FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required] OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the Transition period from to .
--------------- ---------------
For the fiscal year ended December 31, 1996
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Commission file number 0-10652
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NORTH VALLEY BANCORP
-------------------------------------------------------------
(Exact name of small business issuer in its charter)
California 94-2751350
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
880 E. Cypress Avenue, Redding, CA. 96002
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(Address of principal executive offices) (Zip code)
Issuer's telephone number (916) 221-8400
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
No par value common stock
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Total revenue for year ended December 31, 1996, was $ 21,222,000
------------
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock, was $32,750,000
as of March 1, 1997. -----------
The number of shares outstanding of common stock as of March 1, 1997, was
1,823,688.
- ---------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement for the 1997 Annual Meeting
of Shareholders are incorporated by reference in Part III, Items 9, 10, 11, and
12 of this Form 10-KSB.
Transitional small business disclosure format: Yes No X
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<PAGE>
TABLE OF CONTENTS
Page
----
Part I
- ------
Item 1 - Description of Business................... 2
Item 2 - Description of Property................... 29
Item 3 - Legal Proceedings ......................... 30
Item 4 - Submission of Matters to a Vote of
Security Holders .......................... 30
Part II
- -------
Item 5 - Market for Common Equity
and Related Stockholder Matters ........... 31
Item 6 - Management's Discussion and Analysis or
Plan of Operation ........................ 32
Item 7 - Financial Statements ..................... 39
Item 8 - Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure ...................... 39
Part III
- --------
Item 9 - Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section
16(a) of the Exchange Act................. 40
Item 10 - Executive Compensation ................... 40
Item 11 - Security Ownership of Certain
Beneficial Owners and Management.......... 40
Item 12 - Certain Relationships and
Related Transactions ..................... 41
Item 13 - Exhibits and Reports on Form 8-K.......... 41
Financial Statements.................................... 42
Signatures ................................................. 215
- I -
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Certain statements in this Annual Report on Form 10-KSB include
forward-looking information within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the "safe harbor" created by those sections.
These forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements. Such risks and uncertainties include, but are not
limited to, the following factors: competitive pressure in the banking industry
increases significantly; changes in the interest rate environment reduce
margins; general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a deterioration in
credit quality and an increase in the provision for possible loan losses;
changes in the regulatory environment; changes in business conditions,
particularly in Shasta County; volatility of rate sensitive deposits;
operational risks including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets. See also "Certain Additional Business Risks" on pages 28
through 29 herein and other risk factors discussed elsewhere in this Report.
General
North Valley Bancorp (the "Company") is a bank holding company registered
with and subject to regulation and supervision by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). The Company was incorporated in
1980 in the State of California, and wholly owns its principal subsidiaries,
North Valley Bank (the "Bank"), North Valley Trading Company (the "Trading
Company"), and Bank Processing, Inc. The sole subsidiary of the Bank, which is
inactive, is North Valley Basic Securities (the "Securities Company"). As used
herein, the terms "North Valley Bancorp" or the "Company" include the
subsidiaries of the Company and the term "Bank" includes the subsidiary of the
Bank, unless the context requires otherwise.
At December 31, 1996, the Company had approximately 130 employees (which
includes 116 full-time equivalent employees); the Company had total consolidated
assets of $256,877,000; before consolidation the Bank had total assets of
$255,670,000 and total deposits of $229,576,000; assets of the Trading Company
were $3,500; assets of Bank Processing, Inc., were $380,000; and assets of the
Securities Company were $1,000.
The Bank was organized in September, 1972, under the laws of the State of
California, and commenced operations in February, 1973. The Bank is principally
supervised and regulated by the California Superintendent of Banks and conducts
a commercial and retail banking business, which includes accepting demand,
savings, money market rate deposit accounts, and time deposits, and making
commercial, real estate and consumer loans. It also offers installment note
collections, issues cashier's checks and money orders, sells travelers' checks
and provides safe deposit boxes and other customary banking services. As a
federally insured bank, the Bank is also subject to regulation by the Federal
Deposit Insurance Corporation ("FDIC") and deposits are insured by the FDIC up
to the legal limits thereupon. The Bank does not offer trust services or
international banking services and does not plan to do so in the near future.
The Bank operates nine banking offices in Shasta and Trinity Counties, for
which it has
2
<PAGE>
received all of the requisite regulatory approvals. The headquarters office in
Redding was opened in February, 1973. In October, 1973, the Bank opened its
Weaverville Office; in October, 1974, its Hayfork Office; in January, 1978, its
Anderson Office; and in September, 1979, its Enterprise Office (East Redding).
On December 20, 1982, the Bank acquired the assets of two branches of the Bank
of California: one located in Central Valley and the other in Redding,
California. On June 1, 1985, the Bank opened its Westwood Village Office in
south Redding. On November 27, 1995, the Bank opened a new branch located in
Palo Cedro, California. During the year ended December 31, 1995, the Bank
purchased, in the ordinary course of business, the Hayfork branch for $134,000
which the Bank had previously leased from a former Board member.
The Trading Company, incorporated under the laws of the State of
California in 1984, formed a joint venture to explore trading opportunities in
the Pacific Basin. The joint venture was terminated in July, 1986, and the
Trading Company is now inactive. The Securities Company, formed to hold premises
pursuant to Section 752 of the California Financial Code, is inactive. North
Valley Consulting Services was established as a consulting service for
depository institutions. In December, 1988, North Valley Consulting Services
changed its name to Bank Processing, Inc. Bank Processing, Inc., was established
as a bank processing service to provide data processing services to other
depository institutions, pursuant to Section 225.25(b)(7) of Federal Reserve
Regulation Y and Section 4(c)(8) of the Bank Holding Company Act of 1956, as
amended ("BHCA").
Bank Processing, Inc., is utilizing "excess capacity" on their system to
process other depository institutions' data, and is currently processing daily
applications for the Bank and two other banks where entries are captured and
files updated by the "Liberty Banking Package," which include: Demand Deposits
(DDA), Savings Deposits (SAV), Central Information Files (CIF), Mortgage Loans
(MLA), Installment Loans (ILA), Commercial Loans (CLA), Individual Retirement
Accounts (IRA), and Financial Information Statement, i.e., General Ledger (FIS).
The data processing activities do not involve providing hardware or software.
At December 31, 1996 Bank Processing, Inc., had cash assets of
approximately $77,000.
On August 18, 1995, the Bank terminated its Nondiscretionary Full Service
Brokerage Agreement (the "Agreement") with PrimeVest Financial Services, Inc.
("PrimeVest"), and entered into an Agreement with Linsco Private Ledger ("LPL").
The Agreement with LPL, dated August 18, 1995, provides for LPL to furnish
brokerage services and standardized investment advice to Bank customers at an
LPL office located at 1327 South Street, in the upstairs portion of North Valley
Bank. All investments recommended to Bank customers appear on an approved list
or are specially approved by LPL's central office. The Bank shares in the fees
and commissions paid to LPL on a pre-determined schedule.
The Company does not hold deposits of any one customer or group of
customers where the loss of such deposits would have an effect on the Company.
The Company's business is not seasonal.
Selected Statistical Data
The following tables present certain consolidated statistical information
concerning the business of the Company. This information should be read in
conjunction with the Consolidated Financial Statements and the notes thereto and
Management's Discussion and Analysis or Plan of Operation and other information
contained elsewhere herein. Averages are based on daily averages.
3
<PAGE>
Tax-equivalent adjustments (using a 32% tax rate for 1996, 35% for 1995 and
1994) have been made in calculating yields on tax-exempt securities.
4
<PAGE>
AVERAGE BALANCES AND TAX-EQUIVALENT NET INTEREST MARGIN
<TABLE>
The following table sets forth the Company's consolidated condensed
average daily balances and the corresponding average yields received and average
rates paid of each major category of assets, liabilities, and stockholders'
equity for each of the past three years.
<CAPTION>
1996 1995 1994
AVERAGE AVERAGE AVERAGE
AVERAGE INCOME(1)/ RATES AVERAGE INCOME(1)/ RATES AVERAGE INCOME(1)/ RATES
(Dollars in thousands) BALANCE EXPENSE EARNED/ BALANCE EXPENSE EARNED/ BALANCE EXPENSE EARNED/
PAID PAID PAID
============================= =============================== =============================
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 18,690 $ 990 5.30% $ 17,742 $ 1,040 5.86% $ 16,163 $ 652 4.03%
Available for sale securities:
U.S. Treasury securities 327 18 5.50% 9,070 374 4.12% 22,228 923 4.15%
U.S. Agencies 5,162 323 6.26% 3,200 202 6.31% 3,060 150 4.90%
Obligations of states and
political subdivisions 4,918 384 7.80% 55 5 9.09%
Other investments 579 27 4.66% 413 14 3.39% 264 9 3.41%
--------- -------- ----- -------- -------- ----- -------- -------- -----
Total available for sale
securities 10,986 752 6.84% 12,738 595 4.67% 25,552 1,082 4.23%
Held to maturity securities:
U.S. Agencies 4,078 281 6.89% 5,594 353 6.31% 3,104 207 6.67%
Obligations of states and
political subdivisions 34,923 3,094 8.86% 36,470 3,330 9.13% 31,902 2,897 9.08%
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total held to maturity
securities 39,001 3,375 8.65% 42,064 3,683 8.76% 35,006 3,104 8.87%
FHLB 709 40 5.64% 645 31 4.81% 132 0 0.00%
Trading account securities 1,094 58 5.30% 211 13 6.16% 39 1 2.56%
Total loans(2)(3) 157,644 14,517 9.21% 137,613 13,230 9.61% 114,577 10,347 9.03%
-------- -------- ----- -------- -------- ----- -------- -------- -----
Total interest earning assets/
interest income 228,124 19,732 8.65% 211,013 18,592 8.81% 191,469 15,186 7.93%
===== ===== =====
Nonearning assets 20,740 18,834 18,234
Less: Allowance for loan losses (1,502) (1,259) (1,132)
TOTAL ASSETS $247,362 $228,588 $208,571
========= ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities
Deposits
Transaction $ 40,022 931 2.33% $36,520 867 2.37% $ 25,903 808 3.12%
Savings & Money Market 44,392 1,325 2.98% 44,123 1,248 2.83% 48,124 1,368 2.84%
Time 109,946 5,821 5.29% 100,345 5,444 5.43% 81,844 3,284 4.01%
--------- -------- ----- -------- -------- ----- -------- -------- -----
Total interest bearing
deposits/interest expense 194,360 8,077 4.16% 180,988 7,559 4.18% 155,871 5,460 3.50%
-------- ===== -------- ==== ------- =====
Non interest-bearing deposits 27,376 24,826 33,535
Other noninterest-bearing
liabilities 2,928 2,800 2,286
--------- -------- ---------
TOTAL LIABILITIES 224,664 208,614 191,692
Shareholders' equity 22,698 19,974 16,879
--------- -------- ---------
Total Liabilities and
and Stockholders' Equity $247,362 $228,588 $208,571
========= ======== =========
Net Interest Income
and Margin(4) $ 11,655 5.11% $ 11,033 5.23% $ 9,726 5.08%
======== ===== ======== ===== ======== =====
<FN>
(1) Tax-equivalent basis
(2) Loans on nonaccrual status have been included in the computation of average
balances.
(3) Includes loan fees of $225,000, $190,000, and $249,000 for 1996, 1995 and
1994, respectively.
(4) Net interest margin is determined by dividing net interest income by total
average interest earning assets.
</FN>
</TABLE>
5
<PAGE>
RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
The following table summarizes changes in net interest income resulting
from changes in average asset and liability balances (volume) and changes in
average interest rates.
<CAPTION>
1996 versus 1995 1995 versus 1994 1994 versus 1993
------------------------------ ------------------------------ -------------------------------
(Dollars in thousands)
Total Total Total
Average Average Increase Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on Federal funds sold $ 50 $ (100) $ (50) $ 93 $ 295 $ 388 $ (342) $ 266 $ (76)
Interest on available for sale
securities:
U.S. Treasury securities (482) 126 (356) (543) (6) (549) (146) (64) (210)
U.S. Agencies 123 (2) 121 9 43 52 ( 68) (54) (122)
Obligations of states and
political subdivisions 380 (1) 379 5 0 5
Other investments 8 5 13 4 1 5 5 2 7
------- ------- ------- ------- ------- ------- ------- ------- -------
Total available for sale
securities 29 128 157 (525) 38 (487) (209) (116) (325)
Interest on held to maturity
securities:
U.S. Agencies (104) 32 (72) 157 (11) 146 207 0 207
Obligations of states and
political subdivisions (137) (99) (236) 417 16 433 552 (8) 544
------- ------- ------- ------- ------- ------- ------- ------- -------
Total held to maturity
securities (241) (67) (308) 574 5 579 759 (8) 751
Dividends on FHLB 4 5 9 24 7 31 0 0 0
Interest on trading account
securities 47 (2) 45 11 1 12 (5) (9) (14)
Interest on total loans 1,845 (558) 1,287 2,215 668 2,883 2,003 (827) 1,176
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest income 1,734 (594) 1,140 2,392 1,014 3,406 2,206 (694) 1,512
------- ------- ------- ------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Interest bearing liabilities
Deposits
Transaction 81 (17) 64 252 (193) 59 98 (89) 9
Savings & Money Market 8 69 77 (113) (7) (120) 88 (123) (35)
Time 508 (131) 377 1,004 1,156 2,160 377 (146) 231
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest expense 597 (79) 518 1,143 956 2,099 563 (358) (205)
------- ------- ------- ------- ------- ------- ------- ------- -------
Change in net interest income $ 1,137 $ (515) $ 622 $ 1,249 $ 58 $ 1,307 $ 1,643 $ (336) $ 1,307
======= ======= ======= ======= ======= ======= ======= ======= =======
<FN>
(1) The change in interest due to both rate and volume has been allocated to
volume.
</FN>
</TABLE>
6
<PAGE>
Investment Securities:
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company's policy with regard to
investments is as follows:
Trading Securities are carried at fair value. Changes in market value are
included in other operating income. The trading securities balance for
December 31, 1996, 1995, and 1994 was zero.
Available for Sale Securities are carried at fair value and represent
securities not classified as trading securities nor as held-to-maturity
securities. Unrealized gains and losses resulting from changes in fair
value are recorded, net of tax, as a separate component of stockholders'
equity. Gains or losses on disposition are recorded in other operating
income based on the net proceeds received and the carrying amount of the
securities sold, using the specific identification method.
Held to Maturity Securities are carried at cost adjusted for amortization
of premiums and accretion of discounts, which are recognized as
adjustments to interest income. The Company's policy of carrying such
investment securities at amortized cost is based upon its ability and
management's intent to hold such securities to maturity.
<TABLE>
At December 31, the amortized cost of securities and their approximate
fair value were as follows (in thousands):
<CAPTION>
Available for Sale Securities: Carrying
Gross Gross Amount
Amortized Unrealized Unrealized (Approximate
Cost Gains Losses Fair Value)
<S> <C> <C> <C> <C>
December 31, 1996:
Securities of U.S. government
agencies and corporations $ 3,998 $ 44 $ 3,954
Obligations of states and political
subdivisions 4,140 $ 113 4,253
Other debt securities 655 361 1,016
------- ------- ------- -------
Total $ 8,793 $ 474 $ 44 $ 9,223
======= ======= ======= =======
December 31, 1995:
U.S. Treasury securities $ 2,000 $ 2 $ 1,998
Securities of U.S. government
agencies and corporations 5,000 $ 6 39 4,967
Obligations of states and
political subdivisions 5,013 94 20 5,087
Other debt securities 499 133 632
------- ------- ------- -------
Total $12,512 $ 233 $ 61 $12,684
======= ======= ======= =======
December 31, 1994:
U.S. Treasury securities $12,015 $ 276 $11,739
7
<PAGE>
Securities of U.S. government
agencies and corporations 2,000 153 1,847
Other Securities 312 $ 57 369
------- ------- ------- -------
Total $14,327 $ 57 $ 429 $13,955
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity Securities: Carrying Gross Gross Approximate
Amount Unrealized Unrealized Fair
(Amortized Cost) Gain Losses Value
<S> <C> <C> <C> <C>
December 31, 1996:
U. S. Agencies $ 4,000 $ 59 $ 3,941
Obligations of states and
political subdivisions 35,997 $ 1,940 7 37,930
------- ------- ------- -------
Total $39,997 $ 1,940 $ 66 $41,871
======= ======= ======= =======
December 31, 1995:
U. S. Agencies $ 1,598 $ 2 $ 1,600
Obligations of states and
political subdivisions 33,619 1,846 $ 8 35,457
------- ------- ------- -------
Total $35,217 $ 1,848 $ 8 $37,057
======= ======= ======= =======
December 31, 1994:
U. S. Agencies $ 7,000 $ 38 $ 6,962
Obligations of states and
political subdivisions 34,374 $ 506 819 34,061
------- ------- ------- -------
Total $41,374 $ 506 $ 857 $41,023
======= ======= ======= =======
</TABLE>
Gross realized gains on sales of U.S. government and agency securities
categorized as available for sale securities were $31,000 in 1996 and 1995, and
$11,000 in 1994. There were no gross realized losses on sale of available for
sale securities in 1996 or 1995.
The Bank's policy requires that management determine the appropriate
classification of securities at the time of purchase. If management has the
intent and the Company has the ability at the time of purchase to hold
securities until maturity, they are classified as investments held to maturity,
and carried at amortized historical cost. Securities to be held for indefinite
periods of time and not intended to be held to maturity are classified as
available for sale and carried at market value. Securities held for indefinite
periods of time include securities that management intends to use as part of its
asset/liability management strategy and that may be sold in response to changes
in interest rates, resultant prepayment risk, and other related factors.
In November 1995, the FASB issued additional implementation guidance
regarding the previously issued SFAS No. 115. In accordance with this guidance
and prior to December 31, 1995, companies were allowed a one-time reassessment
of their classification of securities and were required to account for any
resulting transfers at fair value. Transfers from the held-to-maturity category
that result from this one-time reassessment will not call into question the
intent to hold other securities to maturity in the future. Accordingly, the
Company transferred approximately $5,012,000 of securities from held to maturity
to available for sale to allow the Company greater flexibility in managing its
interest rate risk and liquidity. Available for sale securities were adjusted to
fair value, and stockholders' equity was increased by $52,276, net of income
taxes of $22,191.
8
<PAGE>
Scheduled maturities of held to maturity and available for sale securities
(other than equity securities with an amortized cost of approximately $655,000
and a carrying value of approximately $1,016,000) at December 31, 1996, are
shown below (in thousands). Expected maturities may differ from contractual
maturities because borrowers may have the right to prepay with or without
penalty.
<TABLE>
The following table sets forth the maturities of investment securities at
December 31, 1996, and the weighted average yields of such securities.
Tax-equivalent adjustments have been made in calculating yields on obligations
of state and political subdivisions.
<CAPTION>
Maturity Distribution and Yields of Investment Securities:
Held to Maturity Available for Sale
-------------------- ----------------------
Weighted Weighted
Average Amortized Average Amortized
Yield (1) Cost Yield (1) Cost
1996 1996 1996 1996
--------- --------- --------- ---------
December 31 (Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury obligations
Due within one year -- -- -- --
Due after one year but within five years -- -- -- --
Due after five years but within ten years -- -- -- --
Due after ten years -- -- -- --
---- ------- ---- -------
Total -- -- -- --
U.S. government agency securities
Due within one year -- -- -- --
Due after one year but within five years 6.24% $ 3,000 5.80% $ 1,998
Due after five years but within ten years 6.85% 1,000 7.02% 2,000
Due after ten years -- -- -- --
---- ------- ---- -------
Total 6.39% 4,000 6.41% 3,998
State and municipal bonds
Due within one year 8.96% 396 6.02% 260
Due after one year but within five years 9.40% 10,112 6.68% 595
Due after five years but within ten years 8.63% 13,844 7.54% 872
Due after ten years 8.54% 11,645 8.31% 2,413
---- ------- ---- -------
Total 8.82% 35,997 7.77% 4,140
Grand Total 8.58% $39,997 7.10% $ 8,138
==== ======= ==== =======
<FN>
- ------------
(1) Tax-equivalent basis at fiscal year end.
</FN>
</TABLE>
Loan Portfolio
The Company originates loans for business, consumer and real estate
activities. Such loans are concentrated in Shasta and Trinity Counties and
neighboring communities. Substantially all loans are collateralized. Generally
real estate loans are secured by real property. Commercial and other loans are
secured by bank deposits or business or personal assets. The Company's policy
for requiring collateral is
9
<PAGE>
through analysis of the borrower, the borrower's industry and the economic
environment in which the loan would be granted. The loans are expected to be
repaid from cash flows or proceeds from the sale of selected assets of the
borrower.
<TABLE>
Major classifications of loans at December 31 are summarized as follows (in
thousands):
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 63,944 $ 53,044 $ 46,347 $ 38,897 $ 37,599
Real estate - construction 1,135 2,838 2,333 1,754 1,070
Real estate - mortgage 46,673 41,967 30,366 16,467 14,435
Installment 43,863 39,034 36,185 31,836 30,201
Other 13,283 12,888 11,899 11,875 10,923
-------- -------- -------- -------- --------
Total loans receivable 168,898 149,771 127,130 100,829 94,228
Less:
Allowance for loan losses 1,254 1,325 1,144 1,066 1,105
Deferred loan fees 661 638 523 306 --
-------- -------- -------- -------- --------
Net loans receivable $166,983 $147,808 $125,463 $ 99,457 $ 93,123
======== ======== ======== ======== ========
</TABLE>
At December 31, 1996 and 1995, the Bank serviced real estate loans and
loans guaranteed by the Small Business Administration which it had sold to the
secondary market, such loans totaling approximately $90,744,000 and $93,563,000,
respectively, as of such date.
The Bank was contingently liable under letters of credit issued on behalf
of its customers in the amount of $521,000 and $439,000 at December 31, 1996 and
1995, respectively. At December 31, 1996 commercial and consumer lines of
credit, and real estate loans of approximately $17,444,000 and $614,000,
respectively, were undisbursed. These instruments involve, to varying degrees,
elements of credit and market risk in excess of the amounts recognized in the
balance sheet. The contractual or notional amounts of these transactions express
the extent of the Bank's involvement in these instruments and do not necessarily
represent the actual amount subject to credit loss.
<TABLE>
Maturity Distribution and Interest Rate Sensitivity of Loans
The following table shows the maturity of certain loan categories.
Excluded categories are residential mortgages of 1-4 family residences,
installment loans and lease financing outstanding as of December 31, 1996. Also
provided with respect to such loans are the amounts due after one year,
classified according to the sensitivity to changes in interest rates:
10
<PAGE>
<CAPTION>
Maturing
-------------------------------------------------------------
Within After One After
One Year Through Five Years Five Years Total
-------- ------------------ ---------- -----
(Millions of dollars)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 8,813 $17,647 $37,484 $63,944
Real Estate - construction 1,135 1,135
------- ------- ------- -------
$ 9,948 $17,647 $37,484 $65,079
======= ======= ======= =======
Loans maturing after one year with:
Fixed interest rates 8,329 19,076
Variable interest rates 9,318 18,408
------- -------
$17,647 $37,484
======= =======
</TABLE>
Impaired, Nonaccrual, Past Due, Restructured Loans, and Other Real Estate Owned
At December 31, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 was approximately
$2,612,000. Of that balance approximately $320,000 has a related valuation
allowance of $33,000. The remaining $2,292,000 did not require, in management's
view, a valuation allowance. For the year ended December 31, 1996, the average
recorded investment in loans for which impairment has been recognized was
approximately $2,244,000. During the portion of the year that the loans were
impaired the Company recognized interest income of approximately $203,000 for
cash payments received.
At December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 was approximately
$1,715,000. Of that balance approximately $1,078,000 has a related valuation
allowance of $254,000. The remaining $637,000 did not require, in management's
view, a valuation allowance. For the year ended December 31, 1995, the average
recorded investment in loans for which impairment has been recognized was
approximately $1,473,000. During the portion of the year that the loans were
impaired the Company recognized interest income of approximately $205,000 for
cash payments received.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full and timely collection of
interest or principal, or when a loan becomes contractually past due by 90 days
or more with respect to interest or principal (except that when management
believes a loan is well secured and in the process of collection, interest
accruals are continued on loans deemed by management to be fully collectible).
When a loan is placed on nonaccrual status, all interest previously accrued but
not collected is reversed against current period interest income. Income on such
loans is then recognized only to the extent that cash is received and where the
future collection of principal is probable. Interest accruals are resumed on
such loans when, in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest.
Nonperforming loans at December 31 are summarized as follows (in
thousands):
11
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,190 282 $ 421 $ 334 $ 351
Loans 90 days past due but still accruing interest 14 15 22 84 82
Restructured loans -- -- -- -- 27
Other real estate owned 69 87 -- -- 4
------ ---- ---- ----- -----
Total $1,273 $384 $ 443 $ 418 $ 464
====== ==== ==== ===== =====
If interest on nonaccrual loans had been accrued, such income would have
approximated $82,000 in 1996, $37,000 in 1995 and $33,000 in 1994. Interest
income of $27,000 in 1996, $8,000 in 1995, and $19,000 in 1994 was recorded when
it was received on the nonaccrual loans.
Based on its review of impaired, past due and nonaccrual loans and other
information known to management at the date of this Report, in addition to the
nonperforming loans included in the above table, management has identified 20
loans in the aggregate principal amount of $221,000 about which it has serious
doubts regarding the borrowers' ability to comply with present loan repayment
terms, such that said loans might subsequently be classified as nonperforming.
At December 31, 1996, there were no commitments to lend additional funds
to borrowers whose loans were classified as nonaccrual.
Summary of Loan Loss Experience:
The following table summarizes the Company's loan loss experience for the
years ended December 31:
<CAPTION>
December 31 (dollars in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average amount of gross loans outstanding $157,644 $137,613 $114,577 $ 92,399 $ 90,262
Balance of allowance for loan losses
at beginning of period 1,325 1,144 1,066 1,105 897
Loans charged off:
Commercial, financial and agricultural 538 139 39 61 67
Real Estate - construction 2 0 0 0 0
Real Estate - mortgage 139 27 0 0 6
Installment 118 106 125 107 92
Other 16 9 21 21 16
-------- -------- -------- -------- --------
Total loans charged off 813 281 185 189 181
Recoveries of loans previously
charged off:
Commercial, financial and agricultural 7 52 10 21 12
Real Estate - construction 0 0 0 2 1
Real Estate - mortgage 0 9 0 0 5
Installment 14 23 12 16 8
Other 1 3 1 1 3
-------- -------- -------- -------- --------
Total recoveries of loans
previously charged off 22 87 23 40 29
-------- -------- -------- -------- --------
Net loans charged off 791 194 162 149 152
Provisions for loan losses 720 375 240 110 360
-------- -------- -------- -------- --------
Balance of allowance for loan losses
at end of period $ 1,254 $ 1,325 $ 1,144 $ 1,066 $ 1,105
======== ======== ======== ======== ========
12
<PAGE>
1996 1995 1994 1993 1992
Ratio of net charge-offs to ---- ---- ---- ---- ----
average loans outstanding .50% .14% .14% .16% .17%
Allowance for loan losses to
total loans .74% .88% .90% 1.06% 1.17%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank maintains an allowance for possible loan losses (the "Allowance")
to provide for possible loan losses in the loan portfolio. Additions to the
Allowance are made by charges to operating expense in the form of a provision
for possible loan losses. Loans are charged against the Allowance when
management believes that the collectibility of the principal is unlikely, while
any recoveries are credited to the Allowance.
The Company evaluates the adequacy of its Allowance by specific categories
of loans rather than on an overall basis. In determining the adequacy of the
Allowance, management considers such factors as the Bank's lending policies,
historical loan loss experience, non-performing loans and problem credits,
evaluations made by bank regulatory authorities, assessment of economic
conditions, and other appropriate data in its attempt to identify the risks in
the loan portfolio. While these factors are essentially judgmental, the
management of the Company believes that its Allowance at December 31, 1996, was
adequate against foreseeable losses in its loan portfolio at that time. The risk
of nonpayment of loans is inherent in commercial banking, and, while management
has procedures in place to indentify loans with more than a normal risk of
default, it is not always possible to identify all such potential problem
credits. To some extent, the degree of perceived risk is taken into account in
establishing the structure of, and interest rates and security for, specific
loans and various types of loans. The Bank also attempts to minimize its credit
risk exposure by use of thorough loan application, approval and review
procedures.
<TABLE>
The following table shows the allocation of the Company's Allowance and the
percent of loans in each category to total loans at the dates indicated (dollars
in thousands).
<CAPTION>
December 31 1996 1995 1994 1993 1992
-------------- --------------- ------------- --------------- ----------------
Allowance % Allowance % Allowance % Allowance % Allowance %
for of for of for of for of for of
Losses Loans Losses Loans Losses Loans Losses Loan Losses Loans
------ ---- ------ ----- ------ ----- ------ ---- ------ ----
Loan Categories:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 765 61% $ 875 66% $ 583 51% $ 593 39% $ 387 40%
Real Estate - construction -0- -- -0- -- -0- -- -0- -- -0- --
Real Estate - mortgage 117 9% 106 8% 114 10% 41 18% 30 16%
Installment 372 30% 344 26% 447 39% 432 43% 277 44%
Other -0- -- -0- -- -0- -- -0- -- -0- --
Unallocated -0- -- -0- -- -0- -- -0- -- 411 --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total $1,254 100% $1,325 100% $1,144 100% $1,066 100% $1,105 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
The Allowance totaled $1,254,000, or .74% of total loans outstanding at
December 31, 1996. Based on management's evaluation of the current loan
portfolio and economic trends during 1996, the Bank made a provision to its
Allowance of $720,000 which was due primarily to the increase in loan volume and
loans charged off during 1996. Management's continuing evaluation of the loan
portfolio and assessment of current economic conditions will dictate future
funding levels.
Certificates of Deposit
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1996 are summarized as follows (dollars in thousands):
13
<PAGE>
$100,000+ Time
Certificates of Deposit
- --------------------------------------------------------------------------------
Remaining maturities:
Three months or less $ 7,788
Over three through six months 7,769
Over six through twelve months 2,851
Over twelve months 1,500
-------
TOTAL $19,908
=======
As of December 31, 1996, the Company did not have any brokered deposits.
In general, it is the Company's policy not to accept brokered deposits.
Return on Equity and Assets:
The following table sets forth certain financial ratios for the Company:
December
--------------------------------
1996 1995 1994
---- ---- ----
Return on average equity (net income
divided by average equity) 18.09% 20.44% 19.03%
Return on average assets (net income
divided by average total assets) 1.66% 1.79% 1.54%
Equity to assets ratio (average equity
divided by average total assets) 9.18% 8.74% 8.09%
Dividend payout ratio (dividends
divided by net income) 31.31% 23.27% 26.53%
Short Term Borrowings
At December 31, 1996, 1995 and 1994, the Bank did not have any short term
borrowings outstanding.
SUPERVISION AND REGULATION
The Effect of Government Policy on Banking
The earnings and growth of the Bank are affected not only by local market
area factors and general economic conditions, but also by government monetary
and fiscal policies. For example, the Board of Governors of the Federal Reserve
System ("FRB") influences the supply of money through its open
14
<PAGE>
market operations in U.S. Government securities and adjustments to the discount
rates applicable to borrowings by depository institutions and others. Such
actions influence the growth of loans, investments and deposits and also affect
interest rates charged on loans and paid on deposits. The nature and impact of
future changes in such policies on the business and earnings of the Bank cannot
be predicted. Additionally, state and federal tax policies can impact banking
organizations. Effective January 1, 1997, applicable California bank and
corporation tax rates were reduced by 5% in order to keep California competitive
with other western states.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company is particularly
susceptible to being affected by the enactment of federal and state legislation
which may have the effect of increasing or decreasing the cost of doing
business, modifying permissible activities or enhancing the competitive position
of other financial institutions. Any change in applicable laws or regulations
may have a material adverse effect on the business and prospects of the Company.
In response to various business failures in the savings and loan industry and in
the banking industry, in December 1991, Congress enacted, and the President
signed into law, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"). FDICIA substantially revised the bank regulatory framework and
deposit insurance funding provisions of the Federal Deposit Insurance Act and
made revisions to several other federal banking statutes. Implementation of the
various provisions of FDICIA is subject to the adoption of regulations by the
various regulatory agencies, the manner in which the regulatory agencies
implement those regulations and certain phase-in periods.
Regulation and Supervision of Bank Holding Companies
The Company is a bank holding company subject to the Bank Holding Company
Act of 1956, as amended ("BHCA"). The Company reports to, registers with, and
may be examined by, the FRB. The FRB also has the authority to examine the
Company's subsidiaries. The costs of any examination by the FRB are payable by
the Company.
The FRB has significant supervisory and regulatory authority over the
Company and its affiliates. The FRB requires the Company to maintain certain
levels of capital. See "Capital Standards." The FRB also has the authority to
take enforcement action against any bank holding company that commits any unsafe
or unsound practice, or violates certain laws, regulations or conditions imposed
in writing by the FRB. See "Prompt Corrective Action and Other Enforcement
Mechanisms."
Under the BHCA, a company generally must obtain the prior approval of the
FRB before it exercises a controlling influence over a bank, or acquires
directly or indirectly, more than 5% of the voting shares or substantially all
of the assets of any bank or bank holding company. Thus, the Company is required
to obtain the prior approval of the FRB before it acquires, merges or
consolidates with any bank or bank holding company; any company seeking to
acquire, merge or consolidate with the Company also would be required to obtain
the approval of the FRB.
The Company is generally prohibited under the BHCA from acquiring
ownership or control of more than 5% of the voting shares of any company that is
not a bank or bank holding company and from engaging directly or indirectly in
activities other than banking, managing banks, or providing services to
affiliates of the holding company. A bank holding company, with the approval of
the FRB, may engage, or acquire the voting shares of companies engaged, in
activities that the FRB has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. A bank holding
15
<PAGE>
company must demonstrate that the benefits to the public of the proposed
activity will outweigh the possible adverse effects associated with such
activity.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking and Branching Act"), a bank holding company
became able to acquire banks in states other than its home state beginning
September 29, 1995 without regard to the permissibility of such acquisitions
under state law, but subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10% of the total amount of deposits
of insured depository institutions in the United States and no more than 30% of
such deposits in that state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across states lines, therefore creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, pursuant to such act, a bank is now
able to open new branches in a state in which it does not already have banking
operations, if the laws of such state permit such de novo branching. California
enacted legislation to "opt in" to the Interstate Banking and Branching Act
provisions regarding interstate branching, allowing a state bank chartered in a
state other than California to acquire by merger or purchase, at any time after
effectiveness of the Caldera, Weggeland, and Killea California Interstate
Banking and Branching Act of 1995 ("IBBA"), a California bank or industrial loan
company which is at least five (5) years old and thereby establish one or more
California branch offices. However, the IBBA prohibits a state bank chartered in
a state other than California from entering California by purchasing a
California branch office of a California bank or industrial loan company without
purchasing the entire entity or by establishing a de novo California branch
office. See the section entitled "Recently Enacted Legislation" for additional
information.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies.
The FRB generally prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding company's financial position. The
FRB's policy is that a bank holding company should not continue its existing
rate of cash dividends on its common stock unless its net income is sufficient
to fully fund each dividend and its prospective rate of earnings retention
appears consistent with its capital needs, asset quality and overall financial
condition.
Transactions between the Company and the Bank are subject to a number of
other restrictions. FRB policies forbid the payment by bank subsidiaries of
management fees which are unreasonable in amount or exceed the fair market value
of the services rendered (or, if no market exists, actual costs plus a
reasonable profit). Subject to certain limitations, depository institution
subsidiaries of bank holding companies may extend credit to, invest in the
securities of, purchase assets from, or issue a guarantee, acceptance, or letter
of credit on behalf of, an affiliate, provided that the aggregate of such
transactions with affiliates may not exceed 10% of the capital stock and surplus
of the institution, and the aggregate of such transactions with all affiliates
may not exceed 20% of the capital stock and surplus of such institution. The
Company may only borrow from depository institution subsidiaries if the loan is
secured by marketable
16
<PAGE>
obligations with a value of a designated amount in excess of the loan. Further,
the Company may not sell a low-quality asset to a depository institution
subsidiary.
Generally, a bank holding company and its subsidiaries are prohibited from
engaging in tie-in arrangements in connection with the extension of credit, sale
or lease of property or furnishing of services unless the FRB permits an
exception to the tying prohibitions pursuant to exemption authority available to
it under applicable law. The FRB, however, has adopted a rule, effective
September 2, 1994, amending the anti-tying provisions to permit a bank or bank
holding company to offer a lower price on a loan, deposit or trust service
(traditional bank product), or on securities brokerage services, on the
condition that the customer obtain a traditional bank product from an affiliate.
Additionally, as of January 23, 1995, a bank holding company, or a nonbank
subsidiary, may offer lower prices on any of its products or services on the
condition that the customer obtain another product or service from such company
or any of its nonbank affiliates, provided that all products offered in the
package arrangement are separately available for purchase.
The Company is a bank holding company within the meaning of Section 3700
of the California Financial Code. As such the Company and the Bank are subject
to examination by, and may be required to file reports with, the California
Superintendent of Banks (the "Superintendent"). Regulations have not yet been
proposed or adopted, and no other steps have been taken, to implement the
Superintendent's power under this statute.
Bank Regulation and Supervision
The Bank is subject to regulation, supervision and regular examination by
the California Superintendent of Banks (the "Superintendent") and the Federal
Deposit Insurance Corporation (the "FDIC"). The regulations of these agencies
affect most aspects of the Bank's business and prescribe permissible types of
loans and investments, the amount of required reserves, requirements for branch
offices, the permissible scope of the Bank's activities and various other
requirements. While the Bank is not a member of the FRB, it is also subject to
certain regulations of the FRB dealing primarily with check clearing activities,
establishment of banking reserves, Truth-in-Lending (Regulation Z),
Truth-in-Savings (Regulation DD), and Equal Credit Opportunity (Regulation B).
Pursuant to AB 3351, which was adopted by the California legislature during
1996, all of the California state regulatory authorities for state-chartered
depository institutions will be consolidated under a new state agency, the
Department of Financial Institutions ("DFI") effective July 1, 1997. The newly
created DFI combines the State Banking Department and the Department of Savings
and Loan while regulatory oversight over industrial loan companies and credit
unions will be shifted from the Department of Corporations to the DFI. For the
most part, the DFI is merely assuming the responsibilities and authorities
previously held by the existing regulators.
The activities of the Bank are also regulated by state law. Under
California law, the Bank is subject to various restrictions on, and requirements
regarding, its operations and administration including the maintenance of branch
offices and automated teller machines, capital and reserve requirements,
deposits and borrowings, stockholder rights and duties, and investment and
lending activities. Whenever it appears that the contributed capital of a
California bank is impaired, the Superintendent shall order the bank to correct
such impairment. If a bank is unable to correct the impairment, such bank is
required to levy and collect an assessment upon its common shares. If such
assessment becomes delinquent, such common shares are to be sold by the bank.
During 1996 the Interstate Banking and Branching Cleanup Act was enacted, which
revised the Superintendent's assessment methodology for state-chartered banks in
order to
17
<PAGE>
provide a better basis of comparison to the method used by the Office of the
Comptroller of the Currency ("OCC"). Under the new methodology, the average
assessment for state banks will be approximately 39% of the OCC's annual charges
for national bank supervision.
California law permits a state chartered bank to invest in the stock and
securities of other corporations, subject to a state chartered bank receiving
either general authorization or, depending on the amount of the proposed
investment, specific authorization from the Superintendent. FDICIA, however,
imposes limitations on the activities and equity investments of state chartered,
federally insured banks. The limitations on equity investments were effective
December 19, 1991, and the limitations on activities became effective December
19, 1992. The FDIC rules on investments prohibit a state bank from acquiring an
equity investment of a type, or in an amount, not permissible for a national
bank. Non-permissible investments must be divested by state banks no later than
December 19, 1996. FDICIA prohibits a state bank from engaging as a principal in
any activity that is not permissible for a national bank, unless the bank is
adequately capitalized and the FDIC approves the activity after determining that
such activity does not pose a significant risk to the deposit insurance fund.
The FDIC rules on activities generally permit subsidiaries of banks, without
prior specific FDIC authorization, to engage in those that have been approved by
the FRB for bank holding companies because such activities are so closely
related to banking to be a proper incident thereto. Other activities generally
require specific FDIC prior approval, and the FDIC may impose additional
restrictions on such activities on a case-by-case basis in approving
applications to engage in otherwise impermissible activities.
During 1996, the OCC adopted a regulation to revise and streamline its
procedures with respect to corporate activities of national banks, to be
effective December 31, 1996. These revised standards allow the OCC to approve,
on a case-by-case basis, the entry of bank operating subsidiaries into a
business incidental to banking, including activities in which the parent bank is
not permitted to engage. Such a standard allows a national bank to conduct an
activity approved for a bank holding company through a bank operating subsidiary
such as acting as an investment or financial advisor, leasing personal property
and providing financial advice to customers. In general, these new standards
will be available to well-capitalized or adequately capitalized national banks.
Capital Standards
The FDIC and other federal banking agencies have risk-based capital
adequacy guidelines intended to provide a measure of capital adequacy that
reflects the degree of risk associated with a banking organization's operations
for both transactions reported on the balance sheet as assets and transactions,
such as letters of credit and recourse arrangements, which are recorded as off
balance sheet items. Under these guidelines, nominal dollar amounts of assets
and credit equivalent amounts of off balance sheet items are multiplied by one
of several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. government securities, to 100% for assets with
relatively higher credit risk, such as business loans.
In determining the capital level the Bank is required to maintain, the
FDIC does not, in all respects, follow generally accepted accounting principles
("GAAP") and has special rules which have the effect of reducing the amount of
capital it will recognize for purposes of determining the capital adequacy of
the Bank. These rules are called Regulatory Accounting Principles ("RAP"). In
December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses which, among other things,
establishes certain benchmark ratios of loan loss reserves to classified assets.
18
<PAGE>
Future changes in FDIC regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of the Company to grow and could restrict the amount of
profits, if any, available for the payment of dividends.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk-adjusted assets and off
balance sheet items. The regulators measure risk-adjusted assets and off balance
sheet items against both total qualifying capital (the sum of Tier 1 capital and
limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists
of common stock, retained earnings, noncumulative perpetual preferred stock,
other types of qualifying preferred stock and minority interests in certain
subsidiaries, less most other intangible assets and other adjustments. Net
unrealized losses on available-for-sale equity securities with readily
determinable fair value must be deducted in determining Tier 1 capital.
Additionally as of April 1, 1995, for Tier 1 capital purposes, deferred tax
assets that can only be realized if an institution earns sufficient taxable
income in the future will be limited to the amount that the institution is
expected to realize within one year, or ten percent of Tier 1 capital, whichever
is less. Tier 2 capital may consist of a limited amount of the allowance for
possible loan and lease losses, term preferred stock and other types of
preferred stock not qualifying as Tier 1 capital, term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital are subject to certain other requirements and
limitations of the federal banking agencies. Since December 31, 1992, the
federal banking agencies have required a minimum ratio of qualifying total
capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum
ratio of Tier 1 capital to risk-adjusted assets and off balance sheet items of
4%.
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
adjusted average total assets, referred to as the leverage capital ratio. For a
banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. It is improbable, however, that an
institution with a 3% leverage ratio would receive the highest rating by the
regulators since a strong capital position is a significant part of the
regulators' rating. For all banking organizations not rated in the highest
category, the minimum leverage ratio must be at least 100 to 200 basis points
above the 3% minimum. Thus, the effective minimum leverage ratio, for all
practical purposes, must be at least 4% or 5%. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
The following tables present the capital ratios for the Company and the
Bank, compared to the standards for well-capitalized depository institutions, as
of December 31, 1996 (amounts in thousands except percentage amounts).
Company: For Capital
Actual Adequacy Purposes
------------------ -----------------
Minimum Minimum
Amount Ratio Amount Ratio
Total capital
(to risk weighted assets) $ 24,438 13.29% $14,707 8.0%
Tier I capital
(to risk weighted assets) $ 23,184 12.58% $ 7,353 4.0%
Tier I capital
(to average assets) $ 23,184 8.98% $10,275 4.0%
19
<PAGE>
<TABLE>
<CAPTION>
Bank: To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------------- -----------------------
Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk weighted assets) $ 23,234 12.72% $ 14,610 8.0% $ 18,263 10.0%
Tier I capital
(to risk weighted assets) $ 21,980 12.04% $ 7,305 4.0% $ 10,958 6.0%
Tier I capital
(to average assets) $ 21,980 8.56% $ 9,847 4.0% $ 12,309 5.0%
</TABLE>
Banking agencies have recently adopted final regulations which mandate
that regulators take into consideration concentrations of credit risk and risks
from non-traditional activities, as well as an institution's ability to manage
those risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in evaluation
of a bank's capital adequacy. This final rule does not codify a measurement
framework for assessing the level of a bank's interest rate risk exposure. The
information and exposure estimates collected through a new proposed supervisory
measurement process, described in the banking agencies' joint policy statement
on interest rate risk, would be one quantitative factor used to determine the
adequacy of an individual bank's capital for interest rate risk. The focus of
that proposed process is on a bank's economic value exposure. Other quantitative
factors include the bank's historical financial performance and its earnings
exposure to interest rate movements. Examiners also will consider qualitative
factors, including the adequacy of the bank's internal interest rate risk
management. The banking agencies intend for this case-by-case approach for
assessing a bank's capital adequacy for interest rate risk to be a transitional
arrangement.
The second step will consist of a proposed rule that would establish an
explicit minimum capital charge for interest rate risk, based on the level of a
bank's measured interest rate risk exposure. The banking agencies intend to
implement this second step at some future date, after the banking agencies and
the banking industry have gained more experience with the proposed supervisory
measurement and assessment process.
Prompt Corrective Action and Other Enforcement Mechanisms
FDICIA requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of FDICIA. An
insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
20
<PAGE>
"Well capitalized"
------------------
Total risk-based capital of 10%;
Tier 1 risk-based capital of 6%; and
Leverage ratio of 5%.
"Adequately capitalized"
------------------------
Total risk-based capital of 8%;
Tier 1 risk-based capital of 4%; and
Leverage ratio of 4%.
"Undercapitalized"
------------------
Total risk-based capital less than 8%; Tier 1 risk-based capital less than
4%; or
Leverage ratio less than 4%.
"Significantly undercapitalized"
---------------------------------
Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 3%;
or
Leverage ratio less than 3%.
"Critically undercapitalized"
-----------------------------
Tangible equity to total assets less
than 2%.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and sanctions
are required to be imposed on insured depository institutions that are
critically undercapitalized. The most important additional measure is that the
appropriate federal banking agency is required to either appoint a receiver for
the institution within 90 days, or obtain the concurrence of the FDIC in another
form of action.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted. Additionally, a holding company's
inability to serve as a source of strength to its subsidiary banking
organizations could serve as an additional basis for a regulatory action against
the holding company.
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Safety and Soundness Standards
FDICIA also implemented certain specific restrictions on transactions and
required federal banking regulators to adopt overall safety and soundness
standards for depository institutions related to internal control, loan
underwriting and documentation and asset growth. Among other things, FDICIA
limits the interest rates paid on deposits by undercapitalized institutions,
restricts the use of brokered deposits, limits the aggregate extensions of
credit by a depository institution to an executive officer, director, principal
shareholder or related interest, and reduces deposit insurance coverage for
deposits offered by undercapitalized institutions for deposits by certain
employee benefits accounts.
In addition to the statutory limitations, FDICIA originally required the
federal banking agencies to prescribe, by regulation, standards for all insured
depository institutions for such things as classified loans and asset growth. In
1994 FDICIA was amended to (a) authorize the agencies to establish safety and
soundness standards by regulation or by guideline for all insured depository
institutions; (b) give the agencies greater flexibility in prescribing asset
quality and earnings standards and (c) eliminate the requirement that such
standards apply to depository institution holding companies.
In December 1992, the Federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations.
On July 10, 1995 the federal banking agencies published Interagency
Guidelines Establishing Standards for Safety and Soundness. By adopting the
standards as guidelines, the agencies retained the authority to require an
institution to submit to an acceptable compliance plan as well as the
flexibility to pursue other more appropriate or effective courses of action
given the specific circumstances and severity of an institution's noncompliance
with one or more standards.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution
to declare a cash dividend or other distribution with respect to capital is
subject to statutory and regulatory restrictions which limit the amount
available for such distribution depending upon the earnings, financial condition
and cash needs of the institution, as well as general business conditions.
FDICIA prohibits insured depository institutions from paying management fees to
any controlling persons or, with certain limited exceptions, making capital
distributions, including dividends, if, after such transaction, the institution
would be undercapitalized.
Regulators also have authority to prohibit a depository institution from
engaging in business practices which are considered to be unsafe or unsound,
possibly including payment of dividends or other payments under certain
circumstances even if such payments are not expressly prohibited by statute.
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In addition to the restrictions imposed under federal law, banks chartered
under California law generally may only pay cash dividends to the extent such
payments do not exceed the lesser of retained earnings of the bank or the bank's
net income for its last three fiscal years (less any distributions to
shareholders during such period). In the event a bank desires to pay cash
dividends in excess of such amount, the bank may pay a cash dividend with the
prior approval of the Superintendent in an amount not exceeding the greatest of
the bank's retained earnings, the bank's net income for its last fiscal year, or
the bank's net income for its current fiscal year.
Premiums for Deposit Insurance and Assessments for Examinations
FDICIA established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC also administers the Savings Association Insurance Fund ("SAIF"), which
insures deposits in thrift institutions. The FDIC is authorized to borrow up to
$30 billion from the United States Treasury; up to 90% of the fair market value
of assets of institutions acquired by the FDIC as receiver from the Federal
Financing Bank; and from depository institutions that are members of the BIF.
Any borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient to
repay any borrowed funds within 15 years and provide insurance fund reserves of
$1.25 for each $100 of insured deposits. FDICIA also provides authority for
special assessments against insured deposits. No assurance can be given at this
time as to what the future level of premiums will be.
As required by FDICIA, the FDIC adopted a transitional risk-based
assessment system for deposit insurance premiums which became effective January
1, 1993. On November 14, 1995 the Board of Directors of the FDIC adopted a
resolution to reduce to a range of 0 to 27 basis points the assessment rates
applicable to deposits assessable by the BIF for the semiannual assessment
period beginning January 1, 1996. The new assessment schedule would retain the
risk based characteristics of the current system. On November 26, 1996 the FDIC
decided to continue in effect the current BIF assessment rate schedule.
The FDIC may make limited adjustments to the above rate schedule not to
exceed an increase or decrease of 5 basis points without public notice and
comment rulemaking. The amount of an adjustment adopted by the Board is to be
determined by the following considerations: (a) the amount of assessment revenue
necessary to maintain the reserve ratio at the designated reserve ratio and (b)
the assessment schedule that would generate such amount of assessment revenue
considering the risk profile of BIF members. In determining the relevant amount
of assessment revenue, the Board is to consider BIF's expected operating
expenses, case resolution expenditures and income, the effect of assessments on
BIF members' earnings and capital, and any other factors the Board may deem
appropriate.
In 1996 Congress enacted the Deposit Insurance Funds Act ("Funds Act") in
order to raise the level of SAIF reserves, and to reduce the possibility that
bonds issued by the Financing Corporation ("FICO") would go into default. The
FICO was a special purpose government corporation that issued $8.2 billion in
bonds to recapitalize the Federal Savings and Loan Insurance Corporation.
Interest on the FICO bonds was paid from the proceeds of assessment made on the
deposits of SAIF members. Because of the almost $800 million needed to pay for
the annual interest on the FICO bonds, the payments of SAIF members were not
increasing the SAIF reserve
23
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to a sufficient level to allow the FDIC to reduce assessment rates (as had been
done for BIF deposits), and SAIF members were employing certain strategies to
either exit the system or transfer deposits to BIF coverage.
Pursuant to the Funds Act, the FDIC imposed a special one-time assessment
on all institutions that held SAIF assessable deposits as of March 31, 1995 of
an estimated 65.7 cents per $100 of SAIF assessable deposits. Certain discounts
and exemptions from the assessment were available. For example, BIF-member banks
that had acquired SAIF-insured deposits from thrifts were generally entitled to
a 20% discount on the special assessment if the bank satisfied certain statutory
thresholds (the bank's acquired SAIF deposits, as adjusted, must be less than
half of its total domestic deposits). Furthermore, beginning January 1, 1997,
all FDIC-insured institutions will be assessed to cover the interest payments
due on FICO bonds. For calendar years 1997 through 1999, BIF members will pay
one-fifth the rate SAIF members will pay, and beginning in 2000 both types of
institutions will pay the same rate. BIF members will be required to pay a FICO
assessment of approximately 1.3 basis points for the first semiannual FICO
assessment in 1997.
The Funds Act also authorized the FDIC to rebate assessments paid by BIF
members if the BIF has reserves exceeding its designated reserve ratio of 1.25
percent of total estimated insured deposits. The adjusted BIF balance was
$25.888 billion on June 30, 1996, a reserve ratio of 1.30 percent. The FDIC has
expressed its view that the long-term needs of the BIF are a factor in setting
the effective average BIF assessment rate, and that the FDIC is uncertain
whether the current favorable conditions represent a long-term trend.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantive penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
On March 8, 1994, the federal Interagency Task Force on Fair Lending
issued a policy statement on discrimination in lending. The policy statement
describes the three methods that federal agencies will use to prove
discrimination: overt evidence of discrimination, evidence of disparate
treatment, and evidence of disparate impact.
In 1996, new compliance and examination guidelines for the CRA were
promulgated by each of the federal banking regulatory agencies, fully replacing
the prior rules and regulatory expectations with new ones ostensibly more
performance based than before to be fully phased in as of July 1, 1997. The
guidelines provide for streamlined examinations of smaller institutions.
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Recently Enacted Legislation
On September 29, 1995 the IBBA became effective. The IBBA implemented the
federal Interstate Banking and Branching Act. The main features of this
legislation are (a) out-of-state banks that wish to establish a California
branch office to conduct core banking business must first acquire an existing 5
year old California bank or industrial loan company by merger or purchase; (b)
California state-chartered banks will be empowered to conduct various authorized
branch-like activities on an agency basis through affiliated and unaffiliated
insured depository institutions in California and other states and (c) the
Superintendent will be authorized to approve an interstate acquisition or merger
which would result in a deposit concentration exceeding 30% if the
Superintendent finds that the transaction is consistent with public convenience
and advantage. The legislation also contains extensive provisions governing
intrastate and interstate (a) intra-industry sales, mergers and conversions
between banks and between industrial loan companies and (b) inter-industry
transactions involving banks, savings associations and industrial loan
companies.
During 1996, new federal legislation amended the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") and the
underground storage tank provisions of the Resource Conversation and Recovery
Act ("RCRA") to provide lenders and fiduciaries with greater protections from
environmental liability. The definition of "owner or operator" under CERCLA has
been amended to exclude a lender who : (i) holds indicia of ownership in a
property primarily to protect its security interest, but does not participate in
the property's management or (i) forecloses on a property, or, after
foreclosure, sells, re-leases (in the case of a lease finance transaction), or
liquidates the property, maintains business activities, winds up operations,
undertakes a response under CERCLA, or takes measures to preserve, protect or
prepare property prior to sale or disposition, so long as the lender did not
participate in the property's management prior to sale. In order to preserve
these protections, a lender who forecloses on property must seek to sell,
re-lease, or otherwise divest itself of the property at the earliest
practicable, commercially reasonable time, and on reasonable terms.
"Participation in management" is defined as actual participation in the
management or operational affairs of the facility, not merely having the
capacity to influence or the unexercised right to control operations. Similar
changes have been made in RCRA.
The California legislature adopted a similar bill to provide that, subject
to numerous exceptions, a lender acting in the capacity of a lender shall not be
liable under any state or local statute, regulation or ordinance, other than the
California Hazardous Waste Control Law, to undertake a cleanup, pay damages,
penalties or fines, or forfeit property as a result of the release of hazardous
materials at or from the property. Under this bill a lender which had not
participated in the management of the property prior to foreclosure may take
actions similar to those set forth in the CERCLA and RCRA amendments without
losing its immunity from liability. To preserve that immunity, after
foreclosure, the lender must take commercially reasonable steps to divest itself
of the property in a reasonably expeditious manner.
The Economic Growth and Regulatory Paperwork Reduction Act (the "1996
Act") as part of the Omnibus Appropriations Bill was enacted on September 30,
1996 and includes many banking related provisions. The most important banking
provision is the recapitalization of the Savings Association Insurance Fund
("SAIF"). The 1996 Act provides for a one time assessment of approximately 65
basis points per $100 of deposits of SAIF insured deposits including Oakar
deposits payable on November 30, 1996. For the years 1997 through 1999 the
banking industry will assist in the payment of interest on FICO bonds that were
issued to help pay for the clean up of the
25
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savings and loan industry. Banks will pay approximately 1.3 cents per $100 of
deposits for this special assessment, and afer the year 2000, banks will pay
approximately 2.4 cents per $100 of deposits until the FICO bonds mature in
2017. There is a three year moratorium on conversions of SAIF deposits to BIF
deposits. The 1996 Act also has certain regulatory relief provisions for the
banking industry. Lender liability under the Superfund is eliminated for lenders
who foreclose on property that is contaminated provided that the lenders were
not involved with the management of the entity that contributed to the
contamination. There is a five year sunset provision for the elimination of
civil liability under the Trust in Savings Act. The FRB and Department of
Housing and Urban Development are to develop a single format for Real Estate
Settlement Procedures Act and Trust in Lending Act ("TILA") disclosures. TILA
disclosures for adjustable mortgage loans are to be simplified. Significant
revisions are made to the Fair Credit Reporting Act ("FCRA") including requiring
that entities which provide information to credit bureaus conduct an
investigation if a consumer claims the information to be in error. Regulatory
agencies may not examine for FCRA compliance unless there is a consumer
complaint investigation that reveals a violation or where the agency otherwise
finds a violation. In the area of the Equal Credit Opportunity Act, banks that
self-test for compliance with fair lending laws will be protected from the
results of the test provided that appropriate corrective action is taken when
violations are found.
Pending Legislation
There are a number of pending legislative proposals to reform the
Glass-Steagall Act to allow affiliations between banks and other firms engaged
in "financial activities," including insurance companies and securities firms.
Glass-Steagall reform will likely be affected by a bank insurance powers case
decided during 1996 by the U.S. Supreme Court, which gives national banks
greater opportunities to sell traditional insurance products, such as life,
automobile, and property and casualty policies. In a similar recent case, the
Court upheld an OCC determination that national banks may sell annuities.
Certain other pending legislative proposals include bills to free
withdrawals from individual retirement accounts from penalties for first-time
home purchases and other purposes and eliminate most Community Reinvestment Act
reporting requirements.
While the effect of such proposed legislation and regulatory reform on the
business of financial institutions cannot be accurately predicted at this time,
it seems likely that a significant amount of consolidating in the banking
industry will continue to occur throughout the remainder of the decade.
Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, which must be adopted by
the Company for transactions occurring after December 31, 1996. This Statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. This standard is based on
consistent application of a financial-components approach that focuses on
control. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The Company has determined that
the
26
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adoption of this standard will not have a material effect on the Company's
financial position or results of operations.
Competition
The Bank's primary market area consists of Shasta and Trinity Counties.
The banking business in California generally, and specifically in the Bank's
primary market area, is highly competitive with respect to both loans and
deposits. The business is dominated by a relatively small number of major banks
which have many offices operating over wide geographic areas. Many of the major
commercial banks offer certain services (such as international, trust and
securities brokerage services) which are not offered directly by the Bank. By
virtue of their greater total capitalization, such banks have substantially
higher lending limits than the Bank and substantial advertising and promotional
budgets.
However, smaller independent financial institutions also represent a
competitive force. To illustrate the Bank's relative market share, total
deposits in banks in Shasta County, California, at June 30, 1996 (more recent
data is not yet available) approximated $1,340,638,000. The Bank's deposits at
June 30, 1996 represented approximately 13.80% of such figure.
To compete with major financial institutions in its service area, the Bank
relies upon specialized services, responsive handling of customer needs, local
promotional activity, and personal contacts by its officers, directors and
staff, as opposed to large multi-branch banks, most of which compete primarily
by rate and location of branches. For customers whose loan demands exceed the
Bank's lending limits, the Bank seeks to arrange for such loans on a
participation basis with its correspondent banks or other independent commercial
banks.
In the past, an independent bank's principal competitors for deposits and
loans have been other banks (particularly major banks), savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies. Other institutions, such as brokerage houses, mutual fund companies,
credit card companies, and even retail establishments have offered new
investment vehicles which also compete with banks for deposit business. The
direction of federal legislation in recent years seems to favor competition
between different types of financial institutions and to foster new entrants
into the financial services market, and it is anticipated that this trend will
continue.
The enactment of the Interstate Banking and Branching Act in 1994 as well
as the California Interstate Banking and Branching Act of 1995 will likely
increase competition within California. Regulatory reform, as well as other
changes in federal and California law will also affect competition. While the
impact of these changes, and of other proposed changes, cannot be predicted with
certainty, it is clear that the business of banking in California will remain
highly competitive.
Discharge of Materials Into the Environment
Compliance with federal, state and local regulations regarding the
discharge of materials into the environment may have a substantial effect on the
capital expenditure, earnings and competitive position of the Company and the
Bank in the event of lender liability or environmental lawsuits.
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Under federal law, liability for environmental damage and the cost of cleanup
may be imposed upon any person or entity who is an "owner" or "operator" of
contaminated property. State law provisions, which were modeled after federal
law, are substantially similar. Congress established an exemption under Federal
law for lenders from "owner" and/or "operator" liability, which provides that
"owner" and/or "operator" do not include "a person, who, without participating
in the management of a vessel or facility, holds indicia of ownership primarily
to protect his security interests in the vessel or facility."
In the event that the Bank were held liable as an owner or operator of a
toxic property, it could be responsible for the entire cost of environmental
damage and cleanup. Such an outcome could have a serious effect on the Company's
consolidated financial condition depending upon the amount of liability assessed
and the amount of cleanup required.
The Bank takes reasonable steps to avoid loaning against property that may
be contaminated. In order to identify possible hazards, the Bank requires that
all fee appraisals contain a reference to a visual assessment of hazardous waste
by the appraiser.
On loans proposed to be secured by industrial, commercial or agricultural
real estate, an Environmental Questionnaire must be completed by the borrower
and any areas of concern addressed. Additionally, the borrower is required to
review and sign a Hazardous Substance Certificate and Indemnity at the time the
note is signed.
If the investigation reveals and if certain warning signs are discovered,
but it cannot be easily ascertained, that an actual environmental hazard exists,
the Bank may require that the owner/buyer of the property, at his/her expense,
have an Environmental Inspection performed by an insured, bonded environmental
engineering firm acceptable to the Bank.
Certain Additional Business Risks
The Company's business, financial condition and operating results can be
impacted by a number of factors, including but not limited to those set forth
below, any one of which could cause the Company's actual results to vary
materially from recent results or from the Company's anticipated future results.
Shares of Company Common Stock eligible for future sale could have a
dilutive effect on the market for Company Common Stock and could adversely
affect the market price. The Articles of Incorporation of the Company authorize
the issuance of 20,000,000 shares of common stock, of which approximately
1,823,688 were outstanding December 31, 1996. Pursuant to its stock option
plans, at December 31, 1996, the Company had outstanding options to purchase
37,888 shares of Company Common Stock. As of December 31, 1996, 115,000 shares
of Company Common Stock remained available for grants under the Company's stock
option plans. Sales of substantial amounts of Company Common Stock in the public
market could adversely affect the market price of Common Stock.
A large portion of the loan portfolio of the Company is dependent on real
estate. At December 31, 1996, real estate served as the principal source of
collateral with respect to approximately 55.2% of the Company's loan portfolio.
A worsening of current economic conditions
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or rising interest rates could have an adverse effect on the demand for new
loans, the ability of borrowers to repay outstanding loans, the value of real
estate and other collateral securing loans and the value of the
available-for-sale investment portfolio, as well as the Company's financial
condition and results of operations in general and the market value for Company
Common Stock. Acts of nature, including earthquakes and floods, which may cause
uninsured damage and other loss of value to real estate that secures these
loans, may also negatively impact the Company's financial condition.
The Company is subject to certain operations risks, including, but not
limited to, data processing system failures and errors and customer or employee
fraud. The Company maintains a system of internal controls to mitigate against
such occurrences and maintains insurance coverage for such risks, but should
such an event occur that is not prevented or detected by the Company's internal
controls, uninsured or in excess of applicable insurance limits, it could have a
significant adverse impact on the Company's business, financial condition or
results of operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive office is located at 880 E. Cypress
Avenue, Redding, Shasta County, California. The office, which occupies
approximately 2,100 square feet of space, is located within the Enterprise
Office of its subsidiary, North Valley Bank.
The Bank owns the land and building on which its headquarters office is
located at 880 E. Cypress Avenue, Redding, California, as well as the land and
buildings on which the Hayfork, Anderson, Weaverville, Redding and Country Club
(Bechelli Lane) branches are located. On February 2, 1990, the Bank completed
construction on a 6,000 square foot building adjacent to the 880 E. Cypress
location. Such building and land, owned by the Bank and located at 836 E.
Cypress Avenue, currently houses Bank Processing, Inc., and the Bank's Customer
Service centers. Construction costs were approximately $376,000. During the year
ended December 31, 1995, the Bank purchased, in the ordinary course of business,
the Hayfork facility for $134,000 which the Bank previously leased from a former
board member. The Shasta Dam (Central Valley), Palo Cedro and Westwood Village
branches as well as the warehouse facilities for the Bank located at 1401 Gold
Street, Redding, California, are located in leased facilities or on leased land
with various lease expiration dates through August 14, 2005.
During the year ended December 31, 1996, the Company spent $75,400 for
rental of the Shasta Dam, Westwood Village, Palo Cedro offices, and the
warehouse of the Bank. Net occupancy expenses for all facilities for the year
ended December 31, 1996, were $456,000. In the opinion of management, the
properties are adequately covered by insurance.
From time to time, the Bank acquires real property through foreclosure of
defaulted loans. The Bank's policy is not to use or permanently retain any such
properties but to resell them when practicable.
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Permissible investments of banks and bank holding companies are subject to
regulation and limitation by Federal and State agencies. For example, federal
law prohibits the Bank from making any investment which is prohibited for
national banks. See Financial Condition in Item 6, Management's Discussion and
Analysis or Plan of Operation for more information on investments in loans and
securities. See "Supervision and Regulation" in Item 1, Description of Business,
for additional information related to investment policies.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company or
against any of its property. The Bank, because of the nature of its business, is
generally subject to various legal actions, threatened or filed, which involve
ordinary, routine litigation incidental to its business. Some of the pending
cases seek punitive damages in addition to other relief. Although the amount of
the ultimate exposure, if any, cannot be determined at this time, the Company,
based on the advise of counsel, does not expect that the final outcome of
threatened or filed suits will have a materially adverse effect on its
consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this Form 10-KSB.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
North Valley Bancorp's common stock is listed on the Electronic Bulletin
Board under the symbol (NOVB) and is not listed on the NASDAQ national market.
The following table summarizes trades of which the Company had knowledge,
setting forth the high and low bid prices, reflects inter-dealer prices, without
retail mark-up, mark down or commission and may not represent actual
transactions for the periods indicated. The prices and volumes indicated below
have been restated to reflect the three-for-two stock split effected in the form
of a 50% stock dividend on November 1, 1995.
Bid Price of
Common Stock Approximate Cash
------------ Trading Dividends
Quarter Ended: Low High Volume Declared
- -------------- --- ---- ------ --------
March 31, 1995 14.25 15.75 77,895 ---
June 30, 1995 15.00 16.50 12,906 .25
September 30, 1995 16.00 17.25 5,122 ---
December 31, 1995 19.00 19.50 44,051 .27
March 31, 1996 19.25 24.00 51,966 ---
June 30, 1996 22.25 25.00 65,173 .35
September 30, 1996 20.75 22.75 66,518 ---
December 31, 1996 21.00 23.00 66,407 .35
- -----------------------------------
The above information was provided by Hoefer & Arnett, Inc., Sutro & Co.
and the Company, based upon trades of which management was aware, and does not
include purchases of stock pursuant to the exercise of employee stock options or
other private transactions.
The Company had approximately 917 shareholders of record as of February 28,
1997.
See "Supervision and Regulation - - Restrictions on Dividends and Other
Distributions" and "Bank Regulation and Supervision" in Item 1, Description of
Business, for information related to shareholder and dividend matters including
information on limitations on dividends.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
North Valley Bancorp (the "Company") is a bank holding company for North
Valley Bank (the "Bank"), a state-nonmember bank. The Company's consolidated net
income, assets, and equity are derived primarily from its investment in the
Bank. The Bank operates out of its main office located at 880 E. Cypress Avenue,
Redding, California 96002 with six additional branches located in Shasta County
and two branches in Trinity County. The Bank's consumer financial services
include residential real estate loans, retail deposit services, mutual fund
products and consumer finance. Financial services for businesses include
commercial loans, Small Business Administration (SBA) loans, and deposit
services.
The following discussion should be read in connection with the
consolidated Financial Statements and notes there to included elsewhere herein
which are incorporated by reference herein and the statistical information
contained in Item 1 herein.
Certain statements in this Annual Report on Form 10-KSB include
forward-looking information within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the "safe harbor" created by those sections.
These forward-looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements. Such risks and uncertainties include, but are not
limited to, the following factors: competitive pressure in the banking industry
increases significantly; changes in the interest rate environment reduce
margins; general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a deterioration in
credit quality and an increase in the provision for possible loan losses;
changes in the regulatory environment; changes in business conditions,
particularly in Shasta County; volatility of rate sensitive deposits;
operational risks including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets. See also "Certain Additional Business Risks" on pages 28
through 29 herein and other risk factors discussed elsewhere in this Report.
Earnings Summary
For the year ended December 31, 1996, the Company reported net income of
$4,107,000 as compared to $4,083,000 in 1995. Net income per share was $2.20 for
1996 and 1995 (adjusted in 1995 to give effect to the three-for-two stock split
effected in the form of a 50% stock dividend). Net income increased slightly
primarily due to the increase in net interest income and a lower effective tax
rate. The increase in net interest income was offset by an increase in the
provision for loan loss and an increase in expenses. The return on average
assets and average shareholders' equity were 1.66% and 18.09% in 1996, compared
with 1.79% and 20.44% in 1995.
Net Interest Income
Net interest income is the principal source of the Company's operating
earnings. It represents the difference between interest earned on loans and
other investments and interest paid on deposits. The amount of interest income
and expense is affected by changes in volume and mix of earning assets and
interest-bearing deposits, along with changes in interest rates.
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Net interest income has been adjusted to a fully taxable equivalent (FTE)
basis for tax-exempt investments included in earning assets. Net interest income
(FTE) was $11,655,000 in 1996, as compared to $11,033,000 in 1995. The increase
in net interest income for 1996 resulted primarily from the increase in loans.
Average loans increased to $157,644,000 in 1996, or 14.56% over 1995,
offset by a 3.98% decrease in average investments which served as an additional
source to fund loan growth. Total interest income (FTE) increased to $19,732,000
in 1996 compared to $18,592,000 in 1995, or a 6.13% increase.
Average interest-bearing deposits in 1996 totaled $194,360,000, as
compared to $180,988,000 in 1995, or a 7.39% increase. Total interest expense
increased to $8,077,000 as compared to $7,559,000 in 1995.
Net interest margin (determined by dividing net interest income by total
average interest-earning assets) was 5.11% for 1996, as compared to 5.23% at
year end 1995. The slight decrease in 1996 in the net interest margin was
attributed to the increases in loans and deposits, offset by a decrease in the
net spread (the difference between rates earned on interest earning assets and
rates paid on deposits), affected primarily by a stable to declining interest
rate environment in 1996. Average earning assets yielded 8.65% in 1996 compared
to 8.81% in 1995. The cost of funding these earning assets did not decline to
the same extent during 1996 as the yield on earning assets. Rates paid declined
to 4.16% as compared to 4.18% in 1995. The interest spread was 4.49% in 1996
compared to 4.63% in 1995.
Non-Interest Income
Other non-interest income, which includes income derived from service
charges on deposit accounts, loan servicing fees, other fees and charges, and
gain (loss) on sale of securities, declined slightly to $2,581,000 in 1996 as
compared to $2,630,000 in 1995, a $49,000 (1.86%) decrease.
A summary of non-interest income for the past three years is presented
below:
Non-Interest Income
(in thousands) 1996 1995 1994
---- ---- ----
Service charges on deposit accounts $1,342 $1,342 $1,245
Other fees and charges 520 546 523
Gain on sale of loans 160 160 164
Gain on sale of available for sale securitie s 31 31 11
Gain (loss) on sale of trading securities (7) 11
Other 535 540 534
------ ------ ------
Total Non-interest income $2,581 $2,630 $2,477
====== ====== ======
33
<PAGE>
Non-Interest Expense
Non-interest expense totaled $6,786,000 for 1996 compared to $6,412,000 in
1995. Salaries and employee benefits increased in 1996 to $3,934,000 compared to
$3,679,000 in 1995, primarily due to normal salary increases, employer taxes,
net pension cost for the supplemental retirement plans for directors and key
executives, and the opening of a new branch in Palo Cedro in late 1995.
Occupancy and equipment expenses increased as a result of the opening of
the Palo Cedro branch.
FDIC and California State Banking assessments decreased to $23,000 in 1996
compared to $249,000 in 1995. The FDIC determined that the Bank Insurance Fund
(BIF) was fully recapitalized at the end of May 1995. As a result, on August 8,
1995 the FDIC reduced the assessment rates for well capitalized institutions to
$.04 per $100 in domestic deposits from $.23, effective June 1, 1995. The
Company paid $.23 per $100 in deposits for the first five months of 1995 and
$.04 per $100 for the remaining seven months as compared to paying $.23 per $100
in deposits for the full year in 1994, resulting in a $181,000 decrease in FDIC
premiums for 1995. For the twelve month assessment period beginning January 1,
1996, the FDIC reduced the assessment rate to $.00 per $100 in domestic
deposits.
The Company's efficiency ratio (derived by dividing total non-interest
expenses by net interest income exclusive of provision for loan losses and
non-interest income) was 51.6% in 1996 compared to 51.1% in 1995. The efficiency
ratio is a measurement as to how efficiently the Company allocates its
resources.
A summary of non-interest expense for the past three years is presented
below:
Non-Interest Expense
(in thousands) 1996 1995 1994
---- ---- ----
Salaries & employee benefits $3,934 $3,679 $3,523
Occupancy expense 456 422 406
Furniture & equipment expense 497 451 424
Professional services 136 151 142
Data processing expenses 260 249 229
Printing & supplies 222 216 195
Postage 175 160 144
FDIC & State banking assessments 23 249 430
Messenger 136 128 124
ATM expense 134 134 128
Other 813 573 659
------ ------ ------
Total Non-interest expense $6,786 $6,412 $6,404
====== ====== ======
Income Taxes
In 1996 and 1995, the Company recorded a tax provision of $1,532,000 and
$1,670,000, respectively. The effective income tax rate for state and federal
income tax decreased to 27.2% in 1996, compared to 29% in 1995. The decrease in
the effective income tax rate in 1996 from 1995 is mainly due
34
<PAGE>
to the impact of an increase in tax-exempt interest income. Income taxes are
based on income reported in the consolidated financial statements using the
effective tax rate.
Impaired, Nonaccrual, Past Due, Restructured Loans and Other Real Estate Owned
The Company accounts for impaired loans in accordance with SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS 118. Under
SFAS 114 loans are considered impaired when it is probable that the Company will
be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. For further discussion
of SFAS 114, refer to Note 5 of the Financial Statements.
Nonaccrual loans consist of loans on which the accrual of interest has
been discontinued and other loans where management believes that borrowers'
financial condition is such that the collection of principal or interest is
doubtful, or when a loan becomes contractually past due by 90 days or more with
respect to interest or principal (except that when management believes a loan is
well secured and in the process of collection, interest accruals are continued
on loans deemed by management to be fully collectible). Loans are charged off
when management determines that collection has become unlikely. Other real
estate owned consists of real property acquired through foreclosure on the
related collateral underlying defaulted loans.
The amount of non accrual loans increased during 1996 to $1,190,000 as
compared to $282,000 in 1995.
A summary of non-performing assets for the past three years is presented
below:
Non-Performing Assets (in thousands) 1996 1995 1994
---- ---- ----
Nonaccrual loans $1,190 $282 $421
Accruing loans past due 90 days
or more 14 15 22
Restructured loans -- -- --
Other real estate owned 69 87 --
------ ---- ----
Total $1,273 $384 $443
====== ==== ====
Allowance for Loan Losses
Management's assessment of the adequacy of the allowance for loan loss and
the level of the related provision for possible loan losses is based on its
evaluation of current economic conditions, borrower's financial condition, loan
impairment, continuing evaluation of the performing loan portfolio, continual
evaluation of problem loans identified as having a higher degree of risk, off
balance sheet risks, assessments by regulators and other third parties, and any
other factors identified by management which may have an effect on the quality
of the portfolio. At December 31, 1996, based on known information, management
believed that the allowance for loan losses was adequate to absorb losses
inherent in existing loans and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans and
commitments to extend credit as of such date.
35
<PAGE>
As of December 31, 1996, the allowance for possible loan losses was
$1,254,000 as compared to the December 31, 1995 amount of $1,325,000. When a
loan is deemed uncollectible by management it is charged against the allowance
for loan losses. Any recoveries on previously charged off loans are credited
back to the allowance. Net charge-offs were $791,000, $194,000, and $162,000 in
1996, 1995, and 1994, respectively. Additions to the allowance for loan losses
are charged against income. A provision for loan losses of $720,000, $375,000
and $240,000 was charged to income in 1996, 1995, and 1994, respectively.
The allowance for possible loan losses is a general reserve available
against the total loan portfolio and off balance sheet credit exposure. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for
possible loan losses. Such agencies may require the company to provide additions
to the allowance based on their judgment of information available to them at the
time of their examination.
There is uncertainty concerning future economic trends. Accordingly, it is
not possible to predict the effect future economic trends may have on the level
of the provision for possible loan losses in future periods.
Liquidity and Interest Rate Sensitivity
Management's primary objective is to maximize shareholders' value while
maintaining adequate liquidity and managing interest rate risk. Liquidity is the
ability to provide funds to support asset growth and satisfy cash flow
requirements created by fluctuations in deposits and to meet borrowers' credit
needs. Effective liquidity management insures that sufficient funds are
available to satisfy demands from depositors, borrowers and other commitments on
a timely basis. Collection of principal and interest on loans, the liquidations
and maturities of investment securities, deposits with other banks, deposit
inflow and short term borrowing, when needed, are primary sources of funds that
contribute to liquidity. Unused lines of credit from correspondent banks to
provide federal funds in the amount of $6,000,000 as of December 31, 1996, were
available to provide liquidity. In addition, the Bank is a member of the Federal
Home Loan Bank ("FHLB") System providing an additional line of credit of
$4,663,000 secured by first deeds of trust on eligible 1-4 unit residential
loans. The Company had not borrowed from FHLB as of December 31, 1996.
The Company manages both assets and liabilities by monitoring asset and
liability mixes, volumes, maturities, yields and rates in order to preserve
liquidity and earnings stability. Total liquid assets (cash and due from banks,
federal funds sold, and investment securities) totaled $77,727,000 and
$76,369,000 (or 30.26% and 32.49% of total assets) at December 31, 1996 and
1995, respectively. Total liquid assets for 1996 and 1995 include investment
securities of $39,997,000 and $35,217,000, respectively, classified as held to
maturity based on the Company's intent to hold such securities to maturity.
Core deposits, defined as demand deposits, NOW, regular savings, money
market deposit accounts and time deposits of less than $100,000, continue to
provide a relatively stable and low cost source of funds. Core deposits totaled
$209,320,000 and $193,731,000 at year end 1996 and 1995, respectively.
In assessing liquidity, historical information such as seasonal loan
demand, local economic cycles and the economy in general are considered along
with current ratios, management goals and unique
36
<PAGE>
characteristics of the Bank. Management believes the Company is in compliance
with its policies relating to liquidity.
There are no definitive commitments for capital expenditures in 1997 or
beyond.
Parent company liquidity is maintained by cash flows stemming from
dividends and the exercise of stock options issued to the Bank's employees and
directors. The amount of dividends from the Bank is subject to certain
regulatory restrictions as discussed in Note 15 of the Notes to the Consolidated
Financial Statements and elsewhere within this Report. Subject to said
restrictions, at December 31, 1996, up to $11.4 million could have been paid to
the parent Company by the Bank without regulatory approval. The parent company
financial statements are presented in Note 17 of the Notes to Consolidated
Financial Statements.
Asset and liability management focuses on interest rate risk due to asset
and liability cash flows and market interest rate movement. The primary
objective of managing interest rate risk is to ensure that both assets and
liabilities react to changes in interest rates to minimize the effects of
interest rate movements on net interest income. An asset and liability
management simulation model is used to quantify the exposure and impact of
changing interest rates on earnings. The model projects changes by analyzing the
mix and repricing characteristics of interest rate sensitive assets and
liabilities using multipliers (how interest rates change when the Fed Funds rate
changes by 1%) and lags (time it takes for rates to change after the Fed Funds
rate changes). The model simulates the effects on net interest income when the
Fed Funds rate experiences a 1% increase or decrease compared to current levels.
<TABLE>
The following table shows the interest sensitive assets and liabilities
gap, which is the measure of interest sensitive assets over interest-bearing
liabilities, for each individual repricing period on a cumulative basis:
<CAPTION>
December 31, 1996 Within 3 3 months 1-5 5+
(in thousands) months to 1 Year Years Years TOTAL
-------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Held to maturity securities $ 0 $ 396 $13,112 $26,489 $ 39,997
Available for sale
securities 0 260 2,577 6,386 9,223
Fed Funds Sold 18,100 0 0 0 18,100
FHLB 0 0 734 0 734
Loans 49,678 18,869 52,168 48,183 168,898
------- ------- ------- ------- --------
Total earning assets $67,778 $ 19,525 $68,591 $81,058 $236,952
======= ======= ======= ======= ========
INTEREST BEARING LIABILITIES:
Interest bearing demand
deposits $ 0 $ 40,233 $ 0 $ 0 $ 40,233
Savings deposits 0 46,640 0 0 46,640
Time deposits 43,689 63,750 6,602 0 114,041
------- ------- ------- ------- --------
Total interest bearing
liabilities $43,689 $150,623 $ 6,602 $ 0 $200,914
======= ======= ======= ======= ========
37
<PAGE>
INTEREST SENSITIVITY GAP $24,089 $(131,098) $ 61,989 $81,058
CUMULATIVE INTEREST
RATE SENSITIVITY GAP $24,089 $(107,009) $(45,020) $36,038
</TABLE>
At December 31, 1996, the gap table indicates the Company as liability
sensitive in the twelve month period. The interest rate sensitivity gap is
defined as the difference between amount of interest-earning assets anticipated
to mature or reprice within a specific time period and the amount of
interest-bearing liabilities anticipated to mature or reprice within that time
period. The year end Gap report is based on the contractual interest repricing
date. The gap method does not consider the impact of different multipliers (how
interest rates change when the Fed Funds rate changes by 1%) and lags (time it
takes for rates to change after the Fed Funds rate changes). The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the behavior
of customers in response to changes in interest rates and future impact of new
business strategies. This table should, therefore, be used only as a guide as to
the possible effect changes in interest rates might have on the net margins of
the Company. The Company's model analyzes the impact on earnings of future rate
changes by including factors for lags and multipliers for key bank rates. Both
methods of measuring interest rate sensitivity do not take into account actions
taken by management to modify the effect to net interest income if interest
rates were to rise or fall.
Even though the Company had a negative gap in the twelve month period as
of December 31, 1996, the asset liability simulation model showed the Bank was
slightly asset sensitive in 1996. This means that when interest rates decline,
yields on earning assets would be expected to decline faster than rates paid for
deposits, causing the net interest margin to decrease. Due to a slightly
declining interest rate environment in 1996, the Bank's asset sensitive posture
had a slightly negative impact on net interest margins as predicted by the asset
liability simulation model. In a rising rate environment the opposite impact
would be expected; i.e., the net interest margin should improve.
Financial Condition
Total assets at December 31, 1996, were $256,877,000, representing an
increase of 9.3% over December 31, 1995 assets of $235,072,000. Increased
deposits were used to fund a 8.11% increase in average earning assets in 1996.
Investment securities and federal funds sold totaled $67,320,000 at
December 31, 1996, compared to $64,501,000 at December 31, 1995. The Company is
a member of Federal Home Loan Bank of San Francisco and holds $734,000 in FHLB
stock. Additional information regarding investment securities held by the
Company at year end 1996 are set forth in Note 3 of "Notes to Consolidated
Financial Statements".
During 1996, net loans increased 12.97% to $166,983,000 from $147,808,000
for the same period in 1995. Loans are the Company's major component of earning
assets. The Bank's average loan to deposit ratio was 71.10% and 66.86% in 1996
and 1995, respectively. Additional information regarding loans is shown in Note
4 of the "Notes to Consolidated Financial Statements".
38
<PAGE>
Funding for increased loan activity came from increases in deposits. Total
deposits increased $18,153,000 in 1996 to $229,228,000, as compared to
$211,075,000 in 1995 for the same period. The majority of the increase was in
interest-bearing instruments.
The Company maintains capital to support capital needs, future growth and
dividend payouts while maintaining the confidence of depositors and investors by
increasing shareholders' value. The Company has provided the majority of its
capital requirements through the retention of earnings.
Shareholders' equity increased to $23,900,000 as of December 31, 1996, as
compared to $20,973,000 for year end 1995. This increase was primarily
attributable to retention of earnings, offset by $1,286,000 in dividends to
shareholders and the repurchase of stock totaling $500,000.
The Company's and the Bank's regulatory capital ratios continue to be
strong and remain above regulatory minimums. The Company's total risk based
capital ratio at December 31, 1996 was 13.29% and its Tier 1 Risk Based Capital
(RBC) ratio was 12.58%, exceeding the minimum guidelines of 8% and 4%. The
ratios at December 31, 1995 were 13.57% and 12.76%, respectively.
The Company's leverage ratios were 8.98% and 8.87% at December 31, 1996
and 1995, exceeding the minimum guidelines of 4%.
Under current regulations adopted by federal regulatory agencies, a
"well-capitalized" institution must have a Tier 1 RBC ratio of at least 6%, a
total capital ratio of at least 10% and leverage ratio of at least 5% and not be
subject to a capital directive order. The Bank had a Tier 1 RBC ratio of 12.04%,
and total capital ratio of 12.72% and a leverage ratio of 8.56% at December 31,
1996, compared with 12.05%, 12.83% and 8.35% at December 31, 1995, respectively.
The most recent notification from the Federal Deposit Insurance
Corporation for the Bank as of December 31, 1996 and 1995, categorized the Bank
as well capitalized under the regulatory framework for prompt correction action.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
Impact of Inflation
Impact of inflation on a financial institution differs significantly from
that exerted on an industrial concern, primarily because a financial
institution's assets and liabilities consist largely of monetary items. The
relatively low proportion of the Bank's fixed assets (approximately 1.5% at
December 31, 1996) reduces both the potential of inflated earnings resulting
from understated depreciation and the potential understatement of absolute asset
values.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements required by this item are set forth following
Item 13 of this Form 10-KSB, and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
39
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information concerning directors and executive officers required by
this item is incorporated by reference from the section of the Company's
Definitive Proxy Statement for the 1996 Annual Meeting of Shareholders of the
Company to be filed with the Securities and Exchange Commission (the
"Commission") entitled "Election of Directors" (not including the share
information included in the beneficial ownership table nor the footnotes thereto
nor the subsection entitled "Committees of the Board of Directors") and the
section entitled "Section 16(a) Beneficial Ownership Reporting Compliance."
The following table sets forth certain information concerning the
executive officers of the Company.
Name Age Position(s) Since
- ---- --- ----------- -----
Donald V. Carter 57 Director, President and 1986
Chief Executive Officer
James F. Cowee, Jr. 60 Executive Vice President and 1986
Chief Financial Officer
Fred A. Drake 58 Senior Vice President and 1986
Cashier
Robert G. Jones 48 Senior Vice President and 1986
Loan Administrator
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section of the Company's Definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders of the Company to be filed with the Commission entitled
"Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
sections of the Company's Definitive Proxy Statement for the 1997 Annual Meeting
of Shareholders of the Company to be filed with the Commission, entitled
"Election of Directors" - "Security Ownership of Certain Beneficial Owners and
Management", as to share information in the table of beneficial ownership and
footnotes thereto.
40
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the section of the Company's Definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders to be filed with the Commission, entitled "Certain
Relationships and Related Transactions".
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
See Index to Exhibits at page 65 of this Annual Report on Form 10-KSB,
which is incorporated herein by reference.
(B) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of 1996.
41
<PAGE>
NORTH VALLEY BANCORP AND SUBSIDIARIES
Consolidated Financial Statements as of December 31, 1996 and 1995 and
for each of the Three Years in the Period Ended December 31, 1996 and
Independent Auditors' Report
42
<PAGE>
Deloitte & Suite 2000 Telephone: (916) 498-7100
Touche LLP 400 Capitol Mall Facsimile: (916) 444-7963
Sacramento, California 95814-4424
LOGO GOES HERE
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
North Valley Bancorp
Redding, California
We have audited the accompanying consolidated balance sheets of North Valley
Bancorp and subsidiaries (Company) as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
January 30, 1997
Deloitte Touche
43
<PAGE>
NORTH VALLEY BANCORP AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 (In thousands except share amounts)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 10,407 $ 11,868
Federal funds sold 18,100 16,600
--------- ---------
Total cash and cash equivalents 28,507 28,468
Securities:
Available for sale, at market 9,223 12,684
Held to maturity, at amortized cost (market value of $41,871
and $37,057 at December 31, 1996 and 1995, respectively) 39,997 35,217
Loans receivable, net of allowance for loan losses and
deferred loan fees 166,983 147,808
Premises and equipment, net of accumulated depreciation
and amortization 3,768 3,805
Other real estate owned 69 87
FHLB stock 734 662
Accrued interest receivable 1,765 1,715
Other assets 5,831 4,626
--------- ---------
TOTAL ASSETS $ 256,877 $ 235,072
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand deposits $ 28,314 $ 25,006
Interest-bearing:
Savings 46,640 41,882
Time certificates 114,041 107,575
NOW accounts 40,233 36,612
--------- ---------
Total deposits 229,228 211,075
Accrued interest and other liabilities 3,749 3,024
--------- ---------
Total liabilities 232,977 214,099
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value: authorized, 20,000,000 shares;
none outstanding
Common stock, no par value: authorized 20,000,000 shares;
outstanding, 1,823,688 and 1,841,048 at December 31, 1996
and 1995, respectively 9,896 9,766
Retained earnings 13,703 11,086
Unrealized gain on securities available for sale (net of tax effect) 301 121
--------- ---------
Total stockholders' equity 23,900 20,973
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 256,877 $ 235,072
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
44
<PAGE>
NORTH VALLEY BANCORP AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands except share and per share amounts)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME:
Loans including fees $ 14,517 $ 13,230 $ 10,347
Securities:
Taxable 747 1,012 1,290
Exempt from federal taxes 2,387 2,187 1,889
Interest on federal funds sold 990 1,040 652
-------- -------- --------
Total interest income 18,641 17,469 14,178
INTEREST EXPENSE - DEPOSITS 8,077 7,559 5,460
-------- -------- --------
NET INTEREST INCOME 10,564 9,910 8,718
PROVISION FOR LOAN LOSSES 720 375 240
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,844 9,535 8,478
-------- -------- --------
NONINTEREST INCOME:
Service charges on deposit accounts 1,342 1,342 1,245
Other fees and charges 520 546 523
Gain on sale of loans 160 160 164
Gain on sale of available for sale securities 31 31 11
Gain (loss) on sale of trading securities (7) 11
Other 535 540 534
-------- -------- --------
Total noninterest income 2,581 2,630 2,477
-------- -------- --------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,934 3,679 3,523
Occupancy expense 456 422 406
Furniture and equipment expense 497 451 424
Other 1,899 1,860 2,051
-------- -------- --------
Total noninterest expenses 6,786 6,412 6,404
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,639 5,753 4,551
PROVISION FOR INCOME TAXES 1,532 1,670 1,339
-------- -------- --------
NET INCOME $ 4,107 $ 4,083 $ 3,212
======== ======== ========
INCOME PER COMMON AND EQUIVALENT SHARE $2.20 $2.20 $1.74
===== ===== =====
WEIGHTED AVERAGE SHARES USED TO
COMPUTE INCOME PER COMMON SHARE 1,866,305 1,859,453 1,849,520
========= ========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
45
<PAGE>
NORTH VALLEY BANCORP AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands except share and per share amounts)
- -------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (loss) on
Available-
Common Stock For-Sale
------------ Retained Securities
Shares Amount Earnings (Net of Taxes) Total
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 1,814,817 $ 9,607 $ 5,983 $ 115 $ 15,705
Net income 3,212 3,212
Stock options exercised 15,116 87 87
Cash dividend paid on common
stock ($.35 per share) (425) (425)
Cash dividend declared on common
stock ($.35 per share) (427) (427)
Net change in unrealized gain/loss
on available for sale securities (376) (376)
Addition to equity - retirement plans 150 150
--------- -------- -------- ----- ---------
Balances at December 31, 1994 1,829,933 9,694 8,493 (261) 17,926
Net income 4,083 4,083
Stock options exercised 11,115 72 72
Cash dividend paid on common
stock ($.37 per share) (453) (453)
Cash in lieu of fractional shares (7) (7)
Cash dividend declared on common
stock ($.27 per share) (497) (497)
Net change in unrealized gain/loss on
available for sale securities 382 382
Reduction in equity - retirement plans (533) (533)
--------- -------- -------- ----- ---------
Balances at December 31, 1995 1,841,048 9,766 11,086 121 20,973
Net income 4,107 4,107
Stock options exercised 5,440 50 50
Tax benefit derived from the exercise
of stock options 80 (80)
Cash dividend paid on common
stock ($.35 per share) (646) (646)
Cash dividend declared on common
stock ($.35 per share) (640) (640)
Net change in unrealized gain on
available for sale securities 180 180
Addition to equity - retirement plans 376 376
Repurchase of stock (22,800) (500) (500)
--------- -------- -------- ----- ---------
Balances at December 31, 1996 1,823,688 $ 9,896 $ 13,703 $ 301 $ 23,900
========= ======== ======== ===== =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
46
<PAGE>
NORTH VALLEY BANCORP AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (In thousands)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 4,107 $ 4,083 $ 3,212
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 406 373 362
Amortization of premium on securities 10 14 10
Provision for loan losses 720 375 240
Loss on sale/write down of other real estate owned 48
Gain on sale of available for sale securities (31) (31) (11)
Loss (gain) on sale of trading securities 7 (11)
Gain on sales of loans (160) (160) (164)
Provision for deferred taxes (327) (377) (80)
Proceeds from sales of trading securities 1,970 4,006
Purchase of trading securities (1,980) (3,995)
Effect of changes in:
Accrued interest receivable (50) (218) (203)
Other assets (740) 26 (500)
Accrued interest and other liabilities 755 23 618
--------- -------- ---------
Net cash provided by operating activities 4,735 4,108 3,484
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of FHLB stock (72) (53) (609)
Proceeds from sale of other real estate owned 271
Purchases of available for sale securities (2,611) (4,273) (5,176)
Proceeds from sales of available for sale securities 61 118 32
Proceeds from maturities of available for sale securities 6,304 11,000 22,000
Purchases of held to maturity securities (8,970) (7,482) (13,402)
Proceeds from maturities or calls of held to maturity securities 4,178 8,627 1,245
Proceeds from sales of loans 8,027 3,124 6,726
Net increase in loans (28,063) (25,771) (32,808)
Purchases of premises and equipment (381) (646) (207)
--------- -------- ---------
Net cash used in investing activities (21,256) (15,356) (22,199)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits, NOW accounts, and savings accounts 11,687 (3,851) 1,473
Net increase in time certificates 6,466 21,385 8,749
Cash dividends paid (1,143) (880) (848)
Repurchase of company stock (500)
Cash received for stock options exercised 50 72 87
Cash paid in lieu of fractional shares (7)
--------- -------- ---------
Net cash provided by financing activities 16,560 16,719 9,461
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 39 5,471 (9,254)
CASH AND CASH EQUIVALENTS:
Beginning of year 28,468 22,997 32,251
--------- -------- ---------
End of year $ 28,507 $ 28,468 $ 22,997
========= ======== =========
ADDITIONAL INFORMATION:
Transfer of securities from held to maturity to available for sale $5,012
Transfer of foreclosed loans from loans receivable to other ======
real estate owned $301 $87
==== ===
Cash Payments:
Income tax payments $1,971 $2,110 $1,140
====== ====== ======
Interest payments $8,059 $7,468 $5,414
====== ====== ======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
47
<PAGE>
NORTH VALLEY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - The Company operates nine branches in Shasta and
Trinity Counties in Northern California. The Company's primary source
of revenue is through providing loans to customers, who are
predominately small and middle market businesses and middle income
individuals.
General - The accounting and reporting policies of North Valley Bancorp
and subsidiaries (the Company) conform to generally accepted accounting
principles and to prevailing practices within the banking industry. The
Company follows the accrual method of accounting.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The more significant accounting and reporting policies are discussed
below.
Consolidation - The consolidated financial statements include North
Valley Bancorp and its wholly owned subsidiaries, Bank Processing,
Inc., North Valley Trading Company, and North Valley Bank (the Bank)
and its wholly owned subsidiary North Valley Basic Securities. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents - For the purposes of the statements of cash
flows, cash and cash equivalents have been defined as cash, demand
deposits with correspondent banks, cash items and settlements in
transit, and federal funds sold. Generally, federal funds are sold for
one-day periods. Cash equivalents have remaining terms to maturity of
three months or less from the date of acquisition.
Investments - The Company accounts for investments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities. The Company's
policy with regard to investments is as follows:
Trading Securities are carried at fair value. Changes in market
value are included in other operating income.
Available for sale Securities are carried at fair value and
represent securities not classified as trading securities nor as
held to maturity securities. Unrealized gains and losses resulting
from changes in fair value are recorded, net of tax, as a separate
component of stockholders' equity. Gains or losses on disposition
are recorded in other operating income based on the net proceeds
received and the carrying amount of the securities sold, using the
specific identification method.
48
<PAGE>
Held to maturity Securities are carried at cost adjusted for
amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income. The Company's policy
of carrying such investment securities at amortized cost is based
upon its ability and management's intent to hold such securities
to maturity.
Loans Receivable - Loans are reported at the principal amount
outstanding, net of deferred loan fees and the allowance for loan
losses. Interest on loans is calculated by using the simple interest
method on the daily balance of the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full and
timely collection of interest or principal, or when a loan becomes
contractually past due by 90 days or more with respect to interest or
principal. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current period
interest income. Income on such loans is then recognized only to the
extent that cash is received and where the future collection of
principal is probable. Interest accruals are resumed on such loans
when, in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest.
Deferred Loan Fees - Loan fees and certain related direct costs to
originate loans are deferred and amortized to income by a method that
approximates a level yield over the contractual life of the underlying
loans.
Allowance for Loan Losses - The Company accounts for impaired loans in
accordance with SFAS No. 114, Accounting by Creditors for Impairment of
a Loan and SFAS No. 118, Accounting by Creditors for Impairment of Loan
- Income Recognition and Disclosures. Under these standards, a loan is
considered impaired if, based on current information and events, it is
probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the
fair value of the collateral.
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely or, with respect to
consumer installment loans, according to an established delinquency
schedule. The allowance is an amount that management believes will be
adequate to absorb losses inherent in existing loans and commitments to
extend credit, based on evaluations of the collectibility and prior
loss experience of loans and commitments to extend credit. The
evaluations take into consideration such factors as changes in the
nature and volume of the portfolio, overall portfolio quality, loan
concentrations, specific problem loans, commitments, and current and
anticipated economic conditions that may affect the borrowers' ability
to repay the obligation. Actual results could differ from those
estimates.
Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation, which is computed principally on the
straight-line method over the estimated useful lives of the respective
assets. Leasehold improvements are amortized on the straight-line
method over the shorter of the estimated useful lives of the
improvements or the terms of the respective leases.
49
<PAGE>
Other Real Estate Owned - Real estate acquired through, or in lieu of,
loan foreclosures are expected to be sold and are recorded at the date
of foreclosure at the lower of the recorded investment in the property
or its fair value less estimated costs to sell (fair value)
establishing a new cost basis through a charge to allowance for loan
losses, if necessary. After foreclosure, valuations are periodically
performed by management with any subsequent write-downs recorded as a
valuation allowance and charged against operating expenses. Operating
expenses of such properties, net of related income are included in
other expenses and gains and losses on their disposition are included
in other income and other expenses.
Income Taxes - The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 applies an
asset and liability method in accounting for deferred income taxes.
Deferred tax assets and liabilities are calculated by applying
applicable tax laws to the differences between the financial statement
basis and the tax basis of assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
Stock-Based Compensation - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with
Accounting Principles Board (APB) No. 25, Accounting for Stock Issued
to Employees.
Net Income Per Common and Equivalent Share - Net income per common and
equivalent share is calculated by dividing net income by the weighted
average number of common and common equivalent (stock options) shares
outstanding during the period.
Common Stock Split - On September 18, 1995, the Company's Board of
Directors authorized a three for two stock split effected in the form
of a 50% stock dividend distributed on November 1, 1995 to stockholders
of record as of October 2, 1995. This resulted in the issuance of
612,945 additional shares of common stock. All share and per share
amounts have been restated to reflect this stock split.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which must be adopted by the Company
for transactions occurring after December 31, 1996. This Statement
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. This standard
is based on consistent application of a financial-components approach
that focuses on control. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. The Company has determined that the
adoption of this standard will not have a material effect on the
Company's financial position or results of operations.
Reclassification - Certain amounts in 1995 and 1994 have been
reclassified to conform with the 1996 financial statement presentation.
50
<PAGE>
2. RESTRICTED CASH BALANCES
The Bank is subject to regulation by the Federal Reserve Board. The
regulations required the Bank to maintain average cash reserve balances
on hand or at the Federal Reserve Bank of $2,462,000 and $1,872,000 at
December 31, 1996 and 1995. As compensation for check-clearing
services, additional compensating balances of $1,000,000 are required
to be maintained with the Federal Reserve Bank.
3. SECURITIES
At December 31, the amortized cost of securities and their approximate
fair value were as follows (in thousands):
<TABLE>
Carrying
Gross Gross Amount
Amortized Unrealized Unrealized (Approximate
Available for sale Securities: Cost Gains Losses Fair Value)
<S> <C> <C> <C> <C>
December 31, 1996:
Securities of U.S. government
agencies and corporations $ 3,998 $ 44 $ 3,954
Obligation of states and political
subdivisions 4,140 $ 113 4,253
Other debt securities 655 361 1,016
-------- ----- ------ --------
$ 8,793 $ 474 $ 44 $ 9,223
======== ===== ====== ========
December 31, 1995:
U.S. Treasury securities $ 2,000 $ 2 $ 1,998
Securities of U.S. government
agencies and corporations 5,000 $ 6 39 4,967
Obligations of states and
political subdivisions 5,013 94 20 5,087
Other debt securities 499 133 632
--------- ----- ----- --------
$ 12,512 $ 233 $ 61 $ 12,684
========= ===== ===== ========
Carrying Gross Gross Approximate
Amount Unrealized Unrealized Fair
Held to maturity Securities: (Amortized Cost) Gains Losses Value
December 31, 1996:
U.S. Agencies $ 4,000 $ 59 $ 3,941
Obligations of states and
political subdivisions 35,997 $ 1,940 7 37,930
-------- ------- ----- --------
Total $ 39,997 $ 1,940 $ 66 $ 41,871
======== ======= ===== ========
December 31, 1995:
U.S. Agencies $ 1,598 $ 2 $ 1,600
Obligations of states and
political subdivisions 33,619 1,846 $ 8 35,457
-------- ------- ----- --------
Total $ 35,217 $ 1,848 $ 8 $ 37,057
======== ======= ===== ========
</TABLE>
51
<PAGE>
Gross realized gains on sales of U.S. government and agency securities
categorized as available for sale securities were $31,000 in 1996 and
1995. There were no gross realized losses on sale of available for
sales securities in 1996 or 1995.
In November 1995, the FASB issued additional implementation guidance
regarding the previously issued SFAS No. 115. In accordance with this
guidance and prior to December 31, 1995, companies were allowed a
one-time reassessment of their classification of securities and were
required to account for any resulting transfers at fair value.
Transfers from the held to maturity category that result from this
one-time reassessment will not call into question the intent to hold
other securities to maturity in the future. The Company transferred
approximately $5,012,000 of securities from held to maturity to
available for sale to allow the Company greater flexibility in managing
its interest rate risk and liquidity. Available for sale securities
were adjusted to fair value and stockholders' equity was increased by
$52,276, net of income taxes of $22,191, respectively.
Scheduled maturities of held to maturity and available for sale
securities (other than equity securities with an amortized cost of
approximately $655,000 and a carrying value of approximately
$1,016,000) at December 31, 1996, are shown below (in thousands).
Expected maturities may differ from contractual maturities because
borrowers may have the right to prepay with or without penalty.
Held to maturity Available for sale
Securities Securities
---------- ----------
Amortized Approximate
Cost Fair Value
(Carrying Approximate Amortized (Carrying
Amount) Fair Value Cost Amount)
Due in 1 year or less $ 396 $ 402 $ 260 $ 260
Due after 1 year
through 5 years 13,112 13,645 2,593 2,577
Due after 5 years
through 10 years 14,844 15,611 2,872 2,865
Due after 10 years 11,645 12,213 2,413 2,505
------- ------- ------- -------
$39,997 $41,871 $ 8,138 $ 8,207
======= ======= ======= =======
At December 31, 1996 and 1995, securities having carrying amounts of
approximately $16,379,000 and $17,385,000 were pledged to secure public
deposits and short-term borrowings and for other purposes required by
law or contract.
52
<PAGE>
4. LOANS RECEIVABLE
The Company originates loans for business, consumer and real estate
activities. Such loans are concentrated in Shasta and Trinity Counties
and neighboring communities. Substantially all loans are
collateralized. Generally real estate loans are secured by real
property. Commercial and other loans are secured by bank deposits or
business or personal assets. The Company's policy for requiring
collateral reflects the Company's analysis of the borrower, the
borrower's industry and the economic environment in which the loan
would be granted. The loans are expected to be repaid from cash flows
or proceeds from the sale of selected assets of the borrower.
Major classifications of loans at December 31 were as follows (in
thousands):
1996 1995
Commercial $ 63,944 $ 53,044
Real estate - construction 1,135 2,838
Real estate - mortgage 46,673 41,967
Installment 43,863 39,034
Other 13,283 12,888
-------- --------
Total loans receivable 168,898 149,771
Less:
Allowance for loan losses 1,254 1,325
Deferred loan fees 661 638
-------- --------
Net loans receivable $166,983 $147,808
======== ========
At December 31, 1996 and 1995, the Bank serviced real estate loans and
loans guaranteed by the Small Business Administration which it had sold
to the secondary market of approximately $90,744,000 and $93,563,000.
Changes in the allowance for loan losses for the years ended December
31, were as follows (in thousands):
1996 1995 1994
Balance, beginning of year $ 1,325 $ 1,144 $ 1,066
Provision charged to operations 720 375 240
Loans charged off (813) (281) (185)
Recoveries 22 87 23
------- ------- -------
Balance, end of year $ 1,254 $ 1,325 $ 1,144
======= ======= =======
53
<PAGE>
5. IMPAIRED AND NONPERFORMING LOANS
At December 31, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 was
approximately $2,612,000. Of that balance approximately $320,000 has a
related valuation allowance of $33,000. The remaining $2,292,000 did
not require a valuation allowance. For the year ended December 31,
1996, the average recorded investment in loans for which impairment has
been recognized was approximately $2,244,000. During the portion of the
year that the loans were impaired the Company recognized interest
income of approximately $203,000 for cash payments received.
At December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 was
approximately $1,715,000. Of that balance approximately $1,078,000 has
a related valuation allowance of $254,000. The remaining $637,000 did
not require a valuation allowance. For the year ended December 31,
1995, the average recorded investment in loans for which impairment has
been recognized was approximately $1,473,000. During the portion of the
year that the loans were impaired the Company recognized interest
income of approximately $205,000 for cash payments received..
Nonperforming loans at December 31 were as follows (in thousands):
1996 1995
Nonaccrual loans $1,190 $ 282
Loans 90 days past due but still accruing interest 14 15
------ ------
Total nonaccrual and 90 days past due loans $1,204 $ 297
====== ======
If interest on nonaccrual loans had been accrued, such income would
have approximated $82,000, in 1996, $37,000 in 1995 and $33,000 in
1994. Interest income of $27,000 in 1996, $8,000 in 1995, and $19,000
in 1994 was recorded when it was received on the nonaccrual loans.
At December 31, 1996, there were no commitments to lend additional
funds to borrowers whose loans were classified as nonaccrual.
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31 are
summarized as follows (in thousands):
1996 1995
Land $ 904 $ 904
Buildings and improvements 3,420 3,315
Furniture, fixtures and equipment 3,797 3,532
Leasehold improvements 178 178
------- -------
8,299 7,929
Accumulated depreciation and amortization (4,531) (4,124)
------- -------
$ 3,768 $ 3,805
======= =======
54
<PAGE>
Building and equipment rental expense was approximately $77,000,
$54,400, and $52,000, for the years ended December 31, 1996, 1995 and
1994.
During the year ended December 31, 1995, the Bank purchased, in the
ordinary course of business, a branch facility for $134,000 which the
Bank previously leased from a former board member.
7. OTHER ASSETS
Major classifications of other assets at December 31 were as follows
(in thousands):
1996 1995
Cash surrender value of life insurance policies $3,414 $2,945
Prepaid expenses 479 548
Deferred taxes 1,455 1,123
Other 483 10
------ ------
Total $5,831 $4,626
====== ======
8. DEPOSITS
The aggregate amount of time certificates of deposit in denominations
of $100,000 or more was $19,908,000 and $17,344,000 at December 31,
1996 and 1995. Interest expense incurred on such time certificates of
deposit was $882,000, $734,000, and $452,000, for the years ended
December 31, 1996, 1995 and 1994.
9. LINES OF CREDIT
At December 31, 1996, the Bank had the following lines of credit with
correspondent banks to purchase federal funds (in thousands):
Type Amount Expiration
Unsecured $6,000 July 31, 1997
Secured $4,663 Quarterly
(First deeds of trust on eligible
1-4 unit residential loans)
55
<PAGE>
10. INCOME TAXES
The provision for income taxes for the years ended December 31, was as
follows (in thousands):
1996 1995 1994
Currently payable:
Federal $ 1,212 $ 1,343 $ 831
State 647 702 588
------- ------- -------
Total 1,859 2,045 1,419
------- ------- -------
Deferred (benefit):
Federal (297) (341) (21)
State (30) (34) (59)
------- ------- -------
Total (327) (375) (80)
------- ------- -------
Total $ 1,532 $ 1,670 $ 1,339
======= ======= =======
The effective federal tax rate for the years ended December 31, differs
from the statutory tax rate as follows:
1996 1995 1994
Federal income tax at statutory rates 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 7.4 7.2 7.9
Tax exempt income (14.2) (12.1) (13.3)
Other (1.1) (1.1) (0.2)
---- ---- ----
Total 27.2% 29.0% 29.4%
==== ==== ====
56
<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's net deferred tax
asset at December 31, are as follows (in thousands):
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Deferred tax assets:
Reserve for loan losses $ 310 $ 371 $ 247
California franchise tax 118 133 51
Deferred loan fee income 297 289 178
Deferred compensation 447 361 208
Accrued pension obligation 621 415 370
Mark to market adjustment 124 33
Unrealized loss on securities available for sale 111
-------- ------- -------
Total deferred tax assets 1,917 1,602 1,165
-------- ------- -------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation (118) (134) (95)
Mark to market adjustment (87)
Unrealized gain on securities available for sale (116) (51)
Other (297) (294) (73)
-------- ------- -------
Total deferred tax liabilities (531) (479) (255)
-------- ------- -------
Net deferred tax asset $ 1,386 $ 1,123 $ 910
======== ======= =======
</TABLE>
11. RETIREMENT AND DEFERRED COMPENSATION PLANS
Substantially all employees with at least one year of service
participate in a Company-sponsored employee stock ownership plan
(ESOP). The Company made contributions to the ESOP of $60,000 in 1996,
1995 and 1994, respectively. At December 31, 1996, the ESOP owned
approximately 108,000 shares of the Company's stock.
The Company maintains a 401(k) plan covering employees who have
completed 1,000 hours of service during a 12-month period and are aged
21 or older. Voluntary employee contributions are partially matched by
the Company. The Company made contributions to the Plan for the years
ended December 31, 1996, 1995, and 1994 of $21,000, $21,000, and
$20,000, respectively.
The Company has a nonqualified executive deferred compensation plan for
key executives and directors. Under this plan, participants voluntarily
elect to defer a portion of their salary, bonus or fees and the Company
is required to credit these deferrals with interest. The Company has
purchased insurance on the lives of the participants and intends to use
the cash values of these policies ($1,122,000 and $968,000 at December
31, 1996 and 1995, respectively) to pay the retirement obligations. The
Company's deferred compensation obligation of $978,000 and $790,000 as
of December 31, 1996 and 1995, respectively, is included in accrued
interest and other liabilities.
57
<PAGE>
The Company has a supplemental retirement plan for directors and a
supplemental executive retirement plan covering key executives. These
plans are nonqualified defined benefit plans and are unsecured and
unfunded. The Company has purchased insurance on the lives of the
participants and intends to use the cash values of these policies
($2,292,000 and $1,978,000 at December 31, 1996 and 1995, respectively)
to pay the retirement obligations. The accrued pension obligation of
$1,544,000, $1,509,000, and $912,000, as of December 31, 1996, and
1995, respectively, is included in accrued interest and other
liabilities.
The following table sets forth the plans' status at December 31 (in
thousands):
1996 1995
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,508 $ 1,432
======= =======
Accumulated benefit obligation $ 1,544 $ 1,432
======= =======
Projected benefit obligation for service
rendered to date $ 2,190 $ 2,157
Plan assets at fair value -- --
------- -------
Projected benefit obligation in excess of
plan assets (2,190) (2,157)
Unrecognized net losses 373 502
Unrecognized net pension transition
asset, amortized over 17 years 231 277
Adjustment necessary to recognize minimum
liability 42 (131)
------- -------
Accrued pension obligation $(1,544) $(1,509)
======= =======
The net periodic pension cost was determined using a discount rate
assumption of 6.48%, 6.26%, and 7.87% for 1996, 1995 and 1994,
respectively. The rate of increase in compensation used was 6% for
1996, 1995 and 1994.
The elements of pension costs for the unqualified defined benefit
pension plans at December 31 are as follows (in thousands):
1996 1995 1994
Cost of benefits earned during the year $110 $ 84 $101
Interest on projected benefit obligation 88 79 68
Net amortization and other deferrals 45 28 41
---- ---- ----
Net pension cost $243 $191 $210
==== ==== ====
58
<PAGE>
12. STOCK BASED COMPENSATION
Under the Company's stock option plan, options are granted to directors
of the Bank at no less than 85% of fair market value. Outstanding
options to purchase common stock expire in January 2000. Options vest
at the rate of 20% per year for each year of future service for options
granted in each year. A summary of stock options follows:
Directors' Plan
---------------------------------
Weighted
Average
Options Exercise Price
Outstanding, December 31, 1993 46,217 $ 5.43
Granted 15,000 10.20
Exercised (15,116) 5.83
Expired or canceled (3,329) 7.39
------
Outstanding, December 31, 1994 42,772 6.84
Granted 12,000 12.19
Exercised (11,115) 6.79
Expired or canceled (7,413) 8.70
------
Outstanding, December 31, 1995 36,244 8.27
Granted 7,000 16.58
Exercised (5,356) 9.49
------
Outstanding December 31, 1996 37,888 9.55
======
Information about stock options outstanding at December 31, 1996 is
summarized as follows:
<TABLE>
Weighted Weighted
Average Average
Average Exercise Exercise
Range of Remaining Price of Price of
Exercises Options Contractual Options Options Options
Prices Outstanding Life (Years) Outstanding Exercisable Exercisable
<S> <C> <C> <C> <C> <C> <C>
$4.37-$6.70 16,088 3 $5.45 14,108 $5.29
$10.20-$12.19 15,600 3 $11.27 5,101 $11.03
$16.58 6,200 3 $16.58 600 $16.58
</TABLE>
As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance with
APB No. 25, Accounting for Stock Issued to Employees and its related
interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.
Disclosures of pro-forma net income and earnings per share had the
Company adopted the fair value method for grants made in 1995 and 1996
are not presented as the differences are not material.
13. COMMITMENTS AND CONTINGENCIES
The Company is involved in a number of legal actions arising from
normal business activities. Management, based upon the advice of legal
counsel, believes that the ultimate resolution of all pending actions
will not have a material effect on the financial statements.
59
<PAGE>
The Bank was contingently liable under letters of credit issued on
behalf of its customers in the amount of $521,000 and $439,000 at
December 31, 1996 and 1995. At December 31, 1996 commercial and
consumer lines of credit, and real estate loans of approximately
$17,444,000 and $614,000, respectively, were undisbursed. These
instruments involve, to varying degrees, elements of credit and market
risk in excess of the amounts recognized in the balance sheet. The
contractual or notional amounts of these transactions express the
extent of the Bank's involvement in these instruments and do not
necessarily represent the actual amount subject to credit loss.
14. RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, certain officers and directors and their
associates were indebted to the Bank for loans made on substantially
the same terms, including interest rates and collateral, as comparable
transactions with unaffiliated parties.
A summary of activity for the years ended December 31, 1996 and 1995 is
as follows (in thousands; renewals are not reflected as either new
loans or repayments):
1996 1995
Beginning balance $ 3,846 $ 3,365
Borrowings 80 1,173
Repayments (597) (692)
------- -------
Ending balance $ 3,329 $ 3,846
======= =======
15. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and,
possibly, additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy guidelines,
the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company's and the Bank's assets,
liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's and the Bank's capital
amounts and the Bank's prompt correction action classification are also
subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined)
and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that the Company and the
Bank meet all capital adequacy requirements to which it is subject.
The most recent notification from the Federal Deposit Insurance
Corporation for the Bank as of December 31, 1996 and 1995, categorized
the Bank as well capitalized under the regulatory framework for prompt
correction action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage
ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
Bank's category.
60
<PAGE>
The Company and the Bank's actual capital amounts (in thousands) and
ratios are also presented, respectively, in the following tables.
Company:
For Capital
Actual Adequacy Purposes
---------------- --------------------
Minimum Minimum
Amount Ratio Amount Ratio
As of December 31, 1996:
Total capital
(to risk weighted assets) $24,438 13.29% $14,707 8.0%
Tier I capital
(to risk weighted assets) $23,184 12.58% $ 7,353 4.0%
Tier I capital
(to average assets) $23,184 8.98% $10,275 4.0%
As of December 31, 1995:
Total capital
(to risk weighted assets) $22,177 13.57% $13,070 8.0%
Tier I capital
(to risk weighted assets) $20,852 12.76% $ 6,535 4.0%
Tier I capital
(to average assets) $20,852 8.87% $ 9,403 4.0%
<TABLE>
<CAPTION>
Bank:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ------------------ -------------------
Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital
(to risk weighted assets) $23,234 12.72% $14,610 8.0% $18,263 10.0%
Tier I capital
(to risk weighted assets) $21,980 12.04% $ 7,305 4.0% $10,958 6.0%
Tier I capital
(to average assets) $21,980 8.56% $ 9,847 4.0% $12,309 5.0%
As of December 31, 1995:
Total capital
(to risk weighted assets) $20,826 12.83% $12,990 8.0% $16,237 10.0%
Tier I capital
(to risk weighted assets) $19,563 12.05% $ 6,495 4.0% $ 9,742 6.0%
Tier I capital
(to average assets) $19,563 8.35% $ 9,376 4.0% $11,770 5.0%
</TABLE>
Under federal and California state banking laws, dividends paid by the
Bank to the Company in any calendar year may not exceed certain
limitations without the prior written approval of the appropriate bank
regulatory agency. At December 31, 1996, the amount available for such
dividends without prior written approval was approximately $11,402,000.
Similar restrictions apply to the amounts and terms of loans, advances
and other transfers of funds from the Bank to the Company.
61
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments
requires certain disclosures regarding the estimated fair value of
financial instruments for which it is practicable to estimate. Although
management uses its best judgment in assessing fair value, there are
inherent weaknesses in any estimating technique that may be reflected
in the fair values disclosed. The fair value estimates are made at a
discrete point in time based on relevant market data, information about
the financial instruments, and other factors. Estimates of fair value
of instruments without quoted market prices are subjective in nature
and involve various assumptions and estimates that are matters of
judgment. Changes in the assumptions used could significantly affect
these estimates. Fair value has not been adjusted to reflect changes in
market conditions subsequent to December 31, 1996, therefore, estimates
presented herein are not necessarily indicative of amounts which could
be realized in a current transaction.
The following estimates and assumptions were used as of December 31,
1996 and 1995 to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value.
(a) Cash and Cash Equivalents - The carrying amount represents a
reasonable estimate of fair value.
(b) Securities - Held to maturity securities are based on quoted
market prices, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices
for similar securities.
(c) Loans Receivable - Commercial loans, residential mortgages, and
construction loans, are segmented by fixed and adjustable rate
interest terms, by maturity, and by performing and nonperforming
categories.
The fair value of performing loans is estimated by discounting
contractual cash flows using the current interest rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Assumptions
regarding credit risk, cash flow, and discount rates are
judgmentally determined using available market information.
The fair value of nonperforming loans and loans delinquent more
than 30 days is estimated by discounting estimated future cash
flows using current interest rates with an additional risk
adjustment reflecting the individual characteristics of the
loans.
(d) Deposit Liabilities - Noninterest bearing and interest bearing
demand deposits and savings accounts are payable on demand and
are assumed to be at fair value. Time deposits are based on the
discounted value of contractual cash flows. The discount rate is
based on rates currently offered for deposits of similar size
and remaining maturities.
(e) Commitments to Fund Loans/Standby Letters of Credit - The fair
values of commitments are estimated using the fees currently
charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present
creditworthiness of the counterparties. The differences between
the carrying value of commitments to fund loans or stand by
letters of credit and their fair value is not significant and
therefore not included in the following table.
62
<PAGE>
The estimated fair values of the Company's financial instruments as of
December 31, are as follows (in thousands):
1996 1995
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
FINANCIAL ASSETS:
Cash and cash equivalents $ 28,507 $ 28,507 $ 28,468 $ 28,468
Securities:
Available for sale $ 9,223 $ 9,223 $ 12,684 $ 12,684
Held to maturity $ 39,997 $ 41,871 $ 35,217 $ 37,057
Loans receivable $166,983 $166,918 $147,808 $148,258
FINANCIAL LIABILITIES:
Deposits $229,228 $229,585 $211,075 $211,559
17. CONDENSED FINANCIAL INFORMATION OF NORTH VALLEY BANCORP
The condensed financial statements of North Valley Bancorp are
presented below (in thousands except share amounts):
NORTH VALLEY BANCORP
<TABLE>
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
<S> <C> <C>
Assets:
Cash and cash equivalents $ 268 $ 243
Available for sale securities (at market) 1,016 632
Investments in subsidiaries 22,714 20,136
Dividend receivable 650 500
---------- ----------
Total $ 24,648 $ 21,511
========== ==========
Liabilities and stockholders' equity:
Dividend payable $ 640 $ 497
Other liabilities 108 41
Stockholders' equity:
Preferred stock, no par value: authorized, 20,000,000 shares;
none outstanding
Common stock, no par value: authorized, 20,000,000 shares;
outstanding, 1,823,688 and 1,841,048 as of
December 31, 1996 and 1995, respectively 9,896 9,766
Retained earnings 13,703 11,086
Unrealized gain (loss) on securities available for sale
(net of tax effect) 301 121
---------- ----------
Total $ 24,648 $ 21,511
========== ==========
</TABLE>
63
<PAGE>
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------------------------------------------------------------------
1996 1995 1994
INCOME:
Dividends from subsidiaries $1,888 $ 954 $1,127
Other income 64 29 17
------ ------ ------
Total income 1,952 983 1,144
EXPENSE:
Legal and accounting 14 17 9
Other 13 10
------ ------ ------
Total expense 27 17 19
------ ------ ------
Income before equity in undistributed
income of subsidiaries 1,925 966 1,125
Equity in undistributed income of
subsidiaries 2,182 3,117 2,087
------ ------ ------
Net income $4,107 $4,083 $3,212
====== ====== ======
<TABLE>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,107 $ 4,083 $ 3,212
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of subsidiaries (2,182) (3,117) (2,087)
Gain on sale of available for sale securities (26) (29) (7)
Effect of changes in:
Dividends receivable (150) (73)
--------- -------- --------
Net cash provided by operating activities 1,749 864 1,118
--------- -------- --------
Cash flows from investing activities:
Purchase of available for sale securities (188) (315) (162)
Proceeds from sale of available for sale securities 57 114 32
--------- -------- --------
Net cash used by investing activities (131) (201) (130)
--------- -------- --------
Cash flows from financing activities:
Cash dividends paid (1,143) (880) (848)
Repurchase of company stock (500)
Increase in dividends payable 70
Cash in lieu of fractional shares (7)
Stock options exercised 50 72 87
--------- -------- --------
Net cash used in financing activities (1,593) (745) (761)
--------- -------- --------
Increase (decrease) in cash and cash equivalents 25 (82) 227
Cash and cash equivalents at beginning of year 243 325 98
--------- -------- --------
Cash and cash equivalents at end of year $ 268 $ 243 $ 325
========= ======== ========
</TABLE>
* * * * * *
64
<PAGE>
INDEX OF EXHIBITS
Sequential
Exhibit No. Exhibit Name Page No.
- ----------- ------------ ----------
3(a) Articles of incorporation, as amended.
Incorporated by reference from Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986, filed with
the Commission (hereinafter, "1986 10-K"). *
3(b) By-Laws, as amended. Incorporated by reference
from Exhibit 3(b) to the Company's 1986 10-K. *
10(a) Employment Agreement of Donald V. Carter.
Incorporated by reference from Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, filed with
the Commission (hereinafter, the "1987 10-K"). *
10(b) Addendum to Employment Agreement of Donald V.
Carter dated January 21, 1997. 69
10(c) Employment Agreement of James F. Cowee.
Incorporated by reference from Exhibit 10(d) to
the Company's 1987 10-K. *
10(d) Addendum to Employment Agreement of James F. Cowee
dated January 5, 1996 & March 28, 1996. 70
10(e) 1979 Amended Stock Option Plan. Incorporated by
reference from Exhibit 10(c) to the Company's 1986
10-K. *
10(f) Form of Incentive Stock Option Agreement.
Incorporated by reference from Exhibit 10(g) to
the Company's 1987 10-K. *
10(g) Form of Non-Qualified Stock Option Agreement.
Incorporated by reference from Exhibit 10(h) to
the Company's 1987 10-K. *
65
<PAGE>
Sequential
Exhibit No. Exhibit Name Page No.
- ----------- ------------ ----------
10(h) North Valley Bancorp 1989 Employee Stock Option
Plan, as amended. Incorporated by reference from
Exhibit 4.5 to Post-Effective Amendment No. One to
the Company's Registration Statement on Form S-8
(No. 33-32787) filed with the Commission on
December 26, 1989 (hereinafter, the "1989 S-8
Amendment"). *
10(i) North Valley Bancorp 1989 Employee Nonstatutory
Stock Option Agreement. Incorporated by ref-
erence from Exhibit 4.3 to the 1989 S-8 Amendment.
*
10(j) North Valley Bancorp 1989 Director Stock Option
Plan, as amended. Incorporated by reference from
Exhibit 4.6 to the 1989 S-8 Amendment. *
10(k) North Valley Bancorp 1989 Director Nonstatutory
Stock Option Agreement. Incorporated by refer-
ence from Exhibit 4.4 to the 1989 S-8 Amendment. *
10(l) Employee Stock Ownership Plan and Trust Agreement,
as amended. Incorporated by reference from Exhibit
10(d) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1984
(hereinafter, the "1984 10-K"). *
10(m) Deferred Salary Profit-Sharing Thrift Plan, as
amended and restated as of January 1, 1987.
Incorporated by reference from Exhibit 10(m) to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (hereinafter,
the "1993 10-K"). *
10(n) Management Incentive Plan. Incorporated by
reference from Exhibit 10(c) to the Company's 1984
10-K. *
10(o) Supplemental Executive Retirement Plan. Incor-
porated by reference from Exhibit 10(I) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 (hereinafter,
the "1988 10-K"). *
66
<PAGE>
Sequential
Exhibit No. Exhibit Name Page No.
- ----------- ------------ ----------
10(p) Executive Deferred Compensation Plan. Incor-
porated by reference from Exhibit 10(j) to the
Company's 1988 10-K. *
10(q) Supplemental Retirement Plan for Directors.
Incorporated by reference from Exhibit 10(k) to
the Company's 1988 10-K. *
10(r) Legal Services Agreement with Wells, Wingate,
Small & Graham. Incorporated by reference from
Exhibit 10(q) to the Company's 1987 10-K. *
10(s) PrimeVest Financial Services, Inc. Nondiscre-
tionary Full Service Brokerage Agreement.
Incorporated by reference from Exhibit 10(w) to
the Company's 1993 10-K. *
10(t) Employee Stock Ownership Plan, as amended and
restated as of January 1, 1987. Incorporated by
reference from Exhibit 10(x) to the Company's 1993
10-K. *
10(u) Amendment No. 1 to the Amended & Restated Deferred
Salary Profit Sharing Thrift Plan. Incorporated by
reference from Exhibit 10(y) to the Company's 1993
10-K. *
10(v) Amendment No. 2 to the Amended & Restated Deferred
Salary Profit Sharing Thrift Plan. Incorporated by
reference from Exhibit 10(z) to the Company's 1993
10-K. *
10(w) Employment Agreement of Fred A. Drake.
Incorporated by reference from Exhibit 10(aa) to
the Company's 1993 10-K. *
10(x) Addendum to Employment Agreement of Fred A. Drake
dated March 28, 1996 & January 2, 1997. 72
10(y) Employment Agreement of Robert Jones. Incorporated
by reference from Exhibit 10(cc) to the Company's
1993 10-K. *
10(z) Addendum to Employment Agreement of Robert Jones
dated March 28, 1996 & January 2, 1997. 74
67
<PAGE>
Sequential
Exhibit No. Exhibit Name Page No.
- ----------- ------------ ----------
10(aa) Amendment No. 3 to the Employee Stock Ownership
Plan. Incorporated by reference from Exhibit
10(ee) to the Company's 1994 10-KSB. *
10(bb) Sales Agreement with Federated Securities Corp.
Incorpor- ated by reference from Exhibit 10(gg) to
the Company's 1995 10-KSB. *
10(cc) Linsco/Private Ledger, Inc. Full Service Brokerage
Agreement. Incorporated by reference from Exhibit
10(hh) to the Company's 1995 10-KSB. *
10(dd) Executive Deferred Compensation Plan, effective
1-1-89, restated 4-1-95. 76
10(ee) Directors' Deferred Compensation Plan, effective
4-1-95. 96
10(ff) Umbrella TrustTM for Directors, effective 4-1-95. 114
10(gg) Umbrella TrustTM for Executives, effective 4-1-95. 145
10(hh) Adoption Agreement dated June 9, 1994, for
Deferred Salary Profit-Sharing Thrift Plan for
Employees of North Valley Bancorp and its
Affiliates, including North Valley Bank. 176
10(ii) Amendment No. 1 to the Deferred Salary
Profit-Sharing Thrift Plan for Employees of North
Valley Bancorp and its Affiliates, including North
Valley Bank, dated August 18, 1995. 208
10(jj) Amendment No. 2 to the Deferred Salary
Profit-Sharing Thrift Plan for Employees of North
Valley Bancorp and its Affiliates, including North
Valley Bank, dated September 27, 1996. 210
10(kk) Amendment No. 4 to the Employee Stock Ownership
Plan, dated August 19, 1996. 211
21 List of Subsidiaries. 214
27 Financial Data Schedule. 216
* Previously filed.
68
====================
A D D E N D U M
TO
EMPLOYMENT AGREEMENT
====================
THIS ADDENDUM is to that certain Employment Agreement dated February 1, 1986, by
and between NORTH VALLEY BANCORP, NORTH VALLEY BANK ("Employer") and DONALD V.
CARTER ("Employee").
1. Pursuant to an Addendum to the employment contract dated July 1,
1989, the Board of Directors determined that the term of the employment contract
would be extended to December 31, 1999.
DATED: January 21, 1997.
EMPLOYER: EMPLOYEE:
NORTH VALLEY BANCORP
By /s/ Rudy V. Balma /s/ Donald V. Carter
------------------------ ---------------------------
Rudy V. Balma, Donald V. Carter
Chairman of the Board
NORTH VALLEY BANK
By /s/ Rudy V. Balma
------------------------
Rudy V. Balma,
Chairman of the Board
Exhibit 10(b)
A D D E N D U M
TO EMPLOYMENT AGREEMENT
THIS ADDENDUM is to that certain Employment Agreement dated February 10,
1986, by and between NORTH VALLEY BANK ("Employer") and JAMES F. COWEE, JR.
("Employee").
THE PARTIES MUTUALLY AGREE to modify said Agreement in the following
manner:
1. Paragraph 4 is amended to read as follows:
Salary. As compensation for the services rendered by him under this Agreement,
the Employee shall be entitled to an annual salary of $98,340 per year.
2. Paragraph 6 of the Employment Agreement is modified to read as follows:
VACATION The employee shall be entitled to vacation pursuant to the
provisions of the vacation policies established by the Bank plus two additional
weeks.
IN ALL OTHER RESPECTS, the terms and conditions of said Agreement shall
continue in full force and effect.
DATED: January 5, 1996.
EMPLOYER: . EMPLOYEE:
NORTH VALLEY BANK /s/ James F. Cowee, Jr.
--------------------------
By /s/ Donald V. Carter James F. Cowee, Jr.
- ------------------------------
Donald V. Carter, President
Exhibit 10(d)
<PAGE>
INTEROFFICE
North Valley Bank MEMO
---------------------------------------------------------------
March 28, 1996
SUBJECT: EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
FROM: DONALD V. CARTER, PRESIDENT & C.E.O.
TO: JAMES F. COWEE, EXECUTIVE VICE PRESIDENT
Dear Jim:
Please be advised that, pursuant to the Addendum to the Employment Agreement
dated July 25, 1989, I have found your performance for the year 1995
satisfactory, and hereby renew your contract for a 2 year term effective January
1, 1996.
Employer:
NORTH VALLEY BANK
By /s/ Donald V. Carter
- ---------------------------------------
Donald V. Carter, President & C.E.O.
DVC:hg
INTEROFFICE
North Valley Bank MEMO
---------------------------------------------------------------
March 28, 1996
SUBJECT: EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
FROM: DONALD V. CARTER, PRESIDENT & C.E.O.
TO: FRED A. DRAKE, SENIOR VICE PRESIDENT & CASHIER
Dear Fred:
Please be advised that, pursuant to the Employment Agreement dated July 27,
1989, I have found your performance for the year 1995 satisfactory, and hereby
renew your contract for a 2 year term effective January 1, 1996.
Employer:
NORTH VALLEY BANK
By /s/ Donald V. Carter
- ---------------------------------------
Donald V. Carter, President & C.E.O.
DVC:hg
Exhibit 10(x)
<PAGE>
A D D E N D U M
TO EMPLOYMENT AGREEMENT
THIS ADDENDUM is to that certain Employment Agreement dated July 27, 1989,
by and between NORTH VALLEY BANK ("Employer") and FRED DRAKE ("Employee").
THE PARTIES MUTUALLY AGREE to modify said Agreement in the following
manner:
1. Paragraph 4 is amended to read as follows:
Salary. As compensation for the services rendered by him under this Agreement,
the Employee shall be entitled to an annual salary of $88,296 per year.
IN ALL OTHER RESPECTS, the terms and conditions of said Agreement shall
continue in full force and effect.
DATED: January 2, 1997.
EMPLOYER: EMPLOYEE:
By /s/ Donald V. Carter /s/ Fred A. Drake
--------------------------- ------------------------
Donald V. Carter, President Fred A. Drake
INTEROFFICE
North Valley Bank MEMO
---------------------------------------------------------------
March 28, 1996
SUBJECT: EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
FROM: DONALD V. CARTER, PRESIDENT & C.E.O.
TO: ROBERT G. JONES, S.V.P. & LOAN ADMINISTRATOR
Dear Bob:
Please be advised that, pursuant to the Employment Agreement dated July 25,
1989, I have found your performance for the year 1995 satisfactory, and hereby
renew your contract for a 2 year term effective January 1, 1996.
Employer:
NORTH VALLEY BANK
By /s/ Donald V. Carter
- ---------------------------------------
Donald V. Carter, President & C.E.O.
DVC:hg
Exhibit 10(z)
<PAGE>
A D D E N D U M
TO EMPLOYMENT AGREEMENT
THIS ADDENDUM is to that certain Employment Agreement dated July 25, 1989,
by and between NORTH VALLEY BANK ("Employer") and ROBERT JONES ("Employee").
THE PARTIES MUTUALLY AGREE to modify said Agreement in the following
manner:
1. Paragraph 4 is amended to read as follows:
Salary. As compensation for the services rendered by him under this Agreement,
the Employee shall be entitled to an annual salary of $78,084 per year.
IN ALL OTHER RESPECTS, the terms and conditions of said Agreement shall
continue in full force and effect.
DATED: January 2, 1997.
EMPLOYER: EMPLOYEE:
By /s/ Donald V. Carter /s/ Robert Jones
--------------------------- ------------------------
Donald V. Carter, President Robert Jones
NORTH VALLEY BANCORP
EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1989
Restated April 1, 1995
Exhibit 10(dd)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I--PURPOSE ......................................................... 1
ARTICLE II--DEFINITIONS .................................................... 1
2.1 Actuarial Equivalent .................................................. 1
2.2 Account ............................................................... 1
2.3 Beneficiary ........................................................... 1
2.4 Board ................................................................. 1
2.5 Change in Control ..................................................... 2
2.6 Committee ............................................................. 2
2.7 Compensation .......................................................... 2
2.8 Deferral Commitment ................................................... 2
2.9 Deferral Period ....................................................... 2
2.10 Determination Date ................................................... 3
2.11 Director ............................................................. 3
2.12 Disability ........................................................... 3
2.13 Early Retirement Date ................................................ 3
2.14 Elective Deferred Compensation ....................................... 3
2.15 Employer ............................................................. 3
2.16 Financial Hardship ................................................... 3
2.17 Interest ............................................................. 3
2.18 Normal Retirement Date ............................................... 4
2.19 Participant .......................................................... 4
2.20 Participation Agreement .............................................. 4
2.21 Plan Benefit ......................................................... 4
2.22 Retirement ........................................................... 4
2.23 Qualified 40l(k) Plan ................................................ 4
2.24 Qualified Retirement Plan ............................................ 4
2.25 Year of Service ...................................................... 4
ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS ........................ 5
3.1 Eligibility and Participation ........................................ 5
3.2 Form of Deferral; Minimum Deferral ................................... 5
3.3 Limitation on Deferral ............................................... 5
3.4 Commitment Limited by Retirement ..................................... 5
3.5 Modification of Deferral Commitment .................................. 6
3.6 Change in Employment Status .......................................... 6
(i)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE IV--DEFERRED COMPENSATION ACCOUNT ................................. 6
4.1 Accounts ............................................................. 6
4.2 Initial Account Balances ............................................. 6
4.3 Elective Deferred Compensation ....................................... 6
4.4 Employer Discretionary Contributions ................................. 6
4.5 Matching Contributions ............................................... 6
4.6 Qualified Plan Make-up Credit ........................................ 7
4.7 Interest ............................................................. 7
4.8 Determination of Accounts ............................................ 7
4.9 Vesting of Accounts .................................................. 7
4.10 Disability .......................................................... 8
4.11 Statement of Accounts ............................................... 8
ARTICLE V--PLAN BENEFITS .................................................. 8
5.1 Retirement Benefit .................................................. 8
5.2 Termination Benefit ................................................. 8
5.3 Death Benefit ....................................................... 8
5.4 Early Withdrawal Option ............................................. 8
5.5 Hardship Distributions .............................................. 9
5.6 Accelerated Distribution ............................................ 9
5.7 Form of Benefit Payment ............................................. 9
5.8 Withholding; Payroll Taxes .......................................... 10
5.9 Commencement of Payments ............................................ 10
5.10 Full Payment of Benefits ........................................... 10
5.11 Payment to Guardian ................................................ 10
5.12 Suicide; Misrepresentation ......................................... 10
ARTICLE VI--BENEFICIARY DESIGNATION ....................................... 10
6.1 Beneficiary Designation ............................................. 10
6.2 Changing Beneficiary ................................................ 11
6.3 Change in Marital Status ............................................ 11
6.4 No Beneficiary Designation .......................................... 11
ARTICLE VII--ADMINISTRATION ............................................... 12
7.1 Committee; Duties ................................................... 12
7.2 Agents .............................................................. 12
7.3 Binding Effect of Decisions ......................................... 12
7.4 Indemnity of Committee .............................................. 12
7.5 Election of Committee After Change in Control ....................... 12
(ii)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE VIII--CLAIMS PROCEDURE ............................................ 12
8.1 Claim ................................................................ 12
8.2 Denial of Claim ...................................................... 13
8.3 Review of Claim ...................................................... 13
8.4 Final Decision ....................................................... 13
ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN ............................. 13
9.1 Amendment ............................................................ 13
9.2 Employer's Right to Terminate ........................................ 13
ARTICLE X--MISCELLANEOUS .................................................. 14
10.1 Unfunded Plan ...................................................... 14
10.2 Unsecured General Creditor ......................................... 14
10.3 Trust Fund ......................................................... 15
10.4 Nonassignability ................................................... 15
10.5 Not a Contract of Employment ....................................... 15
10.6 Protective Provisions .............................................. 15
10.7 Terms .............................................................. 15
10.8 Captions ........................................................... 15
10.9 Governing Law ...................................................... 16
10.10 Validity .......................................................... 16
10.11 Notice ............................................................ 16
10.12 Successors ........................................................ 16
(iii)
<PAGE>
NORTH VALLEY BANCORP
EXECUTIVE DEFERRED COMPENSATION PLAN
RESTATED APRIL 1, 1995
ARTICLE I--PURPOSE
The purpose of this Executive Deferred Compensation Plan (the "Plan") is
to provide current tax planning opportunities as well as supplemental funds for
retirement or death for selected employees of North Valley Bancorp, North Valley
Bank, and subsidiaries or affiliates thereof ("Bank"). It is intended that the
Plan will aid in retaining and attracting employees of exceptional ability by
providing them with these benefits. This Plan will be effective as of January 1,
1989 and restated as of April 1, 1995.
ARTICLE II--DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings
indicated, unless the context clearly indicates otherwise:
2.1 Actuarial Equivalent
"Actuarial Equivalent" means equivalence in value between two (2) or more
forms and/or times of payment based on a determination by an actuary chosen by
the Bank, using sound actuarial assumptions at the time of such determination.
2.2 Account
"Account" means the Retirement Account or Termination Account, where
appropriate, as maintained by the Employer in accordance with Article IV with
respect to any deferral of Compensation pursuant to this Plan. A Participant's
Retirement Account or Termination Account shall be utilized solely as a device
for the determination and measurement of the amounts to be paid to the
Participant pursuant to the Plan. A Participant's Account shall not constitute
or be treated as a trust fund of any kind.
2.3 Beneficiary
"Beneficiary" means the person, persons or entity entitled under Article
VI to receive any Plan benefits payable after a Participant's death.
2.4 Board
"Board" means the Board of Directors of North Valley Bancorp.
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2.5 Change in Control
A "Change of Control" shall occur:
(a) Upon North Valley Bancorp's knowledge that any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended) is or becomes "the beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of North Valley
Bancorp shares representing forty percent (40%) or more of the combined
voting power of the then outstanding securities; or
(b) Upon the approval by the stockholders of North Valley Bancorp of a
merger or consolidation (other than a merger or consolidation in which
North Valley Bancorp is the surviving corporation and which does not
result in any reclassification or reorganization of North Valley Bancorp's
then outstanding securities), a sale or disposition of all or
substantially all of North Valley Bancorp's assets or a plan of
liquidation or dissolution of North Valley Bancorp; or
(c) If, during any period of two (2) consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of
North Valley Bancorp cease for any reason to constitute at least a
majority thereof, unless the election or nomination for the election by
the stockholders of North Valley Bancorp of each new director was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period.
2.6 Committee
"Committee" means the Administrative Committee appointed by the Chairman
of the Board to administer the Plan pursuant to Article VII.
2.7 Compensation
"Compensation" means the salary and bonuses payable to the Participant
during the calendar year and considered to be "wages" for purposes of federal
income tax withholding, before reduction for amounts deferred under this Plan.
Compensation does not include expense reimbursements, any form of noncash
compensation or benefits.
2.8 Deferral Commitment
"Deferral Commitment" means an election to defer Compensation made by a
Participant pursuant to Article III and for which a separate Participation
Agreement has been submitted by the Participant to the Committee.
2.9 Deferral Period
"Deferral Period" means the period over which a Participant has elected to
defer a portion of his Compensation. Each calendar year shall be a separate
Deferral Period, provided that the Deferral Period may be modified pursuant to
paragraph 3.4 or 3.5.
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2.10 Determination Date
"Determination Date" means the last day of each calendar month.
2.11 Director
"Director" means a member of the Board of Directors of the Employer.
2.12 Disability
"Disability" means a physical or mental condition which, in the opinion of
the Committee, permanently prevents an employee from satisfactorily performing
employee's usual duties for Employer. The Committee's decision as to Disability
will be based upon medical reports and/or other evidence satisfactory to the
Committee.
2.13 Early Retirement Date
"Early Retirement Date" means the date prior to his Normal Retirement Date
on which the Participant actually terminates Employment following the
Participant's attainment of age fifty-five (55) and completion of ten (10) Years
of Service.
2.14 Elective Deferred Compensation
The amount of Compensation that a Participant elects to defer pursuant to
a Deferral Commitment.
2.15 Employer
"Employer" means North Valley Bancorp, North Valley Bank, and any
affiliated or subsidiary corporation designated by the Board of North Valley
Bancorp or any successors to the business thereof.
2.16 Financial Hardship
"Financial Hardship" means an immediate and heavy financial need of the
Participant, determined by the Committee on the basis of information supplied by
the Participant in accordance with the standards set forth in the applicable
treasury regulations promulgated under Section 401(k) of the Internal Revenue
Code, or such other standards as are, from time to time, established by the
Committee.
2.17 Interest
"Interest" on a Determination Date means interest computed at the rate
provided below:
(a) Termination Account Interest. The interest yield credited to a
Termination Account shall be equal to the monthly equivalent of the annual
yield of the Moody's Average Corporate Bond Yield Index for the preceding
calendar month as published by Moody's Investor Service, Inc. (or any
successor thereto) or, if such index is no longer published, a
substantially similar index selected by the Board.
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(b) Retirement Account Interest. The interest yield credited to a
Retirement Account shall be equal to the monthly equivalent of the
effective annual yield on the Termination Account plus three (3)
percentage points.
2.18 Normal Retirement Date
"Normal Retirement Date" means the first day of the month coincidental
with or next following the date on which a Participant attains age sixty-five
(65).
2.19 Participant
"Participant" means any individual who is participating or has
participated in this Plan as provided in Article III.
2.20 Participation Agreement
"Participation Agreement" means the agreement submitted by a Participant
to the Committee prior to the beginning of the Deferral Period, with respect to
the Deferral Commitment made for such Deferral Period.
2.21 Plan Benefit
"Plan Benefit" means the benefit payable to a Participant as calculated in
Article V.
2.22 Retirement
"Retirement" means severance of Employment at the Participant's Normal
Retirement Date or Early Retirement Date as applicable.
2.23 Qualified 401(k) Plan
"Qualified 40l(k) Plan" means the Deferred Salary Profit-Sharing Thrift
Plan for Employees of North Valley Bancorp and its Affiliates, including North
Valley Bank, or any successor salary reduction plan that qualifies under Section
40l(a) of the Internal Revenue Code by satisfying the requirements of Section
401(k) of the Code.
2.24 Qualified Retirement Plan
"Qualified Retirement Plan" means the North Valley Bancorp Employers'
Stock Ownership Plan and Qualified 401(k) Plan, or any successor defined
contribution retirement income plan maintained by Employer that qualifies under
Section 40l(a) of the Internal Revenue Code.
2.25 Year of Service
"Year of Service" shall have the meaning provided for such term for
purposes of vesting under the Qualified 401(k) Plan, whether or not the
Participant is a participant in that plan.
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ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility and Participation
(a) Eligibility. Eligibility to participate in the Plan shall be
limited to key employees of the Employer who are designated, from time to
time, by the Board of North Valley Bancorp.
(b) Participation. An eligible employee may elect to participate in
the Plan with respect to any Deferral Period by submitting a Participation
Agreement to the Committee by December 15 of the calendar year immediately
preceding the Deferral Period, provided that employees making bonus
deferrals must do so prior to the Board meeting in which a provisional or
full payment of such bonus is authorized.
(c) Part-Year Participation. In the event that an employee first
becomes eligible to participate during a Deferral Period, a Participation
Agreement must be submitted to the Committee no later than thirty (30)
days following notification of the employee of eligibility to participate,
and such Participation Agreement shall be effective only with regard to
Compensation earned or payable following the submission of the
Participation Agreement to the Committee.
3.2 Form of Deferral; Minimum Deferral
(a) Deferral Commitment. A Participant may elect in the Participation
Agreement to defer any portion of his Compensation for the calendar year
following the calendar year in which the Participation Agreement is
submitted. The amount to be deferred must not be less than two thousand
four hundred dollars ($2,400) during the Deferral Period.
(b) Participants Entering at Mid-Year. In the event an employee enters
this Plan at any time other than January 1 of any calendar year, he or she
must defer at least two hundred dollars ($200) times the number of months
remaining in the Deferral Period.
3.3 Limitation on Deferral
A Participant may defer up to one hundred percent (100%) of the
Participant's Compensation. However, the Committee may impose a different
maximum deferral amount or increase the minimum deferral amount under paragraph
3.2 from time to time by giving written notice to all Participants, provided,
however, that no such changes may affect a Deferral Commitment made prior to the
Committee's action.
3.4 Commitment Limited by Retirement
If a Participant over the age of fifty-five (55) intends to terminate
employment prior to the end of the Deferral Period, the Participant may elect,
with the Committee's consent, to defer over a period which ends at the date of
his intended retirement. The Minimum Deferral shall be two hundred dollars
($200) times the number of months to the date of the intended termination.
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3.5 Modification of Deferral Commitment
Deferral Commitment shall be irrevocable except that the Committee may
permit a Participant to reduce the amount to be deferred, or waive the remainder
of the Deferral Commitment upon a finding that the Participant has suffered a
Financial Hardship.
3.6 Change in Employment Status
If the Board determines that a Participant's employment performance is no
longer at a level that deserves reward through participation in this Plan, but
does not terminate the Participant's employment with the Employer, no Deferral
Commitments may be made by such Participant after the date designated by the
Board of North Valley Bancorp.
ARTICLE IV--DEFERRED COMPENSATION ACCOUNT
4.1 Accounts
For record keeping purposes only, an Account shall be maintained for each
Participant. Separate subaccounts shall be maintained to the extent necessary to
properly reflect the Participant's total vested Account balance.
4.2 Initial Account Balances
Each Participant shall be deemed to have an initial balance in his Account
equal to the account balance, if any, immediately preceding the effective date
of this Plan under any other nonqualified deferred compensation arrangement
maintained by the Employer.
4.3 Elective Deferred Compensation
A Participant's Elective Deferred Compensation shall be credited to the
Participant's Account as the corresponding nondeferred portion of the
Compensation becomes or would have become payable. Any withholding of taxes or
other amounts with respect to deferred Compensation that is required by state,
federal or local law shall be withheld from the Participant's nondeferred
Compensation to the maximum extent possible with any excess being withheld from
the Participant's Account.
4.4 Employer Discretionary Contributions
Employer may make Discretionary Contributions to Participants' Accounts.
Discretionary Contributions shall be credited at such times and in such amounts
as the Board in its sole discretion shall determine. The amount of the
Discretionary Contributions shall be evidenced in a special Participation
Agreement approved by the Board.
4.5 Matching Contributions
Employer shall credit a Matching Contribution to the Participant's Account
equal to twenty-five percent (25%) of the sum of the Compensation deferred by
the Participant under this Plan and under the Qualified 401(k) Plan during a
Deferral Period, but not to exceed five percent (5%) of the Participant's
Compensation before such deferrals. The Matching Contribution shall be reduced
by the amount, if any, the Employer has contributed as a matching contribution
for the Participant to
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the Qualified 401(k) Plan for the Deferral Period. The Matching Contribution
shall be credited to the Participant's Account on the last day of each calendar
year.
4.6 Qualified Plan Make-up Credit
The Employer shall credit to each Participant's account on the last day of
each year the difference between:
(a) The amount which would have been contributed to the Qualified
Plans if no deferrals had been made under this Plan; and
(b) The amounts actually contributed to the Qualified Plans for such
Participant.
4.7 Interest
Interest earned shall be calculated as of each Determination Date based
upon the average daily balance of the account since the preceding Determination
Date and shall be credited to the Participant's Account at that time.
4.8 Determination of Accounts
Each Participant's Account as of each Determination Date shall consist of
the balance of the Participant's Account as of the immediately preceding
Determination Date, plus the Participant's Elective Deferred Compensation
credited, any Employer Discretionary Contributions, any Matching Contributions,
and Qualified Plan Makeup Credits and any interest earned, minus the amount of
any distributions made since the immediately preceding Determination Date.
4.9 Vesting of Accounts
The Participant shall be entitled to receive the vested portion of either
the Retirement Account or the Termination Account, as determined under Article
V, but not both. Each Participant shall be vested in the amounts credited to
such Participant's Account and earnings thereon as follows:
(a) Amounts Deferred. A Participant shall be one hundred percent
(100%) vested at all times in the amount of Compensation elected to be
deferred under this Plan and Interest thereon.
(b) Employer Discretionary Contributions. Employer Discretionary
Contributions and Interest thereon shall be vested as set forth in the
special Participation Agreement.
(c) Matching Contributions. A Participant's Matching Contributions and
Earnings, thereon, shall become vested at the same time and in the same
amount as corresponding Matching Contributions under the Qualified 401(k)
Plan.
(d) Qualified Plan Make-up Credits. Qualified Plan Make-up Credits and
Interest thereon shall be vested to the same extent that amounts received
from the underlying qualified plan are vested.
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4.10 Disability
If a Participant suffers a Disability during a Deferral Period, the
Employer will contribute all scheduled deferrals to the Participant's Account
for the remainder of the Deferral Period.
4.11 Statement of Accounts
The Committee shall submit to each Participant, within one hundred twenty
(120) days after the close of each calendar year and at such other time as
determined by the Committee, a statement setting forth the balance to the credit
of the account maintained for a Participant.
ARTICLE V--PLAN BENEFITS
5.1 Retirement Benefit
The Employer shall pay a Plan Benefit equal to the Participant's
Retirement Account to a Participant who terminates Employment by reason of
Retirement, Disability, or within twenty-four (24) months of a Change in
Control.
5.2 Termination Benefit
The Employer shall pay a Plan Benefit equal to the Participant's
Termination Account to a Participant who terminates Employment for any reason
other than those provided for in 5.1 or 5.3.
5.3 Death Benefit
Upon the death of a Participant, the Employer shall pay to the
Participant's Beneficiary an amount determined as follows:
(a) Posttermination. If the Participant dies after termination of
Employment, the amount payable shall be equal to the remaining unpaid
balance of the Participant's appropriate Account.
(b) Preretirement. If the Participant dies prior to termination of
Employment, the amount payable shall be the Participant's Retirement
Account balance.
5.4 Early Withdrawal Option
Participants shall be permitted to elect to withdraw amounts from their
Account subject to the following restrictions:
(a) Timing of Election to Withdraw. The election to make an Early
Withdrawal must be made at the same time the Participant enters into a
Participation Agreement for a Deferral Commitment.
(b) Amount of Withdrawal. The amount which a Participant can elect to
withdraw with respect of any Deferral Commitment shall be limited to fifty
percent (50%) or one hundred percent (100%) of the amount of such Deferral
Commitment, excluding any Interest or Employer Discretionary
Contributions.
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(c) Timing of Early Withdrawals. The amount elected to be withdrawn
shall be paid in a single lump sum at the time elected by the Participant
in his Participation Agreement wherein he elected the Early Withdrawal
Option. In no event shall such a withdrawal commence prior to seven (7)
years following the end of the Deferral Period in which the Participant
elected the Early Withdrawal Option.
Amounts paid to a Participant pursuant to the Section 5.4 shall be treated
as distributions from the Participant's Account.
5.5 Hardship Distributions
Upon a finding that a Participant has suffered a Financial Hardship, the
Committee may, in its sole discretion, make distributions from the Participant's
Account prior to the time specified for payment of benefits under the Plan. The
amount of such distribution shall be limited to the amount reasonably necessary
to meet the Participant's requirements during the Financial Hardship.
5.6 Accelerated Distribution
Notwithstanding any other provision of the Plan, at any time after a
Change in Control or at any time following termination of service on the Board,
a Participant shall be entitled to receive, upon written request to the
Committee, a lump sum distribution equal to ninety percent (90%) of the vested
Account balance as of the Determination Date.
5.7 Form of Benefit Payment
All Plan Benefits other than Early Withdrawals or Hardship Distributions
shall be paid in the form of the Basic Benefit provided below, unless the
Committee, in its sole discretion, selects an alternative form. Any form
requested by the Participant or a Beneficiary shall be considered by the
Committee, but shall not be binding. The basic and alternative methods of
payment are as follows:
(a) Basic Form of Benefit Payment. Equal monthly installments of the
Account amortized over ten (10) years.
(b) Alternative Forms of Benefit Payment.
(i) Equal monthly installments of the Account amortized over a
period of sixty (60) months.
(ii) Equal monthly installments of the Account amortized over a
period of one hundred eighty (180) months.
(iii) A single sum amount which is equal to the Account balance.
(iv) Any other method which is the Actuarial Equivalent of the
Participant's Account balance.
(c) Interest on Unpaid Balance. The Interest on the unpaid balance of
an Account under paragraphs (a), (b)(i), or (b)(ii) above shall be equal
to the average Interest rate on the Account over the thirty-six (36)
months immediately preceding the commencement of benefit payments.
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5.8 Withholding; Payroll Taxes
The Employer shall withhold from payments made hereunder any taxes
required to be withheld from such payments under federal, state or local law.
However, a Beneficiary may elect not to have withholding for federal income tax
pursuant to Section 3405(a)(2) of Internal Revenue Code, or any successor
provision thereto.
5.9 Commencement of Payments
Payment shall commence on the day selected by the Participant in the
Participation Agreement, at the discretion of the Committee, but not later than
sixty (60) days after the end of the month in which the Participant terminates
employment with the Employer. All payments shall be made as of the first day of
the month.
5.10 Full Payment of Benefits
Notwithstanding any other provision of this Plan, all benefits shall be
paid no later than one hundred eighty (180) months following the Participant's
age sixty-five (65) or termination of service, whichever is later.
5.11 Payment to Guardian
If a Plan benefit is payable to a minor or a person declared incompetent
or to a person incapable of handling the disposition of his property, the
Committee may direct payment of such Plan Benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or person. The Committee may require proof of incompetency, minority, incapacity
or guardianship as it may deem appropriate prior to distribution of the Plan
benefit. Such distribution shall completely discharge the Committee from all
liability with respect to the benefit.
5.12 Suicide; Misrepresentation
Notwithstanding any other provisions of this Plan, no benefit in excess of
the Participant's Account balance shall be paid to a Beneficiary if the
Participant's death occurs as a result of suicide during the twenty-four (24)
successive calendar months beginning with the calendar month following the
commencement of an individual's participation in the Plan. Similarly, no benefit
in excess of the Participant's Account balance shall be paid if death occurs
within the twenty-four (24) successive calendar months following commencement of
an individual's participation in the Plan if the Participant has made a material
misrepresentation in any form or document provided by the Participant to or for
the benefit of the Employer.
ARTICLE VI--BENEFICIARY DESIGNATION
6.1 Beneficiary Designation
Each Participant shall have the right, at any time, to designate one (1)
or more persons or an entity as Beneficiary (both primary as well as secondary)
to whom benefits under this Plan shall be paid in the event of Participant's
death prior to complete distribution of the Participant's Account. Each
Beneficiary designation shall be in a written form prescribed by the Committee
and will be effective only when filed with the Committee during the
Participant's lifetime. Designation by a mar-
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ried Participant of a Beneficiary other than the Participant's spouse shall not
be effective without spousal execution of a written consent that acknowledges
the effect of the designation, unless such consent cannot be obtained because
the spouse cannot be located.
6.2 Changing Beneficiary
Any Beneficiary designation may be changed by an unmarried Participant
without the consent of the previously named Beneficiary by the filing of a new
designation with the Committee. A married Participant's Beneficiary designation
may be changed with the consent of the Participant's spouse as provided for in
Section 6.1 by the filing of a new designation with the Committee. The filing of
a new designation shall cancel all designations previously filed.
6.3 Change in Marital Status
If the Participant's marital status changes after the Participant has
designated a Beneficiary, the following shall apply:
(a) If the Participant is married at death but was unmarried when the
designation was made, the designation shall be void unless the spouse has
consented to it in the manner prescribed above.
(b) If the Participant is unmarried at death but was married when the
designation was made:
(i) The designation shall be void if the spouse was named as
Beneficiary.
(ii) The designation shall remain valid if a nonspouse beneficiary
was named.
(c) If the Participant was married when the designation was made and
is married to a different spouse at death, the designation shall be void
unless the new spouse has consented to it in the manner prescribed above.
6.4 No Beneficiary Designation
If any Participant fails to designate a Beneficiary in the manner provided
above, or if the Beneficiary designated by a deceased Participant dies before
the Participant or before complete distribution of the Participant's benefits,
the Participant's Beneficiary shall be the person in the first of the following
classes in which there is a survivor:
(a) The surviving spouse;
(b) The Participant's children, except that if any of the children
predeceases the Participant but leave issue surviving, then such issue
shall take by right of representation the share the parent would have
taken if living;
(c) The Participant's estate.
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ARTICLE VII--ADMINISTRATION
7.1 Committee; Duties
This Plan shall be administered by an Administrative Committee, which
shall consist of not less than three (3) persons appointed by the Chairman of
the Board except after a Change in Control as provided in 7.5. The Committee
shall have the authority to make, amend, interpret and enforce all appropriate
rules and regulations for the administration of the Plan and decide or resolve
any and all questions, including interpretations of the Plan, as may arise in
such administration. A majority vote of the Committee members shall control any
decision. Members of the Committee may be Participants under this Plan.
7.2 Agents
The Committee may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Company.
7.3 Binding Effect of Decisions
The decision or action of the Committee in respect of any question arising
out of or in connection with the administration, interpretation and application
of the Plan and the rules and regulations promulgated hereunder shall be final
and conclusive and binding upon all persons having any interest in the Plan.
7.4 Indemnity of Committee
The Company shall indemnify and hold harmless the members of the Committee
against any and all claims, loss, damage, expense or liability arising from any
action or failure to act with respect to this Plan on account of such person's
service on the Committee, except in the case of gross negligence or willful
misconduct.
7.5 Election of Committee After Change in Control
After a Change in Control, vacancies on the Committee shall be filled by
majority vote of the remaining Committee members and Committee members may be
removed only by such a vote. If no Committee members remain, a new Committee
shall be elected by majority vote of the Participants in the Plan immediately
preceding such Change in Control. No amendment shall be made to Article VII or
other Plan provisions regarding Committee authority with respect to the Plan.
ARTICLE VIII--CLAIMS PROCEDURE
8.1 Claim
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Committee, which shall respond in writing within
thirty (30) days.
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8.2 Denial of Claim
If the claim or request is denied, the written notice of denial shall
state:
(a) The reasons for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information required
and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
8.3 Review of Claim
Any person whose claim or request is denied or who has not received a
response within thirty (30) days may request review by notice given in writing
to the Committee. The claim or request shall be reviewed by the Committee who
may, but shall not be required to, grant the claimant a hearing. On review, the
claimant may have representation, examine pertinent documents, and submit issues
and comments in writing.
8.4 Final Decision
The decision on review shall normally be made within sixty (60) days. If
an extension of time is required for a hearing or other specified circumstances,
the claimant shall be notified and the time limit shall be one hundred twenty
(120) days. The decision shall be in writing and shall state the reasons and the
relevant plan provisions. All decisions on review shall be final and bind all
parties concerned.
ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment
The Board may at any time amend the Plan in whole or in part, provided,
however, that no amendment shall be effective to decrease or restrict the amount
accrued to the date of Amendment in any Account or to change the Interest Rate
credited to amounts already held in an Account under the Plan. Upon a change in
the Interest Rate, thirty (30) days' advance written notice shall be given to
each Participant and any deferral after the effective date of the change shall
be held in a separate Account which shall be credited with the new Interest
Rate.
9.2 Employer's Right to Terminate
The Board may at any time partially or completely terminate the Plan if,
in its judgment, the tax, accounting, or other effects of the continuance of the
Plan, or potential payments thereunder would not be in the best interests of the
Employer.
(a) Partial Termination. The Board may partially terminate the Plan by
instructing the Committee not to accept any additional Deferral
Commitments. In the event of such a Partial Termination, the Plan shall
continue to operate and be effective with regard to Deferral Commitments
entered into prior to the effective date of such Partial Termination.
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(b) Complete Termination. The Board may completely terminate the Plan
by instructing the Committee not to accept any additional Deferral
Commitments, and by terminating all ongoing Deferral Commitments. In the
event of Complete Termination, the Plan shall cease to operate and the
Employer shall pay out to each Participant their Account as if that
Participant had terminated service as of the effective date of the
Complete Termination. Payments shall be made in equal annual installments
over the period listed below, based on the Account balance:
Appropriate Account Balance Payout Period
--------------------------------------------------------------------
Less than $10,000 1 Year
$10,000 but less than $50,000 3 Years
More than $50,000 5 Years
====================================================================
Interest earned on the unpaid balance in each Participant's Account shall
be the Interest Rate in effect on the Determination Date immediately preceding
the effective date of the Complete Termination.
ARTICLE X--MISCELLANEOUS
10.1 Unfunded Plan
This Plan is intended to be an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301 and 401 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
therefore to be exempt from the provisions of Parts 2, 3, and 4 of Title I of
ERISA. Accordingly, the Plan shall terminate and no further benefits shall
accrue hereunder in the event it is determined by a court of competent
jurisdiction or by an opinion of counsel that the Plan constitutes an employee
pension benefit plan within the meaning of Section 3(2) of ERISA which is not so
exempt. In the event of a termination under this Section 10.1, all ongoing
Deferral Commitments shall terminate, no additional Deferral Commitments will be
accepted by the Committee, and the amount of each Participant's vested Account
balance shall be distributed to such Participant at such time and in such manner
as the Committee, in its sole discretion, determines.
10.2 Unsecured General Creditor
Participants and their Beneficiaries, heirs, successors, and assigns shall
have no legal or equitable rights, interest or claims in any property or assets
of the Employer, nor shall they be Beneficiaries of, or have any rights, claims
or interests in any life insurance policies, annuity contracts, or the proceeds
therefrom owned or which may be acquired by the Employer. Except as may be
provided in Section 10.3, such policies, annuity contracts or other assets of
the Employer shall not be held under any trust for the benefit of Participants,
their Beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of the Employer under
this Plan. Any and all of the Employer's assets and policies shall be, and
remain, the general, unpledged, unrestricted assets of the Employer. The
Employer's obligation under the Plan shall be that of an unfunded and unsecured
promise to pay money in the future.
PAGE 14 - EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE>
10.3 Trust Fund
The Employer shall be responsible for the payment of all benefits provided
under the Plan. At its discretion, the Employer may establish one (1) or more
trusts, with such trustees as the Board may approve, for the purpose of
providing for the payment of such benefits. Such trust or trust may be
irrevocable, but the assets thereof shall be subject to the claims of the
Employer's creditors. To the extent any benefits provided under the Plan are
actually paid from any such trust, the Employer shall have no further obligation
with respect thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by, the Employer.
10.4 Nonassignability
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are, and all
fights to which are, expressly declared to be unassignable and nontransferable.
No part of the amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
10.5 Not a Contract of Employment
The terms and conditions of this Plan shall not be deemed to constitute a
contract of employment between the Employer and the Participant, and the
Participant (or his Beneficiary) shall have no rights against the Employer
except as may otherwise be specifically provided herein. Moreover, nothing in
this Plan shall be deemed to give a Participant the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discipline or discharge him at any time.
10.6 Protective Provisions
A Participant will cooperate with the Employer by furnishing any and all
information requested by the Employer, in order to facilitate the payment of
benefits hereunder, and by taking such physical examinations as the Employer may
deem necessary and taking such other actions as may be requested by the
Employer.
10.7 Terms
Whenever any words are used herein the masculine, they shall be construed
as though they were used in the feminine in all cases where they would so apply;
and wherever any words are used herein in the singular or in the plural, they
shall be construed as though they were used in the plural or the singular, as
the case may be, in all cases where they would so apply.
10.8 Captions
The captions of the articles, sections, and paragraphs of this Plan are
for convenience only and shall not control or affect the meaning or construction
of any of its provisions.
PAGE 15 - EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE>
10.9 Governing Law
The provisions of this Plan shall be construed, interpreted, and governed
in all respects in accordance with applicable federal law and, to the extent not
preempted by such federal law, in accordance with the laws of the State of
California.
10.10 Validity
In case any provision of this Plan shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
10.11 Notice
Any notice or filing required or permitted to be given to the Committee
under the Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to any member of the Committee or the Secretary of
the Employer. Such notice shall be deemed given as of the date of delivery or,
if such delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
10.12 Successors
The provisions of this Plan shall bind and inure to the benefit of the
Employer and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all of
the business and assets of North Valley Bancorp, and successors of any such
corporation or other business entity.
NORTH VALLEY BANCORP
By: /s/ Donald V. Carter
----------------------------
Its President & CEO
Dated: 3-20-95
----------------------------
PAGE 16 - EXECUTIVE DEFERRED COMPENSATION PLAN
NORTH VALLEY BANCORP
DIRECTORS' DEFERRED COMPENSATION PLAN
Effective April 1, 1995
Exhibit 10(ee)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I--PURPOSE ......................................................... 1
ARTICLE II--DEFINITIONS .................................................... 1
2.1 Account .............................................................. 1
2.2 Actuarial Equivalent ................................................. 1
2.3 Beneficiary .......................................................... 1
2.4 Board ................................................................ 1
2.5 Change in Control .................................................... 1
2.6 Committee ............................................................ 2
2.7 Compensation ......................................................... 2
2.8 Deferral Commitment .................................................. 2
2.9 Deferral Period ...................................................... 2
2.10 Determination Date .................................................. 2
2.11 Elective Deferred Compensation ...................................... 2
2.12 Employer ............................................................ 3
2.13 Financial Hardship .................................................. 3
2.14 Interest Rate ....................................................... 3
2.15 Participant ......................................................... 3
2.16 Participation Agreement ............................................. 3
2.17 Plan Benefit ........................................................ 3
ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS ........................ 3
3.1 Eligibility and Participation ........................................ 3
3.2 Form of Deferral; Minimum Deferral ................................... 4
3.3 Limitation on Deferral ............................................... 4
3.4 Modification of Deferral Commitment .................................. 4
ARTICLE IV--DEFERRED COMPENSATION ACCOUNT .................................. 4
4.1 Accounts ............................................................. 4
4.2 Elective Deferred Compensation ....................................... 4
4.3 Employer Discretionary Contributions ................................. 5
4.4 Interest ............................................................. 5
4.5 Determination of Accounts ............................................ 5
4.6 Vesting of Accounts .................................................. 5
4.7 Statement of Accounts ................................................ 5
(i)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE V--PLAN BENEFITS .................................................. 6
5.1 Plan Benefit ......................................................... 6
5.2 Death Benefit ........................................................ 6
5.3 Early Withdrawal Option .............................................. 6
5.4 Hardship Distributions ............................................... 6
5.5 Accelerated Distribution ............................................. 7
5.6 Form of Benefit Payment .............................................. 7
5.7 Withholding; Payroll Taxes ........................................... 7
5.8 Commencement of Payments ............................................. 7
5.9 Full Payment of Benefits ............................................. 8
5.10 Payment to Guardian ................................................. 8
5.11 Suicide; Misrepresentation .......................................... 8
ARTICLE VI--BENEFICIARY DESIGNATION ....................................... 8
6.1 Beneficiary Designation .............................................. 8
6.2 Changing Beneficiary ................................................. 8
6.3 Change in Marital Status ............................................. 9
6.4 No Beneficiary Designation ........................................... 9
ARTICLE VII--ADMINISTRATION ............................................... 9
7.1 Committee; Duties .................................................... 9
7.2 Agents ............................................................... 10
7.3 Binding Effect of Decisions .......................................... 10
7.4 Indemnity of Committee ............................................... 10
7.5 Election of Committee After Change in Control ........................ 10
ARTICLE VIII--CLAIMS PROCEDURE ............................................ 10
8.1 Claim ................................................................ 10
8.2 Denial of Claim ...................................................... 10
8.3 Review of Claim ...................................................... 11
8.4 Final Decision ....................................................... 11
ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN ............................. 11
9.1 Amendment ........................................................... 11
9.2 Employer's Right to Terminate ....................................... 11
(ii)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE X--MISCELLANEOUS .................................................. 12
10.1 Unfunded Plan ...................................................... 12
10.2 Unsecured General Creditor ......................................... 12
!0.3 Trust Fund ......................................................... 12
10.4 Nonassignability ................................................... 13
10.5 Not a Contract of Employment ....................................... 13
10.6 Protective Provisions .............................................. 13
10.7 Terms .............................................................. 13
10.8 Captions ........................................................... 13
10.9 Governing Law ...................................................... 13
10.10 Validity .......................................................... 13
10.11 Notice ............................................................ 14
10.12 Successors ........................................................ 14
(iii)
<PAGE>
NORTH VALLEY BANCORP
DIRECTORS' DEFERRED COMPENSATION PLAN
ARTICLE I--PURPOSE
The purpose of this Deferred Compensation Plan for Directors (the
"Plan") is to provide current tax planning opportunities as well as supplemental
funds for retirement or death for directors of North Valley Bancorp ("Bank"). It
is intended that the Plan will aid in retaining and attracting directors of
exceptional ability by providing them with these benefits. This Plan will be
effective as of April 1, 1995.
ARTICLE II--DEFINITIONS
For the purposes of this Plan, the following terms shall have the
meanings indicated, unless the context clearly indicates otherwise:
2.1 Account
"Account" means the Account as maintained by the Employer in accordance
with Article IV with respect to any deferral of Compensation pursuant to this
Plan. A Participant's Account shall be utilized solely as a device for the
determination and measurement of the amounts to be paid to the Participant
pursuant to the Plan. A Participant's Account shall not constitute or be treated
as a trust fund of any kind.
2.2 Actuarial Equivalent
"Actuarial Equivalent" means equivalence in value between two (2) or
more forms and/or times of payment based on a determination by an actuary chosen
by the Bank, using sound actuarial assumptions at the time of such
determination.
2.3 Beneficiary
"Beneficiary" means the person, persons or entity entitled under Article
VI to receive any Plan benefits payable after a Participant's death.
2.4 Board
"Board" means the Board of Directors of the Employer.
2.5 Change in Control
A "Change in Control" shall occur:
(a) Upon North Valley Bancorp's knowledge that any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended) is or becomes "the beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act), directly or indi-
PAGE 1 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
rectly, of North Valley Bancorp's shares representing forty percent
(40%) or more of the combined voting power of the then outstanding
securities; or
(b) Upon the approval by the stockholders of North Valley Bancorp of
a merger or consolidation (other than a merger or consolidation in which
North Valley Bancorp is the surviving corporation and which does not
result in any reclassification or reorganization of North Valley
Bancorp's then outstanding securities), a sale or disposition of all or
substantially all of North Valley Bancorp's assets or a plan of
liquidation or dissolution of North Valley Bancorp; or
(c) If, during any period of two (2) consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of
North Valley Bancorp cease for any reason to constitute at least a
majority thereof, unless the election or nomination for the election by
the stockholders of North Valley Bancorp of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of the period.
2.6 Committee
"Committee" means the Administrative Committee appointed to administer
the Plan pursuant to Article VII.
2.7 Compensation
"Compensation" means the retainer, meeting and Committee chairmanship
fees paid to Participant by the Employer during the calendar year with respect
to duties performed as a member of the Board before reduction for any amounts
deferred pursuant to this Plan. Compensation does not include expense
reimbursements, any form of noncash compensation or benefits.
2.8 Deferral Commitment
"Deferral Commitment" means an election to defer Compensation made by a
Participant pursuant to Article III and for which a separate Participation
Agreement has been submitted by the Participant to the Committee.
2.9 Deferral Period
"Deferral Period" means the period over which a Participant has elected
to defer a portion of his Compensation. Each calendar year shall be a separate
Deferral Period, provided that the Deferral Period may be modified pursuant to
paragraph 3.4.
2.10 Determination Date
"Determination Date" means the last day of each calendar month.
2.11 Elective Deferred Compensation
The amount of Compensation that a Participant elects to defer pursuant
to a Deferral Commitment.
PAGE 2 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
2.12 Employer
"Employer" means North Valley Bancorp, North Valley Bank, and any
affiliated or subsidiary corporation designated by the Board of North Valley
Bancorp or any successors to the business thereof.
2.13 Financial Hardship
"Financial Hardship" means an immediate and heavy financial need of the
Participant, determined by the Committee on the basis of information supplied by
the Participant in accordance with the standards set forth in the applicable
treasury regulations promulgated under Section 40l(k) of the Internal Revenue
Code, or such other standards as are, from time to time, established by the
Committee.
2.14 Interest Rate
"Interest Rate" means, with respect to any calendar month, the monthly
equivalent of three (3) percentage points greater than the annual yield of the
Moody's Average Corporate Bond Yield Index for the preceding calendar month as
published by Moody's Investor Service, Inc. (or any successor thereto) or, if
such index is no longer published, a substantially similar index selected by the
Board.
2.15 Participant
"Participant" means any individual who is participating or has
participated in this Plan as provided in Article III.
2.16 Participation Agreement
"Participation Agreement" means the agreement submitted by a Participant
to the Committee prior to the beginning of the Deferral Period, with respect to
the Deferral Commitment made for such Deferral Period.
2.17 Plan Benefit
"Plan Benefit" means the benefit payable to a Participant as calculated
in Article V.
ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility and Participation
(a) Eligibility. Eligibility to participate in the Plan shall be
limited to directors of the Employer.
(b) Participation. A director may elect to participate in the Plan
with respect to any Deferral Period by submitting a Participation
Agreement to the Committee by December 15 of the calendar year
immediately preceding the Deferral Period.
PAGE 3 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
(c) Part-Year Participation. In the event that a director first
becomes eligible to participate during a Deferral Period, a
Participation Agreement must be submitted to the Committee no later than
thirty (30) days following notification of the director of eligibility
to participate, and such Participation Agreement shall be effective only
with regard to Compensation earned or payable following the submission
of the Participation Agreement to the Committee.
3.2 Form of Deferral; Minimum Deferral
(a) Deferral Commitment. A Participant may elect in the
Participation Agreement to defer any portion of his Compensation for the
calendar year following the calendar year in which the Participation
Agreement is submitted. The amount to be deferred shall be stated as a
percentage and must not be less than two thousand four hundred dollars
($2,400) during the Deferral Period.
(b) Participants Entering at Mid-Year. In the event a director
enters this Plan at any time other than January 1 of any calendar year,
he or she must defer at least two hundred dollars ($200) times the
number of months remaining in the Deferral Period.
3.3 Limitation on Deferral
A Participant may defer up to one hundred percent (100%) of the
Participant's Compensation. However, the Committee may impose a different
maximum deferral amount or increase the minimum deferral amount under paragraph
3.2 from time to time by giving written notice to all Participants, provided,
however, that no such changes may affect a Deferral Commitment made prior to the
Committee's action.
3.4 Modification of Deferral Commitment
Deferral Commitment shall be irrevocable except that the Committee may
permit a Participant to reduce the amount to be deferred, or waive the remainder
of the Deferral Commitment upon a finding that the Participant has suffered a
Financial Hardship.
ARTICLE IV--DEFERRED COMPENSATION ACCOUNT
4.1 Accounts
For record keeping purposes only, an Account shall be maintained for
each Participant. Separate subaccounts shall be maintained to the extent
necessary to properly reflect the Participant's total vested Account balance.
For each Participant the initial Account balance shall be equal to the Account
balance, if any, immediately preceding the effective date of this Plan, under
the North Valley Bancorp Executive Deferred Compensation Plan.
4.2 Elective Deferred Compensation
A Participant's Elective Deferred Compensation shall be credited to the
Participant's Account as the corresponding nondeferred portion of the
Compensation becomes or would have become payable. Any withholding of taxes or
other amounts with respect to deferred Compensation that is re-
PAGE 4 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
quired by state, federal or local law shall be withheld from the Participant's
nondeferred Compensation to the maximum extent possible with any excess being
withheld from the Participant's Account.
4.3 Employer Discretionary Contributions
Employer may make Discretionary Contributions to Participants' Accounts.
Discretionary Contributions shall be credited at such times and in such amounts
as the Board in its sole discretion shall determine. The amount of the
Discretionary Contributions shall be evidenced in a special Participation
Agreement approved by the Board.
4.4 Interest
The Accounts shall be credited monthly with interest earned based on the
Interest Rate specified in Section 2.14. Interest earned shall be calculated as
of each Determination Date based upon the average daily balance of the Account
since the preceding Determination Date and shall be credited to the
Participant's Account at that time.
4.5 Determination of Accounts
Each Participant's Account as of each Determination Date shall consist
of the balance of the Participant's Account as of the immediately preceding
Determination Date, plus the Participant's Elective Deferred Compensation
credited and any Employer Discretionary Contributions and any interest earned,
minus the amount of any distributions made since the immediately preceding
Determination Date.
4.6 Vesting of Accounts
Each Participant shall be vested in the amounts credited to such
Participant's Account and earnings thereon as follows:
(a) Amounts Deferred. A Participant shall be one hundred percent
(100%) vested at all times in the amount of Compensation elected to be
deferred under this Plan and Interest thereon, except as provided for in
Section 3.7.
(b) Employer Discretionary Contributions. Employer Discretionary
Contributions and Interest thereon shall be vested as set forth in the
special Participation Agreement.
4.7 Statement of Accounts
The Committee shall submit to each Participant, within one hundred
twenty (120) days after the close of each calendar year and at such other time
as determined by the Committee, a statement setting forth the balance to the
credit of the Account maintained for a Participant.
PAGE 5 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
ARTICLE V--PLAN BENEFITS
5.1 Plan Benefit
If a Participant terminates service on the Board, for any reason other
than death, the Employer shall pay a Plan Benefit equal to the Participant's
Account, as determined in accordance with Article IV.
5.2 Death Benefit
Upon the death of a Participant, the Employer shall pay to the
Participant's Beneficiary an amount determined as follows:
(a) If the Participant dies after termination of service with the
Employer, the remaining unpaid balance of the Participant's Account,
shall be paid in the same form that payments were being made prior to
the Participant's death.
(b) If the Participant dies prior to termination of service with the
Employer, the amount payable shall be the Participant's Account balance.
5.3 Early Withdrawal Option
Participants shall be permitted to elect to withdraw amounts from their
Account subject to the following restrictions:
(a) Timing of Election to Withdraw. The election to make an Early
Withdrawal must be made at the same time the Participant enters into a
Participation Agreement for a Deferral Commitment.
(b) Amount of Withdrawal. The amount which a Participant can elect
to withdraw with respect of any Deferral Commitment shall be limited to
fifty percent (50%) or one hundred percent (100%) of the amount of such
Deferral Commitment, excluding any Interest or Employer Discretionary
Contributions.
(c) Timing of Early Withdrawals. The amount elected to be withdrawn
shall be paid in a single lump sum at the time elected by the
Participant in his Participation Agreement wherein he elected the Early
Withdrawal Option. In no event shall such a withdrawal commence prior to
seven (7) years following the end of the Deferral Period in which the
Participant elected the Early Withdrawal Option.
Amounts paid to a Participant pursuant to the Section 5.3 shall be
treated as distributions from the Participant's Account.
5.4 Hardship Distributions
Upon a finding that a Participant has suffered a Financial Hardship, the
Committee may, in its sole discretion, make distributions from the Participant's
Account prior to the time specified for payment of benefits under the Plan. The
amount of such distribution shall be limited to the amount reasonably necessary
to meet the Participant's requirements during the Financial Hardship.
PAGE 6 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
5.5 Accelerated Distribution
Notwithstanding any other provision of the Plan, at any time after a
Change in Control or at any time following termination of service on the Board,
a Participant shall be entitled to receive, upon written request to the
Committee, a lump sum distribution equal to ninety percent (90%) of the vested
Account balance as of the Determination Date.
5.6 Form of Benefit Payment
All Plan Benefits other than Early Withdrawals, Accelerated
Distribution, and Hardship Distributions shall be paid in the form of the Basic
Benefit provided below, unless the Committee, in its sole discretion, selects an
alternative form. Any form requested by the Participant or a Beneficiary shall
be considered by the Committee, but shall not be binding. The basic and
alternative methods of payment are as follows:
(a) Basic Form of Benefit Payment. Equal monthly installments of the
Account amortized over a period of sixty (60) months.
(b) Alternative Forms of Benefit Payment.
(i) Equal monthly installments of the Account amortized over a
period of one hundred twenty (120) months.
(ii) Equal monthly installments of the Account amortized over a
period of one hundred eighty (180) months.
(iii) A single sum amount which is equal to the Account balance.
(iv) Any other method which is the Actuarial Equivalent of the
Participant's Account balance.
(c) Interest on Unpaid Balance. The Interest on the unpaid balance
of an Account under paragraphs (a), (b)(i) or (b)(ii) above shall be
equal to the average Interest rate on the Account over the thirty-six
(36) months immediately preceding the commencement of benefit payments.
5.7 Withholding; Payroll Taxes
The Employer shall withhold from payments made hereunder any taxes
required to be withheld from such payments under federal, state or local law.
However, a Beneficiary may elect not to have withholding for federal income tax
pursuant to Section 3405(a)(2) of Internal Revenue Code, or any successor
provision thereto.
5.8 Commencement of Payments
Payment shall commence on the day selected by the Participant in the
Participation Agreement, at the discretion of the Committee, but not later than
sixty (60) days after the end of the month in which the Participant terminates
employment with the Employer, or service on the Board. All payments shall be
made as of the first day of the month.
PAGE 7 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
5.9 Full Payment of Benefits
Notwithstanding any other provision of this Plan, all benefits shall be
paid no later than one hundred eighty (180) months following the Participant's
age sixty-five (65) or termination of service, whichever is later.
5.10 Payment to Guardian
If a Plan benefit is payable to a minor or a person declared incompetent
or to a person incapable of handling the disposition of his property, the
Committee may direct payment of such Plan Benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or person. The Committee may require proof of incompetency, minority, incapacity
or guardianship as it may deem appropriate prior to distribution of the Plan
benefit. Such distribution shall completely discharge the Committee from all
liability with respect to the benefit.
5.11 Suicide; Misrepresentation
Notwithstanding any other provisions of this Plan, no benefit in excess
of the Participant's Account balance shall be paid to a Beneficiary if the
Participant's death occurs as a result of suicide during the twenty-four (24)
successive calendar months beginning with the calendar month following the
commencement of an individual's participation in the Plan. Similarly, no benefit
in excess of the Participant's Account balance shall be paid if death occurs
within the twenty-four (24) successive calendar months following commencement of
an individual's participation in the Plan if the Participant has made a material
misrepresentation in any form or document provided by the Participant to or for
the benefit of the Employer.
ARTICLE VI--BENEFICIARY DESIGNATION
6.1 Beneficiary Designation
Each Participant shall have the right, at any time, to designate one (1)
or more persons or an entity as Beneficiary (both primary as well as secondary)
to whom benefits under this Plan shall be paid in the event of Participant's
death prior to complete distribution of the Participant's Account. Each
Beneficiary designation shall be in a written form prescribed by the Committee
and will be effective only when filed with the Committee during the
Participant's lifetime. Designation by a married Participant of a Beneficiary
other than the Participant's spouse shall not be effective without spousal
execution of a written consent that acknowledges the effect of the designation,
unless such consent cannot be obtained because the spouse cannot be located.
6.2 Changing Beneficiary
Any Beneficiary designation may be changed by an unmarried Participant
without the consent of the previously named Beneficiary by the filing of a new
designation with the Committee. A married Participant's Beneficiary designation
may be changed with the consent of the Participant's spouse as provided for in
Section 6.1 by the filing of a new designation with the Committee. The filing of
a new designation shall cancel all designations previously filed.
PAGE 8 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
6.3 Change in Marital Status
If the Participant's marital status changes after the Participant has
designated a Beneficiary, the following shall apply:
(a) If the Participant is married at death but was unmarried when
the designation was made, the designation shall be void unless the
spouse has consented to it in the manner prescribed above.
(b) If the Participant is unmarried at death but was married when
the designation was made:
(i) The designation shall be void if the spouse was named as
Beneficiary.
(ii) The designation shall remain valid if a nonspouse
beneficiary was named.
(c) If the Participant was married when the designation was made and
is married to a different spouse at death, the designation shall be void
unless the new spouse has consented to it in the manner prescribed
above.
6.4 No Beneficiary Designation
If any Participant fails to designate a Beneficiary in the manner
provided above, or if the Beneficiary designated by a deceased Participant dies
before the Participant or before complete distribution of the Participant's
benefits, the Participant's Beneficiary shall be the person in the first of the
following classes in which there is a survivor:
(a) The surviving spouse;
(b) The Participant's children, except that if any of the children
predeceases the Participant but leave issue surviving, then such issue
shall take by right of representation the share the parent would have
taken if living;
(c) The Participant's estate.
ARTICLE VII--ADMINISTRATION
7.1 Committee; Duties
This Plan shall be administered by an Administrative Committee, which
shall consist of not less than three (3) persons appointed by the Chairman of
the Board except after a Change in Control as provided in 7.5. The Committee
shall have the authority to make, amend, interpret and enforce all appropriate
rules and regulations for the administration of the Plan and decide or resolve
any and all questions, including interpretations of the Plan, as may arise in
such administration. A majority vote of the Committee members shall control any
decision. Members of the Committee may be Participants under this Plan.
PAGE 9 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
7.2 Agents
The Committee may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Company.
7.3 Binding Effect of Decisions
The decision or action of the Committee in respect of any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final and conclusive and binding upon all persons having any interest
in the Plan.
7.4 Indemnity of Committee
The Company shall indemnify and hold harmless the members of the
Committee against any and all claims, loss, damage, expense or liability arising
from any action or failure to act with respect to this Plan on account of such
person's service on the Committee, except in the case of gross negligence or
willful misconduct.
7.5 Election of Committee After Change in Control
After a Change in Control, vacancies on the Committee shall be filled by
majority vote of the remaining Committee members and Committee members may be
removed only by such a vote. If no Committee members remain, a new Committee
shall be elected by majority vote of the Participants in the Plan immediately
preceding such Change in Control. No amendment shall be made to Article VII or
other Plan provisions regarding Committee authority with respect to the Plan.
ARTICLE VIII--CLAIMS PROCEDURE
8.1 Claim
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Committee, which shall respond in writing within
thirty (30) days.
8.2 Denial of Claim
If the claim or request is denied, the written notice of denial shall
state:
(a) The reasons for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information required
and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
PAGE 10 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
8.3 Review of Claim
Any person whose claim or request is denied or who has not received a
response within thirty (30) days may request review by notice given in writing
to the Committee. The claim or request shall be reviewed by the Committee who
may, but shall not be required to, grant the claimant a hearing. On review, the
claimant may have representation, examine pertinent documents, and submit issues
and comments in writing.
8.4 Final Decision
The decision on review shall normally be made within sixty (60) days. If
an extension of time is required for a hearing or other specified circumstances,
the claimant shall be notified and the time limit shall be one hundred twenty
(120) days. The decision shall be in writing and shall state the reasons and the
relevant plan provisions. All decisions on review shall be final and bind all
parties concerned.
ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment
The Board may at any time amend the Plan by written instrument notice of
which is given to all Participants and to Beneficiaries receiving installment
payments, subject to the following:
(a) Preservation of Account Balance. No amendment shall reduce the
amount accrued in any Account to the date such notice of the amendment
is given.
(b) Changes in Earnings Rate. No amendment shall reduce the rate of
Earnings to be credited, after the date of the amendment, to the amount
already accrued in any Account and any deferred Compensation credited to
the Account under Deferral Commitments already in effect on that date.
(c) Election of Committee. After a Change in Control, no amendment
shall eliminate or alter the right of Committee members and Participants
to remove and elect members of the Committee as provided in 7.5, nor
shall any amendment change any provision in the Committee's functions,
powers or right indemnity by the Company without the Committee's
consent.
9.2 Employer's Right to Terminate
The Board may at any time partially or completely terminate the Plan if,
in its judgement, the tax, accounting or other effects of the continuance of the
Plan, or potential payments thereunder would not be in the best interests of
Employer.
(a) Partial Termination. The Board may partially terminate the Plan
by instructing the Committee not to accept any additional Deferral
Commitments. In the event of such a partial termination, the Plan shall
continue to operate and be effective with regard to Deferral Commitments
entered into prior to the effective date of such partial termination.
PAGE 11 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
(b) Complete Termination. The Board may completely terminate the
Plan by instructing the Committee not to accept any additional Deferral
Commitments, and by terminating all ongoing Deferral Commitments. In the
event of complete termination, the Plan shall cease to operate and
Employer shall pay out each Account. Payment shall be made as a lump sum
or in equal monthly installments over the following period, based on the
Account balance:
Appropriate Account Balance Payout Period
--------------------------------------------------------------------
Less than $10,000 1 Year
$10,000 but less than $50,000 3 Years
More than $50,000 5 Years
====================================================================
Earnings at the appropriate rate shall continue to be credited on the
unpaid balance in each Account.
ARTICLE X--MISCELLANEOUS
10.1 Unfunded Plan
This Plan is intended to be an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301 and 401 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
therefore to be exempt from the provisions of Parts 2, 3, and 4 of Title I of
ERISA. Accordingly, the Plan shall terminate and no further benefits shall
accrue hereunder in the event it is determined by a court of competent
jurisdiction or by an opinion of counsel that the Plan constitutes an employee
pension benefit plan within the meaning of Section 3(2) of ERISA which is not so
exempt.
10.2 Unsecured General Creditor
Except as provided in 10.3, Participants and Beneficiaries shall be
unsecured general creditors as follows. They shall have no secured or
preferential right to any assets of Employer or any other party for payment of
benefits under this Plan. Any life insurance policies, annuity contracts or
other property purchased by Employer for the purpose of generating the cash flow
for benefit payments shall remain its general, unpledged and unrestricted
assets. Employer's obligation under the Plan shall be an unfunded and unsecured
promise to pay money in the future.
10.3 Trust Fund
The Employer shall be responsible for the payment of all benefits
provided under the Plan. At its discretion, the Employer may establish one (1)
or more trusts, with such trustees as the Board may approve, for the purpose of
providing for the payment of such benefits. Such trust or trusts may be
irrevocable, but the assets thereof shall be subject to the claims of the
Employer's creditors. To the extent any benefits provided under the Plan are
actually paid from any such trust, the Employer shall have no further obligation
with respect thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by, the Employer.
PAGE 12 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
10.4 Nonassignability
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and nontransferable.
No part of the amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
10.5 Not a Contract of Employment
The terms and conditions of this Plan shall not be deemed to constitute
a contract of employment between the Employer and the Participant, and the
Participant (or his Beneficiary) shall have no rights against the Employer
except as may otherwise be specifically provided herein.
10.6 Protective Provisions
A Participant will cooperate with the Employer by furnishing any and all
information requested by the Employer, in order to facilitate the payment of
benefits hereunder, and by taking such physical examinations as the Employer may
deem necessary and taking such other actions as may be requested by the
Employer.
10.7 Terms
Whenever any words are used herein the masculine, they shall be
construed as though they were used in the feminine in all cases where they would
so apply; and wherever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so apply.
10.8 Captions
The captions of the articles, sections, and paragraphs of this Plan are
for convenience only and shall not control or affect the meaning or construction
of any of its provisions.
10.9 Governing Law
The provisions of this Plan shall be construed, interpreted, and
governed in all respects in accordance with applicable federal law and, to the
extent not preempted by such federal law, in accordance with the laws of the
State of California.
10.10 Validity
In case any provision of this Plan shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
PAGE 13 - DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
10.11 Notice
Any notice or filing required or permitted to be given to the Committee
under the Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to any member of the Committee or the Secretary of
the Employer. Such notice shall be deemed given as of the date of delivery or,
if such delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
10.12 Successors
The provisions of this Plan shall bind and inure to the benefit of the
Employer and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all of
the business and assets of North Valley Bancorp, and successors of any such
corporation or other business entity.
NORTH VALLEY BANCORP
By: /s/ Rudy V. Balma
-------------------------
Chairman
By: /s/ J. M. Wells Jr.
-------------------------
Secretary
Dated: March 20, 1995
-------------------------
PAGE 14 - DIRECTORS' DEFERRED COMPENSATION PLAN
NORTH VALLEY BANCORP
UMBRELLA TRUST(TM) FOR DIRECTORS
By and Between
NORTH VALLEY BANCORP
And
HARRIS TRUST & SAVINGS BANK
North Valley Bancorp Company
880 East Cypress Avenue
Redding, California 96099
Harris Trust & Savings Bank Trustee
Personal Trust and Asset Management
Group
111 W. Monroe Street
Chicago, Illinois 60690
Effective April 1, 1995
Exhibit 10(ff)
<PAGE>
TABLE OF CONTENTS
PAGE
----
PREAMBLE .................................................................. 1
ARTICLE I--EFFECTIVE DATE; DURATION ....................................... 2
1.01 Effective Date and Trust Year ....................................... 2
1.02 Duration ............................................................ 3
1.03 Irrevocability ...................................................... 4
1.04 Special Circumstance ................................................ 4
ARTICLE II--TRUST FUND AND FUNDING POLICY ................................. 5
2.01 Contributions ....................................................... 5
2.02 Investments and Valuation ........................................... 8
2.03 Subtrusts ........................................................... 13
2.04 Recapture of Excess Assets .......................................... 14
2.05 Substitution of Other Property ...................................... 15
2.06 Administrative Powers of Trustee .................................... 15
ARTICLE III--ADMINISTRATION ............................................... 18
3.01 Committee; Company Representatives .................................. 18
3.02 Payment of Benefits ................................................. 18
3.03 Disputed Claims ..................................................... 19
3.04 Records ............................................................. 20
3.05 Accountings ......................................................... 20
3.06 Expenses and Fees ................................................... 20
ARTICLE IV--LIABILITY ..................................................... 21
4.01 Indemnity ........................................................... 21
4.02 Bonding ............................................................. 21
ARTICLE V--INSOLVENCY ..................................................... 21
5.01 Determination of Insolvency ......................................... 21
5.02 Insolvency Administration ........................................... 22
5.03 Termination of Insolvency Administration ............................ 22
5.04 Creditors' Claims During Solvency ................................... 22
ARTICLE VI--SUCCESSOR TRUSTEES ............................................ 23
6.01 Resignation and Removal ............................................. 23
6.02 Appointment of Successor ............................................ 23
6.03 Accountings; Continuity ............................................. 23
(i)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE VII--GENERAL PROVISIONS ........................................... 24
7.01 Interests Not Assignable ............................................ 24
7.02 Amendment ........................................................... 24
7.03 Applicable Law ...................................................... 24
7.04 Agreement Binding on All Parties .................................... 24
7.05 Notices and Directions .............................................. 24
7.06 No Implied Duties ................................................... 25
7.07 Gender, Singular and Plural ......................................... 25
ARTICLE VIII--INSURER ..................................................... 25
8.01 Insurer Not a Party ................................................. 25
8.02 Authority of Trustee ................................................ 25
8.03 Contract Ownership .................................................. 25
8.04 Limitation of Liability ............................................. 26
8.05 Change of Trustee ................................................... 26
APPENDIX A
Assumptions and Methodology for Calculations Required Under 2.01 and 2.04
(ii)
<PAGE>
INDEX OF TERMS
TERM AND PROVISION NUMBER
- ------------------------- PAGE
----
A
Act: 1.04-3 ............................................................... 4
B
Board: 1.02-3 ............................................................. 3
C
Change in Control: 1.04-3 ................................................. 4
Code: Preamble ............................................................ 2
Committee: Preamble ....................................................... 1
Company: Preamble.......................................................... 1
Contracts: 2.02-1 ......................................................... 8
D
Default: 1.04-6 ........................................................... 5
E
ERISA: Preamble ........................................................... 2
Excess Assets: 2.04-2 ..................................................... 12
Expert: 2.06-2 ............................................................ 15
I
Insolvency Administration: 5.02 ........................................... 20
Insolvent: 5.01-l ......................................................... 19
Insurer: 2.02-l ........................................................... 8
Investment Manager:. 2.02-4 ............................................... 10
P
Participants: Preamble .................................................... 1
Payment Schedule: 2.01-5 .................................................. 6
Plans: Preamble ........................................................... 1
Potential Change in Control: 2.01-7 ....................................... 7
S
Segregated Fund: 2.02-4 ................................................... 10
Solvency: 5.04-2 .......................................................... 21
Special Circumstance: 1.04-2 .............................................. 4
Subtrust: 2.03-1 .......................................................... 11
(iii)
<PAGE>
INDEX OF TERMS
TERM AND PROVISION NUMBER
- ------------------------- PAGE
----
T
Tax Funding: 1.02-4 ........................................................ 4
Trustee: Preamble .......................................................... 1
V
Voting Securities: 1.04-5 .................................................. 5
W
Written Consent of Participants: 1.02-5 .................................... 4
(iv)
<PAGE>
NORTH VALLEY BANCORP
UMBRELLA TRUST(TM) FOR DIRECTORS
EFFECTIVE APRIL 1, 1995
This Trust Agreement is made and entered into by and between North
Valley Bancorp, a California corporation (the "Company"), and Harris Trust and
Savings Bank, an Illinois banking corporation (the "Trustee").
The Company hereby establishes with the Trustee a trust to hold all
monies and other property, together with the income thereon, as shall be paid or
transferred to it hereunder in accordance with the terms and conditions of this
Trust Agreement. The Trustee hereby accepts the trust established under this
Trust Agreement and agrees to hold, IN TRUST, all monies and other property
transferred to it hereunder for the uses and purposes and upon the terms and
conditions set forth herein, and the Trustee further agrees to discharge and
perform fully and faithfully all of the duties and obligations imposed upon it
under this Trust Agreement.
PREAMBLE
The Company has adopted the following plans (the "Plans") which shall be
subject to this trust:
Supplemental Retirement Plan for Directors
Directors' Deferred Compensation Plan
If only one Plan is subject to this trust at any time, references in
this Trust Agreement to the Plans shall refer to such Plan.
The Plans are administered by an administrative committee (the
"Committee") appointed by the Company. If the Plans are administered by more
than one (1) Committee at any time, references in this Trust Agreement to the
Committee which relate to a particular Plan shall refer to the Committee which
administers that Plan and, if the reference does not relate to a particular
Plan, shall refer to all of such Committees. All references in this Trust
Agreement to the Committee shall refer to the administrative committee(s) which
administers the Plan(s), unless the Company appoints a separate administrative
committee to administer this Trust Agreement. If the Company appoints a separate
administrative committee to administer this Trust Agreement, references in this
Trust Agreement to the Committee shall refer to such administrative committee
which is appointed to administer this Trust Agreement, unless the context
clearly indicates otherwise.
The Plan participants who are covered by this Trust Agreement
("Participants") shall be all persons who are Plan participants prior to a
Special Circumstance, unless the Company specifically designates only specified
individuals or groups of Plan participants as Participants covered by this Trust
Agreement. After a person becomes a Participant covered by this Trust Agreement,
such person will continue to be a Participant at all times thereafter (including
after retirement or other termination of service) until all Plan benefits
payable to such Participant have been paid, the Participant
PAGE 1 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
ceases to be entitled to any Plan benefits, or the Participant's death,
whichever occurs first. The term "Participants" shall not include any
beneficiaries of Participants.
At any time prior to a Special Circumstance, the Company may, by written
notice to the Trustee, cause additional plans to become Plans subject to this
Trust Agreement or cause additional Plan participants to become Participants
covered by this Trust Agreement. Upon and after a Special Circumstance, the
Company may not add any additional plans or Plan participants to this Trust
Agreement.
The Company shall provide the Trustee with certified copies of the
following items: (i) the Plan documents; (ii) all Plan amendments promptly upon
their adoption; and (iii) lists and specimen signatures of the members of the
Committee(s) which administer the Plan(s) and this Trust Agreement and any other
Company representatives authorized to take action in regard to the
administration of the Plan(s) and this trust, including any changes in the
members of such Committee(s) and of such other representatives promptly
following any such change. The Company shall also provide the Trustee at least
annually with a list of all Participants in each Plan who are covered by this
Trust Agreement.
The purpose of this trust is to give Participants greater security by
placing assets in trust for use only to pay Plan benefits to Participants or, if
the Company becomes insolvent, to pay creditors. The Company shall continue to
be liable to Participants to make all payments required under the terms of the
Plans to the extent such payments are not made from this trust. Distributions
made from this trust to Participants or their beneficiaries shall, to the extent
of such distributions, satisfy the Company's obligations to pay benefits to
Participants and their beneficiaries under the Plans.
The Company and the Trustee agree that the trust hereby created has been
established to pay obligations of the Company pursuant to the Plans and is
subject to the rights of general creditors of the Company, and accordingly is a
grantor trust under the provisions of Sections 671 through 677 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Company hereby agrees to
report all items of income, deductions and credits of the trust on its own
income tax returns; and the Company shall have no right to any distributions
from the trust or any claim against the trust for funds necessary to pay any
income taxes which the Company is required to pay on account of reporting the
income of the trust on its income tax returns. No contribution to or income of
the trust is intended to be taxable to Participants until benefits are
distributed to them.
The Plans are solely for directors and are not employee benefit plans
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and as such are intended not to be covered by ERISA.
ARTICLE I--EFFECTIVE DATE; DURATION
1.01 Effective Date and Trust Year
This trust shall become effective when the Trust Agreement has been
executed by the Company and the Trustee and the Company has made a contribution
to the trust. For tax purposes the trust year shall be the calendar year. For
financial reporting purposes the trust year shall coincide with the Company's
fiscal year. The Company shall report any change in its fiscal year to the
Trustee.
PAGE 2 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
1.02 Duration
1.02-1 This trust shall continue in effect until all assets of the trust
fund are exhausted through distribution of benefits to Participants, payment to
creditors in the event of insolvency, payment of fees and expenses of the
Trustee, and return of remaining funds to the Company pursuant to 1.02-2.
Notwithstanding the foregoing, this trust shall terminate on the day before
twenty-one (21) years after the death of the last survivor of all present or
future Participants who are now living and those persons now living who are
designated as beneficiaries of any such Participants in accordance with the
terms of any of the Plans.
1.02-2 Except as otherwise provided in 1.02 and 1.03, the trust shall be
irrevocable until all benefits payable under the Plans to Participants who are
covered by this Trust Agreement are paid. The Trustee shall then return to the
Company any assets remaining in the trust.
1.02-3 If the existence of this trust or any Subtrust is held to be Tax
Funding by a federal court and appeals from that holding are no longer timely or
have been exhausted, this trust or such Subtrust shall terminate. The Board of
Directors of the Company (the "Board") may also terminate this trust or any
Subtrust if it determines, based on an opinion of legal counsel which is
satisfactory to the Trustee, that either (i) judicial authority or the opinion
of the Treasury Department or Internal Revenue Service (as expressed in proposed
or final regulations, rulings, or similar administrative announcements) creates
a significant risk that the trust or any Subtrust will be held to be Tax Funding
or (ii) the Code requires the trust or any Subtrust to be amended in a way that
creates a significant risk that the trust or such Subtrust will be held to be
Tax Funding, and failure to so amend the trust or such Subtrust could subject
the Company to material penalties. Upon any such termination, the assets of each
terminated Subtrust remaining after payment of the Trustee's fees and expenses
shall be distributed as follows:
(a) Such assets shall be transferred to a new trust established by
the Company which is not deemed to be Tax Funding, but which is similar
in all other respects to this trust, if the Company determines that it
is possible to establish such a trust.
(b) If the Company determines that it is not possible to establish
the trust in (a) above, then the assets shall be distributed to the
Company if the Written Consent of Participants, as defined in 1.02-5, is
obtained for such distribution.
(c) If the Company determines that it is not possible to establish
the trust in (a) above and the Written Consent of Participants is not
obtained to distribute the assets to the Company, then the assets of the
terminated Subtrust shall be allocated in proportion to (i) the vested
accrued benefits and (ii) then, if any assets remain, the unvested (if
any) accrued benefits of Participants under the applicable Plan and
shall be distributed to such Participants in lump sums. Any assets
remaining shall be distributed to other Subtrusts or the Company in
accordance with 2.04.
Notwithstanding the foregoing, the Trustee shall distribute Plan
benefits to a Participant to the extent that a federal court has held that the
interest of the Participant in this trust causes such Plan benefits to be
includible for federal income tax purposes in the gross income of the
Participant prior to actual payment of such Plan benefits to the Participant and
appeals from that holding are no longer timely or have been exhausted. The
Trustee may also distribute Plan benefits to a Participant, upon direction of
the Committee or on its own initiative, if the Trustee reasonably believes,
based on an opinion of legal counsel which is satisfactory to the Trustee, that
there is a significant risk that the
PAGE 3 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
Participant's interest in the trust fund will be held to be Tax Funding with
respect to such Participant. The provisions of this paragraph shall also apply
to any beneficiary of a Participant.
1.02-4 This trust is "Tax Funding" if it causes the interest of a
Participant in this trust to be includible for federal income tax purposes in
the gross income of the Participant prior to actual payment of Plan benefits to
the Participant.
1.02-5 "Written Consent of Participants" means, for the purposes of this
Trust Agreement, consent in writing by Participants who (i) are a majority in
number and (ii) have more than fifty percent (50%) in value of the accrued
benefits, of the Participants in each Subtrust under this Trust Agreement on the
date of such consent.
1.03 Irrevocability
1.03-1 This trust shall be irrevocable, subject to 1.02.
1.04 Special Circumstance
1.04-1 Upon the occurrence of a Special Circumstance described in
1.04-2, the trust assets shall be held for Participants who had accrued benefits
under the Plans before the Special Circumstance occurred, including benefits
accrued for such Participants after the Special Circumstance.
1.04-2 A "Special Circumstance" shall mean a Change in Control (as
defined in 1.04-3) or a Default (as defined in 1.04-6).
1.04-3 A "Change in Control" shall mean:
With respect to the Company, a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Act") or any successor thereto; provided that, without limitation, such a
change in control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of Voting Securities of the Company
representing forty percent (40%) or more of the combined voting power of the
Company's then outstanding Voting Securities; (ii) during any period of two (2)
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company together with any new directors whose
election or nomination for election was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who were either directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
of the Board of Directors of the Company; or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least fifty-percent (50%) of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company (in one (1) transaction or a series of transactions) of all or
substantially all of the Company's assets.
PAGE 4 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur as a result of any event described in (i) or (iii) above, if directors
who were a majority of the members of the Board prior to such event determine
that the event shall not constitute a Change in Control within one (1) year
after the transaction and furnish written notice to the Trustee of such
determination.
1.04-4 For purposes of this Trust Agreement, a Change in Control shall
be deemed to have occurred when the Trustee makes a determination to that effect
on its own initiative or upon receipt by the Trustee of written notice to that
effect from the Company. The Chief Executive Officer of the Company or the Board
shall furnish written notice to the Trustee when a Change in Control occurs
under 1.04-3.
1.04-5 "Voting Securities" shall mean any securities of the Company
which vote generally in the election of directors.
1.04-6 A "Default" shall mean a failure by the Company to contribute,
within thirty (30) days of receipt of written notice from the Trustee, any of
the following amounts:
(a) The full amount of any insufficiency in assets of any Subtrust
that is required to pay any premiums or loan interest payments on
insurance contracts which are held in the Subtrust;
(b) The full amount of any insufficiency in assets of any Subtrust
that is required to pay any Plan benefit that is payable upon a
direction from the Committee pursuant to 3.02-3 or upon resolution of a
disputed claim pursuant to 3.03-2; or
(c) Any contribution which is then required under 2.01.
If, after the occurrence of a Default, the Company at any time cures
such Default by contributing to the trust all amounts which are then required
under subparagraphs (a), (b) and (c) above, it shall then cease to be deemed
that a Default has occurred or that a Special Circumstance has occurred by
reason of such Default.
ARTICLE II--TRUST FUND AND FUNDING POUCY
2.01 Contributions
2.01-1 The Company shall contribute to the trust such amounts as are
required to purchase or hold insurance contracts in the trust and to pay
premiums and loan interest payments thereon, all as described in 2.02-1. The
Company shall also contribute to the trust such amounts as are necessary to
enable the Trustee to make all Plan benefit payments to Participants when due,
unless the Company makes such payments directly, whenever the Trustee advises
the Company that the assets of the trust or Subtrust, other than insurance
contracts or amounts needed to pay future premiums or loan interest payments on
insurance contracts, are insufficient to make such payments. In its discretion,
the Company may contribute to the trust such additional amounts or assets as the
Committee may reasonably decide are necessary to provide security for all Plan
benefits payable to Participants covered by this trust.
2.01-2 Whenever the Company makes a contribution to the trust, the
Company shall designate the Plan(s) and Subtrust(s) to which such contribution
(or designated portions thereof) shall
PAGE 5 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
be allocated. The Company may also make contributions to a special reserve for
payment of future fees and expenses of the Trustee and future trust fees and
expenses for legal and administrative proceedings. The Company shall designate a
separate Subtrust to receive such contributions, which shall be distinct from
the other Subtrust(s) established for the Plan(s).
2.01-3 The Company shall, immediately upon the occurrence of a Special
Circumstance (as defined in 1.04-2) or a Potential Change in Control (as defined
in 2.01-7), and at least annually following a Special Circumstance, contribute
to the trust the sum of the following:
(a) The present value of the remaining premiums and the interest on
any policy loans on insurance contracts held in the trust.
(b) The amount by which the present value of all benefits (vested
and unvested) payable under the Plans on a pretax basis to Participants
covered by this trust exceeds the value of all trust assets. Each
Participant's benefit under any Plan for purposes of calculating present
value shall be the highest benefit the Participant would have accrued
under the Plan within the twenty-four (24) months following such event,
assuming that the Participant's service continues for twenty-four (24)
months at the same rate of compensation, that the Participant continues
to make future deferrals under deferred compensation plans in accordance
with his prior elections, and that the Participant is terminated at a
time when he is entitled to receive any benefit enhancement provided by
the Plan upon a Change in Control. Any benefit enhancement or right with
respect to the Plans which is provided under employment or severance
agreements of Participants shall be taken into account in making the
foregoing calculation.
(c) The present value of a reasonable estimate provided by the
Trustee of its fees and expenses due over the remaining duration of the
trust. Unless the Trustee estimates a greater amount, such amount shall
be presumed to be equal to one percent (1%) of the present value of all
accrued benefits (vested and unvested) payable under the Plans on a
pretax basis to Participants covered by this trust.
(d) The present value of a reasonable estimate provided by the
Trustee of the anticipated fees and expenses for the purpose of
commencing or defending lawsuits or legal or administrative proceedings
over the remaining duration of the trust. Unless the Trustee estimates a
greater amount, such amount shall be presumed to be equal to one percent
(1%) of the present value of all accrued benefits (vested and unvested)
payable under the Plans on a pretax basis to Participants covered by
this trust.
2.01-4 The calculations required under 2.01-3 shall be based on the
terms of the Plans and the actuarial assumptions and methodology set forth in
Appendix A attached hereto. Before a Special Circumstance, Appendix A may be
revised by the Committee from time to time. After a Special Circumstance,
Appendix A may be revised only with the Written Consent of Participants.
2.01-5 Whenever the Company makes a contribution to the trust pursuant
to 2.01-3, it shall furnish the Trustee with a written statement setting forth
the computation of all required amounts contributed under subparagraphs (a),
(b), (c) and (d) of 2.01-3.
Whenever a Special Circumstance occurs or the Company makes a
contribution pursuant to 2.01-3, the Company shall deliver to the Trustee,
contemporaneously with or immediately prior to such event, a schedule (the
"Payment Schedule") indicating the amounts payable under each Plan in
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respect of each Participant, or providing a formula or instructions acceptable
to the Trustee for determining the amounts so payable, the form in which such
amounts are to be paid (as provided for or available under the Plans) and the
time of commencement for payment of such amounts. The Payment Schedule shall
include any other necessary instructions with respect to Plan benefits
(including legal expenses) payable under the Plans and any conditions with
respect to any Participant's entitlement to, and the Company's obligation to
provide, such benefits, and such instructions may be revised from time to time
to the extent so provided under the Plans or this Trust Agreement.
A modified Payment Schedule shall be delivered by the Company to the
Trustee at each time that (i) additional amounts are required to be paid by the
Company to the Trustee pursuant to 2.01-3, (ii) Excess Assets are returned to
the Company pursuant to 2.04, and (iii) upon the occurrence of any event
requiting a modification of the Payment Schedule. The Company shall also furnish
a Payment Schedule or modified Payment Schedule for any or all Plan(s) upon
request by the Trustee at any other time. Whenever the Company is required to
deliver to the Trustee a Payment Schedule or a modified Payment Schedule, the
Company shall also deliver at the same time to each Participant the respective
portion of the Payment Schedule or modified Payment Schedule that sets forth the
amount payable to that Participant.
2.01-6 Any contribution to the trust which is made by the Company under
2.01-3 on account of a Potential Change in Control shall be returned to the
Company following one (1) year after delivery of such contribution to the
Trustee unless a Change in Control shall have occurred during such one (1) year
period, if the Company requests such return within sixty (60) days after such
one (1) year period. If no such request is made within this sixty (60) day
period, the contribution shall become a permanent part of the trust fund. The
one (1) year period shall recommence in the event of and upon the date of any
subsequent Potential Change in Control.
2.01-7 A "Potential Change in Control" shall be deemed to occur if:
(a) Any person, as defined in Section 13(d)(3) of the Act, other
than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company, delivers to the Company a statement
containing the information required by Schedule 13-D under the Act, or
any amendment to any such statement, that shows that such person has
acquired, directly or indirectly, the beneficial ownership of (i) more
than twenty-five percent (25%) of any class of equity security of the
Company entitled to vote as single class in the election or removal from
office of directors, or (ii) more than twenty-five percent (25%) of the
voting power of any group of classes of equity securities of the Company
entitled to vote as a single class in the election or removal from
office of directors;
(b) The Company becomes aware that preliminary or definitive copies
of a proxy statement and information statement or other information have
been filed with the Securities and Exchange Commission pursuant to Rule
14a-6, Rule 14c-5, or Rule 14f-1 under the Act relating to a Potential
Change in Control of the Company;
(c) Any person delivers to the Company pursuant to Rule 14d-3 under
the Act a Tender Offer Statement relating to Voting Securities of the
Company;
(d) Any person (other than the Company) publicly announces an
intention to take actions which if consummated would constitute a Change
in Control;
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(e) The Company enters into an agreement or arrangement, the
consummation of which would result in the occurrence of a Change in
Control;
(f) The Board approves a proposal, or the Company enters into an
agreement, which if consummated would constitute a Change in Control; or
(g) The Board adopts a resolution to the effect that, for purposes
of this Trust Agreement, a Potential Change in Control has occurred.
Notwithstanding the foregoing, a Potential Change in Control shall not
be deemed to occur as a result of any event described in (a) through (f) above,
if directors who were a majority of the members of the Board prior to such event
determine that the event shall not constitute a Potential Change in Control and
furnish written notice to the Trustee of such determination.
2.01-8 For purposes of this trust, a Potential Change in Control shall
be deemed to have occurred when the Trustee makes a determination to that effect
on its own initiative or upon receipt by the Trustee of written notice to that
effect from the Company. The Chief Executive Officer of the Company or the Board
shall furnish written notice to the Trustee when a Potential Change in Control
occurs under 2.01-7.
2.01-9 The Trustee shall accept the contributions made by the Company
and hold them as a trust fund for the payment of benefits under the Plans. The
Trustee shall not be responsible for determining the required amount of
contributions or for collecting any contribution not voluntarily paid, nor shall
the Trustee be responsible for the adequacy of the trust fund to meet and
discharge all liabilities under the Plans. Contributions may be in cash or in
other assets specified in 2.02.
2.02 Investments and Valuation
2.02-1 The trust fund shall be invested primarily in insurance contracts
("Contracts"). Such Contracts may be purchased by the Company and transferred to
the Trustee as in-kind contributions or may be purchased by the Trustee with the
proceeds of cash contributions (or may be purchased upon direction by the
Committee pursuant to 2.02-2 or an Investment Manager pursuant to 2.02-4). The
Company's contributions to the trust shall include sufficient cash to make
projected premium payments on such Contracts and payments of interest due on
loans secured by the cash value of such Contracts, unless the Company makes
these payments directly. The Trustee shall have the power to exercise all
rights, privileges, options and elections granted by or permitted under any
Contract or under the rules of the insurance company issuing the Contract
("Insurer"), including the right to obtain policy loans against the cash value
of the Contract. Prior to a Special Circumstance, the exercise by the Trustee of
any incidents of ownership under any Contract shall be subject to the direction
of the Committee. The Committee may from time to time direct the Trustee in
writing as to the designation of the beneficiary of a Participant under a
Contract for any part of the death benefits payable to such beneficiary
thereunder, and the Trustee shall file such designation with the Insurer.
Notwithstanding anything contained herein to the contrary, neither the
Company nor the Trustee shall be liable for the refusal of any Insurer to issue
or change any Contract or Contracts or to take any other action requested by the
Trustee; nor for the form, genuineness, validity, sufficiency or effect of any
Contract or Contracts held in the trust; nor for the act of any person or
persons that may render any such Contract or Contracts null and void; nor for
failure of any Insurer to pay the proceeds of any such Contract or Contracts as
and when the same shall become due and payable; nor for any delay in payment
resulting from any provision contained in any such Contract or Contracts; nor
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for the fact that for any reason whatsoever (other than its own negligence or
willful misconduct) any Contracts shall lapse or otherwise become uncollectible.
2.02-2 Prior to a Special Circumstance, the Trustee shall invest the
trust fund in accordance with written directions by the Committee, including
directions for exercising rights, privileges, options and elections pertaining
to Contracts and for borrowing from Contracts or other borrowing by the Trustee.
The Trustee shall act only as an administrative agent in carrying out directed
investment transactions and shall not be responsible for the investment
decision. If a directed investment transaction violates any duty to diversify,
to maintain liquidity or to meet any other investment standard under this trust
or applicable law, the entire responsibility shall rest upon the Company. The
Trustee shall be fully protected in acting upon or complying with any investment
objectives, guidelines, restrictions or directions provided in accordance with
this paragraph.
After a Special Circumstance the Committee shall no longer be entitled
to direct the Trustee with respect to the investment of the trust fund, unless
the Written Consent of Participants is obtained for the Committee to continue to
have this right pursuant to 2.02-2. If such Written Consent of Participants is
not obtained, the trust fund shall be invested by the Trustee pursuant to 2.02-3
or by an Investment Manager pursuant to 2.02-4. The Trustee or Investment
Manager shall have the right to invest the Trust Fund primarily in insurance
contracts pursuant to 2.02-l.
Notwithstanding the foregoing, no investments shall be made at any time
in any securities, instruments, accounts or real property of the Company, and
the Trustee may not loan trust fund assets to the Company, or permit the Company
to pledge trust fund assets as collateral for loans to the Company.
The Committee may not direct the Trustee to make any investments, and
the Company may not make any contributions to the trust fund, which are not
permissible investments under 2.02-2 and 2.02-3.
2.02-3 If the Trustee does not receive instructions from the Committee
for the investment of part or all of the trust fund for a period of at least
sixty (60) days, the Trustee shall invest and reinvest the assets of the trust
fund as the Trustee, in its sole discretion, may deem appropriate, in accordance
with applicable law. Permissible investments shall be limited to the following:
(a) Insurance or annuity contracts;
(b) Preferred or common stocks, bonds, notes, debentures, commercial
paper, certificates of deposit, money market funds, obligations of
governmental bodies, or other securities;
(c) Interest-bearing savings or deposit accounts with any
federally-insured bank or savings and loan association (including the
Trustee or an affiliate of the Trustee); or
(d) Shares or certificates of participation issued by investment
companies, investment trusts, mutual funds, or common or pooled
investment funds (including any common or pooled investment fund now or
hereafter maintained by the Trustee or an affiliate of the Trustee).
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2.02-4 The Company may appoint one (1) or more investment managers
("Investment Manager") subject to the following provisions:
(a) The Company may appoint one (1) or more Investment Managers to
manage (including the power to acquire and dispose of) a specified
portion of the assets of the trust (hereinafter referred to as that
Investment Manager's "Segregated Fund"). Any Investment Manager so
appointed must be either (A) an investment adviser registered as such
under the Investment Advisers Act of 1940, (B) a bank, as defined in
that Act, or (C) an insurance company qualified to perform services in
the management, acquisition or disposition of the assets of trusts under
the laws of more than one (1) state; and any Investment Manager so
appointed must acknowledge in writing to the Company and to the Trustee
that it is a fiduciary with respect to the Plans. The Trustee, until
notified in writing to the contrary, shall be fully protected in relying
upon any written notice of the appointment of an Investment Manager
furnished to it by the Company. In the event of any vacancy in the
office of Investment Manager, the Trustee shall be deemed to be the
Investment Manager of that Investment Manager's Segregated Fund until an
Investment Manager thereof shall have been duly appointed; and in such
event, until an Investment Manager shall have been so appointed and
qualified, references herein to the Trustee's acting in respect of that
Segregated Fund pursuant to direction from the Investment Manager shall
be deemed to authorize the Trustee to act in its own discretion in
managing and controlling the assets of that Segregated Fund, and
subparagraphs (c) and (d) below shall have no effect with respect
thereto and shall be disregarded.
(b) Each Investment Manager appointed pursuant to subparagraph (a)
above shall have exclusive authority and discretion to manage and
control the assets of its Segregated Fund and may invest and reinvest
the assets of the Segregated Fund in any investments in which the
Trustee is authorized to invest under 2.02-3, subject to the terms and
limitations of any written instruments pertaining to its appointment as
Investment Manager. Copies of any such written instruments shall be
furnished to the Trustee. In addition, each Investment Manager from time
to time and at any time may delegate to the Trustee (or in the event of
any vacancy in the office of Investment Manager, the Trustee may
exercise in respect of that Investment Manager's Segregated Fund)
discretionary authority to invest and reinvest otherwise uninvested cash
held in its Segregated Fund temporarily in bonds, notes or other
evidences of indebtedness issued or fully guaranteed by the United
States of America or any agency or instrumentality thereof, or in other
obligations of a short-term nature, including prime commercial
obligations or part interests therein.
(c) Unless the Trustee knowingly participates in, or knowingly
undertakes to conceal, an act or omission of an Investment Manager,
knowing such act or omission to be a breach of the fiduciary
responsibility of the Investment Manager with respect to the Plans, the
Trustee shall not be liable for any act or omission of any Investment
Manager and shall not be under any obligation to invest or otherwise
manage the assets of the Plans that are subject to the management of any
Investment Manager. Without limiting the generality of the foregoing,
the Trustee shall not be liable by reason of its taking or refraining
from taking at the direction of an Investment Manager any action in
respect of that Investment Manager's Segregated Fund. The Trustee shall
be under no duty to question or to make inquiries as to any direction or
order or failure to give direction or order by any Investment Manager;
and the Trustee shall be under no duty to make any review of investments
acquired for the trust at the direction or order of any Investment
Manager and shall be under no duty at any time to make any
recommendation with respect to disposing of or continuing to retain any
such investment.
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2.02-5 The values of all assets in the trust fund shall be reasonably
determined by the Trustee and may be based on the determination of qualified
independent parties or Experts (as described in 2.06-2). At any time before or
after a Special Circumstance, the Trustee shall have the right to secure
confirmation of value by a qualified independent party or Expert for all
property of the trust fund, as well as any property to be substituted for other
property of the trust fund pursuant to 2.05. Before a Special Circumstance the
Company may designate one (1) or more independent parties, who are acceptable to
the Trustee, to determine the fair market value of any notes, securities, real
property or other assets.
Any insurance or annuity contracts held in the trust fund shall be
valued at their cash surrender value, except for purposes of substituting other
property for such Contracts pursuant to 2.05-2. All securities shall be valued
net of costs to sell, or register for sale, such securities. All real property
shall be valued net of costs to sell such real property. All other assets of the
trust fund shall be valued at their fair market value.
The Company shall pay all costs incurred in valuing the assets of the
trust fund, including any assets to be substituted for other assets of the trust
fund pursuant to 2.05. If not so paid, these costs shall be paid from the trust
fund. The Company shall reimburse the trust fund within thirty (30) days after
receipt of a bill from the Trustee for any such costs paid out of the trust
fund.
2.03 Subtrusts
2.03-1 The Trustee shall establish a separate subtrust ("Subtrust") for
each Plan to which it shall credit contributions it receives which are earmarked
for that Plan and Subtrust. The Trustee shall also establish a separate Subtrust
to which it shall credit contributions it receives which are earmarked to the
special reserve for payment of future fees and expenses of the Trustee and
future trust fees and expenses for legal and administrative proceedings. Each
Subtrust shall reflect an undivided interest in assets of the trust fund and
shall not require any segregation of particular assets, except that an insurance
contract covering benefits of a particular Plan shall be held in the Subtrust
for the Plan. All contributions shall be designated by the Company for a
particular Subtrust. However, any contribution received by the Trustee which is
not earmarked for a particular Subtrust shall be allocated among the Subtrusts
as the Trustee may determine in its sole discretion.
The Committee may direct the Trustee, or the Trustee may determine on
its own initiative, to maintain a separate sub-account within each Subtrust for
a Plan for each Participant who is covered by the Subtrust. Each sub-account in
a Subtrust shall reflect an individual interest in assets of the Subtrust and,
as much as possible, shall operate in the same manner as if it were a separate
Subtrust.
2.03-2 The Trustee shall allocate investment earnings and losses and
expenses of the trust fund among the Subtrusts in proportion to their balances,
except that changes in the value of an insurance contract (including premiums
and interest on loans on an insurance contract) shall be allocated to the
Subtrust for which it is held. Payments to creditors during Insolvency
Administration under 5.02 shall be charged against the Subtrusts in proportion
to their balances, except that payment of Plan benefits to a Participant as a
general creditor shall be charged against the Subtrust for that Plan.
2.03-3 Assets allocated to a Subtrust for one Plan may not be utilized
to provide benefits under any other Plans until all benefits under such Plan
have been paid in full, except that Excess Assets of a Subtrust may be
transferred to other Subtrusts pursuant to 2.04-5.
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2.04 Recapture of Excess Assets
2.04-1 In the event the trust shall hold Excess Assets, the Committee,
at its option, may direct the Trustee to return part or all of such Excess
Assets to the Company.
2.04-2 "Excess Assets" are assets of the trust exceeding one hundred
twenty-five percent (125%) of the amounts described in subparagraphs (a), (b),
(c) and (d) of 2.01-3.
2.04-3 The calculation required by 2.04-2 shall be based on the terms of
the Plans and the actuarial assumptions and methodology set forth in Appendix A.
Before a Special Circumstance, the calculation shall be made by the Company or a
qualified actuary or consultant selected by the Committee. After a Special
Circumstance, the calculation shall be made by a qualified actuary or consultant
selected by the Trustee, provided the Committee may select a qualified actuary
or consultant with the Written Consent of Participants.
2.04-4 Excess Assets shall be returned to the Company in the following
order of priority, unless the Trustee determines otherwise to protect the
participants:
(a) Cash and cash equivalents;
(b) All taxable investments of the trust (other than cash and cash
equivalents and Contracts with Insurers), in such order as the Committee
may request;
(c) All nontaxable investments of the trust (other than cash and
cash equivalents and Contracts with Insurers), in such order as the
Committee may request; and
(d) Contracts with Insurers, proceeding in order of Contracts on
insureds from the youngest to the oldest ages based on the insured's
attained age on the date of return of Excess Assets.
Notwithstanding the foregoing, Excess Assets may be returned in any
other order of priority directed by the Committee with the Written Consent of
Participants.
2.04-5 If any Subtrust holds Excess Assets, the Committee may direct the
Trustee to transfer such Excess Assets to other Subtrusts, either ratably in
proportion to the unfunded liabilities to Participants for Plan benefits of all
other Subtrusts or first to the other Subtrust(s) with the largest percentage of
such unfunded liabilities. After a Special Circumstance the Trustee may also
transfer Excess Assets of a Subtrust to other Subtrusts upon its own initiative
in such amounts as it may determine in its sole discretion.
Excess Assets of a Subtrust for a Plan shall be determined in the same
manner as Excess Assets of the trust are determined pursuant to 2.04-2 and
2.04-3. In making this determination each Subtrust for a Plan shall bear its
allocable share of the amounts described in subparagraphs (a) and (b) of 2.01-3
which relate to that Plan. The Trustee, in its sole discretion, shall determine
whether there are Excess Assets in the separate Subtrust which constitutes the
reserve for payment of future fees and expenses of the Trustee and future trust
fees and expenses for legal and administrative proceedings. Excess Assets for
this Subtrust shall be any amounts which the Trustee reasonably determines will
not be needed in the future for payment of such fees and expenses.
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2.05 Substitution of Other Property
2.05-1 The Company shall have the power to reacquire part or all of the
assets or collateral held in the trust fund at any time, by simultaneously
substituting for it other readily marketable property of equivalent value, net
of any costs of disposition; provided that, if the trust holds Excess Assets,
the property which is substituted shall not be required to be of equivalent
value, but only of sufficient value so that the trust will retain Excess Assets
of not less than $10,000 after such substitution. The property which is
substituted must be among the types of investments authorized under 2.02 and may
not be less liquid or marketable or less well secured than the property for
which it is substituted, as determined by the Trustee. Such power is exercisable
in a nonfiduciary capacity and may be exercised without the approval or consent
of Participants or any other person.
2.05-2 Except for insurance contracts, the value of any assets
reacquired under 2.05-1 shall be determined as provided in 2.02-5. The value of
any insurance contract reacquired under 2.05-1 shall be the present value of
future projected cash flow or benefits payable under the Contract, but not less
than the cash surrender value. The projection shall include death benefits based
on reasonable mortality assumptions, including known facts specifically relating
to the health of the insured and the terms of the Contract to be reacquired.
Values shall be reasonably determined by the Trustee and may be based on the
determination of qualified independent parties and Experts, as described in
2.02-5 and 2.06-2. The Trustee shall have the right to secure confirmation of
value by a qualified independent party or Expert for all property to be
substituted for other property.
2.05-3 The Company shall pay all costs incurred in valuing the assets of
the trust fund, including any assets to be substituted for other assets of the
trust fund pursuant to 2.05. If not so paid, these costs shall be paid from the
trust fund. The Company shall reimburse the trust fund within thirty (30) days
after receipt of a bill from the Trustee for any such costs paid out of the
trust fund.
2.06 Administrative Powers of Trustee
2.06-1 Subject in all respects to applicable provisions of this Trust
Agreement and the Plans, including limitations on investment of the trust fund,
the Trustee shall have the rights, powers and privileges of an absolute owner
when dealing with property of the trust, including (without limiting the
generality of the foregoing) the powers listed below:
(a) To sell, convey, transfer, exchange, partition, lease, and
otherwise dispose of any of the assets of the trust at any time held by
the Trustee under this Trust Agreement;
(b) To exercise any option, conversion privilege or subscription
fight given the Trustee as the owner of any security held in the trust;
to vote any corporate stock either in person or by proxy, with or
without power of substitution; to consent to or oppose any
reorganization, consolidation, merger, readjustment of financial
structure, sale, lease or other disposition of the assets of any
corporation or other organization, the securities of which may be an
asset of the trust; and to take any action in connection therewith and
receive and retain any securities resulting therefrom;
(c) To deposit any security with any protective or reorganization
committee, and to delegate to such committee such power and authority
with respect thereto as the Trustee may deem proper, and to agree to pay
out of the trust such portion of the expenses and compensation of such
committee as the Trustee, in its discretion, shall deem appropriate;
PAGE 13 - UMBRELLA TRUST(TM) FOR DIRECTORS
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(d) To cause any property of the trust to be issued, held or
registered in the name of the Trustee as trustee, or in the name of one
(1) or more of its nominees, or one (1) or more nominees of any system
for the central handling of securities, or in such form that title will
pass by delivery, provided that the records of the Trustee shall in all
events indicate the true ownership of such property, or to deposit any
securities held in the trust with a securities depository;
(e) To renew or extend the time of payment of any obligation due or
to become due;
(f) To commence or defend lawsuits or legal or administrative
proceedings; to compromise, arbitrate or settle claims, debts or damages
in favor of or against the trust; to deliver or accept, in either total
or partial satisfaction of any indebtedness or other obligation, any
property; to continue to hold for such period of time as the Trustee may
deem appropriate any property so received; and to pay all costs and
reasonable attorneys' fees in connection therewith out of the assets of
the trust;
(g) To foreclose any obligation by judicial proceeding or otherwise;
(h) Subject to 2.02, to borrow money from any person in such
amounts, upon such terms and for such purposes as the Trustee, in its
discretion, may deem appropriate; and in connection therewith, to
execute promissory notes, mortgages or other obligations and to pledge
or mortgage any trust assets as security; and to lend money on a secured
or unsecured basis to any person other than a party in interest;
(i) To manage any real property in the trust in the same manner as
if the Trustee were the absolute owner thereof, including the power to
lease the same for such term or terms within or beyond the existence of
the trust and upon such conditions as the Trustee may deem proper; and
to grant options to purchase or acquire options to purchase any real
property;
(j) To appoint one (1) or more persons or entities as ancillary
trustee or subtrustee for the purpose of investing in and holding title
to real or personal property or any interest therein located outside the
State of Illinois; provided that any such ancillary trustee or
sub-trustee shall act with such power, authority, discretion, duties,
and functions of the Trustee as shall be specified in the instrument
establishing such ancillary trust or sub-trust, including (without
limitation) the power to receive, hold and manage property, real or
personal, or undivided interests therein; and the Trustee may pay the
reasonable expenses and compensation of such ancillary trustees or
sub-trustees out of the trust;
(k) To hold such part of the assets of the trust uninvested for such
limited periods of time as may be necessary for purposes of orderly
trust administration or pending required directions, without liability
for payment of interest;
(1) To determine how all receipts and disbursements shall be
credited, charged or apportioned as between income and principal, and
the decision of the Trustee shall be final and not subject to question
by any Participant or beneficiary of the trust; and
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(m) Generally to do all acts, whether or not expressly authorized,
which the Trustee may deem necessary or desirable for the orderly
administration or protection of the trust fund.
2.06-2 The Trustee may engage one (1) or more qualified independent
attorneys, accountants, actuaries, appraisers, consultants or other experts (an
"Expert") for any purpose, including the determination of Excess Assets pursuant
to 2.04 or disputed claims pursuant to 3.03. The determination of an Expert
shall be final and binding on the Company, the Trustee, and all of the
Participants unless, within thirty (30) days after receiving a determination
deemed by any Participant to be adverse, any Participant initiates suit in a
court of competent jurisdiction seeking appropriate relief. The Trustee shall
have no duty to oversee or independently evaluate the determination of the
Expert. The Trustee shall be authorized to pay the fees and expenses of any
Expert out of the assets of the trust fund.
2.06-3 The Company shall from time to time pay taxes (references in this
Trust Agreement to the payment of taxes shall include interest and applicable
penalties) of any and all kinds whatsoever which at any time are lawfully levied
or assessed upon or become payable in respect of the trust fund, the income or
any property forming a part thereof, or any security transaction pertaining
thereto. To the extent that any taxes levied or assessed upon the trust fund are
not paid by the Company or contested by the Company pursuant to the last
sentence of this paragraph, the Trustee shall pay such taxes out of the trust
fund, and the Company shall upon demand by the Trustee deposit into the trust
fund an amount equal to the amount paid from the trust fund to satisfy such tax
liability. If requested by the Company, the Trustee shall, at the Company's
expense, contest the validity of such taxes in any manner deemed appropriate by
the Company or its counsel, but only if it has received an indemnity bond or
other security satisfactory to it to pay any expenses of such contest.
Alternatively, the Company may itself contest the validity of any such taxes,
but any such contest shall not affect the Company's obligation to reimburse the
trust fund for taxes paid from the trust fund.
2.06-4 Notwithstanding any provisions in the Plans or this Trust
Agreement to the contrary, the Company and Trustee may withhold any benefits
payable to a beneficiary as a result of the death of the Participant or any
other beneficiary until such time as (a) the Company or Trustee is able to
determine whether a generation-skipping transfer tax, as defined in Chapter 13
of the Code, or any substitute provision therefor, is or may become payable by
the Company or Trustee as a result of benefit payments to the beneficiary; and
(b) the Company or Trustee has determined the amount of generation-skipping
transfer tax that is or may become due, including interest thereon. If any such
tax is or may become payable, the Company or Trustee shall reduce the benefits
otherwise payable hereunder to such beneficiary by such amounts as the Company
or Trustee feels are reasonably necessary to pay any generation-skipping
transfer tax and interest thereon which is or may become due.
Any excess amounts so withheld from a beneficiary, which are not used to
pay generation-skipping transfer tax and interest thereon, shall be payable to
the beneficiary as soon as there is a final determination of the applicable
generation-skipping transfer tax and interest thereon. Whenever any amounts
which were withheld are paid to any beneficiary, interest shall be payable by
the Company or Trustee to such beneficiary for the period of time between the
date when such amounts would otherwise have been paid to the beneficiary and the
date when such amounts are actually paid to the beneficiary after the
aforementioned generation-skipping transfer tax determinations are made and the
amount of benefits payable to the beneficiary is finally determined. Interest
shall be payable at the same rate as provided under 5.03-2.
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ARTICLE III--ADMINISTRATION
3.01 Committee; Company Representatives
3.01-1 The Committee is the plan administrator for the Plans and has
general responsibility to interpret the Plans and determine the rights of
Participants and beneficiaries.
3.01-2 The Trustee shall be given the names and specimen signatures of
the members of the Committee and any other Company representatives authorized to
take action in regard to the administration of the Plans and this trust. The
Trustee shall accept and rely upon the names and signatures until notified of
any change. Instructions to the Trustee shall be signed for the Committee by the
Chairman or such other person as the Committee may designate and for the Company
by any officer or such other representative as the Company may designate.
3.02 Payment of Benefits
3.02-1 Benefit payments shall normally be made directly by the Company.
If such payments are not made when due, after sixty (60) days' written notice to
the Company to permit the Company to cure any such Default, unless such notice
is waived by the Company, the Trustee shall pay benefits to Participants and
beneficiaries on behalf of the Company in satisfaction of its obligations under
the Plans. Benefit payments from a Subtrust shall be made in full until the
assets of the Subtrust are exhausted. Payments due on the date the Subtrust is
exhausted shall be covered pro rata. The Company's obligation shall not be
limited to the trust fund, and a Participant or beneficiary shall have a claim
against the Company for any payment not made by the Trustee.
3.02-2 A Participant's entitlement to benefits under the Plans shall be
determined by the Committee. Any benefit enhancement or right with respect to
the Plans which is provided under employment or severance agreements of
Participants shall be taken into account in making the foregoing determination.
Any claim for such benefits shall be considered and reviewed under the claims
procedures established for the Plans.
3.02-3 The Trustee shall make payments in accordance with written
directions from the Committee or consultant designated by the Committee, except
as provided in 3.03. The Trustee may request such directions from the Committee
or consultant designated by the Committee. If the Committee or consultant
designated by the Committee fails to furnish written directions to the Trustee,
within sixty (60) days after receiving a written request for directions from the
Trustee, the Trustee may make payments in accordance with written directions
from Participants or may determine the amounts due under the terms of the Plans
in reliance upon the most recent Payment Schedule furnished to it by the
Company.
The Trustee shall make any required income tax withholding and shall pay
amounts withheld to taxing authorities on the Company's behalf or determine that
such amounts have been paid by the Company.
3.02-4 The Trustee shall use the assets of the trust or any Subtrust to
make benefit payments or other payments in the following order of priority,
unless the Trustee determines otherwise to protect the Participants:
(a) Cash contributions from the Company which are specifically
designated to enable the Trustee to make such benefit payments or other
payments when due;
PAGE 16 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
(b) Cash and cash equivalents of the trust or Subtrust;
(c) All taxable investments of the trust or Subtrust (other than
cash and cash equivalents and Contracts with Insurers), in such order as
the Trustee may determine;
(d) All nontaxable investments of the trust or Subtrust (other than
cash and cash equivalents and Contracts with Insurers), in such order as
the Trustee may determine; and
(e) Contracts with Insurers held in the trust or Subtrust, in such
order and manner (for example, making tax-free withdrawals prior to any
taxable withdrawals from Contracts) as the Trustee may determine. Unless
the Trustee determines otherwise to protect the Participants, the
Trustee shall make tax-free withdrawals prior to any taxable withdrawals
from Contracts; shall make withdrawals from Contracts to the premium
vanish point before surrendering any Contracts; and shall surrender
Contracts, only if necessary, proceeding in order of Contracts on
insureds from the youngest to the oldest ages based on the insured's age
on the date of surrender of the Contract.
Notwithstanding the foregoing, the Trustee may use the assets of the
trust or any Subtrust in any other order of priority directed by the Committee
with the Written Consent of Participants affected thereby.
3.03 Disputed Claims
3.03-1 A Participant covered by this Trust whose claim has been denied
by the Committee, or who has received no response to the claim within sixty (60)
days after submission, may submit the claim to the Trustee. The Trustee shall
give written notice of the claim to the Committee. If the Trustee receives no
written response from the Committee within sixty (60) days after the date the
Committee is given written notice of the claim, the Trustee shall pay the
Participant the amount claimed, unless it determines that a lesser amount is due
under the terms of the Plans. If a written response is received within such
sixty (60) days, the Trustee shall consider the claim, including the Committee's
response. If the merits of the claim depend on compensation, service or other
data in the possession of the Company and it is not provided, the Trustee may
rely upon information provided by the Participant. Any benefit enhancement or
right with respect to the Plans which is provided under employment or severance
agreements of Participants shall be taken into account in making the foregoing
determination.
3.03-2 The Trustee shall give written notice to the Participant and the
Committee of its decision on the claim. If the decision is to grant the claim,
the Trustee shall make payment to the Participant. The Trustee may decline to
decide a claim and may file suit to have the matter resolved by a court of
competent jurisdiction. All of the Trustee's expenses in the court proceeding,
including attorneys fees, shall be allowed as administrative expenses of the
trust.
Either the Participant or the Company may challenge the Trustee's
decision by filing suit in a court of competent jurisdiction. If no such suit is
filed within sixty (60) days after delivery of written notice of the Trustee's
decision, the decision shall become final and binding on all parties.
Notwithstanding the two preceding paragraphs, after the Trustee decides
a claim or declines to decide a claim, any dispute between a Participant and the
Company or the Trustee as to the interpretation or application of the provisions
of this Trust Agreement and amounts payable hereunder may, at the election of
any party to such dispute (or, if more than one (1) Participant is such a party,
PAGE 17 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
at the election of two-thirds (2/3) of such Participants) be determined by
binding arbitration in Redding, California in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court of competent jurisdiction. All fees and expenses
of such arbitration shall be paid by the Trustee and considered an expense of
the trust under 3.06.
3.04 Records
3.04-1 The Trustee shall keep complete records on the trust fund open to
inspection by the Company, Committee and Participants at all reasonable times.
In addition to accountings required below, the Trustee shall furnish to the
Company, Committee and Participants any information reasonably requested about
the trust fund.
3.05 Accountings
3.05-1 The Trustee shall furnish the Company with a complete statement
of accounts annually within sixty (60) days after the end of the trust year
showing assets and liabilities and income and expense for the year of the trust
and each Subtrust. The Trustee shall also furnish the Company with accounting
statements at such other times as the Company may reasonably request. The form
and content of the statement of accounts shall be sufficient for the Company to
include in computing its taxable income and credits the income, deductions and
credits against tax that are attributable to the trust fund.
3.05-2 The Company may object to an accounting within one hundred eighty
(180) days after it is furnished and require that it be settled by audit by a
qualified, independent certified public accountant. The auditor shall be chosen
by the Trustee from a list of at least five such accountants furnished by the
Company at the time the audit is requested. Either the Company or the Trustee
may require that the account be settled by a court of competent jurisdiction, in
lieu of or in conjunction with the audit. All expenses of any audit or court
proceedings, including reasonable attorneys' fees, shall be allowed as
administrative expenses of the trust.
3.05-3 If the Company does not object to an accounting within the time
provided, the account shall be settled for the period covered by it.
3.05-4 When an account is settled, it shall be final and binding on all
parties, including all Participants and persons claiming through them.
3.06 Expenses and Fees
3.06-1 The Trustee shall be reimbursed for all reasonable expenses and
shall be paid a reasonable fee fixed by agreement with the Company from time to
time. No increase in the fee shall be effective before sixty (60) days after the
Trustee gives written notice to the Company of the increase. The Trustee shall
notify the Company periodically of expenses and fees.
3.06-2 The Company shall pay trustee and other administrative and
valuation fees and expenses. If not so paid, these fees and expenses shall be
paid from the trust fund. The Company shall reimburse the trust fund within
thirty (30) days after receipt of a bill from the Trustee for any fees and
expenses paid out of the trust fund.
PAGE 18 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
ARTICLE IV--LIABILITY
4.01 Indemnity
4.01-1 Subject to such limitations as may be imposed by applicable law,
the Company shall indemnify and hold harmless the Trustee from any claim, loss,
liability or expense arising from any action or inaction in administration of
this trust based on direction or information from either the Company, Committee,
any Investment Manager or any Expert, absent willful misconduct or bad faith.
4.02 Bonding
4.02-1 The Trustee need not give any bond or other security for
performance of its duties under this trust.
ARTICLE V--INSOLVENCY
5.01 Determination of Insolvency
5.01-1 The Company is Insolvent for purposes of this trust if:
(a) The Company is unable to pay its debts as they come due; or
(b) The Company is the subject of a pending proceeding as a debtor
under the federal Bankruptcy Code (or any successor federal statute).
5.01-2 The Company shall promptly give notice to the Trustee upon
becoming Insolvent. The Chief Executive Officer of the Company or the Board
shall be obligated to give such notice. If the Trustee receives such notice or
receives from any other person claiming to be a creditor of the Company a
written allegation that the Company is Insolvent, the Trustee shall
independently determine whether such insolvency exists. The expenses of such
determination shall be allowed as administrative expenses of the trust.
5.01-3 The Trustee shall continue making payments from the trust fund to
Participants and beneficiaries under the Plans while it is determining the
existence of insolvency. Such payments shall cease and the Trustee shall
commence Insolvency Administration under 5.02 upon the earlier of:
(a) A determination by the Trustee or a court of competent
jurisdiction that the Company is Insolvent; or
(b) Thirty (30) days after the notice or allegation of insolvency is
received under 5.01-2, unless the Trustee or a court of competent
jurisdiction has determined that the Company is not Insolvent since
receipt of such notice or allegation.
5.01-4 The Trustee shall have no obligation to investigate the financial
condition of the Company prior to receiving a notice or allegation of insolvency
under 5.01-2.
PAGE 19 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
5.02 Insolvency Administration
5.02-1 During Insolvency Administration, the Trustee shall hold the
trust fund for the benefit of the creditors of the Company and make payments
only in accordance with 5.02-2. The Participants and beneficiaries shall have no
greater rights than general creditors of the Company. The Trustee shall continue
the investment of the trust fund in accordance with 2.02.
5.02-2 The Trustee shall make payments out of the trust fund in one (1)
or more of the following ways:
(a) To creditors in accordance with instructions from a court, or a
person appointed by a court, having jurisdiction over the Company's
condition of insolvency;
(b) To Participants and beneficiaries in accordance with such
instructions; or
(c) In payment of its own fees or expenses.
5.02-3 The Trustee shall have a priority claim against the trust fund
with respect to its own fees and expenses.
5.03 Termination of Insolvency Administration
5.03-1 Insolvency Administration shall terminate when the Trustee
determines that the Company:
(a) Is not Insolvent, in response to a notice or allegation of
insolvency under 5.01-2;
(b) Has ceased to be Insolvent; or
(c) Has been determined by a court of competent jurisdiction not to
be Insolvent or to have ceased to be Insolvent.
5.03-2 Upon termination of Insolvency Administration under 5.03-1, the
trust fund shall continue to be held for the benefit of the Participants and
beneficiaries under the Plans. Benefit payments due during the period of
Insolvency Administration shall be made as soon as practicable, together with
interest from the due dates at the following rates:
(a) For the Deferred Compensation Plan, the rate credited on the
Participant's account under the Plan.
(b) For the Supplemental Executive Retirement Plan, a rate equal to
the interest rate fixed by the Pension Benefit Guaranty Corporation for
valuing immediate annuities in the preceding month.
5.04 Creditors' Claims During Solvency
5.04.1 During periods of Solvency the Trustee shall hold the trust fund
exclusively to pay Plan benefits and fees and expenses of the trust until all
Plan benefits have been paid. Creditors of
PAGE 20 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
the Company shall not be paid during Solvency from the trust fund, which may not
be seized by or subjected to the claims of such creditors in any way.
5.04-2 A period of Solvency is any period not covered by 5.02.
ARTICLE VI--SUCCESSOR TRUSTEES
6.01 Resignation and Removal
6.01-1 The Trustee may resign at any time by notice to the Company,
which shall be effective in sixty (60) days unless the Company and the Trustee
agree otherwise.
6.01-2 The Trustee may be removed by the Company on sixty (60) days'
written notice or shorter notice accepted by the Trustee. After a Special
Circumstance the Trustee may be removed only with the Written Consent of
Participants.
6.01-3 When resignation or removal is effective, the Trustee shall begin
transfer of assets to the successor Trustee immediately. The transfer shall be
completed within sixty (60) days, unless the Company extends the time limit.
6.01-4 If the Trustee resigns or is removed, the Company shall appoint a
successor by the effective date of resignation or removal under 6.01-1 or
6.01-2. After a Special Circumstance a successor Trustee may be appointed only
with the Written Consent of Participants. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of the Trustee in connection with
the proceeding shall be allowed as administrative expenses of the trust.
6.02 Appointment of Successor
6.02-1 The Company may appoint any national or state bank or trust
company that is unrelated to the Company as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective when accepted in
writing by the new Trustee, which shall have all of the rights and powers of the
former Trustee, including ownership rights in the trust assets. The former
Trustee shall execute any instruments necessary or reasonably requested by the
Company or the successor Trustee to evidence the transfer. After a Special
Circumstance a successor Trustee may be appointed only with the Written Consent
of Participants.
6.02-2 The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing trust assets, subject to
Article II. The successor Trustee shall not be responsible for, and the Company
shall indemnify and hold harmless the successor Trustee from any claim or
liability because of, any action or inaction of any prior Trustee or any other
past event, any existing condition or any existing assets.
6.03 Accountings; Continuity
6.03-1 A Trustee who resigns or is removed shall submit a final
accounting to the Company as soon as practicable. The accounting shall be
received and settled as provided in 3.05 for regular accountings.
PAGE 21 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
6.03-2 No resignation or removal of the Trustee or change in identity of
the Trustee for any reason shall cause a termination of the Plans or this trust.
ARTICLE VII--GENERAL PROVISIONS
7.01 Interests Not Assignable
7.01-1 The interest of a Participant in the trust fund may not be
assigned, pledged or otherwise encumbered, seized by legal process, transferred
or subjected to the claims of the Participant's creditors in any way.
7.01-2 The Company may not create a security interest in the trust fund
in favor of any of its creditors. The Trustee shall not make payments from the
trust fund of any amounts to creditors of the Company other than Participants,
except as provided in 5.02.
7.01-3 The Participants shall have no interest in the assets of the
trust fund beyond the right to receive payment of Plan benefits and
reimbursement of expenses from such assets subject to the instructions during
Insolvency referred to in 5.02. During Insolvency Administration the
Participants' rights to trust assets shall not be superior to those of any other
general creditors of the Company.
7.02 Amendment
7.02-1 The Company and the Trustee may amend this Trust Agreement at any
time by a written instrument executed by both parties. Except as provided below,
any such amendment may be made only with the Written Consent of Participants.
Notwithstanding the foregoing, any such amendment may be made by written
agreement of the Company and the Trustee without the Written Consent of
Participants if such amendment will not have a material adverse effect on the
rights of any Participant hereunder or, prior to a Special Circumstance, is
necessary to comply with any laws, regulations or other legal requirements.
7.03 Applicable Law
7.03-1 This trust shall be governed, construed and administered
according to the laws of Illinois.
7.04 Agreement Binding on All Parties
7.04-1 This Trust Agreement shall be binding upon the heirs, personal
representatives, successors and assigns of any and all present and future
parties.
7.05 Notices and Directions
7.05-1 Any notice or direction under this Trust Agreement shall be in
writing and shall be effective when actually delivered or, if mailed, when
deposited postpaid as first-class mail. Mail to a party shall be directed to the
address stated below or to such other address as either party may specify by
notice to the other party. Notices to the Committee shall be sent to the address
of the Company. Notices to Participants who have submitted claims under 3.03
shall be mailed to the address shown
PAGE 22 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
in the claim submission. Until notice is given to the contrary, notices to the
Company and the Trustee shall be addressed as follows:
Company: North Valley Bancorp
Administrative Offices
880 East Cypress Avenue
P.O. Box 4638
Redding, California 96099
Attention: Fred Drake
Trustee: Harris Trust and Savings Bank
Personal Trust and Asset Management Group
111 W. Monroe Street
P.O. Box 755
Chicago, Illinois 60690
Attention: Jane Barnett
7.06 No Implied Duties
7.06-1 The duties of the Trustee shall be those stated in this trust,
and no other duties shall be implied.
7.07 Gender, Singular and Plural
7.07-1 All pronouns and any variations thereof shall be deemed to refer
to the masculine or feminine, as the identity of the person or persons may
require. As the context may require, the singular may be read as the plural and
the plural as the singular.
ARTICLE VIII--INSURER
8.01 Insurer Not a Party
8.01-1 The Insurer shall not be deemed to be a party to this Trust
Agreement, and its obligations shall be measured and determined solely by the
terms of its Contracts and other agreements executed by it.
8.02 Authority of Trustee
8.02-1 The Insurer shall accept the signature of the Trustee on any
documents or papers executed in connection with such Contracts. The signature of
the Trustee shall be conclusive proof to the Insurer that the person on whose
life an application is being made is eligible to have such Contract issued on
his life and is eligible for a Contract of the type and amount requested.
8.03 Contract Ownership
8.03-1 The Insurer shall deal with the Trustee as the sole and absolute
owner of the trust's interests in such Contracts and shall have no obligation to
inquire whether any action or failure to act
PAGE 23 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
on the part of the Trustee is in accordance with or authorized by the terms of
the Plans or this Trust Agreement.
8.04 Limitation of Liability
8.04-1 The Insurer shall be fully discharged from any and all liability
for any action taken or any amount paid in accordance with the direction of the
Trustee and shall have no obligation to see to the proper application of the
amounts so paid. The Insurer shall have no liability for the operation of this
Trust Agreement or the Plans, whether or not in accordance with their terms and
provisions.
8.05 Change of Trustee
8.05-1 The Insurer shall be fully discharged from any and all liability
for dealing with a party or parties indicated on its records to be the Trustee
until such time as it shall receive at its home office written notice of the
appointment and qualification of a successor Trustee.
IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust
Agreement to be executed by their respective duly authorized officers on the
dates set forth below.
NORTH VALLEY BANCORP
By: /s/ Donald V. Carter
---------------------------
Its: President & CEO
---------------------------
Executed: May 10, 1995
---------------------------
HARRIS TRUST & SAVINGS BANK
By: /s/ Jane E. Barnett
---------------------------
Its: Vice President
---------------------------
Executed: May 5, 1995
---------------------------
PAGE 24 - UMBRELLA TRUST(TM) FOR DIRECTORS
<PAGE>
APPENDIX A
Assumptions and Methodology for
Calculations Required Under 2.01 and 2.04
1. The liability for benefits under each Plan will be calculated using two (2)
different assumptions as to when Participants terminate service:
(a) As of the applicable date under 2.01-3 or 2.04.
(b) Twenty-four (24) months after the applicable date, assuming
future compensation continues at current levels, and future deferrals
under deferred compensation plans continue pursuant to prior elections.
The liability for accrued benefits under each Plan will be the greater of
the liabilities calculated in accordance with (a) and (b) above.
2. Calculations will be based upon the most valuable optional form of payment
available to the Participant.
3. The liability for benefits under deferred compensation or other defined
contribution Plans shall be equal to the deferral or other account balances
(vested and unvested) of Participants as of the applicable date, plus
projected deferrals expected to be made within twenty-four (24) months after
the applicable date pursuant to prior elections. Account balances of
Participants under a Plan shall be calculated based on crediting the highest
rate of interest which may become payable to Participants under the Plan.
4. The liability for benefits under other Plans shall be equal to the present
value of accrued benefits (vested and unvested) of Participants as of the
relevant dates under l(a) or (b) above, discounted to the applicable date at
a rate equal to the immediate annuity rate set forth in Table 1 of Appendix
B to 29 CFR 269 plus fifty (50) basis points per annum.
5. The liability for benefits under all Plans shall also include the present
value (discounted to the applicable date at a rate equal to the immediate
annuity rate set forth in Table I of Appendix B to 29 CFR 269 plus fifty
(50) basis points per annum) of any survivor benefits which exceed the
account balances or other accrued benefits of Participants and are not
covered by death benefits payable under insurance contracts held in the
trust.
6. No mortality is assumed prior to the commencement of benefits, except for
purposes of calculating any additional accrued liability under 5 above.
Future mortality is assumed to occur in accordance with the 1983 Group
Annuity Table Male Rates after the commencement of benefits.
<PAGE>
APPENDIX A
Assumptions and Methodology for
Calculations Required Under 2.01 and 2.04
(Continued)
7. The present value of amounts under subparagraphs (a), (c) and (d) of 2.01-3
shall be determined using a discount rate equal to the immediate annuity
rate set forth in Table I of Appendix B to 29 CFR 269 plus fifty (50) basis
points per annum.
8. Where left undefined above, calculations will be performed in accordance
with generally accepted actuarial principles.
NORTH VALLEY BANCORP
UMBRELLA TRUST(TM) FOR EXECUTIVES
By and Between
NORTH VALLEY BANCORP
And
HARRIS TRUST & SAVINGS BANK
North Valley Bancorp Company
880 East Cypress Avenue
Redding, California 96099
Harris Trust & Savings Bank Trustee
Personal Trust and Asset Management
Group
111 W. Monroe Street
Chicago, Illinois 60690
Effective April 1, 1995
Exhibit 10(gg)
<PAGE>
TABLE OF CONTENTS
PAGE
----
PREAMBLE ......................................................................1
ARTICLE I--EFFECTIVE DATE; DURATION ...........................................2
1.01 Effective Date and Trust Year ..........................................2
1.02 Duration ...............................................................3
1.03 Irrevocability .........................................................4
1.04 Special Circumstance ...................................................4
ARTICLE II--TRUST FUND AND FUNDING POLICY .....................................5
2.01 Contributions ...........................................................5
2.02 Investments and Valuation ...............................................8
2.03 Subtrusts ..............................................................11
2.04 Recapture of Excess Assets .............................................12
2.05 Substitution of Other Property .........................................13
2.06 Administrative Powers of Trustee .......................................13
ARTICLE III--ADMINISTRATION ..................................................16
3.01 Committee; Company Representatives .....................................16
3.02 Payment of Benefits ....................................................16
3.03 Disputed Claims ........................................................17
3.04 Records ................................................................18
3.05 Accountings ............................................................18
3.06 Expenses and Fees ......................................................19
ARTICLE IV--LIABILITY ........................................................19
4.01 Indemnity ..............................................................19
4.02 Bonding ................................................................19
ARTICLE V--INSOLVENCY ........................................................19
5.01 Determination of Insolvency ...........................................19
5.02 Insolvency Administration .............................................20
5.03 Termination of Insolvency Administration ..............................20
5.04 Creditors' Claims During Solvency .....................................21
ARTICLE VI---SUCCESSOR TRUSTEES ..............................................21
6.01 Resignation and Removal ...............................................21
6.02 Appointment of Successor ..............................................21
6.03 Accountings; Continuity ...............................................22
(i)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE VII--GENERAL PROVISIONS ..............................................22
7.01 Interests Not Assignable ..............................................22
7.02 Amendment .............................................................22
7.03 Applicable Law ........................................................22
7.04 Agreement Binding on All Parties ......................................22
7.05 Notices and Directions ................................................23
7.06 No Implied Duties .....................................................23
7.07 Gender, Singular and Plural ...........................................23
ARTICLE VIII--INSURER ........................................................23
8.01 Insurer Not a Party ...................................................23
8.02 Authority of Trustee ..................................................23
8.03 Contract Ownership ....................................................24
8.04 Limitation of Liability ...............................................24
8.05 Change of Trustee .....................................................24
APPENDIX A
Assumptions and Methodology for Calculations Required Under 2.01 and 2.04
(ii)
<PAGE>
INDEX OF TERMS
TERM AND PROVISION NUMBER PAGE
- ------------------------- ----
A
Act: 1.04-3 ...................................................................4
B
Board: 1.02-3 .................................................................3
C
Change in Control: 1.04-3 .....................................................4
Code: Preamble ................................................................2
Committee: Preamble ...........................................................1
Company: Preamble .............................................................1
Contracts: 2.02-1 .............................................................8
D
Default: 1.04-6 ...............................................................5
E
ERISA: Preamble ...............................................................2
Excess Assets: 2.04-2 ........................................................12
Expert: 2.06-2 ...............................................................15
I
Insolvency Administration: 5.02 ..............................................20
Insolvent: 5.01-1 ............................................................19
Insurer: 2.02-1 ...............................................................8
Investment Manager: 2.02-4 ...................................................10
P
Participants: Preamble ........................................................1
Payment Schedule: 2.01-5 ......................................................7
Plans: Preamble ...............................................................1
Potential Change in Control: 2.01-7 ...........................................7
S
Segregated Fund: 2.02-4 ......................................................10
Special Circumstance: 1.04-2 ..................................................4
Subtrust: 2.03-1 .............................................................11
T
Tax Funding: 1.02-4 ...........................................................4
Trustee: Preamble .............................................................1
(iii)
<PAGE>
INDEX OF TERMS
TERM AND PROVISION NUMBER PAGE
- ------------------------- ----
V
Voting Securities: 1.04-5 .................................................... 5
W
Written Consent of Participants: 1.02-5 ...................................... 4
(iv)
<PAGE>
NORTH VALLEY BANCORP
UMBRELLA TRUST(TM) FOR EXECUTIVES
EFFECTIVE APRIL 1, 1995
This Trust Agreement is made and entered into by and between North
Valley Bancorp, a California corporation (the "Company"), and Harris Trust and
Savings Bank, an Illinois banking corporation (the "Trustee").
The Company hereby establishes with the Trustee a trust to hold all
monies and other property, together with the income thereon, as shall be paid or
transferred to it hereunder in accordance with the terms and conditions of this
Trust Agreement. The Trustee hereby accepts the trust established under this
Trust Agreement and agrees to hold, IN TRUST, all monies and other property
transferred to it hereunder for the uses and purposes and upon the terms and
conditions set forth herein, and the Trustee further agrees to discharge and
perform fully and faithfully all of the duties and obligations imposed upon it
under this Trust Agreement.
PREAMBLE
The Company has adopted the following plans (the "Plans") which shall be
subject to this trust:
Supplemental Executive Retirement Plan
Executive Deferred Compensation Plan
If only one (1) Plan is subject to this trust at any time, references in
this Trust Agreement to the Plans shall refer to such Plan.
The Plans are administered by an administrative committee (the
"Committee") appointed by the Company. If the Plans are administered by more
than one (1) Committee at any time, references in this Trust Agreement to the
Committee which relate to a particular Plan shall refer to the Committee which
administers that Plan and, if the reference does not relate to a particular
Plan, shall refer to all of such Committees. All references in this Trust
Agreement to the Committee shall refer to the administrative committee(s) which
administers the Plan(s), unless the Company appoints a separate administrative
committee to administer this Trust Agreement. If the Company appoints a separate
administrative committee to administer this Trust Agreement, references in this
Trust Agreement to the Committee shall refer to such administrative committee
which is appointed to administer this Trust Agreement, unless the context
clearly indicates otherwise.
The Plan participants who are covered by this Trust Agreement
("Participants") shall be all persons who are Plan participants prior to a
Special Circumstance, unless the Company specifically designates only specified
individuals or groups of Plan participants as Participants covered by this Trust
Agreement. After a person becomes a Participant covered by this Trust Agreement,
such person will continue to be a Participant at all times thereafter (including
after retirement or other termination of service) until all Plan benefits
payable to such Participant have been paid, the Participant
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ceases to be entitled to any Plan benefits, or the Participant's death,
whichever occurs first. The term "Participants" shall not include any
beneficiaries of Participants.
At any time prior to a Special Circumstance, the Company may, by
written notice to the Trustee, cause additional plans to become Plans subject to
this Trust Agreement or cause additional Plan participants to become
Participants covered by this Trust Agreement. Upon and after a Special
Circumstance, the Company may not add any additional plans or Plan participants
to this Trust Agreement.
The Company shall provide the Trustee with certified copies of the
following items: (i) the Plan documents; (ii) all Plan amendments promptly upon
their adoption; and (iii) lists and specimen signatures of the members of the
Committee(s) which administer the Plan(s) and this Trust Agreement and any other
Company representatives authorized to take action in regard to the
administration of the Plan(s) and this trust, including any changes in the
members of such Committee(s) and of such other representatives promptly
following any such change. The Company shall also provide the Trustee at least
annually with a list of all Participants in each Plan who are covered by this
Trust Agreement.
The purpose of this trust is to give Participants greater security by
placing assets in trust for use only to pay Plan benefits to Participants or, if
the Company becomes insolvent, to pay creditors. The Company shall continue to
be liable to Participants to make all payments required under the terms of the
Plans to the extent such payments are not made from this trust. Distributions
made from this trust to Participants or their beneficiaries shall, to the extent
of such distributions, satisfy the Company's obligations to pay benefits to
Participants and their beneficiaries under the Plans.
The Company and the Trustee agree that the trust hereby created has been
established to pay obligations of the Company pursuant to the Plans and is
subject to the rights of general creditors of the Company, and accordingly is a
grantor trust under the provisions of Sections 671 through 677 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Company hereby agrees to
report all items of income, deductions and credits of the trust on its own
income tax returns; and the Company shall have no right to any distributions
from the trust or any claim against the trust for funds necessary to pay any
income taxes which the Company is required to pay on account of reporting the
income of the trust on its income tax returns. No contribution to or income of
the trust is intended to be taxable to Participants until benefits are
distributed to them.
The Plans are intended to be "unfunded" and maintained "primarily for
the purpose of providing deferred compensation for a select group of management
or highly compensated employees" for purposes of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and as such are intended not to be
covered by Parts 2 through 4 of Subtitle B of Title I of ERISA (relating to
participation and vesting, funding and fiduciary responsibility). The existence
of this trust is not intended to alter this characterization of the Plans.
ARTICLE I--EFFECTIVE DATE; DURATION
1.01 Effective Date and Trust Year
This trust shall become effective when the Trust Agreement has been
executed by the Company and the Trustee and the Company has made a contribution
to the trust. For tax purposes the trust year shall be the calendar year. For
financial reporting purposes the trust year shall coincide
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with the Company's fiscal year. The Company shall report any change in its
fiscal year to the Trustee.
1.02 Duration
1.02-1 This trust shall continue in effect until all assets of the
trust fund are exhausted through distribution of benefits to Participants,
payment to creditors in the event of insolvency, payment of fees and expenses of
the Trustee, and return of remaining funds to the Company pursuant to 1.02-2.
Notwithstanding the foregoing, this trust shall terminate on the day before
twenty-one (21) years after the death of the last survivor of all present or
future Participants who are now living and those persons now living who are
designated as beneficiaries of any such Participants in accordance with the
terms of any of the Plans.
1.02-2 Except as otherwise provided in 1.02 and 1.03, the trust shall be
irrevocable until all benefits payable under the Plans to Participants who are
covered by this Trust Agreement are paid. The Trustee shall then return to the
Company any assets remaining in the trust.
1.02-3 If the existence of this trust or any Subtrust is held to be
ERISA Funding or Tax Funding by a federal court and appeals from that holding
are no longer timely or have been exhausted, this trust or such Subtrust shall
terminate. The Board of Directors of the Company (the "Board") may also
terminate this trust or any Subtrust if it determines, based on an opinion of
legal counsel which is satisfactory to the Trustee, that either (i) judicial
authority or the opinion of the U.S. Department of Labor, Treasury Department or
Internal Revenue Service (as expressed in proposed or final regulations,
advisory opinions or rulings, or similar administrative announcements) creates a
significant risk that the trust or any Subtrust will be held to be ERISA Funding
or Tax Funding or (ii) ERISA or the Code requires the trust or any Subtrust to
be amended in a way that creates a significant risk that the trust or such
Subtrust will be held to be ERISA Funding or Tax Funding, and failure to so
amend the trust or such Subtrust could subject the Company to material
penalties. Upon any such termination, the assets of each terminated Subtrust
remaining after payment of the Trustee's fees and expenses shall be distributed
as follows:
(a) Such assets shall be transferred to a new trust established by
the Company which is not deemed to be ERISA Funding or Tax Funding, but
which is similar in all other respects to this trust, if the Company
determines that it is possible to establish such a trust.
(b) If the Company determines that it is not possible to establish
the trust in (a) above, then the assets shall be distributed to the
Company if the Written Consent of Participants, as defined in 1.02-5, is
obtained for such distribution.
(c) If the Company determines that it is not possible to establish
the trust in (a) above and the Written Consent of Participants is not
obtained to distribute the assets to the Company, then the assets of
the terminated Subtrust shall be allocated in proportion to (i) the
vested accrued benefits and (ii) then, if any assets remain, the
unvested (if any) accrued benefits of Participants under the applicable
Plan and shall be distributed to such Participants in lump sums. Any
assets remaining shall be distributed to other Subtrusts or the Company
in accordance with 2.04.
Notwithstanding the foregoing, the Trustee shall distribute Plan
benefits to a Participant to the extent that a federal court has held that the
interest of the Participant in this trust causes such Plan benefits to be
includible for federal income tax purposes in the gross income of the
Participant
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prior to actual payment of such Plan benefits to the Participant and appeals
from that holding are no longer timely or have been exhausted. The Trustee may
also distribute Plan benefits to a Participant, upon direction of the Committee
or on its own initiative, if the Trustee reasonably believes, based on an
opinion of legal counsel which is satisfactory to the Trustee, that there is a
significant risk that the Participant's interest in the trust fund will be held
to be ERISA Funding or Tax Funding with respect to such Participant or that such
Participant will be determined not to be a "management or highly compensated
employee" for purposes of ERISA. The provisions of this paragraph shall also
apply to any beneficiary of a Participant.
1.02-4 This trust is "Tax Funding" if it causes the interest of a
Participant in this trust to be includible for federal income tax purposes in
the gross income of the Participant prior to actual payment of Plan benefits to
the Participant.
This trust is "ERISA Funding" if it prevents any of the Plans from
meeting the "unfunded" criterion of the exceptions to application of the
provisions of Parts 2 through 4 of Subtitle B of Title I of ERISA for plans that
are unfunded and maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees.
1.02-5 "Written Consent of Participants" means, for the purposes of
this Trust Agreement, consent in writing by Participants who (i) are a majority
in number and (ii) have more than fifty percent (50%) in value of the accrued
benefits, of the Participants in each Subtrust under this Trust Agreement on the
date of such consent.
1.03 Irrevocability
1.03-1 This trust shall be irrevocable, subject to 1.02.
1.04 Special Circumstance
1.04-1 Upon the occurrence of a Special Circumstance described in
1.04-2, the trust assets shall be held for Participants who had accrued benefits
under the Plans before the Special Circumstance occurred, including benefits
accrued for such Participants after the Special Circumstance.
1.04-2 A "Special Circumstance" shall mean a Change in Control (as
defined in 1.04-3) or a Default (as defined in 1.04-6).
1.04-3 A "Change in Control" shall mean: With respect to the Company, a
change in control of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Act") or any successor thereto; provided
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of Voting
Securities of the Company representing forty percent (40%) or more of the
combined voting power of the Company's then outstanding Voting Securities; (ii)
during any period of two (2) consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company together with
any new directors whose election or nomination for election was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
either directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute at
least a majority of the Board of Directors of the Com-
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pany; or (iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one (1) transaction or a series
of transactions) of all or substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur as a result of any event described in (i) or (iii) above, if directors
who were a majority of the members of the Board prior to such event determine
that the event shall not constitute a Change in Control within one (1) year
after the transaction and furnish written notice to the Trustee of such
determination.
1.04-4 For purposes of this Trust Agreement, a Change in Control shall
be deemed to have occurred when the Trustee makes a determination to that effect
on its own initiative or upon receipt by the Trustee of written notice to that
effect from the Company. The Chief Executive Officer of the Company or the Board
shall furnish written notice to the Trustee when a Change in Control occurs
under 1.04-3.
1.04-5 "Voting Securities" shall mean any securities of the Company
which vote generally in the election of directors.
1.04-6 A "Default" shall mean a failure by the Company to contribute,
within thirty (30) days of receipt of written notice from the Trustee, any of
the following amounts:
(a) The full amount of any insufficiency in assets of any Subtrust
that is required to pay any premiums or loan interest payments on
insurance contracts which are held in the Subtrust;
(b) The full amount of any insufficiency in assets of any Subtrust
that is required to pay any Plan benefit that is payable upon a
direction from the Committee pursuant to 3.02-3 or upon resolution of a
disputed claim pursuant to 3.03-2; or
(c) Any contribution which is then required under 2.01. If, after
the occurrence of a Default, the Company at any time cures such Default
by contributing to the trust all amounts which are then required under
subparagraphs (a), (b) and (c) above, it shall then cease to be deemed
that a Default has occurred or that a Special Circumstance has occurred
by reason of such Default.
ARTICLE II--TRUST FUND AND FUNDING POLICY
2.01 Contributions
2.01-1 The Company shall contribute to the trust such amounts as are
required to purchase or hold insurance contracts in the trust and to pay
premiums and loan interest payments thereon, all as described in 2.02-1. The
Company shall also contribute to the trust such amounts as are necessary to
enable the Trustee to make all Plan benefit payments to Participants when due,
un-
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less the Company makes such payments directly, whenever the Trustee advises the
Company that the assets of the trust or Subtrust, other than insurance contracts
or amounts needed to pay future premiums or loan interest payments on insurance
contracts, are insufficient to make such payments. In its discretion, the
Company may contribute to the trust such additional amounts or assets as the
Committee may reasonably decide are necessary to provide security for all Plan
benefits payable to Participants covered by this trust.
2.01-2 Whenever the Company makes a contribution to the trust, the
Company shall designate the Plan(s) and Subtrust(s) to which such contribution
(or designated portions thereof) shall be allocated. The Company may also make
contributions to a special reserve for payment of future fees and expenses of
the Trustee and future trust fees and expenses for legal and administrative
proceedings. The Company shall designate a separate Subtrust to receive such
contributions, which shall be distinct from the other Subtrust(s) established
for the Plan(s).
2.01-3 The Company shall, immediately upon the occurrence of a Special
Circumstance (as defined in 1.04-2) or a Potential Change in Control (as defined
in 2.01-7), and at least annually following a Special Circumstance, contribute
to the trust the sum of the following:
(a) The present value of the remaining premiums and the interest on
any policy loans on insurance contracts held in the trust.
(b) The amount by which the present value of all benefits (vested
and unvested) payable under the Plans on a pretax basis to Participants
covered by this trust exceeds the value of all trust assets. Each
Participant's benefit under any Plan for purposes of calculating present
value shall be the highest benefit the Participant would have accrued
under the Plan within the twenty-four (24) months following such event,
assuming that the Participant's service continues for twenty-four (24)
months at the same rate of compensation, that the Participant continues
to make future deferrals under deferred compensation plans in accordance
with his prior elections, and that the Participant is terminated at a
time when he is entitled to receive any benefit enhancement provided by
the Plan upon a Change in Control. Any benefit enhancement or right with
respect to the Plans which is provided under employment or severance
agreements of Participants shall be taken into account in making the
foregoing calculation.
(c) The present value of a reasonable estimate provided by the
Trustee of its fees and expenses due over the remaining duration of the
trust. Unless the Trustee estimates a greater amount, such amount shall
be presumed to be equal to one percent (1%) of the present value of all
accrued benefits (vested and unvested) payable under the Plans on a
pretax basis to Participants covered by this trust.
(d) The present value of a reasonable estimate provided by the
Trustee of the anticipated fees and expenses for the purpose of
commencing or defending lawsuits or legal or administrative proceedings
over the remaining duration of the trust. Unless the Trustee estimates a
greater amount, such amount shall be presumed to be equal to one percent
(1%) of the present value of all accrued benefits (vested and unvested)
payable under the Plans on a pretax basis to Participants covered by
this trust.
2.01-4 The calculations required under 2.01-3 shall be based on the
terms of the Plans and the actuarial assumptions and methodology set forth in
Appendix A attached hereto. Before a Special
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Circumstance, Appendix A may be revised by the Committee from time to time.
After a Special Circumstance, Appendix A may be revised only with the Written
Consent of Participants.
2.01-5 Whenever the Company makes a contribution to the trust pursuant
to 2.01-3, it shall furnish the Trustee with a written statement setting forth
the computation of all required amounts contributed under subparagraphs (a),
(b), (c) and (d) of 2.01-3.
Whenever a Special Circumstance occurs or the Company makes a
contribution pursuant to 2.01-3, the Company shall deliver to the Trustee,
contemporaneously with or immediately prior to such event, a schedule (the
"Payment Schedule") indicating the amounts payable under each Plan in respect of
each Participant, or providing a formula or instructions acceptable to the
Trustee for determining the amounts so payable, the form in which such amounts
are to be paid (as provided for or available under the Plans) and the time of
commencement for payment of such amounts. The Payment Schedule shall include any
other necessary instructions with respect to Plan benefits (including legal
expenses) payable under the Plans and any conditions with respect to any
Participant's entitlement to, and the Company's obligation to provide, such
benefits, and such instructions may be revised from time to time to the extent
so provided under the Plans or this Trust Agreement.
A modified Payment Schedule shall be delivered by the Company to the
Trustee at each time that (i) additional amounts are required to be paid by the
Company to the Trustee pursuant to 2.01-3, (ii) Excess Assets are returned to
the Company pursuant to 2.04, and (iii) upon the occurrence of any event
requiring a modification of the Payment Schedule. The Company shall also furnish
a Payment Schedule or modified Payment Schedule for any or all Plan(s) upon
request by the Trustee at any other time. Whenever the Company is required to
deliver to the Trustee a Payment Schedule or a modified Payment Schedule, the
Company shall also deliver at the same time to each Participant the respective
portion of the Payment Schedule or modified Payment Schedule that sets forth the
amount payable to that Participant.
2.01-6 Any contribution to the trust which is made by the Company under
2.01-3 on account of a Potential Change in Control shall be returned to the
Company following one (1) year after delivery of such contribution to the
Trustee unless a Change in Control shall have occurred during such one (1) year
period, if the Company requests such return within sixty (60) days after such
one (1) year period. If no such request is made within this sixty (60) day
period, the contribution shall become a permanent part of the trust fund. The
one (1) year period shall recommence in the event of and upon the date of any
subsequent Potential Change in Control.
2.01-7 A "Potential Change in Control" shall be deemed to occur if:
(a) Any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company as defined in
Section 13(d)(3) of the Act, delivers to the Company a statement
containing the information required by Schedule 13-D under the Act, or
any amendment to any such statement, that shows that such person has
acquired, directly or indirectly, the beneficial ownership of (i) more
than twenty-five percent (25%) of any class of equity security of the
Company entitled to vote as a single class in the election or removal
from office of directors, or (ii ) more than twenty-five percent (25%)
of the voting power of any group of classes of equity securities of the
Company entitled to vote as a single class in the election or removal
from office of directors;
(b) The Company becomes aware that preliminary or definitive copies
of a proxy statement and information statement or other information have
been filed with the Securities
PAGE 7 - UMBRELLA TRUST(TM) FOR EXECUTIVES
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and Exchange Commission pursuant to Rule 14a-6, Rule 14c-5, or Rule 14f-1 under
the Act relating to a Potential Change in Control of the Company;
(c) Any person delivers to the Company pursuant to Rule 14d-3 under
the Act a Tender Offer Statement relating to Voting Securities of the
Company;
(d) Any person (other than the Company) publicly announces an
intention to take actions which if consummated would constitute a Change
in Control;
(e) The Company enters into an agreement or arrangement, the
consummation of which would result in the occurrence of a Change in
Control;
(f) The Board approves a proposal, or the Company enters into an
agreement, which if consummated would constitute a Change in Control; or
(g) The Board adopts a resolution to the effect that, for purposes
of this Trust Agreement, a Potential Change in Control has occurred.
Notwithstanding the foregoing, a Potential Change in Control shall not
be deemed to occur as a result of any event described in (a) through (f) above,
if directors who were a majority of the members of the Board prior to such event
determine that the event shall not constitute a Potential Change in Control and
furnish written notice to the Trustee of such determination.
2.01-8 For purposes of this trust, a Potential Change in Control shall
be deemed to have occurred when the Trustee makes a determination to that effect
on its own initiative or upon receipt by the Trustee of written notice to that
effect from the Company. The Chief Executive Officer of the Company or the Board
shall furnish written notice to the Trustee when a Potential Change in Control
occurs under 2.01-7.
2.01-9 The Trustee shall accept the contributions made by the Company
and hold them as a trust fund for the payment of benefits under the Plans. The
Trustee shall not be responsible for determining the required amount of
contributions or for collecting any contribution not voluntarily paid, nor shall
the Trustee be responsible for the adequacy of the trust fund to meet and
discharge all liabilities under the Plans. Contributions may be in cash or in
other assets specified in 2.02.
2.02 Investments and Valuation
2.02-1 The trust fund shall be invested primarily in insurance contracts
("Contracts"). Such Contracts may be purchased by the Company and transferred to
the Trustee as in-kind contributions or may be purchased by the Trustee with the
proceeds of cash contributions (or may be purchased upon direction by the
Committee pursuant to 2.02-2 or an Investment Manager pursuant to 2.02-4). The
Company's contributions to the trust shall include sufficient cash to make
projected premium payments on such Contracts and payments of interest due on
loans secured by the cash value of such Contracts, unless the Company makes
these payments directly. The Trustee shall have the power to exercise all
rights, privileges, options and elections granted by or permitted under any
Contract or under the rules of the insurance company issuing the Contract
("Insurer"), including the right to obtain policy loans against the cash value
of the Contract. Prior to a Special Circumstance, the exercise by the Trustee of
any incidents of ownership under any Contract shall be subject to the direction
of the Committee. The Committee may from time to time direct the Trustee in
writing as to
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the designation of the beneficiary of a Participant under a Contract for any
part of the death benefits payable to such beneficiary thereunder, and the
Trustee shall file such designation with the Insurer.
Notwithstanding anything contained herein to the contrary, neither the
Company nor the Trustee shall be liable for the refusal of any Insurer to issue
or change any Contract or Contracts or to take any other action requested by the
Trustee; nor for the form, genuineness, validity, sufficiency or effect of any
Contract or Contracts held in the trust; nor for the act of any person or
persons that may render any such Contract or Contracts null and void; nor for
failure of any Insurer to pay the proceeds of any such Contract or Contracts as
and when the same shall become due and payable; nor for any delay in payment
resulting from any provision contained in any such Contract or Contracts; nor
for the fact that for any reason whatsoever (other than its own negligence or
willful misconduct) any Contracts shall lapse or otherwise become uncollectible.
2.02-2 Prior to a Special Circumstance, the Trustee shall invest the
trust fund in accordance with written directions by the Committee, including
directions for exercising rights, privileges, options and elections pertaining
to Contracts and for borrowing from Contracts or other borrowing by the Trustee.
The Trustee shall act only as an administrative agent in carrying out directed
investment transactions and shall not be responsible for the investment
decision. If a directed investment transaction violates any duty to diversify,
to maintain liquidity or to meet any other investment standard under this trust
or applicable law, the entire responsibility shall rest upon the Company. The
Trustee shall be fully protected in acting upon or complying with any investment
objectives, guidelines, restrictions or directions provided in accordance with
this paragraph.
After a Special Circumstance the Committee shall no longer be entitled
to direct the Trustee with respect to the investment of the trust fund, unless
the Written Consent of Participants is obtained for the Committee to continue to
have this right pursuant to 2.02-2. If such Written Consent of Participants is
not obtained, the trust fund shall be invested by the Trustee pursuant to 2.02-3
or by an Investment Manager pursuant to 2.02-4. The Trustee or Investment
Manager shall have the right to invest the Trust Fund primarily in insurance
contracts pursuant to 2.02-1.
Notwithstanding the foregoing, no investments shall be made at any time
in any securities, instruments, accounts or real property of the Company, and
the Trustee may not loan trust fund assets to the Company, or permit the Company
to pledge trust fund assets as collateral for loans to the Company.
The Committee may not direct the Trustee to make any investments, and
the Company may not make any contributions to the trust fund, which are not
permissible investments under 2.02-2 and 2.02-3.
2.02-3 If the Trustee does not receive instructions from the Committee
for the investment of part or all of the trust fund for a period of at least
sixty (60) days, the Trustee shall invest and reinvest the assets of the trust
fund as the Trustee, in its sole discretion, may deem appropriate, in accordance
with applicable law. Permissible investments shall be limited to the following:
(a) Insurance or annuity contracts;
(b) Preferred or common stocks, bonds, notes, debentures, commercial
paper, certificates of deposit, money market funds, obligations of
governmental bodies, or other securities;
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(c) Interest-bearing savings or deposit accounts with any
federally-insured bank or savings and loan association (including the
Trustee or an affiliate of the Trustee); or
(d) Shares or certificates of participation issued by investment
companies, investment trusts, mutual funds, or common or pooled
investment funds (including any common or pooled investment fund now or
hereafter maintained by the Trustee or an affiliate of the Trustee).
2.02-4 The Company may appoint one (1) or more investment managers
("Investment Manager") subject to the following provisions:
(a) The Company may appoint one (1) or more Investment Managers to
manage (including the power to acquire and dispose of) a specified
portion of the assets of the trust (hereinafter referred to as that
Investment Manager's "Segregated Fund"). Any Investment Manager so
appointed must be either (A) an investment adviser registered as such
under the Investment Advisers Act of 1940, (B) a bank, as defined in
that Act, or (C) an insurance company qualified to perform services in
the management, acquisition or disposition of the assets of trusts under
the laws of more than one (1) state; and any Investment Manager so
appointed must acknowledge in writing to the Company and to the Trustee
that it is a fiduciary with respect to the Plans. The Trustee, until
notified in writing to the contrary, shall be fully protected in relying
upon any written notice of the appointment of an Investment Manager
furnished to it by the Company. In the event of any vacancy in the
office of Investment Manager, the Trustee shall be deemed to be the
Investment Manager of that Investment Manager's Segregated Fund until an
Investment Manager thereof shall have been duly appointed; and in such
event, until an Investment Manager shall have been so appointed and
qualified, references herein to the Trustee's acting in respect of that
Segregated Fund pursuant to direction from the Investment Manager shall
be deemed to authorize the Trustee to act in its own discretion in
managing and controlling the assets of that Segregated Fund, and
subparagraphs (c) and (d) below shall have no effect with respect
thereto and shall be disregarded.
(b) Each Investment Manager appointed pursuant to subparagraph (a)
above shall have exclusive authority and discretion to manage and
control the assets of its Segregated Fund and may invest and reinvest
the assets of the Segregated Fund in any investments in which the
Trustee is authorized to invest under 2.02-3, subject to the terms and
limitations of any written instruments pertaining to its appointment as
Investment Manager. Copies of any such written instruments shall be
furnished to the Trustee. In addition, each Investment Manager from time
to time and at any time may delegate to the Trustee (or in the event of
any vacancy in the office of Investment Manager, the Trustee may
exercise in respect of that Investment Manager's Segregated Fund)
discretionary authority to invest and reinvest otherwise uninvested cash
held in its Segregated Fund temporarily in bonds, notes or other
evidences of indebtedness issued or fully guaranteed by the United
States of America or any agency or instrumentality thereof, or in other
obligations of a short-term nature, including prime commercial
obligations or part interests therein.
(c) Unless the Trustee knowingly participates in, or knowingly
undertakes to conceal, an act or omission of an Investment Manager,
knowing such act or omission to be a breach of the fiduciary
responsibility of the Investment Manager with respect to the Plans, the
Trustee shall not be liable for any act or omission of any Investment
Manager and shall not be under any obligation to invest or otherwise
manage the assets of the Plans that are subject to the management of any
Investment Manager. Without limiting the generality of the forego-
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ing, the Trustee shall not be liable by reason of its taking or
refraining from taking at the direction of an Investment Manager any
action in respect of that Investment Manager's Segregated Fund. The
Trustee shall be under no duty to question or to make inquiries as to
any direction or order or failure to give direction or order by any
Investment Manager; and the Trustee shall be under no duty to make any
review of investments acquired for the trust at the direction or order
of any Investment Manager and shall be under no duty at any time to make
any recommendation with respect to disposing of or continuing to retain
any such investment.
2.02-5 The values of all assets in the trust fund shall be reasonably
determined by the Trustee and may be based on the determination of qualified
independent parties or Experts (as described in 2.06-2). At any time before or
after a Special Circumstance, the Trustee shall have the right to secure
confirmation of value by a qualified independent party or Expert for all
property of the trust fund, as well as any property to be substituted for other
property of the trust fund pursuant to 2.05. Before a Special Circumstance the
Company may designate one (1) or more independent parties, who are acceptable to
the Trustee, to determine the fair market value of any notes, securities, real
property or other assets.
Any insurance or annuity contracts held in the trust fund shall be
valued at their cash surrender value, except for purposes of substituting other
property for such Contracts pursuant to 2.05-2. All securities shall be valued
net of costs to sell, or register for sale, such securities. All real property
shall be valued net of costs to sell such real property. All other assets of the
trust fund shall be valued at their fair market value.
The Company shall pay all costs incurred in valuing the assets of the
trust fund, including any assets to be substituted for other assets of the trust
fund pursuant to 2.05. If not so paid, these costs shall be paid from the trust
fund. The Company shall reimburse the trust fund within thirty (30) days after
receipt of a bill from the Trustee for any such costs paid out of the trust
fund.
2.03 Subtrusts
2.03-1 The Trustee shall establish a separate subtrust ("Subtrust") for
each Plan to which it shall credit contributions it receives which are earmarked
for that Plan and Subtrust. The Trustee shall also establish a separate Subtrust
to which it shall credit contributions it receives which are earmarked to the
special reserve for payment of future fees and expenses of the Trustee and
future trust fees and expenses for legal and administrative proceedings. Each
Subtrust shall reflect an undivided interest in assets of the trust fund and
shall not require any segregation of particular assets, except that an insurance
contract covering benefits of a particular Plan shall be held in the Subtrust
for the Plan. All contributions shall be designated by the Company for a
particular Subtrust. However, any contribution received by the Trustee which is
not earmarked for a particular Subtrust shall be allocated among the Subtrusts
as the Trustee may determine in its sole discretion.
The Committee may direct the Trustee, or the Trustee may determine on
its own initiative, to maintain a separate sub-account within each Subtrust for
a Plan for each Participant who is covered by the Subtrust. Each sub-account in
a Subtrust shall reflect an individual interest in assets of the Subtrust and,
as much as possible, shall operate in the same manner as if it were a separate
Subtrust.
2.03-2 The Trustee shall allocate investment earnings and losses and
expenses of the trust fund among the Subtrusts in proportion to their balances,
except that changes in the value of an insurance contract (including premiums
and interest on loans on an insurance contract) shall be allo-
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cated to the Subtrust for which it is held. Payments to creditors during
Insolvency Administration under 5.02 shall be charged against the Subtrusts in
proportion to their balances, except that payment of Plan benefits to a
Participant as a general creditor shall be charged against the Subtrust for that
Plan.
2.03-3 Assets allocated to a Subtrust for one (1) Plan may not be
utilized to provide benefits under any other Plans until all benefits under such
Plan have been paid in full, except that Excess Assets of a Subtrust may be
transferred to other Subtrusts pursuant to 2.04-5.
2.04 Recapture of Excess Assets
2.04-1 In the event the trust shall hold Excess Assets, the Committee,
at its option, may direct the Trustee to return part or all of such Excess
Assets to the Company.
2.04-2 "Excess Assets" are assets of the trust exceeding one hundred
twenty-five percent (125%) of the amounts described in subparagraphs (a), (b),
(c) and (d) of 2.01-3.
2.04-3 The calculation required by 2.04-2 shall be based on the terms of
the Plans and the actuarial assumptions and methodology set forth in Appendix A.
Before a Special Circumstance, the calculation shall be made by the Company or a
qualified actuary or consultant selected by the Committee. After a Special
Circumstance, the calculation shall be made by a qualified actuary or consultant
selected by the Trustee, provided the Committee may select a qualified actuary
or consultant with the Written Consent of Participants.
2.04-4 Excess Assets shall be returned to the Company in the following
order of priority, unless the Trustee determines otherwise to protect the
participants:
(a) Cash and cash equivalents;
(b) All taxable investments of the trust (other than cash and cash
equivalents and Contracts with Insurers), in such order as the Committee
may request;
(c) All nontaxable investments of the trust (other than cash and
cash equivalents and Contracts with Insurers), in such order as the
Committee may request; and
(d) Contracts with Insurers, proceeding in order of Contracts on
insureds from the youngest to the oldest ages based on the insured's
attained age on the date of return of Excess Assets.
Notwithstanding the foregoing, Excess Assets may be returned in any
other order of priority directed by the Committee with the Written Consent of
Participants.
2.04-5 If any Subtrust holds Excess Assets, the Committee may direct the
Trustee to transfer such Excess Assets to other Subtrusts, either ratably in
proportion to the unfunded liabilities to Participants for Plan benefits of all
other Subtrusts or first to the other Subtrust(s) with the largest percentage of
such unfunded liabilities. After a Special Circumstance the Trustee may also
transfer Excess Assets of a Subtrust to other Subtrusts upon its own initiative
in such amounts as it may determine in its sole discretion.
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Excess Assets of a Subtrust for a Plan shall be determined in the same
manner as Excess Assets of the trust are determined pursuant to 2.04-2 and
2.04-3. In making this determination each Subtrust for a Plan shall bear its
allocable share of the amounts described in subparagraphs (a) and (b) of 2.01-3
which relate to that Plan. The Trustee, in its sole discretion, shall determine
whether there are Excess Assets in the separate Subtrust which constitutes the
reserve for payment of future fees and expenses of the Trustee and future trust
fees and expenses for legal and administrative proceedings. Excess Assets for
this Subtrust shall be any amounts which the Trustee reasonably determines will
not be needed in the future for payment of such fees and expenses.
2.05 Substitution of Other Property
2.05-1 The Company shall have the power to reacquire part or all of the
assets or collateral held in the trust fund at any time, by simultaneously
substituting for it other readily marketable property of equivalent value, net
of any costs of disposition; provided that, if the trust holds Excess Assets,
the property which is substituted shall not be required to be of equivalent
value, but only of sufficient value so that the trust will retain Excess Assets
of not less than ten thousand dollars ($10,000) after such substitution. The
property which is substituted must be among the types of investments authorized
under 2.02 and may not be less liquid or marketable or less well secured than
the property for which it is substituted, as determined by the Trustee. Such
power is exercisable in a nonfiduciary capacity and may be exercised without the
approval or consent of Participants or any other person.
2.05-2 Except for insurance contracts, the value of any assets
reacquired under 2.05-1 shall be determined as provided in 2.02-5. The value of
any insurance contract reacquired under 2.05-1 shall be the present value of
future projected cash flow or benefits payable under the Contract, but not less
than the cash surrender value. The projection shall include death benefits based
on reasonable mortality assumptions, including known facts specifically relating
to the health of the insured and the terms of the Contract to be reacquired.
Values shall be reasonably determined by the Trustee and may be based on the
determination of qualified independent parties and Experts, as described in
2.02-5 and 2.06-2. The Trustee shall have the right to secure confirmation of
value by a qualified independent party or Expert for all property to be
substituted for other property.
2.05-3 The Company shall pay all costs incurred in valuing the assets of
the trust fund, including any assets to be substituted for other assets of the
trust fund pursuant to 2.05. If not so paid, these costs shall be paid from the
trust fund. The Company shall reimburse the trust fund with in thirty (30) days
after receipt of a bill from the Trustee for any such costs paid out of the
trust fund.
2.06 Administrative Powers of Trustee
2.06-1 Subject in all respects to applicable provisions of this Trust
Agreement and the Plans, including limitations on investment of the trust fund,
the Trustee shall have the rights, powers and privileges of an absolute owner
when dealing with property of the trust, including (without limiting the
generality of the foregoing) the powers listed below:
(a) To sell, convey, transfer, exchange, partition, lease, and
otherwise dispose of any of the assets of the trust at any time held by
the Trustee under this Trust Agreement;
(b) To exercise any option, conversion privilege or subscription
right given the Trustee as the owner of any security held in the trust;
to vote any corporate stock either in person or by proxy, with or
without power of substitution; to consent to or oppose any reor-
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ganization, consolidation, merger, readjustment of financial structure, sale,
lease or other disposition of the assets of any corporation or other
organization, the securities of which may be an asset of the trust; and to take
any action in connection therewith and receive and retain any securities
resulting therefrom;
(c) To deposit any security with any protective or reorganization
committee, and to delegate to such committee such power and authority
with respect thereto as the Trustee may deem proper, and to agree to pay
out of the trust such portion of the expenses and compensation of such
committee as the Trustee, in its discretion, shall deem appropriate;
(d) To cause any property of the trust to be issued, held or
registered in the name of the Trustee as trustee, or in the name of one
(1) or more of its nominees, or one (1) or more nominees of any system
for the central handling of securities, or in such form that title will
pass by delivery, provided that the records of the Trustee shall in all
events indicate the true ownership of such property, or to deposit any
securities held in the trust with a securities depository;
(e) To renew or extend the time of payment of any obligation due or
to become due;
(f) To commence or defend lawsuits or legal or administrative
proceedings; to compromise, arbitrate or settle claims, debts or damages
in favor of or against the trust; to deliver or accept, in either total
or partial satisfaction of any indebtedness or other obligation, any
property; to continue to hold for such period of time as the Trustee may
deem appropriate any property so received; and to pay all costs and
reasonable attorneys' fees in connection therewith out of the assets of
the trust;
(g) To foreclose any obligation by judicial proceeding or otherwise;
(h) Subject to 2.02, to borrow money from any person in such
amounts, upon such terms and for such purposes as the Trustee, in its
discretion, may deem appropriate; and in connection therewith, to
execute promissory notes, mortgages or other obligations and to pledge
or mortgage any trust assets as security; and to lend money on a secured
or unsecured basis to any person other than a party in interest;
(i) To manage any real property in the trust in the same manner as
if the Trustee were the absolute owner thereof, including the power to
lease the same for such term or terms within or beyond the existence of
the trust and upon such conditions as the Trustee may deem proper; and
to grant options to purchase or acquire options to purchase any real
property;
(j) To appoint one (1) or more persons or entities as ancillary
trustee or subtrustee for the purpose of investing in and holding title
to real or personal property or any interest therein located outside the
State of Illinois; provided that any such ancillary trustee or
sub-trustee shall act with such power, authority, discretion, duties,
and functions of the Trustee as shall be specified in the instrument
establishing such ancillary trust or sub-trust, including (without
limitation) the power to receive, hold and manage property, real or
personal, or undivided interests therein; and the Trustee may pay the
reasonable expenses and compensation of such ancillary trustees or
sub-trustees out of the trust;
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(k) To hold such part of the assets of the trust uninvested for such
limited periods of time as may be necessary for purposes of orderly
trust administration or pending required directions, without liability
for payment of interest;
(l) To determine how all receipts and disbursements shall be
credited, charged or apportioned as between income and principal, and
the decision of the Trustee shall be final and not subject to question
by any Participant or beneficiary of the trust; and
(m) Generally to do all acts, whether or not expressly authorized,
which the Trustee may deem necessary or desirable for the orderly
administration or protection of the trust fund.
2.06-2 The Trustee may engage one (1) or more qualified independent
attorneys, accountants, actuaries, appraisers, consultants or other experts (an
"Expert") for any purpose, including the determination of Excess Assets pursuant
to 2.04 or disputed claims pursuant to 3.03. The determination of an Expert
shall be final and binding on the Company, the Trustee, and all of the
Participants unless, within thirty (30) days after receiving a determination
deemed by any Participant to be adverse, any Participant initiates suit in a
court of competent jurisdiction seeking appropriate relief. The Trustee shall
have no duty to oversee or independently evaluate the determination of the
Expert. The Trustee shall be authorized to pay the fees and expenses of any
Expert out of the assets of the trust fund.
2.06-3 The Company shall from time to time pay taxes (references in this
Trust Agreement to the payment of taxes shall include interest and applicable
penalties) of any and all kinds whatsoever which at any time are lawfully levied
or assessed upon or become payable in respect of the trust fund, the income or
any property forming a part thereof, or any security transaction pertaining
thereto. To the extent that any taxes levied or assessed upon the trust fund are
not paid by the Company or contested by the Company pursuant to the last
sentence of this paragraph, the Trustee shall pay such taxes out of the trust
fund, and the Company shall upon demand by the Trustee deposit into the trust
fund an amount equal to the amount paid from the trust fund to satisfy such tax
liability. If requested by the Company, the Trustee shall, at the Company's
expense, contest the validity of such taxes in any manner deemed appropriate by
the Company or its counsel, but only if it has received an indemnity bond or
other security satisfactory to it to pay any expenses of such contest.
Alternatively, the Company may itself contest the validity of any such taxes,
but any such contest shall not affect the Company's obligation to reimburse the
trust fund for taxes paid from the trust fund.
2.06-4 Notwithstanding any provisions in the Plans or this Trust
Agreement to the contrary, the Company and Trustee may withhold any benefits
payable to a beneficiary as a result of the death of the Participant or any
other beneficiary until such time as (a) the Company or Trustee is able to
determine whether a generation-skipping transfer tax, as defined in Chapter 13
of the Code, or any substitute provision therefor, is or may become payable by
the Company or Trustee as a result of benefit payments to the beneficiary; and
(b) the Company or Trustee has determined the amount of generation-skipping
transfer tax that is or may become due, including interest thereon. If any such
tax is or may become payable, the Company or Trustee shall reduce the benefits
otherwise payable hereunder to such beneficiary by such amounts as the Company
or Trustee feels are reasonably necessary to pay any generation-skipping
transfer tax and interest thereon which is or may become due.
Any excess amounts so withheld from a beneficiary, which are not used to
pay generation-skipping transfer tax and interest thereon, shall be payable to
the beneficiary as soon as there is a final determination of the applicable
generation-skipping transfer tax and interest thereon. Whenever
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any amounts which were withheld are paid to any beneficiary, interest shall be
payable by the Company or Trustee to such beneficiary for the period of time
between the date when such amounts would otherwise have been paid to the
beneficiary and the date when such amounts are actually paid to the beneficiary
after the aforementioned generation-skipping transfer tax determinations are
made and the amount of benefits payable to the beneficiary is finally
determined. Interest shall be payable at the same rate as provided under 5.03-2.
ARTICLE III--ADMINISTRATION
3.01 Committee; Company Representatives
3.01-1 The Committee is the plan administrator for the Plans and has
general responsibility to interpret the Plans and determine the fights of
Participants and beneficiaries.
3.01-2 The Trustee shall be given the names and specimen signatures of
the members of the Committee and any other Company representatives authorized to
take action in regard to the administration of the Plans and this trust. The
Trustee shall accept and rely upon the names and signatures until notified of
any change. Instructions to the Trustee shall be signed for the Committee by the
Chairman or such other person as the Committee may designate and for the Company
by any officer or such other representative as the Company may designate.
3.02 Payment of Benefits
3.02-1 Benefit payments shall normally be made directly by the Company.
If such payments are not made when due, after sixty (60) days' written notice to
the Company to permit the Company to cure any such Default, unless such notice
is waived by the Company, the Trustee shall pay benefits to Participants and
beneficiaries on behalf of the Company in satisfaction of its obligations under
the Plans. Benefit payments from a Subtrust shall be made in full until the
assets of the Subtrust are exhausted. Payments due on the date the Subtrust is
exhausted shall be covered pro rata. The Company's obligation shall not be
limited to the trust fund, and a Participant or beneficiary shall have a claim
against the Company for any payment not made by the Trustee.
3.02-2 A Participant's entitlement to benefits under the Plans shall be
determined by the Committee. Any benefit enhancement or right with respect to
the Plans which is provided under employment or severance agreements of
Participants shall be taken into account in making the foregoing determination.
Any claim for such benefits shall be considered and reviewed under the claims
procedures established for the Plans.
3.02-3 The Trustee shall make payments in accordance with written
directions from the Committee or consultant designated by the Committee, except
as provided in 3.03. The Trustee may request such directions from the Committee
or consultant designated by the Committee. If the Committee or consultant
designated by the Committee fails to furnish written directions to the Trustee,
within sixty (60) days after receiving a written request for directions from the
Trustee, the Trustee may make payments in accordance with written directions
from Participants or may determine the amounts due under the terms of the Plans
in reliance upon the most recent Payment Schedule furnished to it by the
Company.
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The Trustee shall make any required income tax withholding and shall pay
amounts withheld to taxing authorities on the Company's behalf or determine that
such amounts have been paid by the Company.
3.02-4 The Trustee shall use the assets of the trust or any Subtrust to
make benefit payments or other payments in the following order of priority,
unless the Trustee determines otherwise to protect the Participants:
(a) Cash contributions from the Company which are specifically
designated to enable the Trustee to make such benefit payments or other
payments when due;
(b) Cash and cash equivalents of the trust or Subtrust;
(c) All taxable investments of the trust or Subtrust (other than
cash and cash equivalents and Contracts with Insurers), in such order as
the Trustee may determine;
(d) All nontaxable investments of the trust or Subtrust (other than
cash and cash equivalents and Contracts with Insurers), in such order as
the Trustee may determine; and
(e) Contracts with Insurers held in the trust or Subtrust, in such
order and manner (for example, making tax-free withdrawals prior to any
taxable withdrawals from Contracts) as the Trustee may determine. Unless
the Trustee determines otherwise to protect the Participants, the
Trustee shall make tax-free withdrawals prior to any taxable withdrawals
from Contracts; shall make withdrawals from Contracts to the premium
vanish point before surrendering any Contracts; and shall surrender
Contracts, only if necessary, proceeding in order of Contracts on
insureds from the youngest to the oldest ages based on the insured's age
on the date of surrender of the Contract.
Notwithstanding the foregoing, the Trustee may use the assets of the
trust or any Subtrust in any other order of priority directed by the Committee
with the Written Consent of Participants affected thereby.
3.03 Disputed Claims
3.03-1 A Participant covered by this Trust whose claim has been denied
by the Committee, or who has received no response to the claim within sixty (60)
days after submission, may submit the claim to the Trustee. The Trustee shall
give written notice of the claim to the Committee. If the Trustee receives no
written response from the Committee within sixty (60) days after the date the
Committee is given written notice of the claim, the Trustee shall pay the
Participant the amount claimed, unless it determines that a lesser amount is due
under the terms of the Plans. If a written response is received within such
sixty (60) days, the Trustee shall consider the claim, including the Committee's
response. If the merits of the claim depend on compensation, service or other
data in the possession of the Company and it is not provided, the Trustee may
rely upon information provided by the Participant. Any benefit enhancement or
right with respect to the Plans which is provided under employment or severance
agreements of Participants shall be taken into account in making the foregoing
determination.
3.03-2 The Trustee shall give written notice to the Participant and the
Committee of its decision on the claim. If the decision is to grant the claim,
the Trustee shall make payment to the Participant. The Trustee may decline to
decide a claim and may file suit to have the matter resolved
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by a court of competent jurisdiction. All of the Trustee's expenses in the court
proceeding, including attorneys fees, shall be allowed as administrative
expenses of the trust.
Either the Participant or the Company may challenge the Trustee's
decision by filing suit in a court of competent jurisdiction. If no such suit is
filed within sixty (60) days after delivery of written notice of the Trustee's
decision, the decision shall become final and binding on all parties.
Notwithstanding the two (2) preceding paragraphs, after the Trustee
decides a claim or declines to decide a claim, any dispute between a Participant
and the Company or the Trustee as to the interpretation or application of the
provisions of this Trust Agreement and amounts payable hereunder may, at the
election of any party to such dispute (or, if more than one (1) Participant is
such a party, at the election of two-thirds (2/3) of such Participants) be
determined by binding arbitration in Redding, California, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court of competent jurisdiction. All
fees and expenses of such arbitration shall be paid by the Trustee and
considered an expense of the trust under 3.06.
3.04 Records
3.04-1 The Trustee shall keep complete records on the trust fund open to
inspection by the Company, Committee and Participants at all reasonable times.
In addition to accountings required below, the Trustee shall furnish to the
Company, Committee and Participants any information reasonably requested about
the trust fund.
3.05 Accountings
3.05-1 The Trustee shall furnish the Company with a complete statement
of accounts annually within sixty (60) days after the end of the trust year
showing assets and liabilities and income and expense for the year of the trust
and each Subtrust. The Trustee shall also furnish the Company with accounting
statements at such other times as the Company may reasonably request. The form
and content of the statement of accounts shall be sufficient for the Company to
include in computing its taxable income and credits the income, deductions and
credits against tax that are attributable to the trust fund.
3.05-2 The Company may object to an accounting within one hundred eighty
(180) days after it is furnished and require that it be settled by audit by a
qualified, independent certified public accountant. The auditor shall be chosen
by the Trustee from a list of at least five (5) such accountants furnished by
the Company at the time the audit is requested. Either the Company or the
Trustee may require that the account be settled by a court of competent
jurisdiction, in lieu of or in conjunction with the audit. All expenses of any
audit or court proceedings, including reasonable attorneys' fees, shall be
allowed as administrative expenses of the trust.
3.05-3 If the Company does not object to an accounting within the time
provided, the account shall be settled for the period covered by it.
3.05-4 When an account is settled, it shall be final and binding on all
parties, including all Participants and persons claiming through them.
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3.06 Expenses and Fees
3.06-1 The Trustee shall be reimbursed for all reasonable expenses and
shall be paid a reasonable fee fixed by agreement with the Company from time to
time. No increase in the fee shall be effective before sixty (60) days after the
Trustee gives written notice to the Company of the increase. The Trustee shall
notify the Company periodically of expenses and fees.
3.06-2 The Company shall pay trustee and other administrative and
valuation fees and expenses. If not so paid, these fees and expenses shall be
paid from the trust fund. The Company shall reimburse the trust fund within
thirty (30) days after receipt of a bill from the Trustee for any fees and
expenses paid out of the trust fund.
ARTICLE IV--LIABILITY
4.01 Indemnity
4.01-1 Subject to such limitations as may be imposed by applicable law,
the Company shall indemnify and hold harmless the Trustee from any claim, loss,
liability or expense arising from any action or inaction in administration of
this trust based on direction or information from either the Company, Committee,
any Investment Manager or any Expert, absent willful misconduct or bad faith.
4.02 Bonding
4.02-1 The Trustee need not give any bond or other security for
performance of its duties under this trust.
ARTICLE V--INSOLVENCY
5.01 Determination of Insolvency
5.01-1 The Company is Insolvent for purposes of this trust if:
(a) The Company is unable to pay its debts as they come due; or
(b) The Company is the subject of a pending proceeding as a debtor
under the federal Bankruptcy Code (or any successor federal statute).
5.01-2 The Company shall promptly give notice to the Trustee upon
becoming Insolvent. The Chief Executive Officer of the Company or the Board
shall be obligated to give such notice. If the Trustee receives such notice or
receives from any other person claiming to be a creditor of the Company a
written allegation that the Company is Insolvent, the Trustee shall
independently determine whether such insolvency exists. The expenses of such
determination shall be allowed as administrative expenses of the trust.
5.01-3 The Trustee shall continue making payments from the trust fund to
Participants and beneficiaries under the Plans while it is determining the
existence of insolvency. Such payments shall cease and the Trustee shall
commence Insolvency Administration under 5.02 upon the earlier of:
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(a) A determination by the Trustee or a court of competent
jurisdiction that the Company is Insolvent; or
(b) Thirty (30) days after the notice or allegation of insolvency is
received under 5.01-2, unless the Trustee or a court of competent
jurisdiction has determined that the Company is not Insolvent since
receipt of such notice or allegation.
5.01-4 The Trustee shall have no obligation to investigate the financial
condition of the Company prior to receiving a notice or allegation of insolvency
under 5.01-2.
5.02 Insolvency Administration
5.02-1 During Insolvency Administration, the Trustee shall hold the
trust fund for the benefit of the creditors of the Company and make payments
only in accordance with 5.02-2. The Participants and beneficiaries shall have no
greater rights than general creditors of the Company. The Trustee shall continue
the investment of the trust fund in accordance with 2.02.
5.02-2 The Trustee shall make payments out of the trust fund in one (1)
or more of the following ways:
(a) To creditors in accordance with instructions from a court, or a
person appointed by a court, having jurisdiction over the Company's
condition of insolvency;
(b) To Participants and beneficiaries in accordance with such
instructions; or
(c) In payment of its own fees or expenses.
5.02-3 The Trustee shall have a priority claim against the trust fund
with respect to its own fees and expenses.
5.03 Termination of Insolvency Administration
5.03-1 Insolvency Administration shall terminate when the Trustee
determines that the Company:
(a) Is not Insolvent, in response to a notice or allegation of
insolvency under 5.01-2;
(b) Has ceased to be Insolvent; or
(c) Has been determined by a court of competent jurisdiction not to
be Insolvent or to have ceased to be Insolvent.
5.03-2 Upon termination of Insolvency Administration under 5.03-1, the
trust fund shall continue to be held for the benefit of the Participants and
beneficiaries under the Plans. Benefit payments due during the period of
Insolvency Administration shall be made as soon as practicable, together with
interest from the due dates at the following rates:
(a) For the Deferred Compensation Plan, the rate credited on the
Participant's account under the Plan.
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(b) For the Supplemental Executive Retirement Plan, a rate equal to
the interest rate fixed by the Pension Benefit Guaranty Corporation for
valuing immediate annuities in the preceding month.
5.04 Creditors' Claims During Solvency
5.04-1 During periods of Solvency the Trustee shall hold the trust fund
exclusively to pay Plan benefits and fees and expenses of the trust until all
Plan benefits have been paid. Creditors of the Company shall not be paid during
Solvency from the trust fund, which may not be seized by or subjected to the
claims of such creditors in any way.
5.04-2 A period of Solvency is any period not covered by 5.02.
ARTICLE VI--SUCCESSOR TRUSTEES
6.01 Resignation and Removal
6.01-1 The Trustee may resign at any time by notice to the Company,
which shall be effective in sixty (60) days unless the Company and the Trustee
agree otherwise.
6.01-2 The Trustee may be removed by the Company on sixty (60) days'
written notice or shorter notice accepted by the Trustee. After a Special
Circumstance the Trustee may be removed only with the Written Consent of
Participants.
6.01-3 When resignation or removal is effective, the Trustee shall begin
transfer of assets to the successor Trustee immediately. The transfer shall be
completed within sixty (60) days, unless the Company extends the time limit.
6.01-4 If the Trustee resigns or is removed, the Company shall appoint a
successor by the effective date of resignation or removal under 6.01-1 or
6.01-2. After a Special Circumstance a successor Trustee may be appointed only
with the Written Consent of Participants. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of the Trustee in connection with
the proceeding shall be allowed as administrative expenses of the trust.
6.02 Appointment of Successor
6.02-1 The Company may appoint any national or state bank or trust
company that is unrelated to the Company as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective when accepted in
writing by the new Trustee, which shall have all of the rights and powers of the
former Trustee, including ownership rights in the trust assets. The former
Trustee shall execute any instruments necessary or reasonably requested by the
Company or the successor Trustee to evidence the transfer. After a Special
Circumstance a successor Trustee may be appointed only with the Written Consent
of Participants.
6.02-2 The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing trust assets, subject to
Article II. The successor Trustee shall not be responsible for, and the Company
shall indemnify and hold harmless the successor Trustee
PAGE 21 - UMBRELLA TRUST(TM) FOR EXECUTIVES
<PAGE>
from any claim or liability because of, any action or inaction of any prior
Trustee or any other past event, any existing condition or any existing assets.
6.03 Accountings; Continuity
6.03-1 A Trustee who resigns or is removed shall submit a final
accounting to the Company as soon as practicable. The accounting shall be
received and settled as provided in 3.05 for regular accountings.
6.03-2 No resignation or removal of the Trustee or change in identity of
the Trustee for any reason shall cause a termination of the Plans or this trust.
ARTICLE VII--GENERAL PROVISIONS
7.01 Interests Not Assignable
7.01-1 The interest of a Participant in the trust fund may not be
assigned, pledged or otherwise encumbered, seizer by legal process, transferred
or subjected to the claims of the Participant's creditors in any way.
7.01-2 The Company may not create a security interest in the trust fund
in favor of any of its creditors. The Trustee shall not make payments from the
trust fund of any amounts to creditors of the Company other than Participants,
except as provided in 5.02.
7.01-3 The Participants shall have no interest in the assets of the
trust fund beyond the right to receive payment of Plan benefits and
reimbursement of expenses from such assets subject to the instructions during
Insolvency referred to in 5.02. During Insolvency Administration the
Participants' rights to trust assets shall not be superior to those of any other
general creditors of the Company.
7.02 Amendment
7.02-1 The Company and the Trustee may amend this Trust Agreement at any
time by a written instrument executed by both parties. Except as provided below,
any such amendment may be made only with the Written Consent of Participants.
Notwithstanding the foregoing, any such amendment may be made by written
agreement of the Company and the Trustee without the Written Consent of
Participants if such amendment will not have a material adverse effect on the
rights of any Participant hereunder or, prior to a Special Circumstance, is
necessary to comply with any laws, regulations or other legal requirements.
7.03 Applicable Law
7.03-1 This trust shall be governed, construed and administered
according to the laws of Illinois, except as preempted by ERISA.
7.04 Agreement Binding on All Parties
7.04-1 This Trust Agreement shall be binding upon the heirs, personal
representatives, successors and assigns of any and all present and future
parties.
PAGE 22 - UMBRELLA TRUST(TM) FOR EXECUTIVES
<PAGE>
7.05 Notices and Directions
7.05-1 Any notice or direction under this Trust Agreement shall be in
writing and shall be effective when actually delivered or, if mailed, when
deposited postpaid as first-class mail. Mail to a party shall be directed to the
address stated below or to such other address as either party may specify by
notice to the other party. Notices to the Committee shall be sent to the address
of the Company. Notices to Participants who have submitted claims under 3.03
shall be mailed to the address shown in the claim submission. Until notice is
given to the contrary, notices to the Company and the Trustee shall be addressed
as follows:
Company: North Valley Bancorp
Administrative Offices
880 East Cypress Avenue
P.O. Box 4638
Redding, California 96099
Attention: Fred Drake
Trustee: Harris Trust and Savings Bank
Personal Trust and Asset Management Group
111 West Monroe Street
P.O. Box 755
Chicago, Illinois 60690
Attention: Jane Barnett
7.06 No Implied Duties
7.06-1 The duties of the Trustee shall be those stated in this trust,
and no other duties shall be implied.
7.07 Gender, Singular and Plural
7.07-1 All pronouns and any variations thereof shall be deemed to refer
to the masculine or feminine, as the identity of the person or persons may
require. As the context may require, the singular may be read as the plural and
the plural as the singular.
ARTICLE VIII--INSURER
8.01 Insurer Not a Party
8.01-1 The Insurer shall not be deemed to be a party to this Trust
Agreement, and its obligations shall be measured and determined solely by the
terms of its Contracts and other agreements executed by it.
8.02 Authority of Trustee
8.02-1 The Insurer shall accept the signature of the Trustee on any
documents or papers executed in connection with such Contracts. The signature of
the Trustee shall be conclusive proof
PAGE 23 - UMBRELLA TRUST(TM) FOR EXECUTIVES
<PAGE>
to the Insurer that the person on whose life an application is being made is
eligible to have such Contract issued on his life and is eligible for a Contract
of the type and amount requested.
8.03 Contract Ownership
8.03-1 The Insurer shall deal with the Trustee as the sole and absolute
owner of the trust's interests in such Contracts and shall have no obligation to
inquire whether any action or failure to act on the part of the Trustee is in
accordance with or authorized by the terms of the Plans or this Trust Agreement.
8.04 Limitation of Liability
8.04-1 The Insurer shall be fully discharged from any and all liability
for any action taken or any amount paid in accordance with the direction of the
Trustee and shall have no obligation to see to the proper application of the
amounts so paid. The Insurer shall have no liability for the operation of this
Trust Agreement or the Plans, whether or not in accordance with their terms and
provisions.
8.05 Change of Trustee
8.05-1 The Insurer shall be fully discharged from any and all liability
for dealing with a party or parties indicated on its records to be the Trustee
until such time as it shall receive at its home office written notice of the
appointment and qualification of a successor Trustee.
IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust
Agreement to be executed by their respective duly authorized officers on the
dates set forth below.
NORTH VALLEY BANCORP
By: D.V. Carter
----------------------------------
Its: /s/ President and CEO
----------------------------------
Executed: May 10 , 1995
------------------------ -------
HARRIS TRUST & SAVINGS BANK
By: Jane E. Barnett
----------------------------------
Its: /s/ Vice President
----------------------------------
Executed: May 5 , 1995
------------------------ -------
PAGE 24 - UMBRELLA TRUST(TM) FOR EXECUTIVES
<PAGE>
APPENDIX A
Assumptions and Methodology for
Calculations Required Under 2.01 and 2.04
1. The liability for benefits under each Plan will be calculated using two (2)
different assumptions as to when Participants terminate service:
(a) As of the applicable date under 2.01-3 or 2.04, and
(b) Twenty-four (24) months after the applicable date, assuming future
compensation continues at current levels, and future deferrals under deferred
compensation plans continue pursuant to prior elections.
The liability for accrued benefits under each Plan will be the greater of the
liabilities calculated in accordance with (a) and (b) above.
2. Calculations will be based upon the most valuable optional form of payment
available to the Participant.
3. The liability for benefits under deferred compensation or other defined
contribution Plans shall be equal to the deferral or other account balances
(vested and unvested) of Participants as of the applicable date, plus
projected deferrals expected to be made within twenty-four (24) months after
the applicable date pursuant to prior elections. Account balances of
Participants under a Plan shall be calculated based on crediting the highest
rate of interest which may become payable to Participants under the Plan.
4. The liability for benefits under other Plans shall be equal to the present
value of accrued benefits (vested and unvested) of Participants as of the
relevant dates under l(a) or (b) above, discounted to the applicable date at
a rate equal to the immediate annuity rate set forth in Table I of Appendix B
to 29 CFR 269 plus fifty (50) basis points per annum.
5. The liability for benefits under all Plans shall also include the present
value (discounted to the applicable date at a rate equal to the immediate
annuity rate set forth in Table I of Appendix B to 29 CFR 269 plus fifty (50)
basis points per annum) of any survivor benefits which exceed the account
balances or other accrued benefits of Participants and are not covered by
death benefits payable under insurance contracts held in the Trust.
6. No mortality is assumed prior to the commencement of benefits, except for
purposes of calculating any additional accrued liability under paragraph 5
above. Future mortality is assumed to occur in accordance with the 1983 Group
Annuity Mortality Table Male Rates after the commencement of benefits.
EXHIBIT A.1
<PAGE>
APPENDIX A
Assumptions and Methodology for
Calculations Required Under 2.01 and 2.04
(Continued)
7. The present value of amounts under subparagraphs (a) (with respect to defined
benefit plans), (b), (c) and (d) of 2.01-3 shall be determined using a discount
rate equal to the immediate annuity rate set forth in Table I of Appendix B to
29 CFR 269 plus fifty (50) basis points per annum.
8. Where left undefined above, calculations will be performed in accordance with
generally accepted actuarial principles.
EXHIBIT A.2
ADOPTION AGREEMENT FOR
MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
NON-STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts the Mutual Life Insurance
Company of New York Non-Standardized 401(k) Profit Sharing Plan for those
Employees who shall qualify as Participants hereunder, to be known as the
Deferred Salary Profit-Sharing Thrift Plan for Employees of
North Valley Bancorp and its Affiliates, including
A1 North Valley Bank
-------------------------------------------------------------
(Enter Plan Name)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may
result in disqualification of the Plan.
EMPLOYER INFORMATION
B1 Name of Employer North Valley Bancorp
--------------------------------------------------------
--------------------------------------------------------
B2 Address P.O. Box 994630
--------------------------------------------------------------
Redding, CA, 96099
--------------------- ------ ------
City State Zip
Telephone 916-221-7010
----------------------
B3 Employer Identification Number 94 - 2751350
-- -----------
B4 Date Business Commenced December 5, 1980
-------------------
Copyright 1990-N Mutual Life Insurance Company of New York Amended April 15,
1992
Exhibit 10(hh)
<PAGE>
B5 TYPE OF ENTITY
a. ( ) S Corporation
b. ( ) Professional Service Corporation
c. (X) Corporation
d. ( ) Sole Proprietorship
e. ( ) Partnership
f. ( ) Other
--------------------------------------------------------
AND, is the Employer a member of. . .
g. a controlled group? (X) Yes ( ) No
h. an affiliated service group? (X) Yes ( ) No
B6 ( ) NAME(S) OF TRUSTEE(S) a.
-------------------------------------------
b.
-------------------------------------------
c.
-------------------------------------------
(X) Not applicable. Plan assets invested solely in Contracts.
B7 TRUSTEES' ADDRESS
a. ( ) Use Employer Address
b. (X) Not Applicable
c. ( )
-------------------------------------------------------------------
Street
--------------------, --------------- ---------------
City State Zip
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. (X) state b. ( ) commonwealth of c. California
------------------------------
and this Plan and Trust shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing on a. January 1st (e.g., January lst)
and --------------------------------
month day
ending on b. December 31st .
-----------------------------------
month day
<PAGE>
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the Mutual Life Insurance Company of New
York Non-Standardized 401(k) Profit Sharing Plan and Trust shall:
a. ( ) establish a new Plan and Trust effective as of ___________________
(hereinafter called the "Effective Date").
b. (X) Constitute an amendment and restatement in its entirety of
a previously established qualified Plan and Trust of the Employer
which was effective January 1, 1984 (hereinafter called the
----------------- "Effective Date"). Except
as specifically provided in the Plan, the effective date of this
amendment and restatement is January 1, 1994.
(X) TRA '86 amendment and restatement.
C2 PLAN YEAR means the 12 consecutive month period:
Commencing on a. January 1st (e.g., January lst)
-------------------------------
and ending on b. December 31st .
-------------------------------
IS THERE A SHORT PLAN YEAR?
c. (x) No
d. ( ) Yes, beginning and
--------------------------------
ending .
-----------------------------------------
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a. December 31 st
----------------------------
month day
C4 PLAN NUMBER assigned by the Employer (select one)
a. ( ) 001 b. (X) 002 c. ( ) 003 d. ( ) Other .
----------
<PAGE>
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to
appoint an Administrator. If none is named, the Employer will become
the Administrator.)
a. (X) Employer (Use Employer Address)
b. ( ) Name
---------------------------------------------------------
Address
------------------------------------------------------
------------------------, ---------------- ----------
City State Zip
Telephone
-----------------------------------
Administrator's I.D. Number -
----------------- --------------
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. (X) Employer (Use Employer Address)
b. ( ) Name
--------------------------------------------------------
Address
-----------------------------------------------------
--------------------------, ---------------- --------
City State Zip
<PAGE>
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.16) shall mean:
a. (X) all Employees who have satisfied the eligibility
requirements.
b. ( ) all Employees who have satisfied the eligibility
requirements except those checked below:
1. ( ) Employees paid by commissions only.
2. ( ) Employees hourly paid.
3. ( ) Employees paid by salary.
4. ( ) Employees whose employment is governed by a
collective bargaining agreement between the Employer
and "employee representatives" under which
retirement benefits were the subject of good faith
bargaining. For this purpose, the term "employee
representatives" does not include any organization
more than half of whose members are employees who
are owners, officers, or executives of the Employer.
5. ( ) Highly Compensated Employees.
6. ( ) Employees who are non-resident aliens who received
no earned income (within the meaning of Code Section
911(d)(2)) from the Employer which constitutes
income from sources within the United States (within
the meaning of Code Section 861(a) (3)).
7. ( ) Other
-----------------------------------------------
NOTE: For purposes of this section, the term Employee shall include
all Employees of this Employer and any leased employees deemed
to be Employees under Code Section 414(n) or 414(o).
D2 EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.17)
Employees of Affiliated Employers:
a. ( ) will not or N/A
b. (X) will
be treated as Employees of the Employer adopting the Plan.
NOTE: If D2b is elected, each Affiliated Employer should execute
this Adoption Agreement as a Participating Employer.
<PAGE>
D3 HOURS OF SERVICE (Plan Section 1.35) will be determined on the basis
of the method selected below. Only one method may be selected. The
method selected will be applied to all Employees covered under the
Plan.
a. (X) On the basis of actual hours for which an Employee is paid
or entitled to payment.
b. ( ) On the basis of days worked. An Employee will be credited
with ten (10) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of
Service during the day.
c. ( ) On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of
Service during the week.
d. ( ) On the basis of semi-monthly payroll periods. An Employee
will be credited with ninety-five (95) Hours of Service if
under the Plan such Employee would be credited with at
least one (1) Hour of Service during the semi-monthly
payroll period.
e. ( ) On the basis of months worked. An Employee will be
credited with one hundred 'ninety (190) Hours of Service
if under the Plan such Employee would be credited with at
least one (1) Hour of Service during the month.
D4 YEARS OF SERVICE (Plan Section 1.78) will be based on the applicable
computation periods selected below. The computation periods will be
applied to all Employees covered under the Plan (check either 1 or 2
in a and b below.)
a. Eligibility computation period
1 ( ) Plan Years after initial eligibility computation
period.
2 (X) Begins on employment commencement date or
re-employment commencement date and anniversaries of
employment commencement date or re-employment
commencement date, as applicable.
b. Vesting computation period
1 ( ) Begins on first day of Plan Year.
2 (X) Begins on employment commencement date or
re-employment commencement date and anniversaries of
emp1oyment commencement date and re-emp1oyment
commencement date, as applicable.
<PAGE>
D5 BREAK IN SERVICE
a ( ) Pre-break and post-break in service contingent on number
of years of break in service (Plan Section 5.4(g)(3)).
b. (X) All Years of Service counted for vesting and eligibility
(Plan Section 5.4(g)(4)).
<PAGE>
D6 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) (Check either a OR b
and c, and if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if
such Eligible Employee has satisfied the service and age
requirements, if any, specified below:
a. ( ) NO AGE OR SERVICE REQUIRED.
b. (X) SERVICE REQUIREMENT (may not exceed 1 year)
1. ( ) None
2. ( ) 1/2 Year of Service
3. (X) 1 Expected Year of Service. May enter the Plan after
the following actual months of service:
(a). (X) 6 months
(b). ( ) Other
-----------------------------------------
(must be less than 1 year)
4. ( ) 1 Year of service
5. ( ) Other
-----------------------------------------------
NOTE: If the Year(s) of Service selected is or includes a fractional
year (other than Expected Year of Service), an Employee will
not be required to complete any specified number of Hours of
Service to receive credit for such fractional year. If
expressed in months of service, an Employee will not be
required to complete any specified number of Hours of Service
in a particular month.
c. (X) AGE REQUIREMENT (may not exceed 21)
1. ( ) N/A- No Age Requirement.
2. ( ) 20 1/2
3. (X) 21
4. ( ) Other
d. ( ) FOR NEW PLANS ONLY - Regardless of any of the above age or
service requirements, any Eligible Employee who was
employed on the Effective Date of the Plan shall be
eligible to participate hereunder and shall enter the Plan
as of such date.
<PAGE>
D7 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible
Employee shall become a Participant as of:
a. ( ) the first day of the Plan Year in which he met the
requirements.
b. ( ) the first day of the Plan Year in which he met the
requirements, if he met the requirements in the first 6
months of the Plan Year, or as of the first day of the
next succeeding Plan Year if he met the requirements in
the last 6 months of the Plan Year.
c. (X) the earlier of the first day of the seventh month or the
first day of the Plan Year coinciding with or next
following the date on which he met the requirements.
d. ( ) the first day of the Plan Year next following the date on
which he met the requirements. (Eligibility must be 6
months of service or less and age 20 1/2 or less. )
e. ( ) the first day of the month coinciding with or next
following the date on which he met the requirements.
f. ( ) Other:
-----------------------------------------------------
provided that an Employee who has satisfied the maximum
age and service requirements that are permissible in
Section D6 above and who is otherwise entitled to
Participate, shall commence participation no later than
the earlier of (a) 6 months after such requirements are
satisfied, or (b) the first day of the first Plan Year
after such requirements are satisfied, unless the Employee
separates from service before such participation date.
<PAGE>
D8 VESTING OF PARTICIPANT'S INTEREST (Plan Section 5.4 (b))
The vesting schedule, based on number of Years of Service, shall be
as follows:
a. ( ) 100% upon entering Plan. (Required if eligibility
requirement is thereater than one ( 1 ) Year o f Service.)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
b. ( ) 0-2 years 0% c. ( ) 0-4 years 0%
3 years 100% 5 years 100%
d. ( ) 0-1 year 0% e. (X) 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. ( ) 1 year 20% g. ( ) 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
</TABLE>
h. ( ) Other - Must be at least as liberal as either c or g
above.
Years of Service Percentage
-------------- -------------
-------------- -------------
-------------- -------------
-------------- -------------
-------------- -------------
-------------- -------------
-------------- -------------
<PAGE>
D9 FOR AMENDED PLANS (Plan Section 5.4(f))
a. (X) Vesting schedule has not been amended.
b. ( ) Vesting schedule has been amended and amended vesting
schedule is more favorable in all years.
1. ( ) Amended effective for all Employees who have at
least one Hour of Service in any Plan Year
beginning after December 31, 1988.
2. ( ) Other effective date .
------------------------------
c. ( ) Vesting schedule has been amended to a less favorable
schedule.
1. ( ) Effective Date .
-------------------------------------
2. ( ) Pre-amended schedule
Years of Service Percentage
-------------- -------------%
-------------- -------------%
-------------- -------------%
-------------- -------------%
-------------- -------------%
-------------- -------------%
-------------- -------------%
<PAGE>
D10 TOP HEAVY VESTING (Plan Section 5.4(c)) If this Plan becomes a Top
Heavy Plan, the following vesting schedule, based on number of Years
of Service, for such Plan Year and each succeeding Plan Year,
whether or not the Plan is a Top Heavy Plan, shall apply and shall
be treated as a Plan amendment pursuant to this Plan. Once
effective, this schedule shall also apply to any contributions made
prior to the effective. date of Code Section 416 and/or before the
Plan became a Top Heavy Plan.
a. (X) N/A (D8a, b, d, e or f was selected)
b. ( ) 0-1 year 0% c. ( ) 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
d. ( ) 0-1 year %
----------------
2 years %
----------------
3 years %
----------------
4 years %
----------------
5 years %
----------------
6 years %
----------------
(If "d" is selected, it must be at least as favorable as "b" or "c")
NOTE: This section does not apply to the account balances of any
Participant who does not have an Hour of Service after the
Plan has initially become top heavy. Such Participant's
Account balance attributable to Employer contributions and
Forfeitures will be determined without regard to this section.
Dll VESTING (Plan Section 5.4(h)) In determining Years of Service for
vesting purposes, Years of Service attributable to the following
shall be EXCLUDED:
a. (X) Service prior to the Effective Date of the Plan or a
predecessor plan.
b. ( ) N/A
c. ( ) Service prior to the time an Employee attained age 18.
d. (X) N/A
<PAGE>
D12 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. (X) No.
b. ( ) Yes: Years of Service with
-----------------------------
shall be recognized for the purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan,
then Years of Service with such predecessor Employer shall be
recognized pursuant to Section 1.78 and b must be marked.
D13 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.46) means:
a. (X) the date a Participant attains his 65th birthday. (not to
exceed 65th)
----
b. ( ) the later of the date a Participant attains his
-------
birthday (not to exceed 65th) or the c.
---------------
(not to exceed 5th) anniversary of the first day of the
Plan Year in which participation in the Plan commenced.
D14 NORMAL RETIREMENT DATE (Plan Section 1.47) shall commence:
a. ( ) as of the Participant's "NRA".
OR (must select b or c AND 1. or 2.)
b. (X) as of the first day of the month. . .
c. ( ) as of the Anniversary Date. . .
1. (X) coinciding with or next following the Participant's
"NRA".
2. ( ) nearest the Participant's "NRA".
D15 EARLY RETIREMENT DATE (Plan Section 1.13) means the:
a. ( ) No Early Retirement provision provided.
b. (X) date on which a Participant . . .
c. ( ) first day of the month coinciding with or next following
the date on which a Participant . . .
d. ( ) Anniversary Date coinciding with or next fol1owing the
date on which a Participant . . .
AND, if b, c or d was selected . . .
1. (X) attains his 55 birthday and has
2. (X) completed at least 4 Years of Service.
<PAGE>
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
E1 a. 415 COMPENSATION (Plan Section 1.31) with respect to any
Participant means:
1. ( ) Standard 415 Compensation
2. ( ) Form W-2 Box 10 Compensation
3. (X) Federal Income Tax Withholding Compensation
NOTE: If Plan has Self-Employed Individuals, Standard 415
Compensation must be checked.
b. For non-integrated plans, Compensation (Plan Section 1.9)
shall exclude (select all that apply):
1. (X) N/A. No exclusion
2. ( ) overtime
3. ( ) bonuses
4. ( ) commissions
5. ( ) other
-----------------------------------
NOTE: If b.1 is selected, it satisfies a 414(s) safe harbor.
c. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based
on:
1. (X) the Plan Year.
2. ( ) the Fiscal Year coinciding with or ending within the
Plan Year.
3. ( ) the Calendar Year coinciding with or ending within
the Plan Year.
NOTE: The Limitation Year shall be the same as the year on
which Compensation is based.
d. HOWEVER, for an Employee's first year of participation,
Compensation shall be recognized as of-
1. ( ) the first day of the Plan Year.
2. (X) the date the Participant entered the Plan.
e. (X) IN ADDITION, COMPENSATION and "414(s) Compensation" shall
include compensation which is not currently includible in the
Participant's gross income by reason of the application of
Code Sections 125, 402(a) (8), 402(h) (1) (B), and 403(b).
<PAGE>
E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION (Plan Section
10.2 ) Each Employee may elect to have his Compensation reduced by:
a. ( ) %
--------------------
b. ( ) up to %
------------------
c. (X) from 1 % to 20 %
------ -------
d. ( ) up to the maximum percentage allowable not to exceed the
limits of Code Sections 401(k), 404 and 415.
AND ...
e. (X) A Participant may elect to commence salary reduction as of
January 1st and July 1st (ENTER AT LEAST ONE DATE OR
--------------------------
PERIOD). A Participant may modify the amount of salary
reductions as of once every three months (ENTER AT LEAST
----------------------
ONE DATE OR PERIOD).
AND ...
Shall cash bonuses paid within 2/ 1/2 months after the end of the
Plan Year be subject to the salary reduction election?
f. ( ) Yes
g. (X) No
<PAGE>
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION (Plan
Section 10.1(b))
a. ( ) N/A. There shall be no matching contributions.
b. (X) The Employer shall make matching contributions equal to
25% (e.g. 50%) of the Participant's salary reductions.
---
c. ( ) The Employer may make matching contributions equal to a
discretionary percentage, to be determined by the
Employer, of the Participant's salary reductions.
d. ( ) The Employer shall make matching contributions equal to
the sum of _________% of the portion of the Participant's
salary reduction which does not exceed ________% of the
Participant's Compensation plus __________% of the portion
of the Participant's salary reduction which exceeds
_________% of the Participant's Compensation, but does not
exceed _________% of the Participant's Compensation.
e. ( ) The Employer shall make matching contributions equal to
the percentage determined under the following schedule:
Participant's Total Matching Percentage
Years of Service
------------- ---------------
------------- ---------------
------------- ---------------
f. ( ) Other
-----------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
<PAGE>
FOR PLANS WITH MATCHING CONTRIBUTIONS
g. (X) Matching contributions h. ( ) shall i. (X) shall not be
used in satisfying the deferral percentage tests. (If
used, full vesting and restrictions on withdrawals will
apply and the match will be deemed to be an Elective
Contribution).
j. (X) Shall a Year of Service be required in order to share in
the matching contributions?
With respect to Plan Years beginning after 1989 . . .
1. ( ) Yes (Could cause Plan to violate minimum
participation and coverage requirements
under Code Sections 401(a)(26) and 410)
2. (X) No
With respect to Plan Years beginning before 1990 . . .
1. ( ) N/A New Plan or same as years beginning
after 1989.
2. ( ) Yes
3. ( ) No
k. (X) In determining matching contributions, only salary
reductions up to 5% of a Participant's Compensation will
be matched. --- 1. ( ) N/A
m. ( ) The matching contribution made on behalf of a Participant
for any Plan Year shall not exceed $ . n. (X) N/A
-------
o. (X) Matching contributions shall be made on behalf of
1. (X) all Participants.
2. ( ) only Non-Highly Compensated Employees.
<PAGE>
E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan
Section 10.1(c))?
a. ( ) No.
b. ( ) Yes, the Employer may make a discretionary contribution
out of its current or accumulated Net Profit.
c. (X) Yes, the Employer may make a discretionary contribution
which is not limited to its current or accumulated Net
Profit.
IF YES (b. or c. is selected above), the Employer's discretionary
contribution shall be allocated as follows:
d. (X) FOR A NON-INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in the same ratio as each Participant's Compensation bears
to the total of such Compensation of all Participants.
e. ( ) FOR AN INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in accordance with Plan Section 4.3(b)(2) based on a
Participant's Compensation in excess of:
f. ( ) The Taxable Wage Base.
g. ( ) The greater of $10,000 or 20% of the Taxable Wage
Base.
h. ( ) % of the Taxable Wage Base. (See Note below)
--------
i. ( ) $ . (see Note below)
----------------------
j. ( ) Effective .
----------------------
(For TRA '86 restatements, "Effective" is the later of the
Effective Date or the first day of the 1989 Plan Year)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if h. or i. above is more than 20% and less than or
equal to 80% of the Taxable Wage Base.
2. 5.4% if h. or i. above is less than 100% and more than
80% of the Taxable Wage Base.
<PAGE>
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 10.1(d))
a. (X) N/A. There shall be no Qualified Non-Elective
Contributions except as provided in Section 10.5(b) and
10.7 (h).
b. ( ) The Employer shall make a Qualified Non-Elective
Contribution equal to ________% of the total Compensation
of all Participants eligible to share in the allocations.
c. ( ) The Employer may make a Qualified Non-Elective
Contribution in an amount to be determined by the
Employer.
E6. FORFEITURES (Plan Section 4.3(e))
a. Forfeitures contributions shall be . . .
1. ( ) N/A. Contributions are fully Vested.
2. (X) used to reduce Employer's contribution.
3. ( ) allocated to all Participants eligible to share in
the allocations in proportion to each such
Participant's Compensation for the year.
E7 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.3) With respect
to Plan Years beginning after 1989, a Participant . . .
a. ( ) shall (Plan may become discriminatory)
b. (X) shall not
be required to complete a Year of Service in order to share in
any Non-Elective Contributions (other than matching
contributions) or Qualified Non-Elective Contributions. For
Plan Years beginning before 1990, the Plan provides that a
Participant must complete a Year of Service to share in the
allocations.
<PAGE>
E8 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k))
Any Participant who terminated employment during the Plan Year (i.e.
not actively employed on the last day of the Plan Year) for reasons
other than death, Total and Permanent Disability or retirement:
a. With respect to Employer Non-Elective Contributions (other
than matching), Qualified Non-Elective Contributions, and
Forfeitures:
1. For Plan Years beginning after 1989,
i. ( ) N/A, Plan does not provide for such
contributions.
ii. ( ) shall share in the allocations, regardless
of Hours of Service.
iii. ( ) shall share in the allocations provided
such Participant completed more than 500
Hours of Service.
iv. ( ) shall share in such allocations provided
such Participant completed a Year of
Service.
v. (X) shall not share in such allocations,
regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. ( ) N/A, new Plan, or same as for Plan Years
beginning after 1989.
ii. ( ) shall share in such allocations provided
such Participant completed a Year of
Service.
iii. ( ) shall not share in such allocations,
regardless of Hours of Service.
NOTE: If a.1 iv or v is selected, the Plan could violate
minimum participation and coverage requirements under
Code Sections 401(a)(26) and 410.
b. With respect to the allocation of Employer Matching
Contributions, a Participant:
1. For Plan Years beginning after 1989,
i. ( ) N/A, Plan does not provide for matching
contributions.
ii. (X) shall share in the allocations, regardless
of Hours of Service.
iii. ( ) shall share in the allocations provided
such Participant completed more than 500
Hours of Service.
iv. ( ) shall share in such allocations provided
such Participant completed a Year of
Service.
v. ( ) shall not share in such allocations,
regardless of Hours of Service.
<PAGE>
2. For Plan Years beginning before 1990,
i. ( ) N/A, new Plan, or same as years beginning
after 1989.
ii. ( ) shall share in the allocations, regardless
of Hours of Service.
iii. ( ) shall share in such allocations provided
such Participant completed a Year of
Service.
iv. ( ) Shall not share in such allocations,
regardless of Hours of Service.
NOTE: If b.l.iv or v is selected, the Plan could violate
minimum participation and coverage requirements under
Code Section 401(a)(26) and 410.
<PAGE>
E9 LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
a. If any Participant is or was covered under another qualified
defined contribution plan maintained by the Employer, other
than a Master or Prototype Plan, or if the Employer maintains
a welfare benefit fund, as defined in Code Section 419(e), or
an individual medical account, as defined in Code Section
415(1)(2), under which amounts are treated as Annual Additions
with respect to any Participant in this Plan:
1. ( ) N/A.
2. (X) The provisions of Section 4.4(b) of the Plan will
apply as if the other plan were a master or
Prototype Plan.
3. ( ) Provide the method under which the Plans will limit
total Annual Additions to the Maximum Permissible
Amount, and will properly reduce any Excess Amounts,
in a manner that precludes Employer discretion.
----------------------------------------------------
----------------------------------------------------
b. If any Participant is or ever has been a Participant in a
defined benefit plan maintained by the Employer:
1. (X) N/A.
2. ( ) In any Limitation Year, the Annual Additions
credited to the Participant under this Plan may not
cause the sum of the Defined Benefit Plan Fraction
and the Defined Contribution Fraction to exceed 1.0.
If the Employer's contribution that would otherwise
be made on the Participant's behalf during the
limitation year would cause the 1.0 limitation to be
exceeded, the rate of contribution under this Plan
will be reduced so that the sum of the fractions
equals 1.0. If the 1.0 limitation is exceeded
because of an Excess Amount, such Excess Amount will
be reduced in accordance with Section 4.4(a)(4) of
the Plan.
3. ( ) Provide the method under which the Plans involved
will satisfy the 1.0 limitation in a manner that
precludes Employer discretion.
----------------------------------------------------
----------------------------------------------------
<PAGE>
El0 DISTRIBUTIONS UPON DEATH (Plan Section 5.6(h)) Distributions upon
the death of a Participant prior to receiving any benefits shall . .
.
a. (X) be made pursuant to the election of the Participant or
beneficiary.
b. ( ) begin within 1 year of death for a designated beneficiary
and be payable over the life (or over a period not
exceeding the life expectancy) of such beneficiary, except
that if the beneficiary is the Participant's spouse, begin
within the time the Participant would have attained age 70
1/2.
c. ( ) be made within 5 years of death for all beneficiaries.
d. ( ) other
-----------------------------------------------------
Ell LIFE EXPECTANCIES (Plan Section 5.5(f)) for minimum distributions
required pursuant to Code Section 401(a)(9) shall . . .
a. (X) be recalculated at the Participant's election.
b. ( ) be recalculated.
c. ( ) not be recalculated.
El2 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION Distributions upon
termination of employment pursuant to Section 5.4(a) of the Plan
shall not be made unless the following conditions have been
satisfied:
a. (X) N/A. Immediate distributions may be made at Participant's
election.
b. ( ) The Participant has incurred 1-Year Break(s)
in Service. ----------
c. ( ) The Participant has reached his or her Early or Normal
Retirement Age.
d. ( ) Distributions may be made at the Participant' s election
on or after the Anniversary Date following termination of
employment.
e. ( ) Other
-----------------------------------------------------
<PAGE>
El3 FORM OF DISTRIBUTIONS (Plan Sections 5.5 and 5.6) Distributions
under the Plan may be made . . .
a. 1. (X) in lump sums.
2. ( ) in lump sums or installments.
b. AND, pursuant to Plan Section 5.13,
1. ( ) no annuities are allowed (avoids Joint and Survivor
rules).
2. (X) annuities are allowed (Plan Section 5.13 shall not
apply).
NOTE: b.1. above may not be elected if this is an amendment to a
plan which permitted annuities as a form of distribution or if
this Plan has accepted a plan to plan transfer of assets from
a plan which permitted annuities as a form of distribution.
<PAGE>
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.3 (i)): When a Non-Key
Employee is a Participant in this Plan and a Defined Benefit Plan
maintained by the Employer, indicate which method shall be utilized
to avoid duplications of top heavy minimum benefits.
a. (X) The Employer does not maintain a Defined Benefit Plan.
b. ( ) A minimum, non-integrated contribution of 5% of each
Non-Key Employee's total Compensation shall be provided in
this Plan, as specified in Section 4.3(i). (The Defined
Benefit and Defined Contribution Fractions will be
computed using 100% if this choice is selected.)
c. ( ) A minimum, non-integrated contribution of 7 1/2% of each
Non-Key Employee's total Compensation shall be provided in
this Plan, as specified in Section 4.3(i). (If this choice
is selected, the Defined Benefit and Defined Contribution
Fractions will be computed using 125% for all Plan Years
in which the Plan is Top Heavy, but not Super Top Heavy.)
d. ( ) Specify the method under which the Plans will provide top
heavy minimum benefits for Non-Key Employees that will
preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under Code
Section 415(e).
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
<PAGE>
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy
purposes where the Employer maintains a Defined Benefit Plan in
addition to this Plan, shall be based on . . .
a. (X) N/A. The Employer does not maintain a defined benefit
plan.
b. ( ) Interest Rate:
--------------------------------------------
Mortality Table:
------------------------------------------
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans.
a. ( ) N/A.
b. (X) A minimum, non-integrated contribution of 3% of each
Non-Key Employee's total Compensation shall be provided in
the Money Purchase Plan (or other plan subject to Code
Section 412), where the Employer maintains two (2) or more
non-paired Defined Contribution Plans.
c. ( ) Specify the method under which the Plans will provide top
heavy minimum benefits for Non-Key Employees that will
preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under Code
Section 415(e).
<PAGE>
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 6.4)
a. (X) Yes, loans may be made up to $50,000 or 1/2 Vested
interest.
b. ( ) No, loans may not be made.
If YES, (Check all that apply). . .
c. (X) loans shall be treated as a Directed Investment.
d. ( ) loans shall only be made for hardship or financial
necessity.
e. (X) the minimum loan shall be $1,000.
f. ( ) $10,000 de minimis loans may be made regardless of Vested
interest. (If selected, plan may need security in addition
to Vested interest)
NOTE: Department of Labor Regulations require the adoption of a
separate written loan program setting forth the requirements
outlined in Plan Section 6.4.
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.8) are permitted for
the interest in any one or more accounts.
a. (X) Yes, regardless of the Participant's Vested interest in
the Plan.
b. ( ) Yes, but only with respect to the Participant's Voluntary,
Rollover and Elective Contributions.
c. ( ) Yes, but only with respect to the Participant's Voluntary,
Rollover, Matching and Elective Contributions.
d. ( ) No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)
a. (X) Yes, transfers from qualified plans (and rollovers) will
be allowed.
b. ( ) No, transfers from qualified plans (and rollovers) will
not be allowed.
AND, transfers shall be permitted. . .
c. ( ) from any Employee, even if not a Participant.
d. (X) from Participants only.
<PAGE>
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.7)
a. (X) Yes, Voluntary Contributions are allowed subject to the
limits of Section 4.9.
b. ( ) No, Voluntary Contributions will not be allowed.
NOTE: TRA '86 subjects Voluntary Contributions to strict
discrimination rules.
G5 HARDSHIP DISTRIBUTIONS (Plan Section 5.11 and 10.8)
a. Beginning with: (i) the Effective Date with respect to a new
Plan and (ii) the amended and restated effective date with
respect to an existing Plan.
1. (X) Yes, from Vested account balance from the following
accounts:
(X) Elective Account
(X) Non-Elective Account
(X) Rollover Account
2. ( ) No.
NOTE: Distributions from a Participant's Elective Account are
limited to the portion of such account attributable to such
Participant's Deferred Compensation and earnings attributable
thereto up to December 31, 1988. Also hardship distributions
are not permitted from a Participant's Qualified Non-Elective
Account.
b. (X) Prior to the current amended and restated effective date
of the Plan, but on and after the later of the Effective
Date of the Plan or January 1, 1989, hardship
-------------------
distributions were made according to the provisions of
(check one):
1. (X) Final Regulations 1.401(k)-l(d)(2)(ii)(A) and
1.401(k)-l(d)(2)(iii)(A), issued August 8, 1988.
Certain revisions to these standards permitted
by August 25, 1991 final 401(k) Regulations may
have been reflected during a portion of this
time period; or
<PAGE>
2. ( ) Final Regulations 1.401(k)-l(d)(2)(ii)(B) and
1.401(k)-l(d)(2)(iii)(B) (safe-harbor
standards), issued August 8, 1988. Certain
revisions to these standards permitted by August
15, 1991 final 401(k) Regulations may have been
reflected during a portion of this time period.
NOTE: Complete the blank with the actual operational date
on which the Plan complied with the August 8, 1988
final 401(k) Regulations on hardship withdrawal
standards, which date was between August 8, 1988 and
April 1, 1989, inclusive.
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 5.10)
a. (X) If a Participant has reached the age of 59 1/2,
---------
distributions may be made, at the Participant's election,
from the following Vested accounts without requiring the
Participant to terminate employment:
(X) Elective Account
( ) Qualified Non-Elective Account
(X) Non-Elective Account
(X) Rollover Account
( ) All Accounts
b. ( ) No pre-retirement distribution may be made.
NOTE: Distributions from a Participant's Elective Account and
Qualified Non-Elective Account are not permitted prior to age
59 1/2.
<PAGE>
The adopting Employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is qualified
under Code Section 410. In order to obtain reliance with respect to plan
qualification, the Employer must apply to the appropriate Key District Office
for a determination letter.
This Adoption Agreement may be used only in conjunction with basic Plan document
#03. This Adoption Agreement and the basic Plan document shall together be known
as Mutual Life Insurance Company of New York Non-Standardized 401(k) Profit
Sharing Plan #03-005.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
Mutual Life Insurance Company of New York will notify the Employer of any
amendments made to the Plan or of the discontinuance or abandonment of the Plan
provided this Plan has been acknowledged by Mutual Life Insurance Company of New
York or its authorized representative. Furthermore, in order to be eligible to
receive such notification, we agree to notify Mutual Life Insurance Company of
New York of any change in address.
<PAGE>
IN WITNESS WHEREOF, THE Employer and Trustee hereby cause this Plan to be
executed on this 9th day of June, 1994. Furthermore, this Plan may not be used
--- ---- --
unless acknowledged by Mutual Life Insurance Company of New York or its
authorized representative.
EMPLOYER:
North Va11ey Bancorp Rudy V. Balma
- --------------------------- ------------------------
(enter name) TRUSTEE
By: Donald V. Carter Bill G. Minton
------------------------ ------------------------
TRUSTEE
PARTICIPATING EMPLOYER: Thomas J. Ludden
------------------------
TRUSTEE
North Valley Bank [ ] Trustee appears on a Separate Trust
- --------------------------- Agreement attached to the Plan
(enter name) pursuant to B6 of the Adoption
Agreement.
By: Donald V. Carter OR
------------------------
Bank Processing, Inc. [X] The Plan assets are invested solely
- --------------------------- in group annuity contracts and
(enter name) therefore there is no Trustee and
the terms of the Contract will
apply.
By: Donald V. Carter
------------------------
<PAGE>
This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of Mutual Life Insurance Company of New York
has acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
Mutual Life Insurance Company of New York
By: [signature illegible]
-------------------------------
With regard to any questions regarding the provisions of the Plan, adoption of
the Plan, or the effect of an opinion letter from the IRS, call or write (this
information must be completed by the sponsor of this Plan or its designated
representative):
Name North Valley Bancorp
-----------------------------------------------------------------------
Address P.O. Box 994630
-----------------------------------------------------------------------
Redding, CA 96099
-----------------------------------------------------------------------
Telephone (914) 221-7010
-----------------------------------------------------------------
Amendment No. 1 to the
Deferred Salary Profit-Sharing Thrift Plan
for Employees of North Valley Bancorp and its
Affiliates, including North Valley Bank
Pursuant to the provisions of Section 7.1(b)(1) of Article VII of the Plan, the
Adoption Agreement is hereby amended, effective January 1, 1996 as follows:
1. By the substitution of the following for Section E2:
"E2 SALARY REDUCTION ARRANGEMENT: ELECTIVE CONTRIBUTION (Plan Section
10.2) Each Employee may elect to have his Compensation reduced
by:
a. ( ) %
------------------
b. ( ) up to %
-------------
c. (X) from 1 % to 15 %
--------- ------
d. ( ) up to the maximum percentage allowable not to exceed the
limits of Code Sections 401(k), 404 and 415.
AND . . .
e. (x) A Participant may elect to commence salary reductions as of
January 1st and July 1st (ENTER AT LEAST ONE DATE OR PERIOD).
------------------------
A Participant may modify the amount of salary reductions as
of January 1st and July 1st (ENTER AT LEAST ONE DATE OR
--------------------------
PERIOD).
AND . . .
Shall cash bonuses paid within 2 1/2 months after the end of the
Plan Year be subject to the salary reduction election?
f. ( ) Yes
g. (X) No"
2. By the substitution of the following for Section E13.
"E13 FORM OF DISTRIBUTIONS (Plan Sections 5.5 and 5.6) Distributions
under the Plan may be made . . .
a. 1. ( ) in lump sums.
2. (X) in lump sums or installments.
b. AND, pursuant to Plan Section 5.13,
1. ( ) no annuities are allowed (avoids Joint and Survivor
rules).
2. (X) annuities are allowed (Plan Section 5.13 shall not
apply).
Exhibit 10(ii)
<PAGE>
NOTE: b.1. above may not be elected if this is an amendment to
a plan which permitted annuities as a form of
distribution or if this Plan has accepted a plan to plan
transfer of assets from a plan which permitted annuities
as a form of distribution."
In witness whereof, the Employer hereby causes this amendment to be executed on
this 18th day of August, 1995.
---- ------ ----
Employer: North Valley Bancorp
--------------------------
(enter name)
By: Donald V. Carter
---------------------------
Amendment No. 2 to the Adoption Agreement of
Deferred Salary Profit-Sharing Thrift Plan for Employees
of North Valley Bancorp and its Affiliates, including
North Valley Bank
Pursuant to the provisions of Section 8.l(b) of Article 8. of the Plan, the
Adoption Agreement is hereby amended in order to correct a scrivener's error.
1. Effective January 1, 1996, by the substitution of the following for Section
E2(e):
"e.(X) A Participant may elect to commence salary reductions as of
January 1st and July 1st (ENTER AT LEAST ONE DATE OR PERIOD). A
------------------------
Participant may modify the amount of salary reductions as of
once every three months (ENTER AT LEAST ONE DATE OR PERIOD)."
------------------------
2. Effective January 1, 1994, by the substitution of the following for Section
E1(d):
"d. However, for an Employee's first year of participation,
Compensation shall be recognized as of:
1. (X) the first day of the Plan Year.
2. ( ) the date the Participant entered the Plan"
In witness whereof, the Employer hereby causes this amendment to be executed on
this 27th day of September, 1996.
----- -------- -----
Employer: North Valley Bancorp
--------------------------
(enter name)
By: Donald V. Carter
---------------------------
Exhibit 10(jj)
NORTH VALLEY BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
Amendment No. 4 to Amended and Restated Plan
WHEREAS, North Valley Bancorp maintains the North Valley Bancorp
Employee Stock Ownership Plan ("Plan") for the benefit of its eligible
Employees;
WHEREAS, it is desirable to amend the Plan to include an early
retirement provision and to clarify certain other Plan provisions;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 2 is amended by restating the definition of "Approved
Absence" to read as follows, effective as of August 5, 1993:
Approved Absence ......... A leave of absence granted to an
Employee by his Employer under its
established leave policy, including any
unpaid leave covered by the Family and
Medical Leave Act of 1993. See Section
3(c).
2. Section 2 is further amended by restating the definition of
"Retirement" to read as follows, effective as of January 1, 1996:
Exhibit 10(kk)
<PAGE>
Retirement ............... Termination of Service after attaining
(1) age 65, or (2) age 55 with at least
10 continuous years of Credited
Service, whichever is earlier.
3. Section 11(b) is amended by restating the first sentence of the
second paragraph thereof to read as follows, effective as of August 5, 1993:
For purposes of determining whether a Break in Service has occurred,
if an Employee begins a maternity/paternity absence described in
Section 411(a)(6)(E)(i) of the Code, or is on an unpaid leave of
absence covered by the Family and Medical Leave Act of 1993, the
computation of his Hours of Service shall include the Hours of Service
that would have been credited if he had not been so absent (or eight
Hours of Service for each normal work day of such absence if the actual
Hours of Service cannot be determined).
4. Section 12(c) is amended by inserting the following sentence after
the first sentence thereof, effective as of January 1, 1996:
A Participant who terminates Service after completing at least 10
continuous years of Credited Service shall be entitled (upon his
request) to have the distribution of his Capital Accumulation commence
upon his attaining age 55.
<PAGE>
To record the adoption of this Amendment No. 4 to the amended and
restated Plan, North Valley Bancorp has caused it to be executed this 19th day
of August, 1996. ----
-----
NORTH VALLEY BANCORP
By: /s/ Donald V. Carter
----------------------
Donald V. Carter,
President and CEO
LIST OF SUBSIDIARIES
NORTH VALLEY TRADING COMPANY, a California corporation which was established in
1984 to assist customers of North Valley Bank as an export trading company.
BANK PROCESSING. INC., a California corporation which was established in 1988 to
provide data processing services to other depository institutions.
NORTH VALLEY BANK, a California corporation which conducts a commercial and
retail banking operation in California.
NORTH VALLEY BASIC SECURITIES, the sole subsidiary of North Valley Bank.
EXHIBIT 21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NORTH VALLEY BANCORP
By: /s/ Donald V. Carter
---------------------------
Donald V. Carter
President and Chief Executive Officer
/s/ James F. Cowee Jr. /s/ Fred A. Drake
- ------------------------------ ---------------------------
James F. Cowee, Jr. Fred A. Drake
Chief Financial Officer Sr. Vice President and Cashier
(Principal Accounting Officer)
DATE: March 17, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
NAME AND SIGNATURE: TITLE DATE
- ------------------- ----- ----
/s/ Donald V. Carter Director March 17, 1997
- ------------------------------
Donald V. Carter
/s/ Rudy V. Balma Director March 17, 1997
- ------------------------------
Rudy V. Balma
/s/ William W. Cox Director March 17, 1997
- ------------------------------
William W. Cox
/s/ Dan W. Ghidinelli Director March 17, 1997
- ------------------------------
Dan W. Ghidinelli
/s/ Thomas J. Ludden Director March 17, 1997
- ------------------------------
Thomas J. Ludden
/s/ Bill G. Minton Director March 17, 1997
- ------------------------------
Bill G. Minton
/s/ Kelly V. Pierce Director March 17, 1997
- ------------------------------
Kelly V. Pierce
/s/ Douglas M. Treadway Director March 17, 1997
- ------------------------------
Douglas M. Treadway
/s/ J. M. Wells, Jr. Director March 17, 1997
- ------------------------------
J. M. Wells, Jr.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000353191
<NAME> NORTH VALLEY BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,407
<INT-BEARING-DEPOSITS> 200,914
<FED-FUNDS-SOLD> 18,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,223
<INVESTMENTS-CARRYING> 39,997
<INVESTMENTS-MARKET> 41,871
<LOANS> 168,237
<ALLOWANCE> 1,254
<TOTAL-ASSETS> 256,877
<DEPOSITS> 229,228
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,749
<LONG-TERM> 0
<COMMON> 9,896
0
0
<OTHER-SE> 14,004
<TOTAL-LIABILITIES-AND-EQUITY> 256,877
<INTEREST-LOAN> 3,815
<INTEREST-INVEST> 1,063
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,878
<INTEREST-DEPOSIT> 2,093
<INTEREST-EXPENSE> 2,093
<INTEREST-INCOME-NET> 2,785
<LOAN-LOSSES> 255
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 1,776
<INCOME-PRETAX> 1,455
<INCOME-PRE-EXTRAORDINARY> 1,455
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,083
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