SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
NORTH VALLEY BANCORP
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE>
NORTH VALLEY BANCORP
880 East Cypress Avenue
Redding, California 96002
Dear Shareholders:
The 1998 Annual Meeting of Shareholders of North Valley Bancorp will be
held at 4:30 p.m. on Tuesday, May 26, 1998, in Administration, North Valley
Bank, 880 East Cypress Avenue, Redding, California. In connection with the
Annual Meeting, we are enclosing the following:
1. Notice of Annual Meeting of Shareholders.
2. Proxy Statement.
3. Proxy.
We encourage you to read all of the enclosed materials carefully and
invite you to attend the Annual Meeting. Whether or not you plan to attend the
Annual Meeting in person, please return the Proxy, properly completed and
executed, as promptly as possible so that your shares may be represented at the
Annual Meeting.
We appreciate your support and look forward to seeing you at the Annual
Meeting on Tuesday, May 26, 1998.
Cordially,
Rudy V. Balma
Chairman of the Board
Martin R. Sorensen
President
<PAGE>
NORTH VALLEY BANCORP
Notice of Annual Meeting of Shareholders
Tuesday, May 26, 1998
4:30 P.M.
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of North Valley Bancorp, a
California corporation (the "Corporation"), will be held in Administration,
North Valley Bank, 880 East Cypress Avenue, Redding, California, on Tuesday, May
26, 1998, at 4:30 P.M., for the following purposes:
1. To elect the following eight (8) Directors of the Corporation to
serve until the 1999 Annual Meeting and until their successors are elected and
qualified:
Rudy V. Balma Kelly V. Pierce
William W. Cox Martin R. Sorensen
Dan W. Ghidinelli Douglas M. Treadway
Thomas J. Ludden J. M. ("Mike") Wells, Jr.
2. To approve an amendment of the Articles of Incorporation concerning
shareholder action by written consent and elimination of cumulative voting.
3. To approve an amendment of the Articles of Incorporation to
authorize the issuance of Preferred Stock.
4. To approve an amendment of the Articles of Incorporation regarding
indemnification of agents.
5. To approve adoption of the North Valley Bancorp 1998 Employee Stock
Incentive Plan.
6. To approve an amendment of the North Valley Bancorp 1989 Director
Stock Option Plan.
7. To ratify the appointment of Deloitte & Touche LLP as independent
public accountants for the Corporation for 1998.
8. To consider such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
Section 15 of the By-laws of the Corporation provides for the
nomination of Directors, as follows:
<PAGE>
Nomination for election of members of the Board of Directors may be
made by the Board of Directors or by any shareholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Notice of intention to make any nominations shall be made in writing and shall
be delivered or mailed to the President of the corporation not less than 21 days
nor more than 60 days prior to any meeting of shareholders called for election
of directors; provided however, that if less than 21 days notice of the meeting
is given to shareholders, such notice of intention to nominate shall be mailed
or delivered to the President of the corporation not later than the close of
business on the tenth day following the day on which the notice of meeting was
mailed; provided further, that if notice of such meeting is sent by third-class
mail as permitted by Section 6 of these By-laws, no notice of intention to make
nominations shall be required. Such notification shall contain the following
information to the extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the principal occupation of each proposed
nominee; (c) the number of shares of capital stock of the corporation owned by
each proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of capital stock of the corporation
owned by the notifying shareholder. Nominations not made in accordance herewith
may, in the discretion of the Chairman of the meeting, be disregarded and upon
the Chairman's instructions, the inspectors of election can disregard all votes
cast for each such nominee.
Only shareholders of record at the close of business on April 1, 1998
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
By Order of the Board of Directors,
J. M. ("Mike") Wells, Jr.
Secretary
Redding, California
April 20, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
First mailed to Shareholders on
or about April 20, 1998
NORTH VALLEY BANCORP
880 East Cypress Avenue
Redding, California 96002
(530) 221-8400
PROXY STATEMENT
Information Concerning the Solicitation
The enclosed proxy (the "Proxy") is solicited on behalf of the Board of
Directors of North Valley Bancorp, a California corporation (the "Corporation"),
for use at the Annual Meeting of Shareholders to be held in Administration,
North Valley Bank, 880 East Cypress Avenue, Redding, California, at 4:30 P.M.,
on Tuesday, May 26, 1998 and any adjournment or postponement thereof (the
"Meeting"). Only shareholders of record at the close of business on April 1,
1998 (the "Record Date"), will be entitled to notice of and to vote at the
Meeting. At the close of business on the Record Date, the Corporation had
outstanding 1,839,092 shares of its common stock, no par value (the "Common
Stock").
Shareholders of Common Stock are entitled to one vote for each share
held, except that in the election of Directors each shareholder may be eligible
to exercise cumulative voting rights and may be entitled to as many votes as
shall equal the number of shares held by such shareholder multiplied by the
number of Directors to be elected, and such shareholder may cast all of his or
her votes for a single candidate or distribute such votes among any or all of
the candidates he or she chooses. No shareholder, however, shall be entitled to
cumulate votes (in other words, cast for any candidate a number of votes greater
than the number of shares of stock held by such shareholder multiplied by the
number of Directors to be elected) unless the name(s) of the candidate(s) has
(have) been placed in nomination prior to the voting and a shareholder has given
notice of an intention to cumulate votes prior to the voting. Any shareholder
who desires to announce his or her intention to cumulate his or her votes will
be given an opportunity to do so at the Meeting prior to the voting. If any
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination, in which event votes represented by Proxies delivered
pursuant to this Proxy Statement may be cumulated, in the discretion of the
proxy holders, in accordance with the recommendations of the Board of Directors.
Discretionary authority to cumulate votes in such event is, therefore, solicited
in this Proxy Statement.
Any person submitting a Proxy in the form accompanying this Proxy
Statement has the power to revoke or suspend such Proxy prior to its exercise. A
Proxy is revocable prior to the Meeting by a written directive to the
Corporation, or by a duly executed Proxy bearing a later date, delivered to the
Secretary of the Corporation. A Proxy may also be revoked if the shareholder is
present and elects to vote in person at the Meeting.
-1-
<PAGE>
The Corporation will bear the entire cost of preparing, assembling,
printing and mailing proxy materials furnished by the Board of Directors to
shareholders. Copies of proxy materials will be furnished to brokerage houses,
fiduciaries and custodians to be forwarded to the beneficial owners of the
Common Stock. The Corporation will reimburse brokerage houses, fiduciaries,
custodians and others holding stock in their names or names of nominees or
otherwise for reasonable out-of-pocket expenses incurred in sending proxies and
proxy materials to the beneficial owners of such stock. In addition to the
solicitation of Proxies by use of the mail, some of the officers, directors and
employees of the Corporation may (without additional compensation) solicit
Proxies by telephone or personal interview, the costs of which the Corporation
will bear. The Corporation may, at its discretion, engage the services of a
proxy solicitation firm to assist in the solicitation of proxies. The total
expense of this solicitation will be borne by the Corporation and will include
reimbursement paid to brokerage firms and others for their expenses in
forwarding soliciting material and such expenses as may be paid to any proxy
solication firm engaged by the Corporation.
Each Proxy will be voted as directed by the shareholder submitting the
Proxy, and, if no instructions are given on the Proxy, it will be voted "FOR"
the election of the eight nominees for Director recommended by the Board of
Directors, "FOR" proposals 2, 3 and 4 regarding amendments to the Corporation's
Articles of Incorporation as described below, "FOR" adoption of the
Corporation's 1998 Employee Stock Incentive Plan, "FOR" an amendment to the
Corporation's 1989 Director Stock Option Plan, and "FOR" the ratification of the
appointment of Deloitte & Touche LLP as independent public accountants for the
Corporation for the 1998 fiscal year, all as described in the Proxy Statement;
and, at the proxy holders' discretion, on such other matters, if any, which may
properly come before the Meeting (including any proposal to adjourn the
Meeting). A majority of the shares entitled to vote, represented either in
person or by a properly executed Proxy, will constitute a quorum at the Meeting.
Abstentions and broker non-votes are each included in the determination of the
number of shares present and voting for purposes of determining the presence of
a quorum. Abstentions will be included in tabulations of the votes cast on
proposals presented to the shareholders and therefore will have the effect of a
negative vote. Broker non-votes will not be counted for purposes of determining
the number of votes cast for a proposal.
A copy of the Annual Report of the Corporation for the fiscal year
ended December 31, 1997, including audited financial statements (the "Annual
Report"), is enclosed. Additional copies of the Annual Report are available upon
request to J. M. ("Mike") Wells, Jr., Secretary of the Corporation. A COPY OF
THE CORPORATION'S 1997 ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION MAY ALSO BE OBTAINED WITHOUT CHARGE BY WRITING TO MR.
WELLS, C/O NORTH VALLEY BANCORP, 880 EAST CYPRESS AVENUE, REDDING, CALIFORNIA
96002.
-2-
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-laws of the Corporation provide a procedure for nomination for
election of members of the Board of Directors, which procedure is printed in
full on the Notice of Annual Meeting of Shareholders accompanying this Proxy
Statement. Nominations not made in accordance therewith may, in the discretion
of the Chairman of the Meeting, be disregarded, and, upon his instruction, the
inspectors of election shall disregard all votes cast for such nominee(s).
The authorized number of Directors shall be not less than six (6) nor
more than eleven (11). The number of directors of the Board to be elected at the
Meeting to hold office for the ensuing year and until their successors are
elected and qualified is eight (8).
All Proxies will be voted for the election of the following eight (8)
nominees recommended by the Board of Directors, all of whom are incumbent
Directors, unless authority to vote for the election of any or all Directors is
withheld:
Rudy V. Balma Kelly V. Pierce
William W. Cox Martin R. Sorensen
Dan W. Ghidinelli Douglas M. Treadway
Thomas J. Ludden J. M. ("Mike") Wells, Jr.
If any of the nominees should unexpectedly decline or be unable to act as a
Director, the Proxies may be voted for a substitute nominee to be designated by
the Board of Directors. The Board of Directors has no reason to believe that any
nominee will become unavailable and has no present intention to nominate persons
in addition to or in lieu of those named above. The eight candidates receiving
the highest number of votes will be elected. The Board of Directors recommends a
vote "FOR" each of the nominees listed above.
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Corporation, as of the Record Date, no person
or entity was the beneficial owner of more than five percent (5%) of the
outstanding shares of the Corporation's Common Stock, except as described below
and in the following tables. For the purpose of this disclosure and the
disclosure of ownership of shares by management, shares are considered to be
"beneficially" owned if the person has or shares the power to vote or direct the
voting of the shares, the power to dispose of or direct the disposition of the
shares, or the right to acquire beneficial ownership (as so defined) within 60
days of the Record Date.
-3-
<PAGE>
Amount and
Name and Address Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
Common Stock North Valley Bancorp Employee 106,807 (1) 5.8%
Stock Ownership Plan ("ESOP")
880 East Cypress Avenue
Redding, CA 96002
Common Stock Banc Fund 98,925 5.4%
c/o The Banc Funds Company LLC
208 South LaSalle Street
Chicago, IL 60604
(1) Directors Balma and Sorensen have authority to vote these shares on behalf
of the ESOP. Mr. Balma and Mr. Sorensen disclaim beneficial ownership with
respect to all such shares.
The following table sets forth certain information regarding ownership
of the Corporation's Common Stock with respect to each Director, each person
nominated for election as a Director and each executive officer named in the
Summary Compensation Table elsewhere herein, as well as for all Directors and
executive officers as a group. All of the shares of Common Stock of the
Corporation shown in the following table are owned both of record and
beneficially, except as indicated in the notes to the table, as of April 1,
1998. The table should be read with the understanding that more than one person
may be the beneficial owner or possess certain attributes of beneficial
ownership with respect to the same securities. Therefore, careful attention
should be given to the footnote references set forth in the column "Amount and
Nature of Beneficial Ownership."
There are no arrangements or understandings pursuant to which any of
the Directors was or is to be selected as a Director or nominee.
-4-
<PAGE>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner (1) Ownership (2) Class (10)
-------------------- --------------------- -----------
Rudy V. Balma 161,350 (3)(4) 8.8%
Donald V. Carter 39,135 2.1%
James F. Cowee, Jr. 14,663 (5) *
William W. Cox 500 *
Fred A. Drake II 12,789 *
Dan W. Ghidinelli 14,556 (6) *
Robert G. Jones 4,500 *
Thomas J. Ludden 9,154 *
Kelly V. Pierce 48,931 (7) 2.7%
Martin R. Sorensen 111,807 (3) 6.1%
Douglas M. Treadway 360 *
J. M. ("Mike") Wells, Jr. 47,516 (8) 2.6%
All Executive Officers and
Directors as a group (14 in number) 360,171 (9) 19.3%
- --------------------
* Indicates less than 1%
(1) The address for all persons listed is c/o North Valley Bancorp, 880
East Cypress Avenue, Redding, California 96002. Since his death in June
1997, Mr. Carter's shares have been held by his widow. Mr. Cowee
retired effective on January 30, 1998, and Mr. Jones retired effective
on December 31, 1997.
(2) Includes shares beneficially owned, directly and indirectly, together
with associates. Subject to applicable community property laws and
shared voting and investment power with a spouse, sole investment and
voting power is held by the beneficial owner of all shares unless noted
otherwise. Includes stock options granted pursuant to the North Valley
Bancorp 1989 Director Stock Option Plan (the "Director Plan") with:
11,244 shares exercisable within 60 days by Director Wells; 5,000
shares exercisable within 60 days by Director Sorensen; 1,140 shares
each exercisable within 60 days by Directors Balma and Pierce; 2,080
shares exercisable within 60 days by Director Ludden; 3,900 shares
exercisable within 60 days by Director Ghidinelli; and 200 shares each
exercisable within 60 days by Directors Cox and Treadway and Mr. Cowee.
(3) Includes 106,807 shares which Messrs. Balma and Sorensen have authority
to vote on behalf of the ESOP. Mr. Balma and Mr. Sorensen disclaim
beneficial ownership with respect to all 106,807 shares.
(4) Includes 40,768 shares held by The Balma Family Trust, of which Mr.
Balma is trustee, and 12,635 shares held by Mr. Balma's grown daughter
and son, as to which Mr. Balma disclaims beneficial ownership.
-5-
<PAGE>
(5) Includes 465 shares held by Mr. Cowee's sons, as to which Mr. Cowee
disclaims beneficial ownership, and 4,381 shares held by the James F.
Cowee, Sr., Testamentary Trust, of which Mr. Cowee is trustee.
(6) Includes 9,156 shares held by the Balma Grandchildren Trust, of which
Mr. Ghidinelli is a trustee and as to which Mr. Ghidinelli disclaims
beneficial ownership.
(7) Includes 41,278 shares held by the Pierce Family Trust, of which Mr.
Pierce is trustee, and 6,513 shares owned by Mr. Pierce's grown
children, as to which Mr. Pierce disclaims beneficial ownership.
(8) Includes 4,302 shares owned by Mr. Wells' grown children, and 2,184
shares owned by Mr. Wells' mother, as to which Mr. Wells disclaims
beneficial ownership, and 29,786 shares held by the Wells Family Trust,
of which Mr. Wells is trustee.
(9) See footnotes 3 through 8. Includes 25,104 shares subject to options
exercisable within 60 days by the Directors under the Director Plan.
(10) In calculating the percentage of ownership, all shares which the
identified person or persons have the right to acquire by exercise of
options are deemed to be outstanding for the purpose of computing the
percentage of the class owned by such person, but are not deemed to be
outstanding for the purpose of computing the percentage of the class
owned by any other person.
Certain information with respect to the Directors, nominees for
Director and executive officers of the Corporation and its banking subsidiary,
North Valley Bank (the "Bank"), is provided below:
Rudy V. Balma (age 69), the Chairman of the Board of Directors and a
Director of the Corporation since 1982, is a retired licensed funeral director
and President of Redding Memorial Park, doing business as Redding Cemetery and
McDonald's Chapel.
Sharon L. Benson (age 45) has been Senior Vice President & Chief
Financial Officer of the Corporation and its subsidiaries since July 1997. Prior
to that, she was Vice President, Accounting, of the Bank since December 1990.
William W. Cox, CRE, CCIM (age 50), a Director of the Corporation since
February 1997, has been owner and president of Cox Real Estate Consultants,
Inc., since April 1996. From October 1987 to August 1996, he was President and
50% owner of Haedrich & Cox, Inc., a real estate brokerage company.
Errol K. DeRose (age 54) has been Senior Vice President & Chief Credit
Officer of the Bank since December 1997. From January 1996 until December 1997,
he was Vice President & Manager of the Bank's Redding branch, and from March
1991 until January 1996 he served as Vice President & Manager of the Bank's Real
Estate Loan Department.
-6-
<PAGE>
Fred A. Drake II (age 59) has been Executive Vice President of the
Corporation and its subsidiaries, and Executive Vice President and Chief
Operating Officer of the Bank, since July 1997. Prior to that he served as
Senior Vice President and Cashier of the Bank since July 1986.
Dan W. Ghidinelli (age 50), a Director of the Corporation since 1993,
has been a Certified Public Accountant and partner with Nystrom & Company LLP
since 1974.
Thomas J. Ludden (age 65), a Director of the Corporation since 1991, is
a retired educator in the Weaverville School District in Trinity County,
California, owner of the Tri-L Ranch, a tree farm, since 1956, and retired owner
and president of Ludden & Co., Inc., a dry goods and clothing business located
in Weaverville, California. He has also served as Trustee for the
Shasta-Tehama-Trinity JCCD since 1967, and as Trustee for the Lions Eye
Foundation CA/NEV since July 1988.
Kelly V. Pierce (age 71), a Director of the Corporation since 1982, is
a retired dentist residing in Redding, California.
Martin R. Sorensen (age 54) was appointed President & Chief Executive
Officer of the Corporation and its subsidiaries on February 1, 1998. Prior to
this, he served as President & Chief Executive Officer of SierraWest Bank in
Truckee, California, from May 1994 until May 1997, and prior to that as
President & Chief Executive Officer of Codding Bank in Rohnert Park, California.
Douglas M. Treadway (age 55), a Director of the Corporation since
February 1997, is President of Shasta College and has served in that capacity
since 1994. From 1991 to 1994, he was Chancellor for the North Dakota University
System.
J. M. ("Mike") Wells, Jr. (age 57), the General Counsel and Secretary
of the Board of Directors of the Corporation and a member of the Board of
Directors since 1982, is an attorney with Wells, Small, Selke & Graham, a Law
Corporation, located in Redding, California. Mr. Wells has practiced law with
that firm since 1972.
None of the Corporation's Directors is a director of any other
reporting company. There are no family relationships between any of the
Directors and executive officers of the Corporation.
Committees of the Board of Directors
The Board of Directors of the Corporation and of the Bank have
established an Audit Committee, the members of which are Messrs. Balma, Sorensen
(ex-officio), Ghidinelli (Chairman), Ludden and Pierce. The Audit Committee met
five times during 1997. The functions of the Audit Committee are to recommend
the appointment of and to oversee a firm of independent public accountants whose
duty is to audit the books and records of the Corporation for the fiscal year
for which they are appointed, to review and analyze the reports of the
Corporation's independent public accountants, to analyze the results of internal
and regulatory
-7-
<PAGE>
examinations, to monitor the effectiveness of the Corporation's accounting
system and financial reporting and to interface with the Corporation's
independent public accountants concerning additional specific engagements
requested by the Corporation.
The Corporation does not have a nominating committee. The Board of
Directors of the Corporation performs the function of a nominating committee,
which function is to recommend and nominate qualified individuals to serve on
the Corporation's Board of Directors. See the Notice of Annual Meeting of
Shareholders for procedures for submitting nominations.
The Corporation does not have a compensation committee. The Board of
Directors of the Corporation performs the function of a compensation committee,
which function is to determine annual compensation for executive officers of the
Corporation and its subsidiaries.
Compensation Committee Interlocks and Insider Participation
During the fiscal year 1997, Mr. Cowee (now retired) participated in
deliberations of the Corporation's Board of Directors concerning executive
officer compensation for all executive officers excluding himself.
Meetings of the Board of Directors
During 1997, the Board of Directors held twelve regularly scheduled
meetings and four special meetings. In 1997, each Director attended at least 75%
of the aggregate of the total number of meetings of the Board of Directors (held
during the period for which he has been a Director) and the total number of
meetings of Committees of the Board of Directors on which such Director served
(during the periods that he served).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Corporation's Directors and executive officers and
persons who own more than 10% of a registered class of the Corporation's equity
securities to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Corporation. Officers, Directors and greater
than 10% shareholders are required by the SEC to furnish the Corporation with
copies of all Section 16(a) forms they file.
To the Corporation's knowledge, based solely on a review of such
reports furnished to the Corporation and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, Directors and 10%
shareholders were complied with.
-8-
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation of
the Corporation's Chief Executive Officer and the three other most highly
compensated executive officers (whose total annual salary and bonus exceeds
$100,000) for services in all capacities to the Corporation, the Bank and other
subsidiaries during 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
Long-
Term
Compen-
sation
Annual Compensation Awards
---------------------------------- ------
Secur- All
ities Other
Name and Other Annual Under- Compen-
Principal Salary Compensation lying sation
Position(1) Year (2) Bonus (3) options (4)(5)
- ----------------- ---- -------- -------- ------------ ------- --------
Donald V. 1997 $155,823 $ 0 $ 1,225 1,000 $ 74,770(6)
Carter
President & 1996 151,285 44,436 6,145 1,000 5,618
Chief
Executive 1995 144,084 44,436 4,639 1,500 5,899
Officer
James F. 1997 $130,526 $ 46,680 $ 7,765 -- $ 6,147
Cowee, Jr.
Executive 1996 98,331 28,884 5,550 -- 6,612
Vice
President 1995 93,660 28,884 5,019 -- 4,268
of the Bank
& C.F.O.
of the
Corporation
Fred A. 1997 $ 94,788 $ 30,360 $ 2,720 -- $ 4,655
Drake II
Senior Vice 1996 85,728 24,444 1,540 -- 4,347
President &
Cashier of 1995 81,648 24,444 1,334 -- 4,076
the Bank
Robert G. 1997 $ 78,084 $ 23,400 $ 1,304 -- $ 3,717
Jones
Senior Vice 1996 75,816 22,236 845 -- 3,712
President &
Loan Admin- 1995 72,204 22,236 713 -- 3,538
istrator of
the Bank
-9-
<PAGE>
(1) Upon Donald V. Carter's death on June 24, 1997, Mr. Cowee became
President & C.E.O. of the Bank and the Corporation, and Mr. Drake
became Executive Vice President of the Bank and the Corporation. Mr.
Cowee retired effective on January 30, 1998, but will continue to be
compensated in 1998 as disclosed elsewhere herein. Mr. Jones retired
effective on December 31, 1997 but pursuant to an agreement will
continue to receive compensation in 1998.
(2) Base salary includes 401(k) Plan and Executive Deferred Compensation
Plan ("EDCP") contributions.
(3) Represents the above-market portion of interest earned under the EDCP
for Messrs. Cowee, Drake and Jones; and the cost of a company car for
each of Messrs. Carter, Cowee and Drake.
(4) Represents matching contributions under the Corporation's 401(k) Plan
and EDCP.
(5) Includes a yearly allocation of Common Stock under the ESOP, excluding
shares allocated as a result of stock dividends issued in 1993 and the
three-for-two stock split effected as a 50% stock dividend in 1995.
(6) Includes payment of $74,285 to Mr. Carter's widow pursuant to the
Supplemental Executive Retirement Plan.
<TABLE>
The following table describes stock options that were granted pursuant
to the North Valley Bancorp 1989 Director Stock Option Plan (the "Director
Plan") to the Corporation's Chief Executive Officer in the fiscal year ended
December 31, 1997:
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(2)
- ------------------------------------------------------------------------------------ ---------------------------------
Number of Percent of
Securities Total Options Market
Underlying Granted to Exercise or Price on
Options Employees In Base Price Date of Expiration
Name Granted Fiscal Year ($/Sh) Grant Date 0% 5% 10%
- ---- ------------ -------------- ------------ ------- ------------ -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald V. 1,000(1) 100% $18.28 $21.50 January 22, $3,220 $15,070 $32,420
Carter 2005
<FN>
(1) Mr. Carter's options were granted under the Director Plan at 85% of the
fair market value of the Corporation's Common Stock on the date of
grant. See the discussion of the Director Plan below.
(2) The 0%, 5% and 10% assumed rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and are not an estimate
or projection of future prices for the Company's Common Stock.
</FN>
</TABLE>
-10-
<PAGE>
<TABLE>
The following table sets forth the stock options exercised in 1997 and
the December 31, 1997 unexercised value of both vested and unvested stock
options for the Corporation's Chief Executive Officer:
<CAPTION>
FISCAL YEAR END OPTION VALUES
Number of Securities Underlying Value of Unexercised In-The-Money
Shares Unexercised Options at Fiscal Year End Options at Fiscal Year End (1)
Acquired Value -------------------------------------- ---------------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Donald V. Carter 10,044 $249,010 -0- 2,300 $ -0- $ 38,654
<FN>
- ---------------------
(1) Based on the fair market value of the Corporation's Common Stock of $32.00
per share at December 31, 1997.
</FN>
</TABLE>
Mr. Carter's widow, as Mr. Carter's beneficiary, exercised all of Mr.
Carter's available stock options (10,044 shares) in November of 1997.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Mr. Carter entered into an employment agreement with the Corporation on
February 1, 1986. As amended in January 1997, this agreement provided for cash
compensation at the rate of $155,823 per annum. Under the terms of the
employment agreement, which expired upon his death, Mr. Carter participated in
the various benefit plans available to any employee of the Corporation, and a
death benefit, which provided for payment of $250,000 to Mr. Carter's widow in
the event of his death during his employment with the Corporation, was paid to
Mrs. Carter subsequent to his death on June 24, 1997.
Mr. Cowee entered into an employment agreement with the Corporation on
November 10, 1997, which contract was retroactively effective to June 1, 1997,
naming him as President and Chief Executive Officer of the Corporation and its
subsidiaries at a salary of $155,823 per year. Mr. Cowee chose to enter into
retirement effective January 31, 1998, and under the terms of the above
employment agreement will continue to receive compensation at the rate of
$155,823 per year for the remainder of the 1998 calendar year.
Martin R. Sorensen was appointed by the Board of Directors as the new
President and Chief Executive Officer of the Corporation and its subsidiaries,
and entered into an employment agreement effective February 1, 1998 and which
shall continue indefinitely thereafter. This agreement provides for cash
compensation at the rate of $175,000.00 per annum and salary increases at the
sole discretion of the Board of Directors based upon a review of his performance
during the previous year. The Corporation may immediately terminate the
agreement if the termination is for cause. The Corporation may also terminate
the agreement without cause by giving Mr. Sorensen thirty (30) days written
notice. In the event the Corporation terminates Mr. Sorensen's employment
without cause, or if Mr. Sorensen
-11-
<PAGE>
voluntarily terminates employment within one year of a change in control in
response to a constructive termination, Mr. Sorensen will be entitled to receive
as severance compensation an amount equal to one and one-half times Mr.
Sorensen's current base salary (not including bonuses). For purposes of the
agreement, "change in control" means a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Exchange Act. A "constructive
termination" is defined by the agreement as a material reduction in base salary,
a material change in responsibilities, or a requirement to relocate, except for
office relocations that would not increase Mr. Sorensen's one-way commute
distance by more than thirty-five (35) miles.
Supplemental Executive Retirement Plan. The Supplemental Executive
Retirement Plan (the "Executive Retirement Plan") was established by the
Corporation effective October 1, 1988, for the purpose of providing supplemental
retirement benefits to key employees of the Corporation and its subsidiaries
designated by the Board of Directors. The Executive Retirement Plan is
administered by a committee of three persons appointed by the Chairman of the
Board, and is an unfunded and unsecured plan as defined in sections 201, 301 and
401 of ERISA (Employee Retirement Income Security Act of 1974).
The Executive Retirement Plan provides for two general classes of
benefits:
(1) Retirement benefits commencing at age 65 or upon termination within
two years after a change in control of the Corporation, payable monthly
for not less than ten years in an amount, depending upon length of
service, equal to up to 45% of the executive's highest average monthly
compensation for any 36 consecutive months during his last 60 months of
service. "Compensation" includes base salary and bonuses. An early
retirement benefit is also available if the executive retires early
between the ages of 55 and 65 after not less than ten years of service.
If commencement of payment of the early retirement benefit is deferred
until the executive attains age 65, it is equal to the normal
retirement benefit; if payment commences prior to age 65, the monthly
benefit is reduced according to a formula set forth in the Executive
Retirement Plan. Optional benefit forms, such as joint/survivor
annuities, are also available.
(2) Survivor benefits payable after death occurring either while
employed or after employment but before commencement of normal
retirement benefits. The survivor benefit is generally equal to the
greater of the normal retirement benefit which would have been payable
to the executive or 36 times his highest average monthly compensation
and is payable in ten equal annual installments.
Vesting of benefits under the Executive Retirement Plan is 100% if
termination occurs within 24 months after change in control of the Corporation
or as a result of disability, retirement on or after the age of 65 or death. For
any other reason, vesting occurs at the rate of 25% for each year of credited
service. Benefits are reduced by an amount equal to 50% of the amount of any
monthly primary Social Security benefit (determined at age 65) or, in the case
of commencement of payment of early retirement benefits prior to age 65, by 50%
of the monthly
-12-
<PAGE>
primary Social Security benefit that would become payable at age 65, determined
under the terms of the Social Security Act in effect at the time early
retirement benefits commence.
As in the case of the Directors' Retirement Plan, the Corporation (or
the subsidiary responsible for payment of benefits) may purchase insurance
policies or annuity contracts to provide for payment of benefits under the
Executive Retirement Plan, but persons entitled to benefits have no right to
such policies or contracts or other specific assets or properties of the
Corporation or subsidiary unless express trusts of any such assets or properties
have been established for the purpose of payment of benefits.
For the period ending December 31, 1997, the Bank paid insurance
premiums of $51,000 in order to fund obligations under the Executive Retirement
Plan, with a cash residual value of $951,000.
The following table illustrates the approximate retirement income that
may become payable to a key employee credited with the number of years of
service shown, assuming that benefits commence at age 65 and are payable in the
form of an annuity for the employee's life or for 10 years (whichever is
greater):
ANNUAL RETIREMENT INCOME
Years of Credited Service
Final Average 10
Compensation 2 4 6 8 or more
- ------------ --------- --------- --------- -------- -------
$ 60,000 5,400 10,800 16,200 21,600 27,000
80,000 7,200 14,400 21,600 28,800 36,000
100,000 9,000 18,000 27,000 36,000 45,000
120,000 10,800 21,600 32,400 43,200 54,000
140,000 12,600 25,200 37,800 50,400 63,000
160,000 14,400 28,800 43,200 57,600 72,000
180,000 16,200 32,400 48,600 64,800 81,000
200,000 18,000 36,000 54,000 72,000 90,000
Mr. Fred A. Drake has 10 years of credited service.
Pursuant to the Executive Retirement Plan, Mr. Carter's widow will
receive annual payments in the amount of $74,285 for ten years. The first of
such payments was made in July 1997.
Executive Deferred Compensation Plan. The EDCP was established by the
Corporation effective January 1, 1989, in order to provide current tax planning
opportunities and supplemental retirement or death benefits to Directors and
selected key employees or their designated beneficiaries or surviving spouses,
children or estates. It is administered by a committee of not less than three
persons appointed by the Chairman of the Board of Directors. Although the EDCP
is intended to be an unfunded and unsecured plan as defined in sections 201, 301
and 401 of ERISA, the employer (the Corporation or a subsidiary thereof)
responsible for payment of benefits may establish trusts, which may be
irrevocable but which are subject to the claims of the Corporation's creditors,
to provide for payment thereof.
-13-
<PAGE>
Participants may elect to defer to their account under the EDCP not
less than $2,400 in amount, up to 100%, of their annual compensation. The
employer is required to make matching contributions in the amount of 25% of the
amount deferred up to a maximum of 5% of compensation before deferrals, and may
also make discretionary contributions in any amounts.
EDCP benefits are payable from participants' individual accounts upon
termination within 24 months of a change of control of the Corporation or as the
result of normal or early retirement, disability or death, or under other
limited circumstances. Benefits are payable usually over a period of five years
in the case of directors and 10 years in the case of executives, in equal
monthly installments commencing on a date chosen by the participant not later
than 60 days after the end of the month in which termination of service occurs.
Other payment alternatives which may be elected at the discretion of the
administrative committee of the EDCP include payment in a single sum or over a
period of 15 years, and early withdrawals in limited amounts and hardship
distributions are permitted. All amounts deferred are immediately vested at
100%; discretionary contributions are vested as set forth by agreement with the
participant at the time of the related deferral, and matching contributions are
vested according to the schedule set forth for matching contributions under the
Corporation's Deferred Salary Profit-Sharing Thrift Plan. In 1997, amounts which
were deferred by the executive officers totaled $25,200 for Mr. Cowee, $11,545
for Mr. Carter, $9,600 for Mr. Drake, and $4,590 for Mr. Jones, which amounts
are included in the Summary Compensation Table. For the period ending December
31, 1997, the Bank paid insurance premiums of $337,000 in order to fund
obligations under the EDCP, with a cash residual value of $1,229,000.
Pursuant to the EDCP Mr. Carter's widow has been receiving, since July
1997, monthly payments of $2,305. The compensation represented by these payments
was previously reported in the year deferred.
As of December 31, 1997, the Corporation's accrued pension obligation
under the Directors' Retirement Plan, the Executive Retirement Plan and the EDCP
was $1,927,000.
Compensation of Directors
General. During 1997, each Director received fees of $850 per Board
Meeting attended (except that if the Director was a member of the Board of
Directors of both the Corporation and the Bank, and both Boards met on the same
day, the Director only received a single $850 fee for attending both meetings)
and payments per Committee meeting attended of $200. Neither Mr. Carter nor Mr.
Cowee received Director's fees, and Mr. Sorensen will not receive Director's
fees. During 1997, cash compensation paid to all Directors totaled $23,405, and
payment of additional Director compensation of $81,988 was deferred under the
EDCP. Directors electing coverage under the group health insurance plan
available to employees of the Corporation have been required to pay 100% of
their premiums since January 1989.
At a meeting of the Board of Directors on December 4, 1997, after which
Chairman Rudy Balma had excused himself from said meeting, the Board unanimously
passed a resolution to pay Chairman Balma a sum equal to seventy-five percent
(75%) of the currently established regular Board Meeting fee in addition to the
regular monthly Board Meeting and committee fees, due to the amount of extra
work the Chairman must necessarily perform on behalf of the Bank and the
Corporation, such additional fee to be effective December 1997.
-14-
<PAGE>
North Valley Bancorp 1989 Director Stock Option Plan.
Under the North Valley Bancorp 1989 Director Stock Option Plan, as
amended (the "Director Plan"), which was adopted by the Board of Directors in
December 1989 and by the shareholders of the Corporation at the 1990 Annual
Meeting, all members of the Board of Directors, including employees who are
Directors, automatically receive every January 1,000 nonstatutory stock options
to purchase shares of the Corporation's Common Stock. As of April 1, 1998,
147,503 shares were authorized for awards, 50,215 shares were issued and
outstanding, 17,151 shares were canceled and 80,137 shares were available for
issuance under the Director Plan.
Options granted under the Director Plan vest immediately as to 20%,
with an additional 20% vesting on each of the first four anniversary dates
following the date of grant. Such options are exercisable for a period of 10
years from the date of grant at a price which shall be 85% of the fair market
value of the Corporation's Common Stock on the date of grant. The exercise price
can be paid by cash, certified check, official bank check or the equivalent
thereof acceptable to the Corporation. Options granted pursuant to the Director
Plan automatically expire three months after termination of service as a
Director for any reason other than cause, death or disability. In the case of
termination of service due to death or disability, such options terminate one
year from the date of such termination of service. In the event that service as
a Director is terminated for cause, the options granted pursuant to the Director
Plan expire 30 days after such termination.
Each Director was granted an option to purchase 1,000 shares in January
1997 at an exercise price per share of $18.28, and 1,000 shares in January 1998
at an exercise price of $25.50. On February 5, 1998, Mr. Sorensen was granted an
option to purchase 25,000 shares at an exercise price per share of $25.50. It is
anticipated that additional options to purchase 1,000 shares will be granted to
each Director each year at the regular January meeting of the Board of
Directors.
The Director Plan is presently administered by the Board of Directors,
which has the authority to delegate some or all of its duties to a committee of
the Board of Directors appointed for this purpose, which committee must be
composed of not less than three members of the Board of Directors. This
committee is generally authorized to administer the Director Plan in all
respects, subject to the express terms of the Director Plan.
The Director Plan provides for adjustment of and changes in the shares
of Common Stock reserved for issuance in the event certain changes occur or in
the event of the sale, dissolution or liquidation of the Corporation or any
reorganization, merger or consolidation of the Corporation.
The Board of Directors may amend or terminate the Director Plan as
provided therein. No amendment or termination may adversely affect the rights of
an optionee under a previously granted option without that optionee's consent.
-15-
<PAGE>
Supplemental Retirement Plan for Directors. The Supplemental Retirement
Plan for Directors (the "Directors' Retirement Plan") was established by the
Corporation as of October 1, 1988 as an unfunded and unsecured plan to provide
deferred compensation to Directors of the Corporation who are not also employees
of the Corporation or any affiliate ("Outside Directors"). Its general purpose
is to aid in retaining the services of such Outside Directors. Outside Directors
with 10 years of service to the Corporation or any of its subsidiaries are
eligible to receive benefits under the Directors' Retirement Plan, which
benefits consist of the payment (commencing upon the earlier of death or the
72nd birthday of the Director) of $5,000 per year for 10 years to the Director,
his designated beneficiaries or (in the absence of such a designation) his
surviving spouse, children or estate (in that order).
The obligation to pay benefits under the Directors' Retirement Plan is
the responsibility of the Bank. The Bank is authorized to purchase life
insurance policies and/or annuity contracts in order to provide for payment of
its obligations under the Directors' Retirement Plan, but such obligations have
only the legal status of unfunded, unsecured promises to pay money in the
future, and no one entitled to receive benefits under the Directors' Retirement
Plan has, as a result, any rights to such policies or contracts or other
specific property or assets of the Bank unless an express trust is established
for such purpose. For the period ending December 31, 1997, the Bank paid
insurance premiums of $61,000 in order to fund obligations under the Directors'
Retirement Plan, with a cash residual value of $829,000.
REPORT OF THE COMPENSATION COMMITTEE
The Board of Directors acts as the Corporation's compensation committee
and reviews salaries recommended by the Chief Executive Officer for executive
officers other than the Chief Executive Officer, and can, at its discretion,
grant stock options to key officers of the Corporation and its affiliates who
are primarily responsible for the management and growth of the Corporation's
business (no such options were granted in 1997). In conducting its review of
salaries, the Board of Directors takes into consideration the overall
performance of the Company and the Chief Executive Officer's evaluation of
individual executive officer performance, with final decisions on base salary
adjustments made in conjunction with the Chief Executive Officer. The Board of
Directors determines the base salary for the Chief Executive Officer by: (1)
examining the Company's performance against its preset goals, (2) examining the
Company's performance within the banking industry, (3) evaluating the overall
performance of the Chief Executive Officer, and (4) comparing the base salary of
the Chief Executive Officer to that of other chief executive officers in the
banking industry in the Corporation's market area. Based upon the data and
performance, the Chief Executive Officer's salary was increased by 3% to
$155,823 per annum effective January 1, 1997.
The Corporation does not have a formal bonus plan. However, at its
discretion, the Board of Directors can, and has since 1990, set aside
approximately 3% of the after tax profits of the Bank, which is then divided by
the Chief Executive Officer among the top four most highly compensated executive
officers. This is not a formal bonus plan and there is no guarantee that such
bonuses will be granted in the future.
-16-
<PAGE>
Members of the Board of Directors, which acts as the Corporation's
compensation committee, as of April 1, 1998, are: Rudy V. Balma, William W. Cox,
Dan W. Ghidinelli, Thomas J. Ludden, Kelly V. Pierce, Martin R. Sorensen,
Douglas M. Treadway and J. M. ("Mike") Wells, Jr.
[The following descriptive is supplied in accordance with Rule 304(d) of
Regulation S-T]
Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------
North Valley Bancorp 100.00 122.27 97.07 137.26 160.32 244.39
S&P 500 100.00 110.08 111.53 153.44 188.52 251.44
Northern California Proxy(2) 100.00 124.19 121.55 184.29 199.58 396.48
(1) Assumes $100 invested on December 31, 1992 in the Corporation's Common
Stock, the S & P 500 composite stock index and SNL Securities' Northern
California Proxy index, with reinvestment of dividends.
(2) Source: SNL Securities
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through its banking subsidiary, the Corporation has had and expects in
the future to have banking transactions, including loans and other extensions of
credit, in the ordinary course of its business with many of the Corporation's
Directors, executive officers, holders of five percent or more of the
Corporation's Common Stock and members of the immediate family of any of the
foregoing persons, including transactions with corporations or organizations of
which such persons are directors, officers or controlling shareholders, on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with others, except that all
employees (other than executive officers or Directors of the Corporation or its
subsidiaries) are granted rate concessions on installment loans and are not
charged origination fees on residential real estate loans. Management believes
that in 1997 such loan transactions did not involve more than the normal risk of
collectibility or present other unfavorable features.
J. M. "Mike" Wells, Jr., the General Counsel of the Corporation,
Secretary of the Board of Directors and Director, is an attorney in the law firm
of Wells, Small, Selke & Graham, A Law Corporation, which contracted to provide
professional legal services to the Corporation and the Bank during 1997 and
expects to provide professional legal services to them in the future. Wells,
Small, Selke & Graham, A Law Corporation, received from the Bank in 1997 a total
of $14,057 in legal fees and costs reimbursed.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT OF
THE ARTICLES OF INCORPORATION
CONCERNING SHAREHOLDER ACTION BY WRITTEN CONSENT
AND ELIMINATION OF CUMULATIVE VOTING
Introduction
Since 1977 the California General Corporation Law ("GCL") has provided
that, unless otherwise provided in the articles of incorporation, any action
which may be taken at any annual or special meeting of shareholders may be taken
without a meeting and without prior notice under certain circumstances involving
written consent of shareholders.
-17-
<PAGE>
Effective on January 1, 1990, the GCL was amended to permit California
corporations with widely traded securities to provide, with the approval of
their shareholders, for majority rule voting in electing directors in lieu of
cumulative voting. California law specifically allows a corporation with its
common stock quoted on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market System and with at least 800 shareholders of
record to eliminate cumulative voting by an amendment to its Bylaws or Articles
of Incorporation. Prior to such legislation, cumulative voting in electing
directors was mandatory for California corporations upon proper notice by any
shareholder of the Corporation. By permitting shareholders of California
corporations to provide for majority rule voting in electing directors, the new
law substantially conforms California corporate law with the corporate laws of a
majority of other states (including Delaware, Illinois, Michigan, New Jersey,
New York, Ohio, Pennsylvania and Texas) which either provide that cumulative
voting is optional or make no provision for cumulative voting at all. Only a
small minority of states still require that shareholders be permitted to invoke
cumulative voting.
Shareholder Action by Written Consent
Under the GCL, unless otherwise provided in the articles of
incorporation, any action required or permitted to be taken by shareholders of a
California corporation may be taken without a meeting, generally without prior
notice and without a shareholder vote, if a written consent setting forth the
action to be taken is signed by the holders of shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action at a meeting of shareholders at which all shares entitled to vote thereon
were present and voted.
The Corporation's Articles of Incorporation (the "Articles") do not
presently contain any provision limiting the ability of shareholders of the
Corporation to act by written consent, although the By-laws of the Corporation
currently authorize action by written consent of the shareholders. For the
reasons set forth below, Section (a) to proposed Article Third of the Articles
would permit shareholders of the Corporation to act by written consent only if
the Board of Directors had previously approved the action, which would prevent
shareholders of the Corporation from using the written consent procedure to take
shareholder action without a shareholders' meeting.
Cumulative Voting
Cumulative voting in the election of directors may currently be invoked
by any shareholder of the Corporation who complies with statutory notice
requirements. Cumulative voting entitles shareholders to a number of votes per
share of common stock equal to the number of directors to be elected, and all
nominees are voted upon simultaneously. Holders of shares may cast all of their
votes for a single nominee or distribute them among two to more nominees.
As a consequence of cumulative voting, a shareholder with a relatively
small number of voting shares may be able to elect one or more directors. For
example, if a shareholder were to give the appropriate notice, and nine
directors were to be elected at an annual meeting, a
-18-
<PAGE>
shareholder holding 10% of the voting shares could nominate and elect one
director by cumulating and casting his or her votes for one candidate. This is
true even if shareholders holding 90% of the voting shares are opposed to the
election of that candidate and cast their votes to elect nine other nominees.
Absent cumulative voting, a nominee cannot be elected without
relatively wide support, as shareholders are entitled to only one vote per share
with the nominee receiving the greatest number of votes being elected.
Consequently, the holder or holders of a majority of the shares entitled to vote
in an election of directors will be able to elect all directors of the
Corporation, and holders of less than a majority of the shares may not be able
to elect any directors.
For the reasons set forth below, the Board believes that the Articles
should be amended to eliminate cumulative voting.
Reasons for the Amendment
The Board is seeking approval of the amendment because it believes, in
a corporate democracy where the majority rules, all shareholders should
generally have the opportunity to meet, listen to competing views and make a
decision at a duly noticed meeting of shareholders (unless the Board approves by
resolution the taking of action without a meeting) and that the members of the
Board should represent the interests of all shareholders and not a specific or
small group of shareholders.
The Board of Directors recommends adoption of this proposed amendment
in order to assure that all shareholders of the Corporation entitled to vote on
a proposed corporate action have the opportunity to participate in determining
if such action is appropriate through the normal meeting process, except in
cases where the Board of Directors has approved such action by written consent.
The Board of Directors believes that in most instances it is inappropriate for
shareholders to take corporate action without prior notice to all other
shareholders, even if a majority of the shareholders favor such action. The
Board believes that the orderly process which is normally used when actions are
proposed at meetings is generally preferable to the consent procedure, unless
the Board of Directors has approved such action. In this way, all shareholders
are given an opportunity to consider proposals and, if appropriate, to inform
other shareholders of their views. Additionally, management is provided with an
opportunity to review and respond to proposed actions, as appropriate. The
proposed amendment would not limit the existing right of shareholders to call a
special meeting of shareholders. Under the Corporation's By-laws, special
meetings of the Corporation's shareholders may be called by shareholders holding
shares in the aggregate entitled to cast not less than 10% of the votes at such
meeting.
The Board believes that the elimination of cumulative voting is
advantageous to the Corporation and its shareholders because each director of a
publicly-held corporation has a duty to represent the interests of all
shareholders rather than any specific shareholder or group of shareholders. The
presence on the Board of Directors of one or more directors representing the
interests of a minority shareholder or group of shareholders could disrupt the
management of the Corporation and prevent it from operating in the most
effective manner. Furthermore, the
-19-
<PAGE>
election of directors who view themselves as representing a particular minority
constituency could introduce an element of discord on the Board of Directors,
impair the ability of the directors to work effectively and discourage qualified
independent individuals from serving as directors. Providing for majority rule
voting in the election of directors by eliminating cumulative voting will help
ensure that each director acts in the best interests of all shareholders.
This proposal concerning shareholder action by written consent and the
elimination of cumulative voting is not being made in response to any effort by
a minority shareholder or group of shareholders to attain representation on the
Board of Directors or acquire greater influence in the management of the
Corporation's business, nor is the Corporation aware of any such effort.
Furthermore, such proposal is not being made in response to any attempt to
acquire control of the Corporation, nor is the Corporation aware of any such
attempt.
Other Effects
Section (a) of proposed Article Third may be viewed as having the
effect of discouraging an attempt by another person or entity to gain control of
the Corporation or take action which might facilitate gaining control of the
Corporation, after the acquisition of a substantial percentage of the shares of
the Corporation's outstanding stock. The effect of the proposed amendment would
be to encourage any person intending such a change of control to negotiate with
the Board of Directors rather than to take unilateral action without notice to
the Board of Directors or other shareholders. The Board of Directors believes
that such an orderly procedure is in the best interest of the shareholders.
However, the proposed amendment could limit shareholders' participation in
certain types of transactions that might be proposed whether or not such
transactions were favored by a majority of the shareholders, and could enhance
the ability of officers and directors to retain their positions by precluding
changes in control through the written consent procedure.
Approval of Section (b) of the proposed amendment may render more
difficult any attempt by a holder or group of holders of a significant number of
voting shares, but less than a majority, to change or influence the management
or policies of the Corporation. In addition, under certain circumstances, the
proposed amendment, along with other measures that may be viewed as having
anti-takeover effects, may discourage an unfriendly acquisition or business
combination involving the Corporation that a shareholder might consider to be in
such shareholder's best interest, including an unfriendly acquisition or
business combination that might result in payment of a premium over the market
price for the shares held by the shareholder. For example, the proposed
amendment may discourage the accumulation of large minority shareholdings (as a
prelude to an unfriendly acquisition or business combination proposal or
otherwise) by persons who would not make that acquisition without being assured
of representation on the Board of Directors.
Text of Amendment
The existing Article Third of the Corporation's Articles consists of
the name and address of the Corporation's initial agent for services of process,
which, upon amendment and
-20-
<PAGE>
restatement (as proposed) of the Articles, will be eliminated pursuant to
Section 1502 of the GCL.
At the Annual Meeting, the Corporation's shareholders will be asked to
approve an amendment to the Corporation's Articles to amend and restate Article
Third to read as follows:
THIRD
a. Any action required to be taken at any annual or special
meeting of shareholders of this corporation, or any action which may be
taken at any annual or special meeting of shareholders, may be taken
without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted,
provided that the board of directors of this corporation, by
resolution, shall have previously approved any such action.
b. No holder of any class of stock of the corporation shall be
entitled to cumulate votes in connection with any election of directors
of the corporation.
Conforming By-Law Amendments
If this Proposal No. 2 is adopted by the shareholders, in order to make
the By-laws consistent with the amendments to the Articles set forth in this
Proposal No. 2, upon effectiveness of the filing of the Amended and Restated
Articles of Incorporation with the Secretary of State of the State of
California, Sections 10 and 11 of the By-laws shall be amended to read as set
forth in Annex A which is incorporated herein by reference.
Required Approval
Approval of the proposed amendment to Article Third of the Articles
requires that holders of a majority of the outstanding shares of Common Stock of
the Corporation vote "FOR" the proposal.
Recommendation of Management
The Board of Directors believes that this proposal is in the best interests of
the Corporation and its shareholders, and unanimously recommends a vote "FOR"
its approval.
-21-
<PAGE>
PROPOSAL NO. 3
APPROVAL OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK
Introduction
On March 20, 1998, the Board adopted an amendment to Article Fourth of
the Corporation's Articles which authorizes the issuance of up to 5,000,000
shares of Preferred Stock. In order to be effective, this amendment of the
Articles must be approved by holders of a majority of the outstanding shares of
Common Stock of the Corporation. The Board believes that it is in the best
interests of the Corporation and its shareholders to approve an amendment of the
Articles to authorize the issuance of up to 5,000,000 shares of Preferred Stock,
which may be issued in one or more series and which shall have such rights,
preferences, privileges and restrictions as determined by the Board of
Directors. The authorization of such Preferred Stock would provide the
Corporation with flexibility in terms of capital structure and would permit the
Board to react without further shareholder approval to the Corporation's capital
needs or to strategic opportunities which may arise in the future. It is
proposed that the text of Article Fourth of the Articles be amended to read as
follows:
Capitalization. This corporation is authorized to issue two
classes of shares designated "Common Stock," and "Preferred Stock,"
respectively. The number of shares of Common Stock authorized to be
issued is 20,000,000, and the number of shares of Preferred Stock
authorized to be issued is 5,000,000. The Preferred Stock may be issued
from time to time in one or more series. The Board of Directors is
authorized to fix the number of shares of any series of Preferred Stock
and to determine the designation of any such series. The Board of
Directors is also authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock, and, within the limits and
restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series.
Reasons for the Amendment
The majority of publicly traded companies has authorized one or more
classes or series of Preferred Stock. Preferred Stock is generally defined to
mean any class of equity securities which has a dividend and/or liquidation
preference over common stock. Pursuant to the proposed amendment to the
Corporation's Articles, the rights, preferences, privileges and restrictions of
any Preferred Stock shall be determined by the Board of Directors. As a result,
in the event that this proposed amendment to the Corporation's Articles is
adopted by shareholders, the Board of Directors of the Corporation may authorize
the issuance of Preferred
-22-
<PAGE>
Stock or series of Preferred Stock that have certain dividend and/or liquidation
preferences over the Corporation's Common Stock.
Other Effects
Issuance of shares of preferred stock or adoption of a shareholders'
rights plan which utilizes preferred stock may discourage or make more difficult
or expensive certain mergers, tender offers or other purchases of the
Corporation's Common Stock and might discourage potential takeover attempts.
The Corporation does not at the present time have any plan or intention
to issue shares of such Preferred Stock or to adopt a shareholders' rights plan.
The Corporation's Articles presently authorize 20,000,000 shares of Common Stock
and no change to that number of shares is requested.
Required Approval
Approval of the proposed amendment to Article Fourth of the Articles
requires that holders of a majority of the outstanding shares of Common Stock of
the Corporation vote "FOR" the proposal.
Recommendation of Management
The Board of Directors believes that this proposal is in the best
interests of the Corporation and its shareholders, and unanimously recomends a
vote "FOR" its approval.
PROPOSAL NO. 4
APPROVAL OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
REGARDING INDEMNIFICATION OF AGENTS
Introduction
In September 1987, the GCL was amended to permit California
corporations to indemnify directors, officers and other corporate agents under a
broader range of circumstances than was permitted under prior California law,
including circumstances in which indemnification would otherwise be
discretionary. The Board has determined that it is in the best interests of the
Corporation and its shareholders to amend the Articles to take advantage of this
legislation.
-23-
<PAGE>
At the Corporation's 1988 Annual Meeting of Shareholders, the
shareholders voted upon and approved an amendment to the Corporation's Articles
to add Article Fifth. Article Fifth as adopted in 1988 presently reads as
follows:
Liability of Directors. The liability of the directors of the
corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
Reasons for the Amendment
Recent years have seen an increasing incidence of claims against
corporate directors, officers and other agents asserting liability for actions
taken by them in the course of the performance of their duties. The expense of
defending such matters, whether they are meritorious or frivolous, is often
beyond the financial means of the individual defendant. Additionally, the
potential damages and the costs of defense are often disproportionately high
when compared to the compensation received from the corporation by the
defendant. This is particularly, although not exclusively, true with regard to
corporate directors who, as in the case of the Corporation's directors, serve
the corporation for relatively nominal consideration. Concern over exposure to
possible monetary expense and liability can have a limiting effect on the
willingness of corporate directors, officers and agents to perform their duties
with creativity and vigor and in a manner they believe to be beneficial to the
corporation and its shareholders.
It is believed that in order to continue to attract and retain highly
qualified and motivated directors, officers and other corporate agents,
amendment of the Corporation's Articles in the manner proposed is essential.
While not yet experienced by the Corporation, other corporations have had
persons resign due to the absence of suitable provisions for indemnification.
Additionally, it is believed that failure of the Corporation to provide for
indemnification to the fullest extent permitted by law places the Corporation at
a competitive disadvantage with other corporations that provide such protection
and may thus be in a better position to attract the services of highly qualified
individuals.
The Proposed Amendment
At this year's Annual Meeting, it is proposed to amend Article Fifth of
the Corporation's Articles to designate the existing Article Fifth (as set forth
above) as Section (a) of Article Fifth and to add new Sections (b) and (c) to
Article Fifth as follows:
FIFTH
b. The corporation shall indemnify any director or officer of
the corporation in all circumstances in which indemnification is
permitted by the provisions of section 317(b) and (c) of the California
Corporations Code and shall advance the expenses of any director or
officer in all circumstances in which such advancement of expenses is
permitted by the provisions of section 317(f) of the California
Corporations Code; provided, however, that such indemnification is not
authorized with respect to an action for a breach of the duty of the
director
-24-
<PAGE>
or officer to the corporation or its shareholders if any of the
exceptions to exoneration from liability of directors set forth in
section 204(a)(10) of the California Corporations Code are applicable.
In addition to the mandatory indemnification provided for in this
Article Fifth, the corporation is authorized to provide indemnification
of agents (as defined in section 317 of the California Corporations
Code) through by-law provisions, agreements with agents, vote of
shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by section 317 of the California
Corporations Code, to the fullest extent permissible under California
law. The corporation is further authorized to provide insurance for
agents in accordance with and subject to the provisions of section
317(i) of the California Corporations Code.
c. Any repeal or modification of sub-Articles "a" and "b"
above by the shareholders of this corporation shall not adversely
affect any right or protection of an agent of this corporation existing
at the time of such repeal or modification.
Amendment of Article Fifth to read as proposed above will authorize the
Corporation to provide directors and officers the full indemnification
protections allowed by California law, including mandatory indemnification and
advancement of expenses when such indemnification and advancement would
otherwise be permissible under California law.
Insofar as the proposed amendment would authorize or provide
indemnification for liabilities of directors or officers arising under the
Securities Act of 1933, the Corporation has been informed that in the opinion of
the Securities and Exchange Commission such indemnification for such liabilities
is against public policy as expressed in said Act and is therefore
unenforceable.
Interests of Certain Persons
While the Corporation's directors and officers at the present time are
protected by insurance purchased by the Corporation insuring them against
certain liabilities incurred in their status as directors and officers,
nevertheless, inasmuch as present directors, as well as future directors, may
benefit from the protections authorized by the proposed amendment, such
directors have a potential interest in the approval of the proposed amendment.
At present, to the Corporation's knowledge, there is no pending or threatened
litigation involving present or former directors or officers where
indemnification would be required or permitted under the proposed language in
Article Fifth of the Articles.
Required Approval
-25-
<PAGE>
Approval of the proposed amendment to Article Fifth of the Articles
requires that holders of a majority of the outstanding shares of Common Stock of
the Corporation vote "FOR" the proposal.
Recommendation of Management
The Board of Directors believes that this proposal is in the best
interests of the Corporation and its shareholders, and unanimously recommends a
vote "FOR" its approval.
IF PROPOSALS 2, 3 AND 4 ARE ADOPTED, THE CORPORATION WILL ACCOMPLISH SUCH
AMENDMENTS PURSUANT TO THE FILING WITH THE SECRETARY OF STATE OF THE STATE OF
CALIFORNIA OF AN AMENDED AND RESTATED ARTICLES OF INCORPORATION IN THE FORM
ATTACHED HERETO AS ANNEX B. IF CERTAIN OF THE PROPOSALS ARE ADOPTED AND OTHERS
ARE NOT ADOPTED, THEN THE AMENDED AND RESTATED ARTICLES OF INCORPORATION SET
FORTH IN ANNEX B WILL BE REVISED TO REFLECT ONLY THOSE AMENDMENTS ADOPTED PRIOR
TO FILING THE AMENDED AND RESTATED ARTICLES OF INCORPORATION WITH THE SECRETARY
OF STATE OF THE STATE OF CALIFORNIA.
PROPOSAL NO. 5
APPROVAL OF THE ADOPTION OF THE
NORTH VALLEY BANCORP 1998 EMPLOYEE STOCK INCENTIVE PLAN
The North Valley Bancorp 1998 Employee Stock Incentive Plan (the "Stock
Incentive Plan") was adopted by the Corporation's Board of Directors on February
17, 1998, subject to the approval of the Corporation's shareholders. The Stock
Incentive Plan is effective February 17, 1998.
The text of the Stock Incentive Plan is set forth in Annex C to this
Proxy Statement. The following is a summary of the material provisions of the
Stock Incentive Plan. Shareholders are urged to read the Stock Incentive Plan in
its entirety. This summary is qualified entirely by reference to the Stock
Incentive Plan. Any capitalized terms which are used in this summary description
but not defined have the meanings assigned to them in the Stock Incentive Plan.
Purpose
The Stock Incentive Plan provides for awards in the form of options
(which may constitute incentive stock options ("ISOs") or non-statutory stock
options ("NSOs")) to key employees and also provides for the award of shares of
Common Stock to outside directors. The Stock Incentive Plan defines "key
employees" as a common-law employee of the
-26-
<PAGE>
Corporation, its parent or any subsidiary of the Corporation, an "outside
director", or a consultant or advisor who provides services to the Corporation,
its parent or any subsidiary of the Corporation. For purposes of the Stock
Incentive Plan, an "outside director" is defined as a member of the Board who is
not a common-law employee of the Corporation, its parent or any subsidiary of
the Corporation. The Stock Incentive Plan is intended to aid the Corporation in
its efforts to attract and retain such individuals.
The Board believes that the Stock Incentive Plan will enable the
Corporation to continue to attract and retain highly qualified individuals
capable of implementing the Corporation's long-term strategic goals and
objectives. The Board further believes that the Stock Incentive Plan will
provide the Corporation with the means to motivate high levels of performance by
key employees in order to increase shareholder value.
The Committee of the Board of Directors that will administer the Stock
Incentive Plan (the "Committee") expects to use option awards under the Stock
Incentive Plan as its primary method of providing stock-based incentive
compensation to key employees and outside directors over the next few years. The
Stock Incentive Plan provides that ISOs under the Stock Incentive Plan may not
be granted at less than 100% of fair market value of the Common Stock on the
grant date, which means that participants receive nothing unless the
Corporation's stock price increases over the option term. The Board believes
that the Stock Incentive Plan directly ties management's and directors'
interests to those of the shareholders and that approval of the Stock Incentive
Plan is in the shareholders' best interests.
Options
The Stock Incentive Plan provides for the grant to key employees of
stock options, which may consist of NSOs and ISOs. The shares of Common Stock
authorized to be granted as options under the Stock Incentive Plan shall consist
of 300,000 shares of the Corporation's Common Stock. Effective January 1, 1999
and on each January 1 thereafter for the remaining term of the Stock Incentive
Plan, the aggregate number of shares of Common Stock which may be issued as
options under the Stock Incentive Plan to individuals shall be increased by a
number of shares of Common Stock equal to 2% of the total number of the shares
of Common Stock of the Corporation outstanding at the end of the most recently
concluded calendar year. Any shares of Common Stock that have been reserved but
not issued as options during any calendar year shall remain available for grant
during any subsequent calendar year. Notwithstanding the foregoing, no more than
300,000 shares of Common Stock shall be available for the grant of ISOs for the
remaining term of the Stock Incentive Plan.
Stock Awards
Each outside director shall also be eligible to receive a stock award
of 300 shares of Common Stock of the Corporation as part of his or her annual
retainer payment from the Corporation. Such stock award shall be fully vested
when granted to the outside director. The number of shares of Common Stock of
the Corporation available as stock awards to outside
-27-
<PAGE>
directors shall equal the number of shares of Common Stock of the Corporation to
be awarded to such outside directors.
Participants
Key employees are eligible for the grant of options under the Stock
Incentive Plan. However, eligibility for the grant of ISOs is limited to key
employees of the Corporation or its parent or any subsidiaries of the
Corporation who are common-law employees; thus consultants and non-employee
directors of the Corporation are ineligible for grants of ISOs under the Stock
Incentive Plan. The exercise price of ISOs to key employees who are common-law
employees and who own 10% or more of the total combined voting power of all
classes of outstanding stock of the Corporation, its parent or any subsidiary of
the Corporation must equal at least 110% of the fair market value of the Common
Stock on the date of grant and the term of such an ISO may not be greater than 5
years. An outside director is also eligible to receive a stock award of 300
shares of Common Stock as part of his or her annual retainer payment from the
Corporation.
Administration
The Stock Incentive Plan will be administered by a Committee appointed
by the Board. The Committee shall have membership composition which enables the
Stock Incentive Plan to qualify under Rule 16b-3 with regard to the grant of
Options or other rights under the Stock Incentive Plan to persons who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Subject to the requirements of applicable law, the Committee
may designate persons other than members of the Committee to carry out its
responsibilities and may prescribe such conditions and limitations as it may
deem appropriate, except that the Committee may not delegate its authority with
regard to the selection for partici pation of or the granting of Options or
determining awards or other rights under the Stock Incentive Plan to persons
subject to Section 16 of the Exchange Act.
Termination
If approved by the shareholders, the Stock Incentive Plan shall
continue in effect until all shares of stock available for grant or awards under
the Stock Incentive Plan shall have been acquired through exercise of options or
awards. However, no ISOs may be granted under the Stock Incentive Plan after
February 16, 2008. The Stock Incentive Plan may be terminated at such earlier
time as the Board of Directors may determine.
Terms of Stock Options
Options granted pursuant to the Stock Incentive Plan need not be
identical. The exercise price under each option shall be established by the
Committee, but in no event will the exercise price for ISOs be less than 100% of
the fair market value of the stock on the date of grant; provided, however, that
any ISO granted to a 10% owner shall comply with the rules set forth above. The
Stock Incentive Plan defines "fair market value" as the market price of shares
of
-28-
<PAGE>
Common Stock, determined by the Board, which shall be equal to the last
transaction price reported by the applicable composite transactions report for
such date. Whenever possible, the determination of fair market value by the
Board shall be based on the prices reported in the Western Edition of The Wall
Street Journal. Such determination shall be conclusive and binding on all
persons. The last sale price per share of the Corporation's Common Stock as
reported on the Nasdaq Electronic Bulletin Board on March 27, 1998, was $32.00.
The exercise price of any option must be paid in full at the time of
exercise. The exercise price may be paid in cash or, as acceptable to the
Committee by arrangement with a broker where payment of the option price is
guaranteed by the broker, by the surrender of shares of the Corporation owned by
the participant exercising the option and having a fair market value on the date
of exercise equal to the exercise price, or by any combination of the foregoing
equal to the exercise price. The Board may, at its discretion, accept payment
for all or any part of the exercise price of any option in the form of Common
Stock of the Corporation which have already been owned by the optionee for such
duration as shall be specified by the Board; or accept payment for all or any
part of the exercise price of any option by the delivery (on a form prescribed
by the Board) of an irrevocable direction to pledge Common Stock of the
Corporation to a securities broker or lender approved by the Corporation, as
security for a loan, and to deliver all or part of the loan proceeds to the
Corporation in payment of all or part of the exercise price and any withholding
taxes; or accept payment for the exercise price of any option in the form of a
full-recourse promissory note, provided that to the extent required by
applicable law, the par value of the Common Stock of the Corporation shall be
paid in cash; or payment of the exercise price of any option may be made in any
other form that is consistent with applicable laws, regulations and rules.
Options shall have such terms and be exercisable in such manner and at
such times as the Committee may determine. However, each ISO must expire within
a period of not more than ten (10) years from the grant date. Unless otherwise
provided in the option agreement, each option shall be transferable only by will
or the law of descent and distribution and shall only be exercisable by the
participant during his or her lifetime.
The Committee may, at any time prior to exercise and subject to consent
of the participant, amend, modify or cancel any option previously granted and
may or may not substitute in their place options at a different price and of a
different type under different terms or in different amounts.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of the
Stock Incentive Plan is intended to be a summary of applicable federal law.
State and local tax consequences may differ. Because the federal income tax
rules governing options and related payments are complex and subject to frequent
change, optionees are advised to consult their tax advisors prior to exercise of
options or dispositions of stock acquired pursuant to option exercise.
-29-
<PAGE>
ISOs and NSOs are treated differently for federal income tax purposes.
ISOs are intended to comply with the requirements of Section 422 of the Internal
Revenue Code. NSOs need not comply with such requirements.
An employee is not taxed on the grant or exercise of an ISO. The
difference between the exercise price and the fair market value of the shares on
the exercise date will, however, be a preference item for purposes of the
alternative minimum tax. If an optionee holds the shares acquired upon exercise
of an ISO for at least two years following grant and at least one year following
exercise, the optionee's gain, if any, upon a subsequent disposition of such
shares is long-term capital gain. The measure of the gain is the difference
between the proceeds received on disposition and the optionee's basis in the
shares (which generally equals the exercise price). If an optionee disposes of
stock acquired pursuant to exercise of an ISO before satisfying the one- and
two-year holding periods described above, the optionee will recognize both
ordinary income and capital gain in the year of disposition. The amount of the
ordinary income will be the lesser of (i) the amount realized on disposition
less the optionee's adjusted basis in the stock (usually the option price) or
(ii) the difference between the fair market value of the stock on the exercise
date and the option price. The balance of the consideration received on such a
disposition will be long-term capital gain if the stock had been held for at
least one year following exercise of the ISO. The Corporation is not entitled to
an income tax deduction on the grant or exercise of an ISO or on the optionee's
disposition of the shares after satisfying the holding period requirement
described above. If the holding periods are not satisfied, the Corporation will
be entitled to a deduction in the year the optionee disposes of the shares, in
an amount equal to the ordinary income recognized by the optionee.
An employee is not taxed on the grant of an NSO. On exercise, however,
the optionee recognizes ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
The Corporation is entitled to an income tax deduction in the year of exercise
in the amount recognized by the optionee as ordinary income. Any gain on
subsequent disposition of the shares is long-term capital gain if the shares are
held for at least one year following exercise. The Corporation does not receive
a deduction for this gain.
The award of Common Stock to outside directors will be fully taxable at
the time of the grant. The Corporation will receive a deduction for this amount.
If the outside director disposes of the Common Stock prior to 12 months after
the date of grant, any gain (or loss) will be a short-term capital gain. If the
shares are held for longer than 12 months, any gain (or loss) will be taxed at
long-term capital gain rates.
Plan Benefits
The Committee has full discretion to determine the number and amount of
options to be granted to key employees under the Stock Incentive Plan.
Therefore, the benefits and amounts that will be received by each of the
executive officers named in the Summary Compensation Table, the executive
officers as a group and all other key management employees under the Stock
Incentive Plan are not presently determinable. Details on stock options granted
during the
-30-
<PAGE>
last two years to the executive officers named in the Summary Compensation Table
are presented herein in the table entitled "Summary Compensation Table."
Required Approval
Approval of the proposed Stock Incentive Plan requires the affirmative
vote of the holders of a majority of the shares present or represented by Proxy
and voting at the Meeting.
Recommendation of Management
The Board of Directors believes that this proposal is in the best
interests of the Corporation and its shareholders, and unanimously recommends a
vote "FOR" its approval.
PROPOSAL NO. 6
APPROVAL OF AN AMENDMENT
TO THE NORTH VALLEY BANCORP 1989 DIRECTOR STOCK OPTION PLAN
Summary of the North Valley Bancorp 1989 Director Stock Option Plan
This summary description of the 1989 Director Stock Option Plan (the
"Director Plan") is qualified in its entirety by reference to the Director Plan,
a copy of which is available upon written request to the Corporate Secretary,
North Valley Bancorp, 880 East Cypress Avenue, Redding, California, 96002.
Shareholders are urged to read the Director Plan in its entirety.
The North Valley Bancorp 1989 Stock Option Plan, as amended (the
"Director Plan"), which was approved by the shareholders of the Corporation at
the Corporation's 1990 Annual Meeting of Shareholders, provides for awards in
the form of NSOs to purchase shares of the Corporation's Common Stock to all
members of the Board of Directors, including employees who are directors. Under
the Director Plan, all members of the Board of Directors automatically receive
every January a grant of 1,000 NSOs to purchase shares of the Corporation's
Common Stock. See "Compensation of Directors--North Valley Bancorp 1989 Director
Stock Option Plan." At the date of this Proxy Statement there were 8 individuals
eligible for awards of options under the Plan. The fair market value of the
Corporation's Common Stock subject to such awards on March 27, 1998, was $32.00
per share. As of March 27, 1998, 50,215 options have been granted which are
still outstanding under the Director Plan, and 80,137 shares were reserved for
awards.
The Corporation expects to exceed its projected number of shares
available for issuance under the Director Plan. In order to continue to provide
appropriate incentives, the Corporation desires to amend the Director Plan so
that the number of shares of the Corporation's Common
-31-
<PAGE>
Stock available for grant under the Director Plan shall equal that number of
shares to be issued upon the exercise of options granted under the Director
Plan. By its terms, the Director Plan will not terminate except by action of the
Board of Directors.
Proposed Amendment
The proposed amendment, which is subject to approval of the
Corporation's shareholders, would amend Section 4 of the Director Plan to add
the following at the end thereof:
"Effective as of January 1, 1998, the number of Shares available for
grant under the Plan shall equal the number of Shares to be issued upon
the exercise of options granted under the Plan."
Federal Income Tax Consequences
The proposed amendment of the Director Plan will have no effect upon
the tax consequences to participants or the Corporation.
Required Approval
Approval of the proposed amendment requires the affirmative vote of the
holders of a majority of the shares present or represented by Proxy and voting
at the Meeting.
Recommendation of Management
The Board of Directors believes that this proposal is in the best
interests of the Corporation and its shareholders, and unanimously recommends a
vote "FOR" its approval.
PROPOSAL NO. 7
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP, which served the Corporation as
independent public accountants for the 1997 fiscal year, has been selected by
the Audit Committee of the Board of Directors of the Corporation as the
Corporation's independent public accountants for the 1998 fiscal year. Deloitte
& Touche LLP has no interest, financial or otherwise, in the Corporation. All
Proxies will be voted for ratification of the appointment of Deloitte & Touche
LLP, unless authority to vote for the ratification of such selection is withheld
or an abstention is noted. If Deloitte & Touche LLP should for any reason
decline or be unable to act as independent public accountants, the Proxies will
be voted for a substitute independent public accounting firm to be designated by
the Audit Committee.
-32-
<PAGE>
Required Approval
The approval of the ratification of the appointment of Deloitte &
Touche LLP as the Corporation's independent public accountant for the 1998
fiscal year requires the affirmative vote of the holders of a majority of the
shares present or represented by Proxy and voting at the Meeting.
Recommendation of Management
The Board of Directors recommends a vote "FOR" ratification of the
appointment of Deloitte & Touche LLP.
A representative of Deloitte & Touche LLP is expected to attend the
Meeting with the opportunity to make a statement if he or she desires to do so
and respond to appropriate questions from shareholders present at the Meeting.
SHAREHOLDER PROPOSALS
The Corporation's 1999 Annual Meeting of Shareholders will be held on
May 17, 1999. Shareholder proposals must be received by the Corporation no later
than December 18, 1998, to be considered for inclusion in the Proxy Statement
and Proxy for the 1999 Annual Meeting of Shareholders.
OTHER MATTERS
The Board of Directors knows of no other matters which will be brought
before the Meeting, but if such matters are properly presented to the Meeting,
Proxies solicited hereby will be voted in accordance with the judgment of the
persons holding such Proxies. All shares represented by duly executed Proxies
will be voted at the Meeting.
By Order of the Board of Directors,
J. M. ("Mike") Wells, Jr., Secretary
Redding, California
April 20, 1998
-33-
<PAGE>
ANNEX A
Section 10. Action Without Meeting. Any action which may be taken at
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted, except that
unanimous written consent shall be required for election of directors to
non-vacant positions; provided, however, that the board of directors of this
corporation, by resolution, shall have previously approved any such action.
Unless the consents of all shareholders entitled to vote have been
solicited or received in writing, notice shall be given to non-consenting
shareholders to the extent required by Section 603(b) of the Corporations Code.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
Section 11. Voting Rights. Only persons in whose names shares entitled
to vote stand on the stock records of the corporation at the close of business
on the record 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 on each
matter submitted to a vote of shareholders.
No shareholder shall be entitled to cumulate votes in favor of any
candidate or candidates.
-1-
<PAGE>
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.
-2-
<PAGE>
ANNEX B
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
-1-
<PAGE>
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
hares 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.
-2-
<PAGE>
ANNEX C
NORTH VALLEY BANCORP
1998 EMPLOYEE STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. INTRODUCTION........................................... 1
ARTICLE 2. ADMINISTRATION......................................... 1
2.1 Committee Composition.................................. 1
2.2 Committee Responsibilities............................. 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS............................ 2
3.1 Basic Limitation....................................... 2
3.2 Additional Shares...................................... 2
ARTICLE 4. ELIGIBILITY............................................ 2
4.1 General Rules.......................................... 2
4.2 Incentive Stock Options................................ 2
ARTICLE 5. OPTIONS................................................ 2
5.1 Stock Option Agreement................................. 2
5.2 Number of Shares....................................... 3
5.3 Exercise Price......................................... 3
5.4 Exercisability and Term................................ 3
5.5 Effect of Change in Control............................ 3
5.6 Modification or Assumption of Options.................. 3
ARTICLE 6. PAYMENT FOR OPTION SHARES.............................. 3
6.1 General Rule........................................... 3
6.2 Surrender of Stock..................................... 4
6.3 Exercise/Sale.......................................... 4
6.4 Exercise/Pledge........................................ 4
6.5 Promissory Note........................................ 4
6.6 Other Forms of Payment................................. 4
ARTICLE 7. PROTECTION AGAINST DILUTION............................ 4
7.1 Adjustments............................................ 4
7.2 Reorganizations........................................ 5
ARTICLE 8. PAYMENT OF DIRECTOR'S FEES IN SECURITIES............... 5
8.1 Effective Date......................................... 5
8.2 Receipt of Stock Awards................................ 5
8.3 Number of Stock Awards................................. 5
ARTICLE 9. LIMITATION ON RIGHTS................................... 5
9.1 Retention Rights....................................... 5
9.2 Stockholders' Rights................................... 5
9.3 Regulatory Requirements................................ 5
-i-
<PAGE>
ARTICLE 10. LIMITATION ON PAYMENTS................................. 6
10.1 Basic Rule............................................. 6
10.2 Reduction of Payments.................................. 6
10.3 Overpayments and Underpayments......................... 6
10.4 Related Corporations................................... 7
ARTICLE 11. WITHHOLDING TAXES...................................... 7
11.1 General................................................ 7
11.2 Share Withholding...................................... 7
ARTICLE 12. ASSIGNMENT OR TRANSFER OF AWARDS....................... 7
12.1 General................................................ 7
ARTICLE 13. FUTURE OF THE PLAN..................................... 7
13.1 Term of the Plan....................................... 7
13.2 Amendment or Termination............................... 8
ARTICLE 14. DEFINITIONS............................................ 8
ARTICLE 15. EXECUTION............................................. 10
-ii-
<PAGE>
NORTH VALLEY BANCORP
1998 EMPLOYEE STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on February 17, 1998, subject to
approval by the Company's stockholders.
The purpose of the Plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging Key Employees
to focus on critical long-range objectives, (b) encouraging the attraction and
retention of Key Employees with excep tional qualifications and (c) linking Key
Employees directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Stock Awards or Options (which may constitute incentive stock options or
nonstatutory stock options).
The Plan shall be governed by, and construed in accordance with, the
laws of the State of California (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist of two or more directors of the Company
who shall satisfy the requirements of Rule 16b-3 (or its successor) under the
Exchange Act with respect to the grant of Awards to persons who are officers or
directors of the Company under Section 16 of the Exchange Act or the Board
itself. The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not qualify under
Rule 16b-3, who may administer the Plan with respect to Key Employees who are
not considered officers or directors of the Company under Section 16 of the
Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.
2.2 Committee Responsibilities. The Committee shall:
(a) Select the Key Employees who are to receive Awards under the Plan;
(b) Determine the type, number, vesting requirements and other features
and conditions of such Awards;
(c) Interpret the Plan; and
(d) Make all other decisions relating to the operation of the Plan.
-1-
<PAGE>
The Committee may adopt such rules or guidelines as it deems
appropriate to implement the Plan. The Committee's determinations under the Plan
shall be final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Common Shares initially reserved for award as Options under the Plan shall be
300,000 shares. Effective January 1, 1999 and on each January 1 thereafter for
the remaining term of the Plan, the aggregate number of Common Shares which may
be issued as Options under the Plan to individuals shall be increased by a
number of Common Shares equal to 2% of the total number of the shares of common
stock of the Company outstanding at the end of the most recently concluded
calendar year. Any Common Shares that have been reserved but not issued as
Options during any calendar year shall remain available for grant during any
subsequent calendar year. Notwithstanding the foregoing, no more than 300,000
Common Shares shall be available for the grant of ISOs for the remaining term of
the Plan. The limitation of this Section 3.1 shall be subject to adjustment
pursuant to Article 7.
3.2 Additional Shares. If Options terminate for any other reason before
being exercised, then the corresponding Common Shares shall again become
available for Award under the Plan.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible for
designation as Partici pants by the Committee. All Outside Directors shall also
be eligible to receive Stock Awards described in Article 8.
4.2 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than ten percent (10%)
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in section 422(c)(5) of the
Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan,
including but not limited to rights of repurchase and rights of first refusal.
The Stock Option Agreement shall specify whether the Option is an ISO or an NSO.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. Options may be granted in consideration of a cash
payment or in consideration of a
-2-
<PAGE>
reduction in the Optionee's other compensation. A Stock Option Agreement may
provide that new Options will be granted automatically to the Optionee when he
or she exercises the prior Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 7.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price of an ISO shall in no event be
less than one hundred percent (100%) of the Fair Market Value of a Common Share
on the date of grant. In the case of an NSO, a Stock Option Agreement may
specify an Exercise Price that varies in accordance with a predetermined formula
while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability or retire ment or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service.
5.5 Effect of Change in Control. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
5.6 Modification or Assumption of Options. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price for the Common Shares
issued upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the applicable
Stock Option Agreement. The Stock Option Agreement may specify that
payment may be made in any form(s) described in this Article 6.
-3-
<PAGE>
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for such duration as
shall be specified by the Committee. Such Common Shares shall be valued at their
Fair Market Value on the date when the new Common Shares are purchased under the
Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment may be made with a full-recourse promissory note; provided that to the
extent required by applicable law, the par value of the Common Shares shall be
paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. PROTECTION AGAINST DILUTION.
7.1 Adjustments. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by re classification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of:
(a) The number of Options available for future Awards under
Article 3;
(b) The number of Common Shares covered by each outstanding
Option; or
(c) The Exercise Price under each outstanding Option.
-4-
<PAGE>
Except as provided in this Article 7, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock or other dividend or any other
increase or decrease in the number of shares of stock of any class.
7.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options and Stock Awards shall be
subject to the agreement of merger or reorganization. Such agreement may
provide, without limitation, for the assump tion of outstanding Awards by the
surviving corporation or its parent, for their continuation by the Company (if
the Company is a surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash.
ARTICLE 8. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
8.1 Effective Date. No provision of this Article 8 shall be effective
unless and until the Board has determined to implement such provision.
8.2 Receipt of Stock Awards. An Outside Director shall receive a Stock
Award of 300 shares of Common Stock as part of his or her annual retainer
payment from the Company. Such Stock Awards shall be issued under the Plan. Such
an Award shall be fully vested when granted to the Outside Director.
8.3 Number of Stock Awards. The number of Common Shares available to be
granted to Outside Directors as Stock Awards shall equal the number of Common
Shares to be issued to such Outside Directors.
ARTICLE 9. LIMITATION ON RIGHTS.
9.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent or a Subsidiary. The Company and
its Parents and Subsidiaries reserve the right to terminate the service of any
employee, consultant or director at any time, and for any reason, subject to
applicable laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).
9.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares.
9.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
-5-
<PAGE>
ARTICLE 10. LIMITATION ON PAYMENTS.
10.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount; provided that the Committee, at the time of
making an Award under this Plan or at any time thereafter, may specify in
writing that such Award shall not be so reduced and shall not be subject to this
Article 10. For purposes of this Article 10, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of section 280G of the Code.
10.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within ten (10) days of
receipt of notice. If no such election is made by the Participant within such
ten (10) day period, then the Company may elect which and how much of the
Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this Article
10, present value shall be determined in accordance with section 280G(d)(4) of
the Code. All determinations made by the Auditors under this Article 10 shall be
binding upon the Company and the Participant and shall be made within sixty (60)
days of the date when a Payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the
Company shall pay or transfer to or for the benefit of the Participant such
amounts as are then due to him or her under the Plan and shall promptly pay or
transfer to or for the benefit of the Participant in the future such amounts as
become due to him or her under the Plan.
10.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the
-6-
<PAGE>
Participant to the Company if and to the extent that such payment would not
reduce the amount which is subject to taxation under section 4999 of the Code.
In the event that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for the
benefit of the Participant, together with interest at the applicable federal
rate provided in section 7872(f)(2) of the Code.
10.4 Related Corporations. For purposes of this Article 10, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 11. WITHHOLDING TAXES.
11.1 General. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
11.2 Share Withholding. A Participant may satisfy all or part of his or
her withhold ing or income tax obligations by having the Company withhold all or
a portion of any Com mon Shares that otherwise would be issued to him or her or
by surrendering all or a portion of any Common Shares that he or she previously
acquired. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Shares to the Company may be subject to restrictions.
ARTICLE 12. ASSIGNMENT OR TRANSFER OF AWARDS.
12.1 General. Except as provided in Article 11 or the Award agreement,
an Award granted under the Plan shall not be anticipated, assigned, attached,
garnished, optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. Except as provided in
the Award agreement, an Option may be exercised during the lifetime of the
Optionee only by him or her or by his or her guardian or legal representative.
This Article 12 shall not preclude a Participant from designating a beneficiary
who will receive any outstanding Awards in the event of the Participant's death,
nor shall it preclude a transfer of Awards by will or by the laws of descent and
distribution.
ARTICLE 13. FUTURE OF THE PLAN.
13.1 Term of the Plan. The Plan, as originally adopted, shall become
effective on February 17, 1998. The Plan shall remain in effect until it is
terminated under Section 13.2, except that no ISOs shall be granted after
February 19, 2008.
13.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No
-7-
<PAGE>
Awards shall be granted under the Plan after the termination thereof. The
termination of the Plan, or any amendment thereof, shall not affect any Award
previously granted under the Plan.
ARTICLE 14. DEFINITIONS.
14.1 "Award" means any award of an Option or a Stock Award under the
Plan.
14.2 "Board" means the Company's Board of Directors, as constituted
from time to time.
14.3 "Change in Control" shall be deemed to occur upon any "person" (as
defined in Section 13(d) of the Exchange Act), other than the Company, its
Parent or Subsidiary or employee benefit plan or trust maintained by the
Company, its Parent or Subsidiary, becoming the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 50% of
the total combined voting power of the common stock of the Company outstanding
at such time, without the prior approval of the Board.
14.4 "Code" means the Internal Revenue Code of 1986, as amended.
14.5 "Committee" means a committee of the Board, as described in
Article 2.
14.6 "Common Share" means one share of the no par value common stock of
the Company.
14.7 "Company" means North Valley Bancorp, or its successor.
14.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
14.9 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement.
14.10 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the
date in question but were not classified as a national market issue,
then the Fair Market Value shall be equal to the mean between the last
reported represen tative bid and asked prices quoted by the Nasdaq
system for such date;
(b) If the Common Shares were traded over-the-counter on the
date in question and were classified as a national market issue, then
the Fair Market Value shall be equal to the last-transaction price
quoted by the Nasdaq system for such date;
-8-
<PAGE>
(c) If the Common Shares were traded on a stock exchange on
the date in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions report
for such date; and
(d) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by independent appraisals or
as otherwise determined by the Committee in good faith on such basis as
it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
14.11 "ISO" means an incentive stock option described in section 422(b)
of the Code.
14.12 "Key Employee" means (a) a common-law employee of the Company, a
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or adviser
who provides services to the Company, a Parent or a Subsidiary as an independent
contractor.
14.13 "NSO" means a stock option not described in sections 422 or 423
of the Code.
14.14 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.
14.15 "Optionee" means an individual or estate who holds an Option or
SAR.
14.16 "Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent or a Subsidiary.
14.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
14.18 "Participant" means an individual or estate who holds an Award.
14.19 "Plan" means the North Valley Bancorp 1998 Employee Stock
Incentive Plan, as amended from time to time.
14.20 "Stock Award" means the award of a Common Share to an Outside
Director.
14.21 "Stock Option Agreement" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
-9-
<PAGE>
14.22 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
ARTICLE 15. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to affix the corporate name and seal hereto.
NORTH VALLEY BANCORP
By ____________________________
Its ___________________________
-10-
<PAGE>
Appendix -- 1989 Director Stock Option Plan, as amended
AMENDMENT NO. TWO TO THE NORTH VALLEY BANCORP
1989 Director Stock Option Plan
Pursuant to Section 9 of the North Valley Bancorp 1989 Director Stock
Option Plan (the "Plan"), the Board of Directors of North Valley Bancorp (the
"Corporation") amends the Plan, subject to the approval of the Corpoation's
shareholders, as follows:
Effective as of January 1, 1998, Section 4 of the Plan shall be amended
by the addition of the following at the end thereof:
Effective as of January 1, 1998, the number of Shares available for
grant under the Plan shall equal the number of Shares to be issued upon
the exercise of options granted under the Plan.
<PAGE>
AMENDMENT NO. ONE TO THE
NORTH VALLEY BANCORP
1989 DIRECTOR STOCK OPTION PLAN
Pursuant to Section 9 of the North Valley Bancorp 1989 Director Stock
Option Plan (the "Director Plan"), the Board of Directors of North Valley
Bancorp amends the provisions of the Director Plan, as follows:
1. Section 5(a) of the Director Plan shall be amended in its entirety,
as follows:
"(a) Grant of Option. Commencing on January 16, 1990 or, if
later, the date the options and underlying Shares are first qualified
under the California securities laws, and on the date on which the
regular Board meeting occurs in each January thereafter, each member of
the Board on such date shall be granted an option to purchase one
thousand (1,000) Shares; provided, however, that options shall be
granted on such dates only if there are sufficient Shares available
under the Plan. All stock options granted pursuant to the Plan shall be
nonstatutory stock options. A nonstatutory stock option is an option
not described in Sections 422(b), 422A(b), 423(b) or 424(b) of the
Internal Revenue Code of 1986, as amended (the "Code")."
2. The third paragraph of Section 5(d) of the Director Plan shall be
amended in its entirety, as follows:
"CAUSE: If a member of the Board is determined by the full
Board to have committed an act of embezzlement, fraud, dishonesty,
breach of fiduciary duty to the Company, or to have deliberately
disregarded the rules of the Company which resulted in loss, damage or
injury to the Company, or if an optionee makes any unauthorized
disclosure of any of the secrets or confidential information of the
Company, induces any client or customer of the Company to break any
contract with the Company or induces any principal for whom the Company
acts as agent to terminate such agency relations, or engages in any
conduct which constitutes unfair competition with the Company, or if an
optionee is removed from any office of the Company by any bank
regulatory agency, the optionee shall have the right for a period of
thirty (30) days following the date of such termination to exercise the
option to the extent the optionee was entitled to exercise such option
on the date of the optionee's termination of tenure on the Board,
provided the actual date of exercise is in no event after the
expiration of the term of the option. In making such determination, the
Board shall act fairly and shall give the optionee an opportunity to
appear and be heard at a hearing before the full Board and present
evidence on the optionee's behalf."
3. A new Section 13 shall be added to the Director Plan, to read as
follows:
-1-
<PAGE>
"13. INFORMATION TO OPTIONEES.
The Company shall provide to each optionee during the period
for which he or she has one or more outstanding options, copies of all
annual reports and all other information which is provided to
shareholders of the Company. The Company shall not be required to
provide such information to key employees whose duties in connection
with the Company assure their access to equivalent information."
-2-
<PAGE>
NORTH VALLEY BANCORP
1989 DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of this North Valley Bancorp 1989 Director Stock Option
Plan (hereinafter the "Plan") is to provide a method whereby the members of the
Board of Directors (hereinafter the "Board") of North Valley Bancorp
(hereinafter the "Company") may be stimulated by increased personal involvement
in the fortunes and success of the Company, thereby advancing the interests of
the Company and its shareholders and to provide a method for the Company to be
able to recruit and retain capable directors in the future.
2. ADMINISTRATION.
The following provisions shall govern the administration of the Plan:
(a) The Plan shall be administered by the Board of Directors of North
Valley Bancorp (hereinafter the "Board"), which may delegate some or all of its
duties in administering the Plan to a committee of the Board appointed for this
purpose composed of not less than three (3) members of the Board (hereinafter,
the body administering the Plan, whether it be the Board or any committee so
appointed, shall be referred to as the "Committee"). The Board may, from time to
time, remove members from or add members to the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board. The Board shall
designate a Chairman and Vice-Chairman of the Committee from among the Committee
members. Acts of the Committee (i) at a meeting, held at a time and place and in
accordance with rules adopted by the Committee, at which a quorum of the
Committee is present and acting, or (ii) reduced to and approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
(b) The Company shall effect the grant of options under the Plan by
execution of instruments in writing in a form approved by the Committee. Subject
to the express terms of the Plan, the Committee shall have full power to
construe the Plan and the terms of any option granted under the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan or such
options, and to make all other determinations necessary or advisable for the
Plan's administration; provided, however, that the Committee shall exercise no
discretion with respect to the grant of options under the Plan or otherwise
alter or amend the terms of any option so that such terms fail to comply with
the terms and conditions in Section 5 hereof.
3. ELIGIBILITY.
All members of the Board (including employee-directors) shall be
eligible to receive options under this Plan; provided, however, that no option
may be granted to a member of the Board who, at the time of such grant, owns
Common Stock of the Company possessing more
-1-
<PAGE>
than ten percent (10%) of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
4. THE SHARES.
The shares of stock subject to options authorized to be granted under
the Plan shall consist of ninety thousand (90,000) shares of the Company's no
par value Common Stock (hereinafter the "Shares"), or the number and kind of
shares of stock or other securities which shall be substituted for such Shares
or to which such shares shall be adjusted as provided in Section 6 hereof. Upon
the expiration or termination for any reason of an outstanding option under the
Plan which has not been exercised in full, all unissued Shares thereunder shall
again become available for the grant of options under the Plan.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be subject to the following
terms and conditions:
(a) Grant of Option. Commencing on January 15, 1990 or, if later, the
date the options and underlying Shares are first qualified under the California
securities laws, and on the third Monday of each January thereafter, each member
of the Board on such date shall be granted an option to purchase one thousand
(1,000) Shares; provided, however, that options shall be granted on such dates
only if there are sufficient Shares available under the Plan. All stock options
granted pursuant to the Plan shall be nonstatutory stock options. A nonstatutory
stock option is an option not described in Sections 422(b), 422A(b), 423(b) or
424(b) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Option Price. The purchase price under each option shall be
eighty-five percent (85%) of the fair market value of the Shares subject thereto
on the date the option is granted, as such value is determined by the Committee.
The fair market value of such stock shall be determined in accordance with any
reasonable valuation method, including the valuation methods described in
Treasury Regulation section 20.2031-2.
(c) Duration and Exercise of Options. Each option shall be for a ten
(10) year term and shall vest twenty percent (20%) immediately upon the date of
grant and shall vest an additional twenty percent (20%) on each of the first
four (4) anniversary dates thereafter. The termination of the Plan shall not
alter the maximum duration, the vesting provisions, or any other term or
condition of any option granted prior to the termination of the Plan.
To the extent the right to purchase Shares has vested under a
Participant's stock option agreement, options may be exercised from time to time
by delivering payment therefor in cash, certified check, official bank check, or
the equivalent thereof acceptable to the Company, together with written notice
to the Secretary of the Company, identifying the option or part thereof being
exercised and specifying the number of Shares for which payment is being
tendered. An optionee may also exercise an option by electing to deliver shares
of Company Common Stock that have been held by the optionee for at least six (6)
months or
-2-
<PAGE>
have the Company withhold from those Shares that would otherwise be received
upon exercise of the option. Such an election is subject to approval or
disapproval by the Committee, and the timing of the election must satisfy the
requirements of Rule 16b-3, as promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company shall deliver to the
optionee, which delivery shall be not less than fifteen (15) days and not more
than thirty (30) days after the giving of such notice, without transfer or issue
tax to the optionee (or other person entitled to exercise the option), at the
principal office of the Company, a certificate or certificates for such Shares
dated the date the options were validly exercised; provided, however, that the
time of such delivery may be postponed by the Company for such period as may be
required for it with reasonable diligence to comply with any requirements of
law.
(d) Termination of Tenure on the Board. Unless the Committee determines
otherwise, upon the termination of an optionee's status as a member of the
Board, his or her rights to exercise an option then held shall be only as
follows:
DEATH OR DISABILITY: If an optionee's tenure on the Board is terminated
by death or disability, such optionee or such optionee's qualified
representative (in the event of the optionee's mental disability) or the
optionee's estate (in the event of optionee's death) shall have the right for a
period of twelve (12) months following the date of such death or disability to
exercise the option to the extent the optionee was entitled to exercise such
option on the date of the optionee's death or disability; provided the actual
date of exercise is in no event after the expiration of the term of the option.
An optionee's "estate" shall mean the optionee's legal representative or any
person who acquires the right to exercise an option by reason of the optionee's
death.
CAUSE: If a member of the Board is determined by the full Board to have
committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to
the Company, or to have deliberately disregarded the rules of the Company which
resulted in loss, damage or injury to the Company, or if an optionee makes any
unauthorized disclosure of any of the secrets or confidential information of the
Company, induces any client or customer of the Company to break any contract
with the Company or induces any principal for whom the Company acts as agent to
terminate such agency relations, or engages in any conduct which constitutes
unfair competition with the Company, or if an optionee is removed from any
office of the Company by any bank regulatory agency, neither the optionee nor
the optionee's estate shall be entitled to exercise any option with respect to
any Shares whatsoever after termination of tenure on the Board, whether or not
after such termination the optionee may receive payment from the Company for
services rendered prior to termination. In making such determination, the Board
shall act fairly and shall give the optionee an opportunity to appear and be
heard at a hearing before the full Board and present evidence on the optionee's
behalf.
OTHER REASONS: If an optionee's tenure on the Board is terminated for
any reason other than those mentioned above under "Death or Disability" and
"Cause," the optionee may, within three (3) months following such termination,
exercise the option to the extent such
-3-
<PAGE>
option was exercisable by the optionee on the date of such termination; provided
the date of exercise is in no event after the expiration of the term of the
option.
(e) Transferability of Option. Each option shall be transferable only
by will or the laws of descent and distribution and shall be exercisable during
the optionee's lifetime only by the optionee, or in the event of disability, the
optionee's qualified representative.
(f) Use of Proceeds from Stock. Proceeds from the sale of Shares
pursuant to the exercise of options granted under the Plan shall constitute
general funds of the Company.
(g) Rights as a Shareholder. The optionee shall have no rights as a
shareholder with respect to any Shares until the date of issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date of such issuance, except
as provided in Section 6 hereof.
(h) Withholding. The Company shall have the right to condition the
issuance of shares upon exercise of an option upon payment by the optionee of
any income taxes required to be withheld under federal, state or local tax laws
or regulations in connection with such exercise. Such payment may be made by any
method of payment acceptable to the Company, including the withholding of Shares
from the total number of Shares issuable upon exercise or the delivery to the
Company of shares of Company Common Stock that have been held by the optionee
for at least six (6) months. Any election to have Shares withheld or to deliver
Shares must satisfy the requirements of Rule 16b-3, as promulgated under the
Exchange Act.
(i) Other Terms and Conditions. Options may also contain such other
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate. No option, however, nor anything contained
in the Plan, shall confer upon any optionee any right to continue to serve on
the Board.
6. ADJUSTMENT OF, AND CHANGES IN, THE SHARES.
In the event the shares of Common Stock of the Company, as presently
constituted, shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
(whether by reason of reorganization, merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise), or if the
number of shares of Common Stock of the Company shall be increased through the
payment of a stock dividend, the Board shall substitute for or add to each
Shares of Common Stock of the Company theretofore appropriated or thereafter
subject or which may become subject to an option under the Plan, the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock of the Company shall be so changed, or for which each share shall
be exchanged, or to which each such shares shall be entitled, as the case may
be. In addition, the Board shall make appropriate adjustment in the number and
kind of Shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable, so that any optionee's proportionate interest
in the Company by reason of his or her rights under unexercised portions of such
options shall be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made
-4-
<PAGE>
without change in the total price to the unexercised portion of the option and
with a corresponding adjustment in the option price per share.
In the event of a sale, dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving or resulting
corporation, the Board shall have the power to cause the termination of every
option outstanding hereunder; except that the surviving or resulting corporation
may, in its absolute and uncontrolled discretion, assume all outstanding options
under the Plan; provided, however, that in all events the optionee shall have
the right immediately prior to such sale, dissolution, liquidation, or merger or
consolidation in which the Company is not the surviving or resulting corporation
to notification thereof as soon as practicable and, thereafter, to exercise the
option without regard to the vesting provisions of Section 5(c) hereof. This
right shall be conditioned upon the execution of a final plan of dissolution or
liquidation or a definitive agreement of merger or consolidation.
In the event of an offer by any person or entity to all shareholders of
the Company to purchase any or all shares of Common Stock of the Company (or
shares of stock or other securities which shall be substituted for such shares
or to which such shares shall be adjusted as provided in Section 6 hereof), any
optionee under this Plan shall have the right upon the commencement of such
offer to exercise the option and purchase shares subject thereto to the extent
of any unexercised or unvested portion of such option.
No right to purchase fractional shares shall result from any adjustment
in options pursuant to this Section 6. In case of any such adjustment, the
shares subject to the option shall be rounded down to the nearest whole share.
Notice of any adjustment shall be given by the Company to each holder of an
option which was in fact so adjusted and such adjustment (whether or not such
notice is given) shall be effective and binding for all purposes of the Plan.
To the extent the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Section 6, an optionee shall have
no rights by reason of any of the following events: (1) subdivision or
consolidation of shares of stock of any class issued by the Company; (2) payment
by the Company of any stock dividend; (3) any other increase or decrease in the
number of shares of stock of any class; (4) any dissolution, liquidation,
merger, consolidation, spin-off or acquisition of assets or stock of another
corporation by the Company. Any issue by the Company of shares of stock of any
class, or securities convertible into shares of any class, shall not affect the
number of price of shares of Common Stock subject to the option, and no
adjustment by reason thereof shall be made.
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of
-5-
<PAGE>
its capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or assets.
7. LISTING OR QUALIFICATION OF SHARES.
All options granted under the Plan are subject to the requirement that
if at any time the Committee shall determine in its discretion that the listing
or qualification of the Shares subject thereto on any securities exchange or
under any applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of or in connection
with the issuance of the Shares under the option, the option may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained, free of any condition not
acceptable to the Committee.
8. BINDING EFFECT OF CONDITIONS.
The conditions and stipulations herein contained, or in any option
granted pursuant to the Plan shall be, and constitute, a covenant running with
all of the Shares acquired by the optionee pursuant to this Plan, directly or
indirectly, whether the same have been issued or not, and those Shares owned by
the optionee shall not be sold, assigned or transferred by any person save and
except in accordance with the terms and conditions herein provided. In addition,
the optionee shall agree to use the optionee's best efforts to cause the
officers of the Company to refuse to record on the books of the Company any
assignment or transfer made or attempted to be made, except as provided in the
Plan, and to cause said officers to refuse to cancel old certificates or to
issue or deliver new certificates or the Shares represented thereby, except
strictly in accordance with the provisions of the Plan.
9. AMENDMENT AND TERMINATION OF THE PLAN.
The Board shall have complete power and authority to terminate or amend
the Plan; provided, however, that in the event that continued compliance with
the terms of Rule 16b-3, as promulgated under the Exchange Act, so requires, the
Board shall not amend the Plan more than once every six (6) months other than to
comport with changes in the Code. The Board shall not without the approval of
the shareholders of the Company, amend the Plan in any manner that requires
shareholder approval for continued compliance with the terms of Rule 16b-3, as
promulgated under the Exchange Act, any successor rule, or other regulatory
authority. Except as provided in Section 6, no termination, modification or
amendment of the Plan may, without the consent of any member of the Board to
whom such option was previously granted under the Plan, adversely effect the
rights of such member of the Board under such option.
10. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective only upon adoption by the Board. The
grant of any option under the Plan shall be conditioned upon the prior
qualification of the options and underlying Shares under the California
securities laws. In the event that compliance with the terms of Rules 16b-3, as
promulgated under the Exchange Act, so requires, the exercise of
-6-
<PAGE>
any options granted pursuant to the Plan shall be conditioned upon the approval
of the Plan by the holders of a majority of the outstanding shares of Common
Stock of the Company within twelve (12) months of the adoption of the Plan by
the Board.
11. PRIVILEGES OF STOCK OWNERSHIP, SECURITIES LAW COMPLIANCE AND
NOTICE OF SALE.
No optionee shall be entitled to the privileges of stock ownership as
to any Shares not actually issued and delivered to the optionee. No Shares shall
be purchased upon the exercise of any option unless and until all of the then
applicable requirements of any (i) regulatory agencies having jurisdiction and
(ii) any exchanges upon which the Common Stock of the Company may be listed
shall have been fully complied with. The Company shall diligently endeavor to
comply with all applicable securities laws before any options are granted under
the Plan and before any Shares are issued pursuant to the exercise of such
options. The optionee shall give the Company notice of any sale or other
disposition of any such Shares not more than five (5) days after such sale or
disposition.
12. INDEMNIFICATION.
To the extent permitted by applicable law in effect from time to time,
no member of the Board or the Committee shall be liable for any action or
omission of any other member of the Board of Committee nor for any act or
omission on the member's own part, excepting only the member's own willful
misconduct or gross negligence. The Company shall pay expenses incurred by, and
satisfy a judgment or fine rendered or levied against, a present or former
director or member of the Committee in any action against such person (whether
or not the Company is joined as a party defendant) to impose liability or a
penalty on such person for an act alleged to have been committed by such person
while a director or member of the Committee arising with respect to the Plan or
administration thereof or out of membership on the Committee or by the Company,
or all or any combination of the preceding; provided, the director or Committee
merger was acting in good faith, within what such director or Committee member
reasonably believed to have been within the scope of his or her employment or
authority and for a purpose which he or she reasonable believed to be in the
best interests of the Company or its shareholders. Payments authorized hereunder
include amounts paid and expenses incurred in settlement any such action or
threatened action. This section does not apply to any action instituted or
maintained in the right of the Company by a shareholder or holder of a voting
trust certificate representing shares of the Company. The provisions of this
section shall apply to the estate, executor, administrator, heirs, legatees or
devisees of a director or Committee member, and the term "person" as used in
this section shall include the estate, executor, administrator, heirs, legatees
or devisees of such person.
-7-
<PAGE>
APPENDIX A
PROXY PROXY
NORTH VALLEY BANCORP
Proxy Solicited on Behalf of the Board of Directors
of North Valley Bancorp
for the Annual Meeting of Shareholders, May 26, 1998
The undersigned holder of Common Stock acknowledges receipt of the
Notice of Annual Meeting of Shareholders of North Valley Bancorp and the
accompanying Proxy Statement dated April 20, 1998, and revoking any proxy
heretofore given, hereby constitutes and appoints Martin R. Sorensen and Fred A.
Drake, and each of them, each with full power of substitution, as attorneys and
proxies to represent and vote, as designated on the reverse side, all shares of
Common Stock of North Valley Bancorp (the "Corporation"), which the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of the
Corporation to be held in Administration, North Valley Bank, 880 East Cypress
Avenue, Redding, California, on Tuesday, May 26, 1998, at 4:30 P.M., or at any
postponement or adjournment thereof, upon the matters set forth in the Notice of
Annual Meeting and Proxy Statement and upon such other business as may properly
come before the meeting or any postponement or adjournment thereof. All properly
executed proxies will be voted as indicated.
(Continued and to be signed on reverse side.)
<PAGE>
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS OF THE
CORPORATION AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
Please mark your votes as indicated in this example. |X|
1. To elect as Directors the nominees set forth below.
|_| FOR ALL nominees listed below (except as marked to the contrary
below).
|_| WITHHOLD AUTHORITY to vote for all nominees listed below.
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below. Any proxy which does not
withhold authority to vote for the election of any nominee shall be deemed to
grant such authority.
Nominees: Rudy V. Balma Kelly V. Pierce
William W. Cox Martin R. Sorensen
Dan W. Ghidinelli Douglas M. Treadway
Thomas J. Ludden J. M. ("Mike") Wells, Jr.
2. To approve an amendment of the Articles of Incorporation concerning
shareholder action by written consent and elimination of cumulative
voting.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To approve an amendment of the Articles of Incorporation to authorize
the issuance of Preferred Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To approve an amendment of the Articles of Incorporation regarding
indemnification of agents.
|_| FOR |_| AGAINST |_| ABSTAIN
5. To approve adoption of the North Valley Bancorp 1998 Employee Stock
Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
6. To approve an amendment of the North Valley Bancorp 1989 Director Stock
Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
7. To ratify the appointment of Deloitte & Touche LLP as independent
public accountants for 1998.
|_| FOR |_| AGAINST |_| ABSTAIN
8. In their discretion, the proxy holders are authorized to vote upon such
other business as may properly come before the meeting.
I/we do |_| or do not |_| expect to attend this meeting.
<PAGE>
- -----------------------
Number of Common Shares
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" PROPOSALS 2, 3, 4, 5, 6 AND 7.
WHEN THE PROXY IS PROPERLY EXECUTED, SHARES REPRESENTED BY THE PROXY WILL BE
VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN IN THE PROXY, SHARES REPRESENTED BY
THE PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD
OF DIRECTORS, "FOR" PROPOSALS 2, 3, 4, 5, 6 AND 7, AND, IN THE DISCRETION OF THE
PROXY HOLDERS, ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
Signatures(s)___________________________________ Date __________________________
Please mark, date and sign exactly as your name(s) appear(s) above. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title. If there is more than one trustee, all should sign.
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS
PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
