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
Filed by the Registrant ý
Filed by a Party other than the Registrant ¨
Check the Appropriate Box:
¨ Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Under Rule 14a-12
CASCADE FINANCIAL CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
ý No fee required
¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously paid: |
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March 26, 2008
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of Cascade Financial Corporation (the “Company”) to be held at the Everett Golf and Country Club, 1500 52nd Street SE, Everett, Washington, at 6:30 p.m. on Tuesday, April 22, 2008.
The enclosed Notice of Annual Meeting and Proxy Statement describe the formal business to be transacted at the meeting. During the meeting, we will also report on the operations of the Company, and its bank subsidiary, Cascade Bank. Directors and officers of the Company will be present to respond to questions from shareholders.
Detailed information concerning our activities and operating performance during the fiscal year ended December 31, 2007 is contained in the Annual Report to Shareholders.
Your vote is important. Whether or not you are able to attend, it is important that your shares be represented at the Annual Meeting. Accordingly, we ask that you please sign, date and return the enclosed proxy card at your earliest convenience, or vote your shares by Internet or telephone as described in the following materials.
We look forward to seeing you at the meeting.
Sincerely,
| /s/ David W. Duce | /s/ Carol K. Nelson | |
| David W. Duce | Carol K. Nelson | |
| Chairman of the Board | President and Chief Executive Officer |
Enclosure
2828 Colby Avenue, Everett, WA 98201
425-339-5500 or 800-326-8787
www.cascadebank.com
CASCADE FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
| TIME | 6:30 p.m., Pacific Daylight Time, on Tuesday, April 22, 2008. |
| PLACE | Everett Golf and Country Club 1500 52nd Street SE Everett, Washington 98203 |
| ITEMS OF BUSINESS | 1. To elect four directors to hold office until the 2011 Annual Meeting of Shareholders; and |
2. To take action on any other business that may properly be considered at the meeting or any adjournment thereof. |
| RECORD DATE | You may vote at the meeting if you were a shareholder of record at the close of business on March 11, 2008. |
| VOTING BY PROXY | If you cannot attend the Annual Meeting, you may vote your shares over the Internet or by telephone, or by completing and promptly returning the enclosed proxy card in the envelope provided. Internet and telephone voting procedures are described in the General Information About the Meeting and Voting section on page 1 and on the proxy card provided to you. |
| ANNUAL REPORT | Cascade Financial Corporation’s December 31, 2007 Annual Report, which is not part of the proxy soliciting material, is enclosed. |
By Order of the Board of Directors,
/s/ Lars H. Johnson
Lars H. Johnson
Secretary
This Notice of Annual Meeting, Proxy Statement and accompanying proxy card
are being distributed on or about March 26, 2008.
CASCADE FINANCIAL CORPORATION
2828 Colby Avenue
Everett, Washington 98201
____________________
PROXY STATEMENT
Annual Meeting of Shareholders
April 22, 2008
We are providing these proxy materials in connection with the solicitation by the Board of Directors of Cascade Financial Corporation (the “Company”) of proxies to be voted at the Company’s Annual Meeting of Shareholders to be held on April 22, 2008, and at any adjournment of the meeting.
GENERAL INFORMATION ABOUT THE MEETING AND VOTING
Who may vote at the meeting?
The Board of Directors of the Company (the “Board”) has set March 11, 2008 as the record date for the meeting. If you were the owner of Company common stock at the close of business on March 11, 2008, you may vote at the meeting. You are entitled to one vote for each share of common stock you held on the record date.
How many shares must be present to hold the meeting?
A majority of the Company’s outstanding common shares, as of the record date, must be present at the meeting in order to hold the meeting and conduct business. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. On the record date, there were 12,047,927 shares of Company common stock outstanding. Shares are counted as present at the meeting if you:
| · | Are present and vote in person at the meeting; or |
| · | Have voted by Internet or telephone; or |
| · | Have properly submitted a proxy card. |
What proposals will be voted on at the meeting?
The only proposal scheduled to be voted on at the meeting is the election of four directors to hold office until the 2011 Annual Meeting of Shareholders.
How many votes are required to approve the proposal?
The affirmative vote of a plurality of the votes cast at the meeting is required for the election of directors.
How are votes counted?
You may either vote “FOR” or “WITHHOLD” authority to vote for each nominee for the Board of Directors. If you withhold authority to vote for the election of directors, your shares will not be voted with respect to the director or directors identified. If you just sign and submit your proxy card without voting instructions, your shares will be voted “FOR” each director nominee.
If you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote.
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This is called a “broker non-vote.” Shares held by brokers who do not have discretionary authority to vote on a particular matter and who have not received voting instructions from their customers are not counted or deemed to be present or represented for the purpose of determining whether shareholders have approved that matter, but they are counted as present for the purpose of determining a quorum at the Annual Meeting.
How does the Board recommend that I vote?
The Board recommends that you vote your shares “FOR” each of the director nominees.
How do I vote my shares without attending the meeting?
If you are a shareholder of record or hold shares through a Cascade stock plan, you may vote by granting a proxy. For shares held in street name, you may vote by submitting voting instructions to your broker or nominee. In any circumstance, you may vote:
| · | By Internet or Telephone – If you have Internet or telephone access, you may submit your proxy by following the voting instructions on the proxy card. If you vote by Internet or telephone, you do not need to return your proxy card. |
| · | By Mail – You may vote by mail by signing and dating your proxy card and mailing it in the envelope provided. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity. |
Internet and telephone voting facilities will close at 11:59 p.m., Eastern Daylight Time, on April 21, 2008.
How do I vote my shares in person at the meeting?
If you are a shareholder of record and prefer to vote your shares at the meeting, you should bring the enclosed proxy card or proof of identification. You may vote shares held in street name at the meeting only if you obtain a signed proxy from the record holder (broker or other nominee) giving you the right to vote the shares.
If you plan to attend the meeting, we encourage you to vote in advance by Internet, telephone or proxy card so your vote will be counted even if you later decide not to attend the meeting.
What does it mean if I receive more than one proxy card?
It generally means you hold shares registered in more than one account. To ensure that all your shares are voted, sign and return each proxy card.
May I change my vote?
Yes. If you vote by mail, you may later change your vote and revoke your proxy card by:
| · | Sending a written statement to that effect to the Secretary of the Company on or before April 8, 2008; or |
| · | Voting by Internet or telephone at a later date; or |
| · | Submitting a properly signed proxy card with a later date; or |
| · | Voting in person at the Annual Meeting. |
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| PROPOSAL 1 – ELECTION OF DIRECTORS |
Directors and Nominees
The Board is divided into three classes of approximately equal size. The members of each class are usually elected to serve three-year terms with the term of office of each class ending in successive years. Jim Gaffney, David W. Duce, Carol K. Nelson, and David R. O’Connor are the directors whose terms expire at this Annual Meeting and who have been nominated for reelection to the Board to serve until the 2011 Annual Meeting or until their successors are elected and qualified. All nominees are currently directors.
All the nominees have consented to being named as a nominee in this Proxy Statement and have indicated a willingness to serve if elected. However, if any nominee becomes unable to serve before the election, the shares represented by proxies may be voted for a substitute nominee designated by the Board, unless a contrary instruction is indicated on the proxy card. Set forth hereafter is a short biographical summary of each director and the first date they served as a director for either the Company or prior to formation of the Company in 1994, Cascade Bank.
NOMINEES FOR DIRECTORS FOR THREE-YEAR TERMS ENDING 2011
JIM GAFFNEY Director since 2006
Jim Gaffney, age 56, is the owner/president and founder of Gaffney Construction, Inc., a commercial construction firm based in Everett, Washington. Established in 1974, Gaffney Construction has built a wide range of projects including bank, office, retail and nonprofit facilities. An Everett native, Mr. Gaffney is a past president and has served as a board member of the Boys & Girls Club of Snohomish County for more than 20 years. Mr. Gaffney serves as a member of the Compensation Committee and the Loan Committee.
DAVID W. DUCE Director since 1991
David W. Duce, age 48, is an attorney with the Everett, Washington based law firm of Duce Bastian Peterson (Partner since 1985). He is completing his second term as Chair of the Company’s Board of Directors and Chair of the Executive Committee (first elected chair in May 2004). Before his election as Board Chair, Mr. Duce served as Vice Chair of the Company’s Board of Directors, Chair of the Company’s Compensation Committee, and a member of the Executive Committee. Mr. Duce received his Juris Doctor degree (Magna Cum Laude) from Pepperdine University School of Law in 1984. He is a past Chairman of the Professional Negligence Section of the Washington State Trial Lawyers Association and is an arbitrator for Snohomish County Superior Court.
CAROL K. NELSON Director since 2001
Carol K. Nelson, age 52, was appointed Chief Executive Officer of the Company commencing May 1, 2002. She has served as President of the Company and President and Chief Executive Officer of the Bank since February 2001. She was previously employed by Bank of America from 1978 to 2001. Ms. Nelson holds a Bachelor’s degree in Business Finance and a Master’s degree in Business Administration from Seattle University. Ms. Nelson serves as immediate past Chair of the Board of the Washington Bankers Association and on the Boards of Directors of the Seattle Branch of the Federal Reserve Bank of San Francisco, the Washington Roundtable, the Washington State Major League Baseball Stadium Public Facilities District, and Premera Blue Cross. She also serves as a Trustee for Seattle University. She is a past Chair of the Board of United Way of Snohomish County. During 2007, Ms. Nelson was appointed by Governor Gregoire to chair the State Task Force on Homeowner Security. Ms. Nelson serves as Vice Chair of the Company’s Executive Committee and as a member of the Bank’s Loan Committee.
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DAVID R. O’CONNOR ; Director since 1997
David R. O’Connor, age 62, has been a co-owner of Mobile Country Club in Everett, Washington since 1993. He was co-owner of O’Connor & Oehler Construction, Inc. from 1974 to 1996 and continues in his development business. Mr. O’Connor is a member of the Manufactured Housing Communities of Washington. Mr. O’Connor serves as a member of the Company’s Compensation Committee and Executive Committee. He chairs the Bank’s Loan Committee. Mr. O’Connor was a founding director of American First National Bank, which was acquired by Cascade Bank in 1997.
THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES
DIRECTORS CONTINUING IN OFFICE UNTIL 2009
DWAYNE R. LANE Director since 1995
Dwayne R. Lane, age 72, is the owner of two automobile dealerships in Everett and one in Arlington, Washington. He has owned these dealerships for over 45 years. Mr. Lane is active in community affairs. He served 12 years as an Everett Port Commissioner and was a board member for Olympic Bank and Providence Hospital. Mr. Lane serves as a member of the Company’s Compensation Committee and the Corporate Governance and Nominating Committee.
DENNIS R. MURPHY, PH.D. Director since 1991
Dennis R. Murphy, age 66, is Provost and Vice President for Academic Affairs and Professor of Economics at Western Washington University in Bellingham, Washington. Prior to assuming the Provost position he had a distinguished career as Dean of the College of Business and Economics for 25 years. Past service includes the Northwest Medical Bureau prior to its acquisition by Regence Blue Shield, where he chaired the Audit and Finance Committee as well as the Audit and Finance Committee of the Western Washington University Foundation. Dr. Murphy is a past member of the Whatcom Chamber of Commerce and Industry Board, the Mt. Baker Theatre Board, and the Board of Jr. Achievement. He is a past president of United Way of Whatcom County and the Rotary Club of Bellingham. Dr. Murphy chairs the Audit and Finance Committee and serves as a member of the Executive Committee. He has consulted widely on financial and corporate governance issues.
RONALD E. THOMPSON Director since 1991
Ronald E. Thompson, age 58, is the President of Windermere Commercial NW, Windermere Property Management NW and Turnkey Repair and Maintenance Divisions of Windermere Real Estate/Realty Brokerage, Inc. in Everett, Washington. He has owned the company since 1984. The company provides full service commercial real estate brokerage, property management and property maintenance services. Mr. Thompson is a past president of the Snohomish County-Camano Association of Realtors, a past state director of the Washington Association of Realtors and has served on the Board of Directors of the Mount Baker Council Boy Scouts of America, Providence Hospital Foundation’s Board and the Everett Golf and Country Club. He received his Bachelor’s degree in Business Administration from the University of Washington. Prior to his 25-plus years in real estate, he was a commercial banker. Mr. Thompson serves as the current Chair of the Corporate Governance and Nominating Committee, and is also Vice Chair of the Loan Committee and a member of the Executive Committee.
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G. BRANDT WESTOVER ; Director since 1986
G. Brandt Westover, age 47, is Managing Director and Market Area Manager for UBS Financial Services, Inc. in Seattle, Washington, a position he has held since 2003. Prior to this position, Mr. Westover was a corporate Vice President and Branch Manager for UBS-Paine Webber in Bellevue, Washington from 1996 to 2002. He received his Bachelor’s degree in Business Administration from the University of Washington and graduated from the Wharton School’s Securities Institute advanced course work program. Mr. Westover is a past trustee of the University of Washington Alumni Association and is actively involved with many charitable and community organizations including the Boys and Girls Club and Issaquah Little League. Mr. Westover serves on the Board of Directors for the Seattle Symphony. Mr. Westover serves as Vice Chair of the Board and the Compensation Committee, and is a member of the Executive Committee and the Corporate Governance and Nominating Committee.
DIRECTORS CONTINUING IN OFFICE UNTIL 2010
JANICE E. HALLADAY Director since 1999
Janice E. Halladay, age 64, is a retired bank executive. Ms. Halladay was previously employed by Pioneer Bank in Lynnwood, Washington for over 20 years and served as Senior Vice President of Operations from 1987 to 1993. She is a graduate of the School for Executive Development. She was subsequently employed by Moss Adams LLP, a regional accounting firm, from 1997 to 2000. She is currently a member of the Hospital Governing Board Committee of the Washington State Hospital Association and serves as Chair of the Board of Directors of the Northwest Service Area of the Providence Health System and Chair of the Executive Committee. Ms. Halladay serves as Chair of the Company’s Compensation Committee, and as a member of the Company’s Corporate Governance and Nominating Committee and the Executive Committee.
KATHERINE M. LOMBARDO Director since 2006
Katherine M. Lombardo, age 53, is a Senior Vice President with CH2M Hill, a global project delivery firm of architects, engineers, environmental scientists, construction managers and operations staff. Until April 2007, she served as the Northwest Regional Manager and she was responsible for the integration of service and overall financial performance of the firm’s business across the region, which includes 1,100 staff members in offices in Washington, Oregon, Idaho, Alaska, Montana and Hawaii. Among other service commitments, Ms. Lombardo contributes her efforts to drive economic growth strategies for the Seattle Chamber of Commerce and the Eastside Business Roundtable. Ms. Lombardo is engaged in developing a Center for Global Health in Puget Sound where she is a Trustee for the Seattle Biomedical Research Institute. Ms. Lombardo was recognized in 2005 by the Puget Sound Business Journal as one of “20 Women of Influence.” Ms. Lombardo serves as a member of the Audit and Finance Committee and the Corporate Governance and Nominating Committee.
CRAIG G. SKOTDAL Director since 2001
Craig G. Skotdal, age 34, is President of Skotdal Real Estate, a property development, investment and management company based in Everett, Washington, a position he has held since 1996. Mr. Skotdal graduated from Stanford University and from the University of Washington’s business management program. Mr. Skotdal is actively engaged in the revitalization of Everett’s urban center through the development of new mixed-use projects and his service on the Downtown Everett Association’s Board of Directors. He is also committed to preserving local media in Snohomish County through his ownership and involvement in S-R Broadcasting, the parent company of NorthSound 1380-AM (KRKO) and a new proposed radio station to be licensed on 1520-AM. Mr. Skotdal serves as a member of the Audit and Finance Committee and as Vice Chair of the Corporate Governance and Nominating Committee.
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RICHARD L. ANDERSON, C.P.A. Director since 2004
Richard L. Anderson, age 53, is a Certified Public Accountant and shareholder with Hascal, Sjoholm & Company, P.S., a firm with which he has been employed since 1976. This firm is the largest locally owned certified public accounting firm in Snohomish County, serving businesses and families since 1948. He has held board positions with a wide range of civic and community groups, including the Greater Everett Community Foundation, Everett Public Facilities District, Compass Health, the Everett Public Library, Arts United and Big Brothers/Big Sisters of Snohomish County, among others. Mr. Anderson earned his Bachelor of Arts Degree in Business Administration with an emphasis in accounting from Washington State University and earns continuing professional education credits in numerous topics sponsored by the American Institute of Certified Public Accountants and the Washington Society of CPAs. Mr. Anderson serves as Vice Chair of the Audit and Finance Committee and is a member of the Loan Committee.
Independence of Directors
NASDAQ listing standards (the market on which the Company’s stock trades) require that a majority of the Board of Directors of each listed company must be independent as defined under NASDAQ rules.
The Board of the Company has concluded that Richard L. Anderson, David W. Duce, Jim Gaffney, Janice E. Halladay, Dwayne R. Lane, Katherine M. Lombardo, Dennis R. Murphy, David R. O’Connor, Ronald E. Thompson, Craig G. Skotdal and G. Brandt Westover qualify as independent directors under the NASDAQ established criteria. There were no transactions, relationships, or arrangements not disclosed under the “Transactions with Management and Others” section of this Proxy Statement that were considered by the Board in determining the independence of these directors.
Board Committees and Meetings
During the year ended December 31, 2007, the Board held eight regular meetings. The Board has an Executive Committee, an Audit and Finance Committee, a Compensation Committee, a Loan Committee and a Corporate Governance and Nominating Committee.
Executive Committee. The Executive Committee consists of the CEO, the Chair and Vice Chair of the Board, and the Chairs of the Board’s committees, and has authority to generally act for the full Board.
Audit and Finance Committee. The Audit and Finance Committee is responsible to the Board for the areas of audit and compliance, asset and liability management, risk assessment and technology management. The Committee operates under a charter approved by the Board. The Audit and Finance Committee Charter is attached as Appendix A to this Proxy Statement and posted on the Company’s website at www.cascadebank.com. The Committee is responsible for the appointment, compensation and oversight of the external auditor. The Committee provides direction and oversight to the internal audit department and reviews the examination of the Bank by federal regulatory authorities. The Committee also reviews the financial statements and filings. The current members of the Audit and Finance Committee are “independent” directors within the meaning of both the NASDAQ and Securities and Exchange Commission (SEC) rules. The Board has determined that Dennis R. Murphy and Richard L. Anderson are “audit committee financial experts” as defined under SEC rules.
Compensation Committee. The Compensation Committee is responsible for establishing and reviewing the compensation and employee benefit policies of the Company and the Bank. The Committee approves compensation of executive officers, and awards stock options in accordance with the Company’s 2003 Long-Term Incentive Plan and established Board policies. The Committee operates under a charter approved by the Board. The charter is posted on the Company’s website at www.cascadebank.com. The Company will also provide a copy of the charter to shareholders upon request.
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Loan Committee. The Loan Committee reviews and approves loans in excess of the limits established for the Bank’s Management Loan Committee. Included in that review are all extensions of credit to borrowers whose aggregate borrowing levels exceed the limits placed on the Management Loan Committee. The Loan Committee also reviews loans that do not conform to the Bank’s Loan Policy.
Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee reviews and assesses the composition of the Board and oversees an annual evaluation of the Board and its committees; takes the lead in identifying potential candidates to serve as board members; recommends director candidates to the Board; reviews and recommends appropriate director compensation; and provides leadership with respect to corporate governance. The Committee is responsible for establishing criteria for director eligibility; procedures for nominating directors, including director nominations from shareholders and timelines for the nomination process; as well as nominating the Chair and Vice Chair of the Board. Only independent directors serve on this Committee. The Committee operates under a charter approved by the Board. The charter is posted on the Company’s website at www.cascadebank.com. The Company will also provide a copy of the charter to shareholders upon request.
The Board and its committees may retain outside advisors as they determine necessary to fulfill their responsibilities. All committees report their activities to the full Board.
Each Board member attended at least 75% of the aggregate meetings of the Board and of the Committees on which he or she served that were held during the period for which he or she was a Board or Committee member.
The following table summarizes the membership of the Board and each of its committees, as well as the number of times each committee met during 2007. Committee assignments are as of December 31, 2007.
| Board | Executive | Audit and Finance | Compensation | Loan (*) | Corporate Governance and Nominating | |
| Richard L. Anderson | Member | Vice Chair | Member | |||
| David W. Duce | Chair | Chair | ||||
| Jim Gaffney | Member | Member | Member | |||
| Janice E. Halladay | Member | Member | Chair | Member | ||
| Dwayne R. Lane | Member | Member | Member | |||
| Katherine M. Lombardo | Member | Member | Member | |||
| Dennis R. Murphy | Member | Member | Chair | |||
| Carol K. Nelson | Member | Vice Chair | Member | |||
| David R. O’Connor | Member | Member | Member | Chair | ||
| Craig G. Skotdal | Member | Member | Vice Chair | |||
| Ronald E. Thompson | Member | Member | Vice Chair | Chair | ||
| G. Brandt Westover | Vice Chair | Member | Vice Chair | Member | ||
| Number of meetings held in 2007 | 8 | 3 | 8 | 6 | 38 | 3 |
| (*) | The Loan Committee is a committee of the Bank only. |
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The directors of the Company also serve as directors of Cascade Bank, the only operating subsidiary of the Company. In addition to the Loan Committee, Cascade Bank has parallel committees and committee assignments.
Nomination Process
The Corporate Governance and Nominating Committee (the “Governance Committee”) is responsible for identifying individuals qualified to become members of the Board and its committees, and recommending candidates for election at the next annual, or other properly convened, meeting of shareholders. The Governance Committee is governed by the Company’s Articles of Incorporation and Bylaws and the Committee’s charter.
The Governance Committee will evaluate candidates for Board service who come recommended by its own members, by other Board members, or by shareholders or management. It may also engage the service of third-party search firms to assist in identifying and evaluating possible candidates, but did not do so during the 2007 fiscal year. The Governance Committee will consider nominations from shareholders, provided that such nominations are received on a timely basis by the Company’s Secretary as required by the Articles of Incorporation, the Bylaws and prior year’s Proxy Statement of the Annual Meeting of Shareholders. The Committee evaluates candidates recommended by shareholders in the same manner that it evaluates candidates coming to its attention from any other source. The Committee’s evaluations include a review of each candidate’s business and professional skills and experiences; commitment to representing the long-term interests of shareholders; analytical abilities and objectivity; independence; ability to evaluate risk; leadership ability; personal and professional ethics; personal integrity and judgment; and practical wisdom and sound judgement. Candidates should have reputations, both personal and professional, of the highest caliber and entirely consistent with the Company’s image and reputation. In the case of incumbent directors whose terms of office are due to expire at the upcoming Annual Meeting of Shareholders, the Governance Committee will review such directors’ overall service to the Company during their terms with respect to meeting the criteria set forth above as well as the number of meetings attended during their expiring term and the directors’ past level of participation and quality of performance.
The majority of directors on the Board should be “independent,” not only as that term may be legally defined, but also without the appearance of conflict of interest while serving as a director. Directors must also have time to devote to Board activities and to enhance their knowledge of the banking industry. Accordingly, the Governance Committee seeks to attract and retain highly qualified directors who have sufficient time and ability to attend to their substantial duties and responsibilities to the Company.
Standards of Conduct
The Board has adopted Standards of Conduct for employees, officers and directors, which includes a “code of ethics” as defined by Item 406 of the Regulation S-K and applies to the Company’s Chief Executive Officer and Chief Financial Officer, as well as all other employees. The Company will provide a copy of the Standards of Conduct to shareholders upon request.
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
Persons and groups who beneficially own more than 5% of the Company’s common stock are required to file certain reports with the Securities and Exchange Commission (“SEC”) and to provide a copy to the Company disclosing such ownership. Based on such reports, the following table sets forth, as of February 15, 2008, certain information as to those persons who were beneficial owners of more than 5% of the outstanding shares of common stock. Management knows of no persons other than those set forth below who beneficially owned more than 5% of the outstanding shares of common stock at February 15, 2008.
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The following table shows the number of shares of the Company’s common stock beneficially owned at February 15, 2008, by the Company’s directors and nominees for director, executive officers identified in the Summary Compensation Table, and all directors and executive officers as a group. The address of each person, except as set forth below, is the same as the Company’s principal office.
Name | Number of Shares Beneficially Owned (1) | % of Shares Outstanding | ||||||
| Beneficial Owners of more than 5%: | ||||||||
Arthur W. Skotdal, Andrew P. Skotdal and Craig G. Skotdal c/o Douglas A. Schafer Schafer Law Firm P.O. Box 1134 Tacoma, WA 98401 | 902,545 | 7.5 | % | |||||
ClearBridge Advisors, LLC 399 Park Avenue New York, NY 10022 | 603,936 | 5.0 | % | |||||
| Directors: | ||||||||
| Richard L. Anderson | 12,875 | * | ||||||
| David W. Duce | 52,874 | (2) | * | |||||
| Jim Gaffney | 7,325 | * | ||||||
| Janice E. Halladay | 29,155 | * | ||||||
| Dwayne R. Lane | 92,266 | * | ||||||
| Katherine M. Lombardo | 5,625 | * | ||||||
| Dennis R. Murphy | 37,718 | * | ||||||
| Carol K. Nelson ** | 198,528 | 1.6 | % | |||||
| David R. O’Connor | 160,612 | (3) | 1.3 | % | ||||
| Craig G. Skotdal | 902,545 | (4) | 7.5 | % | ||||
| Ronald E. Thompson | 51,838 | * | ||||||
| G. Brandt Westover | 44,514 | * | ||||||
| Executive Officers: | ||||||||
| Lars H. Johnson | 96,146 | * | ||||||
| Steven R. Erickson | 59,831 | * | ||||||
| Debbie E. McLeod | 41,576 | * | ||||||
| Robert G. Disotell | 172,947 | 1.4 | % | |||||
All Executive Officers and Directors as a group (18 persons) | 2,008,356 | 16.7 | % | |||||
| * | Less than 1% of shares outstanding |
| ** | Also an executive officer of the Company and the Bank |
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| (1) | In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a person is deemed to be the beneficial owner, for purposes of this table, of any shares of common stock if he or she has voting and/or investment power with respect to such security. The table includes shares owned by spouses or other immediate family members in trust, shares held in retirement accounts or funds for the benefit of the named individuals, and other forms of ownership over which shares the persons named in the table possess voting and/or investment power. Shares held in accounts under the Company’s 401(k) plan as of December 31, 2007 are included in the above table as follows: Ms. Nelson: 2,406; Mr. Johnson: 4,823; Mr. Erickson: 22,931; Ms. McLeod: 460; and Mr. Disotell 34,677; all executive officers and directors as a group: 65,712. These amounts do not include the remaining shares held by the Bank’s 401(k) plan for which Ms. Nelson and Messrs. Anderson, Westover and Johnson act as trustees. The amounts shown also include the following amounts of common stock which the following individuals have the right to acquire within 60 days of February 15, 2008 through the exercise of stock options granted pursuant to the Company’s stock option plans: Mr. Anderson: 3,000; Mr. Gaffney: 2,000; Ms. Halladay: 6,087; Ms. Lombardo: 2,000; Ms. Nelson: 153,103; Mr. Johnson: 67,458; Mr. Erickson: 36,901; Ms. McLeod: 38,448; Mr. Disotell: 31,345; and all executive officers and directors as a group: 380,416. |
| (2) | Includes 288 shares held by Mr. Duce’s children, and 1,375 shares held by a testamentary trust of which Mr. Duce is trustee. |
| (3) | Includes 124,265 shares held by a trust in which Mr. O’Connor has a pecuniary interest. |
| (4) | Includes 301,571 shares held by Mr. Skotdal’s brother of which Mr. Skotdal has the authority to vote, 243,665 shares held by a limited liability company in which Mr. Skotdal has a pecuniary interest and 16,383 shares held by Mr. Skotdal’s father of which Mr. Skotdal has the authority to vote. |
| COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |
Based upon a review of reports and written representations furnished to it, the Company believes that during fiscal year 2007, all filings with the Securities and Exchange Commission by its executive officers and directors complied with requirements for reporting ownership and changes in ownership of the Company’s common stock pursuant to Section 16(a) of the Securities Exchange Act of 1934, except that, due to an administrative oversight, restricted stock awards granted to outside directors were not timely filed. Reports were promptly filed upon discovery of the oversight. In addition, one outside director, Dwayne R. Lane, failed to timely report five charitable donations totaling 6,485 shares of common stock, seven broker directed dividend reinvestments totaling 1,694 shares of common stock, and one direct purchase of 575 shares of common stock.
| REPORT OF COMPENSATION COMMITTEE |
| COMPENSATION DISCUSSION AND ANALYSIS |
Philosophy
The purpose of Cascade Financial Corporation’s (the Company) Executive Compensation Philosophy is to ensure that the Company is able to attract, retain and motivate highly skilled executives. It is the philosophy of the Company that executive compensation be tied to corporate and individual performance. The Company’s executive compensation package consists of base salary, short-term incentives, long-term incentives and benefits.
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Specifically, the compensation philosophy is to target base salaries near the median (50th percentile) and target total compensation (including annual incentives, long-term incentives, and benefits) near the 75th percentile of a regional peer group of bank holding companies similar in size and performance to Cascade Financial Corporation. The Company believes targeting total compensation near the 75th percentile is critical for attracting and retaining the qualified executives it needs to achieve its business objectives. Executives will be paid near the 75th percentile depending on their achievement of corporate and individual performance goals.
The goals established in the compensation plans flow directly from the Company’s Strategic Plan and/or its Board approved Annual Profit Plan. Such goals address Company-wide objectives such as total net income, growth in net income as well as growth on a per share basis, and profitability measures such as return on equity, return on assets, and operating efficiency ratio. In addition, sales goals are established such as the level of loans and deposits. The Company’s policies also seek to align and balance the interests of shareholders, employees and customers by employing a mix of base salary, incentive compensation and stock based awards.
The Company has utilized stock options as part of its strategy to align the interests of stockholders and employees. The Company recognizes that if the stock does not appreciate, the options would have little or no value. If the stock price increases, then the option holders/employees would benefit as would all shareholders.
Authority
The Board has delegated to the Compensation Committee the responsibility to establish and administer policies that govern executive compensation for the Company. The Committee evaluates the individual performance of the President and Chief Executive Officer after receiving feedback from the entire Board, then establishes compensation policies for executive management. The Committee receives input from the President on the other executive officers’ performance and has final authority to set individual compensation levels.
The Committee is charged with monitoring and analyzing conditions and changes in the market for executive talent. The Committee has the discretion to employ any consulting assistance it deems necessary to accomplish this task.
The Committee considers a variety of subjective and objective factors in determining the total compensation for individual executives. These factors include the performance of the Company overall, the responsibilities assigned to each executive, and the performance of each executive in their assigned areas of oversight. (The executive officers of the Company are the President and CEO, the EVP/Chief Financial Officer, as well as the EVPs of Commercial Real Estate, Retail Banking, Business Banking, EVP/Chief Credit Officer and EVP/ Chief Administrative Officer of Cascade Bank.)
The Committee evaluates the performance of the President and CEO and determines her total compensation, which is ratified by the full Board. The President and CEO negotiates goals and objectives with each executive manager to develop a scorecard. That scorecard is reviewed by the Compensation Committee at its January meeting. The executive’s performance is measured against that scorecard over the course of the year. The President and CEO administers the appropriate level of incentive payments within a range of payouts approved by the Committee.
Components
By mixing base pay with a large component of pay for performance, the Company seeks to be competitive, but prudent, in its compensation practices. The Company augments its cash compensation, which is designed to incentivize current performance, with stock option grants, which offer long-term incentives.
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The Company does not offer its executives and board members many perquisites, believing that direct compensation is in the best interests of both the employees and shareholders. Direct compensation is more efficient and cost effective to administer and more transparent to monitor. The largest component of “Other Income” on Table 1 is the Company’s 401(k) match that is available to all employees.
Base Salary. Salary levels are analyzed against the banking industry based on a peer group review of twenty West Coast financial institutions. The analysis, as well as the achievements of the Company and the individual employees, are available to the Compensation Committee and are used when considering salary adjustments. Base salaries are set within the framework of the Company’s compensation philosophy as previously discussed.
Bonus Programs. An incentive bonus plan is in effect for the executive officers of the Company that is designed to compensate for performance as defined by meeting the goals established in the scorecard. In determining the amount of the President and CEO’s bonus, the Compensation Committee considers the Company’s earnings, return on equity, asset quality, the President and CEO’s leadership and other factors as it deems appropriate. The plan for all other executive officers is based upon the attainment of certain negotiated goals including Company and line of business profitability; loan levels and credit quality; expense management; as well as service, leadership and teamwork. Performance for these officers is evaluated by the President and CEO and reviewed by the Compensation Committee.
Option Grants. The 2003 Long-Term Incentive Plan (the Plan) grants the Company the ability to offer equity based compensation including restricted stock and/or stock options. The Company has established a stock option grant policy. Stock options are designed to provide long-term incentives for key employees. These grants were made at current market prices under the rules of the Plan adopted by the shareholders. Option grants are generally made each year at the March Board meeting. The amount of total options available for granting is based upon the attainment of specific financial objectives, specifically the growth in net income.
Deferred Compensation Plan. In December 2004, the Board adopted the Cascade Bank Deferred Compensation Plan. The purpose of this Plan is to provide specified benefits to a select group of management or highly compensated employees who contribute materially to the continued growth, development and business success of Cascade Bank. The Plan was inactive in 2007 and has been replaced with a new plan effective February 1, 2008.
On January 16, 2008 the Cascade Bank Non-Qualified Deferred Compensation Plan was adopted. During 2007, one of the major projects of the Compensation Committee was to develop and recommend a plan to the Board of Directors that would provide specified benefits to a select group of management and highly compensated employees. Participants may contribute up to 50 percent of salary and 100 percent of bonus to the Plan. In addition, the Compensation Committee has the authority to authorize an employer contribution to the Plan for these same employees. The contribution will be based upon the performance of the Company as well as the individual performance of each employee. The Non-Qualified Deferred Compensation Plan will also be available to Directors of the Company. Each Director may contribute up to 100 percent of their director compensation to the Plan. No Company contributions will be made to the plan for Directors.
Pension and Post-Retirement Benefits. Currently, the Company does not have a pension plan for any of its employees. Other than those contained within the President and CEO’s employment agreement, the Company does not offer post-retirement benefits.
Perquisites. The Company applies the same matching formula for 401(k) contributions for all employees, 50% of an employee’s contribution up to a maximum of $6,000. All executive officers are granted five weeks of vacation annually. Ms. Nelson receives a car allowance of $8,400 per annum.
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Stock Option Grants
As a general policy, the Compensation Committee will consider incentive stock option grants to key employees on an annual basis based upon the attainment of company-wide and individual goals. The current policy provides that stock options will be granted to existing employees only when the Company’s earnings per share increases by at least ten percent (10%) over the prior year. In the event the Company’s net income growth meets that requirement, the Committee will award incentive stock options to existing employees according to a formula established to keep the Company’s options practices consistent with industry norms. For example, if net income grows by 10%, the options granted will equal ..4% of the outstanding shares. The maximum annual number of stock options granted to existing employees would be .8% of outstanding shares and would occur if net income increased by 15% or more on a year over year basis. Based upon the application of this policy a pool of available stock options may be created and discretionary awards can then be made to eligible participants of that pool.
The Committee may make discretionary individual stock option grants after receiving and considering the recommendations of the President and CEO. The grants will be based primarily on each employee’s contribution to the Company’s success in meeting or exceeding its goals.
For 2007, there were no incentive options granted as the Company’s earnings per share growth did not reach the 10% threshhold in 2006.
The Committee may also grant options upon the employment of selected senior level employees. The strike price of all option grants is the closing price of Cascade Financial stock (CASB) on the date of the grant.
Under the program adopted in 2003, incentive stock options vest over a five-year period, with 10% vesting at the end of year 1, 20% vesting per year at the end of years 2, 3, and 4, and 30% at the end of year 5. Previously, the vesting schedule was 6 years, with 20% vested after year 2, and 20% per year in years 3 through 6.
Vested options may be exercised at any time prior to their expiration at the discretion of the option holder. The Company also allows the holder to exercise options by tendering outstanding shares of the Company’s stock. The value of that stock is determined by using the average closing price of the Company’s stock for the ten previous trading days.
As of December 31, 2007, options to purchase a total of 595,567 shares remain available for issuance under the Plan. The following table sets forth information regarding outstanding options and shares reserved for future issuance under the equity compensation plans as of February 15, 2008.
Plan Category | Number of Shares to be Issued Upon Exercise of Outstanding Options (in thousands) | Weighted Average Exercise Price of Outstanding Options | Number of shares Remaining Available for Future Issuance (in thousands) | |||||||||
| Equity compensation plans approved by shareholders—1992 and 1997 Plans | 268 | $ | 5.16 | - | ||||||||
| Equity compensation plans approved by shareholders—2003 Plan | 328 | 13.71 | 598 | |||||||||
| Equity compensation plans not approved by shareholders | - | - | - | |||||||||
| Total | 596 | $ | 9.87 | 598 | ||||||||
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Pension Benefits and Deferred Compensation
The Company does not have a defined benefit pension program. It offers all its employees a 401(k) in which the Company will match 50% of the employee’s contribution up to $6,000 on an annual basis.
The President and CEO’s employment agreement states that if Ms. Nelson retires after age 57, she is entitled to receive a retirement benefit equal to two times her base compensation plus bonus before salary deferrals over the 12 month period prior to her retirement, the vesting of all her stock options and health care benefits until she and her spouse become entitled to receive Medicare benefits or until she reaches age 65, whichever first occurs.
Summary
The Company seeks a balance of base salary and pay for performance in the form of bonus and incentive payments. Stock option grants have been used to help align the long-term interests of the employees and the shareholders.
Compensation of the Chief Executive Officer. Carol K. Nelson was appointed Chief Executive Officer of Cascade Financial Corporation on May 1, 2002. Previously, Ms. Nelson was President and Chief Operating Officer of Cascade Financial Corporation. Ms. Nelson remained President and Chief Executive Officer of Cascade Bank. For the year ended December 31, 2007, Ms. Nelson’s base salary was $252,938. The Committee believes this amount is consistent with the Company’s compensation philosophy given the Company’s level of profitability, complexity and asset size compared to the benchmark group.
The Compensation Committee retains the discretion to determine any bonus paid to the CEO. It is the Committee’s intent to pay a bonus, subject to the achievement of targeted levels of performance covering net income, level of earnings per share, and return on equity. The targeted bonus the Committee has agreed to use is 1.5% of net profit before tax excluding any extraordinary items according to generally accepted accounting principles (GAAP). For the year ended December 31, 2007, Ms. Nelson received a bonus of $343,935. Ms. Nelson was not awarded incentive options in 2007.
Compensation of Named Executives. Lars H. Johnson, EVP—Chief Financial Officer, Steven R. Erickson, EVP—Commercial Real Estate, Debbie E. McLeod, EVP—Retail Banking, and Robert G. Disotell, EVP—Chief Credit Officer are the named executives.
The level of total compensation for the named executives is targeted to be competitive with comparable financial institutions for positions of similar scope and responsibility—see Benchmarks. The components of total compensation reflect the nature of the position, e.g. those with a higher component of sales in his/her goals will generally have a higher component of compensation in bonus/incentive payments. Mr. Johnson and Ms. McLeod had approximately 30% of their maximum compensation in the form of a potential bonus and Mr. Disotell had approximately 23% of compensation in the form of potential bonus. Mr. Erickson, who has loan production responsibility, in addition to his sales and general management responsibilities, had 33% of his maximum compensation in the form of a bonus.
Annually, each executive negotiates with the President/CEO a balanced scorecard with targets based upon the Company’s goals and his/her position’s responsibilities. Each executive has a component of his/her bonus calculation based upon leadership, teamwork and expense control as well as the attainment of personal, business unit, and/or Company goals. For example, Mr. Johnson’s goals were heavily weighted to profitability as measured by net income, earnings per share growth, and return on equity. Mr. Erickson’s goals were weighted toward loan production, fee generation and credit quality. Ms. McLeod’s goals centered around deposit generation, including the management of the High Performance Checking Program. Mr. Disotell’s primary focus was maintaining a high level of credit quality.
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The bonus payments for 2007 reflect the quantitative progress toward those goals. The goals are designed to be rigorous but obtainable. The performance for each goal is rated on a scale: Far Exceeds Expectations, Exceeds Expectations, Meets Expectations, and Does Not Meet Expectations. A named executive must have a cumulative rating of Meets Expectations to receive an incentive payment. The named executives are reviewed quarterly. The following table provides the percentages assigned to various goals of each named executive.
| Profitability | Sales | Service/Leadership | Projects/Other | |
| Named Executive | % | % | % | % |
| Lars H. Johnson | 55 | 0 | 20 | 25 |
| Steven R. Erickson | 30 | 35 | 20 | 15 |
| Debbie E. McLeod | 35 | 30 | 25 | 10 |
| Robert G. Disotell | 20 | 0 | 30 | 50 |
Benchmarks
With the assistance of Clark Consulting, the Company has established a group of 20 bank holding companies as a benchmark universe to compare the compensation levels for senior management and the Board of Directors. These companies are publicly traded, headquartered in Washington, Oregon or California, and with total assets ranging from $844 million to $5.2 billion. As of December 31, 2007, the Company had consolidated assets of $1.42 billion. By asset size, Cascade Financial would be the ninth largest institution among the selected peers. Benchmarking is at the direction of the Compensation Committee. The Committee is responsible for selecting the company to perform the survey as well as determining the frequency of the survey and the appropriate peer group.
Base salaries are targeted near the median (50th percentile) and target total compensation (including annual incentives, long-term incentives, and benefits) at or near the 75th percentile of the benchmark group provided; the Company’s overall performance is also at or near the 75th percentile of the benchmark group.
For 2007, base salaries for the named executives were adjusted toward the median of the benchmark group if such adjustments were warranted. Relative performance of the Company and compensation of the named executives will be reviewed by the Compensation Committee annually when the compensation data for the benchmark group becomes available.
Employment/Change of Control/Severance Agreements
The following is a brief description of each agreement entered into by the Bank with named executive officers that provide potential payments upon termination or a change of control.
Employment Agreement. The Bank entered into an employment agreement with Carol K. Nelson dated November 27, 2007, which replaced a previous agreement dated July 12, 2005. This agreement replaced a prior agreement dated March 26, 2002 and extended on January 27, 2004. The current agreement may be terminated upon 90 days written notice. The employment of Ms. Nelson is terminable at any time for cause as defined in the agreement, and she may be terminated without cause in which case she would receive a severance benefit equal to two times her annual base compensation plus bonus for the prior year. Such payment would, at the option of the Bank, be made in a lump sum or in accordance with the Bank’s regular payroll schedule and would be paid or payments would commence as soon as practicable, but not less than six (6) months, after the date that Ms. Nelson’s entitlement to such payments arose.
In the case that Ms. Nelson terminates her employment for “good reason,” as defined in the agreement, Ms. Nelson would receive a severance benefit equal to two (2) times her base compensation plus bonus before salary deferrals over the twelve (12) months preceding the month of termination, less statutory payroll deductions. Such payment would, at the
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option of the Bank, be made in a lump sum or in accordance with the Bank’s regular payroll schedule and would be paid or payments would commence as soon as practicable, but not less than six (6) months, after the date that Ms. Nelson’s entitlement to such payment arose.
The agreement also provides for the payment of severance benefits to Ms. Nelson in the event of her termination of employment following a change of control of the Company or the Bank. All of Ms. Nelson’s equity grants/benefits would become fully vested upon the effective date of the change of control. If Ms. Nelson left the employment of the Bank, whether voluntarily or involuntarily, within twelve (12) months after such change of control, Ms. Nelson would be entitled to receive an amount equal to two (2) times her base compensation plus bonus before salary deferrals over the twelve (12) month period prior to the change of control. Such payment would not be made less than six (6) months after Ms. Nelson’s entitlement to the payment arose. During the term of the agreement and for twenty-four (24) months thereafter, if Ms. Nelson receives compensation due to a change of control, she would be prohibited from, directly or indirectly, soliciting or attempting to solicit: (i) any employees of the Bank to leave their employment; or (ii) any customers of the Bank to remove their business from the Bank to participate in any manner in any financial institution or trust company that competes with or will compete with the Bank in King, Snohomish or Pierce Counties, or any start-up or other financial institution or trust company in King, Snohomish or Pierce Counties.
The agreement also provides that, if Ms. Nelson retires after attaining the age fifty-seven (57), Ms. Nelson will receive a severance benefit in an amount equal to two (2) times her base compensation plus bonus before salary deferrals over the twelve (12) months prior to her retirement, with such amounts payable in twenty-four (24) consecutive, equal, monthly installments, with the first such payment due on the first day of the seventh month following her retirement. In addition, Ms. Nelson would be entitled to the vesting of all stock-based compensation and certain health benefits. During the term of the agreement and for twenty-four (24) months thereafter, if Ms. Nelson receives compensation due to her retirement after attaining the age of fifty-seven (57), she would be restricted from becoming or serving as an officer, director, founder or employee of any financial institution with its main office in King, Snohomish or Pierce Counties, or any other financial institution which, in the judgment of the Board, is in substantial competition with the Bank, unless Ms. Nelson had first obtained the Board’s written consent. Furthermore, during the term of the agreement and for twenty-four (24) months thereafter, if Ms. Nelson receives compensation due to her retirement after age fifty-seven (57), she would be prohibited from, directly or indirectly, soliciting or attempting to solicit: (i) any employees of the Bank to leave their employment, or (ii) any customers of the Bank to remove their business from the Bank to participate in any manner in any financial institution or trust company that competes with or will compete with the Bank in King, Snohomish or Pierce Counties, or any start-up or other financial institution or trust company in King, Snohomish or Pierce Counties.
If termination of the agreement occurs due to Ms. Nelson’s death, her estate would be entitled to receive, under her employment contract, only the compensation, benefits earned and expenses reimbursable through the date the agreement is terminated. If termination occurs due to Ms. Nelson’s disability, Ms. Nelson would continue to receive her salary until payments under the Bank’s long-term disability plan commenced, or in the event the Bank had no long-term disability plan on the date of disability, her salary would continue for a period of six (6) months. In the event of Ms. Nelson’s death or disability while employed by the Bank, all of her then outstanding, stock-based compensation which had not vested would be accelerated and fully vested.
Change of Control/Severance Agreements for Named Executives. The Bank has entered into Change of Control/Severance Agreements dated November 30, 2007, which replaced prior agreements, with Lars H. Johnson, Steven R. Erickson, Debbie E. McLeod, Robert G. Disotell and two other executive officers who are not included in the tables. These agreements generally provide that if for the period of time starting six (6) months prior to the date the Change of Control is effected and ending twenty-four (24) months after a change of control, if an executive is terminated other than for cause or the executive should terminate for good reason (as such terms are defined in the agreements), such executive will generally be entitled to: (i) receive a severance payment equal to two times the executive’s annual base compensation plus bonus for the prior year, (ii) continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Bank for the executive prior to the effective date of a change of control for twenty-four (24) months after the
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effective date of a change of control, except to the extent such coverage may be changed in its application to all the Bank’s employees on a nondiscriminatory basis; and (iii) the acceleration of any unvested stock-based compensation so any such stock-based compensation shall be 100% vested and immediately exercisable in full as of the date of such termination. Payments incident to a change of control would be paid to the executive in a lump sum no sooner than six (6) months after the date of the executive’s termination. The agreements generally define a change of control as the acquisition of all or a substantial part of the Company or the Bank, the merger of the Company or the Bank into another company that is the surviving company, the sale of substantially all of the assets of the Company or the Bank to another company, or a hostile acquisition of substantially all of the stock of the Company or the Bank.
Compensation of the Board of Directors
The goal of Cascade Financial Corporation’s Director Compensation Philosophy is to ensure that the Company is able to attract, motivate and reward qualified directors. The Corporate Governance and Nominating Committee is responsible for developing recommendations to the full Board regarding director compensation. To create a focus on long-term success and reduce any conflict of interest, the compensation for the Board of Directors is limited to a set fee for service. Total director compensation consists of a retainer, meeting fees and an equity grant.
Specifically, the compensation philosophy is to target total compensation near the median (50th percentile) of the regional peer group of bank holding companies similar in size and performance to Cascade Financial Corporation. Compensation may vary per individual based upon role (e.g. committee chairs may receive additional compensation to reflect additional responsibilities). The regional peer group is identical to that used by the Compensation Committee for executive officers.
For the year ended December 31, 2007, all members of the Board received an $18,000 annual retainer and $9,000 annual meeting fee. The Chair of the Board (Mr. Duce) received an additional fee of $18,000 per year. As an additional annual fee, the Chair of the Audit and Finance Committee (Dr. Murphy) received $12,000, the Chair of Compensation Committee (Ms. Halladay) received $8,000, the Chair of the Loan Committee (Mr. O’Connor) received $6,000, and the Chair of the Corporate Governance and Nominating Committee (Mr. Thompson) received $6,000. All members of the Loan Committee received an additional $6,000 per annum. Each director also received 593 shares of restricted Cascade Financial Corporation stock worth approximately $10,000.
Compensation and Personnel Interlocks and Insider Participation
No member of the Compensation Committee is an executive officer or former officer of the Company. No executive officer of the Company served on the board of directors of any entity whose executive officers included a director of the Company.
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The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management of the Company, and based upon those discussions, the Committee has recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE
Janice E. Halladay, Chair
G. Brandt Westover, Vice Chair
Jim Gaffney
Dwayne R. Lane
David R. O’Connor
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ACCOMPANYING TABLES AND APPENDICES
| Summary Compensation Table | |||||||||||||||||||||||||||||||||
| Table 1 | |||||||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value & Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||||||||
| Carol K. Nelson | 2007 | $ | 252,938 | $ | 343,935 | $ | - | $ | 39,302 | $ | - | $ | - | $ | 14,400 | $ | 650,575 | ||||||||||||||||
| President & CEO | 2006 | 243,075 | 297,450 | - | 54,151 | - | - | 14,400 | 609,076 | ||||||||||||||||||||||||
| 2005 | 231,500 | 299,620 | - | 54,363 | - | - | 10,400 | 595,883 | |||||||||||||||||||||||||
| Lars H. Johnson | 2007 | $ | 157,976 | $ | 64,212 | $ | - | $ | 27,128 | $ | - | $ | - | $ | 6,000 | $ | 255,316 | ||||||||||||||||
| EVP & CFO | 2006 | 152,880 | 52,437 | - | 37,149 | - | - | 6,000 | 248,466 | ||||||||||||||||||||||||
| 2005 | 138,400 | 52,255 | - | 42,568 | - | - | 6,200 | 239,423 | |||||||||||||||||||||||||
| Steven R. Erickson | 2007 | $ | 153,744 | $ | 78,112 | $ | - | $ | 23,605 | $ | - | $ | - | $ | 6,000 | $ | 261,461 | ||||||||||||||||
| EVP, Commercial | 2006 | 148,785 | 74,392 | - | 30,456 | - | - | 5,655 | 259,288 | ||||||||||||||||||||||||
| Real Estate | 2005 | 111,107 | 67,233 | - | 27,916 | - | - | 4,667 | 210,923 | ||||||||||||||||||||||||
| Debbie E. McLeod | 2007 | $ | 136,103 | $ | 53,244 | $ | - | $ | 21,642 | $ | - | $ | - | $ | 6,000 | $ | 216,989 | ||||||||||||||||
| EVP, Retail Banking | 2006 | 124,835 | 48,178 | - | 27,851 | - | - | 6,000 | 206,864 | ||||||||||||||||||||||||
| 2005 | 100,250 | 51,551 | - | 24,908 | - | - | 6,200 | 182,909 | |||||||||||||||||||||||||
| Robert G. Disotell | 2007 | $ | 145,080 | $ | 42,792 | $ | - | $ | 21,600 | $ | - | $ | - | $ | 6,000 | $ | 215,472 | ||||||||||||||||
| EVP, Chief Credit Officer | 2006 | 132,678 | 39,804 | - | 27,000 | - | - | 6,000 | 205,482 | ||||||||||||||||||||||||
| 2005 | 102,418 | 36,193 | - | 25,000 | - | - | 5,460 | 169,071 | |||||||||||||||||||||||||
| Column |
| (d) | Bonus totals for 2007, 2006 and 2005 include awards attributed to the years ended December 31, 2007, December 31, 2006, and December 31, 2005. |
| (f) | Value of Option Grants for 2007 is based upon the amount expensed under FAS 123(R) for each officer’s options even though no new options were granted in 2007. The Value of the Grants for 2006 and 2005 are the amounts that would have been expensed if FAS 123(R) had been in effect in those years. |
| (i) | All Other Compensation for calendar year 2007 includes the following: for Ms. Nelson, employer contribution to 401(k) Plan of $6,000 and a car allowance of $8,400; for Mr. Johnson, employer contribution to 401(k) Plan of $6,000; for Mr. Erickson, employer contribution to 401(k) Plan of $6,000; for Ms. McLeod, employer contribution to 401(k) Plan of $6,000; and for Mr. Disotell, employer contribution to 401(k) Plan of $6,000. |
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| Grants of Plan-Based Awards Table | |||||||||||||||||||||||||||||
| Table 2 | |||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity | Estimated Future Payouts Under Equity | ||||||||||||||||||||||||||||
| Incentive Plan Awards | Incentive Plan Awards | ||||||||||||||||||||||||||||
| Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock (#) | All Other Option Awards: Number of Shares Underlying Options (#) | Exercise Price of Options ($/Sh) | Grant Date Fair Value Stock and Option Awards | ||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | ||||||||||||||||||
| Carol K. Nelson | 1/1/07 | $ | - | $ | 343,935 | $ | 447,100 | - | - | - | NA | NA | NA | NA | |||||||||||||||
| Lars H. Johnson | 1/1/07 | - | 52,010 | 64,212 | - | - | - | NA | NA | NA | NA | ||||||||||||||||||
| Steven R. Erickson | 1/1/07 | - | 63,272 | 78,113 | - | - | - | NA | NA | NA | NA | ||||||||||||||||||
| Debbie E. McLeod | 1/1/07 | - | 45,277 | 55,898 | - | - | - | NA | NA | NA | NA | ||||||||||||||||||
| Robert G. Disotell | 1/1/07 | - | 45,000 | 55,000 | - | - | - | NA | NA | NA | NA | ||||||||||||||||||
Ms. Nelson’s bonus is determined by the Company’s Compensation Committee based upon criteria in her employment agreement. The targeted bonus the Committee has agreed to use is 1.5% of net profit before tax, excluding any extraordinary items according to GAAP. The actual bonus may be adjusted based upon achieving other goals, such as return on equity and net income. The maximum amount for the purposes of this table is 30% above the Company’s 2007 net profit before tax.
The bonus payments to the other named executives shall be based upon the attainment of specific corporate, business unit, and personal goals negotiated each year by the CEO and the executive officer and ratified by the Compensation Committee. The goals are set in reference to the Company’s Annual Profit Plan (Budget). Each goal has a threshold, target, and maximum performance. The progress to goals is reviewed quarterly and a payment to the executives is also made quarterly based upon those reviews.
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| Outstanding Equity Awards Table | |||||||||||||||||||||||||
at December 31, 2007 Table 3 | |||||||||||||||||||||||||
| Option Awards | Stock Awards | ||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (Vested) (#) | Number of Securities Underlying Unexercised Options Unexercisable (Unvested) (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares that Have Not Vested (#) | Market Value of Shares that Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested (#) | Equity Incentive Plan Awards: Market Value of Unearned Shares That Have Not Vested ($) | ||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||
| Carol K. Nelson | 67,617 | - | NA | $ | 4.44 | 01/25/11 | NA | $ | - | NA | $ | - | |||||||||||||
| 35,505 | - | 4.44 | 01/25/11 | ||||||||||||||||||||||
| 12,500 | 3,125 | 5.54 | 02/13/12 | ||||||||||||||||||||||
| 14,218 | 6,093 | 10.00 | 07/22/13 | ||||||||||||||||||||||
| 7,560 | 7,555 | 15.92 | 03/23/14 | ||||||||||||||||||||||
| 2,621 | 6,115 | 14.24 | 03/22/15 | ||||||||||||||||||||||
| 1,729 | 15,559 | 15.00 | 03/28/16 | ||||||||||||||||||||||
| Lars H. Johnson | 31,566 | - | NA | $ | 4.76 | 03/28/10 | NA | $ | - | NA | $ | - | |||||||||||||
| 859 | - | 4.51 | 12/15/10 | ||||||||||||||||||||||
| 8,750 | 2,187 | 6.21 | 03/26/12 | ||||||||||||||||||||||
| 9,843 | 4,218 | 10.00 | 07/22/13 | ||||||||||||||||||||||
| 5,313 | 5,312 | 15.92 | 03/23/14 | ||||||||||||||||||||||
| 2,063 | 4,812 | 14.24 | 03/22/15 | ||||||||||||||||||||||
| 1,125 | 10,125 | 15.00 | 03/28/16 | ||||||||||||||||||||||
| Steven R. Erickson | 12,890 | - | NA | $ | 6.93 | 07/21/08 | NA | $ | - | NA | $ | - | |||||||||||||
| 3,437 | - | 6.83 | 08/23/09 | ||||||||||||||||||||||
| 1,593 | - | 3.93 | 07/25/10 | ||||||||||||||||||||||
| 2,296 | - | 4.51 | 12/15/10 | ||||||||||||||||||||||
| 8,750 | 2,187 | 6.21 | 03/26/12 | ||||||||||||||||||||||
| 7,110 | 3,046 | 10.00 | 07/22/13 | ||||||||||||||||||||||
| 3,813 | 3,812 | 15.92 | 03/23/14 | ||||||||||||||||||||||
| 1,688 | 3,937 | 14.24 | 03/22/15 | ||||||||||||||||||||||
| 1,125 | 10,125 | 15.00 | 03/28/16 | ||||||||||||||||||||||
| Debbie E. McLeod | 12,687 | - | NA | $ | 4.44 | 02/01/11 | NA | $ | - | NA | $ | - | |||||||||||||
| 6,250 | 1,562 | 6.21 | 03/26/12 | ||||||||||||||||||||||
| 7,110 | 3,046 | 10.00 | 07/22/13 | ||||||||||||||||||||||
| 3,813 | 3,812 | 15.92 | 03/23/14 | ||||||||||||||||||||||
| 1,500 | 3,500 | 14.24 | 03/22/15 | ||||||||||||||||||||||
| 1,000 | 9,000 | 15.00 | 03/28/16 | ||||||||||||||||||||||
21
| Option Awards | Stock Awards | ||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (Vested) (#) | Number of Securities Underlying Unexercised Options Unexercisable (Unvested) (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares that Have Not Vested (#) | Market Value of Shares that Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested (#) | Equity Incentive Plan Awards: Market Value of Unearned Shares That Have Not Vested ($) | ||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||
| Robert G. Disotell | 3,866 | - | NA | $ | 6.93 | 07/21/08 | NA | $ | - | NA | $ | - | |||||||||||||
| 1,718 | - | 4.51 | 12/15/10 | ||||||||||||||||||||||
| 6,250 | 1,562 | 6.21 | 03/26/12 | ||||||||||||||||||||||
| 7,110 | 3,046 | 10.00 | 07/22/13 | ||||||||||||||||||||||
| 3,813 | 3,812 | 15.92 | 03/23/14 | ||||||||||||||||||||||
| 1,500 | 3,500 | 14.24 | 03/22/15 | ||||||||||||||||||||||
| 1,000 | 9,000 | 15.00 | 03/28/16 | ||||||||||||||||||||||
| Options Exercised and Stock Vested Table | ||||||||||
| Table 4 | ||||||||||
| Option Awards | Stock Awards | |||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||
| (a) | (b) | (c) | (d) | (e) | ||||||
| Carol K. Nelson | 22,540 | $ | 370,039 | NA | $- | |||||
| Lars H. Johnson | 26,533 | 428,093 | NA | - | ||||||
| Steven R. Erickson | 6,125 | 101,604 | NA | - | ||||||
| Debbie E. McLeod | - | - | NA | - | ||||||
| Robert G. Disotell | - | - | NA | - | ||||||
| Pension Benefits Table | ||||||||
| Table 5 | ||||||||
| Name | Plan Name | Number of Years of Credited Service | Present Value of Accumulated Benefit | Payments During Last Fiscal Year | ||||
| (a) | (b) | (c) | (d) | (e) | ||||
| Carol K. Nelson | NA | - | - | - | ||||
| Lars H. Johnson | NA | - | - | - | ||||
| Steven R. Erickson | NA | - | - | - | ||||
| Debbie E. McLeod | NA | - | - | - | ||||
| Robert G. Disotell | NA | - | - | - | ||||
The Company does not have a defined benefit pension plan.
22
| Nonqualified Deferred Compensation Table | ||||||||||||||||||||
| Table 6 | ||||||||||||||||||||
| Name | Executive Contributions Last FY ($) | Company Contributions Last FY ($) | Aggregate Earnings ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance 12/31/07 ($) | |||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||
| Carol K. Nelson | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Lars H. Johnson | - | - | - | - | - | |||||||||||||||
| Steven R. Erickson | - | - | - | - | - | |||||||||||||||
| Debbie E. McLeod | - | - | - | - | - | |||||||||||||||
| Robert G. Disotell | - | - | - | - | - | |||||||||||||||
No contributions were made to the Company’s Nonqualified Deferred Compensation Plan in 2007.
Potential Payments Upon Termination or a Change of Control
This section of the proxy statement sets forth information regarding compensation and benefits that each of the named executive officers would receive in the event of: (b) termination by the Bank for cause; (c) in the case of Carol K. Nelson, voluntary termination from the bank before age 57; (d) also in the case of Carol K. Nelson, retirement from the Bank after attaining age 57; (e) a voluntary termination by the named executive officer; (f) termination by the named executive officer for good reason; (g) involuntary termination by the Bank without cause; (h) the named executive officer’s death; (i) the named executive officer’s disability; (j) a change of control without termination of employment; and (k) termination by the Bank without cause or by the named executive officer for good reason following a change of control;
23
Carol K. Nelson
Table 7a
Executive Benefits and Payment Upon Termination (a) | Termination for Cause (b) | Voluntary Termination before age 57 (c) | Retirement after age 57 (d) | Termination by Executive for Good Reason (f) | Involuntary Termination without Cause (g) | Death (h) | Disability (i) | Change of Control without Termination (j) | Change of Control with Termination (k) | |||||||||||||||||||||||||||
| Cash Compensation | $ | - | $ | - | $ | 1,193,746 | $ | 1,193,746 | $ | 1,193,746 | $ | - | $ | 298,436 | $ | - | $ | 1,193,746 | ||||||||||||||||||
| Value of Accelerated or Continued Vesting of Unvested Options | - | - | 47,138 | 47,138 | 47,138 | 47,138 | 47,138 | 47,138 | ||||||||||||||||||||||||||||
| Value of Vesting of Unvested Restricted Stock | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Health and Welfare Benefits | - | - | 78,861 | 10,801 | - | - | - | - | 78,861 | |||||||||||||||||||||||||||
| Bank Owned Life Insurance | - | - | - | - | - | 300,000 | - | - | - | |||||||||||||||||||||||||||
| Reimbursement of Excise Tax | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| TOTAL | $ | - | $ | - | $ | 1,319,745 | $ | 1,251,685 | $ | 1,193,476 | $ | 347,138 | $ | 345,574 | $ | 47,138 | $ | 1,319,745 | ||||||||||||||||||
Notes to Table:
| * | We have assumed that the termination event occurred effective as of December 31, 2007, the last day of fiscal year 2007. |
| * | We have assumed that the value of our common stock was $13.60 per share based on the closing market price on December 31, 2007, the last trading day of fiscal year 2007. |
| * | We have not included in the tables the value of any options that were vested prior to December 31, 2007. |
| * | Health and welfare benefits are included, where applicable, at the estimated value of continuation of this benefit. Health and welfare benefits for Ms. Nelson include medical, dental, life, accidental death and dismemberment, and long-term disability insurance premiums for two years if terminated by Executive for Good Reason. If Ms. Nelson has a Voluntary Termination after age 57, or there is a Change of Control with Termination, her Health and Welfare Benefits are medical and dental premiums for herself and her spouse until she reaches age 65. |
| (b) (g) | Termination shall be determined to be “for cause” only in the event: (i) Ms. Nelson is convicted of a felony or crime involving moral turpitude, or charged with a felony or crime involving moral turpitude if the Board, in its sole discretion, determines that the adverse publicity/notoriety stemming from such charge will make it difficult for Ms. Nelson to perform her duties and/or the Bank to carry on its normal business activities; or (ii) Ms. Nelson fails or refuses, after written request, to comply with any material policies adopted by the Board; (iii) Ms. Nelson is terminated for fraud, embezzlement, or willful misconduct (including, but not limited to, violation of the Bank’s anti-discrimination and harassment policies); or (iv) Ms. Nelson is removed from office by the Board in order to comply with a requirement, request or recommendation from the Supervisor of Banking for the State of Washington or the Federal Deposit Insurance Corporation (“FDIC”). |
| (f) | “Good Reason” means any one or more of the following: Reduction of Ms. Nelson’s base compensation during the term of the agreement without Ms. Nelson’s consent (other than as part of an overall program applied uniformly to all members of senior management of the Bank); the assignment to Ms. Nelson without her consent of any duties materially inconsistent with Ms. Nelson’s position as of the date of the agreement; or a relocation or transfer of Ms. Nelson’s principal place of employment that would require Ms. Nelson to commute on a regular basis more than 30 miles each way from the Bank’s main office as of the date of the agreement. |
| (i) | “Disability” shall be determined using the definition of that term in the Bank’s long-term disability plan in effect at the time of the disability, or if no such plan is then in effect, the definition of “disability” contained in such other plan providing a disability benefit. If there is no such plan then in effect, the definition of “disability” found in Internal Revenue Code Section 22(e), as may be amended from time to time, shall apply. |
| (j) (k) | “Change of Control” will be deemed to have occurred when there is a Change in the Ownership of the Bank or a Change in the Ownership of a Substantial Portion of the Assets of the Bank, as defined in the agreement. |
24
Lars H. Johnson
Table 7b
Executive Benefits and Payment Upon Termination (a) | Termination for Cause (b) | Voluntary Termination (e) | Termination by Executive for Good Reason (f) | Involuntary Termination without Cause (g) | Death (h) | Disability (i) | Change of Control without Termination (j) | Change of Control with Termination (k) | ||||||||||||||||||||||||
| Cash Compensation | $ | - | $ | - | $ | 444,376 | $ | - | $ | - | $ | - | $ | - | $ | 444,376 | ||||||||||||||||
| Value of Accelerated or Continued Vesting of Unvested Options | - | - | 31,355 | - | 31,355 | - | 31,355 | 31,355 | ||||||||||||||||||||||||
| Value of Vesting of Unvested Restricted Stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Health and Welfare Benefits | - | - | 10,801 | - | - | - | - | 10,801 | ||||||||||||||||||||||||
| Bank Owned Life Insurance | - | - | - | - | 300,000 | - | - | - | ||||||||||||||||||||||||
| Reimbursement of Excise Tax | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| TOTAL | $ | - | $ | - | $ | 486,532 | $ | - | $ | 331,355 | $ | - | $ | 31,355 | $ | 486,532 | ||||||||||||||||
Notes to Table:
| * | We have assumed that the termination event occurred effective as of December 31, 2007, the last day of fiscal year 2007. |
| * | We have assumed that the value of our common stock was $13.60 per share based on the closing market price on December 31, 2007, the last trading day of fiscal year 2007. |
| * | We have not included in the tables the value of any options that were vested prior to December 31, 2007. |
| * | Health and welfare benefits are included, where applicable, at the estimated value of continuation of this benefit. Health and welfare benefits for Mr. Johnson include medical, dental, life, accidental death and dismemberment, and long-term disability insurance premiums for two years. |
| (b) (g) | “Cause” as used in the agreement means termination of the employment of Mr. Johnson because of personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, insubordination, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the agreement or any other agreement between Mr. Johnson and the Bank. |
| (f) | “Good Reason” as used in the agreement means the occurrence, without Mr. Johnson’s express written consent, of a material diminution of Mr. Johnson’s duties, responsibilities or benefits, including (without limitation) any of the following circumstances: (i) a requirement that Mr. Johnson be based at any location not within forty (40) miles of Mr. Johnson’s then existing job location, providing that such new location is not closer to Mr. Johnson’s home; (ii) a material demotion, or loss of title or loss of significant authority of Mr. Johnson, excluding for this purpose, an isolated, insubstantial or inadvertent action not taken in bad faith which is remedied by the Bank immediately after notice thereof is given by Mr. Johnson; (iii) a reduction in Mr. Johnson’s salary or a material adverse change in Mr. Johnson’s perquisites, benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank; or (iv) a successor bank or company fails or refuses to assume the Bank’s obligations under this agreement, as required by the agreement. |
| (j) (k) | “Change of Control” will be deemed to have occurred when there is a Change in the Ownership of the Bank or a Change in the Ownership of a Substantial Portion of the Assets of the Bank, as defined in the agreement. |
25
Steven R. Erickson
Table 7c
Executive Benefits and Payment Upon Termination (a) | Termination for Cause (b) | Voluntary Termination (e) | Termination by Executive for Good Reason (f) | Involuntary Termination without Cause (g) | Death (h) | Disability (i) | Change of Control without Termination (j) | Change of Control with Termination (k) | ||||||||||||||||||||||||
| Cash Compensation | $ | - | $ | - | $ | 463,712 | $ | - | $ | - | $ | - | $ | - | $ | 463,712 | ||||||||||||||||
| Value of Accelerated or Continued Vesting of Unvested Options | - | - | 27,137 | - | 27,137 | - | 27,137 | 27,137 | ||||||||||||||||||||||||
| Value of Vesting of Unvested Restricted Stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Health and Welfare Benefits | - | - | 10,801 | - | - | - | - | 10,801 | ||||||||||||||||||||||||
| Bank Owned Life Insurance | - | - | - | - | 300,000 | - | - | - | ||||||||||||||||||||||||
| Reimbursement of Excise Tax | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| TOTAL | $ | - | $ | - | $ | 501,650 | $ | - | $ | 327,137 | $ | - | $ | 27,137 | $ | 501,650 | ||||||||||||||||
Notes to Table:
| * | We have assumed that the termination event occurred effective as of December 31, 2007, the last day of fiscal year 2007. |
| * | We have assumed that the value of our common stock was $13.60 per share based on the closing market price on December 31, 2007, the last trading day of fiscal year 2007. |
| * | We have not included in the tables the value of any options that were vested prior to December 31, 2007. |
| * | Health and welfare benefits are included, where applicable, at the estimated value of continuation of this benefit. Health and welfare benefits for Mr. Erickson include medical, dental, life, accidental death and dismemberment, and long-term disability insurance premiums for two years. |
| (b) (g) | “Cause” as used in the agreement means termination of the employment of Mr. Erickson because of personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, insubordination, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the agreement or any other agreement between Mr. Erickson and the Bank. |
| (f) | “Good Reason” as used in the agreement means the occurrence, without Mr. Erickson’s express written consent, of a material diminution of Mr. Erickson’s duties, responsibilities or benefits, including (without limitation) any of the following circumstances: (i) a requirement that Mr. Erickson be based at any location not within forty (40) miles of Mr. Erickson’s then existing job location, providing that such new location is not closer to Mr. Erickson’s home; (ii) a material demotion, or loss of title or loss of significant authority of Mr. Erickson, excluding for this purpose, an isolated, insubstantial or inadvertent action not taken in bad faith which is remedied by the Bank immediately after notice thereof is given by Mr. Erickson; (iii) a reduction in Mr. Erickson’s salary or a material adverse change in Mr. Erickson’s perquisites, benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank; or (iv) a successor bank or company fails or refuses to assume the Bank’s obligations under this agreement, as required by the agreement. |
| (j) (k) | “Change of Control” will be deemed to have occurred when there is a Change in the Ownership of the Bank or a Change in the Ownership of a Substantial Portion of the Assets of the Bank, as defined in the agreement. |
26
Debbie E. McLeod
Table 7d
Executive Benefits and Payment Upon Termination (a) | Termination for Cause (b) | Voluntary Termination (e) | Termination by Executive for Good Reason (f) | Involuntary Termination without Cause (g) | Death (h) | Disability (i) | Change of Control without Termination (j) | Change of Control with Termination (k) | ||||||||||||||||||||||||
| Cash Compensation | $ | - | $ | - | $ | 378,694 | $ | - | $ | - | $ | - | $ | - | $ | 378,694 | ||||||||||||||||
| Value of Accelerated or Continued Vesting of Unvested Options | - | - | 22,517 | - | 22,517 | - | 22,517 | 22,517 | ||||||||||||||||||||||||
| Value of Vesting of Unvested Restricted Stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Health and Welfare Benefits | - | - | 10,723 | - | - | - | - | 10,723 | ||||||||||||||||||||||||
| Bank Owned Life Insurance | - | - | - | - | 300,000 | - | - | - | ||||||||||||||||||||||||
| Reimbursement of Excise Tax | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| TOTAL | $ | - | $ | - | $ | 411,934 | $ | - | $ | 322,517 | $ | - | $ | 22,517 | $ | 411,934 | ||||||||||||||||
Notes to Table:
| * | We have assumed that the termination event occurred effective as of December 31, 2007, the last day of fiscal year 2007. |
| * | We have assumed that the value of our common stock was $13.60 per share based on the closing market price on December 31, 2007, the last trading day of fiscal year 2007. |
| * | We have not included in the tables the value of any options that were vested prior to December 31, 2007. |
| * | Health and welfare benefits are included, where applicable, at the estimated value of continuation of this benefit. Health and welfare benefits for Ms. McLeod include medical, dental, life, accidental death and dismemberment, and long-term disability insurance premiums for two years. |
| (b) (g) | “Cause” as used in the agreement means termination of the employment of Ms. McLeod because of personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, insubordination, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the agreement or any other agreement between Ms. McLeod and the Bank. |
| (f) | “Good Reason” as used in the agreement means the occurrence, without Ms. McLeod’s express written consent, of a material diminution of Ms. McLeod’s duties, responsibilities or benefits, including (without limitation) any of the following circumstances: (i) a requirement that Ms. McLeod be based at any location not within forty (40) miles of Ms. McLeod’s then existing job location, providing that such new location is not closer to Ms. McLeod’s home; (ii) a material demotion, or loss of title or loss of significant authority of Ms. McLeod, excluding for this purpose, an isolated, insubstantial or inadvertent action not taken in bad faith which is remedied by the Bank immediately after notice thereof is given by Ms. McLeod; (iii) a reduction in Ms. McLeod’s salary or a material adverse change in Ms. McLeod’s perquisites, benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank; or (iv) a successor bank or company fails or refuses to assume the Bank’s obligations under this agreement, as required by the agreement. |
| (j) (k) | “Change of Control” will be deemed to have occurred when there is a Change in the Ownership of the Bank or a Change in the Ownership of a Substantial Portion of the Assets of the Bank, as defined in the agreement. |
27
Robert G. Disotell
Table 7e
Executive Benefits and Payment Upon Termination (a) | Termination for Cause (b) | Voluntary Termination (e) | Termination by Executive for Good Reason (f) | Involuntary Termination without Cause (g) | Death (h) | Disability (i) | Change of Control without Termination (j) | Change of Control with Termination (k) | ||||||||||||||||||||||||
| Cash Compensation | $ | - | $ | - | $ | 375,744 | $ | - | $ | - | $ | - | $ | - | $ | 375,744 | ||||||||||||||||
| Value of Accelerated or Continued Vesting of Unvested Options | - | - | 22,517 | - | 22,517 | - | 22,517 | 22,517 | ||||||||||||||||||||||||
| Value of Vesting of Unvested Restricted Stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Health and Welfare Benefits | - | - | 10,785 | - | - | - | - | 10,785 | ||||||||||||||||||||||||
| Bank Owned Life Insurance | - | - | - | - | 300,000 | - | - | - | ||||||||||||||||||||||||
| Reimbursement of Excise Tax | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| TOTAL | $ | - | $ | - | $ | 409,046 | $ | - | $ | 322,517 | $ | - | $ | 22,517 | $ | 409,046 | ||||||||||||||||
Notes to Table:
| * | We have assumed that the termination event occurred effective as of December 31, 2007, the last day of fiscal year 2007. |
| * | We have assumed that the value of our common stock was $13.60 per share based on the closing market price on December 31, 2007, the last trading day of fiscal year 2007. |
| * | We have not included in the tables the value of any options that were vested prior to December 31, 2007. |
| * | Health and welfare benefits are included, where applicable, at the estimated value of continuation of this benefit. Health and welfare benefits for Mr. Disotell include medical, dental, life, accidental death and dismemberment, and long-term disability insurance premiums for two years. |
| (b) (g) | “Cause” as used in the agreement means termination of the employment of Mr. Disotell because of personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, insubordination, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the agreement or any other agreement between Mr. Disotell and the Bank. |
| (f) | “Good Reason” as used in the agreement means the occurrence, without Mr. Disotell’s express written consent, of a material diminution of Mr. Disotell’s duties, responsibilities or benefits, including (without limitation) any of the following circumstances: (i) a requirement that Mr. Disotell be based at any location not within forty (40) miles of Mr. Disotell’s then existing job location, providing that such new location is not closer to Mr. Disotell’s home; (ii) a material demotion, or loss of title or loss of significant authority of Mr. Disotell, excluding for this purpose, an isolated, insubstantial or inadvertent action not taken in bad faith which is remedied by the Bank immediately after notice thereof is given by Mr. Disotell; (iii) a reduction in Mr. Disotell’s salary or a material adverse change in Mr. Disotell’s perquisites, benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank; or (iv) a successor bank or company fails or refuses to assume the Bank’s obligations under this agreement, as required by the agreement. |
| (j) (k) | “Change of Control” will be deemed to have occurred when there is a Change in the Ownership of the Bank or a Change in the Ownership of a Substantial Portion of the Assets of the Bank, as defined in the agreement. |
28
| Director Compensation | ||||||||||||||||||||||||||||
| Table 8 | ||||||||||||||||||||||||||||
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value & Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||||
| David W. Duce | $ | 45,000 | $ | 10,000 | $ | - | $ | - | $ | - | $ | - | $ | 55,000 | ||||||||||||||
| Richard A. Anderson | 33,000 | 10,000 | - | - | - | - | 43,000 | |||||||||||||||||||||
| Jim Gaffney | 33,000 | 10,000 | - | - | - | - | 43,000 | |||||||||||||||||||||
| Janice E. Halladay | 35,000 | 10,000 | - | - | - | - | 45,000 | |||||||||||||||||||||
| Dwayne R. Lane | 27,000 | 10,000 | - | - | - | - | 37,000 | |||||||||||||||||||||
| Katherine M. Lombardo | 27,000 | 10,000 | - | - | - | - | 37,000 | |||||||||||||||||||||
| Dennis R. Murphy | 39,000 | 10,000 | - | - | - | - | 49,000 | |||||||||||||||||||||
| Carol K. Nelson | - | - | - | - | - | - | - | |||||||||||||||||||||
| David R. O'Connor | 39,000 | 10,000 | - | - | - | - | 49,000 | |||||||||||||||||||||
| Craig G. Skotdal | 27,000 | 10,000 | - | - | - | - | 37,000 | |||||||||||||||||||||
| Ronald E. Thompson | 39,000 | 10,000 | - | - | - | - | 49,000 | |||||||||||||||||||||
| G. Brandt Westover | 27,000 | 10,000 | - | - | - | - | 37,000 | |||||||||||||||||||||
| (c) | Value of 593 shares of restricted CASB stock granted to each outside director is $16.86 per share, the closing price of the stock on March 27, 2007, the date of the Board of Directors Meeting when the shares were awarded. |
REPORT OF AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee (“Audit Committee”) represents and assists the Board in its oversight of the integrity of the Company’s financial reporting; the independence, qualifications and performance of the Company’s independent auditors, the performance of the internal auditor and the Company’s compliance with legal and regulatory requirements. The Audit Committee consists of four members listed below, each of whom is an independent director under NASDAQ listing standards and, in accordance with SEC and NASDAQ requirements, meets additional independence standards applicable to audit committee members. Dennis R. Murphy, Ph.D. and Richard L. Anderson, C.P.A. qualify as “audit committee financial experts” within the meaning of that term as defined by the Securities and Exchange Commission pursuant to Section 407 of the Sarbanes-Oxley Act of 2002.
The Company’s management is responsible for preparing the Company’s financial statements and the overall reporting process, including the Company’s system of internal controls. The Audit Committee is directly responsible for the compensation, appointment and oversight of the Company’s independent registered public accounting firm, Moss Adams LLP. The auditors report directly to the Audit Committee and are responsible for auditing the financial statements and expressing an opinion on the conformity of the audited financial statements with generally accepted accounting principles. The Audit Committee also periodically meets in separate, private executive sessions with management, the internal auditors, and the independent auditors.
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In this context, the Audit Committee has held discussions with management and the independent auditors. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited financial statements with management and the independent auditors.
The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended. The independent auditors provided to the Audit Committee the written disclosures and letter required by Independent Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and discussed with the auditors their independence.
Based on the considerations above, the Audit Committee recommended to the Board, and the Board has approved, the inclusion of the audited financial statements in the Company’s Annual Report on Form 10-K for fiscal year 2007 for filing with the Securities and Exchange Commission. The Audit Committee has selected Moss Adams LLP as the Company’s independent auditors for fiscal year 2008. Audit and all permitted non-audit services provided to the Company by Moss Adams LLP are preapproved by the Audit Committee.
AUDIT AND FINANCE COMMITTEE:
Dennis R. Murphy, Ph.D., Chair
Richard L. Anderson, C.P.A., Vice Chair
Katherine M. Lombardo
Craig G. Skotdal
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SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the Company's cumulative shareholder return on its common stock with the return on the NASDAQ Composite Index and a peer group of the NASDAQ's OTC Bank Index. Total return assumes (i) the reinvestment of all dividends and (ii) the value of the investment in the Company's common stock and each index was $100 at the close of trading on December 31, 2002.
| 12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | |
| Cascade Financial Corporation | 100.00 | 202.89 | 196.82 | 185.82 | 223.38 | 177.97 |
| NASDAQ Composite Index | 100.00 | 149.95 | 162.80 | 165.07 | 180.79 | 198.52 |
| NASDAQ Bank Index | 100.00 | 129.54 | 143.78 | 137.55 | 153.31 | 118.99 |
| *Assumes that the value of the investment in the Company’s common stock and each index was $100 on December 31, 2002. |
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Certain transactions involving loans, deposits, credit cards and sales of commercial paper, certificates of deposit and other money market instruments, and certain other banking transactions, occurred during 2007 between the Bank and certain directors or executive officers of the Company and its subsidiaries, members of their immediate families, corporations or organizations of which any of them is an executive officer or partner or of which any of them is the beneficial owner of 10% or more of any class of securities, or associates of the directors, the executive officers or their family members. The transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, that prevailed at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features.
INDEPENDENT AUDITORS
The Board has selected Moss Adams LLP, Certified Public Accountants, as independent auditors for the Company for the fiscal year ending December 31, 2008. Representatives of Moss Adams LLP are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire, and are expected to be available to respond to appropriate questions.
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Audit and Non-Audit Fees
The following table presents fees for professional audit services rendered by Moss Adams LLP for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2007 and 2006, and fees billed for other services rendered.
The aggregate fees billed to the Company by Moss Adams LLP for 2007 and 2006 were as follows:
Fiscal Year Ended December 31, | ||||||||
| 2007 | 2006 | |||||||
| Audit Fees | $ | 252,000 | $ | 216,000 | ||||
| Audit-related Fees | 37,000 | 35,000 | ||||||
| Tax Fees | 28,000 | 23,000 | ||||||
| Total Fees | $ | 317,000 | $ | 274,000 | ||||
Audit Fees: Consists of fees billed to the Company for professional services rendered by Moss Adams LLP in connection with the integrated audit of our financial statements and review of financial statements included in the Company’s Forms 10-K and 10-Q or services to the Company in connection with statutory or regulatory filings or engagements.
Audit-Related Fees: Consists of fees relating to examination of management’s assertion regarding the effectiveness of internal controls (FDICIA), audit of the Company’s pension plans, and miscellaneous audit and accounting matters.
Tax Fees: Consists of fees relating to the preparation of the Company’s federal income tax return, tax planning and miscellaneous tax matters.
All Other Fees: There were no other fees for services included above for fiscal years ended 2007 and 2006.
In considering the nature of the services provided by Moss Adams LLP, the Audit and Finance Committee determined that such services are compatible with the provision of independent audit services. As part of its approval of all services provided by Moss Adams LLP, the Audit Committee discussed these services with Moss Adams LLP and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement Sarbanes-Oxley, and the American Institute of Certified Public Accountants.
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OTHER INFORMATION
Shareholder Communications with the Board
To contact members of the Board, individually or collectively, on any subject, please address communications to:
Lars H. Johnson, Corporate Secretary
Cascade Financial Corporation
2828 Colby Avenue
Everett, WA 98201
The Corporate Secretary will acknowledge the receipt of the communication; inform the shareholder concerning the distribution of that communication; and when any action (if requested) would be reviewed by the Board and/or the relevant functional committee. The Corporate Secretary will notify the shareholder of any action taken by the Board in reference to the shareholder’s request.
While the Company does not have a formal policy regarding attendance by members of the Board at the Company’s Annual Meetings of Shareholders, it has always encouraged its directors to attend and expects to continue this informal policy. Shareholders are encouraged to interact with the directors at that time. Ten directors attended the 2007 Annual Meeting, which was held April 24, 2007, at the Everett Golf and Country Club.
Expenses of Solicitation
The Company will bear the costs of soliciting proxies, including the reimbursement to record holders of their expenses in forwarding proxy materials to beneficial owners. Directors, officers and regular employees of the Company, without extra compensation, may solicit proxies personally or by mail, telephone, facsimile or electronic mail.
Shareholder Proposals and Director Nominations
In order to be eligible for inclusion in the Company's proxy materials for the 2009 Annual Meeting of Shareholders, any shareholder proposal to take action at such meeting must be received at the Company's executive offices at 2828 Colby Avenue, Everett, Washington 98201 no later than November 15, 2008. Any such proposal shall be subject to the requirements of the proxy rules adopted under the Exchange Act.
Shareholders wishing to submit recommendations for director candidates must provide the following information in writing to the attention of the Secretary of the Company by certified or registered mail:
| · | The name, address, and biography of the candidate, including such person's written consent to being named in the Proxy Statement as a nominee and to serving as a director, if elected, and certain information regarding the shareholder giving such notice; |
| · | The name, address, and phone number of the shareholder or group of shareholders making the recommendation; and |
| · | With respect to common stock beneficially owned by the shareholder or group of shareholders making the recommendation, and to the extent any shareholder is not a registered holder, proof of the number of shares held. |
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To be considered by the Corporate Governance and Nominating Committee for the 2009 Annual Meeting of Shareholders, a director candidate nomination must be received by the Secretary by December 31, 2008.
The notice with respect to business proposals to be brought before the Annual Meeting must state the shareholder's name, address and the number of shares of common stock held, and briefly discuss the business to be brought before the Annual Meeting, the reasons for conducting such business at the Annual Meeting and any interest of the shareholder in the proposal.
MISCELLANEOUS
The Company’s December 31, 2007 Annual Report is being sent to shareholders of record as of March 11, 2008, together with this Proxy Statement.
The Company will furnish to shareholders, without charge, a copy of its Form 10-K for the fiscal year ended December 31, 2007, as filed with the Securities and Exchange Commission, upon receipt of a written request addressed to Cascade Financial Corporation, 2828 Colby Avenue, Everett, WA 98201. Reports, proxy statements and other information filed by the Company are also available on the Internet at the SEC’s World Wide Website at http://www.sec.gov.
The Board knows of no other matters to be presented at the Annual Meeting. If any other business properly comes before the Annual Meeting or any adjournment thereof, the proxies will vote on that business in accordance with their best judgment.
By Order of the Board of Directors,
/s/ Lars H. Johnson
Lars H. Johnson
Secretary
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APPENDIX A
CASCADE FINANCIAL CORPORATION
AUDIT AND FINANCE COMMITTEE CHARTER
The purpose of the Audit and Finance Committee (the “Committee”) is to assist the Board of Directors (the “Board”) in fulfilling its oversight responsibilities by reviewing the systems of internal controls which management and the Board have established, reviewing the financial information which will be provided to the shareholders and others, selecting and reviewing the performance and assuring the independence of independent accountants, and overseeing the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements.
COMPOSITION
The Committee is comprised of not fewer than three outside directors who meet the NASDAQ requirements and the SEC requirements for audit committee independence.1 Members of the Committee have a degree of independence that will assure that any relationship with the Corporation will not interfere with their independence from management.
All members of the Committee shall be able to read and understand fundamental financial statements, including a balance sheet, income statement and cash flow statement. At least one member of the Committee shall have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.
Upon recommendation of the Board chair, the Board shall approve the chair and members of the Committee. Each appointed Committee member may be removed by the Board at any time.
SPHERE OF RESPONSIBILITIES
The Committee is responsible to the Board for the areas of audit and compliance, asset and liability management, investments, risk assessment and technology management.
External
Be directly responsible for the appointment, compensation, retention and oversight of the work of the accounting firm engaged for the purpose of preparing or issuing an audit report. Such firm will report directly to the Committee.
Review the effectiveness of the independent audit effort, including approval of the scope of, and fees charged in connection with, the annual audit, quarterly reviews and any non-audit services being provided. Review and report to the Board the engagement of the external auditor, including fees.
Obtain on an annual basis a formal written statement from the external auditor delineating all relationships between the accountants and the Company consistent with Independence Standards Board Standard No. 1, and review and discuss with the accountants all significant relationships the external auditors have with the Company, which may affect their independence. The Audit Committee will actively engage in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor, and recommend that the Board take appropriate action to oversee the independence of the outside auditor.
Monitor, evaluate and report to the Board on any changes in accounting practice or standards.
Appendix A - Page 1
APPENDIX A
Review all external audit findings; meet with the external auditors as appropriate.
Recommend for implementation any corrective actions that might be required or desired as a result of the audit.
Review the financial statements and any reports or other financial information submitted to any governmental body or the public.
Internal
Review annually this Committee Charter for adequacy and recommend any changes to the Board.
Engage the internal auditors (“IA”). Review the IA's performance.
Review and approve the audit schedule and any revisions to the schedule.
Review the reports relating to all audits and reviews undertaken by the IA.
Review and monitor the implementation of management's responses to audit findings.
Review the adequacy of internal controls including computerized information systems controls and security. Review any management letters or internal control reports prepared by the independent auditors or the Company’s internal auditors and responses to prior management letters, and review with the independent auditors the Company’s internal financial controls.
Recommend changes to policies, practices, and procedures relating to findings of internal audits.
Assess the needs of the internal audit function and provide support levels appropriate to that need.
Establish procedures for: (1) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (2) the confidential anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
General
Review and resolve any significant disagreement among management and the independent auditors.
Review with the independent auditors, internal audit and management the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented.
Engage and determine funding for such independent advisers and counsel as the Committee determines are necessary or appropriate to carry out its functions hereunder. The Company will provide appropriate funding to the Committee, as determined by the Committee, for payment of: (1) compensation to the independent auditors for services approved by the Committee; (2) compensation to any outside advisors retained by the Committee; and (3) the ordinary administrative expenses of the Committee.
Appendix A - Page 2
Meetings
The Committee shall meet in person or telephonically at least quarterly and in addition at the discretion of chairperson or upon the request of a majority of the members, or upon unanimous written consent as determined by the Committee or its chairperson. In addition, the Committee will meet at any time that the independent auditor believes communication to the Committee is required. The chairperson shall set meeting agendas. At all meetings, a majority of the total number of members shall constitute a quorum.
1 Independent Audit Committee Members
The new rules specify the relationships that disqualify a director from being considered “independent” for purposes of serving as a member of an issuer's audit committee. A director will not be considered “independent” for purposes of serving on an audit committee if, among other things, he or she has:
been employed by the Corporation or its affiliates in the current or past three years;
accepted any compensation from the Corporation or its affiliates during the current or any of the past three fiscal years (except for board service, retirement plan benefits, or nondiscretionary compensation);
an immediate family member who is, or has been in the past three years, employed by the Corporation or its affiliates as an executive officer;
been a partner, controlling shareholder or an executive officer of any for-profit business to which the Corporation made, or from which it received, payments (other than those which arise solely from investments in the Corporation's securities) that exceed five percent of the organization's consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years;
been employed as an executive of another entity where any of the Company's executives serve on that entity's compensation committee;
been employed, or had an immediate family member who was employed, by the Company’s outside auditor or otherwise worked on such audit during any of the past three years; or
participated in the preparation of the financial statements of the Company or its subsidiaries at any time during the past three years.
Appendix A - Page 3
