UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to _________________.
Commission file number 0-10652
NORTH VALLEY BANCORP
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(Exact name of registrant as specified in its charter)
California 94-2751350
-------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
300 Park Marina Circle, Redding, California 96001
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (530) 226-2900
Securities registered pursuant to Section 12(b) of the Act:
Title of class: Name of each exchange on which registered:
-------------------------- ------------------------------------------
Common Stock, no par value The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definitions of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold was
$116,817,116 as of June 30, 2006.
The number of shares outstanding of common stock as of April 10, 2007, were
7,354,625.
EXPLANATORY NOTE
North Valley Bancorp (the "Company" or the "Corporation") is filing this
Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the year
ended December 31, 2006 to include Item 10, Item 11, Item 12, Item 13, and Item
14 of Part III to Form 10-K. No change is being made to Part I or Part II of the
Form 10-K, as filed with the Commission on March 15, 2007.
As announced by the Company on April 11, 2007 and reported on the Company's
Current Report on Form 8-K, filed with the Commission on April 11, 2007 (the
"Current Report"), the Company has entered into an Agreement and Plan of Merger
dated April 10, 2007 (the "Merger Agreement"), pursuant to which the Company
will merge with and into Sterling Financial Corporation, a Washington
corporation ("Sterling"), with Sterling being the surviving corporation. A copy
of the Merger Agreement (together with certain other information regarding the
proposed merger) is provided in the Current Report. The transaction is expected
to close in the third quarter of 2007, pending approval of the merger by the
shareholders of the Company, the receipt of all necessary regulatory approvals,
and the satisfaction of other closing conditions which are customary for such
transactions.
As a result of the Merger Agreement, the Board of Directors of the Company has
decided to postpone its 2007 Annual Meeting of Shareholders. As described in the
Current Report, Sterling will file its registration statement on Form S-4 with
the SEC containing the North Valley Bancorp proxy statement and prospectus which
the Company intends to send its shareholders seeking shareholder approval to
consummate the transaction. Thus, rather than incorporating portions of the
Company's definitive proxy statement for the 2007 Annual Meeting of Shareholders
in Part III of its Annual Report on Form 10-K for the year ended December 31,
2006, the Company is filing this Amendment No. 1 to Form 10-K to include Items
10, 11, 12, 13, and 14.
2
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Listed below are the Directors and Executive Officers of the Company.
DIRECTORS
William W. Cox, CRE, CCI, (age 59), a Director of the Company since February
1997, has been owner and President of Cox Real Estate Consultants, Inc., since
April 1996. From October 1987 to August 1996, he was President and 50% owner of
Haedrich & Cox, Inc., a real estate brokerage company.
Michael J. Cushman (age 52), a Director of the Company since February 1999, is
President and Chief Executive Officer of the Company and its subsidiary. Mr.
Cushman served as Senior Vice President and Chief Business Banking Officer of
North Valley Bank from March 1998 to February 1999. From March 1995 through
March 1998, he was a self-employed investor. From November of 1994 through March
of 1995, Mr. Cushman served as Vice President of Tri-Counties Bank, which
acquired Country National Bank in November of 1994 where Mr. Cushman had served
as President and Chief Executive Officer since September of 1992.
Dante W. Ghidinelli (age 59), a Director of the Company since 1993, has been a
Certified Public Accountant and partner with Nystrom & Company LLP since 1974.
Kevin D. Hartwick (age 45), a Director of the Company since October 2000, has
been a Certified Public Accountant and managing partner with Cholwell Benz &
Hartwick in Crescent City, California, since 1989.
Roger B. Kohlmeier (age 67), a Director of the Company since August 2004, was
founding President and Chief Executive Officer of Bank of Woodland which changed
its name to Business & Professional Bank at which time he retired but continued
on as Director until its sale to U.S. Bank of California in 1997. He is a
graduate of California Polytechnic University of San Luis Obispo and is actively
involved with the Economic Development Council and Woodland Health Care.
Dolores M. Vellutini (age 69), a Director of the Company since October 2000, has
been owner and President of Eureka Baking Company in Eureka, California, since
1988. In addition, she is a developer and the owner of Vellutini Properties in
Eureka, California.
Royce L. Friesen, RPh. (age 68), a Director of the Company since May 1999, is
Chairman of the Board of Owens Healthcare in Redding, California, having
previously served as President, Chief Executive Officer and owner since 1968.
Owens Healthcare, a management company, was formed to provide support and
coordination among ten retail and home care pharmacies located throughout
Northern California.
Martin A. Mariani (age 50), a Director of the Company since August 2004, is a
partner in Mariani Nut Company of Winters, California. He graduated from the
University of California, Davis in 1978.
J. M. ("Mike") Wells, Jr. (age 66), Chairman and a founding member of the Board
of Directors of the Company. Formerly a member of the law firm of Wells, Small &
Selke, a Law Corporation, located in Redding, California. Mr. Wells had
practiced law with that firm starting in 1972.
EXECUTIVE OFFICERS
Kevin R. Watson (age 41), has served as the Company's Executive Vice President
and Chief Financial Officer since March 2006. Prior to that, he served as Chief
Financial Officer at Calnet Business Bank in Sacramento from January 2004 to
March 2006. Prior to Calnet Business Bank, his experience includes serving as
the Chief Financial Officer of California Independent Bancorp and Feather River
State Bank from April 2001 to January 2004.
Scott R. Louis (age 56), has served as Executive Vice President and Chief
Operations Officer of the Company and its subsidiary since October 2005. Prior
to that, he served as Senior Vice President and Chief Operating Officer since
joining the Company in April 2005. Prior to joining the Company, Mr. Louis
served as First Vice President for Farmers and Merchants Bank in Lodi,
California. Mr. Louis began his financial services career with Bank of America
in 1971.
3
Roger D. Nash (age 58), has served as Executive Vice President and Chief Credit
Officer of the Company and its subsidiary since September 2006. Prior to that,
he served as Chief Lending Officer of the Company and its subsidiary since
joining the Company in October 2005. Prior to that, he served 35 years at Bank
of America, most recently as Senior Vice President/Senior Client Manager in
Visalia, California. While at Bank of America, he also served as Senior Vice
President/Credit Risk Manager and as Senior Vice President in Business Lending.
Gary S. Litzsinger (age 51), has served as Executive Vice President and Chief
Risk Officer of the Company and its subsidiary since October 2005. Prior to
that, he served as Senior Vice President and Chief Risk Officer since joining
the Company in July, 2004. Prior to joining the Company, Mr. Litzsinger served
as Director of Audit and Risk Management for Humboldt Bancorp and Audit Manager
for California Federal Savings Bank in Sacramento. He began his audit career in
1990 and obtained his California CPA license in 1994.
Leo J. Graham (age 56), has served as the Corporate Secretary and General
Counsel of the Company since January 2004. Formerly a member of the law firm of
Wells, Small & Selke, a Law Corporation, located in Redding, California. Mr.
Graham had practiced law with that firm starting in 1978.
None of the Company's Directors is a director of any other company that is
subject to the periodic reporting requirements of the Securities Exchange Act of
1934, as amended. There are no family relationships between any of the Directors
and Executive Officers of the Company.
CODE OF BUSINESS CONDUCT AND ETHICS
The Board of Directors of North Valley Bancorp believes the cornerstones of our
business are honesty, truthfulness, integrity and ethics.
In keeping with this belief, the Board of Directors has adopted a Code of
Business Conduct and Ethics, which applies to the Board of Directors and the
officers and employees of the Company and its subsidiary. The North Valley
Bancorp Code of Business Conduct and Ethics is available through the
Shareholders Relations link on the Company's website at www.novb.com. A copy of
the Code of Business Conduct and Ethics may be obtained without charge by
submitting a request to the Corporate Secretary, P.O. Box 994630, Redding, CA
96099-4630.
EXECUTIVE/CORPORATE GOVERNANCE COMMITTEE
The Company has an Executive/Corporate Governance Committee which functions to
review, evaluate and make decisions on actions that are required between the
regular meetings of the Board of Directors. In addition, this Committee
functions to review and recommend to the Board of Directors principles, policies
and procedures affecting the Board of Directors and its operation and
effectiveness. The Committee further oversees the evaluation of the Board of
Directors and its effectiveness. The Committee met two (2) times in 2006.
AUDIT COMMITTEE
The Company Board of Directors has established an Audit Committee. The Audit
Committee consists of the following members of the Company's Board of Directors:
Dante W. Ghidinelli (Chairman), Royce L. Friesen, Kevin D. Hartwick, Roger B.
Kohlmeier and Dolores M. Vellutini. The functions of the Audit Committee are
more particularly described in the Audit Committee Charter. The Board of
Directors has determined that Chairman Dante W. Ghidinelli and Director Kevin D.
Hartwick each qualify as a result of their accounting backgrounds as an Audit
Committee Financial Expert as defined under the Sarbanes Oxley Act of 2002, the
rules and regulations of the Securities and Exchange Commission and the
corporate governance listing standards of the NASDAQ Stock Market. The Audit
Committee met seven (7) times in 2006.
NOMINATING COMMITTEE
The Board of Directors has established a Nominating Committee which is currently
composed of the following members of the Board of Directors: Royce L. Friesen
(Chairman), William W. Cox and Martin A. Mariani. All of the members of the
Nominating Committee are "independent" within the requirements of the
Sarbanes-Oxley Act of 2002, the rules and regulations of the Securities and
Exchange Commission and the corporate governance listing standards of the Nasdaq
Stock Market. The functions of the Nominating Committee are described in the
Nominating Committee Charter adopted by the Board of Directors.
4
The Nominating Committee Charter includes a policy for consideration of
candidates proposed by shareholders for election to the Board of Directors. Any
recommendations by shareholders will be evaluated by the Nominating Committee in
the same manner as any other recommendation and in each case in accordance with
the Nominating Committee Charter. Shareholders that desire to recommend
candidates for consideration by the Nominating Committee are directed to mail or
deliver written recommendations to the Nominating Committee addressed as
follows: North Valley Bancorp Nominating Committee, P.O. Box 994630, Redding, CA
96099-4630. Each recommendation must include the experience of the candidate
that qualifies the candidate for consideration as a potential director for
evaluation by the Nominating Committee. Shareholders who wish to nominate a
candidate for election to the Corporation's Board of Directors, as opposed to
recommending a potential nominee for consideration by the Nominating Committee,
are required to comply with the advance notice and any other requirements of the
Company's Bylaws, applicable laws and regulations.
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS
A shareholder who wishes to communicate directly with the Company Board of
Directors, a Committee of the Board or an individual Director should send it to:
Board of Directors (or Committee Name or Director's Name)
c/o Corporate Secretary
North Valley Bancorp
P.O. Box 994630
Redding, California 96099-4630
The Corporate Secretary has been instructed to forward such correspondence to
the Board Committee or individual as addressed as soon as practicable. If it is
marked "Personal and Confidential", it will only be forwarded to the addressee.
The Board has instructed the Corporate Secretary, prior to forwarding any
correspondence, to review such correspondence and, in his discretion, not to
forward certain items if they are deemed of a commercial or frivolous nature or
otherwise inappropriate for the Board's consideration.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's Directors and Executive Officers and persons who
own more than 10% of a registered class of the Company's equity securities to
file with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, Directors and greater than 10% shareholders
are required by the SEC to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company's knowledge, based solely on a review of such reports furnished
to the Company and written representations that no other reports were required,
during the fiscal year ended December 31, 2006, all Section 16(a) filing
requirements applicable to its Directors, Executive Officers, and 10%
shareholders (if any) were complied with on a timely basis except for Ms.
Vellutini who failed to file one Form 4 on a timely basis, and Mr. Watson who
failed to file a Form 3 on a timely basis.
5
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION
The Board of Directors of North Valley Bancorp strives to ensure that its
compensation plan is consistent with the strategic goals and objectives of the
Company and maintains the standards of good corporate governance.
PHILOSOPHY
All of the Company's compensation programs are designed to attract and retain
key employees, motivating them to achieve and rewarding them for superior
performance. Different programs are geared to short and longer-term performance
with the goal of increasing stockholder value over the long term. Executive
compensation programs impact all employees by setting general levels of
compensation and helping to create an environment of goals, rewards and
expectations. North Valley Bancorp believes the performance of every employee is
important to its success and recognizes the importance of executive compensation
and incentive programs to achieve improved performance.
North Valley Bancorp believes that the compensation of its executives should
reflect their success as a management team, rather than individuals, in
attaining key operating objectives, such as growth of deposits, loans,
maintaining credit quality, growth of operating earnings and earnings per share
and growth or maintenance of market share and long-term competitive advantage,
and ultimately, in attaining an increased market price for its stock. North
Valley Bancorp believes that the performance of the executives in managing the
Company, considered in light of general economic and specific company, industry
and competitive conditions, should be the basis for determining their overall
compensation. North Valley Bancorp also believes that their compensation should
not be based on the short-term performance of the Company stock, whether
favorable or unfavorable, but rather that the price of the Company stock will,
in the long-term, reflect its operating performance, and ultimately, the
management of the Company by its executives. North Valley Bancorp seeks to have
the long-term performance of the Company stock reflected in executive
compensation through stock option awards.
OVERVIEW OF COMPENSATION AND PROCESS
Elements of compensation for our executives include: salary, bonus, stock option
awards, deferred compensation plans, salary continuation plan, health,
disability and life insurance, and perquisites. Base salaries are set for our
Executive Officers at the regularly scheduled winter meeting of the Compensation
Committee. At this meeting, the Compensation Committee also reviews and
recommends the management incentive plan for the new fiscal year (the "Executive
Discretionary Incentive Plan") and recommends stock option awards for the
Company's Executive Officers and certain other eligible employees.
At the beginning of each fiscal year, it has been the practice of the
Compensation Committee to review the history of all the elements of each
Executive Officer's total compensation over previous years and compare the
compensation of the Executive Officers with that of the executive officers in an
appropriate market place and industry comparison group. Typically, the Chief
Executive Officer makes compensation recommendations to the Compensation
Committee with respect to the Executive Officers who report to him. Such
Executive Officers are not present at the time of these deliberations. The
Chairman of the Board then makes compensation recommendations to the
Compensation Committee with respect to the Chief Executive Officer, who is
absent from that meeting. The Compensation Committee may accept or adjust such
recommendations.
North Valley Bancorp chooses to pay each element of compensation in order to
attract and retain the necessary executive talent, reward annual performance and
provide incentive for their balanced focus on long-term strategic goals as well
as short-term performance. The amount of each element of compensation is
determined by or under the direction of the Compensation Committee, which uses
the following factors to determine the amount of salary and other benefits to
pay each Executive Officer:
6
o Performance against corporate and individual objectives for the
previous year;
o Value of their unique skills and capabilities to support long-term
performance of the Company;
o Achievement of strategic objectives;
o Earnings per share;
o Deposits and/or loan growth; and
o Any of the above measures compared to peer or other companies.
These elements fit into our overall compensation objectives by helping to secure
the future potential of our operations, facilitating our strategic plan,
providing proper compliance and regulatory compliance, and helping to create a
cohesive team. Actual performance measures for the Executive Officers will be
chosen by the Compensation Committee. During 2006, a benefits attorney was
engaged to review non-qualified deferred compensation plans and to recommend
changes to those plans to make them conform with IRS regulations and regulatory
requirements and, further, to advise with regard to best practices concerning
the structure and implementation of those plans.
EXECUTIVE COMPENSATION
BASE SALARY
It is the goal of the Company's Compensation Committee to establish salary
compensation for its Executive Officers based on the Company's operating
performance relative to comparable peer companies over a three-year to five-year
period. North Valley Bancorp believes this gives it the opportunity to attract
and retain talented managerial employees, both at the senior executive level and
below.
BONUS
The Executive Discretionary Incentive Plan is designed to reward the Company's
Executives for the achievement of short-term financial goals, including
increases in performance against peer banks, the achievement of short-term and
long-term strategic goals, and overall financial performance of the Company. It
is the Company's general philosophy that management be rewarded for their
performance as a team in the attainment of these goals, rather than
individually. North Valley Bancorp believes that this is important to aligning
our Executive Officers and promoting teamwork among them. Bonus percentages for
Executive Officers were initially proposed by a compensation consultant based on
analysis of peer banks and industry sector considerations. Those basic
percentages, which are discretionary with the Compensation Committee, have
generally been followed. Those percentages are as follows: for Executive
Officers other than the Chief Executive Officer, the range is 10% - 40% of base
salary; and for the Chief Executive Officer, the range is 10% - 50% of base
salary. Similarly, Executive Officers are eligible for discretionary incentive
stock option awards based on the following percentages: for Executive Officers
other than the Chief Executive Officer, the range is 0% - 5% of base salary as
the number of options considered for award; and for the Chief Executive Officer,
the range is 0% - 6% of base salary as the number of options considered for
award.
Although each Executive Officer is eligible to receive an award at the
discretion of the Compensation Committee, the granting of the award as to any
individual or officer as a group is first at the discretion of the Chief
Executive Officer and then, based on his recommendation, at the discretion of
the Compensation Committee and full Board. The Committee may choose whether to
award the bonus and decides on the actual level of the award in light of all
relevant factors after completion of the fiscal year.
7
The following Summary Compensation Table sets forth the compensation of the
President and Chief Executive Officer (Principal Executive Officer) and the
Executive Vice President and Chief Financial Officer (Principal Financial
Officer) of the Company and the other most highly compensated Executive Officers
for services in all capacities to the Company and its subsidiary during 2006:
SUMMARY COMPENSATION TABLE
CHANGE IN
PENSION
VALUE AND
NON-EQUITY NONQUALIFIED
INCENTIVE DEFERRED
STOCK OPTION PLAN COMPENSATION ALL OTHER
SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME AND PRINCIPAL POSITION YEAR (1)($) (2)($) ($) (3)($) ($) (4)($) (5)($) ($)
- --------------------------------- ---- --------- -------- ------ -------- ------------ ------------ ------------ ---------
Michael J. Cushman 2006 $ 275,625 $124,000 - $ 65,065 - $ 285,059 $ 16,704 $ 766,453
President and Chief
Executive Officer
Kevin R. Watson (6) 2006 $ 150,000 $ 63,000 - $ 16,362 - - $ 8,230 $ 237,592
Executive Vice President
and Chief Financial Officer
Scott R. Louis 2006 $ 140,000 $ 49,000 - $ 2,531 - $ 17,391 $ 10,082 $ 219,004
Executive Vice President
and Chief Operating Officer
Roger D. Nash 2006 $ 140,000 $ 49,000 - $ 10,054 - $ 24,777 $ 7,030 $ 230,861
Executive Vice President
and Chief Credit Officer
Gary S. Litzsinger 2006 $ 104,800 $ 36,380 - $ 11,839 - $ 13,741 $ 5,182 $ 171,942
Executive Vice President
and Chief Risk Officer
Leo J. Graham 2006 $ 163,950 $ 57,382 - $ 16,535 - $ 142,294 $ 10,833 $ 390,994
General Counsel and
Corporate Secretary
Eric J. Woodstrom (7) 2006 $ 116,028 $ 40,000 - $ 24,529 - $ 124,246 $ 131,802 $ 436,605
Former Executive Vice President
and Chief Credit Officer
(1) Base salary includes 401(k) Plan and Executive Deferred Compensation Plan
("EDCP") contributions made by the officers.
(2) These bonus amounts were paid in 2007 attributable to 2006 performance.
(3) The amount reported in this column is the dollar amount recognized for
financial statement reporting purposes for 2006 in accordance with FAS 123(R).
The assumptions used to calculate FAS 123(R) fair value are described in
footnote 1 to our consolidated financial statements included in our Annual
Report on Form 10-K.
(4) The amounts in this column represent the increase in the actuarial net
present value of all future retirement benefits under the individual's salary
continuation plan and the above-market or preferential earnings on any
nonqualified deferred compensation. The above-market rate is determined by using
the amount above 120% of the Federal long-term rate. For 2006, the interest rate
paid was 9.30%, and the above-market rate was determined to be 5.98%.
(5) Included in this column are perquisites described hereafter in the table
under the heading "Perquisites."
(6) Mr. Watson joined the Company in March 2006. His annual base salary for 2006
was set at $180,000. The amount shown reflects base salary paid in 2006.
(7) Eric Woodstrom's employment contract dated January 2001 ended on October 6,
2007. He received $113,147 for severance, pro-rata bonus, and vacation pay
pursuant to his employment contract. The amount is included in the "All Other
Compensation" column.
8
PERQUISITES
Executive Officers who participated in the North Valley Bancorp 401(k) Plan
received matching funds, as did all employees of the Company who participated in
the Plan. All of the Company's employees and named Executive Officers are
eligible to participate in the Company's ESOP Plan. Named Executive Officers, in
addition, are eligible to receive health and insurance benefits the same as all
other employees of the Company. In addition, named Executive Officers are
eligible to participate in executive and key employee deferred compensation
plans as discussed hereafter. Named Executive Officers also have certain
perquisites as follows:
CLUB 401K
AUTO MEMBERSHIPS & MATCHING
ALLOWANCE DUES CONTRIBUTION ESOP TOTAL
NAME AND PRINCIPAL POSITION ($) ($) ($) ($) ($)
- ---------------------------------- --------- ------------- ------------- --------- ---------
Michael J. Cushman $ 2,350 $ 3,540 $ 3,850 $ 6,964 $ 16,704
President and Chief
Executive Officer
Kevin R. Watson $ 4,750 $ 3,480 - - $ 8,230
Executive Vice President
and Chief Financial Officer
Scott R. Louis $ 1,850 $ 3,540 $ 4,692 - $ 10,082
Executive Vice President
and Chief Operating Officer
Roger D. Nash $ 1,450 $ 3,480 $ 2,100 - $ 7,030
Executive Vice President
and Chief Credit Officer
Gary S. Litzsinger $ 1,450 - $ 3,732 - $ 5,182
Executive Vice President
and Chief Risk Officer
Leo J. Graham - $ 3,480 $ 2,459 $ 4,894 $ 10,833
General Counsel and
Corporate Secretary
Eric J. Woodstrom $ 4,500 $ 2,220 $ 5,710 $ 6,225 $ 18,655
Former Executive Vice President
and Chief Credit Officer
STOCK OPTION PLAN
North Valley Bancorp intends that its stock option award program is the primary
vehicle for offering long-term incentives and rewarding its Executive Officers
and key employees. The Company also regards its stock option award program as a
key retention tool. This is a very important factor in its determination of the
type of option award to grant and the number of underlying shares that are
granted in connection with that award. Because of the direct relationship
between the value of an option and the market price of the Company's common
stock, North Valley Bancorp has always believed that granting stock options is
the best method of motivating the Executive Officers to manage the Company in a
manner that is consistent with the interests of the Company and its
stockholders.
9
TIMING OF GRANTS
Stock options to the Company's Executive Officers and other key employees are
typically granted annually in conjunction with the review of the individual
performance of its Executive Officers. This review takes place at the regularly
scheduled meeting of the Compensation Committee, which is held in conjunction
with the quarterly meeting of the Board in January following the fiscal year
under consideration. Grants to newly hired employees are effective on the date
of grant as consideration for the hiring of the new employee. The exercise price
of all stock options is set at the closing price of the day of the grant.
2006 GRANTS OF PLAN-BASED AWARDS TABLE
ALL OTHER ALL OTHER
STOCK OPTION GRANT DATE
ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS AWARDS: AWARDS: EXERCISE FAIR
UNDER NON-EQUITY UNDER EQUITY NUMBER OF NUMBER OF OR BASE VALUE OF
INCENTIVE PLAN AWARDS INCENTIVE PLAN AWARDS SHARES OF SECURITIES PRICE OF STOCK AND
-------------------------- -------------------------- STOCK OR UNDERLYING OPTION OPTION
GRANT THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM UNITS OPTIONS AWARDS AWARDS
NAME DATE ($) ($) ($) (#) (#) (#) (#) (1)(#) (2)($/SH) (3)($)
- ------------------ -------- --------- ------ ------- --------- ------ ------- ---------- ---------- --------- ----------
Michael J. Cushman 02/03/06 - - - - - - - 14,963 $ 17.95 $ 63,179
Kevin R. Watson 04/27/06 - - - - - - - 10,000 $ 16.38 $ 38,969
Scott R. Louis - - - - - - - - - - -
Roger D. Nash - - - - - - - - - - -
Gary S. Litzsinger 02/03/06 - - - - - - - 2,856 $ 17.95 $ 12,060
Leo J. Graham 02/03/06 - - - - - - - 4,200 $ 17.95 $ 17,733
Eric J. Woodstrom 02/03/06 - - - - - - - 6,078 $ 17.95 $ 25,663
(1) Options granted under the 1998 Employee Stock Incentive Plan (the "1998
Plan") were either incentive options or non-statutory options and became
exercisable in accordance with a vesting schedule established at the time
of grant. Vesting cannot extend beyond ten years from the date of grant.
Upon a change in control of North Valley Bancorp, all outstanding options
under the 1998 Plan will become fully vested and exercisable. Options
granted under the 1998 Plan are adjusted to protect against dilution in the
event of certain changes in North Valley Bancorp's capitalization,
including stock splits and stock dividends. All options granted to the
named Executive Officers are incentive stock options and have an exercise
price equal to the fair market value of North Valley Bancorp common stock
on the date of grant.
(2) The exercise price was determined based upon the closing price of North
Valley Bancorp common stock as reported on the NASDAQ Global Select Market
on the grant date.
(3) The Black-Scholes option-pricing model was used to estimate the grant date
fair value of the options in this column. Use of this model should not be
construed as an endorsement of its accuracy. All stock option pricing
models require predictions about the future movement of the stock price.
Options awarded on February 3, 2006 were valued at $4.22/share in
accordance with FAS 123(R), and options awarded on April 27, 2006 were
valued at $3.90/share in accordance with FAS 123(R). The assumptions used
to develop the February 3, 2006 grant date valuations were: risk-free rate
of return of 4.5%, dividend rate of 2.3%, volatility rate of 29.6%, and an
average term of 6.25 years. The assumptions used to develop the April 27,
2006 grant date valuations were: risk-free rate of return of 4.98%,
dividend rate of 2.3%, volatility rate of 28.7%, and an average term of
6.25 years. The real value of the options in this table will depend on the
actual performance of the Company's common stock during the applicable
period and the fair market value of the Company's common stock on the date
the options are exercised.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table summarizes information about the options, warrants and
rights and other equity compensation under the Company's equity plans as of
December 31, 2006.
10
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
OPTION AWARDS STOCK AWARDS
--------------------------------------------------------------- ---------------------------------------------
EQUITY
INCENTIVE
PLAN
EQUITY AWARDS:
INCENTIVE MARKET OR
EQUITY PLAN PAYOUT
INCENTIVE AWARDS: VALUE OF
PLAN NUMBER OF UNEARNED
NUMBER OF NUMBER OF AWARDS: MARKET UNEARNED SHARES,
SECURITIES SECURITIES NUMBER OF NUMBER OF VALUE OF SHARES, UNITS OR
UNDERLYING UNDERLYING SECURITIES SHARES OR SHARES OR UNITS OR OTHER
UNEXERCISED UNEXERCISED UNDERLYING UNITS OF UNITS OF OTHER RIGHTS
OPTIONS OPTIONS UNEXERCISED OPTION OPTION STOCK THAT STOCK THAT RIGHTS THAT
(#) (#) UNEARNED EXERCISE EXPIRATION HAVE NOT HAVE NOT THAT HAVE HAVE NOT
-------------------------- OPTIONS PRICE DATE VESTED VESTED NOT VESTED VESTED
NAME EXERCISABLE UNEXERCISABLE (#) ($) (#) ($) (#) ($)
- ------------------ ----------- ------------- ----------- -------- ---------- ---------- ---------- ---------- ---------
Michael J. Cushman 37,500(1) - - $ 10.63 8/19/2008 - - - -
33,750(2) - - $ 8.58 2/16/2009 - - - -
14,859(3) - - $ 8.87 4/26/2011 - - - -
10,638(4) - - $ 9.40 1/24/2012 - - - -
15,000(5) - - $ 10.24 7/25/2012 - - - -
15,120(6) 3,780(6) - $ 13.06 1/30/2013 - - - -
7,200(7) 4,800(7) - $ 15.72 1/20/2014 - - - -
5,985(8) 8,978(8) - $ 19.86 1/20/2015 - - - -
2,992(9) 11,971(9) - $ 17.95 2/3/2016 - - - -
Kevin R. Watson 2,000(10) 8,000(10) - $ 16.38 4/27/2016 - - - -
Scott R. Louis 1,000(11) 1,500(11) - $ 17.63 4/28/2015 - - - -
Roger D. Nash 4,000(12) 6,000(12) - $ 17.00 10/20/2015 - - - -
Gary S. Litzsinger 2,400(13) 1,600(13) - $ 16.18 8/5/2014 - - - -
800(8) 1,200(8) - $ 19.86 1/20/2015 - - - -
571(9) 2,285(9) - $ 17.95 2/3/2016 - - - -
Leo J. Graham 3,000(7) 2,000(7) - $ 15.72 1/20/2014 - - - -
1,200(8) 1,800(8) - $ 19.86 1/20/2015 - - - -
840(9) 3,360(9) - $ 17.95 2/3/2016 - - - -
Eric J. Woodstrom 15,000(14) - - $ 7.25 1/4/2007 - - - -
4,527(3) - - $ 8.87 1/4/2007 - - - -
3,383(4) - - $ 9.40 1/4/2007 - - - -
15,000(5) - - $ 10.24 1/4/2007 - - - -
2,431(15) - - $ 19.86 1/4/2007 - - - -
(1) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 100% were vested at August 19, 2002.
(2) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 100% were vested at February 16, 2003.
(3) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 100% were vested at April 26, 2005.
(4) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 100% were vested at January 24, 2006.
(5) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 100% were vested at July 25, 2006.
(6) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 80% were vested at January 30, 2006 with the remaining
vesting to occur on January 30, 2007.
(7) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 60% were vested at January 20, 2006 with the remaining
vesting to occur on January 20, 2007 and 2008.
(8) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 40% were vested at January 20, 2006 with the remaining
vesting to occur on January 20, 2007, 2008 and 2009.
(9) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 20% were vested at February 3, 2006 with the remaining
vesting to occur on February 3, 2007, 2008, 2009 and 2010.
(10) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 20% were vested at April 27, 2006 with the remaining
vesting to occur on April 27, 2007, 2008, 2009 and 2010.
(11) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 40% were vested at April 28, 2006 with the remaining
vesting to occur on April 28, 2007, 2008 and 2009.
(12) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 40% were vested at October 20, 2006 with the remaining
vesting to occur on October 20, 2007, 2008 and 2009.
(13) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 60% were vested at August 5, 2006 with the remaining
vesting to occur on August 5, 2007 and 2008.
(14) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 100% were vested at October 18, 2003.
(15) These stock options vest 20% at grant date and vest 20% per year over the
next four years; 100% were vested at October 6, 2006.
11
OPTIONS EXERCISED AND STOCK VESTED
The following table summarizes information with respect to stock option awards
exercised and restricted stock and restricted stock unit awards vested during
fiscal year 2006 for each of the named executive officers.
OPTION EXERCISES AND STOCK VESTED TABLE
OPTION AWARDS STOCK AWARDS
------------------------- -------------------------
NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE
ACQUIRED ON REALIZED ON ACQUIRED ON REALIZED ON
EXERCISE EXERCISE VESTING VESTING
NAME (#) ($) (#) ($)
- ------------------ ----------- ----------- ----------- -----------
Michael J. Cushman - - - -
Kevin R. Watson - - - -
Scott R. Louis - - - -
Roger D. Nash - - - -
Gary S. Litzsinger - - - -
Leo J. Graham - - - -
Eric J. Woodstrom 10,755 $ 40,256 - -
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with Michael J. Cushman in
2001. The Company entered into an Employment Agreement with Leo J. Graham in
2004, revised in 2006. The Company entered into Employment Agreements with Gary
S. Litzsinger, Scott R. Louis and Roger D. Nash during 2005. The Company entered
into an Employment Agreement with Kevin R. Watson in 2006.
The Employment Agreement entered into in 2001 with Mr. Cushman had an initial
term of three years with annual renewals. The Employment Agreement entered into
with Mr. Watson in 2006 has an initial term of one year. After the initial term,
all Employment Agreements provide that they will be extended for additional
one-year periods, or be at will, unless either the employee or the employer
gives notice of non-renewal before the end of the term or extended term. All of
the above employment agreements have been extended at their annual anniversary
dates upon the same terms and conditions, except for Mr. Cushman whose agreement
was extended at the end of its three year anniversary upon the same terms and
conditions.
Under the terms of the Employment Agreements, all Executive Officers are
eligible to participate in the Executive Deferred Compensation Plan and the
Salary Continuation Agreements (see discussion below) and other benefits
available to all other employees of the Company.
All Executive Officers are entitled to severance pay upon termination by the
Company without cause in an amount ranging from six month's to 24 month's
current base salary, except Mr. Cushman who is also entitled to a pro rata share
of the prior year's annual incentive compensation.
POST-EMPLOYMENT COMPENSATION
SALARY CONTINUATION AGREEMENTS
The Salary Continuation Agreements provide for five general classes of benefits
for Executive Officers, which benefits vest over a period of eight (8) to ten
(10) years with credit for prior service or as determined by the Chief Executive
Officer and the Board of Directors:
12
(1) Normal Retirement Benefits. The normal retirement benefit is
calculated to provide a target benefit in the amount equal to sixty percent
(60%) of the executive's compensation at the time of retirement (age 65) or a
lesser amount as determined by the Chief Executive Officer and the Board of
Directors.
(2) Early Termination Benefit. The early termination benefit is the
vested portion of the target retirement benefit.
(3) Disability Benefit. The disability benefit is a Disability Lump Sum
Benefit specified in the agreement for the plan year immediately preceding the
disability, payable only upon total disability as defined in the agreement.
(4) Death Benefit. The death benefit is an amount determined by a
formula that takes into account the number of years of service and the
anticipated compensation level at the age of retirement.
(5) Change of Control Benefit. The change of control benefit is an
amount determined as follows: Executive's Fully Vested Present Value Benefit
payable at age 65 for the current plan year plus two times the Executive's
current Plan Year Compensation, except as to the Chief Executive Officer, 2.99
times plan year compensation. This benefit is payable only in the event of a
change in control as defined in the agreement and is limited by the provisions
of Internal Revenue Code section 280(g).
In consulting with compensation consultant, Clark Consulting, the Company
determined that it would be more cost effective for the Company to acquire
prepaid policies of insurance to fund these anticipated future obligations than
to pay annual premiums. The Company, as a result of acquiring the prepaid
policies, will have cash values in the policies in excess of the amount paid for
those policies.
The Company and the Executive Officers who have Salary Continuation Agreements
have entered into split dollar life insurance agreements in connection with the
life insurance policies obtained by the Company on their lives.
The following table illustrates the approximate annual retirement income that
may become payable to a key employee credited with the number of years of
service shown, assuming that benefits commence at age 65 and are payable in the
form of an annuity for the employee's life or for 20 years (whichever is
greater):
ANNUAL RETIREMENT INCOME
YEARS OF CREDITED SERVICE
FINAL AVERAGE
COMPENSATION 1 2 3 4 5
- ------------- ---------- ---------- ---------- ---------- ----------
$ 100,000 $ 6,000 $ 12,000 $ 18,000 $ 24,000 $ 30,000
120,000 7,200 14,400 21,600 28,800 36,000
140,000 8,400 16,800 25,200 33,600 42,000
160,000 9,600 19,200 28,800 38,400 48,000
180,000 10,800 21,600 32,400 43,200 54,000
200,000 12,000 24,000 36,000 48,000 60,000
250,000 15,000 30,000 45,000 60,000 75,000
300,000 18,000 36,000 54,000 72,000 90,000
FINAL AVERAGE
COMPENSATION 6 7 8 9 10
- ------------- ---------- ---------- ---------- ---------- ----------
$ 100,000 $ 36,000 $ 42,000 $ 48,000 $ 54,000 $ 60,000
120,000 43,200 50,400 57,600 64,800 72,000
140,000 50,400 58,800 67,200 75,600 84,000
160,000 57,600 67,200 76,800 86,400 96,000
180,000 64,800 75,600 86,400 97,200 108,000
200,000 72,000 84,000 96,000 109,000 121,000
250,000 90,000 105,000 120,000 135,000 150,000
300,000 108,000 126,000 144,000 162,000 180,000
13
Mr. Cushman began accruing retirement benefits under his Salary Continuation
Agreement effective January 1, 2001, and is fully vested. Messrs. Graham,
Litzsinger, Louis, Nash and Watson began accruing retirement benefits under
their Salary Continuation Agreements effective as shown on the Plan
Participation Exhibit filed with the Securities Exchange Commission.
As of December 31, 2006, the Company's aggregate accrued obligations under the
Salary Continuation Agreements were $4,403,000 (includes obligations to retirees
under old plans).
PENSION BENEFITS TABLE
NUMBER OF
YEARS PRESENT VALUE
CREDITED OF ACCUMULATED PAYMENTS DURING
NAME PLAN NAME SERVICE BENEFIT LAST FISCAL YEAR
- ------------------ ------------------------ --------- -------------- ----------------
Michael J. Cushman Salary Continuation Plan 8 $ 327,041 -
Kevin R. Watson Salary Continuation Plan 1 - -
Scott R. Louis Salary Continuation Plan 1 $ 19,139 -
Roger D. Nash Salary Continuation Plan 1 $ 23,817 -
Gary S. Litzsinger Salary Continuation Plan 2 $ 29,512 -
Leo J. Graham Salary Continuation Plan 3 $ 155,695 -
EXECUTIVE DEFERRED COMPENSATION PLAN
The Executive Deferred Compensation Plan ("EDCP"), adopted by the Directors of
the Company and its subsidiary effective January 1, 2001 and restated effective
January 1, 2006, is a nonqualified executive benefit plan in which the eligible
executive voluntarily elects to defer some or all of his or her current
compensation in exchange for the Company's promise to pay a deferred benefit.
The deferred compensation is credited with interest under the plan and the
accrued liability is paid to the executive at retirement. Unlike a 401(k) plan
or a pension plan, an EDCP is a nonqualified plan. Accordingly, this plan is
selectively made available to certain highly compensated employees and
executives without regard to the nondiscrimination requirements of qualified
plans. The EDCP is also an unfunded plan, which means there are no specific
assets set aside to fund the plan. The Company has purchased life insurance
policies in order to provide for payment of its obligations under the Executive
Deferred Compensation Plan, but the executive has no rights under the plan
beyond those of a general creditor of the plan sponsor. The deferred amount is
not taxable income to the individual and is not a tax-deductible expense to the
plan sponsor.
The EDCP is embodied in a written agreement between the plan sponsor and the
executive selected to participate in the plan. The agreement includes provisions
that indicate the benefits to be provided at retirement or in the event of
death, disability, or termination of employment prior to retirement. The
agreement provides for full vesting of deferred amounts since the executive is
setting aside his or her current compensation. If the individual leaves, the
account balance would be paid according to the terms specified in the agreement.
If the individual were to die prior to or during retirement, the promised
benefits would be paid to the individual's beneficiary or estate.
As of December 31, 2006, the Company's accrued obligations under the executive
deferred compensation plans were $287,000.
14
NONQUALIFIED DEFERRED COMPENSATION TABLE
EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE
CONTRIBUTIONS IN CONTRIBUTIONS IN EARNINGS IN LAST WITHDRAWALS/ BALANCE AT LAST
LAST FISCAL YEAR LAST FISCAL YEAR FISCAL YEAR DISTRIBUTIONS FISCAL YEAR-END
NAME ($) ($) (1)($) ($) ($)
- ------------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
Michael J. Cushman - - $ 5,509 - $ 61,643
Kevin R. Watson - - - - -
Scott R. Louis $ 44,605 - $ 2,905 - $ 47,510
Roger D. Nash $ 50,000 - $ 2,642 - $ 52,642
Gary S. Litzsinger $ 6,000 - $ 467 - $ 6,467
Leo J. Graham - - $ 621 - $ 6,897
(1) Earnings credited to the accounts are based upon the terms of the Deferred
Compensation Plan. The rate credited for 2006 was 9.30%.
CHANGE IN CONTROL AGREEMENTS
In the event of a sale, dissolution or liquidation of the Company or a merger or
a consolidation in which the Company is not the surviving or resulting Company,
a "change in control" occurs.
All Executive Officers are, upon a change in control of the Company, entitled
under their Employment Agreements to receive the "change in control" benefits
described in their Salary Continuation Agreements (see discussion below).
All options outstanding under the 1989 Director Stock Option Plan, the 1998
Employee Stock Incentive Plan and the 1999 Director Stock Option Plan which at
the time are not fully vested may, nonetheless, under the terms of the relevant
agreement of merger or consolidation or plan of sale, liquidation or
dissolution, be entitled to be exercised as if they were fully (100 percent)
vested. Summary information regarding each Company stock option plan is set
forth below.
The North Valley Bank Executive Deferred Compensation Agreement and North Valley
Bank Executive Salary Continuation Agreement provide for the acceleration of the
payment of benefits to Executive Officers thereunder upon a change in control of
the Company. Summary information regarding each such agreement is set forth
below.
POTENTIAL PAYMENTS UPON TERMINATION RELATED TO A CHANGE IN CONTROL
AMOUNT PAYABLE
NAME PAYMENT BASIS (1)
- -------------------- -------------------------------------------------------------------------------------- ----------------
Michael J. Cushman Payment of Three-times current Salary plus 3-year Average Bonus and Accelerated
vesting of Salary Continuation Plan $ 2,725,798
Kevin R. Watson Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting
of Salary Continuation Plan $ 1,010,411
Scott R. Louis Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting
of Salary Continuation Plan $ 541,772
Roger D. Nash Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting
of Salary Continuation Plan $ 589,262
Gary S. Litzsinger Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting
of Salary Continuation Plan $ 518,909
Leo J. Graham Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting
of Salary Continuation Plan $ 1,369,487
(1) The amount payable is limited as the Agreements limit the amount of payment
to any named executive officer as a result of a change in control,
including the value of acceleration of any equity awards and salary
continuation plans, to the maximum amount permissible to avoid an "excess
parachute payment" under Section 280(g) of the Internal Revenue Code.
15
COMPENSATION COMMITTEE REPORT
The Compensation Committee consists of the following members of the Company's
Board of Directors: Royce L. Friesen (Chairman), William W. Cox and Martin A.
Mariani. All members of the Committee are independent as defined under the
Sarbanes Oxley Act of 2002, the rules and regulations of the Securities and
Exchange Commission and the corporate governance listing standards of the NASDAQ
Stock Market.
The Compensation Committee reviews and recommends to the Board of Directors,
salaries, performance based incentives, both annual and long-term, and other
matters relating to the compensation of the Chief Executive Officer and the
Chief Executive Officer's recommendations as to Executive Officers, taking into
consideration non-salary based benefits in the form of Company paid expenses for
car allowances and club memberships. The Committee determines the base salary
for the Chief Executive Officer by: (1) examining the Company's performance
against its preset goals, (2) examining the Company's performance within the
banking industry, (3) evaluating the overall performance of the Chief Executive
Officer, and (4) comparing the base salary of the Chief Executive Officer to
that of other chief executive officers in the banking industry in the Company's
market area. In January 2007, the Committee recommended, and the Board approved,
the following executive salaries effective February 1, 2007: Mr. Cushman's
annual salary of $286,650; Mr. Watson's annual salary of $187,200; Mr. Louis'
annual salary of $154,000; Mr. Nash's annual salary of $154,000; Mr.
Litzsinger's annual salary of $111,100, and Mr. Graham's annual salary of
$170,500.
The members of the Compensation Committee have reviewed and discussed the
foregoing Compensation Discussion and Analysis with management and, based on
such review and discussion, the Compensation Committee has recommended to the
Board of Directors that the Compensation Discussion and Analysis be included in
the North Valley Bancorp Annual Report on Form 10-K for the year ended December
31, 2006.
Submitted by:
Royce L. Friesen, Chairman
William W. Cox
Martin A. Mariani
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year 2006, Mr. Michael J. Cushman participated in
deliberations of the Company's Board of Directors concerning executive officer
compensation for all Executive Officers, excluding himself.
DIRECTOR COMPENSATION
DIRECTOR DEFERRED FEE PLAN
The Director Deferred Fee Plan ("DDFP"), adopted by the Directors of the Company
and its subsidiary effective January 1, 2001 and restated effective January 1,
2006, is a nonqualified director benefit plan in which the eligible director
voluntarily elects to defer some or all of his or her current fees in exchange
for the Company's promise to pay a deferred benefit. The deferred fees are
credited with interest under the plan and the accrued liability is paid to the
director at retirement. Unlike a 401(k) plan or a pension plan, a DDFP is a
nonqualified plan. Accordingly, this plan is only made available to outside
directors without regard to the nondiscrimination requirements of qualified
plans. The DDFP is also an unfunded plan, which means there are no specific
assets set aside to fund the plan. The Company has purchased life insurance
policies in order to provide for payment of its obligations under the Director
Deferred Fee Plan, but the director has no rights under the plan beyond those of
a general creditor of the plan sponsor. The deferred amount is not taxable
income to the individual and is not a tax-deductible expense to the plan
sponsor.
The Company and the Directors who have DDFP Agreements have entered into split
dollar life insurance agreements in connection with the life insurance policies
obtained by the Company and its subsidiary on their lives.
16
The DDFP is embodied in a written agreement between the plan sponsor and the
director selected to participate in the plan. The agreement includes provisions
that indicate the benefits to be provided at retirement or in the event of
death, disability, or termination of Board membership prior to retirement. The
agreement provides for full vesting of deferred amounts since the director is
setting aside his or her current fees. If the individual leaves, the account
balance would be paid according to the terms specified in the agreement. If the
individual were to die prior to or during retirement, the promised benefits
would be paid to the individual's beneficiary or estate.
As of December 31, 2006, the Company's aggregate accrued obligations under the
Directors Deferred Fee Plan were $2,351,000.
COMPONENTS OF DIRECTOR COMPENSATION
North Valley Bancorp reviews the level of compensation of our non-employee
directors on an annual basis. To determine whether the current level of
compensation for its non-employee directors is appropriate, North Valley Bancorp
has historically obtained data from a number of different sources including:
o Publicly available data describing director compensation in peer
companies;
o Data provided by the California Banker's Association with regard to
director compensation;
o Information obtained directly from other companies.
During 2006, each Director (other than the Chairman) of North Valley Bancorp was
paid $3,000 per quarterly meeting of the Board of Directors and each Director
(other than the Chairman) of North Valley Bank was paid $500 per monthly meeting
of the Board of Directors. Payments per Loan Committee meeting of North Valley
Bank during 2006 were $250 per meeting. The Chairman of the Board of Directors
of the Company was paid $5,000 per quarterly meeting and the Chairman of the
Board of Directors of North Valley Bank was paid $850 per Board of Directors
meeting during 2006. The Chairman of the Loan Committee was paid $350 per
meeting during 2006. The Chairman of the Audit Committee was paid a quarterly
fee of $1,000 during 2006. The Chairman of the Compensation Committee was paid a
quarterly fee of $850 during 2006.
Commencing in 1998, each non-employee Director of the Company has received an
award of 900 shares of Common Stock as part of his or her annual retainer as a
Director pursuant to the 1998 Employee Stock Incentive Plan. Each award is fully
vested when granted to the outside Director.
During 2006, cash compensation paid to Directors of the Company totaled $49,100
and payment of additional Director Compensation of $157,100 was deferred under
the DDFP. Directors of the Company also received 900 annual retainer shares at
$17.09 totaling $123,048. Directors electing coverage under the group health
insurance plan available to employees of the Company have been required to pay
100% of their health insurance premiums since January 1989.
17
The following table sets forth information with regard to compensation earned by
non-employee Directors in 2006. Compensation earned by employee Directors is
described in the "Executive Compensation" section above.
DIRECTOR COMPENSATION TABLE
CHANGE IN
PENSION
VALUE AND
NON-EQUITY NONQUALIFIED
FEES EARNED INCENTIVE DEFERRED
OR PAID IN STOCK OPTION PLAN COMPENSATION ALL OTHER
CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME (2) (1)($) ($) ($) ($) (3)($) ($) ($)
- ------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
William W. Cox $ 21,500 $ 15,381 - - $ 8,406 - $ 45,287
Royce L. Friesen $ 21,400 $ 15,381 - - $ 5,312 - $ 42,093
Dante W. Ghidinelli $ 24,500 $ 15,381 - - $ 4,180 - $ 44,061
Kevin D. Hartwick $ 20,250 $ 15,381 - - $ 3,950 - $ 39,581
Roger B. Kohlmeier $ 21,850 $ 15,381 - - - - $ 37,231
Martin A. Mariani $ 19,000 $ 15,381 - - $ 197 - $ 34,578
Dolores M. Vellutini $ 18,000 $ 15,381 - - $ 3,615 - $ 36,996
J.M. Wells, Jr. $ 36,200 $ 15,381 - - $ 18,661 - $ 70,242
(1) Includes only directors who served during 2006.
(2) Includes cash payments made to directors of North Valley Bancorp for
meetings attended during 2006.
(3) The amounts in this column represent the above-market or preferential
earnings on any nonqualified compensation. The above-market rate is
determined by using the amount above 120% of the Federal long-term rate.
For 2006, the interest rate paid was 9.30%, and the above-market rate was
determined to be 5.98%.
The following table shows the aggregate number of stock awards and option awards
outstanding for each non-employee director as of December 31, 2006. There were
no stock awards or stock options granted to non-employee directors during 2006.
AGGREGATE STOCK AGGREGATE OPTION GRANT DATE FAIR
AWARDS AWARDS VALUE OF STOCK AND
OUTSTANDING AS OF OUTSTANDING AS OPTION AWARDS MADE
12/31/06 OF 12/31/06 DURING 2006
NAME (#) (1)(#) ($)
- ------------------------- ------------------ ------------------ ------------------
William W. Cox - 49,200 $ 15,381
Royce L. Friesen - 27,000 $ 15,381
Dante W. Ghidinelli - 49,500 $ 15,381
Kevin D. Hartwick - 53,801 $ 15,381
Roger B. Kohlmeier - - $ 15,381
Martin A. Mariani - - $ 15,381
Dolores M. Vellutini - 53,801 $ 15,381
J.M. Wells, Jr. - 43,000 $ 15,381
(1) All outstanding director stock options are 100% vested.
18
NORTH VALLEY BANCORP 1989 DIRECTOR STOCK OPTION PLAN
Under the North Valley Bancorp 1989 Director Stock Option Plan, as amended (the
"1989 Director Plan"), which was adopted by the Board of Directors in December
1989 and by the shareholders of the Company at the 1990 Annual Meeting, each
member of the Board of Directors, including employees who are Directors,
automatically received every January a nonstatutory stock option to purchase
1,000 shares of the Company's Common Stock. Effective upon adoption of the North
Valley Bancorp 1999 Director Stock Option Plan, no further grants of options
have been made or will be made under the 1989 Director Plan. Pursuant to the
1989 Director Plan, as of April 13, 2007, there were outstanding options to
purchase 11,700 shares of Common Stock.
Options granted under the 1989 Director Plan vest immediately as to 20%, with an
additional 20% vesting on each of the first four anniversary dates following the
date of grant. Such options are exercisable for a period of 10 years from the
date of grant at a price which shall be 85% of the fair market value of the
Company's Common Stock on the date of grant. The exercise price can be paid by
cash, certified check, official bank check or the equivalent thereof acceptable
to the Company. Options granted pursuant to the 1989 Director Plan automatically
expire three months after termination of service as a Director for any reason
other than cause, death or disability. In the case of termination of service due
to death or disability, such options terminate one year from the date of such
termination of service. In the event that service as a Director is terminated
for cause, the options granted pursuant to the Director Plan expire 30 days
after such termination.
The 1989 Director Plan is presently administered by the Board of Directors,
which has the authority to delegate some or all of its duties to a committee of
the Board of Directors appointed for this purpose, which committee must be
composed of not less than three members of the Board of Directors. This
committee is generally authorized to administer the 1989 Director Plan in all
respects, subject to the express terms of the 1989 Director Plan.
The 1989 Director Plan provides for adjustment of and changes in the shares of
Common Stock reserved for issuance in the event certain changes occur or in the
event of the sale, dissolution or liquidation of the Company or any
reorganization, merger or consolidation of the Company.
NORTH VALLEY BANCORP 1998 EMPLOYEE STOCK INCENTIVE PLAN
The North Valley Bancorp 1998 Employee Stock Incentive Plan (the "Stock
Incentive Plan") was adopted by the Board of Directors in February 1998 and
approved by the shareholders of the Company at the 1998 Annual Meeting. The
Stock Incentive Plan provides for awards in the form of options (which may
constitute incentive stock options or non-statutory stock options to key
employees) and also provides for the award of shares of Common Stock to outside
directors. The shares of Common Stock authorized to be awarded as options under
the Stock Incentive Plan consist of 600,000 shares increased in an amount equal
to 2% of shares outstanding each year, commencing January 1, 1999. The Stock
Incentive Plan defines "key employee" as a common-law employee of the Company,
its parent or any subsidiary of the Company, an "outside director," or a
consultant or advisor who provides services to the Company, its parent or any
subsidiary of the Company. For purposes of the Stock Incentive Plan, an "outside
director" is defined as a member of the Board who is not a common-law employee
of the Company, its parent or any subsidiary of the Company.
Pursuant to the Stock Incentive Plan, as of April 13, 2007, there were
outstanding options to purchase 434,291 shares of Company Common Stock, with
925,982 shares remaining available for grant.
The award of 900 shares of Common Stock to each outside director as an annual
retainer under the Plan is fully taxable at the time of the grant. The Company
receives a compensation expense deduction in the same amount. If the outside
director disposes of the Common Stock prior to 12 months after the date of
grant, any gain (or loss) will be a short-term capital gain. If the shares are
held for longer than 12 months, any gain (or loss) will be taxed at long-term
capital gain rates.
The Stock Incentive Plan is administered by a committee of the Board of
Directors. As of April 13, 2007, the Committee members are Royce L. Friesen,
Dante W. Ghidinelli, Kevin D. Hartwick, Roger B. Kohlmeier and Dolores M.
Vellutini. The Committee must have a membership composition which enables the
Stock Incentive Plan to qualify under SEC Rule 16b-3 with regard to the grant of
options or other rights under the Stock Incentive Plan to persons who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Subject to the requirements of applicable law, the Committee
may designate persons other than members of the Committee to carry out its
responsibilities and may prescribe such conditions and limitations as it may
deem appropriate, except that the Committee may not delegate its authority with
regard to the selection for participation of or the granting of options or
determining awards or other rights under the Stock Incentive Plan to persons
subject to Section 16 of the Exchange Act.
19
In the event that the Company is a party to a merger or other reorganization,
outstanding options and stock awards shall be subject to the agreement of merger
or reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding options by the surviving corporation or its parent,
for their continuation by the Company (if the Company is a surviving
corporation), for accelerated vesting and accelerated expiration, or for
settlement in cash.
NORTH VALLEY BANCORP 1999 DIRECTOR STOCK OPTION PLAN
On April 1, 1999, the Board of Directors adopted the North Valley Bancorp 1999
Director Stock Option Plan (the "1999 Director Stock Option Plan"), pursuant to
which all members of the Board of Directors are eligible for the award of
non-statutory stock options to purchase shares of the Company's Common Stock.
Non-statutory stock options are options not intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
The 1999 Director Stock Option Plan replaced the existing North Valley Bancorp
1989 Director Stock Option Plan, as amended (the "1989 Director Plan") and was
approved by the shareholders at the 1999 Annual Meeting.
The 1999 Director Stock Option Plan is administered by the Board of Directors.
All awards of options are at the discretion of the Board of Directors. The Board
of Directors has the authority to delegate some or all of its duties in
administering the 1999 Director Stock Option Plan to a committee of the Board of
Directors appointed for this purpose, composed of not less than two members of
the Board of Directors who qualify as non-employee directors. The body
administering the 1999 Director Stock Option Plan is generally authorized to
administer such Plan in all respects, subject to the express terms of such Plan,
including the full power to make all determinations necessary or advisable for
its administration.
All members of the Board of Directors of the Company and its subsidiary,
including employees of the Company who are directors, are eligible to
participate in the 1999 Director Stock Option Plan. As of April 13, 2007, there
were nine directors eligible to participate in the 1999 Director Stock Option
Plan.
Shares covered by options granted pursuant to the 1999 Director Stock Option
Plan are authorized but unissued shares of the Company's Common Stock. The
maximum aggregate number of shares of Common Stock which may be optioned and
sold under the 1999 Director Stock Option Plan is equal to 10 percent of the
total shares of the Company's Common Stock issued and outstanding from time to
time. As of April 13, 2007, there were options outstanding under the 1999
Director Stock Option Plan for the purchase of 339,802 shares of Common Stock.
On the same date, there were 7,354,625 shares of Common Stock issued and
outstanding. Thus, as of April 13, 2007, a total of 225,767 shares of Common
Stock were available for the grant of additional options under the 1999 Director
Stock Option Plan.
The 1999 Director Stock Option Plan includes provisions for adjustment of and
changes in the shares reserved for issuance in the event that the shares of
Common Stock of the Company are changed into or exchanged for a different number
of kind of shares of stock or other securities of the Company or other
corporation, whether by reason or reorganization, merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or other
changes.
The 1999 Director Stock Option Plan also includes provisions regarding the sale,
dissolution or liquidation of the Company and any reorganization, merger or
consolidation in which the Company is not the surviving or resulting
corporation. If the Company is not the surviving or resulting corporation, the
Board of Directors shall have the power to terminate all options under the 1999
Director Stock Option Plan, provided that each optionee shall have the right
prior to the effective date of such sale, dissolution, liquidation,
reorganization, merger or consolidation to exercise any outstanding option in
full, without regard to the option's vesting schedule.
Options granted under the 1999 Director Stock Option Plan may only be
non-statutory stock options. Each option will be 20 percent exercisable or
"vested" immediately upon the date of grant and will become further vested at
the rate of 20 percent on each of the first four anniversary dates thereafter.
Options are exercisable for a period of ten years after the date of grant. The
exercise price for the options will be 85 percent of the fair market value of
the shares on the date of grant, as determined by the Board of Directors. So
long as the Company's Common Stock is traded on the NASDAQ Stock Market, such
fair market value shall be equal to the last transaction price quoted for such
date on the NASDAQ Stock Market.
20
Each option granted under the 1999 Director Stock Option Plan has a termination
date of ten years after the date of grant. In addition, each option
automatically expires three months after termination of service as a director
other than for cause, except that in the case of termination of service due to
mandatory retirement, death or disability, an option will remain in effect
unchanged. If a director is removed from the Board of Directors for cause, the
option will expire 30 days after such termination of service.
The Board of Directors may amend, suspend or terminate the 1999 Director Stock
Option Plan at any time and for any reason. Any amendment is subject to the
approval of the shareholders of the Company only to the extent required by
applicable laws or regulations. No amendment or termination may adversely affect
the rights of an optionee under a previously awarded option, without the
optionee's consent.
No taxable income is recognized by an optionee upon the award of a non-statutory
stock option under the 1999 Director Stock Option Plan. The exercise of a
non-statutory stock option awarded under the 1999 Director Stock Option Plan
results in the realization of ordinary income to the optionee in an amount equal
to the difference between the exercise price and the fair market value of the
shares on the date of exercise. For federal income tax purposes, the Company
will be entitled to a compensation expense deduction in the same amount. The
1999 Director Stock Option Plan allows an optionee to satisfy any withholding
tax requirement in connection with the exercise of an option by the withholding
of shares from the total number of shares issuable upon exercise of the option
or by the delivery to the Company of shares of Company Common Stock that have
been held by the optionee for at least six months. Any such arrangement must be
acceptable to the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
To the knowledge of the Company, no person or entity was the beneficial owner of
more than five percent (5%) of the outstanding shares of the Company's Common
Stock, except as described below and in the following table.
AMOUNT AND NATURE OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
- -------------------- ------------------------------------ -------------------- --------------------
Common Stock Wellington Management Company LLP 366,100 5.02%
75 State Street
Boston, MA 02109
(1) Number of shares and percentage are based on information contained in
Amendment No. 6 to Schedule 13G, as filed by Wellington Management Company
LLP with the Securities and Exchange Commission on February 14, 2007.
PROPOSED MERGER
As announced by the Company on April 11, 2007 and reported on the Company's
Current Report on Form 8-K, filed with the Commission on April 11, 2007 (the
"Current Report"), the Company has entered into an Agreement and Plan of Merger
dated April 10, 2007 (the "Merger Agreement"), pursuant to which the Company
will merge with and into Sterling Financial Corporation, a Washington
corporation ("Sterling"), with Sterling being the surviving corporation. A copy
of the Merger Agreement (together with certain other information regarding the
proposed merger) is provided in the Current Report. The transaction is expected
to close in the third quarter of 2007, pending approval of the merger by the
shareholders of the Company, the receipt of all necessary regulatory approvals,
and the satisfaction of other closing conditions which are customary for such
transactions. As a result of the Merger Agreement, the Board of Directors of the
Company has decided to postpone its 2007 Annual Meeting of Shareholders and, as
described in the Current Report, Sterling will file its registration statement
on Form S-4 with the SEC containing the North Valley Bancorp proxy statement and
prospectus which the Company intends to send its shareholders seeking
shareholder approval to consummate the transaction. The Board of Directors of
the Company has unanimously approved the Merger Agreement and the proposed
merger with Sterling and each member of the Board of Directors has entered into
a voting agreement with Sterling pursuant to which such director has agreed to
vote all of his or her shares of Company common stock in favor of the
transaction.
21
OWNERSHIP TABLE
The following table sets forth certain information regarding ownership of the
Company's Common Stock with respect to each Director of the Company and North
Valley Bank, and each current executive officer named in the Summary
Compensation Table in Item 11 of this report, as well as for all other Executive
Officers of the Company and North Valley Bank and for all current Directors and
Executive Officers as a group. All of the shares of Common Stock of the Company
shown in the following table are owned both of record and beneficially, except
as indicated in the notes to the table, as of April 13, 2007. The table should
be read with the understanding that more than one person may be the beneficial
owner or possess certain attributes of beneficial ownership with respect to the
same securities. Therefore, careful attention should be given to the footnote
references set forth in the column "Percent of Class." For the purpose of this
disclosure and the disclosure of ownership of shares by management, shares are
considered to be "beneficially" owned if the person has or shares the power to
vote or direct the voting of the shares, the power to dispose of or direct the
disposition of the shares, or the right to acquire beneficial ownership (as so
defined) within 60 days of April 13, 2007.
22
BENEFICIAL PERCENT OF
BENEFICIAL OWNER POSITION OWNERSHIP(1) CLASS(2)
- ------------------------------- ------------------------------ ------------ ------------
William W. Cox(6) Director, 61,418 *
North Valley Bancorp
North Valley Bank
Michael J. Cushman(5) President and Chief Executive 185,400 2.47%
Officer and Director,
North Valley Bancorp
North Valley Bank
Royce L. Friesen (3) Director, 234,157 3.17%
North Valley Bancorp
North Valley Bank
Dante W. Ghidinelli(3)(7) Director, 279,103 3.77%
North Valley Bancorp
North Valley Bank
Leo J. Graham(5) General Counsel and 9,214 *
Corporate Secretary
North Valley Bancorp
North Valley Bank
Kevin D. Hartwick(3)(8) Director, 248,268 3.35%
North Valley Bancorp
North Valley Bank
Roger B. Kohlmeier (3) Director, 214,502 2.92%
North Valley Bancorp
North Valley Bank
Gary S. Litzsinger(5) Executive Vice President and 5,580 *
Chief Risk Officer
North Valley Bancorp
North Valley Bank
Scott R. Louis(5) Executive Vice President and 2,120 *
Chief Operating Officer
North Valley Bancorp
North Valley Bank
Martin A. Mariani Director, 15,258 *
North Valley Bancorp
North Valley Bank
Roger D. Nash(5) Executive Vice President and 5,120 *
Chief Credit Officer
North Valley Bancorp
North Valley Bank
Dolores M. Vellutini Director, 298,727 4.03%
(3)(9) North Valley Bancorp
North Valley Bank
Kevin R. Watson(5) Executive Vice President and 3,440 *
Chief Financial Officer
North Valley Bancorp
North Valley Bank
J.M.("Mike") Wells, Jr. (10) Chairman, 168,222 2.27%
North Valley Bancorp
North Valley Bank
------------ ------------
All Directors and Executive 837,319 10.72%
Officers as a group
(14 persons) (12) (13) (14)
23
(1) Includes shares beneficially owned, directly and indirectly, together with
associates. Subject to applicable community property laws and shared voting
and investment power with a spouse, sole investment and voting power is
held by the beneficial owner of all shares unless noted otherwise. Includes
stock options granted pursuant to the North Valley Bancorp 1989 Director
Stock Option Plan, the North Valley Bancorp 1998 Employee Stock Incentive
Plan and the North Valley Bancorp 1999 Director Stock Option Plan with:
49,200 shares exercisable within 60 days of April 13, 2007 by Mr. Cox,
158,201 shares exercisable within 60 days of April 13, 2007 by Mr. Cushman;
27,000 shares exercisable with 60 days of April 13, 2007 by Mr. Friesen;
49,500 shares exercisable within 60 days of April 13, 2007 by Mr.
Ghidinelli; 8,791 shares exercisable within 60 days of April 13, 2007 by
Mr. Graham; 53,801 shares exercisable within 60 days of April 13, 2007 by
Mr. Hartwick; 5,580 shares exercisable within 60 days of April 13, 2007 by
Mr. Litzsinger; 2,120 shares exercisable within 60 days of April 13, 2007
by Mr. Louis; 5,120 shares exercisable within 60 days of April 13, 2007 by
Mr. Nash; 53,801 shares exercisable within 60 days of April 13, 2007 by Ms.
Vellutini; 3,440 shares exercisable within 60 days of April 13, 2007 by Mr.
Watson; and 43,000 shares exercisable within 60 days of April 13, 2007 by
Mr. Wells;. Includes shares allocated under the North Valley Bancorp
Employee Stock Ownership Plan through December 31, 2005, with: 2,542 shares
allocated to Mr. Cushman and 273 shares allocated to Mr. Graham. Final
allocations for the year ended December 31, 2006 were not completed prior
to April 13, 2007.
(2) Includes stock options exercisable within 60 days of April 13, 2007. An "*"
indicates less than one percent.
(3) Includes 176,468 shares representing 2.40% of the total shares outstanding
as of April 13, 2007 for each of Messrs. Friesen, Ghidinelli, Hartwick,
Kohlmeier and Ms. Vellutini relative to the North Valley Bancorp Employee
Stock Ownership Plan. Messrs. Friesen, Ghidinelli, Hartwick, Kohlmeier and
Ms. Vellutini constitute the ESOP Administrative Committee and have
authority to instruct the ESOP Trustee, Delaware Charter Guarantee & Trust
Company, conducting business as Principal Trust Company, with regard to
voting of these shares. Messrs. Friesen, Ghidinelli, Hartwick, Kohlmeier
and Ms. Vellutini, as members of the Administrative Committee, disclaim
beneficial ownership with respect to all of those shares. Mr. Cushman and
Mr. Graham are participants in the ESOP.
(4) Intentionally omitted
(5) Michael J. Cushman is President and Chief Executive Officer of North Valley
Bancorp and North Valley Bank; Leo J. Graham is General Counsel and
Corporate Secretary of North Valley Bancorp and North Valley Bank; Gary S.
Litzsinger is Executive Vice President and Chief Risk Officer of North
Valley Bancorp and North Valley Bank; Scott R. Louis is Executive Vice
President and Chief Operating Officer of North Valley Bancorp and North
Valley Bank; Roger D. Nash is Executive Vice President and Chief Credit
Officer of North Valley Bancorp and North Valley Bank; Kevin R. Watson is
Executive Vice President and Chief Financial Officer of North Valley
Bancorp and North Valley Bank.
(6) Includes 915 shares held by Mr. Cox's spouse and as to which Mr. Cox
disclaims beneficial ownership.
(7) Includes 20,861 shares held by Mr. Ghidinelli as trustee for the Balma
Grandchildren Trust.
(8) Includes 420 shares held in custodian accounts for Mr. Hartwick's children.
(9) Includes 210 shares held by Ms. Vellutini's spouse and 12,695 shares held
by Ms. Vellutini's son to which Ms. Vellutini disclaims beneficial
ownership.
(10) Includes 115,420 shares held by The Wells Family Trust, of which Mr. Wells
is trustee. Includes 1,750 shares held by Mr. Wells' spouse and as to which
Mr. Wells disclaims beneficial ownership. Includes 8,052 shares held by the
Estate of Jean M. Wells, of which Mr. Wells is the executor.
(11) Intentionally omitted.
(12) This group includes all current Executive Officers and Directors of the
Company and its subsidiary, North Valley Bank.
24
(13) See footnotes 5, 6, 8, 9 and 10. Excludes 178,642 shares representing 2.43%
of total shares outstanding relative to Messrs. Friesen, Ghidinelli,
Hartwick, Kohlmeier and Ms. Vellutini as the Administrative Committee of
the ESOP. Includes 11,700 shares subject to options exercisable within 60
days of April 13, 2007 by the Directors under the 1989 Director Stock
Option Plan; 264,602 shares subject to options exercisable within 60 days
of April 13, 2007 by the Directors under the 1999 Director Stock Option
Plan; and 183,252 shares subject to options exercisable within 60 days of
April 13, 2007 by Messrs. Cushman, Graham, Litzsinger, Louis, Nash and
Watson under the 1998 Employee Stock Incentive Plan.
(14) In calculating the percentage of ownership, all shares which the identified
person has the right to acquire by the exercise of options are deemed to be
outstanding for the purpose of computing the percentage of class owned by
such person, but are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information about the options, warrants, and
rights and other equity compensation under the Company's equity plans as of
December 31, 2006.
EQUITY COMPENSATION PLANS
NUMBER OF NUMBER OF
SECURITIES TO BE WEIGHTED- SECURITIES
ISSUED UPON THE AVERAGE REMAINING
EXERCISE OF EXERCISE PRICE AVAILABLE FOR
OUTSTANDING OF OUTSTANDING FUTURE ISSUANCE
OPTIONS, OPTIONS, UNDER EQUITY
WARRANTS, AND WARRANTS, AND COMPENSATION
RIGHTS RIGHTS PLANS
PLAN CATEGORY (#) ($) (#)
- ------------------------------------- ---------------- ------------------ ------------------
Equity Compensation Plans approved
by security holders (1) 778,712 $ 9.77 1,212,531
Equity Compensation Plans not
approved by security holders None N/A N/A
---------------- ------------------ ------------------
Total 778,712 $ 9.77 1,212,531
(1) Includes options to purchase shares of Company common stock under the
following shareholder-approved plans: North Valley Bancorp 1989 Director Stock
Option Plan, North Valley Bancorp 1998 Employee Stock Incentive Plan, and North
Valley Bancorp 1999 Director Stock Option Plan.
25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
TRANSACTIONS WITH RELATED PERSONS
The Company has a policy that it does not enter into any transactions covered
under Item 404 of Regulation S-K with the exception of loans made by North
Valley Bank (see "Indebtedness of Management" below). There have been no
transactions, or series of similar transactions, during 2006, or any currently
proposed transaction, or series of similar transactions, to which the Company or
North Valley Bank was or is to be a party, in which the amount involved exceeded
or will exceed $120,000 and in which any director, director-nominee or executive
officer of the Company or North Valley Bank, or any shareholder owning of record
or beneficially 5% or more of North Valley Bancorp common stock, or any member
of the immediate family of any of the foregoing persons, had, or will have, a
direct or indirect material interest.
INDEBTEDNESS OF MANAGEMENT
Through its banking subsidiary, North Valley Bank, the Company has had and
expects in the future to have banking transactions, including loans and other
extensions of credit, in the ordinary course of its business with many of the
Company's Directors, Executive Officers, holders of five percent or more of the
Company's Common Stock and members of the immediate family of any of the
foregoing persons, including transactions with corporations or organizations of
which such persons are directors, officers or controlling shareholders, on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with unrelated persons.
Management believes that in 2006 such loan transactions did not involve more
than the normal risk of collectibility or present other unfavorable features.
All loans and other extensions of credit made by North Valley Bank to the
Directors and Executive Officers of the Company and North Valley Bank are made
in compliance with the applicable restrictions of Section 22 of the Federal
Reserve Act and Regulation O of the Board of Governors of the Federal Reserve
System.
DIRECTOR INDEPENDENCE
The Board of Directors of the Company has evaluated the independence of each of
the members of the Board of Directors in accordance with applicable laws and
regulations including the provisions of the Sarbanes-Oxley Act of 2002 ("SOX"),
the rules and regulations of the Securities and Exchange Commission (the "SEC")
and the corporate governance listing standards of the NASDAQ Stock Market
("NASDAQ").
The Board of Directors has determined that a majority of the Board of Directors
is comprised of "Independent Directors" within the requirements of SOX, SEC and
NASDAQ regulations. The Board of Directors has further determined that Director
Michael J. Cushman, who is employed as the President and Chief Executive Officer
of the Company and North Valley Bank, is not independent.
26
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The firm of Perry-Smith LLP served the Company as the independent registered
public accounting firm for the fiscal year ended December 31, 2006. Perry-Smith
LLP was recommended by the Audit Committee of the Board of Directors to serve as
the independent registered public accounting firm for the 2006 fiscal year, and
the Board of Directors and shareholders of the Company approved the Audit
Committee recommendation. The Audit Committee of the Board of Directors of the
Company approved each professional service rendered by Perry-Smith LLP during
the fiscal year 2006.
During the period covering the fiscal years ended December 31, 2006 and 2005,
Perry-Smith LLP performed the professional services described below. No other
services were provided in 2006 and 2005.
DESCRIPTION 2006 2005
- ----------------------------------- ---------- ----------
Audit Fees (1) $ 238,000 $ 208,000
Audit-Related Fees (2) $ 21,000 $ 21,100
Tax Fees (3) $ 51,800 $ 42,900
(1) Audit fees consist of fees for professional services rendered for the audit
of the Company's consolidated financial statements, audit of internal
control over financial reporting, review of consolidated financial
statements included in the Company's quarterly reports and services
normally provided by the independent auditor in connection with statutory
and regulatory filings or engagements.
(2) Audit-related fees represent fees for the audit of the Company's employee
benefit plans.
(3) Tax fees consist primarily of compliance fees for the preparation of tax
returns.
The Audit Committee of the Board of Directors has reviewed and discussed the
audited financial statements of the Company for the fiscal year ended December
31, 2006. The Audit Committee has discussed with Perry-Smith LLP, the Company's
independent registered public accounting firm, the matters required to be
discussed under Statement on Auditing Standards No. 61, as amended by Statement
on Auditing Standards No. 90 (communications with audit committees). The Audit
Committee has also received the written disclosures and the letter from
Perry-Smith LLP required by Independence Standards Board Standard No. 1
(independence discussions with audit committees), and the Audit Committee has
discussed the independence of Perry-Smith LLP with that firm and based upon such
information has determined that Perry-Smith LLP is independent.
The Audit Committee consists of the following members of the Company's Board of
Directors: Dante W. Ghidinelli (Chairman), Royce L. Friesen, Kevin D. Hartwick,
Roger B. Kohlmeier and Dolores M. Vellutini. All members of the Committee are
independent as defined under SOX, the SEC Regulations and NASDAQ listing
standards. Both Chairman Dante W. Ghidinelli and Mr. Kevin D. Hartwick have
been, as a result of their accounting backgrounds determined to be qualified as
an Audit Committee Financial Expert as defined under SOX, the SEC Regulations
and NASDAQ listing standards. The Audit Committee has recommended to the Board
of Directors that the Company's audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006
for filing with the Securities and Exchange Commission.
27
PART IV
ITEM 15. EXHIBITS
EXHIBIT NO. EXHIBIT NAME
----------- ------------------------------------
31 Section 302 Certifications
32 Sections 960 and 1350 Certifications
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NORTH VALLEY BANCORP
By:
/s/ MICHAEL J. CUSHMAN
-------------------------------------
Michael J. Cushman
President and Chief Executive Officer
/s/ KEVIN R. WATSON
-------------------------------------
Kevin R. Watson
Executive Vice President and
Chief Financial Officer
DATE: April 23, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME AND SIGNATURE TITLE DATE
- ------------------------ ------------------------------- --------------
/s/ J. M. Wells, Jr. Director April 23, 2007
- ------------------------
J. M. Wells, Jr.
/s/ Michael J. Cushman Director, President and Chief April 23, 2007
- ------------------------ Executive Officer (Principal
Michael J. Cushman Executive Officer)
/s/ William W. Cox Director April 23, 2007
- ------------------------
William W. Cox
/s/Royce L. Friesen Director April 23, 2007
- ------------------------
Royce L. Friesen
/s/ Dan W. Ghidinelli Director April 23, 2007
- ------------------------
Dan W. Ghidinelli
/s/ Kevin D. Hartwick Director April 23, 2007
- ------------------------
Kevin D. Hartwick
/s/ Roger B. Kohlmeier Director April 23, 2007
- ------------------------
Roger B. Kohlmeier
/s/ Martin A. Mariani Director April 23, 2007
- ------------------------
Martin A. Mariani
/s/ Dolores M. Vellutini Director April 23, 2007
- ------------------------
Dolores M. Vellutini
/s/ Kevin R. Watson Executive Vice President and April 23, 2007
- ------------------------ Chief Financial Officer
Kevin R. Watson (Principal Financial Officer &
Principal Accounting Officer)
29