-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qw3HKKkkFepRxXGy5VmLeWpwyIwMBLM5umD0/HVI1UrBA0lo70DJ7XwdEsHwzyN9 HXdpjoN1r9/+jy6afepeoQ== 0000929624-97-001322.txt : 19971031 0000929624-97-001322.hdr.sgml : 19971031 ACCESSION NUMBER: 0000929624-97-001322 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971030 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL BANCORP /CA/ CENTRAL INDEX KEY: 0000729502 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942822858 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12499 FILM NUMBER: 97703682 BUSINESS ADDRESS: STREET 1: 701 S HAM LN CITY: LODI STATE: CA ZIP: 95242 BUSINESS PHONE: 2093672000 MAIL ADDRESS: STREET 1: 701 S HAM LANE CITY: LODI STATE: CA ZIP: 95242 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER : 0-12499 FIRST FINANCIAL BANCORP (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) California 94-28222858 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 701 SOUTH HAM LANE, LODI, CALIFORNIA 95242 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (209)-367-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NA (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No As of September 30, 1997 there were 1,332,842 shares of Common Stock, no par value, outstanding. ================================================================================ 1 FIRST FINANCIAL BANCORP FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Financial Statements......................................... 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 6 PART II Item 1. Legal Proceedings............................................ 11 Item 2. Changes in Securities........................................ 11 Item 3. Defaults Upon Senior Securities.............................. 11 Item 4. Submission of Matters to a Vote of Security Holders.......... 11 Item 5. Other Information............................................ 11 Item 6. Exhibits and Reports on Form 8-K............................. 11
ITEM 1. FINANCIAL STATEMENTS
FIRST FINANCIAL BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AMOUNTS) SEP. 30 DEC. 31 ASSETS 1997 1996 - ------ -------- -------- Cash and due from banks ..................................................................... $ 7,878 $ 4,748 Federal funds sold .......................................................................... 4,800 1,100 Investment Securities: Held-to-maturity securities at amortized cost, market value of $1,794 and $1,888 at Sep. 30, 1997 and Dec. 31, 1996 ............................... 1,717 1,789 Available-for-sale securities, at fair value ........................................... 54,991 35,124 -------- -------- Total investments ...................................................................... 56,708 36,913 Loans ....................................................................................... 63,158 53,879 Less: allowance for loan losses ............................................................. 1,334 1,207 -------- -------- Net loans ................................................................................. 61,824 52,672 Premises and equipment, net ................................................................. 7,316 6,723 Accrued interest receivable ................................................................. 1,401 1,060 Other assets ................................................................................ 3,194 1,697 -------- -------- Total Assets ................................................................................ $143,121 $104,913 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Liabilities: Deposits Noninterest bearing .................................................................. $ 15,392 $ 9,066 Interest bearing ..................................................................... 113,822 83,141 --------- -------- Total Deposits .................................................................... 129,214 92,207 Accrued interest payable .......................................................... 461 324 Other liabilities ....................................................................... 783 493 ------- -------- Total liabilities ................................................................. 130,458 93,024 Stockholders' equity: Common stock - no par value; authorized 9,000,000 shares, issued and outstanding in 1997 and 1996, 1,332,842 and, 1,308,950 shares ............................................. 7,455 7,324 Retained earnings ....................................................................... 5,002 4,438 Net unrealized holding gains on available-for-sale securities ........................................................................ 206 127 -------- -------- Total stockholders' equity ........................................................ 12,663 11,889 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................................. $143,121 $104,913 ======== ========
3
FIRST FINANCIAL BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SEP. 30 NINE MONTHS ENDED SEP. 30 1997 1996 1997 1996 ------------ ------------ ------------ ------------ (DOLLAR AMOUNTS IN THOUSANDS, (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS) INTEREST INCOME: Loans, including fees ..................................... $1,591 $1,463 $4,919 $4,194 Investment securities: Taxable .......................................... 908 455 2,407 1,357 Exempt from Federal taxes ........................ 56 75 202 244 Federal funds sold ........................................ 78 49 280 155 ------ ------ ------ ------ Total interest income ............................ 2,633 2,042 7,808 5,950 INTEREST EXPENSE: Deposit accounts .......................................... 984 738 2,769 2,244 Other ..................................................... -- 69 -- 207 ----- ------ ------ ------ Total interest expense ........................... 984 807 2,769 2,451 ----- ------ ------ ------ Net interest income .............................. 1,649 1,235 5,039 3,499 Provision for loan losses .................................... -- 115 (60) 300 ------ ------ ------ ------ Net interest income after provision for loan losses........................................ 1,649 1,120 5,099 3,199 NONINTEREST INCOME: Service charges .......................................... 192 171 574 433 Premiums and fees from SBA and mortgage operations ....... 182 125 490 339 Miscellaneous ............................................ 15 20 42 43 ------ ------ ------ ------ Total noninterest income ......................... 389 316 1,106 815 NONINTEREST EXPENSE: Salaries and employee benefits ........................... 755 544 2,311 1,642 Occupancy ................................................ 156 131 422 379 Equipment ................................................ 115 93 327 247 Other .................................................... 694 488 2,006 1,168 ------ ------ ------ ------ Total noninterest expense ........................ 1,720 1,256 5,066 3,436 ------ ------ ------ ------ Income before provision for income taxes ......... 318 180 1,139 578 Provision for income taxes ................................... 102 54 377 162 ------ ------ ------ ------ Net Income ....................................... $ 216 $ 126 $ 762 $ 416 ====== ====== ====== ====== EARNINGS PER SHARE: Net Income ................................................... $ 0.15 $ 0.09 $ 0.55 $ 0.31 ====== ====== ====== ======
4
FIRST FINANCIAL BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) NINE MONTHS ENDED SEP. 30 ------------------------- 1997 1996 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................... $ 762 $ 416 Adjustments to reconcile net income to net cash (used in) provided by operating activities: (Decrease) Increase in loans held for sale ..................... (1,559) 240 Increase in deferred loan income ............................... 147 58 Provision for other real estate owned losses.................... 70 33 Depreciation and amortization .................................. 787 326 Provision for loan losses ...................................... (60) 300 Provision for deferred taxes ................................... 2 (20) Increase in accrued interest receivable ........................ (341) (102) Increase (decrease) in accrued interest payable ................ 137 (70) Increase in other liabilities .................................. 238 192 Increase in other assets ....................................... (320) (160) ------- ------- Net cash (used in) provided by operating activities ................................... (137) 1,213 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity of available-for-sale securities ........................................................ 70 250 Proceeds from maturity of available-for-sale securities ........................................................ 13,474 17,634 Proceeds from sale of available-for-sale securities .................. 26,000 -- Purchases of available-for-sale securities ........................... (59,210) (13,970) Increase in loans made to customers .................................. (7,510) (4,966) Proceeds from the sale of other real estate .......................... 227 132 Purchases of bank premises and equipment ............................. (3,024) (764) ------- ------- Net cash used in investing activities .................. (29,973) (1,684) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits ............................................. 37,007 2,108 Payments on note payable ............................................. -- (26) Dividends paid ....................................................... (198) (196) Proceeds received upon exercise of stock options ..................... 131 -- ------- ------- Net cash provided by financing activities............... 36,940 1,886 Net increase in cash and cash equivalents ................................ 6,830 1,415 Cash and cash equivalents at beginning of period ......................... 5,848 7,788 ------- ------- Cash and cash equivalents at end of period................................ $12,678 $ 9,203 ======= =======
5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION CHANGES IN FINANCIAL CONDITION Consolidated total assets at September 30, 1997 were $38.2 million above the comparable balance at December 31, 1996. The 36% increase in assets was due primarily to Bank of Lodi's February 22, 1997 acquisition of three branches from Wells Fargo Bank which added $34 million to total deposits as of the closing date. The deposit funds received in the acquisition of these branches have been invested primarily in the bank's investment securities portfolio, which grew by $19.8 million, or 54%, from December 31, 1996 and the bank's loan portfolio, which grew by $9.2 million, or 17% from December 31, 1996. Bank premises and equipment and other assets also increased primarily as a result of the branch acquisition. Bank premises and equipment at September 30, 1997 is $593 thousand, or 9% more than the balance at December 31, 1996. Other assets increased by $1.5 million, or 88%. Cash and due from banks increased by 66% due primarily to the float associated with the 40% increase in deposits. On February 22, 1997, the Company's wholly owned subsidiary, Bank of Lodi, completed the acquisition of the Galt, Plymouth, and San Andreas, California, branches of Wells Fargo Bank. Bank of Lodi purchased the premises and equipment of the Plymouth and San Andreas branches and assumed the building lease for the Galt branch. Bank of Lodi also purchased the furniture and equipment of all three branches and paid a premium for the deposits of each branch. The total cost of acquiring the branches, including payments to Wells Fargo Bank as well as other direct costs associated with the purchase, was $2.86 million. The transaction was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated first to identifiable tangible assets based upon those asset's fair value and then to identifiable intangible assets based upon the asset's fair value. The excess of the purchase price over identifiable tangible and intangible assets was allocated to goodwill. Allocations to identifiable tangible assets, identifiable intangible assets, and goodwill were $856 thousand, $1.98 million, and $24 thousand, respectively. Deposits totaling $34 million were acquired in the transaction. Total deposits were $129.2 million at September 30, 1997 compared to $92.2 million at December 31, 1996. Total deposits increased by $37 million, or 40%. A total of $34 million in deposits were received when Bank of Lodi acquired three branches from Wells Fargo Bank. Deposit growth in excess of the acquired deposits is the result of both growth in the number of accounts as well as seasonal growth in average account balances that usually begins in the third quarter of each year. The seasonal growth is associated with agribusiness activity in the greater Lodi area. Beyond seasonal factors, noninterest bearing demand deposits increased by $6.3 million or 70% due to continued business development success amd a more favorable noninterest bearing mix in the deposits acquired from Wells Fargo Bank. Average noninterest bearing demand deposits for the nine months ended September 30, 1997 were 11% of total average deposits compared to 9% for the comparable prior year period. The mix of NOW and savings acccounts also improved. NOW and Savings accounts for the nine months ended September 30, 1997 averaged 55% of total deposits compared to 51% for the comparable period in 1996. The afforementioned acquisition of three branches from Wells Fargo Bank and the resulting increase in deposits significantly increased the liquidity of Bank of Lodi. In the weeks immediately following the acquisition, approximately one half of the deposits acquired had been invested in US Agency securities and, to a lesser degree, mortgage backed securities. The remaineder was invested in two institutional money market mutual funds. The purchases of U.S. Agency securities included both medium term notes due in four to five years and callable securities with final maturities in three to ten years. The callable securities have from one to three years of call protection. Mortgage backed securities purchased were fixed-rate GNMA pass-through certificates with an average life of approximately nine years. In addition to the investment portfollio activity, funds were also invested in new loans to borrowers in both existing and newly expanded market areas. Loans increased by $9.2 million, or 17% from December 31, 1996. Approximately one half of the loan growth has occured in the three months ended September 30, 1997 due to improvement in Bank of Lodi's new and existing market market areas as well as efforts to generate loan volume within the greater Sacramento, California market area. Management believes that the current liquidity position of Bank of Lodi is adequate to support future loan demand, capital investment, and deposit activity. 6 The allowance for loan losses at September 30, 1997 is in excess of the December 31, 1996 allowance by $127 thousand, or 11%. The principal reason for the increase was an increase in the specific reserves for certain loans that exhibited increased loss exposure subsequent to December 31, 1996. In addition, unallocated reserves have been increased to establish reserves in relation to growth in the loan portfolio. There were loan recoveries during the quarter ended March 31, 1997 of several loans that had been charged off in previous years totaling $341 thousand. Based upon the resulting reserve position after recoveries and increases in specific reserves for certain loans, $80 thousand of the reserve was reversed and credited to income in the form of a negative loan loss provision for that quarter. After a loan loss provision of $20 thousand for the quarter ended June 30, 1997, the provision for loan losses for the nine months ended September 30, 1997 was negative in the amount of $60 thousand. Nonaccrual loans decreased by $527 thousand, or 59% from December 31, 1996 to September 30, 1997, and the allowance for loan losses nonaccrual coverage ratio increased to 3.6 times from 1.34 times. Total nonaccrual and nonperforming loans to total loans at September 30, 1997 were .65%, compared to 1.65% at December 31, 1996. Management believes that the allowance for loan losses at September 30, 1997 is adequate. The following tables depicts activity in the allowance for loan losses and allocation of reserves for and at the nine and twelve months ended September 30, 1997 and December 31, 1996, respectively:
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES 9/30/97 12/31/96 ------- -------- Balance at beginning of period ............................................... 1,207 959 Charge-offs: Commercial ................................................................ 198 237 Real estate ............................................................... -- -- Consumer .................................................................. 24 97 ------ ------ Total charge-offs ......................................................... 222 334 Recoveries: Commercial ................................................................ 397 260 Real estate ............................................................... -- -- Consumer .................................................................. 12 12 ------ ------ Total recoveries .......................................................... 409 272 ------ ------ Net charge-offs .............................................................. (346) 62 (reductions)/additions (credited to)/charged to operations ................... (60) 310 ------ ------ Balance at end of period ..................................................... 1,334 1,207 ====== ====== Ratio of net charge-offs to average loans outstanding ........................ (.01%) 0.11% ====== ======
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES 9/30/97 9/30/97 12/31/96 12/31/96 LOAN CATEGORY AMOUNT % OF LOANS AMOUNT % OF LOANS ------------- ----- ---------- ----- ---------- Commercial ................................. 335 70.38% 490 91.41% Real Estate ................................ 132 27.73% 45 8.40% Consumer ................................... 9 1.89% 1 .19% Unallocated ................................ 858 N/A 671 N/A ----- ---------- ----- --------- 1,334 100.00% 1,207 100.00% ===== ========== ===== =========
Consolidated equity increased by $774 thousand from December 31, 1996 to September 30, 1997. Consolidated equity represented 8.85% of consolidated assets at September 30, 1997 compared to 11.33% at December 31, 1996. The increase in equity from earnings of $762 thousand for the nine months ended September 30, 1997 exceeded reductions from dividend payments of $198 thousand and an increase in equity of $79 thousand to reflect the after-tax market value appreciation of the available-for-sale portion of the investment portfolio. The increase in investment portfolio market value reflects the impact of falling market interest rates during the nine months ended June 30, 1997 relative to December 31, 1996. The risk capital position of the Company's subsidiary, Bank of Lodi, NA, declined as a result of the afforementioned acquisition of three branches from Wells Fargo Bank as well as 7 overall deposit growth and increased lending. The total risk-based capital ratio was 12.6% at June 30, 1997 compared to 17.0% at December 31, 1996. The Bank's leverage capital ratio was 7.18% at September 30, 1997 versus 10.8% at December 31, 1996. Nothwithstanding the decline in the capital ratios, the resulting ratios are in excess of the regulatory minimums for a well-capitalized bank. CHANGES IN RESULTS OF OPERATION - THREE MONTHS ENDED SEPTEMBER 30, 1997 Net income for the three months ended September 30, 1997 was $216 thousand, or $.15 per share, and represented an increase of 71% relative to the three months ended September 30, 1996. Annualized return on average assets and equity were .61% and 6.90%, respectively, compared to .48% and 4.40%, respectively, for the comparable prior year quarter. Net income excluding the amortization of goodwill and core deposit intangibles ("cash" or "tangible" earnings) for the three months ended September 30, 1997 was $286 thousand, or $.20 per share, and represented an increase of 127% relative to the three months ended September 30, 1996. Annualized return on average assets and equity on this basis were .81% and 9.20% compared to .48% and 4.40%, respectively, for the comparable prior year quarter. Following the acquisition of branches from Wells Fargo Bank, "cash" earnings, "cash" return on average assets, and "cash" return on average equity are the profitability measures that are the most comparable to prior period measures. They are also the most meaningful performance measures to shareholders because they measure the Company's ability to support growth and pay dividends. Net interest income increased by $414 thousand, or 33% as a result of the increase in earning assets related to the acquisition of new branches and earning asset growth subsequent to the acquisition. The provision for loan losses declined by $115 thousand. Noninterest income increased by $73 thousand, or 23%, while noninterest expenses increased by $464 thousand, or 37%. Based upon the earnings for the three months ended September 30, 1997, the board of directors of First Financial Bancorp declared a cash dividend of $.05 per share, payable November 28, 1997, to shareholders of record November 14, 1997. Net interest income increased by $414 thousand, or 33%, relative to the comparable prior year quarter. Net interest margin was 5.35% for the quarter compared to 5.35% in the prior year quarter. Average earning assets and deposits for the three months ended September 30, 1997 increased by $31 million, or 33%, and $33.9 million, or 36%, respectively, over the prior year quarter. Excluding the impact of interest rate changes and changes in the mix of earning assets and deposits, net interest income increased $392 thousand as a result of the higher volume of average earning assets and deposits. Although asset yields for loans, investments and federal funds sold were higher than the prior year due to a more favorable mix of loans, a greater mix of callable agency securities in the investment portfolio, and a higher Federal Reserve target for the federal funds rate, total earning asset yields declined by 30 basis points. Earning assets yielded 8.54% for the quarter compared to 8.84% in the prior year quarter. While average loans outstanding increased 7.1% over the prior year quarter, loans as a percentage of earning assets declined to 49% from 61% and average investments grew as a result of the increase in average earning assets from the acquisition of three branches in the first quarter of 1997. The mix of deposits shifted away from higher cost certificates of deposit to lower cost noninterest bearing and interest bearing demand deposit accounts. Average noninterest bearing deposits to total deposits was 11% for the quarter compared to 10% in the prior year quarter. Average certificates of deposit were 33% of average deposits and other debt for the current quarter compared to 37% in the prior year. The mix of deposits and other debt also improved due to the payoff of $2.6 million in mortgage debt in November 1996. The impact of the changed earning asset mix reduced interest income by $133 thousand for the quarter relative to the prior year, while the changed deposit and debt mix reduced interest expense by $45 thousand. Finally, the impact of higher loan and investment portfolio rates and lower deposit rates increased net interest income by $111 thousand. There was no provision for loan losses for the three months ended September 30, 1997 compared to a provision of $115 thousand in the prior year quarter. As discussed above under Changes in Financial Condition, the allowance for loan losses at September 30, 1997 increased in comparison to December 31, 1996, due to increases in specific reserves for certain loans for which additional loss exposure was exhibited during 1997. The majority of these increases were made during the first quarter. In addition, unallocated reserves are higher in connection with the 8 growth in the loan portfolio. The overall condition of the loan portfolio is improved relative to the prior year and has resulted in a lower provision for loan losses. Noninterest income increased by $73 thousand, or 23%, reflecting increases in both service charge income as well as income from SBA and mortgage operations. Service charge income increased by 12% as a result of increased deposit account and transaction volumes as well as increases in certain service charge rates relative to the prior year quarter. Deposit account and transaction volumes increased due to Bank of Lodi's acquisition of three branches during the first quarter of 1997 as discussed above under Changes in Financial Condition as well as new account activity at existing branches. SBA and mortgage income improved by 46%. Premium income related to mortgage and SBA loan sales rose by 320% and 50%, respectively, over the prior year quarter due to favorable mortgage rates and housing conditions and continued improvement in the climate for small business loans as well as focused business development efforts. Noninterest expenses increased by $464 thousand, or 37%, compared to the prior year quarter. Salaries and benefit expenses increased due to the increased staffing associated with three branches acquired in the first quarter of 1997 as well as incentive compensation accruals related to increased profitability. Occupancy expense increases reflect additional expenses associated with three new branches. Equipment expenses also increased as a result of the new branches as well as new information systems that went into use during June of 1996. The former information system was nearly fully depreciated prior to its replacement, resulting in higher depreciation costs for technology in the current year quarter. Other noninterest expenses increased due to $120 thousand in amortization of intangible assets acquired in Bank of Lodi's acquisition of three branches. The acquisition by Bank of Lodi of three branches from Wells Fargo Bank is discussed above under Changes in Financial Condition. Other noninterest expenses also increased as a result of legal and professional costs incurred in relation to ongoing strategic efforts for which costs are expected to increase in following quarters. CHANGES IN RESULTS OF OPERATION - NINE MONTHS ENDED SEPTEMBER 30, 1997 Net income for the nine months ended September 30, 1997 was $762 thousand, or $.55 per share, and represented an increase of 83% relative to the nine months ended September 30, 1996. Annualized return on average assets and equity were .77% and 8.3%, respectively, compared to .53% and 4.9%, respectively, for the comparable prior year period. Net income excluding the amortization of goodwill and core deposit intangibles ("cash" or "tangible" earnings) for the nine months ended September 30, 1997 was $971 thousand, or $.70 per share, and represented an increase of 133% relative to the nine months ended September 30, 1996. Annualized return on average assets and equity on this basis were .98% and 10.5% compared to .53% and 4.9%, respectively, for the comparable prior year period. Following the acquisition of branches from Wells Fargo Bank, "cash" earnings, "cash" return on average assets, and "cash" return on average equity are the profitability measures that are the most comparable to prior period measures. They are also the most meaningful performance measures to shareholders because they measure the Company's ability to support growth and pay dividends. Net interest income increased as a result of the increase in earning assets related to the acquisition of new branches and a widened net interest margin which benefited from the collection of $445 thousand in nonaccrual interest on several loans that had been charged off in previous years. Noninterest income increased by $291 thousand, or 36%, while noninterest expenses increased by $1.6 million, or 47% due to increased operating expenses related to the acquisition of three branches, including the related amortization of goodwill and core deposit intangible assets. Net interest income increased by $1.5 million, or 44%, relative to the comparable prior year period. Net interest margin increased to 5.75% for the period compared to 5.06% in the prior year period. During the first quarter, interest income totaling $445 thousand was recovered and recognized for several loans that had been charged off in previous years. Excluding the recovered interest, net interest margin was 5.24%, or 18 basis points higher than the prior year period. Excluding the recovered interest, the remaining increase in net interest income of $1.1 million represents the net impact of significant changes in the volume and mix of earning assets and deposits as well as the general level of interest rates. 9 Average earning assets and deposits for the nine months ended September 30, 1997 increased by $24.6 million, or 27%, and $26.8 million, or 29%, respectively, over the prior year period. Excluding the impact of lower interest rates and changes in the mix of earning assets and deposits, net interest income increased $290 thousand as a result of the higher volume of average earning assets and deposits. Earning assets yielded 8.91% for the period compared to 8.60% in the prior year period. Excluding recovered interest, earning asset yields were 8.40% or 20 basis points below the prior year period. Asset yields for loans and investments were higher than the prior year due to a more favorable mix of loans and a higher mix of callable agency securities in the investment portfolio. Although average loans outstanding increased over the prior year quarter, loans as a percentage of earning assets declined to 49% from 59% as a result of the increase in average earning assets from the branch acquisition. The mix of deposits shifted away from higher cost certificates of deposit to lower cost noninterest bearing and interest bearing demand deposit accounts. Average certificates of deposit were 34% of average deposits and other debt for the period compared to 38% in the prior year. The mix of deposits and other debt also improved due to the payoff of $2.6 million in mortgage debt in November 1996. The provision for loan losses decreased by $360 thousand to a negative provision of $60 thousand. Total recoveries of loans charged off in previous years added $409 thousand to the allowance for loan losses during the period. Management's analysis of the allowance for loan losses as of March 31, 1997 indicated an overfunded condition, and $80 thousand of the reserve was credited to the provision for loan losses at that time. A provision of $20 thousand was made during the second quarter of 1997. As discussed above under Changes in Financial Condition, the allowance for loan losses at September 30, 1997 increased in comparison to December 31, 1996, due to increases in specific reserves for certain loans for which additional loss exposure was exhibited during the period. In addition, unallocated reserves are higher in connection with the growth in the loan portfolio. Noninterest income increased by $291 thousand, or 36%, reflecting increases in both service charge income as well as income from SBA and mortgage operations. Service charge income increased by 33% as a result of increased deposit account and transaction volumes as well as increases in certain service charge rates. Deposit account and transaction volumes increased due to Bank of Lodi's acquisition of three branches as discussed above under Changes in Financial Condition as well as new account activity at existing branches. SBA and mortgage income improved by 45%. Premium income related to the sale of mortgage loans increased by 73% over the prior year due to favorable mortgage rates and improved conditions in the housing market. The majority of the improvement in mortgage income was realized in the quarter ended September 30, 1997. Premium income related to SBA loan sales rose by 60% over the prior year period due to continued improvement in the climate for small business loans as well as focused business development efforts. Noninterest expenses increaesed by $1.6 million, or 47%, compared to the prior year period. Salaries and benefit expenses increased due in part to incentive compensation accruals related to increased profitability. Other noninterest expenses increased due to the amortization of intangible assets received in Bank of Lodi's acquisition of three branches, provisions for losses on the sale of other real estate owned, provision for losses in connection with the reclamation of deposit account cash items, and the accrual of legal and professional costs associated with loan loss resolution. Equipment expenses increased as a result of new information systems that went into use during June of 1996. The former information system was nearly fully depreciated prior to its replacement, resulting in higher depreciation costs for technology in the current year period. Losses related to the disposal of other real estate owned nearly doubled relative to the prior year period. The differences related to the afformentioned salary and other noninterest expense items total approximately $550 thousand in the aggregate. Excluding these items, total noninterest expenses increased by $1.05 million, or 31%, reflecting salary and benefit expenses for the newly acquired branches, the addition of one administrative officer, and other operating expenses related to the expanded operational base of Bank of Lodi. The acquisition by Bank of Lodi of three branches from Wells Fargo Bank is discussed above under Changes in Financial Condition. 10 BASIS OF PRESENTATION First Financial Bancorp is the holding company for Bank of Lodi, N.A.. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals and other accruals as explained above) necessary for a fair presentation of financial position as of the dates indicated and results of operations for the periods shown. All material intercompany accounts and transactions have been eliminated in consolidation. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts. The results for the three and nine months ended September 30, 1997 are not necessarily indicative of the results which may be expected for the year ended December 31, 1997. The unaudited consolidated financial statements presented herein should be read in conjunction with the consolidated financial statements and notes included in the 1996 Annual Report to Shareholders. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION On October 23, 1997, the First Financial Bancorp Board of Directors declared a cash dividend of $.05 per share, payable November 28, 1997, to shareholders of record on November 14, 1997. This is the eleventh consecutive quarterly dividend declared by First Financial Bancorp. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS EXHIBIT NUMBER ------- 2 Not Applicable. 3 Registrant's current Bylaws. 10 1997 Stock Option Plan. 11 11 Earnings per common and common share equivalents are calculated by dividing net income by the weighted-average number of common and common share equivalents outstanding during the period. Stock options are considered common share equivalents for this calculation. Weighted average shares used in the computation of earnings per share for the three months ended September 30, 1997, and 1996, were 1,403,758 and 1,370,091, respectively. Weighted average shares used in the computation of earnings per share for the nine months ended September 30, 1997 and 1996 were 1,385,472 and 1,364,744. 15 Not Applicable. 16 Not Applicable. 18 Not Applicable. 19 Not Applicable. 22 Notice of Annual Meeting and Proxy Statement dated April 1, 1997; filed March 31, 1997. 24 Not Applicable 27 Financial Data Schedule (electronic filing only) 28 Not Applicable (b) REPORTS ON FORM 8-K Not Applicable 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST FINANCIAL BANCORP Date October 30, 1997 /s/ David M. Philipp ---------------- ---------------------------- David M. Philipp Executive Vice-President Chief Financial Officer Corporate Secretary 13 EX-10 2 1997 STOCK OPTION PLAN EXHIBIT 10: 1997 STOCK OPTION PLAN FIRST FINANCIAL BANCORP 1997 STOCK OPTION PLAN
TABLE OF CONTENTS Page ---- 1. PURPOSE........................................................................................... 17 2. DEFINITIONS....................................................................................... 17 (a) Board of Directors....................................................................... 17 (b) Change in Control ....................................................................... 17 (c) Code..................................................................................... 17 (d) Committee................................................................................ 17 (e) Company.................................................................................. 17 (f) Employee................................................................................. 1 (g) Exchange Act............................................................................. 18 (h) Exercise Price........................................................................... 18 (i) Fair Market Value........................................................................ 18 (j) ISO...................................................................................... 18 (k) Nonstatutory Option...................................................................... 2 (l) Option................................................................................... 2 (m) Optionee................................................................................. 18 (n) Plan..................................................................................... 19 (o) Service.................................................................................. 19 (p) Share.................................................................................... 19 (q) Stock.................................................................................... 19 (r) Stock Option Agreement................................................................... 19 (s) Subsidiary............................................................................... 19 (t) Substitute Option........................................................................ 19 (u) Total and Permanent Disability........................................................... 19 3. ADMINISTRATION.................................................................................... 19 (a) Committee Membership..................................................................... 19 (b) Committee Procedures..................................................................... 20 (c) Committee Responsibilities............................................................... 20 4. ELIGIBILITY....................................................................................... 21 (a) General Rules............................................................................ 21 (b) Ten-Percent Stockholders................................................................. 21 (c) Attribution Rules........................................................................ 21 (d) Outstanding Stock........................................................................ 21 5. STOCK SUBJECT TO PLAN............................................................................. 21 (a) Basic Limitation......................................................................... 21 (b) Additional Shares........................................................................ 21
6. TERMS AND CONDITIONS OF OPTIONS................................................................... 22 (a) Stock Option Agreement................................................................... 22 (b) Number of Shares......................................................................... 22 (c) Exercise Price........................................................................... 22 (d) Withholding Taxes........................................................................ 22 (e) Exercisability........................................................................... 22 (f) Term..................................................................................... 23 (g) Transferability.......................................................................... 23 (h) No Rights as a Stockholder .............................................................. 23 (i) Modification, Extension and Renewal of Options........................................... 23 (j) Substitute Options....................................................................... 8 7. PAYMENT FOR SHARES................................................................................ 24 (a) General Rule............................................................................. 24 (b) Surrender of Stock....................................................................... 24 (c) Exercise/Sale............................................................................ 24 (d) Exercise/Pledge.......................................................................... 25 8. ADJUSTMENT OF SHARES.............................................................................. 25 (a) General.................................................................................. 25 (b) Reorganizations.......................................................................... 25 (c) Reservation of Rights.................................................................... 25 9. SECURITIES LAWS................................................................................... 26 10. NO RETENTION RIGHTS............................................................................... 26 11. DURATION AND AMENDMENTS........................................................................... 26 (a) Term of the Plan......................................................................... 26 (b) Right to Amend or Terminate the Plan..................................................... 26 (c) Effect of Amendment or Termination....................................................... 26 12. INFORMATION TO OPTIONEES.......................................................................... 10
FIRST FINANCIAL BANCORP 1997 STOCK OPTION PLAN PURPOSE. - ------- The purpose of the Plan is to offer selected employees, directors and consultants an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company's Common Stock. The Plan provides both for the grant of Nonstatutory Options as well as ISOs intended to qualify under section 422 of the Code. DEFINITIONS. - ----------- "Board of Directors" shall mean the Board of Directors of the Company, ------------------ as constituted from time to time. "Change in Control" shall mean the occurrence of either of the ----------------- following events: A change in the composition of the Board of Directors, as a result of which fewer than one-half of the incumbent directors are directors who either: Had been directors of the Company 24 months prior to such change; or Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination; or Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act) by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50 percent or more of the combined voting power of the Company's then outstanding securities. For purposes of this Paragraph (ii), the term "person" shall not include an employee benefit plan maintained by the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- "Committee" shall mean a committee of the Board of Directors, as --------- described in Section 3(a), or in the absence of such a committee, the Board of Directors. "Company" shall mean First Financial Bancorp, a California corporation. ------- "Employee" shall mean: -------- Any individual who is a common-law employee of the Company or of a Subsidiary; A member of the Board of Directors; and 1 An independent contractor who performs services for the Company or a Subsidiary and who is not a member of the Board of Directors. Service as an independent contractor or member of the Board of Directors shall be considered employment for all purposes of the Plan, except as provided in Section 4(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. "Exercise Price" as specified by the Committee in the applicable Stock -------------- Option Agreement. "Fair Market Value" shall mean the market price of Stock, determined by ----------------- the Committee as follows: If Stock was traded over-the-counter on the date in question but was not traded on the Nasdaq system or the Nasdaq National Market System, then the Fair Market Value 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 Stock is quoted or, if Stock is not quoted on any such system, by the "Pink Sheets" published by the National Quotation Bureau, Inc.; If Stock was traded over-the-counter on the date in question and was traded on the Nasdaq system or the Nasdaq National Market System, then the Fair Market Value shall be equal to the last-transaction price quoted for such date by the Nasdaq system or the Nasdaq National Market System; If Stock was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite-transactions report for such date; and 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. "ISO" shall mean an employee incentive stock option described in --- Section 422(b) of the Code. "Nonstatutory Option" shall mean a stock option not described in ------------------- Sections 422(b) or 423(b) of the Code. "Option" shall mean an ISO or Nonstatutory Option granted under the ------ Plan and entitling the holder to purchase Shares. "Optionee" shall mean an individual who holds an Option. -------- 2 "Plan" shall mean this First Financial Bancorp 1997 Stock Option ---- Plan, as it may be amended from time to time. "Service" shall mean service as an Employee. ------- "Share" shall mean one share of Stock, as adjusted in accordance with ----- Section 8 (if applicable). "Stock" shall mean the Common Stock of the Company. ----- "Stock Option Agreement" shall mean the agreement between the Company ---------------------- and an Optionee which contains the terms, conditions and restrictions pertaining to his or her Option. "Subsidiary" shall mean Bank of Lodi, N.A. and any other corporation, ---------- if the Company and/or one or more other Subsidiaries own not less than 50 percent 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. "Substitute Option" shall mean an option described in Section 6(j). ----------------- "Total and Permanent Disability" shall mean that the Optionee is unable ------------------------------ to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year. ADMINISTRATION. - -------------- Committee Membership. The Board of Directors shall have the authority -------------------- to administer the Plan but may delegate its administrative powers under the Plan, in whole or in part, to one or more committees of the Board of Directors. With respect to the participation of Employees who are subject to Section 16 of the Exchange Act, the Plan may be administered by a committee composed solely of two or more members of the Board of Directors who qualify as "nonemployee directors" as defined in Securities and Exchange Commission Rule 16b-3 under the Exchange Act. With respect to the participation of Employees who may be considered "covered employees" under Section 162(m) of the Code, the Plan may be administered by a committee composed solely of two or more members of the Board of Directors who qualify as "outside directors" as defined by the Internal Revenue Service for plans intended to qualify for an exemption under Section 162(m)(4)(C) of the Code. If the committee members meet both such qualifications, then one committee may administer the Plan both with respect to Employees who are subject to Section 16 of the Exchange Act or who are considered to be "covered employees" under Section 162(m) of the Code. The Board of Directors may appoint a separate committee, consisting of one or more members of the Board of Directors who do not meet such qualifications. Such committee may administer the Plan with respect to Employees who are not officers of the Company or members of 3 the Board of Directors, may grant Options under the Plan to such Employees and may determine the timing, number of Shares and other terms of such grants. Committee Procedures. The Board of Directors shall designate one of the -------------------- members of any Committee appointed under paragraph (a) as chairman. Any such 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 by all Committee members, shall be valid acts of the Committee. Committee Responsibilities. Subject to the provisions of the Plan, --------------------------- any such Committee shall have full authority and discretion to take the following actions: To interpret the Plan and to apply its provisions; To adopt, amend or rescind rules, procedures and forms relating to the Plan; To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; To determine when Options are to be granted under the Plan; To select the Optionees; To determine the number of Shares to be made subject to each Option; To prescribe the terms and conditions of each Option, including (without limitation) the Exercise Price, to determine whether such Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the Stock Option Agreement relating to such Option; To amend any outstanding Stock Option Agreement, subject to applicable legal restrictions and to the consent of the Optionee who entered into such agreement; To prescribe the consideration for the grant of each Option under the Plan and to determine the sufficiency of such consideration; and To take any other actions deemed necessary or advisable for the administration of the Plan. All decisions, interpretations and other actions of the Committee shall be final and binding on all Optionees, and all persons deriving their rights from an Optionee. No member of the Committee shall be liable for any action that he or she has taken or has failed to take in good faith with respect to the Plan or any Option. 4 ELIGIBILITY. - ----------- General Rules. Only Employees shall be eligible for designation as ------------- Optionees by the Committee. In addition, only Employees who are common-law employees of the Company or a Subsidiary shall be eligible for the grant of ISOs. Ten-Percent Stockholders. An Employee who owns more than 10 percent of ------------------------ the total combined voting power of all classes of outstanding stock of the Company or any of its Subsidiaries shall not be eligible for the grant of an ISO unless: The Exercise Price is at least 110 percent of the Fair Market Value of a Share on the date of grant; and Such ISO by its terms is not exercisable after the expiration of five years from the date of grant. Attribution Rules. For purposes of Subsection (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. Stock with respect to which such Employee holds an option shall not be counted. Outstanding Stock. For purposes of Subsection (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. STOCK SUBJECT TO PLAN. - --------------------- Basic Limitation. Shares offered under the Plan shall be authorized but ---------------- unissued Shares. The aggregate number of Shares which is issued under the Plan upon exercise of Options shall not exceed 393,207 Shares less the number of Shares required for issuance pursuant to the exercise of options outstanding under the Company's 1991 First Financial Bancorp Employee Stock Option Plan and the Company's 1991 First Financial Bancorp Director Stock Option Plan (together, the "Prior Plans") as of April 22, 1997, the date on which the Plan was approved by the shareholders of the Company (the "Effective Date"). (No additional grants shall be made under the Prior Plans after the Effective Date, although the Prior Plans will continue to govern the respective outstanding options previously granted under the Prior Plans.) The number of Shares which are subject to Options 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. Additional Shares. In the event that any outstanding option granted ----------------- under this Plan, including Substitute Options, or the Prior Plans, for any reason expires or is canceled or otherwise 5 terminated, the Shares allocable to the unexercised portion of such option shall become available for the purposes of this Plan. TERMS AND CONDITIONS OF OPTIONS. Stock Option Agreement. Each grant of an Option under the Plan shall be ---------------------- evidenced by a Stock Option Agreement executed by the Optionee 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 Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Number of Shares. Each Stock Option 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 8. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option. Exercise Price. Each Stock Option Agreement shall specify the Exercise -------------- Price. The Exercise Price of an ISO shall not be less than 100 percent of the Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 4(b) with respect to ten percent stockholders and in Section 6(j) with respect to Substitute Options. The Exercise Price of a Nonstatutory Option shall not be less than 85 percent of the Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 6(j) with respect to Substitute Options. The Exercise Price shall be payable in a form described in Section 7. Withholding Taxes. As a condition to the exercise of an Option, the ----------------- Optionee shall make such arrangements as the Committee may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that arise in connection with such exercise. The Optionee 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. The Committee may permit the Optionee to satisfy all or part of his or her tax obligations related to the Option by having the Company withhold a portion of any Shares that otherwise would be issued to him or her or by surrendering any Shares that previously were acquired by him or her. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of taxes by assigning Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose. Exercisability. Each Stock Option Agreement shall specify the date when -------------- all or any installment of the Option is to become exercisable. The vesting of any Option shall be determined by the Committee at its sole discretion, provided, however, that each Option shall vest at the rate of at least 20 percent per year over the five years from the date such Option is granted, and further provided, however, that: (i) each Stock Option Agreement may provide for other treatment of the entire Option in the event of a Change in Control, in accordance with Section 8(b); and (ii) in the event that an Optionee's Service terminates, the Option shall be exercisable only to the extent the 6 Option was vested as of the date of such termination, unless otherwise specified in the Optionee's Stock Option Agreement. Term. Each Stock Option Agreement shall specify the term of the Option. ---- The term of an ISO shall not exceed 10 years from the date of grant, except as otherwise provided in Section 4(b). Subject to the preceding sentence, the Committee at its sole discretion shall determine when an Option is to expire. In the event that the Optionee's Service terminates: As a result of such Optionee's death or Total and Permanent Disability, the term of the Option shall expire twelve months (or such other period specified in the Optionee's Stock Option Agreement) after such death or Total and Permanent Disability but not later than the original expiration date specified in the Stock Option Agreement. As a result of termination by the Company for cause, the term of the Option shall expire thirty days after the Company's notice or advice of such termination is dispatched to Employee, but not later than the original expiration date specified in the Stock Option Agreement. For purposes of this Paragraph (ii), "cause" shall mean an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to the Company, or the deliberate disregard of rules of the Company which results in loss, damage or injury to the Company, the unauthorized disclosure of any of the secrets or confidential information of the Company, the inducement of any client or customer of the Company to break any contract with the Company, or the inducement of any principal for whom the Company acts as agent to terminate such agency relationship, the engagement of any conduct which constitutes unfair competition with the Company, the removal of Optionee from office by any court or bank regulatory agency, or such other similar acts which the Committee in its discretion determine to constitute good cause for termination of Optionee's Service. As used in this Paragraph (ii), Company includes Subsidiaries of the Company. As a result of termination for any reason other than Total and Permanent Disability, death or cause, the term of the Option shall expire three months (or such other period specified in the Optionee's Stock Option Agreement) after such termination, but not later than the original expiration date specified in the Stock Option Agreement. Transferability. During an Optionee's lifetime, such Optionee's ISO(s) --------------- shall be exercisable only by him or her and shall not be transferable. An Optionee's Nonstatutory Options shall also not be transferable during the Optionee's lifetime. In the event of an Optionee's death, such Optionee's Option(s) shall not be transferable other than by will, by written beneficiary designation or by the laws of descent and distribution. No Rights as a Stockholder. An Optionee, or a transferee of an -------------------------- Optionee, shall have no rights as a stockholder with respect to any Shares covered by his or her Option until the date of the issuance of a stock certificate for such Shares. No adjustments shall be made, except as provided in Section 8. Modification, Extension and Renewal of Options. Within the limitations ---------------------------------------------- of the Plan, the Committee may modify, extend or renew outstanding Options or may accept the cancellation of 7 outstanding Options (to the extent not previously exercised) in return for the grant of new Options at the same or a different price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair such Optionee's rights or increase his or her obligations under such Option. Substitute Options. If the Company at any time should succeed to the ------------------ business of another corporation through merger or consolidation, or through the acquisition of stock or assets of such corporation, Options may be granted under the Plan in substitution of options previously granted by such corporation to purchase shares of its stock which options are outstanding at the date of the succession ("Surrendered Options"). The Committee shall have discretion to determine the extent to which such Substitute Options shall be granted, the persons to receive such Substitute Options, the number of Shares to be subject to such Substitute Options, and the terms and conditions of such Substitute Options which shall, to the extent permissible within the terms and conditions of the Plan, be equivalent to the terms and conditions of the Surrendered Options. The Exercise Price may be determined without regard to Section 6(c); provided however, that the Exercise Price of each Substitute Option shall be an amount such that, in the sole and absolute judgment of the Committee (and if the Substitute Options are to be ISO's, in compliance with Section 424(a) of the Code), the economic benefit provided by such Substitute Option is not greater than the economic benefit represented by the Surrendered Option as of the date of the succession. PAYMENT FOR SHARES. - ------------------ General Rule. The entire Exercise 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 follows: ISOs. In the case of an ISO granted under the Plan, payment ---- shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. However, the Committee (at its sole discretion) may specify in the Stock Option Agreement that payment may be made pursuant to Subsections (b), (c) or (d) below. Nonstatutory Options. In the case of a Nonstatutory Option -------------------- granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. However, the Committee (at its sole discretion) may accept payment pursuant to Subsections (b), (c) or (d) below. Surrender of Stock. To the extent that this Subsection (b) is ------------------ applicable, payment may be made all or in part with Shares which have already been owned by the Optionee or his or her representative for more than 6 months and which are surrendered to the Company in good form for transfer. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. Exercise/Sale. To the extent that this Subsection (c) is applicable, ------------- payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities 8 broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. Exercise/Pledge. To the extent that this Subsection (d) is applicable, --------------- payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. ADJUSTMENT OF SHARES. - -------------------- General. 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 value of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of: The number of Shares available under Section 5 for future grants; The limit set forth in Section 6(b); The number of Shares covered by each outstanding Option; or The Exercise Price under each outstanding Option. Reorganizations. In the event that the Company is a party to a merger --------------- or other reorganization involving a Change in Control, the outstanding Options shall be subject to the agreement of merger or reorganization. Subject to the provisions of Section 6(e)(i), such agreement may provide, without limitation, for the assumption of outstanding Options by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for payment of a cash settlement equal to the difference between the amount to be paid for one Share under such agreement and the Exercise Price, or for the acceleration of their exercisability followed by the cancellation of Options not exercised, in all cases without the Optionees' consent. Any cancellation shall not occur until after such acceleration is effective and Optionees have been notified of such acceleration and have had reasonable opportunity to exercise their Options. Reservation of Rights. Except as provided in this Section 8, an --------------------- Optionee or Offeree 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 Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make 9 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. SECURITIES LAWS. - --------------- 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. NO RETENTION RIGHTS. - ------------------- Neither the Plan nor any Option shall be deemed to give any individual a right to remain an employee or consultant of the Company or a Subsidiary. The Company and its Subsidiaries reserve the right to terminate the service of any employee or consultant at any time, with or without cause, subject to applicable laws and a written employment agreement (if any). DURATION AND AMENDMENTS. - ----------------------- Term of the Plan. The Plan, as set forth herein, shall become effective ---------------- as of the Effective Date, provided that the Plan has been approved by the shareholders of the Company in the manner required by applicable law or regulation. The Plan shall terminate automatically on March 20, 2007, which is ten (10) years after the Plan was adopted by the Board of Directors, and no Options may be granted under the Plan on or after March 20, 2007. The Plan may be terminated earlier than such date, pursuant to subsection (b) below. Right to Amend or Terminate the Plan. The Board of Directors may amend, ------------------------------------ suspend or terminate the Plan at any time and for any reason. An amendment of the Plan shall be subject to the approval of the Company's shareholders only to the extent required by applicable laws or regulations. Effect of Amendment or Termination. No Shares shall be issued or sold ---------------------------------- under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan INFORMATION TO OPTIONEES. - ------------------------ The Company shall provide to each Optionee, at the same time and in the same manner as provided to the shareholders of the Company, a copy of the annual report to shareholders, containing the audited financial statements of the Company. Upon request of any Optionee, the Company shall also provide to such Optionee, at no charge to the Optionee, a copy of any Form 10-K Annual Report or Form 10-Q Quarterly Report filed by the Company with the Securities and Exchange Commission. 10 EX-27 3 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE 9-30-97 FINANCIAL STATS AND IS QUALIFIED IN ITS ENTIRELTY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 JUL-O1-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 7,878 7,878 0 0 4,800 4,800 0 0 54,991 54,991 1,717 1,717 1,794 1,794 63,158 63,158 1,334 1,334 143,121 143,121 129,214 129,214 0 0 1,244 1,244 0 0 0 0 0 0 7,455 7,455 5,208 5,208 143,121 143,121 1,591 4,919 964 2,609 78 280 2,633 7,808 984 2,769 984 2,769 1,649 5,039 0 (60) 0 0 1,720 5,066 318 1,139 0 0 0 0 0 0 216 762 .15 .55 .15 .55 5.35 5.75 371 371 29 29 0 0 0 0 1,493 1,207 214 222 55 409 1,334 1,334 1,334 1,334 0 0 858 858
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