SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Board of Governors Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 240.14a-12
PACIFIC STATE BANCORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
_____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________
(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):
_____________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_____________________________________________________________________
(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:______________________________________________
(2) Form, Schedule or Registration Statement No.:________________________
(3) Filing Party:________________________________________________________
(4) Date Filed:__________________________________________________________
PACIFIC STATE BANCORP
1899 W. March Lane
Stockton, California 95207
NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN TO SHAREHOLDERS that the 2006 Annual Meeting of
Shareholders of Pacific State Bancorp ("Bancorp") will be held Thursday, May 11,
2006, at the main office of Pacific State Bank, 6 South El Dorado, Stockton,
California, at 4:30 p.m. for the following purposes:
1. To elect the following nine (9) persons as directors of Bancorp for
the ensuing year: Michael L. Dalton, Maxwell M. Freeman, Harold Hand, Patricia
Ann Hatton, Steven J. Kikuchi, Yosh Mataga, Steven A. Rosso, Gary A. Stewart and
Kathleen Verner. See "PROPOSAL ONE: ELECTION OF DIRECTORS."
2. To transact any other business which may properly come before the
Annual Meeting and any postponement or adjournment thereof.
Section 16 of the By-Laws of Bancorp provides for the nomination of
Directors in the following manner:
"Nomination for election of members of the Board of Directors may be
made by the Board of Directors or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Notice of intention to make any nominations shall be made in writing and shall
be delivered or mailed to the President of the corporation not less than 21 days
nor more than 60 days prior to any meeting of stockholders called for the
election of directors; provided however, that if less than 21 days notice of the
meeting is given to shareholders, such notice of intention to nominate shall be
mailed or delivered to the President of the corporation not later than the close
of business on the tenth day following the day on which the notice of meeting
was mailed; provided further, that if notice of such meeting is sent by
third-class mail as permitted by Section 6 of these By-Laws, no notice of
intention to make nominations shall be required. Such notification shall contain
the following information to the extent known to the notifying shareholder: (a)
the name and address of each proposed nominee; (b) the principal occupation of
each proposed nominee; (c) the number of shares of capital stock of the
corporation owned by each proposed nominee; (d) the name and residence address
of the notifying shareholder; and (e) the number of shares of capital stock of
the corporation owned by the notifying shareholder. Nominations not made in
accordance herewith may, in the discretion of the Chairman of the meeting, be
disregarded and upon the Chairman's instructions, the inspectors of election can
disregard all votes cast for each such nominee."
Only those shareholders of record at the close of business on March 15,
2006, will be entitled to notice of and to vote at the Annual Meeting.
Dated: April 12, 2006 By Order of the Board of Directors
/s/ STEVEN J. KIKUCHI
Steven J. Kikuchi, Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
Mailed to shareholders on
or about April 12, 2006
PACIFIC STATE BANCORP
PROXY STATEMENT
1889 W. March Lane
Stockton, California 95207
Telephone (209) 870-3200
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to solicit proxies for use at the
2006 Annual Meeting of Shareholders (the "Meeting") of Pacific State Bancorp
("Bancorp"), to be held Thursday, May 11, 2006, at 4:30 p.m. at 6 South El
Dorado, Stockton, California, and at any and all adjournments thereof.
Revocability of Proxies
A form of proxy for voting your shares at the Meeting is enclosed. If
you execute and deliver this proxy, you will still have the right to and may
revoke it at any time before it is exercised by filing with the Secretary of
Bancorp a written revocation or a duly executed proxy bearing a later date. In
addition, you may revoke your proxy by attending the Meeting and voting in
person.
Subject to your revocation, all shares represented by your properly
executed proxy received in time for the Meeting will be voted by the proxy
holders in accordance with your instructions specified on the proxy. UNLESS YOU
OTHERWISE DIRECT IN THE ACCOMPANYING PROXY, THE SHARES REPRESENTED BY YOUR
EXECUTED PROXY WILL BE VOTED "FOR" THE NOMINEES FOR ELECTION OF DIRECTORS NAMED
HEREIN. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE MEETING, THE PROXY
WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT.
Persons Making the Solicitation
The Board of Directors of Bancorp is making this solicitation. All
associated expenses will be borne by Bancorp. Proxies will be solicited
principally by mail, but officers, directors, and employees of Bancorp may
solicit proxies personally or by telephone, without receiving special
compensation for such activities. Bancorp will reimburse banks, brokerage houses
and other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to shareholders whose stock in Bancorp is held
of record by such entities. In addition, Bancorp may employ others to solicit
proxies if management deems it advisable.
Voting Securities
Bancorp is authorized to issue 24,000,000 shares of Common Stock, no
par value, of which 3,524,282 shares were issued and outstanding as of March 15,
2006 (the "Record Date"). All common shares are voting shares, but only
shareholders of record as of the Record Date are entitled to notice of and to
vote at the Meeting and at any and all postponements or adjournments of it. The
presence in person or by proxy of the holders of a majority of the outstanding
shares entitled to vote at the Meeting will constitute a quorum for the purpose
of transacting business.
Each common share is entitled to one vote at the Meeting, except in the
election of directors, in which case California law permits a shareholder or the
shareholder's proxy holder to cumulate votes. Cumulation of votes means that
each shareholder has a number of votes equal to the number of shares owned by
the shareholder, multiplied by the number of directors to be elected, and that a
shareholder may cumulate such votes for a single candidate or distribute them
among as many candidates as the shareholder deems appropriate. However, a
shareholder may cumulate votes only for a candidate or candidates whose names
have been placed in nomination prior to the voting, and only if the shareholder
(or another shareholder) has given notice at the Meeting, prior to the voting,
of the shareholder's intention to cumulate votes. Prior to voting, an
opportunity will be given for shareholders or their proxies at the Meeting to
announce their intention to cumulate their votes. The proxy holders are given
discretionary authority to cumulate votes represented by shares for which they
are named in the proxy.
In an election of directors, California law provides that the nominees
receiving the highest number of affirmative votes of the shares entitled to vote
for them, up to the number of directors to be elected by such shares, are
elected; votes against the director and votes withheld have no effect.
PRINCIPAL SHAREHOLDERS
Except as listed in the table below management of Bancorp does not know
of any person who owned, as of the Record Date, beneficially or of record,
either individually or together with associates, five percent (5%) or more of
the outstanding shares of the Common Stock of Bancorp.
=============================================================================================================
Amount and Nature of Beneficial
Name and Address Ownership(1) Percentage of Ownership
=============================================================================================================
Maxwell M. Freeman
1818 Grand Canal Boulevard 308,000(20,000) 9.33%
Stockton, CA 95207
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Hot Creek Capital, L.L.C.
Common Stock 289,592 8.38%
72,398/9.5%
144 Summit Ridge Way
Gardnerville, Nevada 89410-3178
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Harold Hand, M.D. 275,408(20,000) 8.40%
36 W. Yokuts, Suite 2
Stockton, CA 95207
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Steven A. Rosso
1899 W. March Lane 217,414(44,000) 7.44%
Stockton, CA 95207
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(1) The first number in this column indicates the total number of shares
beneficially owned, including (if specified by the number in parenthesis) the
numbers of shares which could be acquired by options exercisable within 60 days
of the Record Date.
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Bylaws of Bancorp fix the number of directors of Bancorp within the
range of nine and seventeen; the exact number is set at nine (9) until changed
by resolution of the Board of Directors or Bylaw amendment duly adopted by
Bancorp's shareholders or the Board of Directors.
Information Concerning Directors
The table below provides information concerning the nominees of the
Board of Directors for election as directors of Bancorp. The persons named are
all current members of the Board of Directors, and will be nominated for
election as directors at the Meeting, to serve until the 2007 annual meeting of
shareholders and until their successors are elected and have qualified.
2
Unless otherwise directed, the proxy holders will cast votes so as to
effect, if possible, the election of the nine nominees. The nine nominees
receiving the most votes will be elected. If any nominee is unable to serve as a
director, the proxy will be voted to elect a substitute nominee designated by
the Board of Directors. The Board of Directors has no reason to believe that any
of the nominees will be unable to serve if elected. Additional nominations may
only be made by complying with the nomination procedures that are included in
the Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.
======================================================================================================
Name Age Director Principal Occupation
Since
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Michael L. Dalton, C.P.A. 59 1987 Certified Public Accountant, Certified Financial
Planner and Registered Investment Adviser.
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Maxwell M. Freeman Attorney - Freeman, D'Auito, Pierce, Gurev,
68 2000 Keeling & Wolf, Stockton, California
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Harold Hand, M.D. 68 1987 Physician practicing ophthalmology. Owner and
operator of the Advanced Vision Institute, Inc.
Staff member of Dameron Hospital and St. Joseph's
Hospital of Stockton.
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Patricia A. Hatton, M.D 56 1988 Physician practicing obstetrics and gynecology.
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Steven J. Kikuchi 48 1987 Registered landscape architect, contractor and
certified nurseryman.
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Yoshikazu Mataga 63 1987 Owner and operator of Tracy Pontiac-Cadillac
and GMC Truck
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Steven A. Rosso 51 1990 President and Chief Executive Officer of
Bancorp.
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Gary A. Stewart 56 1998 Executive Vice President and Chief Credit
Officer of Bancorp
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Kathleen M. Verner 63 1988 Co-owner and Vice President of Verner
Construction Company (residential and
commercial development firm).
======================================================================================================
3
Stock Ownership of Management
The following table lists, as of the Record Date, the number and
percentage of shares of Common Stock beneficially owned by each nominee and by
the directors and principal officers of Bancorp as a group. The table does not
include 173,286 shares held beneficially by Bancorp officers as administrators
of the Pacific State Bank Retirement 401(k) Plan.
=================================================================================================================
Beneficial Owner Amount and Nature of Beneficial Ownership(1) Percent of
Class
=================================================================================================================
Michael L. Dalton 126,900(19,800) 1,920 4.17%
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Maxwell M. Freeman 308,000(20,000) 9.33%
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Harold Hand, M.D. 275,408(20,000) 19,680 8.40%
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Patricia A. Hatton, M.D. 133,250(20,000) 28,616 4.36%
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Steven J. Kikuchi 81,116(20,000) -- 2.88%
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Yoshikazu Mataga 97,268(20,000) -- 3.34%
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Steven A. Rosso 217,414(44,000) 5,208 7.44%
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Gary A. Stewart 94,331(26,250) -- 3.43%
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Kathleen M. Verner 138,040(20,000) -- 4.48%
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All directors, nominees and 878,338(222,450) 55,424 47.85%
principal officers as a group
(10 in all) (2)
=================================================================================================================
(1) The first number in the first subcolumn indicates the total number of shares
beneficially owned, including (as specified by the number in the parenthesis)
the number of shares that could be acquired pursuant to stock options
exercisable within 60 days of the Record Date. Numbers in the second subcolumn
indicate the number of shares (out of the total number of shares beneficially
owned) as to which the person or group shares voting and/or investment power.
(2) Principal officers included are the President and Chief Executive Officer,
Executive Vice President and Chief Credit Officer, and Senior Vice President and
Chief Financial Officer.
Options Outstanding and Available for Issuance at Year-End
The following table provides information as of December 31, 2005 with
respect to compensation plans (including individual compensation arrangements)
under which equity securities of the Company are authorized for issuance under
the Company's 1997 Stock Option Plan
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Plan category Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance
of outstanding options, outstanding under equity compensation plans
warrants and rights options, warrants (excluding securities reflected in
and rights column (a))
(a) (b) (c)
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Equity compensation 927,676 $6.21 28,304
plans approved by
security holders
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Equity compensation
plans not approved by NA NA NA
security holders
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28,304
Total 927,676 $6.21
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4
The Board of Directors and Committees
Bancorp's Board of Directors held 14 meetings during 2005. The
following members of the Board of Directors, comprising more than a majority,
have been determined by the Board to be "independent" in accordance with
Marketplace Rule 4200(A)(15) of the NASD: Michael L. Dalton, Maxwell Freeman,
Harold Hand, M.D., Patricia A. Hatton, M.D., Steven J. Kikuchi, Yoshikazu
Mataga, Kathleen M. Verner. These independent members of the Board met together
in three regularly scheduled meetings during 2005 at which only independent
directors were present. In addition to meeting as a group to review Bancorp's
business, members of the board of directors served on certain standing
committees. During 2005, all nominees for director of Bancorp attended more than
75% of the aggregate of the number of meetings held by the board of directors
and of all committee meetings on which he or she served with the exception of
Phillip Wallace who attended less than 75% due to health restraints. As of March
17, 2006, Mr. Wallace resigned his position from the Board of Directors of
Pacific State Bancorp.
The Personnel Committee held 3 meetings during 2005. Its members
include Dr. Harold Hand, Michael L. Dalton, Steven Kikuchi, Steven A. Rosso and
Kathleen M. Verner. The Personnel Committee is responsible for determining
and/or recommending to the Board the compensation of officers of Bancorp.
Code of Ethics
The Board has also adopted a Code of Ethics that applies to all of our
employees, officers and directors. A copy of the Code, which complies with the
definition of a "code of ethics" under section 406(c) of the Sarbanes-Oxley Act
of 2002 and the requirements of Marketplace Rule 4350(n), is available upon
request to any stockholder. Requests should be addressed in writing to JoAnne
Roberts, Chief Financial Officer, Pacific State Bancorp, 1899 W. March Lane,
Stockton, CA 95207.
Nominating Procedures and Policies
Bancorp has a standing Nominating Committee, comprised of at least
three independent directors; the current members of the Nominating Committee
include all seven independent members of the Board of Directors. These directors
are appointed annually by the independent members of the board. Director
independence is determined in accordance with Marketplace Rule 4200(A)(15) of
the NASD. Under this definition, an independent director is a person other than
an officer or employee of the company or its subsidiaries or any other
individual having a relationship that, in the opinion of the company's board of
directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. Types of persons deemed not to be
independent include (but are not limited to) employees of Bancorp or the Bank;
persons (or their family members or affiliate entities) compensated for services
other than as a director; and persons (or their family members) who are partners
or employees of Bancorp's independent auditors. The nominating committee held
one meeting during 2005. The nominating committee's activities are governed by a
charter adopted by the Board of Directors, a copy of which charter is attached
as Appendix A.
Bancorp's bylaws prescribe the procedures for direct shareholder
nominations of directors. These procedures are reprinted in the Notice of Annual
Meeting that accompanies this proxy statement. In his discretion, the chairman
of the Annual Meeting may disregard nominations not made in accordance with
these procedures and instruct the inspector of elections to disregard all votes
cast for such nominees. As a matter of policy, the board of directors will
consider for inclusion in Bancorp's proxy statement nominees made in accordance
with these procedures and submitted to Bancorp on or before the deadline
specified for inclusion of shareholder proposals. For purposes of the 2007
Annual Meeting, that date will be December 15, 2006.
Each candidate considered by the Nominating Committee is required to
complete one or more questionnaires and to provide any additional information
which the Nominating Committee considers necessary, including a personal
financial statement and a background investigation by an outside firm.
Candidates are evaluated based on the criteria established by the
Nominating Committee, which may include such criteria as a satisfactory
background investigation, experience and expertise, financial resources, time
availability and community involvement. Candidates selected for consideration as
nominees must meet with the Nominating Committee and thereafter with the Board
of Directors.
5
Any candidates nominated for election to the Board of Directors,
including existing members, must be recommended to the Board of Directors by the
majority vote of approval of the members of the Nominating Committee and receive
a majority of votes in favor of nomination from independent members of the Board
of Directors.
Shareholder Communications
Any shareholder who wishes to communicate with the board or with any
committee or individual member may write to the President and Chief Executive
Officer at 1899 W. March Lane, Stockton, California 95207, Attention: Board
Administration. The letter should indicate that the author is a shareholder and,
if shares are not held of record, should include appropriate evidence of stock
ownership. Depending on the subject matter, management will:
o Forward the communication to the board or the director or committee to
whom it is addressed;
o Attempt to handle the inquiry directly, for example, if it is a request
for information about Bancorp or concerns a stock-related matter; or
o Not forward the communication if it is primarily commercial in nature,
relates to an improper or irrelevant topic, is hostile, threatening, illegal or
otherwise inappropriate, or is otherwise unrelated to the activities, functions
and responsibilities of the board.
Attendance at Annual Meetings
All of the Company's directors are expected and encouraged to attend
annual meetings to the extent possible consistent with their other obligations.
All of the directors attended the 2005 Annual Meeting
AUDIT COMMITTEE REPORT
INFORMATION CONTAINED IN THE FOLLOWING REPORT OF THE AUDIT
COMMITTEE SHALL NOT BE DEEMED "SOLICITING MATERIAL" OR TO BE "FILED" WITH THE
COMMISSION, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE INTO ANY OF
THE COMPANY'S FILINGS UNDER THE EXCHANGE ACT, NOTWITHSTANDING ANYTHING TO THE
CONTRARY SET FORTH IN ANY SUCH FILING, EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
The Audit Committee held 5 meetings during 2005. The Audit Committee
consists of the following members of Bancorp's Board of Directors: Michael A.
Dalton, Chairman, Yoshikazu Mataga and Patricia Hatton. Michael A. Dalton, CPA
is the designated audit committee financial expert. This designation is based
upon his experience as a certified public accountant. Each of the members of the
Committee is independent as defined under Rule 4200(a)(15), meets the criteria
for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act
(subject to the exemptions provided in Rule 10A-3(c)), has not participated in
the preparation of the financial statements of Bancorp or any of its current
subsidiaries at any time during the past three years, and is able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement. The Board has adopted a
written charter to govern the Committee's operations which complies with the
requirements of Marketplace Rule 4350(d)(1); a copy of the charter, which the
Committee reviews and reassesses annually, is attached as Appendix B.
The Committee's responsibilities include providing advice with respect
to Bancorp's financial matters and assisting the Board of Directors in
discharging its responsibilities regarding corporate accounting. The Committee's
primary responsibilities are to: (1) serve as an independent and objective party
to monitor Bancorp's financial reporting process and internal control system;
(2) review and evaluate the audit efforts of Bancorp's independent accountants
and internal auditor; (3) evaluate Bancorp's quarterly financial performance as
well as its compliance with laws and regulations; (4) oversee management's
establishment and enforcement of financial policies and business practices; and
(5) facilitate communication among the independent accountants, financial and
senior management, counsel, the internal auditor and the Board of Directors.
The Committee has reviewed and discussed the audited financial
statements of Bancorp for the fiscal year ended December 31, 2005 with Bancorp's
management. The Committee has discussed with Perry-Smith LLP, Bancorp's
independent public accountants ("Perry-Smith"), the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The Committee has also received the written disclosures and the
letter from Perry-Smith required by Independence Standards Board Standard No. 1
6
(Independence Discussion with Audit Committees) and the Committee has discussed
the independence of Perry-Smith with that firm.
Based on the Committee's review and discussions noted above, the
Committee recommended to the Board of Directors that Bancorp's audited financial
statements be included in Bancorp's Annual Report on Form 10-K for the fiscal
year ended December 31, 2005 for filing with the Securities and Exchange
Commission.
Submitted by:
Michael A. Dalton, Chairman
Yosh Mataga
Patricia Hatton
COMPENSATION AND CERTAIN TRANSACTIONS
Summary Compensation Table
The following table lists the compensation for the past three fiscal
years of executive officers of Bancorp who received, during the fiscal year
ended December 31, 2005, annual salary and bonus exceeding $100,000.
===============================================================================================================
Annual Compensation
------------------- Other Annual All Other
Year Salary Bonus Compensation Compensation(2)
---- ------ ----- ------------ ---------------
Steven A. Rosso 2005 $218,084 $25,000 (1) $ 45,738
2004 $198,083 $20,000 (1) $ 4,927
2003 $174,750 $ -0- (1) $ 16,830
===============================================================================================================
===============================================================================================================
Annual Compensation
------------------- Other Annual All Other
Year Salary Bonus Compensation Compensation(2)
---- ------ ----- ------------ ---------------
Gary A. Stewart 2005 $149,283 $10,000 (1) $ 33,041
2004 $132,500 $10,000 (1) $ 3,975
2003 $117,500 $ 1,000 (1) $ 7,919
===============================================================================================================
===============================================================================================================
Annual Compensation
------------------- Other Annual All Other
Year Salary Bonus Compensation Compensation(2)
---- ------ ----- ------------ ---------------
JoAnne C. Roberts 2005 $ 86,875 $ 3,000 (1) $ 14,702
2004 $ 76,139 $ 5,000 (1) $ 13,162
2003 $ 72,914 $ 3,000 (1) $ 1,595
===============================================================================================================
(1) Includes calculated value of personal use of bank automobile and personal
benefit derived from club memberships. The total dollar value of such benefits
to Mr. Rosso and Mr. Stewart did not exceed ten percent of the reported annual
salary in any one year.
(2) Includes matching contributions to Bancorp's Retirement Plan.
On October 20, 2005, Bancorp entered into a new employment agreement with its
president and chief executive officer Steven A. Rosso.
The principal terms of the agreement include the following:
o The term of employment is five years ending September 30, 2010, with an
automatic one-year renewal unless either party gives written notice of renewal
prior to the end of the term. In the event of prior termination without cause,
Mr. Rosso is entitled to a severance payment of one year's salary plus
continuation of all health and welfare benefits for one year.
7
o Starting annual salary is $223,084, with annual adjustments in the
discretion of the board of directors.
o Additional benefits include use of a company automobile, membership in
country club and other service clubs, participation in all employment benefits
and plans generally available to Company and Bank employees, and reimbursement
for Company-related expenses.
o If Mr. Rosso becomes temporarily or permanently disabled other than as a
result of his intentional act, he is to be paid the difference between his
contracted rate of compensation and the amounts paid by state disability
insurance for a maximum of six months.
o Incentive compensation is payable tied to certain Bank performance
goals.
o In the event of a change in control of the Company, a pool of five
percent (5%) of the total sale value will be established at the close of a
transaction above the book value of the Company. Mr. Rosso will be entitled to
receive at least sixty percent (60%) of this pool.
o Five weeks annual vacation.
Salary Continuation Agreements
In order to provide long-term incentive to selected senior executive
officers, effective September 30, 2003, the Bank entered into Executive Salary
Continuation Agreements (each an "SCA") with six current senior officers of the
Company, including two of the named executive officers listed on the Summary
Compensation Table, Steven A. Rosso and Gary A. Stewart.
Benefits payable under the SCAs are intended by the Bank to be
funded by single-premium life insurance policies that were purchased in
connection with entering into the SCAs and of which the Bank is the owner and
beneficiary. The cash surrender value of those policies was $4,411,000 at
December 31, 2005. Notwithstanding the existence of such policies of insurance,
however, the SCAs create no rights or interests in the property or assets of the
Bank; the sole obligation of the Bank under the SCAs is an unfunded and
unsecured promise to pay money in the future, and the status of any person who
may assert a claim pursuant to an SCA is that of an unsecured general creditor
of the Bank.
Generally, each SCA provides the named executive officer with a
specified annual money benefit (the "Annual Benefit") payable to the executive
or to his named beneficiary or surviving spouse or estate, in that order, for a
period of up to 20 years following the executive's retirement upon or after a
specified retirement age. If the executive should die or become disabled prior
to such specified retirement age, a percentage of the Annual Benefit (on a
sliding upward scale depending upon the number of years which elapse between
execution of the SCA and the executive's early death or disability) would be
payable.
No Annual Benefit is payable if the executive's employment is
terminated for cause or the executive voluntarily terminates his employment with
the Company prior to his specified retirement age, but the full Annual Benefit
is payable if the executive's employment with the Company is terminated by the
Company without cause or in connection with a change in control of the Company.
The amount of the Annual Benefit also is subject to reduction if in any year it
exceeds the compensation expense which (with respect to the payment of such
Annual Benefit) the Company may deduct under the Internal Revenue Code of 1986,
as amended (the "Code"), or if any portion of the Annual Benefit not waived by
the executive constitutes an "excess parachute" payment under the Code.
Subject to such contingencies, the following table sets forth
information regarding benefits payable under the SCAs which are currently in
effect between the Company and Mr. Rosso and Mr. Stewart:
- ----------------------------------------------------------------------------------------------------------
Name Annual Years Required Year Annual Retirement
---- Benefit For Full Benefit Benefit Commences Age
------- ---------------- ----------------- ---
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Steven A. Rosso $134,587 10 September 2019 65
- ----------------------------------------------------------------------------------------------------------
Gary A. Stewart $ 93,253 10 September 2015 65
- ----------------------------------------------------------------------------------------------------------
Stock Option Plans
As of December 31, 2005, options for a total of 927,676 shares granted
to employees, officers and directors of Bancorp were outstanding under the
Bancorp's 1997 Stock Option Plan. As of March 31, 2006, options included in this
8
total had been exercised for 11,660 shares. The number of shares currently
reserved for issuance of additional options under the 1997 plan is 28,304.
Option Exercises and Year-End Values for 2005
The following table sets forth, with respect to the executive officers
named in the Summary Compensation Table above, the estimated value of options
exercised during 2005, and the estimated 2005 year-end value of all unexercised
in-the-money options held by such executive officers.
=========================================================================================================
Number of Value of
Securities Underlying Unexercised
Shares Unexercised In-the-Money
Acquired on Value Options (FY-End) Options (FY-End)
Name Exercise Realized(1) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ---- -------- ----------- --------------------------- ---------------------------
=========================================================================================================
Steven A. Rosso -0- -0- 44,000/66,000 $286,000/$1,144,000
Gary A. Stewart 18,750 $248,690 26,250/62,400 $332,353/$674,400
JoAnne C. Roberts 6,200 $ 77,750 3,800/23,400 $ 44,720/266,400
=========================================================================================================
(1) Represents the difference between the market value and the exercise price of
the shares acquired by exercise.
Option Grants in Last Fiscal Year
There were no options granted to the named executive officers during
2005.
Retirement Plan
The Pacific State Bank Retirement 401(k) Plan (the "Retirement Plan")
is a qualified plan under the Internal Revenue Code which provides
profit-sharing benefits to eligible Bank employees at least 18 years of age with
not less than 1 month of service. Participating employees may elect to defer up
to 15% of salary each pay period as a contribution to the Retirement Plan, and
may make voluntary non-deductible contributions in amounts not to exceed 10% of
the employee's aggregate compensation since the employee's date of entry into
the Retirement Plan. Federal law limits the amounts which can be contributed
annually by individual participants; the Bank is required by the Retirement Plan
to make matching contributions equal to one-half of employee deferrals up to the
first 6% of such deferrals, and in addition may declare year-end bonus and
certain other discretionary contributions to all eligible participants. During
2005, the Bank's contributions to the Retirement Plan totaled approximately
$30,000. Bank contributions pursuant to the Retirement Plan in 2005 for the
benefit of the named individual executive officers of Bancorp are included in
the Summary Compensation Table above.
Director Compensation
Members of the Board of Directors of Bancorp accrued attendance fees of
$2,700 per month. A total of $259,000 in directors' fees was paid during 2005.
Bancorp's current practice is to pay directors' monthly.
Transactions with Management
Some of the directors and officers of Bancorp and the companies with
which those directors and officers are associated are customers of, and have had
banking transactions with, Bancorp in the ordinary course of Bancorp's business,
and Bancorp expects to have banking transactions with such persons in the
future. In the opinion of Bancorp's management, all loans and commitments to
lend in such transactions were made in compliance with applicable laws and on
substantially the same terms, including interest rates and collateral, as those
prevailing for comparable transactions with other persons of similar
creditworthiness and did not involve more than a normal risk of collectibility
or present other unfavorable features.
9
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Bancorp's
directors, executive officers and ten percent or more shareholders of Bancorp's
equity securities, to file with the Securities and Exchange Commission ("SEC")
reports of ownership and reports of changes of ownership of Bancorp's equity
securities. Officers, directors and ten percent or more shareholders are
required by regulation to furnish Bancorp with copies of all Section 16(a) forms
they file. To Bancorp's knowledge, based solely on review of the copies of such
reports furnished to Bancorp and written representations that no other reports
were required, during the fiscal year ended December 31, 2005, all Section 16(a)
filing requirements applicable to Bancorp's directors, executive officers, and
beneficial owners of 10% or more of Bancorp's equity securities appear to have
been met.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The accounting firm of Perry-Smith LLP ("Perry-Smith"), registered
public accountants, serves Bancorp as its auditors at the direction of the board
of directors and Audit Committee of Bancorp. It is anticipated that a
representative of Perry-Smith will be present at the Annual Meeting with the
opportunity to make a statement if he or she desires to do so and will be
available to answer appropriate questions.
Audit Fees
The aggregate fees billed by Perry-Smith for professional services
rendered for the audit of Bancorp's annual financial statements for the fiscal
year ended December 31, 2005 and for the reviews of the financial statements
included in Bancorp's Quarterly Reports on Form 10-Q for that fiscal year were
$103,605; related fees for the year ended December 31, 2004 were $95,300. These
amounts represented 84% and 88%, respectively, of the total fee paid to
Perry-Smith during these years.
Audit-Related Fees
No audit-related fees were paid to Perry-Smith for professional
services during the years 2005 and 2004.
Tax Fees
The aggregate fees billed by Perry-Smith for all tax services
rendered to Bancorp for the fiscal years ended December 31, 2005 and December
31, 2004 were $17,205 and $12,350 respectfully. Those amounts represented 14%
and 11.5%, respectively of the total fees paid to Perry-Smith during these
years. The audit committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
All Other Fees
The aggregate fees billed by Perry-Smith for all other services
rendered to Bancorp, other than the services described above, for the fiscal
years ended December 31, 2005 and December 31, 2004 were $2,130 and $0.00,
respectfully. Those amounts represented 2% and 0%, respectively of the total
fees paid to Perry-Smith during these years. The fees paid in 2005 are related
to an interest rate risk review. The audit committee has considered whether the
provision of non-audit services is compatible with maintaining the principal
accountant's independence.
Before each professional service provided by Perry-Smith was rendered
to Bancorp, such service was approved by, and its effect upon Perry-Smith's
independence was considered by, the Audit Committee.
SHAREHOLDER PROPOSALS
Next year's Annual Meeting of Shareholders of Bancorp is scheduled be
held on May 10, 2007. Any shareholder desiring to submit a proposal for action
at the 2007 Annual Meeting of Shareholders which is desired to be presented in
Bancorp's Proxy Statement with respect to such meeting, should mail such
proposal by certified mail, return receipt requested, to Pacific State Bancorp,
1899 W. March Lane, Stockton, California 95207, Attention: Dr. Harold Hand,
Chairman of the Board. All such proposals must be received by Bancorp not later
than December 15, 2006. Management of Bancorp will have discretionary authority
to vote proxies obtained by it in connection with any shareholder proposal not
submitted on or before the December 15, 2006 deadline. Matters pertaining to
10
such proposals, including the number and length thereof, eligibility of persons
entitled to have such proposals included, and other aspects, are regulated by
the Securities Exchange Act of 1934, and regulations adopted there under.
OTHER MATTERS
Management is not aware of any other matters to come before the
Meeting. If any other matter not mentioned in this Proxy Statement is brought
before the Meeting, the persons named in this enclosed form of proxy will have
discretionary authority to vote all proxies with respect thereto in accordance
with the recommendations of management.
Stockton, California
April 11, 2006
PACIFIC STATE BANCORP
A COPY OF BANCORP'S ANNUAL REPORT ON FORM 10-K WILL BE MAILED FREE OF
CHARGE TO ANY SHAREHOLDER UPON REQUEST. REQUESTS MAY BE MADE BY TELEPHONE AT
(209) 870-3200 OR BY LETTER ADDRESSED TO PACIFIC STATE BANCORP, 1899 W. MARCH
LANE, STOCKTON, CALIFORNIA 95207.
11
Appendix A
PACIFIC STATE BANCORP
BOARD OF DIRECTORS
NOMINATING COMMITTEE CHARTER
I. Membership
The Nominating Committee shall be comprised of at least three
independent directors appointed annually by the independent members of the Board
of Directors. Director independence shall be determined in accordance with
applicable rules of the Securities and Exchange Commission and the Nasdaq
Marketplace Rules.
II. Purpose
The purpose of the Nominating Committee is to assist the Board of Directors by
(a) establishing criteria for candidates and identifying, evaluating and
recommending candidates, including candidates proposed by shareholders, for
election to the Board of Directors, and (b) periodically reviewing and making
recommendations on the composition of the Board of Directors.
III. Nomination Process
1. Candidates shall be evaluated based on the criteria
established by the Nominating Committee which may include (a) satisfactory
results of any background investigation, (b) experience and expertise, (c)
financial resources, (d) time availability, (e) community involvement, and (f)
such other criteria as the Nominating Committee may determine to be relevant.
Candidates selected for consideration as nominees must meet with the Nominating
Committee and thereafter with the Board of Directors.
2. Any candidate nominated for election to the Board of
Directors must (a) be recommended to the Board of Directors by the majority vote
of approval of the members of the Nominating Committee and (b) receive a
majority of votes in favor of nomination from independent members of the Board
of Directors. Directors who are not independent shall not vote, but may be
present.
3. Each candidate recommended by the Nominating Committee shall
be required to complete one or more questionnaires and provide such additional
information as the Nominating Committee shall deem necessary or appropriate.
Such information shall include a personal financial statement and a background
investigation using an outside firm which shall, among other matters, (a) verify
the accuracy of information provided by the candidate including that the name
and social security number is consistent with other information provided, (b)
conduct a review of criminal history records, and (c) verify addresses
associated with the applicant and identification of persons with whom the
applicant has shared addresses.
4. Nominations for existing members of the Board of Directors
must receive a majority of votes in favor of nomination from the other
independent directors.
IV. Frequency of Meetings
The Nominating Committee shall meet at such times as it may deem
appropriate, but not less frequently than annually.
V. Conflicts
Any conflicts between the provisions of this Charter and the
provisions of the Company's bylaws shall be resolved in favor of the bylaw
provisions and nothing contained herein shall be construed as an amendment of
the Company's bylaws.
12
Appendix B
PACIFIC STATE BANCORP
PACIFIC STATE BANK
Board Audit Committee Charter
(Adopted 12-05-2002)
(Reviewed and reassessed by the Audit Committee on May 19, 2005)
I. Purpose
The primary function of the Board Audit Committee (the "committee") is
oversight. The committee shall assist the Board of Directors (the "board") in
fulfilling its responsibility to oversee management's conduct of the
corporation's financial reporting process, the financial reports and other
financial information provided by the corporation to the Regulations, Securities
and Exchange Commission and the public, the corporation's system of internal
accounting and financial controls, and the annual independent audit of the
corporation's financial statements.
The committee, subject to any action that may be taken by the full board, shall
have the ultimate authority and responsibility to select (subject to shareholder
ratification), evaluate and, where appropriate, replace the independent auditor.
The corporation's management is responsible for preparing the corporation's
financial statements. The independent auditors are responsible for auditing
those financial statements. Management, including the internal audit function
and the independent auditors have more time, knowledge and detailed information
about the corporation than do committee members. Consequently, in carrying out
its oversight responsibilities, the committee is not providing any professional
certification as to the independent auditors' work or any expert or special
assurance as to the corporation's financial statements, including with respect
to auditor independence. Each member of the committee shall be entitled to rely
on the integrity of people and organizations from whom the committee receives
information and the accuracy of such information, including representations by
management and the independent auditors regarding information technology and
other non-audit services provided by the independent auditor.
In discharging its oversight role, the committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the corporation and the authority to retain outside
counsel, auditors or other experts for this purpose.
II. Membership
The committee's composition shall meet the requirements of the Audit Committee
Policy of the Stock Exchange listing standards.
Accordingly, each member of the committee shall:
o have no relationship to the corporation that may interfere with the
exercise of his or her independence from Management and the
Corporation; and
o be financially literate or become financially literate within a
reasonable period of time after appointment to the committee.
In addition, at least one member of the committee shall have accounting or
related financial management expertise.
III. Activities
The following shall be the common recurring activities of the committee in
carrying out its oversight function. These activities are set forth as a guide
with the understanding that the committee may diverge from this guide as
appropriate given the circumstances.
1. The committee shall make a recommendation to the board prior to the
end of each year with respect to the appointment of independent
auditors to audit the consolidated financial statements of the
corporation and its subsidiaries for the coming year.
13
2 The committee shall review from time to time, at least annually, (a)
the results of the audits by the corporation's independent auditors of
the corporation's consolidated financial statements, (b) the costs of
such audits including the fees paid to the independent auditors, (c)
any significant deficiency in the design or the operation of internal
accounting controls identified by the independent auditors and any
resulting recommendations, and (d) the arrangements for and the scope
of the independent auditors' audits of the corporation's consolidated
financial statements. The committee shall report the foregoing to the
board with such recommendations as it may deem appropriate.
3. The committee shall confer with the Chief Financial Officer, the
independent auditors as requested by any of them or by the committee,
at least annually, and review their reports with respect to the
functioning, quality and adequacy of programs for compliance with the
corporation's policies and procedures regarding business ethics,
financial controls and internal auditing, including information
regarding violations or probable violations of such policies. The
committee shall report the foregoing to the board with such
recommendations as it may deem appropriate.
4. The committee shall review with the Chief Financial Officer and
management, at least annually, the activities, budget, staffing and
structure of the internal auditing function of the corporation and its
subsidiaries, including their evaluations of the performance of that
function and any recommendations with respect to improving the
performance of or strengthening that function. As appropriate, the
committee shall review the reports of any internal auditor on a
financial safeguard problem which has not resulted in corrective
action or has not otherwise been resolved to the auditor's
satisfaction at any intermediate level of audit management.
5. The committee, along with the other members of the board, shall review
with management and the independent auditors the audited financial
statements to be included in the corporation's annual report on Form
10-K. The committee shall review and consider with the independent
auditors the matters required to be discussed by Statement of Auditing
Standards No. 61 ("SAS No. 61"), including deficiencies in internal
controls, fraud, illegal acts, management judgments and estimates,
audit adjustments, audit difficulties, and the independent auditors'
judgments about the quality of the corporation's accounting practices.
6. As a whole, or through the committee chairman, the committee shall
review with the independent auditors and management the corporation's
interim financial results to be included in each quarterly report on
Form 10-Q. Each such review shall include any matters required to be
discussed by SAS No. 61 and shall occur prior to the corporation's
filing of the related Form 10-Q, with the Securities and Exchange
Commission.
7. The committee shall: (a) request annually from the independent
auditors a formal written statement delineating all relationships
between the independent auditors and the corporation consistent with
Independence Standards Board Standard Number 1; (b) consider, with a
view to auditor independence, the fees payable to the independent
auditor for audit services, information technology services, and all
other services, for such periods, in such categories and on such bases
as the committee may request; (c) discuss with the independent
auditors any such disclosed relationships and their impact on the
independent auditors' independence; and (d) recommend that the board
take appropriate action in response to the independent auditors'
report to satisfy itself of the auditors' independence.
8. The committee shall deliver any report or other disclosure by the
committee required to be included in any proxy statement for the
election of the corporation's directors under the rules of the
Securities and Exchange Commission.
9. The committee shall review the adequacy of this charter on an annual
basis.
10. The committee shall review major changes to the corporation's auditing
and accounting principles and practices based on advice of the
independent auditor or the Chief Financial Officer.
11. The committee shall evaluate, along with the other members of the
board, the performance of the independent auditor.
12. The committee shall review the expenses of officers of the corporation
who are also members of the board and such other officers as it may
deem appropriate.
13. The committee shall take such other actions and do such other things
as may be referred to it from time to time by the board.
14. The Committee will meet on a quarterly basis on the monthly
immediately following a financial end of quarter.
14
REVOCABLE PROXY
PACIFIC STATE BANCORP
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 2006
The undersigned holder of Common Stock, revoking any Proxy heretofore
given, hereby constitutes and appoints Steven A. Rosso and Steven J. Kikuchi and
each of them, with full power of substitution, as attorneys and proxies to
appear and vote all of the shares of Common Stock of Pacific State Bancorp, a
California corporation, standing in the name of the undersigned which the
undersigned could vote if personally present and acting at the Annual Meeting of
Shareholders of Pacific State Bancorp, to be held Thursday, May 11, 2006, at 6
South El Dorado Street, Stockton, California, at 4:30 p.m. or at any
adjournments thereof, upon the following items and to vote according to their
discretion on all other matters which may be properly presented for action at
the meeting or any postponements or adjournments thereof.
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. UNLESS OTHERWISE DIRECTED BY THE SHAREHOLDER, THIS PROXY WILL BE
VOTED "FOR" THE FOLLOWING ITEMS:
1. To elect as Directors the nominees set forth below.
[ ] FOR ALL nominees listed to the right (except as marked to
the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed.
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below:
Michael L. Dalton Yosh Mataga
Maxwell M. Freeman Steven A. Rosso
Harold Hand Gary A. Stewart
Patricia Ann Hatton Kathleen Verner
Steven J. Kikuchi
2. In their discretion, to transact such other business as may
properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS. THE PROXY, WHEN PROPERLY
EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED
"FOR" THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS.
SHAREHOLDER(S) Number. of Common Shares
- ------------------------------ -----------------------
- ------------------------------ -----------------------
Date: Please date and sign exactly as your
------------------------ name(s) appears. When signing as
attorney, executor, administrator,
trustee, or guardian, please give full
title. If more than one trustee, all
should sign. All joint owners should
sign. WHETHER OR NOT YOU PLAN TO ATTEND
THIS MEETING, PLEASE SIGN AND RETURN
THIS PROXY AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED POST-PAID ENVELOPE.
I/we do [ ] or do not [ ] expect to
attend this meeting.