UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as
[X] Definitive Proxy Statement permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
Service 1st 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:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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SERVICE 1st BANCORP
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 31, 2007
The Annual Meeting of Shareholders (the "Annual Meeting") of Service
1st Bancorp (the "Company") will be held at the Lodi Office of the Company's
subsidiary, Service 1st Bank (the "Bank"), 1901 W. Kettleman Lane, Suite 100,
Lodi, California 95242, at 6:00 p.m. on May 31, 2007, for the purpose of
considering and voting upon the following matters:
1. Election of Directors. Electing the following twelve persons
to the Board of Directors to serve until the 2008 Annual Meeting of Shareholders
and until their successors are elected and qualified:
Dean F. Andal Robert D. Lawrence Michael K. Repetto
John O. Brooks Frances C. Mizuno Anthony F. Souza
Eugene C. Gini Richard R. Paulsen Albert Van Veldhuizen
Bryan R. Hyzdu Toni Marie Raymus Donald L. Walters
2. Ratification of the selection of Vavrinek, Trine, Day & Co.,
LLP as independent public accountants for the year 2007.
4. Other Business. Transacting such other business as may
properly come before the Annual Meeting and any postponements or adjournments
thereof.
All of the above matters are more fully described in the accompanying
Proxy Statement.
Article II, Section 7 of the Bylaws of Service 1st Bancorp provides for
the nomination of directors in the following manner:
"Nominations for Election to Board of Directors. Nominations
for election to the Board of Directors may be made by the Board of
Directors or by any shareholder entitled to vote for the election of
directors. Nominations, other than those made by the Board of
Directors, shall be made in writing and shall be delivered or mailed,
with first-class United States mail postage prepaid, to the President
by the later of: (i) the close of business twenty-one (21) days prior
to any meeting of shareholders called for the election of directors; or
(ii) seven (7) days after the date of mailing of notice of the meeting
of shareholders. Shareholder nominations shall contain the following
information: (a) the name, age, business address and, if known,
residence address of each proposed nominee; (b) the principal
occupation or employment of each proposed nominee; (c) the total number
of shares of capital stock of the corporation that are beneficially
owned by each proposed nominee and by the nominating shareholder; (d)
the name and residence address of the notifying shareholder; and (e)
any other information the corporation must disclose regarding director
nominees in the corporation's proxy solicitation. Shareholder
nominations shall be signed by the nominating shareholder and by each
nominee, and shall be accompanied by a written consent to be named as a
nominee for election as a director from each proposed nominee.
Nominations not made in accordance with this Section may be disregarded
by the Chairman of the meeting, and if the Chairman so instructs, the
inspectors of election may disregard all votes cast for each such
nominee."
Only those shareholders of record at the close of business on April 5,
2007 (the "Record Date"), will be entitled to notice of and to vote at the
Annual Meeting.
IT IS VERY IMPORTANT THAT EVERY SHAREHOLDER VOTE. WE URGE YOU TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU DO ATTEND THE ANNUAL
MEETING AND ELECT TO VOTE IN PERSON, YOU MAY DO SO. THE PROXY MAY BE REVOKED AT
ANY TIME PRIOR TO ITS EXERCISE.
By Order of the Board of Directors
/s/ EUGENE GINI
Dated: April 27, 2007 -----------------------------------------
Tracy, California Eugene Gini, Corporate Secretary
Mailed to Shareholders
on or about April 27, 2007
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF SHAREHOLDERS
OF
SERVICE 1st BANCORP
MAY 31, 2007
INTRODUCTION
The Proxy Statement is furnished in connection with the solicitation of
proxies for use at the 2007 Annual Meeting of Shareholders (the "Annual
Meeting") of Service 1st Bancorp (the "Company") to be held at 6:00 p.m. on May
31, 2007, at the Lodi Office of the Company's subsidiary, Service 1st Bank (the
"Bank"), 1901 W. Kettleman Lane, Suite 100, Lodi, California 95242, and at any
and all postponements or adjournments thereof.
Revocability of Proxies
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke that proxy prior to its exercise. The proxy may be
revoked prior to the Annual Meeting by delivering to the Corporate Secretary of
the Company either a written instrument revoking the proxy or a duly executed
proxy bearing a later date. The proxy may also be revoked by the shareholder by
attending and voting at the Annual Meeting. The proxy will be voted as directed
by the shareholder giving the proxy and if no directions are given on the proxy,
the proxy will be voted "FOR" the nominees of the Board of Directors as
described in this Proxy Statement, "FOR" the ratification of the selection of
Vavrinek, Trine, Day & Co., LLP as independent public accountants for the year
2007, and, at the proxyholders' discretion, on such other matters, if any, which
may come before the Annual Meeting and any and all postponements or adjournments
of the Annual Meeting.
Solicitation of Proxies
The solicitation of proxies is being made by the Board of Directors of
the Company. The expense of preparing, assembling, printing, and mailing this
Proxy Statement and the materials used in the solicitation of proxies for the
Annual Meeting will be borne by the Company. It is contemplated that proxies
will be solicited principally through the use of the mail, but officers,
directors, and employees of the Company and the Bank may solicit proxies
personally or by telephone, without receiving special compensation therefore.
The Company will reimburse banks, brokerage houses and other custodians,
nominees and fiduciaries for their reasonable expenses in forwarding the Proxy
Statement to shareholders whose stock in the Company is held of record by such
entities. In addition, the Company may use the services of individuals or
companies it does not regularly employ in connection with this solicitation of
proxies, if management determines it to be advisable.
1
Voting Securities; Record Date; Cumulative Voting
There were issued and outstanding 2,388,739 shares of the Company's
common stock on April 5, 2007, which has been fixed as the record date for the
purpose of determining shareholders entitled to notice of, and to vote at, the
Annual Meeting (the "Record Date"). On any matter submitted to the vote of the
shareholders, each holder of Company common stock will be entitled to one vote,
in person or by proxy, for each share of common stock he or she held of record
on the books of the Company as of the Record Date. Shares represented by proxies
that reflect abstentions are treated as shares present and entitled to vote for
purposes of determining a quorum, but have the same effect as a vote "AGAINST" a
proposal. "Broker non-votes" (shares held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote and the broker or nominee does not have discretionary voting
power under applicable rules of the stock exchange or other self-regulatory
organization of which the broker or nominee is a member) are treated as shares
present and entitled to vote for purposes of a quorum, but also have the same
effect as a vote "AGAINST" a proposal. In connection with the election of
directors, shares may be voted cumulatively if a shareholder present at the
Annual Meeting gives notice at the Annual Meeting, prior to the voting for
election of directors, of his or her intention to vote cumulatively. If any
shareholder of the Company gives such notice, then all shareholders eligible to
vote will be entitled to cumulate their shares in voting for the election of
directors. Cumulative voting allows a shareholder to cast a number of votes
equal to the shares held in his or her name as of the Record Date multiplied by
the number of directors to be elected. These votes may be cast for any one
nominee, or may be distributed among as many nominees as the shareholder sees
fit.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's bylaws provide that the number of directors of the
Company shall not be less than nine (9) nor more than seventeen (17) until
changed by an amendment to the bylaws adopted by the Company's shareholders. The
bylaws further provide that the exact number of directors is set at twelve (12)
until changed by a bylaw amendment duly adopted by the Company's shareholders or
Board of Directors.
The persons named below, all of whom are incumbent directors, are
nominated for election as directors to serve until the 2008 Annual Meeting of
Shareholders and until their successors are elected and qualified. Unless
otherwise directed, votes will be cast by the proxyholders in such a way to
effect, if possible, the election of the twelve (12) nominees named herein
including, in the event of cumulative voting, the authority of the proxyholders
to cumulate votes represented by the shares covered by proxies in the election
of directors. The twelve (12) nominees for director receiving the most votes
will be elected as directors. In the event that any of the nominees should be
unable to serve as a director, it is intended that the proxies received will be
voted by the proxyholders for the election of such substitute nominee, if any,
as shall be designated by the Board of Directors. The Board of Directors has no
reason to believe that any of the nominees named below will be unable to serve
if elected.
The following table sets forth the names of and certain information, as
of April 5, 2007, concerning the persons nominated by the Board of Directors for
election as directors of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
AS DIRECTORS OF THE NOMINEES WHOSE NAMES APPEAR BELOW.
2
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Year First
Appointed
Name and Title Director Principal Occupation
Other Than Director Age ((1)) During the Past Five Years
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Dean F. Andal 47 2006 A Principal in Gerry N. Kamilos, LLC, a real
estate investment concern, since 2005. Director
of State & Local Tax, KPMG, LLP from 2003 to
2004. Served as an elected member of California
Board of Equalization from 1994 to 2002 and as
its Chairman in 1998 and 2000. California
Assemblyman from 1990 to 1994.
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John O. Brooks, Chairman of the 67 2000 Prior to joining the Bank on November 1, 2000, he
Board and Chief Executive Officer was a Director and President and Chief Executive
of the Company and Bank; Chairman Officer of Tracy Federal Savings Bank, Tracy,
of the Board of Charter Services California, from 1998 to 2000, and Bay Area Bank,
Group, Inc. (2) Redwood City, California, from 1992 to 1998.
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Eugene C. Gini 68 1999 President and Chief Executive Officer of Collins
Electric Company, Inc., an electrical contracting
firm, Stockton, California, since 1987.
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Bryan R. Hyzdu, President of the 48 1999 Prior to joining the Bank on November 10, 1999,
Company; President and Chief he was a Regional Vice President and Central
Executive Officer of Charter Valley Portfolio Manager with Union Bank of
Services Group, Inc. (2) California, since 1992.
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Robert D. Lawrence, M.D. 66 1999 Pathologist and owner of Delta Pathology
Associates Medical Group, Inc., Stockton,
California, since 1973.
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Frances C. Mizuno 50 1999 Civil Engineer and Assistant Executive Director
of the San Luis and Delta Mendota Water
Authority, Byron, California, since 1992.
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Richard R. Paulsen 48 1999 Life insurance agent for New York Life Insurance
Company and a partner in Resource Management
Group, a securities and financial planning firm,
Stockton, California, since 1983.
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Toni Marie Raymus 50 1999 President of Raymus Homes, Inc., land development
and construction of homes, since 1996. Vice
President of Raymus Construction, a construction
company, since 2004. President and broker of
Raymus Realty Group, real estate sales, since
1999. President of Destiny Homes, a custom home
building company, Manteca, California, since
1997.
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Michael K. Repetto 46 1999 Chief Executive Officer of Tracy Material
Recovery Facility, a disposal and waste recycling
company, Tracy, California, since 1995. Co-owner
and Operations Manager of Tracy Delta Solid Waste
Management, a waste management company, Tracy,
California, since 1987.
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Anthony F. Souza 66 1999 Owner of Souza Realty and Development, a real
estate sales, development and consulting company,
Tracy, California, since 1985.
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Albert Van Veldhuizen 78 1999 Retired. Formerly, commercial real estate sales
with Pan Pacific Financial, a real estate income
property lender, Lodi, California, since 1994.
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Donald L. Walters 51 1999 Managing member of Grower Direct Marketing, a
fresh produce sales and worldwide shipping
company, Stockton, California, since 1998.
President and Chief Executive Officer of Walters
Carpet One, Stockton, California, from 1982 until
1997 when the business was sold.
- ------------------------------------ ---- ---------- ---------------------------------------------------
(1) The year indicated in the preceding table represents the year each director
was first appointed as a director of the Company and/or the Bank. The
Company became the parent holding company for the Bank effective June 26,
2003, at which time all directors named in the chart above (except Director
Andal) became directors of the Company. Director Andal was appointed as a
director of the Bank on January 15, 2004 and a director of the Company on
March 30, 2006.
3
(2) Effective April 1, 2007, Mr. Brooks assumed the position as Chief Executive
Officer of the Bank, Patrick Carman assumed the position of President of
the Bank, and Mr. Hyzdu relinquished his positions as President and Chief
Executive Officer of the Bank in order to focus full-time on the
development of the Company's non-bank subsidiary, Charter Services Group,
Inc., as its President and Chief Executive Officer.
None of the directors were selected pursuant to any arrangement or
understanding other than with the directors and officers of the Company acting
within their capacities as such. There are no family relationships between any
two or more of the directors, officers or persons nominated or chosen by the
Board of Directors to become a director or officer, except that Bryan R. Hyzdu
and Donald L. Walters are brothers-in-law. No director or officer of the Company
serves as a director of any company which has a class of securities registered
under, or which is subject to the periodic reporting requirements of, the
Securities Exchange Act of 1934, or of any company registered as an investment
company under the Investment Company Act of 1940. None of the nominees were
subject to any legal proceedings involving violations of securities laws,
convictions in a criminal proceeding (excluding traffic violations and minor
offenses) or had a petition under bankruptcy laws filed against themselves or an
affiliate within the last five years.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Management of the Company knows of no person who owns, beneficially or
of record, either individually or together with associates, 5 percent or more of
the outstanding shares of Company common stock, except as set forth in the table
below. The following table sets forth, as of April 5, 2007, the number and
percentage of shares of Company common stock beneficially owned, directly or
indirectly, by each of the Company's directors, principal shareholders, the
executive officers(1) named in the Summary Compensation Table, and all of the
individuals named in the table as a group. Beneficial ownership generally
includes shares over which a person named below has sole or shared voting or
investment power and shares which such person has the right to acquire within 60
days of April 5, 2007. Unless otherwise indicated, the persons listed below have
sole voting and investment powers respecting the shares beneficially owned.
- ----------------------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature Percent
Title of Class Beneficial Owner(2) of Beneficial Ownership of Class
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, No Par Value Dean F. Andal 27,887 (3) 1.16%
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Common Stock, No Par Value Robert E. Bloch 28,954 (4) 1.20%
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Common Stock, No Par Value John O. Brooks 53,675 (5) 2.21%
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Common Stock, No Par Value Patrick Carman 37,135 (6) 1.54%
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Common Stock, No Par Value Eugene C. Gini 118,916 (7) 4.96%
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Common Stock, No Par Value Bryan R. Hyzdu 57,762 (8) 2.38%
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Common Stock, No Par Value Robert D. Lawrence 68,626 (9) 2.87%
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Common Stock, No Par Value Frances C. Mizuno 33,367(10) 1.39%
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Common Stock, No Par Value Richard R. Paulsen 42,061 (11) 1.75%
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Common Stock, No Par Value Toni Marie Raymus 42,337 (12) 1.76%
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Common Stock, No Par Value Shannon Reinard 18,350 (13) 0.76%
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Common Stock, No Par Value Michael K. Repetto 32,509 (14) 1.36%
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Common Stock, No Par Value Anthony F. Souza 93,536 (15) 3.90%
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Common Stock, No Par Value Albert Van Veldhuizen 32,118 (16) 1.34%
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Common Stock, No Par Value Donald L. Walters 34,888 (17) 1.45%
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All named individuals as a group (15 persons) 721,979 (18) 27.59%
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4
(1) As used in this Proxy Statement, the term "executive officer" of the
Company includes the Chief Executive Officer, President, Executive Vice
President and Chief Financial Officer, and Executive Vice President and
Chief Operating Officer/Chief Credit Officer of the Bank and Executive Vice
President and Operations Manager of the Bank.
(2) The address for beneficial owners is c/o Service 1st Bancorp, 49 W. 10th
Street, Tracy, California 95376.
(3) Mr. Andal has shared voting and investment powers as to 20,137 shares.
Includes 7,750 shares subject to stock options exercisable within 60 days
of the Record Date.
(4) Mr. Bloch has shared voting and investment powers as to 2,829 shares.
Includes 26,125 shares subject to stock options exercisable within 60 days
of the Record Date.
(5) Mr. Brooks has shared voting and investment powers as to 9,300 shares.
Includes 44,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(6) Mr. Carman has shared voting and investment powers as to 18,885 shares.
Includes 18,250 shares subject to stock options exercisable within 60 days
of the Record Date.
(7) Mr. Gini has shared voting and investment powers as to 108,541 shares.
Includes 10,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(8) Mr. Hyzdu has shared voting and investment powers as to 21,262 shares.
Includes 36,500 shares subject to stock options exercisable within 60 days
of the Record Date.
(9) Dr. Lawrence has shared voting and investment powers as to 68,626 shares.
(10) Ms. Mizuno has shared voting and investment powers as to 22,992 shares.
Includes 10,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(11) Mr. Paulsen has shared voting and investment powers as to 31,686 shares.
Includes 10,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(12) Ms. Raymus has shared voting and investment powers as to 31,962 shares.
Includes 10,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(13) Ms. Reinard has shared voting and investment powers as to 5,850 shares.
Includes 12,500 shares subject to stock options exercisable within 60 days
of the Record Date.
(14) Mr. Repetto has shared voting and investment powers as to 22,134 shares.
Includes 10,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(15) Mr. Souza has shared voting and investment powers as to 83,161 shares.
Includes 10,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(16) Mr. Van Veldhuizen has shared voting and investment powers as to 21,743
shares. Includes 10,375 shares subject to stock options exercisable within
60 days of the Record Date.
(17) Mr. Walters has shared voting and investment powers as to 24,513 shares.
Includes 10,375 shares subject to stock options exercisable within 60 days
of the Record Date.
(18) Includes 228,500 shares subject to stock options exercisable within 60 days
of the Record Date.
5
Executive Officers
The following table sets forth as of April 5, 2007, information
concerning executive officers of the Company, excluding John O. Brooks, Chief
Executive Officer, and Bryan R. Hyzdu, President, as to whom the same
information has been previously disclosed above in connection with their
nomination for election as directors of the Company.
- ---------------------------------------------------------------------------------------------
Executive
Officer Principal Occupation
Name and Title Age Since (2) During the Past Five Years
- ---------------------------------------------------------------------------------------------
Patrick Carman, 57 2000 Prior to joining the Bank on August 7,
President and Chief 2000, he held positions as Senior Vice
Operating President and Senior Credit Officer from
Officer/Chief Credit 1999 to 2000, Credit Administrator from
Officer of the Bank (1) 1998 to 1999, and as SBA portfolio manager
from 1995 to 1998, at East County Bank,
Antioch, California.
- ---------------------------------------------------------------------------------------------
Robert E. Bloch, 59 2001 Prior to joining the Bank on March 26,
Executive Vice 2001, he was Executive Vice President and
President and Chief Chief Financial Officer for Mission
Financial Officer of Community Bank, N.A., San Luis Obispo,
the Company, the Bank California, from 1999 to 2001, and
and Charter Services Executive Vice President and Chief
Group, Inc. Financial Officer of Heritage Oaks Bank,
Paso Robles, California, from 1992 to 1999.
- ---------------------------------------------------------------------------------------------
Shannon Reinard, 49 2004 Prior to joining the Bank on March 4,
Executive Vice 2002, she was Vice President/Operations
President and Manager at the Concord Office of Civic
Operations Manager Bank of Commerce from 2000 to 2002 and
of the Bank Vice President/Operations Administrator at
the Antioch Office of East County Bank
from 1996 to 2000
- ---------------------------------------------------------------------------------------------
(1) Mr. Carman assumed the position of President of the Bank effective April 1,
2007.
(2) The year indicated represents the year the named individual became an
executive officer of the Bank and/or the Company.
(3) The Company became the parent holding company for the Bank effective June
26, 2003.
CORPORATE GOVERNANCE
Code of Ethics
The Board of Directors has adopted a "code of ethics" as defined under
applicable rules promulgated by the Securities and Exchange Commission pursuant
to the Sarbanes-Oxley Act of 2002. The code of ethics requires that the
Company's directors, officers (including the principal executive, financial and
accounting officers, or controller and persons performing similar functions) and
employees conduct business in accordance with the highest ethical standards and
in compliance with all laws, rules and regulations applicable to the Company.
The code of ethics is intended to supplement the provisions of any other
personnel policies of the Company or codes of conduct which may establish
additional standards of ethical behavior applicable to the Company's directors,
officers and employees. The code of ethics was filed as Exhibit 14.1 to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2003, and
may be accessed through the Company's website by following the instructions for
accessing reports filed with the Securities and Exchange Commission hereafter in
this Proxy Statement under the heading "Website Access."
6
Director Independence
Our Board of Directors has determined that each of our directors other
than executive officers, John O. Brooks and Bryan R. Hyzdu, are "independent" as
defined under NASDAQ listing rules. A director who otherwise meets the
definition of independence under applicable NASDAQ listing rules may be deemed
"independent" by the Board of Directors after consideration of all of the
relationships between the Company and the director, or any of his or her
immediate family members, or any entity with which the director or any of his or
her immediate family members is affiliated by reason of being a partner, officer
or a significant shareholder thereof. However, ordinary banking relationships
(such as depository, lending, and other services readily available from other
financial institutions) are not considered by the Board of Directors in
determining a director's independence, if:
o with respect to an extension of credit by the Bank, it (i) has
been made in compliance with applicable banking law and
regulation, including requirements of Federal Reserve Act and
regulations of the Federal Deposit Insurance Corporation, and
(ii) was made on substantially the same terms, including
interest rates and collateral, as those prevailing for
comparable transactions with unrelated persons of similar
creditworthiness and did not involve more than a normal risk
of collectibility or present other unfavorable features;
o no event of default has occurred and is continuing beyond any
period of cure and the loans are not classified as nonaccrual,
past due, restructured or potential problem loans; and
o the relationship has no other unusual characteristics.
In assessing the independence of our directors, our full Board of
Directors carefully considered all of the business relationships between the
Company and our directors or their affiliated companies, other than ordinary
banking relationships. This review was based primarily on responses of the
directors to questions in a directors' and officers' questionnaire regarding
employment, business, familial, compensation and other relationships with the
Company and our management. Where business relationships other than ordinary
banking relationships existed, the Board of Directors determined that, except in
the case of Messrs. Brooks and Hyzdu, none of the relationships between the
Company and the directors or the directors' affiliated companies impair the
directors' independence because the amounts involved are immaterial to the
directors or to those companies when compared to their annual income or gross
revenues. The Board of Directors also determined for all of the relationships
between the Company and our directors (including Mr. Hyzdu's relationship with
his brother-in-law, Mr. Walters) or the directors' affiliated companies, that
none of the relationships had unique characteristics that could influence the
director's impartial judgment as a director of the Company.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and ten percent or more
shareholders of the Company's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes of
ownership of the Company's equity securities. Officers, directors and ten
percent or more shareholders are required by Securities and Exchange Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company 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 its executive officers,
directors and beneficial owners of ten percent or more of the Company's equity
securities appear to have been met.
7
Board Meetings and Committees
The Company's Board of Directors held 13 meetings and the Bank Board of
Directors held 12 meetings during 2006. In addition to meeting as a group to
review the Company's business, members of the Board of Directors served on
certain standing committees. During 2006, no director attended less than 75% of
the aggregate of the number of meetings held by the Board of Directors and of
all committee meetings on which such director served.
Audit Committee. The Audit Committee held 6 meetings in 2006. The Audit
Committee consists of Directors Andal, Repetto, Van Veldhuizen and Walters. The
Audit Committee generally recommends the appointment of and oversees the
Company's independent public accountants, monitors and reviews all audit and
examination reports, financial and accounting organization and financial
planning, reporting and internal controls. Each member of the Audit Committee is
"independent" as defined under NASDAQ listing rules. Director Van Veldhuizen has
been designated by the Board of Directors as an "audit committee financial
expert" as defined under applicable rules promulgated by the Securities and
Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002. In addition,
each other member of the audit committee is "financially literate" as defined
under NASDAQ listing rules and qualified to review the Company's financial
statements. See the Audit Committee Report hereafter in this Proxy Statement and
the Audit Committee Charter attached as Appendix A for additional information
regarding the functions of the Audit Committee.
Compensation Committee. The Compensation Committee held 7 meetings in
2006. The Compensation Committee consists of Directors Brooks, Gini, Hyzdu,
Mizuno, Paulsen and Souza and reviews compensation and employee benefit plans
and determines the compensation of the Company's directors and executive
officers. Each member of the Executive Committee, except Messrs. Brooks and
Hyzdu, is "independent" as defined under NASDAQ listing rules. See "Compensation
Discussion and Analysis" and the Compensation Committee Charter attached as
Appendix B, hereafter in this Proxy Statement for additional information
regarding compensation practices of the Company.
o Compensation Committee Interlocks and Insider Participation
Messrs. Brooks and Hyzdu participate in deliberations and vote
upon recommendations regarding compensation for executive officers other than
for themselves. They are not present and do not vote on compensation for
themselves. The independent directors determine the compensation for Messrs.
Brooks and Hyzdu.
Funds Management Committee. The Funds Management Committee held 4
meetings during 2006. The Funds Management Committee consists of Directors
Brooks, Hyzdu, Lawrence, Mizuno and Raymus. The Funds Management Committee is
responsible for managing the Bank's assets and liabilities so as to preserve the
necessary liquidity, maximize net interest margin over time, and control
interest rate risk. This involves overseeing deposit and loan pricing,
establishing targeted asset and liability mix ratios, and formulating
appropriate plans to ensure adequate capital for continued growth. The Funds
Management Committee must establish and continually review Bank policies to
ensure compliance with these goals.
Executive Committee. The Executive Committee held 2 meetings during
2006. The Executive Committee consists of Directors Brooks, Gini, Hyzdu, Mizuno,
Paulsen and Souza. The Executive Committee is responsible for long-term
strategic planning for the Company and its subsidiaries.
8
Loan Committee. The Loan Committee held 33 meetings during 2006. The
Loan Committee consists of Directors Brooks, Gini, Hyzdu, Souza and Van
Veldhuizen. The Loan Committee is responsible for overseeing all of the Bank's
lending functions. This includes establishing and ongoing review of the Bank's
lending policies, making decisions on loans which exceed established lending
limits for Bank personnel, reviewing loans approved within the lending
authorities of the Bank personnel, reviewing problem and "Watch List" loans and
the follow-up on established actions plans to correct identified deficiencies,
reviewing past due loans and action plans to cure the payment defaults, and
monitoring concentration risk within the Bank's loan portfolio.
Marketing Committee. The Marketing Committee held 8 meetings during
2006. The Marketing Committee consists of Directors Andal, Hyzdu, Paulsen,
Raymus and Walters. The Marketing Committee is responsible for overseeing the
Company's outside marketing agency and developing strategies to grow loans and
deposits.
Nominating Committee. The Nominating Committee held no meetings during
2006 as no new director candidates were subject to evaluation during the year.
The Nominating Committee consists of Directors Brooks, Gini, Hyzdu, Mizuno,
Paulsen and Souza. The Nominating Committee is responsible for considering and
evaluating appropriate candidates as directors. Candidates are selected by a
majority of directors who are "independent" as defined under NASDAQ listing
rules and in accordance with a Nominating Committee Charter adopted by a
majority of such independent directors. The Nominating Committee Charter
includes a policy for consideration of candidates proposed by shareholders. Any
recommendations by shareholders will be evaluated by the Nominating Committee
and the Board of Directors in the same manner as any other recommendation and in
each case in accordance with the Nominating Committee Charter. Shareholders that
desire to recommend candidates for consideration by the Company's Board of
Directors should mail or deliver written recommendations to the Company
addressed as follows: Board of Directors, Service 1st Bancorp, 49 W. 10th
Street, Tracy, CA 95376. Each recommendation should include biographical
information indicating the background and experience of the candidate that
qualifies the candidate for consideration as a director for evaluation by the
Nominating Committee and the Board of Directors. In addition to minimum
standards of "independence" for non-employee directors and financial literacy,
the Nominating Committee and the Board of Directors considers various other
criteria including the candidate's experience and expertise, financial
resources, ability to devote the time and effort necessary to fulfill the
responsibilities of a director and involvement in community activities in the
market areas served by the Company and the Bank that may enhance the reputation
of the Company and the Bank. The Company and the Bank operate in a highly
regulated industry and are subject to the supervision, regulation and periodic
examination by state and federal banking regulatory authorities including the
Board of Governors of the Federal Reserve System, California Commissioner of
Financial Institutions and Federal Deposit Insurance Corporation. Directors of
the Company and the Bank are subject to certain rules and regulations and
potential liabilities not otherwise applicable to directors of non-banking
organizations. Consequently, evaluation of candidates by the Nominating
Committee and the Board of Directors may include more extensive inquiries into
personal background information including confirmation of the accuracy and
completeness of background information by (a) requiring candidates to complete
questionnaires to elicit information of the type required to be disclosed by the
Company in reports filed with the Securities and Exchange Commission, or such
state and federal banking regulatory authorities, (b) conducting background
investigations by qualified independent organizations experienced in conducting
criminal and civil investigatory reviews, and (c) such other personal and
financial reviews and analyses as the Nominating Committee and the Board of
Directors may deem appropriate in connection with the consideration of
candidates. Shareholders who wish to nominate a candidate for election to the
Company's Board of Directors, as opposed to recommending a potential nominee for
consideration by the Board of Directors, are required to comply with the advance
9
notice and any other requirements of the Company's bylaws, applicable laws and
regulations. The Nominating Committee and the Board of Directors may elect to
use third parties in the future to identify or evaluate candidates for
consideration as directors. The Nominating Committee Charter is attached to this
Proxy Statement as Appendix C.
DIRECTOR COMPENSATION
Director Fees
Non-employee members of the Board of Directors of the Company were paid
$250 per month as a single retainer fee for all meetings held each month during
2006 of the Board of Directors of the Company and $500 for attendance at each
meeting of the Bank's Board of Directors. Each chairman of the Company's Audit
and Executive Committees, and the Bank's Funds Management, Loan, and Marketing
Committees, received $150 and the committee members each received $100, for each
committee meeting of the Company and each committee meeting of the Bank
attended. The total amount of fees paid to all directors as a group as monthly
retainer fees for attendance at all monthly Board of Director meetings of the
Company and the Bank and as the fees paid for attendance at each committee
meeting of the Company and each committee meeting of the Bank, was $108,670 in
2006.
Stock Option Awards
The Company has two stock option plans. The 1999 Stock Option Plan was
adopted by the Board of Directors of the Bank on November 15, 1999, and approved
by shareholders at the 1999 Annual Meeting of Shareholders of the Bank held on
May 11, 2000 (the "1999 Plan"). The Company assumed the 1999 Plan and further
option grants were terminated in connection with the reorganization whereby the
Bank became a wholly-owned subsidiary of the Company effective June 26, 2003.
The 1999 Plan set aside 240,000 shares (378,000 shares as of April 5, 2007,
adjusted for stock dividends and stock splits) of no par value common stock of
the Company for the grant of incentive and nonstatutory stock options to key,
full-time salaried employees and officers of the Company, and to the
non-employee directors of the Company. Only nonstatutory options could be
granted to non-employee directors under the 1999 Plan.
The Company's 2004 Stock Option Plan was adopted by the Board of
Directors of the Company on February 19, 2004, and approved by shareholders at
the 2004 Annual Meeting of Shareholders held on May 27, 2004 (the "2004 Plan").
The 2004 Plan set aside 169,000 shares (253,500 shares as of April 5, 2007,
adjusted for a stock split in 2005) of no par value common stock of the Company
for the grant of incentive and nonstatutory stock options to key, full-time
salaried employees and officers of the Company, and to the non-employee
directors of the Company. Only nonstatutory options could be granted to
non-employee directors under the 2004 Plan. The terms of the 2004 Plan are
substantially similar to the terms of the 1999 Plan described below.
Options granted under the 1999 Plan were either incentive options or
nonstatutory options, however, only nonstatutory options were permitted to be
granted to non-employee directors. Options granted became exercisable in
accordance with a vesting schedule established at the time of grant. Vesting
could not extend beyond ten years from the date of grant. Upon a change in
control of the Company, options under the 1999 Plan become fully vested and
exercisable, or may be assumed or equivalent options may be substituted by a
successor corporation. Options are adjusted to protect against dilution in the
event of certain changes in the Company's capitalization, including stock splits
and stock dividends. All options granted under the 1999 Plan have an exercise
price equal to the fair market value of the common stock on the date of grant.
No options were granted under the 1999 Plan from and after June 26, 2003, the
10
Effective Date of the reorganization described above and future grants of
options thereunder were terminated, in accordance with the permit issued by the
California Commissioner of Corporations to authorize the exchange of shares of
common stock of the Company for the outstanding shares of common stock of the
Bank in the reorganization.
o 1999 Stock Option Plan Awards
The Company's non-employee directors, except Director Andal,
were each granted nonstatutory options under the 1999 Plan to acquire 5,000
shares (7,875 shares as of April 5, 2007, adjusted for stock dividends and stock
splits) of the Company's common stock on the date of adoption of the 1999 Plan,
at a grant price of $10.00 per share ($6.35 per share as of April 5, 2007,
adjusted for stock dividends and stock splits), which reflected the fair market
value of the Company's common stock on the grant date. The option grants were
made subject to the approval of the 1999 Plan by the shareholders of the
Company. Nonstatutory stock options granted to outside directors under the 1999
Stock Option Plan generally vest at the rate of one-third per year. The 1999
Plan was terminated as to future grants effective June 26, 2003. At the time of
termination of grants under the 1999 Plan, 171,000 shares (269,325 shares as of
April 5, 2007, adjusted for stock dividends and stock splits) of common stock
were reserved for issuance upon exercise of options outstanding under the 1999
Plan. As of April 5, 2007, there were 63,000 shares (adjusted for stock
dividends and stock splits) reserved for issuance upon exercise of nonstatutory
stock options previously granted to the outside directors as a group under the
1999 Stock Option Plan at a weighted average exercise price of $6.35 per share.
o 2004 Stock Option Plan Awards
The terms of the 2004 Plan are substantially similar to the
terms of the 1999 Plan. As of April 5, 2007, there were 80,375 shares (adjusted
for stock dividends and a stock split in 2005) reserved for issuance upon
exercise of nonstatutory stock options previously granted to the outside
directors as a group under the 2004 Stock Option Plan at a weighted average
exercise price of $12.03 per share.
o Director Emeritus Program
The Board of Directors adopted a Director Emeritus Program
effective June 30, 2006 that may in the future result in an agreement for
compensation with an eligible retiring director, subject to the discretion of
the Board of Directors under the Program. No directors have been designated to
serve as a Director Emeritus under the Program during 2006 or as of the Record
Date.
The Director Emeritus Program was established for the purpose
of inducing retiring members of the Board of Directors to provide continued
consultation services to the Company and its subsidiaries as requested by the
Board of Directors for a period ranging from one year to a maximum of three
years following retirement. Any director of the Company who has attained a
minimum age of fifty-five (55) and who shall have served the Company
continuously for at least ten (10) years as a director of the Company and/or a
subsidiary of the Company prior to retirement may be selected by the Board of
Directors to serve as a Director Emeritus, provided that the Board of Directors
may waive this condition in any case.
The term of service as a Director Emeritus shall be one year
from the date of the resolution adopted by the Board of Directors designating a
director as a Director Emeritus. The Board of Directors shall annually review
the status of each Director Emeritus prior to expiration of his or her current
11
term of service and, in its discretion, may terminate or extend the term of
service of any Director Emeritus for successive one-year periods. The maximum
term of service of a Director Emeritus shall not exceed three (3) years. During
such term of service, a Director Emeritus shall perform the following duties:
o represent and promote the goodwill of the Company and its
subsidiaries in his or her community;
o promote the continued profitability of the Company and its
subsidiaries by endeavoring, among other things, to make
monthly promotional calls on customers and prospective
customers of the Company and its subsidiaries;
o maintain communication with management by meeting twice
annually with the President and Chairman of the Board of the
Company at their invitation;
o provide industry consultation in his or her field of
expertise, business or profession; and
o comply with all written policies of the Company and its
subsidiaries applicable to his or her activities as a Director
Emeritus or otherwise. A Director Emeritus shall not
participate in establishing or administering any policy of the
Company or its subsidiaries.
The Board of Directors may approve at the commencement of each year of
the term of service by a Director Emeritus, an amount of annual compensation
(payable in monthly installments) not to exceed one (1) times the monthly fee
(exclusive of fees paid for committee membership or attendance) paid to the
Director Emeritus during his or her last full year of service as a member of the
Company's Board of Directors, subject to the following:
o the annual compensation paid to a Director Emeritus may not
exceed one (1) times the current monthly fee (exclusive of
fees paid for committee membership or attendance) paid to
active members of the Company's Board of Directors;
o the Board of Directors may elect to compensate a Director
Emeritus who is a former member of the Company's Board of
Directors an amount of annual compensation not to exceed one
(1) times the current monthly fee (exclusive of fees paid for
committee membership or attendance) paid to active members of
the Company's Board of Directors; and
o no fees for service as a Director Emeritus shall be paid to
any member or former member of the Company's Board of
Directors who is compensated pursuant to a Supplemental
Employee Retirement Plan ("SERP") including, without
limitation, a Salary Continuation Plan or other form of
agreement, with the Company or its subsidiaries.
12
Director Compensation Table
The following table shows the compensation of the Company's Board of
Directors during the fiscal year 2006.
- --------------------------------------------------------------------------------------------------------------------
Change in Pension Value and
Fees Earned or Nonqualified Deferred
Paid in Cash Option Awards Compensation Earnings Total
Name ($) ($)((2))((3)) ($) ($)
- --------------------------------------------------------------------------------------------------------------------
Dean F. Andal $10,050 $12,768 - $22,818
- --------------------------------------------------------------------------------------------------------------------
John O. Brooks (1) - $14,200 - $14,200
- --------------------------------------------------------------------------------------------------------------------
Eugene C. Gini $13,150 $ 7,200 - $20,350
- --------------------------------------------------------------------------------------------------------------------
Bryan R. Hyzdu (1) - $14,200 $23,960 $38,160
- --------------------------------------------------------------------------------------------------------------------
Robert D. Lawrence, M.D. $ 7,450 $ 7,200 - $14,650
- --------------------------------------------------------------------------------------------------------------------
Frances C. Mizuno $ 9,950 $ 7,200 - $17,150
- --------------------------------------------------------------------------------------------------------------------
Richard R. Paulsen $11,400 $ 7,200 - $18,600
- --------------------------------------------------------------------------------------------------------------------
Toni Marie Raymus $ 9,900 $ 7,200 - $17,100
- --------------------------------------------------------------------------------------------------------------------
Michael K. Repetto $ 9,050 $ 7,200 - $16,250
- --------------------------------------------------------------------------------------------------------------------
Anthony F. Souza $14,350 $ 7,200 - $21,550
- --------------------------------------------------------------------------------------------------------------------
Albert Van Veldhuizen $13,150 $ 7,200 $20,350
- --------------------------------------------------------------------------------------------------------------------
Donald L. Walters $10,050 $ 7,200 $17,250
- --------------------------------------------------------------------------------------------------------------------
(1) The compensation shown for Messrs. Brooks and Hyzdu is also included in the
Summary Compensation Table hereafter in this Proxy Statement.
(2) The amount reported in this column is the dollar amount recognized for
financial statement reporting purposes for 2006 in accordance with FAS
123(R). The assumptions used to calculate FAS 123(R) fair value are
described in Note 1 under the heading "Stock-based compensation" and Note
12 under the heading "Stock Option Plan" in the Notes to Consolidated
Financial Statements included in our Annual Report on Form 10-K for the
year ended December 31, 2006. No options were granted to directors in 2006.
(3) As of December 31, 2006, the aggregate number of unexercised stock options
(vested and unvested) held by each director is as follows: Mr. Andal,
15,375; Mr. Brooks, 54,375; Mr. Gini, 15,375; Mr. Hyzdu, 50,700; Dr.
Lawrence, 5,000; Mrs. Mizuno, 15,375; Mr. Paulsen, 15,375; Mrs. Raymus,
15,375; Mr. Repetto, 15,375; Mr. Souza, 15,375; Mr. VanVeldhuizen, 15,375;
and Mr. Walters, 15,375.
Grants of Plan-Based Awards Table for Directors
The Grants of Plan-Based Awards Table is omitted as no stock options
were granted to the Company's directors in the fiscal year ended December 31,
2006.
Shareholder Communications
A majority of the members of the Board of Directors, each of whom is
"independent" as defined under applicable NASDAQ listing rules, has established
procedures for receipt and delivery of shareholder communications addressed to
the Board of Directors. Any such shareholder communications, including
communications by employees of the Company solely in their capacity as
shareholders, should be mailed or delivered to the Company addressed as follows:
Board of Directors, Service 1st Bancorp, 49 W. 10th Street, Tracy, CA 95376.
13
Annual Meeting Attendance
The Company encourages members of its Board of Directors to attend the
Company's Annual Meeting of Shareholders each year. All of the directors, except
Directors Lawrence, Paulsen and Souza, attended the Company's Annual Meeting of
Shareholders held in 2006.
TRANSACTIONS WITH RELATED PERSONS
The Company has a policy that it does not enter into any transactions
covered under Item 404 of Regulation S-K with the exception of loans made by the
Bank. There have been no transactions, or series of similar transactions, during
2006, or any currently proposed transaction, or series of similar transactions,
to which the Company or the Bank was or is to be a party, in which the amount
involved exceeded or will exceed $120,000 and in which any director of the
Company or the Bank, executive officer of the Company or the Bank, any
shareholder owning of record or beneficially 5% or more of the Company's common
stock, or any member of the immediate family of any of the foregoing persons,
had, or will have, a direct or indirect material interest.
Some of the directors and officers of the Company and the companies
with which those directors and officers are associated are customers of, and
have had banking transactions with the Company, through the Bank, in the
ordinary course of the Company's business during 2006, and the Company expects
to have banking transactions with such persons in the future. In the opinion of
the Company'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 unrelated persons of similar creditworthiness and
did not involve more than a normal risk of collectibility or present other
unfavorable features. Loans to executive officers of the Company and the Bank
are subject to limitations as to amount and purposes prescribed in part by the
Federal Reserve Act, as amended, and the regulations of the Federal Deposit
Insurance Corporation.
14
COMPENSATION DISCUSSION AND ANALYSIS
Oversight of Executive Compensation Program
The Board of Directors has established a Compensation Committee and
adopted a written Compensation Committee Charter which is attached as Appendix C
to this Proxy Statement. The Compensation Committee oversees the Company's
compensation programs. The compensation programs include elements that are
designed specifically for the executive officers (the "Executives" or an
"Executive"), which include the Chief Executive Officer ("CEO"), President,
Chief Financial Officer ("CFO") and the other Executives named in the Summary
Compensation Table. Additionally, the Compensation Committee is charged with the
review and recommendation to the full Board of Directors of all annual
compensation decisions relating to the Executives and to Directors.
The Compensation Committee is composed primarily of non-employee
members of the Board of Directors. John O. Brooks and Bryan R. Hyzdu are
ex-officio members of the Compensation Committee and do not vote on compensation
issues. The Board of Directors has determined that each voting member of the
Compensation Committee is independent under applicable NASDAQ listing rules. No
Compensation Committee member, except Messrs. Brooks and Hyzdu, participates in
any of the Company's employee compensation programs. Each year the Company's
Audit Committee reviews any and all relationships that each director may have
with the Company and the Board of Directors subsequently reviews the findings of
the Audit Committee. Messrs. Brooks and Hyzdu were not present during the
Compensation Committee voting or deliberations regarding their respective
compensation.
The Compensation Committee has taken the following actions to improve
the links between Executive pay and performance:
o Including performance-based awards in the Company's incentive
programs;
o Hiring an independent compensation consultant to advise on
executive compensation issues;
o Realigning compensation structures based on a more clearly
defined competitive pay strategy; and
o Reviewing and approving the industry specific Peer Group (as
defined below) for more precise performance comparisons.
The responsibilities of the Compensation Committee, as stated in the
Compensation Committee Charter, include the following:
o Provide oversight to the Company's overall compensation
strategy and objectives pursuant to the goals of the Company.
o Review and recommend to the Board of Directors changes to the
structure and design of the compensation elements for the
Executives including: annual base salary, annual cash
incentives, long-term equity incentives, retirement plans
(401(k) deferred compensation and salary continuation plans),
change in control benefits and severance arrangements.
o Review and recommend to the Board of Directors changes in the
structure and design of the compensation elements for
directors of the Company and its subsidiaries and any
committees thereof, including cash (meeting fees and
retainers), long-term equity incentive plans and the Director
Emeritus Program.
o Review and recommend to the Board of Directors, the
appropriate peer group to be used in benchmarking compensation
for Executives and directors.
o Recommend annually to the Board of Directors the compensation
of the CEO, including base salary, annual cash incentive
opportunity and changes to other compensation elements.
15
o Recommend annually to the Board of Directors the compensation
of other Executives based on the recommendation of the CEO,
including base salary, annual cash incentive opportunity and
changes to other compensation elements.
o Recommend to the Board of Directors the performance criteria
required by the Company's Annual Incentive Plan for
Executives.
o Recommend to the Board of Directors changes to Company Board
member and/or subsidiary Board member compensation.
o Recommend to the Board of Directors equity grants to the
Executives, directors and other key employees, pursuant to
Board of Directors approved option granting methodology.
o Recommend to the Board of Directors additions to personnel
covered by the Company's Salary Continuation Plans.
o Recommend to the Board of Directors employment agreements for
the Executives.
o Periodically review and recommend to the Board of Directors
changes to Executive retirement benefits, employment
agreements, change in control benefits and severance
arrangements.
o Periodically review the Company succession plans relating to
positions held by the Executives and make recommendations to
the Board of Directors regarding the process for selecting the
individuals as successors.
o Evaluate the CEO's performance relative to the goals and
objectives of the Company and discuss evaluations of other
Executives with the CEO.
o Annually review and recommend changes deemed necessary to the
Compensation Committee Charter.
o Prepare and submit an appropriate "Compensation Committee
Report" pursuant to applicable regulations of the Securities
and Exchange Commission for inclusion in the management proxy
statement for each annual meeting of shareholders, stating,
among other matters, whether (i) the Compensation Committee
has reviewed and discussed the Compensation Discussion and
Analysis with management, and (ii) the Compensation Committee
has recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in such proxy
statement and the Company's Annual Report on Form 10-K.
o Perform such other duties and responsibilities as it may be
required by the rules and regulations that govern the Company
that are consistent with the purpose of the Compensation
Committee, or as the Board of Directors may deem appropriate.
Overview of Compensation Philosophy
The Compensation Committee's compensation philosophy was developed to
balance and align the interests of the Executives and shareholders. The
philosophy is intended to attract, motivate, reward and retain the most
qualified management talent required to achieve corporate objectives and
increase shareholder value, while at the same time the compensation philosophy
seeks to make the most efficient use of shareholder resources. The compensation
philosophy emphasizes rewards for performance in an effort to achieve these
goals.
The three primary components of compensation for the Executives are
base salary, annual cash incentive opportunity and long-term, equity-based
incentive compensation. The Company also provides the Executives with retirement
benefits that are earned over time.
To be effective, the compensation philosophy must reflect the corporate
mission, culture, and long-term goals of the Company. In order to recruit and
retain the most qualified and competent individuals as Executives, the Company
16
strives to maintain a compensation program that is competitive in its peer
industry labor market. The purpose of the compensation program is to reward
individual performance tied to the achievement of Company objectives. The
following objectives are considered in setting the compensation programs for the
Executives:
o reward performance which supports the Company's core values of
performance, integrity, teamwork, and advancement
opportunities;
o provide a significant percentage of total compensation that is
at-risk, or variable, based on predetermined performance
criteria;
o design competitive total compensation and rewards programs to
enhance the Company's ability to attract and retain
knowledgeable and experienced Executives; and
o set compensation and incentive levels that reflect competitive
marketplace and industry practices.
Compensation Consultant
In 2006, the Compensation Committee retained John Parry & Alexander, a
compensation and benefits consulting firm. John Parry & Alexander serves as an
independent compensation consultant to advise the Compensation Committee on all
matters related to the Executives' compensation and general compensation
programs. John Parry & Alexander participates in Compensation Committee meetings
on an as needed basis.
John Parry & Alexander assists the Compensation Committee by providing
comparative marketplace and industry data on compensation practices and programs
for the Executives based on an analysis of peer competitors. John Parry &
Alexander also provides guidance on industry best practices. John Parry &
Alexander advised the Compensation Committee in (1) determining base salaries,
(2) setting performance criteria for the Company's Annual Incentive Plan, (3)
determining the appropriateness of individual grant levels for stock option
awards, (4) evaluating the retirement plans and benefit amounts, (5) evaluating
any benefits that may qualify as perquisites, and (6) determining the
appropriateness of severance benefits related to events of termination or change
in control.
Peer Group and Benchmark Targets
The Compensation Committee selected a compensation peer group
consisting of a survey from the California Bankers' Association and a survey
prepared by the California Department of Financial Institutions (the "Survey
Data"). The Compensation Committee selected the institutions for the peer group
based on the asset ranges of the institutions and their geographical locations.
The Peer Group is used to benchmark executive compensation levels against
companies that have executive positions with responsibilities similar in breadth
and scope to the Company and that compete with the Company for executive talent.
Compensation Benchmarking Relative to Market
Using the Survey Data, we consider "marketplace compensation" to be the
median of the Survey Data. The Company targets total compensation at the median
or slightly above the median of the Survey Data, adjusted for excellent Company
and individual performance. Compensation elements such as base salary,
short-term and long-term incentives, retirement and other benefits may be
adjusted within total compensation at levels above or below the median of the
Survey Data based on decisions by the Compensation Committee and the Board of
Directors about the compensation elements, the Survey Data, as well as Company
and Executive performance, including the Executive's level of responsibility,
skill level, experience and contributions to the Company.
17
Review of Executive Performance
The Compensation Committee reviews, on an annual basis, each
compensation element for each Executive. In each case, the Compensation
Committee takes into account the scope of responsibilities and years of
experience and balances these against competitive salary levels and other
information contained in the Survey Data. The Compensation Committee has the
opportunity to interact with the Executives at various times during the year,
which allows the Compensation Committee to form its own assessment of each
Executive's performance.
In addition, the CEO presents to the Compensation Committee an annual
evaluation of each Executive, which includes a review of individual
contributions, performance against specific criteria, strengths and weaknesses,
as well as a development plan. Following this presentation and a review of the
Survey Data, the Compensation Committee makes its own assessments and approves
compensation for recommendation to the Board of Directors for each Executive.
18
Overview of Executive Compensation Elements
The Company's compensation program for Executives consists of several
compensation elements, as illustrated in the table below.
- -------------------------------------------------------------------------------------------------
Pay Element What the Pay Element Rewards Purpose of the Pay Element
- -------------------------------------------------------------------------------------------------
Base Salary Core competence in the Executive's Provides fixed compensation based on
role relative to skills, years of competitive market practices.
experience and contributions to
the Company.
- -------------------------------------------------------------------------------------------------
Short-Term Contributions toward the Provides focus on meeting annual goals
Annual Company's achievement of that lead to the long-term success of
Incentives specified profitability, growth, the Company. Motivates achievement of
and credit quality. annual performance criteria.
- -------------------------------------------------------------------------------------------------
Long-Term The Company's long-term incentives Attempts to align interests of
Incentives consist of stock option grants Executives with shareholder
that reward stock price interests related to stock price
performance and continued performance. Increases Executive
employment with the Company during ownership in the Company. Enhances
the vesting period. prospects for long-term retention in
a competitive labor market.
- -------------------------------------------------------------------------------------------------
Retirement The Company's employee benefit Encourages retention of Executives.
Benefits plans include both tax-qualified Provides a tax-deferred retirement
and nonqualified retirement plans savings plan subject to IRS limitations
which are available to eligible on qualified plans. The 401(k) Plan is
employees, including the described in more detail on page 23 of
Executives, to reward long-term this Proxy Statement. The Salary
service to the Company. The Continuation Plans make available
Company offers a qualified 401(k) retirement benefits for the Executives
program for participation by all comparable to peer group Survey Data.
employees, including Executives. The Salary Continuation Plans are
The Salary Continuation Plans for described in more detail on page 23 of
Executives are nonqualified and this Proxy Statement.
noncontributory plans that provide
the Executives with retirement
benefits.
- -------------------------------------------------------------------------------------------------
Health and As part of a broad-based and Encourages a healthy lifestyle and
Welfare competitive compensation program contributes to overall health and
Benefits to support long-term service to fitness that, among other factors, may
the Company, Executives reduce health related risks and
participate in employee health associated expense to the Company.
benefit plans generally available
to all employees, including
medical, health, life insurance,
disability plans, and vacation and
personal absence time.
- -------------------------------------------------------------------------------------------------
Additional The Executives receive certain Encourages retention of Executives in
Benefits additional benefits that may a competitive labor market with
and qualify as perquisites including benefits comparable to peer group
Perquisites contributions to (a) a health Survey Data.
savings account, (b) the 401(k)
Plan as matching funds, and (c)
reimburse taxes related to bank
owned life insurance acquired to
fund retirement benefits under
the salary continuation plans.
The perquisite amounts are
included in the Summary
Compensation Table on page 26 of
this Proxy Statement
- -------------------------------------------------------------------------------------------------
Change in The Executives have severance Severance payments under employment
Control and benefit provisions in their agreements are designed for retention
Severance respective employment agreements purposes to provide continuity of
Benefits which provide severance payments in management and to maintain business
certain events of termination or in focus and eliminate uncertainty
connection with a change in control regarding employment during a change in
of the Company. control that benefits shareholders. The
employment agreements are described in
more detail on page 30 of this Proxy
Statement
- -------------------------------------------------------------------------------------------------
19
The use of these compensation elements enables the Company to reinforce
its pay for performance philosophy, as well as strengthen the ability to attract
and retain highly qualified executive officers. The Compensation Committee
believes that this combination of elements provides an appropriate mix of fixed
and variable pay, balances short-term operational performance with long-term
shareholder value, and encourages recruitment and retention of executive
officers.
Detail of Executive Compensation Elements
The Compensation Committee believes the total compensation and benefits
program for Executives should consist of the following: base salary, annual cash
incentives, short-term and long-term incentives, retirement plans, health and
welfare benefits, certain perquisites and severance benefits in certain events
of termination or in connection with a change in control, as more fully
described below.
Base Salary
Increases to base salaries, if any, are driven primarily by individual
performance and comparative information from the Survey Data. Individual
performance is evaluated by reviewing the Executive's success in achieving
business results, promoting core values, focusing on the keys to success and
demonstrating leadership abilities.
In setting the base salary of the Executives for fiscal year 2006, the
Compensation Committee reviewed the Survey Data. The Compensation Committee also
considered the Company's continuing achievement of its short-term and long-term
goals to achieve specific profitability, growth and asset quality results.
The Compensation Committee based its compensation decisions on the
Company's performance related to the objectives listed above. The Compensation
Committee does not rely solely on predetermined formulas or a limited set of
criteria when it evaluates the performance of the Executives. The Compensation
Committee reviews the Survey Data, general economic conditions and marketplace
compensation trends with the assistance of its compensation consultant. The
Compensation Committee usually adjusts base salaries for Executives when:
o the current compensation levels deviate significantly from the
competitive marketplace data and information in the Survey
Data;
o recognizing outstanding individual performance; or
o recognizing an increase in responsibility.
Consistent with the general compensation philosophy described above,
the Compensation Committee strives to reward the Executives with a total
compensation package at the median or slightly above the median of the Survey
Data, adjusted for excellent Company and individual performance. The base
salaries paid to the CEO and other Executives during fiscal year 2006 are shown
in the Summary Compensation Table on page 26.
Short-Term Annual Incentives
The Annual Incentive Plan provides the Executives and participating
employees with the opportunity to earn cash incentives based on the achievement
of specific Company-wide, division or department, and individual performance
goals. The Compensation Committee designs the annual incentive component to
align Executive and employee compensation with annual (short-term) performance
criteria.
20
The Compensation Committee annually approves an incentive bonus pool
based on the budgeted net earnings goal for each year. If the net earnings goal
is exceeded, the Compensation Committee recommends that contributions be made to
the incentive bonus pool in an amount equal to 50% of the amount which exceeds
the net earnings goal. In addition to the achievement of the net earnings goal,
to be eligible to receive payment of a cash incentive, the Executives and
employees must each receive an individual performance evaluation of 3, 4 or 5
based on a five point scale as follows:
o 5 - clearly outstanding;
o 4 - exceeds expectations;
o 3 - meets expectations;
o 2 - below expectations; and
o 1 - unacceptable.
In the event that cash incentives are paid, the incentive bonus pool is
divided into percentage allocations as follows: 50% allocated for payment to the
Chairman/CEO group, 30% allocated for payment to other Executives as a group and
20% allocated for payment to all other employees as a group. Payments are then
allocated further among individuals within a group based on the ratio that the
base salary of an individual participant within a group bears to the total of
all base salaries of individuals in the same group. Payments, if any, are made
annually in April to coincide with annual performance evaluations, but only
after the Company's independent certified public accountants have audited the
results of operations and financial condition of the Company and determined that
no adjustments to the financial statements are necessary.
The budgeted net earnings goal for 2006 included an after-tax return on
beginning shareholders' equity in excess of 8.6% (equal to $1,400,000 or more in
net earnings). No cash incentives were paid or accrued under the Annual
Incentive Plan in 2006 as the Company failed to exceed the budgeted net earnings
goal.
Long-Term Incentives
An important objective of the long-term incentive program is to
strengthen the relationship between the long-term value of the Company's stock
performance and the potential financial gain for employees. The long-term
incentive component has historically been provided in the form of stock options
that vest and become exercisable ratably over not more than five years. The
Compensation Committee has used stock options, rather than other forms of
long-term incentives, because they create value for the Executives only if the
shareholder value is increased through an increased stock price. The
Compensation Committee believes that this creates strong alignment between the
interests of the Executives and shareholders. The stock options help the Company
attract and retain talented Executives.
Stock options provide the Executives with the opportunity to purchase
the Company's common stock at a price fixed on the grant date regardless of
future market price. The Compensation Committee's objective is to provide
Executives with awards that are consistent with the Survey Data and based on the
Executive's individual performance. A stock option becomes valuable only if the
Company's common stock price increases above the option exercise price and the
holder of the option remains employed during the period required for the option
to vest, which provides an incentive for the Executive to remain employed by the
Company. In addition, stock options link a portion of the Executive compensation
to shareholders' interests by providing an incentive to make decisions designed
to increase the market price of the Company's common stock.
21
The Company has two stock option plans. The 1999 Stock Option Plan was
adopted by the Board of Directors of the Bank on November 15, 1999, and approved
by shareholders at the 1999 Annual Meeting of Shareholders of the Bank held on
May 11, 2000 (the "1999 Plan"). The Company assumed the 1999 Plan and further
option grants were terminated in connection with the reorganization whereby the
Bank became a wholly-owned subsidiary of the Company effective June 26, 2003.
The 1999 Plan set aside 240,000 shares (378,000 shares as of April 5, 2007,
adjusted for stock dividends and stock splits) of no par value common stock of
the Company for the grant of incentive and nonstatutory stock options to key,
full-time salaried employees and officers of the Company, and to the
non-employee directors of the Company. Only nonstatutory options could be
granted to non-employee directors under the 1999 Plan.
The Company's 2004 Stock Option Plan was adopted by the Board of
Directors of the Company on February 19, 2004, and approved by shareholders at
the 2004 Annual Meeting of Shareholders held on May 27, 2004 (the "2004 Plan").
The 2004 Plan set aside 169,000 shares (253,500 shares as of April 5, 2007,
adjusted for a stock split in 2005) of no par value common stock of the Company
for the grant of incentive and nonstatutory stock options to key, full-time
salaried employees and officers of the Company, and to the non-employee
directors of the Company. Only nonstatutory options could be granted to
non-employee directors under the 2004 Plan. The terms of the 2004 Plan are
substantially similar to the terms of the 1999 Plan described below.
Options granted under the 1999 Plan were either incentive options or
nonstatutory options, however, only nonstatutory options were permitted to be
granted to non-employee directors. Options granted became exercisable in
accordance with a vesting schedule established at the time of grant. Vesting
could not extend beyond ten years from the date of grant. Upon a change in
control of the Company, options under the 1999 Plan become fully vested and
exercisable, or may be assumed or equivalent options may be substituted by a
successor corporation. Options are adjusted to protect against dilution in the
event of certain changes in the Company's capitalization, including stock splits
and stock dividends. All options granted under the 1999 Plan have an exercise
price equal to the fair market value of the common stock on the date of grant.
No options were granted under the 1999 Plan from and after June 26, 2003, the
Effective Date of the reorganization described above and future grants of
options thereunder were terminated, in accordance with the permit issued by the
California Commissioner of Corporations to authorize the exchange of shares of
common stock of the Company for the outstanding shares of common stock of the
Bank in the reorganization.
Option grant recommendations are made at Compensation Committee
meetings scheduled in advance to meet appropriate deadlines for compensation
related decisions. The Compensation Committee then recommends the grants to the
full Board of Directors for their approval. The Company's practice is that the
full Board of Directors approves all stock option grants at regularly scheduled
meetings. The meetings are held after the close of the U.S. stock markets and
the Board of Directors sets the exercise price for each stock option using the
closing price of the Company's stock price on the date of grant.
There is a limited term which is not more than ten years from the date
of grant in which the Executive can exercise vested stock options. At the end of
this option term, the right to purchase Company stock subject to any unexercised
options expires. Option holders generally forfeit any unvested options if their
employment with the Company terminates.
In certain instances, stock options may vest on an accelerated
schedule. A change of control may trigger accelerated vesting. In this instance,
all unvested options will vest as of the date of the change in control.
22
Retirement Benefits
The Company offers retirement programs that are intended to supplement
the employee's personal savings and social security. The programs include the
Company 401(k) Plan ("401(k) Plan") and Salary Continuation Plans. All employees
who work at least one year for 1,000 or more hours, including the Executives,
are generally eligible to participate in the 401(k) Plan. Only the Executives
have entered into Salary Continuation Plans with the Company.
o 401(k) Plan
The Company adopted the 401(k) Plan to enable employees to save for
retirement through a tax-advantaged combination of employee and Company
contributions and to provide employees the opportunity to directly manage their
retirement plan assets through a variety of investment options. The 401(k) Plan
allows eligible employees, including the Executives, to elect to contribute from
1% to 100% of their eligible compensation to an investment trust. Eligible
compensation generally means all wages, salaries and fees for services from the
Company. Employee contributions are matched in cash by the Company at the rate
of 100% for the first 2% of the employee's salary. Such contributions vest
immediately. The 401(k) Plan provides different investment options, for which
the participant has sole discretion in determining how both the employer and
employee contributions are invested. The 401(k) Plan does not provide the
employees the option to invest directly in the Company's common stock. The
401(k) Plan offers in-service withdrawals in the form of loans, hardship
distributions, after-tax account distributions and age 59.5 distributions. The
401(k) Plan benefits are payable pursuant to the participant's election in the
form of a single lump sum.
o Salary Continuation Plans
The Salary Continuation Plans are structured as individual
agreements with the Executives. The terms of the agreements include the amounts
each will receive upon the occurrence of certain specified events, including
normal retirement and in the case of Mr. Hyzdu and Ms. Reinard, early retirement
on or after a specified age coinciding with fifteen (15) years of service. A
lump-sum premium payment of approximately three million one hundred ninety-four
thousand dollars ($3,194,000) was paid to acquire insurance policies on the
lives of the named executive officers as a funding mechanism in connection with
the agreements. The Bank is the owner and beneficiary of the policies and is
entitled to the increase in cash surrender value represented by the policies.
The increase in cash surrender value is accrued monthly and reflected in the
Company's consolidated financial statements as a category under "Other income."
The Bank reimburses the Executives each year in an amount to satisfy payroll
taxes applicable to each Executive related to the insurance, which amounts are
reflected in the Summary Compensation Table.
The agreements provide for the following annual retirement benefit
payments:
o forty thousand dollars ($40,000) for Mr. Brooks at age sixty-six
(66);
o one hundred thirty-three thousand dollars ($133,000) for Mr. Hyzdu
at age sixty-five (65) and a reduced amount upon early retirement
beginning at age fifty-six (56) or thereafter and prior to normal
retirement ranging from seventy-seven thousand nine hundred
seventy-four dollars ($77,974) to one hundred twenty-six thousand
eight hundred eighty-six dollars ($126,886);
o seventy-one thousand dollars ($71,000) for Mr. Bloch at age
sixty-five (65);
o seventy-seven thousand dollars ($77,000) for Mr. Carman at age
sixty-five (65); and
o sixty-four thousand dollars ($64,000) for Ms. Reinard at age
sixty-five (65) and a reduced amount upon early retirement
beginning at age fifty-nine (59) or thereafter and prior to normal
retirement ranging from thirty eight thousand one hundred eighteen
dollars ($38,118) to fifty-eight thousand eight hundred
thirty-eight dollars ($58,838).
23
See the discussion under the heading "Salary Continuation Plans" on
page 23 for more information regarding the agreements.
Health and Welfare Benefits
The Company offers a variety of health and welfare programs to all
eligible employees. The Executives generally are eligible for the same benefit
programs on the same basis as the rest of the broad-based employees. The health
and welfare programs are intended to protect employees against health risks and
encourage a healthy lifestyle. The health and welfare programs include medical,
pharmacy, dental, vision, life insurance, accidental death and disability, paid
vacation and personal absence time. Coverage under the life and accidental death
and disability programs offer benefit amounts specific to each Executive.
The Company offers a long-term disability program that provides income
replacement to Executives after a 90-day disability period at a rate of 66.67%
of basic monthly earnings up to a maximum of $10,000 per month until normal
Social Security retirement age or recovery per the terms and conditions of the
program. All other employees are eligible to receive 66.67% of basic monthly
earnings to a maximum of $10,000 per month.
Perquisites
The Compensation Committee annually reviews payments to Executives that
may qualify as perquisites to determine if such payments are appropriate and
whether any adjustments are required. All such payments are included in the
Summary Compensation Table on page 26.
Change in Control and Termination Benefits
In June 2004, the Company entered into employment agreements with
Messrs. Brooks, Hyzdu, Carman and Bloch, and Ms. Reinard. The agreements provide
for a base salary which is included in the Summary Compensation Table on page
26. The agreements may be terminated with or without cause, but if an agreement
is terminated without cause under certain specified circumstances, the Executive
is entitled to receive severance compensation in the amount specified. Each
agreement further provides that in the event of a "change in control" as defined
therein and within a specified period following consummation of such change in
control (i) the employee's employment is terminated; or (ii) any adverse change
occurs in the nature and scope of the employee's salary or benefits; or (iii)
any event occurs which reasonably constitutes a constructive termination of
employment, by resignation or otherwise, then the employee will be entitled to
receive severance compensation in the amount specified, less applicable
withholding deductions (in addition to salary, incentive compensation, or other
payments, if any, due the Executive). See the discussion under the heading
"Employment Agreements" on page 30.
24
COMPENSATION COMMITTEE REPORT
The Compensation Committee reviewed and discussed the Compensation
Discussion and Analysis included in this proxy statement with management. Based
on such review and discussion, the Compensation Committee recommended to the
Board of Directors that the Compensation Discussion and Analysis be included in
this proxy statement for filing with the Securities and Exchange Commission.
Submitted by the Compensation Committee of the Board of Directors:
/s/ JOHN O. BROOKS /s/ EUGENE C. GINI /s/ BRYAN R. HYZDU
- ------------------ ------------------ ------------------
/s/ FRANCES C. MIZUNO /s/ RICHARD R. PAULSEN /s/ ANTHONY F. SOUZA
- --------------------- ---------------------- --------------------
25
EXECUTIVE COMPENSATION
The following table shows the cash and non-cash compensation awarded to
or earned by individuals who served as our chief executive officer, chief
financial officer and other most highly compensated executive officers in all
capacities during fiscal year 2006.
Summary Compensation Table
- ------------------------------------------------------------------------------------------------------------------------------------
Change in
Pension
Value and
Nonqualified
Non-Equity Deferred
Stock Option Incentive Plan Compensation All Other
Salary Bonus Awards Awards Compensation Earnings Compensation Total
Name and Principal Position ($)(2) ($)(3) ($) ($)(4) ($) ($)(5) ($)(6) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
John O. Brooks, Chairman
of the Board and Chief
Executive Officer of the $143,557 -- -- $14,200 -- -- $ 9,430 $167,187
Company; Chairman of the
Board of the Bank and Charter
Services Group, Inc.(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Bryan R. Hyzdu, President
of the Company; President and
Chief Executive Officer of the $170,237 -- -- $14,200 -- $20,879 $10,539 $215,855
Bank and Charter Services
Group, Inc. (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Bloch, Executive
Vice President and Chief
Financial Officer of the $118,219 -- -- $ 7,200 -- $59,312 $10,863 $195,594
Company, the Bank and Charter
Services Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick Carman, Executive Vice
President and Chief Operating $124,125 -- -- $ 7,200 -- $39,732 $10,408 $181,465
Officer/Chief Credit Officer of
the Bank (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Shannon Reinard, Executive
Vice President and $ 81,719 -- -- $17,800 -- $13,658 $ 5,914 $113,177
Operations Manager of the
Bank
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Effective April 1, 2007, Mr. Brooks assumed the position as Chief
Executive Officer of the Bank, Patrick Carman assumed the position of
President of the Bank, and Mr. Hyzdu relinquished his positions as
President and Chief Executive Officer of the Bank in order to focus
full-time on the development of the Company's non-bank subsidiary,
Charter Services Group, Inc., as its President and Chief Executive
Officer.
(2) Amounts shown include cash and non-cash compensation earned and
received by executive officers as well as amounts earned but deferred
at the election of those officers under the 401(k) Plan and amounts
paid for auto allowance which was added to the base salary of each
executive officer. Mr. Brook's voluntarily agreed to a reduced salary
during 2006, to the amount reflected in the table and provided under
the terms of his employment agreement dated July 15, 2004, to reflect
the comparable reduction in his availability due to illness. The
executive officer employment agreements, each dated July 15, 2004, are
discussed hereafter in this Proxy Statement under the heading
"Post-Employment Payments."
(3) No incentive bonus compensation was accrued or paid in 2006.
26
(4) The amount reported in this column is the dollar amount recognized for
financial statement reporting purposes for 2006 in accordance with FAS
123(R). The assumptions used to calculate FAS 123(R) fair value are
described in Note 1 under the heading "Stock-based compensation" and
Note 12 under the heading "Stock Option Plan" in the Notes to
Consolidated Financial Statements included in our Annual Report on
Form 10-K for the year ended December 31, 2006. No options were
granted to the named executive officers in 2006. The Company has a
2004 Stock Option Plan (the "2004 Plan") which was adopted by the
Board of Directors of the Company on February 19, 2004, and approved
by shareholders at the 2004 Annual Meeting of Shareholders held on May
27, 2004. The Company also has a 1999 Stock Option Plan pursuant to
which options are outstanding, which was adopted by the Board of
Directors of the Bank on November 15, 1999, and approved by
shareholders at the 1999 Annual Meeting of Shareholders of the Bank
held on May 11, 2000 (the "1999 Plan"). The terms of the 2004 Plan are
substantially similar to the terms of the 1999 Plan. Under the 1999
Plan, options were permitted to be granted to non-employee directors,
officers and employees of Service 1st Bank. Options granted under the
1999 Plan were either incentive options or nonstatutory options,
however, only nonstatutory options were permitted to be granted to
non-employee directors. Options granted became exercisable in
accordance with a vesting schedule established at the time of grant.
Vesting could not extend beyond ten years from the date of grant. The
Company assumed the 1999 Plan in connection with the reorganization
whereby the Bank became a wholly-owned subsidiary of the Company. Upon
a change in control of the Company, options under the 1999 Plan become
fully vested and exercisable, or may be assumed or equivalent options
may be substituted by a successor corporation. Options are adjusted to
protect against dilution in the event of certain changes in the
Company's capitalization, including stock splits and stock dividends.
All options granted to the named executive officers are incentive
stock options and have an exercise price equal to the fair market
value of the common stock on the date of grant. No options were
granted under the 1999 Plan from and after June 26, 2003, the
Effective Date of the reorganization described above and future grants
of options thereunder were terminated, in accordance with the permit
issued by the California Commissioner of Corporations to authorize the
exchange of shares of common stock of the Company for the outstanding
shares of common stock of the Bank in the reorganization. See the
discussion under the heading "Long-Term Incentives" on page 21 for
more information regarding the Company's 2004 Plan and 1999 Plan.
(5) The amount reported in the column represents the increase in the
actuarial net present value of all future retirement benefits under
the executive officer's salary continuation plan. The executive
officers may not be entitled to the benefit amounts included as the
salary continuation plan is not vested.
(6) Amounts shown include (i) $464 as disability insurance premiums for
Mr. Hyzdu; (ii) contributions to a health savings account for Messrs.
Hyzdu, Bloch and Carman in the amount of $3,600, respectively, and for
Mr. Brooks and Ms. Reinard in the amount of $2,700, respectively;
(iii) a reimbursement payment to satisfy payroll taxes applicable to
bank owned life insurance for the salary continuation plans for
Messrs. Brooks, Hyzdu, Bloch and Carman and Ms. Reinard in the amounts
of $6,730, $2,098, $3,068, $3,034 and $1,015, respectively; and (iv)
matching contributions on deferrals under the Company's 401(k) Plan
for Messrs. Hyzdu, Bloch and Carman and Ms. Reinard in the amounts of
$4,377, $4,195, $3,774, and $2,199, respectively. No matching
contributions were made for Mr. Brooks. Generally, all Company
employees are eligible to participate in the 401(k) Plan.
Participating employees may defer a portion of their compensation in
the 401(k) Plan and the Company, at its option, may make matching
contributions on participant's deferrals. During 2006, the Company
matched 100% of the first 2% of the amount deferred by participating
employees.
GRANTS OF PLAN-BASED AWARDS
The Grants of Plan-Based Awards Table has been omitted as no stock
options were granted to the executive officers named in the Summary Compensation
Table in the fiscal year ended December 31, 2006.
27
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table shows the outstanding exercised stock options,
unvested restricted stock and other equity incentive plan awards held at the end
of fiscal year 2006 by the Company's executive officers named in the Summary
Compensation Table. Data in the table below has been adjusted, as applicable,
for stock dividends and stock splits.
Outstanding Equity Awards At Fiscal Year-End Table
- ------------------------------------------------------------------------------------------------------------------------------------
Option Awards Stock Awards
------------------------------------------------------------------------------------------------------------------
Equity
Equity Number Equity Incentive
Incentive of Incentive Plan Awards:
Number of Number of Plan Shares Market Plan Awards: Market or
Securities Securities Awards: or Value of Number of Payout Value
Underlying Underlying Number of Units of Shares or Unearned of Unearned
Unexercised Unexercised Securities Stock Units of Shares, Units Shares, Units
Options Options Underlying That Stock or Other or Other
(#) (#) Unexercised Option Have That Rights That Rights That
------------- --------------- Unearned Exercise Option Not Have Not Have Not Have Not
Options Price Expiration Vested Vested Vested Vested
Name Exercisable Unexercisable (#) ($) Date (#) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
John O. Brooks 39,375 (1) -- -- $ 6.35 11/1/10 -- -- -- --
5,000 (2) 10,000 -- $12.33 6/16/15 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Bryan R. Hyzdu 31,500 (3) -- -- $ 6.35 11/15/09 -- -- -- --
5,000 (4) 10,000 -- $12.33 6/16/15 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Bloch 23,625 (5) -- -- $ 6.03 3/26/11 -- -- -- --
2,500 (6) 5,000 -- $12.33 6/16/15 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick Carman 15,750 (7) -- -- $ 6.25 8/7/10 -- -- -- --
2,500 (8) 5,000 -- $12.33 6/16/15 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Shannon Reinard 10,000 (9) 5,000 -- $ 9.30 10/25/14 -- -- -- --
2,500 (10) 5,000 -- $12.33 6/16/15 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The stock options vest ratably over three years commencing one year
after the grant date and 100% were vested as of December 31, 2006.
(2) The stock options vest ratably over three years commencing one year
after the grant date and 33.3% were vested as of December 31, 2006
with the remaining vesting of 33.3% to occur on June 16, 2007 and
33.3% on June 16, 2008.
(3) The stock options vest ratably over three years commencing one year
after the grant date and 100% were vested as of December 31, 2006.
(4) The stock options vest ratably over three years commencing one year
after the grant date and 33.3% were vested as of December 31, 2006
with the remaining vesting of 33.3% to occur on June 16, 2007 and
33.3% on June 16, 2008.
(5) The stock options vest ratably over three years commencing one year
after the grant date and 100% were vested as of December 31, 2006.
(6) The stock options vest ratably over three years commencing one year
after the grant date and 33.3% were vested as of December 31, 2006
with the remaining vesting of 33.3% to occur on June 16, 2007 and
33.3% on June 16, 2008.
(7) The stock options vest ratably over three years commencing one year
after the grant date and 100% were vested as of December 31, 2006.
(8) The stock options vest ratably over three years commencing one year
after the grant date and 33.3% were vested as of December 31, 2006
with the remaining vesting of 33.3% to occur on June 16, 2007 and
33.3% on June 16, 2008.
(9) The stock options vest ratably over three years commencing one year
after the grant date and 66.7% were vested as of December 31, 2006
with the remaining vesting to occur on October 25, 2007.
(10) The stock options vest ratably over three years commencing one year
after the grant date and 33.3% were vested as of December 31, 2006
with the remaining vesting of 33.3% to occur on June 16, 2007 and
33.3% on June 16, 2008.
(11) The fair market value per share of the Company's common stock at the
fiscal year-end was $19.25.
28
OPTION EXERCISES AND STOCK VESTED
The Option Exercises and Stock Vested Table is omitted as there were no
stock option awards exercised by or restricted stock and restricted stock unit
awards vested for the executive officers named in the Summary Compensation Table
during fiscal year 2006.
PENSION BENEFITS
The following table summarizes information with respect to each plan
that provides for payments or other benefits at, following, or in connection
with the retirement of any of the executive officers named in the Summary
Compensation Table.
Pension Benefits Table
- ------------------------------------------------------------------------------------------------------------------------
Number of Present Value Payments During
Years of Accumulated Last
Credited Service Benefit Fiscal Year
Name Plan Name (1) (#)(2) ($)(3) ($)
- ------------------------------------------------------------------------------------------------------------------------
John O. Brooks Salary Continuation Plan 3 $361,825 --
- ------------------------------------------------------------------------------------------------------------------------
Bryan R. Hyzdu Salary Continuation Plan 3 $ 47,533 --
- ------------------------------------------------------------------------------------------------------------------------
Robert E. Bloch Salary Continuation Plan 3 $129,434 --
- ------------------------------------------------------------------------------------------------------------------------
Patrick Carman Salary Continuation Plan 3 $ 92,618 --
- ------------------------------------------------------------------------------------------------------------------------
Shannon Reinard Salary Continuation Plan 1 $ 18,820 --
- ------------------------------------------------------------------------------------------------------------------------
(1) The salary continuation plans are more fully described under the heading
"Salary Continuation Plans" on page 23.
(2) Years of credited service represents the number of years the executive
officer has participated in the pension benefit plan. Normal retirement age
is 65.
(3) Includes amounts which the executive officer may not be currently entitled
to receive because those amounts are not vested.
NONQUALIFIED DEFERRED COMPENSATION
The Nonqualified Deferred Compensation Table is omitted as the Company
does not have any nonqualified deferred compensation plans. The Company has a
qualified 401(k) Plan in which the executive officers named in the Summary
Compensation Table participate on the same basis as other Company employees. See
footnote 6 to the Summary Compensation Table and discussion under the heading
"401(k) Plan" on page 23 for additional information regarding the 401(k) Plan.
29
EQUITY COMPENSATION PLAN INFORMATION
The table below lists information regarding Company common stock
issuable upon the exercise of stock options, the weighted average exercise price
of those options and the number of shares available for issuance under the 2004
and 1999 Stock Option Plans at year-end 2006 (adjusted, as applicable, for stock
dividends and stock splits). The Company has no other equity compensation plan
and there are no warrants or other rights outstanding that would result in the
issuance of shares of Company common stock.
- ------------------------------------------------------------------------------------------------------------------------------
Plan Category Number of securities to be Weighted-average Number of securities remaining
issued upon exercise of exercise price of available for future issuance
outstanding options, outstanding options, under equity compensation
warrants and rights warrants and rights plans (excluding securities
reflected in column (a))
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security 419,113 $5.81 46,875
holders
- ------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security -- -- --
holders
- ------------------------------------------------------------------------------------------------------------------------------
Total 419,113 $5.81 46,875
- ------------------------------------------------------------------------------------------------------------------------------
(1) Shares reserved but unissued remain available for grant during any
subsequent calendar year. Awards that expire or are cancelled, forfeited or
terminated before being exercised again become available for future awards
under the 2004 Plan.
POST-EMPLOYMENT PAYMENTS
Employment Agreements
The Company has entered into employment agreements with the executive
officers named in the Summary Compensation Table. Each such employment agreement
includes certain provisions providing benefits to the executive officers which
are substantially identical as follows:
o an annual base salary that includes an auto allowance as reflected
in the Summary Compensation Table, which is subject to annual
adjustment increase during the term in the discretion of the Board
of Directors;
o an annual bonus payment in an amount to be determined in the
discretion of the Board of Directors based upon the Company's
profitability and implementation of strategic plans;
o four (4) weeks annual vacation;
o group life, health and disability insurance benefits;
o reimbursement of business expenses incurred on behalf of the
Company;
o group life and medical insurance benefits; and
o continuation of group insurance coverages for the executive officer
and his or her dependents at the expense of the Company for a
period of one hundred eighty (180) days from the date of
termination without cause or in connection with a change in control
from the date of termination or the occurrence of certain events
deemed to be the equivalent of termination.
John Brooks Employment Agreement. The Company and John O. Brooks
entered into an employment agreement dated July 15, 2004, which replaced a prior
employment agreement dated November 1, 2000. Mr. Brooks currently serves as the
Chairman of the Board of Directors and Chief Executive Officer of the Company
and the Bank, and Chairman of the Board of Directors of Charter Services Group,
Inc. The employment agreement has a two (2) year term, subject to renewal and
30
termination rights of the Company and Mr. Brooks. In addition to the provisions
common to all of the employment agreements as described above, Mr. Brooks'
employment agreement includes the following severance provisions for certain
termination events including a change in control of the Company:
o severance payments in connection with an involuntary termination
without cause equal to twelve (12) months of base salary payable in
bi-monthly installments commencing with the month immediately
following the termination; and
o severance payments in connection with an involuntary termination or
certain events deemed to be the equivalent of termination occurring
within twenty-four (24) months following a change in control, or
upon voluntary resignation at any time during the period commencing
on the expiration of six (6) months following a change in control
through the expiration of twelve (12) months following a change in
control, equal to twenty-four (24) months of base salary payable in
lump sum within thirty (30) days of any such termination, event or
resignation.
Bryan Hyzdu Employment Agreement. The Company and Bryan R. Hyzdu
entered into an employment agreement dated July 15, 2004, which replaced a prior
severance agreement dated November 1, 2002. Mr. Hyzdu currently serves as the
President of the Company and President and Chief Executive Officer of Charter
Services Group, Inc. The employment agreement has a three (3) year term, subject
to renewal and termination rights of the Company and Mr. Hyzdu. In addition to
the provisions common to all of the employment agreements as described above,
Mr. Hyzdu's employment agreement includes the following severance provisions for
certain termination events including a change in control of the Company:
o severance payments in connection with an involuntary termination
without cause equal to twelve (12) months of base salary payable in
bi-monthly installments commencing with the month immediately
following the termination; and
o severance payments in connection with an involuntary termination or
certain events deemed to be the equivalent of termination occurring
within twenty-four (24) months following a change in control, or
upon voluntary resignation at any time during the period commencing
on the expiration of six (6) months following a change in control
through the expiration of twelve (12) months following a change in
control, equal to twenty-four (24) months of base salary payable in
lump sum within thirty (30) days of any such termination, event or
resignation.
Robert Bloch Employment Agreement. The Company and Robert E. Bloch
entered into an employment agreement dated July 15, 2004, which replaced a prior
offer of employment letter by the Bank dated February 26, 2001. Mr. Bloch
currently serves as Executive Vice President and Chief Financial Officer of the
Company, the Bank and Charter Services Group, Inc. The employment agreement has
a three (3) year term, subject to renewal and termination rights of the Company
and Mr. Bloch. In addition to the provisions common to all of the employment
agreements as described above, Mr. Bloch's employment agreement includes the
following severance provisions for certain termination events including a change
in control of the Company:
o severance payments in connection with an involuntary termination
without cause equal to six (6) months of base salary payable in
bi-monthly installments commencing with the month immediately
following the termination; and
o severance payments in connection with an involuntary termination or
certain events deemed to be the equivalent of termination occurring
within twenty-four (24) months following a change in control, or
upon voluntary resignation at any time during the period commencing
on the expiration of six (6) months following a change in control
through the expiration of twelve (12) months following a change in
control, equal to twelve (12) months of base salary payable in lump
sum within thirty (30) days of any such termination, event or
resignation.
31
Patrick Carman Employment Agreement. The Company and Patrick Carman
entered into an employment agreement dated July 15, 2004, which replaced a prior
offer of employment letter by the Bank dated May 26, 2000. Mr. Carman currently
serves as President and Chief Operating Officer/Chief Credit Officer of the
Bank. The employment agreement has a three (3) year term, subject to renewal and
termination rights of the Company and Mr. Carman. In addition to the provisions
common to all of the employment agreements as described above, Mr. Carman's
employment agreement includes the following severance provisions for certain
termination events including a change in control of the Company:
o severance payments in connection with an involuntary termination
without cause equal to six (6) months of base salary payable in
bi-monthly installments commencing with the month immediately
following the termination; and
o severance payments in connection with an involuntary termination or
certain events deemed to be the equivalent of termination occurring
within twenty-four (24) months following a change in control, or
upon voluntary resignation at any time during the period commencing
on the expiration of six (6) months following a change in control
through the expiration of twelve (12) months following a change in
control, equal to twelve (12) months of base salary payable in lump
sum within thirty (30) days of any such termination, event or
resignation.
Shannon Reinard Employment Agreement. The Company and Shannon Reinard
entered into an employment agreement dated July 15, 2004, which replaced an
offer letter dated February 7, 2002. Ms. Reinard currently serves as Executive
Vice President and Operations Manager of the Bank. The employment agreement has
a three (3) year term, subject to renewal and termination rights of the Company
and Ms. Reinard. In addition to the provisions common to all of the employment
agreements as described above, Ms. Reinard's employment agreement includes the
following severance provisions for certain termination events including a change
in control of the Company:
o severance payments in connection with an involuntary termination
without cause equal to six (6) months of base salary payable in
bi-monthly installments commencing with the month immediately
following the termination; and
o severance payments in connection with an involuntary termination or
certain events deemed to be the equivalent of termination occurring
within twenty-four (24) months following a change in control, or
upon voluntary resignation at any time during the period commencing
on the expiration of six (6) months following a change in control
through the expiration of twelve (12) months following a change in
control, equal to twelve (12) months of base salary payable in lump
sum within thirty (30) days of any such termination, event or
resignation.
Salary Continuation Plans
Recognizing the importance of building and retaining a competent
management team, additional agreements were entered into with Messrs. Brooks,
Hyzdu, Bloch and Carman effective as of September 10, 2003, and with Ms. Reinard
effective as of June 1, 2005, in each case to provide post-retirement benefits
to the named executive officers. The agreements for Messrs. Hyzdu, Bloch and
Carman were amended on August 8, 2005, among other matters, to:
o conform certain benefit factors among the agreements for Messrs.
Hyzdu, Bloch, Carman and Ms. Reinard including age, service and
compensation factors;
o adjust the annual retirement benefit payments to the amounts
specified below to reflect such factors and cost of living
adjustments based thereon; and
o change the normal retirement age from sixty-six (66) to age
sixty-five (65).
The terms of the agreements with the named executive officers include
the amounts each will receive upon the occurrence of certain specified events,
including normal retirement and in the case of Mr. Hyzdu and Ms. Reinard, early
32
retirement on or after a specified age coinciding with fifteen (15) years of
service. A lump-sum premium payment of approximately three million one hundred
ninety-four thousand dollars ($3,194,000) was paid to acquire insurance policies
on the lives of the named executive officers as a funding mechanism in
connection with the agreements. The Bank is the owner and beneficiary of the
policies and is entitled to the increase in cash surrender value represented by
the policies. The increase in cash surrender value is accrued monthly and
reflected in the Company's consolidated financial statements as a category under
"Other income." The Bank pays a bonus payment each year to the named executive
officers to satisfy taxes applicable to each named executive officer which
amounts are reflected in the Summary Compensation Table.
The agreements provide for the following annual retirement benefit
payments:
o forty thousand dollars ($40,000) for Mr. Brooks at age sixty-six
(66);
o one hundred thirty-three thousand dollars ($133,000) for Mr. Hyzdu
at age sixty-five (65) and a reduced amount upon early retirement
beginning at age fifty-six (56) or thereafter and prior to normal
retirement ranging from seventy-seven thousand nine hundred
seventy-four dollars ($77,974) to one hundred twenty-six thousand
eight hundred eighty-six dollars ($126,886);
o seventy-one thousand dollars ($71,000) for Mr. Bloch at age
sixty-five (65);
o seventy-seven thousand dollars ($77,000) for Mr. Carman at age
sixty-five (65); and
o sixty-four thousand dollars ($64,000) for Ms. Reinard at age
sixty-five (65) and a reduced amount upon early retirement
beginning at age fifty-nine (59) or thereafter and prior to normal
retirement ranging from thirty eight thousand one hundred eighteen
dollars ($38,118) to fifty-eight thousand eight hundred
thirty-eight dollars ($58,838).
The annual retirement benefit amounts are each payable in equal monthly
installments over a fifteen (15) year period. In the event of an employee's
death, all remaining amounts due are anticipated to be paid to the employee's
designated beneficiary over the remaining payout period. Other events which may
alter when payment of the annual retirement benefit is to begin, or the amount
which is to be paid, include the following:
o disability prior to normal retirement or early termination other
than for cause, death, disability or a change of control, in which
cases the executive officer shall be entitled to a lesser benefit
payment amount based upon an accrual balance representing the
liability accrued to satisfy the benefit payments due to the
executive officer; and
o termination within a specified period following a change of
control, in which case the executive officer is entitled to receive
the normal retirement benefit payment described above in equal
monthly installments for fifteen (15) years beginning in the month
following the executive officer's normal retirement age.
Change of Control
Management is not aware of an arrangement which may, at a subsequent
date, result in a change of control of the Company.
33
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Vavrinek, Trine, Day & Co., LLP, certified
public accountants, served the Company and the Bank as independent public
accountants and auditors in connection with various services described below for
the 2006 and 2005 fiscal years at the direction of the Board of Directors of the
Company. Vavrinek, Trine, Day & Co., LLP has no interests, financial or
otherwise, in the Company. The services rendered by Vavrinek, Trine, Day & Co.,
LLP during the 2006 and 2005 fiscal years were audit services, consultation in
connection with various accounting matters and preparation of tax returns.
The table below summarizes the services rendered to the Company by
Vavrinek, Trine, Day & Co., LLP, during the 2006 and 2005 fiscal years.
- --------------------------------------------------------------------------------
Category of Services Fiscal Year 2006 Fiscal Year 2005
- --------------------------------------------------------------------------------
Audit Fees (1) $44,000 $37,000
- --------------------------------------------------------------------------------
Audit-Related Fees (2) --
- --------------------------------------------------------------------------------
Tax Fees (3) 4,000 5,000
- --------------------------------------------------------------------------------
All Other Fees --
- --------------------------------------------------------------------------------
Total Accounting Fees $48,000 $42,000
- --------------------------------------------------------------------------------
(1) Audit fees consisted of services for the audit of the financial statements
included in the Company's annual report on Form 10-K for the year ended
December 31, 2006 and Form 10-KSB for the year ended December 31, 2005,
and for reviews of the financial statements included in the Company's
quarterly reports on Form 10-QSB during the fiscal years 2006 and 2005.
(2) Audit-related fees consisted of general assistance on SEC matters.
(3) Tax fees consisted primarily of assistance relating to tax compliance and
reporting.
The Audit Committee approved each professional service rendered by
Vavrinek, Trine, Day & Co., LLP during the 2006 and 2005 fiscal years and
considered whether the provision of such services is compatible with Vavrinek,
Trine, Day & Co., LLP maintaining its independence. The approval of such
professional services included pre-approval of all audit and permissible
non-audit services provided by Vavrinek, Trine, Day & Co., LLP. These services
included audit, tax and other services described above. The Audit Committee
Charter attached as Appendix B includes a policy of pre-approval of all services
provided by the Company's independent public accountants. The Audit Committee
approved one hundred percent (100%) of all such professional services provided
by Vavrinek, Trine, Day & Co., LLP during the 2006 and 2005 fiscal years. It is
anticipated that one or more representatives of Vavrinek, Trine, Day & Co., LLP
will be present at the Annual Meeting and will be able to make a statement if
they so desire and answer appropriate questions.
The Board of Directors has selected Vavrinek, Trine, Day & Co., LLP to
serve as the Company's independent public accountants for the year 2007. The
ratification of the selection of Vavrinek, Trine, Day & Co., LLP as the
Company's independent public accountants requires the affirmative vote of the
holders of a majority of the shares of Company common stock present in person or
represented by proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2.
34
AUDIT COMMITTEE REPORT
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934 THAT MIGHT INCORPORATE THIS PROXY STATEMENT OR
FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, IN WHOLE OR IN PART,
THE FOLLOWING REPORT SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO
ANY SUCH FILING.
The Audit Committee consists of the following members of the Company's
Board of Directors: Dean F. Andal, Michael K. Repetto, Al Van Veldhuizen and
Donald L. Walters. Each such member of the Committee is "independent" as defined
under applicable rules promulgated by the Securities and Exchange Commission
pursuant to the Sarbanes-Oxley Act of 2002.
The Committee operates under a written charter adopted by the Board of
Directors which, among other matters, delineates the responsibilities of the
Committee. The Committee's responsibilities include responsibility for the
appointment, compensation, retention and oversight of the work of the Company's
independent public accountants engaged (including resolution of disagreements
between management and the independent public accountants regarding financial
reporting) for the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the Company. The Company's
independent public accountants report directly to the Committee. The Audit
Committee Charter is attached to this Proxy Statement as Appendix A.
The Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2006 with
management and Vavrinek, Trine, Day & Co., LLP, the Company's independent public
accountants. The Committee has also discussed with Vavrinek, Trine, Day & Co.,
LLP, the matters required to be discussed by Statement on Auditing Standards No.
61, as amended by Statement on Auditing Standards No. 90 (Communications with
Audit Committees), as may be modified or supplemented. The Committee has also
received the letter from Vavrinek, Trine, Day & Co., LLP required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as may be modified or supplemented, and the Committee has discussed
the independence of Vavrinek, Trine, Day & Co., LLP with that firm.
Based on the Committee's review and discussions noted above, the
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company'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 the Audit Committee of the Board of Directors:
/s/ DEAN F. ANDAL /s/ MICHAEL K. REPETTO
-------------------------- --------------------------
Dean F. Andal Michael K. Repetto
/s/ AL VAN VELDHUIZEN /s/ DONALD L. WALTERS
-------------------------- --------------------------
Al Van Veldhuizen Donald L. Walters
35
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH SHAREHOLDER SOLICITED
BY THIS PROXY STATEMENT A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2006, REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, UPON WRITTEN REQUEST TO SERVICE 1ST BANCORP,
49 W. 10th STREET, TRACY, CALIFORNIA 95376, ATTENTION: JEAN STEBBINS, CORPORATE
SECRETARY. EACH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION THAT AS OF
THE RECORD DATE, THE PERSON MAKING THE REQUEST WAS A BENEFICIAL OWNER OF COMPANY
COMMON STOCK AND ENTITLED TO VOTE AT THE ANNUAL MEETING.
WEBSITE ACCESS
Information regarding the Company and the Bank may be obtained from the
Company's website at www.service1stbank.com. Copies of the Company's annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and Section 16 reports by Company insiders, including exhibits and
amendments thereto, are available free of charge on the Company's website as
soon as they are published by the Securities and Exchange Commission through a
link to the Edgar reporting system maintained by the Securities and Exchange
Commission. To access Company filings, select the "Go to Service 1st Bancorp"
menu item on the Company website, then select either "Click here to view Service
1st Bancorp SEC Filings," followed by selecting "Continue to view SEC Filings"
to view or download copies of reports including Form 10-K (or prior 10-KSB
reports), 10-Q (or prior 10-QSB reports) or 8-K, or select "Click here to view
Section 16 Reports," followed by selecting "Continue to view Section 16
Reports," to view or download reports on Forms 3, 4 or 5 of insider transactions
in Company securities.
ANNUAL REPORT
The Annual Report to Shareholders for the year ended December 31, 2006,
is being mailed concurrently with this Proxy Statement to all shareholders of
record as of April 5, 2007.
SHAREHOLDERS' PROPOSALS
Next year's Annual Meeting of Shareholders is currently scheduled to be
held on May 15, 2008. Any shareholder desiring to submit a proposal for action
at the 2008 Annual Meeting of Shareholders which is desired to be presented in
the Company's proxy statement with respect to the 2008 Annual Meeting of
Shareholders, should mail the proposal by certified mail return receipt
requested, to the Company, 49 W. 10th Street, Tracy, California 95376,
Attention: Jean Stebbins, Corporate Secretary. All such proposals must be
received by the Company not later than December 20, 2007. 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, as amended. Management of the Company will
have discretionary authority to vote proxies obtained by it in connection with
any shareholder proposal not submitted on or before December 20, 2007.
36
OTHER MATTERS
Management is not aware of any other matters to come before the Annual
Meeting. If any other matter not mentioned in this Proxy Statement is brought
before the Annual Meeting, the persons named as proxyholders in the enclosed
form of proxy will have discretionary authority to vote all proxies with respect
thereto in accordance with the recommendations of management.
Dated: April 27, 2007 By Order of the Board of Directors
Tracy, California
/s/ EUGENE C. GINI
-----------------------------------
Eugene C. Gini, Corporate Secretary
37
APPENDIX A
SERVICE 1ST BANCORP
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee ("Committee") is appointed by the Board of
Directors to assist the Board of Directors, among other matters, in monitoring
the following:
1. The integrity of the Company's financial statements, financial
reporting processes and internal controls regarding finance, accounting,
regulatory and legal compliance;
2. The independence, qualifications and performance of the
Company's independent public accountants;
3. The performance of the Company's internal auditors;
4. Communications among the independent public accountants,
management, internal auditors, and the Board of Directors; and
5. Procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, including procedures for the confidential,
anonymous submission by the Company's employees of concerns regarding
questionable accounting or auditing matters.
COMMITTEE MEMBERSHIP
The Committee shall be comprised of at least three directors. Each
member of the Committee shall have the following attributes, subject to
permissible exceptions:
1. Independence, as defined in applicable rules promulgated by
the Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of
2002, and, as and if applicable, the Nasdaq Listing Rules, including that a
member shall not have participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at any time
during the past three years; and
2. The ability to read and understand fundamental financial
statements, including the Company's balance sheet, income statement, and cash
flow statement.
At least one member of the Committee shall be an "Audit Committee
Financial Expert" as defined in the rules promulgated by the Securities and
Exchange Commission, or in the event that no member of the Committee qualifies
as an Audit Committee Financial Expert, at least one member of the Committee
shall be "financially sophisticated" as defined in the Nasdaq Listing Rules. The
members of the Committee shall be appointed by the Board of Directors and serve
at the pleasure of the Board of Directors.
38
MEETINGS
The Committee shall meet as often as it determines necessary, but not
less frequently than quarterly each fiscal year. The Committee shall meet
periodically with the Company's management, independent public accountants,
internal auditor, and, as applicable, its compliance officer.
The Committee may request any officer or employee of the Company, or
the Company's counsel, or independent public accountants, or internal auditors,
or compliance officer, to attend a meeting of the Committee or to meet with any
members of, or advisors to, the Committee.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Committee, in its capacity as a committee of the Board of
Directors, shall be directly responsible for the appointment of the independent
public accountants (subject, if applicable, to shareholder ratification) and for
the retention, compensation and oversight of the work of the independent public
accountants (including resolution of disagreements between management and the
independent public accountants regarding financial reporting) for the purpose of
preparing or issuing an audit report or performing other audit, review or attest
services for the Company. The independent public accountant shall report
directly to the Committee.
The Committee shall pre-approve all audit services and permissible
non-audit services to be performed for the Company by the independent public
accountants, subject to any permitted exceptions for pre-approval of non-audit
services pursuant to rules and regulations of the Securities and Exchange
Commission and/or, as applicable, Nasdaq.
The Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide for appropriate funding, as determined by
the Committee, for payment of compensation to the independent public accountants
for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services and to any other advisors employed by the
Committee.
The Committee shall establish procedures for the receipt, retention,
and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, including procedures for the
confidential, anonymous submission by the Company's employees of concerns
regarding questionable accounting or auditing matters.
The Committee shall make regular reports to the Board of Directors. The
Committee shall review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board of Directors for approval.
The Committee, to the extent required by applicable rules or
regulations of the Securities and Exchange Commission and/or, as applicable,
Nasdaq, or as the Committee deems necessary or appropriate, shall perform the
following:
39
1. Financial Statement and Disclosure Matters
(a) Review with management and the independent public accountants
the annual audited financial statements, including disclosures made in the
Company's Annual Report on Form 10-KSB or 10-K, as applicable.
(b) Review with management, the independent public accountants,
the internal auditors and Company counsel any certification provided by
management related to the Company's financial statements. Review with
management, the independent public accountants, and the internal auditors
management's assertion regarding the design effectiveness and operation
efficiency of the Company's internal control over financial reporting and
compliance with the applicable laws and regulations.
(c) Review with management and the independent public accountants
significant financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including any significant
changes in the Company's selection or application of accounting principles, any
material issues as to the adequacy of the Company's internal controls and any
actions taken or adopted in light of material control deficiencies.
(d) Review a report by the independent public accountants
concerning (i) all critical accounting policies and practices to be used; (ii)
alternative treatments of financial information within GAAP that have been
discussed with management, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the independent
public accountants; and (iii) any other material written communications between
the independent public accountants and the Company's management.
(e) Review with management and the independent public accountants
the effect of regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
(f) Review with management the Company's major financial risk
exposures and the actions management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management policies.
(g) Review with the independent public accountants (i) the matters
required to be discussed by the Statement on Auditing Standards No. 61
(Codification of Statements on Auditing Standards), as modified or supplemented;
(ii) the letter from the independent public accountants required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
as modified or supplemented, and the independence of the independent public
accountants related thereto; and (iii) matters relating to the conduct of the
audit, including any difficulties encountered in the course of the audit work,
any restrictions on the scope of activities or access to requested information,
and any significant disagreements with management.
(h) Review disclosures made to the Committee by the Company's
Chief Executive Officer and Chief Financial Officer during their certification
about any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management or
other employees who have a significant role in the Company's internal controls.
40
2. Independent Public Accountant Oversight
(a) Review the length of time the lead and concurring partner of
the independent public accountants' team has been engaged to audit the Company.
(b) On an annual basis, the Committee shall review and discuss
with the independent public accountants (i) all relationships they have with the
Company that could impair the independent public accountant's independence; (ii)
the independent public accountant's internal quality control procedures; and
(iii) any material issues raised by the most recent internal quality control
review or peer review of the independent public accountant's firm or by any
inquiry or investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits carried out by
the independent public accountant's firm, and the steps taken to deal with those
issues.
(c) Ensure the rotation of the lead audit partner of the
independent public accountants having primary responsibility for the Company's
audit and the audit partner responsible for reviewing the audit to the extent
required by applicable law or regulation.
(d) Prohibit, to the extent required by applicable law or
regulation, the hiring of any employee of the independent public accountants who
was engaged on the Company's account and who would be employed by the Company in
a financial reporting oversight role.
(e) Meet with the independent public accountants prior to the
Company's audit to discuss the planning and staffing of the audit.
3. Internal Audit Oversight
(a) Approve the appointment and replacement of the independent
firm of internal auditors; including the independence and authority of the
auditors' reporting obligations.
(b) Review significant reports to management prepared by the
auditors and management's responses.
(c) Review with the auditors and management the auditors'
responsibilities, budget and staffing and any recommended changes in the planned
scope of the internal audit.
(d) Review the audit scope and audit staffing plan and discuss the
completeness of coverage and effective use of audit resources with both the
auditors and the independent public accountants.
(e) Review with the auditors a progress report on the internal
audit plan and any significant changes with explanations for any changes from
the original plan.
(f) Receive confirmation from both the auditors and the
independent public accountants that no limitations have been placed on the scope
or nature of their audit process or procedures.
4. Compliance and Internal Control Oversight
(a) Review reports and disclosures of insider and affiliated party
transactions.
41
(b) Review with management and the independent public accountants
any correspondence with regulators or governmental agencies and any published
reports which raise material issues regarding the Company's internal controls,
financial statements or accounting policies.
(c) Review legal matters that may have a material impact on the
financial statements or the Company's compliance policies with the Company's
counsel.
(d) Review the adequacy and effectiveness of the Company's
internal controls and security matters with management, the auditors and the
independent public accountants.
42
APPENDIX B
SERVICE 1ST BANCORP
COMPENSATION COMMITTEE CHARTER
1. Membership. The Board of Directors of Service 1st Bancorp (the
"Company") shall appoint a Compensation Committee of at least three (3) members,
consisting of a majority of independent directors, and shall designate one
member as chairperson. The members of the Compensation Committee shall serve at
the discretion of the Board of Directors. For purposes hereof, an "independent"
director is a director who qualifies as independent under the definition of
"independence" contained in applicable rules promulgated by the Securities and
Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002 and the Nasdaq
Listing Rules.
2. Purposes, Duties and Responsibilities. The purpose of the Compensation
Committee is to discharge the responsibilities of the Board of Directors
relating to compensation of the Company's executive officers and directors and
to approve the annual report on compensation for inclusion in the Company's
proxy statement for the annual meeting of shareholders under the caption,
"Compensation Committee Report." The duties and responsibilities of the
Compensation Committee are to:
A. Oversee the Company's overall compensation structure, policies
and programs, and assess whether the Company's compensation
structure establishes appropriate incentives for management
and employees.
B. Administer and make recommendations to the Board of Directors
with respect to the Company's incentive compensation and
equity-based compensation plans.
C. Review and approve corporate goals and objectives relevant to
the compensation of the Chief Executive Officer, evaluate the
Chief Executive Officer's performance in light of those goals
and objectives, and set the Chief Executive Officer's
compensation level based on this evaluation.
D. Set the compensation of other executive officers based upon
the recommendation of the Chief Executive Officer.
E. Approve stock option and other stock incentive awards for
executive officers.
F. Review and approve the design of other benefit plans
pertaining to executive officers.
G. Review and recommend employment agreements and severance
arrangements for executive officers, including
change-in-control provisions, plans or agreements.
H. Approve, amend or modify the terms of any compensation or
benefit plan that does not require shareholder approval.
I. Review the compensation of directors for service on the Board
of Directors and its committees and recommend changes in
compensation to the Board of Directors.
J. Review periodically the Company succession plans relating to
positions held by executive officers, and make recommendations
to the Board of Directors regarding the selection of
individuals to fill these positions.
43
K. Annually evaluate the performance of the Compensation
Committee and the adequacy of this Charter.
L. Prepare and submit an appropriate "Compensation Committee
Report" pursuant to applicable regulations of the Securities
and Exchange Commission for inclusion in the management proxy
statement for each annual meeting of shareholders stating,
among other matters, whether (i) the Compensation Committee
has reviewed and discussed the Compensation Discussion and
Analysis with management, and (ii) the Compensation Committee
has recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in such proxy
statement and the Company's annual report on Form 10-K.
M. Perform such other duties and responsibilities as are
consistent with the purpose of the Compensation Committee and
as the Board of Directors or the Compensation Committee deems
appropriate.
The Compensation Committee shall have unrestricted access to Company personnel
and documents and will be provided the resources necessary to operate under this
Charter. The Compensation Committee shall have the power to conduct or authorize
investigations into any matters within the scope of this Charter.
3. Subcommittees. The Compensation Committee may delegate any of the
foregoing duties and responsibilities to a subcommittee of the Compensation
Committee consisting of not less than two (2) members of the Compensation
Committee.
4. Outside Advisors. The Compensation Committee will have the authority to
retain, at the expense of the Company, such outside counsel, experts, and other
advisors as it determines would be appropriate to assist the Compensation
Committee in the full performance of its functions, including authority to
retain and terminate any compensation consultant used to assist the Compensation
Committee in the evaluation of director, Chief Executive Officer or other
executive compensation, and to approve the consultant's fees and the terms and
conditions applicable to the services of the consultant.
5. Meetings. The Compensation Committee will meet as often as may be
deemed necessary or appropriate, in the judgment of its members, either in
person or telephonically, and at such times and places as the Compensation
Committee determines. A majority of the members of the Compensation Committee
shall constitute a quorum for all purposes. The Compensation Committee may
invite members of management or others to attend any meeting and provide
pertinent information as necessary. The Compensation Committee will report
regularly to the full Board of Directors with respect to the meetings and
activities of the Compensation Committee described in this Charter.
44
APPENDIX C
SERVICE 1ST BANCORP
NOMINATING COMMITTEE CHARTER
I. Purpose
The purpose of the Nominating Charter is to establish a written charter
concerning the process of identifying, evaluating and nominating
candidates, including candidates proposed by shareholders, for election
to the Board of Directors.
II. Nominating Committee
The Board of Directors of Service 1st Bancorp (the "Company") shall
appoint a Nominating Committee of at least three (3) members,
consisting of a majority of independent directors, and shall designate
one member as chairperson. The members of the Nominating Committee
shall serve at the discretion of the Board of Directors. For purposes
hereof, an "independent" director is a director who qualifies as
independent under the definition of "independence" contained in
applicable rules promulgated by the Securities and Exchange Commission
pursuant to the Sarbanes-Oxley Act of 2002 and the Nasdaq Listing
Rules. The Nominating Committee has responsibility for considering
appropriate candidates as directors. Candidates proposed as nominees
for election to the Company's Board of Directors shall be evaluated,
selected and recommended to the Board of Directors by the Nominating
Committee.
III. Nomination Process and Criteria
1. Candidates shall be evaluated based on the criteria established
by the Board of Directors. Minimum criteria for non-employee
candidates includes "independence" and "financial literacy," as
defined under applicable rules promulgated by the Securities and
Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002,
and Nasdaq Listing Rules. Additional criteria may include (a)
satisfactory results of any background investigation, (b)
experience and expertise, (c) financial resources, (d) ability to
devote the time and effort necessary to fulfill the
responsibilities of a director, (e) involvement in community
activities in the market areas served by the Company and its
subsidiary, Service 1st Bank, that may enhance the reputation of
the Company and the Bank, and (f) such other criteria as the
Nominating Committee and the Board of Directors may determine to
be relevant. The Company and the Bank operate in a highly
regulated industry and are subject to the supervision, regulation
and periodic examination by state and federal banking regulatory
authorities including the Board of Governors of the Federal
Reserve System, California Commissioner of Financial Institutions
and Federal Deposit Insurance Corporation. Directors of the
Company and the Bank are subject to certain rules and regulations
and potential liabilities not otherwise applicable to directors
of non-banking organizations. Consequently, the Nominating
Committee and the Board of Directors may choose to include more
extensive inquiries into personal background information
including confirmation of the accuracy and completeness of
background information by (a) requiring candidates to complete
questionnaires to elicit information of the type required to be
disclosed by the Company in reports filed with the Securities and
Exchange Commission, state and federal banking regulatory
authorities, or other governmental authorities having
jurisdiction over the Company and the Bank, (b) conducting
background investigations by qualified independent organizations
experienced in conducting criminal and civil investigatory
reviews, and (c) such other personal and financial reviews and
analyses as the Nominating Committee and the Board of Directors
may deem appropriate in connection with the consideration of
candidates.
45
2. Any recommendations by shareholders will be evaluated by the
Nominating Committee and the Board of Directors in the same
manner as any other recommendation and in each case in accordance
with the Nominating Charter. Shareholders that desire to
recommend candidates for consideration by the Nominating
Committee and the Board of Directors should mail or deliver
written recommendations to the Company addressed as follows:
Board of Directors, Service 1st Bancorp, 2800 West March Lane,
Suite 120, Stockton, CA 95219. Each recommendation should include
biographical information indicating the background and experience
of the candidate that qualifies the candidate for consideration
as a director for evaluation by the Nominating Committee and the
Board of Directors. Shareholders who wish to nominate a candidate
for election to the Company's Board of Directors, as opposed to
recommending a potential nominee for consideration by the
Nominating Committee and the Board of Directors, are required to
comply with the advance notice and any other requirements of the
Company's bylaws or applicable laws and regulations.
3. Any candidate nominated for election to the Board of Directors
must receive a majority of votes in favor of nomination from
independent members of the Nominating Committee and the Board of
Directors. Directors who are not independent shall not vote, but
may be present during the voting.
4. Each candidate shall be required to meet with the Nominating
Committee and the Board of Directors.
5. Each existing member of the Board of Directors whose term is
ending must be evaluated for nomination to be re-elected. This
review will include review of attendance, participation,
continuing education, investment in shares, business development
and community involvement. In lieu of the information required to
be provided by new candidates for election to the Board of
Directors, the Nominating Committee and the Board of Directors
may rely upon the information contained in the most recent annual
Directors and Officers Questionnaire completed by the existing
member of the Board of Directors, subject to such updated
information as the Nominating Committee and the Board of
Directors may deem appropriate. Such existing members of the
Board of Directors must receive a majority of votes in favor of
nomination from the other independent directors.
6. The Board of Directors may also elect to use organizations in the
future to identify or evaluate candidates for consideration by
the Board of Directors.
IV. Annual Nominations
The Nominating Committee shall evaluate, select and recommend to the
Board of Directors nominees for election (a) annually prior to
distribution of the Company's proxy solicitation materials and (b) at
such other times as may be appropriate to fill vacancies in accordance
with the Company's bylaws.
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.
46
~/ DETACH PROXY CARD HERE ~/
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. The
undersigned hereby appoints Messrs. Robert D. Lawrence
and Michael K. Repetto as proxies with full power of
PROXY substitution, to represent, vote and act with respect to
all shares of common stock of Service 1st Bancorp (the
"Company") which the undersigned would be entitled to
SERVICE 1ST BANCORP vote at the Annual Meeting of Shareholders to be held at
6:00 p.m. on May 31, 2007, at the Lodi Office of the
Company's subsidiary, Service 1st Bank, 1901 W.
Kettleman Lane, Suite 100, Lodi, California 95242, or at
any and all postponements or adjournments of the Annual
Meeting, with all the powers the undersigned would
possess if personally present, including authority to
cumulate votes represented by the shares covered by this
proxy in the election of directors, as follows:
1. Election of the twelve (12) persons named below as directors.
Dean F. Andal Robert D. Lawrence Michael K. Repetto
John O. Brooks Frances C. Mizuno Anthony F. Souza
Eugene C. Gini Richard R. Paulsen Albert Van Veldhuizen
Bryan R. Hyzdu Toni Marie Raymus Donald L. Walters
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] WITHHOLD AUTHORITY
(except as marked to the (to vote for all nominees
contrary below) listed above)
(INSTRUCTION: To withhold authority to vote for any individual nominee
or nominees write the nominee name or names on the space provided
below)
--------------------------------------------------------------------------
2. Ratification of the selection of Vavrinek, Trine, Day & Co., LLP as
independent public accountants for the year 2007.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and any and all
postponements or adjournments of the Annual Meeting.
(Please sign and date on reverse side)
--------------------------------------
~/ DETACH PROXY CARD HERE ~/
- --------------------------------------------------------------------------------
PLEASE DATE AND SIGN BELOW
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ELECTION OF ALL THE DIRECTORS NOMINATED AND NAMED IN THE PROXY
STATEMENT AND "FOR" RATIFICATION OF THE SELECTION OF VAVRINEK, TRINE, DAY & CO.,
LLP, AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR 2007. IF ANY OTHER BUSINESS
IS PRESENTED AT THE ANNUAL MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS OF THE
ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF MANAGEMENT.
Please date this proxy and sign your name(s) exactly as set forth on your stock
certificate(s). When signing as attorney, executor, conservator, administrator,
trustee, guardian, officer or in a similar representative capacity, please give
full title. If a corporation, please sign the full corporate name by the
president or other authorized officer. If a partnership, please sign the full
partnership name by an authorized partner. If more than one trustee, all should
sign. All joint owners should sign.
[ ] I DO EXPECT TO ATTEND THE ANNUAL MEETING [ ] I DO NOT EXPECT TO ATTEND THE ANNUAL MEETING
- -------------------------- ------------------ -------------------------------------------------------
(Number of Shares) (Date) (Please Print Your Name) / (Signature of Shareholder)
-------------------------------------------------------
(Please Print Your Name) / (Signature of Shareholder)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE BY
FILING WITH THE SECRETARY OF THE COMPANY A DULY
EXECUTED PROXY BEARING A LATER DATE, OR AN INSTRUMENT
REVOKING THIS PROXY, OR BY ATTENDING THE ANNUAL MEETING
AND VOTING IN PERSON.
~/ Please Detach Here ~/
You Must Detach This Portion of the Proxy Card
Before Returning it in the Enclosed Envelope