporation shall, subject to the requirements of applicable laws and
regulations, indemnify such member against all liabilities and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in the best interests of the Corporation and its Subsidiary Companies
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
4.05 Compliance with Law and Regulations. All Options granted
hereunder shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as
may be required. The Corporation shall not be required to issue or deliver
any certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any Federal or state law or any rule or
regulation of any government body, which the Corporation shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option may
be exercised if such exercise would be contrary to applicable laws and
regulations.
4.06 Restrictions on Transfer. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Option granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
B-4
ARTICLE V
ELIGIBILITY
Options may be granted to such Employees or Non-Employee Directors of
the Corporation and its Subsidiary Companies as may be designated from time to
time by the Board or the Committee. Options may not be granted to individuals
who are not Employees or Non-Employee Directors of either the Corporation or
its Subsidiary Companies. Non-Employee Directors shall be eligible to receive
only Non-Qualified Options.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 Option Shares. The aggregate number of shares of Common Stock
which may be issued pursuant to this Plan, subject to adjustment as provided
in Article IX, shall be 2,257,508. None of such shares shall be the subject
of more than one Option at any time, but if an Option as to any shares is
surrendered before exercise, or expires or terminates for any reason without
having been exercised in full, or for any other reason ceases to be
exercisable, the number of shares covered thereby shall again become available
for grant under the Plan as if no Options had been previously granted with
respect to such shares. During the time this Plan remains in effect, the
aggregate grants of Options to each Employee and each Non-Employee Director
shall not exceed 25% and 5% of the shares of Common Stock available under the
Plan, respectively. Options granted to Non-Employee Directors in the
aggregate may not exceed 30% of the number of shares available under this
Plan.
6.02 Source of Shares. The shares of Common Stock issued under the
Plan may be authorized but unissued shares, treasury shares or shares
purchased by the Corporation on the open market or from private sources for
use under the Plan.
ARTICLE VII
DETERMINATION OF
OPTIONS, NUMBER OF SHARES, ETC.
The Board or the Committee shall, in its discretion, determine from time
to time which Employees or Non-Employee Directors will be granted Options
under the Plan, the number of shares of Common Stock subject to each Option,
and whether each Option will be an Incentive Stock Option or a Non-Qualified
Stock Option. In making all such determinations there shall be taken into
account the duties, responsibilities and performance of each respective
Employee and Non-Employee Director, his present and potential contributions to
the growth and success of the Corporation, his salary or other compensation
and such other factors as the Board or the Committee shall deem relevant to
accomplishing the purposes of the Plan. The Board or the Committee may but
shall not be required to request the written recommendation of the Chief
Executive Officer of the Corporation other than with respect to Options to be
granted to him.
ARTICLE VIII
OPTIONS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 Stock Option Agreement. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which
shall set forth the total number of shares of Common Stock to which it
pertains, the exercise price, whether it is a Non-Qualified Option or an
Incentive Stock Option, and such other terms, conditions, restrictions and
privileges as the Board or the Committee in each instance shall deem
appropriate, provided they are not inconsistent with the terms, conditions and
provisions of this Plan. Each Optionee shall receive a copy of his executed
Stock Option Agreement.
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8.02 Option Exercise Price.
(a) Incentive Stock Options. The per share price at which the subject
Common Stock may be purchased upon exercise of an Incentive Stock Option shall
be no less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted, except as
provided in Section 8.09(b).
(b) Non-Qualified Options. The per share price at which the subject
Common Stock may be purchased upon exercise of a Non-Qualified Option shall be
no less than one hundred percent (100%) of the Fair Market Value of a share of
Common Stock at the time such Non-Qualified Option is granted.
8.03 Vesting and Exercise of Options.
(a) General Rules. Incentive Stock Options and Non-Qualified Options
granted hereunder shall become vested and exercisable at the rate of 20% per
year over five years, commencing one year from the date of grant and an
additional 20% shall vest on each successive anniversary of the date the
Option was granted, and the right to exercise shall be cumulative.
Notwithstanding the foregoing, except as provided in Section 8.03(b) hereof,
no vesting shall occur on or after an Employee's employment or service as a
Non-Employee Director (which, for purposes hereof, shall include service as a
Director Emeritus or Advisory Director) with the Corporation or any of the
Subsidiary Companies is terminated. In determining the number of shares of
Common Stock with respect to which Options are vested and/or exercisable,
fractional shares will be rounded down to the nearest whole number, provided
that such fractional shares shall be aggregated and deemed vested on the final
date of vesting.
(b) Accelerated Vesting. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the
date an Optionee terminates his employment with the Corporation or a
Subsidiary Company or service as a Non-Employee Director (including for
purposes hereof service as a Director Emeritus or Advisory Director) because
of his death or Disability or as of the effective date of a Change in Control.
All Options hereunder shall become immediately vested and exercisable in full
on the date an Optionee terminates his employment with the Corporation or a
Subsidiary Company due to Retirement if as of the date of such Retirement (i)
such treatment is either authorized or is not prohibited by applicable laws
and regulations, or (ii) an amendment to the Plan providing for such treatment
has been approved by the shareholders of the Corporation at a meeting of
shareholders held more than one year after the consummation of the Offering.
8.04 Duration of Options.
(a) General Rule. Except as provided in Sections 8.04(b) and 8.09,
each Option or portion thereof granted to Employees and Non-Employee Directors
shall be exercisable at any time on or after it vests and becomes exercisable
until the earlier of (i) ten (10) years after its date of grant or (ii) six
(6) months after the date on which the Optionee ceases to be employed (or in
the service of the Board of Directors) by the Corporation and all Subsidiary
Companies, unless the Board of Directors or the Committee in its discretion
decides at the time of grant or thereafter to extend such period of exercise
to a period not exceeding three (3) years. In the event an Incentive Stock
Option is not exercised within 90 days of the effective date of termination of
Optionee's status as an Employee, the tax treatment accorded Incentive Stock
Options by the Code may not be available. In addition, the accelerated
vesting of Incentive Stock Options provided by Section 8.03(b) may result in
all or a portion of such Incentive Stock Options no longer qualifying as
Incentive Stock Options.
(b) Exception for Termination Due to Disability, Retirement, Change in
Control or Death. Unless the Board or the Committee shall specifically state
otherwise at the time an Option is granted: (i) if an Employee terminates his
employment with the Corporation or a Subsidiary Company as a result of
Disability or Retirement without having fully exercised his Options, the
Employee shall have the right, during the three (3) year period following his
termination due to Disability or Retirement, to exercise such Options, and
(ii) if a
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Non-Employee Director terminates his service as a director (including service
as an Advisory Director or Director Emeritus) with the Corporation or a
Subsidiary Company as a result of Disability or Retirement without having
fully exercised his Options, the Non-Employee Director shall have the right,
during the three (3) year period following his termination due to Disability
or Retirement, to exercise such Options.
Subject to the provisions of Article IX hereof, unless the Board or the
Committee shall specifically state otherwise at the time an Option is granted,
if an Employee or Non-Employee Director terminates his employment or service
with the Corporation or a Subsidiary Company following a Change in Control of
the Corporation without having fully exercised his Options, the Optionee shall
have the right to exercise such Options during the remainder of the original
ten (10) year term of the Option from the date of grant.
If an Optionee dies while in the employ or service of the Corporation or
a Subsidiary Company or terminates employment or service with the Corporation
or a Subsidiary Company as a result of Disability or Retirement and dies
without having fully exercised his Options, the executors, administrators,
legatees or distributees of his estate shall have the right, during the one
(1) year period following his death, to exercise such Options.
In no event, however, shall any Option be exercisable more than ten (10)
years from the date it was granted.
8.05 Nonassignability. Options shall not be transferable by an
Optionee except by will or the laws of descent or distribution, and during an
Optionee's lifetime shall be exercisable only by such Optionee or the
Optionee's guardian or legal representative. Notwithstanding the foregoing,
or any other provision of this Plan, an Optionee who holds Non-Qualified
Options may transfer such Options to his immediate family or to a duly
established trust for the benefit of one or more of these individuals. For
purposes hereof, "immediate family" includes but is not necessarily limited
to, the Participant's spouse, children (including step children), parents,
grandchildren and great grandchildren. Options so transferred may thereafter
be transferred only to the Optionee who originally received the grant or to an
individual or trust to whom the Optionee could have initially transferred the
Option pursuant to this Section 8.05. Options which are transferred pursuant
to this Section 8.05 shall be exercisable by the transferee according to the
same terms and conditions as applied to the Optionee.
8.06 Manner of Exercise. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be
set forth in the written Stock Option Agreement provided for in Section 8.01
above.
8.07 Payment for Shares. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall
be made to the Corporation upon exercise of the Option. All shares sold under
the Plan shall be fully paid and nonassessable. Payment for shares may be
made by the Optionee (i) in cash or by check, (ii) by delivery of a properly
executed exercise notice, together with irrevocable instructions to a broker
to sell the shares and then to properly deliver to the Corporation the amount
of sale proceeds to pay the exercise price, all in accordance with applicable
laws and regulations, or (iii) at the discretion of the Board or the
Committee, by delivering shares of Common Stock (including shares acquired
pursuant to the previous exercise of an Option) equal in fair market value to
the purchase price of the shares to be acquired pursuant to the Option, by
withholding some of the shares of Common Stock which are being purchased upon
exercise of an Option, or any combination of the foregoing. With respect to
subclause (iii) hereof, the shares of Common Stock delivered to pay the
purchase price must have either been (x) purchased in open market transactions
or (y) issued by the Corporation pursuant to a plan thereof more than six
months prior to the exercise date of the Option (or one year in the case of
previously exercised Incentive Stock Options).
8.08 Voting and Dividend Rights. No Optionee shall have any voting or
dividend rights or other rights of a shareholder in respect of any shares of
Common Stock covered by an Option prior to the time that his
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name is recorded on the Corporation's shareholder ledger as the holder of
record of such shares acquired pursuant to an exercise of an Option.
8.09 Additional Terms Applicable to Incentive Stock Options. All
Options issued under the Plan as Incentive Stock Options will be subject, in
addition to the terms detailed in Sections 8.01 to 8.08 above, to those
contained in this Section 8.09.
(a) Amount Limitation. Notwithstanding any contrary provisions
contained elsewhere in this Plan and as long as required by Section 422 of the
Code, the aggregate Fair Market Value, determined as of the time an Incentive
Stock Option is granted, of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year, under this Plan and stock options that satisfy the requirements
of Section 422 of the Code under any other stock option plans maintained by
the Corporation (or any parent or Subsidiary Company), shall not exceed
$100,000.
(b) Limitation on Ten Percent Stockholders. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option
is granted, owns, directly or indirectly, more than ten percent (10%) of the
total combined voting power of all classes of stock issued to shareholders of
the Corporation or any Subsidiary Company, shall be no less than one hundred
and ten percent (110%) of the Fair Market Value of a share of the Common Stock
of the Corporation at the time of grant, and such Incentive Stock Option shall
by its terms not be exercisable after the earlier of the date determined under
Section 8.03 or the expiration of five (5) years from the date such Incentive
Stock Option is granted.
(c) Notice of Disposition; Withholding; Escrow. An Optionee
shall immediately notify the Corporation in writing of any sale, transfer,
assignment or other disposition (or action constituting a disqualifying
disposition within the meaning of Section 421 of the Code) of any shares of
Common Stock acquired through exercise of an Incentive Stock Option, within
two (2) years after the grant of such Incentive Stock Option or within one (1)
year after the acquisition of such shares, setting forth the date and manner
of disposition, the number of shares disposed of and the price at which such
shares were disposed of. The Corporation shall be entitled to withhold from
any compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of Federal
or state law or regulation and, further, to collect from the Optionee any
additional amounts which may be required for such purpose. The Committee may,
in its discretion, require shares of Common Stock acquired by an Optionee upon
exercise of an Incentive Stock Option to be held in an escrow arrangement for
the purpose of enabling compliance with the provisions of this Section
8.09(c).
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any Option relates, the maximum
number of shares that can be covered by Options to each Employee, each Non-
Employee Director and Non-Employee Directors as a group and the exercise price
per share of Common Stock under any Option shall be proportionately adjusted
for any increase or decrease in the total number of outstanding shares of
Common Stock issued subsequent to the effective date of this Plan resulting
from a split, subdivision or consolidation of shares or any other capital
adjustment, the payment of a stock dividend, or other increase or decrease in
such shares effected without receipt or payment of consideration by the
Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation, the shares of the
Corporation's Common Stock shall be exchanged for other securities of the
Corporation or of another corporation, each Option shall be converted, subject
to the conditions herein stated, into the right to purchase or acquire such
number of shares of Common Stock or amount of other securities of the
Corporation or such other corporation as were exchangeable for the number of
shares of Common Stock of the Corporation which such Optionee would have been
entitled to purchase or acquire except for such action, and appropriate
adjustments shall
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be made to the per share exercise price of outstanding Options.
Notwithstanding any provision to the contrary herein, the term of any Option
granted hereunder and the property which the Optionee shall receive upon the
exercise or termination thereof shall be subject to and be governed by the
provisions regarding the treatment of any such Options set forth in a
definitive agreement with respect to any of the aforementioned transactions
entered into by the Corporation to the extent any such Option remains
outstanding and unexercised upon consummation of the transactions contemplated
by such definitive agreement. In addition, notwithstanding any provision to
the contrary, the exercise price of shares subject to outstanding Options may
be proportionately adjusted upon the payment of a special large and
nonrecurring dividend that has the effect of a return of capital to the
stockholders, providing that the adjustment to the per share exercise price
shall satisfy the criteria set forth in Emerging Issues Task Force 90-9 (or
any successor thereto) so that the adjustments do not result in compensation
expense, and provided further that if such adjustment with respect to
Incentive Stock Options would be treated as a modification of the outstanding
Incentive Stock Options with the effect that, for purposes of Sections 422 and
425(h) of the Code, and the rules and regulations promulgated thereunder, new
Incentive Stock Options would be deemed to be granted, then no adjustment to
the per share exercise price of outstanding stock options shall be made.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Options have not been
granted, subject to regulations of the OTS and any required shareholder
approval or any shareholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any
statutory or regulatory benefits under tax, securities or other laws or
satisfying any applicable stock exchange listing requirements. The Board may
not, without the consent of the holder of an Option, alter or impair any
Option previously granted or awarded under this Plan except as provided by
Article IX hereof or except as specifically authorized herein.
Notwithstanding anything to the contrary herein, in no event shall the
Board of Directors without shareholder approval amend the Plan or shall the
Board of Directors or the Committee amend an Option in any manner that
effectively allows the repricing of any Option previously granted under the
Plan either through a reduction in the Exercise Price or through the
cancellation and regrant of a new Option in exchange for the cancelled Option
(except as permitted pursuant to Article IX in connection with a change in the
Company's capitalization).
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Options hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create
any right on the part of any Employee or Non-Employee Director of the
Corporation or a Subsidiary Company to continue in such capacity.
ARTICLE XII
WITHHOLDING
12.01 Tax Withholding. The Corporation may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash payment is
insufficient, the Corporation may require the Optionee to pay to the
Corporation the amount required to be withheld as a condition to delivering
the shares acquired pursuant to an Option. The Corporation also may withhold
or collect amounts with respect to a disqualifying disposition of shares of
Common Stock acquired pursuant to exercise of an Incentive Stock Option, as
provided in Section 8.09(c).
12.02 Methods of Tax Withholding. The Board or the Committee is
authorized to adopt rules, regulations or procedures which provide for the
satisfaction of an Optionee's tax withholding obligation by the
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retention of shares of Common Stock to which the Employee would otherwise be
entitled pursuant to an Option and/or by the Optionee's delivery of previously
owned shares of Common Stock or other property.
ARTICLE XIII
DEFERRED PAYMENTS
13.01 Deferral of Options. Notwithstanding any other provision of this
Plan, an Optionee may elect, with the concurrence of the Committee and
consistent with any rules and regulations established by the Committee, to
defer the delivery of the proceeds of the exercise of any Non-Qualified Option
not transferred under the provisions of Section 8.05.
13.02 Timing of Election. The election to defer the delivery of the
proceeds from any eligible Non-Qualified Option must be made at least six (6)
months prior to the date such Option is exercised or at such other time as the
Committee may specify. Deferrals of eligible Non-Qualified Options shall only
be allowed for exercises of Options that occur while the Optionee is in active
service with the Corporation or one of its Subsidiary Companies. Any election
to defer the proceeds from an eligible Non-Qualified Option shall be
irrevocable as long as the Optionee remains an Employee and/or a Non-Employee
Director of the Corporation or one of its Subsidiary Companies.
13.03 Stock Option Deferral. The deferral of the proceeds of
Non-Qualified Options may be elected by an Optionee subject to the rules and
regulations established by the Committee.
13.04 Accelerated Distributions. The Committee may, at its sole
discretion, allow for the early payment of a Participant's deferred Option
account in the event of an "unforeseeable emergency" or in the event of the
death or Disability of the Optionee. An "unforeseeable emergency" means an
unanticipated emergency caused by an event beyond the control of the Optionee
that would result in severe financial hardship if the distribution were not
permitted. Such distributions shall be limited to the amount necessary to
sufficiently address the financial hardship. Any distributions under this
provision shall be consistent with the Code and the regulations promulgated
thereunder.
13.05 Assignability. No rights to deferred Option accounts may be
assigned or subject to any encumbrance, pledge or charge of any nature except
that an Optionee may designate a beneficiary pursuant to any rules established
by the Committee.
13.06 Unfunded Status. No Optionee or other person shall have any
interest in any fund or in any specific asset of the Corporation or any of its
Subsidiary Companies by reason of any amount credited pursuant to the
provisions hereof. Any amounts payable pursuant to the provisions hereof shall
be paid from the general assets of the Corporation or one of its Subsidiary
Companies and no Optionee or other person shall have any rights to such assets
beyond the rights afforded general creditors of the Corporation or one of its
Subsidiary Companies. However, the Corporation or one of its Subsidiary
Companies shall have the right to establish a reserve or trust or make any
investment for the purpose of satisfying the obligations created under this
Article XIII of the Plan; provided, however, that no Optionee or other person
shall have any interest in such reserve, trust or investment.
ARTICLE XIV
EFFECTIVE DATE OF THE PLAN; TERM
14.01 Effective Date of the Plan. This Plan shall become effective on
the Effective Date, and Options may be granted hereunder no earlier than the
date this Plan is approved by shareholders and no later than the termination
of the Plan, provided this Plan is approved by shareholders of the Corporation
pursuant to Article XV hereof.
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14.02 Term of Plan. Unless sooner terminated, this Plan shall remain
in effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Options
previously granted and such Options shall remain valid and in effect until
they have been fully exercised or earned, are surrendered or by their terms or
the terms hereof expire or are forfeited.
ARTICLE XV
SHAREHOLDER APPROVAL
The Corporation shall submit this Plan to shareholders for approval at a
meeting of shareholders of the Corporation held within twelve (12) months
following the Effective Date in order to meet the requirements of (i) Section
422 of the Code and regulations thereunder, (ii) Section 162(m) of the Code
and regulations thereunder, and (iii) the Nasdaq Stock Market for continued
quotation of the Common Stock on the Nasdaq National Market.
ARTICLE XVI
MISCELLANEOUS
16.01 Governing Law. To the extent not governed by Federal law, this
Plan shall be construed under the laws of the State of Nebraska.
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APPENDIX C
TierOne Corporation
2003 RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 TierOne Corporation (the "Corporation") hereby establishes the
2003 Recognition and Retention Plan (the "Plan") and Trust (the "Trust") upon
the terms and conditions hereinafter stated in this 2003 Recognition and
Retention Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of the Plan is to retain personnel of experience and ability
in key positions by providing Employees and Non-Employee Directors with a
proprietary interest in the Corporation and its Subsidiary Companies as
compensation for their contributions to the Corporation and the Subsidiary
Companies and as an incentive to make such contributions in the future. Each
Recipient of a Plan Share Award hereunder is advised to consult with his or
her personal tax advisor with respect to the tax consequences under federal,
state, local and other tax laws of the receipt of a Plan Share Award
hereunder.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine
pronouns shall include the feminine pronouns and the singular shall include
the plural.
3.01 "Bank" means TierOne Bank, the wholly owned subsidiary of the
Corporation.
3.02 "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time
to time by similar written notice to the Committee. In the absence of a
written designation, the Beneficiary shall be the Recipient's surviving
spouse, if any, or if none, his estate.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the occurrence
of any of the following: (i) the acquisition of control of the Corporation as
defined in 12 C.F.R. Section 574.4, or any successor thereto, unless a
presumption of control is successfully rebutted or unless the transaction is
exempted by 12 C.F.R. Section 574.3(c)(vii), or any successor thereto; (ii) an
event that would be required to be reported in response to either Item 1(a) of
Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Exchange
Act or any successor to such respective items, whether or not any class of
securities of the Corporation is registered under the Exchange Act; (iii) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the Corporation's then
outstanding securities except for
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any securities purchased by the Corporation or the Bank; or (iv) during any
period of thirty-six consecutive months during the term of a Plan Share Award,
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by
shareholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of
the period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof.
3.07 "Common Stock" means shares of the common stock, $0.01 par value
per share, of the Corporation.
3.08 "Director" means a member of the Board of Directors of the
Corporation or a Subsidiary Corporation or any successors thereto, including
Non-Employee Directors as well as Officer and Employees serving as Directors.
3.09 "Director Emeritus" and "Advisory Director" means a person
appointed to serve in such capacity by the Board of either the Corporation or
the Bank or the successors thereto.
3.10 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company or, if
no such plan applies, which would qualify such individual for disability
benefits under the long-term disability plan maintained by the Corporation, if
such individual were covered by that plan.
3.11 "Effective Date" means the day upon which the Board adopts this
Plan.
3.12 "Employee" means any person who is employed by the Corporation or
a Subsidiary Company or is an Officer of the Corporation or a Subsidiary
Company, but not including directors who are not also Officers of or otherwise
employed by the Corporation or a Subsidiary Company.
3.13 "Employer Group" means the Corporation and any Subsidiary Company
which, with the consent of the Board, agrees to participate in the Plan.
3.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.15 "Non-Employee Director" means a member of the Board (including
advisory boards, if any) of the Corporation or any Subsidiary Company or any
successor thereto, including an Advisory Director or a Director Emeritus of
the Board of the Corporation and/or any Subsidiary Company or a former Officer
or Employee of the Corporation and/or any Subsidiary Company serving as a
Director, Advisory Director or Director Emeritus, who is not an Officer or
Employee of the Corporation or any Subsidiary Company.
3.16 "Offering" means the offering of Common Stock to the public during
2002 in connection with the conversion of the Bank from the mutual to the
stock form of organization and the issuance of the capital stock of the Bank
to the Corporation.
3.17 "Officer" means an Employee whose position in the Corporation or a
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.18 "Performance Share Award" means a Plan Share Award granted to a
Recipient pursuant to Section 7.05 of the Plan.
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3.19 "Performance Goal" means an objective for the Corporation or any
Subsidiary Company or any unit thereof or any Employee of the foregoing that
may be established by the Committee for a Performance Share Award to become
vested, earned or exercisable. The establishment of Performance Goals are
intended to make the applicable Performance Share Awards "performance-based"
compensation within the meaning of Section 162(m) of the Code, and the
Performance Goals shall be based on one or more of the following criteria:
(i) net income, as adjusted for non-recurring items;
(ii) cash earnings;
(iii) earnings per share;
(iv) cash earnings per share;
(v) return on average equity;
(vi) return on average assets;
(vii) assets;
(viii) stock price;
(ix) total stockholder return;
(x) capital;
(xi) net interest income;
(xii) market share;
(xiii) cost control or efficiency ratio; and
(xiv) asset growth.
3.20 "Plan Shares" or "Shares" means shares of Common Stock which may
be distributed to a Recipient pursuant to the Plan.
3.21 "Plan Share Award" or "Award" means a right granted under this
Plan to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII hereof, and includes Performance Share
Awards.
3.22 "Recipient" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director who receives a Plan Share Award or
Performance Share Award under the Plan.
3.23 "Retirement" means:
(a) A termination of employment which constitutes a "retirement" at the
"normal retirement age" or later under the TierOne Bank Savings Plan or such
other qualified pension benefit plan maintained by the Corporation or a
Subsidiary Company as may be designated by the Board or the Committee, or, if
no such plan is applicable, which would constitute "retirement" under the
TierOne Bank Savings Plan, if such individual were a participant in that plan,
provided, however, that the provisions of this subsection (a) will not apply
as long as a Recipient continues to serve as a Non-Employee Director.
(b) With respect to Non-Employee Directors, retirement means retirement
from service on the Board of Directors of the Corporation or a Subsidiary
Company or any successors thereto (including service as a Director Emeritus or
Advisory Director to the Corporation or any Subsidiary Company) after reaching
age 65 and having served as a member of the Board Directors of the Corporation
and/or the Bank for a period of 10 years or more.
3.24 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Bank, which meet the definition of "subsidiary
corporations" set forth in Section 424(f) of the Code, at the time of the
granting of the Plan Share Award in question.
3.25 "Trustee" means such firm, entity or persons approved by the Board
to hold legal title to the Plan and the Plan assets for the purposes set forth
herein.
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ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of
the Board, each of whom shall be a Non-Employee Director, as defined in Rule
16b-3(b)(3)(i) of the Exchange Act. In addition, each member of the Committee
shall be an "outside director" within the meaning of Section 162(m) of the
Code and the regulations thereunder at such times as is required under such
regulations. The Committee shall have all of the powers allocated to it in
this and other Sections of the Plan. The interpretation and construction by
the Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding in the absence of action by the Board.
The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules, regulations and procedures as it deems
appropriate for the conduct of its affairs. The Committee shall report its
actions and decisions with respect to the Plan to the Board at appropriate
times, but in no event less than once per calendar year.
4.02 Role of the Board. The members of the Committee and the Trustee
shall be appointed or approved by, and will serve at the pleasure of, the
Board. The Board may in its discretion from time to time remove members from,
or add members to, the Committee, and may remove or replace the Trustee,
provided that any directors who are selected as members of the Committee shall
be Non-Employee Directors.
4.03 Revocation for Misconduct. Notwithstanding anything to the
contrary herein, the Board or the Committee may by resolution immediately
revoke, rescind and terminate any Plan Share Award, or portion thereof, to the
extent not yet vested, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Corporation or a Subsidiary
Company for cause, which, for purposes hereof, shall mean termination because
of the Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or final cease-and-desist
order. Unvested Plan Share Awards to a Non-Employee Director who is removed
for cause pursuant to the Corporation's Articles of Incorporation or Bylaws or
the Bank's Charter and Bylaws or the constituent documents of such other
Subsidiary Company on whose board he serves shall terminate as of the
effective date of such removal.
4.04 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of anything done
or not done by him in such capacity under or with respect to the Plan, the
Corporation shall, subject to the requirements of applicable laws and
regulations, indemnify such member against all liabilities and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in the best interests of the Corporation and any Subsidiary Companies
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
4.05 Compliance with Laws and Regulations. All Awards granted
hereunder shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency or
shareholders as may be required. The Corporation shall not be required to
issue or deliver any certificates for shares of Common Stock prior to the
completion of any registration or qualification of or obtaining of consents or
approvals with respect to such shares under any Federal or state law or any
rule or regulation of any government body, which the Corporation shall, in its
sole discretion, determine to be necessary or advisable.
4.06 Restrictions on Transfer. The Corporation may place a legend upon
any certificate representing shares issued pursuant to a Plan Share Award
noting that such shares may be restricted by applicable laws and regulations.
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ARTICLE V
CONTRIBUTIONS
5.01 Amount and Timing of Contributions. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Corporation and any Subsidiary Companies to the Trust established under
this Plan. Such amounts may be paid in cash or in shares of Common Stock and
shall be paid to the Trust at the designated time of contribution. No
contributions by Employees or Non-Employee Directors shall be permitted.
5.02 Investment of Trust Assets; Number of Plan Shares. Subject to
Section 8.02 hereof, the Trustee shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares available for
distribution pursuant to this Plan shall be 903,003 shares of Common Stock,
subject to adjustment as provided in Section 10.01 hereof, which shares shall
be purchased (from the Corporation and/or, if permitted by applicable
regulations, from shareholders thereof) by the Trust with funds contributed by
the Corporation. During the time this Plan remains in effect, Awards to each
Employee and each Non-Employee Director shall not exceed 25% and 5% of the
shares of Common Stock available under the Plan, respectively. Plan Share
Awards to Non-Employee Directors in the aggregate shall not exceed 30% of the
number of shares available under this Plan.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Awards. Plan Share Awards and Performance Share Awards may be
made to such Employees and Non-Employee Directors as may be selected by the
Board or the Committee. In selecting those Employees to whom Plan Share
Awards and/or Performance Share Awards may be granted and the number of Shares
covered by such Awards, the Board or the Committee shall consider the duties,
responsibilities and performance of each respective Employee and Non-Employee
Director, his present and potential contributions to the growth and success of
the Corporation, his salary or other compensation and such other factors as
deemed relevant to accomplishing the purposes of the Plan. The Board or the
Committee may but shall not be required to request the written recommendation
of the Chief Executive Officer of the Corporation other than with respect to
Plan Share Awards and/or Performance Share Awards to be granted to him.
6.02 Form of Allocation. As promptly as practicable after an
allocation pursuant to Section 6.01 that a Plan Share Award or a Performance
Share Award is to be issued, the Board or the Committee shall notify the
Recipient in writing of the grant of the Award, the number of Plan Shares
covered by the Award, and the terms upon which the Plan Shares subject to the
Award shall be distributed to the Recipient. The Board or the Committee shall
maintain records as to all grants of Plan Share Awards or Performance Share
Awards under the Plan.
6.03 Allocations Not Required to any Specific Employee or Non-Employee
Director. No Employee or Non-Employee Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Board or the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Subject to the terms hereof, Plan Share
Awards granted shall be earned by a Recipient at the rate of twenty percent
(20%) of the aggregate number of Shares covered by the Award as of each annual
anniversary of the date of grant of the Award. If the employment of an
Employee or service as a Non-Employee Director (including for purposes hereof
service as a Director Emeritus or Advisory Director) is terminated prior to
the fifth (5th) annual anniversary of the date of grant of a Plan Share Award
for any reason (except as specifically provided in subsections (b) and (c)
below), the Recipient shall forfeit the right to any Shares
C-5
subject to the Award which have not theretofore been earned. In the event of
a forfeiture of the right to any Shares subject to an Award, such forfeited
Shares shall become available for allocation pursuant to Section 6.01 hereof
as if no Award had been previously granted with respect to such Shares. No
fractional shares shall be distributed pursuant to this Plan.
(b) Exception for Terminations Due to Death, Disability or
Change in Control. Notwithstanding the general rule contained in Section
7.01(a), all Plan Shares subject to a Plan Share Award held by a Recipient
whose employment with the Corporation or any Subsidiary Company or service as
a Non-Employee Director (including for purposes hereof service as a Director
Emeritus or Advisory Director) terminates due to death or Disability shall be
deemed earned as of the Recipient's last day of employment with or service to
the Corporation or any Subsidiary Company (provided, however, no such
accelerated vesting shall occur if a Recipient remains employed by or
continues to serve as a Director (including for purposes hereof service as a
Director Emeritus or Advisory Director) of at least one member of the Employer
Group) and shall be distributed as soon as practicable thereafter.
Furthermore, notwithstanding the general rule contained in Section 7.01(a),
all Plan Shares subject to a Plan Share Award held by a Recipient shall be
deemed earned as of the effective date of a Change in Control.
(c) Exception for Retirement. Notwithstanding the general rule
contained in Section 7.01(a), all Plan Shares subject to a Plan Share Award
held by a Recipient shall be deemed to be earned on the date a Recipient
terminates his employment or service as a Non-Employee Director (including for
purposes hereof service as a Director Emeritus or Advisory Director) with the
Corporation or a Subsidiary Company due to Retirement if, as of the date of
such Retirement (i) such treatment is either authorized or is not prohibited
by applicable laws and regulations, or (ii) an amendment to the Plan providing
for such treatment has been approved by shareholders of the Corporation at a
meeting of the shareholders held more than one (1) year after the consummation
of the Offering.
7.02 Distribution of Dividends. Any cash dividends (including special
large and nonrecurring dividends and including any that has the effect of a
return of capital to the Corporation's shareholders) or stock dividends
declared in respect of each unvested Plan Share Award (excluding any unearned
Performance Share Awards) then held by the Trust will be paid out
proportionately by the Trust to the Recipient thereof as soon as practicable
after the Trust's receipt thereof to the Recipient on whose behalf such Plan
Share is then held by the Trust. Any cash dividends, stock dividends or
returns of capital declared in respect of each unvested Performance Share
Award will be held by the Trust for the benefit of the Recipient on whose
behalf such Performance Share Award is then held by the Trust, and such
dividends or returns of capital, including any interest thereon, will be paid
out proportionately by the Trust to the Recipient thereof as soon as
practicable after the Performance Share Awards become earned.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Subject to the
provisions of Section 7.05 hereof, Plan Shares shall be distributed to the
Recipient or his Beneficiary, as the case may be, as soon as practicable after
they have been earned.
(b) Form of Distributions. All Plan Shares, together with any
Shares representing stock dividends, shall be distributed in the form of
Common Stock. One share of Common Stock shall be given for each Plan Share
earned and distributable. Payments representing cash dividends shall be made
in cash.
(c) Withholding. The Trustee may withhold from any cash payment
or Common Stock distribution made under this Plan sufficient amounts to cover
any applicable withholding and employment taxes, and if the amount of a cash
payment is insufficient, the Trustee may require the Recipient or Beneficiary
to pay to the Trustee the amount required to be withheld as a condition of
delivering the Plan Shares. The Trustee shall pay over to the Corporation or
any Subsidiary Company which employs or employed such Recipient any such
amount withheld from or paid by the Recipient or Beneficiary.
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(d) Restrictions on Selling of Plan Shares. Plan Share Awards
may not be sold, assigned, pledged or otherwise disposed of prior to the time
that they are earned and distributed pursuant to the terms of this Plan. Upon
distribution, the Board or the Committee may require the Recipient or his
Beneficiary, as the case may be, to agree not to sell or otherwise dispose of
his distributed Plan Shares except in accordance with all then applicable
federal and state securities laws, and the Board or the Committee may cause a
legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares
for such period of time or under such circumstances as the Board or the
Committee, upon the advice of counsel, may deem appropriate.
7.04 Voting of Plan Shares. After a Plan Share Award (other than a
Performance Share Award) has been made, the Recipient shall be entitled to
direct the Trustee as to the voting of the Plan Shares which are covered by
the Plan Share Award and which have not yet been earned and distributed to him
pursuant to Section 7.03, subject to rules and procedures adopted by the
Committee for this purpose. All shares of Common Stock held by the Trust
which have not been awarded under a Plan Share Award and shares subject to
Performance Share Awards which have not yet vested and shares which have been
awarded as to which Recipients have not directed the voting shall be voted by
the Trustee in its discretion.
7.05 Performance Awards
(a) Designation of Performance Share Awards. The Committee may
determine to make any Plan Share Award a Performance Share Award by making
such Plan Share Award contingent upon the achievement of a Performance Goal or
any combination of Performance Goals. Each Performance Share Award shall be
evidenced by a written agreement ("Award Agreement"), which shall set forth
the Performance Goals applicable to the Performance Share Award, the maximum
amounts payable and such other terms and conditions as are applicable to the
Performance Share Award. Each Performance Share Award shall be granted and
administered to comply with the requirements of Section 162(m) of the Code, or
any successor thereto and with OTS Regulatory Bulletin 27a and Thrift
Activities Handbook Section 310, or any successors thereto.
(b) Timing of Grants. Any Performance Share Award shall be made
not later than 90 days after the start of the period for which the Performance
Share Award relates and shall be made prior to the completion of 25% of such
period. All determinations regarding the achievement of any Performance Goals
will be made by the Committee. The Committee may not increase during a year
the amount of a Performance Share Award that would otherwise be payable upon
achievement of the Performance Goals but may reduce or eliminate the payments
as provided for in the Award Agreement.
(c) Restrictions on Grants. Nothing contained in the Plan will
be deemed in any way to limit or restrict the Committee from making any Award
or payment to any person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.
(d) Rights of Recipients. Notwithstanding anything to the
contrary herein, a Participant who receives a Performance Share Award payable
in Common Stock shall have no rights as a shareholder until the Common Stock
is issued pursuant to the terms of the Award Agreement.
(e) Nontransferable. Plan Share Awards and Performance Share
Awards and rights to Plan Shares shall not be transferable by a Recipient, and
during the lifetime of the Recipient, Plan Shares may only be earned by and
paid to a Recipient who was notified in writing of an Award by the Committee
pursuant to Section 6.02. No Recipient or Beneficiary shall have any right in
or claim to any assets of the Plan or Trust, nor shall the Corporation or any
Subsidiary Company be subject to any claim for benefits hereunder.
(f) Distribution. No Performance Share Award or portion thereof
that is subject to the attainment or satisfaction of a condition of a
Performance Goal shall be distributed or considered to be earned or
C-7
vested until the Committee certifies in writing that the conditions or
Performance Goal to which the distribution, earning or vesting of such Award
is subject have been achieved.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that
the Trustee shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except to the extent that the Trustee determines that the holding
of monies in cash or cash equivalents is necessary to meet the obligations of
the Trust. In performing their duties, the Trustee shall have the power to do
all things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust
assets in Common Stock without regard to any law now or hereafter in force
limiting investments for trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and in
making such investment, the Trustee is authorized to purchase Common Stock
from the Corporation or from any other source, and such Common Stock so
purchased may be outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in
accordance with (a) above, in such deposit accounts, and certificates of
deposit, obligations of the United States Government or its agencies or such
other investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at
any time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered
in the name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the
opinion of the Trustee be reasonable for the proper operation of the Plan and
Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to their
rights, duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute as
to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled
C-8
person or entity to the extent required by applicable law, or any other person
determined by the Board or the Committee.
8.04 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation or, in the
discretion of the Corporation, the Trust.
8.05 Indemnification. Subject to the requirements of applicable laws
and regulations, the Corporation shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or
related to the exercise of the Trustee's powers and the discharge of their
duties hereunder, unless the same shall be due to their gross negligence or
willful misconduct.
ARTICLE IX
DEFERRED PAYMENTS
9.01 Deferral of Plan Shares. Notwithstanding any other provision of
this Plan, any Recipient may elect, with the approval of the Committee and
consistent with any rules and regulations established by the Board, to defer
the receipt of Plan Shares granted hereunder.
9.02 Timing of Election. The election to defer the delivery of any
Plan Shares must be made no later than the last day of the calendar year
preceding the calendar year in which the Recipient would otherwise have an
unrestricted right to receive such Shares. Deferrals of eligible Plan Shares
shall only be allowed for Plan Share Awards for which all applicable
restrictions lapse while the Recipient is in active service with the
Corporation or one of the Subsidiary Companies. Any election to defer the
proceeds from an eligible Plan Share Award shall be irrevocable as long as the
Recipient remains an Employee or a Non-Employee Director.
9.03 Share Award Deferral. The deferral of Plan Share Awards may be
elected by a Recipient subject to the rules and regulations established by the
Committee. Any shares covered by such deferred Plan Share Awards may be
transferred from this Plan to any trust created by the Bank.
9.04 Accelerated Distributions. The Committee may, at its sole
discretion, allow for the early payment of a Participant's deferred Plan Share
Award account in the event of an "unforeseeable emergency" or in the event of
the death or Disability of the Recipient. An "unforeseeable emergency" means
an unanticipated emergency caused by an event beyond the control of the
Recipient that would result in severe financial hardship if the distribution
were not permitted. Such distributions shall be limited to the amount
necessary to sufficiently address the financial hardship. Any distributions
under this provision shall be consistent with the Code and the regulations
promulgated thereunder.
9.05 Assignability. No rights to deferred Recipient accounts may be
assigned or subject to any encumbrance, pledge or charge of any nature except
that a Recipient may designate a beneficiary pursuant to any rules established
by the Committee.
9.06 Unfunded Status. No Recipient or other person shall have any
interest in any fund or in any specific asset of the Corporation or any of its
Subsidiary Companies by reason of any amount credited pursuant to the
provisions hereof. Any amounts payable pursuant to the provisions hereof shall
be paid from the general assets of the Corporation or one of its Subsidiary
Companies and no Recipient or other person shall have any rights to such
assets beyond the rights afforded general creditors of the Corporation or one
of its Subsidiary Companies. However, the Corporation or one of its Subsidiary
Companies shall have the right to establish a reserve or trust or make any
investment for the purpose of satisfying the obligations created under this
Article IX of the Plan; provided, however, that no Recipient or other person
shall have any interest in such reserve, trust or investment.
C-9
ARTICLE X
MISCELLANEOUS
10.01 Adjustments for Capital Changes. The aggregate number of Plan
Shares available for distribution pursuant to the Plan Share Awards and the
number of Shares to which any unvested Plan Share Award relates shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
the Plan resulting from any split, subdivision or consolidation of shares or
other capital adjustment, the payment of a stock dividend or other increase or
decrease in such shares effected without receipt or payment of consideration
by the Corporation. If, upon a merger, consolidation, reorganization,
liquidation, recapitalization or the like of the Corporation or of another
corporation, each Recipient of a Plan Share Award shall be entitled, subject
to the conditions herein stated, to receive such number of shares of Common
Stock or amount of other securities of the Corporation or such other
corporation as were exchangeable for the number of shares of Common Stock of
the Corporation which such Recipients would have been entitled to receive
except for such action.
10.02 Amendment and Termination of Plan. The Board may, by resolution,
at any time amend or terminate the Plan, subject to any required shareholder
approval or any shareholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any
statutory or regulatory benefits under tax, securities or other laws or
satisfying any applicable stock exchange listing requirements. The Board may
not, without the consent of the Recipient, alter or impair his Plan Share
Award except as specifically authorized herein. Upon termination of the Plan,
the Recipient's Plan Share Awards shall be distributed to the Recipient
regardless of whether or not such Plan Share Award had otherwise been earned
under the service requirements set forth in Article VII. Notwithstanding any
other provision of the Plan, this Plan may not be terminated until such time
as all Plan Shares held by the Trust have been awarded to Plan Recipients and
shall be deemed to be earned prior to the time of termination.
10.03 Employment or Service Rights. Neither the Plan nor any grant of a
Plan Share Award, Performance Share Award or Plan Shares hereunder nor any
action taken by the Trustee, the Committee or the Board in connection with the
Plan shall create any right on the part of any Employee or Non-Employee
Director to continue in such capacity.
10.04 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by a Plan Share Award or Performance Share Award, except as expressly
provided in Sections 7.02, 7.04 and 7.05 above, prior to the time said Plan
Shares are actually earned and distributed to him.
10.05 Governing Law. To the extent not governed by federal law, the
Plan and Trust shall be governed by the laws of the State of Nebraska.
10.06 Effective Date. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder no earlier than the date this Plan
is approved by the shareholders of the Corporation and prior to the
termination of the Plan. Notwithstanding the foregoing or anything to the
contrary in this Plan, the implementation of this Plan is subject to the
approval of the Corporation's shareholders.
10.07 Term of Plan. This Plan shall remain in effect until the earlier
of (i) ten (10) years from the Effective Date, (ii) termination by the Board,
or (iii) the distribution to Recipients and Beneficiaries of all the assets of
the Trust.
10.08 Tax Status of Trust. It is intended that the trust established
hereby be treated as a Grantor Trust of the Corporation under the provisions
of Section 671 et seq. of the Code, as the same may be amended from time to
time.
C-10
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustees of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this 28th day of
February, 2003.
TIERONE CORPORATION TRUSTEES:
By: /s/ Gilbert G. Lundstrom /s/ Joyce Person Pocras
------------------------------ ----------------------------
Gilbert G. Lundstrom Joyce Person Pocras
Chairman of the Board and
Chief Executive Officer
/s/ Campbell R. McConnell
----------------------------
Campbell R. McConnell
C-11
ANNUAL MEETING OF SHAREHOLDERS OF
TIERONE CORPORATION
APRIL 23, 2003
PLEASE DATE, SIGN AND MAIL
YOUR PROXY CARD IN THE
ENVELOPE PROVIDED AS SOON
AS POSSIBLE.
Please detach and mail in the envelope provided.
- --------------------------------------------------------------------------
The Board of Directors recommends that you vote "FOR" all of the nominees
listed below and "FOR" Proposals 2, 3 and 4. PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK
INK AS SHOWN HERE [X]
- --------------------------------------------------------------------------
1. TO ELECT DIRECTORS: For one-year terms expiring in 2004, For two-year
terms expiring in 2005 and For three-year terms expiring in 2006.
NOMINEES:
[ ] FOR ALL NOMINEES () LaVern F. Roschewski one-year term, 2004
() Ann Lindley Spence one-year term, 2004
[ ] WITHOLD AUTHORITY () James A. Laphen two-year term, 2005
FOR ALL NOMINEES () Campbell R. McConnell two-year term, 2005
[ ] FOR ALL EXCEPT () Gilbert G. Lundstrom three-year term, 2006
() Joyce Person Pocras three-year term, 2006
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominees(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each nominee you wish
to withhold, as shown here: (*)
- --------------------------------------------------------------------------
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method. [ ]
FOR AGAINST ABSTAIN
2. PROPOSAL to adopt the 2003 Stock Option Plan [ ] [ ] [ ]
3. PROPOSAL to adopt the 2003 Recognition and
Retention Plan and Trust Agreement. [ ] [ ] [ ]
4. PROPOSAL to ratify the appointment of the
independent auditors. [ ] [ ] [ ]
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
This card also constitutes your voting instructions for shares held
in the TierOne Bank 401(k) Savings Plan and the TierOne Corporation ESOP and
the undersigned hereby authorizes the respective Trustees of such Plans to
vote the shares allocated to the undersigned's account(s) as provided herein.
Unvoted shares in the TierOne Bank 401(k) Savings Plan will be voted in the
same manner and proportion as the shares of commmon stock held in such Plan
for which voting instructions from participants are received. Shares held
in the TierOne Corporation ESOP allocated to participants' accounts will
generally not be voted unless the proxy/voting instruction card is returned.
Signature of Shareholder
and/or Plan Participant__________________ Date:__________
Signature of Shareholder__________________ Date:__________
Note: Please sign exactly as your name or names appear on this Proxy.
When shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation , please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
PROXY/VOTING INSTRUCTION BALLOT
TIERONE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF TIERONE CORPORATION FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON APRIL 23, 2003
The undersigned hereby appoints the Board of Directors of TierOne
Corporation or any successors thereto, as proxies with full powers of
substitution, to represent and vote, as designated on the reverse side,
all the shares of common stock of TierOne Corporation held of record by the
undersigned on February 24, 2003 at the Annual Meeting of Shareholders to be
held in the Regents A Room at Embassy Suites Hotel, located at 1040 P
Street, Lincoln, Nebraska on April 23, 2003, at 10:00 a.m., Central Daylight
Time, or at any adjournment thereof. The shares of TierOne Corporation's
common stock will be voted as specified. If not otherwise specified, this
proxy/voting instruction card will be voted for the Board of Directors'
nominees, for each of the other proposals presented and otherwise at the
discretion of the proxies. You may revoke this proxy at any time prior
to the time it is voted at the Annual Meeting.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
TIERONE CORPORATION
APRIL 23, 2003
VOTING INSTRUCTIONS
MAIL - Date, sign and mail your proxy card in the envelope provided as soon
as possible.
-OR-
TELEPHONE - Call toll-free 1-800-PROXIES from any touch-tone telephone
and follow the instructions. Have your control number and proxy card
available when you call.
COMPANY NUMBER _________
ACCOUNT NUMBER _________
CONTROL NUMBER _________
Please detach and mail in the envelope provided.
20633030000000000000 0 042303
- --------------------------------------------------------------------------
The Board of Directors recommends that you vote "FOR" all of the nominees
listed below and "FOR" Proposals 2, 3 and 4. PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK
INK AS SHOWN HERE [X]
- --------------------------------------------------------------------------
1. TO ELECT DIRECTORS: For one-year terms expiring in 2004, For two-year
terms expiring in 2005 and For three-year terms expiring in 2006.
NOMINEES:
[ ] FOR ALL NOMINEES () LaVern F. Roschewski one-year term, 2004
() Ann Lindley Spence one-year term, 2004
[ ] WITHOLD AUTHORITY () James A. Laphen two-year term, 2005
FOR ALL NOMINEES () Campbell R. McConnell two-year term, 2005
[ ] FOR ALL EXCEPT () Gilbert G. Lundstrom three-year term, 2006
() Joyce Person Pocras three-year term, 2006
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominees(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each nominee you wish
to withhold, as shown here: (*)
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method. [ ]
FOR AGAINST ABSTAIN
2. PROPOSAL to adopt the 2003 Stock Option Plan [ ] [ ] [ ]
3. PROPOSAL to adopt the 2003 Recognition and
Retention Plan and Trust Agreement. [ ] [ ] [ ]
4. PROPOSAL to ratify the appointment of the
independent auditors. [ ] [ ] [ ]
5. In their discretion, the proxies are authorized
to vote upon such other business as may properly
come before the meeting.
This card also constitutes your voting instructions for shares held
in the TierOne Bank 401(k) Savings Plan and the TierOne Corporation ESOP and
the undersigned hereby authorizes the respective Trustees of such Plans to
vote the shares allocated to the undersigned's account(s) as provided herein.
Unvoted shares in the TierOne Bank 401(k) Savings Plan will be voted in the
same manner and proportion as the shares of commmon stock held in such Plan
for which voting instructions from participants are received. Shares held
in the TierOne Corporation ESOP allocated to participants' accounts will
generally not be voted unless the proxy/voting instruction card is returned.
Signature of Shareholder
and/or Plan Participant__________________ Date:__________
Signature of Shareholder__________________ Date:__________
Note: Please sign exactly as your name or names appear on this Proxy.
When shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation , please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
[TierOne Corporation Letterhead]
March 10, 2003
To: All TierOne Bank ESOP and/or 401(k) Savings Plan Participants
In the next few days, you will receive TierOne Corporation's
first annual report, Proxy Statement and other materials
which describe a proxy solicitation in connection with
proposals to be considered at our upcoming Annual Meeting of
Shareholders of TierOne Corporation to be held April 23,
2003.
As a participant in TierOne Corporation's ESOP and/or
TierOne Bank's 401(k) Savings Plan, you are permitted to
direct the voting of shares of TierOne Corporation allocated
to your account(s). I urge you to take advantage of the
opportunity to direct the manner in which shares of common
stock of TierOne Corporation will be voted.
Included with your annual report will be a Proxy Statement
which describes the items to be voted upon and a
proxy/voting ballot which will permit you to vote the shares
allocated to you under the ESOP and/or 401(k) Plan. You may
receive multiple proxy/voting ballots depending if you have
shares in the Employee Stock Ownership Plan, shares in the
401(k) Plan and any shares you own individually outside of
these benefit plans.
It is important you vote each proxy/ballot you receive.
You may vote by telephone by calling 1-800-PROXIES or return
your proxy/ballot in the envelope you received with your
proxy materials for receipt no later than April 17, 2003.
If your voting instructions for shares held in the 401(k)
Plan are not received, the shares allocated to your account
will be voted by the Trustee in the same proportion as
shares of participants for which the Trustee has received
directions. If your voting instructions for shares held in
the ESOP are not received, the shares generally will not be
voted by the Trustee.
Your vote is a means of actively participating in the
governance of the affairs of TierOne Corporation. While I
prefer you vote in the manner recommended by our Board of
Directors, the most important thing is that you vote in
whatever manner you deem appropriate. Please review these
materials and promptly return all voting ballots so that all
of your shares may be voted.
Thank you for taking time to be an active participant in
TierOne Corporation and for your continued support and
dedication.
Very truly yours,
/s/ Gilbert G. Lundstrom
Gilbert G. Lundstrom
Chairman of the Board and Chief Executive Officer