FIRST NORTHERN COMMUNITY BANCORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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First Northern Community Bancorp
(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)
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[X]
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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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)
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Proposed maximum aggregate value of transaction:
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5)
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Total fee paid:
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[ ]
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Fee paid previously with preliminary materials.
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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.
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1)
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Amount Previously Paid:
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2)
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Form, Schedule or Registration Statement No.:
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3)
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Filing party:
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Date filed:
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April 15, 2021
Dear Shareholder:
You are cordially invited to attend the 2021 Annual Meeting of Shareholders of First Northern Community Bancorp (the “Company”) on
Tuesday, May 18, 2021, at 5:30 p.m., local time. The meeting will be held at First Northern Bank’s Operations Center located at 210 Stratford Avenue in Dixon, California.
At the meeting, shareholders will be asked to elect as directors the ten individuals nominated by the Board of Directors, approve the
amendment to the 2016 Stock Incentive Plan, and to ratify the appointment by the Audit Committee of the Board of Directors of Moss Adams LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2021, and to
approve such other matters as may properly come before the Annual Meeting or any adjournment thereof. The accompanying Proxy Statement provides detailed information about the nominees for director, the independent registered public accounting firm,
and other matters regarding the Annual Meeting. Included with this Proxy Statement is the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The Board of Directors recommends that you vote “FOR” the election of the ten directors nominated, “FOR” the
amendment to the 2016 Stock Incentive Plan and “FOR” ratification of the appointment by the Audit Committee of the Board of Directors of Moss Adams LLP as the Company’s independent registered public accounting firm for the year ending December 31,
2021.
It is very important that as many shares as possible be represented at the meeting.
Whether or not you plan to attend the Annual Meeting, we respectfully ask that you sign and return the enclosed proxy in the postage–paid envelope as soon as possible.
For more than 110 years, First Northern has been putting people first. The safety of our employees, customers, communities, and shareholders is our first
priority. As part of our precautions regarding COVID-19, the Company is planning for the possibility that the Annual Meeting could be postponed or moved to another location. To the extent possible, and as necessary to comply with the recommendations
and directives of the Centers for Disease Control, the California Department of Public Health and local County Public Health departments, our Annual Meeting may be held so as to allow shareholder access and participation through remote
communications. At this time, we expect the Annual Meeting to occur as planned and will take necessary precautions to protect the health and safety of those who attend. If we change the Annual Meeting date, time or location, or the process by which
you may attend the Annual Meeting (remotely rather than in person), we will announce the decision to do so in advance. There will be no reception following the meeting this year.
We look forward to hearing from you.
Sincerely,
Louise A. Walker
President and Chief Executive Officer
Enclosures
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 18, 2021
May 18, 2021
To the Shareholders of First Northern Community Bancorp:
The 2021 Annual Meeting of Shareholders of First Northern Community Bancorp (the “Company”) will be held at First
Northern Bank’s Operations Center located at 210 Stratford Avenue, Dixon, California 95620, on Tuesday, May 18, 2021, at 5:30 p.m., local time, to:
| 1. |
Elect the following ten (10) directors, each to serve until the next Annual Meeting of Shareholders, until their successors are elected and qualified, or until an
individual director has reached the mandatory retirement age of 72 years (or, if approved by the Board of Directors, at the adjournment of the first meeting of the Board of Directors following his or her 72nd birthday):
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Patrick R. Brady
Richard M. Martinez
Daniel F. Ramos
John M. Carbahal
Foy S. McNaughton
Mark C. Schulze
Gregory DuPratt
Sean P. Quinn
Louise A. Walker
Barbara Hayes
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Approve the amendment to the 2016 Stock Incentive Plan.
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Ratify the appointment by the Audit Committee of the Board of Directors of Moss Adams LLP to act as the independent registered public accounting firm of First Northern
Community Bancorp for the year ending December 31, 2021.
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Act upon such other matters as may properly come before such meeting or any adjournment or postponement thereof.
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All of the above matters are more fully described in the accompanying Proxy Statement.
Shareholders of record at the close of business on March 31, 2021, are entitled to notice of and to vote at the Annual
Meeting or any postponement or adjournment thereof.
You are strongly encouraged to complete, sign, date and return as promptly as possible, the accompanying proxy card in
the return envelope provided for your use. The giving of such proxy will not affect your right to revoke such proxy prior to or during the meeting.
BY ORDER OF THE
BOARD OF DIRECTORS
BOARD OF DIRECTORS
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Richard M. Martinez
Louise A. Walker
Chairman of the Board
President and Chief Executive Officer
Dated: April 15, 2021
Table of Contents
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2021 Annual Meeting Of Shareholders
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1
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Voting Rights and Vote Required
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1
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Voting of Proxies—Quorum
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2
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Revocability of Proxy
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3
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Proposal 1 Nomination and Election of Directors
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3
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Nominees
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3
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Board Oversight of Risk Management
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6
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Committees of the Board of Directors of the Company and the Bank
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7
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Report of the Compensation Committee
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Board of Directors Meetings
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10
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Director Independence
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10
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Director Compensation
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11
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Report of the Audit Committee
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14
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Pre-Approval Policy for Services Provided by our Independent Registered Public Accounting Firm
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Security Ownership of Certain Beneficial Owners and Management
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Executive Officers
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Executive Compensation
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Narrative to Summary Compensation Table
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2020 Outstanding Equity Awards at Fiscal Year-End
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Proposal 2 Approval of Amendment To The First Northern Community Bancorp 2016 Stock Incentive Plan
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25
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Proposal 3 Ratification of the Appointment of the Company’s Independent Registered Public Accounting Firm
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30
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Transactions with Related Persons
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31
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Insider Lending Policy
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31
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Delinquent Section 16(A) Reports
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Information Available to Shareholders
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Shareholder Proposals
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Other Matters
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Appendix A Amended First Northern Community Bancorp 2016 Stock Incentive Plan
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APP A
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FIRST
NORTHERN COMMUNITY BANCORP
195 North First Street, Dixon, California 95620
195 North First Street, Dixon, California 95620
PROXY STATEMENT
2021 Annual Meeting Of Shareholders
This Proxy Statement is furnished to the shareholders of First Northern Community Bancorp (the “Company”) in
connection with the solicitation of proxies to be used in voting at the 2021 Annual Meeting of Shareholders of the Company to be held on May 18, 2021, at First Northern Bank’s Operations Center located at 210 Stratford Avenue, Dixon, California, at
5:30 p.m., local time, and at any adjournment or postponement thereof. The solicitation of proxies in the form accompanying this Proxy Statement is made by the Board of Directors of the Company, and the costs of such solicitation, including the
expense of preparing, assembling, printing, and mailing this Proxy Statement and the material used in this solicitation of proxies, will be borne by the Company. It is contemplated that proxies will be solicited through the mail, but officers and
staff of the Company may solicit proxies personally. The Company may, at its discretion, engage the services of a proxy solicitation firm to assist in the solicitation of proxies. The total expense of this solicitation will be borne by the Company
and will include reimbursement paid to brokerage firms and others for their expenses in forwarding soliciting material and such expenses as may be paid to any proxy solicitation firm engaged by the Company.
It is expected that this Proxy Statement and accompanying Notice will be mailed to shareholders on or about April
15, 2021.
A proxy for the Annual Meeting is enclosed. Any shareholder who executes and delivers a proxy has the right to
revoke it at any time before it is voted by delivering an instrument revoking it, or a duly executed proxy bearing a later date, to our Corporate Secretary at 195 North First Street, Dixon, California 95620. In addition, a proxy will be revoked if
the person executing the proxy is present at the Annual Meeting and advises the Chairman of his or her election to vote in person.
The proxy also confers discretionary authority to vote the shares represented thereby on any matter that was not
known at the time this Proxy Statement was mailed which may properly be presented for action at the Annual Meeting; action with respect to procedural matters pertaining to the conduct of the Annual Meeting; and election of any person to serve as a
director in lieu of a bona fide nominee named herein, if such nominee is unable or unwilling to serve.
UNLESS REVOKED, ALL SHARES REPRESENTED BY A PROPERLY EXECUTED PROXY RECEIVED IN TIME FOR THE MEETING WILL BE VOTED
AS SPECIFIED IN SUCH PROXY OR, IF NOT SPECIFIED, THEN IN FAVOR OF THE ELECTION OF NOMINEES TO THE BOARD OF DIRECTORS, IN FAVOR OF THE PROPOSAL TO AMEND THE 2016 STOCK INCENTIVE PLAN, AND IN FAVOR OF THE RATIFICATION OF THE APPOINTMENT BY THE AUDIT
COMMITTEE OF THE BOARD OF DIRECTORS OF MOSS ADAMS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2021, AND IN THE DISCRETION OF THE PROXYHOLDERS WITH RESPECT TO ALL OTHER PROPOSALS PROPERLY
BROUGHT BEFORE THE MEETING.
Voting Rights and Vote Required
Only shareholders of record at the close of business on the record date of March 31, 2021 will be entitled to vote
in person or by proxy at the Annual Meeting. On the record date, there were 13,680,085 shares of our common stock outstanding.
Shareholders of common stock of the Company are entitled to one vote for each share held, except that in the
election of directors, under California law and the Bylaws of the Company, each shareholder may be eligible to exercise cumulative voting rights and may be entitled to as many votes as shall equal the number of shares of common stock of the Company
held by such shareholder multiplied by the number of directors to be elected, and such shareholder may cast all of such votes for a single nominee or may distribute them among two or more nominees. No shareholder, however, shall be entitled to
cumulate votes (in other words, cast for any candidate a number of votes greater than the number of shares of common stock held by such shareholder multiplied by the number of directors to be elected) unless the name(s) of the candidate(s) has (have)
been placed in nomination prior to voting in accordance with Article III, Section 23 of the Company’s Bylaws (which requires that nominations made other than by the Board of Directors be made at least 30 and not more than 60 days prior to any meeting
of shareholders) and a shareholder has given notice to the Company of an intention to cumulate votes prior to the voting in accordance with Article II, Section 13 of the Company’s Bylaws. If any shareholder has given such notice, all shareholders
may cumulate their votes for candidates in nomination, in which event votes represented by proxies delivered pursuant to this Proxy Statement may be cumulated, in the discretion of the proxyholders, in accordance with the recommendation of the Board
of Directors. Discretionary authority to cumulate votes in such event is, therefore, solicited in this Proxy Statement.
1
The vote required to approve each proposal is as follows:
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In the election of directors, the ten nominees receiving the highest number of votes will be elected.
It is required that all shareholders who hold their shares in “street name” provide voting instructions for nominees as brokerage firms no longer have discretionary
authority to vote your shares for you; therefore, we respectfully request that you provide voting instructions to your broker, bank or other nominee if your shares are held in “street name.”
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Approval of the amendment to the 2016 Stock Incentive Plan will require the affirmative vote of a majority of the shares represented and voting
at the Annual Meeting.
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Ratification of the appointment by the Audit Committee of the Board of Directors of the independent registered public accounting firm will
require the affirmative vote of a majority of the shares represented and voting at the Annual Meeting.
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If you hold your shares in street name, you must vote your shares in the manner prescribed by your brokerage firm, bank or other
nominee. Your brokerage firm, bank or other nominee has enclosed or otherwise provided a voting instruction card for you to use in directing the brokerage firm, bank or other nominee how to vote your shares. If you hold your shares in street name
and do not provide voting instructions to your broker or other nominee, your shares will be considered to be “broker non-votes” and will not be voted on any proposal on which your broker or other nominee does not have discretionary authority to
vote. Shares that constitute broker non-votes will be counted as present at the meeting for the purpose of determining a quorum. Your broker or other nominee has discretionary authority to vote your shares on the ratification of Moss Adams LLP as
our independent auditor. Brokers that have sent proxy soliciting materials to a beneficial owner but have not received voting instructions from the beneficial owner may nevertheless vote on routine matters, including the ratification of the
appointment by the Audit Committee of the Board of Directors of Moss Adams LLP as independent registered public accounting firm. If you hold your shares in street name and you want to vote in person at the Annual Meeting,
you must obtain a legal proxy
from your broker and present it at the Annual Meeting.
Voting of Proxies – Quorum
The shares of common stock of the Company represented by all properly executed proxies received in time for the
Annual Meeting will be voted in accordance with the shareholders’ choices specified therein; where no choices have been specified, the shares will be voted “FOR” each of the ten nominees for director recommended by the Board of Directors, “FOR”
approval of the proposal to amend the 2016 Stock Incentive Plan, “FOR” the ratification of the appointment by the Audit Committee of the Board of Directors of Moss Adams LLP as the independent registered public accounting firm for the year ending
December 31, 2021, and at the proxyholder’s discretion on such other matters, if any, which may properly come before the Annual Meeting (including any proposal to adjourn the Annual Meeting). A majority of the shares entitled to vote, represented
either in person or by a properly executed proxy, will constitute a quorum at the Annual Meeting.
2
Abstentions and broker “non-votes” are each included in the determination of the number of shares present and
voting for purposes of determining the presence of a quorum.
Revocability of Proxy
A shareholder using the enclosed proxy may revoke the authority conferred by the proxy at any time before it is
exercised by delivering written notice of revocation or a duly executed proxy bearing a later date to the Secretary of the Company at our executive offices located at 195 North First Street, Dixon, California 95620, or by appearing and voting by
ballot in person at the Annual Meeting after advising the Chairman of the shareholder’s intention to do so.
Proposal 1
Nomination and Election of Directors
Nomination and Election of Directors
At the Annual Meeting it will be proposed to elect ten (10) directors of the Company, each to hold office until the
next annual meeting, until their successors shall be elected and qualified, or until an individual director has reached the mandatory retirement age of 72 years (or, if approved by the Board of Directors, at the adjournment of the first meeting of
the Board of Directors following his or her 72nd birthday). It is the intention of the proxyholders named in the enclosed proxy to vote such proxies (except those containing contrary instructions) for the ten (10) nominees named below. The ten (10)
nominees consist of all the incumbent directors of the Company.
The Board of Directors does not anticipate that any of the nominees will be unable or unwilling to serve as a
director of the Company, but if that should occur before the Annual Meeting, the proxyholders, in their discretion, upon the recommendation of the Company’s Board of Directors, reserve the right to substitute a nominee and vote for another person of
their choice in the place and stead of any nominee unable or unwilling to serve. The proxyholders reserve the right to cumulate votes for the election of directors and cast all of such votes for any one or more of the nominees, to the exclusion of
the others, and in such order of preference as the proxyholders may determine in their discretion, based upon the recommendation of the Board of Directors.
Nominees
The following table sets forth each of the nominees for election as a director, their age, their position with the
Company, and the period during which they have served as a director of the Company and the Bank.
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Name
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Age
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Position With The Company
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Director of Bank Since
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Director of The Company Since
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Patrick R. Brady
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68
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Director
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2013
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2013
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John M. Carbahal
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66
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Director
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1996
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2000
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Gregory DuPratt
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67
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Director
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1996
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2000
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Barbara A. Hayes
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57
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Director
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2016
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2016
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Richard M. Martinez
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65
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Chairman of the Board
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2011
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2011
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Foy S. McNaughton
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70
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Director
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2000
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2000
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Sean P. Quinn
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64
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Director
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2016
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2016
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Daniel F. Ramos
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63
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Director
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2020
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2020
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Mark C. Schulze
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50
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Director
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2017
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2017
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Louise A. Walker
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60
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President, Chief Executive Officer and Director
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2011
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2011
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3
Patrick R. Brady
retired as Chief Executive Officer of Sutter Roseville Medical Center in 2018. He had been involved with Sutter since 1981. Prior to assuming his role at Sutter Roseville, Mr. Brady served as the Chief Executive Officer of Sutter Solano Medical
Center (SSMC) for approximately six and a half years. Prior to SSMC, he served in a variety of executive level positions with Sutter Health in the greater Sacramento Area and in hospital management in Los Angeles, California and Tucson, Arizona.
Mr. Brady has a Bachelor of Science degree in Public Administration from the University of Arizona and a Master’s degree in Hospital Administration from the University of Minnesota. His professional activities include leadership roles in healthcare
associations and advocacy groups. He has participated actively in local and regional affairs through a variety of community Boards. Mr. Brady’s service on boards both in the private and public sectors, and experience as a Chief Executive Officer,
has provided him with extensive knowledge and experience in financial management, corporate governance, and risk management. Mr. Brady is Chairman of the Bank’s Compensation Committee and a member of the Bank’s Loan, Nominating and Corporate
Governance, and Profit Sharing Committees.
John M. Carbahal
is a Certified Public Accountant and since 1984 has been a principal and shareholder of Carbahal & Company, Inc., an Accountancy Corporation. Mr. Carbahal received his undergraduate degree in Business Administration – Accounting from California
State University Chico, and his Master of Business Administration from Golden Gate University. He is currently a member of the American Institute of Certified Public Accountants, as well as the California Society of Certified Public Accountants. He
is very involved in the community as a member of the Winters Rotary Club. He is a past board member of the Yolo County Land Trust, and past president of the Winters Rotary Club and the Yolo County Chamber of Commerce. Mr. Carbahal’s service on
boards both in the private and public sectors, and his experience as a Certified Public Accountant and owning his own company, has provided him with extensive knowledge and experience in financial management, corporate governance, risk management,
and auditing. Mr. Carbahal is Chairman of the Bank’s Audit Committee, and a member of the Bank’s Asset/Liability, Loan, and Nominating and Corporate Governance Committees.
Gregory DuPratt
served as Vice President/Sales Manager of Ron DuPratt Ford until 2014. The Dixon automobile dealership and family business was established in 1956. Prior to becoming Vice President, Mr. DuPratt worked in all phases of the dealership from the repair
shop to accounting, sales, and sales management. Mr. DuPratt graduated with honors from the University of Southern California with a Master of Business Administration. He is involved in the community as a member of the Dixon Rotary Club (past
President), Chamber of Commerce Board Member, Silveyville Cemetery District Board Member, and numerous Ad Hoc Committees. Mr. DuPratt’s management and marketing experience, in addition to his service on boards, has provided him with extensive
operational and oversight experience with regard to corporate governance, marketing, and management. Mr. DuPratt is a member of the Bank’s Asset/Liability, Compensation, Loan, and Nominating and Corporate Governance Committees.
Barbara A. Hayes
is
the Chief Economic Development Officer at Rural County Representatives of California (RCRC). RCRC represents 37 member counties, championing policies and promoting economic development that strengthens rural economies across California. She is past
President & CEO of the Sacramento Area Commerce and Trade Organization (SACTO), an economic development organization and business recruiter serving the six-county Sacramento Region. Ms. Hayes served 14 years as President and CEO, and six years
as Deputy Director, of SACTO. Prior to joining SACTO, Ms. Hayes held positions with the California Trade and Commerce Agency. She has extensive knowledge and experience with strategic vision and planning, economic development, public policy and
legislative relations, marketing, and corporate communications. Ms. Hayes holds a Bachelor of Arts in International Relations and Economics from the University of California, Davis. She also completed coursework in accounting and business law at
Sacramento State University and holds a Public Service Ethics Certificate. Ms. Hayes serves as a corporate director with California Statewide Certified Development Corporation. Ms. Hayes is a member of the Bank’s Asset/Liability, Compensation,
Information Services Steering and Loan Committees.
Richard M. Martinez
is a partner in Triad Farms, a diversified row crop farm that operates property in Solano and Yolo Counties. He has been responsible for the financial management of the farming operations for over 30 years. From 1981 to 1985, Mr. Martinez was
employed by the Yolo County Flood Control and Water Conservation District in Yolo County and served as Division Manager for the Irrigation and Flood Control operations. Mr. Martinez received a Bachelor of Science Degree in Agriculture from
California State University at Chico. He served for 20 years as a director for the Dixon Resource Conservation District and also served as the Chairman for the Dixon Joint Powers Authority for regional drainage. Mr. Martinez remains active in many
agricultural and natural resources related associations and advisory committees. His experience in the management of both private and public sectors in the region has provided him with extensive knowledge of the local agriculture community. Mr.
Martinez is Chairman of the Board and the Nominating and Corporate Governance Committee and a member of the Compensation and Loan Committees.
4
Foy S. McNaughton
is the President and Chief Executive Officer of McNaughton Newspapers, a group of community newspapers that includes the Davis Enterprise, Daily Republic (Fairfield), Mountain Democrat (Placerville), Winters Express, and Life Newspapers (El Dorado
County). He has held this position since 1985 and also operates as the company’s CFO. His newspapers employ over 250 people in the local area. Mr. McNaughton has served on the board of directors of many community groups such as the Davis and
Fairfield Chambers of Commerce and Rotary Clubs. He is past president of the Travis Regional Armed Forces Committee, Sutter Davis Hospital, and the Fairfield Community Services Foundation. He has been a resident of Davis, California since 1973.
Mr. McNaughton’s service on boards of both private and public sector companies has provided him with broad financial knowledge and experience in marketing and advertising and extensive operational and oversight management. Mr. McNaughton is the
Chairman of the Bank’s Loan Committee and a member of the Bank’s Audit, Information Services Steering, and Nominating and Corporate Governance Committees.
Sean P. Quinn
is the former City Manager for the City of Fairfield, where he served from 2007 to 2014 (and as Interim City Manager in 2019). Prior to that, Mr.
Quinn was the Director of Community Development for the City of Fairfield, where he oversaw planning, economic development, redevelopment, real estate, housing, business financing, and development planning/review. Mr. Quinn has owned his own small
business and worked for a firm that provided small business lending and industrial, commercial and residential development. Mr. Quinn has also worked in economic forecasting. Mr. Quinn currently provides consulting to public and private sector
clients. Mr. Quinn received a Bachelor of Arts degree in Business Economics from University of California, Santa Barbara and did his graduate work in business at Chico State. Mr. Quinn is a founding member and past president of the California
Association for Local Economic Development, past chair of the State of California Economic Development Loan Advisory Committee and past president of the Solano Land Trust. Mr. Quinn is the chair of the board at Paradise Valley Estates and is a past
president and current board member of the Fairfield Community Services Foundation. Mr. Quinn’s experience as City Manager and service on boards of both private and public sector companies has provided him with broad financial knowledge, and
experience in housing and real estate development, economic development and risk management. Mr. Quinn is a member of the Bank's Audit, Asset/Liability, Compensation and Profit Sharing Committees.
Daniel F. Ramos
has
been involved in the commercial real estate industry in the Sacramento region for over 38 years. As Vice President of Ramco Enterprises/Ramco Properties LP., a Yolo County based real estate development company, he has been involved in all aspects of
real estate development services including project management, financing, leasing, income property sales, joint venture structuring and negotiations, property management, and commercial construction. As President of Ram Properties, Inc., he has also
been involved in real estate sales connected with that company. Mr. Ramos holds a Bachelor of Science in Business Administration – Real Estate Finance from the University of Southern California. In addition to serving on the First Northern Boards,
Mr. Ramos has served, or is serving, on the Boards of Sacramento Metro Chamber of Commerce, West Sacramento Foundation, West Sacramento Economic Advisory Commission, Explorit! Science Center, Crocker Art Museum, Yolo Food Bank, and SACTO. He is also
serving as trustee of Reclamation District 900 and Reclamation District 827, and is past president of the Sutter Club, West Sacramento Chamber of Commerce, and West Sacramento Rotary Club. Mr. Ramos’ service on boards both in the private and public
sectors and his experience in land development has provided him with extensive knowledge and experience in marketing, real estate development, and management. Mr. Ramos is a member of the Bank’s Audit, Asset Quality and Loan Committees.
Mark C. Schulze
is
a co-Founder of Clover Network, Inc. Clover is a leading payments processor and now a subsidiary of Fiserv, the world’s largest payment processor and one of the largest credit card issuers. Mr. Schulze has been active in technology and financial
services related companies for over 20 years. Mr. Schulze is also an active investor and limited partner in a number of technology funds and serves as an advisor to companies within Orange’s technology incubator (France Telecom) as well as to
companies within the 500 Startups portfolio. Mr. Schulze graduated from Bowdoin College with a Bachelor of Arts degree in Government. He has been a long-time shareholder of the Company. Mr. Schulze’s experience with both private and public
companies has provided him with extensive knowledge and experience with payments, marketing, and management. Mr. Schulze is a member of the Bank’s Audit and Information Services Steering Committees.
5
Louise A. Walker
has
served as President and Chief Executive Officer of the Company and its wholly owned subsidiary, First Northern Bank since January 1, 2011. Ms. Walker joined First Northern Bank in 1979 and has been a member of Senior Management since 1989. During
her career, she has held a variety of positions, which included head of Operations and Data Processing and the oversight of Human Resources, Risk Management, Compliance, Accounting, and Finance. Prior to assuming the position of President and Chief
Executive Officer, Ms. Walker held the position of Senior Executive Vice President/Chief Financial Officer. She has a Bachelor of Arts degree in Management from Saint Mary’s College of California. Ms. Walker is past Chairwoman and a member of the
Board of Directors of the California Bankers Association (now the California state and federal advocacy division of the Western Bankers Association), a member of American Bankers Association Board of Directors and Treasurer, a board member of
Pacific Coast Bankers Bank, a member of the Executive Committee of Valley Vision Board of Directors, a member of the Yolo Food Bank Board of Directors, the I- Past Chairwoman and board member of Solano Economic Development Corporation, a Board member
of Roseville Community Development Corporation, a member of Dixon Rotary, and past president of Soroptimist International of Dixon. Ms. Walker is also a board member and treasurer of Lambda Alpha International, Sacramento Chapter. Ms. Walker’s
extensive service as a board member of both private and public organizations has provided her with extensive knowledge and experience in the banking industry, financial management, risk management, corporate governance, and marketing. Ms. Walker is
a member of the Bank’s Asset/Liability, Asset Quality, Loan, Information Services Steering, and Profit Sharing Committees.
None of the Directors of the Company was selected pursuant to arrangements or understandings other than with the
Directors and shareholders of the Company acting within their capacity as such. There are no family relationships between any of the directors, and none of the directors
serve as a director of any other company which has a class of securities registered under, or subject to periodic reporting requirements of, the Securities Exchange Act of 1934, as amended, or any company registered as an investment company under
the Investment Company Act of 1940.
Board Oversight of Risk Management
The Board of Directors of the Bank is engaged in Bank-wide risk management oversight, which constitutes
substantially all of the assets of the Company. The Board of Directors of the Bank relies upon the Chief Executive Officer and Chief Operating Officer to supervise day-to-day risk management and bring to its attention the most material risks to the
Bank. The Chief Executive Officer and Chief Operating Officer each provide reports directly to the Board of Directors of the Bank and certain of its committees, as appropriate. Directors may also from time to time rely on the advice of outside
advisors and auditors provided they have a reasonable basis for such reliance.
The Board of Directors of the Bank also delegates certain oversight responsibilities to its Board committees. The
full Board of the Bank considers strategic risks and opportunities and regularly receives detailed reports from the committees regarding risk oversight in their area of responsibility. For example, while the primary responsibility for financial and
other reporting, internal controls, compliance with laws and regulations, and ethics rests with the management of the Company and the Bank, the Audit Committee provides risk oversight with respect to our financial statements and our internal controls
over financial reporting. For a description of the functions of the various committees of the Board, see “Committees of the Board of Directors of the Company and the Bank” below.
6
Committees of the Board of Directors of the Company and the Bank
The Company does not have Audit, Nominating or Compensation Committees or committees performing similar functions.
However, the Board of Directors of the Bank has several standing committees, as discussed below, including Audit, Compensation, Loan, and Nominating and Corporate Governance committees, which perform the functions of such committees for the Company.
The Directors of the Company are also Directors of the Bank. As such, the Bank committees supervise and review the activities of the Bank, which constitute substantially all of the assets of the Company on a consolidated basis. The Audit Committee
and the Compensation Committee have charters which are available for review on the Bank’s website at
www.thatsmybank.com
.
The Bank has a standing Asset/Liability Committee composed of John M. Carbahal, Gregory DuPratt, Barbara A. Hayes,
Sean P. Quinn, and Louise A. Walker. Jeremiah Z. Smith, Senior Executive Vice President and Chief Operating Officer is the Asset/Liability Committee Chairman. The Asset/Liability Committee reviews and oversees the management of the Bank’s assets
and liabilities. The Asset/Liability Committee held 4 meetings with Director participation in 2020.
The Bank has a standing Audit Committee composed of John M. Carbahal, Foy S. McNaughton, Sean P. Quinn, Daniel F.
Ramos and Mark C. Schulze. John M. Carbahal is the Audit Committee Chairman. The Audit Committee reviews and oversees the audit results for the Bank and our internal controls over financial reporting. The Audit Committee of the Bank held 5
meetings during 2020.
The Bank has a standing Asset Quality Committee composed of Daniel F. Ramos and Louise A. Walker. Chaille James,
Senior Vice President/Special Assets Manager, is the Committee Chairwoman. The Asset Quality Committee held 4 meetings during 2020 for the purpose of reviewing and monitoring asset quality in the Bank’s loan portfolio.
The Bank has a standing Compensation Committee composed of Patrick R. Brady, Gregory DuPratt, Barbara A. Hayes,
Richard M. Martinez, and Sean P. Quinn. Patrick R. Brady is the Compensation Committee Chairman. The Compensation Committee held 6 meetings during 2020 for the purpose of reviewing and recommending to the Bank’s Board of Directors the Bank’s
compensation objectives and policies and administering the Company’s stock plans.
The Bank has a standing Information Services Steering Committee composed of Barbara A. Hayes, Foy S. McNaughton,
Mark C. Schulze, and Louise A. Walker. Denise Burris, Executive Vice President/Chief Information Officer, is the Information Services Steering Committee Chairwoman. The Committee held 3 meetings during 2020 for the purpose of reviewing and
monitoring bankwide information technology issues and safety according to the Information Services Department policies and procedures.
The Bank has a standing Loan Committee composed of Patrick R. Brady, John M. Carbahal, Gregory DuPratt, Barbara A.
Hayes, Richard M. Martinez, Foy S. McNaughton, Daniel F. Ramos and Louise A. Walker. Foy S. McNaughton is the Loan Committee Chairman. The Loan Committee held 20 meetings during 2020 for the purpose of approving loans and loan policy.
The Bank has a standing Profit Sharing Committee composed of Patrick R. Brady, Sean P. Quinn, and Louise A. Walker.
The Profit Sharing Committee held 4 meetings during 2020 for the purpose of considering plan administration and investments.
The Bank has a standing Nominating and Corporate Governance Committee composed of Patrick R. Brady, John M.
Carbahal, Gregory DuPratt, and Richard M. Martinez. Richard M. Martinez is the Nominating and Corporate Governance Committee Chairman. The Nominating and Corporate Governance Committee held 2 meetings during 2020 for the purpose of considering
corporate governance best practices which includes environmental and social issues and to review and nominate potential candidates for directors of the Bank and the Company as needed. This Committee fulfills the responsibilities of a director
nominating committee for the Company. The Nominating and Corporate Governance Committee operates under a written charter which is available for review on the Bank’s website at www.thatsmybank.com.
The Nominating and Corporate Governance Committee will consider candidates nominated by the Company’s shareholders,
directors, officers, and from other external sources. The Company does not have a formal policy with regard to the consideration of diversity in identifying Director nominees, but the Nominating and Corporate Governance Committee strives to nominate
Directors with a variety of complementary attributes so that, as a group, the Board of Directors will possess the appropriate talent, skills, and expertise to oversee our business. In evaluating candidates, the Board of Directors considers the
attributes of the candidate (including skills, experience, diversity, age, legal and regulatory requirements, and those from underrepresented groups), and the needs of the Board of Directors, and will review all candidates in the same manner,
regardless of the source of the recommendation.
7
The Board of Directors will consider candidates nominated by the shareholders of the Company if the nomination is
made in writing in accordance with the procedures for nominating Directors of the Company, as described herein. These nomination procedures are designed to give the Board of Directors advance notice of competing nominations, if any, and the
qualifications of nominees, and may have the effect of precluding third–party nominations if the nomination procedures are not followed.
Pursuant to Article III, Section 23 of the Bylaws of the Company, director nominations, other than those made by the
Board of Directors, shall be made by notification in writing delivered or mailed to the President of the Company, not less than 30 days or more than 60 days prior to any meeting of shareholders called for election of directors. The provision also
requires that the notice contain detailed information necessary to determine if the nominee is qualified under our Bylaws. Under our Bylaws, no person may be a member of the Board of Directors:
|
•
|
who has not been a resident for a period of at least two years immediately prior to his or her election of a county in which
any subsidiary of the Company maintains an office, unless the election of such person is approved by the affirmative vote of at least two-thirds of the members of the Board of Directors of the Company then in office;
|
|
•
|
who owns, together with his or her family residing with him or her, directly or indirectly, more than one percent of the
outstanding shares of any banking corporation, affiliate or subsidiary thereof, bank holding company, industrial loan company, savings bank or association or finance company, other than the Company or any affiliate or subsidiary of the
Company;
|
|
•
|
who is a director, officer, employee, agent, nominee, or attorney of any banking corporation, affiliate, or subsidiary
thereof, bank holding company, industrial loan company, savings bank or association or finance company, other than the Company or any affiliate or subsidiary of the Company; or
|
|
•
|
who has or is the nominee of anyone who has any contract, arrangement or understanding with any banking corporation, or
affiliate or subsidiary thereof, bank holding company, industrial loan company, savings bank or association or finance company, other than the Company or any affiliate or subsidiary of the Company (a “covered entity”), or with any officer,
director, employee, agent, nominee, attorney or other representative of such covered entity, that he or she will reveal or in any way utilize information obtained as a director of the Company or that he or she will, directly or indirectly,
attempt to effect or encourage any action of the Company.
|
Nominations not made in accordance with the procedures set forth in the Company’s Bylaws may, in the discretion of
the Chairman of the Annual Meeting, be disregarded, and, upon his or her instruction, the inspector(s) of election shall disregard all votes cast for such nominee(s). A copy of Sections 22 and 23 of Article III of the Company’s Bylaws may be
obtained by sending a written request to: Ms. Devon Camara-Soucy, Corporate Secretary, First Northern Community Bancorp, 195 North First Street, Dixon, California 95620.
The Bank has several other committees that meet on an as needed basis.
If you wish to communicate with the Board of Directors, you may send correspondence to the Corporate Secretary,
First Northern Community Bancorp, 195 North First Street, Dixon, California 95620. The Corporate Secretary will submit your correspondence to the Board of Directors or the appropriate committee, as applicable.
8
Report of the Compensation Committee
Role of the Compensation Committee
The Committee’s purpose is to (a) review and recommend compensation objectives and policies to the Board of
Directors, (b) administer the Bank’s and the Company’s stock plans, long-term incentive plans and certain employee benefit plans, (c) review and recommend to the Board the compensation of the Chief Executive Officer, and review and approve
compensation for the Bank’s other named executive officers, (d) provide oversight and manage risks relative to the Company’s annual incentive plan and (e) produce a Compensation Committee Report for inclusion in the Company’s proxy statement for its
annual meeting of shareholders.
The Committee also periodically reviews the compensation levels of the Board of Directors. In its review, the
Committee looks to ensure that the compensation is fair, reasonably competitive, and commensurate to the responsibilities of both the individual directors as well as the Board in the aggregate.
Subject to the requirements of applicable law, the Compensation Committee may designate persons other than its
members to carry out its responsibilities under the Company’s incentive plans (including the selection of and the granting of awards under the plans to participants), except that the Compensation Committee may not delegate its authority with regard
to the selection for participation of, or the granting of awards under the plans to, persons subject to Section 16 of the Securities Exchange Act of 1934.
The Charter of the Compensation Committee is available on the Company’s website (www.thatsmybank.com) and is also
available in print upon request (submit requests for copies of the Charter to First Northern Community Bancorp, Attn: Investor Relations, 195 North First Street, P.O. Box 547, Dixon, CA 95620).
Say on Pay Vote
At our 2020 Annual Meeting of Shareholders, we conducted a non-binding shareholder advisory vote on the compensation of our named
executive officers (commonly known as a "say-on-pay" vote). Our shareholders approved the say-on-pay proposal with 7,651,393 votes for or 95.27% of the shares represented and voted at the meeting, 147,875 votes against, and 231,872 abstentions. We
believe this result demonstrates that our shareholders are generally supportive of our executive compensation program. As the Compensation Committee has reviewed our executive compensation policies and practices since the 2020 say-on-pay vote, it
has been mindful of the level of support our shareholders have expressed for our approach to executive compensation. As such, following our annual review of our executive compensation program, the Compensation Committee decided to retain its
general approach to executive compensation.
No say-on-pay vote will be solicited at the 2021 Annual Meeting of Shareholders because, at the 2017 Annual Meeting of Shareholders,
the shareholders approved a non-binding advisory proposal regarding the frequency of shareholder votes on executive compensation providing for a say-on-pay vote once every three years, or triennially,
Compensation Philosophy
The Committee uses competitive compensation data from the annual total compensation analyses of peer companies and
our market to inform its decisions about overall compensation opportunities and specific compensation elements. Additionally, the Committee uses multiple reference points when establishing targeted compensation levels. As part of this consideration,
the Committee reviews peer data at the 25
th
, 50
th
and 75
th
percentiles as reference points. The Committee does not benchmark specific compensation elements or total compensation to any specific percentile relative to
the peer companies or the broader regional and United States markets. Instead, the Committee obtains input from our independent compensation consultant and applies judgment and discretion in establishing targeted pay levels, taking into account not
only competitive market data, but also factors such as Company, business and individual performance, scope of responsibility, critical needs and skill sets, leadership potential and succession planning.
9
Role of Executive Officers in Compensation Committee Deliberations
The Compensation Committee frequently requests the Chief Executive Officer and other named executive officers to be
present at Committee meetings to discuss executive compensation. Executive officers in attendance may provide their insights and suggestions, but only independent Compensation Committee members may vote on decisions regarding executive compensation.
The Compensation Committee discusses the Chief Executive Officer’s compensation with her, but final deliberations
and all votes regarding her compensation are made in executive session, without the Chief Executive Officer present. The Committee also reviews and approves the Chief Executive Officer’s recommendations and input from the compensation consultant
regarding the other named executive officers’ compensation. Named Executive Officers are not present when the Committee makes decisions about their compensation.
Board of Directors Meetings
In 2020, the Board of Directors of the Bank held 10 regularly scheduled meetings, and 4 joint meetings with the
Board of Directors of the Company. Each Director attended at least 75% of the aggregate of: (1) the total number of meetings of the Boards of Directors held during the period for which he or she has been a director; and (2) the total number of
meetings of committees of the Boards of Directors on which he or she served during the period for which he or she served. The Company has a policy to encourage Directors to attend the Annual Meeting. All of the Directors up for election attended
the Annual Meeting of Shareholders in 2020.
Director Independence
The Board of Directors has determined that (1) a majority of the Company’s directors, (2) each member of the Compensation Committee, (3)
each member of the Audit Committee, and (4) each member of the Nominating and Corporate Governance Committee, is “independent” under the applicable standards set forth in the Nasdaq Marketplace Rules. The Board of Directors has determined that all
directors except Ms. Walker are independent under the applicable standards set forth in the Nasdaq Marketplace Rules.
The Board of Directors does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board
as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board. The Board has determined that having an independent director serve as
Chairman is in the best interest of the Company’s shareholders at this time. This structure ensures a greater role for the independent directors in the oversight of the Company and active participation of the independent directors in setting agendas
and establishing Board priorities and procedures. Further, this structure permits the Chief Executive Officer to focus on the management of the Company’s day-to-day operations.
10
Director Compensation
2020 Director Compensation Table
|
Fees earned or paid in cash
|
|
|
Name
|
($)
(1)
|
|
Frank J. Andrews, Jr.
(2)
|
29,500
|
|
Patrick R. Brady
|
33,500
|
|
John M. Carbahal
|
34,000
|
|
Gregory DuPratt
|
30,500
|
|
Barbara A. Hayes
|
33,500
|
|
Richard M. Martinez
|
36,200
|
|
Foy S. McNaughton
|
31,000
|
|
Sean P. Quinn
|
31,500
|
|
Daniel F. Ramos
|
28,000
|
|
Mark C. Schulze
|
26,500
|
|
1.
|
Each director who is not an officer or employee of the Company or the Bank received $1,500 for each
jointly-held and regularly scheduled meeting of the Boards of Directors attended, with the exception of the Board Chairman, who received $1,900. In addition, Directors receive $400 per special meeting of the Board of Directors, and $500 per
Committee meeting attended with the Chairman or Chairwoman of the Committee receiving $600 per meeting, with the exception of the Audit Committee Chairman, who receives $700 per meeting. In addition, each Director received a $5,500
retainer fee, with the exception of the Chairman of the Board, who received a $6,500 retainer fee. Ms. Walker was an employee, and she received no additional compensation for her services as a director for 2020.
|
|
2.
|
Mr. Andrews retired from the Board of Directors of the Company and the Bank on December 17, 2020.
|
The Company has Director Retirement Agreements with each of its non-employee directors with the exception of
directors who joined the Company after February 2011. The agreements were intended to encourage existing Directors to remain directors, providing the Company with the benefit of the Directors’ experience and guidance in the years ahead. In November
2010, the Board of Directors determined that Director Retirement Agreements would not be offered to new members of the Board of Directors.
For retirement on or after the normal retirement age of 72, the Director Retirement Agreements provide a benefit
for 10 years ranging from $10,000 annually for a director with 10 years of service to a maximum of $15,000 annually for a director with 15 or more years of service, including years of service prior to the effective date of the Director Retirement
Agreements. As of January 1, 2020, there were four active directors who had served more than 15 years as a director and were eligible for director retirement benefits. Benefits under the Director Retirement Agreements are payable solely to those
directors who have served for at least 10 years, unless the director terminates service because of death or disability or unless the director’s service terminates within two years after a change in control. There were no positive accruals under the
Director Retirement Agreements in 2020.
11
In the case of early termination of a director’s service before age 72 for reasons other than death or disability
or within two years after a change in control, he or she will receive over a period of 10 years aggregate payments equal to the retirement-liability balance accrued by the Company at the end of the year before the year in which the director’s service
terminated. However, early termination benefits will not be payable unless the director is at least 55 years of age and has served as a director for at least 10 years, including years of service prior to the effectiveness of the Director Retirement
Agreements. If a director becomes disabled before age 72, the director will receive a lump-sum payment in an amount equal to the retirement-liability balance accrued by the Company at the end of the year before the year in which disability occurred,
regardless of whether the director has 10 years of service or has reached age 55. If a change in control occurs and a director’s service terminates within 24 months after the change in control, the director will receive a lump-sum payment equal to
the retirement-liability balance accrued by the Company at the end of the year before the year in which termination occurred, regardless of whether the director has 10 years of service or has reached age 55. For this purpose, the term “change in
control” means:
|
•
|
A merger occurs and as a consequence the Company’s shareholders prior to the merger own less than 50% of the resulting
company’s voting stock;
|
|
•
|
A beneficial ownership report is required to be filed under the Securities Exchange Act of 1934 by a person (or group of
persons acting in concert) to report ownership of 20% or more of the Company’s voting securities; or
|
|
•
|
During any period of two consecutive years, individuals who constituted the Company’s Board of Directors at the beginning of
the two-year period cease for any reason to constitute a majority of the Board. Directors elected during the two-year period are treated as if they were directors at the beginning of the period if they were nominated by a vote of at least
two-thirds of the Directors in office at the beginning of the period.
|
No benefits are payable under the Director Retirement Agreements to a Director’s beneficiaries
after the Director’s death. A Director forfeits all benefits under the Director Retirement Agreement if his or her Director service terminates because of neglect of duties, commission of a felony or misdemeanor, or acts of fraud, disloyalty, or
willful violation of significant Bank policies, or if the Director is removed from office by order of the Federal Deposit Insurance Corporation.
The Company has also purchased insurance policies on the lives of the Directors who entered into Director
Retirement Agreements, paying the premiums for these insurance policies with one lump-sum premium payment of approximately $2.15 million. The Company expects to recover the premium in full from its portion of the policies’ death benefits. The
Company purchased the policies as an informal financing mechanism for the post-retirement payment obligations under the Director Retirement Agreements. Although the Company expects these policies to serve as a source of funds for benefits payable
under the Director Retirement Agreements, the contractual entitlements arising under the Director Retirement Agreements are not funded and remain contractual liabilities of the Company, payable on or after each Director’s termination of service.
Under the Split Dollar Agreements and Split Dollar Policy Endorsements with the Directors, which were entered into
on the same date the Director Retirement Agreements were executed, the policy interests are divided between the Company and each Director. The Split Dollar Agreements provide that a Director’s designated beneficiary(ies) will be entitled to receive
at the Director’s death life insurance proceeds in the amount of:
(a) $120,000 if the Director dies before age 72,
(b) $60,000 if the Director dies after reaching age 72 but before age 75, and
(c) $30,000 if the Director dies thereafter.
The Director’s beneficiary(ies) would receive no further benefits under the Director Retirement
Agreement, and the Company’s obligations under that agreement would be extinguished. The Company is entitled to any insurance policy death benefits remaining after payment of the amount indicated above to the Director’s beneficiary(ies).
12
Director Non-Qualified Deferred Compensation
The Company has implemented an elective Deferred Director Fee Plan, a nonqualified plan providing unfunded deferred
benefits for participating directors. Under the Plan, deferred director fees earn interest at a rate determined annually by the Company. During 2020, no Director elected to defer their director fees. The Company is entitled to any insurance
policy death benefits from an insurance policy purchased by the Company with a lump-sum premium payment of $75,000. While the plan is unfunded, the Company purchased life insurance policies on the lives of Directors participating in the Director
Non-Qualified Deferred Compensation Plan as an informal financing mechanism.
13
Report of The Audit Committee
The Audit Committee oversees relevant accounting, risk assessment, risk management and regulatory matters. It
meets with the Bank’s and the Company’s internal auditors and its independent registered public accounting firm to review the scope of their work as well as to review quarterly and annual financial statements and regulatory and public disclosures
with the officers in charge of financial reporting, control, and disclosure functions. After reviewing the independent registered public accounting firm’s qualifications, partner rotation and independence, the Audit Committee appoints the
independent registered public accounting firm subject to shareholder ratification, if required or sought. In addition, the Audit Committee reviews reports of examination conducted by regulatory agencies and follows up with management concerning any
recommendations and required corrective action, or to assess the Company’s internal control over financial reporting.
The Audit Committee reports regularly to the Board of Directors of the Bank and the Company and has the authority
to select, retain, terminate and approve the fees and other retention terms of special counsel or other experts or consultants, as it deems appropriate and necessary to perform its duties. In performing its functions, as outlined in the Audit
Committee Charter (available for review on the Bank’s website at www.thatsmybank.com) approved annually by the Bank’s Board of Directors, the Audit Committee of the
Bank acts only in an oversight capacity and necessarily relies on the work and assurances of management, which has the primary responsibility for financial statements and reports, and of the Company’s independent registered public accounting firm,
who, in their report, express an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles.
In connection with the December 31, 2020 financial statements of the Company, the Audit Committee of the Bank: (1)
reviewed and discussed the audited financial statements with management; (2) discussed with the Company’s independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61, (3) received the written
disclosures and the letter from the Company’s independent registered accounting firm required by Independence Standards Board Standard No. 1, and (4) has discussed with the Company’s independent registered public accounting firm such firm’s
independence. Based upon these reviews and discussions, the Audit Committee of the Bank recommended to the Board of Directors that the audited financial statements of the Company be included in the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission (“SEC”) for the fiscal year ended December 31, 2020.
Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate this Proxy Statement or future filings with the SEC, in whole or in part, this report of the Audit Committee of the Bank’s Board of Directors shall not be deemed to
be incorporated by reference into any such filings except to the extent that it is specifically incorporated by reference therein.
The Audit Committee of the Bank’s Board of Directors consists of five members who are each “independent directors,”
under the standards set forth in the Nasdaq Marketplace Rules. The Board of Directors has determined that Mr. Carbahal and Mr. McNaughton are audit committee financial experts under the rules of the SEC.
Respectfully submitted,
Audit Committee
John M. Carbahal, Chairman
Foy S. McNaughton
Foy S. McNaughton
Sean P. Quinn
Daniel F. Ramos
Mark C. Schulze
Daniel F. Ramos
Mark C. Schulze
14
Audit and Non–Audit Fees
Audit Fees
The total fees billed by Moss Adams LLP for professional services rendered for the audit of the Company’s financial
statements for fiscal year 2020 and the reviews of financial statements included in the Company’s Forms 10-Q during 2020 were $283,138. The total fees billed by Moss Adams LLP for professional services rendered for the audit of the Company’s
financial statements for fiscal year 2019 and the reviews of the financial statements included in the Company’s Forms 10-Q during 2019 were $275,658. Moss Adams LLP provided no other permitted non-audit services other than audit services during 2020
and 2019.
Audit-Related Fees
The total fees billed by Moss Adams LLP for assurance and related services that are reasonably related to the
performance of the audit and review of the Company’s quarterly and annual financial statements, including audits of financial statements of certain employee benefit plans, review of registration statements, and permitted internal audit outsourcing,
for fiscal years 2020 and 2019 were $19,234 and $18,177, respectively.
Tax Fees
Moss Adams LLP provided no tax services to the Company for the 2020 and 2019 fiscal years.
All Other Fees
No other fees were billed by Moss Adams LLP for fiscal years 2020 and 2019.
The Audit Committee of the Bank considered whether the provision of the services other than the audit services is
compatible with maintaining Moss Adams LLP’s independence.
Pre-Approval Policy for Services
Provided by
our Independent Registered Public Accounting Firm
our Independent Registered Public Accounting Firm
The Audit Committee has adopted a policy for pre-approval of audit and permitted non-audit services by the
Company’s independent registered public accounting firm. The Audit Committee will consider annually and, if appropriate, approve the provision of audit services by the Company’s independent registered public accounting firm and consider and, if
appropriate, pre-approve the provision of certain defined audit and non-audit services. The Audit Committee will also consider on a case-by-case basis and, if appropriate, approve specific engagements that are not otherwise pre-approved. There were
no permitted non-audit services performed by Moss Adams LLP in 2020.
Any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the
Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Audit Committee or one or more of its members. The member or members to whom such authority is delegated shall report any specific
approval of services at the Audit Committee’s next regular meeting. The Audit Committee will regularly review summary reports detailing all services being provided by the Company’s independent registered public accounting firm.
15
Security Ownership of Certain Beneficial Owners and Management
The figures in the table are based on beneficial ownership as of February 26, 2021 and have been adjusted for a 5% stock dividend paid by the Company on
March 25, 2021 to shareholders of record on February 26, 2021. Except as indicated in footnotes and subject to community property laws, where applicable, the individuals named in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
|
Name
|
Shares beneficially owned
|
Shares acquirable within 60 days by exercise of options
|
Percent of
stock |
|
Patrick R. Brady
(1)
|
6,090
|
0
|
*
|
|
John M. Carbahal
(2)
|
81,438
|
0
|
*
|
|
T. Joe Danelson
|
22,938
|
61,712
|
*
|
|
Gregory DuPratt
(3)
|
39,516
|
0
|
*
|
|
Barbara A. Hayes
|
7,395
|
0
|
*
|
|
Richard M. Martinez
(4)
|
64,029
|
0
|
*
|
|
Foy S. McNaughton
(5)
|
89,064
|
0
|
*
|
|
Sean P. Quinn
(6)
|
3,622
|
0
|
*
|
|
Daniel F. Ramos
|
0
|
0
|
*
|
|
Mark C. Schulze
|
584,259
|
0
|
4.27%
|
|
Jeremiah Z. Smith
(7)
|
41,853
|
93,705
|
*
|
|
Louise A. Walker
(8)
|
134,854
|
108,705
|
1.78%
|
|
All directors and executive officers as a group (12 people)
|
1,075,058
|
264,122
|
9.79%
|
_________________________
* Less than 1%.
* Less than 1%.
| (1) |
Shares held jointly with Mr. Brady’s spouse.
|
| (2) |
Includes 20,146 shares held jointly with Mr. Carbahal’s spouse, 39,932 shares held by the Carbahal & Company An Annual Accumulation Company, of which Mr. Carbahal
is a principal and partner, 2,748 shares held separately by Mr. Carbahal’s spouse, and 7,297 shares held by John M. Simmons Irrevocable Family Trust, of which Mr. Carbahal is co-trustee and has voting power with respect to such shares.
|
| (3) |
Includes 15,639 shares held separately by Mr. DuPratt’s spouse.
|
| (4) |
Includes 38,301 shares held in the name of Triad Farms, of which Mr. Martinez is a principal and shareholder, and 6,875 shares held separately by Mr. Martinez’s spouse.
|
| (5) |
Includes 54,934 shares held by The McNaughton Family Trust, of which Mr. McNaughton is a co-trustee and shares voting and investment power with respect to such shares.
|
| (6) |
Shares held jointly with Mr. Quinn’s spouse.
|
| (7) |
Includes 2,737 shares held jointly with Mr. Smith’s spouse and 360 shares held by Mr. Smith as custodian for his children.
|
| (8) |
Includes 46,854 shares held jointly with Ms. Walker’s spouse, and 10,984 shares held by Ms. Walker as custodian for her child.
|
16
Executive Officers
Set forth below is certain information regarding our executive officers.
|
Name and Title
|
Age
|
Principal Occupation During the Past Five Years
|
|
Louise A. Walker, President/Chief Executive Officer/Director
|
60
|
President, Chief Executive Officer and Director of the Company since January 2011 to present.
|
|
Jeremiah Z. Smith, Senior Executive Vice President/ Chief Operating Officer
|
45
|
Senior Executive Vice President, Chief Operating Officer and Chief Financial Officer of the Company from October 2014 to February 2018. Senior
Executive Vice President and Chief Operating Officer since February 2018 to present.
|
|
T. Joe Danelson, Executive Vice President, Chief Credit Officer
|
63
|
Executive Vice President and Chief Credit Officer of the Company since January 2015 to present.
|
Executive Compensation
In 2020 the Company achieved strong results both financially and operationally.
|
•
|
The Company reported annual net income of $12.2 million and diluted earnings per share of $0.90 for the year ended December
31, 2020. Our financial results were a result of:
|
|
o
|
A 14.5% increase in total loans (including loans held-for-sale), net of allowance from $773.0M as of
December 31, 2019 to $885.0M as of December 31, 2020.
|
|
o
|
A 29.8% increase in deposits from $1.14B as of December 31, 2019 to $1.48B as of December 31, 2020.
|
|
o
|
A 265.9% increase in gains on sales of mortgage loans driven by increased volumes of residential mortgage
loan production.
|
Operationally Management executed on several key fronts.
|
•
|
In March, the Company launched our new digital and mobile banking platform with a long list of added features and benefits.
|
|
•
|
In April, the Company launched our mobile wallets: Apple Pay, Android Pay and Google Pay.
|
|
•
|
Our residential mortgage division increased production by 47.7% over 2019 to $107.9M in 2020.
|
|
•
|
The Company actively assisted our communities upon the onset of the COVID 19 pandemic by:
|
|
o
|
Providing temporary loan relief, representing approximately $102MM in loans, to customers who were adversely impacted by the
pandemic including both loan modifications and temporary forbearance relief.
|
|
o
|
Originated over 1,300 Paycheck Protection Loans totaling $235MM to help local businesses keep their 24,500+ employees on
payroll.
|
|
o
|
Made a management decision to automatically waive overdraft/NSF fees and early withdrawal penalties for all business and
consumer customers at the inception of the initial lockdowns in March thru the end of July.
|
|
o
|
Waived all late fees on performing business and consumer loans from initial lockdowns in March thru the end of September.
|
|
o
|
Kept branches open for business and consumer customers during the COVID-19 shutdown.
|
|
•
|
The Company actively assisted employees during the COVID-19 pandemic by:
|
|
o
|
Allowing employees to work remotely when appropriate.
|
|
o
|
Purchasing additional hygiene/sanitation products for employees and customers.
|
|
o
|
Installing plexiglass shields for branch staff and customer protection.
|
|
o
|
Paying spot bonuses to front line and back-office employees that were on site to continue to meet the financial needs of our
customers.
|
|
o
|
Not reducing hours, furloughing, or terminating any employees as a result of the pandemic.
|
17
The following table sets forth, for the years ended December 31, 2020, and December 31, 2019, a summary of the
compensation earned by the Chief Executive Officer, and the Company’s other named executive officers who earned over $100,000 in total compensation in 2020.
Summary Compensation Table
|
Name and Principal Position
|
Year
|
Salary
($) (1) |
Bonus
($) (2) |
Stock
Awards
($)
(3)
|
Option
Awards
($)
(3)
|
Non-Equity Incentive Plan Compensation ($)
(4)
|
All
Other
Compensation
($)
(5)
|
Total ($)
|
|
Louise A. Walker
President, Chief Executive Officer and Director of the Bank and Company
|
2020
|
449,308
|
15,000
|
105,067
|
35,031
|
125,760
|
32,967
|
763,133
|
|
2019
|
419,760
|
–
|
182,491
|
15,901
|
101,151
|
40,805
|
760,108
|
|
|
Jeremiah Z. Smith
Senior Executive Vice President, Chief Operating Officer of the Bank and Company
|
2020
|
308,990
|
12,000
|
56,657
|
56,674
|
74,157
|
100,046
|
608,524
|
|
2019
|
291,500
|
25,000
|
39,346
|
39,457
|
60,201
|
73,329
|
528,833
|
|
|
T. Joe Danelson
Executive Vice President, Chief Credit Officer of the Bank and Company
|
2020
|
259,906
|
–
|
41,796
|
41,816
|
51,928
|
46,578
|
442,024
|
|
2019
|
244,944
|
13,000
|
26,249
|
26,306
|
42,155
|
44,795
|
397,449
|
| 1. |
Includes amounts contributed to the Company’s Profit Sharing/401(k) Plan at the election of the named executive officers.
|
| 2. |
The amounts shown are for discretionary bonuses determined by the Bank’s Compensation Committee based on the Bank’s performance in 2020 and 2019 and for management
efforts. For additional narrative, please see “Non-Equity Incentive Plan and Bonus Compensation” (below).
|
| 3. |
Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts reported above in the “Stock Awards” and “Option
Awards” columns represent the aggregate grant date fair value of stock awards and option awards granted in the respective fiscal years, as determined in accordance with Accounting Standards Codification 718. The grant date fair market value
for stock options is based on certain assumptions that are explained in Note 14 to the Company’s financial statements for the year ended December 31, 2020, which are included in the Company’s 2020 Annual Report on Form 10-K.
|
|
4.
|
Amounts listed in this column represent bonuses paid under the Company’s Incentive Compensation Plan for each respective year. These amounts are not reported in a
separately identified Bonus column because the awards are tied to corporate performance objectives for each respective year. Payments made with respect to each year’s respective performance are paid in March of the following year.
|
| 5. |
Includes company funded non-qualified deferred compensation benefits and retirement profit sharing contributions by the Company in 2020 and 2019. Louise A. Walker
received retirement profit sharing contributions of $32,967 and $40,805 for 2020 and 2019, respectively. Jeremiah Z. Smith received non-qualified deferred compensation benefits of $67,079 and $32,524 and retirement profit sharing
contributions of $32,967 and $40,805 for 2020 and 2019, respectively. T Joe Danelson received non-qualified deferred compensation benefits of $15,578 and $13,795 and retirement profit sharing contributions of $31,000 and $31,000 for 2020 and
2019, respectively. The aggregate amount of perquisites and other personal benefits or property in 2020 and 2019 did not exceed $10,000 for any named executive officer.
|
18
Narrative to Summary Compensation Table
Named Executive Officers
The Summary Compensation Table and the table which follows provide compensation information for
Ms. Walker as the President and Chief Executive Officer, Mr. Smith as the Senior Executive Vice President and Chief Operating Officer, and Mr. Danelson as the other named executive officer of the Company, other than the President and Chief Executive
Officer, who received more than $100,000 in total compensation during 2020.
Non-Equity Incentive Plan and Bonus Compensation
The Company uses annual incentives to focus attention on current strategic priorities and drive
achievement of short-term corporate objectives. Awards are provided under the terms of the Company’s Incentive Compensation Plan. All executive officers are eligible to receive annual cash incentive compensation at the end of each year if
performance goals are achieved. The overall incentive compensation pool is created based on actual performance to goals.
The 2020 award metrics were approved in December 2019 and were contingent on Company performance
relative to Asset Quality, Efficiency Ratio, Core Deposit Growth, Return on Equity, Net Income and Overall Quality Loan Growth, which were weighted 15%, 15%, 20%, 15%, 15% and 20%, respectively. These award metrics were not adjusted due to the onset
of COVID-19 and the resultant impact on operations and financial results. Achievement of these measures allows for the creation of a pool for the annual incentive plan. After taking into account the weighting of all metrics, the Compensation
Committee determined that the annual Company incentive objectives for 2020 were achieved to the degree sufficient to pay out the dollars set aside in the pool. With respect to 2020 performance, the Company made the cash payments identified in the
“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The table below shows the award opportunities at threshold, target, and maximum, as well as each executive’s actual award as a percentage of salary. The Company
reserves the right to exercise discretion on payout levels after performance levels have been certified.
19
|
Name
|
2020 Non-Equity Incentive Opportunity as % of Salary
|
Actual 2020
Award as a Percentage of Salary
|
||
|
Threshold
|
Target
|
Max
|
||
|
Louise A. Walker
|
0%
|
35.0%
|
50.0%
|
28.0%
|
|
Jeremiah Z. Smith
|
0%
|
30.0%
|
45.0%
|
24.0%
|
|
T. Joe Danelson
|
0%
|
25.0%
|
40.0%
|
20.0%
|
In addition to the 2020 Non-Equity Incentive Plan payouts, the Compensation Committee evaluated each named executive
officer performance compared to the 2020 incentive plan goals. The Committee determined that even though only some of the incentive plan metrics were achieved, the Company achieved significant results that were not included in the 2020 incentive
plan goals. It was determined that these results were critical to the Bank’s performance in 2020 and should have a long-term positive effect on the Company’s performance. Examples of these achievements include the Bank’s origination of over 1,300
loans under the Paycheck Protection Program, totaling more than $230 million and strategic leadership during the unprecedented COVID-19 pandemic during 2020. The Compensation Committee determined that it was appropriate to exercise discretion to
recognize these achievements and provided a discretionary bonus to Mr. Smith ($12,000) and Ms. Walker ($15,000) for their leadership and contributions to these results.
Stock Option and Restricted Stock Awards
In 2020, the three named executive officers received grants of stock options and/or restricted
stock awards under the Company’s 2016 Stock Incentive Plan. Stock option and restricted stock awards are in line with the Company’s compensation philosophy, which is designed to retain executive management and reward long-term contributions to the
Company. All stock options awarded to named executive officers during 2020 vest and become exercisable 25% at the end of the first year and 25% on the anniversary of each of the three years thereafter. All restricted stock awards to named executive
officers during 2020 cliff vest on the earlier of the fourth anniversary of the date of grant or upon normal retirement (normal retirement is defined as age 65 or later).
The numbers of stock options and restricted stock granted and exercise prices with respect to 2020 awards and
detail regarding the number of options and restricted stock held by each named executive officer at year-end is set forth below in the 2020 Outstanding Equity Awards at Fiscal Year-End Table.
At the Annual Meeting of Shareholders held on May 19, 2015, the Company’s shareholders approved the First Northern Community Bancorp
2016 Stock Incentive Plan. All option grants and restricted stock awards to named executive officers in 2019 and 2020 were made under the 2016 Stock Incentive Plan.
Employment Agreements
In January 2012, the Bank entered into an employment agreement with Ms. Walker. The agreement has a one-year term
which renews automatically for consecutive one-year terms unless Ms. Walker or the Bank gives advance notice that the agreement will not renew. Pursuant to such terms, the employment agreement was extended on December 31, 2020 to December 31, 2021.
The initial annual base salary stated in the employment agreement was $234,600. The base annual salary has been adjusted on an annual basis since 2012 and may continue to be adjusted at the beginning of each year based on Ms. Walker’s performance in
the preceding year, as determined by the Board of Directors. Ms. Walker’s annual base salary for 2020 is set forth in the Summary Compensation Table. Upon an involuntary termination without cause (as defined therein) or termination for good reason
(as defined therein) outside a change of control period, Ms. Walker will receive, in a lump sum, 150% of the sum of (i) her annual base salary as of the date of termination and (ii) the average of the annual bonuses awarded to her for the three most
recent consecutive years prior to the date of termination, as well as subsidized continuation health coverage for herself and her dependents for up to 18 months. Upon an involuntary termination without cause or termination for good reason or the
Bank’s election not to extend the term of her employment agreement within two years following a change of control, Ms. Walker will receive, in a lump sum, 250% of the sum of (i) her annual base salary as of the date of termination and (ii) the
average of the annual bonuses awarded to her for the three most recent consecutive years prior to the date of termination, subsidized continuation health coverage for herself and her dependents for up to 24 months and outplacement assistance.
20
In April 2012, the Bank entered into an employment agreement with Mr. Smith. The agreement had an initial
nine-month term which renews automatically for consecutive one-year terms, unless the executive officer or the Bank gives advance notice that the agreement will not renew. Pursuant to such terms, the employment agreement was extended on December 31,
2020 to December 31, 2021. The initial annual base salary stated in the employment agreement was $148,000. The base annual salary has been adjusted on an annual basis since 2012 and may continue to be adjusted at the beginning of each year based on
Mr. Smith’s performance in the preceding year. Mr. Smith’s annual base salary for 2020 is set forth in the Summary Compensation Table. Upon an involuntary termination without cause (as defined therein) or termination for good reason (as defined
therein) outside a change of control period, Mr. Smith will receive, in a lump sum, 100% of the sum of (i) his annual base salary as of the date of termination and (ii) the average of the annual bonuses awarded to him for the three most recent
consecutive years prior to the date of termination, as well as subsidized continuation health coverage for himself and his dependents for up to 18 months. Upon an involuntary termination without cause or termination for good reason or the Bank’s
election not to extend the term of his employment agreement within two years following a change of control, Mr. Smith will receive, in a lump sum, 200% of the sum of (i) his annual base salary as of the date of termination and (ii) the average of the
annual bonuses awarded to him for the three most recent consecutive years prior to the date of termination, subsidized continuation health coverage for himself and his dependents for up to 24 months and outplacement assistance.
Supplemental Executive Retirement and Salary Continuation Plan Agreements
The Company does not have a qualified defined benefit pension plan providing retirement benefits based on final
compensation and years of service. However, the Company has entered into Supplemental Executive Retirement Plan Agreements (“SERP”) with Ms. Walker and Mr. Smith. From 2002 until December 2012, Ms. Walker had been a party to a Salary Continuation
Agreement. In 2006, the Board changed the manner in which retirement benefits are provided to certain executive officers. The Board’s intent was to coordinate the various forms of retirement benefits provided to executives in order to enhance
internal equity and to better target the overall level of retirement benefits provided. The result was the adoption of a new SERP that provides a total benefit of 50% of average compensation from three sources: social security retirement benefits,
the profit sharing plan, and the new SERP. Mr. Smith and the Company entered into the new SERP agreement in 2011.
The Salary Continuation Agreements included a provision limiting changes to the agreement without the executive’s
written consent. In order to comply with this provision, the Board in 2006 provided each executive officer the option to move from his or her Salary Continuation Plan into the new SERP. Ms. Walker moved into the new SERP agreement on December 31,
2012.
The SERP benefit is calculated using 3-year average salary plus 7-year average bonus (average compensation). For
each year of service, the benefit formula credits 2% of average compensation (2.5% for the Chief Executive Officer) up to a maximum of 50%. Therefore, for an executive serving 25 years (20 years for the Chief Executive Officer), the target benefit
is 50% of average compensation.
The SERP target benefit is reduced for other forms of retirement income. Reductions are made for 50% of the social
security benefit expected at age 65 and for the accumulated value of contributions the Bank makes to the executive’s profit sharing plan. For purposes of this reduction, contributions to the profit sharing plan are accumulated each year at a 3-year
average of the yields on 10-year treasury securities. Retirement benefits are paid monthly for 120 months plus 6 months for each full year of service over 10 years, up to a maximum of 180 months.
21
The SERP agreements provide for reduced benefits in the case of early retirement (the later of the executive
officer’s 55th birthday or the age at which the executive officer has at least 10 years of service with the Company). The early commencement factor is 1.0 minus the product of 0.41667% multiplied by the number of full calendar months that early
retirement precedes age 65. Benefits are also payable in the event of death, disability, or termination within 24 months following a change in control.
Eligibility to participate in the SERP and Salary Continuation Plans is limited to a select group of management or
highly compensated employees of the Bank that are designated by the Board.
Profit Sharing/401(k) Plan and Trust
The Company has an interest in providing financial security and retirement savings opportunities to its employees and views its
retirement plans as a means of attracting and retaining employees in a competitive labor market. To accomplish these goals, the Company sponsors a Profit Sharing/401(k) Plan and Trust Agreement pursuant to which the Company makes annual
profit-sharing contributions as determined by the Bank’s Board of Directors depending on the profitability of the Bank during the year, subject to certain limitations on contributions under the Internal Revenue Code (“IRC”) and the Profit Sharing
Plan.
Employees with a minimum of one year of service with the Company are eligible to participate in the profit sharing portion of the Profit
Sharing Plan. The Company’s profit sharing contribution is allocated among participating employees, including the NEOs, in the proportion which each participant’s covered compensation for the fiscal year bears to the total compensation for all
participating employees for such year, subject to statutory limits. Contributions to a participant’s account vest after six years, and participants may receive distributions from their profit sharing accounts only upon retirement (or age 59 ½),
termination of employment, disability or death.
The Company generally contributes annually to the Profit Sharing Plan an amount equal to the lesser of 10% of the
Company’s net income before taxes, net of loan loss experiences.
Other Plans and Benefits
Non-Qualified Deferred Compensation Plan
Consistent with the desire to provide retirement and savings opportunities for a select group of management and highly compensated
employees, the Company provides a deferred compensation plan for its named executive officers called the “2001 Executive Deferral Plan.” This plan provides a way to offset the effect of tax law limitations on benefits under tax-qualified plans. The
plan is a nonqualified plan providing the named executive officers with an unfunded, deferred compensation program. Under the plan, the named executive officers may elect to voluntarily defer a portion of their current compensation. Deferred amounts
earn interest at an annual rate determined by the Bank’s Compensation Committee and approved by the Board of Directors. In 2020, deferred amounts earned interest at 2.484%, representing 120% of the Applicable Federal Rate. In 2020, no executives
elected to voluntarily defer any compensation.
In 2017, the Compensation Committee evaluated and approved the implementation of a performance-based, Company funded non-qualified
deferred compensation benefit for two of its named executive officers, Mr. Smith and Mr. Danelson. The benefits fall under the Company’s 2001 Executive Deferral Plan, which was amended as of July 20, 2017 to allow for Company contributions on behalf
of a select group of management and highly compensated employees. The individual benefits became effective on August 1, 2017. The purpose of the benefits is to recognize the contributions of these select key executives to the Company, to drive
continued and future business results, and to serve as a retention vehicle for their continued employment. The benefits are performance-based in that the Compensation Committee annually establishes and approves performance metrics at the beginning of
each performance period, and no contributions are made to the Executive Deferral Plan unless the goals are achieved, or discretion is exercised. Company contributions are based on a percent of base salary and range from 0% to 15% of base salary for
Mr. Danelson and from 0% to 30% of base salary for Mr. Smith. Company contributions are eligible to earn the same interest paid on voluntary deferred contributions. Company contributions and any interest earned are subject to vesting requirements.
The Committee determined that even though the incentive plan metric was not achieved, the Company achieved significant results that were not included in the 2020 Executive Deferral Plan goals. It was determined that these results were critical to
the Bank’s performance in 2020 and should have a long-term positive effect on the Company’s performance. Examples of these achievements include the Bank’s origination of loans under the Paycheck Protection Program and leadership during the
unprecedented COVID-19 pandemic. The Compensation Committee determined that it was appropriate to exercise discretion to recognize these achievements.
22
These contributions provide supplementary executive retirement/retention awards that vest and become payable upon attainment of one of
the following: continued employment to age 65, death while an employee of the Company, disability while an employee of the Company, an involuntary termination without Cause or voluntary termination for Good Reason (each, as defined under the
Executive Deferral Plan), or a termination within 24 months of a change in control. Mr. Smith’s award also provides for an immediate vesting if any individual other than Ms. Walker or Mr. Smith is appointed as Chief Executive Officer of the Company
and becomes 50% vested on the date that Mr. Smith becomes Chief Executive Officer of the Company.
Change of Control Agreements
The Company provides certain named executive officers with agreements that provide certain specified benefits upon
a change in control of the Company. These agreements endeavor to help the Company retain key employees, by providing those executives some certainty in compensation in the event the Company was acquired, and also help to ensure that the Company will
have the benefit of its named executive officers during and through the consummation of any merger. For more information, please refer to “Employment Agreements” above.
In January 2015, the Bank entered into a Change of Control Agreement with Mr. Danelson. Pursuant to the agreement,
upon an involuntary termination without cause (as defined therein) or resignation due to change of control (as defined therein) within six (6) months following the Bank’s formal approval of a Change of Control (as defined therein), Mr. Danelson will
receive in a lump sum, 200% of the sum of (i) his annual base salary on the date of the change of control and (ii) the average of the annual bonuses awarded to him for the three most recent consecutive years prior to the change of control, and
subsidized continuation health coverage for himself and his dependents for up to 24 months and possible outplacement assistance.
23
2020 Outstanding Equity Awards at Fiscal Year-End*
The following table sets forth information regarding outstanding equity-based awards, including the potential dollar
amount realizable with respect to each award.
|
Option Awards
|
Stock Awards
|
|||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of Shares That Have Not Vested
(#)
(5)
|
Market Value of Shares That Have Not Vested
($)
(6)
|
|
Louise A. Walker
|
4,775
|
-
|
3.52
|
02/16/2022
|
38,682
|
372,094
|
|
10,665
|
-
|
4.22
|
02/21/2023
|
|||
|
8,943
|
-
|
5.37
|
02/21/2024
|
|||
|
14,533
|
-
|
5.84
|
02/16/2025
|
|||
|
18,796
|
-
|
6.25
|
02/17/2026
|
|||
|
16,042
|
5,344
(1)
|
9.59
|
02/12/2027
|
|||
|
12,187
|
12,804
(2)
|
11.26
|
02/12/2028
|
|||
|
2,405
|
7,208
3)
|
9.85
|
02/20/2029
|
|||
|
-
|
26,090
4)
|
10.66
|
02/18/2030
|
|||
|
Jeremiah Z. Smith
|
3,228
|
-
|
3.31
|
03/17/2021
|
16,475
|
158,489
|
|
2,868
|
-
|
3.52
|
02/16/2022
|
|||
|
4,265
|
-
|
4.22
|
02/21/2023
|
|||
|
4,878
|
-
|
5.37
|
02/21/2024
|
|||
|
13,539
|
-
|
5.84
|
02/16/2025
|
|||
|
13,539
|
-
|
6.25
|
02/17/2026
|
|||
|
11,190
|
3,730
(1)
|
9.59
|
02/12/2027
|
|||
|
9,322
|
9,324
(2)
|
11.26
|
02/12/2028
|
|||
|
5,965
|
17,889
(3)
|
9.85
|
02/20/2029
|
|||
|
-
|
42,210
(4)
|
10.66
|
02/18/2030
|
|||
|
T. Joe Danelson
|
14,534
|
-
|
5.83
|
01/04/2025
|
11,570
|
111,312
|
|
11,326
|
-
|
6.25
|
02/17/2026
|
|||
|
7,744
|
2,580
(1)
|
9.59
|
02/12/2027
|
|||
|
6,525
|
6,524
(2)
|
11.26
|
02/12/2028
|
|||
|
3,978
|
11,924
(3)
|
9.85
|
02/20/2029
|
|||
|
-
|
31,144
(4)
|
10.66
|
02/18/2030
|
|||
*The figures in the table above are based on data as of December 31, 2020 and have been adjusted for a 5% stock
dividend paid by the Company on March 25, 2021 to shareholders of record on February 26, 2021.
| 1 |
All remaining unexercisable options will vest and become exercisable on February 12, 2021.
|
| 2 |
Remaining unexercisable options will vest and become exercisable in two equal installments on February 12, 2021 and February 12, 2022.
|
| 3 |
These options will vest and become exercisable in three equal installments on February 20, 2021, February 20, 2022, and February 20, 2023.
|
| 4 |
These options will vest and become exercisable in four equal installments on February 18, 2021, February 18, 2022, February 18, 2023, and February 18, 2024.
|
| 5 |
These awards represent time based restricted stock awards that vest in their entirety on the fourth anniversary of grant date. These awards were granted on February
14, 2017, February 13, 2018, February 20, 2019, and February 18, 2020.
|
| 6 |
The fair value was determined using the closing price of First Northern Community Bancorp stock on December 31, 2020 adjusted for a 5% stock dividend paid on March 25,
2021 to shareholders of record on February 26, 2021. The adjusted closing stock price on that date was $9.62.
|
24
PROPOSAL 2
Approval of Amendment To The First Northern Community Bancorp
2016 Stock Incentive Plan
2016 Stock Incentive Plan
The Company is seeking shareholder
approval of an amendment to the First Northern Community Bancorp 2016 Stock Incentive Plan (the “Plan”) to increase the total number of shares authorized for issuance under the Plan by 500,000 shares. The Plan was adopted by the Board of
Directors and approved by shareholders in 2015. As adjusted for stock dividends and forfeitures and other permitted adjustments under the Plan since Plan adoption, this share limit now equals 810,949 shares. As of April 1, 2021, 90,876 shares (of the 810,949 shares authorized for issuance under the Plan) remain reserved for future awards under the Plan. As a result, the Company is seeking shareholder
approval of an amendment to the Plan to increase the available shares under the Plan by 500,000 shares, or from 810,949 to 1,310,949 shares. The purpose of the Plan is to promote the long-term success of the Company and the creation of
shareholder value by (a) encouraging employees, non-employee directors and consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of employees, non-employee directors and consultants with exceptional
qualifications, and (c) linking them directly to shareholder interests through increased stock ownership.
Proposed Amendment
As of April 1, 2021, 90,876 shares remain reserved for future awards under the Plan. Since the inception of the
Plan, there have been six award dates, annually beginning in 2016. On average, the number of shares awarded each year has been 121,272 shares. There are presently not enough shares available to make a 2022 annual award approximating the average
annual number of shares awarded over the last six years. Assuming future annual grants approximating this average, increasing the available shares under the Plan to an aggregate of 1,310,949 shares should allow the Company to be able to make annual
awards at approximately current levels for four more years.
Set forth below is a summary of the material terms of the Plan, which is qualified in its entirety by the specific
language of the Plan. A copy of the Plan as proposed to be amended is attached to this Proxy Statement as Appendix A.
Administration
The Plan is administered by the Compensation Committee. Subject to the requirements of applicable law, the
Compensation Committee may designate persons other than its members to carry out its responsibilities under the Plan (including the selection of and the granting of awards under the Plan to participants), except that the Compensation Committee may
not delegate its authority with regard to the selection for participation of or the granting of awards under the Plan to persons subject to Section 16 of the Securities Exchange Act of 1934. The Board of Directors may also appoint one or more
separate committees of the Board, each composed of one or more directors, who may administer the Plan with respect to employees who are not considered officers or directors under Section 16 of the Securities Exchange Act of 1934, as amended, may
grant awards under the Plan to such employees and may determine all terms of such awards. The Board of Directors may also authorize one or more of our officers to designate employees, other than officers under Section 16 of the Exchange Act, to
receive awards and/or to determine the number of such awards to be received by such persons, provided that the Board of Directors will specify the total number of awards that such officers may award. As used in this summary, the term
“administrator” means the Compensation Committee or its delegate.
Eligibility
Employees of the Company, and those of the Company’s subsidiaries and affiliates, are eligible to participate in
the Plan. Non-employee members of the Board of Directors and other persons that provide consulting services to the Company or its subsidiaries and affiliates are also eligible to participate in the Plan. The term “subsidiary” is used in this
summary to refer to any corporation, if our Company or one or more of our subsidiaries own not less than 50% of the total combined voting power of all classes of outstanding stock of such corporation. The term “affiliate” is used in this summary to
refer to any entity other than a subsidiary, if our Company or one or more of our subsidiaries own not less than 50% of such entity.
25
The Plan provides for the grant of awards in the form of options (which may constitute incentive stock options or
nonstatutory stock options), restricted stock, stock appreciation rights, stock units and performance-based awards. Employees, non-employee directors and consultants are eligible for the grant of restricted stock, stock units, nonstatutory options,
stock appreciation rights and performance-based awards under the Plan. Only employees of the Company, a parent or a subsidiary are eligible for the grant of incentive stock options.
Shares Subject to the Plan
Upon shareholder approval, 1,310,949 shares of common stock have been authorized for issuance under the plan. This
number of shares includes any shares subject to outstanding awards granted under the 2006 Stock Incentive Plan, as of the effective date of the Plan, to the extent those awards expire, terminate or are cancelled for any reason without the issuance
or delivery of such shares, and any shares subject to vesting restrictions under the 2006 Stock Incentive Plan on the effective date of the Plan that are subsequently forfeited. As of December 31, 2020, 679,753 of the authorized 1,310,949 shares
under the Plan have been awarded.
No participant in the Plan may receive option grants, stock appreciation rights, restricted stock or stock units
for more than 50,000 shares total in any calendar year. With respect to awards granted to non-employee directors under the Plan during the term of the Plan, the total number of shares of common stock which may be issued upon exercise or settlement
of such awards is 100,000 shares and no outside director may receive option grants, stock appreciation rights, restricted stock or stock units for more than 3,000 shares total in any calendar year. Awards granted to non-employee directors under the
Plan will be vested as to all the shares of common stock subject such awards in the event a change in control takes place with respect to the Company. To date, no shares have been granted under the Plan to non-employee directors.
These limitations, and the terms of outstanding awards, will be adjusted as appropriate in the event of a stock
dividend, stock split, reclassification of stock or similar event. If restricted shares or shares issued upon the exercise of options are forfeited, then such shares will become available for awards under the Plan. If stock units, options, or stock
appreciation rights are forfeited or terminate for any reason before being settled or exercised, or an award is settled in cash without the delivery of shares to the holder, then the corresponding shares will again become available for awards under
the Plan. Shares surrendered or withheld to satisfy the purchase price or exercise price or withheld to satisfy tax withholding obligations will not again become available for awards under the Plan.
The closing price for the common stock on the OTC Bulletin Board as of March 31, 2021, was $10.58 per share.
Plan Features
The Plan provides for various awards, which are described below:
Stock Options
A stock option is the right to purchase a certain number of shares of stock, at a certain exercise price, in the
future. Stock options may be granted independently or in consideration of a reduction in the recipient’s compensation. The Plan provides for the grant of both options intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code (Code) and options that are not intended to so qualify. Options intended to qualify as incentive stock options may be granted only to persons who are our employees or are employees of our subsidiaries.
The Compensation Committee will select the recipients who are granted options and, consistent with the terms of
the Plan, prescribe the terms of any specific award granted under the Plan, including any vesting arrangement and exercise period. A stock option agreement may provide for the accelerated exercisability in the event of the recipient’s death,
disability, or retirement and may provide for expiration prior to the end of its term in the event of the termination of the recipient’s service.
The exercise price of incentive stock options is set by the Compensation Committee but may not be less than 100%
of the fair market value of the common stock as of the date of grant, and in the event a recipient is deemed to be a 10% owner of the Company or one of our subsidiaries, the recipient is not eligible to receive an incentive stock option (unless
such grant satisfies the requirements of Code Section 422(c)(5)). The exercise price of a nonqualified stock option cannot be less than 100% of the common stock’s fair market value on the date the option is granted. The Internal Revenue Code
currently limits to $100,000 the aggregate value of common stock for which incentive stock options may first become exercisable in any calendar year under the Plan or any other option plan adopted by the Company. The exercise price of a
nonstatutory stock option is set by the Compensation Committee.
26
Within the limitations of the Plan, including any shareholder approval requirements, the administrator may modify,
extend or renew outstanding options or may accept the cancellation of outstanding options (to the extent not previously exercised), in return for the grant of new options for the same or a different number of shares and at the same or a different
exercise price, or in return for the grant of the same or a different number of shares. No modification of an option will, without the consent of the recipient, materially impair his or her rights or obligations under such option.
The option price may be paid in cash or, to the extent that the stock option agreement so provides, by
surrendering shares of common stock, in consideration of services rendered to the Company, by delivery of an irrevocable direction to a securities broker to sell shares and to deliver all or part of the sale proceeds to the Company in payment of
the aggregate exercise price, by “net exercise” arrangement, or in any other form that is consistent with applicable laws, regulations and rules.
Options may be exercised in accordance with requirements set by the administrator. In no event may options
granted under the Plan be exercised more than 10 years after the date of grant (five years after the date of grant if the grant is an incentive stock option to an employee who owns more than 10% of the total combined voting power of all classes of
the Company’s capital stock). Each stock option agreement will set forth the extent to which the recipient will have the right to exercise the option following the termination of the recipient’s service with us and our subsidiaries, and the right
to exercise the option of any executors or administrators of the recipient’s estate or any person who has acquired such option(s) directly from the recipient by bequest or inheritance.
Stock Appreciation Rights.
A stock appreciation right entitles the recipient to receive a payment of up to the amount by which the fair
market value of a share of common stock on the date of exercise exceeds the base value for a share of common stock as established by the administrator at the time of grant of the award. The Compensation Committee also will select the recipients
who receive stock appreciation rights under the Plan. Stock appreciation rights may be granted independently or in consideration of a reduction in the recipient’s compensation. A stock appreciation right will be exercisable at such times and
subject to such conditions as may be established by the administrator. There is a minimum vesting period of twelve (12) months before any award granted under the Plan will become exercisable. A stock appreciation right may be granted either alone
or in tandem with other awards under the Plan. The amount payable upon the exercise of a stock appreciation right may be settled in cash or by the issuance of shares of common stock.
Restricted Share Awards
Restricted stock is a share award that may be conditioned upon continued service, the achievement of performance
objectives or the satisfaction of any other condition as specified in a restricted stock agreement. The Compensation Committee will select the recipients who are granted restricted shares and, consistent with the terms of the Plan, will determine
the terms and conditions of any restricted stock award, including any vesting arrangement or transfer restrictions or both, which will be set forth in a restricted stock agreement to be entered into between the Company and each grantee. Shares may
be awarded under the Plan for such consideration as the Compensation Committee may determine, including without limitation cash, cash equivalents, future services, or services rendered prior to the award, without a cash payment by the grantee.
Restricted Stock Units
Under the Plan, the Compensation Committee may also grant restricted stock units that give recipients the right to
acquire a specified number of shares of stock, or in the Compensation Committee’s discretion, the equivalent value in cash, at a future date upon the satisfaction of certain conditions, including any vesting arrangement or performance criteria,
established by the Compensation Committee and as set forth in a stock unit agreement. Subject to the terms of the Plan, the Compensation Committee will determine the terms and conditions of any stock unit award, which will be set forth in a stock
unit agreement to be entered into between the Company and each grantee. Restricted stock units may be granted in consideration of a reduction in the recipient’s other compensation, but no cash consideration is required of the recipient. Recipients
of restricted stock units do not have voting or dividend rights, but may be credited with dividend equivalent compensation.
27
Recapitalizations, Stock Splits or Similar Capital Transactions
In the event of a recapitalization, stock split or similar capital transaction, appropriate adjustment will be
made to the number of shares reserved for issuance under the Plan, including the limitation regarding the total number of shares underlying awards given to an individual participant in any calendar year, and other adjustments in order to preserve
the benefits of outstanding awards under the Plan. Neither the Board of Directors nor the Compensation Committee nor their delegates may amend the terms of outstanding options or stock appreciation rights to reduce the exercise price or cancel
outstanding options or stock appreciation rights with an exercise price above fair market value per share in exchange for another option, stock appreciation right or other award, unless the shareholders of the Company have previously approved such
an action or the action relates to such an adjustment.
Mergers
Generally, if the Company is a party to a merger or other reorganization, outstanding awards will be subject to
the agreement of merger or reorganization. Subject to compliance with Section 409A of the Code, such agreement may provide for: (i) the continuation of the outstanding awards by the Company, if the Company is a surviving corporation; (ii) the
assumption of the outstanding awards by the surviving corporation or its parent or subsidiary; (iii) the substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding awards; (iv) immediate vesting,
exercisability and settlement of outstanding awards followed by the cancellation of such awards upon or immediately prior to the effectiveness of such transaction; or (v) settlement of the intrinsic value of the outstanding awards (whether or not
then vested or exercisable) in cash or cash equivalents or equity (including cash or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such awards or the underlying shares) followed by the
cancellation of such awards; in each case without the recipient’s consent. Any acceleration of payment of an amount that is subject to Code Section 409A will be delayed, if necessary, until the earliest time that such payment would be permissible
under Section 409A without triggering any additional taxes applicable under Section 409A. The Company will have no obligation to treat all awards, all awards held by a recipient, or all awards of the same type, similarly.
Amendment and Termination.
The Plan expires on March 15, 2026, unless earlier terminated by the Board of Directors. The Board of Directors
may amend or terminate the Plan at any time, but an amendment will not become effective without the approval of our shareholders to the extent required by applicable laws, regulations or rules. No termination of the Plan will affect a recipient’s
rights under outstanding awards without the recipient’s consent.
New Plan Benefits
Because grants under the Plan are subject to the discretion of the plan administrator, awards that may be granted
under the Plan are undeterminable. Future exercise prices for options granted under the Plan are also undeterminable because they will be based upon the fair market value of the common stock on the date of grant. Restricted stock units are settled
on or after the vesting date in shares of common stock or, in the Company’s sole discretion, in cash.
Federal Income Tax Aspects of the Plan
This is a brief summary of the federal income tax aspects of awards that may be made under the Plan based on
existing U.S. federal income tax laws. This summary provides only the basic tax rules. It does not describe a number of special tax rules, including the alternative minimum tax and various elections that may be applicable under certain
circumstances. It also does not reflect provisions of the income tax laws of any municipality, state or foreign country in which a holder may reside, nor does it reflect the tax consequences of a holder’s death. The tax consequences of awards under
the Plan depend upon the type of award, among other factors.
28
Incentive Stock
Options.
The recipient of an incentive stock options granted under the Plan will not recognize income upon grant or exercise of the option under the Internal Revenue Code unless the alternative minimum tax rules apply. Upon a recipient’s
sale of the shares (assuming that the sale occurs more than two years after grant of the option and more than one year after exercise of the option), any gain will be taxed to the recipient as long-term capital gain. If the recipient disposes of
the shares prior to the expiration of either of the above holding periods, then the recipient will recognize ordinary income in an amount generally measured as the difference between the exercise price and the lower of the fair market value of the
shares at the exercise date or the sale price of the shares. Any gain recognized on such a premature sale of the shares in excess of the amount treated as ordinary income will be characterized as capital gain. We will generally be entitled to a tax
deduction at the same time and in the same amount as ordinary income is recognized by the option recipient.
Nonqualified
Stock Options.
The recipient of nonstatutory stock options under the Plan will not recognize any taxable income at the time of grant of the option. However, upon exercise of the nonstatutory stock option, the recipient will recognize
ordinary income for federal income tax purposes in an amount generally measured as the excess of the then fair market value of each share over its exercise price. Upon a recipient’s resale of such shares, any difference between the sale price and
the fair market value of such shares on the date of exercise will be treated as capital gain or loss and will generally qualify for long-term capital gain or loss treatment if the shares have been held for more than one year. The Internal Revenue
Code provides for reduced tax rates for long-term capital gains based on the taxpayer’s income and the length of the taxpayer’s holding period. We will generally be entitled to a tax deduction at the same time and in the same amount as ordinary
income is recognized by the option recipient by reason of the exercise of the option.
Other Awards.
The
recipient of a restricted share award will generally recognize ordinary compensation income when such shares are no longer subject to a substantial risk of forfeiture, based on the excess of the value of the shares at that time over the price, if
any, paid for such shares. However, if the recipient makes a timely election under the Internal Revenue Code to be subject to tax upon the receipt of the shares, the recipient will recognize ordinary compensation income at that time equal to the
fair market value of the shares over the price paid, if any, and no further ordinary compensation income will be recognized when the shares vest. In the case of an exercise of a stock appreciation right or an award of restricted stock units, the
recipient will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery. We will generally be entitled to a tax deduction at the same time and in
the same amount as ordinary income is recognized by the recipient.
Section 409A.
Any
deferrals made under the Plan, including awards granted under the Plan that are considered to be deferred compensation, must satisfy the requirements of Section 409A of the Internal Revenue Code to avoid adverse tax consequences to participating
employees. These requirements include limitations on election timing, acceleration of payments, and distributions. The Company intends to structure any deferrals and awards under the Plan to meet the applicable tax law requirements.
Required Vote
The affirmative vote of a majority of shares of the Company’s common stock represented and entitled to vote at the
Meeting is needed to approve the amendment to the Plan. In the event approval is not obtained, the Plan amendment will not become effective.
The Board of Directors Recommends That Shareholders Vote For The
Proposal To Approve The Amendment To
The First Northern Community Bancorp 2016 Stock Incentive Plan.
29
Proposal 3
Ratification of the Appointment of the Company’s Independent
Registered Public Accounting Firm
Ratification of the Appointment of the Company’s Independent
Registered Public Accounting Firm
At the Annual Meeting a vote will be taken on a proposal to ratify the appointment of Moss Adams LLP by the Audit
Committee of the Board of Directors to act as the independent registered public accounting firm of the Bank and the Company for the year ending December 31, 2021. Although the appointment of independent public accountants is not required to be
approved by shareholders, the Audit Committee believes shareholders should participate in such selection through ratification.
It is anticipated that a representative of Moss Adams LLP will be present at the Annual Meeting and will have the
opportunity to make a statement if he or she desires and will be available to respond to appropriate questions.
Ratification of the appointment by the Audit Committee of the Board of Directors of the independent registered
public accounting firm will require the affirmative vote of a majority of the shares represented and voting at the Annual Meeting.
Your Board of Directors Recommends a vote “FOR” Ratification of the
Appointment of Moss Adams LLP by the Audit Committee of the
Board of Directors as the Bank’s and the Company’s Independent Registered
Public Accounting Firm for the Fiscal Year Ending December 31, 2021.
30
Transactions with Related Persons
Certain directors and executive officers of the Bank and the Company and corporations and other organizations
associated with them and members of their immediate families were customers of and engaged in banking transactions, including loans, with the Bank in the ordinary course of business in 2020 and 2019. Such loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. These loans did not involve more than the normal risk of collectability or present other unfavorable features.
Insider Lending policy
The Board of Directors of the Company has a written insider lending policy that covers all officers, directors and
“control persons” who have substantial share ownership or other control over election of directors. Loans to insiders must be on terms that are substantially the same as those made to non-insiders, as demonstrated by the submission to the loan
officer of at least three comparable non-insider loans that are comparable, including with respect to interest rates and collateral. Extension of credit to insiders must be approved by the Board of Directors and be recommended by the Management Loan
Committee and Directors Loan Committee. Insider loans are also subject to maximum percentage and dollar limits. The Board of Directors has not adopted a related party transactions policy with regard to transactions other than loans. Company
personnel are expected under the Company’s code of ethics to make immediate disclosure of situations that might create a conflict of interest, or the perception of a conflict of interest, which includes transactions involving entities with which such
personnel are associated. The Board of Directors recognizes that related party transactions present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof). Such transactions, after full disclosure of the
material terms to the Board, must be approved by the members of the Board who are not parties to the specific transaction to determine that they are just and reasonable to the Company at the time of such approval, with those members of the Board (if
any) who have an interest in the transaction abstaining. Such procedures are consistent with the terms of California corporate law.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act, as administered by the SEC, requires the Company’s directors and executive
officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock of the Company. Executive officers,
directors and greater than ten percent shareholders are required by the SEC to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of such reports, the Company believes that all reports required by
Section 16(a) of the Exchange Act to be filed by its executive officers and directors during the last fiscal year were filed on a timely basis except that: (1) Mr. Martinez reported 1,776 shares purchased by him and his spouse, which occurred on July
31, 2020 and was reported on August 6, 2020; and (2) Ms. Burris reported 62 shares purchased, which occurred on November 22, 2019 and was reported on November 19, 2020.
Information Available to Shareholders
A copy of First Northern Community Bancorp’s Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 2020 as filed with the Securities and Exchange Commission is included with this mailing. additional copies will be furnished without charge to Shareholders upon written request to: Devon Camara-Soucy, Corporate Secretary,
First Northern Community Bancorp, 195 North First Street, Dixon, California 95620.
31
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING:
SHAREHOLDER MEETING:
THE PROXY STATEMENT AND ANNUAL REPORT ON FORM 10-K TO SHAREHOLDERS ARE AVAILABLE AT:
WWW.THATSMYBANK.COM
First Northern Community Bancorp is required to file periodic reports and other information with the SEC under the
Securities Exchange Act of 1934 and rules thereunder. Copies of the public portions of reports to the SEC may be inspected and copied at the headquarters of the SEC, 450 Fifth Street, NW, Washington, D.C. 20549. Certain information is available
electronically at the SEC’s internet web site at
www.sec.gov
. You can also obtain a copy of the Company’s annual report on Form 10-K, this Proxy Statement
and other periodic filings with the SEC through our website at
www.thatsmybank.com
. The link to the Company’s SEC filings is on the Investor Relations page
of the Company’s website. No information contained on our website is incorporated by reference into this proxy statement.
Shareholder Proposals
Under the rules of the SEC, if a shareholder wants to include a proposal in the Company’s proxy statement and form
of proxy for presentation at the 2022 annual meeting of shareholders, the proposal must be received by the Company at its principal executive offices by December 16, 2021.
Under the Company’s Bylaws, certain procedures are provided which a shareholder must follow to nominate persons for
election as directors or to introduce an item of business at an annual meeting of shareholders.
Nomination of directors must be made by notification in writing delivered or mailed to the President of the Company
at the Company’s principal executive offices not less than 30 days or more than 60 days prior to any meeting of shareholders called for the election of directors and must contain certain information about the director nominee. The Company’s annual
meeting of shareholders is generally held in April or May. If the Company’s 2022 annual meeting of shareholders that is due to be held May 17, 2022, is held on schedule, the Company must receive notice of any nomination no earlier than March 18,
2022, and no later than April 17, 2022. The Chairman of the meeting may disregard the nomination of any person not made in compliance with the foregoing procedures.
Notice of any business item proposed to be brought before an annual meeting by a shareholder must be received by
the Secretary of the Company not less than 70 days or more than 90 days prior to the first anniversary of the preceding year’s annual meeting, unless the date of the 2021 annual meeting is advanced by more than 20 days or delayed by more than 70 days
in which case notice must be received not more than 90 days and not less than the later of 70 days prior to the meeting or 10 days after the public announcement of the meeting date. Assuming no such advance or delay, the Company must receive notice
of any proposed business item no earlier than February 17, 2022, and no later than March 8, 2022. If the Company does not receive timely notice, the Company’s Bylaws preclude consideration of the business item at the annual meeting. With respect to
notice of a proposed item of business, the Bylaws provide that the notice must include a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and certain information
regarding the shareholder giving the notice.
A copy of the Company’s Bylaws may be obtained upon written request to the Secretary of the Company at the
Company’s principal executive offices.
32
Other Matters
The management of the Company is not aware of any other matters to be presented for consideration at the Annual
Meeting or any adjournments or postponements thereof. If any other matters should properly come before the Annual Meeting, it is intended that the persons named in the enclosed proxy will vote the shares represented thereby in accordance with their
best business judgment, pursuant to the discretionary authority granted therein.
By Order of the Board of Directors
Louise A. Walker
President and Chief Executive Officer
33
Operations Center Map
Appendix A
Amended and Restated 2016 Stock Incentive Plan
FIRST NORTHERN COMMUNITY BANCORP
AMENDED AND RESTATED 2016 STOCK INCENTIVE PLAN
(
As amended as of May 18, 2021)
SECTION 1.
ESTABLISHMENT AND PURPOSE.
The Plan was adopted by the Board of Directors on March 19, 2015, and shall be effective on March 16, 2016 or such earlier date when the
Board of Directors has terminated the First Northern Community Bancorp 2006 Stock Incentive Plan, subject to the approval of the Company’s shareholders (the “Effective Date”). Effective as of May 18, 2021, the Plan was amended and restated to
increase the Share Limit under the Plan from six hundred twenty two thousand seven hundred sixty eight (622,768) Shares to one million three hundred ten thousand nine hundred forty-nine (1,310,949) Shares.
The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging
Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of restricted shares, stock units, options (which may constitute incentive stock
options or nonstatutory stock options) or stock appreciation rights.
SECTION 2.
DEFINITIONS.
|
(a)
|
“Affiliate”
shall mean any entity other
than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.
|
|
(b)
|
“Award”
shall mean any award of an
Option, a SAR, a Restricted Share, a Stock Unit or a Performance Based Award under the Plan.
|
|
(c)
|
“Award Agreement”
shall mean the
agreement between the Company and the recipient of an Award which contains the terms, conditions and restrictions pertaining to such Award.
|
|
(d)
|
“Board of Directors” or “Board”
shall
mean the Board of Directors of the Company, as constituted from time to time.
|
|
(e)
|
“Change in Control”
shall mean the
occurrence of any of the following events:
|
|
(i)
|
The consummation or merger or consolidation of the Company or a Subsidiary of the Company with or into another entity or any other corporate
reorganization, if either:
|
|
(A)
|
The Company is not the continuing or surviving entity; or
|
|
(B)
|
More than 50% of the combined voting power of the outstanding securities of each of (1) the Company (or its successor) and (B) any direct or
indirect parent corporation of the Company (or its successor) immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders or the Company immediately prior to such merger, consolidation
or other reorganization; or
|
|
(ii)
|
A change in the composition of the Board of Directors occurs, as a result of which fewer than one-half of the incumbent directors are directors
who either:
|
|
(A)
|
Had been directors of the Company 24 months prior to such change (the “original directors”); or
|
|
(B)
|
Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved (the “continuing directors”);
provided, however
, that for this purpose, the “original directors” and “continuing directors” shall not include any individual whose initial assumption of office occurred as a result
of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests, by or on behalf of a person other than the Board; or
|
|
(iii)
|
Any “person” (as defined below) who by the acquisition or aggregation of securities, is or becomes the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); except that any change in the relative beneficial ownership of the Company’s securities by any person resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s
beneficial ownership of any securities of the Company; or
|
|
(iv)
|
The sale, transfer or other disposition of all or substantially all of the Company’s assets.
|
For purposes of subsection (e)(iii) above, the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the
Exchange Act but shall exclude (1) a trustee or other fiduciary holding securities under an employee benefit plan maintained by the Company or Parent or Subsidiary and (2) a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of the Stock.
Any other provision of this Section 2(e) notwithstanding, a transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction, and a Change in Control
shall not be deemed to occur if the Company files a registration statement with the United States Securities and Exchange Commission for an offering of securities or debt of the Company to the public.
|
(f)
|
“Code”
shall mean the Internal Revenue
Code of 1986, as amended.
|
|
(g)
|
“Committee”
shall mean the Compensation
Committee as designated by the Board of Directors, which is authorized to administer the Plan, as described in Section 3 hereof.
|
|
(h)
|
“Company”
shall mean First Northern
Community Bancorp, a California corporation.
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|
(i)
|
“Consultant”
shall mean a consultant or
advisor who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor (not including service as a member of the Board of Directors) or a member of the board of directors of a Parent or a
Subsidiary, in each case who is not an Employee.
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|
(j)
|
“Employee”
shall mean any individual who
is a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate.
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|
(k)
|
“Exchange Act”
shall mean the Securities
Exchange Act of 1934, as amended.
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|
(l)
|
“Exercise Price”
shall mean, in the case
of an Option, the amount for which one Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of a SAR, shall mean an amount, as specified in the applicable
SAR Agreement, which is subtracted from the Fair Market Value of one Share in determining the amount payable upon exercise of such SAR.
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|
(m)
|
“Fair Market Value”
with respect to a
Share, shall mean the market price of one Share, determined by the Committee as follows:
|
|
(i)
|
If the Stock was traded over-the-counter on the date in question, then the Fair Market Value shall be equal to the last transaction price quoted
for such date by the OTC Bulletin Board or, if not so quoted, shall be equal to the mean between the last reported representative bid and asked prices quoted for such date by the principal automated inter-dealer quotation system on which
the Stock is quoted or, if the Stock is not quoted on any such system, by the OTC Link Quote System;
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|
(ii)
|
If the Stock was traded on any established stock exchange (such as the New York Stock Exchange or The NASDAQ Stock Market) or national market
system on the date in question, then the Fair Market Value shall be equal to the closing price reported for such date by the applicable exchange or system; and
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|
(iii)
|
If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as
it deems appropriate.
|
In all cases, the determination of Fair Market Value by the Committee shall be conclusive and binding on all persons.
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(n)
|
“ISO”
shall mean an employee incentive
stock option described in Section 422 of the Code.
|
|
(o)
|
“Nonstatutory Option” or “NSO”
shall
mean an employee stock option that is not an ISO.
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|
(p)
|
“Option”
shall mean an ISO or
Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.
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|
(q)
|
“Outside Director”
shall mean a member
of the Board of Directors who is not a common-law employee of, or paid consultant to, the Company, a Parent or a Subsidiary.
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|
(r)
|
“Parent”
shall mean any corporation
(other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be a Parent commencing as of such date.
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|
(s)
|
“Participant”
shall mean
a person who holds an Award.
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(t)
|
“Performance Based Award”
shall mean any
Award granted to a Participant that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
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|
(u)
|
“Plan”
shall mean this 2016 Stock
Incentive Plan of First Northern Community Bancorp, as amended from time to time.
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(v)
|
“Purchase Price”
shall mean the
consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option or SAR), as specified by the Committee.
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(w)
|
“Restricted Share”
shall mean a Share
awarded under the Plan.
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(x)
|
“SAR”
shall mean a stock appreciation
right granted under the Plan.
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(y)
|
“Service”
shall mean service as an
Employee, Consultant or Outside Director, subject to such further limitations as may be set forth in the Plan or the applicable Award Agreement. Service does not terminate when an Employee goes on a bona fide leave of absence that was
approved by the Company in writing, if the terms of the leave provide for continued Service crediting, or when continued Service crediting is required by applicable law. However, for purposes of determining when an Option is entitled to ISO
status, an Employee’s employment will be treated as terminating three months after such Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract. Service terminates in any event
when the approved leave ends, unless such Employee immediately returns to active work. The Company determines which leaves of absence count toward Service, and when Service terminates for all purposes under the Plan.
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|
(z)
|
“Share”
shall mean one share of Stock,
as adjusted in accordance with Section 11 (if applicable).
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|
(aa)
|
“Stock”
shall mean the Common Stock of
the Company.
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|
(bb)
|
“Stock Unit”
shall mean a bookkeeping
entry representing the Company’s obligation to deliver one Share (or distribute cash) on a future date in accordance with the provisions of a Stock Unit Agreement.
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|
(cc)
|
“Subsidiary”
shall mean any corporation,
if the Company and/or one or more other Subsidiaries own not less than 50% of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such date.
|
SECTION 3.
ADMINISTRATION.
|
(a)
|
Committee Composition
|
The Plan shall be administered by the Committee. The Committee shall consist of two or more directors of the Company. In addition, to
the extent required by the Board, the composition of the Committee shall satisfy (i) such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3
(or its successor) under the Exchange Act; (ii) such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under Section 162(m)(4)(C) of the Code; and (iii) if the Stock
is traded on an established stock exchange (such as the New York Stock Exchange or The NASDAQ Market), such other requirements as the applicable exchange may impose on compensation committees.
|
(b)
|
Committee for Non-Officer Grants
|
The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who
need not satisfy the requirements of Section 3(a), who may administer the Plan with respect to Employees who are not considered officers or directors of the Company under Section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and may determine all terms of such Awards. Within the limitations of the preceding sentence, any reference in the Plan to the Committee shall include such committee or committees appointed pursuant to the preceding sentence. To the extent
permitted by applicable laws, the Board of Directors may also authorize one or more officers of the Company to designate Employees, other than officers under Section 16 of the Exchange Act, to receive Awards and/or to determine the number of such
Awards to be received by such persons; provided, however, that the Board of Directors shall specify the total number of Awards that such officers may so grant.
|
(c)
|
Committee Procedures
|
The Board of Directors shall designate one of the members of the Committee as chairman. The Committee may hold meetings at such times
and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a quorum exists, or acts reduced to or approved in writing (including via email) by all Committee members, shall be valid acts of the
Committee.
|
(d)
|
Committee Responsibilities
|
Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take the following actions:
|
(i)
|
To interpret the Plan and to apply its provisions;
|
|
(ii)
|
To adopt, amend or rescind rules, procedures and forms relating to the Plan;
|
|
(iii)
|
To adopt, amend or terminate sub-plans established for the purpose of satisfying applicable foreign laws including qualifying for preferred tax
treatment under applicable foreign tax laws;
|
|
(iv)
|
To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;
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|
(v)
|
To determine when Awards are to be granted under the Plan;
|
|
(vi)
|
To select the Participants to whom Awards are to be granted;
|
|
(vii)
|
To determine the type of Award and number of Shares or amount of cash to be made subject to each Award;
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|
(viii)
|
To prescribe the terms and conditions of each Award, including (without limitation) the Exercise Price and Purchase Price, and the vesting or
duration of the Award, to determine whether an Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the agreement relating to such Award;
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(ix)
|
To amend any outstanding Award Agreement, subject to the requirements of Section 3(e), any applicable legal restrictions and the consent of the
Participant if the Participant’s rights or obligations would be materially impaired;
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|
(x)
|
To prescribe the consideration for the grant of each Award or other right under the Plan and to determine the sufficiency of such consideration;
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|
(xi)
|
To determine the disposition of each Award or other right under the Plan in the event of a Participant’s divorce or dissolution of marriage;
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|
(xii)
|
To determine whether Awards under the Plan will be granted in replacement of other grants under an incentive or other compensation plan of an
acquired business;
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|
(xiii)
|
To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award Agreement;
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|
(xiv)
|
To establish or verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, exercisability,
vesting and/or ability to retain any Award; and
|
|
(xv)
|
To take any other actions deemed necessary or advisable for the administration of the Plan.
|
Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out
its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Awards under the Plan to
persons subject to Section 16 of the Exchange Act. All decisions, interpretations and other actions of the Committee shall be final and binding on all Participants, and all persons deriving their rights from a Participant. No member of the Committee
shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan or any Award under the Plan.
|
(e)
|
Cancellation and Re-Grant of Stock Awards
|
Notwithstanding any contrary provision of the Plan, neither the Board nor any Committee, nor their designees, shall have the authority
to: (i) amend the terms of outstanding Options or SARs to reduce the Exercise Price thereof, or (ii) cancel outstanding Options or SARs with an Exercise Price above the current Fair Market Value per Share in exchange for another Option, SAR or other
Award, unless the stockholders of the Company have previously approved such an action or such action relates to an adjustment pursuant to Section 11
.
SECTION 4.
ELIGIBILITY.
|
(a)
|
General Rule
|
Only Employees, Consultants and Outside Directors shall be eligible for the grant of Awards. Only common-law employees of the Company,
a Parent or a Subsidiary shall be eligible for the grant of ISOs.
|
(b)
|
Ten-Percent Stockholders
|
An Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, a Parent or
Subsidiary shall not be eligible for the grant of an ISO unless such grant satisfies the requirements of Section 422(c)(5) of the Code.
|
(c)
|
Attribution Rules
|
For purposes of Section 4(b) above, in determining stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for such Employee’s brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its
stockholders, partners or beneficiaries.
|
(d)
|
Outstanding Stock
|
For purposes of Section 4(b) above, “outstanding stock” shall include all stock actually issued and outstanding immediately after the
grant. “Outstanding stock” shall not include shares authorized for issuance under outstanding options held by the Employee or by any other person.
SECTION 5.
STOCK SUBJECT TO PLAN.
|
(a)
|
Basic Limitation
|
Shares offered under the Plan shall be authorized but unissued Shares or treasury Shares. Subject to Section 5(e) below, the aggregate
number of Shares authorized for issuance as Awards under the Plan shall not exceed the number of Shares subject to outstanding awards granted under the Company’s 2006 Stock Incentive Plan (the “Predecessor Plan”), as of the Effective Date, to the
extent those awards expire, terminate or are cancelled for any reason without the issuance or delivery of such Shares, any Shares subject to vesting restrictions under the Predecessor Plan on the Effective Date that are subsequently forfeited, and
any reserved Shares not issued or subject to outstanding awards under the Predecessor Plan on the Effective Date; provided, however, that such sum shall not exceed one million three hundred ten thousand nine hundred forty-nine (1,310,949) Shares (the
“Share Limit”). The number of Shares that may be delivered in the aggregate pursuant to the exercise of ISOs under the Plan shall not exceed the Share Limit plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations
promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Section 5(e). The limitations of this Section 5(a) shall be subject to adjustment pursuant to Section 11. The number of Shares that are subject to Awards
outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy
the requirements of the Plan.
|
(b)
|
Director Grants
|
With respect to Awards granted to Outside Directors, the aggregate number of Shares which may be issued upon exercise or settlement of
such Awards under the Plan shall be one-hundred thousand (100,000) Shares. Any Awards granted to Outside Directors under the Plan may or may not be subject to vesting. Vesting shall occur, if at all, in full or in installments, upon satisfaction of
conditions specified in the applicable Award Agreement; provided, however, that all Shares subject to such an Award shall become fully vested in the event that a Change in Control takes place with respect to the Company.
|
(c)
|
Award Limitation
|
Subject to the provisions of Section 11, no Participant may receive Options, SARs, Restricted Shares or Stock Units under the Plan in
any calendar year that relate to more than fifty thousand (50,000) Shares; provided however, that no outside director may receive Options, SARs, Restricted Shares or Stock Units under the Plan in any calendar year that relate to more than three
thousand (3,000) Shares.
|
(d)
|
Section 162(m) Award Limitation
|
Notwithstanding any contrary provisions of the Plan, and subject to the provisions of Section 11, with respect to any Option, SAR or
other Performance Based Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, no Participant eligible for an Award may receive Options, SARs or other Performance Based Awards under the Plan in any calendar
year that relate to an aggregate of more than fifty thousand (50,000) Shares. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect to a Participant, if any Option or
SAR is canceled, the canceled Option or SAR shall continue to count against the maximum number of Shares with respect to which Options and SARs may be granted to the Participant. For this purpose, the repricing of an Option or SAR shall be treated
as the cancellation of the existing Option or SAR and the grant of a new Option or SAR.
|
(e)
|
Additional Shares
|
If Restricted Shares or Shares issued upon the exercise of Options are forfeited, then such Shares shall again become available for
Awards under the Plan. If Stock Units, Options or SARs are forfeited or terminate for any other reason before being exercised or settled, or an Award is settled in cash without the delivery of Shares to the holder, then any Shares subject to the
Award shall again become available for Awards under the Plan. Shares surrendered or withheld in payment of the Exercise Price or Purchase Price of Shares or withheld to satisfy any tax withholding obligation shall not again become available for
Awards under, the Plan. Further, Shares to which an SAR pertains, to the extent that it is exercised and settled in Shares, shall be considered issued or transferred pursuant to the Plan and shall not again become available for Awards under the Plan,
whether or not Shares are actually issued to the Participant upon exercise of the SAR.
SECTION 6.
RESTRICTED SHARES.
|
(a)
|
Restricted Share Award Agreement
|
Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Share Award Agreement between the Participant and
the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted Share Award Agreements entered into under
the Plan need not be identical.
|
(b)
|
Payment for Awards
|
Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without
limitation) cash, cash equivalents, past services and future services.
|
(c)
|
Vesting
|
Each Award of Restricted Shares may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Share Award Agreement. A Restricted Share Award Agreement may provide for accelerated vesting in the event of the Participant’s death, disability or retirement. The Committee may determine,
at the time of granting Restricted Shares of thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company.
|
(d)
|
Voting and Dividend Rights
|
The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other
stockholders. A Restricted Share Award Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions
and restrictions as the Award with respect to which the dividends were paid.
|
(e)
|
Restrictions on Transfer of Shares
|
Restricted Shares shall be subject to such rights of repurchase, rights of first refusal or other restrictions as the Committee may
determine. Such restrictions shall be set forth in the applicable Restricted Share Award Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares.
SECTION 7.
TERMS AND CONDITIONS OF OPTIONS.
|
(a)
|
Stock Option Award Agreement
|
Each grant of an Option under the Plan shall be evidenced by a Stock Option Award Agreement between the Participant and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option
Award Agreement. The Stock Option Award Agreement shall specify whether the Option is an ISO or an NSO. The provisions of the various Stock Option Award Agreements entered into under the Plan need not be identical. Options may be granted in
consideration of a reduction in the Participant’s other compensation.
|
(b)
|
Number of Shares
|
Each Stock Option Award Agreement shall specify the number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 11.
|
(c)
|
Exercise Price
|
Each Stock Option Award Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 4(b), and the Exercise Price of an NSO shall not be less than 100% of the Fair Market Value of a Share on the date of grant. Notwithstanding the foregoing,
Options may be granted with an Exercise Price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code. Subject to the foregoing in
this Section 7(c), the Exercise Price under any Option shall be determined by the Committee at its sole discretion. The Exercise Price shall be payable in one of the forms described in Section 8.
|
(d)
|
Withholding Taxes
|
As a condition to the exercise of an Option, the Participant shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise. The Participant shall also make such arrangements as the Committee may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.
|
(e)
|
Exercisability and Term
|
Each Stock Option Award Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock
Option Award Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant (five years for ISOs granted to Employees described in Section 4(b)). A Stock Option Award
Agreement may provide for accelerated exercisability in the event of the Participant’s death, disability or retirement and may provide for expiration prior to the end of its term in the event of the termination of the Participant’s Service. Options
may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. Subject to the foregoing in this Section 7(e), the Committee at its sole discretion shall determine
when all or any installment of an Option is to become exercisable and when an Option is to expire.
|
(f)
|
Exercise of Options
|
Each Stock Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option
following termination of the Participant’s Service with the Company and its Subsidiaries, and the right to exercise the Option of any executors or administrators of the Participant’s estate or any person who has acquired such Option(s) directly from
the Participant by bequest or inheritance. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of Service.
|
(g)
|
Effect of Change in Control
|
The Committee may determine, at the time of granting an Option or thereafter, that such Options shall become exercisable as to all or
part of the Shares subject to such Option in the event that a Change in Control occurs with respect to the Company.
|
(h)
|
No Rights as a Stockholder
|
A Participant shall have no rights as a stockholder with respect to any Shares covered by his Option until the date of the issuance of
a stock certificate for such Shares. No adjustments shall be made, except as provided in Section 11.
|
(i)
|
Modification, Extension and Renewal of Options
|
Subject to the requirements of Section 3(e), and within the limitations of the Plan, the Committee may modify, extend or renew
outstanding options or may accept the cancellation of outstanding options (to the extent not previously exercised), whether or not granted hereunder, in return for the grant of new Options for the same or a different number of Shares and at the same
or a different Exercise Price, or in return for the grant of a different Award for the same or a different number of Shares. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Participant, materially impair
his or her rights or obligations under such Option.
|
(j)
|
Restrictions on Transfer of Shares
|
Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of
first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Award Agreement and shall apply in addition to any general restrictions that may apply to all holders of
Shares.
|
(k)
|
Buyout Provisions
|
Subject to the requirements of Section 3(e), the Committee may at any time (a) offer to buy out for a payment in cash or cash
equivalents an Option previously granted or (b) authorize a Participant to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.
SECTION 8.
PAYMENT FOR SHARES.
|
(a)
|
General Rule
|
The entire Exercise Price or Purchase Price of Shares issued under the Plan shall be payable in lawful money of the United States of
America at the time when such Shares are purchased, except as provided in Section 8(b) through Section 8(g) below.
|
(b)
|
Surrender of Stock
|
To the extent that a Stock Option Award Agreement so provides, payment may be made all or in part by surrendering, or attesting to the
ownership of, Shares which have already been owned by the Participant or his representative. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. The Participant shall not surrender, or
attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes.
|
(c)
|
Services Rendered
|
At the discretion of the Committee, Shares may be awarded under the Plan in consideration of services rendered to the Company or a
Subsidiary. If Shares are awarded without the payment of a Purchase Price in cash, the Committee shall make a determination (at the time of the Award) of the value of the services rendered by the Participant and the sufficiency of the consideration
to meet the requirements of Section 6(b).
|
(d)
|
Cashless Exercise
|
To the extent that a Stock Option Award Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by
the Committee) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price.
|
(e)
|
Net Exercise
|
To the extent that a Stock Option Award Agreement so provides, by a “net exercise” arrangement pursuant to which the number of Shares
issuable upon exercise of the Option shall be reduced by the largest whole number of Shares having an aggregate Fair Market Value that does not exceed the aggregate exercise price (plus tax withholdings, if applicable), and any remaining balance of
the aggregate exercise price (and/or applicable tax withholdings) not satisfied by such reduction in the number of whole Shares to be issued shall be paid by the Participant in cash or other form of payment permitted under the Stock Option Agreement.
|
(f)
|
Other Forms of Payment
|
To the extent that a Stock Option Award Agreement or Restricted Share Award Agreement so provides, payment may be made in any other
form that is consistent with applicable laws, regulations and rules.
|
(g)
|
Limitations under Applicable Law
|
Notwithstanding anything herein or in a Stock Option Award Agreement or Restricted Share Award Agreement to the contrary, payment may
not be made in any form that is unlawful, as determined by the Committee in its sole discretion.
SECTION 9.
STOCK APPRECIATION RIGHTS.
|
(a)
|
SAR Award Agreement
|
Each grant of a SAR under the Plan shall be evidenced by a SAR Award Agreement between the Participant and the Company. Such SAR shall
be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Award Agreements entered into under the Plan need not be identical. SARs may be granted in
consideration of a reduction in the Participant’s other compensation.
|
(b)
|
Number of Shares
|
Each SAR Award Agreement shall specify the number of Shares to which the SAR pertains and shall provide for the adjustment of such
number in accordance with Section 11.
|
(c)
|
Exercise Price
|
Each SAR Award Agreement shall specify the Exercise Price. The Exercise Price of a SAR shall not be less than 100% of the Fair Market
Value of a Share on the date of grant. Notwithstanding the foregoing, SARS may be granted with an Exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner
consistent with, Section 424(a) of the Code. Subject to the foregoing in this Section 9(c), the Exercise Price under any SAR shall be determined by the Committee in its sole discretion.
|
(d)
|
Exercisability and Term
|
Each SAR Award Agreement shall specify the date when all or any installment of the SAR is to vest and become exercisable. Whether
vesting is based solely on the Participant’s continuous Service or achievement of performance criteria, an SAR shall not become fully exercisable before the 12-month anniversary of the date of grant. The SAR Award Agreement shall also specify the
term of the SAR. A SAR Award Agreement may provide for accelerated exercisability in the event of the Participant’s death, disability or retirement and may provide for expiration prior to the end of its term in the event of the termination of the
Participant’s service. SARs may be awarded in combination with Options, and such an Award may provide that the SARs will not be exercisable unless the related Options are forfeited. A SAR may be included in an ISO only at the time of grant but may be
included in an NSO at the time of grant or thereafter. A SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control.
|
(e)
|
Effect of Change in Control
|
The Committee may determine, at the time of granting a SAR or thereafter, that such SAR shall become fully exercisable as to all
Common Shares subject to such SAR in the event that a Change in Control occurs with respect to the Company.
|
(f)
|
Exercise of SARs
|
Upon exercise of a SAR, the Participant (or any person having the right to exercise the SAR after his or her death) shall receive from
the Company (a) Shares, (b) cash or (c) a combination of Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by
which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price.
|
(g)
|
Modification or Assumption of SARs
|
Subject to the requirements of Section 3(e), and within the limitations of the Plan, the Committee may modify, extend or assume
outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price,
or in return for the grant of a different Award for the same or a different number of Shares. The foregoing notwithstanding, no modification of a SAR shall, without the consent of the holder, materially impair his or her rights or obligations under
such SAR.
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(h)
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Buyout Provisions
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Subject to the requirements of Section 3(e), the Committee may at any time (a) offer to buy out for a payment in cash or cash
equivalents a SAR previously granted, or (b) authorize a Participant to elect to cash out a SAR previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.
SECTION 10.
STOCK UNITS.
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(a)
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Stock Unit Award Agreement
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Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Award Agreement between the Participant and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Award Agreements entered into under the Plan need not be
identical. Stock Units may be granted in consideration of a reduction in the Participant’s other compensation.
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(b)
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Payment for Awards
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To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award recipients.
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(c)
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Vesting Conditions
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Each Award of Stock Units may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of
the conditions specified in the Stock Unit Award Agreement. A Stock Unit Award Agreement may provide for accelerated vesting in the event of the Participant’s death, disability or retirement. The Committee may determine, at the time of granting Stock
Units or thereafter, that all or part of such Stock Units shall become vested in the event that a Change in Control occurs with respect to the Company.
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(d)
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Voting and Dividend Rights
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The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may,
at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Stock Unit is outstanding. Dividend equivalents may be
converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the
same conditions and restrictions (including without limitation, any forfeiture conditions) as the Stock Units to which they attach.
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(e)
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Form and Time of Settlement of Stock Units
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Settlement of vested Stock Units may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the
Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without
limitation) a method based on the average Fair Market Value of Shares over a series of trading days. A Stock Unit Award Agreement may provide that vested Stock Units may be settled in a lump sum or in installments. A Stock Unit Award Agreement may
provide that the distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date, subject to compliance with Section 409A of the Code. The amount
of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 11.
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(f)
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Death of Participant
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Any Stock Unit Award that becomes payable after the Participant’s death shall be distributed to the Participant’s beneficiary or
beneficiaries. Each recipient of a Stock Unit Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with
the Company at any time before the Participant’s death. If no beneficiary was designated or if no designated beneficiary survives the Participant, then any Stock Units Award that becomes payable after the Participant’s death shall be distributed to
the Participant’s estate.
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(g)
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Creditors’ Rights
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A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded
and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement.
SECTION 11.
ADJUSTMENT OF SHARES.
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(a)
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Adjustments
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In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of a dividend
payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a
spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate, in one or more of:
(i) The number of Shares
available for future Awards under Section 5;
(ii) The limitations set
forth in Sections 5(a), 5(b), 5(c), 5(d) and Section 18;
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(iii)
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The number of Shares covered by each outstanding Award; or
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(iv)
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The Exercise Price under each outstanding Award.
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(b)
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Dissolution or Liquidation
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To the extent not previously exercised or settled, Options, SARs and Stock Units shall terminate immediately prior to the dissolution
or liquidation of the Company.
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(c)
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Reorganizations
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In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of
merger or reorganization. Subject to compliance with Section 409A of the Code, such agreement shall provide for:
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(i) |
The continuation of the outstanding Awards by the Company, if the Company is a surviving corporation;
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(ii) |
The assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary;
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(iii) |
The substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding Awards;
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(iv) |
Immediate vesting, exercisability and settlement of outstanding Awards followed by the cancellation of such Awards upon or immediately prior to the effectiveness of
such transaction; or
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(v)
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Settlement of the intrinsic value of the outstanding Awards (whether or not then vested or exercisable) in cash or cash equivalents or equity
(including cash or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Awards or the underlying Shares) followed by the cancellation of such Awards (and, for the avoidance of doubt, if
as of the date of the occurrence of the transaction the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated
by the Company without payment); in each case without the Participant’s consent. Any acceleration of payment of an amount that is subject to section 409A of the Code will be delayed, if necessary, until the earliest time that such payment
would be permissible under Section 409A without triggering any additional taxes applicable under Section 409A.
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The Company will have no obligation to treat all Awards, all Awards held by a Participant, or all Awards of the same type, similarly.
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(d)
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Reservation of Rights
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Except as provided in this Section 11, a Participant shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Award. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 12.
DEFERRAL OF AWARDS.
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(a)
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Committee Powers
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Subject to compliance with Section 409A of the Code, the Committee (in its sole discretion) may permit or require a Participant to:
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(i)
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Have cash that otherwise would be paid to such Participant as a result of the exercise of a SAR or the settlement of Stock Units credited to a
deferred compensation account established for such Participant by the Committee as an entry on the Company’s books;
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(ii) Have Shares that otherwise
would be delivered to such Participant as a result of the exercise of an Option or SAR converted into an equal number of Stock Units; or
(iii) Have Shares that
otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR or the settlement of Stock Units converted into amounts credited to a deferred compensation account established for such Participant by the Committee as
an entry on the Company’s books. Such amounts shall be determined by reference to the Fair Market Value of such Shares as of the date when they otherwise would have been delivered to such Participant.
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(b)
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General Rules
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A deferred compensation account established under this Section 12 may be credited with interest or other forms of investment return,
as determined by the Committee. A Participant for whom such an account is established shall have no rights other than those of a general creditor of the Company. Such an account shall represent an unfunded and unsecured obligation of the Company and
shall be subject to the terms and conditions of the applicable agreement between such Participant and the Company. If the deferral or conversion of Awards is permitted or required, the Committee (in its sole discretion) may establish rules,
procedures and forms pertaining to such Awards, including (without limitation) the settlement of deferred compensation accounts established under this Section 12.
SECTION 13.
AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may be settled in the form of Shares issued under this Plan.
Such Shares shall be treated for all purposes under the Plan like Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Shares available under Section 5.
SECTION 14.
PAYMENT OF DIRECTOR’S FEES IN SECURITIES.
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(a)
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Effective Date
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No provision of this Section 14 shall be effective unless and until the Board has determined to implement such provision.
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(b)
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Elections to Receive NSOs, SARs, Restricted Shares or Stock Units
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An Outside Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash,
NSOs, SARs, Restricted Shares or Stock Units, or a combination thereof, as determined by the Board. Alternatively, the Board may mandate payment in any of such alternative forms. Such NSOs, SARs, Restricted Shares and Stock Units shall be issued
under the Plan. An election under this Section 14 shall be filed with the Company on the prescribed form.
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(c)
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Number and Terms of NSOs, SARs, Restricted Shares or Stock Units
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The number of NSOs, SARs, Restricted Shares or Stock Units to be granted to Outside Directors in lieu of annual retainers and meeting
fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board. The terms of such NSOs, SARs, Restricted Shares or Stock Units shall also be determined by the Board.
SECTION 15.
LEGAL AND REGULATORY REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all
applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on which the
Company’s securities may then be listed, and the Company has obtained the approval or favorable ruling from any governmental agency which the Company determines is necessary or advisable. The Company shall not be liable to a Participant or other
persons as to: (a) the non-issuance or sale of Shares as to which the Company has not obtained from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares
under the Plan; and (b) any tax consequences expected, but not realized, by any Participant or other person due to the receipt, exercise or settlement of any Award granted under the Plan.
SECTION 16.
TAXES.
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(a)
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Withholding Taxes
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To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.
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(b)
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Share Withholding
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The Committee may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired. Such Shares shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash. In no event may a Participant have Shares withheld that would otherwise be issued to him or her in excess of the number necessary to satisfy the minimum legally required tax withholding.
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(c)
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Section 409A
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Each Award that provides for “nonqualified deferred compensation” within the meaning of Section 409A of the Code shall be subject to
such additional rules and requirements as specified by the Committee from time to time in order to comply with Section 409A. If any amount under such an Award is payable upon a “separation from service” (within the meaning of Section 409A) to a
Participant who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the Participant’s separation from service, or
(ii) the Participant’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. In addition, the settlement of any such Award may
not be accelerated except to the extent permitted by Section 409A.
SECTION 17.
TRANSFERABILITY.
Unless the agreement evidencing an Award (or an amendment thereto authorized by the Committee) expressly provides otherwise, no Award
granted under this Plan, nor any interest in such Award, may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner (prior to the vesting and lapse of any and all restrictions applicable to Shares issued
under such Award), other than by will or the laws of descent and distribution; provided, however, that an ISO may be transferred or assigned only to the extent consistent with Section 422 of the Code. Any purported assignment, transfer or encumbrance
in violation of this Section 17(a) shall be void and unenforceable against the Company.
SECTION 18.
PERFORMANCE BASED AWARDS
The number of Shares or the amount of cash or other benefits granted, issued, retainable and/or vested under an Award may be made
subject to the attainment of performance goals. The Committee may utilize any performance criteria selected by it in its sole discretion to establish performance goals; provided, however, that in the case of any Performance Based Award, the following
conditions shall apply:
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(i)
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The amount potentially available under a Performance Based Award shall be subject to the attainment of pre-established, objective performance
goals relating to a specified period of service based on one or more of the following performance criteria: (a) cash flow, (b) earnings per share, (c) earnings before interest, taxes and amortization, (d) return on equity, (e) total
stockholder return, (f) share price performance, (g) return on capital, (h) return on assets or net assets, (i) revenue, (j) income or net income, (k) operating income or net operating income, (l) operating profit or net operating profit,
(m) operating margin or profit margin, (n) return on operating revenue, (o) return on invested capital, (p) market segment shares, (q) costs, (r) expenses, (s) regulatory body approval, or (t) implementation or completion of critical
projects or contracts (“Qualifying Performance Criteria”), any of which may be measured either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or Subsidiary, either
individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison
group or index, in each case as specified by the Committee in the Award;
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(ii)
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Unless specified otherwise by the Committee at the time the performance goals are established or otherwise within the time prescribed by Section
162(m) of the Code, the Committee shall appropriately adjust the method of evaluating performance under a Qualifying Performance Criteria for a performance period as follows: (i) to exclude asset write-downs, (ii) to exclude litigation or
claim judgments or settlements, (iii) to exclude the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) to exclude accruals for reorganization and restructuring programs,
(v) to exclude any extraordinary nonrecurring items as determined under generally accepted accounting principles and/or described in managements’ discussion and analysis of financial condition and results of operations appearing in the
Company’s annual report to stockholders for the applicable year, (vi) to exclude the dilutive effects of acquisitions or joint ventures, (vii) to assume that any business divested by the Company achieved performance objectives at targeted
levels during the balance of a performance period following such divestiture, (viii) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase,
reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends, (ix) to exclude the
effects of stock-based compensation and the award of bonuses under the Company’s bonus plans; and (x) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally
accepted accounting principles, in each case in compliance with Section 162(m);
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(iii)
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The Committee shall establish the applicable performance goals in writing and an objective method for determining the Award earned by a
Participant if the goals are attained, while the outcome is substantially uncertain and not later than the 90th day of the performance period (but in no event after 25% of the period of service with respect to which the performance goals
relate has elapsed), and shall determine and certify in writing, for each Participant, the extent to which the performance goals have been met prior to payment or vesting of the Award;
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(iv)
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The Committee may not in any event increase the amount of compensation payable under the Plan upon the attainment of the pre-established
performance goals to a Participant who is a “covered employee” within the meaning of Section 162(m) of the Code; and
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(v)
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The maximum aggregate number of Shares that may be subject to Performance Based Awards granted to a Participant in any calendar year is fifty
thousand (50,000) (subject to adjustment under Sections 5(d) and 11), and the maximum aggregate amount of cash that may be payable to a Participant under Performance Based Awards in any calendar year is $100,000.
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SECTION 19.
NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Award granted under the Plan, shall be construed to give any person any right to become, to be treated
as, or to remain an Employee or Consultant. The Company and its Subsidiaries reserve the right to terminate any person’s Service at any time and for any reason, with or without notice.
SECTION 20.
DURATION AND AMENDMENTS.
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(a)
|
Term of the Plan
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The Plan, as set forth herein, shall terminate automatically on March 15, 2026 and may be terminated on any earlier date pursuant to
Subsection (b) below.
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(b)
|
Right to Amend or Terminate the Plan
|
The Board of Directors may amend or terminate the Plan at any time and from time to time. Rights and obligations under any Award
granted before amendment of the Plan shall not be materially impaired by such amendment, except with consent of the Participant. An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to the extent required by
applicable laws, regulations or rules.
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(c)
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Effect of Termination
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No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan shall not affect Awards
previously granted under the Plan.
SECTION 21.
EXECUTION.
To record the adoption of the Plan by the Board of Directors, the Company has caused its authorized officer to execute the same.
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First Northern Community Bancorp
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By
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Name
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Louise A. Walker
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Title
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President and Chief Executive Officer
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TABLE OF CONTENTS