We regularly consider the various tax and accounting implications of our compensation plans. When determining the amounts of long-term incentives and equity grants to executives and employees, the compensation costs associated with the grants are reviewed, as required by FASB ASC Topic 718.
Section 162(m) of the Internal Revenue Code generally prohibits any publicly held corporation from taking a federal income tax deduction for compensation paid over $1 million in any taxable year to the Chief Executive Officer and the other “covered employees” as defined in the rule. Under the tax laws in effect before 2018, compensation that qualified as “performance-based compensation” under Section 162(m) of the Code was deductible without regard to this limitation. Effective for tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act of 2017 generally eliminated the performance-based exemption, subject to a special rule that grandfathers certain awards and agreements that were in effect on November 2, 2017. While considering tax deductibility as only one of several considerations in determining compensation, the Compensation Committee believes that the tax deduction limitation should not compromise its ability to structure compensation programs that provide benefits to FS Bancorp that outweigh the potential benefit of a tax deduction and, therefore, may approve compensation that is not deductible for tax purposes.
It is our belief that a significant portion of an executive’s total compensation should be variable “at risk” compensation, meaning it is tied to the Bank’s financial performance. However, because performance-based incentives play a large role in our compensation program, we strive to ensure that incentives do not result in actions that may conflict with the long-term best interests of FS Bancorp and its shareholders. Therefore, the Compensation Committee annually reviews all plans and policies (applicable to executives and employees below the executive level) for attributes that could cause excessive risk-taking. We believe our programs and policies do not encourage excessive risk-taking because: (1) the salary component of our program is a fixed amount; (2) a significant element of our executive officers’ compensation is delivered in the form of equity ownership, which aligns the interest of our executives with those of our shareholders; and (3) the annual cash-based incentive plan and long-term incentive plans are designed with risk-mitigating characteristics. The risk-mitigating characteristics of the incentive plans include (1) award payouts based on the attainment of various and continually evolving corporate financial objectives which diversify risks associated with a single indicator of performance, (2) equity-based incentives encourage a longer-term focus, (3) risk-mitigating policies such as insider trading and hedging prohibitions and clawbacks, and (4) review and approval of final awards by the Compensation Committee (and the independent members of the full Board in the case of the Chief Executive Officer), which is composed entirely of independent directors who have discretion under our plans to approve, modify, or eliminate any award earned.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on the review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 20202021 proxy statement.
The foregoing report is provided by the following directors, who constitute the Compensation Committee:
The following table shows information regarding compensation for the years ended December 31, 20202021 and 20192020 for: (1) Joseph C. Adams, our principal executive officer; and (2) our two next most highly compensated executive officers, who are Donn C. Costa and Matthew D. Mullet.Dennis V. O’Leary.
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Outstanding Equity Awards
The following information with respect to outstanding equity awards as of December 31, 20202021 is presented for the named executive officers.
| | | | | | Option Awards (1) | | Stock Awards (1) |
| | | | Number of Securities Underlying Unexercised Options (#) | | Number of Securities Underlying Unexercised Options (#) | | | | | | Number of
Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | | | | Number of Securities Underlying Unexercised Options (#) | | Number of Securities Underlying Unexercised Options (#) | | | | | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Joseph C. Adams | | 05/08/14 | | 40,000 | | -- | | 16.89 | | 05/08/24 | | | | | | 08/15/18 | | 27,360 | | 18,240 | | 29.30 | | 08/15/28 | | | | |
| | 08/15/18 | | 9,120 | | 13,680 | | 58.60 | | 08/15/28 | | | | | | 08/15/19 | | 9,600 | | 14,400 | | 24.37 | | 08/15/29 | | | | |
| | 08/15/19 | | 2,400 | | 9,600 | | 48.74 | | 08/15/29 | | | | | | 08/14/20 | | 5,760 | | 23,040 | | 21.35 | | 08/14/30 | | | | |
| | 08/14/20 | | -- | | 14,400 | | 42.70 | | 08/14/30 | | 11,420 | | 625,816 | | 08/13/21 | | -- | | 24,000 | | 35.46 | | 08/13/31 | | 25,040 | | 842,095 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Donn C. Costa | | 08/15/18 | | 7,360 | | 11,040 | | 58.60 | | 08/15/28 | | | | | | 08/15/18 | | 22,080 | | 14,720 | | 29.30 | | 08/15/28 | | | | |
| | 08/15/19 | | 1,245 | | 4,980 | | 48.74 | | 08/15/29 | | | | | | 08/15/19 | | 4,980 | | 7,470 | | 24.37 | | 08/15/29 | | | | |
| | 08/14/20 | | -- | | 7,725 | | 42.70 | | 08/14/30 | | 6,995 | | 383,326 | | 08/14/20 | | 3,090 | | 12,360 | | 21.35 | | 08/14/30 | | 10,290 | | 346,053 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Matthew D. Mullet | | 05/08/14 | | 2,037 | | -- | | 16.89 | | 05/08/24 | | | | | |
Dennis V. O’Leary | | | 08/15/18 | | 5,760 | | 3,840 | | 29.30 | | 08/15/28 | | | | |
| | 08/15/18 | | 1,920 | | 2,880 | | 58.60 | | 08/15/28 | | | | | | 08/15/19 | | 4,980 | | 7,470 | | 24.37 | | 08/15/29 | | | | |
| | 08/15/19 | | 1,245 | | 4,980 | | 48.74 | | 08/15/29 | | | | | | 08/14/20 | | 3,090 | | 12,360 | | 21.35 | | 08/14/30 | | | | |
| | 08/14/20 | | -- | | 7,725 | | 42.70 | | 08/14/30 | | 4,955 | | 271,534 | | 08/13/21 | | -- | | 15,000 | | 35.46 | | 08/13/31 | | 12,570 | | 422,729 |
__________
(1) | Awards vest pro rata over a five-year period from the grant date, with the first 20% vesting one year after the grant date. |
(2) | Amounts are based on FS Bancorp’s common stock closing price of $54.80$33.63 on December 31, 2020.2021. |
Potential Payments Upon Termination
We have entered into agreements with the named executive officers that provide for potential payments upon disability, termination and death. In addition, our equity plans also provide for potential payments upon termination. The following table shows, as of December 31, 2020,2021, the value of potential payments and benefits following a termination of employment under a variety of scenarios.
| | | | | Involuntary Termination ($) | | Change in |
| | | | | | | |
Joseph C. Adams | | | | | | | |
Severance Agreement | -- | | -- | | 950,000 | | 950,000 |
Equity Awards (1) | 858,232 | | 858,232 | | -- | | 858,232 |
| | | | | | | |
Donn C. Costa | | | | | | | |
Change in Control Agreement | -- | | -- | | -- | | 330,000 |
Equity Awards (1) | 506,977 | | 506,977 | | -- | | 506,977 |
| | | | | | | |
Matthew D. Mullet | | | | | | | |
Change in Control Agreement | -- | | -- | | -- | | 330,000 |
Equity Awards (1) | 395,185 | | 395,185 | | -- | | 395,185 |
_____________
| | | | | Involuntary Termination ($) | | Change in |
| | | | | | | |
Joseph C. Adams | | | | | | | |
Severance Agreement | -- | | -- | | 950,000 | | 950,000 |
Equity Awards (1) | 1,337,350 | | 1,337,350 | | -- | | 1,337,350 |
| | | | | | | |
Donn C. Costa | | | | | | | |
Change in Control Agreement | -- | | -- | | -- | | 330,000 |
Equity Awards (1) | 630,743 | | 630,743 | | -- | | 630,743 |
| | | | | | | |
Dennis V. O’Leary | | | | | | | |
Change in Control Agreement | -- | | -- | | -- | | 330,000 |
Equity Awards (1) | 660,309 | | 660,309 | | -- | | 660,309 |
______________ | | | | | | | |
(1) | Amounts are based on FS Bancorp’s common stock closing price of $54.80$33.63 on December 31, 2020.2021. |
Severance Agreement for Chief Executive Officer. 1st Security Bank entered into a severance agreement with Mr. Adams. The agreement provides that if (1) the Bank terminates Mr. Adams’ employment other than for cause, (2) Mr. Adams terminates his employment for “good reason” or (3) there is a change in control of the Bank, Mr. Adams would be entitled to receive from the Bank a lump sum payment equal to 24 months of his base compensation. “Good reason” means any one or more of the following: (1) reduction of Mr. Adams’ salary or elimination of any significant compensation, unless generally applicable to similarly-situated employees; (2)
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assignment to Mr. Adams without his consent any authorities or duties materially inconsistent with his position as of
the date of the severance agreement; and (3) a relocation or transfer that would materially increase Mr. Adams’ commute.
Change in Control Agreements. 1st Security Bank entered into change in control agreements with Messrs. Costa and Mullet.O’Leary. These agreements provide that if there is a change in control of the Bank during the term of the agreement, the executive will be entitled to a severance payment if the executive suffers an involuntary termination within six months preceding or twelve months following the change in control. The severance payment will be twelve months of the executive’s then current salary, paid in a lump sum within 45 days of the termination. “Involuntary termination” means (1) termination of the executive’s employment other than for cause, (2) a reduction of the executive’s base salary, unless generally applicable to all senior officers of the Bank, (3) a material adverse change in the executive’s benefits, contingent benefits or vacation, unless generally applicable to all senior officers of the Bank, (4) a relocation of more than 20 miles from Mountlake Terrace, Washington or (5) a material demotion of the executive, including but not limited to a material diminution of the executive’s title, duties or responsibilities. Receipt of the severance payment is conditioned upon the executive signing a severance agreement containing a comprehensive release of claims.
Equity Awards. The 2013 Equity Incentive Plan and the 2018 Equity Incentive Plan provide for acceleration of awards if a recipient of an award terminates service early as a result of death or disability. The 2013 Equity Incentive Plan also provides that in connection with an actual change in control, all unexercisable options will become fully exercisable and all unvested awards of restricted stock will vest in full. The 2018 Equity Incentive Plan provides that if a change in control occurs prior to the vesting date of an award that is outstanding on the change in control date, and the participant experiences an involuntary separation from service, other than a termination for cause, during the 365-day period following the change in control date, then the vesting date for such non-vested outstanding award will be accelerated to the date of the participant’s involuntary separation from service. However, if upon a change in control the successor to FS Bancorp either does not assume the outstanding award or replace it with an award that is determined by the Compensation Committee to be at least equivalent in value to the outstanding award on the change in control date, then the vesting date of such outstanding award will be accelerated to the change in control date.
PROPOSAL 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATION |
Under the Dodd-Frank Act, we are required to periodically include in our annual meeting proxy statement and present at the meeting a non-binding shareholder resolution to approve the compensation of our named executive officers, as disclosed in the proxy statement pursuant to the compensation disclosure rules of the SEC. This proposal, commonly known as a “say-on-pay” proposal, gives shareholders the opportunity to endorse or not endorse the compensation of FS Bancorp’s executives as disclosed in this proxy statement. The proposal will be presented at the annual meeting in the form of the following resolution:
RESOLVED, that the shareholders approve the compensation of FS Bancorp’s named executive officers as disclosed in the compensation tables and related material in the proxy statement for the 20212022 annual meeting of shareholders.
This vote will not be binding on our Board of Directors or Compensation Committee and may not be construed as overruling a decision by the Board or create or imply any additional fiduciary duty on the Board. It will also not affect any compensation paid or awarded to any executive. The Compensation Committee and the Board may, however, consider the outcome of the vote when considering future executive compensation arrangements.
Our executive compensation policies are designed to establish an appropriate relationship between executive pay and the annual and long-term performance of FS Bancorp and 1st Security Bank, to reflect the attainment of short- and long-term financial performance goals, to enhance our ability to attract and retain qualified executive officers, and to align to the greatest extent possible the interests of management and shareholders. Our Board of Directors believes that our compensation policies and procedures achieve these objectives. The Board of Directors unanimously recommends that you vote FOR approval of the compensation of our named executive officers as disclosed in this proxy statement.
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PROPOSAL 3 – ADOPTION OF THE NONQUALIFIED 2022 STOCK PURCHASE PLAN |
Overview
On January 27, 2022, our Board of Directors unanimously adopted, subject to shareholder approval, the FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan. The purpose of the Plan is to provide employees, directors and independent contractors of FS Bancorp, Inc. and designated subsidiaries (collectively, “service providers”) with an opportunity to purchase up to $28,000 worth of FS Bancorp common stock annually through, in the case of employees, base compensation, commissions and bonuses, in the case of directors, director fees, and in the case of independent contractors, cash paid for the performance of services. FS Bancorp will provide a 25% matching stock purchase (up to $7,000 annually). All participants will have equal rights and privileges under the Plan. Substantially all of our approximately 535 employees, seven non-employee directors and one independent contractor are eligible to participate in the Plan. We intend for the Stock Purchase Plan to offer a convenient means for service providers who might not otherwise purchase and hold our common stock to do so, and for the matching stock purchase feature to provide a meaningful incentive to participate. We believe that our service providers’ continuing economic interest, as shareholders, in our performance and success will contribute to our long-term success. The Stock Purchase Plan is not intended to qualify as a Stock Purchase Plan under Section 423 of the Internal Revenue Code of 1986, as amended (“Code Section 423”), the consequences of which are described below under “Federal Income Tax Consequences.”
The following summary is a brief description of the material features of the Stock Purchase Plan. This summary is qualified in its entirety by reference to the Plan, a copy of which is attached to this Proxy Statement as Appendix A.
Summary
Administration. A committee appointed by the Board of Directors will administer the Stock Purchase Plan and have the full authority to construe interpret and apply the terms of the Plan, determine eligibility and adjudicate all disputed claims under the Plan. For purposes of the administration of the Stock Purchase Plan, the committee must be composed solely of non-employee directors. All actions, interpretations and decisions of the committee are final and binding on all persons and will be given the maximum deference permitted by law. It is expected that the Board of Directors will appoint the Compensation Committee to administer the Plan.
Shares Available under the Plan. A total of 1,000,000 shares of FS Bancorp common stock are initially authorized and reserved for issuance under the Stock Purchase Plan. The number of shares available under the Plan are subject to adjustment as described below under “Adjustments Upon Changes in Capitalization.”
Offerings. The Stock Purchase Plan is implemented by offerings of purchase rights during offering periods determined by the committee and communicated to service providers. The duration of an offering period may be changed by the committee. The provisions of separate offerings need not be identical, but each offering will conform to the Plan.
Eligibility. Any service provider (employee, director or independent contractor) of FS Bancorp and its subsidiaries who has been continuously employed for at least six consecutive months, and who is providing services on the last day of the month in which this service requirement is met, will be eligible to participate in the Stock Purchase Plan for the offering period beginning with the enrollment date. The committee retains the right to change the eligibility criteria for any plan year, in advance of such plan year.
Participation. A service provider may become a participant in the Stock Purchase Plan by (1) completing a subscription agreement authorizing stock purchase deductions from compensation that would otherwise be paid to the service provider at least 10 days prior to the enrollment date for the offering period in which the service provider’s participation will begin or (2) following an electronic or other enrollment process determined by the committee. The purchase price of the shares is accumulated by compensation deductions over the offering period. No more than $28,000 worth of FS Bancorp common stock may be purchased by an individual in any calendar year. The Plan does not provide a discount in the stock purchase price, i.e., purchases of FS Bancorp common stock through the Plan are made at the fair market value of the stock at the time of purchase. At any time during the offering, a participant may terminate compensation deductions. However, a participant may not change the rate of compensation deductions during and offering period. In the case of an employee, payroll deductions may be limited
or eliminated to the extent necessary to allow other withholdings to occur, such as for taxes, health insurance premiums or 401k plan deferrals. Compensation deductions also will end as necessary to avoid violating the $28,000 purchase limit described above. A participant may change the rate of compensation deductions for a future offering period by filing a new subscription agreement. All compensation deductions made for a participant are credited to the participant’s account under the Stock Purchase Plan and deposited with our general funds pending purchase of the elected amount of FS Bancorp common stock. No interest will be paid on compensation deductions. Participants must make their own arrangements for paying income and other taxes on amounts used to make purchases under the Plan, and in the case of employees, the employer may withhold from other compensation the amount necessary to meet the applicable withholding applications.
By authorizing compensation deductions during an offering period, eligible service providers will be entitled to purchase shares under the Stock Purchase Plan and to receive the matching stock purchase described below. In connection with offerings made under the Plan, the committee specifies the maximum number of shares each participant may purchase and the maximum aggregate number of shares that may be purchased pursuant to the offering by all participants. If the aggregate number of shares to be purchased upon exercise of rights granted in the offering will exceed the maximum aggregate number of shares available, the committee will make a pro rata allocation of available shares in a uniform and equitable manner.
A service provider may fully withdraw from a given offering by delivering a prescribed notice of withdrawal. Upon withdrawal, the service provider’s accumulated compensation deductions will be returned without interest. A service provider’s withdrawal from an offering will not have any effect upon that service provider’s ability to participate in future offerings under the Plan, which may occur only if the service provider delivers a new subscription agreement with respect to that future offering.
Purchase of Shares; Matching Contributions. As promptly as practical after the exercise date (the 5th day of the open trading window period first occurring after the end of the offering period), the number of whole shares a participant elects to purchase during the offering period will be purchased and delivered to the participant in accordance with the Plan. FS Bancorp also will purchase, as a matching contribution, on behalf of each participant who elects to purchase FS Bancorp stock during a calendar year, up to 25% of the number of such shares of FS Bancorp common stock that the participant elects to purchase (up to $7,000 worth of FS Bancorp common stock).
Termination of Employment, Etc. Rights granted pursuant to any offering under the Stock Purchase Plan terminate immediately upon cessation of a service provider’s employment or service relationship with FS Bancorp or its subsidiaries for any reason, or if the service provider is no longer eligible to participate. In that case, the service provider’s accumulated compensation deductions will be returned without interest.
Restrictions on Transfer. Rights granted under the Stock Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted. Any attempt at transfer may be treated as an election to withdraw funds from an offering period.
Adjustments Upon Changes in Capitalization. Subject to any required action by FS Bancorp shareholders, the reserves, as well as the price per share of common stock covered by each option which has not yet been exercised, will be proportionately adjusted for any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock, or any other increase or decrease in the number of shares of common stock effected without receipt of consideration by FS Bancorp. Reserves means the number of shares of common stock covered by each option which have not yet been exercised and the number of shares of common stock which have been authorized for issuance under the Stock Purchase Plan but not yet placed under option.
Change in Control. In the event of a proposed sale or all or substantially all of the assets of FS Bancorp, or the merger of FS Bancorp with or into another corporation, each option under the Stock Purchase Plan will be assumed or an equivalent option may be substituted by the successor. Alternatively, the Board of Directors may determine to shorten the offering period.
Duration, Termination and Amendment. The Stock Purchase Plan will continue in effect for a term of ten years, unless sooner terminated at the sole discretion of the Board of Directors. If the Plan is terminated during an offering prior to an exercise date, FS Bancorp will pay to each participant an amount equal to the balance in the participant’s payroll deduction account without interest as soon as administratively practicable.
The Board of Directors may amend the Stock Purchase Plan at any time. Where necessary to comply with applicable laws and regulations, shareholder approval will be obtained with respect to the amendment. Rights granted before amendment of the Stock Purchase Plan will not be altered or impaired in any material manner by any amendment without consent of the participant to whom such rights were granted, except as necessary to comply with any laws or government regulations or as otherwise specifically provided in the Plan.
Federal Income Tax Consequences
The following brief summary of the effect of U.S. federal income taxation upon the participant and FS Bancorp with respect to the shares purchased under the Stock Purchase Plan does not purport to be complete, and does not discuss the income tax laws of any state or foreign country in which a participant may reside.
The Stock Purchase Plan is not intended to be a Stock Purchase Plan within the meaning of Code Section 423. (Generally, under a stock purchase plan that qualifies under Code Section 423, no taxable income will be recognized by a participant, and no deductions will be allowable to FS Bancorp, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized to the participant until there is a sale or other disposition of the shares acquired under the plan or if the participant dies while still owning the purchased shares.) As a result of the Stock Purchase Plan being non-qualified, all stock purchases are made with after-tax compensation, any discount that might be provided with respect to the stock purchase price will be treated as taxable compensation, and all matching stock purchases will be treated as currently taxable compensation, subject to income and employment taxes as applicable to the service provider. FS Bancorp will be entitled to a tax deduction equal to the amount reported as taxable compensation by the participant.
The participant will receive basis in the shares purchased under the Stock Purchase Plan equal to the cost of the purchased shares.
If the participant sells or otherwise disposes of the purchased shares within one year after the granting of the stock purchase option under the Stock Purchase Plan, then the participant generally will recognize a short-term capital gain in the year of sale or disposition equal to the amount by which the fair market value of the shares on the purchase date exceeded the purchase price paid for those shares. If the shares are held for more than one year after the date of purchase, the gain or loss will be taxed as a long-term capital gain.
New Plan Benefits
No purchases have been made at this time under the Stock Purchase Plan. Participation in the Plan is voluntary and depends on each service provider’s election to participate and his or her determination as to the level of contributions to the Plan. Accordingly, it is not possible to determine the future benefits that will be received under the Stock Purchase Plan.
The Board of Directors unanimously recommends that you vote FOR adoption of the FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan.
The Audit Committee operates pursuant to a charter approved by our Board of Directors. The Audit Committee reports to the Board of Directors and is responsible for overseeing and monitoring our financial accounting and reporting, the system of internal controls established by management and the audit process. The Audit Committee charter sets out the responsibilities, authority and specific duties of the Audit Committee. The charter specifies, among other things, the structure and membership requirements of the Audit Committee, as well as the relationship of the Audit Committee to the independent registered public accounting firm, the internal audit department and management of FS Bancorp.
The Audit Committee of the FS Bancorp Board of Directors reports as follows with respect to FS Bancorp’s audited financial statements for the fiscal year ended December 31, 2020:2021:
The Audit Committee has reviewed and discussed the 20202021 audited financial statements with management;
The Audit Committee has discussed with the independent registered public accounting firm, Moss Adams LLP, the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board;
The Audit Committee has received written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm its independence from FS Bancorp; and
The Audit Committee has, based on its review and discussions with management of the 20202021 audited financial statements and discussions with the independent registered public accounting firm, recommended to the Board of Directors that FS Bancorp’s audited financial statements for the year ended December 31, 20202021 be included in its Annual Report on Form 10-K.
The foregoing report is provided by the following directors, who constitute the Audit Committee:
Audit Committee: Ted A. Leech (Chair)
Michael J. Mansfield
Mark H. Tueffers Audit Committee:
| |
| Michael J. Mansfield
|
| Mark H. Tueffers
|
| Marina Cofer-Wildsmith
|
This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, and shall not otherwise be deemed filed under such acts.
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PROPOSAL 34 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Audit Committee of the Board of Directors has appointed Moss Adams LLP as our independent registered public accounting firm for the year ending December 31, 20212022 and that appointment is being submitted to shareholders for ratification. Although ratification is not required by our Bylaws or otherwise, the Board is submitting the appointment of Moss Adams LLP to our shareholders for ratification as a matter of good corporate practice. If the appointment is not ratified, the Audit Committee will consider whether it is appropriate to select another registered public accounting firm. Even if the appointment is ratified, the Audit Committee in its discretion may appoint a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of FS Bancorp and our shareholders. Moss Adams LLP served as our independent registered public accounting firm for the year ended December 31, 20202021 and a representative of the firm will be present at the annual meeting to respond to shareholders’ questions and will have the opportunity to make a statement if he or she so desires.
The Board of Directors unanimously recommends that you vote FOR the ratification of the appointment of Moss Adams LLP as our independent registered public accounting firm.
The following table sets forth the aggregate fees billed to us by Moss Adams LLP for professional services rendered for the fiscal years ended December 31, 20202021 and 2019.2020.
| Year Ended | |
| December 31, | Year Ended December 31, |
| | | | | | |
Audit Fees | $267,500 | | $272,600 | $360,000 | | $267,500 |
Audit-Related Fees (1) | 99,408 | | 108,267 | 87,644 | | 99,408 |
Tax Fees (2) | 81,079 | | 42,770 | 36,829 | | 81,079 |
All Other Fees | -- | | -- | -- | | -- |
| $447,987 | | $423,637 | $439,473 | | $447,987 |
(1) | Audit-related fees include services and costs in connection with FS Bancorp’s quarterly reviews and compliance audits. |
(2) | Tax fees include services and costs in connection with preparation of FS Bancorp’s federal tax return and assistance with state and local tax matters. |
The Audit Committee pre-approves all audit and permissible non-audit services to be provided by the independent registered public accounting firm and the estimated fees for these services in connection with its annual review of its charter. In considering non-audit services, the Audit Committee will consider various factors, including but not limited to, whether it would be beneficial to have the service provided by the independent registered public accounting firm and whether the service could compromise the independence of the independent registered public accounting firm. All of the services provided by Moss Adams LLP in the year ended December 31, 20202021 were approved by the Audit Committee.
DELINQUENT SECTION 16(a) REPORTS |
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of any registered class of FS Bancorp’s equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% shareholders are required by regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms we have received and written representations provided to us by the above-referenced persons, we believe that, during the fiscal year ended December 31, 2021, all filing requirements applicable to our reporting officers, directors and greater than 10% shareholders were properly and timely complied with, with the exception of one transaction on Form 4 that was reported late by Director Andrews.
The Board of Directors is not aware of any business to come before the annual meeting other than those matters described in this proxy statement. However, if any other matters should properly come before the meeting, it is intended that proxies in the accompanying form will be voted in respect thereof in accordance with the judgment of the person or persons voting the proxies.
We will bear the cost of solicitation of proxies, and will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of FS Bancorp's common stock. In addition to solicitations via the Internet and by mail, our directors, officers and regular employees may solicit proxies personally or by telecopier or telephone without additional compensation.
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Our annual report to shareholders, including the Annual Report on Form 10-K, has been mailed to all shareholders of record as of the close of business on the record date. Any shareholder who has not received a copy of the annual report may obtain a copy by writing to the Secretary, FS Bancorp, Inc., 6920 220th Street SW, Mountlake Terrace, Washington 98043. The annual report is not to be treated as part of the proxy solicitation material or as having been incorporated herein by reference.
Proposals of shareholders intended to be presented at next year’s annual meeting of shareholders must be received at the executive office at 6920 220th Street SW, Mountlake Terrace, Washington 98043, no later than December 13, 2021.12, 2022. Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act, and as with any shareholder proposal (regardless of whether included in our proxy materials), our Articles of Incorporation and Bylaws.
Our Articles of Incorporation provide that in order for a shareholder to make nominations for the election of directors or proposals for business to be brought before a meeting, a shareholder must deliver notice of such nominations and/or proposals to the Secretary not less than 30 nor more than 60 days prior to the date of the meeting; provided that if less than 31 days’ notice of the meeting is given to shareholders, such written notice must be delivered not later than the close of the tenth day following the day on which notice of the meeting was mailed to shareholders. We anticipate that, in order to be timely, shareholder nominations or proposals intended to be made at the annual meeting must be made by April 27, 2021.26, 2022. As specified in the Articles of Incorporation, the notice with respect to nominations for election of directors must set forth certain information regarding each nominee for election as a director, including the person’s name, age, business address and number of shares of common stock held, a written consent to being named as a nominee and to serving as a director, if elected, and certain other information regarding the shareholder giving such notice. The notice with respect to business proposals to be brought before the annual meeting must state the shareholder’s name, address and number of shares of common stock held, a brief discussion of the business to be brought before the annual meeting, the reasons for conducting such business at the meeting, and any interest of the shareholder in the proposal.
| BY ORDER OF THE BOARD OF DIRECTORS
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| /s/Matthew D. Mullet
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| MATTHEW D. MULLET
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| SECRETARY
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Mountlake Terrace, Washington
April 12, 202111, 2022
Appendix A
FS BANCORP, INC.
Nonqualified 2022 Stock Purchase Plan
1.Purpose. The purpose of the Plan is to provide eligible employees, directors and independent contractors of the Corporation and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Corporation through accumulated Stock Purchase Deductions, and to be allocated additional shares of Common Stock as a matching contribution. It is the intention of the Corporation that the Plan not qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended.
2.Definitions.
“Board” shall mean the Board of Directors of the Corporation.
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Committee” means the Compensation Committee of the Corporation. Any reference to the Committee shall refer to the Committee’s delegate. If there is no Compensation Committee, then references to “Committee” shall be deemed to refer to the Board.
“Common Stock” shall mean the common stock of the Corporation.
“Compensation” shall mean, in the case of an Employee, base compensation, commissions, bonuses, and other forms of Compensation that the Committee determines in its sole discretion to be an appropriate source from which to make Stock Purchase Deductions. In the case of a Director, Compensation shall mean the directors fees paid from the Corporation or Designated Subsidiary. In the case of an Independent Contractor, Compensation shall mean amounts actually paid in cash by the Corporation or a Designated Subsidiary to the Independent Contractor for the performance of Services.
“Corporation” shall mean FS Bancorp, Inc., a Washington state corporation.
“Designated Subsidiary” shall mean a Subsidiary which the Board has designated from time to time in its sole discretion as eligible to participate in the Plan. 1st Security Bank of Washington is specifically designated as a Designated Subsidiary.
“Director” shall mean any individual who is, at the time of the applicable Enrollment Date, a member of the Board or the board of directors of a Designated Subsidiary, or an advisory or emeritus director of the Corporation or a Designated Subsidiary.
“Employee” shall mean any individual who is an employee of the Corporation or a Designated Subsidiary for purposes of tax withholding under the Code. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence that the Corporation or Designated Subsidiary (as applicable) approves or is legally protected under applicable laws. Notwithstanding the foregoing, an individual who is a part-time, temporary or leased employee (as determined by the records of the individual’s employer) shall not be treated as an Employee for purposes of being able to participate in the Plan.
“Enrollment Date” shall mean the first day of each Offering Period.
“Entry Date” shall mean the last day of the month in which the eligibility requirements set forth in Section 3(a) are first met.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Exercise Date” shall mean the 5th day of the open trading window period first occurring after the end of the Offering Period.
“Fair Market Value” shall mean, as of any date, and if the Common Stock is listed on any established stock exchange or a national market system, including without limitation the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market, the closing sales price for such stock as quoted on such exchange or system on the date of determination (or the closing bid, if no sales were reported), as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable. If the preceding sentence does not apply, and there are not at least two brokerage companies reporting a bid price per share on such date, then the Fair Market Value shall be that value determined based on the weighted average of the past six trades of the Common Stock.
“Independent Contractor” means any individual (including but not limited to consultants) who performs services for the Corporation or a Designated Subsidiary other than as an Employee or Director.
“Matching Common Stock” shall mean the Common Stock allocated by the Corporation to a Participant pursuant to Section 3(c).
“Offering Period” shall mean a period of time determined by the Committee during which Stock Purchase Deductions will be accumulated for the purchase of Common Stock hereunder. The Offering Period shall be communicated to eligible Participants as necessary and appropriate.
“Participant” means an eligible Employee, Director or Independent Contractor who meets the eligibility conditions of Section 3(a) and elects to participate in the Plan.
“Plan” shall mean this Nonqualified 2022 Stock Purchase Plan, as amended from time to time.
“Purchase Price” shall mean, with respect to an Offering Period, one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the Exercise Date.
“Reserves” shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option.
“Section 409A” shall mean Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Service” shall mean service (whether as an Employee, Director or Independent Contractor) performed for the Corporation or a Subsidiary.
“Stock Purchase Deduction” shall mean an amount withheld from Compensation to pay for the purchase of Common Stock in accordance with Section 6 hereof.
“Subsidiary” shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Corporation or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Corporation or a Subsidiary.
“Trading Day” shall mean a day on which national stock exchanges are open for trading.
3. Eligibility; Limitation on Annual Common Stock Purchases; Matching Common Stock Purchases.
(a)Any eligible Employee, Director or Independent Contractor who has performed at least six (6) months of continuous Service shall be eligible to participate in the Plan as of the Entry Date.
(b)No Participant shall be granted options under the Plan which permit the Participant to purchase more than Twenty-Eight Thousand Dollars ($28,000) worth of Common Stock (determined at the Fair Market Value of the shares at the time such option is granted) in any calendar year.
(c)The Corporation shall provide to each Participant who elects to purchase shares of Common Stock under this Plan during a calendar year an additional number of shares of Common Stock, equal to twenty five percent (25%) percent of the number of such shares of Common Stock (i.e., up to Seven Thousand Dollars ($7,000) worth of Common Stock. This Matching Common Stock shall be provided to the Participant pursuant to Section 8(a).
4.Offering Periods. The Plan shall be implemented by using consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after the end of the preceding Offering Period, or on such other date as the Committee shall determine to be practicable, and continuing hereafter until terminated in accordance with Section 19 hereof. The Committee shall have the power to change the duration of Offering Periods with respect to future offerings without shareholder approval if such change is announced to Participants at least three (3) calendar days prior to the scheduled beginning of the first Offering Period to be affected.
5.Participation.
(a)An eligible Participant may participate in the Plan by (i) completing a subscription agreement authorizing Stock Purchase Deductions (on such form as the Committee may designate) and filing it with the Corporation's payroll department at least ten (10) business days prior to the Enrollment Date for the Offering Period in which such participation will commence, unless a later time for filing the subscription agreement is set by the Committee for all eligible Participants with respect to a given Offering Period, or (ii) following an electronic or other enrollment procedure determined by the Committee.
(b)With respect to any Offering Period, Stock Purchase Deductions for a Participant during such Offering Period shall commence (1) in the case of an Employee, as of the first payroll period following the Enrollment Date, or (2) in the case of a Participant other than an Employee, as of the first date Compensation is paid after the Enrollment Date, and in all cases shall end on
the last day of the Offering Period, unless sooner terminated by the Participant as provided in Section 10.
6.Stock Purchase Deductions.
(a)At the time a Participant files a subscription agreement, the Participant may elect to have Stock Purchase Deductions made during the Offering Period, in either whole percentages or as a flat dollar amount. All Stock Purchase Deductions are on an after-tax basis. For Participants who are Employees, Stock Purchase Deductions shall be made by payroll deduction and may be reduced or eliminated to the extent necessary to permit other withholdings to occur (e.g., required income tax withholdings, health and welfare plan contributions and 401(k) plan contributions). For Participants other than Employees, the Stock Purchase Deductions shall be withheld from Compensation that would otherwise be paid during the Offering Period.
(b) All Stock Purchase Deductions made for a Participant shall be credited to the Participant’s Plan account. A Participant may not make any additional payments into such account. A Participant’s account shall be only a bookkeeping account maintained by the Corporation, and neither the Corporation nor any Subsidiary shall be obligated to segregate or hold in trust or escrow any funds in a Participant's account. Except for amounts not expended because of the Plan rule that fractional shares shall not be purchased, no amount of accumulated Stock Purchase Deductions shall be carried over with respect to any Participant from the end of one Offering Period to the beginning of another.
(c)During an Offering Period, a Participant may discontinue participation in the Plan as provided in Section 10 but no other change can be made and, specifically, a Participant may not alter the rate of Stock Purchase Deductions during an Offering Period. A Participant may increase or decrease the rate of Stock Purchase Deductions for a future Offering Period by filing with the Corporation a new subscription agreement authorizing an increase or decrease in Stock Purchase Deductions within ten (10) business days before the commencement of the upcoming Offering Period. A Participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10.
(d)Notwithstanding the foregoing, a Participant's Stock Purchase Deduction may be decreased to zero percent (0%) of Compensation at such time during any Offering Period which is scheduled to end during the current calendar year (the “Current Offering Period”) once the aggregate of all Stock Purchase Deductions which were previously used to purchase Common Stock under the Plan in a prior Offering Period which ended during that calendar year plus all Stock Purchase Deductions accumulated with respect to the Current Offering Period equal the maximum amount that may be purchased in accordance with Section 3(b). Stock Purchase Deductions shall recommence at the rate provided in such Participant's subscription agreement at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10.
(e)Participants must make adequate provision for federal, state or other tax withholding obligations, if any, arising upon the exercise of the option of the Common Stock or the receipt of Common Stock from the Corporation. In the case of a Participant who is an Employee, the Corporation or a Designated Subsidiary may, but shall not be obligated to, withhold
from the Participant's other compensation the amount necessary for the Corporation or the Designated Subsidiary to meet applicable withholding obligations related to the Participant's tax obligations associated with his Common Stock purchases under the Plan.
7.Grant of Option. On the Enrollment Date of each Offering Period, each Participant participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period (at the applicable Purchase Price) the number of shares of the Corporation's Common Stock determined by dividing such Participant's Stock Purchase Deductions accumulated prior to such Exercise Date (including amounts retained in the Participant's account in accordance with Section 8) and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10, and shall expire on the last day of the Offering Period.
8.Exercise of Option.
(a)Unless a Participant withdraws from the Plan as provided in Section 10, the Participant’s option for the purchase of Common Stock will be exercised automatically on the Exercise Date, and the maximum number of full shares of Common Stock subject to option shall be purchased for such Participant at the applicable Purchase Price with the accumulated Stock Purchase Deductions in the Participant’s account. In addition, the Matching Common Stock shall be provided to the Participant at approximately the same time (which time shall be determined by the Committee in its sole and absolute discretion). No fractional shares will be purchased; any Stock Purchase Deductions accumulated in a Participant’s account which are not sufficient to purchase a full share of Common Stock shall be retained in the Participant's account and applied toward the purchase of shares of Common Stock in a subsequent Offering Period unless the Participant terminates participation in the Plan as provided in Section 10. During a Participant's lifetime, a Participant's option to purchase shares of Common Stock hereunder is exercisable only by the Participant.
(b)If the Committee determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Committee may in its sole discretion (x) provide that the Corporation will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or (y) provide that the Committee will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 19.
9.Delivery; Minimum Holding Period.
(a)As promptly as practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Corporation shall arrange the delivery to each Participant, as appropriate, of a certificate representing the shares of Common Stock purchased upon exercise of the Participant’s option. The Committee may require that shares of Common Stock be retained with a broker or agent for a designated period of time and/or may establish other necessary procedures. No Participant will have any voting, dividend, or other shareholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9. Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and the Participant’s spouse, as the Participant designates.
(b)Common Stock delivered to a Participant pursuant to the exercise of an option hereunder shall be held by the Participant for at least 30 days, except in the case of a Participant subject to securities law trading restrictions (e.g., insider trading restrictions), in which case the Common Stock shall be held until at least the last day of the minimum holding period applicable to such securities law trading restrictions that would not give rise to a penalty or sanction. Thereafter, the Common Stock may be sold during any open trading window.
10.Withdrawal; Termination of Employment.
(a)A Participant may withdraw all, but not less than all, the Stock Purchase Deductions credited to the Participant’s account and not yet used to exercise the Participant’s option under the Plan at any time, by giving written notice to the Committee on such form as the Committee may designate. All of the Participant's Stock Purchase Deductions credited to the Participant’s account will be paid to such Participant promptly after receipt of notice of withdrawal and such Participant's option for the Offering Period will be automatically terminated, and no further Stock Purchase Deductions for the purchase of shares will be made during the Offering Period. If a Participant withdraws from an Offering Period, Stock Purchase Deductions will not resume at the beginning of the succeeding Offering Period unless the Participant delivers to the Corporation a new subscription agreement.
(b)Upon a Participant's completely ceasing to perform Services for any reason or upon termination of a Participant's ability to actively participate in the Plan for any reason (e.g., by becoming a part-time Employee), the Stock Purchase Deductions credited to such Participant' s account during the Offering Period but not yet used to exercise the option will be returned to such Participant or, in the case of the Participant’s death, to the person or persons entitled thereto under Section 14, and such Participant's option will be automatically terminated.
11.Interest. No interest shall accrue on the Stock Purchase Deductions of a Participant in the Plan.
12.Stock. The maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be one million (1,000,000) shares without any annual limit, subject to adjustment upon changes in capitalization of the Corporation as provided in Section 18. Such shares may consist in whole or in part of authorized and unissued or reacquired Common Stock. If on a given Exercise Date the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Committee shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as is practicable and as it determines to be equitable.
13.Administration.
(a)Administrative Body. The Plan shall be administered by the Committee. The Committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Committee shall, to the full extent permitted by law, be final and binding upon all parties. Members of the Board are permitted to participate in the Plan except to the extent limited by Subsection (b) of this Section 13.
(b)Rule 16b-3 Limitations. Notwithstanding the provisions of Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated under the Exchange Act, or any successor provision (“Rule 16b-3”), provides specific requirements for the administrators of plans of this type, the Plan shall be only administered by such a body and in such a manner as shall comply with the applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the Plan shall be afforded to any committee containing a person who is not a Non-Employee Director as that term is used in Rule 16b-3.
14.Designation of Beneficiary.
(a)A Participant may file a written designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from the Participant's account under the Plan in the event of such Participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's account under the Plan in the event of such Participant's death prior to exercise of the option.
(b)Such beneficiary designation may be changed by the Participant at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Committee shall deliver such shares of Common Stock and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Committee), the Committee, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Committee, then to such other person as the Committee may designate.
15.Transferability. Neither Stock Purchase Deductions credited to a Participant's account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 14 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Committee may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10.
16.Use of Funds. All Stock Purchase Deductions received or held by the Corporation under the Plan may be used by the Corporation for any corporate purpose and the Corporation shall not be obligated to segregate such Stock Purchase Deductions.
17.Reports. Individual bookkeeping accounts will be maintained for each Participant. Statements of account will be given to participating individuals at least annually, which statements will set forth the amounts of Stock Purchase Deductions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.
18.Adjustments Upon Changes in Capitalization; Dissolution; or Merger or Asset Sale.
(a)Changes in Capitalization. Subject to any required action by the shareholders of the Corporation, the Reserves, as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Corporation. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.
(b)Dissolution or Liquidation. In the event of a proposed sale of all or substantially all of the assets of the Corporation, or the merger of the Corporation with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Exercise Date (the “'New Exercise Date”). If the Board shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each Participant in writing, at least ten (10) days prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the option will be exercised automatically on the New Exercise Date unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 18(b), an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of option stock subject to the option immediately prior to the sale of assets or mergers, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in the sale of assets or merger was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation and the Participant, provide for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the sale of assets or merger.
19.Amendment or Termination.
(a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18, no such termination can affect options previously granted, provided that the Board may terminate an Offering Period on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Corporation and its shareholders. Except as provided in Section 18, no amendment may make any change in any option theretofore granted which adversely affects the rights of any Participant. To the extent necessary to comply with Rule 16b-3 (or any successor rule or provision or any other applicable law or regulation), the Corporation shall obtain shareholder approval in such a manner and to such a degree as required. If the Offering Periods are terminated prior to expiration, all amounts then credited to Participants' accounts that have not been used to purchase shares of Common Stock will be returned to the Participants (without interest thereon), as soon as administratively practicable.
(b) Without shareholder consent and without regard to whether any Participant rights may be considered to have been “adversely affected,” the Committee shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during Offering Periods, permit Stock Purchase Deductions in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Corporation's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant's Compensation, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan.
(c) In the event that the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequences including, but not limited to:
(1)amending the Plan to conform with the safe harbor definition under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), including with respect to an Offering Period underway at the time;
(2)altering the Purchase Price for any Offering Period, including an Offering Period underway at the time of the change in Purchase Price;
(3)shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action;
(4)reducing the maximum percentage of Compensation a Participant may elect to set aside as a Stock Purchase Deduction; or
(5)reducing the maximum number of shares a Participant may purchase during any Offering Period.
Such modifications or amendments shall not require shareholder approval or the consent of any Participant.
20.Notices. All notices or other communications by a Participant to the Corporation under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Committee at the location, or by the person, designated by the Committee for the receipt thereof.
21.Conditions Upon Issuance of Shares. Shares of Common Stock shall not be issued with respect to an option unless the exercise of such option and the issuance and deliver of such shares pursuant thereto comply with all applicable provisions of law, domestic or foreign, including without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Corporation with respect to such compliance. As a condition to the exercise of an option, the Corporation may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Corporation, such a representation is required by any of the aforementioned applicable provisions of law.
22.Term of Plan. The Plan shall become effective upon its adoption by the Board and approval by the shareholders of the Corporation pursuant to Section 25 hereof. It shall continue in effect for a term of ten (10) years from the date the Plan is adopted by the Board, or if applicable, the specific Plan effective date authorized by the Board, unless sooner terminated under Section 19.
23.Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares of Common Stock by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the shares of Common Stock issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions on behalf of such persons.
24.Code Section 409A. The Plan is exempt from the application of Section 409A (on account of the Plan being a short-term deferral plan within the meaning of Treasury Regulation Section 1.409A-1(b)(4)) and any ambiguities herein will be interpreted to so that the Plan is exempt from Section 409A. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Committee determines that an option granted under the Plan may be subject to Section 409A or that any Plan provision would cause an option under the Plan to be subject to Section 409A, the Committee may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Committee determines is necessary or appropriate, in each case, without the Participant's consent, to exempt any outstanding option or future option that may be granted under the Plan from or to allow any such options to comply with Section 409A, but only to the extent any such amendments or action by the Committee would not violate Section 409A. Notwithstanding the foregoing, the Corporation and all Subsidiaries shall have no liability to a Participant or any other party if the option to purchase Common Stock under
the Plan that is intended to be exempt from or compliant with Section 409A is not so exempt or compliant or for any action taken by the Committee with respect thereto. The Corporation makes no representation that the option to purchase Common Stock under the Plan is compliant with Section 409A.
25.Shareholder Approval. The Plan will be subject to approval by the shareholders of the Corporation within twelve (12) months after the date the Plan is adopted by the Board. Such shareholder approval will be obtained in the manner and to the degree required under applicable laws.
26.Governing Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of Washington.
27.Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.