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
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(Name of Registrant as Specified in its Charter)
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(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 2007 ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN TO SHAREHOLDERS that the 2007 Annual Meeting of
Shareholders of Pacific State Bancorp ("Bancorp") will be held Thursday, May 10,
2007, 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 ten (10) persons as directors of Bancorp for
the ensuing year: Michael L. Dalton, Maxwell M. Freeman, Harold Hand, Patricia
Ann Hatton, Steven J. Kikuchi, Yoshikazu Mataga, Steven A. Rosso, Gary A.
Stewart, Kathleen Verner and Russell G. Munson. 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,
2007, will be entitled to notice of and to vote at the Annual Meeting.
Dated: April 13, 2007 By Order of the Board of Directors
/s/ RUSSELL G. MUNSON
Russell G. Munson, 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 13, 2007
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
2007 Annual Meeting of Shareholders (the "Meeting") of Pacific State Bancorp
("Bancorp"), to be held Thursday, May 10, 2007, 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 3,676,718 shares were issued and outstanding as of March 15,
2007 (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 ordinarily 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
In addition, a listed corporation such as Bancorp which has eliminated
cumulative voting in the election of directors may amend it articles or bylaws
to provide that in an uncontested election (an election in which the number of
candidates does not exceed the number of directors to be elected), approval of
each candidate by a majority of shares present and voting in the election of
directors shall be required. Bancorp has not eliminated cumulative voting in the
election of directors.
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
Name and Address Beneficial Ownership(1) Percentage of Ownership
===============================================================================
Maxwell M. Freeman
1818 Grand Canal Boulevard 338,200(30,000) 9.25%
Stockton, CA 95207
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Harold Hand, M.D. 294,408(30,000) 8.04%
36 W. Yokuts, Suite 2
Stockton, CA 95207
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Steven A. Rosso
1899 W. March Lane 269,815(66,000) 7.37%
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.
2
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 ten (10) 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 2008 annual meeting of
shareholders and until their successors are elected and have qualified.
Unless otherwise directed, the proxy holders will cast votes so as to
effect, if possible, the election of the ten nominees. The ten 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. 60 1987 Certified Public Accountant,
Certified Financial Planner and
Registered Investment Adviser
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Maxwell M. Freeman 69 2000 Attorney - Freeman, D'Auito,
Pierce, Gurev, Keeling & Wolf,
Stockton, California
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Harold Hand, M.D. 69 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 57 1988 Physician practicing obstetrics
and gynecology
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Steven J. Kikuchi 49 1987 Registered landscape architect,
contractor and certified
nurseryman
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Yoshikazu Mataga 64 1987 Owner and operator of Tracy
Pontiac-Cadillac and GMC Truck
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Russell G. Munson 60 2006 Owner, Wine and Roses Hotel,
Restaurant and Spa
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Steven A. Rosso 53 1990 President and Chief Executive
Officer of Bancorp
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Gary A. Stewart 57 1998 Executive Vice President and
Chief Credit Officer of Bancorp
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Kathleen M. Verner 64 1988 Co-owner and Vice President of
Verner Construction Company
(residential and commercial
development firm)
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3
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, Russell G. Munson and Kathleen M. Verner. In addition, former
director Philip B. Wallace, who retired from the Board of Directors in 2006, was
independent in accordance with the same standard.
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 78,909 shares held beneficially by Bancorp officers as administrators of
the Pacific State Bank Retirement 401(k) Plan. None of the shares are pledged as
security.
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Beneficial Owner Amount and Nature of Beneficial Percent
Ownership(1) of Class
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Michael L. Dalton 156,700(20,686) 1,920 4.28%
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Maxwell M. Freeman 338,800(30,000) 9.25%
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Harold Hand, M.D. 294,408(30,000) 19,680 8.04%
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Patricia A. Hatton, M.D. 163,250(30,000) 28,616 4.46%
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Steven J. Kikuchi 111,116(30,000) - 3.03%
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Yoshikazu Mataga 127,268(10,000) - 3.48%
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Steven A. Rosso 269,851(66,000) 5,822 7.37%
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Gary A. Stewart 65,056(38,650) - 1.78%
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Russell G. Munson 14,434 *
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Kathleen M. Verner 168,040 - 4.59%
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JoAnne C. Roberts 790 *
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All directors, 1,709,713(255,336) 55,424 46.69%
nominees and
principal officers as
a group (11 in all)
(2)
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(*) indicates less than 1%
(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.
4
Options Outstanding and Available for Issuance at Year-End
The following table provides information as of December 31, 2006 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 Weighted-average Number of securities
securities to be exercise remaining available for
issued upon price of future issuance under
exercise of outstanding equity compensation
outstanding options, plans (excluding
options, warrants warrants and securities reflected in
and rights rights column (a))
(a) (b) (c)
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Equity
compensation plans 668,499 $7.04 65,204
approved by
security holders
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Equity
compensation plans
not approved by None NA NA
security holders
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Total 668,499 $7.04 65,204
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The Board of Directors and Committees
Bancorp's Board of Directors held 14 meetings during 2006. 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, Russell G. Munson and Kathleen M. Verner. Independent members of the
Board met together in two regularly scheduled meetings during 2006 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 2006, 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.
Personnel Committee
The Personnel Committee is responsible for reviewing and approving
corporate goals and objectives relevant to the compensation of the Bank's senior
management (management is not compensated for their service to the Company),
evaluating the performance of senior management and, either as a committee or
together with the other independent members of the Board, determining and
approving the compensation level for the Chief Executive Officer, and making
recommendations regarding compensation of other executive officers and certain
compensation plans to the Board. The Compensation Committee does not presently
operate pursuant to a written charter. However, the Bank's Board has adopted a
staffing and compensation policy with respect to Bank employees.
Personnel Committee Interlocks and Insider Participation
The members of the Compensation Committee include Dr. Harold Hand,
Michael L. Dalton, Steven Kikuchi, Steven A. Rosso and Kathleen M. Verner. all
of whom the Board has determined to be "independent directors" as defined under
The Nasdaq Stock Market listing standards, with the exception of Steven A.
Rosso. Mr. Rosso is the President and Chief Executive Officer of Bancorp. The
Compensation Committee met 3 times in 2006 with Mr. Rosso abstaining from any
matter pertaining to his own compensation. Mr. Rosso does not hold a position as
a board member of or with the responsibility for the compensation matters of any
other entity.
5
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 eight 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
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 2008
Annual Meeting, that date will be December 15, 2007.
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.
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.
During 2006, the nominating committee proposed the nomination of
Russell G. Munson to the Board of Directors. Mr. Munson was unanimously voted on
and approved by the Nominating Committee and the Board of Directors. He became a
member of the board on June 5, 2006.
6
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 2006 Annual Meeting
Audit Committee and Audit Committee Financial Expert
The Audit Committee held 7 meetings during 2006. 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
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.
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.
7
The Committee has reviewed and discussed the audited financial
statements of Bancorp for the fiscal year ended December 31, 2006 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
(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, 2006 for filing with the Securities and Exchange
Commission.
Submitted by:
Michael A. Dalton, Chairman
Yosh Mataga
Patricia Hatton
EXECUTIVE COMPENSATION AND RELATED MATTERS
Compensation Discussion and Analysis
Overview of Compensation Policy
The Company's Compensation Committee is empowered to review and
approve, or in some cases recommend for the approval of the full Board of
Directors the annual compensation for the executive officers of the Company.
This Committee has the responsibility for establishing, implementing, and
monitoring the Company's compensation strategy and policy. Among its principal
duties, the Committee ensures that the total compensation of the executive
officers is fair, reasonable and competitive.
Objectives and Philosophies of Compensation
The primary objective of the Company's compensation policy, including
the executive compensation policy, is to help attract and retain qualified,
energetic managers who are enthusiastic about the Company's mission and
services. The policy is designed to reward the achievement of specific annual
and long-term strategic goals aligning executive performance with company growth
and shareholder value. In addition, the Board of Directors strives to promote an
ownership mentality among key leaders and the Board of Directors.
Setting Executive Compensation
The compensation policy is designed to reward performance. In measuring
executive officers' contribution to the Company, the Compensation Committee
considers numerous factors including the Company's growth and financial
performance as measured by asset growth and net income before taxes among other
key performance indicators.
Regarding most employee compensation matters, management provides
recommendations to the Compensation Committee; however, the Compensation
Committee does not delegate any of its functions to others in setting
compensation. The Compensation Committee does not currently engage any
consultant related to executive and/or director compensation matters.
8
The Company does not subscribe to an exact formula for allocating cash
and non-cash compensation. However, a significant percentage of total executive
compensation is performance-based. Historically, the majority of the incentives
to executives have been in the form of non-cash incentives in order to better
align the goals of executives with the goals of stockholders.
Elements of Company's Compensation Plan
The principal components of compensation for the Company's executive
officers are:
o base salary
o performance-based incentive cash compensation
o right to purchase the company's stock at a preset price (stock
options)
o retirement and other benefits
Base Salary
The Company provides named executive officers and other employees with
base salary to compensate them for services rendered during the fiscal year.
Base salary ranges for named executive officers are determined for each
executive based on his or her position and responsibility. During its review of
base salaries for executives, the Committee primarily considers:
o market data;
o internal review of the executives' compensation, both
individually and relative to other officers; and
o individual performance of the executive.
Salary levels are typically evaluated annually as part of the Company's
performance review process as well as upon a promotion or other change in job
responsibility.
Performance-Based Incentive Compensation
The management incentive plan gives the Committee the latitude to
design cash and stock-based incentive compensation programs to promote high
performance and achievement of corporate goals, encourage the growth of
stockholder value and allow key employees to participate in the long-term growth
and profitability of the Company.
For stock-based programs, the Committee may grant participants stock
options which are the only non-cash incentive currently approved by the
stockholders of the Company. In granting these awards, the Committee establishes
parameters such as vesting schedules and terms of the grants.
All awards of shares of the Company's stock options are made at the
market price at the time of the award.
Stock Option Program
The Stock Option Program assists the Company to:
o enhance the link between the creation of stockholder value and
long-term executive incentive compensation;
o provide an opportunity for increased equity ownership by
executives; and
o maintain competitive levels of total compensation.
9
Stock option award levels are determined based on market data, vary
among participants based on their positions within the Company and are granted
at the Committee's regularly scheduled meeting. Options are awarded at the
NASDAQ's closing price of the Company's Common Stock on the date of the grant.
The Committee has never granted options with an exercise price that is less than
the closing price of the Company's Common Stock on the grant date, nor has it
granted options which are priced on a date other than the grant date.
All of the options granted by the Committee vest at a rate of 20% per
year over the first five years of the ten-year option term. Vesting ceases upon
termination of employment for executives and upon departure from the board for
independent Board members. Exercise rights normally terminate within a fixed
period of 30 days thereafter unless termination or departure is for reasons of
disability or death. Prior to the exercise of an option, the holder has no
rights as a stockholder with respect to the shares subject to such option,
including voting rights.
Beginning on January 1, 2006, the Company began accounting for
stock-based payments including its Stock Option Program and its Employee Stock
Purchase Plan in accordance with the requirements of FASB Statement 123(R).
Retirement and Other Benefits
All employees are eligible to participate in the Company's 401-k
Retirement Plan. Certain senior officers, including all officers named in the
Summary Compensation Table, participate in a non-qualified insurance funded
program to provide death and retirement benefits. See "Salary Continuation
Agreements" below.
401-k 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
2006, the Bank's contributions to the Retirement Plan totaled approximately
$21,000.
Perquisites and Other Personal Benefits
The Company provides some executive officers with perquisites and other
personal benefits that the Company and the Committee believe are reasonable and
consistent with its overall compensation program to better enable the Company to
attract and retain superior employees for key positions. The Committee
periodically reviews the levels of perquisites and other personal benefits
provided to named executive officers. Some executive officers are provided use
of company automobiles.
Compensation Committee Report
We have reviewed and discussed with management the Compensation
Discussion and Analysis provided above in this Proxy Statement. Based on the
reviews and discussions referred to above, we recommend to the Board of
Directors that the Compensation Discussion and Analysis be included in the
10
Company's Annual Report on Form 10-K and Proxy Statement for the Annual Meeting
of Shareholders.
Submitted by
Dr. Harold Hand
Michael L. Dalton
Steven Kikuchi
Steven A. Rosso
Kathleen M. Verner
Summary Compensation Table (2006)
The following table includes information concerning compensation for the one
year period ended December 31, 2006 in reference to the named executive officers
of the Company.
- -----------------------------------------------------------------------------------------
Annual Compensation
----------------------- All Other
Year Salary Bonus (1 & 2) Total
---------- ---------- ---------- ---------- ----------
Steven A. Rosso 2006 $ 235,770 $ 100,000 $ 31,962 $ 367,732
President and Chief
Executive Officer
Gary A. Stewart 2006 $ 162,933 $ 50,000 $ 24,703 $ 237,636
Executive Vice President
and Chief Credit Officer
JoAnne C. Roberts 2006 $ 97,500 $ 25,000 $ 16,925 $ 139,425
Senior Vice President and
Chief Financial Officer
- -----------------------------------------------------------------------------------------
(1) Includes calculated value of personal use of bank automobile at $15,000 per
year and personal benefit derived from club memberships.
(2) Includes matching contributions to Bancorp's Retirement Plan.
Grants of Plan-Based Awards for 2006
There were no options granted during or for the calendar year ended
December 31, 2006 to any of the executive officers listed in the Summary
Compensation Table.
11
Outstanding Equity Awards at December 31, 2006
The following table includes certain information with respect to the
value at the calendar year end December 31, 2006 of all unexercised options
previously awarded to the executive officers named above.
- --------------------------------------------------------------------------
Number of Number of Option Option
Securities Securities Exercise Expiration
Underlying Underlying Price ($) Date
Unexcercised Unexercised
Options Options
(Exercisable) (Unexercisable)
Name
- --------------------------------------------------------------------------
Steven A. Rosso
President and
Chief Executive Officer 66,000 44,000 $7.50 10/13/2013
- --------------------------------------------------------------------------
Gary A. Stewart
Executive Vice
President 1,130 1,130 $3.73 3/1/2012
Chief Credit Officer 68,000 36,000 $7.50 10/13/2013
- --------------------------------------------------------------------------
JoAnne C. Roberts
Senior Vice President
Chief Financial Officer 0 12,000 $7.50 10/13/2013
- --------------------------------------------------------------------------
Option Exercises and Stock Vested in 2006
The following table includes certain information with respect to the
options exercised by the executive officers named above during the calendar year
ended December 31, 2006.
---------------------------------------------------------
Name Option Awards
-----------------------------------
Number of
Shares Value
Acquired on Realized
Exercise on Exercise
(#) ($)
---------------------------------------------------------
Steven A. Rosso
President and
Chief Executive
Officer
---------------------------------------------------------
Gary A. Stewart
Executive Vice
President
Chief Credit Officer 19,338 $232,536
---------------------------------------------------------
JoAnne C. Roberts
Senior Vice President
Chief Financial
Officer 6,000 $ 78,000
---------------------------------------------------------
Employment Agreement
Bancorp's employment agreement with its president and chief executive
officer Steven A. Rosso dated October 20, 2005 includes the following principal
terms:
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
12
year's salary plus continuation of all health and welfare benefits for one year.
o Starting annual salary is $223,084, with annual adjustments in
the discretion of the board of directors. Annual Salary for 2006 is included in
the Summary Compensation Table.
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. A similar agreement
with JoAnne Roberts was executed on March 20, 2007. 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 $6,080,000 at December 31, 2006. 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 the case of Mr. Rosso or Mr. Stewart, 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 the named executive officers in the Summary
Compensation Table.
13
- ---------------------------------------------------------------------------
Name Annual Years Required Year Annual Retirement
Benefit For Full Benefit Age
Benefit Commences
- ---------------------------------------------------------------------------
Steven A. Rosso $134,587 10 September 2019 65
- ---------------------------------------------------------------------------
Gary A. Stewart $ 93,253 10 September 2015 65
- ---------------------------------------------------------------------------
JoAnne C. Roberts $ 86,237 10 July 2022 65
- ---------------------------------------------------------------------------
Board of Directors Compensation Table for 2006
Non-employee directors receive a monthly cash retainer for service as a
director A Director who is an officer of the Company or of a subsidiary is not
compensated for his or her membership on the Board. During the first quarter of
2006 each director was paid $2,700 per month. This amount was increased to
$3,000 per month as of April 1, 2006
The following table provides compensation information for the one year
period ended December 31, 2006 for each non-employee member of the Company's
Board of Directors. Compensation information regarding the two management
directors is included in the Summary Compensation Table.
- -----------------------------------------------------------------------
Name Fees Earned or Option Total
Paid in Cash Awards (2)
- -----------------------------------------------------------------------
Michael L. Dalton $35,100 None $35,100
Maxwell M. Freeman $35,100 None $35,100
Harold Hand $35,100 None $35,100
Patricia Ann Hatton $35,100 None $35,100
Steven J. Kikuchi $35,100 None $35,100
Yoshikazu Mataga $35,100 None $35,100
Russell G. Munson $21,000 None $21,000
Kathleen Verner $35,100 None $35,100
Philip B. Wallace (1) $ 8,100 None $ 8,100
- -----------------------------------------------------------------------
(1) Effective April 20, 2006 Philip B. Wallace resigned his position as a
director of Bancorp due to health restrictions.
(2) The named directors held outstanding options for the following number of
shares of Bancorp Common Stock as of December 31, 2006: Dalton (40.686);
Freeman (50,000); Hand (50,000); Hatton (50,000); Kikuchi (50,000); Mataga
(30,000); Verner (20,000); Wallace (none).
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 collectability
or present other unfavorable features.
14
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, 2006, 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, 2006 and for the reviews of the financial statements
included in Bancorp's Quarterly Reports on Form 10-Q for that fiscal year were
$112,675; related fees for the year ended December 31, 2005 were $103,605. These
amounts represented 74% and 84%, respectively, of the total fee paid to
Perry-Smith during these years.
Audit-Related Fees
The aggregate fees billed by Perry-Smith for audit related services
rendered for technical accounting, consulting and research were $1,000; related
fees for the year ended December 31, 2005 were $0.00. These amounts represented
0.6% and 0%, respectively, of the total fee paid to Perry-Smith during these
years.
Tax Fees
The aggregate fees billed by Perry-Smith for all tax services rendered
to Bancorp for the fiscal years ended December 31, 2006 and December 31, 2005
were $32,390 and $17,205 respectfully. Those amounts represented 21.4% and 14%,
respectively of the total fees paid to Perry-Smith during these years.
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, 2006 and December 31, 2005 were $5,500 and $2,130,
respectfully. Those amounts represented 3.6% and 2%, respectively of the total
fees paid to Perry-Smith during these years. The fees paid in 2006 were 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.
15
SHAREHOLDER PROPOSALS
Next year's Annual Meeting of Shareholders of Bancorp is scheduled be
held on May 8, 2008. Any shareholder desiring to submit a proposal for action at
the 2008 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, 2007. 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, 2007 deadline. Matters pertaining to
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 13, 2007
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.
16
REVOCABLE PROXY
PACIFIC STATE BANCORP
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS
MAY 10, 2007
The undersigned holder of Common Stock, revoking any Proxy heretofore
given, hereby constitutes and appoints Steven A. Rosso and Russel G. Munson 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 10, 2007, 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 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.
(Continued and to be marked, dated and signed, on the other side)
---------------------------------------------------------------------------
Address Change/Comments (Mark the corresponding box on the reverse side)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE Please [ ]
SHAREHOLDER. UNLESS OTHERWISE DIRECTED BY THE SHAREHOLDER, THIS PROXY Mark Here
WILL BE VOTED "FOR" THE FOLLOWING ITEMS: for Address
Change or
Comments
SEE REVERSE SIDE
FOR ALL nominees WITHHOLD
1. To elect as Directors the nominees set listed to the left AUTHORITY to 2. In their discretion, to transact
forth below. (except as marked to vote for all such other business as may properly
01 Michael L. Dalton 06 Yosh Mataga the contrary as nominees listed. come before the meeting.
02 Maxwell M. Freeman 07 Steven A. Rosso instructed below).
03 Harold Hand 08 Gary A. Stewart THIS PROXY IS SOLICITED BY, AND ON BEHALF
04 Patricia Ann Hatton 09 Kathleen Verner [ ] [ ] OF, THE BOARD OF DIRECTORS AND MAY BE
05 Steven J. Kikuchi 10 Russel G. Munson REVOKED PRIOR TO ITS EXERCISE.
INSTRUCTION: To withhold authority to vote for any individual nominee, strike I/we do [ ] or do not [ ] expect to
a line through the nominee's name. attend this meeting.
______________________________________________________________________________ SHAREHOLDER(S) Number. of Common Shares
_________________ ________________________
_________________ ________________________
Signature ___________________________________ Signature ______________________________________ 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.
- ------------------------------------------------------------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^