SCHEDULE 14A - INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[_] Preliminary proxy statement
[_] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-12
Temecula Valley Bancorp Inc.
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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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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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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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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[GRAPHIC OMITTED]
April 18, 2006
Dear Shareholder:
I am pleased to invite you to the 2006 Annual Meeting of
Shareholders of Temecula Valley Bancorp Inc. We will hold the meeting at 6:00
p.m. on Tuesday, May 23, 2006 at our main office located at 27710 Jefferson
Avenue, Suite A100, Temecula, California 92590.
This booklet contains the Notice of Annual Meeting and the
Proxy Statement and is accompanied by a proxy card. The Proxy Statement
describes the business that we will conduct at the meeting and provides
information about Temecula Valley Bancorp Inc. and its principal subsidiary,
Temecula Valley Bank.
I hope that you can join us on the 23rd of May. Whether or not
you plan to attend, please sign and return your proxy card as soon as possible.
Your opinion and your vote are important to us. Voting by proxy will not prevent
you from voting in person if you attend the meeting, but it will ensure that
your vote is counted if you are unable to attend. You may be eligible to vote
electronically over the Internet or by telephone by following the instructions
on the proxy card.
Sincerely,
Stephen H. Wacknitz
President and Chief Executive Officer
Chairman of the Board
[GRAPHIC OMITTED]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2006
The 2006 Annual Meeting of Shareholders of Temecula Valley Bancorp Inc.
will be held at 27710 Jefferson Avenue, Suite A100, Temecula, California 92590
at 6:00 p.m. on Tuesday, May 23, 2006 for the following purposes:
1. To elect seven directors to serve on our Board of Directors until the 2007
Annual Meeting of Shareholders or until their successors have been duly
elected and qualified.
2. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
Shareholders of record of our common stock at the close of business on
March 31, 2006, the record date, are entitled to vote at the meeting.
You are urged to sign and return the enclosed proxy card as promptly as
possible, whether or not you attend the meeting in person. The enclosed proxy
card is solicited by our Board of Directors. Any shareholder giving a proxy may
revoke it prior to the time it is voted by filing a written revocation or duly
executed proxy card bearing a later date with our Secretary, or by revoking all
previously signed and filed proxies and attending the meeting and voting in
person.
A list of shareholders entitled to vote at the meeting will be available
for inspection at our executive offices. Shareholders attending the meeting
whose shares are held in the name of a broker or other nominee should bring with
them a proxy or other letter from that firm confirming their ownership of shares
as of the record date.
A copy of our annual report is enclosed with this notice. Additional copies
may be obtained, without charge, by contacting Donald A. Pitcher, our Chief
Financial Officer and Secretary at (951) 694-9940, 27710 Jefferson Avenue, Suite
A100, Temecula, California 92590.
By Order of the Board of Directors:
Temecula, California Donald A. Pitcher
April 18, 2006 Secretary
TABLE OF CONTENTS
INTRODUCTION
2
ABOUT THE MEETING 2
BENEFICIAL OWNERSHIP 7
PROPOSAL 1 - ELECTION OF DIRECTORS 9
INFORMATION ABOUT CORPORATE GOVERNANCE AND
OUR DIRECTORS AND EXECUTIVE OFFICERS 11
EXECUTIVE OFFICERS AND COMPENSATION 19
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2005 25
COMMON STOCK PERFORMANCE CHART 30
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 32
ADDITIONAL INFORMATION 32
OTHER MATTERS
33
ANNUAL REPORT
33
APPENDIX - NOMINATING COMMITTEE CHARTER
TEMECULA VALLEY BANCORP INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2006
INTRODUCTION
Our Board of Directors is soliciting proxies for this year's Annual Meeting of
Shareholders. This proxy statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
Our Board of Directors set the close of business on March 31, 2006 as the record
date for the Annual Meeting. Shareholders who were the record holders of
Temecula Valley Bancorp Inc. common stock as of that date are entitled to vote
at the meeting, with each share entitled to one vote. There were 8,977,771
shares of our common stock outstanding on March 31, 2006, held of record by
approximately 430 registered shareholders.
Voting materials, which include this proxy statement, a proxy card and the 2005
Annual Report, are being mailed to shareholders on or about April 18, 2006.
ABOUT THE MEETING
Why am I receiving this proxy statement and proxy card?
You are receiving this proxy statement and proxy card because you owned shares
of our common stock as of the close of business on March 31, 2006. This proxy
statement describes issues on which we would like you to vote.
When you sign the proxy card, you appoint Dr. Steven W. Aichle and Mr. Neil M.
Cleveland as your representatives at the meeting. Dr. Aichle and Mr. Cleveland,
or their substitutes, will vote your shares at the Annual Meeting as you have
instructed on the proxy card. This way, your shares will be voted even if you
cannot attend the meeting.
Who is soliciting my proxy and who is paying the cost of solicitation?
Our Board of Directors is sending you this proxy statement in connection with
its solicitation of proxies for use at our 2006 Annual Meeting. Certain
directors, officers and employees of our Company may solicit proxies by mail,
facsimile or in person.
2
Temecula Valley Bancorp Inc. will pay for the costs of solicitation. We do not
expect to pay any compensation for the solicitation of proxies, except to
brokers, nominees and similar record holders for reasonable expenses in mailing
proxy materials to beneficial owners of our common stock. However, we reserve
the right to hire special employees or paid solicitors to assist us in obtaining
proxies if we believe it is necessary to secure a quorum.
What am I voting on?
At the Annual Meeting you will be asked to vote on the re-election of our
existing seven directors to serve on our Board of Directors until the 2007
Annual Meeting of Shareholders or until their successors have been duly
qualified and elected.
Who is entitled to vote?
Only shareholders who were owners of record of our common stock as of the close
of business on March 31, 2006 are entitled to receive notice of the Annual
Meeting and to vote the shares that they held on that date at the meeting, or
any postponements or adjournments of the Annual Meeting.
How many votes do I have?
Each share of common stock entitles the holder of record to one vote on any
matter coming before the Annual Meeting. In voting for directors, however,
shares may be voted cumulatively as described below. On any matter other than
the election of directors, any shareholder may vote part of the shares in favor
of the proposal and refrain from voting the remaining shares or vote them
against the proposal, but if the shareholder fails to specify the number of
shares that the shareholder is voting affirmatively, then it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares that the shareholder is entitled to vote.
How do I vote?
You may vote your shares either in person at the Annual Meeting or by proxy. At
the Annual Meeting, you can obtain a ballot. To vote by proxy, you should mark,
date, sign and mail the enclosed proxy card in the prepaid envelope provided or
follow the instructions for Internet or Telephonic voting, if you are eligible,
on the enclosed proxy card. If your shares are registered in your own name and
you attend the meeting, you may deliver your completed proxy card in person.
"Street name" shareholders, that is, those shareholders whose shares are held in
the name of and through a broker or nominee, who wish to vote at the Annual
Meeting will need to obtain proxy materials from the institution that holds
their shares or instruct their broker or nominee how to vote.
3
Can I change my vote after I return my proxy card?
Yes. You may revoke your proxy and change your vote at any time before the proxy
is exercised at the meeting by filing with our Secretary at our main office
either a notice of revocation or another signed proxy card or ballot bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
What are the recommendations of Board of Directors?
Our Board of Directors recommends a vote FOR the election of all of the
nominated directors listed in this proxy statement. Unless you give other
instructions on your proxy card, Dr. Aichle and Mr. Cleveland, as the persons
named as proxy holders on the proxy card, will vote as recommended by our Board
of Directors.
If any other matters are considered at the meeting, Dr. Aichle and Mr. Cleveland
will vote as recommended by the Board of Directors. If the Board of Directors
does not give a recommendation, Dr. Aichle and Mr. Cleveland will have
discretion to vote as they think best.
Will my shares be voted if I do not sign and return my proxy card?
If your shares are registered in your name and you do not return your proxy card
or do not vote in person at the Annual Meeting, your shares will not be voted.
If your shares are held in street name and you do not submit voting instructions
to your broker, your broker may vote your shares at this meeting on the election
of directors.
How many shares must be present to hold the Annual Meeting?
A majority of our outstanding shares of common stock as of March 31, 2006 (a
quorum) must be present at the Annual Meeting in order to hold the meeting and
conduct business. Shares are counted as present at the meeting if a shareholder
is present and votes in person at the meeting or has properly submitted a proxy
card. As of March 31, 2006, the record date for the Annual Meeting, 8,977,771
shares of our common stock were outstanding and eligible to vote.
What vote is required to elect directors?
The seven director nominees who receive the highest number of FOR votes will be
elected. You may vote FOR all or some of the nominees or WITHHOLD AUTHORITY for
all or some of the nominees.
4
Each shareholder may be entitled to exercise cumulative voting rights in
connection with the election of directors. In such case, each shareholder would
be entitled to as many votes as equals the number of shares of common stock held
by such shareholder multiplied by the number of directors to be elected, and
such shareholder could cast all of such votes for a single nominee or could
distribute them among two or more nominees. For example, if you own 10 shares of
common stock of our Company and seven directors are being elected, you have 70
votes - you can cast all of them for one nominee, or split them among two or
more nominees if you so choose. No shareholder, however, shall be entitled to
cumulate votes (that is, cast for any one or more nominees a number of votes
greater than the number of shares of common stock of our Company held by such
shareholder) unless the name(s) of the nominee(s) has (have) been placed in
nomination prior to the commencement of the voting and a shareholder has given
notice at the meeting prior to the voting of the intention to cumulate votes.
If any shareholder has given notice to cumulate votes, all shareholders may
cumulate their votes for nominees, in which event votes represented by proxies
delivered pursuant to this proxy statement may be cumulated, in the discretion
of the proxy holders, in accordance with the recommendation of the Board of
Directors. Discretionary authority to cumulate votes in that event is,
therefore, solicited in this proxy statement. The person or persons holding the
proxies solicited by our Board of Directors will exercise their cumulative
voting rights, at their discretion, to vote the shares covered by the proxies
they hold in such a way as to ensure the election of as many of the seven
nominees of the Board of Directors as they deem possible. This discretion and
authority of the proxy holders may be withheld by checking the box on the proxy
card marked "withhold authority for all nominees." However, such an instruction
will also deny the proxy holders the authority to vote for any or all of the
nominees of the Board of Directors, even if cumulative voting is not called for
at the Annual Meeting.
You may choose to withhold from the proxy holders the authority to vote for any
of the individual candidates nominated by our Board of Directors by marking the
appropriate box on the proxy card and filling in the circle next to the names of
the disfavored candidates as they appear on the proxy card. In that event, the
proxy holders will not cast any of your votes for candidates whose names have
been indicated by filling in the circle, whether or not cumulative voting is
called for at the Annual Meeting. However, the proxy holders will retain the
authority to vote for the candidates nominated by the Board of Directors whose
names have not been struck out or otherwise indicated as disfavored by filling
in the circle and for any candidates who may be properly nominated at the Annual
Meeting. If you wish to specify the manner in which your votes are allocated in
the event of cumulative voting, you must appear and vote in person at the Annual
Meeting. Ballots will be available at the Annual Meeting for shareholders who
desire to vote in person.
How can I make a nomination?
Nominations made other than by the Board of Directors may be made by
notification in writing delivered or mailed to our principal offices in
accordance with Section 3.3 of our bylaws which can be accessed through our
filings with the Securities and Exchange Commission ("SEC") or by contacting us
and requesting a copy.
Can I vote on other matters?
Our Board of Directors does not know of any other matters to be brought before
the Annual Meeting. However, subject to the provisions of applicable law and our
bylaws, as more fully discussed below, any proper matter may be presented at the
meeting for action. The proxy holders will use their discretion in voting on any
such matters. You may vote on such matters only by attending the Annual Meeting
and voting in person.
When are shareholder proposals due?
Pursuant to Rule 14a-8 of the Securities Exchange Act of 1934 ("Exchange Act"),
proposals by our shareholders that are intended for inclusion in our proxy
statement and proxy card and to be presented at our 2007 annual meeting must be
delivered to our Secretary at our principal offices no later than December 15,
2006, in order to be considered for inclusion in our proxy materials relating to
our 2007 annual shareholders meeting. In addition to these advance notice
requirements, there are other requirements that a shareholder must meet in order
to have a proposal included in our proxy statement under SEC rules. For all
other proposals by our shareholders to be timely and proper, a shareholder's
notice must be delivered to, or mailed and received at, our principal executive
offices in accordance with the advance notice provisions and other requirements
of our bylaws and applicable law. Our bylaws provide that for our 2006 annual
meeting, the notice must be delivered or received no later than April 30, 2006.
For future proposals, our bylaws provide that proposals may be made by any
shareholder who timely and completely complies with the notice procedures
contained in our bylaws, was a shareholder of record at the time of giving
notice and is entitled to vote at the meeting, so long as the proposal is a
proper matter for shareholder action and the shareholder otherwise complies with
the provisions of our bylaws and applicable law. However, shareholder
nominations of persons for election to our Board of Directors at a special
meeting may only be made if our Board of Directors has determined that directors
are to be elected at the special meeting.
To be timely, a shareholder's notice regarding a proposal not intended for
inclusion in our proxy materials must be delivered to our Secretary at our
principal executive offices not later than:
(i) in the case of an annual meeting, the close of business on the 45th
day before the first anniversary of the date on which we first mailed our proxy
materials for the prior year's annual meeting of shareholders. However, if the
date of the current year's meeting has changed more than 30 days from the date
of the prior year's meeting, then in order for the shareholder's notice to be
timely it must be delivered to our Secretary a reasonable time before we mail
our proxy materials for the current year's meeting. For purposes of the
preceding sentence, a "reasonable time" coincides with any adjusted deadline we
publicly announce;
6
(ii) in the case of a special meeting, the close of business on the
seventh day following the day on which we first publicly announce the date of
the special meeting.
Except as otherwise provided by law, if the chairperson of the meeting
determines that a nomination or any business proposed to be brought before a
meeting was not made or proposed in accordance with the procedures set forth in
our bylaws and summarized above, the chairperson may prohibit the nomination or
proposal from being presented at the meeting.
BENEFICIAL OWNERSHIP
Are there any beneficial owners of more than 5% of our outstanding stock?
To our knowledge, one shareholder beneficially owned more than 5% of the
outstanding shares of our common stock as of the record date. He is listed in
the table below.
How much stock does our directors and executive officers beneficially own?
The following table shows, as of March 31, 2006, the amount of our common stock
beneficially owned (unless otherwise indicated) by (a) each director and
director nominee; (b) each of the current executive officers of our Company and
Temecula Valley Bank ("Bank") named in the Summary Compensation Table below; (c)
the one person known to us to be the beneficial owner of more than 5% of our
common stock; and (d) all of our and the Bank's directors, our director
nominees, and the Company and the Bank Executive Officers(1) as a group.
Except as otherwise noted, we believe that the beneficial owners of the shares
listed in the following table, based on information furnished by such owners,
have or share with a spouse voting and investment power with respect to the
shares. Percentages are based on 8,977,771 shares of common stock outstanding as
of March 31, 2006.
As used throughout the proxy statement, the term "Executive Officer," except as
otherwise noted, means the Bank's President/Chief Executive Officer, Chief
Operating Officer, Chief Administrative Officer, Chief Credit Officer, Senior
Loan Officer, Chief Financial Officer, Real Estate Manager, Director of Finance
and SBA, East County Regional Manager, East County Manager, North County
Regional Manager and SBA National Sales Manager. An officer who does not
participate in major policy-making functions or is not otherwise in charge of a
principal business unit, division or function of the Bank is not included in the
definition of the term "Executive Officer." There are other officers of the Bank
with a title of Executive Officer that do not fall within this definition
because they do not participate in major policy-making functions or are not
otherwise in charge of a principal business unit, division or function of the
Bank.
7
The business or mailing address for each listed person is 27710 Jefferson
Avenue, Suite A100, Temecula, CA 92590. For purposes of the table below, a
person is deemed to be the "beneficial owner" of any shares that such person has
the right to acquire within 60 days. Also, for purposes of computing the
percentage of outstanding shares held by each person named above on a given
date, any security that such person has the right to acquire within 60 days is
deemed to be outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
Common
Shares Owned Percent
Name & Position Beneficially of Class
Dr. Steven W. Aichle, Nominee/Director, Company/Bank 318,202 (1) 3.48%
Dr. Robert P. Beck, Nominee/Director, Company/Bank 210,576 (2) 2.34%
Neil M. Cleveland, Nominee/Director, Company/Bank 166,402 (3) 1.83%
George Cossolias, Nominee/Director, Company/Bank 17,202 (4) 0.19%
Robert R. Flores, Jr., EVP/SBA National Sales Manager 6,666 (5) 0.07%
Thomas P. Ivory, SEVP/East County Reg. Mgr., Bank 18,000 (6) 0.20%
Luther J. Mohr, Nominee/Director, Company/Bank 433,625 (7) 4.73%
Thomas M. Shepherd, SEVP/Chief Credit Officer 56,665 (8) 0.63%
Stephen H. Wacknitz, Nominee/Director/Pres/CEO/COB,
Bank/Company/5% Shareholder of Company 784,278 (9) 8.46%
Scott J. Word, EVP/SLO, Bank 79,597 (10) 0.88%
Richard W. Wright, Nominee/Director, Company/Bank 195,020 (11) 2.14%
ALL DIRECTORS AND
EXECUTIVE OFFICERS (18 in number) 2,450,682 24.18%
(1) Includes 168,714 shares of common stock underlying stock options.
(2) Includes 22,000 shares of common stock underlying stock options.
(3) Includes 139,000 shares of common stock underlying stock options.
(4) Includes 8,000 shares of common stock underlying stock options.
(5) Includes 6,666 shares of common stock underlying stock options.
(6) Includes 5,000 shares of common stock underlying stock options.
(7) Includes 195,000 shares of common stock underlying stock options.
(8) Includes 56,665 shares of common stock underlying stock options.
(9) Includes 294,108 shares of common stock underlying stock options.
(10) Includes 34,997 shares of common stock underlying stock options.
(11) Includes 120,000 shares of common stock underlying stock options.
8
PROPOSAL 1 - ELECTION OF DIRECTORS
How many directors are nominated?
Our bylaws provide that the number of directors to be elected by the
shareholders will be at least five and not more than nine. Under our bylaws, our
Board of Directors has authority to decide the exact number of directors to be
elected within these limits. Our Board has fixed the number of directors to be
elected at the Annual Meeting at seven and, upon the recommendation of the
Nominating Committee, has nominated the persons listed on the following page for
election as directors to serve until the 2007 annual meeting or until their
successors are elected.
What happens if a nominee refuses or is unable to stand for election?
The Board of Directors may reduce the number of seats on the Board or designate
a replacement nominee. If the Board of Directors designates a substitute, shares
represented by proxy will be voted FOR the substitute nominee unless the proxy
withholds authority to vote for all nominees listed. The Board of Directors
presently has no knowledge that any of the nominees will refuse or be unable to
serve.
Who are the nominees?
Information regarding each of the nominees is provided below, including each
nominee's name and age, principal occupation during the past five years, and the
year first elected as a director of the Bank and our Company. All of the
nominees are presently directors of our Company and the Bank.
9
Year First
Elected to
Bank/Com-
Name/Age pany Board Business Experience During Past Five Years and Other Information
- ------------------- ---------- ----------------------------------------------------------------
Steven W. Aichle 1996/2002 Business and civic leader in the community and
62 surrounding communities of the Bank for the last 24
years; Founded Avocado Animal Hospital, Fallbrook, CA
in 1974 and continues as owner/veterinarian;
Owner/Founder of Fallbrook Fine Art Gallery since 1985.
Robert P. Beck 1996/2002 Opened practice in 1970 as the first dentist in Temecula,
61 California; has been involved in the Chamber of Commerce
and civic affairs throughout his years in Temecula.
Neil M. Cleveland 1996/2002 Involved in the brokerage, development, management and
54 consulting business relative to commercial and industrial
real estate principally in Southern CA.; Co-owner of Rancho Land
Associates since 1980.
George Cossolias 2004/2004 Certified Public Accountant with own practice since 1964.
70 Member of American Institute of Certified Public Accountants
since 1972. Member, Society of California Accountants since 1985 and
served as its president of local chapter and as lieutenant governor for
Southern California district. Expertise in taxation and estate/trust
execution. Mr. Cossolias is a trustee of the following funds: Sycuan
Funds, Wireless Fund and Blue Chip Investor Funds.
Luther J. Mohr 1996/2002 Retired from officer positions with the Bank in April 2005;
70 Chief Operating Officer of the Bank from 1996 to 2005 and of the
Company from 2002 to 2005; SVP/Administrative Officer at
Fallbrook National Bank, Fallbrook, CA 1990 to 1995; various
times SVP, Area Administrator, and Corporate Services Mgr for
Torrey Pines Bank, Solana Beach, CA 1981 to 1990; VP/Mgr of
the Fallbrook office 1977 to 1980 with Rancho Santa Fe
Savings and Loan. Various other banking positions
beginning in 1956.
Stephen H. Wacknitz 1996/2002 President/Chief Executive Officer/Chairman of the Bank since
66 1996 and of the Company since 2002; Pres/CEO at Fallbrook National Bank,
Fallbrook, CA 1984 to 1995, SVP/Senior Senior Loan Officer 1982 to 1984 at
Rancho Vista National Bank, CA; VP/Mgr 1977 to 1982 at Grossmont Bank, CA.
Various other banking positions beginning in 1962.
Richard W. Wright 1996/2002 Since 1994, self-employed manager of real estate investments.
77 From 1989 to 1994, insurance inspector for P.E. McKinney,
Inc., Reseda, CA; 1987 to 1989, insurance agent with Glen-Fed Insurance;
1986 to 1987, insurance agent for Western Financial Savings Bank and Great
American\Wilshire Federal Savings and Loan; 1964 to 1986, VP of Los Angeles
Federal Savings and Pres. of the Insurance Brokerage of Los Angeles
Federal Savings.
10
INFORMATION ABOUT CORPORATE GOVERNANCE AND
OUR DIRECTORS AND EXECUTIVE OFFICERS
Our Board of Directors
The Board of both our Company and the Bank oversees our business and monitors
the performance of management. In accordance with corporate governance
principles, the Board does not involve itself in day-to-day operations. A
majority of the directors of each of the Bank and our Company meet the
independence standards in accordance with the NASDAQ corporate governance
listing standards. The independent directors are Steven W. Aichle, Robert P.
Beck, George Cossolias and Richard W. Wright. The directors keep themselves
informed through, among other things, discussions with the Chief Executive
Officer (who is also a Board member), other key executives and our principal
advisors (legal counsel, outside auditors and other consultants), by reading
reports and other materials that we send them and by participating in Board and
committee meetings. The Board of Directors of our Company and the Bank met 12
times in person during 2005; the Bank's Board participated in telephone
approvals, followed by ratification of such action at subsequent Bank Board
meetings on two occasions. Each director attended at least 75% of the total
number of meetings of the Board of Directors and committees on which he served
of both our Company and the Bank. As required under NASDAQ listing standards,
the Company's independent directors meet at least two times annually in
executive sessions in which only independent directors are present.
Shareholder Communications to Our Board
Our Board has an informal process in place for our shareholders to communicate
with directors. Any shareholder can communicate with one or more members of our
Board of Directors by mailing or delivering any such communication as follows:
Board of Directors, Temecula Valley Bancorp Inc., 27710 Jefferson Avenue, Suite
A100, Temecula, California 92590. Any such communication will be reviewed by
appropriate personnel and promptly forwarded to our Chairman and/or to the
appropriate director. Communications that relate to our accounting, internal
accounting controls or auditing matters will be referred to the Chairman of the
Audit Committee.
Attendance at Shareholders Meetings
It is our policy to have all our Board members attend our shareholders meetings.
Last year, all of our seven directors attended the 2005 annual meeting.
11
Committees
The Board has appointed a Nominating Committee, an Executive Committee, a Stock
Option Committee, an Audit Committee and an Executive Officer Compensation
Committee, among others. Pursuant to authority provided in the stock option
plans of the Company, the full Board performs the stock option tasks that the
Stock Option Committee might otherwise perform.
Nominating Committee
The members of the Nominating Committee are Steven W. Aichle, Robert P. Beck
(Chairman), George Cossolias and Richard W. Wright. All of the members meet the
independence standards in accordance with the NASDAQ corporate governance
listing standards. The Nominating Committee Charter, as set forth at Appendix I
to this Proxy Statement, adopted by the Board upon the recommendation of the
Nominating Committee, provides that any nominee, whether suggested by one of our
shareholders or by a member of our Board, will receive the same consideration so
long as the recommending shareholders represent at least five percent of our
outstanding voting securities and such securities have been held for at least
one year prior to the time of such nomination. In the event a nomination is made
by holders of less than five percent or holders that have held our stock for
less than one year, the Board is under no obligation to consider the proposed
candidate but it may do so in its sole discretion.
The Nominating Committee and the Board will consider candidates
recommended by our shareholders as soon as is practical after the recommendation
is received, generally at the next scheduled Committee and Board meeting, upon a
written submission of a list of the proposing shareholders showing ownership of
at least five percent of our outstanding voting securities and the length of
time the securities have been held by such shareholders. The written submission
must also include the name of the person to be considered along with background
information about the person and a description of why the person's service on
the Board would be beneficial to us and our shareholders. All written
submissions shall be conveyed to us in the manner described above under
"Shareholder Communications to Our Board." The minimum qualifications, qualities
and skills that the Nominating Committee and the Board believe must be met by
any director candidate (including those that may be recommended by the
Nominating Committee and approved by the Board) are as follows: 1) community
banking Board experience or comparable experience; 2) understanding of financial
matters, including the capability to read and understand a financial statement;
and 3) an ability to support us through expertise, business development or as
otherwise determined.
Other functions of the Nominating Committee include: reviewing and
assessing annually the performance of the Nominating Committee and the adequacy
of the Nominating Committee Charter and recommending any proposed changes to the
Board for approval; overseeing the evaluation of the Board members; recommending
the appropriate Committee structure, Committee assignments and any changes to
such assignments; and making periodic recommendations for improving the
effectiveness of the Board and discussing annually with the Board its
effectiveness. There were no meetings of the Nominating Committee in 2005.
Before the Nominating Committee was established, the full Board performed the
functions that a nominating committee might otherwise perform.
12
Executive Committee
The Executive Committee may exercise all of the authority of the Board
of Directors during the intervals between meetings of the Bank's or the
Company's Board of Directors, except as otherwise required under law, the
articles of incorporation or bylaws and as otherwise determined by the Board.
Current members of the Executive Committee are: Steven W. Aichle, Neil M.
Cleveland, Luther J. Mohr and Stephen H. Wacknitz (Chairman). There was one
meeting of the Executive Committee in 2005.
Stock Option Committee
The Stock Option Committee or the full Board can administer our stock option
plans, according to the terms of the plans, including but not limited to,
identification of stock option recipients and specification of stock option
terms. The Stock Option Committee members are Neil M. Cleveland (Chairman) and
Richard W. Wright. The Stock Option Committee did not meet in 2005. All matters
that would normally come before that committee were performed by the full Board
of Directors of our Company except that when stock options are considered for
our Executive Officers, our Executive Officer Compensation Committee makes
recommendations to the full Board. Our Chief Executive Officer/President does
not participate in any manner in the discussions and decisions relative to stock
options that are considered for granting to him.
Audit Committee
The responsibilities of the Audit Committee are described in the Report of the
Audit Committee set forth below. Current members of the Audit Committee, none of
whom are officers or employees of our Bank or Company, are: Steven W. Aichle,
Robert P. Beck, George Cossolias (Chairman) and Richard W. Wright. Our Board of
Directors has determined that George Cossolias qualifies as an "audit committee
financial expert" as that term is used in the rules and regulations of the SEC
and as required in accordance with the NASDAQ corporate governance listing
requirements. There were 12 meetings of the Audit Committee during 2005.
The Audit Committee is composed of four members of our Board of Directors who
meet the independence standards in accordance with the NASDAQ corporate
governance listing standards and the rules and regulations of the SEC. The Audit
Committee recommends to the Board the selection and retention of our independent
registered public accounting firm, and assists the Board in its oversight of the
integrity of our financial statements. The Audit Committee oversees the
performance of the independent registered public accounting firm in their
conduct of the audit. The Audit Committee operates under a written charter
prepared by the Audit Committee and adopted by the Board. The Audit Committee
reviews and assesses the adequacy of its charter on an annual basis. The charter
was filed as an appendix to our definitive proxy statement for our 2004 annual
meeting.
The Audit Committee has met with representatives of management, legal counsel
and the independent registered public accounting firm to further its
understanding of applicable laws, rules and regulations.
13
The Audit Committee members do not act in the capacity of professional financial
institutions auditors, and their functions are not intended to duplicate or to
certify the activities of management or the independent registered public
accounting firm. In performing its functions, the Audit Committee acts only in
an oversight capacity and necessarily relies on the work and assurances of our
management, which has the primary responsibility for financial statements and
reports, and of the independent registered public accounting firm, who, in its
report, expresses an opinion on the conformity of our annual financial
statements to generally accepted accounting principles. In fulfilling its
oversight responsibilities, the Audit Committee reviewed the audited
consolidated financial statements and discussed such statements with management
and the independent registered public accounting firm we engaged.
Report of the Audit Committee
Management represented to the Audit Committee that our consolidated financial
statements were prepared in accordance with generally accepted accounting
principles. The Audit Committee discussed with the independent registered public
accounting firm matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees) as amended, including
such firm's judgment about the quality as well as the acceptability of our
accounting principles, as applied in our financial reporting.
Our independent registered public accounting firm also provided to the Audit
Committee the written disclosures and the letter from the independent registered
public accounting firm required by the Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees). The Audit Committee
discussed with the independent registered public accounting firm the firm's
independence.
Based on the Audit Committee's above review of the audited financial statements
and discussion with management and the independent registered public accounting
firm, the Audit Committee's review of the representations of management and the
report of the independent registered public accounting firm to the Audit
Committee, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in our annual report on Form 10-K
for the year ended December 31, 2005, for filing with the SEC. The Audit
Committee also has approved the selection of our independent registered public
accounting firm.
14
Respectfully submitted by the members of the Audit Committee:
Steven W. Aichle Robert P. Beck George Cossolias Richard W. Wright
(Chairman)
Executive Officer Compensation Committee
Decisions regarding the compensation of our Executive Officers, including those
related to stock options, are considered by our Bank Executive Officer
Compensation Committee and then recommended to the Bank's full Board for action.
Current members of the Executive Officer Compensation Committee, none of whom
are officers or employees of our Bank or Company, are: Steven W. Aichle, Robert
P. Beck, George Cossolias (Chairman) and Richard W. Wright. Chief Executive
Officer/President Mr. Wacknitz does not participate in the discussions and
decisions of the Executive Officer Compensation Committee or the Board relating
to his performance or compensation. Until the Executive Officer Compensation
Charter was adopted in May 2005, the full Board performed the functions that
might otherwise be performed by the Executive Officer Compensation Committee.
The Executive Officer Compensation Committee first met in 2006.
Executive Officer Compensation Committee Report
Compensation Policies. Our executive compensation policies and specific
executive compensation programs are adopted and administered in accordance with
the principal goal of maximizing return on shareholders' equity. The Executive
Officer Compensation Committee and the Board believe that this performance goal,
and the long-term interests of our shareholders, are best achieved by attracting
and retaining management of high quality, and that such management will require
commensurate compensation. The Executive Officer Compensation Committee and the
Board believe that our Executive Officer compensation policies are consistent
with this policy.
In addition, the Executive Officer Compensation Committee and the Board believe
that while our compensation programs should reflect the philosophy that
executive compensation levels be linked to our performance, such compensation
programs should also be competitive and consistent with those provided to others
holding positions of similar responsibility in the banking and financial
services industry. Our compensation plans are designed to assist us in
attracting and retaining qualified executive officers critical to our long-term
success, while enhancing their incentives to perform to their maximum capability
of increasing profitability and maximizing shareholder value.
15
In setting annual compensation levels for Executive Officers, the Executive
Officer Compensation Committee and the Board reviewed and analyzed the following
factors:
o responsibilities of the position
o performance of the individual and his or her general experience and
qualifications
o overall financial performance (including return on equity, return on
assets and achievement of the profit plan) of our Company for the
previous year and the contributions to such performance by the
individual or his or her department
o officer's total compensation during the previous year
o compensation levels paid by comparable companies in the financial
services industry
o officer's length of service with our Company o officer's effectiveness
in dealing with external and internal relationships
Our Executive Officer Compensation Committee and Board believe that the
compensation of the Executive Officers is competitive with compensation levels
paid by comparable companies in the financial services industry.
Long-Term Compensation Programs. While our Executive Officer Compensation
Committee recommends and our Board establishes salary and bonus levels based on
the above described criteria, our Executive Officer Compensation Committee and
Board also believe that encouraging equity ownership by Executive Officers
further aligns the interests of the officers with the performance objectives of
our shareholders and enhances our ability to attract and retain highly qualified
personnel on a basis competitive with industry practices. Stock options we
granted pursuant to our Company's two existing stock option plans help achieve
this objective and provide additional compensation to the officers to the extent
that the price of our common stock increases over its fair market value on the
date of option grant, and in the case of grants of non-qualified stock options,
it may be additional compensation to the extent the recipient's options increase
in value over the grant price, which may equal or be less than fair market value
(but not less than 85% of fair market value on the date of grant). Through such
plans, there will be an additional direct relationship between our performance
and benefits to plan participants.
Through these various compensation programs, our Executive Officer Compensation
Committee and our Board believe that we further our objectives of attracting,
retaining and motivating the best qualified Executive Officers, which ultimately
will serve to increase our profitability and maximize shareholder value.
16
Compensation of Chief Executive Officer. The base salary of our Chief Executive
Officer was determined primarily by the terms of his employment agreement that
became effective January 1, 2003 (see "Executive Employment Agreements"). The
agreement provided for a base salary, subject to annual adjustments by the Board
of Directors, and for a 7.5% annual bonus based upon our pre-tax pre-bonus
income. At the request of Mr. Wacknitz, the agreement was amended on June 23,
2005 to provide for a reduction of the annual bonus to 6%. Further, at the
request of Mr. Wacknitz and based upon the recommendation of the Executive
Officer Compensation Committee and the approval of the Board, the agreement was
amended on February 2, 2006 to provide for a reduction of the annual bonus to
5%.
Respectfully submitted by the members of our Executive Officer Compensation
Committee:
Steven W. Aichle Robert P. Beck George Cossolias Richard W. Wright
(Chairman)
Compensation Committee Interlocks and Insider Participation
Messrs. Wacknitz and Mohr are members of the Board of Directors and are current
or former officers of our Company. Mr. Mohr retired from his officer positions
on April 1, 2005. Messrs. Wacknitz and Mohr do not participate in discussions of
the Board relating to their respective performance or compensation. None of the
other members of the Board serve or have served as an officer or employee of our
Company or the Bank. All members of the Board have engaged in loan transactions
with the Bank, except Mr. Wacknitz and Mr. Mohr. All such loans were made in the
ordinary course of business of the Bank. No other relationship required to be
reported under the rules promulgated by the SEC exists with respect to the Board
members acting in lieu of a Compensation Committee.
Lack of Incorporation of Certain Information
The Report of the Audit Committee, the Report on Executive Officer Compensation,
the Common Stock Performance Chart and the assertion of independence of audit
committee members, reported to you in this Proxy Statement, are not deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act or under the
Exchange Act, except to the extent that we specifically incorporate that
information by reference, and are not otherwise deemed filed under those acts.
17
How are directors compensated?
Prior to 2003, we did not compensate directors; however, they did receive
options. In January 2003, each director of the Bank received a one-time payment
of $10,000. Starting in February 2003, each Bank director received $1,000 per
regular meeting. Beginning with the second meeting missed, in any calendar year,
the fee is not paid. In February 2005, the $1,000 amount was increased to $1,500
and in February 2006, the fee was increased to $1,750. Beginning in May 2005,
members of the Audit Committee began receiving $250 per month for services on
this committee, in addition to the regular Board fees. This amount was increased
to $350 per month effective February 2, 2006. Beginning in May 2005, members of
the Directors' Loan Committee began receiving $250 per month for services on
this committee, in addition to the regular Board fees. This amount was increased
to $350 per month effective February 2, 2006. Each director who was then serving
on the Bank's Board was granted non-qualified stock options to purchase shares
(as adjusted for applicable stock dividends and splits) of our common stock over
the last three years as follows:
Exercise Price
Per Share (85%
of Market Value
Year # of Shares each on Date of Grant)
---- ---------------- -----------------
All Directors 2003 20,000 $ 9.35
All Directors* 2004 10,000 $ 12.96
George Cossolias** 2004 6,578 $ 12.96
All Directors 2005 0 $ 0
All Directors 2006 5,000 $18.86
These options vested and became exercisable at the date of grant. The options
may be exercised for a period of ten years after they vested. Options granted
under our Company's 2004 Stock Incentive Plan are subject to earlier termination
if Board service terminates.
* Other than Mr. Cossolias
** Mr. Cossolias joined the Board as a Director in July 2004.
18
EXECUTIVE OFFICERS AND COMPENSATION
Who are the Executive Officers of the Bank and our Company that are not also
directors of the Bank and our Company?
First Year
Name/Age Employed Business Experience During Past Five Years and Other Information
- ----------------- ----------- ----------------------------------------------------------------
James W. Andrews 2002 Executive Vice President/Real Estate Manager of the Bank since
56 2002; Business Bank of California, San Bernardino, CA as EVP/
Chief Credit Officer 1996 to 2002; EVP/Chief Credit Officer at
International Savings Bank 1992 to 1995; 1987 to 1991 VP/Asst.
Portfolio Quality Manager, SVP/Chief Internal Asset Review Officer;
EVP/Chief Credit Officer at Great American Bank. Various other
banking positions 1972 to 1987.
Frank Basirico 2006 Senior Executive Vice President/Chief Administrative Officer
51 (formerly EVP) of the Bank since February 2006; EVP/Senior Loan
Officer, Citizens Business Bank, Ontario, CA 1996 to 2006 and as
Credit Administrator 1993 to 1996. Various other banking
positions beginning in 1978.
Robert R. Flores, Jr. 2005 Executive Vice President/SBA National Sales Manager of the Bank
52 since 2005; Western Regional Sales Manager at Bank of Commerce/US Bank from
1990 to 2005.
Thomas P. Ivory 2001 Senior Executive Vice President/East County Regional Manager
52 (formerly EVP) of the Bank since January 2001; SVP/Regional Mgr. at Scripps
Bank, El Cajon, CA 1992 to 2001; SVP at Grossmont Bank, El Cajon, CA 1983 to
1991. Various other banking positions beginning in 1974.
Timothy S. McDougal 2001 Executive Vice President /East County Manager of the
45 Bank since July 2005 and with the Bank from January 2001 to July 2005 as
Senior Vice President; SVP, Scripps Bank, El Cajon, CA 1992 to 2001;
VP, Grossmont Bank, El Cajon, CA 1987 to 1992; Security Pacific Bank,
Escondido, CA from 1984 to 1987.
William H. McGaughey 2004 Senior Executive Vice President/Director of Finance and SBA
49 (formerly EVP/COO) of the Bank since November 2004; Director
of Western States BankCard Association since 2003; SVP/ Secondary Marketing
Manager, Bank of the West, Truckee, CA 1999 to 2004; SVP/Treasurer, Sierra West
Bank, Truckee, CA 1994 to 1999; EVP/Chief Financial Officer, Truckee River
Bank, Truckee, CA 1994; EVP/Chief Operating Officer, Truckee River Bank,
Truckee, CA 1991 to 1994. Various other banking, auditing and CPA positions
beginning in 1979.
19
First Year
Name/Age Employed Business Experience During Past Five Years and Other Information
- ----------------- ----------- ----------------------------------------------------------------
Donald A. Pitcher 1996 Executive Vice President/Chief Financial Officer/Secretary
56 (formerly SVP) of the Bank since 1996 and the Company since 2002;
VP/Controller and Acting CFO/Secretary, Fallbrook National Bank, Fallbrook, CA
1990 to 1996; VP/Controller 1988 to 1990 at Torrey Pines Bank, Solana Beach, CA.
Various other banking positions beginning in 1972.
Martin E. Plourd 2005 Executive Vice President /Chief Operating Officer (formerly
47 Community Banking Officer) of the Bank since July 2005; before July 2005,
19 years at Valley Independent Bank, El Centro, CA, most recently as
EVP/Community Banking beginning in 1997; before Valley Independent Bank,
AVP with First Interstate Bank and Asst. Mgr. with Security Pacific Bank.
Donald L. Schempp 2005 Executive Vice President/North San Diego County Regional
57 Manager of the Bank since January 2005; Pres/North County Community
Banking, First National Bank, San Diego, CA 2002 to 2004. Pres/CEO, Capital Bank
of North County, Carlsbad, CA 1990 to 2002; Pres. at First National Bank of
North County, Carlsbad, CA 1984 to 1990; EVP/Corporate Banking, Southwest Bank,
Vista, CA 1974 to 1984. Various other banking positions beginning in 1970.
Thomas M. Shepherd 1998 Senior Executive Vice President/Chief Credit Officer (formerly
51 EVP) of the Bank since 1998; SVP-Branch Mgr. at California State Bank,
Newport Beach, CA 1994 to 1998; SVP-Loan Administrator at Commerce Bank, Newport
Beach, CA 1993 to 1994; SVP at Preferred Bank, Los Angeles, CA 1992 to 1993;
Corporate SVP at Metrobank, Torrance, CA 1984 to 1991.
Scott J. Word 1996 Executive Vice President/Senior Loan Officer of the Bank
51 since 1996; North County Bank, Escondido, CA as SVP/Riverside County
Business Banking Mgr.1994 to September 1996, SVP/Riverside County Regional
Mgr. 1992 to 1994, VP/Mgr. 1980 to 1992.
Are there any family relationships between any directors and any
Executive Officers of our Company or the Bank?
No.
20
SUMMARY COMPENSATION TABLE
The following section describes the compensation that the Bank pays its Chief
Executive Officer and the next four most highly compensated Executive Officers
who received an annual salary and bonus of more than $100,000 during 2005 (the
"Named Executives"). This section includes a detailed table showing compensation
of the Named Executives for the last three years and information about stock
options and other benefits.
- ---------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- ----------------------------------------------------------------------- --------------------------------------------------
Awards Payouts
Restricted Securities All
Name and Other Annual Stock Underlying LTIP Other
Principal Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
Robert R. Flores, Jr. 2005 $150,000 $ 471,302 (1) $6,874 (6) $0 20,000 $0 $0
EVP/SBA National
Sales Manager
- ---------------------------------------------------------------------------------------------------------------------------
Thomas P. Ivory 2005 $170,000 $ 112,661 (2) $4,773 (7) 0 $0 $0
SEVP/East County 2004 $167,500 $ 104,765 (2) $2,431 (7) $0 15,000 $0 $0
Regional Manager 2003 $144,167 $ 72,146 (2) $2,264 (7) $0 10,000 $0
- ---------------------------------------------------------------------------------------------------------------------------
Thomas M. Shepherd 2005 $175,000 $ 100,000 (3) $5,240 (8) 5,000 $0 $0
SEVP/Chief Credit 2004 $165,000 $ 50,000 (3) $2,592 (8) $0 10,000 $0 $0
Officer 2003 $152,500 $ 30,000 (3) $2,750 (8) $0 10,000 $0
- ---------------------------------------------------------------------------------------------------------------------------
Stephen H. Wacknitz 2005 $325,000 $1,598,000 (4) $49,492 (9) $0 10,000 $0 $183,539 (11)
President/CEO 2004 $275,000 $1,172,000 (4) $29,642 (9) $0 50,000 $0 $47,615 (11)
2003 $230,000 $ 608,200 (4) $21,016 (9) $0 20,000 $0 $23,076 (11)
- --------------------------------------------------------------------------------------------------------------------------
Scott J. Word 2005 $175,000 $ 100,000 (5) $ 4,453 (10) 5,000 $0 $0
EVP/Senior Lending 2004 $165,000 $ 50,000 (5) $ 1,279 (10) $0 10,000 $0 $0
Officer 2003 $153,000 $ 35,000 (5) $ 1,592 (10) $0 10,000 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
(1) $471,302 commission paid in 2005. Mr. Flores began his employment with the
Bank in March 2005.
(2) $72,146 commission paid in 2003; $104,765 commission paid in 2004; $112,661
commission paid in 2005.
(3) $30,000 bonus accrued in 2002, paid in 2003; $50,000 bonus accrued in 2003,
paid in 2004; $100,000 bonus accrued in 2004, paid in 2005; $120,000 bonus
accrued in 2005, paid in 2006.
(4) $608,200 bonus accrued in 2002, paid in 2003; $1,172,000 bonus accrued in
2003, paid in 2004; $1,598,000 bonus accrued in 2004, paid in 2005;
$1,604,400 bonus accrued in 2005, paid in 2006.
(5) $35,000 bonus accrued in 2002, paid in 2003; $50,000 bonus accrued in 2003,
paid in 2004; $100,000 bonus accrued in 2004, paid in 2005; $110,000 bonus
accrued in 2005, paid in 2006.
(6) For 2005, includes non-cash compensation of $432 for non-cash split dollar
agreement, and $6,442 for bank car usage.
(7) For 2003, non-cash compensation for bank car usage. For 2004, includes
$2,038 for non-cash compensation for bank car usage and $393 for non-cash
split dollar agreement. For 2005, $3,052 non-cash compensation for bank car
usage, and $1,721 for non-cash split dollar agreement.
(8) For 2003, $2,750 non-compensation for bank car usage. For 2004, $2,250
non-compensation for bank car usage, and $342 for non-cash split dollar
agreement. For 2005, $3,739 non-cash compensation for bank car usage, and
$1,501 for non-cash split dollar agreement.
(9) For 2003, includes non-cash compensation of $4,386 for bank car usage,
$8,820 for long term disability premiums and $7,750 for life insurance
premiums. For 2004, includes non-cash compensation of $6,955 for split
dollar agreement, $6,057 for bank car usage, $8,880 for long term
disability premiums and $7,750 for life insurance premiums. For 2005,
includes non-cash compensation of $38,188 for split dollar agreement,
$3,554 for bank car usage, and $7,750 for life insurance premiums.
(10) For 2003, non-cash compensation for bank car usage. For 2004, $343 for
non-cash split dollar agreement and $936 non-cash for bank car usage. For
2005, $2,952 non-cash compensation for bank car usage and $1,501 for
non-cash split dollar agreement.
(11) For 2003, $23,076 unused vacation pay, paid in 2003. For 2004, $34,615
unused vacation pay, paid in 2004 and $13,000 paid in 2004 for Director's
fees. For 2005, $39,039 unused vacation pay, paid in 2005, $19,500 for
Director's fees, and $125,000 salary continuation plan payments.
21
Option Grants and Exercises in 2005
The following two tables summarize grants to and exercises of options to
purchase shares of our common stock during 2005 by the Named Executives and,
with respect to option grants, the per share exercise price, the expiration date
of the options and the grant date value of options held by such persons at
December 31, 2005. The second table also provides information concerning the
total number of securities underlying unexercised options and the aggregate
dollar value of in-the-money unexercised options. An option is in-the-money if
the fair market value for the underlying securities exceeds the exercise price
of the option. We did not re-price any options during 2005 or any prior year,
and did not provide to executives stock appreciation rights.
This information includes hypothetical potential gains from stock options
granted in 2005. These hypothetical gains are based entirely on assumed annual
growth rates of 0%, 5% and 10% in the value of our common stock price over the
ten-year life of the stock options granted in 2005. These assumed rates of
growth were selected by the SEC for illustrative purposes only and are not
intended to predict future stock prices, which will depend upon market
conditions and our future performance and prospects.
22
INDIVIDUAL OPTION GRANTS IN THE LAST FISCAL YEAR (2005)
=============================================================================================================================
% of Total
Number Options Market Potential Realizable Value
of Granted To Exercise Price
Securities Employees or Base on
Underlying in Fiscal Price Date
Option Year 2005 ($/Sh) of Expiration
Name Granted (#) (1) $ Grant Date
($)
- ------------------------ ------------- ------------- ------------ -------- ------------------------------------ -------------
0% 5% 10%
($) (2) ($) (3) ($) (4)
- ------------------------ ------------- ------------- ------------ -------- ----------- ----------- ------------ -------------
Robert R. Flores, Jr. 20,000 (5) 10.53% $17.30 $17.30 $0 $217,598 $551,435 03/30/2015
- ------------------------ ------------- ------------- ------------ -------- ----------- ----------- ------------ -------------
Thomas P. Ivory 0 (6) 0.00% N/A N/A N/A N/A N/A N/A
- ------------------------ ------------- ------------- ------------ -------- ----------- ----------- ------------ -------------
Thomas M. Shepherd 5,000 (7) 2.63% $19.75 $19.75 $0 $62,103 $157,382 06/22/2015
- ------------------------ ------------- ------------- ------------ -------- ----------- ----------- ------------ -------------
Stephen H. Wacknitz 10,000 (8) 5.26% $16.7875 $19.75 $29,625 $153,832 $344,389 06/22/2015
- ------------------------ ------------- ------------- ------------ -------- ----------- ----------- ------------ -------------
Scott J. Word 5,000 (9) 2.63% $19.75 $19.75 $0 $62,103 $157,382 06/22/2015
======================== ============= ============= ============ ======== =========== =========== ============ =============
(1) Based on options to purchase 190,000 shares of common stock granted to
employees during 2005.
(2) Presents the potential realizable value of the option shares, assuming the
market price of the underlying security appreciates in value from the date
of grant to the end of the option at the annualized rate of 0%.
(3) Presents the potential realizable value of the option shares, assuming the
market price of the underlying security appreciates in value from the date
of grant to the end of the option at the annualized rate of 5%.
(4) Presents the potential realizable value of the option shares, assuming the
market price of the underlying security appreciates in value from the date
of grant to the end of the option at the annualized rate of 10%.
(5) 6,666 each exercisable on 03/30/06 and 03/30/07 and 6,668 exercisable on
03/30/08.
(6) No stock option grants in 2005.
(7) 1,666 each exercisable on 06/22/06 and 06/22/07 and 1,668 exercisable on
06/22/08.
(8) Exercisable on 06/22/05.
(9) 1,666 each exercisable on 06/22/06 and 06/22/07 and 1,668 exercisable on
06/22/08.
[INTENTIONALLY BLANK]
23
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES (2005)
============================ ================================== ================================================================
Exercised Shares Unexercised Shares
- ---------------------------- ---------------------------------- ----------------------------------------------------------------
# of # of Value of Value of
Securities Securities Unexercised Unexercised
Underlying Underlying In-the-Money In-the-Money
Unexercised Unexercised Options at Options at
Options at Options at Year End Year End 2005
Shares Acquired Year End 2005 Year End 2005 2005 ($) ($)
on Exercise (#) Value Realized Exercisable Unexercisable Exercisable Unexercisable
Name (1) (1)
- ---------------------------- ----------------- ---------------- ---------------- ---------------- -------------- ---------------
Robert R. Flores, Jr. 0 $0 0 20,000 $ 0 $109,400
- ---------------------------- ----------------- ---------------- ---------------- ---------------- -------------- ---------------
Thomas P. Ivory 5,332 $ 74,908 8,332 13,336 $ 76,818 $114,465
- ---------------------------- ----------------- ---------------- ---------------- ---------------- -------------- ---------------
Thomas M. Shepherd 0 $0 56,665 15,003 $ 985,459 $104,500
- ---------------------------- ----------------- ---------------- ---------------- ---------------- -------------- ---------------
Stephen H. Wacknitz 0 $0 272,551 38,279 $5,095,992 $287,860
- ---------------------------- ----------------- ---------------- ---------------- ---------------- -------------- ---------------
Scott J. Word 24,000 $516,480 54,997 15,003 $1,022,901 $104,500
============================ ================= ================ ================ ================ ============== ===============
(1) Calculated based on the excess of the fair market value on December 31,
2005 of the common stock ($22.77) as reported on NASDAQ over the option
exercise price.
[INTENTIONALLY BLANK]
24
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2005
Number of securities to Weighted average exercise Number of securities
be issued upon exercise price of outstanding remaining available
of outstanding options, options, warrants and rights (excluding
Plan Category warrants and rights securities reflected
in Col. (a)) for
future issuance
(a) (b) (c)
Equity compensation plans
approved by security
holders 1,572,961 $7.41 321,914
Equity compensation plans
not approved by security
holders
0 0 0
---------- ------- -----------
Total 1,572,961 $7.41 321,914
========== ===========
Retirement Benefits
Our Board of Directors approved Salary Continuation Agreements ("Agreements")
for certain executives of the Bank. The Agreements are intended to encourage key
employees of the Bank to continue their employment with the Bank and to
encourage other qualified key employees to join and/or remain in the employ of
the Bank, when entering such Agreements is deemed appropriate for the Bank. The
Agreements in effect at December 31, 2005 for the Named Executives are as
follows:
Age Cash
on Retire- Estimated Estimated Net Surrender
Record ment Benefit Duration of Remaining Accrual Accrual Value Policy/
Executive Officers Date Age per year Benefit (yrs) Benefit 2005 Balance 12/31/05 Death Benefits
- ------------------- -------- ------ ----------- ------------- ----------- -------- ---------- ----------- ---------------
R. Flores 52 65 $100,000 15 $ 1,500,000 $ 31,545 $ 31,545 $ 1,577,246 $ 3,784,465
T. Ivory * 52 N/A N/A N/A N/A $ 0 $ 0 $ 487,853 $ 1,163,442
T. Shepherd 51 65 $ 60,000 15 $ 900,000 $ 23,661 $ 61,316 $ 458,090 $ 1,164,963
S. H. Wacknitz 66 70 $ 75,000 20 $ 1,500,000 $134,438 $ 261,065 $ 3,778,371 $ 6,180,996
S. H. Wacknitz** 66 65 $125,000 20 $ 2,375,000 $ 85,988 $1,422,224 $ 2,397,536 $ 3,933,132
S. H. Wacknitz 66 70 $100,000 20 $ 2,000,000 $242,864 $242,864 $ 3,855,020 $ 6,063,813
S. Word 51 65 $ 60,000 15 $ 900,000 $ 23,854 $61,690 $ 438,371 $ 1,115,119
-------- ----------- -------- ---------- ----------- -----------
Total Participants (8) $520,000 $13,315,000 $723,442 $2,885,494 $17,590,734 $34,241,989
======== =========== ======== ========== =========== ===========
o Mr. Ivory does not have a Salary Continuation Plan, however, he has a
Salary Deferral Plan.
** Mr. Wacknitz received $125,000 in retirement benefits in 2005.
25
Executive Employment Agreements
The Bank entered into an employment agreement with Mr. Flores ("Flores
Agreement") effective January 27, 2005. Under the Flores Agreement, the initial
base salary is $180,000, which may be increased in the discretion of our Board
of Directors, upon the recommendation of the Executive Officer Compensation
Committee. In addition, the Flores Agreement provides for four weeks of
vacation, the use of a Bank-owned and maintained automobile, group medical
benefits and participation in the Bank's 401K Plan. Mr. Flores received, under
the terms of the Flores Agreement, a 20,000 share stock option. All of Mr.
Flores' unvested options will accelerate and vest upon a change of control. Mr.
Flores is also entitled to a deferred compensation arrangement with the Bank
subject to terms to be agreed upon by the Bank and Mr. Flores. As bonus
compensation, Mr. Flores is entitled to receive 20 basis points of the total
original principal amount of originated 7a and 504 SBA loans (collectively "SBA
Loans") as well as construction, conventional and business and industry loans
related to and made in conjunction with SBA Loans. If Mr. Flores is terminated
without cause or within six months of a change of control, he would be entitled
to receive the greater of: (i) $90,000; or (ii) six months of base salary.
Mr. Flores also has entered into a Salary Continuation Agreement with the Bank
dated June 1, 2005. Benefits under the plan are contingent upon a multitude of
factors including the applicable vesting schedule, the reason for termination
(retirement as opposed to a change of control, for example) and the timing of
the event giving rise to the payment, which payment can be, in some instances,
in a one-time lump sum payment at present value (except that in the case of a
change in control, the payment would be at the fully vested value) or payments
over a period of years. Refer to the chart on page 25 under the caption
"Retirement Benefits" which addresses the plans currently in place and the
anticipated benefits, based upon certain projections.
The Bank entered into an employment agreement with Mr. Ivory ("Ivory Agreement")
effective on January 25, 2003. Under the Ivory Agreement, the initial annual
base salary is $160,000, which may be increased in the discretion of our Board
of Directors. On April 1, 2005, Mr. Ivory's base salary increased from $160,000
to $170,000. In addition, the Ivory Agreement provides for four weeks of
vacation, the use of a Bank-owned and maintained automobile, group medical
benefits, participation in the Bank's 401K Plan and eligibility to participate
in the Bank's senior management retirement programs, as determined from time to
time. Further, Mr. Ivory is entitled to receive 7.5 basis points of total loan
production generated out of the El Cajon office (excluding lines of credit),
plus 2.5% of annual after-tax profits of the El Cajon office. If terminated
without cause, Mr. Ivory is entitled to receive three months' salary. Options
received by Mr. Ivory that are not vested at the time of a change of control
will accelerate and vest.
26
Mr. Ivory also has entered into an Executive Deferred Compensation Agreement
with the Bank dated April 1, 2001. This agreement allows Mr. Ivory to defer
$40,000 per year of income, and then have that deferred amount paid to him at
retirement (age 57) or termination of employment. The deferred amount earns 10%
per annum interest, compounded monthly. As of December 31, 2005, interest earned
on amounts deferred is $51,871.
Mr. Ivory also has entered into a Split Dollar Agreement with the Bank dated
September 30, 2004. This agreement provides that Mr. Ivory and the Bank split a
death benefit according to a vesting schedule.
Mr. Shepherd entered into a Salary Continuation Agreement with the Bank dated
September 30, 2004. Benefits under the plan are contingent upon a multitude of
factors including the applicable vesting schedule, the reason for termination
(retirement as opposed to a change of control, for example) and the timing of
the event giving rise to the payment, which payment can be, in some instances,
in a one-time lump sum payment at present value (except that in the case of a
change of control, the payment would be at the fully vested value) or payments
over a period of years. Refer to the chart on page 25 under the caption
"Retirement Benefits" which addresses the plans currently in place and the
anticipated benefits, based upon certain projections.
The Bank entered into an employment agreement with Mr. Wacknitz ("Wacknitz
Agreement") effective as of January 1, 2003. Under the Wacknitz Agreement, the
initial annual base salary is $210,000, which may be increased in the discretion
of our Board of Directors. Mr. Wacknitz' base salary for 2005 was $350,000 and
for 2006 it will be $400,000. In addition, the Wacknitz Agreement provides for
six weeks of vacation, the use of a Bank-owned and maintained automobile, group
medical benefits, term life insurance benefits equal to at least $250,000,
long-term disability benefits equal to at least $120,000 per year before age 65
and $10,000 per month paid by the Bank in the event disability payments are not
made by an insurer. After age 65, in the event of disability, Mr. Wacknitz will
receive from the Bank the difference between the amount received from the
insurer and $15,000 per month. Further, Mr. Wacknitz is entitled to receive a
bonus of 6% of profits before taxes and bonus accrual of the Company if certain
performance standards are met, provided, however, at the request of Mr.
Wacknitz, beginning for the year 2006 and thereafter, through an amendment to
the Wacknitz Agreement, the bonus percentage has been reduced to 5%. If
terminated within one year before or after a change of control, without cause,
or if Mr. Wacknitz terminates for good reason, Mr. Wacknitz will be entitled to
receive the greater of one year of salary plus bonus as though a full year had
lapsed or two years of salary. Unvested options will accelerate and vest upon a
change of control.
Mr. Wacknitz also entered into two salary continuation agreements with the Bank.
The first is dated January 28, 2004. The second (an amended and restated
agreement) is dated September 30, 2004. Benefits under both plans are contingent
upon a multitude of factors including the applicable vesting schedule, the
reason for termination (retirement as opposed to a change of control, for
example) and the timing of the event giving rise to the payment, which payment
can be, in some instances, in a one-time lump sum payment at present value
(except that in the case of a change of control, the payment would be at the
fully vested value) or payments over a period of years. Refer to the chart on
page 25 under the caption "Retirement Benefits" which addresses the plans
currently in place and the anticipated benefits, based upon certain projections.
27
Mr. Wacknitz also has entered into an Executive Deferred Compensation Agreement
with the Bank dated September 30, 2004. This agreement allows Mr. Wacknitz to
defer income, and then have that deferred amount paid to him, at retirement (age
70) or termination of employment. The deferred amount earns 10% per annum
interest, compounded monthly. As of December 31, 2005, interest earned on
amounts deferred is $6,209.
Mr. Wacknitz also has entered into Split Dollar Agreements with the Bank dated
September 30, 2004 and August 1, 2005. These agreements provide that Mr.
Wacknitz and the Bank split a death benefit of the single premium life insurance
premiums. The death benefit for Mr. Wacknitz is the remaining SCP Benefit
according to a vesting schedule.
Mr. Word entered into a Salary Continuation Agreement with the Bank dated
September 30, 2004. Benefits under the plan are contingent upon a multitude of
factors including the vesting schedule, the reason for termination (retirement
as opposed to a change of control, for example) and the timing of the event
giving rise to the payment, which can be, in some instances, a one-time lump sum
payment at present value or payments over a period of years. Refer to the chart
on page 25 under the caption "Retirement Benefits" which addresses the plan and
the anticipated benefits, based upon certain projections.
Mr. Word also has entered into a Split Dollar Agreement with the Bank dated
September 30, 2004. This agreement provides that Mr. Word and the Bank split a
death benefit of the single premium life insurance premiums. The death benefit
for Mr. Word is the remaining SCP Benefit according to a vesting schedule.
Bonus Pool Arrangement
The Bank has established a bonus pool arrangement under which the Bank earmarks
approximately 10% of the pre-tax, pre-bonus net income of the Company to pay
incentive bonuses to certain officers of the Bank. The Named Executives
designated below as well as other officers of the Bank may receive incentive
bonus payments. The bonus paid to some officers is discretionary and for others,
the amount is fixed in the Employment Agreement of the involved individual.
28
For the year ended December 31, 2005, pursuant to the Employment Agreement of
Stephen H. Wacknitz, CEO, President and Chairman of the Bank, he is entitled to
receive 6% of the pre-tax, pre-bonus net income of the Company. For the year
ended December 31, 2006, pursuant to his Employment Agreement, he is entitled to
receive 5% of the pre tax, pre bonus net income of the Company.
Upon a recommendation of the Executive Compensation Committee and approval by
the Board of Directors, Thomas M. Shepherd, Senior Executive Vice
President/Chief Credit Officer and Scott J. Word, Executive Vice
President/Senior Lending Officer, may receive an annual incentive bonus based
upon performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
There have been no transactions, or series of similar transactions, during 2005,
or any currently proposed transaction, or series of similar transactions, to
which our Company or the Bank was or is to be a party, in which the amount
involved exceeded or will exceed $60,000 and in which any director (or nominee
for director) of our Company, Executive Officer of our Company or the Bank, any
shareholder owning of record or beneficially 5% or more of our 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 except: (i) as described above
under the headings "INFORMATION ABOUT CORPORATE GOVERNANCE AND OUR DIRECTORS AND
EXECUTIVE OFFICERS," "EXECUTIVE OFFICERS AND COMPENSATION" and "SUMMARY
COMPENSATION TABLE"; (ii) as discussed under "Indebtedness of Management"
immediately below; and (iii) our Company provided an indemnity to our transfer
agent on behalf of Director Aichle and related entities in connection with the
issuance of stock certificates to replace lost certificates representing 72,244
shares of common stock, and Director Aichle and his related entities, in turn,
indemnified our Company in connection with any losses we may incur as a result
of the provision of the indemnification to our transfer agent.
Indebtedness of Management
The Bank has had, and expects in the future to have, banking transactions in the
ordinary course of its business with many of the Bank's and our Company's
directors and officers and their associates, including transactions with
corporations of which such persons are directors, officers or controlling
shareholders may be involved, on substantially the same terms (including
interest rates and collateral) as those prevailing for comparable transactions
with others. Management believes that in 2005 such banking transactions were
entered into and made in the ordinary course of business and did not involve
more than the normal risk of collectibility or present other unfavorable
features. Loans to executive officers of the Bank and our Company are subject to
limitations as to amount and purposes prescribed in part by the Federal Reserve
Act, as amended, and other federal and state laws and regulations.
29
COMMON STOCK PERFORMANCE CHART
Set forth below is a line graph comparing the cumulative total stockholder
return on our common stock, based on its market price, with the cumulative total
return on companies on the NASDAQ Stock Market (U.S.), and the NASDAQ Bank
Index, assuming reinvestment of dividends for the period beginning December 31,
2000 and ending December 31, 2005. This graph assumes that the value of the
investment in our common stock and each of the comparison groups was $100 on
December 31, 2000.
Trading in our common stock is through The NASDAQ National Market. We have
experienced many periods of light trading volume. During such periods, the sales
price may not be a reliable indication of market value. The prices presented for
our common stock are not necessarily indicative of future performance.
COMPARATIVE STOCK PERFORMANCE GRAPH
[DATA REPRESENTS OMITTED CHART]
TMCV NASDAQ NASDAQ BANK
12/31/2000 100.00 100.00 100.00
12/31/2001 162.56 79.18 108.85
12/31/2002 215.33 54.44 111.95
12/31/2003 459.59 82.09 144.51
12/31/2004 604.27 89.59 165.62
12/31/2005 775.19 91.54 160.57
12/31/1999 100.00 100.00 100.00
12/31/2000 67.14 60.31 114.23
12/31/2001 109.14 47.84 123.68
12/31/2002 144.57 33.07 126.55
12/31/2003 308.57 49.45 162.92
12/31/2004 405.71 53.81 186.45
12/31/2005 520.46
30
SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We selected the independent registered public accounting firm of Crowe Chizek
and Company, LLC ("Crowe Chizek") for the 2005 fiscal year. Although Vavrinek,
Trine, Day & Co., LLP ("Vavrinek") has audited the accounts of the Bank since
1996 and of our Company since its creation in mid-2002, we agreed with Vavrinek
that we would engage a firm for the 2005 fiscal year that has more resources to
match our anticipated growth and operating complexity as well as more
accelerated filer clients with stock that is publicly traded, like us. This
decision was approved by our Audit Committee and our Board. Vavrinek has never
issued to us an adverse opinion or a disclaimer of opinion, nor have there been,
at any time, any disagreements on any matter of accounting principals or
practices, financial statement disclosure, or auditing scope or procedure, or
otherwise that would have caused Vavrinek to make reference to the subject
matter of the disagreements in connection with its reports.
Crowe Chizek's audit services include the annual audit examination, limited
reviews of unaudited quarterly financial data, assistance in filings with
various regulatory authorities, aid with the Annual Report to Shareholders and
the provision of information regarding accounting principles and practices
followed by the Bank and our Company in preparing its financial statements.
Audit Fees/Auditors to be Present
Fees incurred through the record date for services provided by the
Company's independent registered public accounting firms for these periods were:
Crowe Chizek Vavrinek Vavrinek
2005 2005 2004
------------- ---------- ----------
Audit Fees $291,000 $ 11,400 $ 47,000
Audit-Related Fees $ 0 $ 38,000 $ 37,700
Tax Fees $ 0 $ 2,200 $ 6,000
All Other Fees
$ 8,500 $ 1,750 $ 0
------------- ---------- ----------
Total $299,500 $ 53,350 $ 90,700
============= ========== ==========
31
The Crowe Chizek audit fees include the audit of the Company's
consolidated financial statements and the audit of the Company's Internal
Controls Over Financial Reporting. The Tax Fees of $2,200 in 2005 was for
Vavrinek to assist in the 2nd and 3rd quarter estimated tax payments. The
$11,400 Vavrinek audit fees for 2005 was for the 1st and 2nd Quarter 10Q review,
and the 2005 Vavrinek audit related fees are for the final review of the
Internal Controls Over Financial Reporting for 2004. Under All Other Fees,
$8,500 was incurred for Crowe Chizek to review the Bank's Salary Continuation
Agreements and $1,750 for Vavrinek to review the 2004 audit with Crowe Chizek.
The Audit Committee previously adopted an Audit and Non-Audit Services
Pre-Approval Policy for pre-approval of engagements for audit, audit-related and
non-audit services by the independent registered public accounting firms. The
policy requires that all audit services, audit-related services and tax services
to be performed by the independent registered public accounting firms be
pre-approved by the Audit Committee. Under the policy, unless a type of service
has received general pre-approval, any such service will require specific
approval by the Audit Committee if it is to be provided by the independent
registered public accounting firm.
Representatives of Crowe Chizek will be present at the Annual Meeting and
representatives will have the opportunity to make a statement if they desire to
do so and to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act requires our and the Bank's
directors and Executive Officers, and holders of more than 10% of a registered
class of our equity securities, to file with the SEC reports of ownership and
changes in ownership of any equity securities of our Company. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it, or written
representations from certain reporting persons that all required forms were
filed, we believe that, during 2005, all Section 16 filing requirements were met
except that Form 3s were inadvertently filed late on behalf of James Andrews and
Robert Flores in March 2006 for 2002 and 2005, respectively.
ADDITIONAL INFORMATION
Under the Securities and Exchange Act at Sections 13 and 15(d), periodic and
current reports must be filed with the SEC. Our Company electronically files the
following reports with the SEC: Form 10-K (Annual Report), Form 10-Q (Quarterly
Report), Form 8-K (Current Report) and Schedule 14A (Proxy Statement). We may
file additional forms. The public may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 100 F Street, N.W., Washington
D.C. 20549 and may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site,
www.sec.gov, through which all forms filed electronically may be accessed.
Additionally, all forms filed with the SEC are accessible through our website by
way of a hyperlink to the SEC website. Additional shareholder information is
available free of charge on our website: www.temvalbank.com. We post our annual
reports to our website as soon as reasonably practicable after filing them with
the SEC. None of the information on or hyperlinked from our website is
incorporated into this proxy statement.
32
OTHER MATTERS
Our Board of Directors has no knowledge of any other matter that may come before
the meeting, and does not intend to present any other matters. However, if any
other matters shall come before the meeting or any adjournment or postponement
thereof (including the election of any one or more substitutes for any of the
foregoing nominees who are unable to, or for good reason will not, serve on our
Board of Directors), the persons named as proxy holders will have the discretion
and authority to vote the shares represented by a proxy in accordance with their
best judgment.
ANNUAL REPORT
We have enclosed with this proxy statement our annual report for 2005 along with
the opinion of Crowe Chizek and Company, LLC, the independent registered public
accounting firm engaged by us.
Upon written request by any person entitled to vote at the meeting, addressed to
Donald A. Pitcher, Secretary of our Company, at 27710 Jefferson Avenue, Suite
A100, Temecula, CA 92590, we will provide, without charge, a copy of our 2005
annual report on Form 10-K, including the financial statements and the schedule
thereto filed with the SEC pursuant to the Securities and Exchange Act.
By Order of the Board of Directors
Donald A. Pitcher
Secretary
Temecula, California
April 18, 2006
33
APPENDIX I
Nominating Committee Charter
1
NOMINATING COMMITTEE CHARTER
FOR
TEMECULA VALLEY BANCORP INC. AND
TEMECULA VALLEY BANK, N .A.
Adopted by the Board of Directors
May 25, 2005
2
NOMINATING COMMITTEE CHARTER
Authority
The Nominating Committee is appointed by the Board to discharge the duties of
the Board relating to the selection and nomination of persons to serve on the
Board and in corporate governance issues.
The members of the Nominating Committee shall meet the independence requirements
of the Securities and Exchange Commission and the Nasdaq National Market Rules.
The Nominating Committee shall be composed of at least three directors who shall
be appointed by the Board.
The Nominating Committee shall have the authority to retain and terminate
consultants or a search firm, including authority to approve the search firm's
fees and other retention terms, to be used to identify director candidates. The
Nominating Committee may request any officer or employee of the Company or the
Company's outside counsel to attend a meeting of the Nominating Committee or to
meet with any members of, or consultants to, the Nominating Committee.
Responsibilities
The Nominating Committee shall:
o Review and reassess the performance of the Nominating Committee and the
adequacy of this Charter annually and recommend any proposed changes to the
Board for approval.
o Maintain minutes of meetings and make regular reports to the Board.
o Make recommendations regarding the size and composition of the Board.
o Establish and recommend to the Board criteria for the selection of new
directors to serve on the Board.
o Identify individuals qualified to become Board members, consistent with
criteria approved by the Board.
o Make the director nominee recommendations to the Board for the next annual
meeting of shareholders.
o Oversee the evaluation of the Board members.
3
o Recommend the appropriate committee structure of the Board and recommend
Board committee assignments and any changes to such assignments.
o Act as a forum to hear special concerns that might arise that require the
attention of the Board's independent directors.
o Make periodic recommendations for improving the Board's effectiveness and
discuss annually with the full Board its effectiveness.
o Any nominee, whether suggested by one of our shareholders or by a member of
our Board, will receive the same consideration, so long as the recommending
shareholders represent at least five percent of our outstanding voting
securities and such securities have been held for at least one year prior
to the time of such nomination. In the event, a nomination is made by
holders of less than five percent or holders that have held our securities
for less than a year, the Board is under no obligation to consider the
proposed candidate but it may do so, in its sole discretion.
4
REVOCABLE PROXY - TEMECULA VALLEY BANCORP INC.
ANNUAL MEETING OF SHAREHOLDERS - May 23, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Temecula Valley Bancorp Inc. (the "Company") hereby constitutes and appoints Dr.
Steven W. Aichle and Mr. Neil M. Cleveland, with power to appoint their respective substitutes, as attorney and
proxy to appear, attend and vote all shares of the Company which the undersigned is entitled to vote at the
Annual Meeting of Shareholders to be held at the main offices of the Company, 27710 Jefferson Avenue, Suite A100,
Temecula, California on Tuesday, May 23, 2006 at 6:00 p.m. local time, and any adjournments or postponements
thereof, as fully and with the same force and effect as the undersigned might or could do if personally present
thereat. The Board of Directors of the Company recommends a vote "FOR" the proposal herein.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS INDICATED AND IN ACCORDANCE WITH THE DISCRETION OF
THE PROXY HOLDER ON ANY OTHER BUSINESS. ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED IN CONNECTION WITH THE
ACTIONS PROPOSED ON THIS PROXY ARE HEREBY EXPRESSLY REVOKED. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED BY WRITTEN NOTICE TO THE SECRETARY OF THE COMPANY, BY ISSUANCE OF A SUBSEQUENT PROXY OR BY VOTING AT THE
ANNUAL MEETING IN PERSON.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- -------------------------------------------------------------------------------------------------------------------
Vote by Internet, Telephone or Mail
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
24 Hours a Day - 7 Days a Week
Your Internet or Telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
- -------------------------------------------------------------------------------------------------------------------
INTERNET TELEPHONE MAIL
www.proxyvoting.com/tmcv 1-888-426-7035 Mark, sign and date your proxy
Use the Internet to vote your card and return it in the enclosed
proxy. Have your proxy card postage-paid envelope.
in hand when you access the
web site. You will be prompted
to enter your control number,
located in the box below, to
create and submit an electronic
ballot.
If you vote your proxy by Internet or by Telephone
you do NOT need to mail back your proxy card.
FOLD AND DETACH HERE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Please date, sign and mail
your proxy card in the envelope
provided as soon as possible.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [x].
1
1. Election of Directors. To elect the following seven (7) persons to the Board of Directors of the Company to
serve until the next annual meeting and until their successors are elected and qualified:
[ ] FOR ALL NOMINEES NOMINEES:
01. Steven W. Aichle
[ ] WITHHOLD AUTHORITY FOR ALL NOMINEES 02. Robert P. Beck
03. Neil M. Cleveland
[ ] FOR ALL EXCEPT (see instructions below) 04. George Cossolias
05. Luther J. Mohr
06. Stephen H. Wacknitz
07. Richard W. Wright
Instruction: To withhold authority to vote for any individual nominee(s), mark "FOR ALL EXCEPT" and fill in the
circle next to each nominee you wish to withhold, as shown here:
IF THE UNDERSIGNED SHAREHOLDER WISHES TO CUMULATE VOTES IN THE ELECTION OF DIRECTORS, THE UNDERSIGNED MUST
APPEAR AND VOTE IN PERSON AT THE 2006 ANNUAL MEETING. IF ANY SHAREHOLDER GIVES PROPER NOTICE AT THE 2006 ANNUAL
MEETING OF HIS OR HER INTENTION TO CUMULATE VOTES IN THE ELECTION OF DIRECTORS, THE PROXY HOLDER WILL HAVE THE
FULL DISCRETION AND AUTHORITY TO VOTE CUMULATIVELY EXCEPT TO THE EXTENT DESCRIBED IN THE PROXY STATEMENT.
Date:_________________________________________________
_________________________________________________
_________________________________________________
Signature(s)
I (We) will |_| will not |_| attend the Annual Meeting in
person.
NOTE: Please sign exactly as your name or names appear on
this Proxy. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian,
please give full title as such. If the signer is a
corporation, please sign full corporate name by a duly
authorized officer, giving full title as such. If signer is
a partnership, please sign in partnership name by authorized
person.
2