UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO.)
Filed by the Registrant [X]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
FARMERS & MERCHANTS BANCORP
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(Name of Registrant as Specified in its Charter)
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FARMERS & MERCHANTS BANCORP
111 WEST PINE STREET, LODI, CA 95240-2184
April 20, 2007
Dear Stockholder:
The annual meeting of stockholders of Farmers & Merchants Bancorp (the
"Company") will be held this year in the Ole Mettler Grape Pavilion at the Lodi
Grape Festival, 413 E. Lockeford Street, Lodi, CA, on Monday, May 21, 2007, at
4:00 p.m. We look forward to your attendance.
The enclosed proxy statement describes the business to be conducted at the
annual meeting, which includes the election of Directors, proposed amendments to
the Company's Certificate of Incorporation and Bylaws, and any other matters
which properly come before the meeting.
A copy of the Company's 2006 Annual Report to Stockholders is also
enclosed.
We hope you will be able to attend the annual meeting in person. We would
also like to invite you to be our guest for dinner after the meeting. PLEASE
NOTE THAT THE ANNUAL MEETING IS ONLY OPEN TO STOCKHOLDERS AND SPOUSES. SPACE
WILL BE LIMITED AND WE CANNOT ACCOMMODATE OTHER GUESTS. We thank you in advance
for your understanding on this issue.
The Directors and senior management greatly appreciate the interest
expressed by our stockholders. Whether or not you plan to attend the annual
meeting, it is important that you are represented and that your shares are
voted. Accordingly, after reviewing the enclosed proxy statement, we ask you to
complete, sign and date the enclosed proxy card and return it as soon as
possible in the postage-paid envelope that has been provided for your
convenience.
Sincerely,
/s/ Ole R. Mettler /s/ Kent A. Steinwert
Ole R. Mettler Kent A. Steinwert
Chairman of the Board President and Chief Executive Officer
Enclosures
FARMERS & MERCHANTS BANCORP
111 WEST PINE STREET, LODI, CA 95240-2184
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 21, 2007
To our Stockholders:
NOTICE IS HEREBY GIVEN that the 2007 annual meeting of stockholders of Farmers &
Merchants Bancorp (the "Company") will be held this year in the Ole Mettler
Grape Pavilion at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi, CA, on
Monday, May 21, 2007, at 4:00 p.m. to:
1. Elect the following ten (10) Directors:
Stewart C. Adams, Jr. Carl A. Wishek, Jr.
Ralph Burlington Kevin Sanguinetti
Edward Corum, Jr. Kent A. Steinwert
Robert F. Hunnell Ole R. Mettler
Calvin (Kelly) Suess James E. Podesta
2. Approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares outstanding.
3. Approve an amendment to the Company's Certificate of Incorporation to
authorize Director amendments to the By-Laws.
4. Approve an amendment to the Company's By-Laws to adjust the range of
Directors.
5. Act upon such other matters as may properly come before such annual meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 26, 2007 as
the record date for determining the holders of the common stock of the Company
entitled to notice of, and to vote at, the annual meeting and any adjournments
thereof. A complete list of stockholders entitled to vote will be available for
inspection by stockholders of record at the office of the Secretary of the
Company at 111 West Pine Street, Lodi, CA for the ten days prior to the meeting.
You are encouraged to attend the annual meeting. If you are a beneficial
owner of common stock held by a broker, bank or other nominee, you will need
proof of ownership to be admitted to the meeting. A recent brokerage statement
or a letter from a bank or broker are examples of proof of ownership.
Please complete, sign and date, as promptly as possible, the enclosed proxy
and immediately return it in the envelope provided for your use. This is
important whether or not you plan to attend the annual meeting in person. The
giving of such proxy will not affect your right to revoke such proxy or to vote
in person, should you attend the annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Deborah Hodkin
Deborah Hodkin
Secretary
Dated: April 20, 2007
YOUR VOTE IS IMPORTANT
TO INSURE YOUR VOTE IS REPRESENTED, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
PROMPTLY RETURN YOUR PROXY.
FARMERS & MERCHANTS BANCORP
PROXY STATEMENT
TABLE OF CONTENTS
Page
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I - INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
II - CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Board Matters
Code of Ethics
Director Independence
Board of Directors Meetings
Committees of the Board of Directors
Director Compensation
Certain Relationships and Related Person Transactions
Indemnification
Communications with Board of Directors
III - EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Compensation Discussion and Analysis
Report of the Personnel Committee of the Board on Executive Compensation
Executive Officer Compensation
Compensation Committee Interlocks and Insider Participation
IV - AUDIT RELATED MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Report of the Audit Committee of the Board of Directors
Certain Accounting Matters
Audit-Related Fees
V - ITEMS TO BE VOTED ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Proposal 1 - Election of Directors
Proposal 2 - Amendment of Certificate of Incorporation to Increase the Number of
Authorized Shares
Proposal 3 - Amendment of Certificate of Incorporation to Authorize Director
Amendments to the By-Laws
Proposal 4 - Amendment of the By-Laws to Adjust the Range of Directors
VI - INFORMATION ABOUT VOTING AND THE ANNUAL MEETING. . . . . . . . . . . . . . . . . . 22
Voting Rights and Vote Required
Voting of Proxies - Quorum
Revocability of Proxy
VII - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Compliance with Section 16(a) of the Exchange Act
Security Ownership of Certain Beneficial Owners and Management
Annual Report
Stockholder Proposals, Nominations and Notices
Other Matters
EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
APPENDICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
PROXY STATEMENT
FARMERS & MERCHANTS BANCORP
111 WEST PINE STREET, LODI, CA 95240-2184
I - INTRODUCTION
This proxy statement is furnished to the stockholders of Farmers &
Merchants Bancorp (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company to be used in voting at the annual
meeting of stockholders to be held on May 21, 2007 in the Ole Mettler Pavilion
at the Lodi Grape Festival, 413 E. Lockeford Street, Lodi, CA at 4:00 p.m., and
at any adjournment or postponement thereof. All expenses incidental to the
preparation and mailing, or otherwise making available to all stockholders of
the notice, proxy statement and form of proxy will be paid by the Company. This
proxy statement and the enclosed proxy card are being mailed to the Company's
stockholders on or about April 20, 2007.
For information on how to vote your shares, see the instructions included
on the enclosed proxy card and under "Information About Voting and the Annual
Meeting".
II - CORPORATE GOVERNANCE
BOARD MATTERS
During 2006, the Board of Directors was comprised of eleven (11) members.
In December 2006, Mr. Harry Schumacher, a Director since 1997, passed away.
Since the Company's By-Laws: (i) authorize the number of Directors to be between
nine (9) and fifteen (15), and (ii) authorize the Board of Directors to
establish the exact number of Directors within these limits, the Board has
established the number of Directors at ten (10).
CODE OF ETHICS
The Company has adopted a Code of Conduct which complies with the Code of
Ethics requirements of the Securities and Exchange Commission. A copy of the
Code of Conduct is posted on the Company's website. The Company intends to
disclose promptly any amendment to, or waiver from any provision of, the Code of
Conduct applicable to executive officers and Directors, on its website. The
Company's website address is www.fmbonline.com.
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DIRECTOR INDEPENDENCE
The Company uses Rule 4200(a)(15) of the NASD's current listing standards
to determine whether a Director is independent. With the exception of Messrs.
Steinwert, Mettler and Wishek who are employees of the Company, all nominees are
considered to be "independent".
BOARD OF DIRECTORS MEETINGS
During the calendar year ending December 31, 2006, the Board of Directors
of the Company met fifteen (15) times and the Board of Directors of the Bank met
twenty-four (24) times. Each incumbent, with the exception of Mr. Schumacher
who passed away in December 2006, attended more than 75% of the meetings of the
Board of Directors. The Company expects Directors to attend the annual meeting
of stockholders and eight of eleven Directors attended in 2006.
1
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's principal asset is its wholly-owned subsidiary, Farmers &
Merchants Bank of Central California (the "Bank"). The Directors of the Company
are also Directors of the Bank. As such, Bank Committees supervise and review
the activities of the Bank, which in turn report to the Company's Board of
Directors.
AUDIT COMMITTEE
The Audit Committee of the Company and the Bank oversees the activities of
the internal and independent auditors of the Company and the Bank with the aim
of ensuring compliance with applicable laws. See Exhibit A for the Committee's
charter. The Audit Committee reports to the Boards of Directors of the Bank
and the Company, as appropriate. The Audit Committee reviews the reports of
audits and examinations of the Bank and the Company made by the independent
auditors, internal auditors, credit examiners, and regulatory agencies and
reports the results to the Boards of Directors of the Bank and the Company. The
Committee met thirteen (13) times in 2006 and is comprised of the following
members: Messrs. Sanguinetti (Chairman), Corum and Hunnell. Each of the
Directors serving on the Audit Committee has been determined by the Board of
Directors to be "independent" as such term is defined by Rule 4200(a)(15) of the
NASD's current listing standards and in SEC rules relating to audit committees.
Mr. Sanguinetti has been determined by the Board of Directors to be a "financial
expert".
PERSONNEL COMMITTEE
The Personnel Committee of the Company and the Bank (1) conducts reviews of
the Company's overall compensation strategies and practices; (2) reviews and
approves the employment contracts of all executive officers (see "Employment
Contracts"); and (3) annually establishes executive compensation levels and
performance evaluation measures for the Chief Executive Officer and the other
executive officers of the Company. See Exhibit B for the Committee's charter.
The Company's management (1) provides information, analysis and
recommendations for the Personnel Committee; and (2) manages the ongoing
operations of the compensation program.
In discharging its responsibilities, the Personnel Committee (1) obtains
independent data from industry publications and third-party research; and (2)
retains independent third-party consultants when it considers it to be necessary
(the Committee did not retain independent consultants during 2006).
The Personnel Committee is comprised of the following voting members:
Messrs. Adams (Chairman), Corum and Sanguinetti. The Committee met four (4)
times in 2006. Each of the Directors serving on the Personnel Committee has been
determined by the Board of Directors to be "independent" as such term is defined
by Rule 4200(a)(15) of the NASD's current listing standards.
ASSET AND LIABILITY MANAGEMENT COMMITTEE
The Asset and Liability Management Committee of the Company and the Bank is
responsible for the formulation, revision and administration of the Bank's
policies relating to interest rate, liquidity and investment risk management.
The Asset and Liability Committee is a joint committee of management and
Directors. The following Directors are voting members: Messrs. Burlington
(Co-Chairman), Adams, Suess and Steinwert. The Committee met five (5) times in
2006.
LOAN COMMITTEE
The Loan Committee of the Company and the Bank is responsible for the
formulation, revision and administration of the Bank's policy relating to credit
and loan risk management. The Loan Committee meets weekly and is responsible
for approving all loans between $2 million and $10 million (over $10 million
requires full Board approval) and reviewing all loans over $500,000. The Loan
2
Committee is a joint committee of management and Directors. The following
Directors are voting members: Messrs. Hunnell (Co-Chairman), Mettler and
Steinwert. The Committee met fifty (50) times in 2006.
EXPENSE COMMITTEE
The Expense Committee of the Company and the Bank reviews and examines Bank
and Company expenses on a monthly basis comparing the results with the
established annual budget, the previous month and prior year, and proposes
recommendations to management regarding controllable expenses. The Committee
met twelve (12) times in 2006 and is comprised of the following voting members:
Messrs. Podesta (Chairman), Suess and Wishek.
CRA COMMITTEE (COMMUNITY REINVESTMENT ACT)
The CRA Committee of the Company and the Bank monitors the Bank's efforts
and responsibilities to comply with the Community Reinvestment Act. The CRA
Committee makes recommendations to the Board of Directors to assure the Bank is
meeting the credit, investment and service needs of the communities it serves.
The Committee met twelve (12) times in 2006 and is comprised of the following
voting members: Messrs. Suess (Chairman), Adams, Podesta and Wishek.
NOMINATING COMMITTEE
The Nominating Committee of the Company and the Bank identifies candidates
to serve as Directors of the Bank and the Company in the event of future Board
openings. See Exhibit C for the Committee's charter. The Committee is comprised
of the following voting members: Messrs. Mettler, Steinwert (Chairman), Suess
and Hunnell. The Committee did not meet in 2006. Each of Messrs. Suess and
Hunnell has been determined by the Board of Directors to be "independent" as
such term is defined by Rule 4200(a)(15) of the NASD's current listing
standards.
The Nominating Committee will consider candidates nominated by the
stockholders of the Company for next year's meeting if the nomination is made in
writing in accordance with Article III, Section 3.4 of the By-Laws of the
Company. See "Stockholder Proposals, Nominations and Notices".
DIRECTOR COMPENSATION
A Director who is not an employee of the Company receives a $1,000 fee for
each Bank Board Meeting attended (no additional fees are paid for Company Board
meetings), and a $400 fee for each Committee Meeting attended (Committee
Chairmen receive $600 with the exception of the Audit Committee Chairman who
receives $750). In addition, each Director who is not an employee of the
Company received a $30,000 bonus in 2006. Directors may elect to defer receipt
of some or all Directors' fees under the Company's Deferred Compensation Plan.
Directors who are employees of the Company (Messrs. Mettler, Steinwert and
Wishek) do not receive additional compensation for their services as Directors.
Directors who are not employees of the Company are compensated up to $538
per month to cover a portion of the cost of outside medical insurance. Directors
who are not employees of the Company do not participate in any retirement plans.
The summary compensation earned by each Director during 2006 is disclosed
in the "Director Compensation Table" on the following page.
3
2006 DIRECTOR COMPENSATION TABLE
(4)
CHANGE IN
PENSION VALUE
& NONQUALIFIED
(1) (2) (3) (3) NON-EQUITY DEFERRED (5)
FEES EARNED OR STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
PAID IN CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME ($) ($) ($) ($) ($) ($) ($)
----------------------- ---------------- -------- -------- ---------------- ---------------- -------------- ---------
Kent A. Steinwert $ - $ - $ - $ - $ - $ - $ -
Stuart C. Adams, Jr. $ 64,300 $ - $ - $ - $ - $ 5,820 $ 70,120
Ralph Burlington $ 56,800 $ - $ - $ - $ - $ 5,820 $ 62,620
Edward Corum, Jr. $ 61,800 $ - $ - $ - $ - $ 6,459 $ 68,259
Robert F. Hunnell $ 87,500 $ - $ - $ - $ - $ 6,459 $ 93,959
Ole R. Mettler $ - $ - $ - $ - $ - $ 264,099 $ 264,099
James E. Podesta $ 59,500 $ - $ - $ - $ - $ 5,820 $ 65,320
Kevin Sanguinetti $ 60,200 $ - $ - $ - $ - $ 6,459 $ 66,659
Harry C. Schumacher (6) $ 48,050 $ - $ - $ - $ - $ 5,820 $ 53,870
Calvin (Kelly) Suess $ 65,000 $ - $ - $ - $ - $ 5,820 $ 70,820
Carl A. Wishek, Jr. $ - $ - $ - $ - $ - $ 91,894 $ 91,894
(1) Messrs. Steinwert, Mettler and Wishek are employees of the Company and receive no additional compensation for their
services as Directors. Mr. Steinwert is a Named Executive Officer and his compensation is listed in the Summary Compensation
Table. The salaries paid Messrs. Mettler and Wishek are included in All Other Compensation. Directors who are not employees
receive a $1,000 Board Meeting Fee and $400 Committee Meeting Fees (Committee Chairs receive $600, with the exception of the
Audit Committee Chair who receives $750).
(2) Mr. Mettler received a $105,000 bonus in 2006 (included in All Other Compensation). All other Directors received a $30,000
bonus in 2006.
(3) The Company has no stock based award programs.
(4) The Company has no Defined Benefit Pension Program. All earnings on Nonqualified Deferred Compensation Plan balances
are assumed to be at market rates. Unvested balances are invested by the Company in a third party money market fund.
Vested balances are self directed by each participant according to their own risk profile, with no guarantees of principal
provided by the Company.
(5) Non-employee Directors are compensated up to $538 per month towards the cost of outside medical insurance. Mr. Mettler
has the use of a company car, the personal use value of which was $5,360. As employees, Profit Sharing Plan contributions
are made for Mr. Mettler ($27,018) and Mr. Wishek ($7,899).
(6) Mr. Schumacher passed away in 2006.
4
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Certain Directors and Named Executive Officers of the Bank and the Company
and corporations and other organizations associated with them and members of
their immediate families were customers of and engaged in banking transactions,
including loans, with the Bank in the ordinary course of business in 2006. Such
loans were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans with borrowers
not related to the Company or Bank. These loans did not involve more than the
normal risk of collection or have other unfavorable features. All Director and
Named Executive Officer loans must be approved by the Board of Directors. With
the exception of the previous banking transactions, the Company had no Related
Person Transactions as defined by Item 407(a) of Regulation S-K with its
Directors or Named Executive Officers. See Exhibit D for the Company's Related
Person Transaction Policy.
INDEMNIFICATION
The Company's Certificate of Incorporation and By-Laws provide for
indemnification of officers, Directors, employees and agents to the fullest
extent permitted by Delaware law. Delaware law generally provides for the
payment of expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement reasonably incurred by the indemnitees provided such person
acted in good faith and in a manner he or she reasonably believed not to be
opposed to the best interests of the corporation and with respect to any
criminal action or proceeding if he or she had no reasonable cause to believe
his or her conduct was unlawful. However, in derivative suits, if the suit is
lost, no indemnification is permitted in respect of any claim as to which the
prospective indemnitee is adjudged to be liable for misconduct in the
performance of his or her duty to the Company and then only if, and only to the
extent that, a court of competent jurisdiction determines the prospective
indemnitee is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper. Finally, no indemnification may be provided in any
action or suit in which the only liability asserted against a Director is
pursuant to a statutory provision proscribing the making of loans, dividends,
and distribution of assets under certain circumstances.
The provisions regarding indemnification may not be applicable under
certain federal banking and securities laws and regulations.
COMMUNICATIONS WITH BOARD OF DIRECTORS
Any person, including any stockholder, desiring to communicate with, or
make any concerns known to, the Company, directors generally, non-management
Directors or an individual Director only may do so by submitting them in writing
to Deborah Hodkin, Secretary of Farmers & Merchants Bancorp, 111 W. Pine Street,
Lodi, CA 95240-2184. All correspondence must include information to identify
the person submitting the communication or concern, including name, address,
telephone number and e-mail address (if applicable) together with information
indicating the relationship of such person to the Company. The Secretary will
be responsible for maintaining a record of any such communications or concerns
and submitting them to the appropriate addressee(s) for potential action or
response. The Company may institute appropriate procedures to establish the
authenticity of any communication or concern before forwarding. The Company
will not be obligated to investigate or forward any anonymous submissions.
5
III - EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
ROLES AND RESPONSIBILITIES
The Board of Directors of the Company, operating through its Personnel
Committee, (1) conducts reviews of the Company's overall compensation strategies
and practices; (2) reviews and approves the employment contracts of all Named
Executive Officers (defined as the CEO, CFO and three other most highly
compensated executive officers); and (3) annually establishes executive
compensation levels and performance evaluation measures for the Chief Executive
Officer and the other Named Executive Officers of the Company.
The role of the Company's management is to: (1) provide information,
analysis and recommendations for the Personnel Committee's consideration; and
(2) manage the ongoing operations of the compensation program.
In discharging its responsibilities, the Personnel Committee: (1) obtains
independent data from industry publications and third-party research; and (2)
retains independent third-party consultants when it considers it to be necessary
(the Committee did not retain independent consultants during 2006).
EXECUTIVE COMPENSATION STRATEGY AND PROGRAMS
The objective of the Company's compensation strategy is to establish a
competitive compensation package that rewards each officer based on their
contribution and performance, thereby serving to attract and retain talented
individuals who can implement the Company's strategic plan and maximize
long-term shareholder value.
In order to achieve these objectives, the Board has structured a
compensation program that includes three major components: (1) annual base
salary and performance-based bonus; (2) long-term deferred compensation; and (3)
post-termination compensation (under certain limited circumstances).
PERFORMANCE EVALUATION MEASURES
In evaluating the performance of each Named Executive Officer, the
Personnel Committee considers a combination of objective and subjective factors,
including the following:
1. the Company's annual financial performance as measured by Return on Assets
(the Board has set a sustainable target in excess of 1.35%); Return on
Equity (the Board has set a sustainable target in excess of 14.00%) and net
income relative to the current year's budget;
2. progress towards achieving the Company's five year strategic plan;
3. results of the Company's and Bank's regulatory examinations; and
4. current economic and industry conditions.
These performance measurement factors are evaluated at least annually.
There is no formal weighting with regard to each of these factors. Both the
annual budget and strategic plan are approved in advance by the Board of
Directors. The Personnel Committee assesses these factors and makes a
recommendation to the full Board for approval. The Board periodically contracts
the services of an outside independent executive compensation consultant to
survey similar sized banking institutions in California and in similar markets
nationally, and make recommendations regarding changes to compensation programs,
including performance evaluation measures.
6
Compensation for the Company's Chief Executive Officer is determined using
the same process as for other Named Executive Officers. Each of the performance
measures mentioned in the previous paragraph was considered for purposes of
determining the compensation of the Chief Executive Officer.
ANNUAL COMPENSATION PROGRAM
Each Named Executive Officer receives a monthly base salary. Salaries are
determined largely based upon comparative industry data for: (1) positions of
similar responsibility; and (2) individuals with similar experience and
expertise. Merit salary adjustments are evaluated periodically based on Company
and individual performance. Goals and objectives are established annually for
each officer with performance measured and evaluated at least annually.
Annual bonus compensation is paid according to the Company's Senior
Management Incentive Compensation Plan. Bonus compensation is awarded based
primarily on actual results against budgeted goals for net income. Award
guidelines are established annually for each level of Senior Management. The
Board reserves some discretion with regard to these guidelines when: (1) the
Company's profit performance exceeds budget; (2) the Company's profit
performance exceeds other similar sized banking institutions in California;
and/or (3) an individual's performance in a given year was exceptional.
All base salaries and annual bonuses are paid in cash and fully expensed in
the current year, although the Named Executive Officer does have the option of
electively deferring to a specified future date up to 100% of these amounts (see
"Deferred Compensation Plan").
Given that the Company does not offer stock options or other stock-based
compensation (see "Long-Term Deferred Compensation Program"), total levels of
Annual Compensation for each Named Executive Officer are targeted to be
competitive with similar sized, similar performing, banking institutions.
The current base salary for each Named Executive Officer is set forth in
"Employment Contracts". Each Named Executive Officer's "Salary" and "Bonus"
amounts for the last three years are disclosed in the "Summary Compensation
Table".
LONG-TERM DEFERRED COMPENSATION PROGRAM
In developing the various components of a longer term compensation program,
the Board has determined that at the present time it will not offer stock
options or other stock-based compensation as part of the compensation package.
Recognizing that stock based incentives are a major compensation component of
many of the Company's competitors, the Board has developed what it believes is
an effective complement of long-term deferred compensation programs. The
objectives of the Company's deferred compensation programs are to: (1)
successfully attract and retain talented individuals; and (2) align long-term
compensation directly with shareholder interests by rewarding creation of
long-term shareholder value.
The Company's long-term deferred compensation program provides:
1. retirement incentives including both qualified ("Profit Sharing Plan") and
supplemental non-qualified retirement benefits ("Indexed Retirement Plan");
2. performance incentives ("Deferred Bonus Program") based upon the Company's
long-term financial performance; and
3. retention incentives ("Executive Retention Program") based upon the tenure
of executive management.
7
In addition, the Company offers each Named Executive Officer the election
of tax deferring, to a specified future date, portions of their annual salary
and bonus ("Deferred Compensation Plan").
All of the Company's qualified and non-qualified plans are structured as
defined contribution plans to avoid the uncertain future financial liabilities
that can exist under defined benefit plans. The cost of these plans is expensed
annually.
All non-qualified deferred compensation plans are intended to be compliant
with the provisions of Section 409A of the Internal Revenue Code, and
contributions are held in an irrevocable Master Trust. The Company invests all
unvested balances in an independent third party short-term money market fund.
Vested balances are invested by each participant according to their own
investment risk profile, and the Company provides no guarantees with respect to
either annual returns or maintenance of principal value.
Profit Sharing Plan
Substantially all full-time employees of the Company, including each Named
Executive Officer, participate in the Company's qualified Profit Sharing Plan.
Two levels of contributions are made to the Profit Sharing Plan: (1) mandatory
contributions of 5% of eligible salaries (subject to IRS limits) calculated
according to criteria set forth in the Plan; and (2) discretionary contributions
authorized by the Board of Directors. None of these contributions are dependent
upon the employee contributing to the Plan (i.e., the Plan does not require
"matching"). The Bank contributed $1.5 million ($775,000 was discretionary) for
the year ended December 31, 2006 and $1.4 million ($725,000 was discretionary)
for the year ended December 31, 2005. Benefits pursuant to the Profit Sharing
Plan vest 0% during the first year of participation, 25% per full year
thereafter and after five years such benefits are fully vested. Benefits under
the Profit Sharing Plan are disclosed in the participant's Company Contributions
to Qualified Retirement and 401(k) Plans in the "All Other Compensation Table".
Upon a Change in Control, each participant receives only those balances in
their account, including any net earnings or losses thereon.
Indexed Retirement Plan and Bank-Owned Life Insurance
The Company has developed an Indexed Retirement Plan for the benefit of
each Named Executive Officer as well as certain other senior officers of the
Company. The Indexed Retirement Plan is a defined contribution non-qualified
executive retirement plan developed to supplement the Company's Profit Sharing
Plan which, as a qualified plan, has a ceiling on benefits as set by the
Internal Revenue Service. Individuals whose compensation exceeded this ceiling
did not receive a retirement benefit on these earnings. The Indexed Retirement
Plan was designed to adjust for these limits and provide levels of total
retirement compensation that are competitive in the banking industry.
The Board has structured the Indexed Retirement Plan as a defined
contribution plan to avoid the uncertain future financial liabilities that can
exist under a defined benefit plan. An account is established for each
participant that is credited annually with an amount based on the taxable
equivalent earnings on the cash surrender value balances of the single premium
life insurance policies purchased, net of: (1) the mortality charges associated
with the policies; and (2) a minimum required return (defined under the Plan as
the return on five year treasuries) to the Company on these cash surrender value
balances. The initial cash surrender value of the life insurance policies
purchased for each participant was determined based upon the individual's
compensation at the time they became a participant in the plan and the number of
years of service remaining to age 65 so as to provide a supplemental retirement
benefit equal to a portion (not to exceed 70% if the participant remained in the
Company's employ for 18 years after they became a plan participant) of the
participant's projected final pay with the Company. The balance in each
participant's account is 0% vested during the first five years of employment and
becomes fully vested after five years of employment. Benefits under the Indexed
Retirement Plan are disclosed in the participant's Company Contributions to
Non-Qualified Plans in the "All Other Compensation Table" as
8
well as Registrant Contributions in Last Fiscal Year in the "Non-Qualified
Deferred Compensation Table".
The Company has a Bank-Owned Life Insurance ("BOLI") program under which it
has purchased single premium life insurance policies on the lives of the Named
Executive Officers as well as certain other senior officers of the Company.
These policies provide: (1) financial protection to the Company in the event of
the death of an officer and; (2) since the interest earned on the cash surrender
value of the policies is tax free as long as the policies are used to finance
employee benefits, significant income to the Company to offset the expense
associated with the Indexed Retirement Plan.
As compensation to each participant for agreeing to allow the Company to
purchase an insurance policy on his or her life, split dollar agreements have
been entered into with each participant. These agreements provide for a division
of the life insurance death proceeds between the Company and each participant's
designated beneficiary or beneficiaries. Participants fully vest in their split
dollar agreements after eight years of service or upon a Change in Control. The
dollar value of premiums relating to that portion of the death proceeds that
would be payable to the participant's beneficiary or beneficiaries in the event
of his or her death, as well as the tax gross-up payments related thereto, are
disclosed in the participant's Tax Reimbursements in the "All Other Compensation
Table".
Benefits under the Indexed Retirement Plan become payable to participants
after either: (1) the participant has become vested and his or her employment at
the Company terminates (including retirement); or (2) there has been a "Change
in Control" as defined in the Plan.
Upon a Change in Control, each participant receives: (1) those amounts
already contributed for past years of service including any net earnings or
losses thereon; and (2) the present value (using a discount factor equal to the
treasury rate for the remaining years to participant's age 65) of forecasted
contributions over the remaining years to participant's age 65, which as of
December 31, 2006 would be as follows: Mr. Steinwert $2.42 million, Mr. Haley
$1.42 million, Mr. Erichson $734,000; Ms. Hodkin $1.92 million and Mr. Nelson
$1.38 million. Payments are made in accordance with prior participant elections
made in compliance with IRC Section 409A.
Deferred Bonus Plan
In the absence of a stock option or other equity based program, the Company
has developed a Deferred Bonus Plan to reward participants based upon the
Company's long-term financial performance. Each Named Executive Officer is a
participant in the plan and is entitled to receive benefits based on: (1) the
long-term cumulative profitability; and (2) the increase in market value (capped
at a multiple of twenty times EPS) of the Company in excess of the increase in
book value.
Plan contributions are calculated using a bonus factor determined by the
Personnel Committee for each participant (currently 1.00% for the President and
C.E.O. and 0.16% for each Executive Vice President). Benefits pursuant to the
Deferred Bonus Plan vest 0% during the first year of participation, 25% per full
year thereafter and after five years such benefits are fully vested. Benefits
under the Deferred Bonus Plan are disclosed in the participant's Non-Equity
Incentive Plan Compensation in the "Summary Compensation Table" as well as
Registrant Contributions in Last Fiscal Year in the "Non-Qualified Deferred
Compensation Table".
Benefits become payable to participants after either: (1) the participant
has become vested and his or her employment at the Company terminates (including
retirement); or (2) there has been a "Change in Control" as defined in the Plan.
Upon a Change in Control, each participant receives: (1) those amounts
already contributed for past years of service including net earnings or losses
thereon; and (2) an amount equal to the difference (if any) between the purchase
price and twenty times EPS which as of December 31, 2006 would be as
9
follows: Mr. Steinwert $31,000 and Mr. Haley, Mr. Erichson, Ms. Hodkin and Mr.
Nelson $5,000 each. Payments are made in accordance with prior participant
elections made in compliance with IRC Section 409A.
Executive Retention Plan
The CEO and each Named Executive Officer who was employed by the Company on
January 1, 2005 are participants in an Executive Retention Plan. This program
was developed based upon the Board's assessment that: (1) the Named Executive
Officers had delivered significant shareholder value appreciation in the past;
and (2) structuring an incentive for long-term executive retention would assist
in providing the management stability to drive future shareholder value
appreciation. As of January 1, 2005 benefit amounts were established
(approximately $150,000 for the President and C.E.O. and $35,000 for each
Executive Vice President) that would be paid for each succeeding year (up to ten
years) that the Named Executive Officer remained with the Company. Benefits
under the Executive Retention Plan are disclosed in the participant's Non-Equity
Incentive Plan Compensation in the "Summary Compensation Table" as well as
Registrant Contributions in Last Fiscal Year in the "Non-Qualified Deferred
Compensation Table".
Benefits become payable to participants after either: (1) the participant
has become vested and his or her employment at the Company terminates (including
retirement); or (2) there has been a "Change in Control" as defined in the Plan.
Upon a Change in Control, each participant receives: (1) those amounts
already earned for past years of service including any net earnings or losses
thereon; and (2) any remaining amounts that would have been earned through Year
10 of the Plan which as of December 31, 2006 would be as follows: Mr. Steinwert
$1.16 million and Mr. Haley, Mr. Erichson, Ms. Hodkin and Mr. Nelson $277,000
each. Payments are made in accordance with prior participant elections made in
compliance with IRC Section 409A.
Deferred Compensation Plan
Each Named Executive Officer is eligible to participate in the Company's
Deferred Compensation Plan. Under the Plan, participants may voluntarily elect
to defer a maximum amount of one hundred percent (100%) of their base salary and
annual bonus. Benefits become payable after either: (1) a participant's in
service distribution election period is reached; (2) the participant's
employment at the Company terminates; or (3) there has been a "Change in
Control" as defined in the Plan. The Plan also allows for hardship
distributions upon the occurrence of an "unforeseen financial emergency" as
defined in Treasury Regulations Section 1.457-2(h) (4). Voluntary deferrals
under the Deferred Compensation Plan are disclosed in the participant's
Executive Voluntary Deferrals of Salary and Bonus in Last Fiscal Year in the
"Non-Qualified Deferred Compensation Table".
Upon a Change in Control, each participant receives only those balances in
their account including any net earnings or losses thereon. Payments are made
in accordance with prior participant elections made in compliance with IRC
Section 409A.
POST-TERMINATION COMPENSATION
The Company's approach to post-termination compensation depends upon the
circumstances surrounding the Named Executive Officer's termination.
1. If the Named Executive Officer takes normal or early retirement, or their
employment is terminated due to death or disability, no supplemental
payments are made. They are entitled to all vested balances in qualified
and non-qualified plans (see "Deferred Compensation Table"), and in the
case of death their heirs are entitled to their split dollar life insurance
benefits.
10
2. If the Named Executive Officer is terminated for cause, all benefits in the
Company's non-qualified plans, whether vested or not, are forfeited in
their entirety. No other payments are made, but the Named Executive Officer
is entitled to all vested balances in qualified plans. "Cause" is defined
in all Company employment contracts and benefit plans as "conviction of a
crime resulting in a material economic adverse effect on the Bank."
3. If the Named Executive Officer is terminated without cause, the Company
does provide lump sum payments of one year's (two for the President and
C.E.O.) salary and up to twelve months' (twenty-four for the President and
C.E.O.) bonus (see "Summary Compensation Table") depending on the number of
months worked in the current fiscal year. In addition they are entitled to
all vested balances in qualified and non-qualified plans (see "Deferred
Compensation Table").
4. In the case of a Change in Control (as defined by the Treasury Department
pursuant to the requirements of IRC Section 409A), the Company has "single
trigger" clauses in each Named Executive Officer's employment contract.
This means that termination payments are made regardless of whether the
Named Executive Officer remains in the employ of the buyer. In addition to
all vested balances in qualified and non-qualified plans (see "Deferred
Compensation Table"), each Named Executive Officer receives: (1) lump sum
payment of two years' salary and bonus (see "Summary Compensation Table");
(2) acceleration of benefits under non-qualified plans as more fully
described under "Deferred Compensation Program"; (3) lump sum payment of
three years' Cobra medical premiums (which range between $25,000 and
$74,000 per Named Executive Officer); and (4) lump sum tax gross-up
payments to cover excise taxes under IRC Section 280G which as of December
31, 2006 would be as follows: Mr. Steinwert $2.72 million, Mr. Haley $1.17
million, Mr. Erichson $652,000; Ms. Hodkin $1.19 million; Mr. Nelson
$921,000. None of these payments are subject to any material contractual
conditions such as non-compete, non-solicitation, confidentiality or other
types of agreements.
EMPLOYMENT CONTRACTS
The Company has an employment agreement with Kent A. Steinwert, the
Company's President and Chief Executive Officer. The agreement, which expires
on December 31, 2007, is automatically renewable for additional two-year terms
unless notice is provided. The agreement provides for an annual base salary,
currently $575,000, salary increases at the discretion of the Board of Directors
based upon performance, use of a Company-owned automobile or automobile
allowance and certain insurance benefits. Under certain circumstances, in the
event of termination of his employment, Mr. Steinwert may be entitled to receive
severance compensation (see "Post Termination Compensation"). No non-compete
agreement is in place.
The Company has an employment agreement with Richard S. Erichson, the
Company's Executive Vice President and Senior Credit Officer. The agreement,
which expires on December 31, 2007, is automatically renewable for additional
two-year terms unless notice is provided. The agreement provides for an annual
base salary, currently $208,000, salary increases at the times that the salaries
of the other Executive Officers of the Company are adjusted, use of a
Company-owned automobile or automobile allowance and certain insurance benefits.
Under certain circumstances, in the event of termination of his employment, Mr.
Erichson may be entitled to receive severance compensation (see "Post
Termination Compensation"). No non-compete agreement is in place.
The Company has an employment agreement with Deborah E. Hodkin, the
Company's Executive Vice President and Chief Administrative Officer. The
agreement, which expires on December 31, 2007, is automatically renewable for
additional two-year terms unless notice is provided. The agreement provides for
an annual base salary, currently $210,000, salary increases at the times that
the salaries of the other Executive Officers of the Company are adjusted, use of
a Company-owned automobile or automobile allowance and certain insurance
benefits. Under certain circumstances, in the event of termination of her
employment, Ms. Hodkin may be entitled to receive severance compensation (see
"Post Termination Compensation"). No non-compete agreement is in place.
11
The Company has an employment agreement with Chris C. Nelson, the Company's
Executive Vice President and Head of Retail Banking. The agreement, which
expires on December 31, 2007, is automatically renewable for additional two-year
terms unless notice is provided. The agreement provides for an annual base
salary, currently $196,000, salary increases at the times that the salaries of
the other Executive Officers of the Company are adjusted, use of a Company-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Nelson may be
entitled to receive severance compensation (see "Post Termination
Compensation"). No non-compete agreement is in place.
The Company has an employment agreement with Stephen W. Haley, the
Company's Executive Vice President and Chief Financial Officer. The agreement,
which expires on December 31, 2007, is automatically renewable for additional
two-year terms unless notice is provided. The agreement provides for an annual
base salary, currently $206,000, salary increases at the times that the salaries
of the other Executive Officers of the Company are adjusted, use of a
Company-owned automobile or automobile allowance and certain insurance benefits.
Under certain circumstances, in the event of termination of his employment, Mr.
Haley may be entitled to receive severance compensation (see "Post Termination
Compensation"). No non-compete agreement is in place.
REPORT OF THE PERSONNEL COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Personnel Committee has reviewed the Compensation Discussion & Analysis
included herein with management and based upon those reviews and discussions has
recommended to the Board of Directors that the Compensation Discussion &
Analysis be included in the Company's annual report on Form 10-K and this Proxy
Statement.
Respectfully Submitted,
/s/ Stewart C. Adams, Jr.
Stewart C. Adams, Jr., Chairman
Kevin Sanguinetti
Edward Corum, Jr.
EXECUTIVE OFFICER COMPENSATION
The tables on the following pages provide details regarding the various
forms of remuneration paid by the Company for the services performed in all
capacities by each Named Executive Officer.
1. 2006 Summary Compensation Table.
2. 2006 Nonqualified Deferred Compensation Table.
3. 2006 All Other Compensation Table.
Since the Company does not offer: (1) stock options or other stock-based
compensation; or (2) defined benefit plans, the following generally required
tables are not included herein: Grants of Plan-Outstanding Based Awards, Equity
Awards at Fiscal Year-End, Option Exercises and Stock Vesting and Pension
Benefits.
12
2006 SUMMARY COMPENSATION TABLE
(4)
CHANGE IN
PENSION
VALUE
(3) & NON
NON-EQUITY QUALIFIED
INCENTIVE DEFERRED (5)
(2) (2) PLAN COMPEN ALL OTHER
(1) STOCK OPTION COMPEN SATION COMPEN
SALARY BONUS AWARDS AWARDS SATION EARNINGS SATION TOTAL
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($) ($) ($)
--------------------------- ---- --------- --------- -------- -------- ------------ ----------- ----------- -----------
Kent A. Steinwert 2006 $586,073 $ 750,000 $ - $ - $ 797,558 $ - $ 255,266 $ 2,388,897
President, 2005 $484,197 $ 600,000 $ - $ - $ 452,583 $ - $ 232,150 $ 1,768,930
Chief Executive Officer 2004 $407,213 $ 450,000 $ - $ - $ 117,373 $ - $ 217,472 $ 1,192,058
of the Company & Bank
Stephen W. Haley 2006 $221,977 $ 140,000 $ - $ - $ 136,640 $ - $ 152,796 $ 651,413
Executive Vice President, 2005 $213,457 $ 105,000 $ - $ - $ 104,167 $ - $ 140,599 $ 563,223
Chief Financial Officer 2004 $193,431 $ 75,000 $ - $ - $ 26,376 $ - $ 133,742 $ 428,549
of the Company & Bank
Richard S. Erichson 2006 $217,008 $ 130,000 $ - $ - $ 140,688 $ - $ 165,543 $ 653,239
Executive Vice President, 2005 $199,668 $ 100,000 $ - $ - $ 107,120 $ - $ 154,090 $ 560,878
Senior Credit Officer 2004 $200,336 $ 90,000 $ - $ - $ 27,640 $ - $ 141,745 $ 459,721
of the Company & Bank
Deborah E. Hodkin 2006 $214,038 $ 150,000 $ - $ - $ 138,601 $ - $ 112,554 $ 615,193
Executive Vice President, 2005 $203,822 $ 115,000 $ - $ - $ 105,597 $ - $ 103,536 $ 527,955
Chief Administrative 2004 $191,461 $ 100,000 $ - $ - $ 26,988 $ - $ 96,333 $ 414,782
Officer, Secretary of the
Company & Bank
Chris C. Nelson 2006 $199,777 $ 115,000 $ - $ - $ 137,951 $ - $ 137,358 $ 590,086
Executive Vice President, 2005 $191,266 $ 100,000 $ - $ - $ 105,124 $ - $ 125,300 $ 521,690
Head of Retail Banking 2004 $187,461 $ 100,000 $ - $ - $ 26,786 $ - $ 116,594 $ 430,841
of the Bank
(1) Includes base salary, unused vacation pay and car allowance. See Annual Compensation Program on page 7 and Employment
Contracts on page 11. Amounts earned in 2006 but deferred include $486,516 for Mr. Steinwert. See Nonqualified Deferred
Compensation Table for additional details.
(2) The Company has no stock based award programs. See Deferred Compensation Plan on page 10.
(3) Includes contributions and earnings related to the Company's Deferred Bonus and Executive Retention Plans. See
Nonqualified Deferred Compensation Table for additional details.
(4) The Company has no Defined Benefit Pension Program. All earnings on Nonqualified Deferred Compensation Plan balances
are assumed to be at market rates. Unvested balances are invested by the Company in a third party money market fund. Vested
balances are self directed by each participant according to their own risk profile, with no guarantees of principal provided by
the Company.
(5) See All Other Compensation Table for additional details.
13
2006 NONQUALIFIED DEFERRED COMPENSATION TABLE
(Includes both vested and unvested balances - see Footnote 1)
AGGREGATE PLAN BALANCES
AT LAST FISCAL YEAR-END
------------------------------------------
(2) TOTAL OF
EXECUTIVE EXECUTIVE
VOLUNTARY (2) VOLUNTARY
DEFERRALS OF (3) (4) EXECUTIVE DEFERRALS
SALARY AND REGISTRANT AGGREGATE VOLUNTARY (3) AND
BONUS IN CONTRIBUTIONS EARNINGS AGGREGATE DEFERRALS OF REGISTRANT REGISTRANT
LAST FISCAL IN LAST IN LAST WITHDRAWALS / SALARY CONTRI CONTRI
YEAR FISCAL YEAR FISCAL YEAR DISTRIBUTIONS AND BONUS BUTIONS BUTIONS
NAME ($) ($) ($) ($) ($) ($) ($)
------------------- -------------- --------------- ------------- --------------- -------------- ------------ ------------
Kent A. Steinwert $ 486,516 $ 931,947 $ 344,018 $ - $ 2,880,163 $ 2,550,307 $ 5,430,470
Stephen W. Haley $ - $ 240,253 $ 13,250 $ - $ - $ 642,039 $ 642,039
Richard S. Erichson $ - $ 242,482 $ 17,602 $ - $ - $ 762,251 $ 762,251
Deborah E. Hodkin $ - $ 199,561 $ 14,018 $ - $ - $ 569,761 $ 569,761
Chris C. Nelson $ - $ 223,138 $ 14,179 $ - $ - $ 633,676 $ 633,676
(1) The Company expenses all deferred compensation in the year earned, even if it is not yet vested. As of December 31, 2006
all balances are vested with the exception of the following unvested amounts: Mr. Steinwert $201,750 and Mr. Haley $463,213.
See Post Termination Compensation on page 10 for details regarding unvested balances upon the occurrence of certain triggering
events.
(2) Includes voluntary deferrals of earned salary or annual bonus under the Company's Deferred Compensation Plan. See plan
description on page 10, which details the types of compensation deferred, measures of calculating plan earnings and terms of
payouts, withdrawals and other distributions. Current year contributions are included in the Summary Compensation Table (see
footnote 1). All previous contributions were reported in previous years' Summary Compensation Tables.
(3) Includes Company contributions under the Company's Indexed Retirement, Deferred Bonus and Executive Retention Plans. See
plan descriptions on pages 8 through 10 which detail the types of compensation deferred, measures of calculating plan earnings
and terms of payouts, withdrawals and other distributions. All previous contributions were reported in previous years' Summary
Compensation Tables.
(4) All balances are held in a Master Trust. Unvested balances are invested by the Company in a third party money market fund.
Vested balances are self directed by each participant according to their own risk profile, with no guarantees of principal
provided by the Company. Previous years' earnings were not reported in previous years' Summary Compensation Tables.
14
2006 ALL OTHER COMPENSATION TABLE
(3)
COMPANY (4)
CONTRIBUTIONS COMPANY
(1) TO CONTRIBUTIONS
PERSONAL USE (2) NON-QUALIFIED TO RETIREMENT
OF COMPANY TAX INSURANCE RETIREMENT & 401(K)
CAR REIMBURSEMENTS PREMIUMS CLUB DUES PLANS PLANS TOTAL
NAME YEAR ($) ($) ($) ($) ($) ($) ($)
------------------- ---- -------------- ---------------- ----------- ----------- --------------- --------------- ---------
Kent A. Steinwert 2006 $ 1,754 $ 15,029 $ 859 $ 3,558 $ 207,048 $ 27,018 $ 255,266
2005 $ 1,809 $ 12,974 $ 847 $ 3,558 $ 187,288 $ 25,674 $ 232,150
2004 $ 2,508 $ 11,057 $ 847 $ 3,474 $ 175,401 $ 24,185 $ 217,472
Stephen W. Haley 2006 $ - $ 8,226 $ 690 $ - $ 116,862 $ 27,018 $ 152,796
2005 $ - $ 6,960 $ 690 $ - $ 107,275 $ 25,674 $ 140,599
2004 $ 2,737 $ 5,897 $ 690 $ - $ 100,233 $ 24,185 $ 133,742
Richard S. Erichson 2006 $ 4,768 $ 12,796 $ 1,564 $ - $ 119,397 $ 27,018 $ 165,543
2005 $ 5,943 $ 12,466 $ 1,564 $ - $ 108,443 $ 25,674 $ 154,090
2004 $ 2,652 $ 11,583 $ 1,564 $ - $ 101,761 $ 24,185 $ 141,745
Deborah E. Hodkin 2006 $ 6,193 $ 4,004 $ 360 $ - $ 74,979 $ 27,018 $ 112,554
2005 $ 6,452 $ 3,556 $ 360 $ - $ 67,494 $ 25,674 $ 103,536
2004 $ 5,317 $ 3,151 $ 360 $ - $ 63,320 $ 24,185 $ 96,333
Chris C. Nelson 2006 $ 2,350 $ 7,780 $ 844 $ - $ 99,366 $ 27,018 $ 137,358
2005 $ 2,321 $ 6,732 $ 844 $ - $ 89,729 $ 25,674 $ 125,300
2004 $ 1,802 $ 5,845 $ 844 $ - $ 83,918 $ 24,185 $ 116,594
(1) Certain executives receive a car allowance as opposed to the use of a company car. Those amounts are included in Salary in
the Summary Compensation Table.
(2) Represent tax gross-up payments to reimburse executive for split-dollar life insurance premiums under the Company's BOLI
program. See Indexed Retirement Plan and Bank-Owned Life Insurance plan description on page 8.
(3) Includes contributions and earnings related to the Company's Indexed Retirement Plan. See Nonqualified Deferred Compensation
Table for additional details.
(4) Includes contributions to the Company's Profit Sharing Plan. See plan description on page 8.
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Sanguinetti, Corum and Adams served in 2006 as members of the
Personnel Committee. No member is or has been an officer or employee of the
Company. During 2006, certain members of the Personnel Committee had loans or
other extensions of credit outstanding from the Bank. These loans were made in
the ordinary course of business and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
loans with borrowers not related to the Company or Bank. These loans are exempt
from the loan prohibitions of the Sarbanes-Oxley Act of 2002 and did not involve
more than the normal risk of collection or have other unfavorable features.
IV - AUDIT RELATED MATTERS
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee oversees relevant accounting, risk assessment, risk
management and regulatory matters. It meets with the Bank's and the Company's
internal auditors and the independent auditors to review the scope of their work
as well as to review quarterly and annual financial statements and regulatory
and public disclosures with the officers in charge of financial reporting,
control and disclosure functions. After reviewing the independent auditor's
qualifications, partner rotation and independence, the Audit Committee also
makes an annual decision regarding selection of the independent auditors. In
addition, the Audit Committee reviews reports of examination conducted by
regulatory agencies and follows up with management concerning recommendations
and required corrective action.
The Audit Committee reports regularly to the Boards of Directors of the
Bank and the Company and has the authority to select, retain, terminate and
approve the fees and other retention terms of special counsel or other experts
or consultants as it deems appropriate and necessary to perform its duties.
In performing its functions, the Audit Committee acts in an oversight
capacity and necessarily relies on the work and assurances of management, which
has the primary responsibility for financial statements and reports, and of the
independent auditors, who, in their report, express an opinion on the conformity
of the Company's annual financial statements to generally accepted accounting
principles.
In connection with the December 31, 2006 financial statements of the
Company, the Audit Committee: (1) reviewed and discussed the audited financial
statements with management and the independent auditors; (2) discussed with the
independent auditors the matters required by Statement on Auditing Standards No.
61; and (3) received and discussed with the independent auditors the matters
required by Independence Standards Board Statement No. 1. The Audit Committee
has also considered whether the independent auditors' provision of non-audit
services to the Company is compatible with maintaining the auditors'
independence. Based upon these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 2006.
The Board of Directors has approved a written charter of the Audit
Committee which is attached to this proxy statement as Exhibit A.
---------
Respectfully submitted,
/s/ Kevin Sanguinetti
Kevin Sanguinetti, Chairman
Edward Corum, Jr.
Robert F. Hunnell
16
CERTAIN ACCOUNTING MATTERS
CHANGE IN EXTERNAL AUDITOR
On March 17, 2005, as approved by the Audit Committee, the Company
appointed the accounting firm of Perry-Smith LLP as External Auditor beginning
with the year 2005. PricewaterhouseCoopers LLP was dismissed on March 17, 2005.
PricewaterhouseCoopers LLP's reports on the Company's financial statements
for 2003 and 2004 did not contain an adverse opinion or a disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to dismiss PricewaterhouseCoopers LLP, was
recommended and approved by our Audit Committee. During 2003 and 2004 and
through March 17, 2005, there were no disagreements with PricewaterhouseCoopers
LLP, on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their reports on the financial statements for such years.
During 2003 and 2004 and through March 17, 2005, there were no "reportable
events" as such term is defined in Item 304(a)(1)(v) of the SEC's Regulation
S-K.
As stated above, Perry-Smith LLP was appointed on March 17, 2005, as the
Company's External Auditor. During 2003 and 2004 and through March 17, 2005,
the Company did not consult with Perry-Smith LLP, on any issue, nor did
Perry-Smith LLP, advise the Company on any application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, or any matter that
was either the subject of a "disagreement" or a "reportable event" (each as
defined in Item 304(a)(1) of the SEC's Regulation S-K).
AUDIT-RELATED FEES
The aggregate fees billed by Perry-Smith LLP for assurance and related
services that are reasonably related to the performance of the audit and review
of the Company's quarterly and annual financial statements for fiscal year 2005
were $97,630 and fiscal year 2006 were $146,650.
TAX FEES
The aggregate fees billed by Perry Smith LLP for professional services for
tax compliance, tax advice and tax planning for fiscal year 2005 were $42,455
and 2006 were $31,675.
PRE-APPROVAL OF SERVICES BY THE COMPANY'S EXTERNAL AUDITOR
The Audit Committee has adopted a policy for pre-approval of audit and
permitted non-audit services by the Company's external auditor. The Audit
Committee will consider annually and, if appropriate, approve the provision of
audit services by its independent auditor and consider, and if appropriate,
pre-approve the provision of certain defined audit and non-audit services. The
Audit Committee will also consider on a case-by-case basis and, if appropriate,
approve specific engagements that are not otherwise pre-approved.
Any proposed engagement that does not fit within the definition of a
pre-approved service may be presented to the Audit Committee for consideration
at its next regular meeting or, if earlier consideration is required, to the
Audit Committee or one or more of its members. The member or members to whom
such authority is delegated shall report any specific approval of services at
its next regular meeting. The Audit Committee will regularly review summary
reports detailing all services being provided by its external auditor.
17
V - ITEMS TO BE VOTED ON
PROPOSAL 1 - ELECTION OF DIRECTORS
At the meeting, it will be proposed to elect ten (10) Directors of the
Company, each to hold office until the next annual meeting and until their
successors shall be elected and qualified. It is the intention of the proxy
holders named in the enclosed proxy card to vote such proxies (except those
containing contrary instructions) for the ten (10) nominees named below.
The following table sets forth the names of each of the nominees for
election as a Director, their age, their principal occupation for the past five
years and the period during which they have served as a Director of the Company
(or the Bank).
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING PAST FIVE YEARS SINCE
--------------------- --- ------------------------------------------------------- --------
Stewart C. Adams, Jr. 69 Attorney 1997
--------------------- --- ------------------------------------------------------- --------
Ralph Burlington 83 Retired, Former Co-owner San Joaquin Sulfur Co. 1968
--------------------- --- ------------------------------------------------------- --------
Edward Corum, Jr. 55 Managing General Partner, Corum Real Estate 2003
--------------------- --- ------------------------------------------------------- --------
Robert F. Hunnell 86 Retired, Former Owner Hunnell's Pharmacy 1970
--------------------- --- ------------------------------------------------------- --------
Ole R. Mettler 89 Chairman of the Board of the Company and Bank 1973
--------------------- --- ------------------------------------------------------- --------
James E. Podesta 86 Orchardist 1980
--------------------- --- ------------------------------------------------------- --------
Kevin Sanguinetti 48 Retired, Former President, First American Title Company 2001
of Stockton
--------------------- --- ------------------------------------------------------- --------
Kent A. Steinwert 54 President & C.E.O. of the Company & Bank 1998
--------------------- --- ------------------------------------------------------- --------
Calvin (Kelly) Suess 71 Co-owner, Lodi Nut Company, Inc. 1990
--------------------- --- ------------------------------------------------------- --------
Carl A. Wishek, Jr. 68 Assistant Vice President of the Bank 1988
--------------------- --- ------------------------------------------------------- --------
With the exception of Messrs. Steinwert, Mettler and Wishek who are
employees of the Company, all nominees are considered to be "independent" as
such term is defined by Rule 4200(a)(15) of the NASD's current listing
standards.
None of the Directors of the Company were selected pursuant to arrangements
or understandings other than with the Directors and stockholders of the Company
acting within their capacity as such. There are no family relationships among
the Directors and executive officers of the Company, and none of the Directors
serves as a Director of any company which has a class of securities registered
under, or subject to periodic reporting requirements of, the Securities Exchange
Act of 1934, as amended, or any company registered as an investment company
under the Investment Company Act of 1940.
The Board does not anticipate that any of the nominees will be unable to
serve as a Director of the Company, but if that should occur before the meeting,
the proxy holders, in their discretion, upon the recommendation of the Company's
Board of Directors, reserve the right to substitute as nominee and vote for
another person of their choice in the place and stead of any nominee unable so
to serve. The proxy holders reserve the right to cumulate votes for the election
of Directors and cast all of such votes for any one or more of the nominees, to
the exclusion of the others, and in such order of preference as the proxy
holders may determine in their discretion, based upon the recommendation of the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
---
THE NOMINEES LISTED ABOVE.
18
PROPOSAL 2 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES
Article VI of the Company's Certificate of Incorporation presently
authorizes the Company to issue up to three million (3,000,000) shares of all
classes of capital stock, of which two million (2,000,000) can be Common Stock
and one million (1,000,000) can be Preferred Stock.
Proposal 2 in this Proxy Statement is a proposal to amend Article VI of the
Company's Amended and Restated Certificate of Incorporation to increase the
total number of shares of common stock which the Company shall have authority to
issue to twenty million (20,000,000). As of the record date for this Annual
Meeting, 811,739 shares of common stock of the Company were outstanding and no
shares of preferred stock were outstanding. If approved, the additional common
stock will have rights identical to the currently outstanding common stock of
the Company. Proposal 2 would not increase the number of authorized shares of
preferred stock or make any other amendments to Article VI. A copy of the
proposed amended Article VI is set forth in Appendix 1 to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2. In the Board of
Director's opinion, it would be in the best interests of the Company and its
stockholders to afford the Board of Directors with the ability to issue
additional shares of common or convertible securities
The authorization of additional shares of common stock will afford the
Board of Directors with greater flexibility to: (i) raise additional capital to
support the growth of the Company's business; (ii) to engage in acquisition of
other banks or companies; or (iii) to effectuate a stock split with respect to
the outstanding shares of common stock. There are no plans or proposals at this
time for any such actions.
If this amendment is approved, no further action or authorization by the
Company's stockholders would be necessary prior to issuance of additional shares
of common stock or convertible securities, except as may be required for a
particular transaction or issuance by applicable law. It is possible that
additional shares of common stock may be issued at a time and under
circumstances that may dilute the voting power of existing stockholders,
decrease earnings per share and decrease the book value per share of shares
presently held. Under the Company's Amended and Restated Certificate of
Incorporation, stockholders do not have preemptive rights to subscribe to
additional securities which may be issued. This means that current stockholders
do not have a prior right to purchase any new issue of the Company's capital
stock in order to maintain their proportionate ownership. The increase in
authorized common stock could also discourage or hinder efforts by other parties
to obtain control of the Company, thereby having an anti-takeover effect. The
increase in authorized shares of common stock is not being proposed in response
to any known attempt to acquire control of the Company.
If approved, this amendment will become effective upon the filing of a
certificate of amendment to our Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, which we
would do promptly after the annual meeting.
Approval of Proposal 2 will require the affirmative vote of the holders of
a majority of the outstanding shares of Common Stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
---
PROPOSAL 2.
19
PROPOSAL 3 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO AUTHORIZE DIRECTOR
AMENDMENTS TO THE BY-LAWS
Proposal 3 in this Proxy Statement is a proposal to add Article XVIII to
the Amended and Restated Certificate of Incorporation of the Company to
expressly confer upon the Board of Directors of the Company the authority to
amend the By-laws of the Company pursuant to the vote of at least two-thirds of
all Directors. Under the proposal, any By-law changing the maximum or minimum
number of authorized Directors would continue to require the approval of the
holders of a majority of the outstanding shares entitled to vote. Under Delaware
law, in the absence of a provision in the Certificate of Incorporation
authorizing Directors to amend the By-laws, the Board of Directors may not amend
the By-laws and, instead, all amendments must be approved by a vote of the
outstanding shares of common stock. The Company's Amended and Restated
Certificate of Incorporation presently does not contain such a provision.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3. The Board of
Directors believes that adoption of the proposal will enhance the ability of the
Board of Directors to take appropriate actions in the form of By-law amendments
to further the interests of the Company's stockholders. Adoption of the proposal
also would avoid the delay and expense necessary to solicit and obtain
stockholder approval of individual amendments to the By-laws. Under the proposed
amendment, the stockholders of the Company still retain the right to amend or
repeal the By-laws of the Company pursuant to the vote or written consent of
holders of a majority of the outstanding shares entitled to vote. In addition,
an amendment to the By-laws changing the minimum or maximum number of Directors
would continue to require the vote or written consent of holders of a majority
of the outstanding shares entitled to vote.
A copy of the proposed Article XVIII is set forth in Appendix 2 to this
Proxy. If approved, this amendment will become effective upon the filing of a
certificate of amendment to our Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, which we
would do promptly after the annual meeting.
Approval of Proposal 3 will require the affirmative vote of the holders of
a majority of the outstanding shares of common stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
---
PROPOSAL 3.
20
PROPOSAL 4 - AMENDMENT OF THE BY-LAWS TO ADJUST THE RANGE OF DIRECTORS
Section 3.2 of the Company's By-Laws presently provides that the authorized
number of Directors shall not be less than nine (9) nor greater than fifteen
(15). It further provides that the minimum and maximum number of Directors may
be changed by an amendment to the By-Laws adopted by the vote or written consent
of holders of a majority of the outstanding shares entitled to vote.
Proposal 4 in this Proxy Statement is a proposal to amend section 3.2 of
the By-Laws of the Company to provide that the authorized number of Directors
shall be not less than seven (7) nor greater than fifteen (15) with the exact
number being ten (10) until changed, within these limits, by a resolution
amending such a exact number, duly adopted by the Board of Directors. At
present, there are no plans or proposals to change the authorized number of
Directors. A copy of the proposed amended section 3.2 is set forth in Appendix
3 to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4. Under certain
provisions of California law which may be applicable to the Company, cumulative
voting may apply in the election of Directors. If the proposed amendment to the
By-Laws is approved and the Board of Directors were to reduce the size of the
Board to seven persons, a greater number of shares would be needed to elect a
Director through the exercise of cumulative voting rights than if the Board
consisted of nine persons. The Board of Directors believes that having the
flexibility to reduce the authorized number of Directors and thereby make it
more difficult to obtain a board seat through cumulative voting would be in the
best interests of the Company and its stockholders as a whole, especially in
circumstances where a certain stockholder or certain stockholders had interests
which were not consistent with the interests of the majority of the
stockholders, or desired to obtain a board position to bring pressure to bear on
the Company to effect certain transactions, such as a business combination,
believed by the Board to be against the best interests of the Company and its
stockholders as a whole. The appointment of a Director through cumulative
voting by a stockholder or stockholders with interests which are not consistent
with the interests of the majority of the stockholders also introduces the
possibility of partisanship among Directors that could impair their ability to
work together for the benefit of all stockholders, an essential element in the
effective functioning of the Board. The Board believes that the election of a
Director through cumulative voting could also be undesirable since Directors so
elected might be principally concerned about representing and acting in the
interest of special groups of stockholders responsible for their election,
rather than in the interests of all stockholders. The Board believes it is
appropriate to have the capacity to limit the ability of a narrow constituency
of stockholders who have pooled their votes to gain an advantage over the
interests of the Company's stockholders as a whole. Allowing the Board to
retain the flexibility to increase the Board to a larger number up to fifteen
(15) would permit the addition of Directors in the context of an acquisition of
another bank or bank holding company by the Company or where such additional
Directors might otherwise be of benefit to the business of the Company.
Approval of Proposal 4 will require the affirmative vote of holders of a
majority of the outstanding shares of common stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
---
PROPOSAL 4.
21
VI - INFORMATION ABOUT VOTING AND THE ANNUAL MEETING
VOTING RIGHTS AND VOTE REQUIRED
Only stockholders of record at the close of business on March 26, 2007 (the
"record date"), will be entitled to vote in person at the meeting or by proxy.
On the record date, there were 811,739 shares of common stock outstanding and
entitled to vote.
Holders of common stock of the Company are entitled to one vote for each
share held. However, with respect to the election of Directors, each stockholder
may be eligible to exercise cumulative voting rights and may be entitled to as
many votes as shall equal the number of shares of common stock held by such
stockholder multiplied by the number of Directors to be elected, and such
stockholder may cast all of such votes for a single nominee or may distribute
them among two or more nominees. For example, if you own 10 shares of common
stock of the Company and 11 Directors are being elected, you have 110 votes -
you can cast all of them for one nominee, or two or more nominees if you so
choose.
No stockholder shall be entitled to cumulate votes (i.e., cast for any one
or more nominees a number of votes greater than the number of shares of common
stock of the Company held by such stockholder) unless the name(s) of the
nominee(s) has (have) been placed in nomination prior to the commencement of the
voting in accordance with Article III, Section 3.4 of the Company's by-laws
(which requires that nominations made other than by the Board of Directors be
made by notification in writing delivered or mailed to the President of the
Company not less than 30 days or more than 60 days prior to any meeting of
stockholders) and, in accordance with Article II, Section 2.9 of the Company's
by-laws, a stockholder has given at least two days written notice to the
Secretary of the Company of an intention to cumulate votes prior to the vote.
Since the Company's Annual Meeting of Stockholders is expected to be held on May
21, 2007, any stockholder nomination for election to the Board of Directors for
the 2007 Annual Meeting of Stockholders, to be timely, must be received by the
Company not later than April 21, 2007 and not earlier than March 22, 2007. If
any stockholder has given such notice, all stockholders may cumulate their votes
for nominees, in which event votes represented by proxies delivered pursuant to
this proxy statement may be cumulated, at the discretion of the proxy holders,
in accordance with the recommendation of the Board of Directors. Discretionary
authority to cumulate votes in such event is, therefore, solicited in this proxy
statement.
In the election of Directors, the 10 nominees receiving the highest number
of votes will be elected. Approval of such other matters which properly come
before the meeting, if any, will require the affirmative vote of a majority of
the shares represented and voting at the meeting provided the quorum
requirements of Article II, Section 2.7 of the by-laws are met (see "Voting of
Proxies - Quorum"). Abstentions will not count as votes in favor of the
election of Directors or any other proposals.
VOTING OF PROXIES - QUORUM
The shares represented by all properly executed proxies received in time
for the meeting will be voted in accordance with the stockholders' choices
specified therein; provided, however, that where no choices have been specified,
the shares will be voted "FOR" (i) the election of the 10 nominees for Director
recommended by the Board of Directors, (ii) the amendment to the Certificate of
Incorporation to increase the number of authorized shares, (iii) the amendment
to the Certificate of Incorporation to permit the Board of Directors to amend
the Bylaws, (iv) the amendment to the Bylaws to change the range of authorized
Directors, and voted at the discretion of the proxy holders on such other
matters, if any, which may properly come before the meeting (including any
proposal to adjourn the meeting).
A majority of the shares entitled to vote represented either in person or
by properly executed proxies, will constitute a quorum at the meeting.
Abstentions and broker "non-votes" are each included in the determination of the
number of shares present and voting for purposes of determining the presence of
a quorum. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not
22
have discretionary voting power with respect to that item and has not received
instructions from the beneficial owner.
Abstentions will be included in tabulations of the votes cast on proposals
presented to the stockholders and therefore will have the effect of a negative
vote. Broker "non-votes" will not be counted for purposes of determining the
number of votes cast for a proposal.
REVOCABILITY OF PROXY
A stockholder using the enclosed proxy may revoke the authority conferred
by the proxy at any time before it is exercised (i.e., before the vote pursuant
to that proxy) by delivering written notice of revocation or a duly executed
proxy bearing a later date to the Secretary of the Company, or by appearing and
voting by ballot in person at the meeting.
In the event that signed proxies are returned without voting instructions,
proxies will be voted in favor of each of the proposals as set forth in this
Proxy Statement and such other matters, if any, which may properly come before
the meeting (including any proposal to adjourn the meeting).
23
VII - OTHER INFORMATION
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Executive Officers and Directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission. Executive Officers, Directors and greater than ten percent
stockholders are required by regulation to furnish the Company with copies of
all Forms 3, 4 and 5 they file. Based solely on the Company's review of the
copies of such forms it has received, the Company believes that all of its
Executive Officers and Directors complied with all filing requirements
applicable to them with respect to transactions during 2006. The Company has no
greater than ten percent stockholders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Company, as of the record date, no person or entity
was the beneficial owner of more than five percent (5%) of the outstanding
shares of the Company's common stock except as set forth in the following
tables. For the purpose of this disclosure and the disclosure of ownership
shares by management, shares are considered to be "beneficially" owned if the
person has or shares the power to vote or direct the voting of the shares, the
power to dispose of or direct the disposition of the shares, or the right to
acquire beneficial ownership (as so defined) within 60 days of the record date.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP (2) OF CLASS
-------------------- ---------------------- ------------------------ ---------
Common Stock Sheila M. Wishek 44,787 5.52%
111 West Pine Street
Lodi, CA, 95240-2184
Common Stock Bruce Mettler 44,965 5.54%
111 West Pine Street
Lodi, CA, 95240-2184
Common Stock Joan Rider 43,069 5.30%
111 West Pine Street
Lodi, CA, 95240-2184
_____________________
(1) Mail should be sent to these individuals at the Company's address marked
"c/o Shareholder Relations."
(2) Shares are beneficially owned, directly and indirectly, together with
spouses, and unless otherwise indicated, holders share voting power with
their spouses. None of the shares are pledged.
24
The following table shows the number of common shares and the percentage of
the total shares of common stock of the Company beneficially owned by each of
the current Directors, by each of the nominees for election to the office of
Director, by the Named Executive Officers and by all Directors and Named
Executive Officers of the Company and of the Bank as a group as of the record
date.
AMOUNT OF COMMON STOCK
OWNED AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OF CLASS
------------------------------------------- ------------------------ ---------
Stewart C. Adams, Jr. 1,756 *
Ralph Burlington 3,036 *
Edward Corum, Jr. 306 *
Richard S. Erichson 899 *
Stephen W. Haley 93 *
Deborah E. Hodkin 115 *
Robert F. Hunnell 1,770 *
Ole R. Mettler 27,052 3.33%
Chris C. Nelson 117 *
James R. Podesta 1,055 *
Kevin Sanguinetti 5,103 *
Kent A. Steinwert 4,026 *
Calvin (Kelly) Suess 933 *
Carl A. Wishek, Jr. 39,122 4.81%
All Directors and Named Executive Officers
as a group (14 persons) 85,383 10.52%
_______________________________________________________________________
* Indicates less than 1%.
(1) Unless otherwise indicated, the business address for each of the persons
listed in the table is 111 West Pine Street, Lodi, CA, 95240-2184.
(2) Shares are beneficially owned, directly and indirectly, together with
spouses, and, unless otherwise indicated, holders share voting power with
their spouses. None of the shares are pledged.
ANNUAL REPORT
Together with this proxy statement, Farmers & Merchants Bancorp has
distributed to each of its stockholders an Annual Report for the year ended
December 31, 2006. The annual report contains the consolidated financial
statements of the Company and the report thereon of Perry-Smith LLP, the
Company's independent public accountants for 2005 and 2006 and
PricewaterhouseCoopers LLP, the Company's independent public accountants for
2004.
Upon written request by any person entitled to vote at the meeting,
addressed to Deborah Hodkin, Secretary of the Company, at 111 West Pine Street,
Lodi, CA 95240-2184, we will provide, without charge, a copy of the Company's
2006 Annual Report, including the financial statements and the schedules thereto
filed with the Securities and Exchange Commission. You can also obtain a copy of
the Company's Annual Report on Form 10-K and other periodic filings with the
Securities and Exchange Commission through the F&M Bank website. The website
address is http://www.fmbonline.com. The link to the Securities and Exchange
------------------------
Commission is on the About F&M Bank page.
STOCKHOLDER PROPOSALS, NOMINATIONS AND NOTICES
Under the Rules of the Securities and Exchange Commission, if a stockholder
intends to include a proposal in the Company's proxy statement and form of proxy
for presentation at the Company's 2008 Annual Meeting of Stockholders, the
proposal must be received by the Company at its principal executive offices by
December 22, 2007. In addition to these advance notice requirements, there are
other requirements that a stockholder must meet in order to have a proposal
included in the Company's proxy statement under the rules of the Securities and
Exchange Commission.
25
In addition, Article III, Section 3.4 of the By-Laws of the Company
provides a procedure for nomination for election of members of the Board of
Directors of the Company. Nominations for election to the Board of Directors may
be made by the Board of Directors or by any holder of any outstanding class of
capital stock of the Company entitled to vote for the election of Directors.
Nominations, other than those made by the Board of Directors, shall be made by
notification in writing delivered or mailed to the President of the Company not
less than thirty (30) days or more than sixty (60) days prior to any meeting of
stockholders called for election of Directors, provided, however, that if less
than twenty-one (21) days notice of the meeting is given to stockholders, such
nomination shall be mailed or delivered to the President of the Company not
later than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. If the Company's 2008 Annual Meeting of
Stockholders is held on the third Monday of May (as it will be in 2007), any
stockholder nomination, to be timely, must be received by the Company not later
than April 19, 2008 and not earlier than March 20, 2008. Notification must
contain certain information as to each proposed nominee and as to each person
acting alone or in conjunction with one or more persons, in making such
nomination or in organizing, directing or financing such nomination. The
Chairman of the meeting may, in his or her discretion, determine and declare to
the meeting that a nomination not made in accordance with the foregoing
procedure shall be disregarded. A copy of the By-Laws of the Company can be
obtained by written request to the Secretary of the Company, Deborah Hodkin, 111
West Pine Street, Lodi, CA 95240-2184.
Pursuant to Article II, Section 2.6 of the Company's By-Laws, in order for
other business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company and must have been a stockholder of record at the time such notice
is given. To be timely, a stockholder's notice shall be delivered to or mailed
(by United States registered mail, return receipt requested) and received at the
principal executive offices of the Company not less than seventy (70) days nor
more than ninety (90) days prior to the first anniversary date of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than twenty (20) days, or delayed by more
than seventy (70) days, from such anniversary date, notice by a stockholder to
be timely must be so delivered or mailed (by U.S. registered mail, return
receipt requested) and received not earlier than the ninetieth (90th) day prior
to such annual meeting and not later than the close of business on the later of
the seventieth (70th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made. Notice of any stockholder proposal by a stockholder to properly
bring business before the 2008 annual meeting, to be timely, must be received by
the Company no later than March 10, 2008, and no earlier than February 19, 2008.
Such stockholder's notice to the Secretary must contain certain additional
information, which is more particularly described in Article II, Section 2.6 of
the Company's By-Laws. No business shall be conducted at an annual meeting of
stockholders unless proposed in accordance with the foregoing procedures. The
Chairman of the meeting shall, if the factors warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the foregoing procedure and such business shall not be
transacted.
OTHER MATTERS
The Management and Directors of the Company are not aware of any other
matters to be presented for consideration at the meeting to be held on May 21,
2007 or any adjournments or postponements thereof. If any other matters should
properly come before the meeting, it is intended that the persons named in the
enclosed proxy will vote the shares represented thereby in accordance with their
best business judgment, pursuant to the discretionary authority granted therein.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Deborah Hodkin
Deborah Hodkin
Secretary
26
EXHIBIT A
---------
--------------------------------------------------------------------------------
AUDIT COMMITTEE CHARTER
--------------------------------------------------------------------------------
The Audit Committee Charter provides general guidelines for members of the Audit
Committee (Committee) for the Board of Directors of Farmers & Merchants Bank of
Central California (Bank). These guidelines will assist the Committee in its
efforts to ensure ongoing adequacy of the Bank's internal audit system as
recommended by section 132 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), Securities Exchange Commission and the AICPA's
Auditing Standards Board. The Audit Committee of the Board of the Bank shall
also serve to discharge the functions and responsibilities of the Committee of
the Board of Directors of the Company. In discharging its responsibilities, the
Committee may utilize outside counsel or other experts and advisors, as it sees
fit.
COMMITTEE MEMBERSHIP
The Committee shall be composed of at least three outside Directors of the Board
who are independent of the management of the Bank and the Company. The Board
shall annually determine whether members are "independent" of management of the
Bank and the Company as such term is defined by Rule 4200(a)(14) of the NASD's
current listing standards.
DESIGNATION OF FINANCIAL EXPERT
The Committee shall designate one of its members as a "financial expert". The
financial expert is an individual who is determined by the Board of Directors to
possess all of the following attributes.
1. An understanding of financial statements and generally accepted accounting
principles (GAAP).
2. An ability to assess the general application of such principles in
connection with the accounting for estimates, accruals and reserves.
3. Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting
issues generally comparable to what can be expected to be raised by the
Bank's or Bancorp's financial statements or experience activity supervising
one or more persons engaged in such activities.
4. An understanding of internal controls and procedures for financial
reporting.
5. An understanding of audit committee functions.
These attributes may be acquired by.
1. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor, or
experience in one or more positions that involve the performance of similar
functions.
2. Experience actively supervising a principal financial officer, principal
accounting officer, controller, public accountant, auditor, or person
performing similar functions or experience overseeing or assessing the
performance of companies or public accountants with respect to the
preparation auditing or evaluation of financial statements.
3. Other relevant experience.
COMMITTEE MEETINGS
The Committee shall meet at least bi-monthly to review all recent audit reports
(including reports by internal auditors, independent public accountants, and/or
regulatory agencies). Management reports shall also be reviewed as they relate
to audit findings. The Committee shall maintain and report to the Boards of the
Company and the Bank, minutes and other relevant records of their meetings and
decisions.
27
AUDIT SYSTEM
The Committee shall approve an internal audit system, which provides for:
1. Audit Programs. These items will be annually presented by the auditor:
- Scope and frequency of the audit work
- Documentation of the work performed
- Conclusions reached and reports issued
2. Program Effectiveness. Audit Reports and Responses thereto shall be
presented to determine if controls are effective and if appropriate
corrective action has been taken.
3. Audit Arrangements. The independent auditor, operations auditor and credit
examination vendors are ultimately accountable to the Audit Committee. It
is management's responsibility to evaluate and recommend vendor selection
and replacement, but it is the Committee's responsibility to approve and
replace these vendors, if deemed appropriate or necessary. The Committee
shall pre-approve all non-audit engagements of the independent auditor. The
Committee shall review the report by the independent auditor which is
required by Section 10A of the Securities Exchange Act of 1934. The
following information shall be presented to the Committee with Management's
recommendations at least annually.
- Written Agreement. Annual written contract or engagement letter.
- Vendor Competence. A resume and references for each individual
responsible for maintaining the audit relationship.
- Vendor Independence. A formal written statement of independence.
RESPONSIBILITIES
The Committee shall.
1. Review the Forms 10-Q and 10K prior to presentation to the Board and filing
with the Securities Exchange Commission and recommend inclusion of the
Company's financial statements therein.
2. Report to the Board that its members have reviewed the Forms 10-Q and 10K,
and whether anything came to the attention of the Committee members which
caused them to believe that the audited financial statements contain any
materially misleading statements or omit any material information.
3. The Committee shall review and discuss with management, the internal
auditor and the independent auditor the matters relating to the conduct of
the audit required to be discussed by SAS Nos. 61 and 90 (Communications
with Audit Committees).
4. Evaluate findings of all internal/external audits and examinations of the
Company's operations, credit management, and risk oversight management.
Review management responses and corrective action of all audit/examination
findings.
5. Provide oversight of all internal controls including applicable policies.
Communicate with Company management on internal control issues. Oversee
Company's Bank Secrecy Act, Anti-Money Laundering, and Patriot Act policies
and Customer Identification Program (CIP). Post-approval review all
Suspicious Activity Reports and provide appropriate feedback to Bank
management. Insure an adequate BSA/AML management structure exists in the
Company. Communicate all internal control and BSA/AML issues and policies
to the entire Board of Directors.
6. Establish procedures for the confidential, anonymous submission by
employees or other "whistleblowers" of concerns regarding questionable
accounting, internal control or auditing matters; and the receipt,
retention and treatment of these complaints.
7. Review and approve Related Person Transactions.
8. Ensure that a copy of this Charter is disclosed in the Company's Proxy
Statement at least every three years.
28
EXHIBIT B
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PERSONNEL COMMITTEE CHARTER
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ROLE
The Personnel Committee's role is to discharge the Board's responsibilities
relating to compensation of the Company's executives and to oversee and advise
the Board on the adoption of policies that govern the Company's compensation and
benefit programs.
MEMBERSHIP AND AUTHORITY
The membership of the Committee consists of at least three directors, each of
whom shall meet the independence requirements as defined by Rule 4200(a)(15) of
the NASD's current listing standards. The Board appoints the members of the
Committee and the chairman.
The Committee will have the resources and authority necessary to discharge its
duties and responsibilities. The Committee has sole authority to retain outside
counsel, compensation consultants, or other experts or consultants, as it deems
appropriate. The Committee may form and delegate authority to subcommittees and
may delegate authority to one or more designated members of the Committee to
perform certain of its duties on its behalf.
RESPONSIBILITIES
The principal responsibilities and functions of the Personnel Committee are as
follows.
1. Review the competitiveness of the Company's executive compensation programs
to ensure: (a) the attraction and retention of executives; (b) the
motivation of executives to achieve the Company's business objectives; and
(c) the alignment of the interests of senior management with the long-term
interests of the Company's shareholders.
2. Review trends in executive compensation, oversee the development of new
compensation plans, and, when necessary, approve the revision of existing
plans.
3. Review and approve the compensation structure for executives at the level
of senior vice president and above.
4. Oversee an evaluation of the performance of the Company's executive
officers and approve the annual compensation, including salary, bonus and
other incentive compensation, for the executive officers. Review and
approve compensation packages for new executive officers and termination
packages for executive officers.
5. Assist the Board in establishing executive officer annual goals and
objectives, and consider the results of executive officer performance
reviews in recommending compensation to the other independent members of
the Board for approval consistent with the Company's compensation
philosophy.
6. Review and discuss with the Board plans for executive officer development
and corporate succession plans for the CEO and other executive officers.
7. Review and make recommendations concerning long-term non-qualified deferred
compensation plans.
29
8. Appoint and remove plan administrators for the Company's qualified and
non-qualified retirement plans.
9. Periodically review the compensation paid to non-employee directors and
make recommendations to the Board for any adjustments. No member of the
Committee will act to fix his or her own compensation except for uniform
compensation to directors for their services as a director.
10. Review periodic reports from management on matters relating to the
Company's compensation practices.
11. Produce an annual report of the Compensation Committee on executive
compensation for the Company's annual proxy statement in compliance with
and to the extent required by applicable Securities and Exchange Commission
rules and regulations.
12. Regularly review and make recommendations about changes to the charter of
the Committee.
30
EXHIBIT C
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NOMINATING COMMITTEE CHARTER
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MISSION STATEMENT
The Nominating Committee shall assist the full Board of Directors in selecting
individuals for service on the Board of Directors of the Company and Bank and
evaluating their performance.
MEMBERSHIP AND QUALIFICATION
The Committee shall consist of two or more "independent directors" as defined in
and determined pursuant to Rule 4200(a)(15) of the NASD's current listing
standards. The Committee members shall be elected by the Board annually for
terms of one year, or until their successors shall be duly elected and
qualified. The Board may remove any Committee member at any time. Unless a
Committee Chairman is elected by the full Board, the Committee members may
designate a Chairman.
MEETINGS AND OTHER ACTIONS
The Committee shall meet as required to carry out its responsibilities. Meetings
may be called by the Chairman of the Committee or at the request of the Chief
Executive Officer. All meetings of and other actions by the Committee shall be
held or otherwise taken pursuant to the Company's By-Laws.
Reports of meetings shall be made by the Committee Chairman to the Board of
Directors at its next regularly scheduled meeting following the Committee
meeting.
RESPONSIBILITIES AND AUTHORITY
In carrying out its mission, the Committee shall have the following
responsibilities and authority.
1. Evaluate periodically the desirability of and recommend to the Board any
changes in the size and composition of the Board.
2. Make recommendations to the Board for the selection of directors in
accordance with the criteria set forth below.
- Director selection should include at least enough independent
directors so that the independent directors will constitute at least a
majority of the Board.
- Independent directors should have appropriate skills, experiences and
other characteristics to provide qualified persons to fill all Board
Committee positions required to be filled by independent directors.
- The Chief Executive Officer of the Company shall be a director and,
depending on the circumstances, certain other members of management,
as well as certain individuals having relationships with the Company
that prevent them from being independent directors, may be appropriate
members of the Board.
3. Evaluate each new director candidate before recommending that the Board
nominate such individual for election as a director.
4. Diligently seek to identify potential director candidates who will
strengthen the Board.
31
5. Submit to the Board the candidates for director to be added to the Board
due to Board expansions, director resignations or retirements or otherwise.
6. Monitor performance of directors to assure that they are fulfilling their
responsibilities.
7. Perform an evaluation of the Committee's performance and assess any
required changes in the Nominating Committee Charter.
8. Perform such other duties and responsibilities as may be assigned to the
Committee, from time to time, by the Board of Directors of the Company.
NOMINATIONS BY SHAREHOLDERS
The Committee will consider recommendations from shareholders for nomination as
a Board member as provided for in Article III, Section 3.4 of the By-Laws of the
Company.
COMMUNICATIONS WITH DIRECTORS
The Committee will recommend procedures for persons to communicate with
directors. The following procedures will be in effect until changed by the
Committee. Any person, including any stockholder, desiring to communicate with,
or make any concerns known to, the Company, directors generally, non-management
directors or an individual director only may do so by submitting them in writing
to the Secretary of the Company, with information to identify the person
submitting the communication or concern, including name, address, telephone
number and e-mail address (if applicable) together with information indicating
the relationship of such person to the Company. The Secretary will be
responsible for maintaining a record of any such communications or concerns and
submitting them to the appropriate addressee(s) for potential action or
response. The Company may institute appropriate procedures to establish the
authenticity of any communication or concern before forwarding. The Company
will not be obligated to investigate or forward any anonymous submissions from
persons who are not employees of the Company.
ADDITIONAL RESOURCES
The Committee shall have the authority to hire independent consultants,
including counsel, to assist and advise the Committee in connection with its
responsibilities.
32
EXHIBIT D
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RELATED PERSON TRANSACTION POLICY
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STATEMENT OF POLICY
The Board of Directors (the "Board") of Farmers & Merchants Bancorp (the
"Company") recognizes that transactions involving the Company and related
persons present a heightened risk of conflicts of interest and therefore has
adopted this Policy.
It is the policy of the Company not to enter into any "Related Person
Transaction" unless:
1. the Audit Committee approves such transaction in accordance with the
guidelines set forth in this Policy; or
2. the transaction is approved by a majority of the Company's disinterested
directors.
For these purposes, a "Related Person" is:
1. an "executive officer" of the Company (as defined in Rule 405 promulgated
under the Securities Act of 1933, as amended, and Rule 3b-7 promulgated
under the Securities Exchange Act of 1934, as amended);
2. a Director of the Company or a nominee for director of the Company;
3. a person (including an entity or group) known to the Company to be the
beneficial owner of more than 5% of any class of the Company's voting
securities (a 5% shareholder");
4. an individual who is an "immediate family member"(1) of an executive
officer, director, nominee for director or 5% shareholder of the Company;
or
5. an entity that is owned or controlled by a person listed in 1, 2, 3 or 4
above or in which any such person serves as an executive officer or general
partner or, together with all other persons specified above, owns 10% or
more of the equity interests thereof.
For these purposes, a "Related Person Transaction" is a transaction or proposed
transaction (including any financial transaction, arrangement or relationship or
series of related transactions, or any material amendment to any such
transaction), involving a Related Person and in which the Company is a
participant and the amount exceeds $120,000 since the beginning of the last
fiscal year.
AUDIT COMMITTEE APPROVAL
The Board has determined that the Company's Audit Committee (the "Committee") is
best suited to review and approve Related Person Transactions and any material
amendments to such Related Person Transactions, although the Board may instead
determine that a particular Related Person Transaction or a material amendment
thereto should be reviewed and approved by a majority of directors disinterested
from the transaction. No member of the Committee shall participate in the
review or approval of any Related Person Transaction or any material amendment
thereto with respect to which such member is a
----------------------
(1) For purposes of this policy, an "immediate family member" includes a
person's spouse, parents, children, siblings, mothers and fathers-in-law, sons
and daughters-in-law, brothers and sisters-in-law, and anyone (other than
domestic employees and tenants) who shares such person's home.
33
Related Person. In reviewing and approving any Related Person Transaction or any
material amendment thereto, the Committee shall:
1. satisfy itself that it has been fully informed as to the Related Person's
relationship and interest and as to the material facts of the proposed
Related Person Transaction or the proposed material amendment to such
transaction; and
2. determine that the Related Person Transaction or material amendment thereto
is fair to the Company.
At each Committee meeting, management shall recommend any Related Person
Transactions and any material amendments thereto, if applicable, to be entered
into by the Company. After review, the Committee shall approve or disapprove
such transactions and any material amendments to such transactions.
DISCLOSURE
Related Person Transactions shall be disclosed in the Company's SEC filings as
and to the extent required by applicable SEC rules and regulations. Furthermore,
all Related Person Transactions of which management is aware shall be disclosed
to the Committee. At least annually, management shall elicit information from
the Company's executive officers and directors as to existing and potential
Related Person Transactions and shall seek to obtain such information from 5%
shareholders who do not file reports with the SEC on Schedule 13G. An executive
officer or Director shall promptly inform the Chairman of the Committee when the
officer or Director becomes aware of a potential Related Person Transaction in
which the officer or director would be a Related Person.
34
APPENDIX 1
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
ARTICLE VI
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is twenty-one million (21,000,000).
This Corporation is authorized to issue two classes of shares to be designated
respectively Common Stock ("Common Stock") and Preferred Stock ("Preferred
Stock"). The total number of shares of Common Stock this Corporation shall have
authority to issue is twenty million (20,000,000). The total number of shares
of Preferred Stock this Corporation shall have authority to issue is one million
(1,000,000). The Common Stock shall have a par value of $0.01 per share and the
Preferred Stock shall have no stated par value.
The designations, preferences, qualifications, privileges, limitations and
restrictions of the classes of stock of the Corporation and the express grant of
authority to the Board of Directors to fix by resolution the designations,
preferences, qualifications, privileges, limitations, and restrictions relating
to the classes of stock of the Corporation which are not fixed by this Amended
and Restated Certificate of Incorporation, are as follows:
Section 1. Common Stock.
-------------
(a) Voting. Except as provided in this Amended and Restated Certificate of
------
Incorporation, and subject to the rights of holders of any series of Preferred
Stock then outstanding or any other securities of the Corporation, the holders
of the Common Stock shall exclusively possess all voting power. Each holder of
shares of Common Stock shall be entitled to one vote for each share held by such
holders.
(b) Dividends. Whenever there shall have been paid, or declared and set
---------
aside for payment, to the holders of the outstanding shares of any class of
stock having preference over the Common Stock as to the payment of dividends,
the full amount of dividends and sinking fund or retirement fund or other
retirement payments, if any, to which such holders are respectively entitled in
preference to the Common Stock, then dividends may be paid on the Common Stock,
and on any class or series of stock entitled to participate therewith as to
dividends, out of any assets legally available for the payment of dividends, but
only when as declared by the Board of Directors of the Corporation.
(c) Liquidation. In the event of any liquidation, dissolution or winding
-----------
up of the Corporation, after there shall have been paid, or declared and set
aside for payment, to the holders of the outstanding shares of any class having
preference over the Common Stock in any event, the full preferential amounts to
which they are respectively entitled, the holders of the Common Stock and of any
class or series of stock entitled to participate therewith, in whole or in part,
as to distribution of assets shall be entitled, after payment or provision for
payment of all debts and liabilities of the Corporation, to receive the
remaining assets of the Corporation available for distribution, in cash or in
kind.
Each share of Common Stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of Common Stock of the Corporation.
Section 2. Preferred Stock.
----------------
The Board of Directors is authorized, by resolution or resolutions from
time to time adopted, to provide for the issuance of Preferred Stock in one or
more series and to fix and state the powers, designations, preferences, and
relative, participating, optional, or other special rights of the shares of such
series, and the qualifications, limitations, or restrictions thereof, including,
but not limited to determination of any of the following:
35
(a) the distinctive serial designation, the number of shares constituting
such series and the stated value thereof if different from the par value
thereof;
(b) the dividend rates or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment date or dates for dividends, and the participating or
other special rights, if any, with respect to dividends;
(c) the voting powers, full or limited, if any, of the shares of such
series;
(d) whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions upon which such shares
may be redeemed;
(e) the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation;
(f) whether the shares of such series shall be entitled to the benefits of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and, if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such funds;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(h) the subscription or purchase price and form of consideration for which
the shares of such series shall be issued;
(i) whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of Preferred Stock and whether
such shares may be reissued as shares of the same or any other series of
Preferred Stock;
(j) the ranking (be it pari passu, junior or senior) of each class or
series vis-a-vis any other class or series of any class of Preferred Stock as to
the payment of dividends, the distribution of assets and all other matters; and
(k) any other powers, preferences and relative, participating, optional and
other special rights, and any qualifications, limitations and restrictions
thereof, insofar as they are not inconsistent with the provisions of this
Amended and Restated Certificate of Incorporation, to the full extent permitted
in accordance with the laws of the State of Delaware.
Each share of each series of Preferred Stock shall have the same relative
powers, preferences and rights as, and shall be identical in all respects with,
all the other shares of the Corporation of the same series.
36
APPENDIX 2
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
ARTICLE XVIII
The board of directors of the corporation shall have the power to adopt,
amend or repeal By-laws of the corporation by and through the vote of two-thirds
of all directors, other than a By-law changing the maximum or minimum number of
authorized directors which shall be approved by the vote or written consent of
the holders of a majority of the outstanding shares entitled to vote.
37
APPENDIX 3
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AMENDED BY-LAWS
Section 3.2 NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
of directors shall not be less than seven (7) nor greater than fifteen (15) and
the exact number shall be ten (10) until changed, within the limits specified
above, by a resolution amending such exact number, duly adopted by the Board of
Directors. The minimum and maximum number of Directors may be changed by a duly
adopted amendment to the Certificate of Incorporation or by an amendment to this
By-Law adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote.
38