UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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[ ] 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 Sec. 240.14a-11(c) or Sec. 240.14a-12
FARMERS & MERCHANTS BANCORP
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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.
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FARMERS & MERCHANTS BANCORP
111 WEST PINE STREET, LODI, CA 95240-2184
April 14, 2006
Dear Stockholder:
The annual meeting of stockholders of Farmers & Merchants Bancorp (the
"Company") will be held this year at the Lodi Grape Festival, Chardonnay Hall,
413 E. Lockeford Street, Lodi, CA, on Monday, May 15, 2006, at 4:00 p.m. We look
forward to your attendance.
The enclosed proxy statement describes the business to be conducted at the
annual meeting, which includes the election of Directors and any other matters
which properly come before the meeting. A copy of the Company's 2005 Annual
Report to Stockholders is also enclosed.
We hope you will be able to attend the annual meeting in person. We would
also like to invite you to be our guest for dinner after the meeting. FOR THE
FIRST TIME THIS YEAR WE HAVE INCLUDED A PLACE ON THE PROXY FOR YOU TO INDICATE
WHETHER YOU WILL BE ATTENDING THE MEETING. PLEASE NOTE THAT THE ANNUAL MEETING
IS ONLY OPEN TO STOCKHOLDERS AND SPOUSES. SPACE WILL BE LIMITED AND WE CANNOT
ACCOMMODATE OTHER GUESTS. We thank you in advance for your understanding on this
issue.
The Directors and senior management greatly appreciate the interest
expressed by our stockholders. Whether or not you plan to attend the annual
meeting, it is important that you are represented and that your shares are
voted. Accordingly, after reviewing the enclosed proxy statement, we ask you to
complete, sign and date the enclosed proxy and return it as soon as possible in
the postage-paid envelope that has been provided for your convenience.
Sincerely,
/s/ Ole R. Mettler /s/ Kent A. Steinwert
Ole R. Mettler Kent A. Steinwert
Chairman of the Board President and Chief Executive Officer
Enclosures
FARMERS & MERCHANTS BANCORP
111 WEST PINE STREET, LODI, CA 95240-2184
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held May 15, 2006
To our Stockholders:
NOTICE IS HEREBY GIVEN that the 2006 annual meeting of stockholders of Farmers &
Merchants Bancorp, a Delaware corporation (the "Company") will be held this year
at the Lodi Grape Festival, Chardonnay Hall, 413 E. Lockeford Street, Lodi, CA,
on Monday, May 15, 2006, at 4:00 p.m. to:
1. Elect the following eleven (11) Directors to serve until the 2007 annual
meeting of stockholders or until their successors are elected and
qualified:
Stewart C. Adams, Jr. Harry C. Schumacher
Ralph Burlington Kevin Sanguinetti
Edward Corum, Jr. Kent A. Steinwert
Robert F. Hunnell Ole R. Mettler
Calvin (Kelly) Suess Carl A. Wishek, Jr.
James E. Podesta
2. Act upon such other matters as may properly come before such annual meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 3, 2006 as
the record date for determining the holders of the common stock of the Company
entitled to notice of, and to vote at, the annual meeting and any adjournments
thereof. A complete list of stockholders entitled to vote will be available for
inspection by stockholders of record at the office of the Secretary of the
Company at 111 West Pine Street, Lodi, CA for the ten days prior to the meeting.
You are strongly encouraged to attend the annual meeting. Please note that
if you are a beneficial owner of common stock held by a broker, bank or other
nominee, you will need proof of ownership to be admitted to the meeting. A
recent brokerage statement or a letter from a bank or broker are examples of
proof of ownership.
Please complete, sign and date, as promptly as possible, the enclosed proxy
and immediately return it in the envelope provided for your use. This is
important whether or not you plan to attend the annual meeting in person. The
giving of such proxy will not affect your right to revoke such proxy or to vote
in person, should you attend the annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/Deborah Hodkin
Deborah Hodkin
Secretary
Dated: April 14, 2006
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YOUR VOTE IS IMPORTANT
TO INSURE YOUR VOTE IS REPRESENTED, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
PROMPTLY RETURN YOUR PROXY.
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PROXY STATEMENT
FARMERS & MERCHANTS BANCORP
111 WEST PINE STREET, LODI, CA 95240-2184
This proxy statement is furnished to the stockholders of Farmers &
Merchants Bancorp (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company to be used in voting at the annual
meeting of stockholders to be held on May 15, 2006 at the Lodi Grape Festival,
Chardonnay Hall, 413 E. Lockeford Street, Lodi, CA at 4:00 p.m., and at any
adjournment or postponement thereof. All expenses incidental to the preparation
and mailing, or otherwise making available to all stockholders of the notice,
proxy statement and form of proxy will be paid by the Company. This proxy
statement and the enclosed proxy are being mailed to the Company's stockholders
on or about April 14, 2006.
This proxy statement outlines the business to be conducted at the annual
meeting, which includes the election of Directors.
VOTING RIGHTS AND VOTE REQUIRED
Only stockholders of record at the close of business on April 3, 2006 (the
"record date"), will be entitled to vote in person at the meeting or by proxy.
On the record date, there were 821,550 shares of common stock outstanding and
entitled to vote.
Holders of common stock of the Company are entitled to one vote for each
share held, other than with respect to the election of Directors. Each
stockholder may be eligible to exercise cumulative voting rights and may be
entitled to as many votes as shall equal the number of shares of common stock
held by such stockholder multiplied by the number of Directors to be elected,
and such stockholder may cast all of such votes for a single nominee or may
distribute them among two or more nominees. For example, if you own 10 shares of
common stock of the Company and 11 Directors are being elected, you have 110
votes - you can cast all of them for one nominee, or two or more nominees if you
so choose. No stockholder, however, shall be entitled to cumulate votes (i.e.,
cast for any one or more nominees a number of votes greater than the number of
shares of common stock of the Company held by such stockholder) unless the
name(s) of the nominee(s) has (have) been placed in nomination prior to the
commencement of the voting in accordance with Article III, Section 3.4 of the
Company's by-laws (which requires that nominations made other than by the Board
of Directors be made by notification in writing delivered or mailed to the
President of the Company not less than 30 days or more than 60 days prior to any
meeting of stockholders) and, in accordance with Article II, Section 2.9 of the
Company's by-laws, a stockholder has given at least two days written notice to
the Secretary of the Company of an intention to cumulate votes prior to the
vote. The Company's Annual Meeting of Stockholders is expected to be held on May
15, 2006. Accordingly, any stockholder nomination for election to the Board of
Directors for the 2006 Annual Meeting of Stockholders, to be timely, must be
received by the Company not later than April 15, 2006 and not earlier than March
16, 2006. If any stockholder has given such notice, all stockholders may
cumulate their votes for nominees, in which event votes represented by proxies
delivered pursuant to this proxy statement may be cumulated, at the discretion
of the proxy holders, in accordance with the recommendation of the Board of
Directors. Discretionary authority to cumulate votes in such event is,
therefore, solicited in this proxy statement.
In the election of Directors, the 11 nominees receiving the highest number
of votes will be elected. Approval of such other matters which properly come
before the meeting, if any, will require the affirmative vote of a majority of
the shares represented and voting at the meeting provided the quorum
requirements of Article II, Section 2.7 of the by-laws are met (see "Voting of
Proxies - Quorum" on page 2). Abstentions will not count as votes in favor of
the election of Directors or any other proposals.
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VOTING OF PROXIES - QUORUM
The shares represented by all properly executed proxies received in time
for the meeting will be voted in accordance with the stockholders' choices
specified therein; provided, however, that where no choices have been specified,
the shares will be voted "FOR" the election of the 11 nominees for Director
recommended by the Board of Directors and voted at the discretion of the proxy
holders on such other matters, if any, which may properly come before the
meeting (including any proposal to adjourn the meeting). A majority of the
shares entitled to vote represented either in person or by properly executed
proxies, will constitute a quorum at the meeting. Abstentions and broker
"non-votes" are each included in the determination of the number of shares
present and voting for purposes of determining the presence of a quorum. A
broker "non-vote" occurs when a nominee holding shares for a beneficial owner
does not have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner. Abstentions will be included in
tabulations of the votes cast on proposals presented to the stockholders and
therefore will have the effect of a negative vote. Broker "non-votes" will not
be counted for purposes of determining the number of votes cast for a proposal.
REVOCABILITY OF PROXY
A stockholder using the enclosed proxy may revoke the authority conferred
by the proxy at any time before it is exercised (i.e., before the vote pursuant
to that proxy) by delivering written notice of revocation or a duly executed
proxy bearing a later date to the Secretary of the Company, or by appearing and
voting by ballot in person at the meeting. In the event that signed proxies are
returned without voting instructions, proxies will be voted in favor of election
of the eleven (11) persons nominated for election as Directors as set forth in
this Proxy Statement and such other matters, if any, which may properly come
before the meeting (including any proposal to adjourn the meeting).
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PROPOSAL 1
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ELECTION OF DIRECTORS
At the meeting, it will be proposed to elect eleven (11) Directors of the
Company, each to hold office until the next annual meeting and until their
successors shall be elected and qualified. It is the intention of the proxy
holders named in the enclosed proxy to vote such proxies (except those
containing contrary instructions) for the eleven (11) nominees named below.
The following table sets forth the names of each of the nominees for
election as a Director, their age, their principal occupation for the past five
years and the period during which they have served as a Director of the Company
(or the Bank).
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PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING PAST FIVE YEARS SINCE
---- --- ---------------------- -----
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Stewart C. Adams, Jr. 68 Attorney 1997
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Ralph Burlington 82 Retired, Former Co-owner San Joaquin Sulfur Co. 1968
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Edward Corum, Jr. 54 Managing General Partner, Corum Real Estate 2003
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Robert F. Hunnell 85 Retired, Former Owner Hunnell's Pharmacy 1970
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Ole R. Mettler 88 Chairman of the Board of the Company and Bank 1973
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James E. Podesta 85 Orchardist 1980
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Kevin Sanguinetti 47 President, First American Title Company of Stockton 2001
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Harry C. Schumacher 85 Retired, Former President of the Bank 1997
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Kent A. Steinwert 53 President & Chief Executive Officer of the Company 1998
and Bank
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Calvin (Kelly) Suess 70 Co-owner, Lodi Nut Company, Inc. 1990
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Carl A. Wishek, Jr. 67 Assistant Vice President of the Bank 1988
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None of the Directors of the Company were selected pursuant to arrangements
or understandings other than with the Directors and stockholders of the Company
acting within their capacity as such. There are no family relationships among
the Directors and executive officers of the Company, and none of the Directors
serves as a Director of any company which has a class of securities registered
under, or subject to periodic reporting requirements of, the Securities Exchange
Act of 1934, as amended, or any company registered as an investment company
under the Investment Company Act of 1940.
The Board does not anticipate that any of the nominees will be unable to
serve as a Director of the Company, but if that should occur before the meeting,
the proxy holders, in their discretion, upon the recommendation of the Company's
Board of Directors, reserve the right to substitute as nominee and vote for
another person of their choice in the place and stead of any nominee unable so
to serve. The proxy holders reserve the right to cumulate votes for the election
of Directors and cast all of such votes for any one or more of the nominees, to
the exclusion of the others, and in such order of preference as the proxy
holders may determine in their discretion, based upon the recommendation of the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
---
THE NOMINEES LISTED ABOVE.
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BOARD OF DIRECTORS MEETINGS
During the calendar year ending December 31, 2005, the Board of Directors
of the Company met thirteen (13) times and the Board of Directors of the Bank
met twenty-four (24) times. Each incumbent attended more than 75% of the
meetings of the Board of Directors and Committees on which they served. The
Company expects Directors to attend the annual meeting of stockholders and all
eleven Directors attended the annual meeting of stockholders in 2005.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's principal asset is its wholly-owned subsidiary, Farmers &
Merchants Bank of Central California (the "Bank"). The Directors of the Company
are also Directors of the Bank. As such, Bank Committees supervise and review
the activities of the Bank, which in turn report to the Company's Board of
Directors.
Nominating Committee
The Board of Directors of the Company has a Nominating Committee; The
Committee did not meet in 2005. The Committee does not have a charter. The
Committee is comprised of the following voting members: Messrs. Mettler,
Steinwert (Chairman), Schumacher, Suess and Hunnell. The Committee identifies
candidates to serve as Directors of the Bank and the Company in the event of
future Board openings. As part of its nominating responsibilities, the
Nominating Committee will consider candidates nominated by the Company's
stockholders, Directors, officers and from other sources. In evaluating
candidates, the Nominating Committee considers the attributes of the candidate
(including skills, experience, diversity, age and legal and regulatory
requirements) and the needs of the Board of Directors, and reviews all
candidates in the same manner, regardless of the source of the recommendation.
The Nominating Committee will consider candidates nominated by the stockholders
of the Company for next year's meeting if the nomination is made in writing in
accordance with Article III, Section 3.4 of the By-Laws of the Company. See
"Stockholder Proposals, Nominations and Notices" on page 19. Each of Messrs.
Schumacher, Suess and Hunnell has been determined by the Board of Directors to
be "independent" as such term is defined by Rule 4200(a)(15) of the NASD's
current listing standards.
Audit Committee
The Audit Committee of the Company and the Bank oversees and monitors the
activities of the internal and independent auditors of the Company and the Bank
with the aim of ensuring compliance with applicable laws. The Audit Committee
reports to the Boards of Directors of the Bank and the Company, as appropriate.
The Audit Committee reviews the reports of audits and examinations of the Bank
and the Company made by the independent auditors, internal auditors and
regulatory agencies. The Committee also reviews the examinations of Bank
operations, loans and credits and reports the results to the Boards of Directors
of the Bank and the Company. The Committee met fourteen (14) times in 2005 and
is comprised of the following members: Messrs. Schumacher (Chairman), Hunnell,
Sanguinetti and Corum. Each of the Directors serving on the Audit Committee has
been determined by the Board of Directors to be "independent" as such term is
defined by Rule 4200(a)(15) of the NASD's current listing standards. Mr.
Schumacher has been determined by the Board of Directors to be a "financial
expert" for the Audit Committee.
Expense Committee
The Expense Committee of the Company and the Bank reviews and examines Bank
and Company expenses on a monthly basis comparing the results with the
established annual budget, the previous month and prior year, and proposes
recommendations to management regarding controllable expenses. The Committee met
twelve (12) times in 2005 and is comprised of the following voting members:
Messrs. Podesta (Chairman), Suess and Wishek.
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CRA Committee (Community Reinvestment Act)
The CRA Committee of the Company and the Bank monitors the Bank's efforts
and responsibilities to comply with the Community Reinvestment Act. The CRA
Committee makes recommendations to the Board of Directors to assure the Bank is
meeting the credit, investment and service needs of the communities it serves.
The Committee met twelve (12) times in 2005 and is comprised of the following
voting members: Messrs. Suess (Chairman), Podesta, Adams and Wishek.
Personnel Committee
The Personnel Committee of the Company and the Bank reviews and establishes
the general employment and compensation practices and policies of the Bank and
approves procedures for the administration thereof. The Personnel Committee is
comprised of the following voting members: Messrs. Adams (Chairman),
Sanguinetti, Corum and Schumacher. The Committee met eleven (11) times in 2005.
Each of the Directors serving on the Personnel Committee has been determined by
the Board of Directors to be "independent" as such term is defined by Rule
4200(a)(15) of the NASD's current listing standards.
Asset and Liability Management Committee
The Asset and Liability Management Committee of the Company and the Bank is
responsible for the formulation, revision and administration of the Bank's
policies relating to interest rate, liquidity and investment risk management.
The Asset and Liability Committee is a joint committee of management and
Directors. The following Directors are voting members: Messrs. Burlington
(Co-Chairman), Adams, Suess and Steinwert. The Committee met six (6) times in
2005.
Loan Committee
The Loan Committee of the Company and the Bank is responsible for the
formulation, revision and administration of the Bank's policy relating to credit
and loan risk management. The Loan Committee meets weekly and is responsible for
approving all loans between $2 million and $10 million (over $10 million
requires full Board approval) and reviewing all loans over $500,000. The Loan
Committee is a joint committee of management and Directors. The following
Directors are voting members: Messrs. Hunnell (Co-Chairman), Mettler and
Steinwert. The Committee met forty-nine (49) times in 2005.
COMMUNICATIONS WITH BOARD OF DIRECTORS
If you wish to communicate with the Board of Directors you may send
correspondence to the Secretary, Farmers & Merchants Bancorp, 111 W. Pine
Street, Lodi, CA 95240-2184. The Secretary will submit your correspondence to
the Board of Directors or the appropriate committee, as applicable.
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REPORTS OF THE PERSONNEL AND AUDIT COMMITTEES
The reports of the Personnel Committee and the Audit Committee and
additional descriptions of their functions are as follows:
REPORT OF THE PERSONNEL COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Personnel Committee reviews and establishes the general employment and
compensation practices and policies and approves procedures for the
administration thereof.
The Board of Directors of the Company and the Bank, operating through its
Personnel Committee, establishes annual executive compensation for the Chief
Executive Officer and the other executive officers of the Company based on their
performance and comparative executive compensation levels at other banks of
comparable size as determined through research performed by independent third
party consultants and published in industry publications. This annual evaluation
process is intended to establish a competitive compensation package that rewards
each officer based on their contribution and performance, thereby serving to
attract and retain talented individuals.
The Board has implemented a compensation program that includes two major
components: (1) an annual base salary and bonus component; and (2) a longer term
deferred compensation component.
Annual Base Salary and Bonus Program
Each executive officer receives a monthly base salary and is eligible to
receive an annual discretionary cash bonus. Salaries are determined largely
based upon comparative industry data and personal performance. Merit salary
adjustments are evaluated periodically based on Bank and individual performance.
Goals and objectives are established annually for each officer with performance
measured and evaluated at least annually. Annual cash bonus compensation, if
any, is awarded based on actual results against established goals.
Deferred Compensation Program
In developing the various components of a longer term compensation program,
the Board has determined that at the present time it will not offer stock
options or other stock-based compensation as part of the compensation package.
Accordingly, the Board has implemented a non-qualified deferred
compensation program (see "Deferred Bonus Plan and Executive Retention Plan")
for certain executive officers which provides incentive compensation based upon
long term cumulative profitability and increases in the Company's total market
capitalization. The cost of this program is expensed annually but is not
paid-out until the individual executive officer leaves the Company or retires.
The Board has also implemented a supplemental non-qualified retirement
program (see "Defined Contribution Plans - Indexed Retirement Plan") for certain
executives whose compensation is in excess of the IRS limits placed on qualified
retirement programs. The Board has structured the Indexed Retirement Plan as a
defined contribution plan to avoid the uncertain future financial liabilities
that can exist under a defined benefit plan. The cost of this program is
expensed annually but is not paid-out until the individual executive officer
leaves the Company or retires.
Performance Evaluation Measures
In evaluating the performance of each of the named executive officers,
including the Chief Executive Officer, the Personnel Committee considers a
combination of objective and subjective factors, including the following: (1)
the Company's annual financial performance as measured by growth in market
capitalization, return on
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assets, return on equity and performance relative to the current year's budget;
(2) progress towards achieving the Company's five year strategic plan; (3)
results of the Company's and Bank's regulatory examinations; and (4) current
economic conditions. Both the annual budget and strategic plan are approved in
advance by the Board of Directors. The Personnel Committee assesses these
factors and makes a recommendation to the full Board of Directors for approval.
The Board also has contracted the services of an outside independent executive
compensation consultant to survey similar size banking institutions in
California and in similar markets nationally.
Chief Executive Officer
Compensation for the Company's Chief Executive Officer is determined using
the same process and philosophy as for other executive officers. Each of the
performance measures mentioned in the previous paragraph was considered for
purposes of determining the compensation of the Chief Executive Officer.
The summary compensation earned by the Chief Executive Officer and each of
the other named executive officers during 2005 is set forth in the "Summary
Compensation Table".
Respectfully submitted,
Stewart C. Adams, Jr., Chairman
Harry C. Schumacher
Kevin Sanguinetti
Edward Corum, Jr.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee oversees relevant accounting, risk assessment, risk
management and regulatory matters. It meets with the Bank's and the Company's
internal auditors and the independent auditors to review the scope of their work
as well as to review quarterly and annual financial statements and regulatory
and public disclosures with the officers in charge of financial reporting,
control and disclosure functions. After reviewing the independent auditor's
qualifications, partner rotation and independence, the Audit Committee also
makes an annual decision regarding selection of the independent auditors. In
addition, the Audit Committee reviews reports of examination conducted by
regulatory agencies and follows up with management concerning recommendations
and required corrective action.
The Audit Committee reports regularly to the Boards of Directors of the
Bank and the Company and has the authority to select, retain, terminate and
approve the fees and other retention terms of special counsel or other experts
or consultants as it deems appropriate and necessary to perform its duties.
In performing its functions, the Audit Committee acts in an oversight
capacity and necessarily relies on the work and assurances of management, which
has the primary responsibility for financial statements and reports, and of the
independent auditors, who, in their report, express an opinion on the conformity
of the Company's annual financial statements to generally accepted accounting
principles.
In connection with the December 31, 2005 financial statements of the
Company, the audit committee: (1) reviewed and discussed the audited financial
statements with management and the independent auditors; (2) discussed with the
independent auditors the matters required by Statement on Auditing Standards No.
61; and (3) received and discussed with the independent auditors the matters
7
required by Independence Standards Board Statement No. 1. The Audit Committee
has also considered whether the independent auditors' provision of non-audit
services to the Company is compatible with maintaining the auditors'
independence. Based upon these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 2005.
The Board of Directors has approved a written charter of the Audit
Committee which is attached to this proxy statement as Exhibit A hereto.
---------
Respectfully submitted,
Harry C. Schumacher, Chairman
Edward Corum, Jr.
Robert F. Hunnell
Kevin Sanguinetti
CERTAIN ACCOUNTING MATTERS
CHANGE IN EXTERNAL AUDITOR
On March 17, 2005, as approved by the Audit Committee, the Company
appointed the accounting firm of Perry-Smith LLP as External Auditor for the
year 2005. PricewaterhouseCoopers LLP was dismissed on March 17, 2005.
PricewaterhouseCoopers LLP's reports on the Company's financial statements
for 2003 and 2004 did not contain an adverse opinion or a disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to dismiss PricewaterhouseCoopers LLP, was
recommended and approved by our Audit Committee. During 2003 and 2004 and
through March 17, 2005, there were no disagreements with PricewaterhouseCoopers
LLP, on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their reports on the financial statements for such years.
During 2003 and 2004 and through March 17, 2005, there were no "reportable
events" as such term is defined in Item 304(a)(1)(v) of the SEC's Regulation
S-K.
As stated above, Perry-Smith LLP was appointed on March 17, 2005, as the
Company's External Auditor. During 2003 and 2004 and through March 17, 2005, the
Company did not consult with Perry-Smith LLP, on any issue, nor did Perry-Smith
LLP, advise the Company on any application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, or any matter that
was either the subject of a "disagreement" or a "reportable event" (each as
defined in Item 304(a)(1) of the SEC's Regulation S-K).
AUDIT-RELATED FEES
The aggregate fees billed by Perry-Smith LLP for assurance and related
services that are reasonably related to the performance of the audit and review
of the Company's quarterly and annual financial statements for fiscal year 2005
were $97,630.
8
The aggregate fees billed by PricewaterhouseCoopers LLP for assurance and
related services that are reasonably related to the performance of the audit and
review of the Company's quarterly and annual financial statements for fiscal
year 2004 were $190,173.
TAX FEES
The aggregate fees billed by Perry Smith LLP for professional services for
tax compliance, tax advice and tax planning for fiscal year 2005 were $42,455.
The were no fees billed by PricewaterhouseCoopers LLP for professional
services for tax compliance, tax advice and tax planning for fiscal year 2004.
PRE-APPROVAL OF SERVICES BY THE COMPANY'S EXTERNAL AUDITOR
The Audit Committee has adopted a policy for pre-approval of audit and
permitted non-audit services by the Company's external auditor. The Audit
Committee will consider annually and, if appropriate, approve the provision of
audit services by its independent auditor and consider, and if appropriate,
pre-approve the provision of certain defined audit and non-audit services. The
Audit Committee will also consider on a case-by-case basis and, if appropriate,
approve specific engagements that are not otherwise pre-approved.
Any proposed engagement that does not fit within the definition of a
pre-approved service may be presented to the Audit Committee for consideration
at its next regular meeting or, if earlier consideration is required, to the
Audit Committee or one or more of its members. The member or members to whom
such authority is delegated shall report any specific approval of services at
its next regular meeting. The Audit Committee will regularly review summary
reports detailing all services being provided by its external auditor.
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EXECUTIVE OFFICERS
Set forth below is certain information regarding the executive officers of
the Bank, with the exception of Mr. Steinwert and Mr. Mettler whose information
is set forth under "Nominees":
NAME AND POSITION(S) AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
-------------------- --- -----------------------------------------------
Richard S. Erichson 58 Executive Vice President & Senior Credit Officer of the Company and Bank.
Executive Vice President
& Senior Credit Officer
Deborah E. Hodkin 43 Executive Vice President & Chief Administrative Officer of the
Executive Vice Company and Bank.
President & Chief
Administrative Officer
and Secretary
Chris C. Nelson 51 Executive Vice President & Head of Retail Banking of the Bank since December
Executive Vice 2001, prior thereto Vice President On-line Regional Sales and Marketing Wells
President & Head of Fargo Bank since 2001, prior thereto Senior Vice President, E-Commerce of Bank
Retail Banking of America.
Stephen W. Haley 52 Executive Vice President & Chief Financial Officer of the Company and Bank
Executive Vice since April 2003, prior thereto, President and Chief Operating Officer of
President Community West Bancshares since 2001, prior thereto, Senior Vice President,
& Chief Financial Finance and Risk Management of United PanAm Financial Corp.
Officer
Kenneth W. Smith 46 Executive Vice President & Head of Business Banking of the Bank since January
Executive Vice 2004, prior thereto, Senior Vice President and Credit Administrator of the Bank.
President & Head of
Business Banking
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
A Director who is not an employee of the Company receives a fee for each
Bank Board Meeting attended. The Board Meeting fee is $1,000, and the Committee
Meeting fee is $400 (Committee Chairmen receive $600 with the exception of the
Audit Committee Chairman who receives $750). In addition, each Director who is
not an employee of the Company received a $25,000 bonus in 2005. Directors may
elect to defer receipt of some or all Directors' fees. Directors who are
employees of the Company (Messrs. Mettler, Steinwert and Wishek) do not receive
compensation for their services as Directors.
Additionally, Directors are compensated up to $538 per month to cover a
portion of the cost of outside medical insurance.
Directors who are not active officers in the Company do not participate in
any retirement plans.
10
The following table sets forth the aggregate remuneration paid by the Company
during 2005, 2004 and 2003 for the services performed in all capacities by the
Chief Executive Officer and each of the most highly compensated Executive
Officers for whom disclosure is required.
SUMMARY COMPENSATION TABLE
- ANNUAL COMPENSATION - -DEFERRED COMPENSATION (1)
------------------------------------------------------------------------------------------------
DEFERRED
NAME TITLE DEFINED BONUS AND
---- ----- CONTRIBUTION RETENTION
YEAR SALARY BONUS PLANS PLANS
---- ------ ----- ----- -----
------------------------------------------------------------------------------------------------
K. A. President & Chief Executive 2005 $499,828 $600,000 $ 212,962 $ 422,343
Steinwert Officer of the Company and the 2004 421,627 450,000 199,586 108,498
Bank 2003 382,110 375,000 120,560 97,891
------------------------------------------------------------------------------------------------
R. S. Executive Vice President, 2005 $219,642 $100,000 $ 134,117 $ 100,678
Erichson Senior Credit Officer of the 2004 216,136 90,000 125,946 25,856
Company and the Bank 2003 199,272 80,000 80,589 23,328
------------------------------------------------------------------------------------------------
D. E. Executive Vice President, Chief 2005 $214,191 $115,000 $ 93,168 $ 100,678
Hodkin Administrative Officer and 2004 200,291 100,000 87,505 25,856
Secretary of the Company and 2003 187,159 80,000 59,189 23,328
the Bank
------------------------------------------------------------------------------------------------
C. C. Executive Vice President, Head 2005 $201,164 $100,000 $ 115,403 $ 100,678
Nelson of Retail Banking of the Bank 2004 195,955 100,000 108,103 25,856
2003 170,704 75,000 70,590 23,328
------------------------------------------------------------------------------------------------
S. W. Executive Vice President, Chief 2005 $221,107 $105,000 $ 133,399 $ 100,678
Haley Financial Officer of the 2004 202,756 75,000 124,418 25,856
Company and the Bank 2003 137,898 35,000 32,438 18,046
(Effective April 1, 2003)
------------------------------------------------------------------------------------------------
K. W. Executive Vice President, Head 2005 $175,817 $ 75,000 $ 81,929 $ 100,678
Smith of Business Banking of the 2004 167,233 46,000 76,602 25,856
Bank 2003 131,101 42,000 49,506 9,308
------------------------------------------------------------------------------------------------
(1) Amounts reflected in these columns represent accruals of expense only.
Payments are not made to individual Executive Officers until after their
retirement or separation of employment, and even then subject to plan
vesting requirements. See more detailed plan descriptions on the following
pages.
No Executive Officer received perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of each such officer's total annual
salary and bonus.
DEFINED BENEFIT PENSION PLAN
The Bank terminated its Defined Benefit Pension Plan in December, 2005 and
made distributions to each participant. Termination distributions (which are not
included in the Summary Compensation Table) for each of the named Executive
Officers were as follows: K. A. Steinwert, $43,287; R. S. Erichson, $36,788; D.
E. Hodkin, $0; C. C. Nelson, $0; S. W. Haley, $0, K. W. Smith $9,158.
11
DEFINED CONTRIBUTION PLANS
Profit Sharing Plan
Substantially all full-time employees of the Company with one or more years
of service participate in a Profit Sharing Plan. Two levels of contributions are
made to the Profit Sharing Plan: (1) mandatory contributions calculated
according to a predetermined set of criteria set forth in the Plan; and (2)
discretionary contributions authorized by the Board of Directors. The Board can
terminate the plan at any time. The Bank contributed $1,418,000 ($725,000 was
discretionary) for the year ended December 31, 2005 and $1,305,000 ($660,000 was
discretionary) for the year ended December 31, 2004. Benefits pursuant to the
Profit Sharing Plan vest 0% during the first year of participation, 25% per full
year thereafter and after five years such benefits are fully vested.
Indexed Retirement Plan and Life Insurance Arrangements
During 2003, the Company implemented an Indexed Retirement Plan for the
benefit of each Executive Officer as well as certain other senior officers of
the Company. The Indexed Retirement Plan is a defined contribution supplemental
executive retirement plan and was developed to supplement the Company's Profit
Sharing Plan which, as a qualified plan, has a ceiling on benefits as set by the
Internal Revenue Service. Individuals whose compensation exceeded this ceiling
did not receive a retirement benefit on these earnings. The Indexed Retirement
Plan was designed to adjust for these limits and provide levels of total
compensation that are competitive in the banking industry.
The Company has also purchased single premium life insurance policies on
the lives of the Executive Officers as well as certain other senior officers of
the Company. These policies provide: (1) financial protection to the Company in
the event of the death of an officer and; (2) since the interest earned on the
cash surrender value of the policies is tax free as long as the policies are
used to finance employee benefits, significant income to the Company to offset
the expense associated with the Indexed Retirement Plan.
The Board has structured the Indexed Retirement Plan as a defined
CONTRIBUTION plan to avoid the uncertain future financial liabilities that can
exist under a defined BENEFIT plan. An account is established for each
participant that is credited annually with an amount based on the taxable
equivalent earnings on the cash surrender value balances of the single premium
life insurance policies purchased, net of: (1) the mortality charges associated
with the policies; and (2) a minimum required return (defined under the Plan as
the return on five year treasuries) to the Company on these cash surrender value
balances. The initial cash surrender value of the life insurance policies
purchased for each participant was determined based upon the individual's
compensation at the time they became a participant in the plan and the number of
years of service remaining to age 65 so as to provide a supplemental retirement
benefit equal to a portion of the participant's projected final pay with the
Company. Benefits become payable to participants after either: (1) the
participant has become vested and his or her employment at the Company
terminates (including retirement); or (2) there has been a "Change in Control"
as defined in the Plan. The balance in each participant's account is 0% vested
during the first five years of employment and becomes fully vested after five
years of employment.
As compensation to each participant for agreeing to allow the Company to
purchase an insurance policy on his or her life, split dollar agreements have
been entered into with each participant. These agreements provide for a division
of the life insurance death proceeds between the Company and each participant's
designated beneficiary or beneficiaries. The dollar value of premiums relating
to that portion of the death proceeds that would be payable to the participant's
beneficiary or beneficiaries in the event of his or her death, is included in
the participant's Salary in the Summary Compensation Table. As of December 31,
2005 a total of 18 employees had agreed to allow the Company to purchase an
insurance policy on their life.
12
As of December 31, 2005 the total cash surrender value balances of the
insurance policies was $36.8 million. Since the purchase of the first insurance
policies in late 2001, the Company has earned taxable equivalent income
(assuming a 42% tax rate) on these policies of $10.5 million, and recorded an
expense of $1.94 million for the Indexed Retirement Plan. The Company's total
accrued liability under the Indexed Retirement Plan was $1.94 million as of
December 31, 2005.
DEFERRED BONUS PLAN AND EXECUTIVE RETENTION PLAN
Each of the CEO and the other Executive Officers are participants under the
Deferred Bonus and Executive Retention Plans and are entitled to receive cash
payments based on the long-term cumulative profitability and increase in market
value of the Company using a bonus factor determined for each participant.
Amounts become payable to eligible participants after either the participant has
become vested and his or her employment at the Company terminates or there has
been a "Change in Control" as defined in the Plan. Benefits pursuant to the
Deferred Bonus Plan vest 0% during the first year of participation, 25% per full
year thereafter and after five years such benefits are fully vested. Benefits
pursuant to the Executive Retention Plan vest 10% per full year beginning in
2005 and after ten years are fully vested.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has an employment agreement with Kent A. Steinwert, the
Company's President and Chief Executive Officer. The agreement, which expires on
December 31, 2007, is automatically renewable for additional two-year terms
unless notice is provided. The agreement provides for an annual base salary,
salary increases at the discretion of the Board of Directors based upon
performance, use of a Company-owned automobile or automobile allowance and
certain insurance benefits. Under certain circumstances, in the event of
termination of his employment, Mr. Steinwert may be entitled to receive
severance compensation as set forth in his employment agreement up to an amount
equal to twice his annual base salary.
The Company has an employment agreement with Richard S. Erichson, the
Company's Executive Vice President and Senior Credit Officer. The agreement,
which expires on December 31, 2007, is automatically renewable for additional
two-year terms unless notice is provided. The agreement provides for an annual
base salary, salary increases at the times that the salaries of the other
Executive Officers of the Company are adjusted, use of a Company-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Erichson may
be entitled to receive severance compensation as set forth in his employment
agreement up to an amount equal to twice his annual base salary.
The Company has an employment agreement with Deborah E. Hodkin, the
Company's Executive Vice President and Chief Administrative Officer. The
agreement, which expires on December 31, 2007, is automatically renewable for
additional two-year terms unless notice is provided. The agreement provides for
an annual base salary, salary increases at the times that the salaries of the
other Executive Officers of the Company are adjusted, use of a Company-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of her employment, Ms. Hodkin may be
entitled to receive severance compensation as set forth in her employment
agreement up to an amount equal to twice her annual base salary.
The Company has an employment agreement with Chris C. Nelson, the Company's
Executive Vice President and Head of Retail Banking. The agreement, which
expires on December 31, 2007, is automatically renewable for additional two-year
terms unless notice is provided. The agreement provides for an annual base
salary, salary increases at the times that the salaries of the other Executive
Officers of the Company are adjusted, use of a Company-owned automobile or
automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his
13
employment, Mr. Nelson may be entitled to receive severance compensation as set
forth in his employment agreement up to an amount equal to twice his annual base
salary.
The Company has an employment agreement with Stephen W. Haley, the
Company's Executive Vice President and Chief Financial Officer. The agreement,
which expires on December 31, 2007, is automatically renewable for additional
two-year terms unless notice is provided. The agreement provides for an annual
base salary, salary increases at the times that the salaries of the other
Executive Officers of the Company are adjusted, use of a Company-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Haley may be
entitled to receive severance compensation as set forth in his employment
agreement up to an amount equal to twice his annual base salary.
The Company has an employment agreement with Kenneth W. Smith, the
Company's Executive Vice President and Head of Business Banking. The agreement,
which expires on December 31, 2007, is automatically renewable for additional
two-year terms unless notice is provided. The agreement provides for an annual
base salary, salary increases at the times that the salaries of the other
Executive Officers of the Company are adjusted, use of a Company-owned
automobile or automobile allowance and certain insurance benefits. Under certain
circumstances, in the event of termination of his employment, Mr. Smith may be
entitled to receive severance compensation as set forth in his employment
agreement up to an amount equal to twice his annual base salary.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Directors and Executive Officers of the Bank and the Company and
corporations and other organizations associated with them and members of their
immediate families were customers of and engaged in banking transactions,
including loans, with the Bank in the ordinary course of business in 2005. Such
loans were made on substantially the same terms, including interest rates and
collateral, as those available at the time for similar transactions with other
persons. These loans did not involve more than the normal risk of collection or
have other unfavorable features.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Schumacher, Sanguinetti, Corum and Adams served in 2005 as members
of the Personnel Committee. With the exception of Mr. Schumacher, who retired as
an employee in 1997, no member is or has been an officer or employee of the
Company. During 2005, certain members of the Personnel Committee had loans or
other extensions of credit outstanding from the Bank. These loans were made in
the ordinary course of business and on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons. These loans are exempt from the loan
prohibitions of the Sarbanes-Oxley Act of 2002 and did not involve more than the
normal risk of collection or have other unfavorable features.
INDEMNIFICATION
The Company's Certificate of Incorporation and By-Laws provide for
indemnification of officers, Directors, employees and agents to the fullest
extent permitted by Delaware law. Delaware law generally provides for the
payment of expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement reasonably incurred by the indemnitees provided such person
acted in good faith and in a manner he or she reasonably believed not to be
opposed to the best interests of the corporation and with respect to any
criminal action or proceeding if he or she had no reasonable cause to believe
his or her conduct was unlawful. However, in derivative suits, if the suit is
lost, no indemnification is permitted in respect of any claim as to which the
prospective indemnitee is adjudged to be liable for misconduct in the
performance of his or her duty to the Company and then only if, and only to the
extent that, a court of competent jurisdiction determines the prospective
indemnitee is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper. Finally, no indemnification may be provided in
14
any action or suit in which the only liability asserted against a Director is
pursuant to a statutory provision proscribing the making of loans, dividends,
and distribution of assets under certain circumstances.
The provisions regarding indemnification may not be applicable under
certain federal banking and securities laws and regulations.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Executive Officers and Directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission. Executive Officers, Directors and greater than ten percent
stockholders are required by regulation to furnish the Company with copies of
all Forms 3, 4 and 5 they file. Based solely on the Company's review of the
copies of such forms it has received, the Company believes that all of its
Executive Officers and Directors complied with all filing requirements
applicable to them with respect to transactions during 2005. The Company has no
greater than ten percent stockholders.
15
PERFORMANCE GRAPHS
The following graphs compare the yearly percentage change in the Company's
cumulative total stockholder return on common stock with (i) the cumulative
total return of the American Stock Exchange market index, and (ii) a published
index compiled by Hemscott Group (formerly Core Data) of banks and bank holding
companies throughout the United States. The following comparisons cover the
period January 1, 2001 to December 31, 2005. The graphs assume an initial
investment of $100 on January 1, 2001 and reinvestment of dividends. The stock
price performance set forth in the following graphs is not necessarily
indicative of future price performance.
These graphs shall not be deemed filed or incorporated by reference into
any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that we specifically incorporate these graphs by
reference.
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Company, as of the record date, no person or entity
was the beneficial owner of more than five percent (5%) of the outstanding
shares of the Company's common stock except as set forth in the following
tables. For the purpose of this disclosure and the disclosure of ownership
shares by management, shares are considered to be "beneficially" owned if the
person has or shares the power to vote or direct the voting of the shares, the
power to dispose of or direct the disposition of the shares, or the right to
acquire beneficial ownership (as so defined) within 60 days of the record date.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP (2) OF CLASS
-------------- ---------------------- ------------------------ ---------
Common Stock Sheila M. Wishek 48,008 5.84%
111 West Pine Street
Lodi, CA, 95240-2184
Common Stock Bruce Mettler 44,945 5.47%
111 West Pine Street
Lodi, CA, 95240-2184
Common Stock Joan Rider 42,989 5.23%
111 West Pine Street
Lodi, CA, 95240-2184
______________________
(1) Mail should be sent to these individuals at the Company's address marked
"c/o Shareholder Relations."
(2) Shares are beneficially owned, directly and indirectly, together with
spouses, and unless otherwise indicated, holders share voting power with
their spouses.
17
The following table shows the number of common shares and the percentage of
the total shares of common stock of the Company beneficially owned (as
previously discussed) by each of the current Directors, by each of the nominees
for election to the office of Director, by the Chief Executive Officer and the
five other most highly compensated executive officers of the Bank and by all
Directors and Executive Officers of the Company and of the Bank as a group as of
the record date.
AMOUNT OF COMMON STOCK
OWNED AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OF CLASS
---------------------------------------- -------------------------- -----------
Stewart C. Adams, Jr. 1,756 *
Ralph Burlington 3,036 *
Edward Corum, Jr. 106 *
Richard S. Erichson 899 *
Stephen W. Haley 93 *
Deborah E. Hodkin 115 *
Robert F. Hunnell 1,770 *
Ole R. Mettler 27,312 3.32%
Chris C. Nelson 117 *
James R. Podesta 1,055 *
Kevin Sanguinetti 3,919 *
Harry C. Schumacher 5,447 *
Kenneth W. Smith 113 *
Kent A. Steinwert 4,026 *
Calvin (Kelly) Suess 933 *
Carl A. Wishek, Jr. 40,722 4.96%
All Directors and executive officers as a group (16 persons) 91,419 11.13%
___________________
* Indicates less than 1%.
(1) Unless otherwise indicated, the business address for each of the persons
listed in the table is 111 West Pine Street, Lodi, CA, 95240-2184.
(2) Shares are beneficially owned, directly and indirectly, together with
spouses, and, unless otherwise indicated, holders share voting power with
their spouses.
18
STOCKHOLDER PROPOSALS, NOMINATIONS AND NOTICES
Under the Rules of the Securities and Exchange Commission, if a stockholder
intends to include a proposal in the Company's proxy statement and form of proxy
for presentation at the Company's 2007 Annual Meeting of Stockholders, the
proposal must be received by the Company at its principal executive offices by
December 14, 2006. In addition to these advance notice requirements, there are
other requirements that a stockholder must meet in order to have a proposal
included in the Company's proxy statement under the rules of the Securities and
Exchange Commission.
In addition, Article III, Section 3.4 of the By-Laws of the Company
provides a procedure for nomination for election of members of the Board of
Directors of the Company. Nominations for election to the Board of Directors may
be made by the Board of Directors or by any holder of any outstanding class of
capital stock of the Company entitled to vote for the election of Directors.
Nominations, other than those made by the Board of Directors, shall be made by
notification in writing delivered or mailed to the President of the Company not
less than thirty (30) days or more than sixty (60) days prior to any meeting of
stockholders called for election of Directors, provided, however, that if less
than twenty-one (21) days notice of the meeting is given to stockholders, such
nomination shall be mailed or delivered to the President of the Company not
later than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. If the Company's 2007 Annual Meeting of
Stockholders is held on the third Monday of May (as it will be in 2006), any
stockholder nomination, to be timely, must be received by the Company not later
than April 20, 2007 and not earlier than March 22, 2007. Notification must
contain certain information as to each proposed nominee and as to each person
acting alone or in conjunction with one or more persons, in making such
nomination or in organizing, directing or financing such nomination. If the
Chairman of the meeting acknowledges the nomination of a person not made in
accordance with the foregoing procedures, the persons named as proxies in the
proxy materials relating to the meeting will use their discretion in voting the
proxies when the nomination is made at the meeting. A copy of the By-Laws of the
Company can be obtained by written request to the Secretary of the Company,
Deborah Hodkin, 111 West Pine Street, Lodi, CA 95240-2184.
Pursuant to Article II, Section 2.6 of the Company's By-Laws, in order for
other business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company and must have been a stockholder of record at the time such notice
is given. To be timely, a stockholder's notice shall be delivered to or mailed
(by United States registered mail, return receipt requested) and received at the
principal executive offices of the Company not less than seventy (70) days nor
more than ninety (90) days prior to the first anniversary date of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than twenty (20) days, or delayed by more
than seventy (70) days, from such anniversary date, notice by a stockholder to
be timely must be so delivered or mailed (by U.S. registered mail, return
receipt requested) and received not earlier than the ninetieth (90th) day prior
to such annual meeting and not later than the close of business on the later of
the seventieth (70th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made. Notice of any stockholder proposal by a stockholder to properly
bring business before the 2007 annual meeting, to be timely, must be received by
the Company no later than March 5, 2007, and no earlier than February 14, 2007.
Such stockholder's notice to the Secretary must contain certain additional
information, which is more particularly described in Article II, Section 2.6 of
the Company's By-Laws. No business shall be conducted at an annual meeting of
stockholders unless proposed in accordance with the foregoing procedures. The
Chairman of the meeting shall, if the factors warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the foregoing procedure and such business shall not be
transacted.
19
ANNUAL REPORT
Together with this proxy statement, Farmers & Merchants Bancorp has
distributed to each of its stockholders an annual report for the year ended
December 31, 2005. The annual report contains the consolidated financial
statements of the Company and the report thereon of Perry-Smith LLP, the
Company's independent public accountants for 2005 and PricewaterhouseCoopers
LLP, the Company's independent public accountants for 2004.
Upon written request by any person entitled to vote at the meeting,
addressed to Deborah Hodkin, Secretary of the Company, at 111 West Pine Street,
Lodi, CA 95240-2184, we will provide, without charge, a copy of the Company's
2005 Annual Report on Form 10-K, including the financial statements and the
schedules thereto filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934. You can also obtain a copy of the Company's
annual report on form 10-K and other periodic filings with the Securities and
Exchange Commission through the F&M Bank website. The website address is
http://www.fmbonline.com. The link to the Securities and Exchange Commission is
on the About F&M Bank page.
OTHER MATTERS
The Management and Directors of the Company are not aware of any other
matters to be presented for consideration at the meeting to be held on May 15,
2006 or any adjournments or postponements thereof. If any other matters should
properly come before the meeting, it is intended that the persons named in the
enclosed proxy will vote the shares represented thereby in accordance with their
best business judgment, pursuant to the discretionary authority granted therein.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Deborah Hodkin
Deborah Hodkin
Secretary
20
EXHIBIT A
---------
--------------------------------------------------------------------------------
AUDIT COMMITTEE CHARTER
--------------------------------------------------------------------------------
The Audit Committee Charter provides general guidelines for members of the Audit
Committee (Committee) for the Board of Directors of Farmers & Merchants Bank of
Central California (Bank). These guidelines will assist the Committee in its
efforts to ensure ongoing adequacy of the Bank's internal audit system as
recommended by section 132 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), Securities Exchange Commission and the AICPA's
Auditing Standards Board. The Audit Committee of the Board of Directors of the
Bank shall also serve to discharge the functions and responsibilities of the
Committee of the board of Directors of the Company, as described hereinafter. In
discharging its responsibilities, the Committee may utilize outside legal
counsel or other experts and advisors, as it sees fit.
COMMITTEE MEMBERSHIP
The Committee shall be composed of at least three outside Directors of the Board
who are independent of the management of the Bank and the Company. The Board
shall annually determine whether members are "independent" of management of the
Bank and the Company as such term is defined by Rule 4200(a)(14) of the NASD's
current listing standards.
To maintain independence, members may not (directly or indirectly):
- Accept any consulting, advisory or other compensatory fee from the
Bank (or Bancorp), other than in his or her capacity as a member of
the audit committee, board or other board committee.
- Be affiliated with the Bank, Bancorp or any subsidiary.
DESIGNATION OF AUDIT COMMITTEE FINANCIAL EXPERT
The Committee shall designate one of its members as a "financial expert". The
financial expert is an individual who is determined by the Board of Directors to
possess all of the following attributes:
- An understanding of financial statements and generally accepted
accounting principles (GAAP).
- An ability to assess the general application of such principles in
connection with the accounting for estimates, accruals and reserves.
- Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of
accounting issues generally comparable to what can be expected to be
raised by the Bank's or Bancorp's financial statements or experience
activity supervising one or more persons engaged in such activities.
- An understanding of internal controls and procedures for financial
reporting.
- An understanding of audit committee functions.
These attributes may be acquired by:
- Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor, or
experience in one or more positions that involve the performance of
similar functions.
- Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor,
or person performing similar functions or experience overseeing or
assessing the performance of companies or public accountants with
respect to the preparation auditing or evaluation of financial
statements.
- Other relevant experience.
COMMITTEE MEETINGS
The Committee shall meet at least bi-monthly to review all recent audit reports
(including reports by internal auditors, independent public accountants, and/or
regulatory agencies). Management reports shall also be reviewed as they relate
to audit findings. The Committee shall maintain and report to the Boards of the
Company and the Bank, minutes and other relevant records of their meetings and
decisions.
21
AUDIT SYSTEM
The Committee shall approve an internal audit system, which provides for:
- Audit Programs. These items will be annually presented by the auditor:
- Scope and frequency of the audit work
- Documentation of the work performed
- Conclusions reached and reports issued
- Program Effectiveness. Audit Reports and Responses thereto shall be
presented to determine if controls are effective and if appropriate
corrective action has been taken.
- Audit Arrangements. The independent auditor, operations auditor and
credit examination vendors are ultimately accountable to the Audit
Committee. It is management's responsibility to evaluate and recommend
vendor selection and replacement, but it is the Committee's
responsibility to approve and replace these vendors, if deemed
appropriate or necessary. The Committee shall preapprove all non-audit
engagements of the independent auditor. The Committee shall review the
report by the independent auditor which is required by Section 10A of
the Securities Exchange Act of 1934. The following information shall
be presented to the Committee with Management's recommendations at
least annually:
- Written Agreement. Annual written contract or engagement letter.
- Vendor Competence. A resume and references for each individual
responsible for maintaining the audit relationship.
- Vendor Independence. A formal written statement of independence.
RESPONSIBILITIES
The Committee shall:
- Review the Forms 10-Q and 10K prior to presentation to the Board and
filing with the Securities Exchange Commission and recommend inclusion
of the Company's financial statements therein.
- Report to the Board that its members have reviewed the Forms 10-Q and
10K, and whether anything came to the attention of the Committee
members which caused them to believe that the audited financial
statements contain any materially misleading statements or omit any
material information.
- The Committee shall review and discuss with management, the internal
auditor and the independent auditor the matters relating to the
conduct of the audit required to be discussed by SAS Nos. 61 and 90
(Communications with Audit Committees).
- Evaluate findings of all internal/external audits and examinations of
the Company's operations, credit management, and risk oversight
management. Review management responses and corrective action of all
audit/examination findings.
- Provide oversight of all internal controls including applicable
policies. Communicate with Company management on internal control
issues. Oversee Company's Bank Secrecy Act, Anti-Money Laundering, and
Patriot Act policies and Customer Identification Program (CIP).
Post-approval review all Suspicious Activity Reports and provide
appropriate feedback to Bank management. Insure an adequate BSA/AML
management structure exists in the Company. Communicate all internal
control and BSA/AML issues and policies to the entire Board of
Directors.
- Establish procedures for the confidential, anonymous submission by
employees or other "whistleblowers" of concerns regarding questionable
accounting, internal control or auditing matters; and the receipt,
retention and treatment of these complaints.
- Ensure that a copy of this Charter is disclosed in the Company's Proxy
Statement at least every three years.
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