UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2003 Commission file number 0-10661
- -------------------------------- ------------------------------
TRICO BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2792841
- ------------------------------ -------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
63 Constitution Drive, Chico, California 95973
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 530/898-0300
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Class: Common stock, no par value
Outstanding shares as of May 12, 2003: 7,825,060
TABLE OF CONTENTS
Page
Forward Looking Statements 1
PART I - FINANCIAL INFORMATION 2
Item 1 - Financial Statements 2
Financial Summary 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 21
Item 4 - Controls and Procedures 22
PART II - OTHER INFORMATION 23
Item 1 - Legal Proceedings 23
Item 6 - Exhibits and Reports on Form 8-K 23
Signatures 24
Certifications 25
Exhibits 27
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about TriCo
Bancshares (the "Company") for which it claims the protection of the safe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. When you see any of the
words "believes", "expects", "anticipates", "estimates", or similar expressions,
mean making forward-looking statements. A number of factors, some of which are
beyond the Company's ability to predict or control, could cause future results
to differ materially from those contemplated. These factors include but are not
limited to:
- a continued slowdown in the national and California economies;
- increased economic uncertainty created by the recent terrorist attacks
on the United States and the actions taken in response;
- the prospect of additional terrorist attacks in the United States and the
uncertain effect of these events on the national and regional economies;
- changes in the interest rate environment;
- changes in the regulatory environment;
- significantly increasing competitive pressure in the banking industry;
- operational risks including data processing system failures or fraud;
- volatility of rate sensitive deposits; and
- asset/liability matching risks and liquidity risks.
On April 4, 2003, the Company acquired North State National Bank, located in
Chico, California. Many possible events or factors could affect the future
financial results and performance of the Company after the merger including:
- actual cost savings resulting from the merger are less than we expected,
we are unable to realize those cost savings as soon as we expected or we
incur additional or unexpected costs;
- revenues after the merger are less than we expected;
- competition among financial services companies increases;
- we have more trouble integrating our businesses than we expected;
- changes in the interest rate environment reduces our interest margins;
- general economic conditions change or are worse than we expected;
- legislative or regulatory changes adversely affect our business;
- changes occur in business conditions and inflation;
- personal or commercial customers' bankruptcies increase;
- changes occur in the securities markets; and
- technology-related changes are more difficult to make or more expensive
than we expected.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2002, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report.
-1-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRICO BANCSHARES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Unaudited)
At March 31, At December 31,
2003 2002 2002
------------------------------- -----------------
Assets:
Cash and due from banks $58,925 $42,647 $67,170
Federal funds sold 10,100 55,200 8,100
------------------------------- -----------------
Cash and cash equivalents 69,025 97,847 75,270
Investment securities available for sale 354,007 222,594 338,024
Loans
Commercial 117,329 123,026 125,982
Consumer 210,633 157,428 201,858
Real estate mortgages 330,001 315,591 319,969
Real estate construction 35,810 41,164 39,713
------------------------------- -----------------
693,773 637,209 687,522
Allowance for loan losses (14,293) (13,338) (14,377)
------------------------------- -----------------
Loans, net of allowance for loan losses 679,480 623,871 673,145
Premises and equipment, net 17,542 16,136 17,224
Cash value of life insurance 29,257 14,722 15,208
Other real estate owned 1,608 71 932
Accrued interest receivable 5,891 5,480 5,644
Deferred income taxes 8,316 9,337 8,429
Intangible assets 3,815 4,842 4,043
Other assets 7,562 5,033 6,655
------------------------------- -----------------
Total Assets $1,176,503 $999,933 $1,144,574
=============================== =================
Liabilities:
Deposits:
Noninterest-bearing demand $226,373 $172,087 $232,499
Interest-bearing demand 188,575 174,852 182,816
Savings 324,584 256,845 297,926
Time certificates, $100,000 and over 94,089 73,134 90,404
Other time certificates 199,031 196,354 201,592
------------------------------- -----------------
Total deposits 1,032,652 873,272 1,005,237
Accrued interest payable 3,034 2,817 2,927
Other Liabilities 16,010 12,179 14,472
Long-term debt and other borrowings 22,915 22,948 22,924
------------------------------- -----------------
Total Liabilities 1,074,611 911,216 1,045,560
------------------------------- -----------------
Shareholders' Equity:
Authorized - 20,000,000 shares of common stock
Issued and outstanding:
7,080,470 at March 31, 2003 50,768
6,990,980 at March 31, 2002 49,608
7,060,965 at December 31, 2002 50,472
Retained earnings 48,436 39,720 46,239
Accumulated other comprehensive income (loss), net 2,688 (611) 2,303
------------------------------- -----------------
Total Shareholders' Equity 101,892 88,717 99,014
------------------------------- -----------------
Total Liabilities and Shareholders' Equity $1,176,503 $999,933 $1,144,574
=============================== =================
-2-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except earnings per share data)
(Unaudited)
Three months ended March 31,
2003 2002
----------------------------
Interest Income:
Interest and fees on loans $12,989 $13,008
Interest on federal funds sold 84 166
Interest on investment securities
available for sale
Taxable 2,744 2,230
Tax exempt 532 554
----------------------------
Total interest income 16,349 15,958
----------------------------
Interest Expense:
Interest on interest-bearing demand deposits 118 122
Interest on savings 720 680
Interest on time certificates of deposit 1,959 2,142
Interest on long-term debt 318 319
----------------------------
Total interest expense 3,115 3,263
----------------------------
Net Interest Income 13,234 12,695
----------------------------
Provision for loan losses 150 800
----------------------------
Net Interest Income After Provision for Loan Losses 13,084 11,895
----------------------------
Noninterest Income:
Service charges and fees 3,500 1,973
Gain on sale of loans 1,133 963
Commissions on sale of non-deposit investment products 448 538
Other 315 352
----------------------------
Total Noninterest Income 5,396 3,826
----------------------------
Noninterest Expense:
Salaries and related benefits 6,877 5,739
Other 5,774 4,663
----------------------------
Total Noninterest Expense 12,651 10,402
----------------------------
Income Before Income Taxes 5,829 5,319
----------------------------
Provision for income taxes 2,216 1,990
----------------------------
Net Income $3,613 $3,329
Comprehensive Income:
Change in unrealized gain on securities
available for sale, net 385 44
----------------------------
Comprehensive Income $3,998 $3,373
============================
Average Shares Outstanding 7,071 6,992
Diluted Average Shares Outstanding 7,250 7,117
Per Share Data
Basic Earnings $0.51 $0.48
Diluted Earnings $0.50 $0.47
Dividends Paid $0.20 $0.20
-3-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, unaudited)
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss), net Total
-----------------------------------------------
Balance, December 31, 2001 $49,679 $37,909 ($655) $86,933
Net income for the period 3,329 3,329
Repurchase of common stock (71) (119) (190)
Dividends (1,399) (1,399)
Unrealized gain on securities
available for sale, net 44 44
-----------------------------------------------
Balance March 31, 2002 $49,608 $39,720 ($611) $88,717
===============================================
Balance, December 31, 2002 $50,472 $46,239 $2,303 $99,014
Net income for the period 3,613 3,613
Stock issued, including
stock option tax benefits 296 296
Dividends (1,416) (1,416)
Unrealized gain on securities
available for sale, net 385 385
-----------------------------------------------
Balance March 31, 2003 $50,768 $48,436 $2,688 $101,892
===============================================
-4-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
For the three months
ended March 31,
2003 2002
-------------------------------
Operating Activities:
Net income $3,613 $3,329
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment 653 668
Amortization of intangible assets 228 228
Provision for loan losses 150 800
Amortization of investment securities premium, net 757 341
Deferred income taxes (42) (28)
Originations of loans for resale (53,210) (46,947)
Proceeds from sale of loans originated for resale 53,750 47,333
Gain on sale of loans (1,133) (963)
Amortization of mortgage servicing rights 256 143
(Gain) loss on sale of fixed assets (2) 20
Change in assets and liabilities:
(Increase) decrease in interest receivable (247) 42
Increase (decrease) in interest payable 107 (671)
Decrease in other assets and liabilities 762 1,879
-------------------------------
Net Cash Provided by Operating Activities 5,642 6,174
-------------------------------
Investing Activities:
Proceeds from maturities of securities available-for-sale 36,864 28,682
Purchases of securities available-for-sale (53,010) (26,958)
Net (increase) decrease in loans (7,161) 21,003
Proceeds from sale of premises and equipment 2 3
Purchases of property and equipment (904) (303)
Purchase of life insurance (13,910) -
-------------------------------
Net Cash (Used) Provided by Investing Activities (38,119) 22,427
-------------------------------
Financing Activities:
Net increase (decrease) in deposits 27,415 (7,121)
Payments of principal on long-term debt agreements (9) (8)
Repurchase of Common Stock - (190)
Dividends paid (1,416) (1,399)
Exercise of stock options/issuance of Common Stock 242 -
-------------------------------
Net Cash Provided (Used) by Financing Activities 26,232 (8,718)
-------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (6,245) 19,883
-------------------------------
Cash and Cash Equivalents and Beginning of Period 75,270 77,964
-------------------------------
Cash and Cash Equivalents at End of Period $69,025 $97,847
===============================
Supplemental Disclosure of Noncash Activities:
Unrealized gain on securities available for sale $594 $69
Loans transferred to other real estate owned $676 -
Supplemental Disclosure of Cash Flow Activity:
Cash paid for interest expense $3,008 $3,934
Cash paid for income taxes $10 -
Income tax benefit from stock option exercises $54 -
-5-
TRICO BANCSHARES
Financial Summary
(dollars in thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
------------------------------
2003 2002
------------------------------
Net Interest Income (FTE) $13,543 $13,000
Provision for loan losses (150) (800)
Noninterest income 5,396 3,826
Noninterest expense (12,651) (10,402)
Provision for income taxes (FTE) (2,525) (2,295)
------------------------------
Net income $3,613 $3,329
==============================
Average shares outstanding 7,071 6,992
Diluted average shares outstanding 7,250 7,117
Shares outstanding at period end 7,080 6,991
As Reported:
Basic earnings per share $0.51 $0.48
Diluted earnings per share $0.50 $0.47
Return on assets 1.26% 1.34%
Return on equity 14.29% 14.88%
Net interest margin 5.17% 5.76%
Net loan charge-offs to average loans 0.14% 0.32%
Efficiency ratio (FTE) 66.80% 61.82%
Average Balances:
Total assets $1,149,759 $990,471
Earning assets 1,048,286 902,596
Total loans 679,975 642,082
Total deposits 1,003,853 863,029
Shareholders' equity $101,139 $89,505
Balances at Period End:
Total assets $1,176,503 $999,933
Earning assets 1,057,880 915,003
Total loans 693,773 637,209
Total deposits 1,032,652 873,272
Shareholders' equity $101,892 $88,717
Financial Ratios at Period End:
Allowance for loan losses to loans 2.06% 2.09%
Book value per share $14.39 $12.69
Equity to assets 8.66% 8.87%
Total capital to risk assets 11.63% 12.12%
Dividends Paid Per Share $0.20 $0.20
Dividend Payout Ratio 39.19% 42.02%
-6-
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: General Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations reflect interim
adjustments, all of which are of a normal recurring nature and which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim period presented. The interim results for the three months ended
March 31, 2003 and 2002 are not necessarily indicative of the results expected
for the full year. These unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
accompanying notes as well as other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiary, Tri Counties Bank (the "Bank"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Nature of Operations
The Company operates 33 branch offices and 10 in-store branch offices in the
California counties of Butte, Contra Costa, Del Norte, Fresno, Glenn, Kern,
Lake, Lassen, Madera, Mendocino, Merced, Nevada, Sacramento, Shasta, Siskiyou,
Stanislaus, Sutter, Tehama, Tulare and Yuba. The Company's operating policy
since its inception has emphasized retail banking. Most of the Company's
customers are retail customers and small to medium sized businesses.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires Management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including those related to the adequacy of the allowance for loan
losses, investments, intangible assets, income taxes and contingencies. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. The one accounting estimate that materially affects the financial
statements is the allowance for loan losses.
Investment Securities
The Company classifies its debt and marketable equity securities into one of
three categories: trading, available-for-sale or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling in the
near term. Held-to-maturity securities are those securities that the Company has
the ability and intent to hold until maturity. All other securities not included
in trading or held-to-maturity are classified as available-for-sale. During the
three months ended March 31, 2003 and throughout 2002, the Company did not have
any securities classified as either held-to-maturity or trading.
Available-for-sale securities are recorded at fair value. Unrealized gains and
losses, net of the related tax effect, on available-for-sale securities are
reported as a separate component of other comprehensive income in shareholders'
equity until realized.
Premiums and discounts are amortized or accreted over the life of the related
investment security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized gains
and losses for securities are included in earnings and are derived using the
specific identification method for determining the cost of securities sold.
Unrealized losses due to fluctuations in fair value of securities held to
maturity or available for sale are recognized through earnings when it is
determined that a permanent decline in value has occurred.
-7-
Loans
Loans are reported at the principal amount outstanding, net of unearned income
and the allowance for loan losses. Loan origination and commitment fees and
certain direct loan origination costs are deferred, and the net amount is
amortized as an adjustment of the related loan's yield over the estimated life
of the loan. Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is generally
discontinued either when reasonable doubt exists as to the full, timely
collection of interest or principal or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal. When loans are 90
days past due, but in Management's judgment are well secured and in the process
of collection, they may not be classified as nonaccrual. When a loan is placed
on nonaccrual status, all interest previously accrued but not collected is
reversed. Income on such loans is then recognized only to the extent that cash
is received and where the future collection of principal is probable. Interest
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of Management, the
loans are estimated to be fully collectible as to both principal and interest.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
Management believes that the collectibility of the principal is unlikely or,
with respect to consumer installment loans, according to an established
delinquency schedule. The allowance is an amount that Management believes will
be adequate to absorb probable losses inherent in existing loans, leases and
commitments to extend credit, based on evaluations of the collectibility,
impairment and prior loss experience of loans, leases and commitments to extend
credit. The evaluations take into consideration such factors as changes in the
nature and size of the portfolio, overall portfolio quality, loan
concentrations, specific problem loans, commitments, and current economic
conditions that may affect the borrower's ability to pay. The Company defines a
loan as impaired when it is probable the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Impaired
loans are measured based on the present value of expected future cash flows
discounted at the loan's original effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
When the measure of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded through a valuation allowance.
Mortgage Operations
Transfers and servicing of financial assets and extinguishments of liabilities
are accounted for and reported based on consistent application of a
financial-components approach that focuses on control. Transfers of financial
assets that are sales are distinguished from transfers that are secured
borrowings. Retained interests (mortgage servicing rights) in loans sold are
measured by allocating the previous carrying amount of the transferred assets
between the loans sold and retained interest, if any, based on their relative
fair value at the date of transfer. Fair values are estimated using discounted
cash flows based on a current market interest rate.
The Company recognizes a gain and a related asset for the fair value of the
rights to service loans for others when loans are sold. The Company sold
substantially all of its conforming long-term residential mortgage loans
originated during three months ended March 31, 2003 for cash proceeds equal to
the fair value of the loans.
The following table summarizes the Company's mortgage servicing rights assets as
of March 31, 2003 and December 31, 2002.
December 31, March 31,
(Dollars in thousands) 2002 Additions Reductions 2003
-----------------------------------------------
Mortgage Servicing Rights $2,821 $593 ($256) $3,158
===============================================
-8-
The recorded value of mortgage servicing rights is included in other assets, and
is amortized in proportion to, and over the period of, estimated net servicing
revenues. The Company assesses capitalized mortgage servicing rights for
impairment based upon the fair value of those rights at each reporting date. For
purposes of measuring impairment, the rights are stratified based upon the
product type, term and interest rates. Fair value is determined by discounting
estimated net future cash flows from mortgage servicing activities using
discount rates that approximate current market rates and estimated prepayment
rates, among other assumptions. The amount of impairment recognized, if any, is
the amount by which the capitalized mortgage servicing rights for a stratum
exceeds their fair value. Impairment, if any, is recognized through a valuation
allowance for each individual stratum.
At March 31, 2003, the Company had no mortgage loans held for sale. At March 31,
2003 and December 31, 2002, the Company serviced real estate mortgage loans for
others of $336 million and $307 million, respectively.
Identifiable Intangible Assets
Identifiable intangible assets consist of core deposit intangibles and minimum
pension liability.
The following table summarizes the Company's core deposit intangible as of March
31, 2003 and December 31, 2002.
December 31, March 31,
(Dollar in Thousands) 2002 Additions Reductions 2003
----------------------------------------------
Core deposit intangibles $10,278 $10,278
Accumulated amortization (6,636) ($228) (6,864)
----------------------------------------------
Core deposit intangibles, net $3,642 ($228) $3,414
==============================================
Core deposit premiums are scheduled to amortize at a rate of $227,700 per
quarter through the quarter ended December 31, 2006. Core deposit premiums are
amortized using an accelerated method over a period of ten years. The Company
reviews for impairment of certain intangibles held, whenever events or changes
indicate that the carrying amount of an asset may not be recoverable. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair market value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
The following table summarizes the Company's minimum pension liability
intangible as of March 31, 2003 and December 31, 2002.
December 31, March 31,
(Dollar in Thousands) 2002 Additions Reductions 2003
------------------------------------------
Minimum pension liability intangible $401 - - $401
==========================================
Intangible assets related to minimum pension liability are adjusted annually
based upon actuarial estimates.
Income Taxes
The Company's accounting for income taxes is based on an asset and liability
approach. The Company recognizes the amount of taxes payable or refundable for
the current year, and deferred tax assets and liabilities for the future tax
consequences that have been recognized in its financial statements or tax
returns. The measurement of tax assets and liabilities is based on the
provisions of enacted tax laws.
-9-
Stock-Based Compensation
The Company uses the intrinsic value method to account for its stock option
plans (in accordance with the provisions of Accounting Principles Board Opinion
No. 25). Under this method, compensation expense is recognized for awards of
options to purchase shares of common stock to employees under compensatory plans
only if the fair market value of the stock at the option grant date (or other
measurement date, if later) is greater than the amount the employee must pay to
acquire the stock. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123) permits companies to continue
using the intrinsic value method or to adopt a fair value based method to
account for stock option plans. The fair value based method results in
recognizing as expense over the vesting period the fair value of all stock-based
awards on the date of grant. The Company has elected to continue to use the
intrinsic value method.
Had compensation cost for the Company's option plans been determined in
accordance with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
Three Months Ended March 31,
(in thousands, except per share amounts) 2003 2002
---- ----
Net income As reported $3,613 $3,329
Pro forma $3,561 $3,280
Basic earnings per share As reported $0.51 $0.48
Pro forma $0.50 $0.47
Diluted earnings per share As reported $0.50 $0.47
Pro forma $0.49 $0.46
Stock-based employee compensation
cost, net of related tax effects,
included in net income As reported $0 $0
Pro forma $52 $49
Comprehensive Income
For the Company, comprehensive income includes net income reported on the
statement of income, changes in the fair value of its available-for-sale
investments, and changes in the minimum pension liability reported as a
component of shareholders' equity.
The changes in the components of accumulated other comprehensive income (loss)
for the three months ended March 31, 2003 and 2002 are reported as follows:
Three Months Ended March 31,
2003 2002
----------------------------
Unrealized Gain on Securities (in thousands)
Beginning Balance $3,048 $117
Unrealized gain arising during the
period, net of tax 385 44
----------------------------
Ending Balance $3,433 $161
----------------------------
Minimum Pension Liability
Beginning Balance ($745) ($772)
Change in minimum pension liability,
net of tax - -
----------------------------
Ending Balance ($745) ($772)
----------------------------
Total accumulated other comprehensive
income (loss), net $2,688 ($611)
----------------------------
-10-
Reclassifications
Certain amounts previously reported in the 2002 financial statements have been
reclassified to conform to the 2003 presentation. These reclassifications did
not affect previously reported net income or total shareholders' equity.
Subsequent Events
TriCo Bancshares (NASDAQ:TCBK), parent company of Tri Counties Bank, acquired
North State National Bank, a national banking organization located in Chico,
California, by the merger of North State into its wholly owned subsidiary, Tri
Counties Bank, effective 5:01 pm on April 4, 2003. The acquisition and the
related merger agreement dated October 3, 2002, was approved by the California
Department of Financial Institutions, the Federal Deposit Insurance Corporation,
and the shareholders of North State National Bank on March 4, March 7, and March
19, 2003, respectively. At the time of the acquisition, North State had total
assets of $144 million. The acquisition was accounted for using the purchase
method of accounting.
Under the terms of the merger agreement, TriCo will issue $13,090,105 in cash,
723,511 shares of TriCo common stock, and options to purchase 79,587 shares of
TriCo common stock at an average exercise price of $6.22 per share in exchange
for all of the 1,234,375 common shares and options to purchase 79,937 common
shares of North State National Bank outstanding as of April 4, 2003. The shares
of TriCo common stock to be issued were registered on a Form S-4 Registration
Statement declared effective on February 3, 2003. At March 31, 2003, TriCo
Bancshares had 7,080,470 shares of common stock outstanding. Based upon TriCo's
closing stock price of $25.65 on April 4, 2003, the aggregate value of the cash
and the TriCo options and common stock to be issued in the merger would be
approximately $33,195,000.
On April 15, 2003, TriCo filed a current report on Form 8-K, which contains pro
forma financial information concerning the merger.
-11-
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
As TriCo Bancshares (the "Company") has not commenced any business operations
independent of Tri Counties Bank (the "Bank"), the following discussion pertains
primarily to the Bank. Average balances, including such balances used in
calculating certain financial ratios, are generally comprised of average daily
balances for the Company. Within Management's Discussion and Analysis of
Financial Condition and Results of Operations, interest income and net interest
income are generally presented on a fully tax-equivalent (FTE) basis.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to the adequacy of the allowance for loan
losses, intangible assets, and contingencies. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. (See caption "Allowance for
Loan Losses" for a more detailed discussion).
Results of Operations
The following discussion and analysis is designed to provide a better
understanding of the significant changes and trends related to the Company and
the Bank's financial condition, operating results, asset and liability
management, liquidity and capital resources and should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes thereto.
The Company had quarterly earnings of $3,613,000, or $0.50 per diluted share,
for the three months ended March 31, 2003. These results represent a 6.5%
increase from the $0.47 earnings per diluted share reported for the three months
ended March 31, 2002 on earnings of $3,329,000. The improvement in results from
the year-ago quarter was due to a $543,000 (4.2%) increase in fully
tax-equivalent net interest income to $13,543,000, a $650,000 (81.3%) decrease
in provision for loan losses to $150,000, and a $1,570,000 (41.0%) increase in
noninterest income to $5,396,000. These contributing factors where offset by a
$2,249,000 (21.6%) increase in noninterest expense to $12,651,000 for the
quarter ended March 31, 2003.
Following is a summary of the components of fully taxable equivalent ("FTE") net
income for the periods indicated (dollars in thousands):
Three months ended
March 31,
--------------------------
2003 2002
--------------------------
Net Interest Income (FTE) $13,543 $13,000
Provision for loan losses (150) (800)
Noninterest income 5,396 3,826
Noninterest expense (12,651) (10,402)
Provision for income taxes (FTE) (2,525) (2,295)
--------------------------
Net income $3,613 $3,329
==========================
-12-
Net income for the first quarter of 2003 was $284,000 (8.5%) more than for the
same quarter of 2002. A significant increase in noninterest income (up $1.57
million or 41.0%), a $650,000 (81.3%) decrease in provision for loan losses, and
a $543,000 (4.2%) increase in fully taxable equivalent net interest income more
than offset an increase in noninterest expenses (up $2.25 million or 21.6%). The
increase in noninterest income from the year-ago quarter was mainly due to an
increase in service charges and fee income on deposit products (up $1,527,000 or
77.4% to $3,500,000), and an increase in gain on sale of loans (up $170,000 or
17.7% to $1,133,000). The increase in service charges and fee income was mainly
due to the introduction of an overdraft privilege deposit product in July 2002
that has added a new stream of recurring noninterest income. The increase in
gain on sale of loans is due to the Company's ability to originate and sell an
increased volume of residential real estate mortgage loans in the current
environment of record mortgage refinance. The decrease in provision for loan
losses (down $650,000 or 81.3% to $150,000) was due to stable loan quality and
the maintenance of adequate loss reserve levels. The increase in net interest
income (FTE) was due to an increase in average balance of interest-earning
assets (up $145.7 million or 16.1%) that was partially offset by a 59 basis
point decrease in net interest margin. The increase in noninterest expense was
mainly due to an increase in salary and benefit expense (up $1,138,000 or 19.8%
to $6,877,000). The increase in salary and benefits expense was mainly due to
annual salary increases, increased commission and incentive expense, and new
employees at four new branches the Company opened during 2002. Other noninterest
expense also increased (up $1,111,000 or 23.8% to $5,774,000) due to the new
branch openings in 2002, and expenses related to increased mortgage banking
activity and a new deposit product introduced in July 2002.
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended
March 31,
--------------------------
2003 2002
--------------------------
Interest income $16,349 $15,958
Interest expense (3,115) (3,263)
FTE adjustment 309 305
--------------------------
Net interest income (FTE) $13,543 $13,000
==========================
Average earning assets $1,048,286 $902,596
Net interest margin (FTE) 5.17% 5.76%
The Company's primary source of revenue is net interest income, or the
difference between interest income on earning assets and interest expense in
interest-bearing liabilities. Net interest income (FTE) during the first quarter
of 2003 increased $543,000 (4.2%) from the same period in 2002 to $13,543,000.
The increase in net interest income (FTE) was due to the increased average
balances of earning assets (up $145.7 million or 16.1% to $1.048 billion) that
was partially offset by a 59 basis point decrease in net interest margin (FTE).
Interest and Fee Income
Interest and fee income (FTE) for the first quarter of 2003 increased $391,000
(2.4%) from the first quarter of 2002. The increase was the net effect of higher
average interest-earning assets (up $145.7 million or 16.1% to $1.048 billion)
that was partially offset by an 85 basis point decrease in the yield on those
average earning assets to 6.36%. The growth in interest-earning assets was led
by a $119.1 million (53.9%) increase in average investment security balances to
$298.7 million, and a $37.9 million (5.9%) increase in average loan balances.
The average balance of federal funds sold decreased $11.3 million (28.4%) to
$28.4 million.
-13-
The average yield on the Company's earning assets decreased to 6.36% for the
quarter ended March 31, 2003 from 7.21% for the quarter ended March 31, 2002.
This downward trend in yields was reflective of general interest rate markets
during much of 2002. In addition, deposit growth outstripped loan growth during
the periods, which resulted in most of the growth in interest-earning assets
being in lower yielding investment securities instead of relatively higher
yielding loans.
Interest Expense
Interest expense decreased $148,000 (4.5%) in the first quarter of 2003 compared
to the year-ago quarter. The decrease was due to a decrease in the average rate
paid on interest-bearing liabilities from 1.82% in the first quarter of 2002 to
1.52% in the first quarter of 2003.
The average balance of interest-bearing liabilities increased $100.3 million
(14.0%) in the first quarter compared to the year-ago quarter. The increase in
interest-bearing liabilities was concentrated in the lower earning
interest-bearing demand deposit (up $15.4 million or 9.0%), and savings deposits
(up $62.7 million or 24.7%). The average balance of the higher earning time
deposits was up $22.2 million (8.2%) from the year-ago quarter. In addition, the
average balance of noninterest-bearing deposits increased $40.5 million (24.2%)
from the year-ago quarter. The average rate paid for all categories of
interest-bearing liabilities decreased from the average rate paid in the
year-ago quarter as a result of general market interest rate changes.
Net Interest Margin (FTE)
The following table summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended
March 31,
-------------------------
2003 2002
-------------------------
Yield on earning assets 6.36% 7.21%
Rate paid on interest-bearing
Liabilities 1.52% 1.82%
-------------------------
Net interest spread 4.84% 5.39%
Impact of all other net
noninterest-bearing funds 0.33% 0.37%
-------------------------
Net interest margin 5.17% 5.76%
=========================
Net interest margin in the first quarter of 2003 decreased 59 basis points
compared to the first quarter of 2002. Throughout much of 2002, the Company was
able to decrease the rates it paid on interest-bearing deposits approximately as
fast as the rates on interest-earning assets decreased. By doing so, the Company
was able to maintain a relatively high net interest margin throughout much of
2002. However, in the fourth quarter of 2002, it became increasingly difficult
to reduce the rates paid on interest-bearing deposits. As a result, the
Company's net interest margin began to decrease. Also, during this time, the
Company grew deposits faster than it grew loans. As a result, much of the
available funds from these deposits were invested in securities rather than
higher yielding loans, and this also contributed to a decrease in net interest
margin.
-14-
Summary of Average Balances, Yields/Rates and Interest Differential
The following table presents, for the periods indicated, information regarding
the Company's consolidated average assets, liabilities and shareholders' equity,
the amounts of interest income from average earning assets and resulting yields,
and the amount of interest expense paid on interest-bearing liabilities. Average
loan balances include nonperforming loans. Interest income includes proceeds
from loans on nonaccrual loans only to the extent cash payments have been
received and applied to interest income. Yields on securities and certain loans
have been adjusted upward to reflect the effect of income thereon exempt from
federal income taxation at the current statutory tax rate (dollars in
thousands).
For the three months ended
----------------------------------------------------------------
March 31, 2003 March 31, 2002
----------------------------- ------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $679,975 $12,989 7.64% $642,082 $13,008 8.10%
Investment securities - taxable 298,737 2,744 3.67% 176,257 2,230 5.06%
Investment securities - nontaxable 41,136 841 8.17% 44,535 859 7.72%
Federal funds sold 28,438 84 1.18% 39,722 166 1.67%
Total earning assets 1,048,286 16,658 6.36% 902,596 16,263 7.21%
Other assets 101,473 87,875
---------- ---------
Total assets $1,149,759 $990,471
========== =========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $187,017 118 0.25% $171,606 122 0.28%
Savings deposits 316,366 720 0.91% 253,679 680 1.07%
Time deposits 292,924 1,959 2.68% 270,692 2,142 3.17%
Other borrowings 22,918 318 5.55% 22,951 319 5.56%
----------------------------- ------------------------------
Total interest-bearing liabilities 819,225 3,115 1.52% 718,928 3,263 1.82%
Noninterest-bearing deposits 207,546 167,052
Other liabilities 21,849 14,986
Shareholders' equity 101,139 89,505
---------- ---------
Total liabilities and
shareholders' equity $1,149,759 $990,471
========== =========
Net interest spread(1) 4.84% 5.39%
Net interest income and interest margin(2) $13,543 5.17% $13,000 5.76%
================== ====================
(1) Net interest spread represents the average yield earned on assets minus the
average rate paid on interest-earning assets minus the average rate paid on
interest-bearing liabilities
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning
assets.
-15-
Summary of Changes in Interest Income and Expense due to Changes in Average
Asset & Liability Balances and Yields Earned & Rates Paid
The following table sets forth a summary of the changes in interest income and
interest expense from changes in average asset and liability balances (volume)
and changes in average interest rates for the periods indicated. Changes not
solely attributable to volume or rates have been allocated in proportion to the
respective volume and rate components (dollars in thousands).
Three months ended March 31, 2003
compared with three months
ended March 31, 2002
---------------------------------
Volume Rate Total
---------------------------------
Increase (decrease) in interest income:
Loans $767 (786) (19)
Investment securities 1,666 (1,170) 496
Federal funds sold (47) (35) (82)
---------------------------------
Total earning assets 2,386 (1,991) 395
---------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 11 (14) (3)
Savings deposits 168 (128) 40
Time deposits 176 (360) (184)
Other borrowings - (1) (1)
---------------------------------
Total interest-bearing liabilities 355 (503) (148)
---------------------------------
Increase (decrease) in Net Interest Income $2,031 ($1,488) $543
=================================
Provision for Loan Losses
The Company provided $150,000 for loan losses in the first quarter of 2003
versus $800,000 in the first quarter of 2002. During the first quarter of 2003,
the Company recorded $234,000 of net loan charge offs versus $521,000 of net
loan charge-offs in the year earlier quarter.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended
March 31,
----------------------
2003 2002
----------------------
Service charges on deposit accounts $2,858 $1,465
ATM fees and interchange 520 373
Other service fees 122 135
Gain on sale of loans 1,133 963
Commissions on sale of
nondeposit investment products 448 538
Increase in cash value of life insurance 139 119
Other noninterest income 176 233
----------------------
Total noninterest income $5,396 $3,826
======================
-16-
Noninterest income for the first quarter of 2003 increased $1,570,000 (41.0%)
from the year-ago quarter. The increase in noninterest income from the year-ago
quarter was mainly due to an increase in service charges on deposit products (up
$1,393,000 or 95.1% to $2,858,000), and an increase in gain on sale of loans (up
$170,000 or 17.7% to $1,133,000). The increase in service charges income was
mainly due to the introduction of an overdraft privilege deposit product in July
2002 that has added a new stream of recurring noninterest income. The increase
in gain on sale of loans is due to the Company's ability to originate and sell
an increased volume of residential real estate mortgage loans in the current
environment of record mortgage refinance. ATM fees and interchange income
increased from the year-ago quarter (up $147,000 or 39.4% to $520,000) due to
expansion of Company's ATM network and increased debit card usage.
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended
March 31,
------------------------
2003 2002
------------------------
Salaries $4,250 $3,645
Commissions and incentives 1,111 851
Employee benefits 1,516 1,243
Equipment 791 688
Occupancy 747 730
Professional fees 574 233
Telecommunications 391 339
Data processing and software 291 238
Advertising and marketing 272 165
Courier service 248 220
ATM network charges 232 192
Intangible amortization 228 228
Postage 198 142
Operational losses 130 39
Assessments 60 56
Other 1,612 1,393
------------------------
Total $12,651 $10,402
========================
Average full time equivalent staff 467 417
Noninterest expense to revenue (FTE) 66.80% 61.82%
Noninterest expense for the first quarter of 2003 increased $2,249,000 (21.6%).
The increase in noninterest expense was mainly due to a $1,138,000 (19.8%)
increase in salary and benefit expense to $6,877,000. The increase in salary and
benefits expense was mainly due to annual salary increases, increased commission
and incentive expense, and new employees at the Company's four newly opened
branches in 2002. Noninterest expense excluding salaries and benefits also
increased (up $1,111,000 or 23.8% to $5,774,000). Approximately $206,000 of this
increase was expenses related to the overdraft privilege product introduced in
July 2002, and included in professional fees. Also related to the overdraft
privilege product introduced in July 2002, was a $75,000 increase in operational
losses from the year-ago quarter. Increased advertising expenses accounted for
$113,000 of the increase in other noninterest expense.
Provision for Income Tax
The effective tax rate for the three months ended March 31, 2003 was 38.0% and
reflects an increase from 37.4% for the three months ended March 31, 2002. The
provision for income taxes for all periods presented is primarily attributable
to the respective level of earnings and the incidence of allowable deductions,
particularly from tax-exempt loans and state and municipal securities.
-17-
Classified Assets
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk. Asset reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category, which includes all
nonperforming assets and potential problem loans, and receive an elevated level
of attention to ensure collection.
The following is a summary of classified assets on the dates indicated (dollars
in thousands):
At March 31, 2003 At December 31, 2002
------------------------- ------------------------
Gross Guaranteed Net Gross Guaranteed Net
-----------------------------------------------------
Classified loans $49,510 $11,973 $37,537 $52,642 $12,280 $40,062
Other classified assets 1,608 - 1,608 932 - 932
-----------------------------------------------------
Total classified assets $51,118 $11,973 $39,145 $53,574 $12,280 $40,994
=====================================================
Allowance for loan losses/
Classified loans 36.5% 35.1%
Classified assets, net of guarantees of the U.S. Government, including its
agencies and its government-sponsored agencies at March 31, 2003, decreased $1.8
million (4.5%) to $39.1 million from $41.0 million at December 31, 2002.
Nonperforming Loans
Loans are reviewed on an individual basis for reclassification to nonaccrual
status when any one of the following occurs: the loan becomes 90 days past due
as to interest or principal, the full and timely collection of additional
interest or principal becomes uncertain, the loan is classified as doubtful by
internal credit review or bank regulatory agencies, a portion of the principal
balance has been charged off, or the Company takes possession of the collateral.
Loans that are placed on nonaccrual even though the borrowers continue to repay
the loans as scheduled are classified as "performing nonaccrual" and are
included in total nonperforming loans. The reclassification of loans as
nonaccrual does not necessarily reflect Management's judgment as to whether they
are collectible.
Interest income is not accrued on loans where Management has determined that the
borrowers will be unable to meet contractual principal and/or interest
obligations, unless the loan is well secured and in the process of collection.
When a loan is placed on nonaccrual, any previously accrued but unpaid interest
is reversed. Income on such loans is then recognized only to the extent that
cash is received and where the future collection of principal is probable.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when, in the judgment of
Management, the loans are estimated to be fully collectible as to both principal
and interest.
Interest income on nonaccrual loans, which would have been recognized during the
three months, ended March 31, 2003, if all such loans had been current in
accordance with their original terms, totaled $345,000. Interest income actually
recognized on these loans during the three months ended March 31, 2003 was
$14,500.
The Company's policy is to place loans 90 days or more past due on nonaccrual
status. In some instances when a loan is 90 days past due Management does not
place it on nonaccrual status because the loan is well secured and in the
process of collection. A loan is considered to be in the process of collection
if, based on a probable specific event, it is expected that the loan will be
repaid or brought current. Generally, this collection period would not exceed 30
days. Loans where the collateral has been repossessed are classified as OREO or,
if the collateral is personal property, the loan is classified as other assets
on the Company's financial statements.
-18-
Management considers both the adequacy of the collateral and the other resources
of the borrower in determining the steps to be taken to collect nonaccrual
loans. Alternatives that are considered are foreclosure, collecting on
guarantees, restructuring the loan or collection lawsuits.
As shown in the following table, total nonperforming assets net of guarantees of
the U.S. Government, including its agencies and its government-sponsored
agencies, increased $13.1 million (144%) to $22.2 million during the first three
months of 2003. The increase in nonperforming assets is due to two commercial
real estate loans collateralized by a single building. Nonperforming assets net
of guarantees represent 1.89% of total assets. All nonaccrual loans are
considered to be impaired when determining the need for a specific valuation
allowance. The Company continues to make a concerted effort to work problem and
potential problem loans to reduce risk of loss.
(dollars in thousands):
At March 31, 2003 At December 31, 2002
------------------------- -------------------------
Gross Guaranteed Net Gross Guaranteed Net
------------------------------------------------------
Performing nonaccrual loans $12,943 $8,265 $4,678 $13,199 $8,432 $4,767
Nonperforming, nonaccrual loans 16,163 502 15,661 4,091 718 3,373
------------------------------------------------------
Total nonaccrual loans 29,106 8,767 20,339 17,290 9,150 8,140
Loans 90 days past due and still accruing 271 - 271 40 - 40
------------------------------------------------------
Total nonperforming loans 29,377 8,767 20,610 17,330 9,150 8,180
Other real estate owned 1,608 - 1,608 932 - 932
------------------------------------------------------
Total nonperforming assets $30,985 $8,767 $22,218 $18,262 $9,150 $9,112
======================================================
Nonperforming loans to total loans 2.97% 1.19%
Allowance for loan losses/nonperforming loans 69% 176%
Nonperforming assets to total assets 1.89% 0.80%
Allowance for loan losses to nonperforming assets 64% 158%
Allowance for Loan Losses
Credit risk is inherent in the business of lending. As a result, the Company
maintains an Allowance for Loan Losses to absorb losses inherent in the
Company's loan portfolio. This is maintained through periodic charges to
earnings. These charges are shown in the Consolidated Income Statements as
provision for loan losses. All specifically identifiable and quantifiable losses
are immediately charged off against the allowance. However, for a variety of
reasons, not all losses are immediately known to the Company and, of those that
are known, the full extent of the loss may not be quantifiable at that point in
time. The balance of the Company's Allowance for Loan Losses is meant to be an
estimate of these unknown but probable losses inherent in the portfolio. For
purposes of this discussion, "loans" shall include all loans and lease contracts
that are part of the Company's portfolio.
The Company formally assesses the adequacy of the allowance on a quarterly
basis. Determination of the adequacy is based on ongoing assessments of the
probable risk in the outstanding loan portfolio, and to a lesser extent the
Company's loan commitments. These assessments include the periodic re-grading of
credits based on changes in their individual credit characteristics including
delinquency, seasoning, recent financial performance of the borrower, economic
factors, changes in the interest rate environment, growth of the portfolio as a
whole or by segment, and other factors as warranted. Loans are initially graded
when originated. They are re-graded as they are renewed, when there is a new
loan to the same borrower, when identified facts demonstrate heightened risk of
nonpayment, or if they become delinquent. Re-grading of larger problem loans
occur at least quarterly. Confirmation of the quality of the grading process is
obtained by independent credit reviews conducted by consultants specifically
hired for this purpose and by various bank regulatory agencies.
-19-
The Company's method for assessing the appropriateness of the allowance includes
specific allowances for identified problem loans and leases as determined by
SFAS 114, formula allowance factors for pools of credits, and allowances for
changing environmental factors (e.g., interest rates, growth, economic
conditions, etc.). Allowance factors for loan pools are based on the previous 5
years historical loss experience by product type. Allowances for specific loans
are based on SFAS 114 analysis of individual credits. Allowances for changing
environmental factors are Management's best estimate of the probable impact
these changes have had on the loan portfolio as a whole. This process is
explained in detail in the notes to the Company's Consolidated Financial
Statements in its Annual Report on Form 10-K for the year ended December 31,
2002.
Based on the current conditions of the loan portfolio, Management believes that
the $14,293,000 allowance for loan losses at March 31, 2003 is adequate to
absorb probable losses inherent in the Company's loan portfolio. No assurance
can be given, however, that adverse economic conditions or other circumstances
will not result in increased losses in the portfolio.
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended
March 31,
------------------------
2003 2002
------------------------
Balance, beginning of period $14,377 $13,058
Loan loss provision 150 800
Loans charged off (280) (561)
Recoveries of previously
charged-off loans 46 41
------------------------
Net charge-offs (234) (520)
------------------------
Balance, end of period $14,293 $13,338
========================
Allowance for loan losses/loans outstanding 2.06% 2.09%
Capital Resources
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies are reviewed regularly by Management. As
previously announced on October 19, 2001, the Board of Directors approved a plan
to repurchase, as conditions warrant, up to 150,000 shares of the Company's
common stock on the open market or in privately negotiated transactions. The
timing of purchases and the exact number of shares to be purchased will depend
on market conditions. This repurchase plan represented approximately 2.2% of the
Company's 6,992,080 common shares outstanding on October 19, 2001, and is
open-ended. As of this date, the Company has repurchased 118,800 shares under
this plan.
The Company's primary capital resource is shareholders' equity, which was $101.9
million at March 31, 2003. This amount represents an increase of $2.9 million
from December 31, 2002, the net result of comprehensive income for the period
($4.0 million) and the issuance of common shares via the exercise of stock
options ($0.3 million), partially offset by dividends paid ($1.4 million). The
Company's ratio of equity to total assets was 8.66%, 8.87%, and 8.65% as of
March 31, 2003, March 31, 2002, and December 31, 2002, respectively.
-20-
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
To Be Well
At March 31, At Minimum Capitalized Under
---------------- December 31, Regulatory Prompt Corrective
2003 2002 2002 Requirement Action Provisions
------------------------------------------------------------------
Tier I Capital 10.38% 10.86% 10.71% 4.00% 6.00%
Total Capital 11.63% 12.12% 11.97% 8.00% 10.00%
Leverage ratio 8.23% 8.48% 8.27% 4.00% 5.00%
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Asset and Liability Management
The goal for managing the assets and liabilities of the Company is to maximize
shareholder value and earnings while maintaining a high quality balance sheet
without exposing the Company to undue interest rate risk. The Board of Directors
has overall responsibility for the Company's interest rate risk management
policies. The Company has an Asset and Liability Management Committee (ALCO)
which establishes and monitors guidelines to control the sensitivity of earnings
to changes in interest rates.
Activities involved in asset/liability management include but are not limited to
lending, accepting and placing deposits, investing in securities and issuing
debt. Interest rate risk is the primary market risk associated with
asset/liability management. Sensitivity of earnings to interest rate changes
arises when yields on assets change in a different time period or in a different
amount from that of interest costs on liabilities. To mitigate interest rate
risk, the structure of the balance sheet is managed with the goal that movements
of interest rates on assets and liabilities are correlated and contribute to
earnings even in periods of volatile interest rates. The asset/liability
management policy sets limits on the acceptable amount of variance in net
interest margin, net income and market value of equity under changing interest
environments. Market value of equity is the net present value of estimated cash
flows from the Company's assets, liabilities and off-balance sheet items. The
Company uses simulation models to forecast net interest margin, net income and
market value of equity.
Simulation of net interest margin, net income and market value of equity under
various interest rate scenarios is the primary tool used to measure interest
rate risk. Using computer-modeling techniques, the Company is able to estimate
the potential impact of changing interest rates on net interest margin, net
income and market value of equity. A balance sheet forecast is prepared using
inputs of actual loan, securities and interest-bearing liability (i.e.
deposits/borrowings) positions as the beginning base.
In the simulation of net interest margin and net income under various interest
rate scenarios, the forecast balance sheet is processed against seven interest
rate scenarios. These seven interest rate scenarios include a flat rate
scenario, which assumes interest rates are unchanged in the future, and six
additional rate ramp scenarios ranging from +300 to -300 basis points around the
flat scenario in 100 basis point increments. These ramp scenarios assume that
interest rates increase or decrease evenly (in a "ramp" fashion) over a
twelve-month period and remain at the new levels beyond twelve months.
In the simulation of market value of equity under various interest rate
scenarios, the forecast balance sheet is processed against seven interest rate
scenarios. These seven interest rate scenarios include the flat rate scenario
described above, and six additional rate shock scenarios ranging from +300 to
- -300 basis points around the flat scenario in 100 basis point increments. These
rate shock scenarios assume that interest rates increase or decrease immediately
(in a "shock" fashion) and remain at the new level in the future.
At March 31, 2003 and 2002, the results of the simulations noted above indicate
that the balance sheet is slightly asset sensitive (earnings increase when
interest rates rise). The magnitude of all the simulation results noted above is
within the Company's policy guidelines. The asset liability management policy
limits aggregate market risk, as measured in this fashion, to an acceptable
level within the context of risk-return trade-offs.
-21-
The simulation results noted above do not incorporate any management actions,
which might moderate the negative consequences of interest rate deviations.
Therefore, they do not reflect likely actual results, but serve as conservative
estimates of interest rate risk.
At March 31, 2003 and 2002, the Company had no derivative financial instruments.
Liquidity
The Company's principal source of asset liquidity is federal funds sold and
marketable investment securities available for sale. At March 31, 2003, federal
funds sold and investment securities available for sale totaled $364 million,
representing an increase of $18 million or 5.2% from December 31, 2002, and an
increase of $86 million or 30.9% from March 31, 2002. In addition, the Company
generates additional liquidity from its operating activities. The Company's
profitability during the first three months of 2003 generated cash flows from
operations of $5.6 million compared to $6.2 million during the first three
months of 2002. Additional cash flows may be provided by financing activities,
primarily the acceptance of deposits and borrowings from banks. Sales and
maturities of investment securities produced cash inflows of $36.9 million
during the three months ended March 31, 2003 compared to $28.7 million for the
three months ended March 31, 2002. During the three months ended March 31, 2003,
the Company invested $53.0 million, $7.2 million, and $13.9 million in
securities, net loan growth, and life insurance policies, respectively, compared
to $27.0 million used to purchase investments and $21.0 million provided by a
net decrease in loan balances, respectively, during the first three months of
2002. These changes in investment, loan, and life insurance balances contributed
to net cash used for investing activities of $38.1 million during the three
months ended March 31, 2003, compared to net cash provided from investing
activities of $22.4 million during the three months ended March 31, 2002.
Financing activities provided net cash of $26.2 million during the three months
ended March 31, 2003, compared to net cash used by financing activities of $8.7
million during the three months ended March 31, 2002. Deposit balance increases
and exercise of common stock options accounted for $27.4 million and $242,000 of
financing sources of funds, respectively, during the three months ended March
31, 2003, compared to deposit balance decreases and repurchases of common stock
that accounted for $7.1 million and $190,000 financing uses of funds,
respectively, during the three months ended March 31, 2002. Dividends paid used
$1.4 million of cash during the three months ended both March 31, 2003 and March
31, 2002. Also, the Company's liquidity is dependent on dividends received from
the Bank. Dividends from the Bank are subject to certain regulatory
restrictions.
Item 4. Controls and Procedures
(a) The Chief Executive Officer, Richard Smith, and the Chief Financial
Officer, Thomas Reddish, evaluated the effectiveness of the Company's
disclosure controls and procedures as of a date within 90 days of the
filing of this report ("Evaluation Date"). Based on that evaluation,
they concluded that as of the Evaluation Date the Company's disclosure
controls and procedures are effective to allow timely communication to
them of information relating to the Company and the Bank required to
be disclosed in its filings with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934, as
amended ("Exchange Act"). Disclosure controls and procedures are
Company controls and other procedures that are designed to ensure that
information required to be disclosed by the Company in the reports
that it files under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date.
-22-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Bank is at times party to various
legal actions; all such actions are of a routine nature and arise in the normal
course of business of the Bank.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation dated May 9, 2003
3.2* Bylaws of TriCo Bancshares, as amended, filed as Exhibit 3.2 to
TriCo's Form S-4 Registration Statement dated January 16, 2003
(No. 333-102546)
4* Certificate of Determination of Preferences of Series AA Junior
Participating Preferred Stock filed as Exhibit 3.3 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001
10.1* Rights Agreement dated June 25, 2001, between TriCo and Mellon
Investor Services LLC filed as Exhibit 1 to TriCo's Form 8-A dated
July 25, 2001
10.2* Form of Change of Control Agreement between TriCo and each of
Craig Carney (dated February 27, 2003), Richard O'Sullivan (date
February 24, 2003), and Thomas Reddish (dated April 10, 2001),
filed as Exhibit 10.9 to TriCo's Report on Form 10-Q for the
quarter ended September 30, 2001
10.3* TriCo's 1993 Non-Qualified Stock Option Plan filed as Exhibit 4.1
to TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.4* TriCo's Non-Qualified Stock Option Plan filed as Exhibit 4.2 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.5* TriCo's Incentive Stock Option Plan filed as Exhibit 4.3 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.6* TriCo's 1995 Incentive Stock Option Plan filed as Exhibit 4.1 to
TriCo's Form S-8 Registration Statement dated August 23, 1995
(No. 33-62063)
10.7* TriCo's 2001 Stock Option Plan filed as Exhibit 4 to TriCo's Form
S-8 Registration Statement dated July 27, 2001 (No. 33-66064)
10.8* Employment Agreement between TriCo and Richard Smith dated April
10, 2001, filed as Exhibit 10.8 to TriCo's Form S-4 Registration
Statement dated January 16, 2003 (No. 333-102546)
-23-
10.9* Tri Counties Bank Executive Deferred Compensation Plan dated
September 1, 1987, as restated April 1, 1992, and amended November
12, 2002, filed as Exhibit 10.9 to TriCo's Form S-4 Registration
Statement dated January 16, 2003 (No. 333-102546)
10.10* Tri Counties Bank Supplemental Retirement Plan for Directors dated
September 1, 1987, as restated January 1, 2001, filed as Exhibit
10.10 to TriCo's Form S-4 Registration Statement dated January 16,
2003 (No. 333-102546)
10.11* Tri Counties Bank Supplemental Executive Retirement Plan effective
September 1, 1987, filed as Exhibit 10.11 to TriCo's Form S-4
Registration Statement dated January 16, 2003 (No. 333-102546)
10.12* Tri Counties Bank Deferred Compensation Plan for Directors
effective April 1, 1992, filed as Exhibit 10.12 to TriCo's Form
S-4 Registration Statement dated January 16, 2003 (No. 333-102546)
10.13 Employment Agreement between TriCo and Richard O'Sullivan dated
April 10, 2001
11.1 Computation of earnings per share
21.1 Tri Counties Bank, a California banking corporation, is the sole
subsidiary of Registrant
99.1 CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Previously filed and incorporated by reference.
(b) Reports on Form 8-K
During the quarter ended March 31, 2003 the Company filed the following
Current Reports on Form 8-K:
Description Date of Report
---------------------------------- ---------------------
Closing of acquisition of North April 15, 2003
State National Bank by TriCo
Bancshares and Tri Counties Bank.
Quarterly results of operations. April 23, 2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRICO BANCSHARES
(Registrant)
Date: May 12, 2003 /s/ Thomas J. Reddish
-----------------------------------
Thomas J. Reddish
Vice President and Chief Financial Officer
-24-
CERTIFICATIONS
I, Richard P. Smith, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have;
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors;
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 12, 2003 /s/ Richard P. Smith
-------------------------------------
Richard P. Smith
President and Chief Executive Officer
-25-
I, Thomas J. Reddish, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have;
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors;
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 12, 2003 /s/ Thomas J. Reddish
-------------------------------------
Thomas J. Reddish
Vice President and Chief Financial
Officer
-26-
EXHIBITS
Exhibit 3.1
Restated Articles of Incorporation dated May 9, 2003
CERTIFICATE OF RESTATED ARTICLES OF INCORPORATION
OF
TRICO BANCSHARES
The undersigned certify that:
1. They are the president and the secretary, respectively, of TriCo
Bancshares, a California corporation.
2. The original Articles of Incorporation of this corporation were filed
by the Secretary of State on October 13, 1981.
3. The Articles of Incorporation of this corporation as amended to the
date of this Certificate are restated on the attached Exhibit which is
incorporated by reference as if fully set forth herein.
4. The foregoing Restated Articles of Incorporation have been duly
approved by the Board of Directors.
5. The Restated Articles of Incorporation shall be, and said Articles
are, amended through the date of the filing of this Certificate.
6. These Restated Articles of Incorporation do not alter or amend in any
respect the Articles of Incorporation of this corporation and,
pursuant to Section 910 of the California Corporations Code, these
Restated Articles may be approved by the Board of Directors alone and
do not require the approval of the outstanding shares.
7. We further declare, under penalty of perjury under the laws of the
State of California, that the matters set forth in this Certificate
are true and correct of our own knowledge.
Dated: May 9, 2003.
/s/ Richard P. Smith
---------------------------------------------
Richard P. Smith, President
/s/ Wendell J. Lundberg
---------------------------------------------
Wendell J. Lundberg, Secretary
-27-
EXHIBIT TO CERTIFICATE OF RESTATED ARTICLES
OF INCORPORATION OF TRICO BANCSHARES
RESTATED ARTICLES OF INCORPORATION
OF
TRICO BANCSHARES
First
The name of this Corporation is TriCo Bancshares.
Second
The purpose of this 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
3.1 The Corporation is authorized to issue two classes of shares designated
"Preferred Stock" and "Common Stock," respectively. The number of shares of
Preferred Stock authorized to be issued is one million (1,000,000), and the
number of shares of Common Stock authorized to be issued is twenty million
(20,000,000).
3.2 The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, 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, may increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series.
3.3 Series A Preferred Stock. The rights, preferences and privileges of the
Series A Preferred Stock of the Corporation are as set forth in this Section
3.3.
3.3.1 Designation and Amount. Thirty Thousand Six Hundred (30,600) of
the shares of the Preferred Stock of the Corporation are designated Series
A Preferred Stock (hereinafter referred to as "Series A Stock").
-28-
3.3.2 Dividends.
(a) The holders of shares of Series A Stock shall be entitled to
receive cash dividends, when and as declared by the Board of Directors out
of funds legally available for the purpose, from the date of issue of such
shares to and including August 31, 1985, and for each Dividend Period
commencing on the first day of each month in each year after August 31,
1985 and ending on and including the day next preceding the first day of
the next month (such period ending August 31, 1985 and each of such other
periods herein referred to in this Section 3.3 as a "Dividend Period"), at
an annual rate of $11.00 per share. The amount of dividend per share
payable for the portion of the Dividend Period from the date of original
issue of a share of Series A Stock to and including August 31, 1985 and for
any other Dividend Period more or less than a full Dividend Period shall be
computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in the period for which payable. The amount
of dividend per share payable for each full Dividend Period commencing
after August 31, 1985 shall be computed by dividing the annual dividend
rate for each Dividend Period by twelve. Dividends shall be payable when
and as declared by the Board of Directors, out of funds legally available
therefor, to holders of record on such respective dates not exceeding 15
days preceding the payment date thereof as may be determined by the Board
of Directors in advance of such payment date. Dividends on account of
arrears for any past Dividend Periods may be declared and paid at any time,
without reference to any regular dividend payment date, to holders of
record on such date not exceeding 15 days preceding the payment date
thereof as may be fixed by the Board of Directors. No dividends shall be
declared on any other series or class or classes of Preferred Stock ranking
on a parity (as that term is defined in Section 3.3.5(d)) with the Series A
Stock as to dividends in respect of any Dividend Period unless there shall
likewise be or have keen declared on all shares of Series A Stock at the
time outstanding like dividends for all Dividend Periods coinciding with or
ending before such Dividend Period, ratably in proportion to the respective
dividend rates fixed for all such other series or class or classes of
Preferred Stock and the Series A Stock. Dividends shall be cumulative and
will accrue on each share of Series A Stock from the date of original
issuance thereof. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments which may be in
arrears.
(b) If dividends at the rate per share set out in Section 3.3.2(a) for
any Dividend Period shall not have been declared and paid or set apart for
payment on all outstanding shares of Series A Stock for such Dividend
Period and all preceding Dividend Periods from and after the date of issue
thereof, then, until the aggregate deficiency shall be declared and fully
paid or set apart for payment, the Corporation shall not (i) declare or pay
or set apart for payment any dividends or make any other distribution on
the Common Stock of the Corporation or any other capital stock of the
Corporation ranking junior to the Series A Stock with respect to the
payment of dividends or distribution of assets on liquidation, dissolution
or winding up of the Corporation (which for all purposes shall mean any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary) (the Common Stock and such other stock being
herein referred to in this Section 3.3 as "Junior Stock"), other than
dividends or distributions paid in shares of, or options, warrants or
rights to subscribe for or purchase shares of, Junior Stock, or (ii) make
any payment on account of the purchase, redemption or other retirement of
any Junior Stock.
3.3.3 Liquidation Preference. Upon the voluntary or involuntary
liquidation, winding up or dissolution of the Corporation, out of the
assets available for distribution to shareholders the holders of Series A
Stock shall be entitled to receive, in preference to any payment on the
Junior Stock, an amount equal to $100.00 per share plus cumulative
dividends as provided in Section 3.3.2 above accrued and unpaid to the date
payment is made available to the Series A Stock and no more. Subject to the
rights of the holders of shares of any series or class or classes of stock
ranking on a parity with or prior to the Series A Stock upon liquidation,
dissolution or winding up, after the full preferential liquidation amount
has been paid to, or determined and set apart for, the Series A Stock, the
remaining assets shall be paid to the Junior Stock. If upon any
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation, or proceeds thereof, distributable among the holders of
the shares of the Series A Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other
Preferred Stock ranking, as to liquidation, dissolution or winding up, on a
parity with the Series A Stock, then such assets, or the proceeds thereof,
shall be distributed among the shareholders of Series A Stock and any such
other Preferred Stock ratably in accordance with the respective amounts
which would be payable on such shares of Series A Stock and any such other
Preferred Stock if all amounts payable thereon were paid in full. A
reorganization shall not be considered to be a liquidation, winding up or
dissolution within the meaning of this Section 3.3.3 and in such event the
Series A Stock shall be entitled only to the rights provided in the plan of
reorganization and Chapters 12 and 13 of the California General Corporation
Law and elsewhere in the Corporation's Articles of Incorporation.
-29-
3.3.4 Redemption.
(a) The Series A Stock is subject to redemption, out of funds legally
available therefor, in whole, or from time to time in part, at the option
of the board of directors of the Corporation at or any time after July 1,
1988 or prior thereto upon the approval of at least a majority of the
outstanding shares of Series A Stock. If only a part of the Series A Stock
is to be redeemed, the redemption shall be carried out pro rata (as nearly
as may be). The redemption price shall be $100.00 per share plus cumulative
dividends as provided in Section 3.3.2 above accrued and unpaid to the date
fixed for redemption (herein called the "redemption price"). In the case of
a redemption of less than all of the Series A Stock at anytime outstanding,
no such shares may be redeemed until all dividends accrued and unpaid on
all Series A Stock then outstanding, other than the shares to be redeemed,
shall have been paid or declared and the full amount thereof set apart for
payment.
(b) The Corporation shall mail a notice of redemption to each holder
of record of shares to be redeemed addressed to the holder at the address
of such holder appearing on the books of the Corporation or given by the
holder to the Corporation for the purpose of notice, or if no such address
appears or is given at the place where the principal executive office of
the Corporation is located, not earlier than 60 nor later than 20 days
before the date fixed for redemption. The notice of redemption shall
include (i) the class of shares or the part of a class of shares to be
redeemed, (ii) the date fixed for redemption, (iii) the redemption price
and (iv) the place at which the shareholders may obtain payment of the
redemption price upon surrender of their share certificates. If funds are
available on the date fixed for the redemption, then whether or not the
share certificates are surrendered for payment of the redemption price, the
shares shall no longer be outstanding and the holders thereof shall cease
to be shareholders of the Corporation with respect to the shares redeemed
on and after the date fixed for redemption and shall be entitled only to
receive the redemption price without interest upon surrender of the share
certificate. If less than all the shares represented by one share
certificate are to be redeemed, the Corporation shall issue a new share
certificate for the shares not redeemed.
(c) The Corporation shall also cause a copy of the notice of
redemption to be published in a newspaper of general circulation in the
county in which the principal executive office of the Corporation is
located at least once a week for two successive weeks, in each instance on
any day of the week, commencing not earlier than 60 nor later than 20 days
before the date fixed for redemption. If the Corporation publishes the
notice of redemption as provided in this paragraph (c), the failure of the
Corporation to comply with the provision for mailing of notice of
redemption in paragraph (b) shall not invalidate the redemption of the
shares.
(d) If, on or prior to any date fixed for redemption, the Corporation
deposits with any bank or trust company in this state (which may be an
affiliate of the Corporation) as a trust fund a sum sufficient to redeem,
on the date fixed for redemption thereof, the shares called for redemption,
with irrevocable instructions and authority to the bank or trust company to
publish the notice of redemption thereof (or to complete such publication
if theretofore commenced) and to pay, on and after the date fixed for
redemption or prior thereto, the redemption price of the shares to their
respective holders upon surrender of their share certificates, then from
and after the date of the deposit (although prior to the date fixed for
redemption) the shares so called shall be redeemed and dividends on those
shares shall cease to accrue after the date fixed for redemption. The
deposit shall constitute full payment of the shares to their holders and
from and after the date of the deposit the shares shall no longer be
outstanding and the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with respect thereto except
the right to receive from the bank or trust company payment of the
redemption price of the shares without interest, upon surrender of their
certificates therefor. Any interest accrued on such funds shall be paid to
the Corporation from time to time. If less than all the shares represented
by one share certificate are to be redeemed, the Corporation shall issue a
new share certificate for the shares not redeemed. After two years, the
bank or trust company shall return to the Corporation funds deposited and
not claimed and thereafter the holder of a share certificate for shares
redeemed shall look to the Corporation for payment.
-30-
3.3.5 Voting Rights.
(a) Except as hereinafter in this Section 3.3.5 expressly provided for
and as otherwise required by the laws of the State of California, the
Series A Stock shall have no voting rights. If there is a default in whole
or in part in the payment of 24 or more cumulative monthly dividends,
whether or not consecutive, on the Series A Stock as provided for in
Section 3.3.2 above, the holders of the outstanding Series A Stock shall
have the right, voting separately as a class with holders of shares of any
one or more other series of Preferred Stock ranking on a parity with the
Series A Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights
have been conferred and are exercisable, to elect two of the authorized
number of members of the Board of Directors of the Corporation at the
Corporation's next annual meeting of shareholders. At elections for such
directors, each holder of Series A Stock shall be entitled to one vote for
each share held (the holders of shares of any other series of Preferred
Stock ranking on such a parity and having like voting rights being entitled
to such number of votes, if any, for each share of such stock held as may
be granted to them). The right of the holders of Series A Stock, voting
separately as a class, to elect (either alone or together with the holders
of shares of any one or more other series of Preferred Stock ranking on
such a parity and having like voting rights) members of the Board of
Directors of the Corporation as aforesaid shall continue until such time as
all dividends accumulated on the Series A Stock shall have been fully paid
or set apart for payment, at which time such right shall terminate, except
as herein or by law expressly provided, subject to revesting in the event
of each and every subsequent default of the character above mentioned. Upon
any termination of the right of the holders of the Series A Stock as a
class to vote for directors as herein provided, the term of office of all
directors then in office elected by the Series A Stock shall terminate
immediately. Any director who shall have been so elected pursuant to this
paragraph may be removed at any time, either with or without cause, and any
vacancy thereby created may be filled, only by the affirmative vote of the
holders of Series A Stock voting separately as a class (either alone or
together with the holders of shares of any one or more other series of
Preferred Stock ranking on such a parity and having like voting rights). If
the office of any director elected by the holders of Series A Stock voting
as a class becomes vacant for any reason other than removal from office as
aforesaid, the remaining director may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred.
(b) So long as any shares of Series A Stock remain outstanding, the
consent of the holders of at least a majority of the shares of Series A
Stock outstanding at the time (voting separately as a class together with
all other series of Preferred Stock ranking on a parity with the Series A
Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights
have been conferred and are exercisable) shall be necessary to permit,
effect or validate any one or more of the following:
(i) the authorization, creation or issuance of a new class or
series of shares having rights, preferences or privileges prior (as
that term is defined in Section 3.3.5(d)) to the shares of the Series
A Stock, or any increase in the number of authorized shares of any
class or series having rights, preferences or privileges prior to the
shares of Series A Stock; or
-31-
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Articles
of Incorporation of the Corporation which would materially and
adversely affect any right, preference, privilege or voting power of
the Series A Stock or of the holders thereof, provided, however that
any increase in the amount of authorized Common Stock or authorized
Preferred Stock or the creation and issuance of other series of Common
Stock or Preferred Stock, in each case ranking on a parity with or
junior to the Series A Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
(c) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series A Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
(d) Any class or classes of stock of the Corporation shall be deemed
to rank:
(i) prior to the Series A Stock as to dividends or as to distribution
of assets upon liquidation, dissolution or winding up if the holders of
such class shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of Series A Stock; and
(ii) on a parity with the Series A Stock as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up, whether
or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof are different from those of the Series
A Stock if the holders of such class of stock and of the Series A Stock
shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority one over the other.
3.4 Series B Preferred Stock. The rights, preferences and privileges of the
Series B Preferred Stock of the Corporation are as set forth in this Section
3.4.
3.4.1 Designation and Amount. Eight Thousand (8,000) of the shares of
the Preferred Stock of the Corporation are designated Series B Preferred
Stock (hereinafter referred to as "Series B Stock").
-32-
3.4.2 Dividends.
(a) The holders of shares of Series B Stock shall be entitled to
receive cash dividends, when and as declared by the Board of Directors out
of funds legally available for the purpose, from the date of issue of such
shares to and including November 30, 1988, and for each Dividend Period
commencing on the first day of each month in each year after November 30,
1988 and ending on and including the day next preceding the first day of
the next month (such period ending November 30, 1988 and each of such other
periods herein referred to in this Section 3.4 as a "Dividend Period"), at
an annual rate of $52.50 per share. The amount of dividend per share
payable for the portion of the Dividend Period from the date of original
issue of a share of Series B Stock to and including November 30, 1988 and
for any other Dividend Period more or less than a full Dividend Period
shall be computed on the basis of a 360-day year of twelve 30-day months
and the actual number of days elapsed in the period for which payable. The
amount of dividend per share payable for each full Dividend Period
commencing after November 30, 1988 shall be computed by dividing the annual
dividend rate for each Dividend Period by twelve. Dividends shall be
payable when and as declared by the Board of Directors, out of funds
legally available therefor, to holders of record on such respective dates
not exceeding 15 days preceding the payment date thereof as may be
determined by the Board of Directors in advance of such payment date.
Dividends on account of arrears for any past Dividend Periods may be
declared and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date not exceeding 15 days
preceding the payment date thereof as may be fixed by the Board of
Directors. No dividends shall be declared on any other series or class or
classes of Preferred Stock ranking on a parity (as that term is defined in
Section 3.4.5(d)) with the Series B Stock as to dividends in respect of any
Dividend Period unless there shall likewise be or have been declared on all
shares of Series B Stock at the time outstanding like dividends for all
Dividend Periods coinciding with or ending before such Dividend Period,
ratably in proportion to the respective dividend rates fixed for all such
other series or class or classes of Preferred Stock and the Series B Stock.
Dividends shall be cumulative and will accrue on each share of Series B
Stock from the date of original issuance thereof. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend
payment or payments which may be in arrears.
(b) If dividends at the rate per share set out in Section 3.4.2(a) for
any Dividend Period shall not have been declared and paid or set apart for
payment on all outstanding shares of Series B Stock for such Dividend
Period and all preceding Dividend Periods from and after the date of issue
thereof, then, until the aggregate deficiency shall be declared and fully
paid or set apart for payment, the Corporation shall not (i) declare or pay
or set apart for payment any dividends or make any other distribution on
the Common Stock of the Corporation or any other capital stock of the
Corporation ranking junior to the Series B Stock with respect to the
payment of dividends or distribution of assets on liquidation, dissolution
or winding up of the Corporation (which for all purposes shall mean any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary) (the Common Stock and such other stock being
herein referred to in this Section 3.4 as "Junior Stock"), other than
dividend or distributions paid in shares of, or options, warrants or rights
to subscribe for or purchase shares of, Junior Stock, or (ii) make any
payment on account of the purchase, redemption or other retirement of any
Junior Stock.
3.4.3 Liquidation Preference. Upon the voluntary or involuntary
liquidation, winding up or dissolution of the Corporation, out of the
assets available for distribution to shareholders the holders of Series B
Stock shall be entitled to receive, in preference to any payment on the
Junior Stock, an amount equal to $500.00 per share plus cumulative
dividends as provided in Section 3.4.2 above accrued and unpaid to the date
payment is made available to the Series B Stock and no more. Subject to the
rights of the holders of shares of any series or class or classes of stock
ranking on a parity with or prior to the Series B Stock upon liquidation,
dissolution or winding up, after the full preferential liquidation amount
has been paid to, or determined and set apart for, the Series B Stock, the
remaining assets shall be paid to the Junior Stock. If upon any
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation, or proceeds thereof, distributable among the holders of
the shares of the Series B Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other
Preferred Stock ranking, as to liquidation, dissolution or winding up, on a
parity with the Series B Stock, then such assets, or the proceeds thereof,
shall be distributed among the shareholders of Series B Stock and any such
other Preferred Stock ratably in accordance with the respective amounts
which would be payable on such shares of Series B Stock and any such other
Preferred Stock if all amounts payable thereon were paid in full. A
reorganization shall not be considered to be a liquidation, winding up or
dissolution within the meaning of this Section 3.4.3 and in such event the
Series B Stock shall be entitled only to the rights provided in the plan of
reorganization and Chapters 12 and 13 of the California General Corporation
Law and elsewhere in the Corporation's Articles of Incorporation.
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3.4.4 Redemption.
(a) The Series B Stock is subject to redemption, out of funds legally
available therefor, in whole, or from time to time in part, at the option
of the board of directors of the Corporation at or any time after August 1,
1995 or prior thereto upon the approval of at least a majority of the
outstanding shares of Series B Stock. If only a part of the Series B Stock
is to be redeemed, the redemption shall be carried out pro rata (as nearly
as may be). The redemption price shall be $500.00 per share plus cumulative
dividends as provided in Section 3.4.2 above accrued and unpaid to the date
fixed for redemption (herein called the "redemption price"). In the case of
a redemption of less than all of the Series B Stock at anytime outstanding,
no such shares may be redeemed until all dividends accrued and unpaid on
all Series B Stock then outstanding, other than the shares to be redeemed,
shall have been paid or declared and the full amount thereof set apart for
payment.
(b) The Corporation shall mail a notice of redemption to each holder
of record of shares to be redeemed addressed to the holder at the address
of such holder appearing on the books of the Corporation or given by the
holder to the Corporation for the purpose of notice, or if no such address
appears or is given at the place where the principal executive office of
the Corporation is located, not earlier than 60 nor later than 20 days
before the date fixed for redemption. The notice of redemption shall
include (i) the class of shares or the part of a class of shares to be
redeemed, (ii) the date fixed for redemption, (iii) the redemption price
and (iv) the place at which the shareholders may obtain payment of the
redemption price upon surrender of their share certificates. If funds are
available on the date fixed for the redemption, then whether or not the
share certificates are surrendered for payment of the redemption price, the
shares shall no longer be outstanding and the holders thereof shall cease
to be shareholders of the Corporation with respect to the shares redeemed
on and after the date fixed for redemption and shall be entitled only to
receive the redemption price without interest upon surrender of the share
certificate. If less than all the shares represented by one share
certificate are to be redeemed, the Corporation shall issue a new share
certificate for the shares not redeemed.
(c) The Corporation shall also cause a copy of the notice of
redemption to be published in a newspaper of general circulation in the
county in which the principal executive office of the Corporation is
located at least once a week for two successive weeks, in each instance on
any day of the week, commencing not earlier than 60 nor later than 20 days
before the date fixed for redemption. If the Corporation publishes the
notice of redemption as provided in this paragraph (c), the failure of the
Corporation to comply with the provision for mailing of notice of
redemption in paragraph (b) shall not invalidate the redemption of the
shares.
(d) If, on or prior to any date fixed for redemption, the Corporation
deposits with any bank or trust company in this state (which may be an
affiliate of the Corporation) as a trust fund a sum sufficient to redeem,
on the date fixed for redemption thereof, the shares called for redemption,
with irrevocable instructions and authority to the bank or trust company to
publish the notice of redemption thereof (or to complete such publication
if theretofore commenced) and to pay, on and after the date fixed for
redemption or prior thereto, the redemption price of the shares to their
respective holders upon surrender of their share certificates, then from
and after the date of the deposit (although prior to the date fixed for
redemption) the shares so called shall be redeemed and dividends on those
shares shall cease to accrue after the date fixed for redemption. The
deposit shall constitute full payment of the shares to their holders and
from and after the date of the deposit the shares shall no longer be
outstanding and the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with respect thereto except
the right to receive from the bank or trust company payment of the
redemption price of the shares without interest, upon surrender of their
certificates therefor. Any interest accrued on such funds shall be paid to
the Corporation from time to time. If less than all the shares represented
by one share certificate are to be redeemed, the Corporation shall issue a
new share certificate for the shares not redeemed. After two years, the
bank or trust company shall return to the Corporation funds deposited and
not claimed and thereafter the holder of a share certificate for shares
redeemed shall look to the Corporation for payment.
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3.4.5 Voting Rights.
(a) Except as hereinafter in this Section 3.4.5 expressly provided for
and as otherwise required by the laws of the State of California, the
Series B Stock shall have no voting rights. If there is a default in whole
or in part in the payment of 24 or more cumulative monthly dividends,
whether or not consecutive, on the Series B Stock as provided for in
Section 3.4.2 above, the holders of the outstanding Series B Stock shall
have the right, voting separately as a class with holders of shares of any
one or more other series of Preferred Stock ranking on a parity with the
Series B Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights
have been conferred and are exercisable, to elect two of the authorized
number of members of the Board of Directors of the Corporation at the
Corporation's next annual meeting of shareholders. At elections for such
directors, each holder of Series B Stock shall be entitled to one vote for
each share held (the holders of shares of any other series of Preferred
Stock ranking on such a parity and having like voting rights being entitled
to such number of votes, if any, for each share of such stock held as may
be granted to them). The right of the holders of Series B Stock, voting
separately as a class, to elect (either alone or together with the holders
of shares of any one or more other series of Preferred Stock ranking on
such a parity and having like voting rights) members of the Board of
Directors of the Corporation as aforesaid shall continue until such time as
all dividends accumulated on the Series B Stock shall have been fully paid
or set apart for payment, at which time such right shall terminate, except
as herein or by law expressly provided, subject to revesting in the event
of each and every subsequent default of the character above mentioned. Upon
any termination of the right of the holders of the Series B Stock as a
class to vote for directors as herein provided, the term of office of all
directors then in office elected by the Series B Stock shall terminate
immediately. Any director who shall have been so elected pursuant to this
paragraph may be removed at any time, either with or without cause, and any
vacancy thereby created may be filled, only by the affirmative vote of the
holders of Series B Stock voting separately as a class (either alone or
together with the holders of shares of any one or more other series of
Preferred Stock ranking on such a parity and having like voting rights). If
the office of any director elected by the holders of Series B Stock voting
as a class becomes vacant for any reason other than removal from office as
aforesaid, the remaining director may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred.
(b) So long as any shares of Series B Stock remain outstanding, the
consent of the holders of at least a majority of the shares of Series B
Stock outstanding at the time (voting separately as a class together with
all other series of Preferred Stock ranking on a parity with the Series B
Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights
have been conferred and are exercisable) shall be necessary to permit,
effect or validate any one or more of the following:
(i) the authorization, creation or issuance of a new class or
series of shares having rights, preferences or privileges prior (as
that term is defined in Section 3.4.5(d)) to the shares of the Series
B Stock, or any increase in the number of authorized shares of any
class or series having rights, preferences or privileges prior to the
shares of Series B Stock; or
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(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Articles
of Incorporation of the Corporation which would materially and
adversely affect any right, preference, privilege or voting power of
the Series B Stock or of the holders thereof, provided, however that
any increase in the amount of authorized Common Stock or authorized
Preferred Stock or the creation and issuance of other series of Common
Stock or Preferred Stock, in each case ranking on a parity with or
junior to the Series B Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
(c) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series B Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
(d) Any class or classes of stock of the Corporation shall be deemed
to rank:
(i) prior to the Series B Stock as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up if
the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of Series B Stock; and
(ii) on a parity with the Series B Stock as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up,
whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from
those of the Series B Stock, if the holders of such class of stock and
of the Series B Stock shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective dividend rates
or liquidation prices, without preference or priority one over the
other.
3.4.6 Series A Preferred Stock. For purposes of the foregoing
provisions, the Series A Preferred Stock of the Corporation shall be deemed
to rank on a parity with the Series B Stock for purposes of Sections 3.4.2,
3.4.3 and 3.4.5 hereof.
3.5 Series C Preferred Stock. The rights, preferences and privileges of the
Series C Preferred Stock of the Corporation are as set forth in this Section
3.5.
3.5.1 Designation and Amount. Seventeen Thousand (17,000) of the
shares of the Preferred Stock of the Corporation are designated Series C
Preferred Stock (hereinafter referred to as "Series C Stock").
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3.5.2 Dividends.
(a) The holders of shares of Series C Stock shall be entitled to
receive cash dividends, when and as declared by the Board of Directors out
of funds legally available for the purpose, from the date of issue of such
shares to and including the last day of the month following the month in
which such issuance occurred (the "Initial Dividend Period"), and for each
whole month thereafter (such Initial Dividend Period and each whole, month
thereafter shall be herein referred to in this Section 3.5 as a "Dividend
Period"), at an annual rate of $13.50 per share. The amount of dividend per
share payable for the Initial Dividend Period and for any other Dividend
Period more or less than a full month shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days elapsed
in the period for which payable. The amount of dividend per share payable
for each full Dividend Period commencing after the Initial Dividend Period,
shall be computed by dividing the annual dividend rate for each Dividend
Period by twelve. Dividends shall be payable when and as declared by the
Board of Directors, out of funds legally available therefor, to holders of
record on such respective dates not exceeding 15 days preceding the payment
date thereof as may be determined by the Board of Directors in advance of
such payment date. Dividends on account of arrears for any past Dividend
Periods may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on such date not
exceeding 15 days preceding the payment date thereof as may be fixed by the
Board of Directors. No dividends shall be declared on any other series or
class or classes of Preferred Stock on a parity (as that term is defined in
Section 3.5.5(d)) with the Series C Stock as to dividends in respect of any
Dividend Period unless there shall likewise be or have been declared on all
shares of Series C Stock at the time outstanding like dividends for all
Dividend Periods coinciding with or ending before such Dividend Period,
ratably in proportion to the respective dividend rates fixed for all such
other series or class or classes of Preferred Stock and the Series C Stock.
Dividends shall be cumulative and will accrue on each share of Series C
Stock from the date of original issuance thereof. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend
payment or payments which may be in arrears.
(b) If dividends at the rate per share set out in Section 3.5.2(a) for
any Dividend Period shall not have been declared and paid or set apart for
payment on all outstanding shares of Series C Stock for such Dividend
Period and all preceding Dividend Periods from and after the date of issue
thereof, then, until the aggregate deficiency shall be declared and fully
paid or set apart for payment, the Corporation shall not (i) declare or pay
or set apart for payment any dividends or make any other distribution on
the Common Stock of the Corporation or any other capital stock of the
Corporation ranking junior to the series C Stock with respect to the
payment of dividends or distribution of assets on liquidation, dissolution
or winding up of the Corporation (which for all purposes shall mean any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary) (the Common Stock and such other stock being
herein referred to in this Section 3.5 as "Junior Stock"), other than
dividends or distributions paid in shares of, or options, warrants or
rights to subscribe for or purchase shares of, Junior Stock, or (ii) make
any payment on account of the purchase, redemption or other retirement of
any Junior Stock.
3.5.3 Liquidation Preference. Upon the voluntary or involuntary
liquidation, winding up or dissolution of the Corporation, out of the
assets available for distribution to shareholders the holders of Series C
Stock shall be entitled to receive, in preference to any payment on the
Junior Stock, an amount equal to $135.00 per share plus cumulative
dividends as provided in Section 3.5.2 above accrued and unpaid to the date
payment is made available to the Series C Stock and no more. Subject to the
rights of the holders of shares of any series or class or classes of stock
ranking on a parity with or prior to the Series C Stock upon liquidation,
dissolution or winding up, after the full preferential liquidation amount
has been paid to, or determined and set apart for, the Series C Stock, the
remaining assets shall be paid to the Junior Stock. If upon any
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation, or proceeds thereof, distributable among the holders of
the shares of the Series C Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other
Preferred Stock ranking, as to liquidation, dissolution or winding up, on a
parity with the Series C Stock, then such assets, or the proceeds thereof,
shall be distributed among the shareholders of Series C Stock and any such
other Preferred Stock ratably in accordance with the respective amounts
which would be payable on such shares of Series C Stock and any such other
Preferred Stock if all amounts payable thereon were paid in full. A
reorganization shall not be considered to be a liquidation, winding up or
dissolution within the meaning of this Section 3.5.3 and in such event the
Series C Stock shall be entitled only to the rights provided in the plan of
reorganization and Chapters 12 and 13 of the California General Corporation
Law and elsewhere in the Corporation's Articles of Incorporation.
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3.5.4 Redemption.
(a) The Series C Stock is subject to redemption, out of funds legally
available therefor, in whole, or from time to time in part, at the option
of the board of directors of the Corporation at or any time after four
years from the date such Series C Stock is issued, or prior thereto upon
the approval of at least a majority of the outstanding shares of Series C
Stock. If only a part of the Series C Stock is to be redeemed, the
redemption shall be carried out pro rata (as nearly as may be). The
redemption price shall be $135.00 per share plus cumulative dividends as
provided in Section 3.5.2 above accrued and unpaid to the date fixed for
redemption (herein called the "redemption price"). In the case of a
redemption of less than all of the Series C Stock at anytime outstanding,
no such shares may be redeemed until all dividends accrued and unpaid on
all Series C Stock then outstanding, other than the shares to be redeemed,
shall have been paid or declared and the full amount thereof set apart for
payment.
(b) The Corporation shall mail a notice of redemption to each holder
of record of shares to be redeemed addressed to the holder at the address
of such holder appearing on the books of the Corporation or given by the
holder to the Corporation for the purpose of notice, or if no such address
appears or is given at the place when the principal executive office of the
Corporation is located, not earlier than 60 nor later than 20 days before
the date fixed for redemption. The notice of redemption shall include (i)
the class of shares or the part of a class of shares to be redeemed, (ii)
the date fixed for redemption, (iii) the redemption price and (iv) the
place at which the shareholders may obtain payment of the redemption price
upon surrender of their share certificates. If funds are available on the
date fixed for the redemption, then whether or not the share certificates
are surrendered for payment of the redemption price, the shares shall no
longer be outstanding and the holders thereof shall cease to be
shareholders of the Corporation with respect to the shares redeemed on and
after the date fixed for redemption and shall be entitled only to receive
the redemption price without interest upon surrender of the share
certificates. If less than all the shares represented by one share
certificate are to be redeemed, the Corporation shall issue a new share
certificate for the shares not redeemed.
(c) The Corporation shall also cause a copy of the notice of
redemption to be published in a newspaper of general circulation in the
county in which the principal executive office of the Corporation is
located at least once a week for two successive weeks, in each instance on
any day of the week, commencing not earlier than 60 nor later than 20 days
before the date fixed for redemption. If the Corporation publishes the
notice of redemption as provided in this paragraph (c), the failure of the
Corporation to comply with the provision for mailing of notice of
redemption in paragraph (b) shall not invalidate the redemption of the
shares.
(d) If, on or prior to any date fixed for redemption, the Corporation
deposits with any bank or trust company in this state (which may be an
affiliate of the Corporation) as a trust fund a sum sufficient to redeem,
on the date fixed for redemption thereof, the shares called for redemption,
with irrevocable instructions and authority to the bank or trust company to
publish the notice of redemption thereof (or to complete such publication
if theretofore commenced) and to pay, on and after the date fixed for
redemption or prior thereto, the redemption price of the shares to their
respective holders upon surrender of their share certificates, then from
and after the date of the deposit (although prior to the date fixed for
redemption) the shares so called shall be redeemed and dividends on those
shares shall cease to accrue after the date fixed for redemption. The
deposit shall constitute full payment of the shares to their holders and
from and after the date of the deposit the shares shall no longer be
outstanding and the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with respect thereto except
the right to receive from the bank or trust company payment of the
redemption price of the shares without interest, upon surrender of their
certificates therefor. Any interest accrued on such funds shall be paid to
the Corporation from time to time. If less than all the shares represented
by one share certificate are to be redeemed, the Corporation shall issue a
new share certificate for the shares not redeemed. After two years, the
bank or trust company shall return to the Corporation funds deposited and
not claimed and thereafter the holder of a share certificate for shares
redeemed shall look to the Corporation for payment.
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3.5.5 Voting Rights.
(a) Except as hereinafter in this Section 3.5.5 expressly provided for
and as otherwise required by the laws of the State of California, the
Series C Stock shall have no voting rights. If there is a default in whole
or in part in the payment of 24 or more cumulative monthly dividends,
whether or not consecutive, on the Series C Stock as provided for in
Section 3.5.2 above, the holders of the outstanding Series C Stock shall
have the right, voting separately as a class with holders of shares of any
one or more other series of Preferred Stock ranking on a parity with the
Series C Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights
have been, conferred and are exercisable, to elect a majority of the Board
of Directors of the Corporation at the Corporation's next annual meeting of
shareholders. At elections for such directors, each holder of Series C
Stock shall be entitled to one vote for each share held (the holders of
shares of any other series of Preferred Stock ranking on such a parity and
having like voting rights being entitled to such number of votes, if any,
for each share of such stock held as may be granted to them). The right of
the holders of Series C Stock, voting separately as a class, to elect
(either alone or together with the holders of shares of any one or more
other series of Preferred Stock ranking on such a parity and having like
voting rights) members of the Board of Directors of the Corporation as
aforesaid shall continue until such time as all dividends accumulated on
the Series C Stock shall have been fully paid or set apart for payment, at
which time such right shall terminate, except as herein or by law expressly
provided, subject to reverting in the event of each and every subsequent
default of the character above mentioned. Upon any termination of the right
of the holders of the Series C Stock as a class to vote for directors as
herein provided, the term of office of all directors then in office elected
by the Series C Stock shall terminate immediately. Any director who shall
have been so elected pursuant to this paragraph may be removed at any time,
either with or without cause, and any vacancy thereby created may be
filled, only by the affirmative vote of the holders of Series C Stock
voting separately as a class (either alone or together with the holders of
shares of any one or more other series of Preferred Stock ranking on such a
parity and having like voting rights). If the office of any director
elected by the holders of Series C Stock voting as a class becomes vacant
for any reason other than removal from office as aforesaid, the remaining
director may choose a successor who shall hold office for the unexpired
term in respect of which such vacancy occurred.
(b) So long as any shares of Series C Stock remain outstanding, the
consent of the holders of at least a majority of the shares of Series C
Stock outstanding at the time (voting separately as a class together with
all other series of Preferred Stock ranking on a parity with the Series C
Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights
have been conferred and are exercisable) shall be necessary to permit,
effect or validate any one or more of the following:
(i) the authorization, creation or issuance of a new class or
series of shares having rights, preferences or privileges prior (as
that term is defined in Section 3.5.5(d)) to the shares of the Series
C Stock, or any increase in the number of authorized shares of any
class or series having rights, preferences or privileges prior to the
shares of Series C Stock; or
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(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Articles
of Incorporation of the Corporation which would materially and
adversely affect any right, preference, privilege or voting power of
the Series C Stock or of the holders thereof, provided, however that
any increase in the amount of authorized Common Stock or authorized
Preferred Stock or the creation and issuance of other series of Common
Stock or Preferred Stock, in each case ranking on a parity with or
junior to the Series C Stock with respect to the payment of dividends
and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
(c) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series C Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
(d) Any class or classes of stock of the Corporation shall be deemed
to rank:
(i) prior to the Series C Stock as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up if
the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of Series C Stock; and
(ii) on a parity with the Series C Stock as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up,
whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from
those of the Series C Stock, if the holders of such class of stock and
of the Series C Stock shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective dividend rates
or liquidation prices, without preference or priority one over the
other.
3.5.6 Series A Preferred Stock and Series B Preferred Stock. For
purposes of the foregoing provisions, the Series A Preferred Stock and the
Series B Preferred Stock of the Corporation shall be deemed to rank on a
parity with the Series C Stock for purposes of Sections 3.5.2, 3.5.3 and
3.5.5 hereof.
3.6 Series AA Preferred Stock. The rights, preferences and privileges of
the Series AA Preferred Stock of the Corporation are as set forth in this
Section 3.6.
3.6.1 Designation and Amount. One Hundred Fifty Thousand (150,000) of
the shares of the Preferred Stock of the Corporation are designated as
Series AA Junior Participating Preferred Stock (the "Series AA Preferred
Stock"). Such number of shares may be increased or decreased by resolution
of the Board of Directors; provided that no decrease shall reduce the
number of shares of Series AA Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series AA Preferred Stock.
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3.6.2 Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series
of Series AA Preferred stock (or any similar stock) ranking prior and
superior to the Series AA Preferred Stock with respect to dividends, the
holders of shares of Series AA Preferred Stock, in preference to the
holders of shares of Common Stock, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on any regular quarterly dividend payment date as shall be established
by the Board of Directors (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series AA Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series AA Preferred Stock. In the event the Corporation shall at any
time after July 10, 2001 (the "Rights Declaration Date"), declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders
of shares of Series AA Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series AA Preferred Stock as provided in Section 3.6.2(d) immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on
the Series AA Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series AA Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series AA Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin
to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series AA Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may, in accordance with applicable
law, fix a record date for the determination of holders of shares of Series
AA Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than
such number of days prior to the date fixed for the payment thereof as may
be allowed by applicable law.
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3.6.3 Voting Rights. The holders of shares of Series AA Preferred
Stock shall have the following voting rights:
(a) Each share of Series AA Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders
of the Corporation.
(b) Except as otherwise provided in the Corporation's Articles of
Incorporation, or by law, the holders of shares of Series AA Preferred
Stock, the holders of shares of Common Stock, and the holders of shares of
any other capital stock of the Corporation having general voting rights,
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) Except as set forth in the Corporation's Articles of
Incorporation, and except as otherwise provided by law, holders of Series
AA Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate
action.
3.6.4 Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series AA Preferred Stock as provided in Section 3.6.2 are
in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series AA Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series AA Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series AA
Preferred Stock, except dividends paid ratably on the Series AA
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series AA Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series AA Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series AA Preferred Stock, or any shares of stock
ranking on a parity with the Series AA Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under Section 3.6.4(a),
purchase or otherwise acquire such shares at such time and in such manner.
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3.6.5 Reacquired Shares. Any shares of Series AA Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall become authorized but unissued shares of Series AA Preferred Stock
and may be reissued as part of a new series of Series AA Preferred Stock
subject to the conditions and restrictions on issuance set forth in the
Corporation's Articles of Incorporation, and by any subsequent amendments,
or as otherwise required by law.
3.6.6 Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series AA
Preferred Stock unless, prior thereto, the holders of shares of Series AA
Preferred Stock shall have received $100.00 per share, plus an amount equal
to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares
of Series AA Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (2) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series AA Preferred Stock, except
distributions made ratably on the Series AA Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up.
In the event the Corporation shall at any time after the Rights Declaration
Date declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series AA Preferred Stock
were entitled immediately prior to such event under the provision in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
3.6.7 Consolidation, Merger, Etc. In case the Corporation shall enter
into any consolidation, merger, statutory share exchange, combination or
other transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case each share of Series AA Preferred Stock shall at the
same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of
Series AA Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that are outstanding immediately prior
to such event.
3.6.8 No Redemption. The shares of Series AA Preferred Stock shall not
be redeemable.
3.6.9 Rank. The Series AA Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.
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3.6.10 Amendment. The Articles of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change
the powers, preferences or special rights of the Series AA Preferred Stock
so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series AA Preferred
Stock, voting together as a single class.
3.6.11 Fractional Shares. Series AA Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series AA Preferred Stock.
Fourth
The number of directors of this Corporation shall be set forth in the
Bylaws of the Corporation as adopted and amended from time to time in the manner
authorized by law.
Fifth
The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. No
amendment or repeal of this Article FIFTH by the shareholders of this
Corporation shall adversely affect any right or protection of a director of this
Corporation existing at the time of such amendment or repeal.
Sixth
This Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with such agents, votes of shareholders or disinterested
directors or otherwise, or any combination of the foregoing, in excess of the
indemnification otherwise permitted by Section 317 of the Corporation Code,
subject only to the limits set forth in Section 204 of the Corporations Code
with respect to actions for breach of duty to the Corporation and its
shareholders. No amendment or repeal of this Article SIXTH by the Shareholders
of this Corporation shall adversely affect any Corporation existing at the time
of such amendment or repeal.
Seventh
7.1 The Board of Directors, when evaluating any offer of another party to
(a) make a tender or exchange offer for the equity securities of the Corporation
or any subsidiary, (b) merge or consolidate the Corporation or any subsidiary
with another corporation, or (c) purchase or otherwise acquire all or
substantially all of the properties or assets of the Corporation, or of any
subsidiary, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
stockholders, give due consideration to all relevant factors, including by way
of illustration, but not limitation, any or all of the following:
7.1.1 Whether the offer is acceptable based on historical operating
results and the financial condition of the Corporation and its
subsidiaries, and its future prospects;
7.1.2 Whether a more favorable offer could be obtained for the
Corporation's or its subsidiaries, securities or assets in the foreseeable
future;
7.1.3 The social, economic or any other material impact which an
acquisition of the equity securities of the Corporation or substantially
all of its assets would have upon the employees and customers of the
Corporation and its subsidiaries and the community which they serve;
7.1.4 The reputation and business practices of the offeror and its
management and affiliates as they would affect the employees and customers
of the Corporation and its subsidiaries and the future value of the
Corporation's stock;
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7.1.5 The value of the securities, if any, which the offeror is
offering in exchange for the Corporation's or its subsidiaries' securities
or assets based on an analysis of the worth of the Corporation or of its
subsidiaries as compared to the offeror corporation or other entity whose
securities are being offered; and
7.1.6 Any antitrust or other legal or regulatory issues raised by the
offer.
7.2 If the Board of Directors determines an offer should be rejected, it
may take any lawful action to accomplish its purpose including, but not limited
to, any or all of the following:
7.2.1 Advising shareholders not to accept the offer;
7.2.2 Litigation against the offeror;
7.2.3 Filing complaints with any governmental and regulatory
authorities;
7.2.4 Acquiring the Corporation's securities;
7.2.5 Selling or otherwise issuing authorized but unissued securities
or treasury stock or granting options with respect thereto;
7.2.6 Acquiring a company to create an antitrust or other regulatory
problem for the offeror;
7.2.7 Obtaining a more favorable offer from another individual or
entity.
7.3 Notwithstanding the fact that by law or by agreement with a national
securities exchange or otherwise, no vote, or lesser vote, of shareholders may
be specified or permitted, the affirmative vote of the holders of two-thirds of
the outstanding shares of Common Stock of the Corporation shall be required to
approve any offer described in Section 7.1.
The provisions of Sections 7.1, 7.2 and 7.3 of these Articles of
Incorporation may be amended only by the affirmative vote of two-thirds of the
outstanding shares of Common Stock of the Corporation, and by the affirmative
vote of two-thirds of the outstanding shares of Preferred Stock of the
Corporation, if any.
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Exhibit 10.13
Employment Agreement between TriCo and Richard O'Sullivan dated April 10, 2001
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of April 10,
2001 between TRI COUNTIES BANK ("EMPLOYER"), having its principal place of
business at 63 Constitution Drive, Chico, California 95973 and Richard
O'Sullivan ("Employee").
WITNESSETH
WHEREAS, EMPLOYER desires to employ Employee pursuant to the terms of this
Agreement and Employee is desirous of and wishes to enter into such an
employment arrangement, on the terms and conditions hereinafter set forth
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. EMPLOYMENT
EMPLOYER hereby employs Employee, and Employee hereby accepts appointment,
as Executive Vice-President. Employee shall report to and be under the
supervision of the Board of Directors of EMPLOYER and Employee hereby agrees to
devote his full and exclusive time and attention to the business of EMPLOYER, to
faithfully perform the duties assigned to him by the Board of Directors
consistent with his office, and to conduct himself in such a way as shall best
serve the interests of EMPLOYER.
2. TERM OF AGREEMENT
Unless sooner terminated by EMPLOYER or the Employee pursuant to the
provisions of Sections 4 or 6 hereof, the employment provisions of this
Agreement shall terminate on the second (2nd) anniversary of the date of this
Agreement. This Agreement shall automatically extended for an additional year on
the first anniversary of this Agreement and each anniversary thereafter unless a
party notifies the other party to the contrary in writing within 30 days of and
anniversary.
3. COMPENSATION
For and in consideration of the performance by the Employee of the
services, terms, conditions, covenants and promises herein recited, EMPLOYER
agrees and promises to pay to the Employee at the times and in the manner herein
stated, the following:
3.1 Salary. As the compensation for the services to be performed by
the Employee hereunder during the employment period, the Employee shall
receive, as gross salary before any withholding of whatever sort, the sum
of $173,250.00 per year, payable in the manner in which EMPLOYER's payroll
is customarily handled. Additionally, Employee will be eligible for such
annual increases in salary as EMPLOYER's Board of Directors shall from time
to time decide.
3.2 Bonus/Incentive Plan. Employee shall participate in a
bonus/incentive plan to be agreed upon between Employee and EMPLOYER and
approved by the Board of Directors of EMPLOYER. It is contemplated that the
incentive bonus/plan will allow for an annual bonus of up to 40% of annual
salary based upon the meeting of certain criteria specified therein and
that the first year's minimum incentive annual bonus will be guaranteed at
$25,000.00.
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3.3 Stock Options. Employee will be granted options to purchase ______
shares of TRICO BANCSHARES ("TRICO") common stock pursuant to and under the
terms of TRICO's Employee Stock Option Plan
3.4 Employee Benefits. In addition to the above, EMPLOYER shall
provide the Employee with the following:
(a) participation for the Employee and his dependents, in any present
or future disability, health, dental or other insurance plan
generally available to all employees of the Company, such
participation to be on the same basis as such other
executives/employees, except that the 90 day waiting period for
inclusion shall be waived;
(b) participation for the Employee in any present or future employee
savings plans, including, but not limited to EMPLOYER's 401(k)
Savings Plan; Employee Stock Ownership Plan; and Executive
Deferred Compensation Plan;
(c) twenty (20) paid vacation days annually; and
(d) a car allowance of $850.00 per month and reimbursement of other
reasonable out-of-pocket expenses, including $0.30 per mile,
incurred by the Employee in the performance of the duties
hereunder in accordance with the policies of EMPLOYER.
4. EARLY TERMINATION OF EMPLOYMENT
4.1 Termination For Cause. EMPLOYER may at any time, in its sole
discretion, terminate the employment provisions of this Agreement for
"cause," effective immediately upon providing the Employee with notice of
his dismissal. The only occurrences which shall constitute "cause" within
the meaning of this paragraph shall be the following:
(a) the conviction of the Employee by a court of competent
jurisdiction of a crime involving moral turpitude (or the
entering of a no-contest or nolo contendere plea by Employee in
regard to such crime);
(b) the commission by the Employee of an act of fraud or bad faith
upon EMPLOYER;
(c) the willful misappropriation of any funds or property of EMPLOYER
by the Employee;
(d) the willful, continued and unreasonable failure by the Employee
to perform his duties or obligations under this Agreement; or
(e) the breach of any material provisions hereof or the engagement by
the Employee, without the prior written approval of EMPLOYER, in
any activity which would violate the provisions of Section 7 of
this Agreement.
4.2 Termination Without Cause. EMPLOYER may at any time, in its sole
discretion, terminate the employment provisions of this Agreement without
"cause," which term is defined in Section 4.1 hereof.
4.3 Voluntary Termination. The employment provisions of this Agreement
shall also terminate upon:
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(a) the death or permanent physical or mental disability of the
Employee;
(b) the voluntary retirement of the Employee; or
(c) the voluntary resignation of the Employee.
For purposes hereof, permanent physical or mental disability shall be
deemed to have occurred when Employee has been unable, with reasonable
accommodation, to perform the essential functions of his job (i) for a period of
six (6) consecutive months or (ii) on 80% or more of the normal working days
during any nine (9) consecutive months.
5. RIGHTS UPON EARLY TERMINATION OF EMPLOYMENT
5.1 Termination Pursuant to Section 4.1 or 4.3. If Employee's
employment is terminated pursuant to paragraph 4.1 or 4.3 hereof, then
EMPLOYER will have no obligation to pay any amount to the Employee other
than amounts earned or accrued pursuant to the provisions of Section 3, but
which have not yet been paid as of the date of the termination of the
Employee, and the Employee shall have no further claims against EMPLOYER or
EMPLOYER Entities with respect to this Agreement (except with respect to
payments due and payable under this paragraph 5.1.
5.2 Termination Pursuant to Section 4.2. If Employee's employment is
terminated pursuant to paragraph 4.2 hereof, then EMPLOYER shall pay to the
Employee all amounts earned or accrued pursuant to the provisions of
Section 3 hereof, but which have not yet been paid as of the date of the
termination of the Employee. In addition, EMPLOYER shall pay Employee a
prorated amount of Employee's minimum guaranteed annual bonus (as set forth
in Section 3.3) through the date of termination. In addition, EMPLOYER
shall pay through the then remaining term of this Agreement, the amount of
salary that would be payable pursuant to paragraph 3.1 if the Employee's
employment had not been terminated, at such times and in such amounts that
would have been paid if Employee's employment had not been terminated.
6. CHANGE IN CONTROL
6.1 Benefits. In the event of a "Change in Control" of EMPLOYER as
defined herein, and in the event that, within ninety days of the Change of
Control, either: (i) Employee's employment is terminated; or (ii) Employee
gives written notice that he is terminating his employment and invoking the
provisions of this Section 6, subject to the provisions of paragraph 6.3,
Employee shall be entitled to receive his salary at the rate then in effect
for a period of twenty -four (24) months following the termination of
Employee's employment, as well as an amount equal to 200% of the annual
bonuses earned by the Employee for the last complete calendar year or year
of employment, whichever is greater, provided, however, that the present
value of said payments shall not be more than two hundred ninety-nine
percent (299%) of Employee's compensation as defined by Section 280G of the
Internal Revenue Code of 1954, as amended. EMPLOYER shall be relieved of
its obligation to make payments under this Section if, at the time it is to
make such payment, it is insolvent, in conservatorship or receivership, is
in a troubled condition, is operating under a supervisory agreement with
any regulatory agency having jurisdiction, has been given a financial
soundness rating of "4" or "5", or is subject to a proceeding to terminate
or suspend federal deposit insurance.
6.2 Defined. For purposes of this Section 6, a "Change in Control" of
EMPLOYER shall occur:
(a) upon EMPLOYER's knowledge that any person (as such term is
used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended) is or becomes "the beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of shares
representing 40% or more of the combined voting power of the then
outstanding securities of EMPLOYER's Parent; or
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(b) upon the first purchase of the common stock of EMPLOYER's
Parent pursuant to a tender or exchange offer (other than a tender or
exchange offer made by EMPLOYER's Parent); or
(c) upon the approval by the stockholders of EMPLOYER's Parent of
a merger or consolidation (other than a merger of consolidation in
which EMPLOYER's Parent is the surviving corporation and which does
not result in any reclassification or reorganization of EMPLOYER's
Parent's then outstanding securities), a sale or disposition of all or
substantially all of EMPLOYER's Parent assets or a plan of liquidation
or dissolution of EMPLOYER's Parent; or
(d) if, during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors
of EMPLOYER's Parent cease for any reason to constitute at least a
majority thereof, unless the election or nomination for the election
by the stockholders of EMPLOYER's Parent of each new director was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period.
6.3 Limitations. Anything in this Agreement to the contrary
notwithstanding, prior to the payment of any compensation or benefits
payable under Section 6.1 hereof, the certified public accountants of
EMPLOYER immediately prior to a Change of Control (the "Certified Public
Accountants") shall determine as promptly as practical and in any event
with 20 business days following the sale of EMPLOYER whether any payment or
distribution by EMPLOYER to or for the benefit of Employee (whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement, any other agreements or otherwise) (a "Payment") would more
likely than not be nondeductible by EMPLOYER for Federal income tax
purposes because of section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and if it is, then the aggregate present value of
amounts payable or distributable to or for the benefit of EMPLOYER pursuant
to this Agreement (such payments or distributions pursuant to this
Agreement are thereinafter referred to as "Contract Payments") shall be
reduced (but not below zero) to the Reduced Amount. For purposes of this
Section, the "Reduced Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of Contract Payments without
causing any payment to be nondeductible by EMPLOYER because of said Section
280G of the Code.
If under this Section the certified Public Accountants determine that any
payment would more likely than not be nondeductible by EMPLOYER because of
Section 280G of the Code, EMPLOYER shall promptly give Employee notice to that
effect and a copy of the detailed calculation thereof and of the Reduced Amount,
and the Employee may then elect, in his sole discretion, which and how much of
the Contract Payments or any other payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Agreement
Payments or any other payments equals the Reduced Amount), and shall advise the
EMPLOYER in writing of his election within 20 business days of his receipt of
notice. If no such election is made by Employee within such 20-day period,
EMPLOYER may elect which and how much of the Contract Payments or any other
payments shall be eliminated or reduced (as long as after such election the
Aggregate present value of the Contract Payments equals the Reduced Amount) and
shall notify Employee promptly of such election. For purposes of this Section,
present value shall be determined in accordance with Section 280G(d)(4) of the
Code. All determinations made by the Certified Public Accountants shall be
binding upon EMPLOYER and Employee and the payment to Employee shall be made
within 20 days of sale of EMPLOYER. EMPLOYER may suspend for a period of up to
30 days after the sale of EMPLOYER the Payment and any other payments or
benefits due to Employee until the Certified Public Accountants finish the
determination and Employee (or EMPLOYER, as the case may be) elects how to
reduce the Contract Payments or any other payments, if necessary. As promptly as
practicable following such determination and the elections hereunder, EMPLOYER
shall pay to or distribute to or for the benefit of Employee such amounts as are
then due to Employee under this Agreement.
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As a result of the uncertainty in the application of Section 280G of the
Code, it is possible that Contract Payments may have been made by EMPLOYER which
should not have been made ("Overpayment"), in each case, consistent with the
calculation of the Reduced Amount hereunder. In the event that the Certified
Public Accountants, based upon the assertion of a deficiency by the Internal
Revenue Service against EMPLOYER or Employee which said Certified Public
Accountants believe has a high probability of success, determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to Employee which Employee shall repay to EMPLOYER together
with interest at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by
Employee to EMPLOYER in and to the extent such payment would not reduce the
amount which is subject to taxation under Section 4999 of the Code. In the event
that the Certified Public Accountants, based upon controlling precedent,
determine that an Underpayment has occurred, any such Underpayment shall be
promptly paid by EMPLOYER to or for the benefit of Employee together with
interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Code.
6.4 Continuing Obligations. The triggering of this Section 6 shall not
relieve Employee or EMPLOYER of their obligations pursuant to the
provisions of Section 7 hereof, such Section containing independent
agreements and obligations.
7. COVENANTS
7.1 Non-disturbance with Employees. Employee hereby agrees that (a)
during the term of his employment with EMPLOYER and for a period of twelve
(12) months following the termination of his employment, he will not
directly or indirectly solicit, cause any other person to solicit or assist
any other person with soliciting, the employment of any person who is, at
the time of such solicitation, or who was within 30 days of such
solicitation, an employee of EMPLOYER or its subsidiaries or employees.
Employment for purposes of this Section shall include consulting,
performing services for commissions or otherwise performing services for
cash or other compensation.
7.2 Confidential Information. The parties hereto recognize that the
services performed and to be performed by Employee are special and unique
and that by reason of this employment Employee has acquired and will
continue to acquire information regarding the strategic plans, business
plans, policies, finances and customers and trade secrets of that EMPLOYER
in the course of its business takes steps to keep confidential
("Confidential Information"). Employee hereby agrees not to divulge to
anyone, either during or after his employment with EMPLOYER or for a period
of three (3) years following the termination of his employment any such
Confidential Information. Employee further agrees that all memoranda,
notes, records, reports, letters, and other documents made, compiled,
received, held, or used by Employee while employed by EMPLOYER concerning
any phase of the business of EMPLOYER shall be EMPLOYER's property and
shall be delivered by Employee to EMPLOYER on the termination of his
employment, or at any earlier time on the request of the Board of
Directors.
7.3 Non-use of Confidential Information. Employee hereby agrees that
(a) during the term of his employment with EMPLOYER; and (b) for a period
of one year following the termination of his employment, he will not use
any Confidential Information, and especially information concerning
EMPLOYER'S customers to directly or indirectly solicit, cause any other
person to solicit or assist any other person with soliciting any customer,
depositor or borrower of EMPLOYER or its subsidiaries or affiliates to
become a customer, depositor or borrower of another bank, savings and loan,
or financial institution.
7.4 Enforcement. The agreement of Employee contained in this Section 7
shall be enforceable both at law and in equity, by injunction and
otherwise; and the rights and remedies of EMPLOYER hereunder with respect
thereto shall be cumulative and not alternative and shall not be exhausted
by any one or more uses thereof.
8. ENTIRE AGREEMENT: WAIVERS AND AMENDMENTS
This Agreement sets forth the entire agreement between the parties with
respect to the terms and conditions of the relationship between Employee and
EMPLOYER and any and all matters related thereto, and any and all prior
agreements with respect to any thereof, whether oral or written, are superseded
hereby. Neither this Agreement nor any term or condition hereof, including
without limitation, the terms and conditions of this Section, any be waived or
modified in whole or in part as against EMPLOYER or Employee, as the case may
be, except by written instrument signed by an authorized officer of EMPLOYER and
by Employee, expressly stating that it is intended to operate as a waiver or
modification of this Agreement, and any such written waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach hereof.
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9. NOTICE
Any notices, consents or other communication required to be sent or given
hereunder by any of the parties shall in every case be in writing and shall be
deemed properly served if (a) delivered personally, (b) sent by registered or
certified mail, in all such cases with first class postage prepaid, return
receipt requested, or (c) delivered by a recognized overnight courier service,
if to EMPLOYER at the address of its main office to the attention of its
President and, if to Employee, at his last address on the personnel records of
EMPLOYER or at such other addresses as may be furnished by a party in writing
according to the provisions of this Section 9, except that either party may from
time to time, in writing by certified mail, designate another address which
shall thereupon become his or its effective address for the purposes of this
Section.
10. SEVERABILITY
If any term or provision of this Agreement or the application thereof to
any person, property or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provision to persons, property or circumstances other than those as to which
it is invalid or unenforceable, shall not be effected thereby, and each term
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law.
11. NO RESTRICTIONS
Employee hereby represents and warrants that he is not now and will not be
subject to any agreement, restriction, lien, encumbrance, or right, title or
interest in any one, limiting in any way the scope of this Agreement or in any
way inconsistent with this Agreement.
12. NO ASSIGNMENT: BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of EMPLOYER,
its successors or assigns. Except as to the obligation of Employee to render
personal services which shall be non-assignable, this Agreement shall be binding
upon and inure to the heirs, executors, administrators, and assigns of Employee.
13. ARBITRATION
EXCEPT AS TO ANY ACTION BROUGHT TO ENFORCE THE PROVISIONS OF SECTION 7
ABOVE, ANY CONTROVERSY, DISPUTE OR CLAIM ARISING OUT OF OR RELATING TO THE
TERMINATION OF THE EMPLOYEE'S EMPLOYMENT, AND THE INTERPRETATION OF THIS
AGREEMENT, AND ANY AND ALL CLAIMS INCLUDING ANY STATUTORY CLAIMS OF
DISCRIMINATION, SHALL BE RESOLVED BY BINDING ARBITRATION UNDER THE EMPLOYMENT
DISPUTE RESOLUTION RULES OF THE AMERICAN ARBITRATION ASSOCIATION PROVISIONS OF
THE FEDERAL UNIFORM ARBITRATION ACT.
The parties agree that arbitration shall be the exclusive forum to resolve
any and all claims between the parties, their agents and employees regarding the
termination of employment, or of this Agreement, including any claims of
discrimination under any state or federal statute, wrongful discharge theory, or
any other claim whether based on specific state or federal statute or common
law.
ANY CLAIM MADE UNDER THIS PROVISION MAY BE SUBMITTED IN WRITING WITHIN 60
DAYS AFTER THE TERMINATION OF EMPLOYMENT OR THIS AGREEMENT. THE WRITTEN CLAIM
MUST DETAIL THE FACTS WHICH SUPPORT THE CLAIM ALONG WITH ANY LEGAL THEORIES OR
STATUS UPON WHICH THE CLAIM IS BASED.
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The parties agree to abide by any determination of the arbitrator as to
which party is to be responsible for the costs and attorneys' fees in any such
proceeding. It is agreed that the arbitrator shall be empowered to hear all
legal and equitable claims, including claims for discrimination. The arbitrator
shall be governed by the law applicable to any claims based upon any state or
federal statute, and will also be empowered to award any remedies appropriate
under any such statues.
This provision shall survive the termination of Employee's employment and
this Agreement.
14. HEADINGS
The captions and headings contained herein have been inserted for
convenience or reference only and shall not affect the meaning or interpretation
of this Agreement.
15. GOVERNING LAW AND CHOICE OF FORUM
This Agreement shall be construed and enforced in accordance with the laws
of the State of California and shall be enforced in the State or Federal Courts
sitting in California.
EMPLOYEE
/s/ Richard O'Sullivan
Richard O'Sullivan
ATTEST:
/s/ Kathleen Richardson
- -----------------------
TRI COUNTIES BANK
ATTEST:
BY: /s/ Richard P. Smith
President and Chief
Executive Officer
/s/ Kathleen Richardson
- -----------------------
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Exhibit 11.1
TRICO BANCSHARES
Computation of Earnings Per Share on Common and Common Equivalent Shares and on
Common Shares Assuming Full Dilution
For the
three months
ended March 31,
(In thousands, except per share data) 2003 2002
----------------------
Weighted average number of common
shares outstanding - basic 7,071 6,992
Add exercise of options reduced by
the number of shares that could
have been purchased with the
proceeds of such exercise 179 125
----------------------
Weighted average number of common
shares outstanding - diluted 7,250 7,117
======================
Net income $3,613 $3,329
Basic earnings per share $0.51 $0.48
Diluted earnings per share $0.50 $0.47
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Exhibit 99.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ending March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Richard P. Smith,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Richard P. Smith
-------------------------------------
Richard P. Smith
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to TriCo Bancshares and will be retained by TriCo Bancshares and
furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ending March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Thomas J. Reddish,
Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Thomas J. Reddish
-------------------------------------
Thomas J. Reddish
Vice President and Chief
Financial Officer
A signed original of this written statement required by Section 906 has been
provided to TriCo Bancshares and will be retained by TriCo Bancshares and
furnished to the Securities and Exchange Commission or its staff upon request.
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