United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Period Ended June 30, 1998 .
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to
Commission file number 0-10652
NORTH VALLEY BANCORP
(Exact name of registrant as specified in its charter)
California 94-2751350
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
880 E. Cypress Ave.
Redding, CA 96002
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (916) 221-8400
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practical date.
Common Stock - - 1,842,510 shares as of June 30, 1998.
INDEX
NORTH VALLEY BANCORP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets-- June 30, 1998 and December 31,1997
Condensed consolidated statements of income-- Six months ended June 30,
1998 and 1997;
Condensed consolidated statements of income-- Three months ended June 30,
1998 and 1997;
Condensed consolidated statement of cash flows-- Six months ended June 30,
1998 and 1997
Notes to condensed consolidated financial statements--
June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8K
SIGNATURES PART I. FINANCIAL INFORMATION
NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS June 30 December 31
(In thousands except share amounts) 1998 1997
ASSETS (Unaudited) (Note)
Cash and cash equivalents:
Cash and due from banks $10,938 $ 8,842
Federal funds sold 12,300 13,100
Total cash and cash equivalents 23,238 21,942
Cash held in trust 1,276 1,670
Securities:
Available for sale, at fair value 25,275 26,613
Held to maturity, at amortized cost
(fair value of $38,730 and $41,231
at June 30, 1998 and December 31, 1997,
respectively) 36,867 39,219
Loans receivable, net of allowance for loan
losses and deferred loan fees 173,469 167,507
Premises and equipment, net of accumulated
depreciation and amortization 4,916 4,647
Other real estate owned 376 212
FHLB stock 817 790
Accrued interest receivable 1,882 1,923
Other assets 6,907 6,234
TOTAL ASSETS $275,023 $270,757
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand deposits $ 30,113 $ 32,253
Interest-bearing:
Savings 48,171 46,431
Time certificates 117,784 118,159
NOW accounts 44,786 41,679
Total deposits 240,854 238,522
Accrued interest and other liabilities 4,625 4,169
TOTAL LIABILITIES 245,479 242,691
STOCKHOLDERS' EQUITY:
Preferred stock, no par value: authorized 5,000,000 shares; none outstanding
Common stock, no par value: authorized 20,000,000 shares; outstanding
1,842,510 and 1,839,092 at June 30, 1998 and December 31, 1997,
respectively 10,191 10,161
Retained earnings 18,793 17,205
Accumulated Other Comprehensive Income:
Unrealized gain on securities available for
sale (net of tax effect) 560 700
Total stockholders' equity 29,544 28,066
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $275,023 $270,757
=============================================================================
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements (unaudited).
NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except share and per share amounts)
Six Months Ended
June 30
1998 1997
INTEREST INCOME:
Loans including fees $ 7,707 $ 7,603
Securities:
Taxable 774 375
Exempt from federal taxes 1,124 1,213
Interest on federal funds sold 488 552
Total interest income 10,093 9,743
INTEREST EXPENSE - DEPOSITS 4,302 4,256
NET INTEREST INCOME 5,791 5,487
PROVISION FOR LOAN LOSSES 360 360
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,431 5,127
NONINTEREST INCOME:
Service charges on deposit accounts 795 697
Other fees and charges 433 385
Gain on sale of loans 105 103
Gain on sale of available
for sale securities 459 140
Other 156 145
Total noninterest income 1,948 1,470
NONINTEREST EXPENSES:
Salaries & employee benefits 2,225 1,998
Occupancy expense 270 232
Furniture & equipment expense 310 271
Other 1,475 1,114
Total noninterest expenses 4,280 3,615
INCOME BEFORE PROVISION FOR INCOME TAXES 3,099 2,982
PROVISION FOR INCOME TAXES 866 799
NET INCOME $ 2,233 $ 2,183
EARNINGS PER SHARE:
Basic $ 1.21 $ 1.20
Diluted $ 1.20 $ 1.18
===========================================================================
See notes to condensed consolidated financial statements (unaudited).
NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except share and per share amounts) Three Months Ended
June 30
1998 1997
INTEREST INCOME:
Loans including fees $ 3,892 $ 3,847
Securities:
Taxable 388 225
Exempt from federal taxes 555 603
Interest on federal funds sold 246 277
Total interest income 5,081 4,952
INTEREST EXPENSE - DEPOSITS 2,165 2,154
NET INTEREST INCOME 2,916 2,798
PROVISION FOR LOAN LOSSES 180 180
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,736 2,618
NONINTEREST INCOME:
Service charges on deposit accounts 445 360
Other fees and charges 216 189
Gain on sale of loans 97 68
Gain on sale of available
for sale securities 267 51
Other 86 69
Total noninterest income 1,111 737
NONINTEREST EXPENSES:
Salaries & employee benefits 1,149 1,002
Occupancy expense 135 119
Furniture & equipment expense 155 138
Other 807 591
Total noninterest expenses 2,246 1,850
INCOME BEFORE PROVISION FOR INCOME TAXES 1,601 1,505
PROVISION FOR INCOME TAXES 476 419
NET INCOME $ 1,125 $ 1,086
EARNINGS PER SHARE:
Basic $ .61 $ .60
Diluted $ .60 $ .59
===========================================================================
See notes to condensed consolidated financial statements (unaudited).
NORTH VALLEY BANCORP AND SUBSIDIARIES CONDENSED Six Months Ended
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) June 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,233 $ 2,183
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 253 220
Amortization of premium on securities 17 ( 3)
Provision for loan losses 360 360
Loss on sale/write down of other real estate owned 5 97
Gain on sale of available for sale securities ( 459) ( 140)
Gain on sale of loans ( 105) ( 103)
Provision for deferred taxes ( 1) ( 31)
Effect of changes in:
Accrued interest receivable 41 ( 40)
Other assets (1,033) ( 2,147)
Accrued interest and other liabilities 520 527
Net cash provided by operating activities 1,831 923
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of FHLB stock ( 27) ( 32)
Proceeds from sale of other real estate owned 207 0
Purchase of available for sale securities ( 7,582) ( 8,187)
Proceeds from sales of available for sale securities 2,155 2,253
Proceeds from maturities of available for sale securities 7,000 0
Purchase of held to maturity securities 0 ( 1,565)
Proceeds from maturities or calls of held to maturity
securities 2,340 1,385
Proceeds from sale of loans 4,731 6,302
Net increase in loans (10,948) ( 4,168)
Purchases of premises and equipment ( 522) ( 393)
Net cash used in investing activities ( 2,646) ( 4,405)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits, NOW accounts,
and savings accounts 2,706 7,428
Net increase in time certificates ( 374) 2,021
Cash dividends paid ( 645) (1,280)
Cash received for stock options exercised 30 60
Net cash provided by financing activities 1,717 8,229
NET INCREASE IN CASH AND CASH EQUIVALENTS 902 4,747
CASH AND CASH EQUIVALENTS:
Beginning of period 23,612 28,507
End of period $24,514 $33,254
ADDITIONAL INFORMATION:
Transfer of foreclosed loans from loans receivable to
other real estate owned $ 376 $ 1,664
Cash Payments:
Income tax payments $ 470 $ 529
Interest payments $ 4,325 $ 4,256
See notes to condensed consolidated financial statements (unaudited).
NORTH VALLEY BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
North Valley Bancorp and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the results for the interim periods presented have been included. They do not,
however, include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1997. Operating results for the six months ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Significant intercompany items
and transactions have been eliminated in consolidation.
NOTE B - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income. This Statement
requires that all items recognized under accounting standards as components
of comprehensive earnings be reported in an annual financial statement that
is displayed with the same prominence as other annual financial statements.
This Statement also requires that an entity classify items of other
comprehensive earnings by their nature in an annual financial statement. For
example, other comprehensive earnings may include minimum pension liability
adjustments, and unrealized gains and losses on marketable securities
classified as available-for-sale. Annual financial statements for prior
periods will be reclassified, as required. The Company's total comprehensive
earnings were as follows:
Six Months Ended June 30
1998 1997
(In thousands)
Net income $ 2,233 $ 2,183
Other comprehensive income:
Holding (loss) gain arising during period,
net of tax 190 139
Reclassification adjustment, net of tax ( 330) ( 101)
Net (loss) gain recognized in other
comprehensive income ( 140) 38
Net comprehensive income $ 2,093 $ 2,221
Three Months Ended June 30
1998 1997
(In thousands)
Net income $ 1,125 $ 1,086
Other comprehensive income:
Holding (loss) gain arising during period,
net of tax 35 160
Reclassification adjustment, net of tax ( 192) ( 37)
Net (loss) gain recognized in other
comprehensive income ( 157) 123
Net comprehensive income $ 968 $ 1,209
NOTE C - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if options or other
contracts to issue common stock were exercised and converted into common stock.
The denominator used in the calculation of basic earnings per share and
diluted earnings per share for each of the quarters ended June 30, 1998 and
1997 is reconciled as follows:
(Dollars in thousands except per share data) Six Six
Months Months
Ended Ended
Calculation of Basic Earnings Per Share 6/30/98 6/30/97
Numerator - net income $ 2,233 $ 2,183
Denominator - weighted average common
shares outstanding 1,841 1,826
Basic Earnings Per Share $ 1.21 $ 1.20
Calculation of Diluted Earnings Per Share
Numerator - net income $ 2,233 $ 2,183
Denominator:
Weighted average common shares
outstanding 1,841 1,826
Dilutive effect of outstanding options 20 24
1,861 1,850
Diluted Earnings Per Share $ 1.20 $ 1.18
Three Three
Months Months
Ended Ended
Calculation of Basic Earnings Per Share 6/30/98 6/30/97
Numerator - net income $ 1,125 $ 1,086
Denominator - weighted average common
shares outstanding 1,839 1,824
Basic Earnings Per Share $ .61 $ .60
Calculation of Diluted Earnings Per Share
Numerator - net income $ 1,125 $ 1,086
Denominator:
Weighted average common shares
outstanding 1,839 1,824
Dilutive effect of outstanding options 21 24
1,860 1,848
Diluted Earnings Per Share $ .60 $ .59
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998.
Overview
North Valley Bancorp (the "Company") is a bank holding company for North
Valley Bank (the "Bank"), a state-nonmember bank. The Company's consolidated
net income, assets, and equity are derived primarily from its investment in the
Bank. The Bank operates out of its main office located at 880 E. Cypress
Avenue, Redding, California 96002 with eight additional branches located in
Shasta County and two branches in Trinity County. The Bank's consumer
financial services include residential real estate loans, retail deposit
services, mutual fund products and consumer finance. Financial services
for businesses include commercial loans, Small Business Administration (SBA)
loans, and deposit services.
Certain statements in this Form 10-Q (excluding statements of fact or
historical financial information) involve forward-looking information within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the "safe harbor" created by those sections. These forward-
looking statements involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. Such risks and uncertainties include, but are not limited to, the
following factors: competitive pressure in the banking industry increases
significantly; changes in the interest rate environment reduce margins;
general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a deterioration in
credit quality and an increase in the provision for possible loan losses;
changes in the regulatory environment; changes in business conditions,
particularly in Shasta County; volatility of rate sensitive deposits;
operational risks including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets.
Earnings Summary
For the period ending June 30, 1998, the Company achieved earnings of
$2,233,000 as compared to $2,183,000 for the period ending June 30, 1997. On a
per share basis, net income on a diluted basis was $1.20 for the six months
ended June 30, 1998, and $1.18 for the same period ending June 30, 1997.
The Company paid a $.35 dividend to shareholders of record as of June 9, 1998,
of $645,000. Net income increased primarily due to the increase in net
interest income and an increase in gains on sale of securities. The Company's
return on average total assets and average shareholders'equity were 1.63% and
15.34% for the six months ended June 30, 1998, compared with 1.66% and 17.54%
for the six months ended June 30, 1997.
Net Interest Income
Net interest income is the principal source of the Company's operating
earnings. It represents the difference between interest earned on loans and
other investments and interest paid on deposits. The amount of interest income
and expense is affected by changes in volume and mix of earning assets
and interest-bearing deposits, along with changes in interest rates.
Net interest income has been adjusted to a fully taxable equivalent (FTE)
basis for tax-exempt investments included in earning assets. Net interest
income (FTE) was $6,321,000 for the six months ended June 30, 1998, as compared
to $6,030,000 for the six months ended June 30, 1997. The increase in net
interest income for the period ending June 30, 1998 resulted primarily from the
increase in investment securities and interest earned on loans.
Total interest income (FTE) increased to $10,623,000 in 1998 compared to
$10,286,000 in 1997, representing a 3.28% increase. Average loans increased to
$168,684,000 for the six months ended June 30, 1998, or 1.05% over the same
period in 1997, with an increase in average available for sale securities of
108.89% and a decrease in average held to maturity securities of 5.32%.
Total interest expense increased slightly to $4,302,000 as compared to
$4,256,000 for the same period ending June 30, 1997. Average interest-bearing
deposits for the period ending June 30, 1998 totaled $210,080,000, as compared
to $204,544,000 for the same period in 1997, or a 2.71% increase.
Net interest margin (determined by dividing net interest income by total
average interest-earning assets) was 5.11% for the period ending June 30, 1998,
as compared to 5.06% for the same period ending June 30, 1997. The increase
for the six months ended June 30, 1998 in the net interest margin was
attributed to the increases in loans, investments, deposits, and a slight
increase in the net spread (the difference between rates earned on interest
earning assets and rates paid on deposits), affected primarily by a stable to
declining interest rate environment and the change in the mix between
loans and investment securities for the period ended June 30, 1998. Average
earning assets yielded 8.58% for the period ending June 30, 1998 compared to
8.63% for the same period ending June 30, 1997. The cost of funding these
earning assets decreased slightly during the first six months of 1998. Rates
paid declined to 4.13% for the first six months of 1998 as compared to 4.20%
for the same period in 1997. The interest spread was 4.45% for the period
ending June 30, 1998 compared to 4.43% for the period ending June 30, 1997.
Non-Interest Income
Non-interest income, which includes income derived from service charges on
deposit accounts, loan servicing fees, other fees and charges, and gain (loss)
on sale of securities, increased to $1,948,000 for the period ending June 30,
1998 as compared to $1,470,000 for the same period ending June 30, 1997.
The increase of $478,000 in non-interest income is a result of a $319,000
increase in gains on sale of available for sale securities and a $159,000
increase in other operating income, principally service charge and fee income.
Non-Interest Expense
Non-interest expense totaled $4,280,000 for the period ended June 30, 1998,
compared to $3,615,000 for the same period in 1997. Non-interest expenses for
the first six months of 1998 increased $665,000 over the same period in 1997.
The increase in costs was attributed to the opening of the Cottonwood branch,
the Business Banking Center, and the relocation of our Shasta Lake branch
to our new facility. There were additional expenses for the period resulting
from loan portfolio and technology reviews. The Company attributes the
increased salary expense to the additional personnel for the new branches,
along with some market driven adjustments to staff compensation.
The Company's efficiency ratio (derived by dividing total non-interest
expenses by net interest income exclusive of provision for loan losses and
non-interest income) was 55.31 at June 30, 1998 compared to 51.97% at June 30,
1997. The efficiency ratio is a measurement as to how efficiently the
Company allocates its resources.
A summary of non-interest expense for the six months ended June 30,
1998 and 1997, is presented below:
Non-Interest Expense June 30
(in thousands) 1998 1997
Salaries & employee benefits $ 2,225 $ 1,998
Occupancy expense 270 232
Furniture & equipment expense 310 271
Professional services 209 77
Data processing expenses 215 173
Printing & supplies 135 111
Postage 97 92
Messenger expense 87 69
ATM expense 136 112
Other 596 480
Total Non-interest expense $ 4,280 $ 3,615
Income Taxes
The provision for income taxes for the second quarter 1998 was
$866,000 as compared to $799,000 for the same period in 1997.
Impaired, Nonaccrual, Past Due and Restructured Loans and Other Real Estate
Owned
At June 30, 1998 the recorded investment in loans for which impairment
has been recognized was approximately $3,946,000. Of that balance approximately
$1,514,000 has a related valuation allowance of $116,000. For the six months
ended June 30, 1998, the average recorded investment in loans for which
impairment has been recognized was approximately $3,941,000. During the
portion of the six month period ended June 30, 1998 that the loans were
impaired the Company recognized approximately $179,000 of interest income for
cash payments received.
At December 31, 1997, the recorded investment in loans for which
impairment has been recognized was approximately $4,353,000. No significant
impaired balances required a valuation allowance at December 31, 1997. For
the year ended December 31, 1997, the average recorded investment in loans
for which impairment has been recognized was approximately $3,454,000. During
the portion of the year that the loans were impaired the Company recognized
interest income of approximately $153,000 for cash payments received.
Nonaccrual loans consist of loans on which the accrual of interest has
been discontinued and other loans where management believes that borrowers'
financial condition is such that the collection of interest is doubtful, or
when a loan becomes contractually past due by 90 days or more with respect to
interest or principal (except that when management believes a loan is well
secured and in the process of collection, interest accruals are continued on
loans considered by management to be fully collectible). Loans are charged off
when management determines that the loan is considered uncollectible. Other
real estate owned consists of real property acquired through foreclosure on the
related collateral underlying defaulted loans.
The amount of non accrual loans increased for the period ending June 30,
1998 to $687,000 as compared to $536,000 at December 31, 1997.
A summary of non-performing assets at June 30, 1998 and December 31,
1997, is as follows:
Non-Performing Assets (in thousands) June 30 December 31
1998 1997
Nonaccrual loans $ 687 $ 536
Accruing loans past due 90 days
or more 106 244
Restructured loans -- --
Other real estate owned 376 212
Total $ 1,169 $ 992
Allowance for Loan Losses
Management's assessment of the adequacy of the allowance for loan loss
and the level of the related provision for possible loan losses is based on its
evaluation of current economic conditions, borrower's financial condition, loan
impairment, continuing evaluation of the performing loan portfolio, continual
evaluation of problem loans identified as having a higher degree of risk, off
balance sheet risks, assessments by regulators and other third parties, and any
other factors identified by management which may have an effect on the quality
of the portfolio. At June 30, 1998, based on known information, management
believed that the allowance for loan losses was adequate to absorb losses
inherent in existing loans and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans and
commitments to extend credit as of such date.
As of June 30, 1998, the allowance for possible loan losses was
$1,783,000 as compared to the December 31, 1997 amount of $1,702,000. When a
loan is considered uncollectible by management it is charged against the
allowance for loan losses. Any recoveries on previously charged off loans are
credited back to the allowance. Net charge-offs were $279,000 for the period
ending June 30, 1998. Additions to the allowance for loan losses are charged
against income. A provision for loan losses of $360,000 was charged to income
for the six months ended June 30, 1998.
The allowance for possible loan losses is a general reserve available
against the total loan portfolio and off balance sheet credit exposure. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for
possible loan losses. Such agencies may require the company to provide
additions to the allowance based on their judgment of information available
to them at the time of their examination.
There is uncertainty concerning future economic trends. Accordingly, it
is not possible to predict the effect future economic trends may have on the
level of the provision for possible loan losses in future periods.
Liquidity and Interest Rate Sensitivity
The fundamental objective of the Company's management is to increase
shareholders' value while maintaining adequate liquidity, to manage interest
rate risk, and increase the economic value of its assets and liabilities.
Liquidity is the ability to provide funds to support asset growth and satisfy
cash flow requirements created by fluctuations in deposits and to meet
borrowers' credit needs. Effective liquidity management insures that
sufficient funds are available to satisfy demands from depositors, borrowers
and other commitments on a timely basis. Collection of principal and interest
on loans, the liquidations and maturities of investment securities, deposits
with other banks, deposit inflow and short term borrowing, when needed, are
primary sources of funds that contribute to liquidity. Unused lines of credit
from correspondent banks to provide federal funds in the amount of $6,000,000
as of June 30, 1998, were available to provide liquidity. In addition, the
Bank is a member of the Federal Home Loan Bank ("FHLB") System providing an
additional line of credit of $5,024,000 secured by first deeds of trust on
eligible 1-4 unit residential loans. The Company had not borrowed from the
FHLB as of June 30, 1998.
The Company manages both assets and liabilities by monitoring asset and
liability mixes, volumes, maturities, yields and rates in order to preserve
liquidity and earnings stability. Total liquid assets (cash and due from
banks, federal funds sold, and investment securities) totaled $85,380,000 and
$87,774,000 (or 31.04% and 32.42% of total assets) at June 30, 1998 and
December 31, 1997, respectively. Total liquid assets for June 30, 1998 and
December 31, 1997 include investment securities of $36,867,000 and $39,219,000,
respectively, classified as held to maturity based on the Company's intent to
hold such securities to maturity.
Core deposits, defined as demand deposits, NOW, regular savings, money
market deposit accounts and time deposits of less than $100,000, continue to
provide a relatively stable and low cost source of funds. Core deposits
totaled $223,303,000 and $220,608,000 at June 30, 1998 and December 31, 1997,
respectively.
In assessing liquidity, historical information such as seasonal loan
demand, local economic cycles and the economy in general are considered along
with current ratios, management goals and unique characteristics of the Bank.
Management believes the Company is in compliance with its policies
relating to liquidity.
Asset and liability management focuses on interest rate risk due to asset
and liability cash flows and market interest rate movement. The primary
objective of managing interest rate risk is to ensure that both assets and
liabilities react to changes in interest rates to minimize the effects of
interest rate movements on net interest income. An asset and liability
management simulation model is used to quantify the exposure and impact of
changing interest rates on earnings. The model projects changes by analyzing
the mix and repricing characteristics of interest rate sensitive assets and
liabilities using multipliers (how interest rates change when the Fed Funds
rate changes by 1%) and lags (time it takes for rates to change after the Fed
Funds rate changes). The model simulates the effects on net interest
income when the Fed Funds rate experiences a 1% increase or decrease compared
to current levels.
The following table shows the interest sensitive assets and liabilities
gap, which is the measure of interest sensitive assets over interest-bearing
liabilities, for each individual repricing period on a cumulative basis:
June 30, 1998 Within 3 3 months 1-5 5+
(in thousands) months to 1 Year Years Years TOTAL
EARNING ASSETS:
Held to maturity securities $ 1,298 $ 725 $13,857 $20,987 $ 36,867
Available for sale
securities 1,426 9,195 12,489 0 23,110
Fed Funds Sold 12,300 0 0 0 12,300
Loans 44,509 9,757 58,501 62,485 175,252
Total earning assets $59,533 $19,677 $84,847 $83,472 $247,529
INTEREST BEARING LIABILITIES:
Interest bearing demand
deposits $ 0 $ 44,786 $ 0 $ 0 $ 44,786
Savings deposits 0 48,171 0 0 48,171
Time deposits 55,370 56,372 6,042 0 117,784
Total interest bearing
liabilities $ 55,370 $149,329 $ 6,042 $ 0 $210,741
INTEREST SENSITIVITY
GAP $ 4,163 $(129,652) $ 78,805 $83,472
CUMULATIVE INTEREST
RATE SENSITIVITY GAP $ 4,163 $(125,489) $(46,684) $36,788
At June 30, 1998, the gap table indicates the Company as liability
sensitive in the twelve month period. The interest rate sensitivity gap is
defined as the difference between amount of interest-earning assets anticipated
to mature or reprice within a specific time period and the amount of interest-
bearing liabilities anticipated to mature or reprice within that time period.
The gap report is based on the contractual interest repricing date. The gap
method does not consider the impact of different multipliers (how interest
rates change when the Fed Funds rate changes by 1%) and lags (time it takes for
rates to change after the Fed Funds rate changes). The interest rate
relationships between the repriceable assets and repriceable liabilities are
not necessarily constant and may be affected by many factors, including the
behavior of customers in response to changes in interest rates and future
impact of new business strategies. This table should, therefore, be used only
as a guide as to the possible effect changes in interest rates might have on
the net margins of the Company. The Company's model analyzes the impact on
earnings of future rate changes by including factors for lags and multipliers
for key bank rates. Both methods of measuring interest rate sensitivity do not
take into account actions taken by management to modify the effect to net
interest income if interest rates were to rise or fall.
Even though the Company had a negative gap in the six month period as of
June 30, 1998 the asset liability simulation model showed the Bank was slightly
asset sensitive in the second quarter 1998. This means that when interest rates
decline, yields on earning assets would be expected to decline faster than
rates paid for deposits, causing the net interest margin to decrease. Due to a
slightly declining interest rate environment in 1998, the Bank's asset
sensitive posture had a slightly negative impact on net interest margins as
predicted by the asset liability simulation model. In a rising rate
environment the opposite impact would be expected; i.e., the net interest
margin should improve.
Financial Condition
Total assets at June 30, 1998, were $275,023,000, representing an increase
of 1.58% over December 31, 1997 assets of $270,757,000. Increased deposits
were used to fund a 3.89% increase in average earning assets in the second
quarter of 1998.
Investment securities and federal funds sold totaled $74,442,000 at June
30, 1998, compared to $78,932,000 at December 31, 1997. The Company is a
member of Federal Home Loan Bank of San Francisco and holds $817,000 in FHLB
stock.
During the first six months of 1998, net loans increased to $173,469,000
from $167,507,000 for at December 31, 1997. Loans are the Company's major
component of earning assets. The Bank's average loan to deposit ratio was
69.93%.
Funding for increased investments came from increases in deposits. Total
deposits increased $2,332,000 for the six months ended June 30, 1998 to
$240,854,000, as compared to $238,522,000 at December 31, 1997.
The Company maintains capital to support capital needs, future growth and
dividend payouts while maintaining the confidence of depositors and investors
by increasing shareholders' value. The Company has provided the majority of
its capital requirements through the retention of earnings. Shareholders'
equity increased to $29,544,000 as of June 30, 1998, as compared to $28,066,000
at December 31, 1997.
The Company's and the Bank's regulatory capital ratios remain above
regulatory minimums. The Company's total risk based capital ratio at June 30,
1998 was 16.28% and its Tier 1 Risk Based Capital (RBC) ratio was 15.33%,
exceeding the minimum guidelines of 8% and 4%. The ratios at December 31,
1997 were 15.73% and 14.80%, respectively.
The Company's leverage ratios were 10.46% and 9.94% at June 30, 1998 and
December 31, 1997, exceeding the minimum guidelines of 4%.
Under current regulations adopted by federal regulatory agencies, a
"well-capitalized" institution must have a Tier 1 RBC ratio of at least 6%, a
total capital ratio of at least 10% and leverage ratio of at least 5% and not
be subject to a capital directive order. The Bank had a total capital ratio of
15.16%, a Tier 1 RBC ratio of 14.21% and a leverage ratio of 9.67% at June 30,
1998.
Impact of Inflation
Impact of inflation on a financial institution differs significantly from
that exerted on an industrial concern, primarily because a financial
institution's assets and liabilities consist largely of monetary items. The
relatively low proportion of the Bank's fixed assets (approximately 1.8% June
30, 1998) reduces both the potential of inflated earnings resulting from
understated depreciation and the potential understatement of absolute asset
values.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain date-based information.
The Company believes it has identified all significant applications that
will require modification to ensure Year 2000 Compliance. Internal and
external resources are being used to make the required modifications and test
Year 2000 Compliance. The Company currently plans on completing the testing
process of all significant applications by December 31, 1998.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on
which the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. Costs associated with the
modifications necessary are being expensed by the Company during the period in
which they are incurred. These costs and the date on which the Company plans
to complete the Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
from those plans.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998, AS
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1997.
Net Income
The Company's net income for the three months ended June 30, 1998, was
$1,125,000, as compared to a net income of $1,086,000 for the same period in
1997. The net income for the three month period ended June 30, 1998, resulted
in net income per share of sixty cents ($.60), fully diluted.
Net Interest Income
Net interest income on a fully tax-equivalent basis (FTE) increased
$90,000, or 2.93%, to $3,160,000 for the three months ended June 30, 1998, as
compared to $3,070,000 for the same period in 1997.
Changes in net interest income are a result of changes in volume between
average earning assets and average interest bearing liabilities and in the
difference between interest yields from average earning assets and the cost of
average interest bearing liabilities. Net interest income increased over 1997
levels primarily due to an increase in volume on available for sale securities
and on average loans.
Net interest income on a fully taxable equivalent basis expressed as a
percentage of total average earning assets is referred to as the net interest
margin. The net interest margin (FTE) was 5.05% and 5.09% for the three months
ending June 30, 1998 and 1997, respectively.
Non Interest Income
Total non interest income increased to $1,111,000, compared to $737,000
for the three months ended June 30, 1998 and 1997, respectively. This
increase was primarily the result of increases in gain on sale of loans and
securities of $245,000 and service charges and other fees of $112,000.
Non Interest Expense
Non interest expense increased for the three months ended June 30, 1998
to $2,246,000 compared to $1,850,000 for the same period in 1997. The increase
in costs was attributed to the opening of the Cottonwood branch, the Business
Banking Center, and the relocation of our Shasta Lake branch to our new
facility. There were additional expenses for the period resulting from loan
portoflio and technology reviews. The Company attributes the increased salary
expense to the additional personnel for the new branches, along with some
market driven adjustments to staff compensation.
A summary of non interest expense for the three month period ended
June 30, 1998 and 1997, is presented below:
Non-Interest Expense June 30
(in thousands) 1998 1997
Salaries & employee benefits $ 1,149 $ 1,002
Occupancy expense 135 119
Furniture & equipment expense 155 138
Professional services 144 46
Data processing expenses 110 88
Printing & supplies 65 55
Postage 68 44
Messenger expense 44 36
ATM expense 69 57
Other 307 265
Total Non-interest expense $ 2,246 $ 1,850
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
In Management's opinion there has not been a material change in the
Company's market risk profile for the six months ended June 30, 1998 compared
to December 31, 1997.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending against the Company or
against any of its property. The Bank, because of the nature of its business,
is generally subject to various legal actions, threatened or filed, which
involve ordinary, routine litigation incidental to its business. Some of the
pending cases seek punitive damages in addition to other relief. Although
the amount of the ultimate exposure, if any, cannot be determined at this time,
the Company does not expect that the final outcome of threatened or filed
suits will have a materially adverse effect on its consolidated financial
position.
Item 2. Changes in Securities
No changes.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of North Valley Bancorp was held
on Tuesday, May 26,1998. Shareholders of North Valley Bancorp approved the
following proposals:
1. Election of directors.
2. An amendment of the Articles of Incorporation restricting shareholder
action by written consent.
3. An amendment of the Articles of Incorporation concerning elimination of
cumulative voting.
4. An amendment of the Articles of Incorporation to authorize the issuance of
Preferred Stock.
5. An amendment of the Articles of Incorporatiaon regarding indemnification
of agents.
6. Adoption of the North Valley Bancorp 1998 Employee Stock Incentive Plan.
7. An amendment of the North Valley Bancorp 1989 Director Stock Option Plan.
8. Ratification of Deloitte & Touche as independent public accountants for
the Corporation for 1998.
Results of the election are presented below:
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 26, 1998
Total shares outstanding: 1,839,092
Total shares voted: 1,502,832 81.72%
By proxy vote: 1,314,777
In person vote: 188,055
Shares % Outstanding % of
Voted Shares Quorum
Proposal 1: For: 1,494,052 81.24% 99.42%
Election of Directors Against: 8,780 0.48% 0.58%
Abstain: 0 0.00% 0.00%
Proposal 2: For: 1,135,421 61.74% 75.55%
Amend Articles of Incorporation Against: 78,554 4.27% 5.23%
restricting shareholder action Abstain: 114,961 6.25% 7.65%
by written consent
Proposal 3: For: 1,133,505 61.63% 75.42%
Amend Articles of Incorporation Against: 84,148 4.58% 5.60%
concerning elimination of Abstain: 111,283 6.05% 7.40%
cumulative voting
Proposal 4: For: 1,061,018 57.69% 70.60%
Amend Articles of Incorporation Against: 235,166 12.79% 15.65%
to authorize issuance of Abstain: 32,752 1.78% 2.18%
preferred stock
Proposal 5: For: 1,305,776 71.00% 86.89%
Amend Articles of Incorporation Against: 75,489 4.10% 5.02%
regarding indemnification of Abstain: 121,567 6.61% 8.09%
agents
Proposal 6: For: 1,208,387 65.71% 80.41%
Adopt North Valley Bancorp 1998 Against: 91,777 4.99% 6.11%
Employee Stock Incentive Plan Abstain: 28,772 1.56% 1.91%
Proposal 7: For: 1,268,353 68.97% 84.40%
Amend North Valley Bancorp 1989 Against: 205,197 11.16% 13.65%
Director Stock Option Plan Abstain: 29,282 1.59% 1.95%
Proposal 8: For: 1,468,382 79.84% 97.71%
Ratify appointment of Deloitte & Against: 10,712 0.58% 0.71%
Touche as independent public Abstain: 23,738 1.29% 1.58%
accountants for 1998
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 3(i) Articles of Incorporation of the Registrant,
as amended and restated.
Exhibit 3(ii) By-laws of the Registrant, as amended and
restated.
Exhibit 10 Indemnification Agreement
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
North Valley Bancorp
(Registrant)
Date August 12, 1998 /s/ Sharon Benson
Sharon Benson
Senior Vice President &
Chief Financial Officer
Exhibit 3(i) AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NORTH VALLEY BANCORP
The undersigned certify that:
1. They are the president and the secretary, respectively, of North Valley
Bancorp, a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as set forth in Exhibit A hereto and are incorporated
by reference herein.
3. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the board of directors.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in
accordance with Section 902, California Corporations Code. The total
number ofoutstanding shares of the corporation is 1,842,510. The number
of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50%.
5. This corporation has outstanding securities designated as qualified
for trading as a national market system security on the National
Association of Securities Dealers Automatic Quotation System and has
at least 800 holders of its equity securities as of the record date
of this corporation's most recent annual meeting.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and
correct of our own knowledge.
DATE: May 26, 1998
/s/ Martin R. Sorensen
Martin R. Sorensen, President
/s/ J.M. Wells, Jr.
J.M. Wells, Jr., Secretary
EXHIBIT A
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 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.
Exhibit 3(ii) AMENDED AND RESTATED
BY-LAWS
OF
NORTH VALLEY BANCORP
AS OF JULY 20, 1998
TABLE OF CONTENTS
ARTICLE I - Offices Page
Section 1. Principal Office.. . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - Meetings of Shareholders
Section 3. Place of Meetings. . . . . . . . . . . . . . . . . . 1
Section 4. Annual Meetings. . . . . . . . . . . . . . . . . . . 2
Section 5. Special Meetings.. . . . . . . . . . . . . . . . . . 2
Section 6. Notice of Shareholders' Meetings.. . . . . . . . . . 2
Section 7. Quorum.. . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Adjourned Meeting. . . . . . . . . . . . . . . . . . 4
Section 9. Waiver or Consent by Shareholders. . . . . . . . . . 5
Section 10. Action Without Meeting.. . . . . . . . . . . . . . . 6
Section 11. Voting Rights; Cumulative Voting.. . . . . . . . . . 6
Section 12. Proxies. . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III - Directors; Management
Section 14. Powers.. . . . . . . . . . . . . . . . . . . . . . . 9
Section 15. Number and Qualification of Directors. . . . . . . . 9
Section 16. Election and Term of Office. . . . . . . . . . . . .11
Section 17. Removal of Directors.. . . . . . . . . . . . . . . .11
Section 19. Place of Meetings. . . . . . . . . . . . . . . . . .13
Section 20. Organizational Meetings. . . . . . . . . . . . . . .13
Section 21. Other Regular Meetings.. . . . . . . . . . . . . . .13
Section 23. Quorum.. . . . . . . . . . . . . . . . . . . . . . .14
Section 24. Contents of Notice and Waiver of Notice. . . . . . .14
Section 26. Notice of Adjournment. . . . . . . . . . . . . . . .15
ARTICLE III - Directors; Management (contd.)
Section 27. Telephone Participation. . . . . . . . . . . . . . .15
Section 28. Action without Meeting.. . . . . . . . . . . . . . .15
ARTICLE IV - Officers
Section 30. Officers.. . . . . . . . . . . . . . . . . . . . . .16
Section 31. Election.. . . . . . . . . . . . . . . . . . . . . .16
Section 32. Subordinate Officers.. . . . . . . . . . . . . . . .16
Section 33. Removal and Resignation. . . . . . . . . . . . . . .17
Section 34. Vacancies. . . . . . . . . . . . . . . . . . . . . .17
Section 35. Chairman of the Board. . . . . . . . . . . . . . . .17
Section 36. President. . . . . . . . . . . . . . . . . . . . . .17
Section 37. Vice Presidents. . . . . . . . . . . . . . . . . . .18
Section 38. Secretary. . . . . . . . . . . . . . . . . . . . . .18
Section 39. Chief Financial Officer. . . . . . . . . . . . . . .19
ARTICLE V - General Corporate Matters
Section 40. Record Date and Closing of Stockbooks. . . . . . . .20
Section 41. Corporate Records and Inspection by Shareholders and Directors.20
Section 42. Checks, Drafts, Evidences of Indebtedness. . . . . .22
Section 43. Corporate Contracts and Instruments; How Executed. .22
Section 44. Stock Certificates.. . . . . . . . . . . . . . . . .22
Section 45. Lost Certificates. . . . . . . . . . . . . . . . . .22
Section 46. Reports to Shareholders. . . . . . . . . . . . . . .23
Section 47. Indemnification. . . . . . . . . . . . . . . . . . .24
(a) Indemnification of Directors and Officers.. . . . . . . .24
(b) Indemnification of Employees and Agents.26 . . . .
ARTICLE V - General Corporate Matters (contd.)
(c) Action to Enforce Rights Under this Section.. . . . . .27
(d) Entitlement to Expenses.. . . . . . . . . . . . . . . .27
(e) Non-Exclusivity. . . . . . . . . . . . . . . . . . . .28
(f) Insurance. . . . . . . . . . . . . . . . . . . . . . . .28
(g) Expenses as a Witness. . . . . . . . . . . . . . . . . .28
(h) demnity Agreements.. . . . . . . . . . . . . . . . . . .28
(I) Severability.. . . . . . . . . . . . . . . . . . . . . .28
(j) Entities Merged with this Corporation. . . . . . . . . .29
(k) Repeals.. . . . . . . . . . . . . . . . . . . . . . . . .29
ARTICLE VI - Amendments
Section 48. Amendment by Shareholders. . . . . . . . . . . . . .29
Section 49. Amendment by Directors.. . . . . . . . . . . . . . .30
ARTICLE VII - Committees of the Board
Section 50. Committees of the Board. . . . . . . . . . . . . . .30
Certificate of Secretary. . . . . . . . . . . . . . . . . . . . 32
BY-LAWS
OF
NORTH VALLEY BANCORP
ARTICLE I
Offices
Section 1. Principal Office. The principal executive office in the
State of California for the transaction of the business of the corporation
(called the principal office) is fixed and located at:
880 E. Cypress Street
Redding, California
The Board of Directors shall have the authority from time to time to change the
principal office from one location to another within the State by amending this
Section 1.
Section 2. Other Offices. One or more branches or other subordinate
offices may at any time be fixed and located by the Board of Directors at such
place or places within or without the State of California as it deems
appropriate.
ARTICLE II
Meetings of Shareholders
Section 3. Place of Meetings. Meetings of the shareholders shall be
held at any place within or outside the State of California that may be
designated either by the Board of Directors in accordance with these By-Laws,
or by the written consent of all persons entitled to vote at the meeting, given
either before or after the meeting and filed with the Secretary of the
corporation. If no such designation is made, the meetings shall be held at the
principal office of the corporation designated in Section I of these By-Laws.
Section 4. Annual Meetings. The annual meeting of the shareholders
shall be held on the third Tuesday in May in each year, if not a legal holiday,
and if a legal holiday, then on the next succeeding business day, at the hour
of 5:30 P.M., at which time the shareholders shall elect a Board of Directors,
consider reports of the affairs of the corporation, and transact such other
business as may properly be brought before the meeting.
If the annual meeting of shareholders shall not be held on the date
above specified, the Board of Directors shall cause such a meeting to be held
as soon thereafter as convenient, and any business transacted or election held
at such meeting shall be as valid as if transacted or held at an annual meeting
on the date above specified.
Section 5. Special Meetings. Special meetings of the shareholders,
for any purpose or purposes whatsoever, may be called at any time by the Board
of Directors, Chairman of the Board, the President, or by holders of shares
entitled to cast not less than ten (10) percent of the votes at the meeting.
Section 6. Notice of Shareholders' Meetings. Whenever shareholders
are required or permitted to take any action at a meeting, a written notice of
the meeting shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each shareholder entitled to vote thereat.
Such notice shall state the place, date and hour of the meeting and (i) in the
case of a special meeting, the general nature of the business to be transacted,
and no other business may be transacted, or (ii) in the case of the annual
meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders, but subject to the
provisions of Section 601(f) of the Corporations Code, any proper matter may be
presented at the meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by management for election.
Notice of a shareholders' meeting shall be given either personally or by
first class mail or other means of written communication, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal office of the corporation is located. The notice shall be deemed to
have been given at the time when delivered personally or deposited in the
mail or sent by other means of written communication.
Notwithstanding the foregoing, whenever the corporation has outstanding
shares held of record by 500 or more persons, notice may be given by third
class mail as provided in Sections 601(a) and 601(b) of the Corporations Code.
If any notice addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices shall be deemed to have been duly given
without further mailing if the same shall be available for the shareholder upon
written demand of the shareholder at the principal office of the corporation
for a period of one year from the date of the giving of the notice to all other
shareholders.
Upon request in writing to the Chairman of the Board, President, Vice
President or Secretary by any person entitled to call a special meeting of
shareholders, the officer forthwith shall cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested
by the person or persons calling the meeting, not less than thirty-five (35)
nor more than sixty (60) days after the receipt of the request.
Section 7. Quorum. The presence at any meeting, in person or by
proxy, of the persons entitled to vote a majority of the voting shares of the
corporation shall constitute a quorum for the transaction of business.
Shareholders present at a valid meeting at which a quorum is initially present
may continue to do business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by persons voting more than twenty-five percent
(25%) of the voting shares.
Section 8. Adjourned Meeting. Any annual or special shareholders'
meeting may be adjourned from time to time, even though a quorum is not
present, by vote of the holders of a majority of the voting shares present at
the meeting either in person or by proxy, provided that in the absence of a
quorum, no other business may be transacted at the meeting except as provided
in Section 7.
Notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than
forty-five (45) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting.
Section 9. Waiver or Consent by Shareholders. The transactions of
any meeting of shareholders, however called and noticed, and wherever held, are
as valid as though had at a meeting duly held after regular call and notice, if
a quorum is present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not present in person
or by proxy, signs a written waiver of notice or a consent to the holding
of the meeting or an approval of the minutes thereof. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting. Attendance of a person at a meeting shall
constitute a waiver of notice of and presence at such meeting, except when the
person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by Section 6 of these By-Laws or Section
601(f) of the Corporations Code to be included in the notice but not so
included, if such objection is expressly made at the meeting. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of shareholders need be specified in any written waiver of notice, consent to
the holding of the meeting or approval of the minutes thereof, except as
provided in Section 601(f) of the Corporations Code.
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; Cumulative Voting. 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 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 an 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.
Section 12. Proxies. Every person entitled to vote shares may
authorize another person or persons to act by proxy with respect to such
shares. All proxies must be in writing and must be signed by the shareholder
confirming the proxy or his attorney-in-fact. No proxy shall be valid after
the expiration of eleven (11) months from the date thereof unless otherwise
provided in the proxy. Every proxy continues in full force and effect until
revoked by the person executing it prior to the vote pursuant thereto, except
as otherwise provided in Section 705 of the Corporations Code. Such
revocation may be effected by a writing delivered to the corporation stating
that the proxy is revoked or by a subsequent proxy executed by the person
executing the prior proxy and presented to the meeting, or as to any meeting,
by attendance at such meeting and voting in person by, the person executing the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders the Board may appoint inspectors of election to act at the meeting
and any adjournment thereof. If inspectors of election are not so appointed, or
if any persons so appointed fail to appear or refuse to act, the chairman of
any meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election (or persons to
replace those who so fail or refuse) at the meeting. The number of inspectors
shall be either one or three. If appointed at a meeting on the request of one
or more shareholders or proxies, the majority of shares represented in person
or by proxy shall determine whether one or three inspectors are to be appointed.
If there are three inspectors of election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote,
count and tabulate all votes or consents, determine when the polls shall
close, determine the result and do such acts as may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
Directors; Management
Section 14. Powers. Subject to any provisions of the Articles of
Incorporation, of the By-Laws and of law limiting the powers of the Board of
Directors or reserving powers to the shareholders, the Board of Directors
shall, directly or by delegation, manage the business and affairs of the
corporation and exercise all corporate powers permitted by law.
Section 15. Number and Qualification of Directors. The authorized
number of directors shall not be less than six (6) nor more than eleven (11),
unless and until changed by an amendment of this By-law adopted by the
shareholders pursuant to Section 48. The exact number of directors within said
range shall be fixed from time to time (i) by a resolution duly adopted by the
Board of Directors; or (ii) by an amendment of this Section 15 of these
By-laws duly adopted by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of the holders of a majority of the outstanding shares entitled
to vote; or (iii) by approval of the shareholders (as defined in Section 153 of
the California General Corporation Law). Subject to the foregoing provisions
for changing the number of directors, the number of directors of this
corporation is hereby fixed at eight (8). A reduction in the authorized
number of directors shall not remove any director prior to the expiration of
such director's term of office. Directors need not be shareholders of the
corporation.
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 twenty-one (21) days nor more than sixty (60) days prior to any
meeting of shareholders called for election of directors; provided, however,
that if less than twenty-one (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 (10th) 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's instructions, the inspectors
of election can disregard all votes cast for each such nominee. A copy of this
paragraph shall be set forth in a notice to shareholders of any meeting at
which Directors are to be elected."
Section 16. Election and Term of Office. The directors shall be
elected annually by the shareholders at the annual meeting of the shareholders;
provided, that if for any reason, said annual meeting or an adjournment thereof
is not held or the directors are not elected thereat, then the directors may be
elected at any special meeting of the shareholders called and held for that
purpose. The term of office of the directors shall, except as provided in
Section 17, begin immediately after their election and shall continue until
their respective successors are elected and qualified.
Section 17. Removal of Directors. A director may be removed from
office by the Board of Directors if he is declared of unsound mind by the order
of court or convicted of a felony. Any or all of the directors may be removed
from office without cause by a vote of shareholders holding a majority of the
outstanding shares entitled to vote at an election of directors; however,
unless the entire Board is removed, an individual director shall not be
removed if the votes cast against removal, or not consenting in writing to
such removal, would be sufficient to elect such director if voted cumulatively
at an election at which the same total number of votes were cast, or, if such
action is taken by written consent, all shares entitled to vote were voted, and
the entire number of directors authorized at the time of the director's most
recent election were then being elected. A director may also be removed
from office by the Superior Court of the county in which the principal office
is located, at the suit of shareholders holding at least ten percent (10%) of
the number of outstanding shares of any class, in case of fraudulent or
dishonest acts or gross abuse of authority or discretion with reference to the
corporation, in the manner provided by law.
No reduction of the authorized number of directors shall have the effect
of removing any director before his term of office expires.
Section 18. Vacancies. A vacancy or vacancies on the Board of
Directors shall exist on the death, resignation, or removal of any director, or
if the authorized number of directors is increased or the shareholders fail to
elect the full authorized number of directors. Except for a vacancy created by
the removal of a director, vacancies on the Board of Directors may be filled by
a majority of the remaining directors although less than a quorum, or by a sole
remaining director, and each director elected in this manner shall hold
office until his successor is elected at an annual or special shareholders'
meeting.
The shareholders may elect a director at any time to fill any vacancy
not filled by the directors. Any such election by written consent other than
to fill a vacancy created by removal requires the consent of a majority of the
outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors
of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Section 19. Place of Meetings. Regular and special meetings of the
Board of Directors shall be held at any place within or outside the State of
California that is designated by resolution of the Board or, either before or
after the meeting, consented to in writing by all the Board members. If the
place of a regular or special meeting is not fixed by resolution or written
consents of the Board, it shall be held at the corporation's principal
office.
Section 20. Organizational Meetings. Immediately following each
annual shareholders' meeting, the Board of Directors shall hold an
organizational meeting to organize, elect officers, and transact other
business. Notice of this meeting shall not be required.
Section 21. Other Regular Meetings. Other regular meetings of the
Board of Directors shall be held on the third Monday of each month at the hour
of 4:30 P.M., provided, however, if this day falls on a legal holiday, the
meeting shall be held at the same time on the next succeeding day that is a
full business day. Notice of these regular meetings shall not be required.
Section 22. Special Meetings. Special meetings of the Board of
Directors for any purpose may be called at any time by the Chairman of the
Board, or the President, or any Vice President, or the Secretary, or any two
directors. Special meetings of the Board shall be held upon four days notice
by mail or forty-eight (48) hours notice delivered personally or by telephone
or through a voice messaging system or other system or technology designed
to record and communicate message, facsimile, electronic mail or other
electronic means. If notice is by telephone, it shall be complete when the
person calling the meeting believes in good faith that the notified person has
heard and acknowledged the notice. If the notice is by mail or through a voice
messaging system or other system or technology designed to record and
communicate message, facsimile, electronic mail or other electronic means, it
shall be complete when deposited in the United States mail or delivered
through a voice messaging system or other system or technology designed to
record and communicate message, facsimile, electronic mail or other electronic
means, charges prepaid and addressed to the notified person at such person's
address appearing on the corporate records or, if it is not on these records or
is not readily ascertainable, at the place where the regular Board meeting is
held.
Section 23. Quorum. A majority of the authorized number of
directors, but in no event less than two (unless the authorized number of
directors is one), shall constitute a quorum for the transaction of business,
except to adjourn a meeting under Section 25. Every act done or decision made
by a majority of the directors present at a meeting at which a quorum is
present shall be regarded as the act of the Board of Directors, unless the vote
of a greater number is required by law, the Articles of Incorporation, or these
By-Laws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by a majority of the required quorum for such meeting.
Section 24. Contents of Notice and Waiver of Notice. Neither the
business to be transacted at, nor the purpose of, any regular or special Board
meeting need be specified in the notice or waiver of notice of the meeting.
Notice of a meeting need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, either before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to said
director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 25. Adjournment. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place.
Section 26. Notice of Adjournment. Notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the time
and place are fixed at the meeting being adjourned, except that if the meeting
is adjourned for more than twenty-four (24) hours such notice shall be given
prior to the adjourned meeting to the directors who were not present at the
time of the adjournment.
Section 27. Telephone Participation. Members of the Board may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meetings
can hear one another. Such participation constitutes presence in person at
such meeting.
Section 28. Action without Meeting. The Board of Directors may take
any action without a meeting that may be required or permitted to be taken by
the Board at a meeting, if all members of the Board individually or
collectively consent in writing to the action. The written consent or consents
shall be filed in the minutes of the proceedings of the Board. Such action by
written consent shall have the same effect as an unanimous vote of directors.
Section 29. Fees and Compensation. Directors and members of
committees shall receive neither compensation for their services nor
reimbursement for their expenses unless these payments are fixed by resolution
of the Board.
ARTICLE IV
Officers
Section 30. Officers. The officers of the corporation shall be a
President, a Secretary, and a Chief Financial Officer. The corporation may
also have, at the discretion of the Board of Directors, a Chairman of the
Board, Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Chief Financial Officer's, and any other officers who may
be appointed under Section 32 of these By-Laws.
Section 31. Election. The officers of the corporation, except those
appointed under Section 32 of these By-Laws, shall be chosen annually by the
Board of Directors, and each shall hold his office until he resigns or is
removed or otherwise disqualified to serve, or his successor is elected and
qualified.
Section 32. Subordinate Officers. The Board of Directors may
appoint, and may authorize the President to appoint, any other officers that
the business of the corporation may require, each of whom shall hold office for
the period, have the authority, and perform the duties specified in the By-Laws
or by the Board of Directors.
Section 33. Removal and Resignation. Any officer may be removed with
or without cause either by the Board of Directors at any regular or special
directors' meeting or, except for an officer chosen by the Board, by any
officer on whom the power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Board
of Directors, the President or the Secretary of the corporation. An officer's
resignation shall take effect when it is received or at any later time
specified in the resignation. Unless the resignation specifies otherwise, its
acceptance by the corporation shall not be necessary to make it effective.
Section 34. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in the By-Laws for regular appointments to the office.
Section 35. Chairman of the Board. The Board of Directors may in its
discretion elect a Chairman of the Board, who shall preside at all meetings of
the directors and shareholders at which he is present and shall exercise and
perform any other powers and duties assigned to him by the Board or prescribed
by the By-Laws.
Section 36. President. Subject to any supervisory powers that may be
given by the Board of Directors or the By-Laws to the Chairman of the Board,
the President shall be the corporation's Chief Executive Officer and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control over the corporation's business and officers. He
shall preside as chairman at all meetings of the shareholders and directors
not presided over by the Chairman of the Board. He shall be ex officio a
member of all the standing committees, shall have the general powers and duties
of management usually vested in a corporation's president; shall have any other
powers and duties that are prescribed by the Board of Directors or the By-Laws;
and shall be primarily responsible for carrying out all orders and resolutions
of the Board of Directors.
Section 37. Vice Presidents. If the President is absent or is
unable or refuses to act, the Vice Presidents in order of their rank as fixed
by the Board of Directors or, if not ranked, the Vice President designated by
the Board of Directors, shall perform all the duties of the President, and when
so acting shall have all the powers of, and be subject to all the restrictions
on, the President. Each Vice President shall have any other powers and perform
any other duties that are prescribed for him by the Board of Directors or the
By-Laws.
Section 38. Secretary. The Secretary shall keep or cause to be kept,
and be available at the principal office and any other place that the Board of
Directors specifies, a book of minutes of all directors' and shareholders'
meetings. The minutes of each meeting shall state the time and place that it
was held; whether it was regular or special; if a special meeting, how it was
authorized; the notice given; the names of those present or represented
at shareholders' meetings; and the proceedings of the meetings. A similar
minute book shall be kept for any committees, if required by the Board.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the shareholders' names and addresses, the
number and classes of shares held by each, the number and date of each
certificate issued for these shares, and the number and date of cancellation of
each certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all directors'
and shareholders' meetings required to be given under these By-Laws or by law,
shall keep the corporate seal in safe custody, and shall have any other powers
and perform any other duties that are prescribed by the Board of Directors or
the By-Laws.
Section 39. Chief Financial Officer. The Chief Financial Officer
shall be the corporation's chief financial officer and shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounts of the
corporation's properties and business transactions, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, capital, retained
earnings, and shares. The books of account shall at all reasonable times be
open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables
in the name and to the credit of the corporation with the depositories
designated by the Board of Directors. He shall disburse the corporation's
funds as ordered by the Board of Directors; shall render to the President and
directors, whenever they request it, an account of all his transactions as
Chief Financial Officer and of the corporation's financial condition; and
shall have any other powers and perform any other duties that are prescribed by
the Board of Directors or By-Laws.
If required by the Board of Directors, the Chief Financial Officer shall
give the corporation a bond in the amount and with the surety or sureties
specified by the Board for faithful performance of the duties of their office
and for restoration to the corporation of all its books, papers, vouchers,
money, and other property of every kind in his or her possession or under his
or her control on his or her death, resignation, retirement, or removal from
office.
ARTICLE V
General Corporate Matters
Section 40. Record Date and Closing of Stockbooks. The Board of
Directors may fix a time in the future as a record date for determining
shareholders entitled to notice of and to vote at any shareholders' meeting; to
receive any dividend, distribution, or allotment of rights; or to exercise
rights in respect of any other lawful action, including change, conversion, or
exchange of shares. The record date shall not, however, be more than sixty
(60) nor less than ten (10) days prior to the date of such meeting nor more
than sixty (60) days prior to any other action. If a record date is fixed for
a particular meeting or event, only shareholders of record on that date are
entitled to notice and to vote and to receive the dividend, distribution, or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation
after the record date.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board fixes a new record date for the adjourned meeting, but the
Board shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days.
Section 41. Corporate Records and Inspection by Shareholders and
Directors. Books and records of account and minutes of the proceedings of
the shareholders, Board, and committees of the Board shall be kept available
for inspection at the principal office. A record of the shareholders, giving
the names and addresses of all shareholders and the number and class of shares
held by each, shall be kept available for inspection at the principal office or
at the office of the corporation's transfer agent or registrar.
A shareholder or shareholders holding at least five percent (5%) in the
aggregate of the outstanding voting shares of the corporation shall have an
absolute right to do either or both of the following: (i) inspect and copy the
record of shareholders' names and addresses and shareholdings during usual
business hours upon five business days prior written demand upon the
corporation, or (ii) obtain from the transfer agent for the corporation, upon
five (5) business days prior written demand and upon the tender of its usual
charges for such a list (the amount of which charges shall be stated to the
shareholder by the transfer agent upon request), a list of the shareholders'
names and addresses, who are entitled to vote for the election of directors,
and their shareholdings, as of the most recent record date for which it
has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interests as a
shareholder or holder of a voting trust certificate. Inspection and copying
may be made in person or by agent or attorney.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation and its subsidiary corporations,
domestic or foreign. Such inspection by a director may be made in person or by
agent or attorney and includes the right to copy and make extracts.
Section 42. Checks, Drafts, Evidences of Indebtedness. All checks,
drafts, or other orders for payment of money, notes, and all mortgages, or
other evidences of indebtedness, issued in the name of or payable to the
corporation, and all assignments and endorsements of the foregoing, shall be
signed or endorsed by the person or persons and in the manner specified by the
Board of Directors.
Section 43. Corporate Contracts and Instruments; How Executed. Except
as otherwise provided in the By-Laws, officers, agents, or employees must be
authorized by the Board of Directors to enter into any contract or execute any
instrument in the corporation's name and on its behalf. This authority may be
general or confined to specific instances.
Section 44. Stock Certificates. One or more certificates for shares
of the corporation's capital stock shall be issued to each shareholder for any
of his shares that are fully paid up. The corporate seal or its facsimile may
be fixed on certificates. All certificates shall be signed by the Chairman of
the Board, President, or a Vice President and the Secretary, Chief Financial
Officer, or an Assistant Secretary. Any or all of the signatures on the
certificate may be facsimile signatures.
Section 45. Lost Certificates. No new share certificate that replaces
an old one shall be issued unless the old one is surrendered and cancelled at
the same time; provided, however, that if any share certificate is lost,
stolen, mutilated, or destroyed, the Board of Directors may authorize issuance
of a new certificate replacing the old one on any terms and conditions,
including a reasonable arrangement for indemnification of the corporation, that
the Board may specify.
Section 46. Reports to Shareholders. The requirement for the annual
report to shareholders referred to in Section 1501(a) of the California
Corporations Code is hereby expressly waived so long as there are less than one
hundred (100) holders of record of the corporation's shares. The Board of
Directors shall cause to be sent to the shareholders such annual or other
periodic reports as they consider appropriate or as otherwise required by
law. In the event the corporation has one hundred (100) or more holders of its
shares, an annual report complying with Section 1501(a) and, when applicable,
Section 1501(b) of the Corporations Code shall be sent to the shareholders not
later than one hundred twenty (120) days after the close of the fiscal year and
at least fifteen (15) days prior to the annual meeting of shareholders to be
held during the next fiscal year.
If no annual report for the last fiscal year has been sent to
shareholders, the corporation shall, upon the written request of any
shareholder made more than one hundred twenty (120) days after the close of
such fiscal year, deliver or mail to the person making the request within
thirty (30) days thereafter the financial statements referred to in Section
1501(a) for such year.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of a corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month, or nine-month period of the current fiscal year ended more than
thirty (30) days prior to the date of the request and a balance sheet of the
corporation as of the end of such period and, in addition, if no annual
report for the last fiscal year has been sent to shareholders, the statements
referred to in Section 1501(a) of the Corporations Code for the last fiscal
year. The statement shall be delivered or mailed to the person making the
request within thirty (30) days thereafter. A copy of the statements shall be
kept on file in the principal office of the corporation for twelve (12) months
and they shall be exhibited at all reasonable times to any shareholder
demanding an examination of them or a copy shall be mailed to such shareholder.
The income statements and balance sheets referred to shall be accompanied by
the report thereon, if any, of any independent accountants engaged by the
corporation or the certificate of an authorized officer of the corporation that
such financial statements were prepared without audit from the books and
records of the corporation.
Section 47. Indemnification.
(a) Indemnification of Directors and Officers. Each person who
was or is a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, formal or
informal, whether brought in the name of the corporation or otherwise and
whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is an
alleged action or inaction in an official capacity or in any other capacity
while serving as a director or officer, shall, subject to the terms of any
agreement between the corporation and such person, be indemnified and held
harmless by the corporation to the fullest extent permissible under California
law and the corporation's Articles of Incorporation, against all costs,
charges, expenses, liabilities and losses (including attorneys' fees,
judgments, fines, ERISA excise tax or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that (i) the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the corporation, and (ii) the corporation shall indemnify such person seeking
indemnification in connection with a proceeding (or part thereof) other than a
proceeding by or in the name of the corporation to procure a judgment in its
favor only if any settlement of such a proceeding is approved in writing by the
corporation, and (iii) no such person shall be indemnified (A) if a court of
competent jurisdiction finally determines that any indemnification hereunder is
unlawful; (B) for any acts or omissions or transactions from which a director
may not be relieved of liability as set forth in the exception to paragraph 10
of Section 204(a) of the California Corporations Code; and (C) as to
circumstances in which indemnity is expressly prohibited by Section 317 of the
California Corporations Code. The right to indemnification conferred in this
Section 47 shall be a contract right and shall include the right to be paid by
the corporation expenses incurred in defending any proceeding in advance of its
final disposition; provided, however, that if the California Corporations Code
requires the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, such advances shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts to the corporation if it shall be ultimately
determined that such person is not entitled to be indemnified.
(b) Indemnification of Employees and Agents. A person who was or
is a party or is threatened to be made a party to or is involved in any
proceedings by reason of the fact that he or she is or was an employee or agent
of the corporation or is or was serving at the request of the corporation as an
employee or agent of another enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is an alleged
action or inaction in an official capacity or in any other capacity while
serving as an employee or agent, may, subject to the terms of any agreement
between the corporation and such person, be indemnified and held harmless by
the corporation to the fullest extent permitted by California law and the
corporation's Articles of Incorporation, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement),
reasonably incurred or suffered by such person in connection therewith. The
immediately preceding sentence is not intended to be and shall not be
considered to confer a contract right on any employee or agent (other than
directors and officers) of the corporation.
(c) Action to Enforce Rights Under this Section. If a claim under
this Section 47 is not paid in full by the corporation within thirty (30) days
after a written claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
also be entitled to be paid the expense of prosecuting such claim. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met the applicable standard of
conduct, if any, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant has not met the applicable standard of conduct, shall be a defense to
the action or create a presumption for the purpose of an action that the
claimant has not met the applicable standard of conduct.
(d) Entitlement to Expenses. Notwithstanding any other provision
of this Section 47, to the extent that a director, officer or agent has been
successful on the merits or otherwise (including the dismissal of an action
without prejudice or the settlement of a proceeding or action without admission
of liability) in defense of any proceeding referred to in this Section 47 or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
in connection therewith.
(e) Non-Exclusivity. The right to indemnification provided by this
Section 47 shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, by-law, agreement, vote of
shareholders or disinterested directors or otherwise.
(f) Insurance. The corporation shall maintain insurance, to the
extent reasonably available, at its expense, to protect itself and any
director, officer, employee or agent of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the law.
(g) Expenses as a Witness. To the extent that any director,
officer, employee or agent of the corporation is by reason of such position, or
a position with another entity at the request of the corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all
costs and expenses actually and reasonably incurred by him or her on his or her
behalf in connection therewith.
(h) Indemnity Agreements. The corporation may, without
shareholder approval, enter into agreements with any director, officer,
employee or agent of the corporation providing for indemnification to the
fullest extent permissible under the law and the corporation's Articles of
Incorporation.
(i) Severability. Each and every paragraph, sentence, term and
provision of this Section 47 is separate and distinct so that if any paragraph,
sentence, term or provision hereof shall be held to be invalid or unenforceable
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of any other paragraph, sentence, term or provision
hereof. To the extent required, any paragraph, sentence, term or provision of
this Section 47 may be modified by a court of competent jurisdiction to
preserve its validity and to provide the claimant with, subject to the
limitations set forth in this Section 47 and any agreement between the
corporation and claimant, the broadest possible indemnification permitted under
applicable law.
(j) Entities Merged with this Corporation. No provision of this
Section 47 shall be applicable and unless otherwise required by California law
indemnification shall not be permitted in respect of any acts, omissions or
transactions of any person while serving as a director, officer, employee or
agent of any corporation which shall have been or shall hereafter be merged
into or otherwise combined with this corporation, or of another enterprise in
respect of which such person was serving as a director, officer, employee or
agent at the request of any such other corporation, or of any enterprise
controlling, controlled by or under common control with any such other
corporation, unless specifically approved by a majority vote of the Board of
Directors of this corporation.
(k) Repeals. Any repeal or modification of this Section 47
(however effected) shall not adversely affect any right of indemnification of a
director or officer existing at the time of such repeal or modification with
respect to any act, omission or transaction occurring prior to such repeal or
modification.
ARTICLE VI
Amendments
Section 48. Amendment by Shareholders. By-Laws may be adopted,
amended or repealed by the affirmative vote or written consent of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
to Section 15 reducing the number of directors on a fixed-number Board or the
minimum number of directors on a variable-number Board to a number less than
five cannot be adopted if the votes cast against its adoption at a meeting or
the shares not consenting, in the case of action by written consent, are equal
to more than sixteen and two-thirds percent (16-2/3%) of the outstanding
shares entitled to vote.
Section 49. Amendment by Directors. Subject to the right of
shareholders under the preceding Section 48, by-laws may be adopted, amended,
or repealed by the Board of Directors, except that only the shareholders can
adopt a by-law or amendment thereto which specifies or changes the number of
directors on a fixed-number Board, or the minimum or maximum number of
directors on a variable-number Board, or which changes from a fixed-number
Board to a variable-number Board or vice versa.
ARTICLE VII
Committees of the Board
Section 50. Committees of the Board. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more commitees, each consisting of two or more directors, to
serve at the pleasure of the Board and with such authority and organization as
the Board may from time to time determine. The Board may designate one or
more directors as alternate members of any committee, who may replace any
absent member at any meeting of the committee. The appointment of members or
alternate members of a committee requires the vote of a majority
of the authorized number of directors. Any such committee, to the extent
provided in the resolution of the Board shall have all the authority of the
Board, except with respect to:
(1) The approval of any action for which shareholder approval is also
required.
(2) The filling of vacancies on the Board or in any committee.
(3) The fixing of compensation of the directors for serving on the
Board or on any committee.
(4) The amendment or repeal of by-laws or the adoption of new by-laws.
(5) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable.
(6) A distribution to the shareholders of the corporation as defined
in Section 166 of the Corporations Code, except at a rate or in a periodic
amount or within a price range determined by the Board.
(7) The appointment of other committees of the Board or the members
thereof.
The Board shall designate a chairman for each committee who shall have
the sole power to call any committee meeting other than a meeting set by the
Board. Except as otherwise established by the Board, Article III of these
By-Laws shall apply to committees of the Board and action by such committees,
mutatis mutandis.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of North Valley
Bancorp, a California corporation; and
2. That the foregoing Bylaws, comprising thirty-two (32) pages,
including this certificate, constitutes the duly adopted Bylaws of said
Corporation and said Bylaws have been ratified and approved by the unanimous
written consent of the Directors of the Corporation, pursuant to Section 307(b)
of the California Corporations Code.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this 20th day of July, 1998.
/s/ J. M. Wells, Jr.
J. M. Wells, Jr., Secretary
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of July 20,
1998 by North Valley Bank, a banking corporation organized and existing under
the laws of the State of California ("Bank"), and North Valley Bancorp, a
corporation organized and existing under the laws of the State of California
("NVB") (Bank and NVB being herein collectively referred to as the "Company"),
for the benefit of the Indemnitees (as defined below).
R E C I T A L S
In order to attract and retain highly qualified persons such as the
Indemnitees to serve as directors or officers of the Company, the Company has
determined that it is in the best interests of the Company and its shareholders
for the Company to contractually obligate itself to indemnify the Indemnitees
and to set forth the details of the indemnification process in this Agreement.
AGREEMENT
THEREFORE, in consideration of the premises and the mutual promises
herein contained, the Company and each Indemnitee hereby covenant and agree as
follows:
1. Definitions. As used in this Agreement:
a. The term "Company," as used herein, unless the content shall
otherwise require, shall be deemed to refer to the Company and any corporation,
partnership or other enterprise controlled by the Company or any corporation,
partnership or other enterprise as to which the Indemnitee is serving as a
director, officer, employee or agent at the request of the Company.
b. The term "Covered Matter" means any threatened, pending or
completed action, suit, arbitration or proceeding of any kind, wherever
brought, whether civil, criminal, administrative or investigative and whether
formal or informal (including actions by or in the right of the Company and any
preliminary inquiry or claim by any person or authority), by reason of or
associated with the fact that the Indemnitee is or was a director, officer,
partner, trustee, employee, consultant or agent of the Company, or is or was
serving at the Company's request, or for the convenience of or otherwise to
benefit or represent the interests of the Company or a subsidiary of the
Company, as a director, officer, employee or agent of another corporation,
limited liability company, partnership, joint venture, trust, employee benefit
plan or other enterprise, whether or not for profit, or by reason of anything
done or not done by the Indemnitee in any such capacity.
c. The term "Expenses" means all direct and indirect costs and
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, expert fees, other professional fees,
court costs, travel and deposition costs, expenses of investigations, judicial
or administrative proceedings and appeals, and any expenses of establishing a
right to indemnification, pursuant to this Agreement or otherwise, provided
that such right to indemnification is in fact established) incurred by the
Indemnitees in connection with a Covered Matter, [together with interest
thereon commencing 30 days after incurrence]. The term "Expenses" does not
include the amount ofjudgments, fines, penalties, settlement amounts paid by or
on behalf of the Indemnitee or excise taxes relating to employee benefit plans
actually levied against the Indemnitee.
d. The term "Indemnitee" shall mean any person who as of the date
hereof is or at any date hereafter shall be serving as a director or officer of
the Company.
e. The term "Indemnified Amounts" shall mean all Expenses,
liabilities, judgements (including punitive and exemplary damages), penalties,
fines (including excise taxes relating to employee benefit plans and civil
penalties) and amounts paid or to be paid in settlement which are incurred by
or imposed upon an Indemnitee in connection with a Covered Matter, including
all interest assessments on any of the foregoing.
f. The term "Change in Control" shall mean the occurrence of any of
the following:
(1) Both (A) any "person" (as defined below) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of securities of
NVB representing at least 15% of the total voting power
represented by NVB's then outstanding voting securities; and (B)
the beneficial ownership by such person of securities
representing such percentage has not been approved by a majority
of the "continuing directors" (as defined below); or
(2) Any "person" (as defined below) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of securities of NVB
representing at least 50% of the total voting power represented
by NVB's then outstanding voting securities; or
(3) A change in the composition of the Board of Directors of
NVB occurs, as a result of which fewer than two-thirds of the
incumbent directors are directors who either (A) had been
directors of NVB on the "look-back date" (as defined below) (the
"Original Directors") or (B) were elected, or nominated for
election, to the Board of Directors of NVB with the affirmative
votes of at least a majority in the aggregate of the Original
Directors who were still in office at the time of the election
or nomination and directors whose election or nomination was
previously so approved (the "continuing directors"); or
(4) The shareholders of NVB approve a merger or consolidation
of NVB with any other corporation, if such merger or
consolidation would result in the voting securities of NVB
outstanding immediately prior thereto representing (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) 50% or less of the total
voting power represented by the voting securities of NVB or such
surviving entity outstanding immediately after such merger or
consolidation; or
(5) The shareholders of NVB approve (A) a plan of complete
liquidation of NVB or (B) an agreement for the sale or
disposition by NVB of all or substantially all of NVB's assets.
For purposes of Subsection (1) above, the term "person" shall
have the same meaning as when used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, but shall exclude (x) a
trustee or other fiduciary holding securities under an employee
benefit plan of the Company or of a parent or subsidiary of the
Company or (y) a corporation owned directly or indirectly by
the shareholders of the Company in substantially the same
proportions as their ownership of the common stock of the
Company.
For purposes of Subsection (3) above, the term "look-back date"
shall mean the later of (x) the date of this Agreement or (y)
the date 24 months prior to the date of the event that may
constitute a "Change in Control."
The term "Change in Control" shall not include (1) a transaction,
if undertaken at the election of the Company, the result of which
is to sell all or substantially all of the assets of the Company
to another corporation (the "surviving corporation"); provided
that the surviving corporation is owned directly or indirectly
by the shareholders of the Company immediately following such
transaction in substantially the same proportions as their
ownership of the Company's common stock immediately preceding
such transaction; and provided, further, that the surviving
corporation expressly assumes this Agreement; or (2) an
acquisition of voting and other rights on outstanding shares by a
voting trustee who is approved (and the agreement under which he
acts is approved) by the continuing directors, but not any
subsequent Change of Control effected by the voting trustee or
otherwise.
2. Basis for Indemnification. This Agreement is extended by the Company to
each Indemnitee in consideration of his or her agreement to serve as a director
or officer of the Company. The Indemnitee, if a director of the Company, will
continue to serve as a member of the Board of Directors of the Company so long
as the director is duly elected and qualified to so serve and until the
director resigns or is removed from the Company's Board of Directors. The
Indemnitee, if an officer of the Company, will continue to serve as an
officer of the Company so long as the officer is duly appointed and qualified
to so serve and until the officer resigns or is removed from office. No
provision hereof shall be deemed to create any right to continued service as a
director or officer of the Company on the part of any Indemnitee.
3. Indemnification.
a. The Company shall indemnify and hold harmless each Indemnitee to
the fullest extent permitted under applicable law (including, without
limitation, Section 28(k) of the Federal Deposit Insurance Act and Part 359 of
the Rules and Regulations of the Federal Deposit Insurance Commission
(collectively, the "FDIC Rules")) if the Indemnitee was or is a party to any
Covered Matter. Such indemnification will cover all Indemnified Amounts.
b. The Indemnitee will be so indemnified for all Indemnified Amounts
and the Company will defend the Indemnitee against claims (including threatened
claims and investigations) which are Covered Matters, including claims brought
by or on behalf of the Company, except if it is finally determined by the court
of last resort (or by a lower court if not timely appealed) that the payment is
prohibited by applicable law.
c. If the Indemnitee is entitled under this Agreement to indemn-
ification for less than all of the amounts incurred by the Indemnitee in
connection with a Covered Matter, the Company will indemnify the Indemnitee for
the indemnifiable amount.
4. Presumption Regarding Standards of Conduct; Determination of Right to
Indemnification. The Indemnitee shall be conclusively presumed to have met any
required standard of conduct established by applicable law, if any, for
indemnification pursuant to this Agreement, unless a determination is made in a
written opinion by independent counsel to the Company that applicable law
(including the FDIC Rules) permits indemnification in a Covered Matter only
as authorized in the specific case upon a determination that indemnification
is proper in the circumstances because the Indemnitee has met the required
standard of conduct. In such event:
a. The Company will immediately give the Indemnitee notice, with a
copy of counsel's opinion, that an evaluation and determination will be made
under this Section 4.
b. Such evaluation and determination will be made, as promptly as
possible and in good faith, by a majority vote of the members of the Company's
Board of Directors who are not parties or threatened to be made parties to the
Covered Matter in question or, if so requested by the Indemnitee, in a written
opinion by independent counsel to the Company (who shall not be the same as the
counsel referred to above) or by a court of competent jurisdiction, or by such
other procedure as the Company and the Indemnitee agree.
c. The Indemnitee will be entitled to present information, and to be
represented by counsel, in connection with such evaluation and determination.
d. The Indemnitee will be presumed to have met the required standard
of conduct unless it is conclusively demonstrated to the determining firm or
body that the Indemnitee has not met the required standard of conduct. If the
Indemnitee is successful (which includes a settlement without admission of
liability) on the merits or otherwise or in the defense of any claim, issue or
matter therein, he or she shall be conclusively presumed to have met the
required standard of conduct.
e. The cost of any evaluation and determination under this Section 4
(including attorneys' fees and other expenses incurred by the Indemnitee) will
be borne by the Company.
f. If the requested indemnification falls within the scope of the FDIC
Rules, the FDIC Rules will also be observed.
The termination of any Covered Matter by judgment, order, settlement,
arbitration award or conviction, or upon a plea of nolo contendere or its
equivalent, shall not affect this presumption or, except as determined by a
judgment or other final adjudication adverse to the Indemnitee, establish a
presumption with regard to any factual matter relevant to determining the
Indemnitee's rights to indemnification hereunder.
5. Indemnification Procedure.
a. The Indemnitee will give the Company written notice of any claim
for indemnification under this Agreement. The omission to so notify the
Company will not affect the Indemnitee's rights hereunder. Payment requests
will include a schedule setting forth in reasonable detail the amount requested
and will be accompanied (or, if necessary, followed) by copies of the relevant
invoices or other documentation. The Company will pay Indemnified Amounts
directly without requiring the Indemnitee to make any prior payment.
b. The Indemnitee will be presumed to be entitled to indemnification
under this Agreement and will receive such indemnification, subject to Section
4 above, irrespective of whether the Covered Matter involves allegations of
gross negligence or intentional misconduct, alleged violations of Section 10(b)
of the Securities Exchange Act of 1934 (including Rule 10b-5 thereunder),
alleged breach of the Indemnitee's fiduciary duties (including duties of
loyalty or care) or any other claim.
c. Determination of Indemnitee's entitlement to indemnification shall
be made not later than thirty (30) days after the Company's receipt of his or
her written request for such indemnification, provided that any request for
indemnification for Indemnified Amounts, other than amounts paid in settlement,
shall have been made after a determination thereof in a Covered Matter. If the
person or persons so empowered to make a determination pursuant to Section 4
hereof shall have failed to make the requested determination within ninety (90)
days after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, or other
disposition or partial disposition of any Covered Matter or any other event
which could enable the Company to determine Indemnitee's entitlement to
indemnification, the requisite determination that Indemnitee is entitled to
indemnification shall be deemed to have been made.
6. Advance of Expenses.
a. Subject to Sections 6(b) and (c), and notwithstanding Section 4,
before final adjudication of a Covered Matter, upon the Indemnitee's request
pursuant to Section 5 above, the Company will promptly advance Expenses
directly; provided, however, if the Indemnitee has already paid any Expenses,
the Company will promptly reimburse the Indemnitee for all such Expenses.
b. If, in the opinion of counsel to the Company, the FDIC Rules permit
advancement of Expenses with respect to a federal banking agency proceeding or
action only as authorized upon a determination that the Indemnitee has met a
standard of conduct established by the FDIC Rules, the determination will be
made in accordance with Section 4 above (except the Board of Directors shall
make the determination if required by the FDIC Rules).
[(c) Letter of Credit. In order to secure the obligations of the
Company to indemnify and advance Expenses to the Indemnitee pursuant to this
Agreement, the Company shall obtain at the time of any Change in Control an
irrevocable standby letter of credit naming Indemnitee as the sole beneficiary
(the "Letter of Credit"). The Letter of Credit shall be in an appropriate
amount not less than one million dollars ($1,000,000), shall be issued by a
commercial bank headquartered in the United States having assets in excess
of $10 billion and capital according to its most recent published reports
equal to or greater than the then applicable minimum capital standards
promulgated by such bank's primary federal regulator and shall contain terms
and conditions reasonably acceptable to the Indemnitee. The Letter of Credit
shall provide that the Indemnitee may from time to time draw certain amounts
thereunder, upon written certification by the Indemnitee to the issuer of the
Letter of Credit that (i) the Indemnitee has made written request upon the
Company for an amount not less than the amount he or she is drawing under the
Letter of Credit and that the Company has failed or refused to provide him or
her with such amount in full within thirty (30) days after receipt of the
request, and (ii) the Indemnitee believes that he or she is entitled under
the terms of this Agreement to the amount which he or she is drawing upon
under the Letter of Credit. The issuance of the Letter of Credit shall not
in any way diminish the Company's obligation to indemnify the Indemnitee
against Expenses and Indemnified Amounts to the full extent required by this
Agreement.
d. Term of Letter of Credit. Once the Company has obtained the
Letter of Credit, the Company shall maintain and renew the Letter of Credit
or a substitute letter of credit meeting the criteria of Section 6(c) during
the term of this Agreement so that the Letter of Credit shall have an initial
term of five years, be renewed for successive five-year terms, and always
have at least one year of its term remaining.]
e. The Indemnitee will repay any Expenses that are advanced under
this Section 6 if so required by the FDIC Rules or if it is ultimately
determined, in a final, nonappealable judgment rendered by the court of last
resort (or by a lower court if not timely appealed) that the Indemnitee is
not entitled to be indemnified against such Expenses and repayment is required.
7. Defense of Claim.
a. With respect to any Covered Matter for which indemnification is
requested, the Company, jointly with any other indemnifying party, will be
entitled to assume the defense thereof; provided, however, the Company shall
not be entitled to assume such defense if there has been a Change in Control or
the Indemnitee is entitled herein to employ the Indemnitee's own counsel, in
which case both parties shall be entitled to participate in the defense.
b. Counsel selected by the Company to defend any Covered Matter will
be subject to the Indemnitee's advance written approval.
c. Neither the Company nor the Indemnitee will settle any Covered
Matter without the other's written consent, which will not be unreasonably
withheld.
d. If the Indemnitee is required to testify (in court proceedings,
depositions, informal interviews or otherwise), consult with counsel, furnish
documents or take any other reasonable action in connection with a Covered
Matter, the Company will reimburse the Indemnitee's reasonable expenses in
connection therewith and also pay the Indemnitee reasonable compensation for
time spent by the Indemnitee for which the Indemnitee is otherwise not
compensated by the Company.
e. After notice from the Company to the Indemnitee of its election to
assume the defense of a Covered Matter, the Company will not be liable to the
Indemnitee under this Agreement for any Expenses subsequently incurred by the
Indemnitee in connection with the defense thereof, other than as provided
below. Except as provided in subsection (c) above, the Company may, in its
sole discretion, decide and determine whether any claim, liability, suit or
judgment made or brought against any Indemnitee shall or shall not be paid,
compromised, resisted, defended, tried or appealed, and the Company's decision
thereon, if made in good faith, shall be final and binding.
f. The Indemnitee shall have the right to employ his or her own
counsel in any Covered Matter and will be fully reimbursed therefor if (i) the
employment of counsel by the Indemnitee has been approved in writing by the
Company, or (ii) either (A) the Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and the Indemnitee or
between the Indemnitee and other parties represented by counsel employed by the
Company to represent the Indemnitee in such action, or (B) the Company shall
not in fact have employed counsel reasonably satisfactory to the Indemnitee to
assume the defense of such Covered Matter promptly after the Indemnitee's
request.
8. Disputes; Enforcement.
a. If there is a dispute relating to the validity or enforceability of
this Agreement or a denial of indemnification, advance of Expenses or payment
of any other amounts due under this Agreement or the Company's Articles of
Incorporation or Bylaws, the Company will provide such indemnification, advance
of Expenses or other payment until a final, nonappealable judgment that the
Indemnitee is not entitled to such indemnification, advance of Expenses or
other payment has been rendered by the court of last resort (or by a lower
court if not timely appealed). The Indemnitee will repay such amounts if such
final, nonappealable judgment so requires.
b. In the event that (i) a determination pursuant to Section 4 hereof
is made that Indemnitee is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification
pursuant to this Agreement, or (iv) the Indemnitee otherwise seeks enforcement
of this Agreement, the Indemnitee shall be entitled to a final adjudication in
an appropriate judicial proceeding in the State of California of the remedy
sought. Alternatively, unless (A) the determination was made by a panel of
arbitrators pursuant to Section 4(b) hereof, or (B) court approval is required
by law for the indemnification sought by the Indemnitee, the Indemnitee at his
or her option may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect, which award is to be made within ninety
(90) days following the filing of the demand for arbitration. The Company
shall not oppose the Indemnitee's right to seek any such adjudication or
arbitration award. In any such proceeding or arbitration the Indemnitee shall
be presumed to be entitled to indemnification and advancement of Expenses under
this Agreement and the Company shall have the burden of proof to overcome that
presumption.
c. In the event that a determination that the Indemnitee is not
entitled to indemnification, in whole or in part, has been made pursuant to
Section 4 hereof, the decision in the judicial proceeding provided in paragraph
(a) of this Section 8 shall be made de novo and the Indemnitee shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification. If a determination that the Indemnitee is entitled to
indemnification has been made pursuant to Section 4 hereof, or is deemed to
have been made pursuant to Section 4 hereof or otherwise pursuant to the terms
of this Agreement, the Company shall be bound by such determination in the
absence of a misrepresentation of a material fact by the Indemnitee in
connection with such determination. The Company shall be precluded from
asserting that the procedures and presumptions of this Agreement are not valid,
binding and enforceable. The Company shall stipulate in any such court that
the Company is bound by all the provisions of this Agreement and is
precluded from making any assertion to the contrary.
d. The Company will reimburse all of the Indemnitee's reasonable
expenses (including attorneys' fees) in pursuing an action to enforce the
Indemnitee's rights under this Agreement unless a final, nonappealable
judgment against the Indemnitee has been rendered in such action by the court
of last resort (or by a lower court if not timely appealed), or unless the FDIC
Rules otherwise require to the same effect as set forth in Section 6(e). At
the Indemnitee's request, such expenses will be advanced by the Company to the
Indemnitee as incurred before final resolution of such action by the court of
last resort; such expenses will be repaid by the Indemnitee if a final,
nonappealable judgment in the Company's favor is rendered in such action by the
court of last resort (or by a lower court if not timely appealed) to the
same effect as set forth in Section 6(e).
9. Limitations on Indemnification; Limitations of Actions.
a. Notwithstanding the provisions hereof, the Company shall not be
obligated pursuant to the terms of this Agreement:
i. To indemnify or advance funds to the Indemnitee with respect to
proceedings or claims initiated or brought voluntarily by the
Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or
law or otherwise as required under California law (provided
that such right to indemnification is in fact established), but
such indemnification or advancement of expenses may be provided
by the Company in specific cases if the Board of Directors has
approved the initiation or bringing of such suit;
ii.To indemnify the Indemnitee for any expenses or liabilities of
any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties and amounts in
settlement) which have been paid directly to the Indemnitee
by an insurance carrier under D&O Insurance maintained
by the Company;
iii. To indemnify the Indemnitee for any expenses incurred by the
Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement if a court of
competent jurisdiction determines that each of the material
assertions made by the Indemnitee in such proceeding was not
made in good faith or was frivolous;
iv. If such payments shall be prohibited by the Articles of
Incorporation or Bylaws of the Company or by the General
Corporation Law of the State of California, subject, however,
to Section 20 hereof;
v. To make any indemnification payment contrary to the FDIC Rules;
or
vi. To indemnify the Indemnitee for expenses or liabilities incurred
by the Indemnitee under Section 16 of the Securities Exchange
Act of 1934.
b. No action will be brought by or on behalf of the Company against
the Indemnitee or the Indemnitee's heirs or personal representatives relating
to the Indemnitee's service as a director or officer of the Company, after the
expiration of one year from the date the Indemnitee ceases (for any reason) to
serve as a director or officer of the Company, and any claim or cause of action
of the Company will be extinguished and deemed released unless asserted by the
filing of a legal action before the expiration of such period.
10. Maintenance of Liability Insurance.
a. The Company hereby covenants and agrees that, as long as each
Indemnitee continues to serve as a director or officer of the Company and
thereafter as long as the Indemnitee may be subject to any possible Covered
Matter, the Company subject to subsection (c) below, shall maintain in full
force and effect directors' and officers' liability insurance ("D&O Insurance")
from established and reputable insurers in amounts not less than, and with
coverages comparable to, those in effect as of the date of this Agreement[, or
such greater amount as is equal to at least 25% of the aggregate market
competitive value of the Company].
b. In all D&O Insurance policies, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded the most favorably insured of the Company's directors
and officers.
c. Notwithstanding the foregoing, the Company will not be required to
obtain or maintain D&O Insurance if the Board of Directors of the Company
determines, after diligent inquiry, that (i) such insurance is not available,
(ii) the premium costs for such insurance are disproportionate to the amount of
coverage and the premiums paid by other corporations similarly situated, or
(iii) the coverage provided by such insurance is so limited by exclusions that
it provides an insufficient benefit. The Board of Directors of the Company
will, from time to time, in good faith review any decision not to maintain D&O
Insurance and will purchase such insurance at any time that the conditions of
this Section 10(c) cease to apply.
d. The parties will cooperate to obtain advances of Expenses,
indemnification payments and consents from D&O Insurance carriers in any
Covered Matter to the full extent of applicable D&O Insurance. The existence
of D&O Insurance coverage will not diminish or limit the Company's obligation
to make indemnification payments to the Indemnitee. Amounts paid directly to
the Indemnitee with respect to a Covered Matter by the Company's D&O Insurance
carriers will be credited to the amounts payable by the Company to the
Indemnitee under this Agreement.
e. Payments under any D&O Insurance policies shall be subject to the
FDIC Rules.
11. Indemnification Hereunder Not Exclusive. The indemnification provided to
the Indemnitee under this Agreement shall not be deemed exclusive of, and will
be in addition to, any other indemnification provided to any Indemnitee by any
law, Board resolution, provision of the Articles of Incorporation or Bylaws,
agreement, vote of shareholders or disinterested directors, or otherwise;
provided that this Agreement shall be deemed to supersede the Agreement of NVB
executed in November of 1985 relating to indemnity for officers and directors
of [Bank]. If applicable laws, rules or regulations are amended after the date
of this Agreement to permit indemnification of a type or to an extent beyond or
greater than that provided by this Agreement, the Indemnitee shall be entitled
to indemnification hereunder of such further types or to such further extent as
is then permitted; provided, however, that no such amendment shall in any way
restrict or limit the rights of the Indemnitee hereunder and the term
"applicable law" shall refer only to the same as amended to the extent such
amendment permits the Company to provide such further or greater
indemnification.
12. Subrogation. Upon payment of any Indemnified Amount under this Agreement,
the Company will be subrogated to the extent of such payment to all of the
Indemnitee's rights of recovery therefor and the Indemnitee will take all
reasonable actions requested by the Company (at no cost or penalty to the
Indemnitee) to secure the Company's rights under this Section 12, including
executing documents.
13. Continuation of Indemnity. All of the Company's obligations under this
Agreement will continue as long as the Indemnitee is subject to any actual or
possible Covered Matter, notwithstanding the Indemnitee's termination of
service as a director or officer, and in any event for at least five (5) years
subsequent to the date when the Indemnitee ceases to be a director or
officer of the Company.
14. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of the parties hereto and their respective heirs, legal
representatives and assigns. The obligations of the Bank and NVB hereunder
shall be joint and several. No provision of this Agreement shall be applicable
in respect of any acts, omissions or transactions of any person while serving
as a director, officer, employee or agent of any corporation which shall have
been or shall hereafter be merged into or otherwise combined with the Company,
or of another enterprise in respect of which such person was serving as a
director, officer, employee or agent at the request of any such other
corporation, or of any enterprise controlling, controlled by or under common
control with any such other corporation, unless specifically approved by a
majority vote of the Board of Directors of the Company and by a separate
instrument executed by the Bank and NVB. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company
to assume all of the Company's obligations under this Agreement. Such
assumption will not release the Company from its obligations under this
Agreement.
15. Severability. Each and every paragraph, sentence, term and provision of
this Agreement will be deemed severable, such that if any paragraph, sentence,
term or provision hereof shall be held to be illegal, void, invalid or
unenforceable under applicable law, such provision may be modified to the
extent reasonably necessary to make the provision, as so modified, legal,
valid and binding. If any provision of this Agreement is held illegal, void
or invalid in its entirety, the remaining provisions of the Agreement will not
in any way be affected or impaired but will remain binding in accordance with
their terms.
16. Savings Clause. If this Agreement or any paragraph, sentence, term or
provision hereof is invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify the Indemnitee as to any
Expenses, judgments, fines, penalties or ERISA excise taxes incurred with
respect to any Covered Matter to the full extent permitted by any applicable
paragraph, sentence, term or provision of this Agreement that has not been
invalidated or by any other applicable provision of California law.
17. Notices. All notices given under this Agreement will be in writing and
delivered either personally, by registered or certified mail (return receipt
requested, postage prepaid), by recognized overnight courier or by telecopy (if
promptly followed by a copy delivered personally, by registered or certified
mail or overnight courier), as follows:
If to the Indemnitee: Name/Address
If to the Company: North Valley Bancorp
880 E. Cypress Avenue
Redding, California 96002
Attn: Chief Executive Officer
If to the Bank: North Valley Bank
880 E. Cypress Avenue
Redding, California 96002
Attn: President
or to such other address as any party furnishes to the others in writing.
18. Counterparts. This Agreement may be signed in counterparts, each of which
shall be deemed to be an original instrument, but all of which together shall
constitute one and the same instrument.
19. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California.
20. Amendments. No amendment, waiver, modification, termination or
cancellation of this Agreement shall be effective as to any Indemnitee unless
consented thereto in writing by the Indemnitee. The indemnification rights
afforded to the Indemnitee hereby shall be presumed to have been relied upon by
the Indemnitee in serving or continuing to serve as a director or officer
and shall be enforceable as contract rights. Neither the Company's
Articles of Incorporation nor its Bylaws will be changed to increase liability
of directors or officers or to limit the Indemnitee's indemnification. The
Indemnitee's rights or the Company's obligations under this Agreement shall not
be diminished, eliminated or otherwise affected by any repeal or modification
of the Company's Articles of Incorporation or Bylaws or any repeal or
modification of the relevant provisions of any applicable law, rules or
regulations, or by other agreements, including D&O Insurance policies.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date indicated above.
NORTH VALLEY BANK
By ________________________
Its ________________________
NORTH VALLEY BANCORP
By ________________________
Its ________________________
[INDEMNITEE]
By ________________________
<TABLE> <S> <C>
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<NAME> NORTH VALLEY BANCORP
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