SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
NORTH VALLEY BANCORP
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
NORTH VALLEY BANCORP
880 East Cypress Avenue
Redding, California 96002
Dear Shareholders:
The 1998 Annual Meeting of Shareholders of North Valley Bancorp will be
held at 4:30 p.m. on Tuesday, May 26, 1998, in Administration, North Valley
Bank, 880 East Cypress Avenue, Redding, California. In connection with the
Annual Meeting, we are enclosing the following:
1. Notice of Annual Meeting of Shareholders.
2. Proxy Statement.
3. Proxy.
We encourage you to read all of the enclosed materials carefully and invite
you to attend the Annual Meeting. Whether or not you plan to attend the Annual
Meeting in person, please return the Proxy, properly completed and executed, as
promptly as possible so that your shares may be represented at the Annual
Meeting.
We appreciate your support and look forward to seeing you at the Annual
Meeting on Tuesday, May 26, 1998.
Cordially,
/s/ Rudy V. Balma
----------------------------
Rudy V. Balma
Chairman of the Board
/s/ Martin R. Sorensen
----------------------------
Martin R. Sorensen
President
<PAGE>
NORTH VALLEY BANCORP
Notice of Annual Meeting of Shareholders
Tuesday, May 26, 1998
4:30 P.M.
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of North Valley Bancorp, a California
corporation (the "Corporation"), will be held in Administration, North Valley
Bank, 880 East Cypress Avenue, Redding, California, on Tuesday, May 26, 1998, at
4:30 P.M., for the following purposes:
1. To elect the following eight (8) Directors of the Corporation to serve
until the 1999 Annual Meeting and until their successors are elected
and qualified:
Rudy V. Balma Kelly V. Pierce
William W. Cox Martin R. Sorensen
Dan W. Ghidinelli Douglas M. Treadway
Thomas J. Ludden J. M. ("Mike") Wells, Jr.
2. To approve an amendment of the Articles of Incorporation restricting
shareholder action by written consent.
3. To approve an amendment of the Articles of Incorporation concerning
elimination of cumulative voting.
4. To approve an amendment of the Articles of Incorporation to authorize
the issuance of Preferred Stock.
5. To approve an amendment of the Articles of Incorporation regarding
indemnification of agents.
6. To approve adoption of the North Valley Bancorp 1998 Employee Stock
Incentive Plan.
7. To approve an amendment of the North Valley Bancorp 1989 Director Stock
Option Plan.
8. To ratify the appointment of Deloitte & Touche LLP as independent
public accountants for the Corporation for 1998.
9. To consider such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
Section 15 of the By-laws of the Corporation provides for the nomination of
Directors, as follows:
Nomination for election of members of the Board of Directors may be made by
the Board of Directors or by any shareholder of any outstanding class of capital
stock of the corporation entitled to vote for the election of directors. Notice
of intention to make any nominations shall be made in writing and shall be
delivered or mailed to the President of the corporation not less than 21 days
nor more than 60 days prior to any meeting of shareholders called for election
of directors; provided however, that if less than 21 days notice of the meeting
is given to shareholders, such notice of intention to nominate shall be mailed
or delivered to the President of the corporation not later than the close of
business on the tenth day following the day on which the notice of meeting was
mailed; provided further, that if notice of such meeting is sent by third-class
mail as permitted by Section 6 of these By-laws, no notice of intention to make
nominations shall be required. Such notification shall contain the following
information to the extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the principal occupation of each proposed
nominee; (c) the number of shares of capital stock of the corporation owned by
each proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of capital stock of the corporation
owned by the notifying shareholder. Nominations not made in accordance herewith
may, in the discretion of the Chairman of the meeting, be disregarded and upon
the Chairman's instructions, the inspectors of election can disregard all votes
cast for each such nominee.
<PAGE>
Only shareholders of record at the close of business on April 1, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
By Order of the Board of Directors,
/s/ J. M. Wells, Jr.
----------------------------------
J. M. ("Mike") Wells, Jr.
Secretary
Redding, California
April 20, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
<PAGE>
First mailed to Shareholders on
or about April 20, 1998
NORTH VALLEY BANCORP
880 East Cypress Avenue
Redding, California 96002
(530) 221-8400
PROXY STATEMENT
Information Concerning the Solicitation
The enclosed proxy (the "Proxy") is solicited on behalf of the Board of
Directors of North Valley Bancorp, a California corporation (the "Corporation"),
for use at the Annual Meeting of Shareholders to be held in Administration,
North Valley Bank, 880 East Cypress Avenue, Redding, California, at 4:30 P.M.,
on Tuesday, May 26, 1998 and any adjournment or postponement thereof (the
"Meeting"). Only shareholders of record at the close of business on April 1,
1998 (the "Record Date"), will be entitled to notice of and to vote at the
Meeting. At the close of business on the Record Date, the Corporation had
outstanding 1,839,092 shares of its common stock, no par value (the "Common
Stock").
Shareholders of Common Stock are entitled to one vote for each share held,
except that in the election of Directors each shareholder may be eligible to
exercise cumulative voting rights and may be entitled to as many votes as shall
equal the number of shares held by such shareholder multiplied by the number of
Directors to be elected, and such shareholder may cast all of his or her votes
for a single candidate or distribute such votes among any or all of the
candidates he or she chooses. No shareholder, however, shall be entitled to
cumulate votes (in other words, cast for any candidate a number of votes greater
than the number of shares of stock held by such shareholder multiplied by the
number of Directors to be elected) unless the name(s) of the candidate(s) has
(have) been placed in nomination prior to the voting and a shareholder has given
notice of an intention to cumulate votes prior to the voting. Any shareholder
who desires to announce his or her intention to cumulate his or her votes will
be given an opportunity to do so at the Meeting prior to the voting. If any
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination, in which event votes represented by Proxies delivered
pursuant to this Proxy Statement may be cumulated, in the discretion of the
proxy holders, in accordance with the recommendations of the Board of Directors.
Discretionary authority to cumulate votes in such event is, therefore, solicited
in this Proxy Statement.
Any person submitting a Proxy in the form accompanying this Proxy Statement
has the power to revoke or suspend such Proxy prior to its exercise. A Proxy is
revocable prior to the Meeting by a written directive to the Corporation, or by
a duly executed Proxy bearing a later date, delivered to the Secretary of the
Corporation. A Proxy may also be revoked if the shareholder is present and
elects to vote in person at the Meeting.
The Corporation will bear the entire cost of preparing, assembling,
printing and mailing proxy materials furnished by the Board of Directors to
shareholders. Copies of proxy materials will be furnished to brokerage houses,
fiduciaries and custodians to be forwarded to the beneficial owners of the
Common Stock. The Corporation will reimburse brokerage houses, fiduciaries,
custodians and others holding stock in their names or names of nominees or
otherwise for reasonable out-of-pocket expenses incurred in sending proxies and
proxy materials to the beneficial owners of such stock. In addition to the
solicitation of Proxies by use of the mail, some of the officers, directors and
employees of the Corporation may (without additional compensation) solicit
Proxies by telephone or personal interview, the costs of which the Corporation
will bear. The Corporation may, at its discretion, engage the services of a
proxy solicitation firm to assist in the solicitation of proxies. The total
expense of this solicitation will be borne by the Corporation and will include
reimbursement paid to brokerage firms and others for their expenses in
forwarding soliciting material and such expenses as may be paid to any proxy
solicitation firm engaged by the Corporation.
1
<PAGE>
Each Proxy will be voted as directed by the shareholder submitting the
Proxy, and, if no instructions are given on the Proxy, it will be voted "FOR"
the election of the eight nominees for Director recommended by the Board of
Directors, "FOR" proposals 2, 3, 4 and 5 regarding amendments to the
Corporation's Articles of Incorporation as described below, "FOR" adoption of
the Corporation's 1998 Employee Stock Incentive Plan, "FOR" an amendment to the
Corporation's 1989 Director Stock Option Plan, and "FOR" the ratification of the
appointment of Deloitte & Touche LLP as independent public accountants for the
Corporation for the 1998 fiscal year, all as described in the Proxy Statement;
and, at the proxy holders' discretion, on such other matters, if any, which may
properly come before the Meeting (including any proposal to adjourn the
Meeting). A majority of the shares entitled to vote, represented either in
person or by a properly executed Proxy, will constitute a quorum at the Meeting.
Abstentions and broker non-votes are each included in the determination of the
number of shares present and voting for purposes of determining the presence of
a quorum. Abstentions will be included in tabulations of the votes cast on
proposals presented to the shareholders and therefore will have the effect of a
negative vote. Broker non-votes will not be counted for purposes of determining
the number of votes cast for a proposal.
A copy of the Annual Report of the Corporation for the fiscal year ended
December 31, 1997, including audited financial statements (the "Annual Report"),
is enclosed. Additional copies of the Annual Report are available upon request
to J. M. ("Mike") Wells, Jr., Secretary of the Corporation. A COPY OF THE
CORPORATION'S 1997 ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION MAY ALSO BE OBTAINED WITHOUT CHARGE BY WRITING TO MR. WELLS,
C/O NORTH VALLEY BANCORP, 880 EAST CYPRESS AVENUE, REDDING, CALIFORNIA 96002.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-laws of the Corporation provide a procedure for nomination for
election of members of the Board of Directors, which procedure is printed in
full on the Notice of Annual Meeting of Shareholders accompanying this Proxy
Statement. Nominations not made in accordance therewith may, in the discretion
of the Chairman of the Meeting, be disregarded, and, upon his instruction, the
inspectors of election shall disregard all votes cast for such nominee(s).
The authorized number of Directors shall be not less than six (6) nor more
than eleven (11). The number of directors of the Board to be elected at the
Meeting to hold office for the ensuing year and until their successors are
elected and qualified is eight (8).
All Proxies will be voted for the election of the following eight (8)
nominees recommended by the Board of Directors, all of whom are incumbent
Directors, unless authority to vote for the election of any or all Directors is
withheld:
Rudy V. Balma Kelly V. Pierce
William W. Cox Martin R. Sorensen
Dan W. Ghidinelli Douglas M. Treadway
Thomas J. Ludden J. M. ("Mike") Wells, Jr.
If any of the nominees should unexpectedly decline or be unable to act as a
Director, the Proxies may be voted for a substitute nominee to be designated by
the Board of Directors. The Board of Directors has no reason to believe that any
nominee will become unavailable and has no present intention to nominate persons
in addition to or in lieu of those named above. The eight candidates receiving
the highest number of votes will be elected. The Board of Directors recommends a
vote "FOR" each of the nominees listed above.
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Corporation, as of the Record Date, no person or
entity was the beneficial owner of more than five percent (5%) of the
outstanding shares of the Corporation's Common Stock,
2
<PAGE>
except as described below and in the following tables. For the purpose of this
disclosure and the disclosure of ownership of shares by management, shares are
considered to be "beneficially" owned if the person has or shares the power to
vote or direct the voting of the shares, the power to dispose of or direct the
disposition of the shares, or the right to acquire beneficial ownership (as so
defined) within 60 days of the Record Date.
Amount and
Name and Address Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
-------------- ------------------- -------------------- --------
Common Stock North Valley Bancorp Employee 106,807(1) 5.8%
Stock Ownership Plan ("ESOP")
880 East Cypress Avenue
Redding, CA 96002
Common Stock Banc Fund 98,925 5.4%
c/o The Banc Funds Company LLC
208 South LaSalle Street
Chicago, IL 60604
- ----------
(1) Directors Balma and Sorensen have authority to vote these shares on behalf
of the ESOP. Mr. Balma and Mr. Sorensen disclaim beneficial ownership with
respect to all such shares.
The following table sets forth certain information regarding ownership of
the Corporation's Common Stock with respect to each Director, each person
nominated for election as a Director and each executive officer named in the
Summary Compensation Table elsewhere herein, as well as for all current
Directors and executive officers as a group. All of the shares of Common Stock
of the Corporation shown in the following table are owned both of record and
beneficially, except as indicated in the notes to the table, as of April 1,
1998. The table should be read with the understanding that more than one person
may be the beneficial owner or possess certain attributes of beneficial
ownership with respect to the same securities. Therefore, careful attention
should be given to the footnote references set forth in the column "Amount and
Nature of Beneficial Ownership."
There are no arrangements or understandings pursuant to which any of the
Directors was or is to be selected as a Director or nominee.
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner(1) Ownership(2) Class(10)
------------------- ------------ ---------
Rudy V. Balma .................................. 161,350(3)(4) 8.8%
Donald V. Carter ............................... 39,135 2.1%
James F. Cowee, Jr. ............................ 14,663(5) *
William W. Cox ................................. 500 *
Fred A. Drake II ............................... 12,789 *
Dan W. Ghidinelli .............................. 14,556(6) *
Robert G. Jones ................................ 4,500 *
Thomas J. Ludden ............................... 9,154 *
Kelly V. Pierce ................................ 48,931(7) 2.7%
Martin R. Sorensen ............................. 111,807(3) 6.1%
Douglas M. Treadway ............................ 360 *
J. M. ("Mike") Wells, Jr. ...................... 47,516(8) 2.6%
All Executive Officers and Directors
as a group (11 in number) ..................... 301,873(9) 16.2%(9)
- ------------
* Indicates less than 1%
(1) The address for all persons listed is c/o North Valley Bancorp, 880 East
Cypress Avenue, Redding, California 96002. Since his death in June 1997,
Mr. Carter's shares have been held by his widow. Mr. Cowee retired
effective on January 30, 1998, and Mr. Jones retired effective on December
31, 1997.
3
<PAGE>
(2) Includes shares beneficially owned, directly and indirectly, together with
associates. Subject to applicable community property laws and shared voting
and investment power with a spouse, sole investment and voting power is
held by the beneficial owner of all shares unless noted otherwise. Includes
stock options granted pursuant to the North Valley Bancorp 1989 Director
Stock Option Plan (the "Director Plan") with: 11,244 shares exercisable
within 60 days by Director Wells; 5,000 shares exercisable within 60 days
by Director Sorensen; 1,140 shares each exercisable within 60 days by
Directors Balma and Pierce; 2,080 shares exercisable within 60 days by
Director Ludden; 3,900 shares exercisable within 60 days by Director
Ghidinelli; and 200 shares each exercisable within 60 days by Directors Cox
and Treadway and Mr. Cowee.
(3) Includes 106,807 shares which Messrs. Balma and Sorensen have authority to
vote on behalf of the ESOP. Mr. Balma and Mr. Sorensen disclaim beneficial
ownership with respect to all 106,807 shares.
(4) Includes 40,768 shares held by The Balma Family Trust, of which Mr. Balma
is trustee, and 12,635 shares held by Mr. Balma's grown daughter and son,
as to which Mr. Balma disclaims beneficial ownership.
(5) Includes 465 shares held by Mr. Cowee's sons, as to which Mr. Cowee
disclaims beneficial ownership, and 4,381 shares held by the James F.
Cowee, Sr., Testamentary Trust, of which Mr. Cowee is trustee.
(6) Includes 9,156 shares held by the Balma Grandchildren Trust, of which Mr.
Ghidinelli is a trustee and as to which Mr. Ghidinelli disclaims beneficial
ownership.
(7) Includes 41,278 shares held by the Pierce Family Trust, of which Mr. Pierce
is trustee, and 6,513 shares owned by Mr. Pierce's grown children, as to
which Mr. Pierce disclaims beneficial ownership.
(8) Includes 4,302 shares owned by Mr. Wells' grown children, and 2,184 shares
owned by Mr. Wells' mother, as to which Mr. Wells disclaims beneficial
ownership, and 29,786 shares held by the Wells Family Trust, of which Mr.
Wells is trustee.
(9) See footnotes 3 through 8. Includes 25,104 shares subject to options
exercisable within 60 days by the Directors under the Director Plan. This
figure excludes shares held by Messrs. Carter, Cowee and Jones.
(10) In calculating the percentage of ownership, all shares which the identified
person or persons have the right to acquire by exercise of options are
deemed to be outstanding for the purpose of computing the percentage of the
class owned by such person, but are not deemed to be outstanding for the
purpose of computing the percentage of the class owned by any other person.
Certain information with respect to the Directors, nominees for Director
and executive officers of the Corporation and its banking subsidiary, North
Valley Bank (the "Bank"), is provided below:
Rudy V. Balma (age 69), the Chairman of the Board of Directors and a
Director of the Corporation since 1982, is a retired licensed funeral
director and President of Redding Memorial Park, doing business as Redding
Cemetery and McDonald's Chapel.
Sharon L. Benson (age 45) has been Senior Vice President & Chief
Financial Officer of the Corporation and its subsidiaries since July 1997.
Prior to that, she was Vice President, Accounting, of the Bank since
December 1990.
William W. Cox, CRE, CCIM (age 50), a Director of the Corporation since
February 1997, has been owner and president of Cox Real Estate Consultants,
Inc., since April 1996. From October 1987 to August 1996, he was President
and 50% owner of Haedrich & Cox, Inc., a real estate brokerage company.
Errol K. DeRose (age 54) has been Senior Vice President & Chief Credit
Officer of the Bank since December 1997. From January 1996 until December
1997, he was Vice President & Manager of the Bank's Redding branch, and
from March 1991 until January 1996 he served as Vice President & Manager of
the Bank's Real Estate Loan Department.
Fred A. Drake II (age 59) has been Executive Vice President of the
Corporation and its subsidiaries, and Executive Vice President and Chief
Operating Officer of the Bank, since July 1997. Prior to that he served as
Senior Vice President and Cashier of the Bank since July 1986.
Dan W. Ghidinelli (age 50), a Director of the Corporation since 1993,
has been a Certified Public Accountant and partner with Nystrom & Company
LLP since 1974.
4
<PAGE>
Thomas J. Ludden (age 65), a Director of the Corporation since 1991, is
a retired educator in the Weaverville School District in Trinity County,
California, owner of the Tri-L Ranch, a tree farm, since 1956, and retired
owner and president of Ludden & Co., Inc., a dry goods and clothing
business located in Weaverville, California. He has also served as Trustee
for the Shasta-Tehama-Trinity JCCD since 1967, and as Trustee for the Lions
Eye Foundation CA/NEV since July 1988.
Kelly V. Pierce (age 71), a Director of the Corporation since 1982, is
a retired dentist residing in Redding, California.
Martin R. Sorensen (age 54) was appointed President & Chief Executive
Officer of the Corporation and its subsidiaries on February 1, 1998. Prior
to this, he served as President & Chief Executive Officer of SierraWest
Bank in Truckee, California, from May 1994 until May 1997, and prior to
that as President & Chief Executive Officer of Codding Bank in Rohnert
Park, California.
Douglas M. Treadway (age 55), a Director of the Corporation since
February 1997, is President of Shasta College and has served in that
capacity since 1994. From 1991 to 1994, he was Chancellor for the North
Dakota University System.
J. M. ("Mike") Wells, Jr. (age 57), the General Counsel and Secretary
of the Board of Directors of the Corporation and a member of the Board of
Directors since 1982, is an attorney with Wells, Small, Selke & Graham, a
Law Corporation, located in Redding, California. Mr. Wells has practiced
law with that firm since 1972.
None of the Corporation's Directors is a director of any other reporting
company. There are no family relationships between any of the Directors and
executive officers of the Corporation.
Committees of the Board of Directors
The Board of Directors of the Corporation and of the Bank have established
an Audit Committee, the members of which are Messrs. Balma, Sorensen
(ex-officio), Ghidinelli (Chairman), Ludden and Pierce. The Audit Committee met
five times during 1997. The functions of the Audit Committee are to recommend
the appointment of and to oversee a firm of independent public accountants whose
duty is to audit the books and records of the Corporation for the fiscal year
for which it is appointed, to review and analyze the reports of the
Corporation's independent public accountants, to analyze the results of internal
and regulatory examinations, to monitor the effectiveness of the Corporation's
accounting system and financial reporting and to interface with the
Corporation's independent public accountants concerning additional specific
engagements requested by the Corporation.
The Corporation does not have a nominating committee. The Board of
Directors of the Corporation performs the function of a nominating committee,
which function is to recommend and nominate qualified individuals to serve on
the Corporation's Board of Directors. See the Notice of Annual Meeting of
Shareholders for procedures for submitting nominations.
The Corporation does not have a compensation committee. The Board of
Directors of the Corporation performs the function of a compensation committee,
which function is to determine annual compensation for executive officers of the
Corporation and its subsidiaries.
Compensation Committee Interlocks and Insider Participation
During the fiscal year 1997, Mr. Cowee (now retired) participated in
deliberations of the Corporation's Board of Directors concerning executive
officer compensation for all executive officers excluding himself.
Meetings of the Board of Directors
During 1997, the Board of Directors held twelve regularly scheduled
meetings and four special meetings. In 1997, each Director attended at least 75%
of the aggregate of the total number of meetings of the Board of Directors (held
during the period for which he was a Director) and the total number of meetings
of Committees of the Board of Directors on which such Director served (during
the periods that he served).
5
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Corporation's Directors and executive officers and
persons who own more than 10% of a registered class of the Corporation's equity
securities to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Corporation. Officers, Directors and greater
than 10% shareholders are required by the SEC to furnish the Corporation with
copies of all Section 16(a) forms they file.
To the Corporation's knowledge, based solely on a review of such reports
furnished to the Corporation and written representations that no other reports
were required, during the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its officers, Directors and 10% shareholders
were complied with.
EXECUTIVE COMPENSATION
<TABLE>
The following Summary Compensation Table sets forth the compensation of the
Corporation's Chief Executive Officer and the three other most highly
compensated executive officers (whose total annual salary and bonus exceeds
$100,000) for services in all capacities to the Corporation, the Bank and other
subsidiaries during 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- -------------
Name and Securities All Other
Principal Other Annual Underlying Compensation
Position(1) Year Salary(2) Bonus Compensation(3) Options (4)(5)
- -------------------------- ------ ----------- --------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald V. Carter 1997 $155,823 $ 0 $1,225 1,000 $ 74,770(6)
President & Chief 1996 151,285 44,436 6,145 1,000 5,618
Executive Officer 1995 144,084 44,436 4,639 1,500 5,899
James F. Cowee, Jr 1997 $130,526 $46,680 $7,765 -- $ 6,147
Executive Vice President 1996 98,331 28,884 5,550 -- 6,612
of the Bank & C.F.O. 1995 93,660 28,884 5,019 -- 4,268
of the Corporation
Fred A. Drake II 1997 $ 94,788 $30,360 $2,720 -- $ 4,655
Senior Vice President & 1996 85,728 24,444 1,540 -- 4,347
Cashier of the Bank 1995 81,648 24,444 1,334 -- 4,076
Robert G. Jones 1997 $ 78,084 $23,400 $1,304 -- $ 3,717
Senior Vice President & 1996 75,816 22,236 845 -- 3,712
Loan Administrator 1995 72,204 22,236 713 -- 3,538
of the Bank
<FN>
- ------------
(1) Upon Donald V. Carter's death on June 24, 1997, Mr. Cowee became President
and Chief Executive Officer of the Bank and the Corporation, and Mr. Drake
became Executive Vice President of the Bank and the Corporation. Mr. Cowee
retired effective on January 30, 1998, but will continue to be compensated
in 1998 as disclosed elsewhere herein. Mr. Jones retired effective on
December 31, 1997 but pursuant to an agreement will continue to receive
compensation in 1998.
(2) Base salary includes 401(k) Plan and Executive Deferred Compensation Plan
("EDCP") contributions.
(3) Represents the above-market portion of interest earned under the EDCP for
Messrs. Cowee, Drake and Jones; and the cost of a company car for each of
Messrs. Carter, Cowee and Drake.
6
<PAGE>
(4) Represents matching contributions under the Corporation's 401(k) Plan and
EDCP.
(5) Includes a yearly allocation of Common Stock under the ESOP, excluding
shares allocated as a result of stock dividends issued in 1993 and the
three-for-two stock split effected as a 50% stock dividend in 1995.
(6) Includes payment of $74,285 to Mr. Carter's widow pursuant to the
Supplemental Executive Retirement Plan.
</FN>
</TABLE>
<TABLE>
The following table describes stock options that were granted pursuant to
the North Valley Bancorp 1989 Director Stock Option Plan (the "Director Plan")
to the Corporation's Chief Executive Officer in the fiscal year ended December
31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------
Number of Percent of
Securities Total Options Market
Underlying Granted to Exercise or Price on
Options Employees In Base Price Date of Expiration
Name Granted Fiscal Year ($/Sh) Grant Date
- -------------------------- ---------------- --------------- ------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Donald V. Carter ......... 1,000(1) 100% $ 18.28 $ 21.50 January 22, 2005
</TABLE>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
for Option Term(2)
-------------------------------
Name 0% 5% 10%
- -------------------------- --------- ---------- ----------
Donald V. Carter ......... $3,220 $15,070 $32,420
- ------------
(1) Mr. Carter's options were granted under the Director Plan at 85% of the
fair market value of the Corporation's Common Stock on the date of grant.
See the discussion of the Director Plan below.
(2) The 0%, 5% and 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and are not an estimate or
projection of future prices for the Company's Common Stock.
<TABLE>
The following table sets forth the stock options exercised in 1997 and the
December 31, 1997 unexercised value of both vested and unvested stock options
for the Corporation's Chief Executive Officer:
FISCAL YEAR END OPTION VALUES
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal In-The-Money
Shares Year End Options at Fiscal Year End(1)
Acquired Value ------------------------------- ------------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- ------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Donald V. Carter ......... 10,044 $249,010 -0- 2,300 $ -0- $ 38,654
<FN>
- ------------
(1) Based on the fair market value of the Corporation's Common Stock of $32.00
per share at December 31, 1997.
</FN>
</TABLE>
Mr. Carter's widow, as Mr. Carter's beneficiary, exercised all of Mr.
Carter's available stock options (10,044 shares) in November of 1997.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Mr. Carter entered into an employment agreement with the Corporation on
February 1, 1986. As amended in January 1997, this agreement provided for cash
compensation at the rate of $155,823 per annum. Under the terms of the
employment agreement, which expired upon his death, Mr. Carter participated in
the various benefit plans available to any employee of the Corporation, and a
death benefit, which provided for payment of $250,000 to Mr. Carter's widow in
the event of his death during his employment with the Corporation, was paid to
Mrs. Carter subsequent to his death on June 24, 1997.
Mr. Cowee entered into an employment agreement with the Corporation on
November 10, 1997, which contract was retroactively effective to June 1, 1997,
naming him as President and Chief Executive
7
<PAGE>
Officer of the Corporation and its subsidiaries at a salary of $155,823 per
year. Mr. Cowee chose to enter into retirement effective January 31, 1998, and
under the terms of the above employment agreement will continue to receive
compensation at the rate of $155,823 per year for the remainder of the 1998
calendar year.
Martin R. Sorensen was appointed by the Board of Directors as the new
President and Chief Executive Officer of the Corporation and its subsidiaries,
and entered into an employment agreement effective February 1, 1998 and which
shall continue indefinitely thereafter. This agreement provides for cash
compensation at the rate of $175,000 per annum and salary increases at the sole
discretion of the Board of Directors based upon a review of his performance
during the previous year. The Corporation may immediately terminate the
agreement if the termination is for cause. The Corporation may also terminate
the agreement without cause by giving Mr. Sorensen thirty (30) days' written
notice. In the event the Corporation terminates Mr. Sorensen's employment
without cause, or if Mr. Sorensen voluntarily terminates employment within one
year of a change in control in response to a constructive termination, Mr.
Sorensen will be entitled to receive as severance compensation an amount equal
to one and one-half times Mr. Sorensen's current base salary (not including
bonuses). For purposes of the agreement, "change in control" means a change in
control of the Corporation of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Exchange
Act. A "constructive termination" is defined by the agreement as a material
reduction in base salary, a material change in responsibilities, or a
requirement to relocate, except for office relocations that would not increase
Mr. Sorensen's one-way commute distance by more than thirty-five (35) miles.
Supplemental Executive Retirement Plan. The Supplemental Executive
Retirement Plan (the "Executive Retirement Plan") was established by the
Corporation effective October 1, 1988, for the purpose of providing supplemental
retirement benefits to key employees of the Corporation and its subsidiaries
designated by the Board of Directors. The Executive Retirement Plan is
administered by a committee of three persons appointed by the Chairman of the
Board, and is an unfunded and unsecured plan as defined in sections 201, 301 and
401 of ERISA (Employee Retirement Income Security Act of 1974).
The Executive Retirement Plan provides for two general classes of benefits:
(1) Retirement benefits commencing at age 65 or upon termination within
two years after a change in control of the Corporation, payable monthly for
not less than ten years in an amount, depending upon length of service,
equal to up to 45% of the executive's highest average monthly compensation
for any 36 consecutive months during his last 60 months of service.
"Compensation" includes base salary and bonuses. An early retirement
benefit is also available if the executive retires early between the ages
of 55 and 65 after not less than ten years of service. If commencement of
payment of the early retirement benefit is deferred until the executive
attains age 65, it is equal to the normal retirement benefit; if payment
commences prior to age 65, the monthly benefit is reduced according to a
formula set forth in the Executive Retirement Plan. Optional benefit forms,
such as joint/survivor annuities, are also available.
(2) Survivor benefits payable after death occurring either while
employed or after employment but before commencement of normal retirement
benefits. The survivor benefit is generally equal to the greater of the
normal retirement benefit which would have been payable to the executive or
36 times his highest average monthly compensation and is payable in ten
equal annual installments.
Vesting of benefits under the Executive Retirement Plan is 100% if
termination occurs within 24 months after change in control of the Corporation
or as a result of disability, retirement on or after the age of 65 or death. For
any other reason, vesting occurs at the rate of 25% for each year of credited
service. Benefits are reduced by an amount equal to 50% of the amount of any
monthly primary Social Security benefit (determined at age 65) or, in the case
of commencement of payment of early retirement benefits prior to age 65, by 50%
of the monthly primary Social Security benefit that would become payable at age
65, determined under the terms of the Social Security Act in effect at the time
early retirement benefits commence.
As in the case of the Directors' Retirement Plan (as defined below), the
Corporation (or the subsidiary responsible for payment of benefits) may purchase
insurance policies or annuity contracts to
8
<PAGE>
provide for payment of benefits under the Executive Retirement Plan, but persons
entitled to benefits have no right to such policies or contracts or other
specific assets or properties of the Corporation or subsidiary unless express
trusts of any such assets or properties have been established for the purpose of
payment of benefits.
For the period ending December 31, 1997, the Bank paid insurance premiums
of $51,000 in order to fund obligations under the Executive Retirement Plan,
with a cash residual value of $951,000.
The following table illustrates the approximate retirement income that may
become payable to a key employee credited with the number of years of service
shown, assuming that benefits commence at age 65 and are payable in the form of
an annuity for the employee's life or for 10 years (whichever is greater):
ANNUAL RETIREMENT INCOME
Years of Credited Service
Final Average 10
Compensation 2 4 6 8 or more
- --------------- -------- -------- -------- -------- --------
$ 60,000 5,400 10,800 16,200 21,600 27,000
80,000 7,200 14,400 21,600 28,800 36,000
100,000 9,000 18,000 27,000 36,000 45,000
120,000 10,800 21,600 32,400 43,200 54,000
140,000 12,600 25,200 37,800 50,400 63,000
160,000 14,400 28,800 43,200 57,600 72,000
180,000 16,200 32,400 48,600 64,800 81,000
200,000 18,000 36,000 54,000 72,000 90,000
Mr. Fred A. Drake has 10 years of credited service.
Pursuant to the Executive Retirement Plan, Mr. Carter's widow will receive
annual payments in the amount of $74,285 for ten years. The first of such
payments was made in July 1997.
Executive Deferred Compensation Plan. The EDCP was established by the
Corporation effective January 1, 1989, in order to provide current tax planning
opportunities and supplemental retirement or death benefits to Directors and
selected key employees or their designated beneficiaries or surviving spouses,
children or estates. It is administered by a committee of not less than three
persons appointed by the Chairman of the Board of Directors. Although the EDCP
is intended to be an unfunded and unsecured plan as defined in sections 201, 301
and 401 of ERISA, the employer (the Corporation or a subsidiary thereof)
responsible for payment of benefits may establish trusts, which may be
irrevocable but which are subject to the claims of the Corporation's creditors,
to provide for payment thereof.
Participants may elect to defer to their account under the EDCP not less
than $2,400 in amount, up to 100%, of their annual compensation. The employer is
required to make matching contributions in the amount of 25% of the amount
deferred up to a maximum of 5% of compensation before deferrals, and may also
make discretionary contributions in any amount.
EDCP benefits are payable from participants' individual accounts upon
termination within 24 months of a change of control of the Corporation or as the
result of normal or early retirement, disability or death, or under other
limited circumstances. Benefits are payable usually over a period of five years
in the case of directors and 10 years in the case of executives, in equal
monthly installments commencing on a date chosen by the participant not later
than 60 days after the end of the month in which termination of service occurs.
Other payment alternatives which may be elected at the discretion of the
administrative committee of the EDCP include payment in a single sum or over a
period of 15 years, and early withdrawals in limited amounts and hardship
distributions are permitted. All amounts deferred are immediately vested at
100%; discretionary contributions are vested as set forth by agreement with the
participant at the time of the related deferral, and matching contributions are
vested according to the schedule set forth for matching contributions under the
Corporation's Deferred Salary Profit-Sharing Thrift Plan. In 1997, amounts which
were deferred by the executive officers totaled $25,200 for Mr. Cowee, $11,545
for Mr. Carter, $9,600 for Mr. Drake, and $4,590 for Mr. Jones, which amounts
are included in the Summary
9
<PAGE>
Compensation Table. For the period ending December 31, 1997, the Bank paid
insurance premiums of $337,000 in order to fund obligations under the EDCP, with
a cash residual value of $1,229,000.
Pursuant to the EDCP, Mr. Carter's widow has been receiving, since July
1997, monthly payments of $2,305. The compensation represented by these payments
was previously reported in the year deferred.
As of December 31, 1997, the Corporation's accrued pension obligation under
the Directors' Retirement Plan, the Executive Retirement Plan and the EDCP was
$1,927,000.
Compensation of Directors
General. During 1997, each Director received fees of $850 per Board Meeting
attended (except that if the Director was a member of the Board of Directors of
both the Corporation and the Bank, and both Boards met on the same day, the
Director only received a single $850 fee for attending both meetings) and
payments per Committee meeting attended of $200. Neither Mr. Carter nor Mr.
Cowee received Director's fees, and Mr. Sorensen will not receive Director's
fees. During 1997, cash compensation paid to all Directors totaled $23,405, and
payment of additional Director compensation of $81,988 was deferred under the
EDCP. Directors electing coverage under the group health insurance plan
available to employees of the Corporation have been required to pay 100% of
their premiums since January 1989.
At a meeting of the Board of Directors on December 4, 1997, after which
Chairman Rudy Balma had excused himself from said meeting, the Board unanimously
passed a resolution to pay Chairman Balma a sum equal to seventy-five percent
(75%) of the currently established regular Board Meeting fee in addition to the
regular monthly Board Meeting and committee fees, due to the amount of extra
work the Chairman must necessarily perform on behalf of the Bank and the
Corporation, such additional fee to be effective December 1997.
Supplemental Retirement Plan for Directors. The Supplemental Retirement
Plan for Directors (the "Directors' Retirement Plan") was established by the
Corporation as of October 1, 1988 as an unfunded and unsecured plan to provide
deferred compensation to Directors of the Corporation who are not also employees
of the Corporation or any affiliate ("Outside Directors"). Its general purpose
is to aid in retaining the services of such Outside Directors. Outside Directors
with 10 years of service to the Corporation or any of its subsidiaries are
eligible to receive benefits under the Directors' Retirement Plan, which
benefits consist of the payment (commencing upon the earlier of death or the
72nd birthday of the Director) of $5,000 per year for 10 years to the Director,
his designated beneficiaries or (in the absence of such a designation) his
surviving spouse, children or estate (in that order).
The obligation to pay benefits under the Directors' Retirement Plan is the
responsibility of the Bank. The Bank is authorized to purchase life insurance
policies and/or annuity contracts in order to provide for payment of its
obligations under the Directors' Retirement Plan, but such obligations have only
the legal status of unfunded, unsecured promises to pay money in the future, and
no one entitled to receive benefits under the Directors' Retirement Plan has, as
a result, any rights to such policies or contracts or other specific property or
assets of the Bank unless an express trust is established for such purpose. For
the period ending December 31, 1997, the Bank paid insurance premiums of $61,000
in order to fund obligations under the Directors' Retirement Plan, with a cash
residual value of $829,000.
North Valley Bancorp 1989 Director Stock Option Plan.
Under the North Valley Bancorp 1989 Director Stock Option Plan, as amended
(the "Director Plan"), which was adopted by the Board of Directors in December
1989 and by the shareholders of the Corporation at the 1990 Annual Meeting, all
members of the Board of Directors, including employees who are Directors,
automatically receive every January 1,000 nonstatutory stock options to purchase
shares of the Corporation's Common Stock. As of April 1, 1998, 147,503 shares
were authorized for awards, 50,215 shares were issued and outstanding, 17,151
shares were canceled and 80,137 shares were available for issuance under the
Director Plan.
Options granted under the Director Plan vest immediately as to 20%, with an
additional 20% vesting on each of the first four anniversary dates following the
date of grant. Such options are exercisable for a period of 10 years from the
date of grant at a price which shall be 85% of the fair market value of the
10
<PAGE>
Corporation's Common Stock on the date of grant. The exercise price can be paid
by cash, certified check, official bank check or the equivalent thereof
acceptable to the Corporation. Options granted pursuant to the Director Plan
automatically expire three months after termination of service as a Director for
any reason other than cause, death or disability. In the case of termination of
service due to death or disability, such options terminate one year from the
date of such termination of service. In the event that service as a Director is
terminated for cause, the options granted pursuant to the Director Plan expire
30 days after such termination.
Each Director was granted an option to purchase 1,000 shares in January
1997 at an exercise price per share of $18.28, and 1,000 shares in January 1998
at an exercise price of $25.50. It is anticipated that additional options to
purchase 1,000 shares will be granted to each Director each year in January.
The Director Plan is presently administered by the Board of Directors,
which has the authority to delegate some or all of its duties to a committee of
the Board of Directors appointed for this purpose, which committee must be
composed of not less than three members of the Board of Directors. This
committee is generally authorized to administer the Director Plan in all
respects, subject to the express terms of the Director Plan.
The Director Plan provides for adjustment of and changes in the shares of
Common Stock reserved for issuance in the event certain changes occur or in the
event of the sale, dissolution or liquidation of the Corporation or any
reorganization, merger or consolidation of the Corporation.
The Board of Directors may amend or terminate the Director Plan as provided
therein. No amendment or termination may adversely affect the rights of an
optionee under a previously granted option without that optionee's consent.
North Valley Bancorp 1989 Employee Stock Option Plan.
Under the North Valley Bancorp 1989 Employee Stock Option Plan, as amended
(the "Employee Plan"), which was adopted by the Board of Directors in December
1989 and by the shareholders of the Corporation at the 1990 Annual Meeting,
officers and key full-time salaried employees of the Corporation and its
affiliates may be granted options to purchase shares of the Corporation's Common
Stock. As of April 1, 1998, 145,775 shares remained authorized for awards,
25,000 options have been granted and are outstanding, 0 options have been
cancelled and 170,775 shares were available for issuance under the Employee
Plan.
The exercise price, term and vesting period of each option granted under
the Employee Plan is determined by the committee which administers the Employee
Plan at the time the option is granted; provided, however, that the exercise
price may in no event be less than 85% of the fair market value of the
Corporation's Common Stock on the date of grant, nor may the term of an option
exceed 10 years or vest at a rate of less than 20% per year during the first
five years of the option term.
Each option granted under the Employee Plan automatically expires three
months after termination of employment other than for cause, except that in the
case of termination of employment due to death or disability, an option will
expire one year from the date of such termination of employment. In the event
the optionee's employment is terminated for cause, the option will expire 30
days after such termination of employment.
The Employee Plan is administered by a committee of the Board of Directors
appointed for this purpose, which committee is composed of not less than three
members who are not also employees of the Corporation or any of its affiliates
(in the absence of such a separate committee, the Board of Directors acts as the
committee).
The Employee Plan provides for adjustment of and changes in the shares
reserved for issuance in the event certain changes occur or in the event of the
sale, dissolution or liquidation of the Corporation or any reorganization,
merger or consolidation. The Board of Directors may amend or terminate the
Employee Plan. No amendment or termination may adversely affect the rights of an
optionee under a previously granted option without that optionee's consent.
On February 5, 1998, Mr. Sorensen was granted an option to purchase 25,000
shares at an exercise price per share of $25.50.
11
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Board of Directors acts as the Corporation's compensation committee and
reviews salaries recommended by the Chief Executive Officer for executive
officers other than the Chief Executive Officer, and can, at its discretion,
grant stock options to key officers of the Corporation and its affiliates who
are primarily responsible for the management and growth of the Corporation's
business (no such options were granted in 1997). In conducting its review of
salaries, the Board of Directors takes into consideration the overall
performance of the Corporation and the Chief Executive Officer's evaluation of
individual executive officer performance, with final decisions on base salary
adjustments made in conjunction with the Chief Executive Officer. The Board of
Directors determines the base salary for the Chief Executive Officer by: (1)
examining the Corporation's performance against its preset goals, (2) examining
the Corporation's performance within the banking industry, (3) evaluating the
overall performance of the Chief Executive Officer, and (4) comparing the base
salary of the Chief Executive Officer to that of other chief executive officers
in the banking industry in the Corporation's market area. Based upon the data
and performance, the Chief Executive Officer's salary was increased by 3% to
$155,823 per annum effective January 1, 1997.
The Corporation does not have a formal bonus plan. However, at its
discretion, the Board of Directors can, and has since 1990, set aside
approximately 3% of the after-tax profits of the Bank, which is then divided by
the Chief Executive Officer among the top four most highly compensated executive
officers. This is not a formal bonus plan and there is no guarantee that such
bonuses will be granted in the future.
Members of the Board of Directors, which acts as the Corporation's
compensation committee, as of April 1, 1998, are: Rudy V. Balma, William W. Cox,
Dan W. Ghidinelli, Thomas J. Ludden, Kelly V. Pierce, Martin R. Sorensen,
Douglas M. Treadway and J. M. ("Mike") Wells, Jr.
STOCK PERFORMANCE CHART(1)
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------
North Valley Bancorp 100.00 122.27 97.07 137.26 160.32 244.39
S&P 500 100.00 110.08 111.53 153.44 188.52 251.44
Northern California Proxy(2) 100.00 124.19 121.55 184.29 199.58 396.48
(1) Assumes $100 invested on December 31, 1992 in the Corporation's Common
Stock, the S & P 500 composite stock index and SNL Securities' Northern
California Proxy index, with reinvestment of dividends.
(2) Source: SNL Securities
12
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through its banking subsidiary, the Corporation has had and expects in the
future to have banking transactions, including loans and other extensions of
credit, in the ordinary course of its business with many of the Corporation's
Directors, executive officers, holders of five percent or more of the
Corporation's Common Stock and members of the immediate family of any of the
foregoing persons, including transactions with corporations or organizations of
which such persons are directors, officers or controlling shareholders, on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with others, except that all
employees (other than executive officers or Directors of the Corporation or its
subsidiaries) are granted rate concessions on installment loans and are not
charged origination fees on residential real estate loans. Management believes
that in 1997 such loan transactions did not involve more than the normal risk of
collectibility or present other unfavorable features.
J. M. "Mike" Wells, Jr., the General Counsel of the Corporation, Secretary
of the Board of Directors and Director, is an attorney in the law firm of Wells,
Small, Selke & Graham, a Law Corporation, which contracted to provide
professional legal services to the Corporation and the Bank during 1997 and
expects to provide professional legal services to them in the future. Wells,
Small, Selke & Graham, a Law Corporation, received from the Bank in 1997 a total
of $14,057 in legal fees and costs reimbursed.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT OF
THE ARTICLES OF INCORPORATION
RESTRICTING SHAREHOLDER ACTION BY WRITTEN CONSENT
Introduction
Since 1977 the California General Corporation Law ("GCL") has provided
that, unless otherwise provided in the articles of incorporation, any action
which may be taken at any annual or special meeting of shareholders may be taken
without a shareholders' meeting and generally without prior notice under certain
circumstances involving written consent of shareholders, if a written consent
setting forth the action to be taken is signed by the holders of shares of
outstanding stock having the requisite number of votes that would be necessary
to authorize such action at a meeting of shareholders at which all shares
entitled to vote thereon were present and voted.
Shareholder Action by Written Consent
The Corporation's Articles of Incorporation (the "Articles") do not
presently contain any provision limiting the ability of shareholders of the
Corporation to act by written consent, and the By-laws of the Corporation
currently authorize action by written consent of the shareholders. For the
reasons set forth below, Section (a) to proposed Article Third of the Articles
would permit shareholders of the Corporation to act by written consent only if
the Board of Directors had previously approved the action, which would prevent
shareholders of the Corporation from using the written consent procedure to take
shareholder action without a shareholders' meeting.
Reasons for the Amendment
The Board is seeking approval of the amendment because it believes, in a
corporate democracy where the majority rules, all shareholders should have the
opportunity to meet, listen to competing views and make a decision at a duly
noticed meeting of shareholders (unless the Board approves by resolution the
taking of action without a meeting).
The Board of Directors recommends adoption of this proposed amendment
because it believes it is in the best interest of the Corporation and its
shareholders to assure that all shareholders of the Corporation entitled to vote
on a proposed significant corporate action have the opportunity to participate
in determining if such action is appropriate through the normal meeting process,
except in cases where the
13
<PAGE>
Board of Directors has approved such action by written consent. The Board of
Directors believes that in most instances it is inappropriate for shareholders
to take corporate action without prior notice to all other shareholders, even if
a majority of the shareholders favor such action. The Board believes that the
orderly process which is normally used when actions are proposed at meetings is
generally preferable to the consent procedure, unless the Board of Directors has
approved such action. If action by written consent without a meeting and without
the approval of the Board of Directors is permitted, a majority of the
shareholders could consent in writing to a corporate action without advance
notice to other shareholders. Advance notification to shareholders of proposed
corporate actions provides all shareholders the opportunity to express their
views on the proposed action and to persuade other shareholders and management
of their support or opposition. Additionally, management is provided with an
opportunity to review and respond to proposed actions, as appropriate. It is the
Board of Directors' view that shareholder decisions reached after all
shareholders have received notice and an opportunity to express their views will
be informed decisions and more consistent with the Board of Directors' notion of
corporate democracy. Also, the Board of Directors believes that the proposed
amendment is an effective method of avoiding the disenfranchisement of minority
shareholders through the use of written consent solicitation.
Other Effects
If this Proposal is adopted it may have the effect of discouraging an
attempt by another person or entity to gain control of the Corporation or take
action which might facilitate gaining control of the Corporation, after the
acquisition of a substantial percentage of the shares of the Corporation's
outstanding stock. The effect of the proposed amendment would be to encourage
any person intending such a change of control to negotiate with the Board of
Directors rather than to take unilateral action without notice to the Board of
Directors or other shareholders. The Board of Directors believes that such an
orderly procedure is in the best interest of the shareholders. However, the
proposed amendment could limit shareholders' participation in certain types of
transactions (other than at a shareholders' meeting) that might be proposed
whether or not such transactions were favored by a majority of the shareholders,
and could enhance the ability of officers and directors to retain their
positions by precluding changes in control through the written consent
procedure. The proposed amendment, if adopted, could render it more difficult or
discourage a merger or proxy contest, the assumption of control by a holder of a
larger block of the Corporation's securities and the removal of incumbent
management.
Action by written consent may, in some circumstances, permit shareholders
to take action opposed by the Board of Directors more rapidly than would be
possible if a meeting were required. Proposed Article Third Section (a) would
have the effect of making more difficult shareholder actions that do not have
the support of the Board of Directors. This proposed amendment also could have
the effect of discouraging a person from making a tender offer or otherwise
attempting to gain control of the Corporation if such person were unwilling to
submit its proposals to a vote of the shareholders at a meeting. For example,
the prohibition would prevent a person from attempting to gain approval of a
merger without a shareholder meeting. The Board of Directors nonetheless
believes that it is important that it be able to give advance notice of and
consideration to any such shareholder action and that shareholders be able to
discuss at a meeting matters that may affect their rights. In addition, the
Corporation's shareholders will still have the ability to initiate action
independent of the Board of Directors because California law and the
Corporation's Bylaws provide that the holders of not less than 10% of the shares
entitled to vote have the power to call a special meeting of the shareholders.
However, the proposed amendment would have an adverse impact on shareholders who
may want to participate in a consent solicitation rather than a shareholder
meeting and are unable to gather 10% of the shares necessary in order to call a
special meeting.
This proposal restricting shareholder action by written consent is not
being made in response to any effort by a minority shareholder or group of
shareholders to attain representation on the Board of Directors or acquire
greater influence in the management of the Corporation's business, nor is the
Corporation aware of any such effort. Furthermore, such proposal is not being
made in response to any attempt to acquire control of the Corporation, nor is
the Corporation aware of any such attempt.
14
<PAGE>
The Board of Directors does not currently contemplate recommending to the
shareholders for their approval any further measures that would affect the
ability of third parties to change control of the Corporation other than those
contained in Proposals 3 and 4 regarding the elimination of cumulative voting
and the authorization of Preferred Stock. The Corporation's By-laws currently
contain a provision requiring advance notice of nomination of a candidate for
election to the Board of Directors of the Corporation when the nomination is
made by a person other than the nominating committee of the Board, which
procedure is set forth in the Notice of Annual Meeting of Shareholders. Other
than as described in the preceding portion of this paragraph, the Board of
Directors is not currently considering any other anti-takeover measures that do
not require shareholder approval under California law. The Board of Directors
does not believe that the Articles or By-laws of the Corporation currently
contain any other provisions which should be viewed as anti-takeover devices.
The overall effect of the proposed amendment would be to make it more
likely that a proposed transaction would be discussed with the Board of
Directors. This proposed amendment, together with Proposal No. 3 herein
concerning the elimination of cumulative voting would make it more difficult for
a nominee to the Board of Directors to be elected without relatively wide
support and, as a result, make more difficult an attempt by a minority
shareholder or group of shareholders to exert influence in the management of the
Corporation's business.
Text of Amendment
The existing Article Third of the Corporation's Articles consists of the
name and address of the Corporation's initial agent for service of process,
which, upon amendment and restatement (as proposed) of the Articles, will be
eliminated pursuant to Section 1502 of the GCL.
At the Annual Meeting, the Corporation's shareholders will be asked to
approve an amendment to the Corporation's Articles to amend and restate Article
Third, adding Section (a) to read as follows:
THIRD
a. Any action required to be taken at any annual or special meeting of
shareholders of this corporation, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, provided that the board of directors of
this corporation, by resolution, shall have previously approved any such
action.
Conforming By-Law Amendment
If this Proposal No. 2 is adopted by the shareholders, in order to make the
By-laws consistent with the amendment to the Articles set forth in this Proposal
No. 2, upon effectiveness of the filing of the Amended and Restated Articles of
Incorporation with the Secretary of State of the State of California, Section 10
of the By-laws shall be amended to read as set forth in Annex A which is
incorporated herein by reference.
Required Approval
Approval of the proposed amendment to Article Third of the Articles
requires that holders of a majority of the outstanding shares of Common Stock of
the Corporation vote "FOR" the proposal.
Recommendation of Management
The Board of Directors believes that this proposal is in the best interests
of the Corporation and its shareholders, and unanimously recommends a vote "FOR"
its approval.
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PROPOSAL NO. 3
APPROVAL OF AMENDMENT OF
THE ARTICLES OF INCORPORATION
CONCERNING ELIMINATION OF CUMULATIVE VOTING
Introduction
Effective on January 1, 1990, the GCL was amended to permit California
corporations with widely traded securities to provide, with the approval of
their shareholders, for majority rule voting in electing directors in lieu of
cumulative voting. California law specifically allows a corporation with its
common stock quoted on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market System and with at least 800 shareholders of
record to eliminate cumulative voting by an amendment to its Bylaws or Articles
of Incorporation. Prior to such legislation, cumulative voting in electing
directors was mandatory for California corporations upon proper notice by any
shareholder of the corporation. By permitting shareholders of California
corporations to provide for majority rule voting in electing directors, the new
law substantially conforms California corporate law with the corporate laws of a
majority of other states (including Delaware, Illinois, Michigan, New Jersey,
New York, Ohio, Pennsylvania and Texas) which either provide that cumulative
voting is optional or make no provision for cumulative voting at all. Only a
small minority of states still require that shareholders be permitted to invoke
cumulative voting. On April 7, 1998 the Corporation's Common Stock became listed
for trading on the Nasdaq National Market System under the symbol NOVB.
Cumulative Voting
Cumulative voting in the election of directors may currently be invoked by
any shareholder of the Corporation who complies with statutory notice
requirements. Cumulative voting entitles shareholders to a number of votes per
share of Common Stock equal to the number of directors to be elected, and all
nominees are voted upon simultaneously. Holders of shares may cast all of their
votes for a single nominee or distribute them among two to more nominees.
As a consequence of cumulative voting, a shareholder with a relatively
small number of voting shares may be able to elect one or more directors. For
example, if a shareholder were to give the appropriate notice and properly
nominate a nominee, and nine directors were to be elected at an annual meeting,
a shareholder holding 10% of the voting shares could elect one director by
cumulating and casting his or her votes for one candidate. This is true even if
shareholders holding 90% of the voting shares are opposed to the election of
that candidate and cast their votes to elect nine other nominees.
Absent cumulative voting, a nominee cannot be elected without relatively
wide support, as shareholders are entitled to only one vote per share with the
nominee receiving the greatest number of votes being elected. Consequently, the
holder or holders of a majority of the shares entitled to vote in an election of
directors will be able to elect all directors of the Corporation, and holders of
less than a majority of the shares may not be able to elect any directors.
For the reasons set forth below, the Board believes that the Articles
should be amended to eliminate cumulative voting.
Reasons for the Amendment
The Board believes that the elimination of cumulative voting is
advantageous to the Corporation and its shareholders because each director of a
publicly held corporation has a duty to represent the interests of all
shareholders rather than any specific shareholder or group of shareholders. The
presence on the Board of Directors of one or more directors representing the
interests of a minority shareholder or group of shareholders could disrupt the
management of the Corporation and prevent it from operating in the most
effective manner. Furthermore, the election of directors who view themselves as
representing a particular minority constituency could introduce an element of
discord on the Board of Directors, impair the ability of the directors to work
effectively and discourage qualified independent individuals from serving as
directors. Providing for majority rule voting in the election of directors by
eliminating cumulative voting will help ensure that each director acts in the
best interests of all shareholders.
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This proposal concerning the elimination of cumulative voting is not being
made in response to any effort by a minority shareholder or group of
shareholders to attain representation on the Board of Directors or acquire
greater influence in the management of the Corporation's business, nor is the
Corporation aware of any such effort. Furthermore, such proposal is not being
made in response to any attempt to acquire control of the Corporation, nor is
the Corporation aware of any such attempt.
Other Effects
Approval of Section (b) of the proposed amendment may render more difficult
any attempt by a holder or group of holders of a significant number of voting
shares, but less than a majority, to change or influence the management or
policies of the Corporation. In addition, under certain circumstances, the
proposed amendment, along with other measures that may be viewed as having
anti-takeover effects (such as Proposal No. 2 herein), may discourage an
unfriendly acquisition or business combination involving the Corporation that a
shareholder might consider to be in such shareholder's best interest, including
an unfriendly acquisition or business combination that might result in payment
of a premium over the market price for the shares held by the shareholder. For
example, the proposed amendment may discourage the accumulation of large
minority shareholdings (as a prelude to an unfriendly acquisition or business
combination proposal or otherwise) by persons who would not make that
acquisition without being assured of representation on the Board of Directors.
See Proposal No. 2 herein concerning the proposed amendment to the Articles
restricting shareholder action by written consent.
Text of Amendment
The existing Article Third of the Corporation's Articles consists of the
name and address of the Corporation's initial agent for service of process,
which, upon amendment and restatement (as proposed) of the Articles, will be
eliminated pursuant to Section 1502 of the GCL.
At the Annual Meeting, the Corporation's shareholders will be asked to
approve an amendment to the Corporation's Articles to amend and restate Article
Third, adding Section (b) to read as follows:
THIRD
b. No holder of any class of stock of the corporation shall be entitled
to cumulate votes in connection with any election of directors of the
corporation.
Conforming By-Law Amendment
If this Proposal No. 3 is adopted by the shareholders, in order to make the
By-laws consistent with the amendment to the Articles set forth in this Proposal
No. 3, upon effectiveness of the filing of the Amended and Restated Articles of
Incorporation with the Secretary of State of the State of California, Section 11
of the By-laws shall be amended to read as set forth in Annex A which is
incorporated herein by reference.
Required Approval
Approval of the proposed amendment to Article Third of the Articles
requires that holders of a majority of the outstanding shares of Common Stock of
the Corporation vote "FOR" the proposal.
Recommendation of Management
The Board of Directors believes that this proposal is in the best interests
of the Corporation and its shareholders, and unanimously recommends a vote "FOR"
its approval.
PROPOSAL NO. 4
APPROVAL OF AMENDMENT OF THE ARTICLES OF INCORPORATION
TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK
Introduction
On March 20, 1998, the Board adopted an amendment to Article Fourth of the
Corporation's Articles which authorizes the issuance of up to 5,000,000 shares
of Preferred Stock. In order to be
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effective, this amendment of the Articles must be approved by holders of a
majority of the outstanding shares of Common Stock of the Corporation. The Board
believes that it is in the best interests of the Corporation and its
shareholders to approve an amendment of the Articles to authorize the issuance
of up to 5,000,000 shares of Preferred Stock, which may be issued in one or more
series and which shall have such rights, preferences, privileges and
restrictions as determined by the Board of Directors. The authorization of such
Preferred Stock would provide the Corporation with flexibility in terms of
capital structure and would permit the Board to react without further
shareholder approval to the Corporation's capital needs or to strategic
opportunities which may arise in the future. It is proposed that the text of
Article Fourth of the Articles be amended to read as follows:
Capitalization. This corporation is authorized to issue two classes of
shares designated "Common Stock," and "Preferred Stock," respectively. The
number of shares of Common Stock authorized to be issued is 20,000,000, and
the number of shares of Preferred Stock authorized to be issued is
5,000,000. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the number of
shares of any series of Preferred Stock and to determine the designation of
any such series. The Board of Directors is also authorized to determine or
alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and, within the
limits and restrictions stated in any resolution or resolutions of the
Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any such series subsequent
to the issue of shares of that series.
Reasons for the Amendment
The majority of publicly traded companies has authorized one or more
classes or series of Preferred Stock. Preferred Stock is generally defined to
mean any class of equity securities which has a dividend and/or liquidation
preference over common stock. Pursuant to the proposed amendment to the
Corporation's Articles, the rights, preferences, privileges and restrictions of
any Preferred Stock shall be determined by the Board of Directors. As a result,
in the event that this proposed amendment to the Corporation's Articles is
adopted by shareholders, the Board of Directors of the Corporation may authorize
the issuance of Preferred Stock or series of Preferred Stock that have certain
dividend and/or liquidation preferences over the Corporation's Common Stock.
Other Effects
Issuance of shares of preferred stock or adoption of a shareholders' rights
plan which utilizes preferred stock may discourage or make more difficult or
expensive certain mergers, tender offers or other purchases of the Corporation's
Common Stock and might discourage potential takeover attempts.
The Corporation does not at the present time have any plan or intention to
issue shares of such Preferred Stock or to adopt a shareholders' rights plan.
The Corporation's Articles presently authorize 20,000,000 shares of Common Stock
and no change to that number of shares is requested.
The authorization of shares of Preferred Stock pursuant to this proposal
will have no dilutive effect upon the proportionate voting power of the present
shareholders of the Corporation. However, to the extent that preferred shares
which are convertible into the Corporation's Common Stock are subsequently
issued in connection with any corporate action to persons other than the present
shareholders, such issuance could have a dilutive effect on the earnings per
share and voting power of present shareholders.
In addition, although the issuance of shares of Preferred Stock in certain
instances may have the effect of forestalling a hostile takeover, the Board of
Directors does not intend or view the authorization of Preferred Stock as an
anti-takeover measure. Notwithstanding the Board's intention, under California
law under certain circumstances, holders of preferred shares, even if those
shares are not granted voting rights, will have the right to vote in connection
with certain fundamental corporate transactions such as a reorganization; under
those circumstances unless the requisite vote is obtained from holders of that
class, the preferred shareholders may effectively be able to block transactions
which are otherwise supported by the common shareholders. The Corporation is not
aware of any proposed or contemplated
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transaction of this type, and this amendment to the Articles of Incorporation is
not being recommended in response to any specific effort of which the
Corporation is aware to obtain control of the Corporation. The authorized shares
of Preferred Stock will be available for issuance at such times and for such
purposes as the Board of Directors may deem advisable without further action by
the Corporation's stockholders, except as may be required by applicable laws or
regulations. Other than as disclosed in Proposals Nos. 2 and 3 herein, the Board
of Directors does not believe the Articles or By-laws of the Corporation
currently contain any other provisions which should be viewed as anti-takeover
devices.
Required Approval
Approval of the proposed amendment to Article Fourth of the Articles
requires that holders of a majority of the outstanding shares of Common Stock of
the Corporation vote "FOR" the proposal.
Recommendation of Management
The Board of Directors believes that this proposal is in the best interests
of the Corporation and its shareholders, and unanimously recommends a vote "FOR"
its approval.
PROPOSAL NO. 5
APPROVAL OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
REGARDING INDEMNIFICATION OF AGENTS
Introduction
In September 1987, the GCL was amended to permit California corporations to
indemnify directors, officers and other corporate agents under a broader range
of circumstances than was permitted under prior California law, including
circumstances in which indemnification would otherwise be discretionary. The
Board has determined that it is in the best interests of the Corporation and its
shareholders to amend the Articles to take advantage of this legislation.
At the Corporation's 1988 Annual Meeting of Shareholders, the shareholders
voted upon and approved an amendment to the Corporation's Articles to add
Article Fifth. Article Fifth as adopted in 1988 presently reads as follows:
Liability of Directors. The liability of the directors of the
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
Reasons for the Amendment
Recent years have seen an increasing incidence of claims against corporate
directors, officers and other agents asserting liability for actions taken by
them in the course of the performance of their duties. The expense of defending
such matters, whether they are meritorious or frivolous, is often beyond the
financial means of the individual defendant. Additionally, the potential damages
and the costs of defense are often disproportionately high when compared to the
compensation received from the corporation by the defendant. This is
particularly, although not exclusively, true with regard to corporate directors
who, as in the case of the Corporation's directors, serve the corporation for
relatively nominal consideration. Concern over exposure to possible monetary
expense and liability can have a limiting effect on the willingness of corporate
directors, officers and agents to perform their duties with creativity and vigor
and in a manner they believe to be beneficial to the corporation and its
shareholders.
It is believed that in order to continue to attract and retain highly
qualified and motivated directors, officers and other corporate agents,
amendment of the Corporation's Articles in the manner proposed is essential.
While not yet experienced by the Corporation, other corporations have had
persons resign due to the absence of suitable provisions for indemnification.
Additionally, it is believed that failure of the Corporation to provide for
indemnification to the fullest extent permitted by law places the Corporation at
a competitive disadvantage with other corporations that provide such protection
and may thus be in a better position to attract the services of highly qualified
individuals.
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The Proposed Amendment
At this year's Annual Meeting, it is proposed to amend Article Fifth of the
Corporation's Articles to designate the existing Article Fifth (as set forth
above) as Section (a) of Article Fifth and to add new Sections (b) and (c) to
Article Fifth as follows:
FIFTH
b. The corporation shall indemnify any director or officer of the
corporation in all circumstances in which indemnification is permitted by
the provisions of section 317(b) and (c) of the California Corporations
Code and shall advance the expenses of any director or officer in all
circumstances in which such advancement of expenses is permitted by the
provisions of section 317(f) of the California Corporations Code; provided,
however, that such indemnification is not authorized with respect to an
action for a breach of the duty of the director or officer to the
corporation or its shareholders if any of the exceptions to exoneration
from liability of directors set forth in section 204(a)(10) of the
California Corporations Code are applicable. In addition to the mandatory
indemnification provided for in this Article Fifth, the corporation is
authorized to provide indemnification of agents (as defined in section 317
of the California Corporations Code) through by-law provisions, agreements
with agents, vote of shareholders or disinterested directors or otherwise,
in excess of the indemnification otherwise permitted by section 317 of the
California Corporations Code, to the fullest extent permissible under
California law. The corporation is further authorized to provide insurance
for agents in accordance with and subject to the provisions of section
317(i) of the California Corporations Code.
c. Any repeal or modification of sub-Articles "a" and "b" above by the
shareholders of this corporation shall not adversely affect any right or
protection of an agent of this corporation existing at the time of such
repeal or modification.
Amendment of Article Fifth to read as proposed above will authorize the
Corporation to provide directors and officers the full indemnification
protections allowed by California law, including mandatory indemnification and
advancement of expenses when such indemnification and advancement would
otherwise be permissible under California law.
Insofar as the proposed amendment would authorize or provide
indemnification for liabilities of directors or officers arising under the
Securities Act of 1933, the Corporation has been informed that in the opinion of
the Securities and Exchange Commission such indemnification for such liabilities
is against public policy as expressed in said Act and is therefore
unenforceable.
Interests of Certain Persons
While the Corporation's directors and officers at the present time are
protected by insurance purchased by the Corporation insuring them against
certain liabilities incurred in their status as directors and officers,
nevertheless, inasmuch as present directors, as well as future directors, may
benefit from the protections authorized by the proposed amendment, such
directors have a potential interest in the approval of the proposed amendment.
At present, to the Corporation's knowledge, there is no pending or threatened
litigation involving present or former directors or officers where
indemnification would be required or permitted under the proposed language in
Article Fifth of the Articles.
Required Approval
Approval of the proposed amendment to Article Fifth of the Articles
requires that holders of a majority of the outstanding shares of Common Stock of
the Corporation vote "FOR" the proposal.
Recommendation of Management
The Board of Directors believes that this proposal is in the best interests
of the Corporation and its shareholders, and unanimously recommends a vote "FOR"
its approval.
IF PROPOSALS 2, 3, 4 AND 5 ARE ADOPTED, THE CORPORATION WILL ACCOMPLISH SUCH
AMENDMENTS PURSUANT TO THE FILING WITH THE SECRETARY OF STATE OF
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THE STATE OF CALIFORNIA OF AN AMENDED AND RESTATED ARTICLES OF INCORPORATION
SUBSTANTIALLY IN THE FORM OF THE DRAFT ATTACHED HERETO AS ANNEX B. IF CERTAIN OF
THE PROPOSALS ARE ADOPTED AND OTHERS ARE NOT ADOPTED, THEN THE AMENDED AND
RESTATED ARTICLES OF INCORPORATION SET FORTH IN ANNEX B WILL BE REVISED TO
REFLECT ONLY THOSE AMENDMENTS ADOPTED PRIOR TO FILING THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION WITH THE SECRETARY OF STATE OF THE STATE OF
CALIFORNIA.
PROPOSAL NO. 6
APPROVAL OF THE ADOPTION OF THE
NORTH VALLEY BANCORP 1998 EMPLOYEE STOCK INCENTIVE PLAN
The North Valley Bancorp 1998 Employee Stock Incentive Plan (the "Stock
Incentive Plan") was adopted by the Corporation's Board of Directors on February
17, 1998, subject to the approval of the Corporation's shareholders. The Stock
Incentive Plan is effective February 17, 1998.
The text of the Stock Incentive Plan is set forth in Annex C to this Proxy
Statement. The following is a summary of the material provisions of the Stock
Incentive Plan. Shareholders are urged to read the Stock Incentive Plan in its
entirety. This summary is qualified entirely by reference to the Stock Incentive
Plan. Any capitalized terms which are used in this summary description but not
defined have the meanings assigned to them in the Stock Incentive Plan.
Purpose
The Stock Incentive Plan provides for awards in the form of options (which
may constitute incentive stock options ("ISOs") or non-statutory stock options
("NSOs")) to key employees and also provides for the award of shares of Common
Stock to outside directors. The Stock Incentive Plan defines "key employee" as a
common-law employee of the Corporation, its parent or any subsidiary of the
Corporation, an "outside director", or a consultant or advisor who provides
services to the Corporation, its parent or any subsidiary of the Corporation.
For purposes of the Stock Incentive Plan, an "outside director" is defined as a
member of the Board who is not a common-law employee of the Corporation, its
parent or any subsidiary of the Corporation. The Stock Incentive Plan is
intended to aid the Corporation in its efforts to attract and retain such
individuals.
The Board believes that the Stock Incentive Plan will enable the
Corporation to continue to attract and retain highly qualified individuals
capable of implementing the Corporation's long-term strategic goals and
objectives. The Board further believes that the Stock Incentive Plan will
provide the Corporation with the means to motivate high levels of performance by
key employees in order to increase shareholder value.
The Committee of the Board of Directors that will administer the Stock
Incentive Plan (the "Committee") expects to use option awards under the Stock
Incentive Plan as its primary method of providing stock-based incentive
compensation to key employees and outside directors over the next few years. The
Stock Incentive Plan provides that ISOs under the Stock Incentive Plan may not
be granted at less than 100% of fair market value of the Common Stock on the
grant date, which means that participants receive nothing unless the
Corporation's stock price increases over the option term. By permitting the
grant of ISOs, the Stock Incentive Plan provides more flexibility to the
Corporation than is currently available under the Employee Plan, which is
limited to grants of NSOs. As of April 1, 1998, under the Employee Plan 145,775
shares were available for grant, and 25,000 options have been granted which are
still outstanding. The Board believes that the Stock Incentive Plan directly
ties management's and directors' interests to those of the shareholders and that
approval of the Stock Incentive Plan is in the shareholders' best interests.
Options
The Stock Incentive Plan provides for the grant to key employees of stock
options, which may consist of NSOs and ISOs. The shares of Common Stock
authorized to be granted as options under the Stock
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Incentive Plan shall consist of 300,000 shares of the Corporation's Common
Stock. Effective January 1, 1999 and on each January 1 thereafter for the
remaining term of the Stock Incentive Plan, the aggregate number of shares of
Common Stock which may be issued as options under the Stock Incentive Plan to
individuals shall be increased by a number of shares of Common Stock equal to 2%
of the total number of the shares of Common Stock of the Corporation outstanding
at the end of the most recently concluded calendar year. Any shares of Common
Stock that have been reserved but not issued as options during any calendar year
shall remain available for grant during any subsequent calendar year.
Notwithstanding the foregoing, no more than 300,000 shares of Common Stock shall
be available for the grant of ISOs for the remaining term of the Stock Incentive
Plan.
Stock Awards
Each outside director shall also be eligible to receive a stock award of
300 shares of Common Stock of the Corporation as part of his or her annual
retainer payment from the Corporation. Such stock award shall be fully vested
when granted to the outside director. The number of shares of Common Stock of
the Corporation available as stock awards to outside directors shall equal the
number of shares of Common Stock of the Corporation to be awarded to such
outside directors.
Participants
Key employees are eligible for the grant of options under the Stock
Incentive Plan. However, eligibility for the grant of ISOs is limited to key
employees of the Corporation or its parent or any subsidiaries of the
Corporation who are common-law employees; thus consultants and non-employee
directors of the Corporation are ineligible for grants of ISOs under the Stock
Incentive Plan. The exercise price of ISOs to key employees who are common-law
employees and who own 10% or more of the total combined voting power of all
classes of outstanding stock of the Corporation, its parent or any subsidiary of
the Corporation must equal at least 110% of the fair market value of the Common
Stock on the date of grant and the term of such an ISO may not be greater than 5
years. An outside director is also eligible to receive a stock award of 300
shares of Common Stock as part of his or her annual retainer payment from the
Corporation.
Administration
The Stock Incentive Plan will be administered by a Committee appointed by
the Board. The Committee shall have membership composition which enables the
Stock Incentive Plan to qualify under Rule 16b-3 with regard to the grant of
Options or other rights under the Stock Incentive Plan to persons who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Subject to the requirements of applicable law, the Committee
may designate persons other than members of the Committee to carry out its
responsibilities and may prescribe such conditions and limitations as it may
deem appropriate, except that the Committee may not delegate its authority with
regard to the selection for participation of or the granting of Options or
determining awards or other rights under the Stock Incentive Plan to persons
subject to Section 16 of the Exchange Act.
Termination
If approved by the shareholders, the Stock Incentive Plan shall continue in
effect until all shares of stock available for grant or awards under the Stock
Incentive Plan shall have been acquired through exercise of options or awards.
However, no ISOs may be granted under the Stock Incentive Plan after February
16, 2008. The Stock Incentive Plan may be terminated at such earlier time as the
Board of Directors may determine.
Terms of Stock Options
Options granted pursuant to the Stock Incentive Plan need not be identical.
The exercise price under each option shall be established by the Committee, but
in no event will the exercise price for ISOs be less than 100% of the fair
market value of the stock on the date of grant; provided, however, that any ISO
granted to a 10% owner shall comply with the rules set forth above. The Stock
Incentive Plan defines "fair
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market value" as the market price of shares of Common Stock, determined by the
Board, which shall be equal to the last transaction price reported by the
applicable composite transactions report for such date. Whenever possible, the
determination of fair market value by the Board shall be based on the prices
reported in the Western Edition of The Wall Street Journal. Such determination
shall be conclusive and binding on all persons. The last sale price per share of
the Corporation's Common Stock as reported on the Nasdaq Electronic Bulletin
Board on March 27, 1998, was $32.00.
The exercise price of any option must be paid in full at the time of
exercise. The exercise price may be paid in cash or, as acceptable to the
Committee by arrangement with a broker where payment of the option price is
guaranteed by the broker, by the surrender of shares of the Corporation owned by
the participant exercising the option and having a fair market value on the date
of exercise equal to the exercise price, or by any combination of the foregoing
equal to the exercise price. The Board may, at its discretion, accept payment
for all or any part of the exercise price of any option in the form of Common
Stock of the Corporation which have already been owned by the optionee for such
duration as shall be specified by the Board; or accept payment for all or any
part of the exercise price of any option by the delivery (on a form prescribed
by the Board) of an irrevocable direction to pledge Common Stock of the
Corporation to a securities broker or lender approved by the Corporation, as
security for a loan, and to deliver all or part of the loan proceeds to the
Corporation in payment of all or part of the exercise price and any withholding
taxes; or accept payment for the exercise price of any option in the form of a
full-recourse promissory note, provided that to the extent required by
applicable law, the par value of the Common Stock of the Corporation shall be
paid in cash; or payment of the exercise price of any option may be made in any
other form that is consistent with applicable laws, regulations and rules.
Options shall have such terms and be exercisable in such manner and at such
times as the Committee may determine. However, each ISO must expire within a
period of not more than ten (10) years from the grant date. Unless otherwise
provided in the option agreement, each option shall be transferable only by will
or the law of descent and distribution and shall only be exercisable by the
participant during his or her lifetime.
The Committee may, at any time prior to exercise and subject to consent of
the participant, amend, modify or cancel any option previously granted and may
or may not substitute in their place options at a different price and of a
different type under different terms or in different amounts.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of the
Stock Incentive Plan is intended to be a summary of applicable federal law.
State and local tax consequences may differ. Because the federal income tax
rules governing options and related payments are complex and subject to frequent
change, optionees are advised to consult their tax advisors prior to exercise of
options or dispositions of stock acquired pursuant to option exercise.
ISOs and NSOs are treated differently for federal income tax purposes. ISOs
are intended to comply with the requirements of Section 422 of the Internal
Revenue Code. NSOs need not comply with such requirements.
An employee is not taxed on the grant or exercise of an ISO. The difference
between the exercise price and the fair market value of the shares on the
exercise date will, however, be a preference item for purposes of the
alternative minimum tax. If an optionee holds the shares acquired upon exercise
of an ISO for at least two years following grant and at least one year following
exercise, the optionee's gain, if any, upon a subsequent disposition of such
shares is long-term capital gain. The measure of the gain is the difference
between the proceeds received on disposition and the optionee's basis in the
shares (which generally equals the exercise price). If an optionee disposes of
stock acquired pursuant to exercise of an ISO before satisfying the one- and
two-year holding periods described above, the optionee will recognize both
ordinary income and capital gain in the year of disposition. The amount of the
ordinary income will be the lesser of (i) the amount realized on disposition
less the optionee's adjusted basis in the stock (usually the option price) or
(ii) the difference between the fair market value of the stock on the exercise
date and the option price. The balance of the consideration received on such a
disposition will be
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long-term capital gain if the stock had been held for at least one year
following exercise of the ISO. The Corporation is not entitled to an income tax
deduction on the grant or exercise of an ISO or on the optionee's disposition of
the shares after satisfying the holding period requirement described above. If
the holding periods are not satisfied, the Corporation will be entitled to a
deduction in the year the optionee disposes of the shares, in an amount equal to
the ordinary income recognized by the optionee.
An employee is not taxed on the grant of an NSO. On exercise, however, the
optionee recognizes ordinary income equal to the difference between the option
price and the fair market value of the shares on the date of exercise. The
Corporation is entitled to an income tax deduction in the year of exercise in
the amount recognized by the optionee as ordinary income. Any gain on subsequent
disposition of the shares is long-term capital gain if the shares are held for
at least one year following exercise. The Corporation does not receive a
deduction for this gain.
The award of Common Stock to outside directors will be fully taxable at the
time of the grant. The Corporation will receive a deduction for this amount. If
the outside director disposes of the Common Stock prior to 12 months after the
date of grant, any gain (or loss) will be a short-term capital gain. If the
shares are held for longer than 12 months, any gain (or loss) will be taxed at
long-term capital gain rates.
Plan Benefits
The Committee has full discretion to determine the number and amount of
options to be granted to key employees under the Stock Incentive Plan.
Therefore, the benefits and amounts that will be received by each of the
executive officers named in the Summary Compensation Table, the executive
officers as a group and all other key management employees under the Stock
Incentive Plan are not presently determinable. Details on stock options granted
during the last two years to the executive officers named in the Summary
Compensation Table are presented herein in the table entitled "Summary
Compensation Table."
Required Approval
Approval of the proposed Stock Incentive Plan requires the affirmative vote
of the holders of a majority of the shares present or represented by Proxy and
voting at the Meeting.
Recommendation of Management
The Board of Directors believes that this proposal is in the best interests
of the Corporation and its shareholders, and unanimously recommends a vote "FOR"
its approval.
PROPOSAL NO. 7
APPROVAL OF AN AMENDMENT
TO THE NORTH VALLEY BANCORP 1989 DIRECTOR STOCK OPTION PLAN
Summary of the North Valley Bancorp 1989 Director Stock Option Plan
This summary description of the 1989 Director Stock Option Plan (the
"Director Plan") is qualified in its entirety by reference to the Director Plan,
a copy of which is available upon written request to the Corporate Secretary,
North Valley Bancorp, 880 East Cypress Avenue, Redding, California, 96002.
Shareholders are urged to read the Director Plan in its entirety.
The North Valley Bancorp 1989 Stock Option Plan, as amended (the "Director
Plan"), which was approved by the shareholders of the Corporation at the
Corporation's 1990 Annual Meeting of Shareholders, provides for awards in the
form of NSOs to purchase shares of the Corporation's Common Stock to all members
of the Board of Directors, including employees who are directors. Under the
Director Plan, all members of the Board of Directors automatically receive every
January a grant of 1,000 NSOs to purchase shares of the Corporation's Common
Stock. See "Executive Compensation--North Valley Bancorp 1989 Director Stock
Option Plan." At the date of this Proxy Statement there were 8 individuals
eligible for awards of options under the Plan. The fair market value of the
Corporation's Common Stock
24
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subject to such awards on March 27, 1998, was $32.00 per share. As of March 27,
1998, 50,215 options have been granted which are still outstanding under the
Director Plan, and 80,137 shares were reserved for awards.
The Corporation expects to exceed its projected number of shares available
for issuance under the Director Plan. In order to continue to provide
appropriate incentives, the Corporation desires to amend the Director Plan so
that the number of shares of the Corporation's Common Stock available for grant
under the Director Plan shall equal that number of shares to be issued upon the
exercise of options granted under the Director Plan. By its terms, the Director
Plan will not terminate except by action of the Board of Directors.
Proposed Amendment
The proposed amendment, which is subject to approval by the Corporation's
shareholders, would amend Section 4 of the Director Plan to add the following at
the end thereof:
Effective as of January 1, 1998, the number of Shares available for
grant under the Plan shall equal the number of Shares to be issued upon the
exercise of options granted under the Plan.
Federal Income Tax Consequences
The proposed amendment of the Director Plan will have no effect upon the
tax consequences to participants or the Corporation.
Required Approval
Approval of the proposed amendment requires the affirmative vote of the
holders of a majority of the shares present or represented by Proxy and voting
at the Meeting.
Recommendation of Management
The Board of Directors believes that this proposal is in the best interests
of the Corporation and its shareholders, and unanimously recommends a vote "FOR"
its approval.
PROPOSAL NO. 8
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP, which served the Corporation as
independent public accountants for the 1997 fiscal year, has been selected by
the Audit Committee of the Board of Directors of the Corporation as the
Corporation's independent public accountants for the 1998 fiscal year. Deloitte
& Touche LLP has no interest, financial or otherwise, in the Corporation. All
Proxies will be voted for ratification of the appointment of Deloitte & Touche
LLP, unless authority to vote for the ratification of such selection is withheld
or an abstention is noted. If Deloitte & Touche LLP should for any reason
decline or be unable to act as independent public accountants, the Proxies will
be voted for a substitute independent public accounting firm to be designated by
the Audit Committee.
Required Approval
The approval of the ratification of the appointment of Deloitte & Touche
LLP as the Corporation's independent public accountants for the 1998 fiscal year
requires the affirmative vote of the holders of a majority of the shares present
or represented by Proxy and voting at the Meeting.
Recommendation of Management
The Board of Directors recommends a vote "FOR" ratification of the
appointment of Deloitte & Touche LLP.
A representative of Deloitte & Touche LLP is expected to attend the Meeting
and will have the opportunity to make a statement if he or she desires to do so
and respond to appropriate questions from shareholders present at the Meeting.
25
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SHAREHOLDER PROPOSALS
The Corporation's 1999 Annual Meeting of Shareholders will be held on May
17, 1999. Shareholder proposals must be received by the Corporation no later
than December 18, 1998, to be considered for inclusion in the Proxy Statement
and Proxy for the 1999 Annual Meeting of Shareholders.
OTHER MATTERS
The Board of Directors knows of no other matters which will be brought
before the Meeting, but if such matters are properly presented to the Meeting,
Proxies solicited hereby will be voted in accordance with the judgment of the
persons holding such Proxies. All shares represented by duly executed Proxies
will be voted at the Meeting.
By Order of the Board of Directors,
/s/ J. M. Wells, Jr.
----------------------------------
J. M. ("Mike") Wells, Jr.
Secretary
Redding, California
April 20, 1998
26
<PAGE>
ANNEX A
Section 10. Action Without Meeting. Any action which may be taken at any
annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted, except that
unanimous written consent shall be required for election of directors to
non-vacant positions; provided, however, that the board of directors of this
corporation, by resolution, shall have previously approved any such action.
Unless the consents of all shareholders entitled to vote have been
solicited or received in writing, notice shall be given to non-consenting
shareholders to the extent required by Section 603(b) of the Corporations Code.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 11. Voting Rights. Only persons in whose names shares entitled to
vote stand on the stock records of the corporation at the close of business on
the record date fixed by the Board of Directors as provided in Section 40 for
the determination of shareholders of record shall be entitled to notice of and
to vote at such meeting of shareholders. If no record date is fixed, the record
date for determining shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held; the record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
has been taken, shall be on the day on which the first written consent is given;
and the record date for determining shareholders for any other purpose shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the 60th day prior to the date of such other action,
whichever is later.
Except as provided in the Articles of Incorporation, each shareholder
entitled to vote shall be entitled to one vote for each share held on each
matter submitted to a vote of shareholders.
No shareholder shall be entitled to cumulate votes in favor of any
candidate or candidates.
In any election of directors, the candidates receiving the highest number
of affirmative votes of the shares entitled to be voted for them, up to the
number of directors to be elected by such shares, are elected; votes against the
director and votes withheld shall have no legal effect.
Voting may be by voice or ballot, provided that any election of directors
must be by ballot upon the demand of any shareholder made at the meeting and
before the voting begins.
A-1
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ANNEX B
DRAFT OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NORTH VALLEY BANCORP
FIRST
The name of this corporation is:
NORTH VALLEY BANCORP
SECOND
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD
a. Any action required to be taken at any annual or special meeting of
shareholders of this corporation, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted,
provided that the board of directors of this corporation, by resolution, shall
have previously approved any such action.
b. No holder of any class of stock of the corporation shall be entitled to
cumulate votes in connection with any election of directors of the corporation.
FOURTH
Capitalization. This corporation is authorized to issue two classes of
shares designated "Common Stock," and "Preferred Stock," respectively. The
number of shares of Common Stock authorized to be issued is 20,000,000, and the
number of shares of Preferred Stock authorized to be issued is 5,000,000. The
Preferred Stock may be issued from time to time in one or more series. The Board
of Directors is authorized to fix the number of shares of any series of
Preferred Stock and to determine the designation of any such series. The Board
of Directors is also authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
such series subsequent to the issue of shares of that series.
FIFTH
a. Liability of Directors. The liability of the directors of the
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
b. The corporation shall indemnify any director or officer of the
corporation in all circumstances in which indemnification is permitted by the
provisions of section 317(b) and (c) of the California Corporations Code and
shall advance the expenses of any director or officer in all circumstances in
which such
B-1
<PAGE>
advancement of expenses is permitted by the provisions of section 317(f) of the
California Corporations Code; provided, however, that such indemnification is
not authorized with respect to an action for a breach of the duty of the
director or officer to the corporation or its shareholders if any of the
exceptions to exoneration from liability of directors set forth in section
204(a)(10) of the California Corporations Code are applicable. In addition to
the mandatory indemnification provided for in this Article Fifth, the
corporation is authorized to provide indemnification of agents (as defined in
section 317 of the California Corporations Code) through by-law provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by section 317
of the California Corporations Code, to the fullest extent permissible under
California law. The corporation is further authorized to provide insurance for
agents in accordance with and subject to the provisions of section 317(i) of the
California Corporations Code.
c. Any repeal or modification of sub-Articles "a" and "b" above by the
shareholders of this corporation shall not adversely affect any right or
protection of an agent of this corporation existing at the time of such repeal
or modification.
B-2
<PAGE>
ANNEX C
NORTH VALLEY BANCORP
1998 EMPLOYEE STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
-----
ARTICLE 1. INTRODUCTION ...................................... C-1
ARTICLE 2. ADMINISTRATION .................................... C-1
2.1 Committee Composition ............................. C-1
2.2 Committee Responsibilities ........................ C-1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS ....................... C-1
3.1 Basic Limitation .................................. C-1
3.2 Additional Shares ................................. C-1
ARTICLE 4. ELIGIBILITY ....................................... C-2
4.1 General Rules ..................................... C-2
4.2 Incentive Stock Options ........................... C-2
ARTICLE 5. OPTIONS ........................................... C-2
5.1 Stock Option Agreement ............................ C-2
5.2 Number of Shares .................................. C-2
5.3 Exercise Price .................................... C-2
5.4 Exercisability and Term ........................... C-2
5.5 Effect of Change in Control ....................... C-2
5.6 Modification or Assumption of Options ............. C-2
ARTICLE 6. PAYMENT FOR OPTION SHARES ......................... C-2
6.1 General Rule ...................................... C-2
6.2 Surrender of Stock ................................ C-3
6.3 Exercise/Sale ..................................... C-3
6.4 Exercise/Pledge ................................... C-3
6.5 Promissory Note ................................... C-3
6.6 Other Forms of Payment ............................ C-3
ARTICLE 7. PROTECTION AGAINST DILUTION ....................... C-3
7.1 Adjustments ....................................... C-3
7.2 Reorganizations ................................... C-3
ARTICLE 8. PAYMENT OF DIRECTOR'S FEES IN SECURITIES .......... C-3
8.1 Effective Date .................................... C-3
8.2 Receipt of Stock Awards ........................... C-3
8.3 Number of Stock Awards ............................ C-4
ARTICLE 9. LIMITATION ON RIGHTS .............................. C-4
9.1 Retention Rights .................................. C-4
9.2 Stockholders' Rights .............................. C-4
9.3 Regulatory Requirements ........................... C-4
ARTICLE 10. LIMITATION ON PAYMENTS ............................ C-4
10.1 Basic Rule ........................................ C-4
10.2 Reduction of Payments ............................. C-4
10.3 Overpayments and Underpayments .................... C-4
10.4 Related Corporations .............................. C-5
ARTICLE 11. WITHHOLDING TAXES ................................. C-5
11.1 General ........................................... C-5
11.2 Share Withholding ................................. C-5
ARTICLE 12. ASSIGNMENT OR TRANSFER OF AWARDS .................. C-5
12.1 General ........................................... C-5
i
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Page
-----
ARTICLE 13. FUTURE OF THE PLAN ................ C-5
13.1 Term of the Plan .................. C-5
13.2 Amendment or Termination .......... C-5
ARTICLE 14. DEFINITIONS ....................... C-5
ARTICLE 15. EXECUTION ......................... C-7
ii
<PAGE>
NORTH VALLEY BANCORP
1998 EMPLOYEE STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on February 17, 1998, subject to approval
by the Company's stockholders.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by (a) encouraging Key Employees to focus
on critical long-range objectives, (b) encouraging the attraction and retention
of Key Employees with exceptional qualifications and (c) linking Key Employees
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for Awards in the form of Stock
Awards or Options (which may constitute incentive stock options or nonstatutory
stock options).
The Plan shall be governed by, and construed in accordance with, the laws
of the State of California (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the Committee.
The Committee shall consist of two or more directors of the Company who shall
satisfy the requirements of Rule 16b-3 (or its successor) under the Exchange Act
with respect to the grant of Awards to persons who are officers or directors of
the Company under Section 16 of the Exchange Act or the Board itself. The Board
may also appoint one or more separate committees of the Board, each composed of
one or more directors of the Company who need not qualify under Rule 16b-3, who
may administer the Plan with respect to Key Employees who are not considered
officers or directors of the Company under Section 16 of the Exchange Act, may
grant Awards under the Plan to such Key Employees and may determine all terms of
such Awards.
2.2 Committee Responsibilities. The Committee shall:
(a) Select the Key Employees who are to receive Awards under the Plan;
(b) Determine the type, number, vesting requirements and other features
and conditions of such Awards;
(c) Interpret the Plan; and
(d) Make all other decisions relating to the operation of the Plan.
The Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Common Shares initially reserved for award as Options under the Plan shall be
300,000 shares. Effective January 1, 1999 and on each January 1 thereafter for
the remaining term of the Plan, the aggregate number of Common Shares which may
be issued as Options under the Plan to individuals shall be increased by a
number of Common Shares equal to 2% of the total number of the shares of common
stock of the Company outstanding at the end of the most recently concluded
calendar year. Any Common Shares that have been reserved but not issued as
Options during any calendar year shall remain available for grant during any
subsequent calendar year. Notwithstanding the foregoing, no more than 300,000
Common Shares shall be available for the grant of ISOs for the remaining term of
the Plan. The limitation of this Section 3.1 shall be subject to adjustment
pursuant to Article 7.
3.2 Additional Shares. If Options terminate for any other reason before
being exercised, then the corresponding Common Shares shall again become
available for Award under the Plan.
C-1
<PAGE>
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible for
designation as Participants by the Committee. All Outside Directors shall also
be eligible to receive Stock Awards described in Article 8.
4.2 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than ten percent (10%)
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in section 422(c)(5) of the
Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms of the Plan and may be subject
to any other terms that are not inconsistent with the Plan, including but not
limited to rights of repurchase and rights of first refusal. The Stock Option
Agreement shall specify whether the Option is an ISO or an NSO. The provisions
of the various Stock Option Agreements entered into under the Plan need not be
identical. Options may be granted in consideration of a cash payment or in
consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that new Options will be granted automatically to
the Optionee when he or she exercises the prior Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the number
of Common Shares subject to the Option and shall provide for the adjustment of
such number in accordance with Article 7.
5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price; provided that the Exercise Price of an ISO shall in no event be less than
one hundred percent (100%) of the Fair Market Value of a Common Share on the
date of grant. In the case of an NSO, a Stock Option Agreement may specify an
Exercise Price that varies in accordance with a predetermined formula while the
NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service.
5.5 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
5.6 Modification or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price for the Common Shares issued
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
C-2
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(b) In the case of an NSO, the Committee may at any time accept payment
in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is applicable,
payment for all or any part of the Exercise Price may be made with Common Shares
which have already been owned by the Optionee for such duration as shall be
specified by the Committee. Such Common Shares shall be valued at their Fair
Market Value on the date when the new Common Shares are purchased under the
Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment may be made with a full-recourse promissory note; provided that to the
extent required by applicable law, the par value of the Common Shares shall be
paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. PROTECTION AGAINST DILUTION.
7.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:
(a) The number of Options available for future Awards under Article 3;
(b) The number of Common Shares covered by each outstanding Option; or
(c) The Exercise Price under each outstanding Option.
Except as provided in this Article 7, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock or other dividend or any other
increase or decrease in the number of shares of stock of any class.
7.2 Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Options and Stock Awards shall be subject
to the agreement of merger or reorganization. Such agreement may provide,
without limitation, for the assumption of outstanding Awards by the surviving
corporation or its parent, for their continuation by the Company (if the Company
is a surviving corporation), for accelerated vesting and accelerated expiration,
or for settlement in cash.
ARTICLE 8. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
8.1 Effective Date. No provision of this Article 8 shall be effective
unless and until the Board has determined to implement such provision.
8.2 Receipt of Stock Awards. An Outside Director shall receive a Stock
Award of 300 shares of Common Stock as part of his or her annual retainer
payment from the Company. Such Stock Awards shall be issued under the Plan. Such
an Award shall be fully vested when granted to the Outside Director.
C-3
<PAGE>
8.3 Number of Stock Awards. The number of Common Shares available to be
granted to Outside Directors as Stock Awards shall equal the number of Common
Shares to be issued to such Outside Directors.
ARTICLE 9. LIMITATION ON RIGHTS.
9.1 Retention Rights. Neither the Plan nor any Award granted under the Plan
shall be deemed to give any individual a right to remain an employee, consultant
or director of the Company, a Parent or a Subsidiary. The Company and its
Parents and Subsidiaries reserve the right to terminate the service of any
employee, consultant or director at any time, and for any reason, subject to
applicable laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).
9.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares.
9.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 10. LIMITATION ON PAYMENTS.
10.1 Basic Rule. Any provision of the Plan to the contrary notwithstanding,
in the event that the independent auditors most recently selected by the Board
(the "Auditors") determine that any payment or transfer by the Company under the
Plan to or for the benefit of a Participant (a "Payment") would be nondeductible
by the Company for federal income tax purposes because of the provisions
concerning "excess parachute payments" in section 280G of the Code, then the
aggregate present value of all Payments shall be reduced (but not below zero) to
the Reduced Amount; provided that the Committee, at the time of making an Award
under this Plan or at any time thereafter, may specify in writing that such
Award shall not be so reduced and shall not be subject to this Article 10. For
purposes of this Article 10, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
10.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within ten (10) days of
receipt of notice. If no such election is made by the Participant within such
ten (10) day period, then the Company may elect which and how much of the
Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this Article
10, present value shall be determined in accordance with section 280G(d)(4) of
the Code. All determinations made by the Auditors under this Article 10 shall be
binding upon the Company and the Participant and shall be made within sixty (60)
days of the date when a Payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the
Company shall pay or transfer to or for the benefit of the Participant such
amounts as are then due to him or her under the Plan and shall promptly pay or
transfer to or for the benefit of the Participant in the future such amounts as
become due to him or her under the Plan.
10.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that
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Payments will have been made by the Company which should not have been made (an
"Overpayment") or that additional Payments which will not have been made by the
Company could have been made (an "Underpayment"), consistent in each case with
the calculation of the Reduced Amount hereunder. In the event that the Auditors,
based upon the assertion of a deficiency by the Internal Revenue Service against
the Company or the Participant which the Auditors believe has a high probability
of success, determine that an Overpayment has been made, such Overpayment shall
be treated for all purposes as a loan to the Participant which he or she shall
repay to the Company, together with interest at the applicable federal rate
provided in section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that
such payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in section 7872(f)(2) of
the Code.
10.4 Related Corporations. For purposes of this Article 10, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 11. WITHHOLDING TAXES.
11.1 General. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
11.2 Share Withholding. A Participant may satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold all or a
portion of any Common Shares that otherwise would be issued to him or her or by
surrendering all or a portion of any Common Shares that he or she previously
acquired. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Shares to the Company may be subject to restrictions.
ARTICLE 12. ASSIGNMENT OR TRANSFER OF AWARDS.
12.1 General. Except as provided in Article 11 or the Award agreement, an
Award granted under the Plan shall not be anticipated, assigned, attached,
garnished, optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. Except as provided in
the Award agreement, an Option may be exercised during the lifetime of the
Optionee only by him or her or by his or her guardian or legal representative.
This Article 12 shall not preclude a Participant from designating a beneficiary
who will receive any outstanding Awards in the event of the Participant's death,
nor shall it preclude a transfer of Awards by will or by the laws of descent and
distribution.
ARTICLE 13. FUTURE OF THE PLAN.
13.1 Term of the Plan. The Plan, as originally adopted, shall become
effective on February 17, 1998. The Plan shall remain in effect until it is
terminated under Section 13.2, except that no ISOs shall be granted after
February 19, 2008.
13.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 14. DEFINITIONS.
14.1 "Award" means any award of an Option or a Stock Award under the Plan.
14.2 "Board" means the Company's Board of Directors, as constituted from
time to time.
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14.3 "Change in Control" shall be deemed to occur upon any "person" (as
defined in Section 13(d) of the Exchange Act), other than the Company, its
Parent or Subsidiary or employee benefit plan or trust maintained by the
Company, its Parent or Subsidiary, becoming the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 50% of
the total combined voting power of the common stock of the Company outstanding
at such time, without the prior approval of the Board.
14.4 "Code" means the Internal Revenue Code of 1986, as amended.
14.5 "Committee" means a committee of the Board, as described in Article 2.
14.6 "Common Share" means one share of the no par value common stock of the
Company.
14.7 "Company" means North Valley Bancorp, or its successor.
14.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
14.9 "Exercise Price," in the case of an Option, means the amount for which
one Common Share may be purchased upon exercise of such Option, as specified in
the applicable Stock Option Agreement.
14.10 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the Nasdaq system for such
date;
(b) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
Nasdaq system for such date;
(c) If the Common Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by independent appraisals or as otherwise
determined by the Committee in good faith on such basis as it deems
appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
14.11 "ISO" means an incentive stock option described in section 422(b) of
the Code.
14.12 "Key Employee" means (a) a common-law employee of the Company, a
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or adviser
who provides services to the Company, a Parent or a Subsidiary as an independent
contractor.
14.13 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
14.14 "Option" means an ISO or NSO granted under the Plan and entitling the
holder to purchase one Common Share.
14.15 "Optionee" means an individual or estate who holds an Option or SAR.
14.16 "Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent or a Subsidiary.
14.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
14.18 "Participant" means an individual or estate who holds an Award.
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14.19 "Plan" means the North Valley Bancorp 1998 Employee Stock Incentive
Plan, as amended from time to time.
14.20 "Stock Award" means the award of a Common Share to an Outside
Director.
14.21 "Stock Option Agreement" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her Option.
14.22 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
ARTICLE 15. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officer to affix the corporate name and seal hereto.
NORTH VALLEY BANCORP
By__________________________________
Its_________________________________
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Appendix -- 1989 Director Stock Option Plan, as amended
AMENDMENT NO. TWO TO THE NORTH VALLEY BANCORP
1989 Director Stock Option Plan
Pursuant to Section 9 of the North Valley Bancorp 1989 Director Stock
Option Plan (the "Plan"), the Board of Directors of North Valley Bancorp (the
"Corporation") amends the Plan, subject to the approval of the Corpoation's
shareholders, as follows:
Effective as of January 1, 1998, Section 4 of the Plan shall be amended
by the addition of the following at the end thereof:
Effective as of January 1, 1998, the number of Shares available for
grant under the Plan shall equal the number of Shares to be issued upon
the exercise of options granted under the Plan.
<PAGE>
AMENDMENT NO. ONE TO THE
NORTH VALLEY BANCORP
1989 DIRECTOR STOCK OPTION PLAN
Pursuant to Section 9 of the North Valley Bancorp 1989 Director Stock
Option Plan (the "Director Plan"), the Board of Directors of North Valley
Bancorp amends the provisions of the Director Plan, as follows:
1. Section 5(a) of the Director Plan shall be amended in its entirety,
as follows:
"(a) Grant of Option. Commencing on January 16, 1990 or, if
later, the date the options and underlying Shares are first qualified
under the California securities laws, and on the date on which the
regular Board meeting occurs in each January thereafter, each member of
the Board on such date shall be granted an option to purchase one
thousand (1,000) Shares; provided, however, that options shall be
granted on such dates only if there are sufficient Shares available
under the Plan. All stock options granted pursuant to the Plan shall be
nonstatutory stock options. A nonstatutory stock option is an option
not described in Sections 422(b), 422A(b), 423(b) or 424(b) of the
Internal Revenue Code of 1986, as amended (the "Code")."
2. The third paragraph of Section 5(d) of the Director Plan shall be
amended in its entirety, as follows:
"CAUSE: If a member of the Board is determined by the full
Board to have committed an act of embezzlement, fraud, dishonesty,
breach of fiduciary duty to the Company, or to have deliberately
disregarded the rules of the Company which resulted in loss, damage or
injury to the Company, or if an optionee makes any unauthorized
disclosure of any of the secrets or confidential information of the
Company, induces any client or customer of the Company to break any
contract with the Company or induces any principal for whom the Company
acts as agent to terminate such agency relations, or engages in any
conduct which constitutes unfair competition with the Company, or if an
optionee is removed from any office of the Company by any bank
regulatory agency, the optionee shall have the right for a period of
thirty (30) days following the date of such termination to exercise the
option to the extent the optionee was entitled to exercise such option
on the date of the optionee's termination of tenure on the Board,
provided the actual date of exercise is in no event after the
expiration of the term of the option. In making such determination, the
Board shall act fairly and shall give the optionee an opportunity to
appear and be heard at a hearing before the full Board and present
evidence on the optionee's behalf."
3. A new Section 13 shall be added to the Director Plan, to read as
follows:
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"13. INFORMATION TO OPTIONEES.
The Company shall provide to each optionee during the period
for which he or she has one or more outstanding options, copies of all
annual reports and all other information which is provided to
shareholders of the Company. The Company shall not be required to
provide such information to key employees whose duties in connection
with the Company assure their access to equivalent information."
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NORTH VALLEY BANCORP
1989 DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of this North Valley Bancorp 1989 Director Stock Option
Plan (hereinafter the "Plan") is to provide a method whereby the members of the
Board of Directors (hereinafter the "Board") of North Valley Bancorp
(hereinafter the "Company") may be stimulated by increased personal involvement
in the fortunes and success of the Company, thereby advancing the interests of
the Company and its shareholders and to provide a method for the Company to be
able to recruit and retain capable directors in the future.
2. ADMINISTRATION.
The following provisions shall govern the administration of the Plan:
(a) The Plan shall be administered by the Board of Directors of North
Valley Bancorp (hereinafter the "Board"), which may delegate some or all of its
duties in administering the Plan to a committee of the Board appointed for this
purpose composed of not less than three (3) members of the Board (hereinafter,
the body administering the Plan, whether it be the Board or any committee so
appointed, shall be referred to as the "Committee"). The Board may, from time to
time, remove members from or add members to the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board. The Board shall
designate a Chairman and Vice-Chairman of the Committee from among the Committee
members. Acts of the Committee (i) at a meeting, held at a time and place and in
accordance with rules adopted by the Committee, at which a quorum of the
Committee is present and acting, or (ii) reduced to and approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
(b) The Company shall effect the grant of options under the Plan by
execution of instruments in writing in a form approved by the Committee. Subject
to the express terms of the Plan, the Committee shall have full power to
construe the Plan and the terms of any option granted under the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan or such
options, and to make all other determinations necessary or advisable for the
Plan's administration; provided, however, that the Committee shall exercise no
discretion with respect to the grant of options under the Plan or otherwise
alter or amend the terms of any option so that such terms fail to comply with
the terms and conditions in Section 5 hereof.
3. ELIGIBILITY.
All members of the Board (including employee-directors) shall be
eligible to receive options under this Plan; provided, however, that no option
may be granted to a member of the Board who, at the time of such grant, owns
Common Stock of the Company possessing more
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than ten percent (10%) of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
4. THE SHARES.
The shares of stock subject to options authorized to be granted under
the Plan shall consist of ninety thousand (90,000) shares of the Company's no
par value Common Stock (hereinafter the "Shares"), or the number and kind of
shares of stock or other securities which shall be substituted for such Shares
or to which such shares shall be adjusted as provided in Section 6 hereof. Upon
the expiration or termination for any reason of an outstanding option under the
Plan which has not been exercised in full, all unissued Shares thereunder shall
again become available for the grant of options under the Plan.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be subject to the following
terms and conditions:
(a) Grant of Option. Commencing on January 15, 1990 or, if later, the
date the options and underlying Shares are first qualified under the California
securities laws, and on the third Monday of each January thereafter, each member
of the Board on such date shall be granted an option to purchase one thousand
(1,000) Shares; provided, however, that options shall be granted on such dates
only if there are sufficient Shares available under the Plan. All stock options
granted pursuant to the Plan shall be nonstatutory stock options. A nonstatutory
stock option is an option not described in Sections 422(b), 422A(b), 423(b) or
424(b) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Option Price. The purchase price under each option shall be
eighty-five percent (85%) of the fair market value of the Shares subject thereto
on the date the option is granted, as such value is determined by the Committee.
The fair market value of such stock shall be determined in accordance with any
reasonable valuation method, including the valuation methods described in
Treasury Regulation section 20.2031-2.
(c) Duration and Exercise of Options. Each option shall be for a ten
(10) year term and shall vest twenty percent (20%) immediately upon the date of
grant and shall vest an additional twenty percent (20%) on each of the first
four (4) anniversary dates thereafter. The termination of the Plan shall not
alter the maximum duration, the vesting provisions, or any other term or
condition of any option granted prior to the termination of the Plan.
To the extent the right to purchase Shares has vested under a
Participant's stock option agreement, options may be exercised from time to time
by delivering payment therefor in cash, certified check, official bank check, or
the equivalent thereof acceptable to the Company, together with written notice
to the Secretary of the Company, identifying the option or part thereof being
exercised and specifying the number of Shares for which payment is being
tendered. An optionee may also exercise an option by electing to deliver shares
of Company Common Stock that have been held by the optionee for at least six (6)
months or
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have the Company withhold from those Shares that would otherwise be received
upon exercise of the option. Such an election is subject to approval or
disapproval by the Committee, and the timing of the election must satisfy the
requirements of Rule 16b-3, as promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company shall deliver to the
optionee, which delivery shall be not less than fifteen (15) days and not more
than thirty (30) days after the giving of such notice, without transfer or issue
tax to the optionee (or other person entitled to exercise the option), at the
principal office of the Company, a certificate or certificates for such Shares
dated the date the options were validly exercised; provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it with reasonable diligence to comply with any requirements of
law.
(d) Termination of Tenure on the Board. Unless the Committee determines
otherwise, upon the termination of an optionee's status as a member of the
Board, his or her rights to exercise an option then held shall be only as
follows:
DEATH OR DISABILITY: If an optionee's tenure on the Board is terminated
by death or disability, such optionee or such optionee's qualified
representative (in the event of the optionee's mental disability) or the
optionee's estate (in the event of optionee's death) shall have the right for a
period of twelve (12) months following the date of such death or disability to
exercise the option to the extent the optionee was entitled to exercise such
option on the date of the optionee's death or disability; provided the actual
date of exercise is in no event after the expiration of the term of the option.
An optionee's "estate" shall mean the optionee's legal representative or any
person who acquires the right to exercise an option by reason of the optionee's
death.
CAUSE: If a member of the Board is determined by the full Board to have
committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to
the Company, or to have deliberately disregarded the rules of the Company which
resulted in loss, damage or injury to the Company, or if an optionee makes any
unauthorized disclosure of any of the secrets or confidential information of the
Company, induces any client or customer of the Company to break any contract
with the Company or induces any principal for whom the Company acts as agent to
terminate such agency relations, or engages in any conduct which constitutes
unfair competition with the Company, or if an optionee is removed from any
office of the Company by any bank regulatory agency, neither the optionee nor
the optionee's estate shall be entitled to exercise any option with respect to
any Shares whatsoever after termination of tenure on the Board, whether or not
after such termination the optionee may receive payment from the Company for
services rendered prior to termination. In making such determination, the Board
shall act fairly and shall give the optionee an opportunity to appear and be
heard at a hearing before the full Board and present evidence on the optionee's
behalf.
OTHER REASONS: If an optionee's tenure on the Board is terminated for
any reason other than those mentioned above under "Death or Disability" and
"Cause," the optionee may, within three (3) months following such termination,
exercise the option to the extent such
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option was exercisable by the optionee on the date of such termination; provided
the date of exercise is in no event after the expiration of the term of the
option.
(e) Transferability of Option. Each option shall be transferable only
by will or the laws of descent and distribution and shall be exercisable during
the optionee's lifetime only by the optionee, or in the event of disability, the
optionee's qualified representative.
(f) Use of Proceeds from Stock. Proceeds from the sale of Shares
pursuant to the exercise of options granted under the Plan shall constitute
general funds of the Company.
(g) Rights as a Shareholder. The optionee shall have no rights as a
shareholder with respect to any Shares until the date of issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date of such issuance, except
as provided in Section 6 hereof.
(h) Withholding. The Company shall have the right to condition the
issuance of shares upon exercise of an option upon payment by the optionee of
any income taxes required to be withheld under federal, state or local tax laws
or regulations in connection with such exercise. Such payment may be made by any
method of payment acceptable to the Company, including the withholding of Shares
from the total number of Shares issuable upon exercise or the delivery to the
Company of shares of Company Common Stock that have been held by the optionee
for at least six (6) months. Any election to have Shares withheld or to deliver
Shares must satisfy the requirements of Rule 16b-3, as promulgated under the
Exchange Act.
(i) Other Terms and Conditions. Options may also contain such other
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate. No option, however, nor anything contained
in the Plan, shall confer upon any optionee any right to continue to serve on
the Board.
6. ADJUSTMENT OF, AND CHANGES IN, THE SHARES.
In the event the shares of Common Stock of the Company, as presently
constituted, shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
(whether by reason of reorganization, merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise), or if the
number of shares of Common Stock of the Company shall be increased through the
payment of a stock dividend, the Board shall substitute for or add to each
Shares of Common Stock of the Company theretofore appropriated or thereafter
subject or which may become subject to an option under the Plan, the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock of the Company shall be so changed, or for which each share shall
be exchanged, or to which each such shares shall be entitled, as the case may
be. In addition, the Board shall make appropriate adjustment in the number and
kind of Shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable, so that any optionee's proportionate interest
in the Company by reason of his or her rights under unexercised portions of such
options shall be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made
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without change in the total price to the unexercised portion of the option and
with a corresponding adjustment in the option price per share.
In the event of a sale, dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving or resulting
corporation, the Board shall have the power to cause the termination of every
option outstanding hereunder; except that the surviving or resulting corporation
may, in its absolute and uncontrolled discretion, assume all outstanding options
under the Plan; provided, however, that in all events the optionee shall have
the right immediately prior to such sale, dissolution, liquidation, or merger or
consolidation in which the Company is not the surviving or resulting corporation
to notification thereof as soon as practicable and, thereafter, to exercise the
option without regard to the vesting provisions of Section 5(c) hereof. This
right shall be conditioned upon the execution of a final plan of dissolution or
liquidation or a definitive agreement of merger or consolidation.
In the event of an offer by any person or entity to all shareholders of
the Company to purchase any or all shares of Common Stock of the Company (or
shares of stock or other securities which shall be substituted for such shares
or to which such shares shall be adjusted as provided in Section 6 hereof), any
optionee under this Plan shall have the right upon the commencement of such
offer to exercise the option and purchase shares subject thereto to the extent
of any unexercised or unvested portion of such option.
No right to purchase fractional shares shall result from any adjustment
in options pursuant to this Section 6. In case of any such adjustment, the
shares subject to the option shall be rounded down to the nearest whole share.
Notice of any adjustment shall be given by the Company to each holder of an
option which was in fact so adjusted and such adjustment (whether or not such
notice is given) shall be effective and binding for all purposes of the Plan.
To the extent the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Section 6, an optionee shall have
no rights by reason of any of the following events: (1) subdivision or
consolidation of shares of stock of any class issued by the Company; (2) payment
by the Company of any stock dividend; (3) any other increase or decrease in the
number of shares of stock of any class; (4) any dissolution, liquidation,
merger, consolidation, spin-off or acquisition of assets or stock of another
corporation by the Company. Any issue by the Company of shares of stock of any
class, or securities convertible into shares of any class, shall not affect the
number of price of shares of Common Stock subject to the option, and no
adjustment by reason thereof shall be made.
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of
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its capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or assets.
7. LISTING OR QUALIFICATION OF SHARES.
All options granted under the Plan are subject to the requirement that
if at any time the Committee shall determine in its discretion that the listing
or qualification of the Shares subject thereto on any securities exchange or
under any applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of or in connection
with the issuance of the Shares under the option, the option may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained, free of any condition not
acceptable to the Committee.
8. BINDING EFFECT OF CONDITIONS.
The conditions and stipulations herein contained, or in any option
granted pursuant to the Plan shall be, and constitute, a covenant running with
all of the Shares acquired by the optionee pursuant to this Plan, directly or
indirectly, whether the same have been issued or not, and those Shares owned by
the optionee shall not be sold, assigned or transferred by any person save and
except in accordance with the terms and conditions herein provided. In addition,
the optionee shall agree to use the optionee's best efforts to cause the
officers of the Company to refuse to record on the books of the Company any
assignment or transfer made or attempted to be made, except as provided in the
Plan, and to cause said officers to refuse to cancel old certificates or to
issue or deliver new certificates or the Shares represented thereby, except
strictly in accordance with the provisions of the Plan.
9. AMENDMENT AND TERMINATION OF THE PLAN.
The Board shall have complete power and authority to terminate or amend
the Plan; provided, however, that in the event that continued compliance with
the terms of Rule 16b-3, as promulgated under the Exchange Act, so requires, the
Board shall not amend the Plan more than once every six (6) months other than to
comport with changes in the Code. The Board shall not without the approval of
the shareholders of the Company, amend the Plan in any manner that requires
shareholder approval for continued compliance with the terms of Rule 16b-3, as
promulgated under the Exchange Act, any successor rule, or other regulatory
authority. Except as provided in Section 6, no termination, modification or
amendment of the Plan may, without the consent of any member of the Board to
whom such option was previously granted under the Plan, adversely effect the
rights of such member of the Board under such option.
10. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective only upon adoption by the Board. The
grant of any option under the Plan shall be conditioned upon the prior
qualification of the options and underlying Shares under the California
securities laws. In the event that compliance with the terms of Rules 16b-3, as
promulgated under the Exchange Act, so requires, the exercise of
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any options granted pursuant to the Plan shall be conditioned upon the approval
of the Plan by the holders of a majority of the outstanding shares of Common
Stock of the Company within twelve (12) months of the adoption of the Plan by
the Board.
11. PRIVILEGES OF STOCK OWNERSHIP, SECURITIES LAW COMPLIANCE AND
NOTICE OF SALE.
No optionee shall be entitled to the privileges of stock ownership as
to any Shares not actually issued and delivered to the optionee. No Shares shall
be purchased upon the exercise of any option unless and until all of the then
applicable requirements of any (i) regulatory agencies having jurisdiction and
(ii) any exchanges upon which the Common Stock of the Company may be listed
shall have been fully complied with. The Company shall diligently endeavor to
comply with all applicable securities laws before any options are granted under
the Plan and before any Shares are issued pursuant to the exercise of such
options. The optionee shall give the Company notice of any sale or other
disposition of any such Shares not more than five (5) days after such sale or
disposition.
12. INDEMNIFICATION.
To the extent permitted by applicable law in effect from time to time,
no member of the Board or the Committee shall be liable for any action or
omission of any other member of the Board of Committee nor for any act or
omission on the member's own part, excepting only the member's own willful
misconduct or gross negligence. The Company shall pay expenses incurred by, and
satisfy a judgment or fine rendered or levied against, a present or former
director or member of the Committee in any action against such person (whether
or not the Company is joined as a party defendant) to impose liability or a
penalty on such person for an act alleged to have been committed by such person
while a director or member of the Committee arising with respect to the Plan or
administration thereof or out of membership on the Committee or by the Company,
or all or any combination of the preceding; provided, the director or Committee
merger was acting in good faith, within what such director or Committee member
reasonably believed to have been within the scope of his or her employment or
authority and for a purpose which he or she reasonable believed to be in the
best interests of the Company or its shareholders. Payments authorized hereunder
include amounts paid and expenses incurred in settlement any such action or
threatened action. This section does not apply to any action instituted or
maintained in the right of the Company by a shareholder or holder of a voting
trust certificate representing shares of the Company. The provisions of this
section shall apply to the estate, executor, administrator, heirs, legatees or
devisees of a director or Committee member, and the term "person" as used in
this section shall include the estate, executor, administrator, heirs, legatees
or devisees of such person.
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Appendix A
PROXY NORTH VALLEY BANCORP PROXY
Proxy Solicited on Behalf of the Board of Directors
of North Valley Bancorp
for the Annual Meeting of Shareholders, May 26, 1998
The undersigned holder of Common Stock acknowledges receipt of the Notice
of Annual Meeting of Shareholders of North Valley Bancorp and the accompanying
Proxy Statement dated April 20, 1998, and revoking any proxy heretofore given,
hereby constitutes and appoints Martin R. Sorensen and Fred A. Drake, and each
of them, each with full power of substitution, as attorneys and proxies to
represent and vote, as designated on the reverse side, all shares of Common
Stock of North Valley Bancorp (the "Corporation"), which the undersigned would
be entitled to vote at the Annual Meeting of Shareholders of the Corporation to
be held in Administration, North Valley Bank, 880 East Cypress Avenue, Redding,
California, on Tuesday, May 26, 1998, at 4:30 P.M., or at any postponement or
adjournment thereof, upon the matters set forth in the Notice of Annual Meeting
and Proxy Statement and upon such other business as may properly come before the
meeting or any postponement or adjournment thereof. All properly executed
proxies will be voted as indicated.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" PROPOSALS 2, 3, 4, 5, 6, 7 AND 8.
WHEN THE PROXY IS PROPERLY EXECUTED, SHARES REPRESENTED BY THE PROXY WILL BE
VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN IN THE PROXY, SHARES REPRESENTED BY
THE PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD
OF DIRECTORS, "FOR" PROPOSALS 2, 3, 4, 5, 6, 7 AND 8, AND, IN THE DISCRETION OF
THE PROXY HOLDERS, ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS OF THE
CORPORATION AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
(Continued, and to be signed on the other side)
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[X] Please mark
your votes
as this
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<S> <C>
1. To elect as Directors the WITHHOLD
nominees set forth below. FOR FOR ALL
(INSTRUCTION: To withhold [ ] [ ] 2. To approve an amendment of the FOR AGAINST ABSTAIN
authority to vote for any Articles of Incorporation [ ] [ ] [ ]
individual nominee, strike restricting shareholder action
a line through the by written consent.
nominee's name in the list
below: 3. To approve an amendment of the
Articles of Incorporation [ ] [ ] [ ]
concerning elimination of
Rudy V. Balma, William W. Cox, Dan W. cumulative voting.
Ghidinelli, Thomas J. Ludden, Kelly V.
Pierce, Martin R. Sorensen, Douglas M. 4. To approve an amendment of the
Treadway, J. M. ("Mike") Wells, Jr. Articles of Incorporation to [ ] [ ] [ ]
authorize the issuance of
- ---------------------------------------------- Preferred Stock.
I PLAN TO ATTEND THE MEETING [ ] 5. To approve an amendment of the
Articles of Incorporation [ ] [ ] [ ]
regarding indemnification of
agents.
6. To approve adoption of
the North Valley Bancorp [ ] [ ] [ ]
1998 Employee Stock
Incentive Plan.
7. To approve an amendment
of the North Valley [ ] [ ] [ ]
Bancorp 1989 Director
Stock Option Plan.
8. To ratify the
appointment of Deloitte [ ] [ ] [ ]
& Touche LLP as
independent public
accountants for 1998.
9. In their discretion, the proxy holders are authorized to
vote upon such other business as may properly come
before the meeting.
Signature(s) _____________________________________________________________________ Dated _________________________________, 1998
Please mark, date and sign exactly as your name(s) appear(s) above. When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If there is more than one trustee, all should sign. WHETHER OR NOT YOU PLAN TO ATTEND THIS
MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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