FIRST NORTHERN BANK OF DIXON
195 North First Street, Dixon, California 95620
BANK HOLDING COMPANY PROPOSED--YOUR VOTE IS IMPORTANT
March 27, 2000
Dear Shareholder:
The annual meeting of shareholders of First Northern Bank of Dixon will
be held this year at the Bank's Operations Center, located at 210 Stratford
Avenue, Dixon, California, on Thursday, April 27, 2000, at 7:30 p.m.
We look forward to your attendance.
The following Proxy Statement/Offering Circular outlines the business to be
conducted at the meeting, which, in addition to the election of directors and
the ratification of KPMG LLP as the Bank's independent auditors, includes a
proposal to create a "bank holding company." YOUR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THESE PROPOSALS AND WE URGE YOU TO VOTE FOR THEM.
The full description of the proposals, the reasons for them and their
possible effects are outlined at length in the Proxy Statement/Offering
Circular. We urge you to read it carefully so that you may vote your interests.
The Board of Directors of First Northern Bank of Dixon has unanimously
voted in favor of creating a "bank holding company" to be called First Northern
Community Bancorp. Under this proposal, you would exchange your Bank shares for
shares in the Holding Company. Thus, instead of owning the Bank directly, you
would own shares in the Holding Company which would own the entire economic
interest in the Bank. If the bank holding company reorganization is completed,
for each share of Bank common stock that you own, you will receive one share of
the Holding Company common stock. No surrender of your Bank share certificates
will be required as they will be deemed to constitute shares of the Holding
Company.
The reorganization will also be the subject of a fairness hearing conducted
by the Commissioner of Corporations of the State of California to be held at
2:00 p.m. on April 25, 2000, at 1390 Market Street, suite 810, San Francisco,
California, as described in the accompanying Proxy Statement/Offering Circular.
The notice of the fairness hearing is included along with the enclosed notice of
annual meeting of shareholders and Proxy Statement/Offering Circular. THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA DOES NOT RECOMMEND OR
ENDORSE THE PURCHASE OF THESE SECURITIES.
This new corporate structure will give the Bank greater financial and
corporate flexibility to make acquisitions. In addition, the new structure will
allow the Bank to participate in activities through the Holding Company, which
are not permissible for the Bank to engage in directly. The Holding Company will
be permitted to engage directly in non-bank activities, such as selling
insurance and securities, providing financial consulting and investment services
and providing data processing services to other financial institutions. After
the reorganization, the nature of the business conducted by the Bank will not
change.
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Whether or not you plan to attend the meeting, please take the time to
complete and mail your proxy to us. If you do not indicate on your proxy how you
want to vote, your proxy will be counted as a vote in favor of the proposal. If
you fail to return your proxy, you will in effect vote against the proposal.
The proposal to create a holding company cannot be completed unless THE
COMMISSIONER OF CORPORATIONS ISSUES A PERMIT AUTHORIZING ISSUANCE OF SECURITIES
BY THE HOLDING COMPANY AND holders of a majority of the outstanding shares of
the Bank vote for it. WE STRONGLY SUPPORT THE ORGANIZATION OF A BANK HOLDING
COMPANY AND RECOMMEND THAT YOU VOTE IN FAVOR OF IT.
Thank you for your continued support.
Sincerely,
Diane P. Hamlyn Owen J. Onsum
Chairman of the Board President and Chief Executive Officer
THE SECURITIES TO BE ISSUED IN THE REORGANIZATION HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER CERTAIN STATE SECURITIES
LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS UNDER SUCH LAWS. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM, THE CALIFORNIA DEPARTMENT OF FINANCIAL INSTITUTIONS,
NOR ANY STATE SECURITIES AUTHORITIES, OTHER THAN THE CALIFORNIA DEPARTMENT OF
CORPORATIONS, HAVE APPROVED OR DISAPPROVED OF THE ISSUANCE OF THE SECURITIES TO
BE ISSUED IN THE REORGANIZATION, NOR HAVE SUCH AGENCIES PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROXY STATEMENT/OFFERING CIRCULAR. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES TO BE ISSUED IN THE REORGANIZATION ARE NOT DEPOSITS OR
ACCOUNTS, AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE COMMISSIONER OF CORPORATIONS OF
THE STATE OF CALIFORNIA DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE
SECURITIES.
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STATE OF CALIFORNIA
-------------------
DEPARTMENT OF CORPORATIONS
--------------------------
)
In the matter of the )
Application of ) NOTICE OF HEARING
FIRST NORTHERN COMMUNITY BANCORP ) PURSUANT TO
a California corporation ) SECTION 25142
) OF THE CALIFORNIA
For the Qualification by Permit of ) CORPORATIONS CODE
its Securities Under Section 25121 )
of the Corporate Securities Law of 1968. ) File No. 506-1972
To: Shareholders of First Northern Bank of Dixon
NOTICE OF FAIRNESS HEARING
--------------------------
NOTICE IS HEREBY GIVEN that a hearing for a permit authorizing the issuance
of securities by First Northern Community Bancorp, a California corporation (the
"Holding Company"), pursuant to an Application for Qualification of Securities
under section 25121 of the California Corporate Securities Law of 1968 filed
March 6, 2000, will take place on April 25, 2000 at 2:00 p.m. in the Hearing
Room of the Department of Corporations of the State of California at 1390 Market
Street, Suite 810, San Francisco, California 94102-5303. Said hearing will be
held before Mr. William Kenefick, Acting Commissioner of Corporations of the
State of California, or any such Assistant Commissioner or Corporations Counsel
as may be designated, pursuant to the authority of section 25142 of the
California Corporations Code and will be in accordance with the provisions of
Title 10, California Administrative Code, sections 250.17 through 250.25.
FACTS GIVING RISE TO THE HEARING
--------------------------------
First Northern Bank of Dixon (the "Bank"), a California state-chartered
bank, proposes to reorganize into a bank holding company form and become a
wholly-owned subsidiary of the Holding Company ("Reorganization"), pursuant to
an Agreement and Plan of Reorganization among the Holding Company, the Bank and
FNCB Merger Corp. dated as of March 21, 2000 (the "Agreement and Plan of
Reorganization"). The following statement of facts has been supplied to the
Department of Corporations by the Holding Company. Shareholders of the Bank
would receive shares of common stock of the Holding Company in exchange for
their shares of the common stock of the Bank. It will not be necessary for
---
shareholders to surrender their Bank share certificates as such certificates,
until exchanged, will represent shares of the Holding Company. It is proposed
that this offering of common stock of the Holding Company in exchange for the
common stock of the Bank will not be registered under the Securities Act of
1933, as amended (the "Act"), in reliance upon the exemption from registration
set forth in section 3(a)(10) of the Act. Accordingly, the Holding Company has
requested a permit from the California Commissioner of Corporations following a
public hearing (which hearing is the subject of this Notice), conducted pursuant
to section 25142 of the California Corporate Securities Laws of 1968.
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For further information concerning the Exchange, reference is made to the
Application for Qualification of Securities of the Holding Company and exhibits
filed therewith at the San Francisco office of the Department of Corporations on
March 6, 2000, File No. 506-1972 (the "Application"). The Proxy
Statement/Offering Circular (attached to the Application as Exhibit B) contains
a detailed explanation of the terms of the proposed Exchange, as well as
financial statements of the Holding Company and the Bank. The information
contained in the Proxy Statement/Offering Circular being sent to the
Shareholders of the Bank is hereby incorporated herein by reference.
THE HEARING
-----------
Any interested person may be present at the hearing and may, but need not,
be represented by counsel. Such person will be given an opportunity to be heard.
Any interested person will be entitled to the issuance of subpoenas to compel
the attendance of witnesses and the production of books, documents, and other
items by applying to the Department of Corporations, 1390 Market Street, Suite
810, San Francisco, CA 94102-5303, Attn: Roger Borgen, Esq., Senior Corporations
Counsel, if reasonably, properly and timely requested. If you are interested in
said matter and decide to do so, you may appear in favor of, or in opposition
to, the granting of such Permit. If you are unable to attend, correspondence
regarding this hearing may be directed to the Department of Corporations, 1390
Market Street, Suite 810, San Francisco, CA, 94102-5303, Attn: Roger Borgen,
Esq., Senior Corporations Counsel.
The hearing will be based upon the Application and all papers and documents
filed in connection therewith. The hearing will be for the purpose of enabling
the Commissioner of Corporations to determine the fairness of the terms and
conditions of the Exchange. Section 25142 of the California Corporations Code
authorizes the Commissioner of Corporations to hold such a meeting when
securities will be issued in exchange for other outstanding securities, to
approve the terms and conditions of such issuance and exchange, and to determine
whether such terms and conditions are fair, just and equitable.
APPROVAL OF THE EXCHANGE BY THE COMMISSIONER OF CORPORATIONS WILL NOT
SIGNIFY AN ENDORSEMENT OR RECOMMENDATION BY THE COMMISSIONER OF CORPORATIONS.
The shareholders of the Bank will have the opportunity to vote to accept or
reject the Reorganization at the annual meeting of shareholders to be held by
the Bank on April 27, 2000.
Dated: March 27, 2000
San Francisco, California.
WILLIAM KENEFICK
Acting Commissioner of Corporations
By /s/ Roger Borgen
--------------------------------
Roger Borgen, Esq.
Senior Corporations Counsel
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FIRST NORTHERN BANK OF DIXON
195 North First Street, Dixon, California 95620
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 27, 2000
To the Shareholders of First Northern Bank of Dixon:
The Meeting of Shareholders of First Northern Bank of Dixon will be held at
the First Northern Bank Operations Center, 210 Stratford Avenue, Dixon,
California 95620, on Thursday, April 27, 2000 at 7:30 p.m. to:
1. Elect the following eleven (11) directors to serve until the next
annual meeting of Shareholders and until their successors are elected
and qualified:
Lori J. Aldrete William H. Jones, Jr.
Frank J. Andrews, Jr. Foy S. McNaughton
John M. Carbahal Owen J. Onsum
Gregory DuPratt David W. Schulze
John F. Hamel Thomas S. Wallace
Diane P. Hamlyn
2. Ratify the appointment by the Board of Directors of KPMG LLP to act as
independent auditors of the Bank for the year ending December 31, 2000.
3. Consider and vote upon a proposal to organize a bank holding company
for the Bank in a transaction in which the existing shareholders of the
Bank would become the shareholders of the Holding Company.
4. Act upon such other matters as may properly come before such meeting or
any adjournment or postponement thereof.
All of the above matters are more fully described in the accompanying Proxy
Statement.
Shareholders of record at the close of business February 29, 2000, are
entitled to notice of and to vote at the Meeting or any postponement or
adjournment thereof.
You are strongly encouraged to attend the Meeting and also to complete,
sign, date and return as promptly as possible, the proxy submitted herewith in
the return envelope provided for your use whether or not you plan to attend the
meeting in person. The giving of such proxy will not affect your right to revoke
such proxy or to vote in person, should you later decide to attend the Meeting.
BY ORDER OF THE
BOARD OF DIRECTORS
Diane P. Hamlyn Owen J. Onsum
Chairman of the Board President and Chief Executive Officer
Dated: March 27, 2000
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY SO
THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES.
- -------------------------------------------------------------------------------
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FIRST NORTHERN BANK OF DIXON
195 North First Street, Dixon California 95620
PROXY STATEMENT
FIRST NORTHERN COMMUNITY BANCORP
OFFERING CIRCULAR
This Proxy Statement/Offering Circular is furnished to the shareholders of
First Northern Bank of Dixon (the "Bank") in connection with the solicitation of
proxies to be used in voting at the Meeting of Shareholders of the Bank to be
held on April 27, 2000, at 210 Stratford Avenue, Dixon, California at 7:30 p.m.,
and at any adjournment or postponement thereof (the "Meeting").
This Proxy Statement/Offering Circular outlines the business to be
conducted at the Meeting, which, in addition to the election of directors and
the ratification of KPMG LLP as the Bank's independent auditors, includes a
proposal to create a "bank holding company" named First Northern Community
Bancorp (the "Holding Company"), a California corporation. Under the bank
holding company proposal, each shareholder of common stock of the Bank would
receive for each share of stock in the Bank one share of common stock in the
Holding Company (the "Reorganization"). The full description of the proposals,
the reasons for them and their possible effects are outlined at length in this
Proxy Statement/Offering Circular.
This Proxy Statement also constitutes an offering circular of the Holding
Company with respect to up to 3,082,640 shares of common stock of the Holding
Company, and the solicitation of shareholders of the Bank to ratify and approve
the Reorganization constitutes an offering by the Holding Company of the shares
of its common stock to be issued in connection with the Reorganization. This
transaction is exempt from the registration requirements under the Securities
Act of 1933, as amended (the "Securities Act"), by reason of the exemption set
forth in Section 3(a)(10) thereof.
No person has been authorized to give any information or to make any
representations not contained in this Proxy Statement/Offering Circular, and, if
given or made, such information or representations should not be relied upon as
having been authorized. This Proxy Statement/Offering Circular does not
constitute an offer to sell, or the solicitation of a proxy, to or from any
person in any jurisdiction where it is unlawful to make such offer or
solicitation of a proxy. Neither the delivery of this Proxy Statement/Offering
Circular nor any distribution of the securities made under this Proxy
Statement/Offering Circular shall, under any circumstances, create an
implication that there has been no change in the affairs of the Bank or the
Holding Company since the date of this Proxy Statement/Offering Circular.
---------------------------
THE SECURITIES TO BE ISSUED IN THE REORGANIZATION HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER CERTAIN STATE SECURITIES
LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS
UNDER SUCH LAWS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM, THE CALIFORNIA DEPARTMENT OF FINANCIAL INSTITUTIONS, NOR ANY
STATE SECURITIES AUTHORITIES, OTHER THAN THE CALIFORNIA DEPARTMENT OF
CORPORATIONS, HAVE APPROVED OR DISAPPROVED OF THE ISSUANCE OF THE SECURITIES TO
BE ISSUED IN THE REORGANIZATION, NOR HAVE SUCH AGENCIES PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROXY STATEMENT/OFFERING CIRCULAR. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-2-
THE SECURITIES TO BE ISSUED IN THE REORGANIZATION ARE NOT DEPOSITS OR
ACCOUNTS, AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE COMMISSIONER OF CORPORATIONS OF
THE STATE OF CALIFORNIA DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE
SECURITIES.
---------------------------
The date of this Proxy Statement/Offering Circular is March 27, 2000.
This Proxy Statement/Offering Circular and the enclosed Proxy are being
mailed to the Bank's shareholders on or about March 27, 2000.
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FIRST NORTHERN BANK OF DIXON
Proxy Statement/Offering Circular
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION 7
INTRODUCTION 9
Voting Rights and Vote Required 9
Voting of Proxies; Quorum 10
Revocability of Proxy 10
PROPOSAL 1 - ELECTION OF DIRECTORS 10
Nominees 10
Committees of the Board of Directors of the Bank 12
Board of Directors Meetings 12
Compensation of Directors 13
EXECUTIVE COMPENSATION 14
Summary Compensation Table 14
Stock Options 14
Employment Agreements 16
Profit Sharing Plan 16
Stock Option Plan 17
Certain Transactions 17
Employee Stock Purchase Plan 17
Compensation Committee Interlocks and Insider Participation 18
Report of the Compensation Committee of the Board of Directors
on Executive Compensation 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 20
Section 16(a) Beneficial Ownership Reporting Compliance 22
Stock Performance Graph 22
PROPOSAL 2 - RATIFICATION OF AUDITORS 22
PROPOSAL 3 - ORGANIZATION OF A BANK HOLDING COMPANY 23
Summary 23
Bank Holding Company 23
Shareholder Approval 24
What Should Shareholders Do? 24
Directors Approval 24
No Dissenters' Appraisal Rights 24
The Companies 25
The One-For-One Exchange Ratio and Market Value 25
Per Share Summary of the Bank and Pro Forma per Share
Summary of the Holding Company 25
Management 26
Board of Directors 26
Holding Company Option and Stock Purchase Plans 26
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Differences between Holding Company Stock and Bank Stock 26
Anti-Takeover Provisions 26
Certain Federal Income and California Tax Consequences 27
Dividends 28
Risk Factors 28
The Holding Company's Financial Condition 28
Banking Institutions 28
Anti-Takeover Provisions 28
Bank Holding Company Reorganization 29
Reasons for the Proposal 29
Description of the Reorganization 29
Conversion of Shares and Exchange of stock Certificates 29
Regulatory Approvals 30
Affiliate Restrictions 30
Conditions of Consummation 30
Other Considerations 31
Expenses 31
Certain Federal Income and California Tax Consequences 32
No Appraisal Rights for Dissenting Shareholders 32
Accounting Treatment 33
Anti-Takeover Measures 33
The Purpose of the Anti-Takeover Provisions 33
Summary of Fair Price and Supermajority Vote Provisions 33
Consideration of Non-Monetary Factors 35
Director Qualification and Nomination Procedures 35
Cumulative Voting 36
Additional Considerations 36
Market Prices of Stock 37
The Holding Company 37
The Bank 37
Dividends 37
The Holding Company 37
The Bank 38
Capitalization 38
Financial Statements 39
History and Business of the Holding Company 39
General 39
Employees 39
Board of Directors 39
Remuneration of Directors and Officers 40
Indemnification 40
History and Business of the Bank 41
General 41
Competition 42
Employees 43
Property 43
Year 2000 43
Litigation 43
Board of Directors and Officers 43
Compensation of Executive Officers and Directors 43
Executive Officers' and Directors' Compensation 43
Committees and Meetings of the board of Directors 43
Certain Transactions 44
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Supervision and Regulation 44
Holding Company Regulation 44
Capital 44
Additional Regulation 45
Dividend Regulation 45
Government Policies and Legislation 46
Recently Enacted Legislation 46
Comparative Description of Common Stock 47
General 47
Authorized Capital 47
Voting Rights 48
Liquidation Rights 48
Preemptive Rights 48
Cumulative Voting 48
Indemnification 48
Dividend Rights 49
State Anti-Takeover Statute 49
Anti-Takeover Provisions 49
Reports 50
Legal Opinion 50
Shareholder Proposals 50
Other Matters 51
ANNEX I Agreement and Plan of Reorganization and Agreement of Merger 52
ANNEX II Articles of Incorporation of First Northern Community Bancorp 57
-6-
AVAILABLE INFORMATION
The Bank is subject to the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith, files
reports, proxy statements and other information with the Federal Deposit
Insurance Corporation (the "FDIC"). Copies of such reports, proxy statements,
the Bank's annual disclosure statement required by Part 350 of the FDIC's
regulations and other information can be obtained without charge by contacting
James S. Duke, Corporate Secretary, First Northern Bank of Dixon, 195 North
First Street, Dixon, California 95620, (707) 678-3041.
The following documents which were previously filed or which will be
filed with the FDIC pursuant to the Exchange Act and are incorporated herein by
reference:
The Bank's Annual Report on Form 10-K for the year ended December 31, 1999
(to be filed); the Bank's Annual Report on Form 10-K for the year ended
December 31, 1998; and the Bank's Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1999; all other reports
filed with the FDIC under the Exchange Act after the date of this Proxy
Statement/Offering Circular.
The Holding Company is a newly formed corporation organized at the
direction of the Bank's Board of Directors for the purpose of acquiring voting
control of the Bank and thereby becoming a bank holding company. For further
information with respect to the Reorganization, reference is made to the
Agreement and Plan of Reorganization which is incorporated by reference herein
and attached as Annex I. As a newly formed corporation, the Holding Company has
not been subject to the requirements of the Exchange Act, and there is currently
no public market for its common stock. However, pursuant to the Reorganization,
the Bank's reporting obligations to the FDIC will cease, and the Holding Company
will assume reporting responsibilities with the Securities and Exchange
Commission under the Exchange Act, which are similar to the responsibilities
previously performed by the Bank with respect to the FDIC.
The Holding Company has filed with the California Department of
Corporations an application (together with any exhibits, amendments or
supplements thereto, the "Application") for a fairness hearing pursuant to
Section 21542 of the California Corporations Code and for a permit to authorize
the issuance of the shares of the common stock of the Holding Company to be
issued by it in connection with the Reorganization described in this Proxy
Statement/Offering Circular. This Proxy Statement/Offering Circular constitutes
part of the Application covering the shares to be offered pursuant to the
Reorganization by the Holding Company. This Proxy Statement/Offering Circular
does not contain all the information set forth in the Application and the
exhibits thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the California Department of Corporations. The
additional information may be inspected at the Division of Securities Regulation
of the California Department of Corporations, 1390 Market Street, Suite 810, San
Francisco, California 94102-5303 and at any branch location of the Bank.
Statements contained in this Proxy Statement/Offering Circular as to the
contents of any contract or document referred to herein are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Application, each such statement being
qualified in all respects by such reference.
This Proxy Statement/Offering Circular incorporates documents by reference,
certain of which are attached to this Proxy Statement/Offering Circular. The
Holding Company documents not attached (other than exhibits to such documents
unless such exhibits are specifically incorporated by reference) are available
to any person, including any beneficial owner to whom this Proxy
Statement/Offering Circular is delivered, without charge, upon request to: James
S. Duke, Corporate Secretary, First Northern Community Bancorp, 195 North First
Street, Dixon, California 95620, (707) 678-3041. The Bank documents not attached
(other than exhibits to such documents, unless such documents are specifically
incorporated by reference) are available to any person, including any beneficial
owner to whom this Proxy Statement/Offering Circular is delivered, without
charge, upon request to James S. Duke, Corporate Secretary, First Northern Bank
of Dixon, 195 North First Street, Dixon, California 95620, (707) 678-3041. The
Application documents not attached (other than exhibits to such documents,
unless such documents are specifically incorporated by reference) are available
to any person, including any beneficial owner to whom this Proxy
Statement/Offering Circular is delivered, without charge, upon
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request to James S. Duke, Corporate Secretary, First Northern Bank of
Dixon, 195 North First Street, Dixon, California 95620, (707) 678-3041. In order
to ensure timely delivery of the documents, any requests to either the Holding
Company or the Bank should be made by April 20, 2000.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Offering
Circular in connection with the solicitation of proxies or the offering of the
securities made hereby and, if given or made, such information or representation
must not be relied upon as having been authorized by the Bank, the Holding
Company or any other person. This Proxy Statement/Offering Circular does not
constitute any offer to sell, or a solicitation of any offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction to or from any
person to or from whom it is not lawful to make any such offer or solicitation
in such jurisdiction.
Neither the delivery of this Proxy Statement/Offering Circular nor any
distribution of securities made hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of the Bank or the
Holding Company since the date hereof or that the information herein is correct
as of any time subsequent to the date hereof.
This Proxy Statement/Offering Circular contains various forward-looking
statements, usually containing the words "estimate," "project," "expect,"
"objective," "goal," or similar expressions and includes assumptions concerning
the Bank's operations, future results and prospects. These forward-looking
statements are based upon current expectations and are subject to risk and
uncertainties. In connection with the "safe-harbor" provisions of the private
Securities Litigation Reform Act of 1995, the Bank and the Holding Company
provide the following cautionary statement identifying important factors which
could cause the actual results of events to differ materially from those set
forth in or implied by the forward-looking statements and related assumptions.
Such factors include the following: (i) changes in regional and national
economic conditions; (ii) significant changes in interest rates and prepayment
speeds; (iii) credit risks of commercial, real estate, consumer, and other
lending activities; (iv) changes in federal and state banking regulations;
(v) the impacts of the year 2000 issue; and (vi) other external developments
which could materially impact the Bank's operational and financial performance.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Bank has no obligation
to update any forward-looking statements to reflect events or circumstances
arising after the date on which they are made.
-8-
INTRODUCTION
This Proxy Statement is furnished to the shareholders of First Northern
Bank of Dixon (the "Bank") in connection with the solicitation of proxies to be
used in voting at the Meeting of shareholders to be held on April 27, 2000, at
210 Stratford Avenue, Dixon, California at 7:30 p.m., and at any adjournment or
postponement thereof (the "Meeting"). All expenses incidental to the preparation
and mailing, or otherwise making available to all shareholders of the notice,
Proxy Statement and formal Proxy are to be paid by the Bank.
The enclosed Proxy is solicited by the Board of Directors of the Bank. This
Proxy Statement and the enclosed Proxy are being mailed to the Bank's
shareholders on or about March 27, 2000.
This Proxy Statement/Offering Circular outlines the business to be
conducted at the Meeting, which, in addition to the election of directors and
the ratification of KPMG LLP as the Bank's independent auditors and includes a
proposal to create a "bank holding company" named First Northern Community
Bancorp (the "Holding Company"), a California corporation. Under the bank
holding company proposal, each shareholder of common stock of the Bank would
receive for each share of Bank common stock, one share of common stock in the
Holding Company (the "Reorganization"). The full description of the proposals,
the reasons for them and their possible effects are outlined at length in this
Proxy Statement/Offering Circular.
Voting Rights and Vote Required
Only shareholders of record at the close of business on February 29, 2000
(the "Record Date"), will be entitled to vote in person or by proxy. On that
date, there were 3,082,640 shares of common stock outstanding and entitled to
vote.
Shareholders of common stock of the Bank are entitled to one vote for each
share held, except that in the election of Directors, under California law, and
the bylaws of the Bank, each shareholder may be eligible to exercise cumulative
voting rights and may be entitled to as many votes as shall equal the number of
shares of common stock held by such shareholder multiplied by the number of
Directors to be elected, and such shareholder may cast all of such votes for a
single nominee or may distribute them among two or more nominees. No
shareholder, however, shall be entitled to cumulate votes (in other words, cast
for any candidate a number of votes greater than the number of shares of common
stock held by such shareholder multiplied by the number of Directors to be
elected) unless the name(s) of the candidate(s) has (have) been placed in
nomination prior to the voting in accordance with Article III, Section 21 of the
Bank's bylaws (which requires that nominations made other than by the Board of
Directors be made at least 30 and not more than 60 days before the meeting) and
a shareholder has given notice to the Bank of an intention to cumulate votes
prior to the voting according to Article II, Section 12 of the Bank's bylaws. If
any shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination, in which event votes represented by Proxies
delivered pursuant to this Proxy Statement/Offering Circular may be cumulated,
in the discretion of the proxy holders, in accordance with the recommendation of
the Board of Directors. Discretionary authority to cumulate votes in such event
is, therefore, solicited in this Proxy Statement/Offering Circular.
The vote required to approve each proposal is as follows:
o In the election of directors, the eleven nominees receiving the
highest number of votes will be elected.
o Approval of the selection of the independent auditors will require
the affirmative vote of a majority of the shares represented at
the Meeting.
o Approval of proposal 3 will require the affirmative vote of a
majority of the outstanding shares.
Abstentions and broker "non-votes" (shares as to which brokerage firms have
not received timely voting instructions from their clients and therefore do not
have the authority to vote at the Meeting) will not count as votes in favor of
the election of directors or any of the other proposals.
-9-
Voting of Proxies; Quorum
The shares represented by all properly executed proxies received in time
for the Meeting will be voted in accordance with the shareholders' choices
specified therein; provided, however, that where no choices have been specified,
the shares will be voted "FOR" the election of the eleven nominees for Director
recommended by the Board of Directors, "FOR" the ratification of the appointment
of KPMG LLP as independent auditors, and "FOR" proposal 3; and, at the proxy
holder's discretion, on such other matters, if any, which may properly come
before the Meeting (including any proposal to adjourn the Meeting). A majority
of the shares entitled to vote, represented either in person or by a properly
executed Proxy, will constitute a quorum at the Meeting. Abstentions and broker
"non-votes" are each included in the determination of the number of shares
present and voting for purposes of determining the presence of a quorum. A
broker "non-vote" occurs when a nominee holding shares for a beneficial owner
does not have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner. Abstentions will be included in
tabulations of the votes cast on proposals presented to the shareholders and
therefore will have the effect of a negative vote. Broker "non-votes" will not
be counted for purposes of determining the number of votes cast for a proposal.
Revocability of Proxy
A Shareholder using the enclosed proxy may revoke the authority conferred
by the proxy at any time before it is exercised by delivering written notice of
revocation to the Secretary of the Corporation or a duly executed proxy bearing
a later date, or by appearing and voting by ballot in person at the Meeting. In
the event that signed proxies are returned without voting instructions, proxies
will be voted in favor of the actions to be voted upon.
PROPOSAL 1
----------
ELECTION OF DIRECTORS
At the Meeting it will be proposed to elect eleven directors of the Bank,
each to hold office until the next annual meeting and until successors shall be
elected and qualified. It is the intention of the proxy holders named in the
enclosed Proxy to vote such Proxies (except those containing contrary
instructions) for the eleven nominees named below.
Pursuant to Article III, Section 21 of the bylaws of the Bank, director
nominations, other than those made by the Board of Directors, shall be made by
notification in writing delivered or mailed to the President of the Bank not
less than 30 days or more than 60 days prior to any meeting of shareholders
called for election of directors. The provision also requires that the notice
contain detailed information necessary to determine if the nominee is qualified
under Article III, Section 20 of the bylaws. Nominations not made in accordance
with the procedure set forth in Section 21 of the Bank's bylaws may, in the
discretion of the Chairman of the Meeting, be disregarded, and, upon his
instruction, the inspectors of election shall disregard all votes cast for such
nominee(s). A copy of Sections 20 and 21 of the Bank's bylaws may be obtained by
sending a written request to James S. Duke, Corporate Secretary, First Northern
Bank of Dixon, 195 North First Street, Dixon, California, 95620.
The Board does not anticipate that any of the nominees will be unable to
serve as a director of the Bank, but if that should occur before the Meeting,
the proxy holders, in their discretion, upon the recommendation of the Bank's
Board of Directors, reserve the right to substitute as nominee and vote for
another person of their choice in the place and stead of any nominee unable so
to serve. The proxy holders reserve the right to cumulate votes for the election
of directors and cast all of such votes for any one or more of the nominees, to
the exclusion of the others, and in such order of preference as the proxy
holders may determine in their discretion, based upon the recommendation of the
Board of Directors.
Nominees
The following table sets forth each of the nominees for election as a
director, their age, and the period during which they have served as a director
of the Bank.
-10-
Name Age Position with the Bank Director Since
- ---- --- ---------------------- --------------
Lori J. Aldrete 53 Director 1995
Frank J. Andrews, Jr. 51 Director 1993
John M. Carbahal 45 Director 1996
Gregory DuPratt 46 Director 1996
John F. Hamel 59 Director 1975
Diane P. Hamlyn 56 Chairman of the Board 1985
William H. Jones, Jr. 63 Director 1975
Foy S. McNaughton 49 Director 2000
Owen J. Onsum 55 President, CEO and Director 1996
David W. Schulze 55 Director 1978
Thomas S. Wallace 64 Director 1992
Lori J. Aldrete is Vice President/Corporate Communications for Catholic
Healthcare West ("CHW"). Headquartered in San Francisco, CHW has 47 hospitals in
California, Arizona and Nevada. The CHW healthcare system includes Mercy
Healthcare Hospitals in Sacramento and Woodland Memorial Hospital. Ms. Aldrete
has worked in healthcare marketing and communications since 1986 and has been a
resident of Davis since 1979. Ms. Aldrete is a member of the Bank's Audit,
Management and Marketing Committees.
Frank J. Andrews, Jr. is President of Andrews, Lando & Associates, a real
estate development firm established in 1990, and Manager of Gainsbourgh-Classics
LLC since January 1999. Prior to that time, Mr. Andrews was President of Andrews
Management Services for three years and Vice President of Amos & Andrews, Inc.,
for fifteen years, also real estate development companies. Andrews Management
Services and Amos & Andrews, Inc. are also real estate development companies.
Mr. Andrews is a member of the Bank's Loan and Management Committees.
John M. Carbahal is a Certified Public Accountant and is a principal and
shareholder of Carbahal & Company, Inc., an Accountancy Corporation. Mr.
Carbahal is member of the Bank's Audit, Loan and Marketing Committees.
Gregory DuPratt is Vice President/Sales Manager of Ron DuPratt Ford, an
automobile dealership and family business located in Dixon. Mr. DuPratt is
member of the Bank's Audit, Compensation, Marketing and Profit Sharing
Committees.
John F. Hamel served as the President and Chief Executive Officer of First
Northern Bank of Dixon from 1975 to 1996. Mr. Hamel is presently managing family
agricultural properties. Mr. Hamel is a member of the Bank's Loan and Profit
Sharing Committees.
Diane P. Hamlyn is the President and Founder of Davisville Travel, a full
service travel agency. Davisville Travel was established in 1977. Ms. Hamlyn is
a member of the Bank's Compensation, Loan and Management Committees.
William H. Jones, Jr. is the owner/operator of a family row crop farming
operation. Mr. Jones lives in Dixon, and has farmed in the Dixon area since
1962. Mr. Jones is a member of the Bank's Marketing Committee.
Foy S. McNaughton is the President and Chief Executive Officer of
McNaughton Newspapers--Davis Enterprise, Daily Republic, Mountain Democrat
(Placerville), Winters Express and Life Newspapers (El Dorado Hills and Cameron
Park) a position he has held since 1985. He has served as the Publisher of the
Fairfield Daily Republic since 1995. Mr. McNaughton has been a resident of Davis
since 1973.
Owen J. Onsum has been President and Chief Executive Officer of First
Northern Bank of Dixon January 1, 1997. He served as Executive Vice President of
First Northern Bank of Dixon from 1982 to 1996. Mr. Onsum has worked for First
Northern since 1972 and has lived in Dixon since 1971. Mr. Onsum is a member of
the Bank's Loan, Management, Marketing and Profit Sharing Committees.
-11-
David W. Schulze is the owner/operator of a family row crop farming
operation. Prior to assuming that position, Mr. Schulze was involved in property
management and apartment ownership. Mr. Schulze is a member of the Bank's
Compensation, Loan and Management Committees.
Thomas S. Wallace is Vice President of Wallace-Kuhl Associates, Inc., a
geotechnical engineering firm. From 1984 to 1989, Mr. Wallace was Managing
Partner of this West Sacramento based firm. Mr. Wallace is a member of the
Bank's Audit and Management Committees.
None of the directors of the Bank were selected pursuant to arrangements or
understandings other than with the directors and shareholders of the Bank acting
within their capacity as such. There are no family relationships between any of
the directors, and none of the directors serve as a director of any company
which has a class of securities registered under, or subject to periodic
reporting requirements of, the Securities Exchange Act of 1934, as amended, or
any company registered as an investment company under the Investment Company Act
of 1940.
Committees of the Board of Directors of the Bank
The Bank has a standing Audit Committee composed of Lori J. Aldrete, John
M. Carbahal, Gregory DuPratt and Thomas S. Wallace. The Audit Committee reviews
and oversees the internal audit results for the Bank. The Audit committee of the
Bank held six meetings during 1999.
The Bank has a standing Management Committee composed of Lori J. Aldrete,
Frank J. Andrews, Diane P. Hamlyn, Owen J. Onsum, David W. Schulze and Thomas S.
Wallace. The Management Committee held two meetings during 1999 for the purpose
of considering the Bank's strategic and personnel issues and reviewing the
annual budget.
The Bank has a standing Loan Committee composed of Frank J. Andrews, John
M. Carbahal, John F. Hamel, Diane P. Hamlyn, Owen J. Onsum and David W. Schulze.
The Loan Committee held 12 meetings during 1999 for the purpose of approving
loans and loan policy.
The Bank has a standing Profit Sharing Committee composed of Gregory
DuPratt, John F. Hamel and Owen J. Onsum. The Profit Sharing Committee held no
meetings during 1999 for the purpose of considering plan administration and
investments.
The Bank has a standing Marketing Committee composed of Lori J. Aldrete,
John M. Carbahal, Gregory DuPratt, William H. Jones, Jr. and Owen J. Onsum. The
Marketing Committee held one meeting during 1999 for the purpose of considering
the Bank's marketing plan.
The Bank has a standing Compensation Committee composed of Gregory DuPratt,
Diane P. Hamlyn and David W. Schulze. The Compensation Committee held two
meetings during 1999 for the purpose of reviewing and recommending to the Bank's
Board of Directors the Bank's compensation objectives and policies and
administering the Bank's stock plans.
The Bank has several other committees that meet on an as-needed basis. The
Bank does not have a nominating committee. The Board of Directors performs this
function. The procedures for nominating directors, other than by the Board of
Directors itself, are set forth in this Proxy Statement. The Bank's nomination
procedure is designed to give the Board of Directors advance notice of competing
nominations, if any, and the qualifications of nominees, and may have the effect
of precluding third-party nominations if not followed.
Board of Directors Meetings
In 1999, the Bank's Board of Directors held 12 regularly scheduled
meetings. Each director attended at least 75% of the aggregate of: (1) the total
number of meetings of the Board of Directors held during the period for which he
or she has been a director; and (2) the total number of meetings of committees
of the Board of Directors on which he or she served during the period for which
he or she served.
-12-
Compensation of Directors
Each outside director received $800 for each Board of Directors meeting
attended, and $200 per committee meeting attended. The Bank paid a total of
$111,800 in Directors' fees during 1999.
In 1997, the Board of Directors and shareholders of the Bank approved the
Bank's Outside Directors 1997 Nonstatutory Stock Option Plan (the "Outside
Director's Plan"). Under the Outside Director's Plan, upon election or
appointment to the Bank's Board of Directors, directors who are not officers or
employees of the Bank receive an automatic, one-time grant of options to
purchase 6,615 shares of the Bank's stock at an exercise price equal to the fair
market value of the common stock on the date of grant. The options to purchase
shares of the Bank's stock vest 20% on the date of grant and annually thereafter
at the rate of 20% per year. As of December 31, 1999, there were options
outstanding under the Outside Director's Plan to purchase an aggregate of 59,535
shares of the Bank's common stock at an exercise price of $11.11 per share. The
market price of the Bank's stock at December 31, 1999 was $13.625 per share. The
Bank also pays the premiums on a $25,000 term life insurance policy on the life
of each outside director of the Bank. Each director's stated beneficiary
receives the proceeds from the life insurance policy. Annual premiums for each
policy range from $593.76 to $1,213.32.
The Bank plans to continue the payment of such fees for regular meetings of
the Board and of the Committees of the Board. No other arrangements exist for
compensation of the Bank's directors.
-13-
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate remuneration for the services
in all capacities paid by the Bank during 1997, 1998 and 1999 to the Chief
Executive Officer and each of the three highest paid Executive Officers of the
Bank whose total annual salary and bonus exceeded $100,000 ("Named Executive
Officers").
Long-Term
Annual Compensation Compensation
------------------- Awards
------
Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary ($) Bonus ($) Other ($) Options(#)(3) Compensation (1)
- ------------------ ------ ---------- ---------- --------- ------------- -------------
Owen J. Onsum 1999 $182,163 $151,338 12,390 $22,113
President, Chief 1998 $173,609 $ 17,037 21,000 $22,389
Executive Officer, and 1997 $157,058 $ 155 6,617 $ 8,335
Director
Donald J. Fish 1999 $111,363 $ 37,084 6,300 $17,289
Senior Vice President, 1998 $106,060 $ 10,474 $ 2,780(2) 14,700 $16,038
Senior Credit Officer 1997 $101,030 $ 155 $13,691(2) 6,615 $ 2,480
Robert M. Walker 1999 $ 99,466 $ 33,068 6,300 $15,448
Senior Vice President, 1998 $ 95,713 $ 9,379 10,500 $14,575
Branch Administrator 1997 $ 92,936 $ 155 6,615 $ 5,824
Louise A. Walker 1999 $ 97,154 $ 32,352 6,300 $15,274
Senior Vice 1998 $ 85,878 $ 8,481 10,500 $13,411
President/Cashier 1997 $ 80,040 $ 155 6,615 $ 5,440
- --------------------------
<FN>
(1) Consists of contributions allocated from the Bank's Profit Sharing Plan
and Trust Agreement and payments of health insurance premiums.
(2) Consists of reimbursement for Mr. Fish's relocation expenses.
(3) Adjusted to reflect a two-for-one stock split on August 31, 1998 and a five percent stock dividend on
February 27, 1998 and February 26, 1999.
</FN>
Stock Options
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1999 to the Bank's Named
Executive Officers. No options granted to Named Executive Officers were
exercised during fiscal 1999.
-14-
Option Grants in Last Fiscal Year
Number of Percent of Total
Securities Options Granted to Grant Date
Underlying Options Employees in Exercise or Base Expiration Present
Granted (1) Fiscal Year (2) Price ($/share)(3) Date(4) Value(5)
------------ --------------- ----------------- ---------- -----------
Name
Owen J. Onsum 12,390 37% $12.86 1/7/09 $82,531
Donald J. Fish 6,300 19% $12.86 1/7/09 $41,965
Robert M. Walker 6,300 19% $12.86 1/7/09 $41,965
Louise A. Walker 6,300 19% $12.86 1/7/09 $41,965
- ------------------------------
<FN>
(1) Options are incentive stock options and vest over a five year period
commencing on the date of grant at the rate of 20% per year and are
adjusted to reflect a five percent stock dividend declared on February 26,
1999.
(2) Based on options to purchase an aggregate of 33,390 shares of common stock
granted to employees during the fiscal year ended December 31, 1999.
(3) The exercise price per share of the options granted represents the fair
market value of the underlying common stock on the date of grant as
determined by the Board of Directors.
(4) The options have a term of ten years, subject to earlier termination in
certain events related to termination of employment.
(5) The present value of the options was estimated at the date of grant using a
variation of the Black-Scholes option pricing model, which includes the
following assumptions: a weighted average risk-free interest rate of 6.39%,
an expected volatility of 23 percent, a weighted average expected option
life of the LTIP of 10 years and expected dividend yield of zero. The
weighted average grant date present value of the options granted during
1999 was $6.66 per option. The exercise price of each option equals the
fair market value of the Bank's common stock on the date of grant.
</FN>
-15-
The following table sets forth certain information regarding the value
of options held by Named Executive Officers at the end of 1999.
Aggregated Option Exercises in Last Fiscal Year(1)
and Fiscal Year-End Option Values
Securities Underlying Unexercised Value of Unexercised
Options at In-the Money Options at
December 31, 1999(#) December 31, 1999($)(2)
Name and Principal Position Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ----------- ------------- ----------- -------------
Owen J. Onsum 14,847 25,158 $6,533 $11,479
President, Chief Executive Officer
and Director
Donald J. Fish 11,109 16,506 $5,311 $7,317
Senior Vice President,
Senior Credit Officer
Louise A. Walker 9,429 13,896 $5,118 $7,028
Senior Vice President/Chief Financial
Officer/
Cashier
Robert M. Walker 9,429 13,986 $5,118 $7,028
Senior Vice President,
Branch Administrator
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) No options were exercised in 1999 by the Named Executive Officers.
(2) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1999 ($13.625 per share) less the applicable
exercise price. The fair market value of the Bank's common stock at
December 31, 1999 was determined on the basis of the last sale price
reported on the OTC Bulletin Board on or prior to that date.
</FN>
Employment Agreements
The Bank and Donald J. Fish, Senior Vice President/Senior Credit officer
are parties to an employment agreement dated January 1, 1997, which sets forth
his compensation level, eligibility for annual and long-term incentive programs
and benefits. Mr. Fish's employment is at will and may be terminated by the Bank
at any time with or without cause or notice. However, pursuant to the agreement,
the Bank will provide him with up to twelve months salary if his employment is
terminated by the Bank without a statement of reason or by him for good cause
and the termination is not within two years following a change of control of the
Bank. If Mr. Fish's employment is terminated by him for good cause or by the
Bank without a statement of reasons within two years following a change of
control, the Bank shall pay up to 18 months salary and annual incentive
benefits. However, Mr. Fish is obligated to reimburse the bank with any income
earned during the 18 month period after his termination equal to the amount
paid by the Bank.
Profit Sharing Plan
In 1955, the Bank established the First Northern Bank of Dixon Profit
Sharing Plan and Trust Agreement (the "Profit Sharing Plan"). Employees of the
Bank who have worked at the Bank at least 1,000 hours during a calendar year are
eligible to participate in the Profit Sharing Plan. The Bank generally
contributes on an annual basis to the Profit Sharing Plan Trustees an amount
equal to the lesser of ten percent of the Bank's net income before taxes net of
loan loss experience or fifteen percent of the total annual compensation of all
Profit Sharing Plan participants. The Bank's
-16-
contribution is allocated to each Plan participant's account on the basis
of the ratio of each participant's annual compensation to the total annual
compensation of all participants. Contributions to a participant's account vest
at the end of a period of five years. Distribution of vested amounts under the
Profit Sharing Plan are made upon the termination of employment, retirement,
disability or death of the participant. In 1997, the Bank added a 401(k)
contribution feature to the Profit Sharing Plan allowing employees to make
contributions. The Bank's contribution to the Profit Sharing Plan in 1999 was
$653,915.
Stock Option Plan
In 1997, the Board of Directors and shareholders of the Bank approved the
First Northern Bank of Dixon 1997 Stock Option Plan (the "1997 Stock Option
Plan"). The 1997 Stock Option Plan provides for awards in the form of options,
which may constitute incentive stock options ("ISOs") under Section 422(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). The 1997 Stock
Option Plan provides that ISOs may not be granted at less than 100% of fair
market value of the Bank's common stock on the date of the grant, which means
the recipient receives no benefit unless the Bank's common stock price increases
over the option term. The purpose of the 1997 Stock Option Plan is promote the
long-term success of the Bank and the creation of shareholder value by (i)
encouraging key personnel to focus on critical long range objectives, (ii)
increasing the ability of the Bank to attract and retain key personnel and (iii)
linking key personnel directly to shareholder interests through increased stock
ownership. A total of 551,250 shares of the Bank's common stock are available
for grant under the 1997 Stock Option Plan. If an option granted under the 1997
Stock Option Plan expires, is cancelled, forfeited or terminates without having
been fully exercised, the unpurchased shares which were subject to that option
again become available for the grant of additional options under the 1997 Stock
Option Plan.
The 1997 Stock Option Plan is administered by the Executive Compensation
Committee of the Board of Directors. Subject to the terms of the 1997 Stock
Option Plan, the Executive Compensation Committee determines the number of
options in the award as well as the vesting and all other conditions. As of
December 31, 1999, there were options outstanding under the 1997 Stock Option
Plan to purchase an aggregate of 137,130 shares of the Bank's common stock at
exercise prices ranging from $12.70 to $13.51 per share or a weighted average
exercise price per share of $13.11.
Employee Stock Purchase Plan
In 1997, the Board of Directors and shareholders of the Bank approved the
1997 First Northern Bank of Dixon Employee Stock Purchase Plan (the "1997
Employee Stock Purchase Plan") which enables eligible employees of the Bank to
purchase shares of the Bank's common stock at a 15% discount in an amount up to
10% of each employee's annual compensation.
Certain Transactions
Some of the Bank's directors and executive officers, as well as their
associates and companies in which they have a financial interest, are customers
of, and have had banking transactions with, the Bank in the ordinary course of
the Bank's business, and the Bank expects to have ordinary banking transactions
with these persons or entities in the future. Except as set forth below, in the
opinion of the Bank's management, the Bank made all loans and commitments to
lend included in such transactions in compliance with applicable laws and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons or
entities of similar creditworthiness, and these loans did not involve more than
a normal risk of collectibility or present other unfavorable features.
No director or officer of the Bank, or their associates, have had
outstanding, since the beginning of 1999, aggregate extensions of credit from
the Bank in excess of 10% of the Bank's total equity capital accounts.
The aggregate extensions of credit by the Bank to all directors and
executive officers and their respective associates as a group at any time since
January 1, 1999, did not exceed 20% of the Bank's total equity capital accounts
on that date.
-17-
Compensation Committee Interlocks and Insider Participation
The Compensation Committee (the "Committee") of the Board of Directors
consists of three directors, none of whom is an officer or employee of the Bank.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
Membership and Role of the Compensation Committee
The Committee reviews and recommends to the Bank's Board of Directors, the
Bank's compensation objectives and policies and administers the Bank's stock
plans. The Committee also reviews and recommends the actual compensation of the
Bank's Chief Executive Officer. The Committee is assisted by the Bank's human
resources personnel and by a compensation consulting firm which supplies the
Bank statistical data and other compensation information to permit the Committee
to compare the Bank's compensation policies against compensation levels and
prerequisites of other banking companies of similar size in California.
Compensation Philosophy
The Bank seeks to design compensation programs which are fair and
competitive and attract, motivate, and retain excellently performing employees
throughout the Bank while maintaining a strong relationship between the overall
performance of the Bank and the level of compensation. Furthermore, the Bank
believes that compensation programs, especially those for top executives, should
be designed in a manner that aligns employee interests with those of the
shareholders. In view of these two beliefs, executive compensation programs at
the Bank are designed to meet the following objectives:
o Base salaries will be targeted at the 50th percentile of the Bank's
selected peer group levels.
o Bonus or incentive compensation will be targeted between the 50th and
75th percentile of the Bank's selected peer group levels and will be
based on individual, unit and/or total Bank performance. At least 50%
of executive bonuses will be tied directly to overall Bank results.
o Stock options will be granted under the incentive stock option plan by
the Committee when appropriate to further the Bank's compensation
objectives.
Compensation Components
Base Salary. The salary of the Chief Executive Officer, is reviewed
-----------
annually by the Committee with reference to several surveys of salaries paid to
executives with similar responsibilities at comparable banks. The banking
companies against which the Bank compares its compensation are not necessarily
those included in the indices used to compare the shareholder return in the
Stock Performance Chart. Further, the banking companies selected for such
comparison may vary from year to year based upon market conditions and changes
in both the Bank's and the comparison banking companies' businesses over time.
The Bank believes that base salaries targeted at the 50th percentile of the
selected peer group levels are necessary to attract and retain high caliber
executives necessary for the successful conduct of the Bank's business.
Annual Bonus. The Committee annually reviews and recommends an Incentive
------------
Compensation Bonus Plan. The Bank's Incentive Compensation Bonus Plan seeks to
motivate executives to work effectively to achieve the Bank's financial
performance objectives and to reward them when objectives are met. The Bank's
Incentive Compensation Bonus Plan acknowledges bank-wide, individual and unit
performance and will be targeted between the 50th and 75th percentile of the
selected peer group levels. At least 50% of the executive's bonus will be tied
directly to overall Bank results. Under the Bank's Incentive Compensation Bonus
Plan all employees, including executive officers, are eligible to receive an
annual cash bonus at the end of each year if performance targets set annually by
the Management Committee are achieved.
-18-
Option and Stock Purchase Plans. Under the 1997 Stock Option Plan key
-------------------------------
employees may be granted stock options by the Committee, in its discretion. The
grants are intended to retain and motivate key employees and to provide a direct
link with the interests of the shareholders of the Bank. The Committee, in
making its determination as to grant levels, intends to take into consideration:
(i) prior award levels, (ii) total awards received to date by individual
employees, (iii) the total stock award to be made and the executive's percentage
participation in that award, (iv) the employee's direct ownership of shares of
the Bank's common stock, (v) the number of options vested and non-vested, and
(vi) the options outstanding as a percentage of total shares outstanding. The
1997 Stock Option Plan limits the total number shares subject to options that
may be granted to a participant in any year to not more than 25,000 shares. The
1997 Employee Stock Purchase Plan enables eligible employees, including
officers, to purchase shares of the Bank's common stock at a fifteen percent
discount in an amount up to ten percent of the employee's annual compensation.
In 1999, the Bank's executive officers were granted stock options in the
amounts set forth in the Summary Compensation Table.
Benefits. During 1999, the Bank provided medical and other benefits to its
--------
executive officers that are generally available to the Bank's other employees.
The Bank is subject to Section 162(m) of the U.S. Internal Revenue Code
which limits the deductibility of certain compensation payments made to
Executive Officers. The Committee's current view is that Section 162(m) will not
limit the Bank's ability to deduct any compensation paid to any Executive
Officers.
Respectfully submitted,
Gregory DuPratt,
Diane P. Hamlyn
David W. Schulze
-19-
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Bank, as of the Record Date, no person or entity
was the beneficial owner of more than five percent (5%) of the outstanding
shares of the Bank's common stock. For the purpose of this disclosure and the
disclosure of ownership shares by management, shares are considered to be
"beneficially" owned if the person has or shares the power to vote or direct the
voting of the shares, the power to dispose of or direct the disposition of the
shares, or the right to acquire beneficial ownership (as so defined) within 60
days of February 29, 2000.
The following table shows the number of shares of common stock and the
percentage of the shares of common stock beneficially owned (as defined above)
by each of the current directors, by each of the nominees for election to the
office of director, by the Chief Executive Officer and the three other most
highly compensated executive officers (whose annual compensation exceeded
$100,000) and by all directors and executive officers of the Bank as a group as
of February 29, 2000.
Number of Shares of
Name and Address of common stock
Beneficial Owner(1) Beneficially Owned(2) Percent of Class
- ------------------- ---------------------- ----------------
Lori J. Aldrete(3) 8,975 *
Frank J. Andrews, Jr.(4) 8,915 *
John M. Carbahal(5) 11,822 *
Gregory DuPratt(6) 9,263 *
Donald J. Fish (7) 18,147 *
John F. Hamel(8) 41,274 1.34
Diane P. Hamlyn(9) 26,466 *
William H. Jones, Jr.(10) 43,055 1.40
Foy S. McNaughton(11) 1,773 *
Owen J. Onsum(12) 83,504 2.71
David W. Schulze(13) 54,153 1.75
Louise A. Walker (14) 17,766 *
Robert M. Walker (15) 17,135 *
Thomas S. Wallace(16) 9,589 *
All directors and executive officers as a group
(14 persons)(17) 351,837 11.41
- --------------------------------------------------
<FN>
* Indicates less than 1%.
(1) The address for all persons is 195 North First Street, Dixon,
California 95620.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Includes shares of
common stock issued pursuant to a five percent stock dividend
declared on February 26, 1999. Shares of common stock subject to
options currently exercisable or exercisable within 60 days of
February 29, 2000, and shares of common stock to be issued as a
result of the declared six percent common stock dividend are deemed
to be beneficially owned by the person holding such option for the
purpose of computing the percentage ownership of such person but are
not treated as outstanding for the purposes of computing the
percentage ownership of any other person. Except as indicated by
footnotes and subject to community property laws, where applicable,
the persons named above have sole voting and investment power
with respect to all shares of common stock shown as beneficially
owned by them.
(3) Includes 2,854 shares held jointly with Ms. Aldrete's spouse, 216
shares held in an IRA for Ms. Aldrete and 5,610 shares issuable to
Ms. Aldrete upon the exercise of options exercisable within 60 days
of February 29, 2000.
-20-
(4) Includes 5,610 shares issuable to Mr. Andrews upon the exercise of
options exercisable within 60 days of February 29, 2000.
(5) Includes 4,051 shares held jointly with Mr. Carbahal's spouse, 562
shares held by Carbahal & Company, an accountancy corporation of
which Mr. Carbahal is a principal and shareholder, 816 shares held by
the Carbahal & Company Annual Accumulation, 391 shares held in an IRA
for Mr. Carbahal, 391 shares held in an IRA for Mr. Carbahal's
spouse and 5,610 shares issuable to Mr. Carbahal upon the exercise of
options exercisable within 60 days of February 29, 2000.
(6) Includes 531 shares held in an IRA for Mr. DuPratt, 2,804 shares held
in an IRA for Mr. DuPratt's spouse and 5,610 issuable to Mr. DuPratt
upon exercise of options exercisable within 60 days of February 29,
2000.
(7) Includes 10 shares held by The Fish Family Trust of which Mr. Fish is
a co-trustee and shares voting and investment power with respect to
such shares and 18,137 shares issuable to Mr. Fish upon the exercise
of options exercisable within 60 days of February 29, 2000.
(8) Includes 25,281 shares held by the R/J Hamel Family Trust of which
Mr. Hamel is a co-trustee and shares voting and investment power with
respect to such shares, 1,008 shares held jointly with Mr. Hamel's
spouse, 9,375 shares held in an IRA for Mr. Hamel and 5,610 shares
issuable to Mr. Hamel upon the exercise of options exercisable within
60 days of February 29, 2000.
(9) Includes 53 shares held by Ms. Hamlyn as custodian for Catherine S.
Lindley, 46 shares held by Ms. Hamlyn as custodian for Matthew
Skowrup, 46 shares held by Ms. Hamlyn as custodian for Tyler Skowrup,
28 shares held by Ms. Hamlyn as custodian for Stephen A. Lindley,
10,181 shares held separately in Ms. Hamlyn's spouse's name, 876
shares held jointly with Ms. Hamlyn's spouse, 2,392 shares held in an
IRA for Ms. Hamlyn, 609 shares held separately in the name of
Janet Diane Hamlyn, 2,799 shares held by the Davisville Travel Profit
Sharing Plan of which Ms. Hamlyn is trustee and shares voting and
investment power with respect to such shares, and 5,610 shares
issuable to Ms. Hamlyn upon the exercise of options exercisable
within 60 days of February 29, 2000.
(10) Includes 2,459 shares held jointly with Mr. Jones' spouse, 13,803
shares held in an IRA for Mr. Jones and 5,610 shares issuable to
Mr. Jones upon the exercise of options exercisable within 60 days of
February 29, 2000.
(11) Includes 1,402 shares issuable to Foy S. McNaughton upon the exercise
of options exercisable within 60 days of February 29, 2000.
(12) Includes 9,465 shares held jointly with Mr. Onsum's spouse, 1,239
shares held by Mr. Onsum as custodian for Matthew David Onsum, 1,239
shares held by Mr. Onsum as custodian for Brandon John Onsum, 45,373
shares held by the First Northern Bank of Dixon Profit Sharing Plan,
of which Mr. Onsum is a trustee and shares voting and investment
power with respect to such shares, and 26,187 shares issuable to
Mr. Onsum upon the exercise of options exercisable within 60 days of
February 29, 2000.
(13) Includes 2,337 shares held separately in Mr. Schulze's spouse's name
and 5,610 shares issuable to Mr. Schulze upon the exercise of options
exercisable within 60 days of February 29, 2000.
(14) Includes 2,514 shares held jointly with Ms. Walker's spouse and 15,252
shares issuable to Ms. Walker upon the exercise of options exercisable
within 60 days of February 29, 2000.
(15) Includes 816 shares held in an IRA for Mr. Walker and 15,040 shares
issuable to Mr. Walker upon the exercise of options exercisable within
60 days of February 29, 2000.
(16) Includes 738 shares held in an IRA for Mr. Wallace's spouse, 2,189
shares held in an IRA for Mr. Wallace and 5,610 shares issuable to
Mr. Wallace upon the exercise of options exercisable within 60 days
of February 29, 2000.
(17) Includes 126,508 shares issuable upon the exercise of options
exercisable within 60 days of February 29, 2000.
</FN>
-21-
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, as administered by the Federal Deposit
Insurance Corporation (the "FDIC"), requires the Bank's directors and executive
officers and persons who own more than ten percent of a registered class of the
Bank's equity securities to file with the FDIC initial reports of ownership and
reports of changes in ownership of common stock of the Bank. Executive officers,
directors and greater than ten percent shareholders are required by the FDIC to
furnish the Bank with copies of all Section 16(a) forms they file. Based upon
review of such reports, the Bank believes that all reports required by Section
16(a) of the Exchange Act to be filed by its executive officers and directors
during the last fiscal year were filed on time.
Stock Performance Graph
STOCK PERFORMANCE CHART (1)
[LINE GRAPH]
(1) Assumes $100 invested on December 31, 1994 in the Bank's Common Stock,
the Russell 2000 composite stock index and SNL Securities' index of twelve
Northern California bank stocks, with reinvestment of dividends. Source: SNL
Securities.
PROPOSAL 2
----------
RATIFICATION OF AUDITORS
At the Meeting a vote will be taken on a proposal to ratify the appointment
of KPMG LLP, by the Board of Directors, to act as independent auditors of the
Bank for the year ending December 31, 2000. KPMG LLP acted as independent
accountants and auditors for the year ending December 31, 1999.
It is anticipated that a representative of KPMG LLP will be present at the
Meeting, will have the opportunity to make a statement if he or she desires and
will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF KPMG LLP AS
THE BANK'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER
31, 2000.
-22-
PROPOSAL 3
----------
ORGANIZATION OF A BANK HOLDING COMPANY
SUMMARY
This Summary contains a brief description of the proposed Reorganization.
This Summary is not a complete statement of all the information contained in
this Proxy Statement/Offering Circular. We recommend that you read all of it
carefully.
Bank Holding Company
You are being asked to vote on a proposal to organize the Holding Company,
a California corporation which will own the Bank. We believe that the new
corporate structure of the Bank will permit the Holding Company and the Bank
greater financial and corporate flexibility in such areas as acquisitions,
repurchase of shares from shareholders and debt financings.
For example, it is generally the case that insured depository institutions
such as the Bank may not acquire and own a controlling interest in another
insured depository institution. In contrast, a bank holding company, subject to
the necessary regulatory approvals, may control more than one insured depository
institution. In the event that an opportunity for the acquisition of another
bank were to develop, it might be desirable to maintain the separate existence
of the other bank after the acquisition, rather than merging it into the Bank.
Also, under the California Financial Code, a California state-chartered bank may
not own the shares of a corporation which acts as an insurance company,
insurance agent, or insurance broker (although banks themselves, under
California law and federal law, may engage in insurance agency or brokerage
activities) while, subject to certain conditions, a bank holding company and its
non-bank subsidiaries may do so. Additionally, under the Gramm-Leach-Bliley Act
of 1999 which became law on November 12, 1999, a new type of bank holding
company, known as a financial holding company, has been authorized which will be
permitted to engage in all activities permitted to bank holding companies as
well as securities, merchant banking and insurance activities which were
previously prohibited to bank holding companies. See "Supervision and
Regulation--Recently Enacted Legislation," below. While the Bank and the Holding
Company have no present plans to acquire other financial institutions or engage
in insurance or securities activities either directly or through achievement of
status as a financial holding company, we believe that the increased flexibility
which will result from adopting the holding company form will permit the Holding
Company and the Bank to better respond to opportunities for growth in the
future.
The holding company form also will afford greater flexibility for the
repurchase of outstanding equity securities. Under California law, any
acquisition by a California state-chartered bank of its outstanding common
shares (subject to certain exceptions) must be approved in advance by the
Commissioner of Financial Institutions. Under the regulations of the Federal
Reserve Board applicable to bank holding companies, a bank holding company,
during any 12 month period, may, without prior notice to or approval of the
Federal Reserve Board, purchase or redeem its outstanding equity securities so
long as the gross consideration paid for such securities during such 12 month
period is less than 10% of the holding company's consolidated worth. Moreover,
a well-capitalized bank holding company is not required to obtain prior
approval of the Federal Reserve Board for the purchase or redemption of its
equity securities if both before and immediately after the purchase, the bank
holding company is well-capitalized, is well-managed and is not the subject of
any unresolved supervisory issues. As previously announced, the Bank has an
ongoing repurchase program whereby the Bank may repurchase not more than 10%
of its outstanding common stock. It is expected that the Holding Company will
continue this program following the Reorganization.
Under California law, California state-chartered banks may issue capital
notes and debentures only if such securities are subordinate to the claims of
all creditors and depositors. Also, the terms of the securities must provide
that no payment of principal may be made unless following such payment the
aggregate of shareholders' equity and capital notes and debentures thereafter
outstanding are the equal of such aggregate at the date of original issue of
such debt securities, unless otherwise authorized by the Commissioner of
Financial Institutions. Such restrictions would not be applicable to debt
securities of the Holding Company thus affording increased flexibility for
future financing to support the growth of the Bank and the Holding Company.
-23-
We believe that the majority of the banks in the United States are
organized in the holding company form and we recommend that the Bank likewise
should adopt this corporate structure.
In order to effect the Reorganization into a bank holding company, the
Holding Company has formed FNCB Merger Corp. ("Merger Co."), a subsidiary
corporation into which the Bank will be merged. Merger Co. has been organized
solely for the purpose of the Reorganization; it has conducted and will conduct
no business prior to the merger; upon the merger, it will disappear into the
Bank which will be the resultant company in the merger. The use of a "merger
subsidiary" such as Merger Co. in a "reverse triangular" merger to accomplish
the Reorganization is a common approach for corporate reorganizations such as
the Reorganization.
Immediately prior to the Reorganization, the Holding Company will own all
of the stock of Merger Co. Following the Reorganization, the Holding Company
will own all of the outstanding shares of common stock of the Bank and Merger
Co. as so merged, and the Bank will continue to do business under the name of
First Northern Bank of Dixon.
After the Reorganization, the shares of Merger Co. will no longer be
outstanding. The capital stock of the Bank will be the same as the capital
structure of the Bank immediately prior to the Reorganization. All shareholders
of the Bank will become shareholders of the Holding Company.
Shareholder Approval
The Reorganization must be approved by the holders of at least a majority
of the outstanding shares of common stock of the Bank. As of February 29, 2000,
the record date, there were 3,082,640 shares of common stock outstanding and
entitled to vote. Therefore, the affirmative vote of at least 1,541,321 shares
is required to approve the Reorganization.
What Should Shareholders Do?
If you want to vote in favor of the Reorganization, mail your signed proxy
card in the enclosed envelope as soon as possible so that your shares can be
voted at the shareholder's meeting.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS VOTING IN FAVOR
--------
OF THE REORGANIZATION.
A failure to send in your proxy or an abstention from voting will have the
same effect as a negative vote because the proposal requires the approval of a
majority of the outstanding shares.
Directors Approval
The Board of Directors of the Bank has unanimously approved the
Reorganization.
No Dissenters' Appraisal Rights
Shareholders are not entitled to dissenters' rights under Chapter 13 of the
California General Corporation Law in connection with the Reorganization.
Risk Factors
There are risks associated with the combined business of the Holding
Company and the Bank as a result of the Reorganization of the Bank's corporate
structure. See "Risk Factors," below.
-24-
The Companies
The three companies participating in the Reorganization are the Holding
Company, the Bank and Merger Co.
The Holding Company
The Holding Company is a California corporation that was formed by the Bank
on February 8, 2000. The Holding Company has not engaged in any business since
its incorporation. After the Reorganization, the Holding Company will become a
registered bank holding company and its principal asset will be its
stockholdings in the Bank.
The Bank
The Bank is a California state-chartered bank. The Bank engages in the
commercial banking business in the El Dorado, Sacramento, Solano and Yolo
Counties of California.
Merger Co.
Merger Co. is a newly-formed California corporation organized solely for
the purpose of this transaction. Merger Co. will not conduct any business prior
to the Reorganization. The Holding Company owns all of the capital stock of
Merger Co. The separate existence of Merger Co. will cease after the
Reorganization.
The One-For-One Exchange Ratio and Market Value
If the proposed Reorganization is approved, shareholders of the Bank will
receive for each of their Bank shares, stock in the Holding Company on a
one-for-one basis. No surrender of Bank share certificates will be required as
such certificates will represent shares of the Holding Company's common stock
until surrendered for exchange.
Shares of the Holding Company have not been publicly traded, as it is a new
company. It has not engaged in any prior business activity. Thus, there is no
published information as to the market price of Holding Company stock.
The stock of the Bank is not listed for quotation on any exchange, although
trades of the stock are reported on the OTC Bulletin Board under the symbol
"FDIX." After the Reorganization, it is expected that trades in the Holding
Company stock will be reported on the OTC Bulletin Board. After the
Reorganization, no market will exist for Bank stock because the Holding Company
will be the Bank's only shareholder.
Per Share Summary of the Bank and Pro Forma per Share Summary of the Holding
Company
Presented below is certain per share financial information of the Bank.
Certain pro forma per share information is provided for the Holding Company.
Per Share Data
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
The Bank
Net earnings (1) $ 1.24 $ 0.41 $ 0.53 $ (0.84) $ 0.57
Cash dividend declared $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Book value (at period end) $ 10.37 $ 10.80 $ 9.60 $ 9.29 $ 10.97
Pro Forma--The Holding Company
Net earnings (1) $ 1.24 $ 0.41 $ 0.53 $ (0.84) $ 0.57
Cash dividends declared $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Book value (at period end) $ 10.37 $ 10.80 $ 9.60 $ 9.29 $ 10.97
- ------------------
-25-
<FN>
(1) Earnings per share are based on the weighted average shares outstanding
during the reported period. Prior years' earnings per share have been
restated for the two-for-one stock split in 1998, the 5% stock dividend
in 1999, the 5% stock dividend in 1998 and the 4% stock dividend in 1997.
</FN>
Management
The directors and officers of the Bank will continue to be directors
and officers of the Bank following the Reorganization. After the Reorganization,
the present directors of the Holding Company will continue to be directors of
the Holding Company. See "History and Business of the Holding Company - Board of
Directors," below. Thereafter, the shareholders of the Holding Company will
elect the directors of the Holding Company from time to time.
Board of Directors
The Holding Company's bylaws provide that the Board of Directors shall
consist of not less than seven nor more than 13 members, the exact number of
which may be fixed from time to time. The initial number of directors has been
fixed at eleven, which is the same as the number of directors of the Bank.
Holding Company Option and Stock Purchase Plans
Pursuant to the Bank's 1997 Stock Option Plan, Outside Director's Plan and
Employee Stock Purchase Plan, eligible officers, directors and employees of the
Bank may receive options to purchase or purchase shares of Bank common stock or
other securities or benefits. Upon consummation of the Reorganization, all
obligations of the Bank under the Bank's plans will become obligations of the
Holding Company on the same terms and conditions, with the exception that
securities issued pursuant to the Bank's plans or derived from the value of Bank
common stock will become Holding Company common stock. For information regarding
the number of shares of stock of the Bank granted under such plans, see
"Executive Compensation - Stock Option Plan," "Election of Directors -
Compensation of Directors" and "Executive Compensation - Profit Sharing Plan"
above.
Differences between Holding Company Stock and Bank Stock
Shareholders of the Holding Company will have rights comparable to those
rights which they now possess as shareholders of the Bank, except as described
below.
The shareholders of the Bank currently have the right to cumulate their
shares in the election of directors. After the Reorganization, shareholders of
the Holding Company will continue to have the right under California law to vote
cumulatively in the elections of directors. Cumulative voting means that a
shareholder may cast the number of shares he or she owns times the number of
directors to be elected in favor of one nominee or allocate such votes among the
nominees as he or she determines.
Article Fifth of the Bank's Articles of Incorporation provides that common
stock offered for cash must first be offered for subscription to the outstanding
shareholders of the Bank on a pro rata basis. This preemptive rights provision
will be carried over into the Holding Company's Articles of Incorporation. See
"Comparative Descriptions of Common Stock - Preemptive Rights," below.
The differing provisions of the Articles of Incorporation and bylaws of the
Holding Company and the Articles of Incorporation and bylaws of the Bank will
also affect the rights of shareholders. For a more complete discussion regarding
these matters, see "Anti-Takeover Measures" and "Comparative Description of
Common Stock," below.
Anti-Takeover Provisions
The Bank's and the Holding Company's Articles of Incorporation and bylaws
include provisions which may be described as "anti-takeover provisions" because
they have an anti-takeover effect and could discourage takeover attempts which
have not been approved by the Board of Directors.
-26-
Pursuant to the Article Seventh of the Articles of Incorporation of the
Bank, a "Reorganization" (as defined at Section 181 of the California General
Corporation Law) requires the approval of 70% of the outstanding shares of
common stock unless such Reorganization has been approved by 70% of the Board of
Directors.
The Holding Company's Articles of Incorporation contain "supermajority
vote" provisions. If the Reorganization is approved, such provisions will
require the affirmative vote of the holders of at least 66 2/3% of the shares of
the Holding Company to approve certain business combinations, unless the
transaction is approved by 66 2/3% of the "Disinterested Directors" (as
described below under "Anti-Takeover Measures - Summary of Fair Price and
Supermajority Vote Provisions"). Certain other conditions must also be met which
result in a "fair price" being paid to all shareholders. We believe that these
provisions in the Holding Company's Articles of Incorporation will aid in
assuring that shareholders are treated fairly in any offer for their shares.
The Holding Company's Articles of Incorporation require the Board of
Directors, when evaluating a transaction involving a business combination
between the Holding Company and another party, or that might result in a change
of control of the Holding Company to consider certain factors in evaluating the
proposal. These factors include the social and economic effects such transaction
may have on the Holding Company's employees, shareholders, customers and
suppliers other constituents of the corporation and its subsidiaries and on the
communities in which the Holding Company operates or is located, including,
without limitation, the availability of credit and other banking services to the
communities served by the corporation, whether the transaction might violate
applicable law and the long-term value of the Holding Company as an independent
entity.
Under both the Bank's and Holding Company's bylaws, special meetings of the
shareholders may be called by the Chairman of the Board, or by the President, or
by shareholders holding shares representing at least 10% of the voting power.
The Bank's bylaws provide that no person shall be a member of the Board of
Directors unless such person meets certain qualification requirements. The
Holding Company's bylaws contain comparable qualification requirements.
The Bank's bylaws provide that director nominations, other than those made
by the Board of Directors, shall be made by notification in writing delivered or
mailed to the President of the Bank not less than 30 days or more than 60 days
prior to any meeting of shareholders called for the election of directors. The
provision also requires detailed information about the nominee, including
information necessary to determine if the nominee is qualified under the bylaws.
The Holding Company's bylaws provide for comparable notification procedures.
We believe that it is appropriate to include such anti-takeover provisions
during the conversion to a holding company form of ownership. The inclusion of
such provisions is not in response to any attempted takeover of the Bank. The
Bank has not been the target of an attempted takeover in the past.
The presence of these anti-takeover provisions may have the effect of
discouraging outside offers for the shares of the Holding Company. These
provisions may also give management more control than it would otherwise have
over the acceptance or rejection of such offers. Such provisions may protect the
incumbent Board of Directors and management by discouraging takeover attempts
which are not supported by the Board, but which may be supported by the majority
of shareholders. Nonetheless, these anti-takeover provisions do not diminish the
fiduciary obligations of the Board of Directors or management to the
shareholders.
Certain Federal Income and California Tax Consequences
It will be a condition to the completion of the Reorganization that legal
counsel, Pillsbury Madison & Sutro LLP, San Francisco, opine that no gain or
loss will be recognized for federal income tax or California bank and
corporation tax or personal income tax purposes by the Bank, the Holding Company
or the Bank's shareholders as a result of the Reorganization. See "Bank Holding
Company Reorganization--Certain Federal Income and California Tax Consequences,"
below. Such counsel has advised the Bank and the Holding Company that it fully
expects to be able to deliver that opinion.
-27-
Each shareholder should rely upon his or her own tax advisor with respect
to the federal, state, local and foreign tax consequences of the Reorganization.
Dividends
In the opinion of the Bank's management, for the foreseeable future, there
is no reason to expect that a decrease in the Holding Company's dividend rate
relative to that of the Bank will occur, although there can be no assurance as
to the future rate of dividends on the Holding Company's common stock.
RISK FACTORS
The purpose of the proposal is to give the Bank greater financial and
corporate flexibility in such areas as acquisitions, non-banking activities and
debt or other financings, and to permit it to participate in non-bank
activities, which are not permissible for the Bank to engage in directly. The
nature of the business conducted by the Bank will not change.
Certain risks associated with the combined business of the Holding Company
and the Bank as a result of the Reorganization of the Bank's corporate
structure, are presented below.
The Holding Company's Financial Condition
The proposed Reorganization calls for you to receive Holding Company stock
in exchange for your Bank stock. The Holding Company has no history of financial
performance because it is a newly-formed California corporation. The Holding
Company's financial condition following the Reorganization will depend on the
operation and profitability of the Bank. The Holding Company's profitability may
be affected by other factors such as:
o businesses started or acquired by the Holding Company other
than the Bank; and
o laws and regulations applicable to the Holding Company.
Although the Holding Company intends to operate the Bank in substantially
the same manner that it has been operated to date, changes to the operations of
the Bank and new businesses may affect the financial performance and condition
of the Holding Company as a whole and the return to shareholders of the Holding
Company.
Banking Institutions
The financial services industry and banking in particular has undergone a
complex deregulation process. The interest rate limitations on what banks may
pay to depositors have been phased out. Interstate banking laws which allow
financial institutions to cross state lines have been enacted nationally.
Competition to provide traditional banking services has increased among banks
and other companies. The Holding Company and the Bank will continue to be
affected by these changes in the future. The conduct of the Bank's business as a
subsidiary of the Holding Company may increase its ability to compete in this
newly deregulated environment, but there can be no assurance that this will be
the case.
Anti-Takeover Provisions
The Holding Company's Articles of Incorporation and bylaws contain
provisions intended to prevent hostile takeovers. The anti-takeover provisions
include: supermajority vote and fair price provisions; a provision requiring the
consideration of nonmonetary factors (such as social effects) in certain merger
or other transactions; provisions requiring that shareholders give advance
notice with respect to nomination of candidates for election as directors and
certain proposals they may wish to present for a shareholder vote; requirements
as to qualifications of directors; and other items.
-28-
These provisions and additional provisions of California law may:
o discourage outside offers for the shares of the Holding Company;
o give management more control over the acceptance or rejection
of business combination offers; and
o protect incumbent Directors by discouraging takeover attempts
which are not supported by the Board.
The presence of these anti-takeover provisions in the Holding Company's
Articles of Incorporation and bylaws does not diminish the fiduciary obligations
of the Board of Directors or management to the shareholders.
BANK HOLDING COMPANY REORGANIZATION
THE BOARD OF DIRECTORS OF THE BANK HAS UNANIMOUSLY APPROVED A PLAN OF
REORGANIZATION UNDER WHICH THE BUSINESS OF THE BANK WOULD BE CONDUCTED AS A
WHOLLY-OWNED SUBSIDIARY OF THE HOLDING COMPANY AND RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE REORGANIZATION.
Reasons for the Proposal
A bank holding company form of organization will increase the corporate and
financial flexibility of the businesses operated by the Bank through the
combined business of the Bank and the Holding Company. Examples are:
o increased structural alternatives for acquisitions;
o the ability to augment Bank capital by means of Holding Company
debt or other securities; and
o the ability to engage in certain non-banking activities.
A bank holding company can engage directly or through non-banking
subsidiaries in certain non-bank-related activities in which the Bank cannot
presently engage. The Reorganization would broaden the scope of services which
could be offered to the public. The Holding Company has not made any
determination as to which of these types of activities it may engage in after
consummation of the proposed transaction. The Holding Company could also acquire
control of one of more other banking organizations which it could operate as
separate subsidiaries of the Holding Company, although no determination has been
made that the Holding Company will do so.
Description of the Reorganization
The Holding Company will subscribe for and will hold all of the 100
authorized shares of common stock of the Merger Co., which has been formed
solely for the purpose of this transaction. Merger Co. will merge with and into
the Bank under the name and charter of the Bank, pursuant to the terms of the
Agreement and Plan of Reorganization (to which there is attached an Agreement of
Merger). See Annex I of this Proxy Statement/Offering Circular. Upon
consummation of the transaction, the Bank will be a wholly-owned subsidiary of
the Holding Company.
After the Reorganization, the business of the Bank will be conducted by the
Bank under the name "First Northern Bank of Dixon." All of the outstanding
shares of stock of the Bank will be owned by the Holding Company. The Bank will
have the same directors, officers, interests and properties as those of the Bank
immediately prior to the Reorganization. The Bank will continue to be subject
to regulation by the FDIC, and as a subsidiary of the Holding Company, will be
subject to regulation by the Board of Governors of the Federal Reserve System.
Conversion of Shares and Exchange of Stock Certificates
Upon consummation of the Reorganization, each outstanding share of the Bank
stock will be converted into one share of the Holding Company stock. Each holder
of Bank stock certificates upon surrender of such certificates for
-29-
cancellation will be entitled to receive certificates representing the same
number of shares of Holding Company common stock. Until so surrendered, Bank
stock certificates will be deemed for all purposes to evidence the same number
of shares of the Holding Company stock.
Stock certificates representing shares of the Holding Company's common
stock will be generally available to be distributed to shareholders of the Bank
by approximately July 7, 2000. The distribution of stock certificates to you
will be dependent upon the date of receipt of your Bank stock certificate for
exchange (which you will not be required to do). Shareholders of the Bank will
continue to be entitled to sell or transfer their Bank stock through the date of
consummation of the transaction. Further, you may sell Holding Company stock
after the effective date of the Reorganization but before receipt of
certificates representing Holding Company stock. Completion of such sales will
only require presentation of your Bank stock certificate by the transferee.
Regulatory Approvals
Federal and California law and regulations provide that certain acquisition
transactions, such as the Reorganization, may not be consummated unless approved
in advance by applicable regulatory authorities. The Agreement and Plan of
Reorganization provides that the Holding Company, the Bank, and Merger Co. shall
proceed expeditiously and cooperate fully in the procurement of any consents and
approvals and in the taking of any other action and the satisfaction of all
requirements, prescribed by law or otherwise, necessary for consummation of the
Reorganization, including the preparation and submission of applications
required to be filed with the Commissioner of Financial Institutions and the
Federal Reserve Board. Receipt of all requisite regulatory approvals and
consents is a condition precedent to the consummation of the Reorganization.
An application for prior approval of the Holding Company to acquire the
Bank was filed with the Federal Reserve Board on February 4, 2000, and an
application for approval to acquire the Bank was filed with the Commissioner of
Financial Institutions on February 7, 2000. There can be no assurances that the
required approvals will be obtained, or as to conditions or timing of such
approvals.
Although neither the Holding Company nor the Bank is aware of any reason
why the requisite approvals of and consents to the Reorganization would not be
granted, there can be no assurance such approvals and consents will be obtained
or that, if obtained, such approvals and consents will not include conditions
which would be of a type that would relieve the Holding Company, the Bank, or
Merger Co. from their obligation to consummate the Reorganization.
Affiliate Restrictions
The shares of Holding Company stock will be exempt from registration under
the Securities Act of 1933, by reason of Section 3(a)(10) thereof. In accordance
with the provisions of such section, the Holding Company has filed its
Application for a fairness hearing before the Commissioner of the California
Department of Corporations. However, the resale of such shares by the directors,
principal officers and principal shareholders may be restricted by the 1933 Act
and by SEC rules if such directors, principal officers and principal
shareholders are deemed to be "affiliates" as that term is defined by the 1933
Act and SEC rules.
Persons considered to be in control of an issuer are considered as
"affiliates" and may include officers, directors and shareholders who own a
significant percentage of the outstanding stock. Holding Company stock received
after the transaction by "affiliates" the Holding Company will be "control
stock," which can be sold only if they are registered or transferred in a
transaction exempt from registration under the 1933 Act, such as pursuant to SEC
Rules 144 and 145, or pursuant to a private placement. SEC Rules 144 and 145
generally require that before an affiliate can sell control stock:
o there must be on file with the SEC public information filed by
the issuer;
o the affiliate must sell his stock in a unsolicited broker's
transaction or directly to a market maker; and
-30-
o during any three-month period, the amount of the securities
that can be sold other than in non-public transactions is
limited to the greater of 1% of the outstanding stock of the
issuer or the average weekly trading volume during the last
four calendar weeks.
It is advisable for those shareholders who may become "affiliates" of the
Holding Company to confer with their legal counsel prior to the sale of any
Holding Company stock.
Conditions of Consummation
California law provides that a bank holding company reorganization such as
the Reorganization requires the approval of a reorganization agreement by the
Boards of Directors and by shareholders holding a majority of the outstanding
common stock of each of the subject bank and the corporation merging with such
bank.
The obligation of the Bank and the Holding Company to consummate the
Reorganization is conditioned further upon the following:
o the absence of any action, suit, proceeding or claim, made or
threatened, related to the proposed Reorganization;
o any development which makes consummation of the Reorganization
inadvisable in the opinion of either Board of Directors;
o the receipt of a favorable opinion of legal counsel with respect to
the tax consequences of the Reorganization;
o the receipt of all necessary regulatory approvals;
o the number of shares of common stock of the Bank voting against the
Reorganization makes consummation of the Reorganization unreasonable;
and
o the performance of all covenants and agreements.
Other Considerations
The Holding Company is a business corporation formed under California law.
It will have greater flexibility than the Bank in certain respects, including:
o the incurrence of debt for leveraged growth;
o the redemption of stock; and
o the ownership and operation of related financially-oriented
businesses.
The Holding Company will be a registered bank holding company under the
Federal Bank Holding Company Act of 1956, as amended, and will be subject to
supervision and regulation of the Federal Reserve Board thereunder.
Expenses
The Reorganization will cost approximately $100,000. The expenses are
related to:
o legal fees;
o accounting fees;
o application fees;
-31-
o printing costs; and
o other expenses.
Certain Federal Income and California Tax Consequences
Neither the Bank nor the Holding Company is required to complete the
Reorganization, and their respective Boards of Directors do not intend to
complete the Reorganization, unless both the Bank and the Holding Company
receive an opinion (the "Tax Opinion") of legal counsel, Pillsbury Madison &
Sutro LLP, to the effect that the Reorganization will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the Internal Revenue
Code and that, accordingly, for federal income tax and California bank and
corporation tax and personal income tax purposes:
o no gain or loss will be recognized by the Holding Company, the Bank or
Merger Co. as a result of the Reorganization,
o no gain or loss will be recognized by Bank shareholders upon
conversion of their Bank stock into Holding Company stock,
o a Bank shareholder's tax basis for the Holding Company stock will be
the same as the tax basis of the Bank stock surrendered by the
shareholder and
o a Bank shareholder's holding period for the Holding Company stock will
include the holding period of the Bank stock surrendered by the
shareholder, provided that the Bank stock is held as a capital asset
on the date of consummation of the Reorganization.
An opinion of counsel represents only such counsel's best legal judgment
and is not binding on the Internal Revenue Service, the California Franchise Tax
Board or the courts. The Tax Opinion will rely on certain representations of the
Bank's and the Holding Company's management which are customary in transactions
comparable to the Reorganization. In addition, the Tax Opinion will be based
upon laws, judicial decisions and administrative regulations, rulings and
practice, and other applicable authority, all as in effect on the date of the
Reorganization and all of which could be subject to change, either on a
prospective or retroactive basis. New developments in any such administrative
matters or court decisions, legislative changes, or the inaccuracy or
incompleteness of any of the representations of management could have an adverse
effect on the legal or tax consequences described in the Tax Opinion and counsel
has not undertaken to accept any responsibility for updating or revising the Tax
Opinion in consequence of any such new developments or changes. Finally, the Tax
Opinion deals only with the Federal Income Tax and California Bank and
Corporation Tax and personal income tax consequences of the Reorganization.
ACCORDINGLY, SHAREHOLDERS ARE STRONGLY URGED TO CONSULT WITH AND MUST RELY
UPON THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE REORGANIZATION IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
No Appraisal Rights for Dissenting Shareholders
Pursuant to the provisions of California law, shareholders of the Bank will
not have dissenters' rights in the Reorganization. Shareholders of a California
chartered bank are entitled to dissenters' rights to the same extent as
shareholders of a California corporation. California law generally grants
shareholders dissenters' rights in transactions that are required to be approved
by shareholders. However, under California law, in a transaction such as the
Reorganization, where a vote of shareholders is only required because the shares
to be received in the transaction have different rights, preferences, privileges
or restrictions, no dissenters' rights are available.
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Accounting Treatment
The merger of the Bank and Merger Co. will be accounted for in a method
similar to a pooling of interests.
ANTI-TAKEOVER MEASURES
The Purpose of the Anti-Takeover Provisions
The Bank's Articles of Incorporation and bylaws have contained certain
provisions which might be regarded as so-called "anti-takeover" provisions. See
"Comparative Description of Common Stock - Anti-takeover Provisions," below. The
Articles of Incorporation and bylaws of the Holding Company will continue some,
but not all of these provisions and also contain additional anti-takeover
provisions such as fair price and enhanced supermajority vote provisions. Such
provisions may be described as "anti-takeover provisions" because they have an
anti-takeover effect and may discourage takeover attempts which have not been
approved by the Board of Directors. We included these provisions because certain
of them are in the Bank's existing Articles of Incorporation and bylaws and
because certain tactics have become relatively common in corporate takeover
practice.
Your Board of Directors believes such tactics can be highly disruptive and
can result in dissimilar and unfair treatment of shareholders. We are not aware
of any current efforts to obtain control of the Bank or to effect substantial
accumulations of its stock.
The following discussion is a general summary of the material provisions of
the Holding Company's Articles of Incorporation and bylaws and certain other
regulatory provisions, which may be deemed to have an "anti-takeover" effect.
The following description of certain of these provisions is necessarily general
and, with respect to provisions contained in the Holding Company's Articles of
Incorporation and bylaws, reference should be made to the document in question.
A copy of the Holding Company's Articles of Incorporation is attached hereto as
Annex II, and a copy of the bylaws has been filed with the Application submitted
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to the California Department of Corporations and may be obtained by sending a
written request to Mr. James S. Duke, Corporate Secretary, First Northern Bank
of Dixon, 195 North First Street, Dixon, California 95620.
Summary of Fair Price and Supermajority Vote Provisions
Article 6 of the Holding Company's Articles of Incorporation contains a
"Supermajority Voting and Fair Price" provision, both to encourage potential
acquirers to negotiate with the Holding Company and to protect shareholders from
being unfairly treated in mergers or other business combinations with persons
who own a substantial amount of the Holding Company's stock. The Supermajority
Voting and Fair Price provision applies to mergers and certain other types of
business combinations with persons holding 10% or more of the shares held by
voting stock of the Holding Company (an "Interested Shareholder"). In general,
the Supermajority Voting and Fair Price provision requires, in a merger or
certain other business combinations, first that 66 2/3% of the outstanding
shares, including those held by the Interested Shareholder, must be voted for
the business combination, second that all shareholders who are independent of
the Interested Shareholder receive at least a specified amount for his or her
shares acquired during the preceding two years and third that certain other
requirements are met. The specifics of these requirements are more fully
discussed below.
The Supermajority Voting and Fair Price provisions are designed to
encourage potential acquirors to negotiate at arm's length with the Board of
Directors. In the absence of such negotiations, these provisions seek to ensure
that any multi-step attempt to take over the Holding Company will be made on
terms offering similar treatment to all shareholders. In the past, there have
been takeovers of publicly held companies accomplished by the purchase of blocks
of stock in open market purchases or otherwise at a price above prevailing
market prices, followed by a second step, merger or other transaction in which
the shares acquired are paid less than the value paid in the first step.
The Bank has a large number of shareholders who each have held a relatively
small number of Bank shares for a long period of time. We believe that
opportunistic bidders may generally be in a better position to take advantage of
the more lucrative first step transaction, while shareholders who have held
their shares for a long period of time will often, as
-33-
a practical matter, be compelled to accept the less favorable consideration
payable in the second step business combination.
The potential for future use of the two-step acquisition have convinced us
that these provisions are desirable in order to preserve for the shareholders
the benefits which will accrue to the Holding Company and its subsidiary, the
Bank, including its increased ability to compete in the significantly
deregulated banking industry.
This Supermajority Voting and Fair Price provision will not apply to an
otherwise covered business combination in certain circumstances. First, if the
business combination is approved by 66 2/3% of the "Disinterested Directors" of
the Holding Company, the Supermajority Voting and Fair Price rules do not apply.
For purposes of the Supermajority Voting and Fair Price provision, a
Disinterested Director is defined as a member of the Board of Directors who is
not affiliated with the Interested Shareholder, and who was a member of the
Board of Directors prior to the time the Interested Shareholder became an
Interested Shareholder and any successor of a Disinterested Director who is
unaffiliated with the Interested Shareholder and is recommended to succeed a
Disinterested Director by a majority of Disinterested Directors then on the
Board of Directors. Second, the same is true if any banking subsidiary of the
Holding Company has received a notice of termination of insurance from the
Federal Deposit Insurance Corporation or an order to correct a capital
impairment from the Commissioner of the California Department of Financial
Institutions, possession of any banking subsidiary of the Holding Company has
been taken by the Commissioner, a conservator has been appointed for any banking
subsidiary of the Holding Company or the Holding Company or, a similar
proceeding has been commenced following a substantial deterioration in the
Holding Company's condition. Where the Supermajority Voting and Fair Price
provisions do not apply, a simple majority of the outstanding shares is required
to approve the business combination.
Where the Supermajority Voting and Fair Price rules apply, the requirements
in addition to the 66 2/3% approval of the outstanding shares include: (a) the
consideration to be received in the business combination is in cash or in the
same form as the Interested Shareholder has paid for the shares acquired by such
Interested Shareholder; (b) the per share consideration to be received
by holders of outstanding stock in the business combination (other than the
Interested Shareholder) is at least equal to the highest of (i) the highest per
share price paid by such Interested Shareholder in acquiring the Holding
Company's stock of the same class in the two years prior to the announcement of
the business combination, or in the transaction in which it became an Interested
Shareholder, if within two years of the date of first public announcement of the
proposal, or (ii) the fair market value per share on the announcement date or on
the date on which the Interested Shareholder became an Interested Shareholder if
within two years of the first public announcement of the proposal; and (c) after
becoming an Interested Shareholder and prior to the consummation of such
business combination (i) such Interested Shareholder must not have become the
beneficial owner of any additional shares of the voting stock of the Holding
Company, except as part of the transaction which results in such shareholder
becoming an Interested Shareholder, within the two year period prior to
consummation of the business combination, (ii) such Interested Shareholder must
not have received the benefit, directly or indirectly (except proportionately as
a shareholder), of any loans, advances, guarantees, pledges or other financial
assistance or tax advantages provided by the Holding Company or any subsidiary
of the Holding Company, and (iii) except as approved by a 66 2/3% majority of
the Directors who are Disinterested Directors, there shall have been (A) no
reduction in the annual rate of dividends paid on common stock, and there shall
have been (B) an increase in the annual rate of dividends necessary to reflect
certain reclassification and recapitalization.
The Holding Company's Articles of Incorporation provides that the
Supermajority Voting and Fair Price provisions cannot be amended or repealed
unless such a change is approved by not less than 66 2/3% of the total voting
power of the outstanding shares of the Holding Company.
The Supermajority Voting and Fair Price provision will not prevent a merger
or similar transaction following a tender offer in which all shareholders
receive substantially the same price for their shares and which 66 2/3% of the
shares have been voted for the merger or which 66 2/3% of the Disinterested
Directors have approved and which the holders of a majority of the outstanding
shares approve. Except for the restrictions on the specified business
combinations, the Supermajority Voting and Fair Price provision will not prevent
a holder of a controlling interest from exercising control over the Holding
Company or prevent such a holder from increasing his or her share ownership. The
-34-
existence of the Supermajority Voting and Fair Price provision may, however,
tend to encourage persons seeking control of the Holding Company to negotiate
terms of a proposed merger or similar transactions with the Holding Company's
Board of Directors.
The Board of Directors recognizes that not all two-tiered tender offers or
other two-step transactions are intended to pressure shareholders into hasty
decisions or to discriminate among shareholders. However, taking all factors
into consideration, the Board believes that it is appropriate to take action to
reduce the possibility to two-tiered transactions which are unfair.
While the Board believes the Supermajority Voting and Fair Price provision
is in the best interest of the Holding Company's shareholders, there are several
possible negative considerations. The effect of the Supermajority Voting and
Fair Price provision may be to deter a future takeover attempt which the Board
has not approved, but which a majority of the shareholders may deem to be in
their best interests or in which shareholders may receive a premium for their
shares over the then market value. The adoption of the Supermajority Voting and
Fair Price provision also may make it more difficult to obtain shareholder
approval of transactions covered by the provision, such as mergers or other
corporate combinations with persons who are Interested Shareholders, even if
approved by the Directors and favored by a majority of the shareholders.
Consideration of Nonmonetary Factors
Article 7 of the Holding Company's Articles of Incorporation requires
the Board of Directors, when evaluating a merger proposal, to consider the
social and economic effects of the transaction on employees, shareholders,
customers and suppliers in the communities in which the Holding Company
operates, in addition to monetary factors.
The Boards of Directors of the Holding Company and the Bank believe that
the inclusion of such provisions in the Holding Company's Articles of
Incorporation is appropriate in light of the importance of the Bank to the
communities which it serves.
In some circumstances, the nonmonetary factors provision could influence
the Board of Directors to oppose a tender offer or other attempted acquisition
of control of the Holding Company that some shareholders might find financially
attractive. This provision may also have the effect of making Board approval of
an acquisition more difficult to secure and, consequently may have the effect of
delaying or discouraging a proposed takeover. In some cases, opposition to such
a proposal might have the effect of maintaining the tenure of incumbent
management.
Another effect of Article 7 may be to dissuade shareholders who might be
displeased with the Board of Directors' response to a tender offer from engaging
the Holding Company in costly and time consuming litigation. Such litigation
might involve an allegation by a shareholder that the Board of Directors
breached an obligation to the shareholders by not limiting its evaluation of a
tender offer solely to the value of the tender offer consideration in relation
to the then market price of the Holding Company's stock.
Nonetheless, the provisions of Article 7 of the Holding Company's Articles
of Incorporation do not diminish the fiduciary obligations of the Board of
Directors or management to the shareholders.
Director Qualification and Nomination Procedures
The Holding Company's bylaws provide that no person shall be a member of
the Board of Directors unless such person has been for at least two years
immediately prior to his or her election a resident in a county in which a
banking subsidiary of the Holding Company maintains an office except when the
election of such person is approved by the affirmative vote of at least
two-thirds of the members of the Board of Directors of the Holding Company then
in office. In addition, such person must not be, among other things, the holder
of more than 1% of the outstanding shares of any other banking corporation,
affiliate or subsidiary thereof, bank holding company, industrial loan company,
savings bank or association or finance company other than of the Holding Company
or any affiliate or subsidiary of the Holding Company, or a director, officer,
employee, agent, nominee or attorney of any such entity or who has or is the
nominee of
-35-
anyone who has any contract, arrangement or understanding with any such
entity other than the Holding Company or any affiliate or subsidiary of the
Holding Company.
The Holding Company's bylaws provide that director nominations, other than
those made by the Board of Directors, shall be made by notification in writing
delivered or mailed to the President of the Holding Company not less than 30
days or more than 60 days prior to any meeting of shareholders called for
election of directors. The provision also requires that the notice contain
detailed information about the nominee, including information necessary to
determine if the nominee is qualified under the bylaws.
Cumulative Voting
Cumulative voting means that a shareholder may cast the number of shares he
or she owns times the number of directors to be elected in favor of one nominee
or allocate such votes among the nominees as he or she determines. Shareholders
of the Holding Company will continue to have the right to vote cumulatively in
the elections of directors for the foreseeable future. Until and unless the
Holding Company's stock becomes designated as qualified for trading on the
NASDAQ National Market System and the Holding Company has at least 800 record
holders of its shares as of the record date of its most recent annual meeting of
shareholders, Section 708 of the California General Corporation Law ("CGCL")
will continue to apply and cumulative voting will continue to be required.
The Board of Directors and management have no intention in the foreseeable
future to qualify the Holding Company's stock for listing on the NASDAQ National
Market System nor to take any action which would otherwise result in the Holding
Company no longer being subject to Section 708 of the CGCL. Therefore,
cumulative voting is expected to remain in effect in the foreseeable future.
Additional Considerations
Federal law requires prior approval by the Board of Governors of the
Federal Reserve System before any company acquires control of a bank holding
company. In addition, pursuant to the California Financial Code, no person or
entity may directly or indirectly, acquire a controlling interest in a
California state-chartered bank without the prior written approval of the
California Department of Financial Institutions. Independent of any provision of
the Holding Company's Articles of Incorporation or bylaws, the requirement for
such regulatory approval may delay efforts to obtain control over the Holding
Company.
The Holding Company has 8,000,000 shares of authorized common stock of
which, after consummation of the proposed Reorganization, there will be
3,082,640 shares issued and outstanding. Therefore the Holding Company will have
4,917,360 shares of its authorized common stock available for future issuance by
the Board of Directors for any proper corporate purpose, subject to the
preemptive rights provided to the holders of the common stock of the Holding
Company by the Holding Company's Articles of Incorporation. See "Comparative
Descriptions of Common Stock - Preemptive Rights," below. These shares could be
issued into "friendly" hands by the Board of Directors in the event of an
attempt to gain control of the Holding Company. Because the Holding Company's
authorized but unissued shares could be issued and used in this manner, they
represent another potential anti-takeover device. In addition, as of December
31, 1999, the Bank had options outstanding to purchase an aggregate of 196,665
shares of its stock and 519,960 shares are reserved for granting further
options.
The Holding Company's Articles of Incorporation and bylaws currently
contain no other provisions that were intended to be or could fairly be
considered as anti-takeover in nature or effect. The Board of Directors has no
present intention to amend the Articles of Incorporation to add any further
anti-takeover provisions.
-36-
MARKET PRICES OF STOCK
The Holding Company
First Northern Community Bancorp was incorporated in California on February
8, 2000. No shares of the Holding Company have been issued since the date of its
incorporation to the present time. Therefore, no market exists at this time for
the Holding Company's stock. As a result of the Reorganization, Bank
shareholders will receive for their Bank stock shares of Holding Company stock.
It is anticipated that trades of the Holding Company's common stock will be
reported on the OTC Bulletin Board.
The Bank
The Bank had approximately 868 shareholders of record as of February 29,
2000. The Bank's common stock is not listed on any exchange, nor is it included
on NASDAQ. However, trades may be reported on the OTC Bulletin Board under the
symbol "FDIX." The Bank is aware that Hoefer & Arnett, Inc., Pacific Crest
Securities, Paine Webber, Inc. and Sutro & Co. make a market in the Bank's
common stock. Management is aware that there are also private transactions in
the Bank's common stock, although the data set forth below may not reflect all
such transactions.
The following table summarizes the range of sales prices of the Bank's
common stock for each quarter during the last two fiscal years and is based on
information provided by Hoefer & Arnett, Inc. The quotations reflect the price
that would be received by the seller without mark-ups, mark-downs or commissions
and may not have represented actual transactions:
High Low
---- ---
1999
----
Fourth Quarter $14.00 $13.50
Third Quarter $14.50 $13.25
Second Quarter $14.00 $12.75
First Quarter $13.50 $11.75
1998
----
Fourth Quarter* $15.00 $13.00
Third Quarter $30.50 $26.00
Second Quarter $29.38 $27.63
First Quarter $30.00 $27.68
--------------------
*On July 30, 1998, the Board of Directors declared a two-for-one stock
split of the Bank's common stock in which each share of the Bank's stock
was converted into two shares. The two-for-one stock split was effective
on August 31, 1998.
DIVIDENDS
The Holding Company
Since the date of its incorporation, the Holding Company has paid no
dividends. After consummation of the Reorganization, the amount and timing of
any future dividends will be determined by its Board of Directors and will
substantially depend upon the earnings and financial condition of its principal
subsidiary, the Bank. The ability of the Holding Company to obtain funds for the
payment of dividends and for other cash requirements is largely dependent on the
amount of dividends which may be declared by its subsidiary, the Bank.
-37-
Because the Bank is a California state-chartered bank, its ability to pay
dividends or make distributions to its shareholders is subject to restrictions
set forth in the California Financial Code. The California Financial Code
restricts the amount available for cash dividends by state-chartered banks to
the lesser of retained earnings or the bank's net income for its last three
fiscal years (less any distributions to shareholders made during such period).
In the event the Bank has no available funds for dividends as described above,
then any dividends contemplated would require approval from the Commissioner of
Financial Institutions.
The Holding Company is a California corporation. Under the CGCL, the
Holding Company will be restricted in its ability to declare and pay dividends.
The Holding Company may make a distribution to its shareholders if one of the
following standards is met: (i) the retained earnings of the corporation
immediately prior to the distribution exceeds the amount of the proposed
distribution; or (ii) the assets of the corporation exceed 1-1/4 times its
liabilities and the current assets of the corporation exceed its current
liabilities, but if the average pre-tax net earnings of the corporation before
interest expense for the two years preceding the distribution was less than the
average interest expense of the corporation for those years, the current assets
of the corporation must exceed 1-1/4 times its current liabilities.
Management believes that, for the foreseeable future, the ability of the
Holding Company to pay cash dividends will effectively remain the same as the
Bank.
The Bank
The Bank has not paid a cash dividend in the past five years and does not
expect to pay a cash dividend in the near future. The Bank has paid a 5% stock
dividend to shareholders in 1999, a 5% stock dividend in 1998 and a 4% stock
dividend in 1997.
The Holding Company anticipates continuing to pay stock dividends in the
future. In the opinion of the Bank's management, for the foreseeable future,
there is no reason to expect a decrease in the Holding Company's stock dividend
rate relative to the Bank's stock dividend rate, although no assurance can be
given as to the occurrence of events in the future which may adversely affect
the rate of stock dividends by the Bank or the Holding Company.
CAPITALIZATION
The following table sets forth the capitalization of the Bank as of
December 31, 1999 and the pro forma capitalization of the Holding Company as of
December 31, 1999, assuming that the Reorganization had been consummated at such
date and the Holding Company had redeemed and canceled the shares of Merger Co.
issued to the Holding Company.
Bank Merger Co. Adjustments Holding Company
(Actual) (Actual)(1) (Pro Forma) (Pro Forma)
-------- ----------- ------------- ---------------
Common Stock $ 23,322,001 $ 100 $ (100) $ 23,322,001
Preferred Stock ------ ----
Additional Paid-in Capital 976,850 ---- ---- 976,850
Accumulated Other Comprehensive
Income (1,739,299) (1,739,299)
Retained Earnings 9,513,151 9,513,151
------------ ------------- ------------- -------------
Total Shareholders' Equity $ 32,072,703 $ 100 $ (100) $ 32,072,703
============= ======== =========== ============
- ------------------
(1) Represents the capitalization of Merger Co. of $100.
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FINANCIAL STATEMENTS
The Bank's audited Balance Sheets as of December 31, 1999 and 1998, the
related audited Statements of Earnings, Changes in Shareholders' Equity and Cash
Flows for each of the three years ended December 31, 1999 are included in the
Bank's Annual Report, a copy of which is being sent to the Bank's shareholders
concurrently with this Proxy Statement/Offering Circular. Financial statements
of the Bank are not included herein as they are not deemed material to the
exercise of prudent judgment by shareholders with respect to the matters to be
acted upon at the Meeting. If any shareholder so desires, he or she may obtain
an additional copy of such financial statements upon written request to Mr.
James S. Duke, Corporate Secretary, First Northern Bank of Dixon, 195 North
First Street, Dixon, California 95620.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 50, Financial Statement Requirements in Filings Involving the
Formation of a Bank Holding Company, the Bank's audited consolidated balance
sheets as of December 31, 1999 and 1998 and related audited consolidated
statements of income, shareholders' equity and cash flows for each of the three
years ended December 31, 1999, prepared in conformity with generally accepted
accounting principles, and report of independent public accountants, are
included as part of the Bank's 1999 Annual Report to Shareholders, a copy of
which is being concurrently furnished to shareholders. Additional copies of the
Bank's 1999 Annual Report to Shareholders are available to each person to whom
this Proxy Statement/Offering Circular has been delivered, upon written request
of any such person, directed to Mr. James S. Duke, Corporate Secretary, First
Northern Bank of Dixon, 195 North First Street, Dixon, California 95620, (707)
678-3041.
No historical financial information is available for the Holding Company
since it is a newly formed California corporation.
HISTORY AND BUSINESS OF THE HOLDING COMPANY
General
The Holding Company was incorporated under the laws of the State of
California on February 8, 2000, for the purpose of becoming the holding company
of the Bank. Immediately prior to consummation of the Reorganization, the
Holding Company will own all of the stock of Merger Co. Thereafter, Merger Co.
will merge with the Bank. Shareholders of the Bank will become shareholders of
the Holding Company. The Holding Company will become the sole shareholder of the
Bank. The Bank will carry on the business of the Bank under the name "First
Northern Bank of Dixon ." The executive offices of the Holding Company are
located at 195 North First Street, Dixon, California 95620. A copy of the
Holding Company's Articles of Incorporation is attached hereto as Annex II.
--------
Employees
The Holding Company has no employees other than its officers, each of whom
is also an employee and officer of the Bank and who serve in their capacity as
officers of the Holding Company without additional compensation. Upon
consummation of the Reorganization, the Holding Company, whose sole business
function initially will be to hold 100% of the outstanding stock of the Bank,
does not anticipate any immediate change in the number of or status of its
employee officers. The status of the Bank's employees is not expected to be
affected by the Reorganization.
Board of Directors
The Directors of the Holding Company are Lori J. Aldrete, Frank J. Andrews,
Jr., John M. Carbahal, Gregory DuPratt, John F. Hamel, Diane P. Hamlyn, William
H. Jones, Jr., Foy S. McNaughton, Owen J. Onsum, David W. Schulze and Thomas S.
Wallace, each of whom also serve as Directors of the Bank. Directors of the
Holding Company are elected to one-year terms. Under the provisions of the
Holding Company's bylaws, the number of authorized directors may not be less
than seven nor more than 13 with the exact number to be determined by resolution
adopted
-39-
from time to time by the Board of Directors. Upon consummation of the
Reorganization, the Directors of the Holding Company will beneficially own the
following percentages of Holding Company stock:
Directors Percentage of Common Stock
--------- --------------------------
Lori J. Aldrete .29
Frank J. Andrews, Jr. .29
John M. Carbahal .38
Gregory DuPratt .30
John F. Hamel 1.34
Diane P. Hamlyn .86
William H. Jones, Jr. 1.40
Foy S. McNaughton .06
Owen J. Onsum 2.71
David W. Schulze 1.75
Thomas W. Wallace .31
All directors as a group (11 persons) 9.69
Remuneration of Directors and Officers
The Holding Company has paid no remuneration to its officers and directors
since its incorporation. It is not anticipated that the Holding Company's
officers and directors will initially be paid any additional compensation by the
Holding Company other than that currently paid to them by the Bank.
Indemnification
The Holding Company's Articles of Incorporation and bylaws provide for
indemnification of officers, directors, employees and agents to the fullest
extent permitted by California law.
California law generally allows indemnification in matters not involving
actions by or in the right of the corporation, to an agent of the corporation if
such person acted in good faith and in a manner such person reasonably believed
to be in the best interests of the corporation, and in the case of a criminal
matter, had no reasonable cause to believe the conduct of such person was
unlawful. California law, with respect to matters involving actions by or in the
right of a corporation, allows indemnification of an agent of the corporation,
if such person acted in good faith, in a manner such person believed to be in
the best interests of the corporation and its shareholders; provided that there
shall be no indemnification for: (i) amounts paid in settling or otherwise
disposing of a pending action without court approval; (ii) expenses incurred in
defending a pending action which is settled or otherwise disposed of without
court approval; (iii) matters in which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the court in
which the proceeding is or was pending shall determine that such person is
entitled to be indemnified; or (iv) certain other matters specified in the CGCL.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Holding Company
pursuant to provisions in the Holding Company's Articles of Incorporation and
bylaws, the Holding Company has been informed that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the 1933 Act, and
is therefore unenforceable.
The Reorganization of the Bank into a subsidiary of the Holding Company is
not expected to have any effect on the ability of the Bank or the Holding
Company to obtain officers and directors indemnification insurance, or the rates
at which such insurance is available. The provisions regarding indemnification
may not be applicable under certain federal banking laws and regulations.
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HISTORY AND BUSINESS OF THE BANK
General
The Bank was established in 1910 under State Charter as Northern Solano
Bank, and opened for business on February 1 of that year. On January 2, 1912,
the First National Bank of Dixon was established under a Federal Charter, and
until 1955, the two entities operated side by side under the same roof and with
the same management. In an effort to increase efficiency of operation, reduce
operating expense, and improve lending capacity, the two banks were consolidated
on April 8, 1955. In order to reduce reserve requirements and operate with
higher lending limits, on January 1, 1980, the Federal Charter was relinquished
in favor of a California State charter, and the Bank's name was changed to First
Northern Bank of Dixon.
First Northern Bank of Dixon engages in the general commercial banking
business in El Dorado, Solano and Yolo Counties, and parts of Sacramento County,
California.
The Bank's Administrative Offices are located in Dixon. Also located in
Dixon are the Data Processing/Central Operations Department and the Central Loan
Department.
The Bank has seven full service branches located in the Solano County
cities of Dixon, Fairfield and Vacaville. The remaining four Branches are
located in the Yolo County cities of Winters, Davis, West Sacramento and
Woodland. In addition, the Bank has a Real Estate Department in Davis, which
deals solely in residential mortgages and construction loans, a Real Estate Loan
Office in El Dorado Hills, El Dorado County, and an SBA Loan Office in
Sacramento.
The Bank is in the commercial banking business, which includes accepting
demand, interest bearing transaction, savings, and time deposits, and making
commercial, consumer, and real estate related loans. It also offers installment
note collection, issues cashier's checks and money orders, sells travelers'
checks, rents safe deposit boxes and provides other customary banking services.
The Bank is a member of the Federal Deposit Insurance Corporation ("FDIC") and
each depositor's account is insured up to $100,000.
The Bank also offers a complete range of alternative investment products
and services. The Bank offers these services through Select Capital Corporation,
an independent broker/dealer and a member of NASD and SIPC; and Select Advisors,
Inc., a registered investment advisor. All investments and/or financial services
offered by the representatives of Select Capital Corporation and Select
Advisors, Inc. are not insured by the FDIC.
The Bank offers limited international banking services and is considering
offering trust services on an affiliated basis.
The operating policy of the Bank since inception has emphasized serving the
banking needs of individuals and small-to medium-sized businesses. In Dixon,
this has included businesses involved in crop and livestock production. The
economy of the Dixon area was primarily dependent upon agricultural related
sources of income and most employment opportunities were also related to
agriculture.
Agriculture continued to be a significant factor in the Bank's business
after the opening of the first branch office in Winters in 1970. A significant
step was taken in 1976 to reduce the Bank's dependence on agriculture with the
opening of the Davis Branch.
The Davis economy is supported significantly by the University of
California, Davis. In 1981, a depository branch was opened in South Davis, and
was consolidated into the main Davis branch in 1986.
In 1983, the West Sacramento branch was opened. The West Sacramento economy
is largely based on transportation and distribution related businesses. This
addition to the Bank's market area has further reduced the Bank's dependence on
agriculture.
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In order to accommodate the demand of the Bank's customers for long-term
residential real estate loans, a Real Estate Loan Office was opened in 1983.
This office is centrally located in Davis, and has enabled the Bank to access
the secondary real estate market.
The Vacaville branch was opened in 1985. Vacaville is a rapidly growing
community with a diverse economic base including state prison (Department of
Corrections), food processing, distribution, shopping centers (Factory Outlet
Stores), medical, and other varied industries.
In 1994, the Fairfield branch was opened. Fairfield has also been a rapidly
growing community bounced by Vacaville on the east. Its diverse economic base
includes military (Travis AFV), food processing (Anheuser-Busch plant), retail
(Solano Mall), manufacturing medical, and agriculture. Fairfield is the county
seat for Solano County.
A Real Estate Production Office was opened in El Dorado Hills, in April of
1996, to serve the growing mortgage loan demand in the foothills area north of
Sacramento.
A Small Business Administration (SBA) Loan Department was opened in April
of 1997 in Sacramento to serve the small business and industrial loan demand
throughout the Bank's entire market area.
In June of 1997, the Bank's seventh branch was opened in Woodland, the
County Seat of Yolo County. Woodland is an expanding and diversified 10.5 square
mile city with an economy dominated by agribusiness, retail services, and an
expanding industrial sector.
Through this period of change and diversification, the Bank's policy, which
emphasizes serving the banking needs of individuals and small-to medium-sized
businesses, has not changed. The Bank takes real estate, crop proceeds,
securities, savings and time deposits, automobiles, and equipment as collateral
for loans.
Most of the Bank's deposits are attracted from the market of northern and
central Solano and southern Yolo counties. The Bank is not dependent on any
single person or entity for its deposits. The loss of any one or more of the
Bank's depositors would not have a material adverse effect on the business of
the Bank.
Competition
In the past, an independent bank's principal competitors for deposits and
loans have been other banks (particularly major banks), savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies. Other institutions, such as brokerage houses, mutual fund companies,
credit card companies and even retail establishments have offered new investment
vehicles which also compete with banks for deposit business. The direction of
federal legislation in recent years seems to favor competition between different
types of financial institutions and to foster new entrants into the financial
services market, and it is anticipated that this trend will continue.
In order to compete with major financial institutions and other competitors
in its primary service areas, the Bank relies upon the experience of its
executive and senior officers in serving business clients, and upon its
specialized services, local promotional activities and the personal contacts
made by its officers, directors, and employees.
For customers whose loan demand exceeds the Bank's legal lending limit, the
Bank may arrange for such loans on a participation basis with correspondent
banks. The seasonal swings discussed earlier have, in the past, had some impact
on the Bank's liquidity. The management of investment maturities, sale of loan
participations, federal fund borrowings, qualification for funds under the
Federal Reserve Bank's seasonal credit program, and the ability to sell
mortgages in the secondary market have allowed the Bank to satisfactorily manage
its liquidity.
The enactment of the Interstate Banking and Branching Act in 1994, as well
as the California Interstate Banking and Branching Act of 1995, will likely
increase competition within California. Regulatory reform, as well as other
changes in federal and California law will also affect competition. While the
impact of these changes, and of other
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proposed changes, cannot be predicted with certainty, it is clear that the
business of banking in California will remain highly competitive.
Employees
As of February 29, 2000, the Bank had approximately 195 employees,
consisting of 77 officers, 45 full-time employees and 73 part-time employees.
The Bank believes that its employee relations are satisfactory.
Property
The Bank operates 12 offices in the El Dorado, Sacramento, Solano and Yolo
Counties of California. The Bank owns five of these offices. The Bank's other
facilities are leased.
Year 2000
Prior to December 31, 1999, the Bank initiated and completed a
comprehensive Year 2000 audit program, which consisted of a five step plan to
inventory and correct any systems that were not Year 2000 compliant. The Bank
engages the services of third-party software vendors and service providers for
substantially all of its electronic data processing. Thus, the focus of the Bank
was to monitor the Year 2000 compliance of its primary software providers. Bank
regulatory agencies continuously surveyed the Bank's progression and results of
the Bank's Year 2000 compliance efforts. To date, the Bank has not, nor to the
Bank's knowledge, have its third-party software vendors or service providers
experienced any material Year 2000-related problems. The Bank will continuously
monitor its own and its third-party software vendors' and service providers'
Year 2000 compliance.
Litigation
There is no material pending litigation to which the Holding Company, the
Bank or Merger Co. is a party, other than routine litigation incidental to the
business of the Bank. Further, there is no material legal proceeding in which
any director, executive officer, principal shareholder, or affiliate of the
Holding Company, the Bank or Merger Co. or any associate of any such director,
executive officer, or principal shareholder is a party and has a material
interest adverse to the Holding Company, the Bank or Merger Co. None of the
routine litigation in which the Bank is involved is expected to have a material
adverse impact upon the financial position or results of operations of the
Holding Company, the Bank or Merger Co.
Board of Directors and Officers
The Bank's Board of Directors is presently composed of eleven members, each
of whom stand for election each year. For additional information concerning
directors and executive officers, see "Election of Directors," above.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Executive Officers' and Directors' Compensation
Information concerning the annual and long-term compensation for executive
officers and directors is set forth above under "Election of
Directors--Executive Compensation."
Committees and Meetings of the Board of Directors
Information concerning the committees and the meetings of the Board of
Directors during 1999 is set forth above under "Election of
Directors--Committees of the Board of Directors of the Bank" and "Election of
Directors--Board of Directors Meetings."
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CERTAIN TRANSACTIONS
Some of the Bank's directors and executive officers, as well as their
associates and companies in which they have a financial interest, are customers
of, and have had banking transactions with, the Bank in the ordinary course of
the Bank's business, and the Bank expects to have ordinary banking transactions
with these persons or entities in the future. Except as set forth below, in the
opinion of the Bank's management, the Bank made all loans and commitments to
lend included in such transactions in compliance with applicable laws and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons or
entities of similar creditworthiness, and these loans did not involve more than
a normal risk of collectibility or present other unfavorable features.
No director or officer of the Bank, or their associates, have had
outstanding, since the beginning of 1999, aggregate extensions of credit from
the Bank in excess of 10% of the Bank's total equity capital accounts.
The aggregate extensions of credit by the Bank to all directors and
executive officers and their respective associates as a group at any time since
January 1, 1999, did not exceed 20% of the Bank's total equity capital accounts
on that date.
SUPERVISION AND REGULATION
The following is a summary of certain statutes and regulations affecting
the Holding Company and the Bank. This summary is qualified in its entirety by
such statutes and regulations.
Holding Company Regulation
The Holding Company will be a registered bank holding company under the
Bank Holding Company Act of 1956 (the "Bank Holding Company Act") as amended,
and as such will be subject to regulation by the Federal Reserve Board. A bank
holding company is required to file with the Federal Reserve Board annual
reports and other information regarding its business operations and those of its
subsidiaries. A bank holding company and its subsidiary banks are also subject
to examination by the Federal Reserve Board.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before acquiring substantially
all the assets of any bank or bank holding company or ownership or control of
any voting shares of any bank or bank holding company, if, after such
acquisition, it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank or bank holding company.
In approving acquisitions by bank holding companies of companies engaged in
banking-related activities, the Federal Reserve Board considers whether the
performance of any such activity by a subsidiary of the holding company
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as overconcentration of resources, decrease of
competition, conflicts of interest, or unsound banking practices.
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
Capital
The Federal Reserve Board and FDIC require banks and holding companies to
maintain minimum capital ratios.
The Federal Reserve Board and the FDIC have adopted substantially similar
risk-based capital guidelines. These ratios involve a mathematical process of
assigning various risk weights to different classes of assets, then evaluating
the sum of the risk-weighted balance sheet structure against the capital base of
the Bank and the Holding Company. The rules set the minimum guidelines for the
ratio of Total Capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) at 8% and the ratio of Tier
1 Capital to risk-weighted assets (including certain
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off-balance sheet activities) at 4%. To be well capitalized, the minimum
ratio for Total Capital is 10% and the minimum ratio for Tier 1 Capital is 6%.
At least half of the total capital is to be composed of common equity, retained
earnings, and a limited amount of perpetual preferred stock less certain
goodwill items ("Tier 1 Capital"). The remainder may consist of a limited amount
of subordinated debt, other preferred stock, or a limited amount of loan loss
reserves. At December 31, 1999, on a pro forma basis as if the transaction had
been consummated on such date, the Holding Company's consolidated risk-adjusted
Tier 1 Capital and Total Capital, as defined by the regulatory agencies based on
the fully phased in 1992 guidelines, were 13.6% and 14.9% of risk-weighted
assets, respectively, well above the minimum and well-capitalized standards
mandated by the regulatory agencies.
In addition, the federal banking regulatory agencies have adopted leverage
capital guidelines for banks and bank holding companies. Under these guidelines,
banks and bank holding companies must maintain a minimum ratio of 3% Tier 1
Capital (as defined for purposes of the risk-based capital guidelines) to total
assets. However, most banking organizations are expected to maintain capital
ratios well in excess of the minimum levels and generally must keep such Tier 1
ratio at or above 5%. To be well capitalized, the minimum Tier 1 ratio must be
6%. As of December 31, 1999, on a pro forma basis as if the transaction had been
consummated on such date, the Holding Company's leverage ratio was 8.7%, well
above the regulatory minimum and well-capitalized standards.
Regulatory authorities may increase such minimum requirements for all banks
and bank holding companies or for specified banks or bank holding companies.
Increases in the minimum required ratios could adversely affect the Bank and the
Holding Company, including their ability to pay dividends.
Additional Regulation
The Bank is also subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any Reorganization or Reorganization,
issuance or retirement by the Bank of its own securities, limitations upon the
payment of dividends and other aspects of banking operations. In addition, the
activities and operations of the Bank are subject to a number of additional
detailed, complex and sometimes overlapping laws and regulations. These include:
o state consumer credit laws;
o laws relating to fiduciaries;
o the Federal Truth-in-Lending Act and Regulation Z;
o the Federal Equal Credit Opportunity Act and Regulation B;
o the Fair Credit Reporting Act;
o the Truth in Savings Act;
o the Community Reinvestment Act;
o anti-redlining legislation; and
o antitrust laws.
Dividend Regulation
The ability of the Holding Company to obtain funds for the payment of
dividends and for other cash requirements is largely dependent on the amount of
dividends which may be declared by its subsidiary, the Bank. The Bank will be
subject to various statutory and regulatory restrictions on its ability to pay
dividends to the Holding Company. Under such restrictions, the amount available
for payment of dividends to the Holding Company by the Bank totaled $8,813,497
at December 31, 1999. In addition, the California Department of Financial
Institutions and the FDIC
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have the authority to prohibit the Bank from paying dividends, depending
upon the Bank's financial condition, if such payment is deemed to constitute an
unsafe or unsound practice.
The FDIC and the Commissioner also have authority to prohibit the Bank from
engaging in activities that, in the FDIC's or the Commissioner's opinion,
constitute unsafe or unsound practices in conducting its business. It is
possible, depending upon the financial condition of the bank in question and
other factors, that the FDIC or the Commissioner could assert that the payment
of dividends or other payments might, under some circumstances, be such an
unsafe or unsound practice. Further, the FDIC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines and the restrictions that are or
may be imposed under the prompt corrective action provisions of federal law
could limit the amount of dividends which the Bank or the Company may pay.
The ability of a California corporation to declare and pay dividends is
restricted by the CGCL. As a California corporation, the Holding Company will be
restricted in its ability to declare and pay dividends. The Holding Company may
make a distribution to its shareholders if one of the following standards is
met: (i) the retained earnings of the corporation immediately prior to the
distribution exceeds the amount of the proposed distribution; or (ii) the assets
of the corporation exceed 1-1/4 times its liabilities and the current assets of
the corporation exceed its current liabilities, but if the average pre-tax net
earnings of the corporation before interest expense for the two years preceding
the distribution was less than the average interest expense of the corporation
for those years, the current assets of the corporation must exceed 1-1/4 times
its current liabilities.
Government Policies and Legislation
The policies of regulatory authorities, including the Federal Reserve Board
and FDIC, have had a significant effect on the operating results of commercial
banks in the past and are expected to do so in the future. An important function
of the Federal Reserve System is to regulate aggregate national credit and money
supply through such means as open market dealings in securities, establishment
of the discount rate on member bank borrowings, and changes in reserve
requirements against member bank deposits. Policies of these agencies may be
influenced by many factors, including inflation, unemployment, short-term and
long-term changes in the international trade balance and fiscal policies of the
United States government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any additional
legislation will be adopted or as to the effect such legislation would have on
the business of the Bank or the Holding Company. In addition to the relaxation
or elimination of geographic restrictions on banks and bank holding companies, a
number of regulatory and legislative initiatives have the potential for
eliminating many of the product line barriers presently separating the services
offered by commercial banks from those offered by non-banking institutions.
Recently Enacted Legislation
On November 12, 1999 President Clinton signed into law the
Gramm-Leach-Bliley Act (the "GLB Act"), which becomes effective on March 11,
2000. The GLB Act repeals provisions of the Glass-Steagall Act, which prohibits
commercial banks and securities firms from affiliating with each other and
engaging in each other's businesses. Thus, many of the barriers prohibiting
affiliations between commercial banks and securities firms have been eliminated.
The Bank Holding Company Act is also amended by the GLB Act, to allow new
"financial holding companies" to offer banking, insurance, securities and other
financial products to consumers. Specifically, the GLB Act amends section 4 of
the Bank Holding Company Act in order to provide for a framework for the
engagement in new financial activities. A bank holding company may elect to
become a financial holding company if all of its subsidiary depository
institutions are well-capitalized and well-managed. If these requirements are
met, a bank holding company may file a certification to that effect with the
Federal Reserve Board and declare that it chooses to become a financial holding
company. After the certification and declaration is filed, the financial holding
company may engage either de novo or through an acquisition in any activity that
has been determined by the Federal Reserve Board to be financial in nature or
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incidental to such financial activity. Bank holding companies may engage in
financial activities without prior notice to the Federal Reserve Board if those
activities qualify under the new list in section 4(k) of the Bank Holding
Company Act. However, notice must be given to the Federal Reserve Board within
thirty days after a financial holding company has commenced one or more of the
financial activities.
Under the GLB Act, FDIC-insured state banks, subject to various
requirements (and national banks) are permitted to engage through "financial
subsidiaries" in certain financial activities permissible for affiliates of
FHCs. However, to be able to engage in such activities the state bank must also
be well-capitalized and well-managed and receive at least a "satisfactory"
rating in its most recent Community Reinvestment Act examination.
The Holding Company cannot be certain of the effect of the foregoing
recently enacted legislation on its business, although there is likely to be
consolidation among financial services institutions and increased competition
for all bank holding companies.
COMPARATIVE DESCRIPTION OF COMMON STOCK
General
The Holding Company is a California corporation and, accordingly, is
governed by the CGCL and its Articles of Incorporation and bylaws. The Bank is a
California corporation and, accordingly, has been and will be, through the
Effective Date of the Merger, also governed by the CGCL and by its Articles of
Incorporation and bylaws. The holders of Bank common stock will, upon the
completion of the Reorganization, become shareholders of the Holding Company,
and their rights as such will be governed by the CGCL and the Holding Company's
Articles of Incorporation and bylaws.
The following is a general comparison of the rights of the shareholders of
the Bank under the Bank's Articles of Incorporation and bylaws, on the one hand,
and the rights of Holding Company shareholders (the holders of the Holding
Company common stock after the Merger) under the Holding Company's Articles of
Incorporation, on the other. This discussion is only a summary of certain
provisions and does not purport to be a complete description of such
similarities and differences, and is qualified in its entirety by reference to
the CGCL, the California Financial Code, the common law thereunder, and the full
text of the Holding Company's Articles of Incorporation, the Holding Company's
bylaws, the Bank's Articles of Incorporation and the Bank's bylaws.
Authorized Capital
The authorized capital stock of the Holding Company consists of 8,000,000
shares of common stock, with no par value per share. The authorized capital
stock of the Bank consists of 8,000,000 shares of common stock, no stated par
value per share, 3,082,640 of which were outstanding as of February 29, 2000.
Assuming the consummation of the holding company Reorganization, the
Holding Company will issue 3,082,640 shares of its common stock to existing
shareholders of the Bank on the basis of one share of Holding Company common
stock for each share of common stock of the Bank. The Holding Company will have
a capital structure of 8,000,000 authorized shares of no par value common stock
of which 3,082,640 shares would be outstanding upon consummation of the
Reorganization.
The balance of the Holding Company's authorized capital stock will be
available to be issued when and as the Board of Directors of the Holding Company
determines it advisable to do so. Such shares of capital stock could be issued
for the purpose of raising additional capital, in connection with acquisitions
of other businesses, or for other appropriate purposes. The Board of Directors
of the Holding Company has the authority to issue shares of common stock to the
extent of the number of authorized unissued shares without obtaining the
approval of existing holders of common stock, subject to the preemptive rights
provided to the holders of the common stock of the Holding Company by the
Holding Company's Articles of Incorporation. See "Comparative Descriptions of
Common Stock - Preemptive Rights," below.
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The issuance of additional shares of Holding Company common stock could
adversely affect the voting power of holders of common stock. There are no
present plans, understandings, arrangements or agreements to issue any
additional shares of Holding Company common stock other than pursuant to the
stock option plans and employee stock purchase plan to be assumed by the Holding
Company.
Voting Rights
Each share of common stock of the Holding Company and the Bank entitles the
holder thereof to one vote on all matters, except in the election of directors.
Shareholders of the Bank have, and shareholders of the Holding Company will
have, cumulative voting rights as to the election of directors. See "Comparative
Description of Common Stock --Cumulative Voting," below.
Nominations for election to the Board of Directors, made other than by the
Board of Directors, must be made in accordance with the procedures set forth in
the Holding Company's bylaws, which are the same as the procedures set forth in
Article III, Section 21 of the Bank's bylaws. In addition, directors must
satisfy certain qualifications set forth in the Holding Company's bylaws, which
are essentially the same as the qualifications set forth in Article III, Section
20 of the Bank's bylaws. See "Anti-Takeover Measures--Director Qualification and
Nomination Procedures," above.
Liquidation Rights
In the event of liquidation, holders of common stock of the Holding Company
and the Bank are entitled to similar rights as to assets distributable to
shareholders on a pro rata basis.
Preemptive Rights
Pursuant to Article Fifth of the Bank's Articles of Incorporation, each
holder of common stock of the Bank have preemptive rights to subscribe for or to
purchase such holder's proportionate share of additional securities issued by
the Bank, except for securities issued pursuant to the Bank's stock option,
stock purchase or other stock plans or in connection with the acquisition by the
Bank of another entity or business segment of any such entity by merger,
purchase of substantially all the assets or other type of acquisition
transaction. Under a provision of the Holding Company's Articles of
Incorporation, holders of common stock of the Holding Company will have
comparable preemptive rights to subscribe for or to purchase additional
securities which may be issued by the Holding Company.
Cumulative Voting
Each share of common stock of the Bank entitles the holder thereof to one
vote on all matters except for the election of directors where shareholders are
entitled to vote cumulatively if a shareholder gives notice of an intention to
cumulate votes prior to the voting. Each share of common stock of the Holding
Company entitles the holder thereof to one vote on all matters except for the
election of directors where shareholders are entitled to vote cumulatively if a
shareholder gives notice of an intention to cumulate votes prior to the voting.
A shareholder voting cumulatively may cast votes equal to the number of shares
he or she owns times the number of Directors to be elected in favor of one
nominee or allocate such votes among the nominees as he or she determines.
However, pursuant to Section 708 of the CGCL, once the Holding Company's stock
becomes designated as qualified for trading on the NASDAQ National Market System
and the Holding Company has at least 800 shareholders as of the record date of
its most recent annual meeting of shareholders, then Section 708 of the CGCL
will no longer be applicable. The Board of Directors of the Holding Company has
no plans to cause the common stock of the Holding Company to be traded on the
NASDAQ National Market System.
Indemnification
The Holding Company's Articles of Incorporation and bylaws provide for
indemnification of officers, directors, employees and agents to the fullest
extent permitted by California law and provide for the elimination of liability
of directors for monetary damages to the fullest extent permissible under
California law and provide further for indemnification (by by-law, agreement or
otherwise) of agents to the fullest extent permissible under California law.
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Under certain circumstances, the provisions regarding indemnification may
not be applicable under certain federal banking and securities laws and
regulations.
Dividend Rights
Dividends may be paid on common stock of the Holding Company as are
declared by the Board of Directors out of funds legally available therefor. The
Holding Company is required to comply with California law with respect to, among
other things, distributions to shareholders.
Dividends may be paid on common stock of the Bank as are declared by the
Board of Directors out of funds legally available therefor. Dividends paid by
the Bank on its common stock must be declared from the lesser of retained
earnings or the Bank's net income for its last three fiscal years (less any
distributions made to shareholders during such period). In the event a bank has
no retained earnings or net income for its last three fiscal years, cash
dividends may be paid in an amount not exceeding the net income for such bank's
last preceding fiscal year only after obtaining the prior approval of the
Commissioner of Financial Institutions. The Commissioner of Financial
Institutions may order the bank to refrain from making a proposed distribution
if the making of the distribution by the bank would be unsafe or unsound.
State Anti-Takeover Statute
Under the CGCL, if a party that makes a tender offer or proposes to acquire
a corporation by a reorganization or certain sales of assets is controlled by
such corporation or an officer or director of such corporation, or if a director
or executive officer of such corporation has a material financial interest in
such party (each an "Interested Party Proposal"), (i) an affirmative opinion in
writing as to the fairness of the consideration to the shareholders of such
corporation must be delivered to shareholders of such corporation and (ii) such
shareholders must be (a) informed of certain later tender offers or written
proposals for a reorganization or sale of assets made by other persons and (b)
afforded a reasonable opportunity to withdraw any vote, consent or proxy
previously given or shares previously tendered in connection with the Interested
Party Proposal.
Anti-takeover Provisions
A vote of the holders of at least a majority of the outstanding shares of
common stock of the Bank is required to effectuate a voluntary liquidation of
the Bank, reorganization of the Bank, merger or reorganization of the Bank with
another bank, or the increase or decrease of the Bank's authorized or
outstanding capital stock, except as provided in Article Seventh of the Bank's
Articles of Incorporation. Similarly, a majority vote of the outstanding stock
is required for such transactions of the Holding Company, unless a higher or
lower voting requirement is established in the Holding Company's Articles of
Incorporation.
Pursuant to the Articles of Incorporation of the Bank, a majority vote of
the issued and outstanding shares is sufficient to amend the Articles of the
Incorporation of the Bank, other than Article Seventh. In accordance with
Article Seventh of the Bank's Articles of Incorporation a "Reorganization"
requires the approval of 70% of the outstanding shares of common stock unless
such Reorganization has been approved by 70% of the Board of Directors.
In accordance with Article 6 of the Holding Company's Articles of
Incorporation, a "Business Combination" (which includes any merger,
consolidation, sale, lease or other disposition of greater than 10% of the
assets of the Holding Company; issuance or sale of any securities of the Holding
Company; and adoption of a plan of liquidation) requires the approval of 66 2/3%
of the outstanding shares of common stock including those held by the Interested
Shareholder and the satisfaction of certain other conditions, including a "Fair
Price," unless such Business Combination has been approved by 66 2/3% of the
"Disinterested Directors." In addition, an amendment of Article 6 of the Holding
Company's Articles of Incorporation must be approved by the affirmative vote of
66 2/3% of the outstanding shares of common stock, and if there is an Interested
Shareholder, by a majority of the Disinterested Shareholders. Because the
executive officers and directors of the Holding Company will own approximately
11.41% of the shares of the Holding Company (assuming consummation of the
proposed Reorganization and assuming there are no dissenting shareholders to the
transaction), a Business Combination with an Interested Shareholder may be
difficult to approve without the consent of the Disinterested Directors and
management.
-49-
If a California corporation amends its articles of incorporation to include
a supermajoirty voting provision, pursuant to Section 710 of the CGCL the
supermajority voting provision must be renewed every two years by the
affirmative vote of the percentage of the outstanding shares required by the
supermajority voting provision in order to remain effective. Because the
supermajority voting provisions of the Holding Company's Articles of
Incorporation are contained in the original articles of incorporation, the two
year renewal requirement of Section 710 is not applicable to the Holding
Company's supermajority voting provisions. Section 710 of the CGCL is also not
applicable to the supermajority voting provisions in the Bank's articles of
incorporation because they existed in Bank's articles of incorporation prior to
the adoption of Section 710.
In addition, the Holding Company's Articles of Incorporation requires the
Board of Directors, when evaluating a merger proposal, to consider the social
and economic effects of the transaction on employees, shareholders, customers
and suppliers in the communities in which the Bank operates, in addition to
monetary factors.
REPORTS
The Bank currently files periodic reports with the FDIC pursuant to the
Securities Exchange Act of 1934, as amended, as a "reporting company."
Subsequent to the consummation of the transaction, the Holding Company as
"successor" to the Bank will file similar reports with the SEC. The Holding
Company will deliver to the shareholders of the Holding Company an annual report
containing audited financial information as required under the Exchange Act.
While the Holding Company will file quarterly reports with the SEC, copies of
which may be obtained from the SEC, the Holding Company is not obligated and
does not currently intend to provide copies of such quarterly reports to
shareholders.
LEGAL OPINION
Certain legal matters in connection with the issuance of common stock of
the Holding Company in the Reorganization will be passed upon by Pillsbury
Madison & Sutro LLP, San Francisco, California.
SHAREHOLDER PROPOSALS
Under the rules of the regulatory authorities, if a shareholder wants to
include a proposal in the Bank's proxy statement and form of proxy for
presentation at the 2001 annual meeting of shareholders, the proposal must be
received by the Bank at its principal executive offices by November 25, 2000.
Under the Bank's bylaws, as permitted by the regulatory authorities,
certain procedures are provided which a shareholder must follow to nominate
persons for election as directors or to introduce an item of business at an
annual meeting of shareholders.
Nomination of directors must be made by notification in writing delivered
or mailed to the President of the Bank at the Bank's principal executive offices
not less that 30 days or more than 60 days prior to any meeting of shareholders
called for elections of directors and must contain certain information about the
director nominee. The Bank's annual meeting of shareholders is generally held on
the fourth Thursday of April. If the Bank's 2001 annual meeting of shareholders
is held on schedule, the Bank must receive notice of any nomination no earlier
than February 25, 2001, and no later than March 27, 2001. The Chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedures.
Notice of any business item proposed to be brought before an annual meeting
by a shareholder must be received by the Secretary of the Bank not less than 70
days or more than 90 days prior to the first anniversary of the preceding year's
annual meeting. The Bank must receive notice of any proposed business item no
earlier than January 27, 2001, and no later than February 16, 2001. If the Bank
does not receive timely notice, the Bank's bylaws preclude consideration of the
business item at the annual meeting. With respect to notice of a proposed item
of business, the bylaws provide that the notice must include a brief description
of the business desired to be brought before the meeting,
-50-
the reasons for conducting such business at the meeting and certain
information regarding the shareholder giving the notice.
A copy of the Bank's bylaws may be obtained upon written request to the
Secretary of the Bank at the Bank's principal executive offices.
In the event the Reorganization is approved and effected, the Bank will
cease to be publicly held and the shareholders of the Bank will become
shareholders of the Holding Company. Because (i) the bylaws of the Holding
Company contain provisions governing shareholder proposals that are
substantially identical to those contained in the Bank's bylaws and (ii) it is
anticipated that the Holding Company's 2001 annual meeting would also be held on
the fourth Thursday of April each year, the foregoing dates and deadlines for
shareholder proposals are expected to be applicable to the Holding Company's
2001 annual meeting of shareholders.
OTHER MATTERS
The management of the Bank is not aware of any other matters to be
presented for consideration at the Meeting or any adjournments or postponements
thereof. If any other matters should properly come before the Meeting, it is
intended that the persons named in the enclosed Proxy will vote the shares
represented thereby in accordance with their best business judgment, pursuant to
the discretionary authority granted therein.
Upon the written request of any Shareholder, the Management will provide
without charge, a copy of the Bank's Annual Report on Form 10-K. All requests
should be addressed to Mr. James S. Duke, Corporate Secretary, First Northern
Bank of Dixon, 195 North First Street, Dixon, California 95620.
By Order of the Board of Directors
/s/ Owen J. Onsum
Owen J. Onsum
President and
Chief Executive Officer
-51-
ANNEX I
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered into
as of March 21, 2000, by and among FIRST NORTHERN BANK OF DIXON (the "Bank"),
FNCB Merger Corp. ("Merger Co."), and FIRST NORTHERN COMMUNITY Bancorp (the
"Holding Company").
RECITALS AND UNDERTAKINGS
A. The Bank is a California state-chartered bank with its principal office
in the City of Dixon, State of California. Merger Co. is a corporation duly
organized and existing under the laws of the State of California. The Holding
Company is a corporation duly organized and existing under the laws of the State
of California with its principal office in the City of Dixon, State of
California.
B. As of the date hereof, the Bank has 8,000,000 shares of common stock
without par value authorized and 3,064,147 shares of common stock issued and
outstanding.
C. As of the date hereof, Merger Co. has 100 shares of common stock without
par value authorized. Immediately prior to the Effective Time (as such term is
defined below), all 100 shares of such common stock will be issued and
outstanding, all of which shares will be owned by the Holding Company.
D. As of the date hereof, the Holding Company has 8,000,000 shares of
common stock without par value authorized.
E. The Boards of Directors of the Bank, the Holding Company and Merger Co.,
respectively, have unanimously approved this Agreement and the Agreement of
Merger attached hereto as Annex A (the "Merger Agreement ") and authorized the
execution and delivery of each thereof.
F. The Holding Company, as sole stockholder of Merger Co., has approved
this Agreement and authorized its execution.
AGREEMENT
Section 1. General
--------
1.1 The Merger. At the Effective Time, Merger Co. shall be merged with and
----------
into the Bank, with the Bank being the surviving corporation (the "Merger").
The Bank shall thereafter be a subsidiary of the Holding Company, and
its name shall continue to be "First Northern Bank of Dixon."
1.2 Effective Time. The merger described herein shall become effective at
--------------
the time when an executed copy of the Merger Agreement is filed with the
Secretary of State of the State of California in accordance with Section
1103 of the California General
Corporation Law (the "Effective Time").
1.3 Articles of Incorporation and Bylaws. At the Effective Time, the
------------------------------------
Articles of Incorporation of the Bank, as in effect immediately prior to the
Effective Time, shall remain the Articles of Incorporation of the Bank until
amended; the Bylaws of the Bank, as in effect immediately prior to the
Effective Time, shall remain the Bylaws of the Bank until amended; the
certificate of authority of the Bank issued by the Commissioner of Financial
Institutions of the State of California shall remain the certificate of
authority of the Bank, and the Bank's deposit insurance coverage by the Federal
Deposit Insurance Corporation shall remain the deposit insurance of the Bank.
-52-
1.4 Directors and Officers. At the Effective Time, the directors and
---------------------
officers of the Bank immediately prior to the Effective Time shall remain the
directors and officers of the Bank. The directors of the Bank shall serve until
the next annual meeting of shareholders of the Bank or until such time as their
successors are elected and have been qualified.
1.5 Effect of the Merger.
--------------------
(a) Assets and Rights. At the Effective Time and thereafter, all rights,
-----------------
privileges, franchises and property of Merger Co. and all debts and liabilities
due or to become due to Merger Co., including choses in action and every
interest or asset of conceivable value or benefit, shall be deemed fully and
finally and without any right of reversion vested in the Bank without further
act or deed; and the Bank shall have and hold the same in its own right as
fully as the same was possessed and held by Merger Co.
(b) Liabilities. At the Effective Time and thereafter, all debts,
-----------
liabilities and obligations due or to become due of, and all claims
and demands for any cause existing against, Merger Co. shall be and become the
debts, liabilities or obligations of, or the claims or demands against, the Bank
in the same manner as if the Bank had itself incurred or become liable for them.
(c) Creditors' Rights and Liens. At the Effective Time and thereafter, all
---------------------------
rights or creditors of Merger Co. and all liens upon the property of Merger Co.
shall be preserved unimpaired, and shall be limited to the property affected by
such liens immediately prior to the Effective Time.
(d) Pending Actions. At the Effective Time and thereafter, any action or
---------------
proceeding pending by or against Merger Co. shall not be deemed to have abated
or been discontinued, but may be pursued to judgment with full right to appeal
or review. Any such action or proceeding may be pursued as if the merger
described herein had not occurred, or with the Bank substituted in place of
Merger Co. as the case may be.
1.6 Further Assurances. Merger Co. agrees that at any time, or from time to
------------------
time, as and when requested by the Bank, or by its successors or assigns, it
will execute and deliver, or cause to be executed and delivered, in its name by
its last acting officers, or by the corresponding officers of the Bank, all
such conveyances, assignments, transfers, deeds and other instruments, and will
take or cause to be taken such further or other action as the Bank, or its
successors or assigns, may deem necessary or desirable in order to carry out
the vesting, perfecting, confirming, assignment, devolution or other transfer
of the interests, property, privileges, powers, immunities, franchises and other
rights transferred to the Bank in this Section 1, or otherwise to carry out the
intent and purposes of this Agreement and the Merger Agreement.
Section 2. Stock
-----
2.1 Stock of Merger Co. At the Effective Time, each share of common stock
-------------------
of Merger Co. issued and outstanding immediately prior to the Effective date
shall, by virtue of the Merger, be deemed to be exchanged for and converted into
one share of fully paid and nonassessable common stock of the Bank.
2.2 Stock of the Bank. At the Effective Time, each share of common stock of
-----------------
the Bank issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger, be deemed to be exchanged for and converted into one
share of fully paid and nonassessable common stock of the Holding Company, in
accordance with the provisions of Section 2.3 hereto (the "Exchange").
2.3 Exchange of Stock by the Bank Shareholders. At the Effective Time or as
------------------------------------------
soon as practicable thereafter, the following actions shall be taken to
effectuate the exchange and conversion specified in Section 2.2 hereof:
(a) The shareholders of the Bank of record immediately prior to the
Effective Time shall be allocated and entitled to receive for each share of
common stock of the Bank then held by them respectively one share of common
stock of the Holding Company.
(b) Subject to the provisions of Section 2.3(c) hereof, the Holding Company
shall issue to the shareholders of the Bank the shares of common stock of the
Holding Company which said shareholders are entitled to receive.
-53-
(c) After the Effective Time, outstanding certificates representing shares
of common stock of the Bank (except certificates issued to the Holding Company
in connection with the merger described herein) shall represent shares of the
common stock of the Holding Company, and such certificates may, but need not, be
exchanged by the holders thereof for new certificates for the appropriate number
of shares of the Holding Company.
2.4 Outstanding Options. After the Effective Time, and by virtue of the
-------------------
Merger, the options to purchase shares of capital stock of the Bank which have
been granted by the Bank pursuant to the Bank's Outside Directors' 1997
Non-Statutory Stock Option Plan and the First Northern Bank of Dixon 1997 Stock
Option Plan which shall be in effect immediately prior to the Merger shall be
deemed to be options granted by the Holding Company to purchase shares of common
stock of the Holding Company having the same exercise price and exercise
periods, and being for the same number of shares of common stock of the Holding
Company as was the number of shares of capital stock of the Bank covered by the
corresponding option granted by the Bank and subject to and in accordance with
the terms, conditions and provisions of such options, the Holding Company shall,
from time to time, issue shares of its common stock upon the exercise of such
options.
Section 3. Approvals
---------
3.1 Stockholder Approval. This Agreement and the Merger Agreement shall be
--------------------
submitted to the shareholders of the Bank for ratification and confirmation to
the extent required by, and in accordance with, applicable provisions of law.
3.2 Regulatory Approvals. Each of the parties hereto shall proceed
--------------------
expeditiously and cooperate fully in procuring all other consents and approvals,
and in satisfying all other requirements, prescribed by law or otherwise,
necessary or desirable for the merger described herein to be consummated,
including without limitation the consents and approvals referred to in Section
4.1(b) and 4.1(d) hereof.
Section 4. Conditions Precedent, Termination and Payment of Expenses
---------------------------------------------------------
4.1 Conditions Precedent to the Merger. Consummation of the Merger is
----------------------------------
subject to and conditioned upon the following:
(a) Ratification and confirmation of this Agreement and the Merger
Agreement by the shareholders of the Bank in accordance with applicable
provisions of law;
(b) Procuring all other consents and approvals and satisfying all other
requirements, prescribed by law or otherwise, which are necessary for the Merger
to be consummated, including without limitation: (i) approval from the Federal
Deposit Insurance Corporation, the Commissioner of Financial Institutions of the
State of California, and the Board of Governors of the Federal Reserve System;
and (ii) approval of the California Commissioner of Corporations under the
California Corporate Securities Law of 1968, and securities administrators of
other applicable jurisdictions, with respect to the securities of the Holding
Company issuable upon consummation of the Merger;
(c) Receipt and continued effectiveness at the Effective Time (unless
waived by each of the parties hereto) of an opinion of counsel and/or
accountants to the effect that neither the Merger nor the Exchange nor any of
the other transactions contemplated hereby or by the Merger Agreement will
result in any taxable gain or loss for the parties hereto or the shareholders of
the Bank;
(d) Procuring all consents or approvals, governmental or otherwise, which
in the opinion of counsel for the Bank are or may be necessary to permit or to
enable the Bank to conduct, upon and after the Merger, all or any part of the
businesses and other activities that the Bank engages in immediately prior to
the Merger, in the same manner and to the same extent that the Bank engaged in
such businesses and other activities immediately prior to the Merger; and
(e) Performance by each of the parties hereto of all of their respective
obligations under this Agreement and the Merger Agreement which are to be
performed prior to the consummation of the Merger.
-54-
4.2 Termination of the Merger. In the event that any condition specified in
-------------------------
Section 4.1 hereof cannot be fulfilled, or prior to the Effective Time the Board
of Directors of any of the parties hereto reaches any of the following
determinations:
(a) The number of shares of common stock of the Bank voting against the
Merger described herein makes consummation of the Merger inadvisable; or
(b) Any action, suit, proceeding or claim relating to the Merger, whether
initiated or threatened, makes consummation of the Merger inadvisable; or
(c) Consummation of the Merger is inadvisable for any other reason;
then this Agreement shall terminate. Upon termination, this Agreement shall
be void and of no further effect, and there shall be no liability by reason of
this Agreement or the termination hereof on the part of any of the parties
hereto or their respective directors, officers, employees, agents or
shareholders.
4.3 Expenses of the Merger. All expenses incurred by the Bank, Merger Co.
----------------------
and the Holding Company in connection with the Merger, including without
limitation filing fees, printing costs, mailing costs, accountant's fees and
legal fees, shall be borne by the Bank.
-55-
This Agreement amends and supplants that certain Agreement and Plan of
Reorganization of even date herewith executed by Owen J. Onsum and Louise A.
Walker in their capacities as officers of Bank, Merger Co. and Holding Company,
respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
Bank: FIRST NORTHERN BANK OF DIXON
By:
----------------------------------
Name: Owen J. Onsum
Its President and Chief Executive Officer
By:
----------------------------------
Name: James S. Duke
Its: Corporate Secretary
Merger Co.: FNCB MERGER CORP.
By:
----------------------------------
Name: Owen J. Onsum
Its President and Chief Executive Officer
By:
----------------------------------
Name: James S. Duke
Its: Corporate Secretary
Holding Company: FIRST NORTHERN COMMUNITY BANCORP
By:
----------------------------------
Name: Owen J. Onsum
Its President and Chief Executive Officer
By:
----------------------------------
Name: James S. Duke
Its: Corporate Secretary
-56-
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of March 21, 2000 (this "Merger
Agreement"), is made and entered into by and between FIRST NORTHERN BANK OF
DIXON (the "Bank"), FNCB MERGER CORP. ("Merger Co."), and FIRST NORTHERN
COMMUNITY BANCORP (the "Holding Company").
RECITALS AND UNDERTAKINGS
A. The Bank is a California state-chartered bank with its principal office
in the City of Dixon, State of California. Merger Co. is a corporation duly
organized and existing under the laws of the State of California. The Holding
Company is a corporation duly organized and existing under the laws of the State
of California with its principal office in the City of Dixon, State of
California.
B. As of the date hereof, the Bank has 8,000,000 shares of common stock
without par value authorized and 3,064,147 shares of common stock issued and
outstanding.
C. As of the date hereof, Merger Co. has 100 shares of common stock without
par value authorized. Immediately prior to the Effective Date (as such term is
defined below), all 100 shares of such common stock will be issued and
outstanding, all of which shares will be owned by the Holding Company.
D. As of the date hereof, the Holding Company has 8,000,000 shares of
common stock without par value authorized.
E. The Boards of Directors of the Bank, the Holding Company and Merger Co.,
respectively, have unanimously approved an Agreement and Plan of Reorganization
dated of even date herewith (the "Agreement"), providing, among other things,
for the execution and filing of this Merger Agreement.
F. The Holding Company, as sole shareholder of Merger Co., has approved the
Agreement and this Merger Agreement and authorized their execution.
NOW, THEREFORE, in consideration of the promises and mutual agreements
contained in this Merger Agreement, the parties to this Merger Agreement hereby
agree that Merger Co. shall be merged with and into the Bank (the "Merger") in
accordance with the provisions of the laws of the State of California upon the
terms and subject to the conditions set forth as follows:
1. Merge.
1.1 Effective Date. Upon the filing with the California Secretary of State of a
--------------
duly executed counterpart of this Merger Agreement with the officers'
certificates prescribed by Section 1103 of the California General Corporation
Law attached thereto, the Merger shall become effective.
-57-
1.2 Effect of the Merger. On the Effective Date, Merger Co. shall be merged with
--------------------
and into the Bank and the separate corporate existence of Merger Co. shall
cease. The Bank shall be the surviving corporation (the "Surviving Corporation")
in the Merger. It shall thereupon succeed, without other transfer, to all rights
and properties of, and shall be subject to all the debts and liabilities of,
Merger Co. and the separate existence of the Bank as a California corporation,
with all its purposes, objects, rights, powers, privileges and franchises shall
continue unaffected and unimpaired by the Merger.
2. Corporate Governance Matters.
-----------------------------
2.1 Articles of Incorporation and By-Laws. From and after the Effective Date and
-------------------------------------
until thereafter amended as provided by law: (a) the Articles of Incorporation
of the Bank as in effect immediately prior to the Effective Date shall be and
continue to be the Articles of Incorporation of the Surviving Corporation; and
(b) the Bylaws of the Bank as in effect immediately prior to the Effective Date
shall be and continue to be the Bylaws of the Surviving Corporation.
2.2 Directors and Officers. On the Effective Date: (a) the directors of the
----------------------
Surviving Corporation shall be those persons who are the directors of the Bank
immediately prior to the Effective Date; and (b) the officers of the Surviving
Corporation shall be those persons who are the officers of the Bank at the
Effective Date.
3. Stock.
------
3.1 Stock of Merger Co. At the Effective Date, each share of common stock of
-------------------
Merger Co. issued and outstanding immediately prior to the Effective Date shall,
by virtue of the Merger, be deemed to be exchanged for and converted into one
share of fully paid and nonassessable common stock of the Bank.
3.2 Stock of the Bank. At the Effective Date, each share of common stock of the
-----------------
Bank issued and outstanding immediately prior to the Effective Date shall, by
virtue of the Merger, be deemed to be exchanged for and converted into one share
of fully paid and nonassessable common stock of the Holding Company, in
accordance with the provisions of Section 3.3 hereto.
3.3 Exchange of Stock by the Bank Shareholders. At the Effective Date or as soon
------------------------------------------
as practicable thereafter, the following actions shall be taken to effectuate
the exchange and conversion specified in Section 3.2 hereof:
(a) The shareholders of the Bank of record immediately prior to the
Effective Date shall be allocated and entitled to receive for each
share of common stock of the Bank then held by them respectively one
share of common stock of the Holding Company.
(b) Subject to the provisions of Section 3.3(c) hereof, the Holding
Company shall issue to the shareholders of the Bank the shares of
common stock of the Holding Company which said shareholders are
entitled to receive.
-58-
(c) After the Effective Time, outstanding certificates representing
shares of common stock of the Bank (except certificates issued to the
Holding Company in connection with the Merger) shall represent shares
of common stock of the Holding Company, and such certificates may,
but need not, be exchanged by the holders thereof for new
certificates for the appropriate number of shares of the Holding
Company.
3.4 Outstanding Options. After the Effective Time, and by virtue of the Merger,
-------------------
the options to purchase shares of capital stock of the Bank which have been
granted by the Bank pursuant to the Bank's Outside Directors' 1997 Non-Statutory
Stock Option Plan and the First Northern Bank of Dixon 1997 Stock Option Plan
which shall be in effect immediately prior to the Merger shall be deemed to be
options granted by the Holding Company to purchase shares of common stock of the
Holding Company having the same exercise price and exercise periods, and being
for the same number of shares of common stock of the Holding Company as was the
number of shares of capital stock of the Bank covered by the corresponding
option granted by the Bank and subject to and in accordance with the terms,
conditions and provisions of such options, the Holding Company shall, from time
to time, issue shares of its common stock upon the exercise of such options.
4. Termination or Amendment.
------------------------
4.1 This Merger Agreement shall terminate forthwith in the event that the
Agreement shall be terminated as therein provided.
4.2 This Merger Agreement may not be amended, except by an instrument in writing
signed on behalf of each of the parties hereto.
4.3 This Merger Agreement may be signed in any number of counterparts, each of
which shall be deemed an original, and all of which shall be deemed but one
and the same instrument.
5. Miscellaneous.
-------------
5.1 The Agreement is and will be maintained on file at the principal place of
business of the Surviving Corporation. The address of the principal place of
business of the Surviving Corporation is 195 North First Street, Dixon,
California 95620.
5.2 A copy of the Agreement will be furnished by the Surviving Corporation, on
request and without cost to any shareholder of Merger Co. or the Bank.
5.3 The Agreement between the parties to the Merger has been executed by the
parties in accordance with the requirements of Section 1102 of the
California General Corporation Law.
5.4 This Agreement amends and supplants that certain Agreement of Merger of even
date herewith executed by Owen J. Onsum and Louise A. Walker in their
capacities as officers of Bank, Merger Co. and Holding Company,
respectively.
-59-
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as of
the date first written above.
Bank: FIRST NORTHERN BANK OF DIXON
By: /s/ Owen J. Onsum
-----------------------------------------
Name: Owen J. Onsum
Its President and Chief Executive Officer
By: /s/ James D. Duke
-----------------------------------------
Name: James S. Duke
Its Corporate Secretary
Merger Co.: FNCB MERGER CORP.
By: /s/ Owen J. Onsum
-----------------------------------------
Name: Owen J. Onsum
Its President and Chief Executive Officer
By: /s/ James S. Duke
-----------------------------------------
Name: James S. Duke
Its Corporate Secretary
Holding Company: FIRST NORTHERN COMMUNITY BANCORP
By: /s/ Owen J. Onsum
-----------------------------------------
Name: Owen J. Onsum
Its President and Chief Executive Officer
By: /s/ James S. Duke
-----------------------------------------
Name: James S. Duke
Its Corporate Secretary
-60-
ANNEX II
ARTICLES OF INCORPORATION
OF
FIRST NORTHERN COMMUNITY BANCORP
ARTICLE 1
The name of the corporation is First Northern Community Bancorp.
ARTICLE 2
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE 3
The name in the State of California of the corporation's initial agent for
service of process is:
CT Corporation System
ARTICLE 4
The corporation is authorized to issue one class of shares to be designated
Common Stock ("Common Stock"). Such shares shall be without par value. The total
number of shares of Common Stock the corporation shall have authority to issue
is eight million (8,000,000).
ARTICLE 5
Except as specified hereinbelow, each holder of Common Stock of the
corporation shall have full preemptive rights, as defined by law, to subscribe
for or purchase such holder's proportionate share of any Common Stock that may
be offered for sale or sold at any time by the corporation. The Board of
Directors shall have the power to prescribe a reasonable period of time within
which the preemptive rights to subscribe to the new shares of Common Stock must
be exercised. The foregoing right shall not apply to the sale or issuance by the
corporation of additional shares of Common Stock (i) in connection with the
acquisition by the corporation of another entity or business segment of any such
entity by merger, purchase of all or substantially all the assets or other type
of acquisition transaction; (ii) pursuant to any stock option, stock purchase or
other stock plan, agreement or arrangement previously approved by the
corporation's shareholders; (iii) in a public offering provided that the terms
of the offering include a requirement that if the offering is over-subscribed,
shares will be allocated on a pro rata basis based on actual paid subscriptions
received by the corporation.
ARTICLE 6
6.1 In addition to any affirmative vote required by law or these Articles
of Incorporation, and except as otherwise expressly provided in Section 6.2 of
this Article 6, any "Business Combination" (as hereinafter defined), which shall
be consummated at a time when there shall exist an "Interested Shareholder" (as
hereinafter defined), shall require the affirmative vote of the holders of at
least sixty-six and two thirds percent (66 2/3%) of the then outstanding shares
of Common Stock of this corporation entitled to vote. Such affirmative vote
shall be required
-61-
notwithstanding the fact that no vote may be required or that a lesser
percentage may be specified by law or otherwise.
In addition to the higher vote requirement, except as otherwise expressly
provided in Section 6.2 of this Article 6, prior to effecting any such Business
Combination all of the following conditions shall have been met:
6.1.1 The aggregate amount of the cash and the "Fair Market Value" (as
hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by holders
of the Common Stock in such Business Combination shall be at least equal to the
higher of the following:
6.1.1.1 (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Shareholder for any shares of the Common Stock acquired by it (a)
within the two-year period immediately prior to the first public announcement of
the proposal of the Business Combination (the "Announcement Date") or (b) in the
transaction in which it became an Interested Shareholder, if within two years of
the Announcement Date, whichever is higher; and
6.1.1.2 the Fair Market Value per share of the Common Stock on the
Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder the ("Determination Date"), if within two years of the
Announcement Date, whichever is higher.
6.1.2 The consideration to be received by holders of the Common Stock shall
be in cash or in the same form as the Interested Shareholder has previously paid
for shares of the Common Stock. The price determined in accordance with Section
6.1.1 shall be subject to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar event.
6.1.3 After such shareholder has become an Interested Shareholder and prior
to the consummation of such Business Combination and except to the extent that
the corporation may be prohibited by law from making a distribution to
shareholders: (1) there shall have been (a) no reduction in the annual rate of
dividends paid on the Common Stock of this corporation (except as necessary to
reflect any subdivision of the Common Stock), except as approved by at least
sixty-six and two-thirds percent (66 2/3%) of the "Disinterested Directors" (as
hereinafter defined), and (b) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the effect
of reducing the number or outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by at least sixty-six and
two-thirds percent (66 2/3%) of the Disinterested Directors; and (3) such
Interested Shareholder shall have not become the beneficial owner of any
additional shares of stock of this corporation except as part of the transaction
which results in such shareholder becoming an Interested Shareholder within the
two-year period prior to such consummation.
6.1.4 After such shareholder has become an Interested Shareholder, such
Interested Shareholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by this corporation or any "Subsidiary" (as hereinafter
defined), whether in anticipation of or in connection with such Business
Combination or otherwise.
6.1.5 A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to all holders of the
Common Stock of this corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
6.2 The provisions of Section 6.1 of this Article 6 shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other
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provision of these Articles of Incorporation, if the Business Combination
shall have been approved by at least sixty-six and two-thirds percent (66 2/3%)
of the Disinterested Directors; or, if either
6.2.1 there is pending any proceeding or other action by the Federal
Deposit Insurance Corporation pursuant to ss. 1818(a) or ss. 1823(c) of Title 12
of the United States Code in connection with any of the banking subsidiaries of
the corporation; or
6.2.2 there is outstanding any order of the Commissioner of Financial
Institutions of the State of California pursuant to California Financial Code
ss.ss. 3100-3132 or ss.ss. 3180-3187 against any banking subsidiary of the
corporation,
or any other provision of similar purpose as hereinafter adopted and as the same
may be amended at a future time.
6.3 For the purposes of this Article 6 the following definitions apply:
6.3.1 A "person" means any individual, firm, corporation or other entity.
6.3.2 "Interested Shareholder" means any person (other than this
corporation or any Subsidiary) who or which:
6.3.2.1 is the beneficial owner, directly or indirectly, of ten percent
(10%) or more of the issued and outstanding stock of this corporation; or
6.3.2.2 is an "Affiliate" of this corporation and at any time within the
two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of ten percent (10%) or more of the issued and
outstanding stock of this corporation; or
6.3.2.3 is an assignee of or has otherwise succeeded to any shares of stock
of this Corporation which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any Interested
Shareholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
6.3.3 A person shall be a "beneficial owner" of stock of this corporation:
6.3.3.1 which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
6.3.3.2 which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
6.3.3.3 which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of stock of this corporation.
6.3.4 "Business Combination" shall include:
6.3.4.1 any merger or consolidation of the corporation or any Subsidiary
with (i) any Interested Shareholder or (ii) any other corporation or other
business entity (whether or not itself an Interested Shareholder) which is, or
after such merger or consolidation would be, an Affiliate of an Interested
Shareholder; or
6.3.4.2 any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate of any Interested Shareholder of any
assets of
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the corporation or any Subsidiary having an aggregate Fair Market
Value of ten percent (10%) or more of the total value of the assets of the
corporation reflected in the most recent balance sheet of the corporation; or
6.3.4.3 the issuance or transfer by the corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
corporation or any Subsidiary to any Interested Shareholder or any Affiliate of
any Interested Shareholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of twenty
percent (20%) of shareholders' equity or more; or
6.3.4.4 the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of any Interested
Shareholder or any Affiliate of any Interested Shareholder; except that this
provision shall not limit the right of the shareholders to elect voluntarily to
wind up or dissolve the corporation by the vote of shareholders holding shares
of stock representing fifty percent (50%) or more of the stock then entitled to
vote in the election of directors; or
6.3.4.5 any reclassification of the corporation's securities (including any
reverse stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate beneficial ownership of any Interested Shareholder or any
Affiliate of any Interested Shareholder in the outstanding shares of any class
of equity or convertible securities of the corporation or any Subsidiary.
6.3.5 "Affiliate," and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on January 1, 2000.
6.3.6 "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Shareholder and was a member of the
Board of Directors prior to the time that the Interested Shareholder became an
Interested Shareholder, and any successor of a Disinterested Director who is
unaffiliated with the Interested Shareholder and is recommended to succeed a
Disinterested Director by a majority of Disinterested Directors then on the
Board of Directors.
6.3.7 "Fair Market Value" means as to the stock of this corporation the
fair market value on the date in question of a share of such stock as determined
by the Board of Directors in good faith; and in the case of property other than
cash or stock, the fair market value of such property on the date in question as
determined by the Board of Directors in good faith.
6.3.8 "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by this corporation;
provided, however, that for purposes of the definition of Interested
Shareholder, the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned directly or indirectly by
this corporation.
In the event of any Business Combination in which this corporation
survives, the phrase "other consideration to be received" as used in Section 6.1
of this Article 6 shall include the shares of stock of this corporation retained
by the holders of such shares.
6.4 A majority of the directors shall have the power and duty to determine
for the purposes of this Article 6, on the basis of information known to them
after reasonable inquiry, (A) whether a person is an Interested Shareholder, (B)
the number of shares of stock of this corporation beneficially owned by any
person, (C) whether a person is an Affiliate or Associate of another, or (D)
whether the assets which are the subject of any Business Combination constitute
substantially all assets of this corporation. A majority of the directors shall
have the further power to interpret all of the terms and provisions of this
Article 6.
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6.5 Nothing contained in this Article 6 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
6.6 Notwithstanding any other provisions of these Articles of Incorporation
or the By-laws (and notwithstanding the fact that a lesser percentage may be
specified by law, these Articles of Incorporation or the By-laws) the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the outstanding stock of this corporation shall be required to amend,
repeal or adopt any provisions inconsistent with this Article 6.
ARTICLE 7
The Board of Directors, when evaluating any offer of another party to (a)
make a tender or exchange offer for any Equity Security (as defined hereinafter)
of the corporation, (b) merge or consolidate the corporation with another
corporation, or (c) purchase, lease, or otherwise acquire all or substantially
all of the property of the corporation, shall in connection with the exercise of
its judgment in determining what is in the best interests of the corporation and
its shareholders consider all of the following factors and any other factors it
deems relevant: (i) the social and economic effects on the employees,
shareholders, customers, suppliers, and other constituents of the corporation
and its subsidiaries and on the communities in which the corporation or its
subsidiaries operate or are located, including, without limitation, the
availability of credit and other banking services to the communities served by
the corporation; (ii) whether the proposed transaction might violate federal or
state laws; and (iii) not only the consideration being offered in the proposed
transaction in relation to the then current market price for or book value of
the outstanding Common Stock of the corporation, but also to the market price
for or book value of the Common Stock of the corporation over a period of years
and the corporation's future value as an independent entity. For purposes of
this Article 7, "Equity Security" shall have the meaning ascribed to such term
in Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
January 1, 2000.
ARTICLE 8
The liability of directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law. The
corporation is authorized to provide indemnification of agents (as defined in
section 317 of the California Corporations Code) through bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors, or
otherwise, to the fullest extent permissible under California law. Any
amendment, repeal or modification of any provision of this Article 8 shall not
adversely affect any right or protection of an agent of the corporation existing
at the time of such amendment, repeal or modification.
Dated: February 3, 2000.
/S/ Owen J. Onsum
----------------------------------------
Owen J. Onsum, Incorporator
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LOGO
FIRST NORTHERN BANK
OF DIXON
The undersigned hereby appoint(s) Dorothy F. Wallace and Ernest J. Weyand, and
either of them, each with full power of substitution as Proxy of the
undersigned, to attend the Annual Meeting of the Shareholders of First Northern
Bank of Dixon to be held at the First Northern Bank Operations Center, 210
Stratford Avenue, Dixon, California, at 7:30 p.m., on April 27, 2000 and any
adjournment thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present as indicated below:
The Proxy is solicited by the Board of Directors and unless otherwise specified
will be voted FOR all nominees, and FOR Proposals 2 and 3.
--- ---
1. To elect the following eleven (11) persons to the Board of Directors
to serve until the 2001 Annual Meeting of Shareholders and until
their successors shall be elected and qualified:
Lori J. Andrete Gregory DuPratt William H. Jones, Jr. David W. Schulze
Frank J. Andrews, Jr. John F. Hamel Foy S. McNaughton Thomas S. Wallace
John M. Carbahal Diane P. Hamlyn Owen J. Onsum
/_/ VOTE FOR ALL NOMINEES LISTED ABOVE, /_/ VOTE WITHHELD
except for the nominee(s) named, if any: _____________________________
2. To ratify the Selection of KPMG LLP as Independent Public Accountants
for 2000.
/_/ FOR /_/ AGAINST /_/ ABSTAIN
3. To approve the Bank Holding Company reorganization.
/_/ FOR /_/ AGAINST /_/ ABSTAIN
4. To transact such other business as may properly come before the
Annual Meeting and any adjournment thereof.
This Proxy will be voted as directed by the Shareholder or, if no instructions
are given by the Shareholder, the Proxy Holders will vote "FOR" the above
Proposals.
If any other business is presented at said meeting, this Proxy shall be voted in
accordance with the recommendations of the Board of Directors.
Dated: ___________________, 2000 Signed _________________________________________
Dated: ___________________, 2000 Signed _________________________________________
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Please Sign exactly as shown below and give your full title, if applicable
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I/We do /_/ do not /_/ expect to attend this meeting. Number expected to attend:
--------------
Please indicate how you would like your nametag(s) to read:
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Please Type
or Print
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PLEASE PROMPTLY COMPLETE THIS PROXY AND RETURN
IT IN THE ENCLOSED ENVELOPE
Name on account and number of shares
as of February 29, 2000