CoBiz DEF 14A 2007
Proxy Statement Pursuant to Section 14(a) of
April 12, 2007
Dear Fellow Shareholder:
This years Annual Meeting of Shareholders of CoBiz Inc., a Colorado corporation (the Company), will be held at the Magnolia Ballroom, 817 17th Street, Denver, Colorado 80202 on May 17, 2007 at 8:00 a.m., M.D.T. You are cordially invited to attend. The matters to be considered at the meeting are described in the attached Proxy Statement and Notice of Annual Meeting of Shareholders. The Companys Board of Directors recommends that you vote:
(i) FOR the election of managements twelve nominees to serve as directors of the Company;
(ii) FOR the ratification of the selection of Deloitte & Touche LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2007; and
(iii) FOR the proposed amendment of the Companys articles of incorporation to change its corporate name from CoBiz Inc. to CoBiz Financial Inc.
To be certain that your shares are voted at the Annual Meeting, whether or not you plan to attend in person, you should sign, date and return the enclosed proxy as soon as possible. Your vote is important.
At the Annual Meeting, I will review the Companys activities during the past year and its plans for the future. Shareholders will be given the opportunity to address questions to the Companys management. I hope you will be able to join us.
TO THE SHAREHOLDERS OF COBIZ INC.:
Notice is hereby given that the Annual Meeting of Shareholders of CoBiz Inc., a Colorado corporation (the Company), will be held at 8:00 a.m., M.D.T., on May 17, 2007, at the Magnolia Ballroom, 817 17th Street, Denver, Colorado, for the following purposes:
1. To elect twelve directors;
2. To consider and vote on the ratification of the selection of Deloitte & Touche LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2007;
3. To consider and vote on an amendment to the Companys articles of incorporation to change its corporate name from CoBiz Inc. to CoBiz Financial Inc.; and
4. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on March 30, 2007 as the record date for the meeting. Only shareholders of record as of the close of business on that date are entitled to notice of and to vote at the meeting.
We encourage you to take part in the affairs of your Company either by attending the meeting in person or by executing and returning the enclosed proxy.
Dated: April 12, 2007
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE AT YOUR EARLIEST CONVENIENCE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING, AND IF YOU ARE PRESENT AT THE ANNUAL MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of CoBiz Inc., a Colorado corporation (the Company or CoBiz), for use at the Annual Meeting of Shareholders of the Company to be held on May 17, 2007, at 8:00 a.m., M.D.T., at the Magnolia Ballroom, 817 17th Street, Denver, Colorado 80202, and at any adjournment or postponement of the Annual Meeting.
This Proxy Statement and the accompanying form of proxy are first being transmitted or delivered to holders of the Companys common stock beginning on or about April 12, 2007, together with the Companys 2006 Annual Report to Shareholders.
The Companys principal executive offices are located at 821 17th Street, Denver, Colorado 80202.
Only shareholders of record at the close of business on March 30, 2007 are entitled to notice of and to vote at the Annual Meeting or at any adjournment or postponement thereof. As of that date, there were 23,855,013 shares of common stock outstanding. Each share is entitled to one vote. Cumulative voting is not permitted. Shares as to which the shareholder instructs the proxy to abstain from voting on any matter or withholds authority to vote for a director will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum at the Annual Meeting but as not voted for purposes of determining the approval of any such matter or the election of directors. If a broker submits a proxy that indicates the broker does not have discretionary authority as to certain shares to vote on one or more matters (a broker non-vote), those shares will be treated in the same manner as abstentions.
All Annual Meeting proxies, ballots and tabulations that identify individual shareholders are kept secret and no such document will be available for examination, nor will the identity or the vote of any shareholder be disclosed except as may be necessary to meet legal requirements and the laws of Colorado.
The Companys bylaws provide that the holders of not less than a majority of the shares entitled to vote at any meeting of shareholders, present in person or represented by proxy, will constitute a quorum. Directors are elected by plurality vote, which means that the twelve nominees who receive the most votes will be elected. The proposal to ratify the selection of the Companys independent registered public accounting firm will be approved if more votes are cast for the proposal than are cast against it. Likewise, the proposal to amend the Companys articles of incorporation will be approved if more votes are cast for that proposal than are cast against it. Accordingly, an abstention, a broker non-vote or a failure to submit a proxy (assuming a quorum is present) has no effect on the outcome of the election of directors or the votes on the ratification of the Companys independent registered public accounting firm or the amendment to the Companys articles of incorporation.
The Company will pay all expenses in connection with the solicitation of proxies. In addition to solicitation by mail, officers, directors and regular employees of the Company, who will receive no extra compensation for their services, may solicit proxies by telephone calls or facsimile transmissions.
A shareholder submitting the enclosed proxy may revoke it at any time before his or her vote is cast at the Annual Meeting by delivering to the Secretary of the Company a written notice of termination of the
proxys authority or of a duly executed proxy bearing a later date or by voting in person at the meeting. Shares entitled to vote and represented by properly completed proxies received prior to the Annual Meeting and not revoked will be voted in the manner directed by the shareholder granting such proxy. If no direction is made in the proxy, the shares represented by the proxy will be voted as recommended by the Board of Directors.
The business and affairs of the Company are managed under the direction of its Board of Directors. The Board has the authority under the Bylaws to set the number of directors, which may not be less than three. The number of directors is currently set at thirteen. However, in January 2007, Howard R. Ross, a director and founder of CoBiz passed away. As a result, only twelve directors have been nominated for election at the Annual Meeting. The board intends to reduce its size to twelve at the next regularly scheduled meeting of the directors.
Candidates for nomination to the Board are selected by the Governance and Nominating Committee, and recommended to the Board of Directors for approval, in accordance with the guidelines established by such Committee, taking into consideration the overall composition and diversity of the Board and areas of expertise that new Board members might be able to offer. Directors are elected by the shareholders at each Annual Meeting, to serve for a one-year term, which expires on the date of the next Annual Meeting.
Steven Bangert, Michael B. Burgamy, Jerry W. Chapman, Morgan Gust, Thomas M. Longust, Jonathan C. Lorenz, Evan Makovsky, Harold F. Mosanko, Noel N. Rothman, Timothy J. Travis, Mary Beth Vitale and Mary M. White are incumbent directors who were elected at the 2006 Annual Meeting of Shareholders and are being nominated for re-election at this years Annual Meeting.
The Board has determined that directors Burgamy, Chapman, Gust, Longust, Rothman, Travis, Vitale and White qualify as independent directors under the Nasdaq listing standards as currently in effect. In addition, in fiscal 2006, Mr. Ross qualified as an independent director under the Nasdaq listing standards. Directors are encouraged but are not required to attend the Annual Meeting. Last year, all twelve incumbent directors, and Mr. Ross, attended the Annual Meeting.
Each of the nominees standing for re-election has indicated a willingness to serve, but in case any of them is not a candidate at the Annual Meeting, which is not presently anticipated, the persons named as proxies in the enclosed form of proxy may vote for a substitute nominee at their discretion.
The Board of Directors recommends a vote FOR the election of these directors.
Information regarding director nominees is set forth below:
The Board of Directors has appointed Deloitte & Touche LLP as the Companys independent registered public accounting firm for the year ending December 31, 2007. Deloitte & Touche LLP has no relationship with the Company other than that arising from its engagement as independent registered public accounting firm. See Relationship with Independent Registered Public Accounting Firm below. Representatives of Deloitte & Touche LLP will be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from shareholders.
The Board of Directors recommends a vote FOR the ratification of the appointment of Deloitte & Touche LLP as the Companys independent registered public accounting firm for the year ending December 31, 2007.
The Company seeks shareholder approval to amend its articles of incorporation to change the Companys corporate name from CoBiz Inc. to CoBiz Financial Inc. The primary reason for the proposed name change is to better reflect the nature of the Companys business activities as a diversified financial services company, serving the needs of small to mid-sized businesses and professionals. The Companys operating subsidiaries will retain their current names under this proposal, and the Companys common stock will continue to trade on the Nasdaq Global Select Market under the symbol COBZ.
A copy of the proposed amendment to the Companys articles of incorporation is attached as Appendix A to this proxy statement.
The Board of Directors recommends a vote FOR the proposed amendment of the Companys articles of incorporation to change its corporate name from CoBiz Inc. to CoBiz Financial Inc.
The Board of Directors (the Board) conducts its business through meetings of the Board and the following standing committees: Executive, Audit, Governance and Nominating and Compensation. The standing committees regularly report on their activities and actions to the full Board. Each of the standing committees has the authority to engage outside experts, advisors and counsel to the extent it considers appropriate to assist the committee in its work. With the exception of the Executive Committee, each of the standing committees has adopted and operates under a written charter.
The Company maintains an Internet website located at www.cobizinc.com on which, among other things, the Company makes available, free of charge, various reports that it files with or furnishes to the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. These reports are made available as soon as reasonably practicable after they are filed with or furnished to the SEC. The public may read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. Additional information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Company has also made available on its website its Corporate Governance Guidelines and its Code of Conduct and Ethics, as well as the charters for its Audit Committee, Governance and Nominating Committee and Compensation Committee. To access these materials, visit the Companys website at www.cobizinc.com and select Investor Relations, then select Corporate Governance, and then select the name of the document you wish to view. The content on any website referred to in this filing is not incorporated by reference into this filing unless expressly noted otherwise.
The Board of Directors held five meetings during fiscal year 2006. Each director attended at least 75% of the total meetings of the Board and Board committees on which the director served during the fiscal year.
The following table reflects the membership of each Board committee:
The Executive Committee is authorized to exercise certain of the powers of the Board of Directors, subject to ratification by the full Board of Directors, and meets as needed, usually in situations where it is not feasible to take action by the full Board of Directors. The Executive Committee did not meet in 2006.
The Audit Committee operates pursuant to a written charter adopted by the Companys Board of Directors. The Audit Committee has the responsibility to:
· Oversee the accounting and financial reporting processes of the Company and the internal and external audit of the Companys financial statements;
· Oversee the implementation of the system of internal control over financial reporting that management has established;
· Appoint, compensate and oversee the work of any registered public accounting firm engaged by the Company for the purpose of preparing or issuing an audit report or performing other audit, review or attest services and resolve any disagreement between management and the auditor regarding financial reporting;
· Provide an avenue for communication between internal audit, the independent registered public accounting firm, financial management and the Board;
· Consider and preapprove any audit and non-audit services proposed to be provided by the independent registered public accounting firm;
· Review and approve related party transactions in accordance with SEC rules; and
· Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.
The Audit Committee consists of three members, Messrs. Burgamy and Chapman and Ms. Vitale, all of whom are independent under the Nasdaq listing standards currently in effect. The Board of Directors has designated Mr. Chapman and Ms. Vitale each as an audit committee financial expert within the meaning of the applicable SEC rules. The Board of Directors has determined that the Committee members do not have any relationship to the Company that may interfere with the exercise of independent judgment in carrying out their responsibilities. None of the Committee members are current officers or employees of the Company or its affiliates. The Audit Committee held six regular, and two telephonic meetings in 2006. During the meetings, the Audit Committee met in private session with the Director of Internal Audit, the Compliance Manager and the Loan Review Manager. In addition, the Committee met in private session with our independent registered public accounting firm and alone in executive session without members of management present. Annually, the Committee will meet privately with the Chief Financial Officer.
The Governance and Nominating Committee operates pursuant to a written charter adopted by the Companys Board of Directors. The Governance and Nominating Committee has the responsibility to:
· Identify individuals qualified to become Board members and recommend to the Board the director nominees for the next annual meeting of shareholders;
· Develop and recommend to the Board qualifications for the selection of individuals to be considered as candidates for election to the Board;
· Recommend to the Board director candidates for each committee for appointment by the Board;
· Lead the Board in its annual review of the Boards performance; and
· Lead the Company in shaping the Companys corporate governance policies and practices and code of conduct and ethics and monitor compliance with those policies and practices.
When evaluating whether an incumbent director should be nominated for reelection, the Governance and Nominating Committee reviews the directors overall service to the Company during his or her term, including the number of meetings attended, level of participation and quality of performance. When searching for new director candidates, the Governance and Nominating Committee canvasses its network of professional contacts to compile a list of potential candidates and may also engage a professional search firm if it deems appropriate. The Governance and Nominating Committee then meets to discuss and consider each candidates qualifications and selects by majority vote a nominee to recommend to the full Board. The Governance and Nominating Committee will consider individuals recommended by a shareholder of the Company to serve on the Board. For a description of the procedures for nominating a candidate to the Board and the minimum qualifications for Board membership, please see Shareholder Recommendations of Director Nominees below.
Each member of the Governance and Nominating Committee must meet the independence requirements of the Nasdaq listing standards and any other applicable laws, rules and regulations governing independence, as determined by the Board. The Governance and Nominating Committee currently consists of Messrs. Gust and Longust, and Ms. White, each of whom is independent under the Nasdaq listing standards currently in effect.
The Governance and Nominating Committee held four meetings in 2006. During the meetings, the Committee held an executive session without members of management present.
The Compensation Committee operates pursuant to a written charter adopted by the Companys Board of Directors. The Compensation Committee assists the Board in the discharge of its responsibilities relating to compensation of the executives and other key employees of the Company, and in connection with administering the Companys employee benefit plans. The Compensation Committee has responsibility to:
· Review and approve the Companys executive compensation philosophy;
· Review and approve the executive compensation programs, plans and awards;
· Administer the Companys bonus, stock-based and other incentive plans;
· Evaluate the performance of the CEO and other key executives and recommend appropriate compensation levels;
· Review with management the Compensation Discussion & Analysis (or CD&A) and Compensation Committee Report be included in the Companys proxy statement and recommend to the Board that the CD&A be included in the proxy statement; and
· Review and approve general employee pension benefit plans of the Company and other benefit plans on an as-needed basis.
The Compensation Committee is comprised of Messrs. Gust, Rothman and Travis, each of whom is not an employee of the Company, and is independent under the Nasdaq listing standards currently in effect and is an outside director within the meaning of section 162(m) of the Internal Revenue Code of 1986.
The Compensation Committee held four meetings in 2006. During each meeting, the Compensation Committee held an executive session without members of management present.
No member of the Compensation Committee was at any time during 2006, or at any other time, an officer or employee of the Company or any of its subsidiaries. Furthermore, no executive officer of the Company served on the compensation committee or as a director of any other entity that had an executive officer who served as a director or on the Compensation Committee of the Company.
The Bank has invested or committed to invest in several licensed Small Business Investment Companies (SBIC) in which certain directors (including Messrs. Rothman and Travis, who are members of the Compensation Committee) and executive officers of the Company also own interests. These investments and the interests of the directors and executive officers in the SBICs are described below.
In July 1997, the Bank committed to purchase up to $500,000 of limited partnership interests in Prairie Capital Mezzanine Fund, L.P. (Prairie Capital), an investment fund that makes subordinated debt and preferred stock investments in a wide variety of small businesses throughout the United States. Prairie Capital is licensed as a SBIC. As of December 31, 2006, the Banks aggregate investment in Prairie Capital was $450,000, and the Bank was subject to additional capital calls of up to $50,000. Mr. Bangert, the Estate of Howard R. Ross, Mr. Ross widow and Namtor Denver Property LLC (Namtor), an entity controlled by Mr. Rothman, have made individual capital commitments to Prairie Capital in amounts of $2,000,000, $2,000,000, $50,000 and $1,500,000, respectively, and own interests in Prairie Capital proportionate to their capital commitments. Mr. Bangert is (and Mr. Ross previously was) a member of the advisory board of Prairie Capital. The general partner of Prairie Capital has agreed to make certain payments to the Bank, Messrs. Bangert and Ross, Mrs. Ross and Namtor (pro rata, in proportion to their respective investments in Prairie Capital) following the liquidation of Prairie Capital in the event that they do not realize an internal rate of return of at least 25% on their respective investments.
In addition, the Bank has committed $1,000,000 to a second fund, Prairie Capital Mezzanine Fund II, L.P. (Prairie Capital II). As of December 31, 2006, the Banks aggregate investment in Prairie Capital II was $900,000, and the Bank was subject to additional capital calls of up to $100,000. Messrs. Bangert, Rothman and Burgamy, and the Estate of Howard R. Ross, have capital commitments to Prairie Capital II in amounts of $2,000,000, $285,000, $500,000, and $3,550,000, respectively, and own interests in Prairie Capital II proportionate to their capital commitments. The general partner of Prairie Capital II has not made any guarantees regarding the financial returns of this fund. Mr. Bangert is (and Mr. Ross previously was) a member of the advisory board of Prairie Capital II.
The Bank has also committed $1,000,000 to a third fund, Prairie Capital Mezzanine Fund III, L.P. (Prairie Capital III). As of December 31, 2006, the Banks aggregate investment in Prairie Capital III was $850,000, and the Bank was subject to additional capital calls of up to $150,000 in Prairie Capital III. Messrs. Bangert, Rothman and Burgamy, and the Estate of Howard R. Ross, have capital commitments to Prairie Capital III in amounts of $ 2,000,000, $1,500,000, $500,000 and $2,000,000, respectively, and own interests in Prairie Capital III proportionate to their capital commitments. The general partner of Prairie Capital III has not made any guarantees regarding the financial returns of this fund. Mr. Bangert is (and Mr. Ross previously was) a member of the advisory board of Prairie Capital III.
The Bank has committed $7,500,000 to GMB Mezzanine Capital, L.P. (the GMB Mezz Fund). As of December 31, 2006, the Banks aggregate investment in the GMB Mezz Fund was $3.6 million, and the Bank was subject to additional capital calls of up to $3.9 million in the fund. The GMB Mezz Funds general partner is Lakeside Capital Partners, LLC, (Lakeside Capital). The Company advanced start-up funding to Lakeside Capital while it was forming and marketing the GMB Mezz Fund. In return, Lakeside Capital granted naming rights of the fund to CoBiz and agreed to allocate a portion of their carried-interest in the GMB Mezz Fund to the Company. In addition, Lakeside Capital executed a service agreement with Green Manning & Bunch, Ltd. (GMB), a wholly owned investment banking subsidiary of the Company for certain services that GMB provided to Lakeside Capital during the GMB Mezz Funds formation. The service agreement provided for compensation to GMB on an agreed-upon basis at market
rates. GMB recognized advisory fees of approximately $368,000 in the first quarter of 2004 related to services provided to the GMB Mezz Fund. The following directors have also made capital commitments to the GMB Mezz Fund, as indicated, and own interests proportionate to their capital commitments: Mr. Bangert$2,000,000; Mr. Burgamy$500,000; Mr. Lorenz$200,000; Mr. Mosanko$100,000; the Estate of Howard R. Ross$2,000,000; Mr. Rothman$2,000,000; and Mr. Travis$500,000. Mr. Bangert is also a member of the advisory board of GMB Mezz Fund.
Mr. Burgamy currently serves as the lead independent director of the board of directors. He was initially elected to such position by the independent members of the board of directors at the May 2006 annual organization meeting of the board of directors to serve in such position by the independent members of the board. The lead independent director position will continue to be reviewed annually at the annual organization meeting of the board of directors. The lead independent director chairs the executive session portion of each meeting of the board of directors, during which management is not present, and serves as the primary liaison between the independent members of the board of directors and the Companys Chief Executive Officer.
Each director who is not an employee receives the following:
· $12,000 annual retainer fee for Board service
· $10,000 annual retainer for Audit Committee chair
· $5,000 annual retainer for Audit Committee members (excluding chair)
· $5,000 annual retainer for Compensation Committee chair
· $5,000 annual retainer for Governance and Nominating Committee chair
· $7,500 annual retainer for Lead Independent Director
· $1,000 for each Board or Committee meeting they attend in person, with the exception of Audit Committee, whose members receive $1,250 for each meeting they attend in person
· $250 for any telephonic meeting of one-half hour or more
In addition, during 2006 each director who was not an officer of the Company received options to purchase 1,000 shares of common stock for $19.04 per share, the closing market price of the stock on the date of grant. Furthermore, any director who is not an employee of the Company who also served on the Banks board of directors received an option to purchase an additional 500 shares of common stock for $19.04 per share, the closing market price of the stock on the date of grant, and was paid an annual retainer fee of $6,000 and $1,000 for each meeting of the Banks board of directors they attended. Directors of the Company who are employees do not receive additional compensation for their services as directors or committee members.
No director received perquisites or personal benefits in excess of $10,000.
The following table shows the compensation of the members of our Board of Directors during fiscal year 2006.
(1) Steven Bangert, our Chief Executive Officer and Jonathan C. Lorenz, Vice-Chairman and Chief Executive Officer of the Bank, are not included in this table because they are employees of CoBiz and thus received no additional compensation for their service as directors. The compensation they received as employees of CoBiz is shown in the Summary Compensation Table.
Harold F. Mosanko, Vice-Chairman of the Bank, is also not included in this table because he was an executive officer in fiscal 2006 (but was not a Named Executive Officer) who did not receive any additional compensation for services provided as a director in 2006.
(2) The amounts in this column are calculated based on Statement of Financial Accounting Standard No. 123(R), Share Based Payment (SFAS 123R) and equal the financial statement compensation expense as reported in our 2006 consolidated statement of income for the fiscal year. Under SFAS 123R, a pro-rata portion of the total expense at time of grant is recognized over the applicable service period generally corresponding with the vesting schedule of the grant. The initial expense is based on the fair value of the stock option grants as estimated using the Black-Scholes option-pricing model. The assumptions used to arrive at the Black-Scholes value are disclosed in Note 14 to our consolidated financial statements included in our 2006 Annual Report and Form 10-K. The full grant date SFAS 123R value of all director option awards granted in 2006 was $4,922 per grant based on the closing price per share of CoBiz Common Stock of $19.04 on January 19, 2006.
The directors held options as of December 31, 2006, as follows:
(3) All other compensation represents fees paid for service on the Banks board of directors and includes the full grant date SFAS 123R value of $2,461 for the 500 additional options granted in 2006 based on the closing price per share of CoBiz Common Stock of $19.04 on January 19, 2006. The assumptions used to arrive at the Black-Scholes value are disclosed in Note 14 to our consolidated financial statements included in our 2006 Annual Report and Form 10-K.
(4) Mr. Ross served as a director from September 1994 to January 7, 2007, the date he passed away.
Information regarding executive officers of the Company is set forth below. Biographical information for Messrs. Bangert, Lorenz and Mosanko is set forth above under Election of Directors.
This section describes the Companys compensation philosophy, policies and programs and the compensation paid during 2006 to the Companys principal executive officer and principal financial officer and the three other executive officers of the Company having the highest total compensation. We refer to these five individuals as the Named Executive Officers.
The general compensation philosophy of the Company is to provide executive compensation that allows the Company to recruit, retain and motivate a highly qualified management team that implements the Companys business strategies and ultimately leads to enhancing long-term shareholder value. To achieve this objective, the Company's compensation plan includes a combination of base salary and annual incentive compensation to reward short-term performance, and supplemental executive retirement benefits and the grant of stock options (both of which vest based on a years-of-service requirement) to encourage retention and long-term performance.
Independent Consultant and Peer Group Analysis
The Compensation Committee has the authority to retain outside consultants or advisors. The Compensation Committee has at times used the services of Denver Management Advisors LLC for independent advice on executive compensation matters. Annually, the Compensation Committee reviews competitive market data for comparable executive positions. For purposes of competitive market analysis, compensation is considered against that paid by banking and financial services organizations with assets of $1 billion to $5 billion, as reported by SNL Securities.
Components of our Compensation Program:
Base Salary. The Company believes that competitive base salaries are necessary to attract and retain high performing executive officers. The Chief Executive Officer conducts annual performance reviews for all Named Executive Officers, excluding himself. The performance reviews take into account individual performance, experience, unique contributions to the Company and the Companys need for certain types of expertise. The Compensation Committee considers the Committee members and the CEOs evaluation of performance, CEOs salary recommendations and competitive market data in determining appropriate salary.
With respect to the base salary of the Companys Chief Executive Officer, all of the members of the Compensation Committee discuss the CEOs performance at a Compensation Committee meeting and then advise the CEO of the results of this review. This performance review of the Chief Executive Officer is generally based on both objective and subjective criteria, with a subjective analysis of all matters considered relevant by the Committee being the determining factor in ultimately fixing the CEOs compensation. Objectively, the Committee looks at the performance of the Company with particular emphasis on performance compared to budget for earnings. The Committee also considers, among other things, loan and deposit growth, efficiency ratio, and earnings from the fee based businesses. Of these criteria, only one, earnings compared to budget, has a specific performance criteria set forth in the Annual Incentive Compensation Plan and that specific criteria under the plan relates only to bonus and is not binding on the Committee in reaching its determination on either the base salary or the bonus to be awarded to the Chief Executive Officer. In its subjective analysis the Committee considers the accomplishment of strategic objectives such as growth and loan performance, reputation of the Company and the CEO, integrity and honesty, interaction of the CEO with employees and the Board, development
of management, the availability of funds and all other matters which any member of the Committee wants to consider or discuss regarding their perception of the performance of the CEO.
Based on this analysis, the average salary increase for the Named Executive Officers, other than the Chief Executive Officer, in 2006 was 6.6%. The Chief Executive Officer received an increase of 5.0%. The base salary earned in 2006 by each of the Named Executive Officers is set forth in the Summary Compensation Table. The Compensation Committee believes that the base salaries paid to the Named Executive Officers for the 2006 fiscal year were consistent with such officers levels of responsibility and individual performance as well as the Companys performance.
Annual Incentive Compensation Plan. The Companys philosophy is that incentive pay should generally constitute a meaningful component of total direct compensation. Annual cash bonus is intended to reward short-term performance and to be competitive with comparable executive positions in other companies.
For the Named Executive Officers, a written bonus plan set a target allocation of potential cash incentive bonus at 60% of base salary based on meeting or exceeding budgeted diluted earnings per share growth. Payouts for performance above or below the plans goals are adjusted within the plan as follows:
However, this target set forth in the plan is not determinative of the bonus paid and is only one component of the totality of the circumstances which the Committee considers. In addition the Committee subjectively considers such things as shareholder returns, asset quality, level of executive responsibility, other compensation received by the executive, the individual operating units income contributions, non-interest income growth, control of non-interest expenses; and growth objectives for total loans, total deposits and total assets, honesty, integrity, teamwork and the amount available by the Company for the payment of bonuses. Discretion is utilized by the Compensation Committee to adjust bonus amounts upward or downward as it deems appropriate in the circumstances. The Committee may also elect to award part of such incentive compensation in the form of stock options rather than cash. The CEO recommends the bonus amounts to be paid to each executive officer other than himself, but the Committee retains the discretion to modify or reject his recommendation. Based on these considerations, as well as the 2006 financial results and other matters set forth below under the heading 2006 Results, the Committee made the bonus awards set forth in the Summary Compensation Table.
Equity Incentives. The long-term component of compensation has historically been provided in the form of stock options that vest ratably over three- to four-years. The Company's stock incentive plans are an important component of the Company's total compensation program for executive officers and other employees. The plans are intended as a retention tool and also to advance the interests of the Company and its shareholders by encouraging and enabling executive officers and other employees to acquire and retain a proprietary interest in the Company. Through stock option grants, the long-range interests of management and employees are aligned with those of shareholders, as the optionees accumulate meaningful stakes in the Company. Although the Committee considers the recommendations of the CEO, the Committee makes all decisions concerning the granting of stock options to executive officers. Except for the Annual Retention Equity Program set forth below, these decisions are made on a subjective basis and generally do not bear a specific relationship to any particular measure of the Company's performance. The Compensation Committee believes that the stock option program is a valuable tool in recruiting,
retaining and motivating employees, including executive officers. The Committee is considering the use of restricted stock awards in the future.
The Board of Directors has approved an Annual Retention Equity Program for the grant of options to officers at the vice president level and above, including the Named Executive Officers. Awards are approved and granted as of the date of the Compensation Committee meeting held in May of each year. The Compensation Committee has determined that option awards issued pursuant to the Annual Retention-Equity Program will have the following terms:
· Awards will be non-qualified stock options
· Awards will be issued at 110% of the market value at the date of issuance; i.e., 10% out-of-the-money
· The term of option awards will be 7 years
· The vesting period of the awards will be 3 years
In addition, the Committee has delegated executive management the authority to grant certain recruitment options within pre-defined parameters. The grant date and option price for recruitment options is the closing market price as of the employees date of hire. Furthermore, recruitment options which may be in the form of incentive stock options, have a term of 7 years, and a graduated vesting schedule of 3 years.
All other options are approved by the Committee prior to issuance. The grant date, option price and other material terms are determined and based as of the date of Committee approval.
Retirement and Other Benefits
Supplemental Executive Retirement Plan (SERP). In 2004, the Compensation Committee, with the assistance of the Companys independent compensation consultant, determined that SERP benefits are customary for the Named Executive Officer positions and are necessary to retain top talent to the Company. In addition to being market competitive, the objective of these benefits is to restore and supplement the level of retirement benefits provided in the Companys defined contribution 401(k) plan due to limitations in the Internal Revenue Code. The present value of accumulated benefits under the SERP for each of the Named Executive Officers is set forth in the section titled Pension Benefits.
Split-Dollar Endorsed Life Insurance. Associated with the SERP benefit is a death benefit for each Name Executive Officers designated beneficiaries. Beneficiaries designated by an executive are entitled to a split dollar share of the death proceeds from life insurance policies on each executive, which vary depending on the executives employment status with the Company at the time of death, and eligibility to receive SERP payments.
Defined Contribution Plan. The Company maintains a 401(k) retirement savings plan available to all eligible employees, including the Named Executive Officers. Under the plan, the Company typically matches a portion of employee contributions. For 2006, employee contributions were matched up to a maximum of 6% of compensation subject in the case of the named executives to certain limitations in the Internal Revenue Code. At December 31, 2006, all employer contributions made on behalf of executive officers were vested in accordance with the vesting schedule of the plan, generally four years from commencement of employment, on the basis of the officers' past service with the Company.
Employment Agreements. An additional component of the executive relationship with the Company intended to attract and retain key executive officers is an employment agreement. In addition to being market competitive, a comprehensive employment agreement supports a long-term commitment to each other between the Company and the executive, as well as a long-term perspective in the executives leadership of the Company. It also provides the Company with valuable non-solicitation restrictions on the executive should his or her employment terminate. For the CEO, as well as other Named Executive Officers, a change in control benefit supports retention of key executives during potential merger and acquisition discussions and permits such discussions to take place without distraction due to personal concerns, to the potential betterment of shareholders.
Employee Stock Purchase Plan (ESPP). The ESPP is a form of equity-based compensation that is available to all employees of the Company, with the exception of the Chief Executive Officer. Under the plan, employees may elect, prior to the beginning of each calendar quarter, to purchase shares of the Company's common stock through payroll deduction at a price equal to 90% of the market price of the stock at the end of the calendar quarter. The plan provides an attractive vehicle for employees to acquire the Companys stock, which further aligns their financial interests with those of other shareholders.
Perquisites and Other Benefits. Perquisites and other benefits represent a small part of our overall compensation package, and are offered only after consideration of business need. The Company believes that perquisites are generally a part of executive officers market-competitive total compensation packages. We annually review the perquisites and other personal benefits that we provide to executive management. The primary perquisites are the use of a company auto, club memberships, parking, reimbursement for spousal travel and cash payments to cover the tax liability to the executives for the imputed value of such benefits. We sponsor membership in health or social clubs for certain executive officers. The Company also reimburses executives for expenses for spouse travel to business events that the Company invited the executives spouse to attend. Finally, certain tax, accounting, and other regulations often subject our executives to taxation on the receipt of certain benefits irrespective of the value such benefit conferred to the executive. In these situations, we typically provide a tax-gross up payment to the executive to reimburse the executive for approximate amounts of additional tax liability the executive will need to pay as a result of receiving such benefits.
Net income in 2006 was $22.8 million, an increase of 14.1% from 2005 net income of $20.0 million. Included in the Company 2006 results was a pre-tax charge of $1.7 million related to the rebalancing of the Companys investment security portfolio. Excluding the impact of the portfolio rebalancing, the Companys net income would have been $23.9 million, or 19.4% improvement over 2005. Reported diluted earnings per share for 2006 was $0.98, as compared to $0.87 for 2005. Operating diluted earnings per share (excluding the portfolio rebalancing charge), was $1.03, an increase of 18.4% from 2005. The diluted earnings per share growth objective established by the Committee in the Annual Incentive Compensation Plan at the beginning of 2006 was 15%. Additionally, loan growth was within the targeted range at 16% and asset quality remained exceptional; however, deposit growth fell short of projections at 11% growth. Non-interest income growth was strong at 19%.
In considering the appropriate amount of Annual Incentive Compensation payout for 2006, the Committee also evaluated the relative level of short-term vs. long-term compensation, as well as the amount of unvested stock options held by the Named Executive Officers. The Committee believes that executive management should have a meaningful amount of unvested stock options outstanding in order for the Companys equity incentive plan to act as an effective retention tool. The Committee decided to issue additional stock options in lieu of cash incentive payout to bring short-term and long-term compensation components into better balance, and after considering the availability of funds set aside for
bonuses in 2006, and the effect on total compensation related to the award of cash bonuses in 2007 in conjunction with the successful efforts to raise capital in early 2007.
For 2006, the compensation of the Named Executive Officers was allocated as follows:
(1) Base salary and annual incentive percentages are based on the amounts disclosed in the Summary Compensation Table for Named Executive Officers.
(2) The long-term equity-based percentages are calculated utilizing amounts disclosed in the Grants of Plan-Based Awards table under the Grant date fair value of option awards column.
(3) SERP benefits are based on the amounts disclosed in the Summary Compensation Table under the Change in pension value column.
It has been and continues to be the Companys intent that all incentive payments be deductible unless maintaining such deductibility would undermine our ability to meet our primary compensation objectives or is otherwise not in our best interest. Section 162(m) of the Internal Revenue Code restricts the deductibility by the Company of executive compensation paid to the Companys Named Executive Officers at the end of the fiscal year to not more than $1,000,000 in annual compensation. Certain performance-based compensation is exempt from this limitation if it complies with various conditions described in Section 162(m). Although all of the compensation paid during 2006 was deductible, some components of the Companys compensation programs may result in payments from time to time that are subject to the restriction on deductibility. The Compensation Committee believes that it may be appropriate from time to time to exceed limitations on deductibility under Section 162(m) to ensure that executive officers are compensated in a manner that it believes to be consistent with the best interests of the Company and its shareholders consistent with the Companys executive compensation philosophy and objectives. In view of all of the circumstances, the Compensation Committee has concluded that no further action with respect to qualifying such compensation for deductibility is necessary at this time. The Compensation Committee, however, reserves the authority to continue to approve non-deductible compensation in appropriate circumstances. Also, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m), no assurance can be given that compensation intended by the Company to satisfy requirements for deductibility under Section 162(m) will in fact do so.
Stock Ownership Guidelines
Along with the emphasis on stock options, the Compensation Committee established stock ownership guidelines for executive officers in 2004. Under these guidelines, each executive officer of the Company is required to own shares of common stock having a market value of at least $25,000. Shares issuable upon exercise of in-the-money stock options do not count toward this requirement. All of the executive officers named in the Summary Compensation Table in this proxy statement currently hold sufficient amounts of our common stock to meet or exceed the stock ownership requirements.
Recoupment of Annual Incentives
The Company has no formal policy on recapturing salary or incentive awards (equity or cash) granted to an executive in the event that the Company were to have to restate its financial statements (whether arising from conduct or actions of the executive, or otherwise). However, under Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to restate our financials due to material noncompliance with any financial reporting requirement as a result of misconduct, our CEO and CFO must reimburse the Company for (1) any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document and (2) any profits realized from the sale of securities of the Company during those 12 months.
In addition, the discretion retained by the Compensation Committee to make adjustments in all types of compensation would permit it to decrease an executives compensation under such circumstances if such compensation had not already been paid or become final. There is currently no procedure to recover (claw back) an element of compensation that has been paid and become final. To date, the Company has never been required to restate its financial statements.
Role of Executive Officers in Determining Executive Compensation
The Committee oversees the administration of executive compensation plans, including the design, performance measures, and award opportunities for the executive incentive programs, and certain employee benefits. The Committee has the authority to determine, reviews the performance and approves all compensation and awards, to the CEO and other Named Executive Officers. The CEO assists in such reviews as described above. The CEO determines the compensation of other senior officers based in part on market data provided by the compensation consultant, and the Committee annually reviews the general elements of such compensation. Executive officers do not otherwise determine or make recommendations regarding the amount or form of executive or director compensation.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Submitted by the Compensation Committee of the Board:
Morgan Gust, Chair
The following table provides compensation information for the year ended December 31, 2006 for the Named Executive Officers. The Executive CompensationCompensation Discussion and Analysis section of this proxy statement includes information regarding the material terms of plans and agreements pursuant to which certain items set forth below are paid.
(1) The amounts in this column are calculated based on SFAS 123R and equal the financial statement compensation cost for stock option awards as reported in our consolidated statement of income for the fiscal year. Under SFAS 123R, a pro-rata portion of the total expense at time of grant is recognized over the applicable service period generally corresponding with the vesting schedule of the grant. The initial expense is based on the fair value of the stock option grants as estimated using the Black-Scholes option-pricing model. The assumptions used to arrive at the Black-Scholes value are disclosed in Note 14 to our consolidated financial statements included in our 2006 Annual Report and Form 10-K.
(2) The amounts in this column relate to awards earned and accrued under the 2006 Annual Incentive Compensation Plan, which were paid in February 2007. That plan and these awards are discussed in the Compensation Discussion and Analysis section of this proxy statement.
(3) The amounts shown reflect the aggregate change in the actuarial present value of the Named Executive Officers accumulated benefits under the Companys Supplemental Executive Retirement Plan. The benefits to be provided under the plan described under the headings Pension BenefitsSupplemental Executive Retirement Plan.
(4) The following table shows the components of All other compensation reported in the Summary Compensation Table above. The cost of each item noted is the actual incremental cost of providing such perquisite or benefit, with the exception of the company provided auto. The cost of the company provided auto was calculated based on the Annual Lease Value Tables published by the IRS multiplied by the estimated personal use of the vehicle.
The following table shows all plan-based awards granted to Named Executive Officers during fiscal year 2006. Certain terms of the Companys Stock Plan pursuant to which the grants identified in the table were made are described in the Executive CompensationCompensation Discussion and AnalysisEquity Incentives section of this proxy statement.
(1) CoBiz provides performance-based annual cash incentive awards to our executive officers under our Annual Incentive Compensation Plan. For 2006, accrual for the Annual Incentive Compensation Plan was based on an assessment of the Companys actual financial performance relative to the Compensation Committees pre-established performance goals. Actual awards for 2006 performance are set forth in the non-equity incentive plan compensation column in the Summary Compensation Table above.
(2) Annual Retention Equity Program stock options granted May 17, 2006 have an exercise price equal to 110% of the May 17, 2006 closing price and vest ratably over three years. These options have a term of 7 years. See discussion under Executive CompensationCompensation Discussion and AnalysisEquity Award Programs and Grant Timing. The values shown reflect the aggregate SFAS 123R expense associated with these options based upon application of the Black-Scholes pricing model, to be recognized over the three year vesting period. The assumptions used to arrive at the Black-Scholes value are disclosed in Note 14 to our consolidated financial statements included in our 2006 Annual Report and Form 10-K.
(3) In lieu of a full cash payout under the 2006 Annual Incentive Compensation Plan, the Compensation Committee elected to award part of the Named Executive Officers 2006 annual incentive compensation in the form of stock options. The values shown for the options granted February 13, 2007 reflect the aggregate SFAS 123R expense associated with these options based upon application of the Black-Scholes pricing model, to be recognized over the three year vesting period. The options had an exercise price equal to the closing price on February 13, 2007 and vest ratably over three years. These options have a term of 7 years. The assumptions used to arrive at the Black-Scholes value are disclosed in
Note 14 to our consolidated financial statements included in our 2006 Annual Report and Form 10-K. Also, see discussion under Executive CompensationCompensation Discussion and Analysis2006 Results.
The following table shows all outstanding equity awards held by Named Executive Officers as of December 31, 2006.