DEF 14A
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ffinnotice2001.txt
SCHEDULE 14A INFORMATION
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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[ ] Preliminary Proxy Statement
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Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
First Financial Bankshares, Inc.
(Name of Registrant As Specified in its Charter)
________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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FIRST FINANCIAL BANKSHARES, INC.
400 Pine Street
Abilene, Texas 79601
(915) 627-7155
NOTICE OF THE 2002 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 2002
To our shareholders:
We cordially invite you to attend the annual meeting of our shareholders,
which will be held in the Abilene Civic Center, 1100 North 6th Street, Abilene,
Texas, at 10:30 a.m., Abilene time, on Tuesday, April 23, 2002, for the
following purposes:
(1) To elect 14 directors;
(2) To approve a proposal to adopt an incentive stock option plan for our
key employees; and
(3) To act on such other business as may properly come before the
annual meeting, or any adjournment thereof. Your board of
directors is not aware of any other business to come before
the meeting.
Only shareholders of record at the close of business on March 15, 2002, are
entitled to notice of and to vote at the annual meeting or any continuation of
the meeting if it is adjourned.
We have included, along with this notice and proxy statement, our 2001
annual report, which describes our activities during 2001 and contains our Form
10-K for the year ended December 31, 2001. The annual report does not form any
part of the material for solicitation of proxies.
We hope that you will be present at the annual meeting and the luncheon to
be held immediately afterward. We respectfully urge you, whether or not you plan
to attend the annual meeting, to sign, date and mail the enclosed proxy card in
the envelope provided in order to eliminate any question of your vote being
counted. You can revoke your proxy in writing at any time before the annual
meeting, so long as your written request is received by our Corporate Secretary
before your proxy is voted. Alternatively, if you submitted a proxy and attend
the annual meeting in person, you may revoke the proxy and vote in person on all
matters submitted at the annual meeting.
By order of the Board of Directors,
KENNETH T. MURPHY, Chairman
March 29, 2002
FIRST FINANCIAL BANKSHARES, INC.
400 Pine Street
Abilene, Texas 79601
(915) 627-7155
PROXY STATEMENT
2002 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 2002
INTRODUCTION
Your board of directors hereby solicits your proxy for use at the 2002
annual meeting of our shareholders and any continuation of this meeting if it is
adjourned. The annual meeting will be held in the Abilene Civic Center, 1100
North 6th Street, Abilene, Texas, at 10:30 a.m., Abilene time, on Tuesday, April
23, 2002.
Our principal executive office is located at 400 Pine Street, Abilene,
Texas 79601. Our telephone number is (915) 627-7155.
We mailed this proxy statement and the accompanying proxy card on March 26,
2002. The date of this proxy statement is March 29, 2002.
VOTING OF SECURITIES
Record Date
Your board of directors has established the close of business on March 15,
2002, as the record date for determining the shareholders entitled to notice of,
and to vote at, the annual meeting. On the record date, we had 12,345,224 shares
of our common stock outstanding.
Quorum
In order for any business to be conducted at the annual meeting, a quorum
consisting of shareholders having voting rights with respect to a majority of
our outstanding common stock on the record date must be present in person or by
proxy. Shares that are represented at the annual meeting but abstain from voting
on any or all matters and shares that are "broker non-votes" will be counted in
determining whether a quorum is present at our annual meeting. A "broker
non-vote" occurs when a broker or nominee votes on some matters on the proxy
card but not others because he does not have authority to do so.
Required Vote
The affirmative vote of a majority of the shares cast at the annual meeting
is required to elect a nominee for director. Therefore, if you abstain from
voting or withhold authority to vote in the election of a director, your
abstention or withholding will have the effect of a vote against such director
because the election requires the affirmative vote of a majority of the shares
entitled to vote. To approve the proposal to adopt an incentive stock option
plan for key employees of the Company and its subsidiaries the affirmative vote
of a majority of votes cast with respect to this proposal is required.
Abstentions will be included in determining the number of votes cast. Therefore,
if you return your proxy card and expressly abstain from voting for this
proposal, your abstention will have the effect of a vote against the proposal
because the proposal requires the affirmative vote of a majority of votes cast.
Broker non-votes will be treated as present with respect to each applicable
proposal. But, because broker non-votes are not votes cast for, against, or as
expressly abstained, they will have no effect on the outcome of any proposal.
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Shareholder List
A list of shareholders entitled to vote at the annual meeting, which will
be arranged in alphabetical order and which will show each shareholder's address
and the number of shares registered in his or her name, will be open to any
shareholder to examine for any purpose related to the annual meeting. Any
shareholder may examine this list during ordinary business hours commencing
March 29, 2002, and continuing through the date of the annual meeting at our
principal office, 400 Pine Street, Abilene, Texas 79601.
SOLICITATION AND REVOCABILITY OF PROXIES
Solicitation
We will bear the expense to solicit proxies, which will include
reimbursement of expenses incurred by brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation materials regarding the annual
meeting to beneficial owners. Our officers may further solicit proxies from
shareholders and other persons by telephone or oral communication. We will not
pay these officers any extra compensation for participating in this
solicitation.
Proxies and Revocation
Each executed and returned proxy card will be voted according to the
directions indicated on that proxy card. If no direction is indicated, the proxy
will be voted according to the board of directors' recommendations, which are
contained in this proxy statement. Your board of directors does not intend to
present, and has no information that others will present, any business at the
annual meeting that requires a vote on any other matter. If any other matter
requiring a vote properly comes before the annual meeting, the proxies will be
voted in the discretion of the proxyholders named on the proxy.
Each shareholder giving a proxy has the power to revoke it at any time
before the shares of our common stock it represents are voted. This revocation
is effective upon receipt, at any time before the annual meeting is called to
order, by our Corporate Secretary of either (i) an instrument revoking the proxy
or (ii) a duly executed proxy bearing a later date than the preceding proxy.
Additionally, a shareholder may change or revoke a previously executed proxy by
voting in person at the annual meeting.
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PROPOSAL 1
ELECTION OF DIRECTORS
General
Your board of directors currently consists of 15 directors. At the annual
meeting, 14 directors are to be elected, each for a term of one year. Under our
bylaws, an individual may not stand for election or reelection as a director
upon attaining 72 years of age, unless he owns at least 1% of the outstanding
shares of our common stock and is less than 75 years of age. While our bylaws
fix the number of directors at a number not less than three nor more than 30,
the board of directors has fixed the number of directors at 14. Although we do
not contemplate that any of the nominees will be unable to serve, if such a
situation arises before the annual meeting, the proxies will be voted to elect
any substitute nominee or nominees designated by your board of directors.
Nominees
The names and principal occupations of the nominees, together with the
length of service as a director and the number of shares of our common stock
beneficially owned by each of them on February 1, 2002, are as follows:
Shares of
Years as Bankshares Percent
Director Principal Occupation Beneficially of Shares
Name Age (1) During Last Five Years Owned Outstanding
---- --- --- ---------------------- ----- -----------
Joseph E. Canon 60 6 Executive Director, 6,987 0.06
Dodge Jones Foundation
Mac A. Coalson 62 6 Real Estate and Ranching 132,587 1.07
David Copeland 46 4 President, Shelton Family 6,401 0.05
Foundation
F. Scott Dueser 49 11 See "Executive Officers" on 109,823(2) 0.89
page 4
Derrell E. Johnson 62 2 Senior Vice President, Kimley- 23,157 0.19
Horn and Associates, Inc.
Kade L. Matthews 44 4 Ranching and Investments 97,032 0.79
Raymond A. McDaniel, Jr. 68 10 Investments 52,782 0.43
Bynum Miers 65 10 Ranching 28,902 0.23
Kenneth T. Murphy 64 31 See "Executive Officers" on 162,200(3) 1.31
page 4
James M. Parker 71 30 President, Parker Properties, 443,778 3.59
Inc.
Jack D. Ramsey, M.D. 71 5 Physician 121,521 0.98
Craig Smith 60 12 Chairman, President and Chief 69,413(4) 0.56
Executive Officer, Hereford
State Bank*
Dian Graves Stai 62 9 Investments 43,556 0.35
F. L. Stephens 64 4 Retired Chairman and Chief 22,000 0.18
Executive Officer, Town &
Country Food Stores, Inc.
Shares beneficially owned by all executive officers and directors** 1,339,577 10.85
*A bank subsidiary.
**See "Security Ownership of Certain Beneficial Owners and Management."
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(1) The years indicated are the approximate number of years each person has
continuously served as a director, or, prior thereto, of First National
Bank of Abilene, which became our wholly-owned subsidiary in April
1973, when all the then directors of First National Bank of Abilene
became our directors.
(2) Includes 3,300 shares of our common stock issuable upon exercise of
options presently exercisable or exercisable within 60 days of February
1, 2002.
(3) Includes 3,857 shares of our common stock issuable upon exercise of
options presently exercisable or exercisable within 60 days of February
1, 2002.
(4) Includes 818 shares of our common stock issuable upon exercise of
options presently exercisable or exercisable within 60 days of February
1, 2002.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE ELECTION OF EACH OF THESE NOMINEES.
Executive Officers
Set forth below are our executive officers, and the shares of our common
stock beneficially owned by each of them as of February 1, 2002:
Years Shares of
Served Bankshares Percent of
in Such Principal Occupation Beneficially Shares
Name Age Office Office During Past 5 Years Owned Outstanding
---- --- ------ ------ ------------------- ----- -----------
Kenneth T. Murphy 64 Chairman 15 years Chairman of Bankshares; 162,200 1.31
Chairman, President and
Chief Executive Officer
of Bankshares; Chairman,
First National Bank of
Abilene*
F. Scott Dueser 49 President and 1 President and Chief 109,823 0.89
Chief Executive Executive Officer of
Officer Bankshares; Chairman,
First National Bank of
Abilene*; Chairman,
President and Chief
Executive Officer, First
National Bank of
Abilene*; Executive Vice
President of Bankshares
Curtis R. Harvey 56 Executive Vice 11 years Executive Vice President 13,117 (1) 0.11
President and and Chief Financial
Chief Financial Officer of Bankshares
Officer
Ronald E. Schneider 56 Executive Vice 3 years Executive Vice President 6,321 (2) 0.05
President of Bankshares; Chairman,
President and Chief
Executive Officer, First
Financial Bank, National
Association*
*A bank subsidiary.
(1) Includes 1,630 shares of our common stock issuable upon exercise of options
presently exercisable or exercisable within 60 days of February 1, 2002.
(2) Includes 3,347 shares of our common stock issuable upon exercise of options
presently exercisable or exercisable within 60 days of February 1, 2002.
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MANAGEMENT
Amounts and prices related to shares of our common stock have been adjusted
to give effect to all stock splits and stock dividends.
Executive Compensation
The following table provides individual compensation information on the
chief executive officer and our four most highly compensated officers.
Summary Compensation Table
Long Term
Compensation
Annual Awards
Compensation ------------------------ All Other
------------ Securities Compensation
Name and Principal Position Year Salary($) Bonus($) Underlying Options(#)(1) ($)(2)
--------------------------- ---- ------------------ ------------------------ --------
Kenneth T. Murphy, Chairman of the Board
First Financial Bankshares, Inc. 2001 332,000 - - 17,729
2000 422,318 5,645 4,688 20,897
1999 386,500 11,120 - 19,695
F. Scott Dueser, President and Chief 2001 310,000 - - 20,521
Executive Officer 2000 252,642 - 3,125 21,981
First Financial Bankshares, Inc. 1999 233,333 - - 20,801
Ronald E. Schneider, Chairman, President 2001 186,000 - - 4,297
and Chief Executive Officer 2000 175,508 - 1,875 13,651
First Financial Bank, National Association 1999 158,333 - - 19,129
Curtis R. Harvey, Executive Vice President 2001 167,000 - - 17,417
and Chief Financial Officer 2000 158,500 - 1,875 19,412
First Financial Bankshares, Inc. 1999 151,000 - - 18,386
Craig Smith, Chairman, President 2001 158,500 - - 3,381
and Chief Executive Officer 2000 155,000 - 1,000 4,100
Hereford State Bank 1999 155,000 - - 18,497
(1) Adjusted for stock splits and stock dividends.
(2) Represents the contributions to our profit sharing plan.
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The following table sets forth certain information concerning options
exercised during the last fiscal year by the named executive officers.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year End (#) at Fiscal Year End ($)(1)
Acquired on Value --------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Kenneth T. Murphy 4,311 $20,043 - 6,201 - $44,846
F. Scott Dueser - - 860 6,150 $13,072 $31,573
Ronald E. Schneider 1,292 $19,691 2,147 3,250 $32,634 $18,579
Curtis R. Harvey 1,875 $26,963 430 3,250 $6,536 $18,579
Craig Smith 860 $12,814 412 1,619 $342 $9,814
(1) Based upon the closing price per share of our common stock of $30.10 on December 31, 2001.
Compensation pursuant to Plans
General
We have both a defined benefit pension plan and a profit sharing plan. An
employee is eligible to become a participant in the pension plan and profit
sharing plan on the January 1 coincident with or immediately following the date
his employment begins. With our subsidiary banks, we adopted a flexible spending
account benefit plan for all employees that became effective in 1988. First
Financial Bank, National Association, Cleburne, adopted these plans effective in
1991. Stephenville Bank & Trust Co. adopted these plans effective in 1993. San
Angelo National Bank adopted the pension and flexible spending account benefit
plan effective in 1994 and profit sharing plan effective in 1995. Weatherford
National Bank adopted these plans effective in 1996. First Financial Bank,
National Association, Southlake (formerly Texas National Bank) adopted all
benefit plans effective in 1998. City National Bank adopted all benefit plans
effective in 2001.
Profit Sharing Plan
We, and each of our subsidiary banks that participates in the profit
sharing plan, determine on an annual basis the contribution that it will make to
the profit sharing plan from such employer's operating profits. Contributions
under the profit sharing plan are administered by the administrative committee
for the profit sharing, pension and flexible spending account benefit plans for
the exclusive benefit of plan participants under the provisions of a trust
agreement. Under the profit sharing plan, eligible employees may contribute
between 1% and 5% of their eligible earnings, although contributions by
employees are not required as a condition of participation. Each participating
employer's annual contribution is allocated among the accounts of the active
plan participants employed by such employer, in the ratio that each
participant's compensation bears to the total compensation of all participants
of such employer. Compensation is defined as the total amount paid to an
employee during the year, including bonuses, commissions, overtime pay, and
salary reductions under the flexible spending account benefit plan, but
excluding reimbursed expenses, director fees, group insurance benefits and
pension and profit sharing contributions. However, the Internal Revenue Service
limits the compensation amount used to calculate a participant's benefit to a
maximum of $170,000. Additionally, the annual addition amount (which is the
aggregate of employer and employee contributions) that may be allocated to a
participant is limited to $35,000.
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The profit sharing plan provides for benefits to vest (become
nonforfeitable) in graduated percentages for the first six years of
participation, with benefits being fully vested after seven years of credited
service. Generally, an employee's benefit at normal retirement will be the
contributions allocated to his account while a participant, increased by gains
and decreased by losses from investments of the trust, and increased by any
forfeitures allocated to his account. An employee is always fully vested with
respect to any voluntary contributions he makes, and death or disability of a
participant while employed by us or one of our participating subsidiary banks
results in immediate full vesting with respect to employer contributions. If a
participant terminates employment for any other reason, the total amount of his
employee contribution account and the vested portion of his employer
contribution account are distributed to him.
Pension Plan
The pension plan requires annual contributions sufficient to provide the
pension benefits accruing to employees under the pension plan. The annual
benefit for a participant in the pension plan who retires on his normal
retirement date is the accrued benefit (as defined in the pension plan) at
December 31, 1988, plus 1.25% of average compensation multiplied by years of
service from January 1, 1989. "Average compensation" is the average compensation
during the 10 years immediately preceding the date of determination.
Compensation means the total amount paid to an employee during the year
including bonuses, commissions, and overtime pay, but excluding reimbursed
expenses, director fees, group insurance benefits and pension and profit sharing
contributions. There are provisions in the pension plan for early retirement
with reduced benefits. There is no vesting of benefits until a participant has
five or more years of credited service with participating employers. Full
vesting (100%) occurs upon the completion of five years of credited service or
upon reaching age 65 without regard to credited service.
The pension plan is subject to the minimum funding requirements of the
Employee Retirement Income Security Act of 1974, or ERISA. As of December 31,
2001, we believe there was no present funding deficiency. Our contributions to
the pension plan, including those of our participating subsidiary banks, have
been $491,681 in 1996; $557,915 in 1997; $589,238 in 1998; $621,030 in 1999;
$754,416 in 2000; and $739,092 in 2001.
The following table illustrates estimated retirement benefits under the
pension plan for persons in specified remuneration and years of service
categories, which benefits are payable annually for life (but in no event less
than 10 years). The benefits listed in the table below are not subject to any
deduction for social security or other offset amounts. This table does not
reflect any benefit that a participant may have accrued at December 31, 1988.
PENSION PLAN TABLE
Years of Service
----------------------------------------------------------
Remuneration 15 20 25 30 35
------------ ---------- ---------- ---------- ---------- ----------
$ 25,000 $ 4,688 $ 6,250 $ 7,813 $ 9,375 $ 10,938
50,000 9,375 12,500 15,625 18,750 21,875
75,000 14,063 18,750 23,438 28,125 32,813
100,000 18,750 25,000 31,250 37,500 43,750
125,000 23,438 31,250 39,063 46,875 54,688
150,000 28,125 37,500 46,875 56,250 65,625
175,000 32,813 43,750 54,688 65,625 76,563
200,000 37,500 50,000 62,500 75,000 87,500
As of December 31, 2001, under the pension plan, Mr. Murphy was credited
with 31 years of service, Mr. Dueser was credited with 25 years of service, Mr.
Smith was credited with 32 years of service, Mr. Harvey was credited with 11
years of service, and Mr. Schneider was credited with 9 years of service. The
covered compensation of each of these persons during 2001 was $170,000;
$170,000; $158,500; $167,000; and $170,000, respectively.
Flexible Spending Account Benefit Plan
Effective January 1, 1988, with our subsidiary banks we adopted a flexible
spending account benefit plan. An employee is eligible to become a participant
in this plan on the first day of the month following completion of two months of
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service. The flexible spending account benefit plan allows each participant to
redirect a portion of his/her salary, before taxes, to pay certain medical
and/or dependent care expenses.
Deferred Compensation Agreement
In 1992, your board of directors approved a deferred compensation
agreement, which was amended in 1995, between Mr. Murphy and us. We entered into
this agreement in recognition of Mr. Murphy's contribution to our success and as
an inducement to him to remain, subject to the discretion of your board of
directors, in our employ. This agreement provides that, following his retirement
in December 2002, or such later date as may be mutually agreed upon, we would
pay him, or his beneficiary, the sum of $8,750 per month for a period of 84
months. The monthly amount is considered to be an appropriate level of
supplemental income to partially offset Mr. Murphy's reduction in personal
income following retirement and is based on an analysis of the difference in
projected final year compensation and retirement compensation. The agreement
also provides for 70% vesting at age 62, 80% vesting at age 63, and 90% vesting
at age 64.
Executive Recognition Plan
In April 1996, our outside directors, who constituted a majority of your
board of directors, unanimously approved an executive recognition plan. This
plan enables the outside directors of the executive committee of the board of
directors, which functions as the compensation committee, to offer our key
executive officers and those of our subsidiary banks an executive recognition
agreement. Each of our named executive officers and the principal executive
officers of certain of our subsidiary banks have entered into executive
recognition agreements with us. Each executive recognition agreement provides
severance benefits for each executive officer if, within two years following a
change in control (as defined in the executive recognition agreements), his
employment with us or our subsidiary bank is terminated by us or the subsidiary
bank for any reason other than for cause (as defined in the executive
recognition agreements) (except for terminations as a result of the officer's
death, disability or retirement (as such terms are defined in the executive
recognition agreements)) or by the executive officer for good reason (as defined
in the executive recognition agreements). Such severance benefits provide that
the executive officer will receive a payment equal to a certain percentage (as
set forth in his executive recognition agreement) of his annual base salary
immediately preceding the date of termination and, for two years following the
date of termination, the continuation of all medical, life and disability
benefit plans covering the officer at no cost to the officer. With respect to
each of the named executive officers, the percentage of annual base salary to be
received upon a change in control pursuant to his executive recognition
agreement is as follows: 200% for Mr. Murphy, 200% for Mr. Dueser, 100% for Mr.
Smith, 200% for Mr. Harvey, and 200% for Mr. Schneider. The total severance
payment for the executive officer cannot, however, exceed the amount that would
cause such payment to be deemed a "parachute payment" under Section 280G of the
Internal Revenue Code.
Each executive recognition agreement has a term of two years, beginning
June 1, 2000. However, if a change in control occurs during the original term of
the executive recognition agreements, then the executive recognition agreements
will continue in effect for an additional period of two years following the
change in control. Similarly, if a second change in control occurs within two
years from the date of the first change in control, then the executive
recognition agreements will continue in effect for a period of two years from
the date of the second change in control.
Stock Option Plan
At the 1992 annual meeting of shareholders, our 1992 incentive stock option
plan was approved and adopted. The purposes of the stock option plan are to
attract and retain key employees and to encourage employee performance by
providing them with a proprietary interest in us through the granting of stock
options. The maximum aggregate number of shares of our common stock that may be
issued under the stock option plan is 351,986 subject to adjustment for stock
dividends and similar events. The stock option plan is administered by our stock
option committee. Only incentive stock options (as defined in the Internal
Revenue Code) may be granted under the stock option plan. Incentive stock
options granted under the stock option plan may be exercised solely by the
grantee, or in the case of the grantee's death or incapacity, by the grantee's
executors, administrators, guardians or other legal representatives and are not
assignable or transferable by a grantee. There were 3,700 options granted
subsidiary bank officers during 2001.
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Meetings of the Board of Directors
Your board of directors has four regularly scheduled meetings each year.
Each of the directors attended at least 75% of the meetings of the board of
directors and the committees of the board of directors on which such director
served.
Committees of the Board of Directors
Your board of directors has four committees. The functions and current
members of each committee are as follows:
Executive Committee. The executive committee acts for your board of
directors between board meetings, except to the extent limited by our bylaws or
Texas law. The current members are Messrs. Coalson, Dueser, McDaniel, Murphy,
Parker and Ramsey. The executive committee also functions as a nominating
committee with appropriate recommendations to the entire board of directors.
Outside directors who serve on the executive committee also function as our
compensation committee. The executive committee met five times during 2001 and,
among other things, considered and took action on matters relating to its
capacity as the compensation and nominating committee. In its capacity as
nominating committee, the executive committee will consider director nominations
from shareholders. There are no prescribed procedures that the shareholder must
follow to nominate a director.
Audit Committee. The audit committee reviews the scope and results of the
annual audit by our independent accountants, and receives and reviews internal
and external audit reports. Its members include Messrs. Coalson, Copeland,
McDaniel, Miers and Worthington. During 2001, the audit committee met four
times.
Administrative Committee for the Profit Sharing, Pension and Flexible
Spending Account Benefit Plans. This committee administers our profit sharing,
pension and flexible spending account benefit plans. Current members include
Messrs. Canon, Matthews, Parker and Stephens. During 2001, the committee met two
times.
Stock Option Committee. The stock option committee was created under our
1992 incentive stock option plan for key employees. Its current members include
Mrs. Stai and Messrs. Johnson, Miers and Ramsey. The stock option committee met
one time in 2001.
Director Compensation
Directors who are our executive officers or employees receive no
compensation as such for service as members of either the board of directors or
committees thereof. Directors who are not our officers receive $1,500 for each
board meeting attended. The directors who serve on committees and who are not
our officers receive $1,000 for each committee meeting attended.
Compensation Committee Interlocks and Insider Participation
No person who served as a member of the executive committee in its capacity
as the compensation committee was, during 2001, an officer or employee of us or
any of our subsidiary banks, or had any relationship requiring disclosure in
this proxy statement. However, committee members Mac A. Coalson and Jack D.
Ramsey obtained loans from subsidiary banks during 2001. The loans were made in
the ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions on an arms-length basis and did not involve more than the normal
risk of collectibility or present other unfavorable features to the subsidiary
bank. None of our executive officers served as a member of the compensation
committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of another entity,
one of whose executive officers served as a member of the board of directors.
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REPORT OF THE EXECUTIVE COMMITTEE
IN ITS CAPACITY AS THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
During 2001, the executive compensation program was administered by Messrs.
Coalson, McDaniel, Parker and Ramsey, the outside director members of the
executive committee acting in the capacity of compensation committee. The
executive compensation program consists of a base salary, profit sharing
contributions, and incentive stock options. Mr. Murphy's compensation program
includes a bonus plan which calls for Mr. Murphy to receive a cash bonus payable
on or before each February 1 that equals 10% of the amount by which our net
earnings for the year exceed a 10% increase over the prior year. Mr. Murphy did
not earn a bonus in 2001. Effective January 1, 2001, Mr. Dueser assumed Chief
Executive Officer responsibilities and Mr. Murphy retained the title of
Chairman. In setting Mr. Murphy's base salary effective January 1, 2001, the
Compensation Committee considered Mr. Murphy's scope of responsibilities as
Chairman and his planned role in the management succession plan. In setting Mr.
Dueser's base salary effective January 1, 2001, the Compensation Committee
considered:
o the scope of the Chief Executive Officer's responsibilities;
o base salary compared to SNL Financial's compensation survey;
o subjective evaluation of Mr. Dueser's contribution to the
overall success of First Financial Bankshares; and
o tenure with First Financial Bankshares.
The annual base salaries for Messrs. Smith, Harvey and Schneider were
adjusted effective January 1, 2001. Among other things, the committee considers
the following factors when approving annual base salaries:
o attainment of planned goals and objectives;
o scope of responsibility (asset size of subsidiary bank and/or
degree of influence on our profitability and operations);
o tenure with First Financial Bankshares;
o evaluation input from subsidiary bank directors; and
o relationship of base salary to the base salaries of other members of
the executive officer group.
Section 162(m) of the Internal Revenue Code generally limits the annual
corporate tax deduction for compensation paid to the chief executive officer and
the four other most highly compensated executive officers unless the
compensation is performance-based. One condition to qualify compensation as
performance-based is to establish the amount of the award on an objective
formula that precludes any discretion. The compensation committee continues to
review the impact of this tax provision on our incentive plans and has
determined that Section 162(m) is currently inapplicable because no named
executive officer receives compensation in excess of $1 million.
EXECUTIVE COMMITTEE IN ITS CAPACITY AS THE COMPENSATION COMMITTEE
Mac A. Coalson
Raymond A. McDaniel, Jr.
James M. Parker
Jack D. Ramsey, M.D.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees our financial reporting process on behalf of
your board of directors. Management has the primary responsibility for the
financial statements and the reporting process including the system of internal
controls. In fulfilling its oversight responsibilities, the Committee, which is
composed of independent directors in compliance with Rule 4200 of the National
Association of Securities Dealers' listing standards, reviewed the audited
financial statements in the Annual Report with management. The Committee also
discussed with management the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements. The Committee does not
include employees of our Company, and may not be, nor may they represent
themselves as experts in the field of accounting or auditing.
The Committee reviewed with Arthur Andersen LLP, our independent auditors
for 2001, who were responsible for expressing an opinion on the conformity of
those audited financial statements with generally accepted accounting
principles, their judgments as to the quality, not just the acceptability, of
our accounting principles and such other matters as are required to be discussed
with the Committee under generally accepted auditing standards. In addition, the
Committee has discussed with the independent auditors the auditors' independence
from management and the Company, including the matters required by the Statement
on Auditing Standards No. 61, Communication with Audit Committees, as amended,
and the matters in the written disclosures required by the Independence
Standards Board, and considered the compatibility of non-audit services with the
auditors' independence. The Audit Committee has received the written disclosures
and the letter from our independent auditors required by Independent Standards
Board Standard No. 1 concerning the independence of the independent auditors.
The Committee discussed with our independent auditors the overall scope and
plans for their audit. The Committee meets with the independent auditors, with
and without management present, to discuss the results of their examinations,
their evaluations of our internal controls, and the overall quality of our
financial reporting. The Committee held four such meetings during the year ended
December 31, 2001.
The Committee has relied, without independent verification, on management's
representation that the financial statements have been prepared with integrity
and objectivity and in conformity with generally accepted accounting principles.
The Committee's oversight does not provide it with an independent basis to
determine that management has in fact maintained appropriate accounting and
financial reporting principles or policies. Furthermore, the Committee's
considerations and discussions with management and the independent auditors do
not ensure that our Company's financial statements are presented in accordance
with generally accepted accounting principles, that the audit of the Company's
financial statements has been carried out in accordance with generally accepted
auditing standards or that our Company's independent accountants are in fact
independent.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the executive committee of the board of directors that
the audited financial statements be included in the annual report on Form 10-K
for the year ended December 31, 2001, for filing with the Securities and
Exchange Commission. Acting on behalf of the board of directors, the executive
committee approved the Audit Committee's recommendation. Your board of directors
has adopted a charter for the Audit Committee, a copy of which was filed as an
exhibit to our definitive proxy statement filed with the Securities and Exchange
Commission on March 29, 2001.
AUDIT COMMITTEE
Mac A. Coalson
David Copeland
Raymond A. McDaniel, Jr.
Bynum Miers
Walter F. Worthington
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PERFORMANCE GRAPH
The following performance graph compares cumulative total shareholder
return for our common stock, the S&P 500 Index, and the SNL Banks Index, which
is a banking index prepared by SNL Financial and is comprised of banks with $1
billion to $5 billion in total assets, for a five-year period (December 31, 1996
to December 31, 2001). The performance graph assumes $100 invested in our common
stock at its closing price on December 31, 1996, and in each of the S&P 500
Index and the SNL Banks Index on the same date. The performance graph also
assumes the reinvestment of all dividends. The dates on the performance graph
represent the last trading day of each year indicated. The amounts noted on the
performance graph have been adjusted to give effect to all stock splits and
stock dividends.
Corporate Performance Chart
[OBJECT OMITTED]
Period Ending
------------------------------------------------------------------
Index 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
---------------------------------------------------------------------------------------------------------------
First Financial Bankshares, Inc. 100.00 137.59 127.07 115.69 123.63 154.07
S&P 500 100.00 133.37 171.44 207.52 188.62 166.22
SNL $1B-$5B Bank Index 100.00 166.77 166.38 152.91 173.52 210.83
-12-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 1, 2002, we were not aware of any person (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934) who is the beneficial owner of more than 5% of our common stock.
However, as of February 1, 2002, First National Bank of Abilene, First National
Bank, Sweetwater, and Stephenville Bank & Trust Co. held of record in various
fiduciary capacities an aggregate of 2,151,677 shares of our common stock. Of
the total shares held: (i) First National Bank of Abilene had sole power to vote
921,544 shares (7.47%), shared with others the power to vote 531,807 shares
(4.31%) and had no authority to vote 487,427 shares (3.95%); (ii) First National
Bank, Sweetwater, had sole power to vote 157,769 shares (1.28%), shared with
others the power to vote 2,717 shares (.01%), and no authority to vote 44,899
(.36%); and (iii) Stephenville Bank & Trust Co. had no authority to vote its
5,514 shares (.05%). All the shares held by each subsidiary bank, which are
registered in its name as fiduciary or in the name of its nominee, are owned by
many different accounts, each of which is governed by a separate instrument that
sets forth the powers of the fiduciary with regard to the securities held in
such accounts. The board of directors historically has not attempted to, and
does not intend to attempt to in the future, exercise any power to vote such
shares. See "Proposal 1--Election of Directors--Nominees" and "--Executive
Officers" for information with respect to the beneficial ownership of our common
stock by each director nominee and named executive officer as of February 1,
2002. In the aggregate, all director nominees and executive officers as a group
(16 individuals) beneficially owned 1,339,577 shares of our common stock, or
10.85%, as of February 1, 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and officers, and
persons who own more than 10% of our common stock, to file with the Securities
and Exchange Commission initial reports of our common stock ownership and
reports of changes in such ownership. A reporting person must file a Form 3,
Initial Statement of Beneficial Ownership of Securities, within 10 days after
such person becomes a reporting person. A reporting person must file a Form 4,
Statement of Changes of Beneficial Ownership of Securities, within 10 days after
any month in which such person's beneficial ownership of securities changes,
except for certain changes exempt from the reporting requirements of Form 4.
Such exempt changes include stock options granted under a plan qualifying
pursuant to Rule 16b-3 under the Exchange Act. A reporting person must file a
Form 5, Annual Statement of Beneficial Ownership of Securities, within 45 days
after the end of the issuer's fiscal year to report any changes in ownership
during such year not reported on a Form 4, including changes exempt from the
reporting requirements of Form 4.
The Securities and Exchange Commission's rules require our reporting
persons to furnish us with copies of all Section 16(a) reports that they file.
Based solely upon a review of the copies of such reports furnished to us, we
believe that the reporting persons have complied with all applicable Section
16(a) filing requirements for 2001 on a timely basis.
PROPOSAL 2
APPROVAL OF ADOPTION OF THE 2002 INCENTIVE STOCK OPTION PLAN
The board of directors at a meeting held on January 22, 2002, adopted,
subject to shareholder approval, the First Financial Bankshares, Inc. 2002
Incentive Stock Option Plan (the "Plan"). The complete text of the Plan is set
forth in Appendix A. The purposes of the Plan are to attract and retain key
employees and to encourage employee performance by providing them with a
proprietary interest in our company through the granting of stock options. Our
employees and the employees of our subsidiaries are eligible to participate in
the Plan. The Plan provides for the granting of incentive stock options and
stock appreciation rights which are intended to qualify for special tax
treatment under Section 422 of the Federal Internal Revenue Code.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF
ADOPTION OF THE 2002 INCENTIVE STOCK OPTION PLAN.
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INDEPENDENT ACCOUNTANTS
General. Arthur Andersen LLP served as our independent accountants since
1990. On March 25, 2002, we determined not to renew the engagement of Arthur
Andersen effective immediately. The decision not to renew the engagement of
Arthur Andersen was made by the executive committee of our board of directors,
acting on behalf of the board of directors and following the recommendation of
our Audit Committee.
During the two most recent fiscal years ended December 31, 2001, and the
subsequent interim period through March 25, 2002, there were no disagreements
between us and Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to Arthur Andersen's satisfaction would have
caused them to make reference to the subject matter of the disagreement in
connection with their reports.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within the two most recent fiscal years and the
subsequent interim period through March 25, 2002.
The audit reports of Arthur Andersen on the consolidated financial
statements of the Company and its subsidiaries as of and for the fiscal years
ended December 31, 2001 and 2000 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
As of the date of mailing of this proxy statement, we have not selected
independent auditors for the fiscal year ending December 31, 2002. We are in the
process of interviewing and evaluating other accounting firms to replace Arthur
Andersen. In past years, it has been our practice to submit our selection of
independent accountants for shareholder ratification at annual meetings. Because
we have not yet identified a replacement for Arthur Andersen, we are not
submitting for shareholder ratification the selection of our outside auditors
for 2002.
Audit Fees. For the 2001 audit services performed by Arthur Andersen, audit
fees totaled $228,500, which included $23,000 for quarterly reviews and $9,500
for FDIC Improvement Act procedures and reports.
All Other Fees. Arthur Andersen did not provide any non-audit services
during 2001 and therefore no fees for such services were billed to us.
INTEREST IN CERTAIN TRANSACTIONS
As has been true in the past, some of our officers and directors, members
of their families, and other businesses with which they are affiliated, are or
have been customers of one or more of our subsidiary banks. As customers, they
have entered into transactions in the ordinary course of business with such
banks, including borrowings, all of which were on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions on an arms-length basis and did not involve more than a
normal risk of collectibility or present any other unfavorable features to the
subsidiary banks involved. None of the transactions involving our subsidiary
banks and our officers and directors, or other businesses with which they may be
affiliated, have been classified or disclosed as nonaccrual, past due,
restructured or potential problems.
INCORPORATION BY REFERENCE
With respect to any future filings with the Securities and Exchange
Commission into which this proxy statement is incorporated by reference, the
material under the headings "Executive Committee Report on Executive
Compensation," "Report of the Audit Committee" and "Performance Graph" shall not
be incorporated into such future filings.
-14-
FORWARD-LOOKING STATEMENTS
This proxy statement contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used in this proxy statement, words such
as "anticipate," "believe," "estimate," "expect," "intend," "predict,"
"project," and similar expressions, as they relate to us or our management,
identify forward-looking statements. These forward-looking statements are based
on information currently available to our management. Actual results could
differ materially from those contemplated by the forward-looking statements as a
result of certain factors, including but not limited to general economic
conditions, actions taken by the Federal Reserve Board, legislative and
regulatory actions and reforms, competition from other financial institutions
and financial holding companies, fluctuation in interest rates, changes in the
demand for loans, fluctuations in value of collateral and loan reserves and
other factors described in "PART II, Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Form 10-K for
the year ended December 31, 2001. Such statements reflect the current views of
our management with respect to future events and are subject to these and other
risks, uncertainties and assumptions relating to our operations, results of
operations, growth strategy and liquidity. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this paragraph.
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
To be considered for inclusion in our proxy statement for the 2003 annual
meeting, shareholder proposals must be received at our principal executive
offices no later than December 1, 2002. Under Rule 14a-4(c)(1) of the Securities
Exchange Act of 1934, if any shareholder proposal intended to be presented at
the 2003 annual meeting without inclusion in our proxy statement for this
meeting is received at our principal executive offices after February 14, 2003,
then a proxy will have the ability to confer discretionary authority to vote on
this proposal.
By Order of the Board of Directors,
KENNETH T. MURPHY, Chairman
March 29, 2002
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APPENDIX A
FIRST FINANCIAL BANKSHARES, INC.
2002 INCENTIVE STOCK OPTION PLAN
1. Purpose.
The purpose of the Plan is to attract and retain employees to First
Financial Bankshares, Inc., a Texas corporation (the "Corporation"), and to its
Subsidiaries (hereafter defined) and to provide such persons and employees of
the Corporation and its Subsidiaries with a proprietary interest in the
Corporation through the granting of Stock Options and related Stock Appreciation
Rights that will
(a) increase the interest of the employees in the Corporation's
welfare;
(b) furnish an incentive to the employees to continue their
services for the Corporation; and
(c) provide a means through which the Corporation may attract
able persons to enter its employ.
2. Definitions.
For the purpose of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
(a) "Board" means the board of directors of the Corporation.
(b) "Change in Control" means the occurrence of any of the
following events: (i) there shall be consummated (x) any
consolidation or merger of the Corporation in which the
Corporation is not the continuing or surviving corporation
or pursuant to which shares of the Corporation's Common
Stock would be converted into cash, securities or other
property, other than a merger of the Corporation in which
the holders of the Corporation's Common Stock immediately
prior to the merger have the same proportionate ownership
of common stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange or
other transfer (excluding transfer by way of pledge or
hypothecation), in one transaction or a series of related
transactions, of all, or substantially all, of the
assets of the Corporation, (ii) the stockholders of the
Corporation approve any plan or proposal for the liquidation
or dissolution of the Corporation, (iii) any "person" (as
such term is defined in Section 3(a)(9) or Section 13(d)(3)
under the 1934 Act or any "group" (as such term is used
in Rule 13d-5 promulgated under the 1934 Act), other than
the Corporation or any successor of the Corporation or
any Subsidiary of the Corporation or any employee benefit
plan of the Corporation or any Subsidiary (including such
plan's trustee), becomes a beneficial owner for purposes
of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Corporation representing
50.1% or more of the Corporation's then outstanding securities
having the right to vote in the election of directors, or
(iv) during any period of two consecutive years,
individuals who, at the beginning of such period constituted
the entire Board, cease for any reason (other than death)
to constitute a majority of the directors, unless the
election, or the nomination for election, by the
Corporation's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning
of the period.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the common stock which the Corporation is
currently authorized to issue or may in the future be
authorized to issue.
(e) "Corporation" means First Financial Bankshares, Inc., a
Texas corporation.
(f) "Date of Grant" means the effective date on which a Stock
Option or related Stock Appreciation Right is awarded to an
employee or director as set forth in the stock option
agreement.
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(g) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Option Period" means the period during which a Stock Option
or related Stock Appreciation Right may be exercised.
(i) "Participant" means any employee of the Corporation or a
Subsidiary who is, or who is proposed to be, a recipient of a
Stock Option or related Stock Appreciation Right.
(j) "Plan" means this Incentive Stock Option Plan as amended
from time to time.
(k) "Stock Appreciation Right" means a right to receive cash equal
to the excess fair market value of the Common Stock granted to
a Participant under this Plan.
(1) "Stock Option" means an option to purchase Common Stock of the
Corporation granted to a Participant under this Plan and which
is intended to qualify as an incentive stock option under
Section 422 of the Code.
(m) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Corporation if, at the time of
the granting of the Stock Option or related Stock Appreciation
Right, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of
stock in one of the other corporations in the chain, and
"Subsidiaries" means more than one of any such corporations.
3. Administration.
Subject to the terms of this Section 3, the Plan shall be administered by
the Stock Option Committee (the "Committee") of the Board which shall consist of
at least three outside directors. Any member of the Committee may be removed at
any time, with or without cause, by resolution of the Board. Any vacancy
occurring in the membership of the Committee may be filled by appointment by the
Board. Each member of the Committee, at the time of his appointment to the
Committee and while he is a member thereof, must be a "non-employee director",
as defined in revised Rule 16b-3 promulgated under the 1934 Act or any
predecessor provision thereto, as applicable.
The Committee shall select one of its members to act as its Chairman, and
shall make such rules and regulations for its operation as it deems appropriate.
A majority of the Committee shall constitute a quorum and the act of a majority
of the members of the Committee present at a meeting at which a quorum is
present shall be the act of the Committee. Subject to the terms hereof, the
Committee shall designate from time to time the key employees to whom Stock
Options or Stock Appreciation Rights will be granted, interpret the Plan,
prescribe, amend and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, and make such other determinations and,
subject to the terms of the Plan, take such other action as it deems necessary
or advisable. In this regard, the Committee shall consider and give appropriate
weight to input from representatives of management of the Corporation regarding
the contributions or potential contributions to the Corporation of certain of
the employees or potential employees of the Corporation. Except as provided
below, any interpretation, determination or other action made or taken by the
Committee shall be final, binding and conclusive on all interested parties,
including the Corporation and all Participants.
4. Eligibility.
Any employee of the Corporation or its Subsidiaries whose judgment,
initiative and efforts contributed or may be expected to contribute to a
successful performance of the Corporation is eligible to participate in the
Plan. Non-employee directors shall not be eligible to receive Stock Options
under the Plan.
5. Shares Subject to Plan.
The Board may not grant Stock Options or related Stock Appreciation Rights
under the Plan for more than 500,000 shares of Common Stock of the Corporation
(as may be adjusted in accordance with Section 22 hereof). Shares to be optioned
and sold may be made available from either authorized but unissued Common Stock
or Common Stock held by the Corporation in its treasury. Shares that by reason
of the expiration of a Stock Option or otherwise are no longer subject to
purchase pursuant to a Stock Option granted under the Plan may be reoffered
under the Plan.
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6. Stock Ownership Limitation for Options.
No Stock Option may be granted to an employee who owns more than 10% of the
total combined voting power of all classes of stock of the Corporation or its
Subsidiaries. This limitation will not apply if the Stock Option price is at
least 110% of the fair market value of the Common Stock on the Date of Grant and
such Stock Option by its terms is not exercisable after the expiration of five
(5) years from the Date of Grant.
7. Annual Limit on Grant and Exercise of Options.
Stock Options shall not be granted to any individual pursuant to the Plan,
the effect of which would be to permit such person to first exercise Stock
Options, in any calendar year, for the purchase of Common Stock of the
Corporation having a fair market value in excess of $100,000 (determined at the
time of the grant of the Stock Options in the manner described in Section 10,
below). A Participant hereunder may exercise Stock Options for the purchase of
Common Stock of the Corporation valued in excess of $100,000 (determined at the
time of grant of the Stock Options in the manner described in Section 10, above)
in a calendar year, but only if the right to exercise such options shall have
first become available in prior calendar years.
8. Allotment of Shares.
The Committee shall determine the number of shares of Common Stock to be
offered from time to time by grant of Stock Options or Stock Appreciation Rights
to Participants under the Plan. The grant of a Stock Option or Stock
Appreciation Right to a Participant shall not be deemed either to entitle the
Participant to, or to disqualify the Participant from, participation in any
other grant of Stock Options or Stock Appreciation Rights under the Plan.
9. Grant of Options and Stock Appreciation Rights.
The grant of Stock Options or related Stock Appreciation Rights shall be
evidenced by stock option agreements setting forth such terms and provisions as
are approved by the Committee, but not inconsistent with the Plan including
provisions that may be necessary to assure that the Stock Option is an incentive
stock option under the Code. The Corporation shall execute stock option
agreements with the Participants after approval of the issuance of Stock Options
or Stock Appreciation Rights. The Board may grant Stock Options or Stock
Appreciation Rights under the Plan prior to the time of stockholder approval as
required under Section 29 hereof.
10. Option Price.
The option price for each Stock Option shall not be less than 100% of the
fair market value per share of the Common Stock on the Date of Grant. The
Committee shall determine the fair market value of the Common Stock on the Date
of Grant and shall set forth the determination in its minutes, using any
reasonable valuation method.
11. Option Period for Options and Stock Appreciation Rights.
The Option Period for each Stock Option and Stock Appreciation Right will
begin and terminate on the dates specified by the Committee, but may not
terminate later than ten years from the Date of Grant. No Stock Option or Stock
Appreciation Right granted under the Plan may be exercised at any time after its
term. The Committee may provide for exercise of Stock Options or Stock
Appreciation Rights immediately or in installments and upon such other terms,
conditions and restrictions as it may determine, including granting the
Corporation the right to repurchase shares issued upon exercise of options.
12. Payment of Option Price.
Full payment for shares purchased upon exercise of a Stock Option shall be
made in cash, or at the option of the Committee by the Participant's delivery to
the Corporation of previously-acquired shares of Common Stock which have a fair
market value equal to the option price, or in any combination of cash and shares
of Common Stock having an aggregate fair market value equal to the option price.
In the event the Committee determines to permit a Participant to purchase shares
pursuant to the exercise of an option hereunder with previously-acquired shares,
the Committee may permit the Participant to use shares which he either purchased
in the open market or acquired upon the exercise of options under the Plan or
any other stock option plan of the Company, including options for which the
purchase price was paid, in full or in part, with previously-acquired shares.
A-3
No shares may be issued until full payment of the purchase price therefor
has been made, and a Participant will have none of the rights of a stockholder
until shares are issued to him.
13. Exercise of Option and Stock Appreciation Rights.
Each Stock Option and any Stock Appreciation Right granted under the Plan
may be exercised during the Option Period, at such times and in such amounts, in
accordance with the terms and conditions and subject to such restrictions as are
set forth in the applicable stock option agreements; except that no Stock Option
or Stock Appreciation Right granted hereunder to a Participant shall be
exercisable while there is outstanding any Stock Option or Stock Appreciation
Right previously granted to a Participant. Except as provided in Section 16
below, no Stock Option or Stock Appreciation Right may be exercised at any time
unless the Participant is employed by the Corporation or a Subsidiary and has
continuously remained an employee at all times since the Date of Grant. If the
Committee imposes conditions upon exercise, then subsequent to the Date of Grant
the Committee may, also in its sole discretion, accelerate the date on which all
or any portion of the Stock Options or related Stock Appreciation Rights may be
exercised. In no event may a Stock Option be exercised or shares be issued
pursuant to an option if any necessary listing of the shares on a stock exchange
or any registration under state or federal securities laws required under the
circumstances has not been accomplished.
14. Stock Appreciation Rights.
Any Stock Option granted under the Plan may, in the discretion of the
Committee, include a Stock Appreciation Right. Each Stock Appreciation Right
shall be related to a specific Stock Option granted under the Plan, shall be
granted concurrently with the Stock Option to which it relates and shall not be
exercisable to any greater extent than the related Stock Option is exercisable.
A Stock Appreciation Right shall entitle the Participant at his election to
surrender to the Corporation the Stock Option, or portion thereof, as the
Participant shall choose, and to receive from the Corporation in exchange
therefor cash in an amount equal to the excess (if any) of the fair market value
(as of the date of the exercise of the Stock Appreciation Right) of one share
over the purchase price per share specified in such Stock Option, multiplied by
the total number of shares called for by the Stock Option, or portion thereof,
which is so surrendered. In the discretion of the Committee, the Corporation
shall be entitled to elect instead to settle its obligation arising out of the
exercise of a Stock Appreciation Right, by the distribution of that number of
shares of Common Stock having an aggregate fair market value (as of the date of
the exercise of the Stock Appreciation Right) equal to the amount of cash it
would otherwise be obligated to pay, with a cash settlement to be made for any
fractional share interests, or the Corporation may elect to settle such
obligations in part with stock and in part with cash.
The right of Participant to exercise a Stock Appreciation Right shall be
canceled if and to the extent the related Stock Option is exercised. The right
of a Participant to exercise a Stock Option shall be canceled if and to the
extent that shares covered by such Stock Option are used to calculate cash or
shares received upon exercise of a related Stock Appreciation Right.
The fair market value of Common Stock on the date of exercise of a Stock
Appreciation Right shall be determined as of such exercise date in the same
manner as the fair market value of Common Stock on the Date of Grant of Stock is
determined for purposes of Section 10 hereof.
15. Agreement to Serve.
Each Participant granted a Stock Option hereunder shall, as one of the
terms of the grant, as reflected in the stock option agreement, agree that he
will remain in the service of the Corporation or of one of its Subsidiaries for
a period of at least two years from the Date of Grant. Notwithstanding the
preceding sentence, the Committee may shorten the two year continuous service
requirement and provide in the applicable stock option agreement that the Stock
Option may be exercised at the normal retirement date as prescribed from time to
time by the Corporation or, if applicable, by one of its Subsidiaries. Such
service shall (subject to the provisions of Section 16 hereof and to the terms
of any contract between the Corporation or any such Subsidiary and such
employee) be at the pleasure of the Board and at such compensation as the Board
or any committee thereof shall determine from time to time. Any termination of
such Participant's service during such period that is either (i) by the
Corporation or such Subsidiary for cause, or (ii) voluntary on the part of the
individual and without the written consent of the Corporation or such Subsidiary
shall be deemed a violation by the Participant of such agreement. In the event
of such violation, any Stock Option or Stock Appreciation Rights held by the
Participant under the Plan, to the extent not theretofore exercised, shall
terminate. Termination of employment as a result of (i) retirement at the normal
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retirement date as prescribed from time to time by the Corporation or such
Subsidiary, or (ii) disability which shall be deemed to be a termination of
employment with consent.
16. Termination of Employment of Service.
In the event a Participant shall cease to be employed by the Corporation or
a Subsidiary, for any reason other than death, such Participant's Stock Options
or related Stock Appreciation Rights may be exercised by the Participant for a
period of three (3) months after the Participant's termination of employment or
service, as the case may be, or until expiration of the applicable Option Period
(if sooner) to the extent of the shares with respect to which such Stock Options
or related Stock Appreciation Rights could have been exercised by the
Participant on the date of termination, and thereafter to the extent not so
exercised, such Stock Options or related Stock Appreciation Rights shall
terminate. In the event of death while employed, all Stock Options or related
Stock Appreciation Rights outstanding shall be exercisable for a period of
twelve (12) months after the Participant's death or until expiration of the
applicable Option Period (if sooner) to the extent of the shares with respect to
which the Stock Option or related Stock Appreciation Rights could have been
exercised by the Participant on the date of the Participant's death, and such
Stock Option or related Stock Appreciation Rights may only be exercised by the
personal representative of the Participant's estate, or by the person who
acquired the right to exercise the Stock Option or related Stock Appreciation
Rights by bequest or inheritance or by reason of the Participant's death.
17. Disqualifying Disposition.
If stock acquired upon exercise of a Stock Option is disposed of by a
Participant prior to the expiration of either two years from the Date of Grant
of such option or one year from the transfer of shares to the Participant
pursuant to the exercise of such option, or in any other disqualifying
disposition within the meaning of Section 422 of the Code, such Participant
shall notify the Corporation in writing of the date and terms of such
disposition. A disqualifying disposition by a Participant shall not affect the
status of any other option granted under the Plan as an incentive stock option
within the meaning of the Section 422 of the Code.
18. Non-Assignability.
A Stock Option or a related Stock Appreciation Right granted to a
Participant may not be transferred or assigned, other than (i) by will or the
laws of descent and distribution or (ii) pursuant to the terms of a qualified
domestic relations order (as defined in Section 411(a)(13) of the Code or
Section 206(d)(3) of the Employee Retirement Income Security Act of 1974, as
amended) provided that in the case of a Stock Option, such transfer or
assignment may occur only to the extent it will not result in disqualifying such
option as an incentive stock option under Section 422 of the Code, or any other
successor provision. Subject to the foregoing, during a Participant's lifetime,
Stock Options granted to a Participant may be exercised only by the Participant
or, subject to the terms hereof, by the Participant's guardian or legal
representative.
19. Amendment or Discontinuance.
The Board may, without the consent of the Participants, alter, amend,
revise, suspend or discontinue the Plan without obtaining approval of the
Corporation's shareholders, provided such action shall not (i) increase the
benefits accruing to Participants under the Plan, (ii) increase the number of
securities which may be issued under the Plan, or (iii) modify the requirements
as to eligibility for Participation in the Plan. Subject to the foregoing
limitations, the Board may amend the Plan or modify the agreements evidencing
same in order to comply with any exemption from the operation of Section 16(b)
of the 1934 Act.
20. Effect of the Plan.
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any officer or employee any right to be
granted a Stock Option to purchase Common Stock of the Corporation or any other
rights except as may be evidenced by a stock option agreement, or any amendment
thereto, duly authorized by the Board and executed on behalf of the Corporation
and then only to the extent and upon the terms and conditions expressly set
forth therein.
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21. Term.
Unless sooner terminated by action of the Board, the Plan will terminate on
January 21, 2112, but Stock Options and Stock Appreciation Rights granted before
that date will continue to be effective in accordance with their terms and
conditions.
22. Recapitalization, Merger and Consolidation.
(a) The existence of this Plan and Stock Options and Stock
Appreciation Rights granted hereunder shall not affect in
any way the right or power of the Corporation or its
stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business, or
any merger or consolidation of the Corporation, or any
issue of bonds, debentures, preferred or preference stocks
ranking prior to or otherwise affecting the Common
Stock or the rights thereof (or any rights, options or
warrants to purchase same), or the dissolution or
liquidation of the Corporation, or any sale or transfer of
all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character
or otherwise.
(b) The number of shares of Common Stock available under the
Plan described in Section 5, the number of shares of
Common Stock that may be purchased pursuant to Stock Options
granted under the Plan, and the consideration payable per
share upon exercise may be proportionately adjusted by the
Board, in its sole discretion, for any increase or decrease
in the number of issued shares of Common Stock resulting
from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend or
other increase or decease in such shares, effected without
receipt of consideration by the Corporation; provided,
however, that any fractional shares resulting from any such
adjustment shall be eliminated for the purposes of such
adjustment.
(c) Subject to any required action by the stockholders, if the
Corporation shall be the surviving or resulting corporation
in any merger or consolidation, any Stock Option and related
Stock Appreciation Rights granted hereunder shall pertain to
and apply to the securities or rights (including cash,
property or assets) to which a holder of the number of shares
of Common Stock subject to the Stock Option and related Stock
Appreciation Rights would have been entitled.
(d) In the event of any merger or consolidation pursuant
to which the Corporation is not the surviving or resulting
corporation, there shall be substituted for each share of
Common Stock subject to the unexercised portions of such
outstanding Stock Options and related Stock Appreciation
Rights, that number of shares of each class of stock or other
securities or that amount of cash, property or assets of
the surviving or consolidated company which were
distributed or distributable to the stockholder of the
Corporation in respect to each share of Common Stock held by
them, such outstanding Stock Options and related Stock
Appreciation Rights to be thereafter exercisable for such
stock, securities, cash or property in accordance with
their terms. Notwithstanding the foregoing, however, all
such Stock Options and related Stock Appreciation Rights may
be canceled by the Corporation as of the effective date
of any such reorganization, merger or consolidation or of
any dissolution or liquidation of the Corporation by giving
notice to each holder thereof or his personal representative
of its intention to do so and by permitting the purchase
during the thirty (30) day period next preceding such
effective date of all of the shares subject to such
outstanding Stock Options and related Stock Appreciation
Rights.
(e) In the event that either sufficient shares of the
Corporation's Common Stock are purchased, or any tender,
exchange or similar offer is commenced which would, if
successful (i) result in any of the events described in
subsections 22(c) and (d), (ii) materially alter the
structure or business of the Corporation, or (iii) result
in a Change in Control of the Corporation, then,
notwithstanding any other provision in the Plan to the
contrary, all unmatured installments of Stock Options and
related Stock Appreciation Rights outstanding shall
thereupon automatically be accelerated and exercisable in
full. The determination of the Board that any of the
foregoing conditions has been met shall be binding and
conclusive on all parties.
(f) Except as hereinbefore expressly provided, the issue by the
Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or
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property, or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Corporation
convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock
subject to Stock Options or Stock Appreciation Rights granted
pursuant to this Plan.
(g) Upon the occurrence of each event requiring an adjustment of
the exercise price or the number of shares purchasable
pursuant to Stock Options or Stock Appreciation Rights granted
pursuant to the terms of this Plan, the Corporation shall mail
forthwith to each Participant a copy of its computation of
such adjustment.
23. Liquidation or Dissolution.
In case the Corporation shall, at any time while any Stock Option or Stock
Appreciation Rights under this Plan shall be in force and remain unexpired, (i)
sell all or substantially all its property, or (ii) dissolve, liquidate, or wind
up its affairs, then each Participant may thereafter receive upon exercise
hereof (in lieu of each share of Common Stock of the Corporation which such
Participant would have been entitled to receive) the same kind and amount of any
securities or assets as may be issuable, distributable or payable upon any such
sale, dissolution, liquidation, or winding up with respect to each share of
Common Stock of the Corporation. If the Corporation shall, at any time prior to
the expiration of any Stock Option, make any partial distribution of its assets,
in the nature of a partial liquidation, whether payable in cash or in kind (but
excluding the distribution of a cash dividend payable out of earned surplus and
designated as such) then in such event the exercise prices then in effect with
respect to each Stock Option shall be reduced, on the payment date of such
distribution, in proportion to the percentage reduction in the tangible book
value of the shares of the Corporation's Common Stock (determined in accordance
with generally accepted accounting principles) resulting by reason of such
distribution.
24. Options in Substitution for Stock Options Granted by Other Corporations.
Stock Options and related Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for such options held by employees of
a corporation who become or are about to become employees of the Corporation or
a Subsidiary as the result of a merger or consolidation of the employing
corporation with the Corporation or a Subsidiary or the acquisition by either of
the foregoing of stock of the employing corporation as the result of which it
becomes a Subsidiary. The terms and conditions of the subsided Stock Options and
related Stock Appreciation Rights so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Board at the time of
grant may deem appropriate to conform, in whole or in part, to the provisions of
the options in substitution for which they are granted.
25. Investment Intent.
The Corporation may require that there be presented to and filed with it by
any Participant under the Plan, such evidence as it may deem necessary to
establish that the Stock Options granted or the shares of Common Stock to be
purchased or transferred are being acquired for investment and not with a view
to their distribution.
26. No Right to Continue Employment.
Nothing in the Plan or the grant of any Stock Option and related Stock
Appreciation Rights confers upon any employee the right to continue in the
employ of the Corporation or interferes with or restricts in any way the right
of the Corporation to discharge any employee at any time (subject to any
contract rights of such employee).
27. Indemnification of Board and Committee.
No member of the Board or the Committee, nor any officer or employee of the
Corporation acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, and all members of the Board or the Committee
and each and any officer or employee of the Corporation acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by the
Corporation in respect of any such action, determination or interpretation.
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28. Government Regulations.
Notwithstanding any of the provisions hereof, or of any written agreements
evidencing Stock Options or Stock Appreciation Rights granted hereunder, the
obligation of the Corporation to sell and deliver shares shall be subject to all
applicable laws, rules and regulations and to such approvals by any government
agencies or national securities exchanges as may be required. The employee shall
agree not to exercise any Stock Option or Stock Appreciation Right, and the
Corporation shall not be obligated to issue any shares, if the exercise thereof
or if the issuance of shares shall constitute a violation by the employee or the
Corporation of any provision of any law or regulation of any governmental
authority.
29. Stockholder Approval.
The Plan will be submitted to the common stockholders of the Corporation at
the next annual meeting of the stockholders, for approval by the holders of a
majority of the outstanding shares of Common Stock of the Corporation. If the
Plan is not approved by the holders of a majority of the outstanding shares of
Common Stock of the Corporation by June 30, 2002, then the Plan shall terminate
and any options granted hereunder shall be void and of no further force or
effect.
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