UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
SCHEDULE 14A INFORMATION
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X| Filed by a Party other than the Registrant Check the
appropriate box:
| | Preliminary Proxy Statement
| | Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CORNERSTONE FINANCIAL CORPORATION
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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| | Fee paid previously with preliminary materials.
| | Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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CORNERSTONE FINANCIAL CORPORATION
6000 Midlantic Drive, Suite 120S,
Mt. Laurel, New Jersey 08054
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 20, 2009
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Annual Meeting") of Cornerstone Financial Corporation (the "Company"), the
holding company for Cornerstone Bank (the "Bank") to be held on May 20, 2009 at
2:00 p.m. at the corporate headquarters of the Company, 6000 Midlantic Drive,
Suite 120S, Mt. Laurel, New Jersey 08054.
At the Annual Meeting, shareholders will be asked to consider and vote
upon the following:
1. The election of seven (7) directors to the Company's Board of
Directors each to serve for the term described in the
accompanying proxy statement;
2. An Amendment to the Company's Certificate of Incorporation to
classify the Board of Directors into three classes and to
prevent removal of the Directors by shareholders without
cause;
3. An Amendment to the Company's Certificate of Incorporation to
provide that approval of any merger, consolidation or sale of
substantially all of the assets of the Company which has not
been approved in advance by the Board of Directors of the
Company will require the affirmative vote of 75% of the
Company's outstanding shares of common stock and to further
require an affirmative vote of 75% of the outstanding common
stock to amend this super-majority voting provision;
4. An Amendment to the Company's Certificate of Incorporation to
require that any shareholder action taken by written consent
rather than at a meeting be by unanimous consent;
5. An Amendment to the Company's Certificate of Incorporation to
setting the quorum for action by shareholders at a meeting at
one-third (1/3) of the issued and outstanding shares;
6. An Amendment to the Company's Certificate of Incorporation to
provide for 1,000,000 shares of series preferred stock, the
terms, conditions and designations of which may be set by the
Board of Directors at the time of issuance;
7. The approval of Cornerstone Financial Corporation 2009 Equity
Compensation Plan; and
8. Such other business as shall properly come before the Annual
Meeting.
The Board of Directors of the Company believes that the election of the
nominees for director, and each of the other proposals are all in the best
interests of the Company and its shareholders. For the reasons set forth in the
Proxy Statement, the Board unanimously recommends that you vote "FOR" each
nominee for director, and "FOR" each proposal set forth in the Proxy Statement.
1
Your cooperation is appreciated since a majority of the common stock
must be represented, either in person or by proxy, to constitute a quorum for
the conduct of business. Whether or not you expect to attend, please sign, date
and return the enclosed proxy card promptly in the postage-paid envelope
provided so that your shares will be represented.
Very truly yours,
/s/ George W. Matteo, Jr.
George W. Matteo, Jr.
Chairman of the Board of Directors
April 24, 2009
Mt. Laurel, New Jersey
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be held on May 20, 2009. Our Proxy Statement and Annual
Report to Shareholders are also available on line at
http://www.snl.com/IRWebLinkX/GenPage.aspx?IID=4220067&gkp=1073743350.
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CORNERSTONE FINANCIAL CORPORATION
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 20, 2009
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GENERAL PROXY STATEMENT INFORMATION
This Proxy Statement is being furnished to shareholders of Cornerstone
Financial Corporation (the "Company") in connection with the solicitation by the
Board of Directors of proxies to be used at the Annual Meeting of shareholders
to be held on May 20, 2009 at 2:00 p.m., at the corporate headquarters of the
Company, 6000 Midlantic Drive, Suite 120S, Mt. Laurel, New Jersey 08054 (the
"Annual Meeting").
The approximate date on which this Proxy Statement and the accompanying
proxy card are being mailed to the Company's shareholders is on or about April
24, 2009.
Record Date, Outstanding Securities and Voting Rights
The Board of Directors has fixed the close of business on April 20,
2009 as the record date (the "Record Date") for the determination of the holders
of common stock entitled to receive notice of and to vote at the Annual Meeting.
At the close of business on the Record Date, there were 1,655,767 shares of
common stock outstanding. Each share of common stock is entitled to one vote on
all matters to be acted upon at the Annual Meeting.
Shareholders of the Company are requested to complete, date and sign
the accompanying form of proxy and return it promptly to the Company in the
enclosed envelope. If a proxy is properly executed and returned in time for
voting, it will be voted as indicated thereon. If no voting instructions are
given, proxies received by the Company will be voted "FOR" approval of the
Directors nominated for election and "FOR" each other proposal described in this
Proxy Statement. With regard to any other matter properly presented at the
Annual Meeting, the proxy will be voted in the discretion of the persons named
in the proxy.
Revocability of Proxies
Any shareholder who executes a proxy has the power to revoke it at any
time before it is voted by giving written notice of revocation to the Company,
by executing and delivering a substitute proxy to the Company or by attending
the Annual Meeting and voting in person. If a shareholder desires to revoke a
proxy by written notice, such notice should be mailed or delivered, so that it
is received on or prior to the meeting date, to Keith Winchester, Secretary,
Cornerstone Financial Corporation, 6000 Midlantic Drive, Suite 120S, Mt. Laurel,
New Jersey 08054.
Solicitation of Proxies
This proxy solicitation is being made by the Board of Directors of the
Company and the cost of the solicitation will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or facsimile by officers, Directors and employees of the Company
and/or the Bank, who will not be specially compensated for such solicitation
activities.
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SUMMARY OF THE PROXY PROPOSALS
The following is a summary of certain information contained in this
proxy statement. The summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Proxy Statement. You are urged to read
the more detailed information appearing in this Proxy Statement before
determining how to vote on the proposals described in this summary.
What proposals are included in this Proxy Statement?
The Board of Directors is asking shareholders to vote on several
proposals: the re-election of the current Directors to serve for new terms on
the Board of Directors, a series of amendments to the Company's Certificate of
Incorporation which will make it more difficult for a third party to acquire the
Company without the approval of the Board and which will give the Board
additional flexibility in raising capital, and a new Equity Compensation Plan
which will permit the Board to grant stock options or shares of restricted stock
to members of management of the Company.
How does the Board of Directors recommend that I vote on these
proposals?
The Board of Directors recommends that shareholders vote in favor of
the Board's nominees for election to the Board of Directors, in favor of each of
the proposed amendments to the Company's Certificate of Incorporation, and in
favor of the Equity Compensation Plan.
Why is the Board recommending the amendments to the Certificate of
Incorporation?
In general, the amendments will:
o Provide that the Board of Directors will be separated into
three classes, with only one class of Directors elected at
each annual meeting, and with Directors serving for staggered
terms of three years each;
o Provide that Directors may not be removed by shareholders
without cause;
o Provide that approval of any merger, consolidation or sale of
substantially all of the assets of the Company which has not
been approved in advance by the Board of Directors of the
Company will require the affirmative vote of 75% of the
Company's outstanding shares of common stock;
o Provide that any shareholder action taken by written consent,
in lieu of a meeting, require the unanimous consent of all
shareholders;
o Reduce the percentage of outstanding shares required to
constitute a quorum at any shareholders meeting to one-third
(1/3) of the outstanding shares, from the current requirement
of one-half (1/2) of the outstanding shares; and
o Provide authorization for a new class of one million shares of
series preferred stock, and grant the Board of Directors the
authority to set the terms and conditions of the preferred
stock at the time it is issued.
4
The Board has recommended these proposals because the Board believes
the amendments will position the Board to best protect the interest of long-term
shareholders of the Company. In the past, community financial institutions in
New Jersey have been the subject of unsolicited takeover proposals and pressure
by activist shareholders to require a sale, regardless of whether the Board of
the institutions believes that a sale is in the best interests of all the
shareholders of the institution. The Board believes these proposals can be
highly disruptive to a community-based financial institution, and frequently are
not in the best interest of a company's long-term shareholders. The proposed
amendments, while not prohibiting the takeover of the Company, will best
position the Board to ensure that any proposed transaction benefits the
Company's long-term shareholders, the communities served by the Company and its
employees and other constituencies. The Board has not proposed the amendments in
response to any particular proposal to acquire the Company.
In the past, the Bank, as the predecessor to the Company, has had
difficulty obtaining a quorum to conduct business at shareholders meetings.
Soliciting shareholders to ensure the presence of a quorum, or adjourning a
meeting to seek additional votes to constitute a quorum, may cause the Company
to incur additional expense and delay shareholder action. To avoid this, the
Board is asking shareholders to approve an amendment to the Company's
certificate of incorporation to reduce the required quorum to one-third (1/3) of
the Company's outstanding shares.
The Board also believes that having the authority to issue shares of
preferred stock without having to get prior shareholder approval of the specific
terms and conditions will provide the Board with greater flexibility in quickly
raising capital for the Company. Capital could be raised to permit the Company
to take advantage of a particular business opportunity, expand a line of
business, or continue to fund the Company's growth.
Although the Board believes that the proposed amendments will best
position the Board to act in the best interests of the Company's long-term
shareholders, the proposed amendments could make it less likely that the Company
will receive an unsolicited takeover proposal, or may make it more difficult for
a third party to successfully undertake an acquisition of the Company, even if
shareholders believe that the proposal is in their best interests.
Why is the Board proposing a new Equity Compensation Plan?
In 2000, the Board and shareholders of the Bank, as the predecessor of
the Company, approved the A and B Stock Option plans (the "2000 Plans"). The
Plans permit the granting of options to purchase up to 77,382 shares of common
stock, or 4.7% of the Company's currently outstanding shares. All options
authorized under the 2000 Plans have been granted, leaving the Company with no
ability to provide equity incentives to attract and retain additional senior
management. In addition, pursuant to the terms of the Company's Employment
Agreement with our Chairman and CEO, George W. Matteo, Jr., we are obligated to
grant Mr. Matteo certain stock options. The Company will be unable to fulfill
this obligation unless the 2009 Equity Compensation Plan is approved. The Board
of Directors believes that having the authority to grant equity compensation is
a critical component of the Board's ability to attract and retain senior
management, including board members, and is an important element in tying the
interests of management with those of the shareholders.
5
PROPOSAL 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide that the number of Directors shall
not be less than 5 nor more than 25 and permit the exact number to be determined
from time to time by the Board of Directors. Currently, the Board has set the
number of Directors at seven (7).
The Board of Directors of the Company has nominated for election to the
Board of Directors the persons named below. If elected, each nominee will serve
until the 2010 Annual Meeting of Shareholders (except as may be modified by
approval of Proposal 2) and until his replacement has been duly elected and
qualified.
The following table sets forth the names, ages, principal occupations,
and business experience for all nominees, as well as their prior service on the
Board. Each nominee is currently a member of the Board of Directors of the
Company. Unless otherwise indicated, principal occupations shown for each
Director have extended for five or more years.
NOMINEES FOR ELECTION
- ------------------------------------- ------- ------------------------------------------------ -----------------
TERM OF OFFICE
NAME AND POSITION WITH COMPANY AGE PRINCIPAL OCCUPATION FOR PAST FIVE YEARS EXPIRES (1)
- ------------------------------------ ------- ------------------------------------------------ -----------------
George W. Matteo, Jr., Chairman, 53 President and Chief Executive Officer of the 1999-2010
President and Bank since March 2006 and of the Company's
Chief Executive Officer since inception in 2008; Chairman of the Board
of Directors since the Bank's
inception in 1999 and the
Company's inception in 2008.
Equity partner in the law firm
Wolf, Block, Schorr and
Solis-Cohen LLP from 2005-2006;
Mr. Matteo maintained an
of-counsel relationship with Wolf
Block from March 2006 through
January 2007. Partner with the law
firm Dilworth Paxson LLP.
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J. Mark Baiada 61 President of Bayada Nurses, Inc.; Overseer of 1999-2010
the University of Pennsylvania School of
Nursing.
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J. Richard Carnall 70 Retired; formerly Chairman and CEO of PFPC 2004-2010
Worldwide, Inc., a subsidiary of PNC Bank
from 1987 until 2002. From 1981 to 2002, Mr.
Carnall was Executive Vice President of PNC
Bank, National Association and held
directorships with various PNC Bank-related
entities from 1993 to 2002. Mr. Carnall has
served as a director of RBB Fund, Inc., a
registered investment company since 2002.
- ------------------------------------- ------- ------------------------------------------------ -----------------
Gaetano P. Giordano 53 President of Vincent Giordano Corporation, 1999-2010
Philadelphia, Pennsylvania, since 1983. Mr.
Giordano also serves on the Board of Trustees
of LaSalle University, located in
Philadelphia, Pennsylvania. Mr. Giordano
serves as a director of a number of children's
charitable organizations
- ------------------------------------- ------- ------------------------------------------------ -----------------
6
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Robert A. Kennedy, Jr. 53 President of the Kennedy Companies since 1986, 1999-2010
a wholesale distributor of underground utility
products, founded in 1973. Mr. Kennedy serves
as a Trustee of Our Lady of Lourdes Medical
Center and the St. Joseph's Carpenter Society.
- ------------------------------------- ------- ------------------------------------------------ -----------------
Ronald S. Murphy 59 President of Murphy's Markets of South Jersey, 1999-2010
Inc., since 1978
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Bruce Paparone 47 President of Paparone Corporation since 1995. 2000-2010
Mr. Paparone has served as a
trustee and director of Kennedy
Health System since 1989.
- ------------------------------------- ------- ------------------------------------------------ -----------------
- -------------------
(1) Includes prior service on the Board of Directors of the Bank prior to the
formation of the Company, if applicable.
No Director of the Company is also a director of a company having a class of
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended, or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Bank Act of
1940, except for J. Richard Carnall. Mr. Carnall serves as a director for RBB
Fund, Inc., a registered investment company.
The Company encourages all Directors to attend the Company's annual meeting.
This is the Company's first annual shareholders meeting.
Required Vote
DIRECTORS WILL BE ELECTED BY A PLURALITY OF THE VOTES CAST AT THE
ANNUAL MEETING WHETHER IN PERSON OR BY PROXY.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
NOMINEES SET FORTH ABOVE.
7
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND MANAGEMENT
Security Ownership of Management
The following table sets forth information as of March 31, 2009
regarding the number of shares of common stock beneficially owned by all
Directors, executive officers described in the compensation table, and by all
Directors and executive officers as a group. Beneficial ownership includes
shares, if any, held in the name of the spouse, minor children or other
relatives of the nominee living in such person's home, as well as shares, if
any, held in the name of another person under an arrangement whereby the
Director or executive officer can vest title in himself at once or within sixty
(60) days. Beneficially owned shares also include shares over which the named
person has sole or shared voting or investment power, shares owned by
corporations controlled by the named person, and shares owned by a partnership
in which the named person is a partner.
Shares of Common Percent
Stock Beneficially of
Name Owned(1) Class(1)
---- ------- --------
Nominees for Director
George W. Matteo, Jr. 66,617 (2) 3.97%
J. Mark Baiada 55,750 (4) 3.37%
J. Richard Carnall 24,155 1.46%
Gaetano P. Giordano 89,332 (4) 5.35%
Robert A. Kennedy, Jr. 31,675 (4) 1.90%
Ronald S. Murphy 46,444 (4) 2.80%
Bruce Paparone 43,799 (4) 2.60%
Executive Officers Who Are Not
Directors
Gene D'Orazio 3,615 (3) *
David T. Swoyer 1,423 (3) *
Directors and executive
officers as a group (9 persons) 362,810 (5) 21.33%
- --------------------------
* Less than one percent
(1) Beneficial ownership is based on 1,655,767 shares of common stock
outstanding as of March 31, 2009. The securities "beneficially owned" by an
individual and the percentage of ownership are determined in accordance
with the regulations of the Securities and Exchange Commission and,
accordingly, may include securities owned by or for, among others, the
spouse and/or minor children of the individual and any other relative who
has the same home as such individual, as well as other securities as to
which the individual has or shares voting or investment power. A person is
also deemed to beneficially own shares of common stock which such person
does not own but has the right to acquire presently or within 60 days after
March 31, 2009.
(2) Includes 22,575 shares issuable upon exercise of options.
(3) Includes 348 shares issuable upon exercise of options.
(4) Includes 4,346 shares issuable upon exercise of options.
(5) Includes 45,001 shares issuable upon exercise of options.
There are no shareholders other than those set forth above who
beneficially own 5% or more of the common stock of the Company.
8
Board of Directors and Committees
Meetings of the Board of Directors are held monthly and as needed. The Board of
Directors held twelve (12) meetings in the year ended December 31, 2008. The
Company's policy is that all Directors make every effort to attend each meeting.
For the year ended December 31, 2008, each of the Company's Directors attended
at least 75% of the aggregate of the total number of meetings of Board of
Directors and the total number of meetings of committees on which the respective
Directors served.
A majority of the Board consists of individuals who are "independent" under the
Nasdaq listing standards. Shareholders wishing to communicate directly with the
independent members of the Board of Directors may send correspondence to
Cornerstone Financial Corporation, attn: Chair of Audit Committee, 6000
Midlantic Drive, Suite 120S, Mount Laurel, New Jersey 08054.
Code of Business Conduct and Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics
governing the Company's CEO and senior financial officers, as required by the
Sarbanes-Oxley Act and SEC regulations, as well as the Board of Directors and
other senior members of management. Our Code of Business Conduct governs such
matters as conflicts of interest, use of corporate opportunity, confidentiality,
compliance with law and the like. Our Code of Business Ethics is available on
our website at http://cornerstonebanknj.com/
Committees
The Board of Directors has an Audit Committee and a Compensation Committee
Audit Committee. The Audit Committee is responsible for the selection and
recommendation of the independent accounting firm for the annual audit and to
establish, and assure the adherence to, a system of internal controls. It
reviews and accepts the reports of the Company's independent auditors and
federal examiners. The Audit Committee consists of Messrs. Paparone (Chair),
Carnall, Giordano, and Kennedy. The audit committee does not currently have any
member qualifying as an "audit committee financial expert" as that term is
defined in SEC Regulation S-K Item 407(d)(5). The board believes that all
members of the audit committee are financially literate and experienced in
business matters. Like many small companies, it is not easy for the company to
attract and retain competent and diligent board members, and competition for
individuals qualifying as "audit committee financial experts" is significant.
The board believes that the current audit committee is able to fulfill its role
under SEC regulations despite not having a designated "audit committee financial
expert". The Audit Committee has adopted a written charters, which is available
at http://www.cornerstonebanknj.com.
Compensation Committee. In 2008, the Compensation Committee consisted of
Directors Giordano (Chair), Carnall, Murphy, Kennedy and Baiada. Each member of
the Compensation Committee is independent, as such term is defined in the Nasdaq
listing standards. The purpose of the Compensation Committee is to review senior
management's performance and determine compensation, and review and set
guidelines for compensation of all employees. The Compensation Committee does
not delegate its authority regarding compensation. Mr. Matteo, our CEO, provides
input to the Committee regarding the compensation of our executive officers.
Currently, no consultants are engaged or used by the Compensation Committee for
purposes of determining or recommending compensation. In 2008, the Compensation
Committee met five (5) times. The Compensation Committee does not have a written
charter.
Nomination of Directors. The Board of Directors does not have a standing
nominating committee and the entire Board of Directors performs the function of
a nominating committee to select persons to be nominated to serve as directors
of the Company, and to fill vacancies as necessary. In connection with
nominations, the full Board of Directors met once during 2008.
Because of the moderate size of the Board of Directors and the high proportion
of directors who are independent, the Board of Directors believes that it is
appropriate for the full Board of Directors to continue to perform the function
of a nominating committee and that a standing nominating committee is not
necessary. As there is no nominating committee, the Board of Directors does not
have a charter addressing the director nomination process.
9
If a need for new directors should arise in the future, the Board of Directors
would likely ask incumbent directors to identify potential candidates. To date,
the Company has not engaged a third party to identify or assist in identifying
or evaluating potential nominees. Pursuant to our Bylaws, the Board of Directors
is required to provide written nominations for director to our Secretary at
least thirty days prior to the date of the meeting at which directors are to be
elected. The Board of Directors would consider recommendations for director
nominations by shareholders that are received a reasonable time prior to such
thirty day period and that include the name, age, address, principal occupation,
prior business experience and background of the recommended individual and a
written consent executed by the recommended individual stating that he or she
desires to be considered as a nominee and, if elected, that he or she will serve
as a director.
The Board of Directors will generally consider nominees for director recommended
by shareholders in the same manner, and based on the same criteria, that the
Board considers nominees for director recommended by members of the Board of
Directors, by outside consultants or by other individuals or groups. However,
the knowledge of one or more directors concerning a nominee may be a factor and
members of the Board of Directors may have certain insights into the dynamics
and chemistry of the Board of Directors that they may consider when evaluating
any recommended candidate for director.
Audit Committee Report
The Audit Committee meets periodically to consider the adequacy of the Company's
financial controls and the objectivity of its financial reporting. The Audit
Committee meets with the Company's independent auditors and the Company's
internal auditor, both of whom have unrestricted access to the Audit Committee.
In connection with this year's financial statements, the Audit Committee has
reviewed and discussed the Company's audited financial statements with the
Company's officers and KPMG, our independent auditors. We have discussed with
KPMG the matters required to be discussed by Statement on Auditing Standards No.
61, ("Communication with Audit Committees"). We also have received the written
disclosures and letters from KPMG required by Independence Standards Board
Standard No. 1 ("Independence Discussions with Audit Committees"), and have
discussed with representatives of KPMG their independence.
Based on these reviews and discussions, the Audit Committee recommended to the
Board of Directors that the audited financial statements be included in the
Company's Annual Report on form 10-K for the fiscal year 2008 for filing with
the U.S. Securities and Exchange Commission.
J. Richard Carnall
Gaetano P. Giordano
Robert A. Kennedy, Jr.
Bruce Paparone, Chairman
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the CEO and the two
other most highly compensated executive officers of the Company earning in
excess of $100,000 (the "named executive officers") as of the fiscal year ended
December 31, 2008.
10
EXECUTIVE COMPENSATION
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Qualified
Non-equity Deferred
Name and Principal Stock Option Incentive Plan Compensation All Other
Position Year Salary Bonus Awards Awards Compensation Earnings Compensation Total
($) ($) ($) ($)(1) ($) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
George W. Matteo, Jr. 2008 275,827 30,000(2) - - - 41,031 (6) 20,962(3)(5) 367,820
Chairman of the Board, 2007 260,379 - - - - - 18,678 (3) 279,057
President and CEO
- ------------------------------------------------------------------------------------------------------------------------------------
Gene D'Orazio 2008 151,252 - - 572(1) - 4,476 (6) 12,263 (4) (5) 168,563
Executive Vice President 2007 137,847 10,056 - 348(1) - - 10,614 (4) (5) 158,865
and Senior Credit Officer
- ------------------------------------------------------------------------------------------------------------------------------------
David T. Swoyer 2008 146,423 - - 572(1) - 4,375(6) 10,003(4)(5) 161,373
Executive Vice President 2007 91,023 - - 348(1) - - 4,903(4)(5) 96,274
Chief Lending Officer
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The amounts in the "Option Awards" column reflect the dollar amount
recognized by us for financial statement reporting purposes under FAS
123(R) for the fiscal year ended December 31, 2008. Assumptions used in the
calculation of these amounts are included in Note 15 to the audited
consolidated financial statements included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2008.
(2) Represents a signing bonus pursuant to the terms of Mr. Matteo's employment
agreement dated January 10, 2008.
(3) Includes payments for an auto allowance and country club dues
(4) Includes payments for an auto allowance (5) Includes the Bank's
contributions under the Cornerstone Bank 401(k) Plan
(6) Includes payments under the Cornerstone Bank Nonqualified Deferred
Compensation Plan (Deferred Compensation Plan") adopted January 1, 2008.
Under the Deferred Compensation Plan, the Board designates those employees
eligible to participate and receive contributions credited to an unfounded
Plan Deferral Account equal to a percentage of such employees base salary.
Matteo Employment Agreement. On January 10, 2008, we entered into an
employment agreement with George W. Matteo, Jr., our Chairman, President and
Chief Executive Officer. Under the Agreement, Mr. Matteo receives an annual base
salary as determined from time to time by the Board, but no less than $262,500.
Mr. Matteo is eligible to participate in any bonus plan implemented by us for
executive employees, on terms no less favorable than those applicable to any
comparable executive of the Company, or in a bonus plan specific to Mr. Matteo
but which will be at least as favorable to Mr. Matteo as any plan applicable to
any comparable executive employees. Under the Agreement, we also provide Mr.
Matteo with certain fringe benefits, which in the aggregate will be not less
favorable than those received by our comparable executive employees, include an
automobile allowance and reimbursement for membership dues and other
business-related expenses in accordance with our policy.
The Agreement has a term ending on March 31, 2010, which will
automatically renew for successive one (1) year terms unless (i) either we or
Mr. Matteo gives written notice of termination at least sixty (60) days prior to
the anniversary date of the then-current term, or (ii) the Agreement is
terminated earlier in accordance with the termination provisions in the
Agreement.
11
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information regarding outstanding stock
option awards for each of our Named Executive Officers as of December 31, 2008.
Option Awards Stock Awards
- -------------------------------------------------------------------------------------------------------------------
Name Number of Number of Option Option Number of Market
Securities Securities Exercise Expiration Shares or Value of
Underlying Underlying Price Date Units of Shares or
Unexercised Unexercised ($) Stock That Units of
Options Options Have Not Stock That
(#) (#) Vested Have Not
Exercisable Unexercisable (#) Vested
($)
- -------------------------------------------------------------------------------------------------------------------
George W. Matteo, Jr. 22,575 (1) - $8.86 (1) May 17, 2010 - -
- -------------------------------------------------------------------------------------------------------------------
Gene D. D'Orazio 522 (2) - $9.40 (2) October 2, 2017 174 609 (3)
- -------------------------------------------------------------------------------------------------------------------
David T. Swoyer 522 (2) - $9.40 (2) October 2, 2017 174 609 (3)
- -------------------------------------------------------------------------------------------------------------------
(1) Has been restated to reflect the 7.5% common stock dividend paid on May 15,
2008 and the 5% common stock dividend paid on May 15, 2007.
(2) Has been restated to reflect the 7.5% common stock dividend paid on May 15,
2008.
(3) Based on the last sale price of the Bank's common stock known on April 3,
2009 ($3.50 per share price)
The Company maintains two (2) equity compensation plans, the 2000 A
Stock Option Plan, and the 2000 B Stock Option Plan. Under these plans, the
Company is authorized to issue options to purchase up to 77,382 shares of the
Company's common stock, in the aggregate. All options authorized under these
plans have been granted.
Potential Payments upon Termination or Change-in-Control
We may terminate Mr. Matteo's employment "without Cause" (as such term
is defined in the Agreement) upon giving thirty (30) days prior written notice
to Mr. Matteo. Additionally, Mr. Matteo may resign for "Good Reason" (as such
term is described below and more fully defined in the Agreement) upon giving
written notice to us within forty-five (45) days after the event constituting
Good Reason), provided that we have not cured such action constituting Good
Reason within thirty (30) days after the event. For purposes of the Agreement,
"Good Reason" includes, among other things, a reduction in title, authority,
status or base salary, our failure to provide comparable benefits upon a Change
in Control, or breach by us of a material provision of the Agreement. If Mr.
Matteo resigns without Good Reason, he will be bound by a one year covenant not
to compete with us, and a one year non-solicitation covenant with regard to our
customers and employees.
If Mr. Matteo is terminated by us without Cause or resigns for Good
Reason, he will be entitled to receive for a period of the greater of eighteen
(18) months from the date of termination of employment or the remaining term of
the Agreement, (i) the sum of (a) his base salary as of the termination of his
employment (or prior to any reduction thereof preceding termination of
employment), plus (b) a dollar amount equal to the average of the bonuses he
received for each of the three preceding calendar years, and (ii) all life,
disability and medical insurance and other normal benefits in effect during the
two preceding calendar years, or if we are unable to provide such benefits, a
dollar amount that will equal the after tax cost of obtaining such benefits.
If Mr. Matteo is terminated without Cause after a "Change in Control"
or resigns with Good Reason after a Change in Control, Mr. Matteo will be
entitled to receive for a period of two years from the date of termination of
employment, (i) the sum of (a) the highest base salary received by Mr. Matteo as
of either the date of termination of his employment (or prior to any reduction
thereof resulting in Good Reason for resignation) or any of the three
immediately preceding calendar years, plus (b) a dollar amount equal to the
highest bonus he received in any of the three preceding calendar years, and (ii)
all life, disability and medical insurance and other normal benefits in effect
during the two preceding calendar years, or if we are unable to provide such
benefits, a dollar amount that will equal the after tax cost of obtaining such
benefits. In addition if a change of control occurs and a change of control
payment is provided to Mr. Matteo pursuant to the terms of the employment
agreement and if the Internal Revenue Service finds that such payment
constitutes an "excess parachute payment" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended, the company will increase such
change of control payment to place Mr. Matteo in his original after tax
position.
12
Should a "Change in Control" (as defined in the Agreement) occur prior
to the time when all of Mr. Matteo's non-qualified stock options have vested,
such unvested options shall immediately vest upon such Change in Control.
Directors' Compensation
Director Compensation
Fees
Earned Non-Equity Nonqualified
or Paid Stock Option Incentive Plan Deferred
in Cash Awards Awards Compensation Compensation All Other
Name ($)(1) ($) ($) ($) Earnings ($) Compensation ($) Total ($)
- ---- --- --- --- --- ------------ ---------------- ---------
J. Mark Baiada - - - 2,400 - 2,400
-
J. Richard Carnall 3,600 - - - - - 3,600
Gaetano P. Giordano - - - 3,330 - 3,330
-
Robert A. Kennedy, Jr. - - - 3,600 - 3,600
-
Richard P. Meehan Jr. (1) - - - 2,700 - 2,700
-
Ronald S. Murphy - - - 3,300 - 3,300
-
Bruce Paparone - - - 3,300 - 3,300
-
Kenneth H. Zekavat (1) - - - 1,800 - 1,800
-
(1) Messrs. Richard P. Meehan, Jr. and Kenneth H. Zekavat resigned from the
Board of Directors during the third quarter of 2008 to devote more time
to their personal businesses
Our directors are not compensated for service on the Company's Board of
Directors. We do compensate our directors for service on the Bank's Board of
Directors. For each regular meeting attended in person, the Vice Chairman
receives $400 and each other non-management director receives $300. The per
meeting attendance fees are paid on a quarterly basis, unless the Director
elects to participate in the Directors' Fee Deferral and Death Benefit Plan
described below. We do not pay or accrue any fees to any director for attending
meetings of committees of the Board of Directors. Directors are reimbursed for
their reasonable out-of-pocket expenses incurred in connection with attendance
at meetings of the Board of Directors and committees of the Board of Directors.
In addition, we adopted, effective January 1, 2006, a Directors' Fee
Deferral and Death Benefit Plan ("Director Plan"), which allows each
non-employee director to elect to defer receipt of payment of some or all of his
or her director fees into an unfunded Plan Deferral Account. All directors other
then Mr. Carnell elected to defer their director fees in 2008. Pursuant to the
prior election of each director participating in the Director Plan, at the end
of each calendar year each director's Plan Deferral Account balance will be
adjusted to reflect an earnings adjustment calculated as if the amount in the
Plan Deferral Account were invested in either (1) an interest bearing account
earning interest at the prime rate determined by the Board from time to time, or
(2) our common stock. Under the Director Plan, the designated beneficiary of
each non-employee director will also be entitled to a death benefit of $75,000
in the event of his or her death while still serving as a director. Payment of
this death benefit will be funded solely by one or more life insurance contracts
obtained by us on the life of each participant. Accordingly, if a life insurance
policy is not obtained then there will be no death benefit, or if a life
insurance policy is obtained in an amount less than $75,000, then the amount of
the death benefit payable shall be limited to the amount of proceeds paid under
any such life insurance policy. The death benefit under the Director Plan is not
a vested benefit and may be terminated at any time by amendment to the Director
Plan.
13
Transactions with Management
We expect to engage in banking transactions in the ordinary course of
business with our shareholders, Directors and employees and their affiliates,
including members of their families or corporations, partnerships or other
organizations in which such shareholders, Directors and employees have a
controlling interest, on substantially the same terms, including interest rates
and collateral on loans, as those prevailing at the same time for comparable
transactions with others.
INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December 31, 2008
were KPMG. KPMG has advised the Company that one or more of its representatives
will be present at the Annual Meeting to make a statement if they so desire and
to respond to appropriate questions.
Principal Accounting Firm Fees
Aggregate fees billed to the company for the fiscal years ended December 31,
2008 and 2007 by the Company's principal accounting firm are shown in the
following table.
Fiscal Year Ended December 31
---------------------------------
2008 2007
--------------- -------------
Audit Fees $ 92,663 $ $100,778
Audit-Related Fees $ - $ -
--------------- -------------
Tax Fees 18,236 15,711
--------------- -------------
Total Audit and Audit-Related Fees $ 110,899 $ 116,489
All Other Fees $ - $ -
--------------- -------------
-
Total Fees $ 110,899 $ 116,489
=============== =============
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
regulation of the Securities and Exchange Commission to furnish the Company with
copies of all Section 16(a) forms they file.
The Company believes that all persons associated with the Company and subject to
Section 16(a) have made all required filings for the fiscal year ended December
31, 2008.
14
OVERVIEW OF PROPOSALS 2 -4
The Board of Directors has unanimously approved and recommended that
the shareholders of the Company approve certain proposed amendments to the
Company's Certificate of Incorporation (the "Amendments"). The Amendments are
discussed in detail below. In general, the Amendments provide (i) for a
classified board of Directors; (ii) that Directors may not be removed by
shareholders without cause; (iii) that the affirmative vote of 75% of the
outstanding shares of common stock are required to approve a merger,
consolidation or sale of substantially all of the Company's assets, unless such
proposed transaction is approved by a majority of the Board of Directors, and
further that any amendment to this super-majority voting provision require the
approval of 75% of the outstanding shares of common stock; and (iv) that any
shareholder action by written consent, in lieu of a meeting, will require
unanimous written consent of the shareholders.
In forming the Bank, the members of the Board of Directors envisioned a
community-based institution that would serve the local communities surrounding
its branches, while also providing a return to its shareholders. The Board of
Directors has viewed, with increasing concern, the accelerating pace of
consolidation in the banking industry, especially within New Jersey, as local,
community-based institutions are purchased by multi-state bank holding
companies, frequently headquartered outside of New Jersey. The Board believes
that this consolidation and geographical dislocation have caused a reduction in
the commitment of these institutions to their local community. The Board has
also noted certain tactics employed by certain investors, including the
accumulation of substantial holdings of common stock and proxy fights designed
to force the Board of Directors to sell an institution, regardless of its long
term business plan and prospects or service to its communities. The Board
considers these tactics to be highly disruptive to a company, and considers the
aim of these tactics to require a Board of Directors to satisfy the short term
investment objectives of certain investors while ignoring the long-term
prospects of the institution and the communities served by the institution. The
Amendments are being submitted for stockholder approval in response to these
activities. Although the Amendments will not prohibit any third party from
acquiring the Company, they will help position the Board to act in the best
interests of all of the Company's shareholders.
A classified Board, together with the removal of Directors only for
cause and super-majority voting, will help ensure some continuity of management
of the business and affairs of the Company by making it more time-consuming for
a substantial shareholder or shareholders to gain control of the Board or the
Company without the consent of the incumbent Board, and provide the Board with
sufficient time to review any proposal from the substantial shareholders. The
supermajority voting provision is designed to provide an incentive to a third
party to deal with the Board on any proposed significant transaction, thereby
permitting the Board the ability to act in the best interests of all of the
Company's shareholders and constituencies. The requirement that any actions
taken by written consent, in lieu of a meeting, be by unanimous consent will
ensure that a significant shareholder is not able to effect corporate action
without the knowledge and involvement of all of the Company's shareholders.
The Amendments are not being recommended in response to any specific
effort of which the Company is aware to accumulate the common stock or to obtain
control of the Company but rather are being recommended to assure fair treatment
of the Company's shareholders in takeover situations.
As more fully described below, the Board of Directors believes that the
Amendments will effectively reduce the possibility that a third party could
effect a sudden change in the majority control of the Board of Directors without
the support of the incumbent Directors. However, the Amendments may have
significant effects on the ability of shareholders of the Company to effect an
immediate change in the composition of the Board of Directors and otherwise to
exercise their voting power to affect the composition of the Board. Accordingly,
shareholders are urged to read carefully the following portions of this section
of the Proxy Statement and the relevant portions of the Exhibits hereto, which
sets forth the full text of the Amendments, before voting on the Amendments.
15
PROPOSAL 2
APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
WITH RESPECT TO THE CLASSIFICATION OF THE BOARD AND PREVENTING REMOVAL OF
DIRECTORS OF THE COMPANY BY THE SHAREHOLDERS WITHOUT CAUSE
The proposed amendment to Article III of the Certificate of
Incorporation provides that Directors will be classified into three classes, as
nearly equal in number as possible, with the terms of office of one class
expiring each year. One class of Directors, consisting of J. Richard Carnall,
Gaetano P. Giordano and Ronald S. Murphy will hold office initially for a term
expiring at the 2010 annual meeting; a second class of Directors, consisting of
Directors Bruce Paparone and J. Mark Baiada will hold office initially for a
term expiring at the 2011 annual meeting; and a third class of Directors,
consisting of Directors George W. Matteo, Jr. and Robert A. Kennedy would hold
office initially for a term expiring at the 2012 annual meeting. At each annual
meeting following this initial classification and election, the successors to
the class of Directors whose terms expire at that meeting would be elected for a
term of office to expire at the third succeeding annual meeting after their
election and until their successors have been duly elected and qualified. In
addition, the proposed amendment to Article III of the Certificate of
Incorporation would provide that shareholders may only remove a Director for
cause, which is demonstrated if the Director (i) is convicted of a felony; (ii)
is declared by court order to be of unsound mind; or (iii) has been shown by
clear and convincing evidence to have acted in bad faith to produce a gross
abuse of trust. The form of the amendment is attached as Exhibit A hereto.
The proposed classified board amendment will significantly extend the
time required to effect a change in control of the Board of Directors and may
discourage hostile takeover bids for the Company. Currently, a change in control
of the Board of Directors can be made by shareholders holding a plurality of
votes cast at a single annual meeting. If the Company implements a classified
Board of Directors, it will take at least two annual meetings for a majority of
shareholders to make a change in control of the Board of Directors, because only
a minority of the Directors will be elected at each meeting.
With regard to removal of Directors, New Jersey law states that
Directors may be removed without cause by an affirmative vote of a majority of
shareholders unless a corporation's certificate of incorporation provides
otherwise. The Company's Certificate of Incorporation currently does not
prohibit shareholder removal of Directors without cause. One effect of the
proposed amendment may be to make it more difficult for holders of a majority of
shares of common stock to remove Directors, should they deem it to be in their
best interest to do so. In conjunction with the proposed classification of the
Board, this amendment should render more difficult, and may discourage, an
attempt to acquire control of the Company without the approval of the Board and
the Company's management. The proposed amendment will make it impossible for
someone who acquires voting control of the Company immediately to remove the
incumbent Directors who may oppose such person and to replace them with
Directors supporting their agenda, and will instead require such a person to
demonstrate cause for removal of an incumbent Director or replace incumbent
Directors as their terms expire over a period of up to three years.
Required Vote
In order for the Amendment to be approved, the affirmative vote of a
majority of the shares of common stock cast at the Annual Meeting is required.
Unless marked to the contrary, the shares represented by the enclosed
Proxy Card, if executed and returned, will be voted "FOR" approval of the
Amendment.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT.
16
PROPOSAL 3
APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION REQUIRING A 75% AFFIRMATIVE VOTE TO APPROVE CERTAIN
BUSINESS COMBINATIONS,
New Jersey law requires the affirmative vote of a majority of the
shares entitled to vote thereon for approval of a merger or consolidation. A
corporation may provide in its certificate of incorporation for greater voting
requirements to approve a merger or consolidation. The proposed addition of
Article X to the Certificate of Incorporation requires the affirmative vote of
75% of the outstanding common stock entitled to vote thereon to approve or
authorize a merger, consolidation or disposition of all or substantially all of
the Company's assets. However, the requirement for approval by 75% of the
outstanding shares of common stock does not apply to any merger, consolidation
or asset sale that has been approved by a majority of Directors prior to the
vote of shareholders. In that case, the vote of a simple majority of a quorum of
shareholders would be required to approve such a transaction.
The proposed amendment also requires the affirmative vote of 75% of the
outstanding shares of common stock to further amend Article X of the Certificate
of Incorporation. The requirement of an increased shareholder vote will prevent
a person holding or controlling a majority, but less than 75%, of the
outstanding shares of common stock from avoiding the requirements of the
proposed amendment by simply repealing it.
The form of the amendment is attached as Exhibit B hereto.
Required Vote
In order for the Amendment to be approved, the affirmative vote of a
majority of the shares of common stock cast at the Annual Meeting is required.
Unless marked to the contrary, the shares represented by the enclosed
Proxy Card, if executed and returned, will be voted "FOR" approval of the
Amendments.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT.
17
PROPOSAL 4
APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
REQUIRE SHAREHOLDER ACTION TAKEN BY WRITTEN CONSENT TO BE UNANIMOUS
New Jersey law allows shareholders owning a majority of a company's
common stock to take action by written consent, without a meeting of the
shareholders, and without prior notice to other shareholders. A corporation may
provide in its certificate of incorporation a requirement that all action taken
by written consent must be unanimous. The proposed addition of Article XI to the
Certificate of Incorporation would require the unanimous vote of all of the
outstanding shares of common stock to approve any shareholder action without a
meeting. The form of the amendment is attached as Exhibit C hereto.
The purpose of this proposal is to ensure that one or more substantial
shareholders are unable to effect a corporate action without the participation
of, or notice to, the Company's other shareholders. Instead, shareholders
wishing to take action would have to do so either unanimously or at a duly
convened shareholders meeting. In this way, the Board and all other shareholders
will have sufficient notice, time and information to determine whether the
shareholder proposal is in the best interest of the Company.
Required Vote
In order for the Amendment to be approved, the affirmative vote of a
majority of the shares of common stock cast at the Annual Meeting is required.
Unless marked to the contrary, the shares represented by the enclosed
Proxy Card, if executed and returned, will be voted "FOR" approval of the
Amendments.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT.
18
PROPOSAL 5
APPROVAL OF SETTING QUORUM AT ONE-THIRD THE ISSUED AND
OUTSTANDING SHARES OF STOCK
The Board of Directors of the Company proposes to add Article XII to
the Company's Certificate of Incorporation to reduce the minimum number of
outstanding shares that are required to constitute a quorum to transact business
from a majority to one-third (1/3) of the Company's outstanding shares of common
stock. If this Proposal is approved, the Board of Directors intends to amend the
Bylaws such that only 1/3 of the outstanding shares will be required to
constitute a quorum for the transaction of business at regular or special
meetings of the shareholders. The form of the amendment is attached as Exhibit D
hereto.
In the past, the Bank, as the predecessor to the Company, has
experienced difficulties in obtaining a quorum at certain shareholder meetings.
This has resulted in additional expense to solicit proxies and ensure that a
quorum is present and that business may properly be conducted at the
shareholders meeting. A reduction in the quorum requirement is intended to avoid
such difficulties in the future, and ensure that the Company will not incur
additional expense in obtaining a quorum.
If Proposal 5 is adopted, the quorum requirement will reduce from a
majority to one-third (1/3)of the outstanding shares of the Company entitled to
vote. By reducing the quorum requirement, there will be a lower threshold to
meet in order to hold a shareholders' meeting and take certain corporate actions
that require shareholder approval, such as the election of directors. The
proposed amendment will not directly change the approval requirements for
shareholder votes, which will remain a majority of the shares voting for most
matters. However, because a valid shareholder vote may take place with as little
as one-third (1/3) of the Company's shares represented at a meeting, the actual
number of shares required to vote in favor of a proposal may be lessened.
Required Vote
In order for the Amendment to be approved, the affirmative vote of a
majority of the shares of common stock cast at the Annual Meeting is required.
Unless marked to the contrary, the shares represented by the enclosed
Proxy Card, if executed and returned, will be voted "FOR" approval of the
Amendment.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT.
19
PROPOSAL 6
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
TO CREATE PREFERRED STOCK AND TO INCREASE THE AUTHORIZED COMMON STOCK
The Board of Directors has unanimously approved and recommended that
the shareholders of the Company approve a proposed amendment (the "Stock
Amendment") to the Company's Certificate of Incorporation creating a new class
of 1,000,000 authorized shares of Series Preferred Stock (the "Preferred
Stock"). The Stock Amendment will provide the Board of Directors the authority
to set the specific terms, rate of dividends, preferences and conditions of any
Series of Preferred Stock upon its issuance, without further shareholder
approval. The form of the amendment is attached as Exhibit E hereto.
The Board does not have any current plans to issue shares of Preferred
Stock, and adoption of Proposal 6 will not cause any current change to the
Company's outstanding capitalization. In particular, the Company will not
utilize any shares of the Preferred Stock in connection with the United States
Department of the Treasury's (the "Treasury") Capital Purchase Program (the
"CPP"), whereby the Treasury invests monies into qualifying financial
institutions in exchange for preferred stock, issued on standard terms. Although
the Bank (prior to the reorganization whereby the Company became the Bank's sole
shareholder) submitted an application to participate in the CPP, the Board of
Directors has determined to withdraw such application. Accordingly, the Company
will not issue any Preferred Stock in connection with the CPP.
The Board of Directors believes that having so-called "blank check"
Preferred Stock authorized in the Company's Certificate of Incorporation will
provide the Board with greater flexibility in raising capital for the Company,
permitting the Company to take advantage of business expansion opportunities or
changes in the market that may arise from time to time. In addition, the Board
believes that, given the current economic turmoil and the volatility of the
overall market for common stock, preferred stock, either alone or in combination
with shares of our common stock, may be a more attractive instrument to
potential investors, and allow the Company to execute its plans for growth.
The use of Preferred Stock may permit the Company to raise capital
without diluting the voting interests or ownership interests of current holders
of the common stock. Permitting the Board to set the terms, rates, conditions
and preferences of any issuance of any series of Preferred Stock at the time the
stock is issued, without further shareholder approval, will permit the Board the
maximum flexibility and allow the Board to react to potentially changing market
conditions or business opportunities which require capital. In certain
situations, issuance of a series of Preferred Stock could hinder the ability of
a third-party to take control of the Company.
Required Vote
In order for the Stock Amendment to be approved, the affirmative vote
of a majority of the shares of common stock cast at the Annual Meeting is
required.
Unless marked to the Contrary, the shares represented by the enclosed
Proxy Card, if executed and returned, will be voted "FOR" approval of the Stock
Amendment.
Recommendation
THE BOARD OF DIRECTOS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PREFERRED STOCK AMENDMENT.
20
PROPOSAL 7
APPROVAL OF THE CORNERSTONE FINANCIAL CORPORATION
2009 EQUITY COMPENSATION PLAN
The Board of Directors has approved for submission to the shareholders
the Cornerstone Financial Corporation 2009 Equity Compensation Plan (the
"Plan"), set forth as Exhibit F to this proxy statement. The Plan authorizes the
Company to issue stock options or restricted stock to eligible participants.
Stock options granted under the Plan may be incentive stock options or
non-qualified stock options.
Introduction
The Board of Directors firmly believes that management and employees
should have an equity stake in the Company and that equity should be a
significant part of management's compensation. The Board believes that this will
ensure that the interests of management and the shareholders are closely
aligned. Although shareholders have previously approved the 2000 A Plan and B
Plan, those plans permitted the issuance of options to purchase up to 77,382
shares of common stock, or 4.7% of the Company's currently existing common
shares. All options authorized under the existing plans have been granted,
leaving the Board unable to use equity awards as an incentive to attract and
retain management. In addition, under the terms of its employment agreement with
Mr. Matteo, the Company is obligated to grant Mr. Matteo options to purchase
45,000 shares of common stock. The Company is currently unable to comply with
this term. Therefore, the Board has unanimously recommended and submitted for
shareholder approval the Plan. The Company believes that the Plan will improve
the Company's ability to attract and retain talented management.
Types of Awards
The Plan provides for the grant of incentive stock options ("ISOs"),
non-qualified stock options and restricted stock awards.
Administration
The Plans will be administered by the Board of Directors, which will
have power to (i) designate the participants to receive awards, and (ii)
determine the number of shares subject to each award, the date of grant and the
terms and conditions governing the awards, including any vesting schedule. In
addition, the Board is charged with the responsibility of interpreting the Plan
and making all administrative determinations thereunder. Options granted under
the Plans may be ISOs, subject to the requirements of the Code, or non-qualified
options. In addition, grants of restricted stock may be made under the Plan.
Eligibility
Management officials of the Company and/or the Bank, including
employees, officers, non-employee directors, advisory board members and other
service providers to the Company and/or are eligible to receive options under
the Plans.
Shares Subject to the Plan
The Plan covers awards of up to 154,425 shares of the Company's common
stock. Under the Plan, the number and price of shares available for grant and
the number of shares covered by stock options will be adjusted equitably for
stock splits, stock dividends, recapitalizations, mergers and other changes in
the common stock.
Term of Options
Options granted under the Plan will have maximum terms of ten (10)
years, subject to earlier termination of the options as provided by the Plan.
Exercise Price of Options
Options granted under the Plan as ISO's are to be granted at an
exercise price of not less than 100% of the fair market value of the Company's
common stock on the date of the grant. However, if the optionee owns stock
possessing more than 10% of the total combined voting power of all classes of
the Company 's common stock, the purchase price per share of common stock
deliverable upon the exercise of each option shall not be less than 110% of the
fair market value of the common stock on the date of grant or the par value of
the common stock, whichever is greater. All non-qualified options must have an
exercise price of at least 100% of fair market value on the date of grant. Fair
market value is to be determined by the Board of Directors in good faith.
21
Restricted Stock Awards
Eligible participants chosen to receive restricted stock awards under
the Plan will be granted shares of the Company's common stock, subject to
forfeiture in the event that the conditions specified in the applicable award
are not satisfied prior to the end of the applicable restriction period
established for such award.
Tax Consequences
The options granted under the Plan should be considered as having no
readily ascertainable fair market value at the time of grant because the options
are not tradable on an established market. Because of this, for federal income
tax purposes, no taxable income results to the optionee upon the grant of an
option. If the option is an ISO, upon the issuance of shares to the optionee
upon the exercise of the option, there is also no taxable income, assuming
compliance with certain holding periods. Correspondingly, no deduction is
allowed to the Company upon either the grant or the exercise of an ISO.
If shares acquired upon the exercise of an ISO are not disposed of
either within the two-year period following the date the option is granted or
within the one-year period following the date the shares are issued to the
optionee pursuant to exercise of the option, the difference between the amount
realized on any disposition thereafter and the option price will be treated as a
long-term capital gain or loss to the optionee. If a disposition occurs before
the expiration of the requisite holding periods, then the lower of (i) any
excess of the fair market value of the shares at the time of exercise of the
option over the option price or (ii) the actual gain realized on disposition,
will be deemed to be compensation to the optionee and will be taxed at ordinary
income rates. In such event, the Company will be entitled to a corresponding
deduction from its income, provided the Company withholds and deducts as
required by law. Any such increase in the income of the optionee or deduction
from the income of the Company attributable to such disposition is treated as an
increase in income or a deduction from income in the taxable year in which the
disposition occurs. Any excess of the amount realized by the optionee on
disposition over the fair market value of the shares at the time of exercise
will be treated as capital gain.
The recipient of a non-statutory option realizes compensation taxable
as ordinary income at the time the option is exercised or transferred. The
amount of such compensation is equal to the amount by which the fair market
value of the stock acquired upon exercise of the option exceeds the amount
required to be paid for such stock. At the time the compensation income is
realized by the recipient of the option, the Company is entitled to an income
tax deduction in the amount of the compensation income, provided applicable
rules pertaining to tax withholding are satisfied and the compensation
represents an ordinary and necessary business expense of the Company. The stock
acquired upon exercise of the option has an adjusted basis in the hands of the
recipient equal to its fair market value taken into account in determining the
recipient's compensation and a holding period commencing on the date the stock
is acquired by the recipient. At the time the stock is subsequently sold or
otherwise disposed of by the recipient, the recipient will recognize a taxable
capital gain or loss measured by the difference between the adjusted basis of
the stock at the time it is disposed of and the amount realized in connection
with the transaction. The long term or short term nature of such gain or loss
will depend upon the applicable holding period for such stock.
A recipient of restricted stock under the Plans will not recognize
taxable income upon the grant of a restricted stock award unless such recipient
makes an election under Section 83(b) of the Code (a "Section 83(b) Election")
to be taxed as if the underlying shares were vested shares. If the recipient
makes a valid Section 83(b) Election within 30 days of the date of the grant,
then such recipient will recognize ordinary compensation income, for the year in
which the stock award is granted, in an amount equal to the fair market value of
the common stock at the time the award is granted. If a valid Section 83(b)
Election is not made, then the recipient will recognize ordinary compensation
income, at the time that the forfeiture provisions or restrictions on transfer
lapse, in an amount equal to the fair market value of the common stock at the
time of such lapse. The participant will have a tax basis in the common stock
acquired equal to the sum of the price paid and the amount of ordinary
compensation income recognized.
22
Upon the disposition of the common stock acquired pursuant to a restricted stock
award, the recipient will recognize a capital gain or loss equal to the
difference between the sale price of the common stock and the recipient's tax
basis in the common stock. This capital gain or loss will be a long-term capital
gain or loss if the shares are held for more than one year.
Amendment or Termination
No options or restricted stock awards may granted under the Plan more
than ten (10) years after adoption by the shareholders, but options or
restricted stock awards previously granted may extend beyond that date. The
Board of Directors may at any time amend, suspend or terminate the Plan.
Required Vote
In order for the Plan to be approved, the affirmative vote of a
majority of the shares of common stock cast at the Annual Meeting is required.
Unless marked to the Contrary, the shares represented by the enclosed
Proxy Card, if executed and returned, will be voted "FOR" approval of the 2009
Equity Compensation Plan.
Recommendation
THE BOARD OF DIRECTOS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE 2009 EQUITY
COMPENSATION PLAN.
23
PROPOSALS FOR 2010 ANNUAL MEETING
Any proposal that a shareholder wishes to have presented at the next
annual meeting of shareholders, to be held in 2010, must be received no later
than December 24, 2009. It is urged that any such proposals be sent by certified
mail, return receipt requested to the Company, Attn: Keith Winchester, Executive
Vice President.
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented for
action at the meeting other than as set forth herein. However, if any other
matters properly come before the Meeting, or any adjournment thereof, the person
or persons voting the proxies will vote them in accordance with their best
judgment.
24
Exhibit A
Article III of the Certificate of Incorporation is deleted in its entirety and
replaced as follows:
"(A) The number of directors constituting the entire
Board of Directors shall be governed by the Bylaws of the
Corporation. The Board of Directors shall be divided into
three (3) classes, as nearly identical in number as the then
total number of directors constituting the entire board
permits, with the term of office of one class expiring each
year. Upon adoption of this provision, the Board shall select
the class into which each Director is assigned. At the first
annual meeting of stockholders after adoption of this
provision, directors of the first class shall be elected to
hold office for a term expiring at the next succeeding annual
meeting, directors of the second class shall be elected to
hold office for a term expiring at the second succeeding
annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third
succeeding annual meeting. Any vacancies in the Board of
Directors for any reason, and any directorships resulting from
any increase in the number of directors, may be filled by the
Board of Directors, acting by a majority of the directors then
in office, although less than a quorum, and any directors so
chosen shall hold office until the next election of the class
for which such directors shall have been chosen and until
their successors shall be elected and qualified. At each
annual meeting of stockholders the successors to the class of
directors whose term shall then expire shall be elected to
hold office for a term expiring at the third succeeding annual
meeting.
A new Paragraph (B) to Article III to the Certificate of Incorporation is added
to read in its entirety as follows
(B) None of the present or future directors of the
Corporation may be removed without cause by the shareholders
of the Corporation. The term "cause" as used herein is defined
to mean (i) conviction of the director of a felony, (ii)
declaration by order of a court that the director is of
unsound mind; (iii) breach of fiduciary duty involving
personal profit which is proven by clear and convincing
evidence to have been committed in bad faith; or (iv)
violation of any final cease and desist order issued by any
regulatory agency having jurisdiction over the Corporation or
its business. The Board of Directors shall have the power to
remove directors and to suspend directors pending a final
determination that cause exists for removal.
25
Exhibit B
A new Article X of the Certificate of Incorporation is added to read in its
entirety as follows:
"(A) No proposed transaction resulting in a Business
Combination (as defined below) shall be valid unless first
approved by the affirmative vote, cast in person or by proxy,
of the holders of record of at least seventy-five percent
(75%) of the outstanding shares of the capital stock of the
Corporation entitled to vote thereon; provided, however, that
if any such action has been approved prior to the vote of
shareholders by a majority of the Corporation's Board of
Directors, the affirmative vote of the holders of a majority
of the outstanding shares of capital stock then entitled to
vote on such matters shall be required.
(B) This Article X may not be amended except by the
affirmative vote, cast in person or by proxy, of the holders
of record of at least seventy-five percent (75%) of the
outstanding shares of the capital stock of the Corporation
entitled to vote thereon.
(C) "Business Combination" as used herein shall mean
any of the following proposed transactions, when entered into
by the Corporation or a subsidiary of the Corporation with, or
upon a proposal by or on behalf of, any third party or a
related entity:
(i) the merger or consolidation of the
Corporation or any subsidiary of the Corporation;
(ii) the sale, exchange, transfer or other
disposition (in one or a series of transactions) of
substantially all of the assets of the Corporation or
any subsidiary of the Corporation; or
(iii) any offer for the exchange of
securities of another entity for the securities of
the Corporation."
26
Exhibit C
A new Article XI of the Certificate of Incorporation is added to read in its
entirety as follows:
"No action required or permitted to be taken at a meeting of
the shareholders may be taken upon the written consent of the
shareholders without a meeting, without prior notice and
without a vote to authorize such action, except by the
unanimous consent of the shareholders."
27
EXHIBIT D
A new Article XII of the Certificate of Incorporation is added to read in its
entirety as follows:
"A quorum for the transaction of any business at an Annual or
Special Meeting shall consist of Thirty Three and One-Third
(1/3) Percent (33.33%) of the voting power of all shares of
stock and/or other voting securities then outstanding which
are present in person or by proxy, unless a separate vote by
class or series or classes or series is required in which case
at least Thirty Three and One-Third (1/3) Percent (33.33%) of
the voting power of each such class or series must be present
in person or by proxy to constitute a quorum for the
transaction of any business.
Unless otherwise specified in the certificate or document
creating the series or class, the affirmative vote of the
majority of such quorum, in the aggregate or by class or by
series as the case may be, will be deemed the act of the
shareholders. If a statute requires that certain acts be
affirmed by a vote of a majority of all outstanding stock or
other voting securities, whether voting by class or series or
in the aggregate, the Board of Directors may specify in the
notice of the meeting that a quorum shall consist of not less
than a majority of the issued and outstanding shares of stock,
by class, series, or in the aggregate, as the case may be."
28
EXHIBIT E
Article V of the Certificate of Incorporation is deleted in its entirety and
replaced as follows:
"(A) The total authorized capital stock of the
Corporation shall be 11,000,000 shares, consisting of
10,000,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock which may be issued in one or more classes or
series. The shares of Common Stock and the shares of Preferred
Stock of each class or series shall be without nominal or par
value, except that the amendment authorizing the initial
issuance of any class or series of Preferred Stock, adopted by
the Board of Directors as provided herein, may provide that
shares of any class or series shall have a specified par value
per share, in which event all of the shares of such class or
series shall have the par value per share so specified.
(B) The Board of Directors of the Corporation is
expressly authorized from time to time to adopt and to cause
to be executed and filed without further approval of the
shareholders, amendments to this Certificate of Incorporation
authorizing the issuance of one or more classes or series of
Preferred Stock for such consideration as the Board of
Directors may fix. In an amendment authorizing any class or
series of Preferred Stock, the Board of Directors is expressly
authorized to determine:
(1) The distinctive designation of the class
or series and the number of shares which will
constitute the class or series, which number may be
increased or decreased (but not below the number of
shares then outstanding in that class or above the
total shares authorized herein) from time to time by
action of the Board of Directors;
(2) The dividend rate of the class or
series, whether dividends will be cumulative, and, if
so, from what date or dates;
(3) The price or prices at which, and the
terms and conditions on which, the shares of the
class or series may be redeemed at the option of the
Corporation;
(4) Whether or not the shares of the class
or series will be entitled to the benefit of a
retirement or sinking fund to be applied to the
purchase or redemption of such shares and, if so
entitled, the amount of such fund and the terms and
provisions relative to the operation thereof;
(5) Whether or not the shares of the class
or series will be convertible into, or exchangeable
for, any other shares of stock of the Corporation or
other securities, and if so convertible or
exchangeable, the conversion price or prices, or the
rates of exchange, and any adjustments thereof, at
which such conversion or exchange may be made, and
any other terms and conditions of such conversion or
exchange;
(6) The rights of the shares of the class or
series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation;
(7) Whether or not the shares of the class
or series will have priority over, parity with, or be
junior to the shares of any other class or series in
any respect, whether or not the shares of the class
or series will be entitled to the benefit of
limitations restricting the issuance of shares of any
other class or series having priority over or on
parity with the shares of such class or series and
whether or not the shares of the class or series are
entitled to restrictions on the payment of dividends
on, the making of other distributions in respect of,
and the purchase or redemption of shares of any other
class or series of Preferred Stock and/or Common
Stock ranking junior to the shares of the class or
series;
29
(8) Whether the class or series will have
voting rights, in addition to any voting rights
provided by law, and if so, the terms of such voting
rights; and
(9) Any other preferences, qualifications,
privileges, options and other relative or special
rights and limitations of that class or series."
30
EXHIBIT F
PROPOSED
CORNERSTONE FINANCIAL CORPORATION
2009 EQUITY COMPENSATION PLAN
Section 1. Purpose
The Cornerstone Financial Corporation 2009 Equity Compensation Plan
(the "Plan") is hereby established to foster and promote the long-term success
of Cornerstone Financial Corporation (the "Company"), the holding company of
Cornerstone Bank (the "Bank"), and its shareholders by providing members of
management, including employees and management officials, with an equity
interest in the Company. The Plan will assist the Company in attracting and
retaining the highest quality of experienced persons to serve as employees and
Directors and in aligning the interests of such persons more closely with the
interests of the Company's shareholders by encouraging such parties to maintain
an equity interest in the Company.
Section 2. Definitions
Capitalized terms not specifically defined elsewhere herein
shall have the following meaning:
"Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any rules and regulations promulgated thereunder.
"Award" means the grant of Options or a Restricted Stock Award
hereunder.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated thereunder.
"Common Stock" or "Stock" means the common stock, no par
value per share, of the Company.
"Company" means Cornerstone Financial Corporation and any
present or future subsidiary or parent corporations of Cornerstone Financial
Corporation (as defined in Section 424 of the Code) or any successor to such
corporations.
"Disability" shall mean the Participant's inability for a
period of three (3) consecutive months, or for six (6) months during any twelve
(12) month period, to perform the requirements of the Participant's position
with the Company due to physical or mental impairment; provided, however, with
respect to a Participant who has been granted an Incentive Stock Option such
term shall have the meaning set forth in Section 422(c)(6) of the Code. For
purposes of Restricted Stock Awards under Section 8, "Disability" shall be as
defined in Section 8.3(a)(1). The determination of whether a Disability exists
will be made by the Board.
"Fair Market Value" means, with respect to shares of Common
Stock, the fair market value as determined by the Board in good faith and in a
manner established by the Board from time to time, taking into account such
factors as the Board shall deem relevant, including the book value of the Common
Stock and, to the extent there is an established trading market for the Common
Stock, the market value of the Common Stock.
"Incentive Stock Option" means an option to purchase shares of
Common Stock granted to a Participant under the Plan which is intended to meet
the requirements of Section 422 of the Code.
"Management Official" means an employee of the Company, a
non-employee member of the Board, a member of any advisory Board or any other
service provider to the Company.
"Non-Qualified Stock Option" means an option to purchase
shares of Common Stock granted to a Participant under the Plan which is not
intended to be an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Non-Qualified
Stock Option granted hereunder.
31
"Participant" means a Management Official selected by the
Board to receive an Option or Restricted Stock Award under the Plan.
"Plan" means the Cornerstone Financial Corporation 2009 Equity
Compensation Plan.
"Restricted Stock Award" means a grant of shares of Common Stock
pursuant to Section 8 hereof.
"Termination for Cause" means termination because of
Participant's intentional failure to perform stated duties, personal dishonesty,
willful violation of any law, rule regulation (other than traffic violations or
similar offenses) or final cease and desist order issued by any regulatory
agency having jurisdiction over the Participant or the Company.
Section 3. Administration
(a) The Plan shall be administered by the Board. Among other
things, the Board shall have authority, subject to the terms of the Plan, to
grant Awards, to determine the type of Award granted, to determine the
individuals to whom and the time or times at which Awards may be granted, to
determine whether Options are to be Incentive Options or Non-Qualified Stock
Options (subject to the requirements of the Code, which provide that only
employees may receive Incentive Options and subject to the limitation contained
in Section 5 regarding the number of Non-Qualified Stock Options which may be
granted), to determine the terms and conditions of any Award granted hereunder,
including whether to impose any vesting period, and if the Award is an Option,
the exercise price thereof, subject to the requirements of this Plan.
(b) Subject to the other provisions of the Plan, the Board
shall have authority to adopt, amend, alter and repeal such administrative
rules, guidelines and practices governing the operation of the Plan as it shall
from time to time consider advisable, to interpret the provisions of the Plan
and any Award and to decide all disputes arising in connection with the Plan.
The Board may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any grant agreement in the manner and to the
extent it shall deem appropriate to carry the Plan into effect, in its sole and
absolute discretion. The Board's decision and interpretations shall be final and
binding. Any action of the Board with respect to the administration of the Plan
shall be taken pursuant to a majority vote or by the unanimous written consent
of its members.
(c) The Board may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent.
Section 4. Eligibility and Participation
Management Officials of the Company shall be eligible to
participate in the Plan. The Participants under the Plan shall be selected from
time to time by the Board, in its sole discretion, from among those eligible,
and the Board shall determine in its sole discretion the numbers of shares to be
covered by the Award or Awards granted to each Participant. Options intended to
qualify as Incentive Stock Options shall be granted only to persons who are
eligible to receive such options under Section 422 of the Code; i.e., employees
of the Company.
Section 5. Shares of Stock Available for Options
(a) The maximum number of shares of Common Stock which may be
issued under the Plan is 154,425 subject to the adjustments as provided in this
Section 5 and Section 10, to the extent applicable. If an Award granted under
this Plan expires or terminates before exercise or is forfeited for any reason,
without a payment in the form of Common Stock being granted to the Participant,
the shares of Common Stock subject to such Award, to the extent of such
expiration, termination or forfeiture, shall again be available for subsequent
Award grant under the Plan.
(b) In the event that any stock dividend, stock split, reverse
stock split or combination, extraordinary cash dividend, creation of a class of
equity securities, recapitalization, reclassification, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below Fair
Market Value, or other similar transaction affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be granted or made available under the Plan to Participants, the
Board shall proportionately and appropriately adjust equitably any or all of (i)
the maximum number and kind of shares of Common Stock in respect of which Awards
may be granted under the Plan to Participants, (ii) the number and kind of
shares of Common Stock subject to outstanding Options held by Participants, and
(iii) the exercise price with respect to any Options held by Participants,
without changing the aggregate purchase price as to which such Options remain
exercisable, and if considered appropriate, the Board may make provision for a
cash payment with respect to any outstanding Options held by a Participant,
provided that no adjustment shall be made pursuant to this Section if such
adjustment would cause the Plan to fail to comply with Section 422 of the Code
with regard to any Incentive Stock Options granted hereunder or fail to comply
with the requirements of Rule 16b-3 under the Act or any successor or
replacement regulation. No fractional Shares shall be issued on account of any
such adjustment.
32
(c) Any adjustments under this Section will be made by the
Board, whose determination as to what adjustments, will be made and the extent
thereof will be final, binding and conclusive.
Section 6. Non-Qualified Stock Options
6.1 Grant of Non-Qualified Stock Options.
Subject to the provisions hereof, the Board may, from time to
time, grant Non-Qualified Stock Options to Participants upon such terms and
conditions as the Board may determine, and may grant Non-Qualified Stock Options
in exchange for and upon surrender of previously granted Options under this
Plan. Non-Qualified Stock Options granted under this Plan are subject to the
following terms and conditions:
(a) Price. The purchase price per share of Common Stock
deliverable upon the exercise of each Non-Qualified Stock Option shall be
determined by the Board on the date the option is granted. The purchase price
shall not be less than one hundred percent (100%) of the Fair Market Value of
the Common Stock on the date of grant or the par value of the Common Stock,
whichever is greater. Shares may be purchased only upon full payment of the
purchase price.
(b) Terms of Options. The term during which each Non-Qualified
Stock Option may be exercised shall be determined by the Board, but in no event
shall a Non-Qualified Stock Option be exercisable in whole or in part more than
ten (10) years from the date of grant.
(c) Termination of Service. Except as provided herein, unless
otherwise determined by the Board, upon the termination of the service of a
Participant who is not an employee for any reason other than Disability, death
or Termination for Cause, the Participant's Non-Qualified Stock Options shall be
exercisable only as to those shares which were immediately exercisable by the
participant at the date of termination and only for one (1) year from the date
of such termination. In the event of death or termination of service of a
Participant who is not an employee as a result of Disability of the Participant,
all Non-Qualified Stock Options held by the Participant, whether or not
exercisable at such time, shall be exercisable by the Participant or his legal
representatives, or beneficiaries of the Participant for one (1) year from the
date of such termination. Upon the termination of the service of a Participant
who is a common law employee of the Company for any reason other than
Disability, death or Termination for Cause, the Participant's Non-Qualified
Stock Options shall be exercised only as to those shares which were immediately
exercisable by the Participant at the date of termination and only for a period
of three (3) months following termination. In the event of death or termination
of service of a Participant who is a common law employee of the Company as a
result of Disability of any such Participant, all Non-Qualified Stock Options
held by such Participant, whether or not exercisable at such time, shall be
exercisable by the Participant or his legal representatives or beneficiaries of
the Participant for one (1) year or such longer period as is determined by the
Board following the date of the Participant's death or termination of service
due to Disability, provided that in no event shall the period extend beyond the
expiration of the Non-Qualified Stock Option term. Notwithstanding any other
provisions set forth herein to the contrary nor any provision contained in any
agreement relating to the award of an option, in the event of a Termination for
Cause, all of the Participant's Non-Qualified Stock Options shall immediately
expire upon such Termination for Cause and shall not be exercisable, regardless
of whether such Non-Qualified Stock Options were vested.
(d) Transferability. Except as provided for hereunder, no
Option granted under the Plan shall be assignable or transferable by a
Participant, and any attempted disposition thereof shall be null and void and of
no effect. Nothing contained herein shall be deemed to prevent transfers by will
or by the applicable laws of descent and distribution.
33
Section 7. Incentive Stock Options
7.1 Grant of Incentive Stock Options.
The Board may, from time to time, grant Incentive Stock
Options to Management Officials who are employees of the Company. Incentive
Stock Options granted pursuant to the Plan shall be subject to the following
terms and conditions:
(a) Price. The purchase price per share of Common Stock
deliverable upon the exercise of each Incentive Stock Option shall be not less
than one hundred percent (100%) of the Fair Market Value of the Common Stock on
the date of grant or the par value of the Common Stock, whichever is higher.
However, if a Participant owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of Common Stock, the purchase
price per share of Common Stock deliverable upon the exercise of each Incentive
Stock Option shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock on the date of grant or the par value of the
Common Stock, whichever is greater. Shares may be purchased only upon payment of
the full purchase price.
(b) Amounts of Options. Incentive Stock Options may be granted
to any Management Official who is an employee of the Company in such amounts as
determined by the Board. In the case of an option intended to qualify as an
Incentive Stock Option, the aggregate Fair Market Value (determined as of the
time the option first becomes exercisable) of the Common Stock with respect to
which Incentive Stock Options granted are exercisable for the first time by the
Participant during any calendar year shall not exceed $100,000. The provisions
of this Section 7.1(b) shall be construed and applied in accordance with Section
422(d) of the Code and the regulations, if any, promulgated thereunder. To the
extent an award is in excess of such limit, it shall be deemed a Non-Qualified
Stock Option. The Board shall have discretion to redesignate options granted as
Incentive Stock Options as Non-Qualified Options.
(c) Terms of Options. The term during which each Incentive
Stock Option may be exercised shall be determined by the Board, but in no event
shall an Incentive Stock Option be exercisable in whole or in part more than ten
(10) years from the date of grant. If at the time an Incentive Stock Option is
granted to an employee, the employee owns Common Stock representing more than
ten percent (10%) of the total combined voting power of the Company (or, under
Section 422(d) of the Code, is deemed to own Common Stock representing more than
ten percent (10%) of the total combined voting power of all such classes of
Common Stock, by reason of the ownership of such classes of Common Stock,
directly or indirectly, by or for any brother, sister, spouse, ancestor or
lineal descendent of such employee, or by or for any corporation, partnership,
estate or trust of which such employee is a shareholder, partner or
beneficiary), the Incentive Stock Option granted to such employee shall not be
exercisable after the expiration of five (5) years from the date of grant.
(d) Termination of Service. Except as provided in Section
7.1(e) hereof, upon the termination of a Participant's service for any reason
other than Disability, death or Termination for Cause, the Participant's
Incentive Stock Options which are then exercisable at the date of termination
may only be exercised by the Participant for a period of three (3) months
following termination. Notwithstanding any provisions set forth herein nor
contained in any Agreement relating to an award of an Option, in the event of
Termination for Cause all rights under the Participant's Incentive Stock Options
shall expire immediately upon termination, and such Incentive Stock Options
shall not be exercisable.
Unless otherwise determined by the Board, in the event of
death or termination of service as a result of Disability of any Participant,
all Incentive Stock Options held by such Participant, whether or not exercisable
at such time, shall be exercisable by the Participant or the Participant's legal
representatives or beneficiaries of the Participant for one (1) year following
the date of the participant's death or termination of employment as a result of
Disability. In no event shall the exercise period extend beyond the expiration
of the Incentive Stock Option term.
(e) Transferability. No Incentive Option granted under the
Plan shall be assignable or transferable by a Participant, except pursuant to
the laws of descent and distribution, and any attempted distribution shall be
null and void and of no effect.
34
(f) Compliance with Code. The options granted under this
Section 7 of the Plan are intended to qualify as incentive stock options within
the meaning of Section 422 of the Code, but the Company makes no warranty as to
the qualification of any option as an incentive stock option within the meaning
of Section 422 of the Code. A Participant shall notify the Board in writing in
the event that he disposes of Common Stock acquired upon exercise of an
Incentive Stock Option within the two-year period following the date the
Incentive Stock Option was granted or within the one-year period following the
date he received Common Stock upon the exercise of an Incentive Stock Option and
shall comply with any other requirements imposed by the Company in order to
enable the Company to secure the related income tax deduction to which it will
be entitled in such event under the Code.
Section 8. Restricted Stock
8.1 Grant of Restricted Stock Awards
(a) Grants. The Board may grant Restricted Stock Awards
entitling recipients to acquire shares of Common Stock, subject to the right of
the Company to require forfeiture of such shares from the Participant in the
event that conditions specified by the Board in the applicable Restricted Stock
Award are not satisfied prior to the end of the applicable restriction period or
periods established by the Board for such Restricted Award. During the
restricted period, shares constituting a Restricted Stock Award may not be
transferred, although a Participant shall be entitled to exercise other indicia
of ownership, including the right to vote such shares and receive any dividends
declared on such shares.
(b) Terms and Conditions. Subject to Section 8.2, the Board
shall determine the terms and conditions of any such Restricted Stock Award,
including the conditions for forfeiture.
(c) Stock Certificates. The Company may cause shares issued as
part of a Restricted Stock Award to be issued in either book entry form or
certificated form. Shares issued in book entry form will be maintained in an
account at the Company's transfer agent, and only released to a Participant upon
satisfaction of any required restrictions. Any stock certificates issued in
respect of a Restricted Stock Award shall be registered in the name of the
Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
8.2 Distribution of Restricted Stock Awards
(a) Restricted Stock Awards shall not be distributed and the
restrictions pertaining to such award shall not expire earlier than -
(1) upon the completion or satisfaction of
the conditions specified by the Board in the Award;
(2) a Participant's separation from service;
(3) the date a Participant becomes disabled
(as defined in Section 8.3(b));
(4) upon the death of a Participant;
(5) a change in the ownership or effective
control of the Company, or in the ownership of a substantial portion of the
assets of the Company, as described in Section 10(c) or, if in conflict
therewith, to the extent necessary, by the Secretary of Treasury under
regulations issued under Code section 409A; or
35
(6) upon the occurrence of an unforeseeable
emergency.
(b) A payment of a Participant's vested interest in a
Restricted Stock Award may, in the discretion of the Board, be made in the event
of a Participant's Disability, upon the occurrence of a Change-in-Control (as
defined in the Grant Agreement evidencing any Award) or Unforeseeable Emergency
(as defined below). Payments in settlement of a Participant's vested interest in
a Restricted Stock Award shall be made as soon as practicable after such
occurrence or after the Participant otherwise vests in such award. For the
purposes of section 409A of the Code, the entitlement to a series of installment
payments will be treated as the entitlement to a single payment.
(c) Other provisions of the Plan notwithstanding, if, upon the
written application of a Participant, the Board determines that the Participant
has an unforeseeable emergency (as defined in Section 8.3(b)), the Board may, in
its sole discretion, direct the payment to the Participant of all or a portion
of the balance of his or her vested interest in a Restricted Stock Award in a
lump sum payment, provided that any such withdrawal shall be limited by the
Board to the amount reasonably necessary to meet the emergency, including
amounts needed to pay any income taxes or penalties reasonably anticipated to
result from the payment. No payment may be made to the extent that such
emergency is or may be relieved through reimbursement or compensation from
insurance or otherwise, by liquidation of the Participant's assets or to the
extent the liquidation of such assets would not cause severe financial hardship.
(d) The Board may not otherwise permit the acceleration of the
time or schedule of any vesting of a Restricted Stock award scheduled to be paid
pursuant to the Plan, unless such acceleration of the time or schedule is (i)
necessary to fulfill a domestic relations order (as defined in section
414(p)(1)(B) of the Code) or to comply with a certificate of divestiture (as
defined in section 1043(b)(2) of the Code), (ii) de minimis in nature (as
defined in regulations promulgated under section 409A of the Code), (iii) to be
used for the payment of FICA taxes on amounts deferred under the Plan, or (iv)
equal to amounts included in the federal personal taxable income of the
Participant under section 409A of the Code.
8.3 Definitions for Restricted Stock Awards
(a) For purposes of this Section 8, the following definitions
shall apply-
(1) "Disability" shall mean (i) the inability of a
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than twelve (12) months, or (ii) if the Participant is, by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than twelve (12) months, receiving income replacement benefits for a period of
not less than three (3) months under an accident and health plan covering
employees of the Company.
(2) "Unforeseeable Emergency" shall mean a severe
financial hardship to
the Participant resulting from an illness or accident of the Participant, the
Participant's spouse, or a dependent (as defined in Code section 152(a)) of the
Participant, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant.
Section 9. Extension
The Board may, in its sole discretion, extend the dates during
which all or any particular Option or Options granted under the Plan may be
exercised; provided, however, that no such extension shall be permitted if it
would cause Non-Qualified Stock Options or Incentive Stock Options issued under
the Plan to fail to comply with Section 409A or 422 of the Code. An election to
defer the lapse of restrictions on a Restricted Stock Award shall not take
effect until at least twelve (12) months after the date on which the election is
made and in the event that an election to defer the lapse of restrictions is
made other than in the event of death, disability or the occurrence of an
unforeseeable emergency, payment of such award must be deferred for a period of
not less than five (5) years from the date that restrictions would have
otherwise lapsed.
36
Section 10. General Provisions Applicable to Awards
(a) Each Award under the Plan shall be evidenced by a writing
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Board considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles.
(b) Each Award may be granted alone, in addition to or in
relation to any other Award. The terms of each Award need not be identical, and
the Board need not treat Participants uniformly. Except as otherwise provided by
the Plan or a particular Award, any determination with respect to an Award may
be made by the Board at the time of grant or at any time thereafter.
(c) In the event of a consolidation, reorganization, merger or
sale of all or substantially all of the assets of the Company, in each case in
which outstanding shares of Common Stock are exchanged for securities, cash or
other property of any other corporation or business entity or in the event of a
liquidation of the Company, the Board will provide for any one or more of the
following actions, as to outstanding Awards: (i) provide that such Awards shall
be assumed, or equivalent Awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), provided that any options
substituted for Incentive Stock Options shall meet the requirements of Section
424(a) of the Code, (ii) upon written notice to the Participants, provide that
all unexercised Options will terminate immediately prior to the consummation of
such transaction unless exercised (to the extent then exercisable) by the
Participant within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the Common Stock of
the Company will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the Participants equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to outstanding Options (to
the extent then exercisable at prices not in excess of the Merger Price) and (B)
the aggregate exercise price of all such outstanding Options in exchange for the
termination of such Options, or (iv) provide that all or any outstanding Awards
shall become exercisable in full, or that the restrictions on such Awards shall
lapse, immediately prior to such event.
(d) For purposes of the Plan, the following events shall not
be deemed a termination of service of a Participant:
(i) a transfer to the employment of the Company from
a subsidiary or from the Company to a subsidiary, or from one
subsidiary to another, or
(ii) an approved leave of absence for military
service or sickness, or for any other purpose approved by the
Company, if the Participant's right to reemployment is
guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or
if the Board otherwise so provides in writing.
(e) The Board may at any time, and from time to time, amend,
modify or terminate the Plan or any outstanding Award held by a Participant,
including substituting therefore another Award of the same or a different type
or changing the date of exercise or realization, provided that the Participant's
consent to each action shall be required unless the Board determines that the
action, taking into account any related action, would not materially and
adversely affect the Participant, and further provided that no amendment
increasing the number of shares subject to the Plan or decreasing the exercise
price for any Option provided for under the Plan may be effectuated without the
approval of the shareholders of the Company; provided, however, that no such
amendment or modification will be effective if such amendment or modification
would cause the Plan to fail to comply with the requirements of Rule 16b-3 under
the Act or any successor or replacement regulation.
(f) The Board may, in its sole discretion, terminate the Plan
(in whole or in part) with respect to one or more Participants and distribute to
such affected Participants their vested interest in any Restricted Stock award
in a lump sum as soon as reasonably practicable following such termination, but
if, and only if, (i) all nonqualified defined contribution deferred compensation
plans maintained by the Company and its Affiliates are terminated, (ii) no
payments other than payments that would be payable under the terms of the Plan
if the termination had not occurred are made within twelve (12) months of the
termination of the Plan, (iii) all payments of the vested interest in Restricted
Stock awards are made within twenty-four (24) months of the termination of the
Plan, and (iv) the Company acknowledges to the Participants that it will not
adopt any new nonqualified defined contribution deferred compensation plans at
any time within five (5) years following the date of the termination of the
Plan.
37
Section 11. Miscellaneous
(a) No person shall have any claim or right to be granted an
Award, and the grant of an Award shall not be construed as giving a Participant
the right to continued employment or service on the Company's Board. The Company
expressly reserves the right at any time to dismiss a Participant free from any
liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) Nothing contained in the Plan shall prevent the Company
from adopting other or additional compensation arrangements.
(c) Subject to the provisions of the applicable Award, no
Participant shall have any rights as a shareholder (including, without
limitation, any rights to receive dividends, or non-cash distributions with
respect to such shares) with respect to any shares of Common Stock to be
distributed under the Plan until he or she becomes the holder thereof.
(d) Notwithstanding anything to the contrary expressed in this
Plan, any provisions hereof that vary from or conflict with any applicable
Federal or State securities laws (including any regulations promulgated
thereunder) shall be deemed to be modified to conform to and comply with such
laws.
(e) No member of the Board shall be liable for any action or
determination taken or granted in good faith with respect to this Plan nor shall
any member of the Board be liable for any agreement issued pursuant to this Plan
or any grants under it. Each member of the Board shall be indemnified by the
Company against any losses incurred in such administration of the Plan, unless
his action constitutes serious and willful misconduct.
(f) Awards may not be granted under the Plan more than ten
(10) years after approval of the Plan by the Company's Shareholders, but then
outstanding Awards may extend beyond such date.
(h) To the extent that State laws shall not have been
preempted by any laws of the United States, the Plan shall be construed,
regulated, interpreted and administered according to the other laws of the State
of New Jersey.
(i) A Participant in the Plan shall have no right to
receive payment (in
any form) with respect to his or her restricted Stock award until legal and
contractual obligations of the Company relating to establishment of the Plan and
the making of such payments shall have been complied with in full. In addition,
the Company shall impose such restrictions on stock delivered to a Participant
hereunder and any other interest constituting a security as it may deem
advisable in order to comply with the Securities Act of 1933, as amended, the
requirements of any stock exchange or automated quotation system upon which the
stock is then listed or quoted, any applicable state securities laws, any
provision of the Company's certificate of incorporation or bylaws, or any other
law, regulation, or binding contract to which the Company is a party.
38
CORNERSTONE FINANCIAL CORPORATION
REVOCABLE PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS
May 20, 2009
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints the Board of Directors of Cornerstone
Financial Corporation (the "Company"), and each of them to vote all of the
shares of the Company standing in the undersigned's name at the Annual Meeting
of Shareholders of the Company, to be held at the corporate headquarters of the
Company, 6000 Midlantic Drive, Suite 120S, Mt. Laurel, New Jersey 08054, and at
any adjournment thereof. The undersigned hereby revokes any and all proxies
heretofore given with respect to such meeting.
The Board of Directors recommends approval of the following proposals.
1. Election of the following seven (7) nominees to each serve on
the Board of Directors for the terms set forth in the
accompanying proxy statement: George W. Matteo, Jr., J. Mark
Baiada, J. Richard Carnall, Gaetano P. Giordano, Robert A.
Kennedy, Jr., Ronald S. Murphy, and Bruce Paparone.
| | FOR ALL NOMINEES
TO WITHHOLD AUTHORITY FOR ANY OF THE ABOVE NAMED NOMINEES,
PRINT THE NOMINEE'S NAME(S) ON THE LINE BELOW:
-----------------------------------------------------------
| | WITHHOLD AUTHORITY FOR ALL NOMINEES
2. An Amendment to the Company's Certificate of Incorporation to
classify the Board of Directors into three classes and to
prevent removal of the Directors by shareholders without
cause;
| | FOR
| | AGAINST
| | ABSTAIN
39
3. An Amendment to the Company's Certificate of Incorporation to
provide that approval of any merger, consolidation or sale of
substantially all of the assets of the Company which has not
been approved in advance by the Board of Directors of the
Company will require the affirmative vote of 75% of the
Company's outstanding shares of common stock and to further
require an affirmative vote of 75% of the outstanding common
stock to amend this super-majority voting provision;
| | FOR
| | AGAINST
| | ABSTAIN
4. An Amendment to the Company's Certificate of Incorporation to
require that any shareholder action taken by written consent
rather than at a meeting be by unanimous consent;
| | FOR
| | AGAINST
| | ABSTAIN
5. An Amendment to the Company's Certificate of Incorporation to
setting the quorum for action by shareholders at a meeting at
one-third (1/3) of the issued and outstanding shares;
| | FOR
| | AGAINST
| | ABSTAIN
6. An Amendment to the Company's Certificate of Incorporation to
provide for 1,000,000 shares of series preferred stock, the
terms, conditions and designations of which may be set by the
Board of Directors at the time of issuance;
| | FOR
| | AGAINST
| | ABSTAIN
7. The approval of Cornerstone Financial Corporation 2009 Equity
Compensation Plan; and
| | FOR
| | AGAINST
| | ABSTAIN
40
8. Such other business as shall properly come before the Annual
Meeting.
Dated: , 2009.
--------------------------
---------------------------
Signature
---------------------------
Signature
(Please sign exactly as your name appears. When signing as an executor,
administrator, guardian, trustee or attorney, please give your title as such. If
signer is a corporation, please sign the full corporate name and then an
authorized officer should sign his name and print his name and title below his
signature. If the shares are held in joint name, all joint owners should sign.)
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE.