-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OnVjnnoMXfhtF2lT2z7Y8juVJTSlrSdnML27kB9i0SxRGaTxcykupiUyTTFRlac9 6toUMeElIZ++S86gvLMlgQ== 0000944209-01-000005.txt : 20010122 0000944209-01-000005.hdr.sgml : 20010122 ACCESSION NUMBER: 0000944209-01-000005 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20010104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA BANCORP CENTRAL INDEX KEY: 0001130144 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330937517 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-53178 FILM NUMBER: 1501773 BUSINESS ADDRESS: STREET 1: 90 NORTH MAIN STREET CITY: PORTERVILLE STATE: CA ZIP: 93257 BUSINESS PHONE: 5597824900 MAIL ADDRESS: STREET 1: 90 NORTH MAIN STREET CITY: PORTERVILLE STATE: CA ZIP: 93257 S-4 1 0001.txt FORM S-4 As filed with the Securities and Exchange Commission on January 4, 2001. Registration No. 333-__________ =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ____________________ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ____________________ SIERRA BANCORP (Exact Name of Registrant as Specified in its Charter) California 6712 33-0937517 (State or Other Jurisdiction of (Primary Standard (I.R.S. Employer Incorporation or Organization) Industrial Classification Identification No.) Code Number)
86 North Main Street Porterville, California 93257 (559) 782-4900 (Address, including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices) James C. Holly President and Chief Executive Officer Bank of the Sierra 86 North Main Street Porterville, California 93257 (559) 782-4900 (Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service) With a copy to: Nikki Wolontis, Esq. Fried, Bird & Crumpacker, P.C. 1900 Avenue of the Stars 25th Floor Los Angeles, California 90067 (310) 551-7411; (310) 556-4487 (fax) Approximate Date of Commencement of Proposed Sale to the Public: As Soon as Practicable after the Effective Date of this Registration Statement. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE
Title of Securities Amount to Proposed Proposed Maximum Amount of to be Registered be Maximum Offering Aggregate Offering Registration Fee Registered Price Per Share Price* Common Stock, 9,212,280 n/a $63,334,425 $15,833.61 no par value
_________________________ * Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f)(1) based on the aggregate market value on December 28, 2000 of the number of shares of Bank of the Sierra common stock expected to be received by the registrant in the reorganization. ============================================================================== The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. [BANK OF THE SIERRA LETTERHEAD] WRITTEN CONSENT STATEMENT/PROSPECTUS January ___, 2001 Dear Shareholder: The Board of Directors of Bank of the Sierra (the "Bank") has voted in favor of a reorganization creating a bank holding company to be called Sierra Bancorp. Sierra Bancorp is a newly-formed California corporation, organized at the direction of our Bank's Board of Directors for the purpose of becoming a bank holding company. If shareholders approve the reorganization, we will exchange each of your Bank of the Sierra shares for one share of Sierra Bancorp. Thus, instead of owning Bank of the Sierra directly, you will own shares in Sierra Bancorp which will own Bank of the Sierra. The reorganization cannot be completed unless holders of at least a majority of the outstanding shares of Bank of the Sierra vote for it and all necessary regulatory approvals are obtained. The Board of Directors has chosen to solicit shareholder approval of the reorganization by means of written consent rather than calling a special meeting of shareholders. Written consents for approval of this action are being solicited from all shareholders of the Bank. We are pleased to enclose for your review this written consent statement/prospectus that provides you with the information you need to evaluate the reorganization. We encourage you to review it carefully. Your stock in Sierra Bancorp will have a value equal to the value of your stock in Bank of the Sierra and therefore the exchange will take place without any recognition of gain or loss for federal income tax purposes. No changes in the Bank's directors, officers, or other personnel are contemplated as a result of the formation of the bank holding company. Additionally, after formation of the bank holding company, the Bank will continue its present business and operations under the name of Bank of the Sierra. We urge you to fill in, date, sign and mail the enclosed Written Consent form in the enclosed self-addressed postage prepaid envelope. It is expected that the enclosed written consent statement/prospectus and accompanying Consent form will be mailed or delivered to shareholders of the Bank on or after January ___, 2001. We hope that the Written Consent Statement/Prospectus will answer any questions you may have concerning the proposed reorganization. If you have any questions, concerning this Written Consent Statement/Prospectus or the accompanying written consent form, please telephone Jack B. Buchold, Senior Vice President and Chief Financial Officer, (559) 782-4900. I strongly support the organization of Sierra Bancorp and enthusiastically recommend that you vote in favor of it. Your interest and participation are appreciated. Sincerely, James C. Holly President and Chief Executive Officer The reorganization involves risks. SEE RISK FACTORS ON PAGE 5. These securities are not deposits or accounts, and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Neither the Securities and Exchange Commission, the Federal Deposit Insurance Corporation nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this written consent statement - prospectus. Any representation to the contrary is a criminal offense. January ___, 2001 BANK OF THE SIERRA AND SIERRA BANCORP WRITTEN CONSENT STATEMENT/PROSPECTUS TABLE OF CONTENTS
Page ---- QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION.............................................. 1 SUMMARY..................................................................................... 2 RISK FACTORS................................................................................ 5 WHERE YOU CAN FIND MORE INFORMATION......................................................... 8 SOLICITATION OF WRITTEN CONSENTS............................................................ 9 General.............................................................................. 9 Receipt of Consents.................................................................. 9 Who May Vote......................................................................... 10 Vote Required........................................................................ 10 Revocation of Consent................................................................ 10 Expenses of this Solicitation........................................................ 10 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............................................. 10 BANK HOLDING COMPANY REORGANIZATION......................................................... 10 Reasons for the Reorganization....................................................... 11 Description of the Plan of Reorganization and Agreement of Merger.................... 12 Accounting Treatment................................................................. 13 Federal Income Tax Consequences...................................................... 13 Comparison of the Holding Company and the Bank Corporate Structures.................. 14 Rights of Dissenting Shareholders.................................................... 17 Affiliate Restrictions............................................................... 17 MARKET PRICES OF STOCK...................................................................... 17 Sierra Bancorp....................................................................... 17 Bank of the Sierra................................................................... 18 DIVIDENDS................................................................................... 18 Sierra Bancorp....................................................................... 18 Bank of the Sierra................................................................... 19 FINANCIAL STATEMENTS........................................................................ 19 HISTORY AND BUSINESS OF SIERRA BANCORP...................................................... 21 Organization......................................................................... 21 Business............................................................................. 21 Management........................................................................... 21 Indemnification...................................................................... 22 HISTORY AND BUSINESS OF BANK OF THE SIERRA.................................................. 23 General.............................................................................. 23 Recent Developments.................................................................. 25 Competition.......................................................................... 26 Employees............................................................................ 27 Properties........................................................................... 27 Legal Proceedings.................................................................... 27 MANAGEMENT OF BANK OF THE SIERRA............................................................ 28 Board of Directors and Officers...................................................... 28 Committees of the Board of Directors................................................. 30 Executive Compensation............................................................... 30 Stock Options........................................................................ 31 Compensation of Directors............................................................ 32 Performance Graph.................................................................... 33 Transactions with Directors and Executive Officers................................... 34 SUPERVISION AND REGULATION.................................................................. 34 Regulation of Sierra Bancorp......................................................... 34 Regulation of Bank of the Sierra..................................................... 35 Government Policies and Legislation.................................................. 35 LEGAL MATTERS............................................................................... 36
i QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION Q: Why is this reorganization proposed? A: The Board of Directors of Bank of the Sierra believes that the bank holding company structure will provide greater flexibility in terms of operations, expansion, and diversification. Initially, the holding company will be utilized to assist in financing the Bank's acquisition of Taft National Bank through the issuance of trust preferred securities by a to-be-formed subsidiary of Sierra Bancorp. Q: What will I receive in this reorganization? A: You will receive one share of Sierra Bancorp common stock for each share of Bank of the Sierra common stock that you own immediately prior to the reorganization. Q: How do I vote? A: Simply indicate on your written consent card how you want to vote and then sign and mail your written consent card in the enclosed return envelope as soon as possible. Bank of the Sierra's Board of Directors unanimously recommends that you consent to the reorganization. Q: If my shares are held in "street name" by my broker, will my broker vote my shares for me? A: Your broker will not vote your shares for you unless you provide instructions to your broker on how to vote. It is important therefore that you follow the directions provided by your broker regarding how to instruct your broker to vote your shares. If you fail to instruct your broker on how to vote your shares, the effect will be the same as a vote against the reorganization. Q: What are the tax consequences of the reorganization to me? A: You are generally not expected to incur federal income tax as a result of the reorganization. To review the tax consequences to Bank of the Sierra shareholders in greater detail, see pages 13 through 14. The tax consequences of the reorganization to you will depend on your own situation. You should consult your tax advisors for a full understanding of the tax consequences of the reorganization to you. Q: Can I change my vote after I have mailed my signed written consent card? A: Yes. You may withdraw or change your written consent before the solicitation period expires (February ___, 2001). You will need to send a letter to the Bank's corporate secretary which must be received before the solicitation period expires stating that you are revoking your previous vote. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote. Q: Should I send in my certificates now? A: No. After the reorganization is completed, you will receive written instructions for exchanging your stock certificates. Q: When do you expect this reorganization to be completed? A: We are currently working to complete the reorganization in April, 2001. Q: Why have you sent this document and who can help answer my questions? A: This written consent statement/prospectus contains important information regarding this proposed reorganization, as well as information about Bank of the Sierra and Sierra Bancorp. We urge you to read this written consent statement/prospectus carefully, including its appendices. You may also want to review the documents listed under "WHERE CAN YOU FIND MORE INFORMATION" on page 8. If you have more questions about the reorganization, you should contact: Jack B. Buchold, Senior Vice President and Chief Financial Officer, Bank of the Sierra, 86 North Main Street, Porterville, California 93257, (559) 782-4900. 1 SUMMARY This brief summary highlights selected information from this document and does not contain all the information that is important to you. We urge you to read this written consent statement/prospectus carefully to fully understand the reorganization. References in this document to "we," "us," "our" and the Bank refer to Bank of the Sierra. In certain instances where appropriate, "us" or "our" refers collectively to Sierra Bancorp and Bank of the Sierra. FORMATION OF A BANK HOLDING COMPANY WHICH WILL OWN THE BANK The Board of Directors is asking you to vote on a proposal to organize a bank holding company, Sierra Bancorp, which will own Bank of the Sierra. The new corporate structure will permit Sierra Bancorp and Bank of the Sierra greater financial and corporate flexibility in the areas of acquisitions and debt financing. In addition, it will allow us to: . Offer new services. . Enjoy access to new markets. . Participate in activities which are not permissible for Bank of the Sierra to engage in directly. . Finance the Bank's acquisition of Taft National Bank in part through the issuance of trust preferred securities by a to-be-formed subsidiary of Sierra Bancorp. We have attached the reorganization agreement as Appendix "A" at the back of this written consent statement/ prospectus. We encourage you to read the reorganization agreement, as it is the legal document that governs the transaction. In the reorganization, Bank of the Sierra will continue in its operations as presently conducted under its management, but Bank of the Sierra will be a wholly owned subsidiary of Sierra Bancorp. THE COMPANIES Sierra Bancorp Sierra Bancorp is not an operating company and has not engaged in any significant business to date. It was formed on November 16, 2000 as a California corporation to be the holding company for the Bank After the reorganization, Sierra Bancorp will become a registered bank holding company, whose principal asset will be its stockholdings in Bank of the Sierra. Bank of the Sierra Bank of the Sierra is a California state-chartered bank which engages in the commercial banking business. Bank of the Sierra is headquartered in Porterville, California and is the largest independent bank headquartered in the South San Joaquin Valley with assets of approximately $608 million at September 30, 2000. Bank of the Sierra operates sixteen branch offices in the four counties between Bakersfield and Fresno. Sierra Merger Corporation Sierra Merger Corporation ("Sierra Merger") is a Delaware corporation newly organized as a wholly-owned subsidiary of Sierra Bancorp in November, 2000. Sierra Merger's sole purpose is to merge into the Bank in order to facilitate the reorganization. Sierra Merger will disappear after the reorganization. 2 THE MANAGEMENT OF BANK OF THE SIERRA WILL CONTINUE AFTER THE REORGANIZATION The directors and officers of Bank of the Sierra will continue to be directors and officers of the Bank following the reorganization. After the reorganization, the present directors of Sierra Bancorp (who are also directors of the Bank) will continue to be directors of Sierra Bancorp, and certain of the officers of Bank of the Sierra will also serve as officers of Sierra Bancorp. The shareholders of Sierra Bancorp will only elect the directors of Sierra Bancorp after the reorganization. Sierra Bancorp will elect the directors of Bank of the Sierra. YOU WILL RECEIVE ONE SHARE OF SIERRA BANCORP COMMON STOCK FOR EACH SHARE OF BANK OF THE SIERRA COMMON STOCK YOU OWN If the reorganization is approved, we will exchange your Bank of the Sierra common stock shares for common stock shares in Sierra Bancorp. You will receive one share of Sierra Bancorp stock for each share of your Bank of the Sierra common stock you own immediately prior to the reorganization. WE NEED YOUR APPROVAL In order to complete the reorganization, we need the approval of owners of at least a majority of the outstanding shares of the common stock of Bank of the Sierra. As of December 31, 2000, the date on which a person must be a shareholder to be entitled to vote, there were 9,212,280 shares of common stock outstanding and entitled to vote. Therefore, we will need the owners of 4,606,141 shares to vote in favor of the reorganization. The Board of Directors of Bank of the Sierra unanimously recommends voting in favor of the reorganization. THE DIRECTORS AND EXECUTIVE OFFICERS INTEND TO VOTE IN FAVOR OF THE REORGANIZATION Bank of the Sierra's directors and executive officers who beneficially owned in the aggregate approximately 4,219,310 voting shares or 45.8% of the outstanding shares of Bank of the Sierra common stock as of December 31, 2000, intend to vote for the approval of the reorganization. WHAT SHOULD SHAREHOLDERS DO? If you want to vote in favor of the reorganization, mail your signed written consent card in the enclosed envelope as soon as possible. If you want to vote against the reorganization, you do not need to do anything. If you do not send in your written consent card, your shares will automatically be counted against the reorganization. We must receive your written consent by 5:00 p.m., Pacific Time, on February ___, 2001 (unless extended by the Bank) for your consent to be counted in the vote on the reorganization. SHAREHOLDERS DO NOT HAVE DISSENTERS' APPRAISAL RIGHTS Bank of the Sierra's shareholders do not have dissenters' rights with respect to the reorganization. THE REORGANIZATION WILL BE TAX-FREE TO YOU McGladrey & Pullen, LLP, the Bank's certified public accountants, has stated their opinion that no gains or losses will be recognized by either Bank of the Sierra or Sierra Bancorp or their shareholders as a result of the reorganization. However, because tax matters are complicated, and tax results may vary among shareholders, we urge you to contact your own tax advisor to understand fully how the reorganization will affect you. 3 DIFFERENCES BETWEEN BANK OF THE SIERRA AND SIERRA BANCORP Shareholders of Sierra Bancorp will have rights comparable to those rights which they now possess as shareholders of Bank of the Sierra. However, certain minor differences will arise due to the fact that Sierra Bancorp is a non-bank California corporation and Bank of the Sierra is a California state-chartered bank subject to the provisions of the California Financial Code as well as the California Corporations Code. For a discussion regarding these differences, see "BANK HOLDING COMPANY REORGANIZATION - Comparison of the Holding Company and the Bank Corporate Structures" on page 14. There are also differences in the availability of funds for the payment of dividends by Bank of the Sierra and Sierra Bancorp. (See "DIVIDENDS" on page 18). BENEFITS TO DIRECTORS AND OFFICERS OF THE REORGANIZATION The reorganization will not provide any substantive benefits to directors and officers of Bank of the Sierra, who will continue to be directors and officers of Bank of the Sierra and Sierra Bancorp. EXISTING OPTIONS TO ACQUIRE BANK OF THE SIERRA COMMON STOCK WILL BECOME OPTIONS TO PURCHASE SIERRA BANCORP COMMON STOCK AFTER THE REORGANIZATION After the reorganization is completed all of the obligations of Bank of the Sierra under the Bank of the Sierra 1998 Stock Option Plan will become obligations of Sierra Bancorp on the same terms and conditions, with the exception that the securities issued pursuant to the Bank of the Sierra 1998 Stock Option Plan will be Sierra Bancorp common stock. ACCOUNTING TREATMENT Because the proposed transaction is a reorganization with no change in ownership interests, the consolidated financial statements of Sierra Bancorp and the Bank will retain the former bases of accounting of the Bank and will initially be identical to the Bank's financial statements prior to the reorganization. REGULATORY APPROVALS We cannot complete the reorganization unless it is approved, non- disapproved and/or exempted by the Federal Reserve Bank of San Francisco (the "FRB"), the FDIC and the California Department of Financial Institutions (the "DFI"). Bank of the Sierra, Sierra Bancorp and Sierra Merger have filed all of the required applications or notices with the FRB, the FDIC, and the DFI. As of the date of this document, the FRB, the FDIC and the DFI have not granted the approvals/non-disapprovals, exemptions or waivers needed to consummate the reorganization. While we do not know of any reason that we would not be able to obtain the necessary approvals/non-disapprovals, exemptions or waivers in a timely manner, we cannot be certain when or if we will obtain them. PUBLIC TRADING OF SIERRA BANCORP STOCK Bank of the Sierra stock is listed for quotation on the National Market System of the Nasdaq Stock Market under the trading symbol "BSRR" After the reorganization, Sierra Bancorp stock will be listed for quotation on the National Market System and will use the same trading symbol, "BSRR." 4 RISK FACTORS In addition to the other information we provide in this written consent statement/prospectus, you should carefully consider the following risks before deciding whether to vote for the reorganization. Poor Economic Conditions May Cause Us to Incur Losses. A substantial majority of our assets and deposits are generated in the San Joaquin Valley in central California. As a result, poor economic conditions in the San Joaquin Valley may cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. The San Joaquin Valley has experienced a much slower economic recovery than other areas of the State of California during the past year. While the metropolitan centers and the Silicon Valley have been characterized by dot com euphoria and extensive job creation, the central valley of California has not experienced the same type of growth. Unemployment levels have remained high, especially in Tulare County, which is our geographic center and the base of our agriculturally oriented communities. In addition, in the early 1990s, the entire state of California experienced an economic recession that resulted in increases in the level of delinquencies and losses for many of the state's financial institutions. If California were to experience another recession, we expect that our level of problem assets would increase accordingly. Poor Economic Conditions Affecting Particular Industries Could Have an Adverse Effect on Our Customers and Their Ability to Make Payments to Us. We are also affected by certain industry-specific economic factors. For example, a significant portion of our total loan portfolio is related to real estate obligations (particularly home mortgage loans), and a portion of our recent growth has been fueled by the general real estate recovery in California. Accordingly, a downturn in the real estate industry in California could have an adverse effect on our operations. Similarly, a sizable portion of our total loan portfolio is to borrowers in the agricultural industry. While a great number of our borrowers may not be individually involved in agriculture, many of the jobs in the San Joaquin Valley are ancillary to the regular production, processing, marketing and sales of agricultural commodities. The ripple effect of lower commodity prices for milk, olives, grapes, tree fruit and oranges has a tendency to spread to lower land prices, lower borrower income, and lower collateral values. In addition, the weather patterns of the past two years have not been conducive to row crop, tree fruit, or orange production. This degenerative cycle of weather and commodity prices then affects consumer purchasing power, and creates further unemployment throughout the San Joaquin Valley. Such conditions may adversely affect our borrower base, and consequently, may negatively impact our business. We May Incur Risks As a Result of Our Growth. Our Bank's total assets have increased from $404 million at December 31, 1998, to $458 million at December 31, 1999 and to $608 million at September 30, 2000, or an increase of over 50% in less than two years. Our acquisition of Sierra National Bank in May 2000 increased our Bank's assets by approximately $87 million. In addition, the acquisition of Taft National Bank, which is anticipated to be consummated in the second quarter of 2001, would increase Bank of the Sierra's assets by approximately $58 million or an additional 10% increase in the Bank's assets through acquisitions since September 30, 2000. In addition, we intend to investigate other opportunities to acquire or combine with additional financial institutions that would complement our existing business as such opportunities may arise. No assurance can be provided, however, that we will be able to identify additional suitable acquisition targets or consummate any such acquisition. Our ability to manage our growth will depend primarily on our ability to: . monitor operations; . control costs; . maintain positive customer relations; and . attract, assimilate and retain qualified personnel. If we fail to achieve those objectives in an efficient and timely manner, we may experience interruptions and dislocations in our business, and our financial condition and results of operations could be adversely affected. Any such problems could adversely affect our existing operations, as well as our ability to retain the customers of the acquired businesses or operate any such businesses profitably. In addition, such concerns may cause federal and state banking 5 regulators to require Sierra Bancorp or Bank of the Sierra to delay or forgo any proposed acquisition until such problems have been addressed to the satisfaction of those regulators. There is no Assurance Sierra Bancorp Will be Able to Meet its Debt Service Obligations. In order to fund a substantial portion of the acquisition price for Taft National Bank, it is anticipated that Sierra Bancorp will issue subordinated debt securities to a new wholly-owned subsidiary, a Delaware statutory business trust, which statutory business trust will in turn issue its trust preferred securities to the public in a private placement of securities. The proceeds from the private placement of the trust preferred securities by the Delaware statutory business trust will be used by that trust to purchase the subordinated debt securities of Sierra Bancorp. It is anticipated that funds generated from operations of Bank of the Sierra will be at a level sufficient to meet the debt service obligations of Sierra Bancorp on its subordinated debt securities, which obligations must be met in order for the Delaware statutory business trust to meet its dividend payment obligations on the trust preferred securities. There can be no assurance, however, that Sierra Bancorp will be able to meet its debt service obligations on its subordinated debt securities. Failure to meet these obligations when due would have a material adverse effect on the business, financial condition and results of operations of Sierra Bancorp. (See "History and Business of Bank of the Sierra -- Recent Developments.") There is no Assurance Sierra Bancorp Will be Able to Pay Dividends. The amount and timing of the payment of dividends by Sierra Bancorp will be dependent on the earnings and financial condition of Bank of the Sierra. The power of Bank of Sierra's Board of Directors to declare cash dividends is limited by statutory and regulatory restrictions. In addition, Sierra Bancorp's debt service obligations on the debt securities which it intends to issue in connection with obtaining financing with respect to the acquisition of Taft National Bank will have to be met prior to the payment of any dividends on the common stock of Sierra Bancorp. Although Sierra Bancorp anticipates continuing to pay dividends in the future similar to those which were paid in the past by the Bank of the Sierra, no assurance can be given that Bank of the Sierra's and Sierra Bancorp's future earnings in any given year will justify the payment of such a dividend. Further, there can be no assurance that following the payment of any debt service obligations, there will be sufficient funds available for the payment of any dividends to holders of Sierra Bancorp's common stock. (See "Dividends.") Changing Interest Rates May Reduce Our Net Interest Income. Banking companies' earnings depend largely on the relationship between the cost of funds, primarily deposits and borrowings, and the yield on earning assets such as loans and investment securities. This relationship, known as the interest rate spread, is subject to fluctuation and is affected by economic, regulatory and competitive factors which influence interest rates, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of nonperforming assets. Many of these factors are beyond our control. Fluctuations in interest rates affect the demand of customers for our products and services. Our bank is subject to interest rate risk to the degree that our interest- bearing liabilities reprice or mature more slowly or more rapidly or on a different basis than our interest-earning assets. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Therefore, significant fluctuations in interest rates may have an adverse effect on our results of operations. Intense Competition Exists for Loans and Deposits. The banking and financial services business in California generally, and in our market area specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial services providers. We compete for loans, deposits and customers for financial services with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than we do. The reorganization will not, at least for the foreseeable future, overcome these competitive disadvantages. You May Have Difficulty Selling Your Shares in the Future If a More Active Trading Market for Our Stock Does Not Develop. Although Bank of the Sierra's Common Stock has been listed on the Nasdaq National 6 Market since June 10, 1999, trading in our stock has not been extensive and cannot be characterized as amounting to an active trading market. Because the Price of Our Common Stock May Vary Widely, When You Decide to Sell It, You May Encounter a Delay or Have to Accept a Reduced Price. The price of Sierra Bancorp common stock may fluctuate widely, depending on many factors. Some of these factors have little to do with our operating results or the intrinsic worth of our Bank or Sierra Bancorp. For example, the market value of Sierra Bancorp common stock may be affected by the trading volume of the shares, announcements of expanded services by us or our competitors, operating results of our competitors, general trends in the banking industry, general price and volume fluctuations in the stock market, acquisition of related companies or variations in quarterly operating results. Also, if the trading market for our common stock remains limited, that may exaggerate changes in market value, leading to more price volatility than would occur in a more active trading market. As a result, if you want to sell your Sierra Bancorp common stock, you may encounter delay or have to accept a reduced price. Sierra Bancorp's Stock Price May Fall if Bank of the Sierra has Poor Earnings. Sierra Bancorp's financial condition following the reorganization will depend on the operation and profitability of Bank of the Sierra. Sierra Bancorp has no history of financial performance because it is a newly-formed corporation. Shareholders who receive Sierra Bancorp stock will not have the opportunity to analyze the historical financial performance of Sierra Bancorp. Sierra Bancorp's profitability may be affected by other factors including: businesses started or acquired by Sierra Bancorp other than Bank of the Sierra; and laws and regulations that apply to Sierra Bancorp. Although Sierra Bancorp intends to operate Bank of the Sierra in substantially the same manner that it has been operated to date, changes to the operations of Bank of the Sierra and new businesses may affect the financial performance and condition of Sierra Bancorp as a whole and the return to shareholders of Sierra Bancorp. Adverse Effects of Banking Regulations or Changes in Banking Regulations Could Adversely Affect Our Business. We are governed by significant federal and state regulation and supervision, which is primarily for the benefit and protection of our customers and not for the benefit of our investors. In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future. Laws, regulations or policies currently affecting us and our subsidiaries may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. Therefore, our business may be adversely affected by any future changes in laws, regulations, policies or interpretations. Under a long-standing policy of the Board of Governors of the Federal Reserve System, a bank holding company is expected to act as a source of financial strength for its subsidiary banks. As a result of that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances where we might not otherwise do so. Loan Loss Reserves May Not Cover Actual Loans Losses. We maintain an allowance for loan losses at a level which we believe is adequate to absorb any inherent losses in our loan portfolio. However, changes in economic, operating and other conditions, including changes in interest rates, that are beyond our control, may cause our actual loan losses to exceed our current allowance estimates. If the actual loan losses exceed the amount reserved, it will hurt our business. In addition, the FDIC and the DFI, as part of their supervisory functions, periodically review our allowance for loan losses. Such agencies may require us to increase our provision for loan losses or to recognize further loan losses, based on their judgments, which may be different from those of our management. Any increase in the allowance required by the FDIC or the DFI could also hurt our business. We try to limit the risk that borrowers will fail to repay loans by carefully underwriting the loans. Losses nevertheless occur. We create reserves for estimated loan losses in our accounting records. We base these allowances on estimates of the following: . industry standards; . historical experience with our loans; . evaluation of current and predicted economic conditions; 7 . regular reviews of the quality mix and size of the overall loan portfolio; . regular reviews of delinquencies; and . the quality of the collateral underlying our loans. Our Directors and Executive Officers Control Almost a Majority of Our Stock, and Your interests May Not Always be the Same as Those of the Board and Management. As of December 31, 2000, our directors and executive officers together with their affiliates, beneficially owned approximately 45.8% of the Bank's outstanding voting stock (not including vested option shares). As a result, if all of these shareholders take a common position, they could most likely control the outcome of most corporate actions, such as: . approval of mergers or other business combinations; . sales of all or substantially all of our assets; . any matters submitted to a vote of our shareholders; . issuance of any additional common stock or other equity securities; . incurrence of debt other than in the ordinary course of business; . the selection and tenure of our Chief Executive Officer; and . payment of dividends on common stock or other equity securities. In some situations, the interests of our directors and executive officers may be different from yours. However, our Board of Directors and executive officers have a fiduciary duty to act in the best interests of the shareholders, rather than in their own best interests, when considering a proposed business combination or any of these types of matters. Provisions in Our Articles of Incorporation Will Delay or Prevent Changes in Control of Our Corporation or Our Management. These provisions make it more difficult for another company to acquire us, which could reduce the market price of our common stock and the price that you receive if you sell your shares in the future. These provisions include the following: . a requirement that certain business combinations not approved by our Board of Directors receive the approval of two-thirds of the outstanding shares; . staggered terms of office for members of the board of directors; . the elimination of cumulative voting in the election of directors; and . a requirement that our Board of Directors consider the potential social and economic effects on the our employees, depositors, customers and the communities we serve as well as certain other factors, when evaluating a possible tender offer, merger or other acquisition of the Bank or Sierra Bancorp. These provisions in Sierra Bancorp's Articles of Incorporation are essentially identical to comparable provisions in the Bank's Articles of Incorporation which were approved by the Bank's shareholders in May, 2000. WHERE YOU CAN FIND MORE INFORMATION Sierra Bancorp, 86 North Main Street, Porterville, California 93257, has filed a Registration Statement with the Securities and Exchange Commission for the securities it proposes to issue as part of its plan of reorganization, described in this written consent statement/prospectus. This written consent statement/prospectus is part of the Registration Statement, but does not contain all the information from the Registration Statement and its exhibits. Portions of the Registration Statement and its exhibits have been omitted from this written consent statement/prospectus in accordance with the rules and regulations of the Securities and Exchange Commission. The Registration Statement may be inspected, without charge, at the principal office of the Securities and Exchange 8 Commission, 450 Fifth Street, N.W., Washington, D.C., and you may order copies of all or part of it from the Securities and Exchange Commission upon payment of its fees. In addition, you can view the Registration Statement and all the exhibits on the Securities and Exchange Commission's Web Site at: http:// www.sec.gov. Upon the effectiveness of its Registration Statement filed with the Securities and Exchange Commission for the securities which Sierra Bancorp proposes to issue as part of its plan of reorganization described in this written consent statement/prospectus, Sierra Bancorp will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") which will require it to file annual and quarterly financial reports with the Securities and Exchange Commission. Such reports and other information concerning Sierra Bancorp may be inspected at the office of the Securities and Exchange Commission at the address referred to above and copies of these reports may be obtained upon payment of the Commission's fees. In addition, these reports may also be viewed on the Securities and Exchange Commission's Web site referred to above. Bank of the Sierra's common stock is registered under Section 12(g) of the Exchange Act which requires it to file annual and quarterly financial reports with the Federal Deposit Insurance Corporation. Bank of the Sierra's Form 10-K Annual Report which includes financial statements and schedules, by reference, is filed with the Federal Deposit Insurance Corporation in Washington, D.C. A copy of this report is available to shareholders upon request to Jack B. Buchold, Bank of the Sierra, 86 North Main Street, Porterville, California 93257, (559) 782-4900. The first copy will be provided without charge. Neither the annual report to shareholders nor the Form 10-K are part of the written consent solicitation material, nor have they been made a part of it by mentioning them. Additionally, the Form 10-K Annual Report may be inspected and copied at the offices of the Federal Deposit Insurance Corporation, 550 17/th/ Street, N.W., Washington, D.C. 20429. SOLICITATION OF WRITTEN CONSENTS General The Board of Directors has elected to obtain shareholder approval of the reorganization by written consent, rather than by calling a special meeting of shareholders. Written consents are being solicited from all shareholders of the Bank. Section 603 of the Corporations Code and Section 2.9 of Article II of the Bank's Bylaws authorize the Bank to obtain the necessary shareholder approvals by written consent without a meeting. Receipt of Consents We must receive your written consent by 5:00 p.m., Pacific Time, on February ___, 2001 (unless extended by the Bank) (the "Approval Date") to be counted in the vote on the Plan of Reorganization. Shareholders who wish to vote "YES" for the Plan of Reorganization should complete, sign and date the accompanying written consent form and return it to the Bank in the enclosed postage prepaid envelope as soon as possible. A written consent form returned by a shareholder will be counted "consent to," "does not consent to" or "abstain" with respect to the Plan of Reorganization, as indicated on the consent form, with respect to all shares shown on the books of the Bank as of the Record Date as being owned by such shareholder. Any shareholder who signs and returns the written consent form but who does not indicate a choice thereon will be deemed to have consented to the approval of the Plan of Reorganization. Shareholder approval will be effective upon receipt by the Bank of affirmative written consents representing a majority of the Bank's outstanding shares, but in no event prior to February ___, 2001. 9 Who May Vote Only Bank shareholders of record as of December 31, 2000 (the "Record Date") may vote. You are entitled to vote based on the number of shares of Bank of the Sierra Common Stock you have on the Record Date. There were issued and outstanding 9,212,280 shares of Bank of the Sierra's Common Stock on the Record Date. The Bank has no other class of capital stock outstanding. Consent may be given by any person in whose name shares stand on the books of the Bank as of the Record Date, or by his or her duly authorized agent. If you hold your Bank of the Sierra Common Stock in "street name" and you fail to instruct your broker or nominee as to how to vote your Bank of the Sierra Common Stock, your broker or nominee MAY NOT, pursuant to applicable stock exchange rules, vote your stock with respect to the Plan of Reorganization. Vote Required The Bank must receive written consents representing a majority of the outstanding shares of Bank of the Sierra's Common Stock for approval of the Plan of Reorganization. Accordingly, abstentions from voting will have the effect of a vote "AGAINST" the Plan of Reorganization. Revocation of Consent You may withdraw or change your written consent before the solicitation period expires (February ___, 2001). You will need to send a letter to the Bank's corporate secretary stating that you are revoking your previous vote. Expenses of this Solicitation This solicitation is being made by the Board of Directors of the Bank. The expense of preparing, assembling, printing and mailing this Written Consent Statement/Prospectus and the other material used in this solicitation of written consents will be borne by the Bank. In addition to soliciting written consents through the mail, the directors, officers and regular employees of the Bank may solicit written consents personally or by telephone without receiving special compensation therefor. Brokerage firms and other custodians, nominees, and fiduciaries will be requested to forward the soliciting material to their principals and to obtain authorization for the execution of consents. The Bank may, upon request, reimburse brokerage firms, and other custodians, nominees, and fiduciaries for their reasonable expenses in forwarding soliciting materials to their principals. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Management knows of no person who owned beneficially more than five percent (5%) of the outstanding Common Stock of the Bank as of the Record Date for this written consent solicitation (December 31, 2000), except for Gregory A. Childress, Robert L. Fields, James C. Holly and Morris A. Tharp, each of whom is a member of the Bank's Board of Directors (see "HISTORY AND BUSINESS OF BANK OF THE SIERRA - Board of Directors and Officers" herein). BANK HOLDING COMPANY REORGANIZATION The Board of Directors of Bank of the Sierra has approved a plan of reorganization under which the business of the Bank will be conducted as a wholly-owned subsidiary of Sierra Bancorp and each outstanding share of Bank of the Sierra's common stock will be converted into one share of Sierra Bancorp's Common Stock. The details of the reorganization are set forth in the Plan of Reorganization and Agreement of Merger among Bank of the Sierra, Sierra 10 Bancorp and Sierra Merger which is attached as Exhibit "A" hereto (the "Reorganization Agreement"). The Bank's Board of Directors has unanimously approved the Reorganization Agreement and recommends a vote "FOR" the proposed reorganization. Reasons for the Reorganization We believe that a holding company structure will better position us to compete in the markets that we serve by providing greater corporate and financial flexibility in conducting our business. Examples are: . increased structural alternatives for acquisitions; . increased flexibility in acquiring or establishing other businesses related to banking; . more alternatives for raising capital and access to debt markets; and . greater flexibility regarding redemption of stock. The bank and thrift industry has been undergoing a period of consolidation for some time. We believe that the holding company structure may make it easier for us to respond quickly to take advantage of expansion opportunities which are in our shareholders' best interests. For instance, as a bank, we cannot own a separate bank or thrift institution, but Sierra Bancorp could acquire and operate another institution as a separate entity. This might be a good alternative if we wanted to expand into geographic markets where the continued use of an existing bank's local name or identity would be desirable. Also, holding companies can acquire effective control of other banks by purchasing substantially less than 100% of the target bank, which is considerably cheaper than acquisitions by banks, which must involve 100%. Acquisitions by holding companies may also enjoy certain tax and/or accounting-related advantages (regarding acquisition premiums and/or acquisition debt), although no assurance can be given that such advantages will continue to apply in the future. The reorganization may also make it easier for us to engage in certain non- bank activities and to take advantage of future changes in the laws and regulations governing banks and bank-related activities. For example, since 1997, there has been a significant expansion of permissible non-banking activities for bank holding companies and subsidiaries thereof in a wide variety of areas. While an adequately capitalized state bank would be permitted to engage in these activities, it would generally not be able to invest in the - ------ ------ stock of other corporations that engage in such activities (other than majority owned subsidiaries). In addition, while there can be no guarantee that this will happen, opportunities may arise in the future for bank holding companies which would not be available to banks. The bank holding company corporate structure may prove valuable in taking advantage of any such new opportunities that may be made available in the future. The reorganization may also enable us to take advantage of certain provisions of the Gramm-Leach-Bliley Act which, effective March 11, 2000, eliminated most barriers to affiliations among banks and securities firms, insurance companies, and other financial service providers, and enabled full affiliations to occur between such entities. This new legislation permits qualified bank holding companies to become "financial holding companies" and thereby acquire securities firms and insurance companies and engage in other activities that are financial in nature. The holding company structure would also provide greater flexibility in the area of repurchase of securities. Currently, we are permitted to repurchase our stock, but only with the prior approval of both the DFI and the FDIC, and subject to applicable restrictions and requirements imposed by both agencies. Sierra Bancorp, on the other hand, would be permitted to repurchase its stock by action of the Board of Directors, subject to any limitations imposed by the rules and regulations of the FRB and the limitations on dividends under applicable state law. Current policies of the FRB would require Sierra Bancorp to notify the FRB of any proposed repurchase which (including all purchases or redemptions of its equity securities during the 12 months preceding the date of notification) would equal or exceed 10% of Sierra Bancorp's consolidated net worth as of the date of such notice. Repurchases of less that this amount would require no regulatory notification. (The FRB may permit repurchases in excess of this amount if it determines 11 that the repurchase would not constitute an unsafe or unsound practice and that it would not violate any applicable law, rule, regulation or order, or any condition imposed by, or written agreement with, the FRB. At present, neither the Bank nor Sierra Bancorp has any plans to repurchase its Common Stock.) However, such notice and approval is not required for a bank holding company that would be treated as "well capitalized" under applicable regulations of the FRB, that has received a composite "1" or "2" rating at its most recent bank holding company inspection by the FRB, and that is not the subject of any unresolved supervisory issues. Finally, a bank holding company structure may provide more financing alternatives to subsidiaries of the holding company, particularly under changing conditions in financial markets. Traditionally, bank holding companies have had greater access to institutional debt markets than banks and are not subject to certain borrowing restrictions which apply to banks (except for regulatory debt- to-equity ratio and policies and considerations of safety and soundness). To provide capital to one of its subsidiaries, a holding company might borrow in reliance on its consolidated financial condition, and not just the financial condition of the affected subsidiary, without the need to sell additional common stock or other equity securities. However, due to our asset size, we would be required to meet all applicable capital requirements on a consolidated basis, so that the holding company would not be able to borrow money to infuse capital into the Bank in order to increase the Bank's capital levels, if the resulting capital ratios on a consolidated basis were insufficient. (Sierra Bancorp could, however, infuse such capital for purposes of increasing the Bank's legal lending limit or in situations where bank regulators might require a higher leverage capital ratio for the Bank than the FRB would require for the holding company.) At present, neither the Bank nor Sierra Bancorp has any present plans to borrow funds for the use of or to contribute to any subsidiary of Sierra Bancorp other than in connection with the Bank's proposed acquisition of Taft National Bank. There can be no assurance, however, as to the method or type of financing arrangements that will be available to Sierra Bancorp if the reorganization is completed. Description of the Plan of Reorganization and Agreement of Merger Sierra Bancorp has been organized at the direction of the Bank and initially will hold all the stock of Sierra Merger, a newly organized California corporation. The reorganization plan is proposed to be accomplished by merging Sierra Merger with and into Bank of the Sierra. Upon consummation of the reorganization, the Bank will survive, will continue to be named Bank of the Sierra and will continue to operate under its existing Certificate of Authority issued by the DFI. On the effective date of the reorganization, shareholders of the Bank will automatically become shareholders of Sierra Bancorp, with each share of Bank of the Sierra Common Stock held by them being converted into one share of Sierra Bancorp's Common Stock. The 100 outstanding shares of Sierra Bancorp held by James C. Holly (which are currently the only outstanding shares of Sierra Bancorp) will be redeemed for nominal consideration ($100) and the shares of Sierra Merger will be converted into shares of the Bank. The rights of the holders of Sierra Bancorp Common Stock will be substantially the same as the rights of the holders of Bank of the Sierra Common Stock. For a discussion of these rights, see "Comparison of the Holding Company and the Bank Corporate Structures" herein. Upon consummation of the reorganization, outstanding certificates for shares of Bank of the Sierra Common Stock will represent shares of Sierra Bancorp Common Stock. Shareholders will be entitled to exchange their present certificates for new certificates evidencing shares of Sierra Bancorp Common Stock. Following consummation of the reorganization, the Bank will notify each shareholder and request that each such record holder present his or her certificate to Sierra Bancorp for a new certificate evidencing shares of Sierra Bancorp Common Stock. Until so exchanged, the certificates for shares of Bank of the Sierra Common Stock will represent the shares of Sierra Bancorp Common Stock into which the shares of Bank of the Sierra Common Stock have been converted. Consummation of the Reorganization Agreement requires the affirmative vote or consent of a majority of the issued and outstanding shares of Common Stock of Bank of the Sierra, Sierra Bancorp and Sierra Merger, the non-disapproval by the Federal Reserve Board ("FRB") of Sierra Bancorp's notice of intention to become a bank holding company, the approval of the DFI for Sierra Bancorp to acquire control of the Bank, the approval of the FDIC for the Bank to merge with Sierra Merger and the fulfillment of certain other legal requirements. It is anticipated that the 12 effective date of the reorganization will be in April, 2001 or after the receipt of all governmental approvals required for the reorganization and the expiration of any applicable waiting periods related thereto, whichever is later. If any action, suit or proceeding should be threatened or instituted with respect to the proposed reorganization, the Board of Directors of the Bank reserves the right, in its sole discretion, to terminate the transaction at any time before the effective date. Moreover, if for any other reason the consummation of the reorganization is inadvisable in the opinion of the Boards of Directors of Bank of the Sierra, Sierra Merger or Sierra Bancorp, the Reorganization Agreement may be terminated by any of them either before or after the shareholders of the Bank vote to approve the reorganization. If the holders of a majority of the issued and outstanding shares of the Bank should fail to approve the reorganization, the conditions and legal requirements to consummate the Reorganization Agreement are not satisfied or fulfilled, or the transaction is otherwise terminated as provided above, the business of the Bank would continue to operate under the ownership of its then-existing shareholders. The expenses of the reorganization estimated at approximately $100,000 will be paid by the Bank. Accounting Treatment Because the proposed transaction is a reorganization with no change in ownership interests, the consolidated financial statements of Sierra Bancorp and the Bank will retain the former bases of accounting of the Bank and will initially be identical to the Bank's financial statements prior to the reorganization. Federal Income Tax Consequences The following discussion, which is a summary of the opinion of RSM McGladrey, Inc., which is affiliated with McGladrey & Pullen, LLP, the Bank's certified public accountants, is limited to certain federal income tax consequences of the proposed reorganization and does not discuss state, local or foreign tax consequences or all of the tax consequences that might be relevant to shareholders of the Bank entitled to special tax treatment. In the opinion of RSM McGladrey, Inc., the proposed reorganization will qualify for federal income tax purposes as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). This opinion is conditioned upon the accuracy of various representations made to RSM McGladrey, Inc. and certain assumptions made by RSM McGladrey, Inc. The opinion is based on current law and assumes that the reorganization is consummated as described herein. Neither this summary nor the opinion of RSM McGladrey, Inc. is binding on the IRS and no ruling from the IRS has been sought or will be sought with respect to such tax consequences. Based upon the qualification of the reorganization as a reorganization within the meaning of Section 368 of the Code: (a) No gain or loss will be recognized by the Bank, Sierra Merger or Sierra Bancorp as a result of the reorganization under 361(a) and 357(a) of the Code and Rev. Rul. 57-278; (b) No gain or loss will be recognized by the shareholders of the Bank upon receipt of Sierra Bancorp Common Stock in exchange for their shares of Bank of the Sierra Common Stock pursuant to the reorganization; (c) The Sierra Bancorp Common Stock received by the shareholders of the Bank in exchange for their Bank of the Sierra Common Stock will have the same basis for federal income tax purposes as the basis of the shares of Bank of the Sierra Common Stock surrendered in exchange therefor under 358(a)(1) of the Code; (d) The holding period of Sierra Bancorp Common Stock received by shareholders of Bank of the Sierra in exchange for their Bank of the Sierra Common Stock will include the holding period for the Bank of the Sierra Common Stock surrendered in the reorganization under 1223 (a) (1) of the Code, provided that such shares of Bank of the Sierra Common Stock surrendered were held as capital assets by the Bank of the Sierra shareholder on the date of consummation of the reorganization; 13 (e) The tax basis of the assets of Bank of the Sierra retained by Bank of the Sierra will be the same as the tax basis for such assets immediately before the reorganization; (f) The holding period of the assets of Bank of the Sierra will include the holding period of such assets immediately before the reorganization; (g) No gain or loss will be recognized by Sierra Bancorp upon the issuance of its own stock under 361(a) of the Code; (h) A holder of an outstanding option granted under the Bank's Incentive Stock Option Plan will not recognize income, gain or loss solely as a result of the assumption of the Bank's Incentive Stock Option Plan by Sierra Bancorp; and (i) The assumption by Sierra Bancorp of outstanding incentive stock options granted under the Bank's Incentive Stock Option Plan will not be deemed a modification of the option under Section 424(h) of the Code. The Bank's shareholders are urged to consult their own tax advisors as to specific tax consequences to them of the reorganization including tax return reporting requirements and the applicability and effect of federal, state, local, foreign and other applicable laws. Comparison of the Holding Company and the Bank Corporate Structures The following chart sets forth a comparison which summarizes significant similarities and differences between the corporate structures of Sierra Bancorp and Bank of the Sierra. A more detailed explanation of these matters follows and should be reviewed in connection with the chart.
- ----------------------------------------------------------------------------------------------------------------------- SIERRA BANCORP BANK OF THE SIERRA --------------------------------------- ----------------------------- Authorized Capital Stock.......... 24,000,000 shares of common stock Same Dividend Rights................... Payable when declared by Board out Similar, but subject to of legally available funds (subject to California Financial Code and California General Corporation Law federal law. and federal law). Voting Rights..................... One vote per share; no cumulative Same voting in the election of directors. Preemptive Rights................. None None Liquidation Rights................ Pro rata, after payment of debts. Same Number of Directors............... Range of 6 to 11, currently fixed at 9 Same by Board. Classification.................... Board is divided into two (2) classes Same of directors, holding terms expiring in 2001 and 2002. - -----------------------------------------------------------------------------------------------------------------------
Authorized Capital Stock The Bank currently has authorized capital consisting of 24,000,000 shares of common stock. Of these authorized shares, as of December 31, 2000, 9,212,280 shares of Common Stock were issued and outstanding. In addition, there were options outstanding to purchase 773,600 shares of Bank of the Sierra Common Stock pursuant 14 to the Bank's Stock Option Plan. Upon the effectiveness of the reorganization, all outstanding options to purchase Bank of the Sierra Common Stock under the Bank's Stock Option Plan, will be automatically converted to options to purchase Sierra Bancorp Common Stock. The Bank has no other outstanding options, warrants or other outstanding rights to purchase shares of Bank of the Sierra Common Stock. Sierra Bancorp currently has authorized capital consisting of 24,000,000 shares of common stock. Of these authorized shares, 100 shares of common stock have been issued. In the reorganization, Sierra Bancorp will issue approximately 9,212,280 shares of Sierra Bancorp Common Stock in exchange for all of the outstanding shares of Bank of the Sierra Common Stock. The balance of Sierra Bancorp's authorized common stock will be available to be issued when and as the Board of Directors of Sierra Bancorp determines it is advisable to do so. While there are no present plans or agreements to issue any additional shares of Sierra Bancorp's common stock, such shares of common stock could be issued for the purpose of raising additional capital, in connection with acquisitions of other assets or investments, or for other corporate purposes. The Board of Directors of Sierra Bancorp will generally have the authority to issue shares of common stock, without obtaining the approval of existing security holders. If additional shares of Sierra Bancorp's common stock were to be issued, the existing holders of Sierra Bancorp Common Stock would own a proportionately smaller portion of the total number of shares of the then issued and outstanding common stock. Dividend Rights The shareholders of the Bank are entitled to dividends when, as and if declared by the Bank's Board of Directors out of funds legally available therefor. Since we are a state-chartered bank, our ability to pay dividends or make distributions to our shareholders is subject to restrictions set forth in the California Financial Code. The California Financial Code provides that neither a bank nor any majority-owned subsidiary of a bank may make a distribution to its shareholders in an amount which exceeds the lesser of (i) the bank's retained earnings or (ii) the bank's net income for its last three fiscal years, less the amount of any distributions made by the bank or by any majority-owned subsidiary of the bank during such period. Notwithstanding the foregoing, a bank may, with the prior approval of the California Commissioner of Financial Institutions (the "Commissioner"), make a distribution to the shareholders of the bank in an amount not exceeding the greatest of: (i) its retained earnings; (ii) its net income for its last fiscal year; or (iii) the net income of the bank for its current fiscal year. If the Commissioner finds that the shareholders' equity of the bank is inadequate or that the making of a distribution by a bank would be unsafe or unsound, the Commissioner may order the bank to refrain from making a proposed distribution. The payment of any cash dividends by the Bank also depends on the Bank meeting applicable regulatory capital requirements. The holders of Sierra Bancorp Common Stock will be entitled to receive dividends when and as declared by its Board of Directors out of funds legally available therefor, subject to the restrictions set forth in the California General Corporations Law (the "GCL"). The GCL provides that a corporation may make a distribution to its shareholders if the corporation's retained earnings equal at least the amount of the proposed distribution. The GCL further provides that, in the event that sufficient retained earnings are not available for the proposed distribution, a corporation may nevertheless make a distribution to its shareholders if it meets two conditions, which generally are as follows: (i) the corporation's assets equal at least 1 1/4 times its liabilities; and (ii) the corporation's current assets equal at least its current liabilities or, if the average of the corporation's earnings before taxes on income and before interest expense for two preceding fiscal years was less than the average of the corporation's interest expense for such fiscal years, then the corporation's current assets must equal at least 1 1/4 times its current liabilities. The payment of dividends by Sierra Bancorp will depend on Sierra Bancorp's net income, financial condition, regulatory requirements and other factors, including the results of the Bank's operations. Following the reorganization, Sierra Bancorp anticipates continuing to pay dividends in the future similar to those which were paid in the past by the Bank. (See "DIVIDENDS" herein.) However, no assurance can be given that the Bank's and Sierra Bancorp's future earnings in any given year will justify the payment of such a dividend. (See "RISK FACTORS - There is no Assurance Sierra Bancorp Will be Able to Pay Dividends.") 15 Voting Rights All voting rights with respect to the Bank currently are vested in the holders of Bank of the Sierra Common Stock. All voting rights with respect to Sierra Bancorp will be vested in the holders of Sierra Bancorp Common Stock. Holders of Bank of the Sierra Common Stock are entitled to and holders of Sierra Bancorp Common Stock will be entitled to one vote for each share of Common Stock standing in his or her name on the books of the Bank or Sierra Bancorp, as applicable, on any matter submitted to the vote of the shareholders. Shareholders do not have cumulative voting rights in connection with the election of directors. The Bank's Board of Directors is divided into two (2) classes of directors (one class currently consisting of five and the other of four directors), serving terms which currently expire in 2001 and 2002. Beginning in 2001 such directors will be elected to terms of two years each. The Board of Directors of Sierra Bancorp will also be divided into two (2) such classes and the directors will be elected for terms of two years. Preemptive Rights Holders of Bank of the Sierra Common Stock do not have and holders of Sierra Bancorp Common Stock will not have preemptive rights. Liquidation Rights The holders of Bank of the Sierra Common Stock are entitled, and the holders of Sierra Bancorp Common Stock will also be entitled, to receive their pro rata share of the assets of the Bank or Sierra Bancorp distributable to shareholders upon liquidation, subject, however, to the preferential rights, if any, of the holders of outstanding senior securities. Corporate Operation The Bylaws and Articles of Incorporation of the Bank and the Bylaws and Articles of Incorporation of Sierra Bancorp are similar in all material respects, except as noted in this Proxy Statement. The Bank's Bylaws provide for a range of between six (6) and eleven (11) directors, and the number of directors within such range is currently fixed at nine (9). Sierra Bancorp's Bylaws are identical in this regard. Shareholder Vote for Mergers and Other Matters The reorganization will change the procedures required for obtaining shareholder approval of certain matters. Currently, approval of the Bank's shareholders is required, for example, for any amendments to the Bank's Articles of Incorporation and to any amendment to the Bank's Bylaws which would change the authorized range of directors. Following the reorganization, approval of Sierra Bancorp's shareholders will be required for any amendments of this nature involving Sierra Bancorp's Articles or Bylaws, but the Articles or Bylaws of the Bank could be amended by action of Sierra Bancorp's Board of Directors, authorizing Sierra Bancorp, as sole shareholder of the Bank, to approve such amendments. With respect to mergers, reorganizations and acquisitions involving banks, the California Financial Code provides that any "reorganization," as that term is defined in the GCL, is subject to the shareholder approval requirements of the GCL. (The term includes merger reorganizations, exchange reorganizations and sale-of-assets reorganizations.) As the GCL will also apply to Sierra Bancorp, the rights of Sierra Bancorp's shareholders will be essentially the same as the current rights of the Bank's existing shareholders with respect to such reorganizations. In this connection, the GCL generally requires a vote by the shareholders of (i) each "constituent corporation" to a merger; (ii) a corporation selling all or substantially all of its assets; (iii) the acquiring corporation in either a share-for-share exchange or a sale-of-assets reorganization, and (iv) a parent corporation (even though it is not a "constituent corporation") whose equity securities are being issued in connection with a corporate reorganization such as a triangular merger. The GCL does not require shareholder approval in the case of any corporation in a merger as to which such corporation and/or its shareholders will have five-sixths or more of the voting power of the surviving or 16 acquiring corporation after consummation of the merger (unless the shares acquired in such a merger have different rights, preferences, privileges or restrictions than those surrendered). With certain exceptions, the GCL also requires a class vote when a shareholder vote is required in connection with these transactions. Dissenters' Rights The GCL provides that holders of Sierra Bancorp Common Stock would be entitled, subject to the provisions of Chapter 13, to dissenters' rights in connection with any transaction which constitutes a reorganization (as defined in the GCL). However, pursuant to the California Financial Code, shareholders of Bank of the Sierra Common Stock are not entitled to dissenters' rights in connection with any transactions between two banking institutions which constitutes a reorganization (as defined in the GCL) where the Bank is the corporation surviving such transaction, even if dissenters' rights were otherwise available pursuant to Chapter 13. Rights of Dissenting Shareholders The Bank's shareholders do not have dissenters' rights with respect to the reorganization. Affiliate Restrictions The shares of Sierra Bancorp stock will be registered under the Securities Act of 1933. However, the resale of these shares by the directors, executive officers and principal shareholders may be restricted by the 1933 Act and by SEC rules if the directors, principal officers, and principal shareholders are deemed to be "affiliates" as that term is defined by the 1933 Act and SEC rules. Persons considered to be in control of an issuer are considered as "affiliates." Such persons may include officers and directors of the Bank or Sierra Bancorp, as well as any shareholders who own 10% or more of Sierra Bancorp's outstanding stock. Sierra Bancorp stock held by "affiliates" of Sierra Bancorp can be sold only if such shares are registered or transferred in a transaction exempt from registration under the 1933 Act, for instance under SEC Rules 144 and 145, or through a private placement. SEC Rules 144 and 145 generally require that before an affiliate can sell stock: . There must be on file with the SEC public information filed by the issuer; . The affiliate must sell his stock in a unsolicited broker's transaction or directly to a market maker; and . During any three-month period, the amount of the securities that can be sold is limited to the greater of 1% of the outstanding stock of the issuer or the average weekly trading volume during the last four calendar weeks. It may be advisable for those shareholders who may become "affiliates" of Sierra Bancorp to consult their legal counsel before selling any Sierra Bancorp stock. MARKET PRICES OF STOCK Sierra Bancorp Sierra Bancorp was incorporated on November 16, 2000. No shares of Sierra Bancorp have been publicly traded since the date of its incorporation to the present time. Therefore, no meaningful market exists at this time for Sierra Bancorp stock. Bank of the Sierra shareholders will exchange their bank stock for Sierra Bancorp stock. Shares of Sierra Bancorp will be listed for quotation on the National Market System of the National Association of Securities Dealers Automated Quotation System (the "Nasdaq National Market") with the same trading symbol (BSRR) as that used for Bank of the Sierra shares. 17 Bank of the Sierra Bank of the Sierra's Common Stock is included for quotation on the Nasdaq National Market under the symbol BSRR. Trading in the Common Stock of the Bank has not been extensive and although trading in the Bank's stock has increased since the stock began trading on the Nasdaq National Market on June 10, 1999, such trades cannot be characterized as amounting to an active trading market. Management is aware of the following securities dealers who make a market in the Bank's stock: Hoefer & Arnett, San Francisco, California; J. Alexander Securities, Inc., Los Angeles, California; and Sutro & Co., Los Angeles, California, (the "Securities Dealers"). The following table summarizes trades of Bank of the Sierra's Common Stock, setting forth the approximate high and low sales prices and volume of trading for the periods indicated, based upon information provided by the Securities Dealers. The information in the following table does not include trading activity between dealers. APPROXIMATE CALENDAR QUARTER ENDED HIGH LOW TRADING VOLUME ---------------------- ---- --- -------------- March 31, 1998......................... $14.50 $ 10.12 173,300 June 30, 1998.......................... 11.50 10.25 155,100 September 30, 1998..................... 10.50 8.87 104,100 December 31, 1998...................... 9.50 7.87 87,900 March 31, 1999......................... 9.50 7.63 88,600 June 30, 1999.......................... 10.50 8.25 152,800 September 30, 1999..................... 11.43 8.50 76,822 December 31, 1999...................... 10.50 7.44 172,036 March 31, 2000......................... 9.50 7.50 185,143 June 30, 2000.......................... 8.25 7.125 95,929 September 30, 2000..................... 8.00 5.688 91,589 December 31, 2000...................... 7.50 5.75 121,496 DIVIDENDS Sierra Bancorp Since the date of its incorporation, Sierra Bancorp has paid no dividends. After completion of the reorganization, the amount and timing of future dividends will be determined by its Board of Directors and will substantially depend upon the earnings and financial condition of its principal subsidiary, Bank of the Sierra. The ability of Sierra Bancorp to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by its subsidiary, Bank of the Sierra. In addition, prior to the payment of any dividends by Sierra Bancorp, Sierra Bancorp will have to meet any debt service obligations it may have with respect to any subordinated debt securities it may issue in connection with obtaining financing for the acquisition of Taft National Bank. (See "RISK FACTORS - There is no Assurance Sierra Bancorp Will be Able to Pay Dividends," "There is no Assurance Sierra Bancorp Will be Able to Meet its Debt Service Obligations," and "HISTORY AND BUSINESS OF BANK OF THE SIERRA - Recent Developments.") 18 The power of the Bank's Board of Directors to declare cash dividends is limited by statutory and regulatory restrictions which restrict the amount available for cash dividends depending upon the earnings, financial condition and cash needs of the Bank, as well as general business conditions. Since the Bank is a state-chartered bank, the ability to pay dividends or make distributions to its shareholders is subject to restrictions set forth in the California Financial Code. (See "BANK HOLDING COMPANY REORGANIZATION - Comparison of the Holding Company and the Bank Corporate Structures - Dividend Rights" herein.) Bank of the Sierra The Bank's dividend policy is generally to pay quarterly cash dividends which total approximately thirty-five percent (35%) of the prior year's net earnings to the extent that such payments are consistent with general considerations of safety and soundness and do not adversely affect the Bank's financial condition. This quarterly dividend policy was put into effect during 1999, and replaced the Board's prior policy of paying an annual dividend of approximately ten percent (10%) of the prior year's net earnings, as a cash dividend in the subsequent year. While the Bank paid such quarterly dividend in 1999 and had paid annual dividends in the approximate amount described above for the previous ten years, no assurance can be given that the Bank's future earnings in any given year will justify the payment of such a dividend. Dividends paid during the year 1999 were $2.02 million or $0.22 per share and dividends paid during the year 1998 were $1.4 million or $0.15 per share. The amount paid in 1999 reflected a combination of the normal dividend based on earnings, in accordance with the Bank's general dividend policy, plus a special dividend in the approximate amount of the Bank's gain on the sale of a portion of the Bank's investment in Phoenix International, LTD, Inc., a computer software company which specializes in the production and marketing of client user software for financial institutions. Sierra Bancorp anticipates continuing to pay dividends in the future similar to those which were paid in the past by the Bank. However, no assurance can be given that Bank of the Sierra's and Sierra Bancorp's future earnings in any given year will justify the payment of such a dividend. (See "RISK FACTORS - - There is no Assurance Sierra Bancorp Will be Able to Pay Dividends," "There is no Assurance Sierra Bancorp Will be Able to Meet its Debt Service Obligations.") For a discussion of certain legal restrictions on Sierra Bancorp's ability to pay cash dividends, see "BANK HOLDING COMPANY REORGANIZATION - Comparison of the Holding Company and the Bank Corporate Structures - Dividend Rights" above. FINANCIAL STATEMENTS Bank of the Sierra's audited Consolidated Balance Sheets as of December 31, 1999 and 1998, the related audited Consolidated Statements of Income, Consolidated Statements of Shareholder's Equity and Cash Flows for each of the three years ended December 31, 1999, 1998 and 1997 are included in Bank of the Sierra's Annual Report, which was sent to each shareholder prior to the Annual Meeting of shareholders holders held on May 19, 2000. Financial statements of Bank of the Sierra are not included in this written consent statement/prospectus as they are not deemed material to the exercise of prudent judgment by shareholders on the matters to be acted upon in this written consent solicitation. If any shareholder so desires, he may obtain an additional copy of the financial statements upon written request to: Jack B. Buchold, Bank of the Sierra, 86 North Main Street, Porterville, California 93257. Provided on the next page is a five-year summary of selected financial data of Bank of the Sierra. In addition, selected financial data is presented for the nine months ended and as of September 30, 2000 and 1999. Per share information is adjusted to account for stock splits. The results of operations for the nine months ended September 30, 2000 are derived from internally prepared consolidated financial statements and reflect all adjustments including only normal recurring accruals that management considers necessary for a fair presentation and are not necessarily indicative of the results of operations to be expected for the entire year. 19
As of and For the Nine Months Ended September 30, As of and For the Years Ended December 31, ------------------- ----------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- ---- (Unaudited) (Dollars in Thousands, except per share data) Income Statement Summary: Interest income.............................. $ 34,931 $ 25,263 $ 34,511 $ 33,652 $ 30,011 $ 26,850 $ 27,151 Interest expense............................. 13,320 8,462 11,721 12,378 9,846 8,690 10,644 Net interest income before provision for possible loan losses.......... 21,611 16,801 22,790 21,274 20,165 18,160 16,507 Provision for loan losses.................... 2,070 1,430 2,118 2,800 2,013 1,493 1,607 Noninterest income........................... 4,575 3,703 5,346 6,076 4,389 3,544 3,041 Noninterest expense.......................... 17,325 13,280 17,631 16,383 15,463 14,261 12,560 Income before provision for income taxes..... 6,791 5,794 8,387 8,167 7,078 5,950 5,381 Provision for income taxes................... 2,435 2,055 2,775 2,943 2,536 2,035 1,860 Net income................................... 4,356 3,739 5,612 5,224 4,542 3,915 3,521 Balance Sheet Summary: Total loans, net............................. $ 415,718 $ 304,685 $ 314,474 $ 270,920 $ 258,142 $ 217,238 $ 204,291 Allowance for loan losses.................... (5,210) (3,347) (3,319) (4,394) (3,034) (2,904) (2,745) Securities held to maturity.................. 76,758 65,492 64,886 53,096 37,033 37,590 37,515 Securities available for sale................ 39,474 27,549 27,986 30,656 23,082 13,544 9,156 Cash and due from banks...................... 43,872 23,053 31,413 24,545 26,774 32,791 21,943 Federal funds sold........................... - 580 - 9,800 5,300 - 16,000 Other real estate owned...................... 1,449 1,135 2,553 1,273 2,285 2,226 4,022 Premises and equipment, net.................. 14,423 11,546 11,597 9,491 7,540 6,851 7,231 Total interest-earning assets................ 537,160 401,653 410,665 369,216 327,264 271,695 270,202 Total assets................................. 607,664 439,778 458,384 404,064 365,333 314,232 304,607 Total interest-bearing liabilities........... 438,844 300,439 327,835 283,464 260,373 210,554 216,316 Total deposits............................... 523,365 383,699 385,818 355,881 321,113 283,021 280,313 Total liabilities............................ 568,197 404,058 421,685 369,046 334,882 287,595 283,333 Total shareholders' equity................... 39,467 35,720 36,699 35,018 30,451 26,637 21,274 Per Share Data:/1/ Net income................................... $ 0.47 $ 0.41 $ 0.61 $ 0.57 $ 0.49 $ 0.42 $ 0.38 Book value................................... 4.28 3.88 3.98 3.80 3.31 2.89 2.31 Cash dividends............................... 0.18 0.17 0.22 0.15 0.05 0.04 0.05 Weighted average common shares outstanding, basic.......................... 9,212,280 9,212,280 9,212,280 9,212,280 9,212,280 9,212,280 9,212,280 Weighted average common shares outstanding, diluted...................... 9,212,280 9,212,280 9,252,193 9,212,280 9,212,280 9,212,280 9,212,280 Selected Financial Ratios: Return on average assets/2/,/3/.............. 1.03% 1.21% 1.33% 1.33% 1.37% 1.32% 1.18% Return on average equity/4/,/3/.............. 15.39% 14.62% 16.24% 15.81% 15.74% 16.45% 18.00% Dividend payout ratio/5/..................... 38.29% 41.46% 36.07% 26.32% 10.20% 9.52% 13.16% Net interest spread/6/....................... 5.29% 5.08% 5.10% 4.97% 5.68% 5.93% 5.25% Net interest margin/7/....................... 5.39% 5.44% 5.42% 5.92% 6.68% 6.24% 5.50% Equity to assets ratio/8/.................... 6.71% 8.29% 8.22% 8.42% 8.71% 8.48% 6.98% Tier 1 Capital to adjusted total assets...... 5.49% 7.87% 8.13% 8.16% 8.10% 8.10% 6.96% Tier 1 Capital to total risk-weighted assets. 7.83% 10.75% 10.30% 11.54% 10.50% 11.00% 9.50% Total capital to total risk-weighted assets.. 9.09% 11.92% 11.32% 12.79% 11.61% 12.30% 10.80% Nonperforming loans to total loans........... 0.26% 0.69% 0.28% 1.43% 0.55% 1.21% 1.17% Nonperforming assets to total loans and other real estate owned................. 0.61% 1.05% 1.08% 1.88% 1.41% 2.20% 3.05% Net charge-offs (recoveries) to average loans............................ 0.32% .94% 1.11% 0.55% 0.78% 0.63% 0.64% Total interest expense to gross interest income....................... 38.13% 33.49% 33.96% 36.78% 32.81% 32.36% 39.20% Allowance for possible loan losses to net loans at period end.................. 1.25% 1.10% 1.06% 1.62% 1.18% 1.34% 1.34% Net loans to total deposits at period end.... 79.43% 80.28% 81.51% 76.13% 80.39% 76.76% 72.88%
________________________ /1/All per share data and the average number of shares outstanding have been retroactively restated on a split adjusted basis. /2/Net income divided by average total assets. /3/Annualized. /4/Net income divided by average shareholders' equity. /5/Dividends declared per share divided by net income per share. /6/Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. /7/Represents net interest income (after provision for loan losses) as a percentage of average interest-earning assets. /8/Average equity divided by average total assets. 20 HISTORY AND BUSINESS OF SIERRA BANCORP Organization Sierra Bancorp was incorporated under the laws of California on November 16, 2000 at the direction of Bank of the Sierra for the purpose of becoming a bank holding company by acquiring all of the outstanding capital stock of the Bank. In order to effect the reorganization, 100 shares of Sierra Bancorp Common Stock have been issued to James C. Holly for an aggregate consideration of $100. Upon consummation of the reorganization, these 100 shares will be redeemed by Sierra Bancorp for $100. Sierra Bancorp has purchased for $100, and owns 100% of the capital stock of Sierra Merger, a Delaware corporation, organized for the sole purpose of facilitating the reorganization. Business Sierra Bancorp has not yet engaged in any business activity. Sierra Bancorp has filed with the FRB its notice of intention to become a bank holding company through the acquisition of 100% of the voting shares of Bank of the Sierra pursuant to the Bank Holding Company Act ("BHCA"). Sierra Bancorp has also filed an application with the DFI for approval to acquire control of the Bank pursuant to the provisions of the California Financial Code, and Bank of the Sierra and Sierra Merger have filed an application with the FDIC, providing for the merger of Sierra Merger with and into Bank of the Sierra. Upon consummation of the reorganization, Sierra Bancorp will own all of the Common Stock of Bank of the Sierra, the Bank will be Sierra Bancorp's wholly-owned bank subsidiary and Sierra Bancorp will be registered as a bank holding company. There can be no assurance that the required approvals/non-disapprovals or waivers will be obtained or as to conditions or timing of such approvals/non-disapprovals or waivers. Upon consummation of the reorganization, Sierra Bancorp will have no significant assets other than the shares of Bank of the Sierra's Common Stock acquired in the reorganization, and will have no significant liabilities. Initially, Sierra Bancorp will neither own nor lease any property, but will instead use the premises, equipment and furniture of Bank of the Sierra. At the present time, Sierra Bancorp has no specific plans to engage in any activities other than acting as a bank holding company for the Bank. However, subject to the constraints under the BHCA, Sierra Bancorp may acquire other financial institutions in the future. The Bank has entered into an agreement to acquire Taft National Bank. See "HISTORY AND BUSINESS OF BANK OF THE SIERRA - Recent Developments." In order to fund a substantial portion of the acquisition price of Taft National Bank, Sierra Bancorp anticipates that a new wholly-owned subsidiary will be formed, which subsidiary will be a Delaware statutory business trust which will issue trust securities in a private placement in order to raise such funds. In addition, in the future Sierra Bancorp may seek to raise additional equity capital through the sale of its securities or the securities of its subsidiaries, although it has no current plans to do so. Management The current executive officers of Sierra Bancorp are James C. Holly, President and Chief Executive Officer; Kenneth E. Goodwin, Executive Vice President and Chief Operating Officer; Jack B. Buchold, Senior Vice President and Chief Financial Officer; and Charlie C. Glenn, Senior Vice President and Chief Credit Officer. Such individuals also serve and will continue to serve in those same capacities for the Bank following the reorganization, and the Bank initially will be solely responsible for their direct compensation. It is anticipated that in the future if Sierra Bancorp becomes involved in additional businesses, Sierra Bancorp may add additional officers and employees and that Bank of the Sierra and other subsidiaries of Sierra Bancorp, if any, will pay cash dividends and management fees to support the expenses of Sierra Bancorp. There are presently no specific plans, arrangements or commitments with respect to such matters. 21 All of Sierra Bancorp's directors are also directors of Bank of the Sierra. They were appointed to Sierra Bancorp's Board of Directors by the sole incorporator on December 14, 2000. For further information regarding these directors, see "HISTORY AND BUSINESS OF BANK OF THE SIERRA - Board of Directors and Officers" below. It is anticipated that directors of Sierra Bancorp initially will not receive fees for their attendance at Board meetings and for attendance at committee meetings when such committees are established. However, these persons will continue to receive directors' fees for serving on the Board of Directors and committees of the Bank. Indemnification Section 317 of the California Corporations Code governs indemnification of the directors and officers of both Sierra Bancorp and Bank of the Sierra. Under this section, officers and directors may be indemnified against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with proceedings other than derivative suits, in which such persons were parties or threatened to be made parties. In order for the corporation to make indemnification, there must be a determination by (a) a majority vote of a quorum of the Board of Directors, consisting of directors who are not parties to such proceeding, (b) approval of the shareholders pursuant to Section 153 of the California Corporations Code, with the shares owned by the person to be indemnified not being entitled to vote thereon, or an order of the court in which such proceeding is or was pending that the officer or director acted in good faith in a manner such person reasonably believed to be in the best interests of the corporation, and in the case of a criminal proceeding, such person had no reasonable cause to believe the conduct of such person was unlawful. This section further provides that indemnification may be paid in connection with derivative suits, in the same manner as described above, except that (a) with respect to derivative suits, the authority authorizing the indemnification must find that such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under the circumstances, and (b) court approval is required for indemnification of expenses or amounts incurred in respect of any claim or matter in which a director or officer has been adjudged to be liable to the corporation in the performance of such person's duty to the corporation; in settling or otherwise disposing of a threatened or pending action, with or without action which is settled or otherwise disposed of without court approval. Sierra Bancorp's Articles of Incorporation and Bylaws provide, among other things, for the indemnification of Sierra Bancorp's directors, officers and agents, and authorize the Board to pay expenses incurred by, or to satisfy a judgment or fine rendered or levied against, such agents in connection with any personal legal liability incurred by that individual while acting for the corporation within the scope of his or her employment. Such provisions of Sierra Bancorp's Articles of Incorporation and Bylaws are subject to certain limitations imposed under state and federal law. It is the policy of the Board of Directors that Sierra Bancorp's executive officers and directors shall be indemnified to the maximum extent permitted under applicable law and Sierra Bancorp's Articles of Incorporation and Bylaws. These provisions are essentially identical to the comparable provisions in Bank of the Sierra's Articles of Incorporation and Bylaws, and the Bank's policy regarding indemnification of executive officers and directors is also the same as that of Sierra Bancorp. The Bank has obtained liability insurance covering all of the Bank's officers and directors and Sierra Bancorp expects to have similar insurance in force before the reorganization is effective. The corporation's Articles of Incorporation also currently provide for the limitation or elimination of personal liability of the corporation's directors to the corporation or its shareholders for monetary damages, to the extent permitted by California law. However, under federal law, the FDIC may seek monetary damages from bank or holding company directors in cases involving gross negligence or any greater disregard of the duty of care, notwithstanding any provisions of state law which may permit limitations on director liability in such circumstances. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling Sierra Bancorp under the provisions in Sierra Bancorp's Articles of Incorporation and Bylaws, Sierra Bancorp has been informed that, in the opinion of the SEC, this kind of indemnification is against public policy as expressed in the securities Act of 1933, and is therefore unenforceable. 22 HISTORY AND BUSINESS OF BANK OF THE SIERRA General Bank of the Sierra was incorporated under the laws of the State of California on September 14, 1977, and commenced operations as a California state-chartered bank on January 19, 1978. The Bank operates nine full-service branch offices in seven Tulare County communities, five full-service branch offices in Kern County; and one full-service branch office each in Kings County and Fresno County; and offers a full range of banking services to individuals and various sized businesses in the communities which it serves. The locations of those offices are: Porterville: Main Office 90 North Main Street Administrative Headquarters 86 North Main Street West Olive Branch 1498 West Olive Avenue Lindsay: Lindsay Office 142 South Mirage Avenue Exeter: Exeter Office 1103 West Visalia Road Visalia: Visalia Mooney Office 2515 South Mooney Boulevard Visalia Downtown Office 128 East Main Street Three Rivers: Three Rivers Office 40884 Sierra Drive Dinuba: Dinuba Office 401 East Tulare Street Bakersfield: Bakersfield California Office 5060 California Avenue Bakersfield Ming Office 1621 Mill Rock Way Tulare: Tulare Office 246 East Tulare Avenue Hanford: Hanford Office 427 West Lacey Boulevard Fresno: Fresno Office 636 East Shaw Avenue Tehachapi: Tehachapi Downtown Office 224 West "F" Street Tehachapi Old Town Office 21000 Mission Street California City: California City Office 8031 California City 23 In addition, the Bank's Bank Card Center is located at 80 North Main Street, Porterville, California. The Bank also has specialized credit centers for agricultural lending and construction and real estate lending within a number of these branch offices. These facilities are located in the cities of Porterville and Visalia in Tulare County, the city of Fresno in Fresno County, the city of Bakersfield in Kern County, and the city of Hanford in Kings County. With a predominant focus on personal service, Bank of the Sierra has positioned itself as an independent bank serving the financial needs of individuals and businesses, including agricultural and real estate customers in Tulare and other surrounding counties. It is currently the largest independent bank headquartered in Tulare County. Although the Bank is primarily a retail oriented independent community bank, it has three other dimensions which surround this core of community banking: agricultural lending, credit card loans and real estate financing (both construction and long term). The Agricultural Credit Centers, located in Fresno, Porterville, and Bakersfield, provide a complete line of credit services supporting the agricultural activities which are key to the continued economic development of the communities served by the Bank. "Ag lending" clients include a full range of individual farming customers, small business farming organizations and major corporate farming units. The Bank Card Center, headquartered in Porterville, provides a range of credit, debit and ATM card services, which are made available to each of the customers served by the branch banking offices. That center also provides credit card services to a limited number of affinity program participants. The Real Estate Center, with offices in Fresno, Hanford, Visalia, Porterville, and Bakersfield, is responsible for a complete line of land acquisition and development loans, construction loans for residential and commercial development, and the origination of 1-4 family first mortgage loans and multifamily credit facilities. In addition, secondary market services are provided though this group and its affiliations with Freddie Mac, Fannie Mae and various non-governmental programs. The Bank also has an orientation towards Small Business Administration ("SBA") lending and achieved the designation of Preferred Lender during 1999. At the current time, one branch manager is responsible for the program, under which auspices were generated approximately $8.5 million in loans during the past year. It is anticipated that loans under this program will become an increasing segment of the Bank's loan portfolio over the next few years. The Bank's principal lending services include commercial, real estate, home equity, agricultural and consumer loans. Related services include credit cards, installment note collection, cashier's checks, traveler's checks, bank-by-mail, ATM, night depository, safe deposit boxes, direct deposit, automated payroll services and other customary banking services. In addition to the lending activities noted above, the Bank offers a wide range of deposit products for the retail banking market including checking, interest bearing transaction, savings, time certificates of deposit and retirement accounts, as well as telephone banking and internet banking with bill pay options. As of September 30, 2000, the Bank had 47,223 deposit accounts with balances totaling approximately $523.4 million as compared to 32,726 deposit accounts with balances totaling approximately $385.8 million at December 31, 1999. Management of the Bank does not believe there is a significant demand for additional trust services in its service area, and the Bank does not operate or have any present intention to seek authority to operate a Trust Department. Management of the Bank believes that the cost of establishing and operating such a department would not be justified by the potential income to be gained therefrom. However, the Bank occasionally makes arrangements with correspondent institutions to offer trust services to the Bank's customers upon request. The Bank has grown through both the establishing of de novo full-service branch offices and credit centers in each of its current locations as well as through the acquisition of existing financial institutions. During the past three years the Bank (i) acquired four branch offices, when it acquired Sierra National Bank in May, 2000; (ii) opened a de novo office in Tulare in 1998; and (iii) opened additional de novo branch offices in Hanford and Fresno in January 24 and September, 1999, respectively. On December 15, 2000, the Bank entered into an Agreement and Plan of Merger with Taft National Bank pursuant to which the Bank would acquire that bank's two offices. The Bank attracts deposits through its customer oriented product mix, competitive pricing, convenient locations, extended hours and drive-up banking, all provided with the highest level of customer service. The Bank offers other products and services to its customer base, which complement the lending and deposit services previously reviewed. These include shared ATM and Point of Sale (POS) networks through which customers can gain access to the national and international funds transfer networks. During 1997, in the Bank's continuing efforts to meet the needs of its various communities, a Spanish language option was added to its network of ATMs throughout the Bank's service area. This option allows customers to conduct ATM transactions in Spanish, if they choose to do so, by selecting the Spanish language option when they first insert their ATM card into the machine. During the past two years, the Bank has substantially enhanced its ATM locations to include off-site areas not previously served by cash or deposit facilities, and now has a total of seven such remote centers. These units are located in a hospital, county offices, a college campus, a motel and a Fair office. These locations facilitate cash advances and deposits which would not otherwise be available to consumers at non-branch locations, thereby increasing consumer convenience. In addition, the Bank has a mobile ATM unit which is transportable and is used at fairs, exhibitions, and various other community functions within the Bank's market area. In addition to such specifically oriented customer applications, the Bank provides safe deposit, wire transfer capabilities and a convenient customer service group to answer questions and assure a high level of customer satisfaction with the level of services and products provided by the Bank. For non-deposit services, the Bank also formed a strategic alliance with Investment Centers of America, Inc. (ICA), of Bismarck, North Dakota. Through this arrangement, registered and licensed ICA representatives provide the Bank's customers in the Porterville, Visalia and Tulare offices with convenient access to annuities, insurance products, mutual funds, and a full range of investment products, with available services by appointment in the Bank's other branches. The Bank currently has one wholly-owned subsidiary, Sierra Phoenix, Inc. ("Sierra Phoenix"), the sole function of which is to hold certain investments which the Bank is not permitted to hold directly. At the current time, it holds two investments, one of which is stock held on behalf of the Bank in Phoenix International, Ltd., Inc., a computer software company which specializes in the production and marketing of client user software for financial institutions. The other investment held is an equity position in California Banker's Insurance Agency, LLC (CBIA), an entity which was formed to facilitate insurance product sales after enabling legislation under the Gramm-Leach-Bliley Financial Services Modernization Act was passed. At the current time, the Bank is a passive investor, through Sierra Phoenix, in both Phoenix International, Inc. and CBIA. (See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Investment Portfolio.) As of September 30, 2000, the principal areas in which the Bank directed its lending activities, and the percentage of the total loan portfolio for which each of these areas was responsible, were as follows: (i) agricultural loans (4.05%); (ii) commercial and industrial (including SBA) loans (16.13%); (iii) real estate loans (69.37%); (iv) consumer loans (7.78%); and (v) credit cards (2.53%). Recent Developments On December 15, 2000, the Bank and Taft National Bank, a national banking association, entered into an Agreement and Plan of Merger which provides that Bank of the Sierra will acquire Taft National Bank in a two step process. In the first step, the "consolidation," a new to-be formed California corporation, which will be a wholly-owned subsidiary of Bank of the Sierra, will consolidate with Taft National Bank. In the second step, which will occur immediately after the effectiveness of the consolidation, the consolidated bank will be merged with and into the Bank, with the Bank being the surviving bank. The consolidation and the merger are referred to collectively herein as the "transaction." At the effective time of the consolidation, each share of common stock of Taft National Bank (except for shares, if any, which shall then or thereafter constitute perfected dissenting shares within the meaning of Section 25 215(b) of the National Bank Act), shall be converted into the right to receive $28.00 per share in cash for an aggregate purchase price for Taft National Bank's 267,481 outstanding shares of approximately $7.5 million. The terms of the transaction were arrived at by arms' length negotiations between the parties. Consummation of the transaction is contingent upon and subject to the approval of the shareholders of Taft National Bank and of state and federal banking regulatory authorities. At September 30, 2000, Taft National Bank had total assets of $57 million, total deposits of $51 million and total loans of $36 million. Taft National Bank has two full service offices located in Taft and in Bakersfield, both in Kern County in Central California. In order to fund a substantial portion of the acquisition price of Taft National Bank, Sierra Bancorp anticipates that a newly formed wholly-owned subsidiary of Sierra Bancorp, a Delaware statutory business trust, will issue trust preferred securities. The securities issued by the statutory business trust would be pooled together in a special purpose vehicle along with similar securities issued by a number of banks and the special purpose vehicle would then issue its securities to the public in a private placement of securities. It is anticipated that the trust preferred securities issued by the statutory business trust would be fully guaranteed by Sierra Bancorp with respect to payments of distributions and amounts payable on liquidation and redemption. The proceeds from the sale of the trust preferred securities issued by the Delaware statutory business trust would be used by such trust in order to purchase junior subordinated debentures to be issued by Sierra Bancorp. Sierra Bancorp would in turn use such funds to purchase Taft National Bank. See "HISTORY AND BUSINESS OF SIERRA BANCORP - Business." Competition The banking business in California generally, and specifically in the Bank's market area, is highly competitive with respect to virtually all products and services and has become increasingly so in recent years. The industry continues to consolidate and strong, unregulated competitors have entered banking markets with focused products targeted at highly profitable customer segments. Many largely unregulated competitors are able to compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. These competitive trends are likely to continue. With respect to commercial bank competitors, the business is largely dominated by a relatively small number of major banks with many offices operating over a wide geographical area, which banks have, among other advantages, the ability to finance wide-ranging and effective advertising campaigns and to allocate their investment resources to regions of highest yield and demand. Many of the major banks operating in the area offer certain services which the Bank does not offer directly (but some of which the Bank offers through correspondent institutions). By virtue of their greater total capitalization, such banks also have substantially higher lending limits than does the Bank. In addition to other banks, competitors include savings institutions, credit unions, and numerous non-banking institutions, such as: finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms. In recent years, increased competition has also developed from specialized finance and non-finance companies that offer wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal finance software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are offered to customers. Mergers between financial institutions have placed additional pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive. Competition has also intensified due to recently enacted federal and state interstate banking laws, which permit banking organizations to expand geographically, and the California market has been particularly attractive to out-of-state institutions. The recently enacted Financial Modernization Act, which, effective March 11, 2000, has made it possible for full affiliations to occur between banks and securities firms, insurance companies, and other financial companies, is also expected to intensify competitive conditions (see "SUPERVISION AND REGULATION - Government Policies and Legislation" herein). 26 Technological innovation has also resulted in increased competition in financial services markets. Such innovation has, for example, made it possible for non-depository institutions to offer customers automated transfer payment services that previously have been considered traditional banking products. In addition, many customers now expect a choice of several delivery systems and channels, including telephone, mail, home computer, ATMs, self-service branches, and/or in-store branches. In addition to other banks, the sources of competition for such products include savings associations, credit unions, brokerage firms, money market and other mutual funds, asset management groups, finance and insurance companies, internet only financial intermediaries, and mortgage banking firms. In order to compete effectively, the Bank relies upon local promotional activity, personal contacts by its officers, directors, employees, and shareholders, automated 24-hour banking, and the individualized service which it can provide through its flexible policies. The Bank provides its own style of community-oriented, personalized service oriented towards the citizens of the San Joaquin Valley, whom the Bank believes appreciate a more consumer-oriented environment in which to conduct their financial transactions. More recently the Bank has embraced the electronic age and installed telephone banking and internet banking with bill payment capabilities, to meet the needs of customers with electronic access requirements. In addition, for customers whose loan demands exceed the legal lending limit of the Bank, the Bank attempts to arrange for such loans on a participation basis with correspondent banks. The Bank also assists customers requiring other services not offered by the Bank in obtaining such services from its correspondent banks. The Bank's credit card business is subject to an even higher level of competitive pressure than its general banking business. There are a number of major banks and credit card issuing entities that are able to finance often highly successful advertising campaigns with which smaller community banks generally do not have the resources to compete. As a result, the Bank's credit card outstandings are much more likely to increase at a slower rate than that which might be seen in nationwide issuers' year-end statistics. In addition, many non-financial institutions, such as providers of various retail products, offer many types of credit cards providing competition for the Bank. Employees As of September 30, 2000, the Bank had 275 full-time and 39 part-time employees. On a full time equivalent basis, the Bank's staff level was 283.9 at September 30, 2000. None of the Bank's employees is concurrently represented by a union or covered by a collective bargaining agreement. Management of the Bank believes its employee relations are satisfactory. Properties The Bank operates nine full-service branch offices in seven Tulare County communities, five full-service branch offices in Kern County and one full- service branch office each in Kings County and Fresno County (see " - General" above); and offers a full range of banking services to individuals and various sized businesses in the communities which it serves. Bank of the Sierra owns the land and building unencumbered for a total of 13 of its branch offices located in Porterville, Lindsay, Exeter, Three Rivers, Dinuba, Tulare, Hanford, Fresno, Tehachapi, California City and Bakersfield. The Bank's other facilities, including its Administrative Headquarters, two branch offices in Visalia and one branch in Bakersfield, are leased. Legal Proceedings From time to time, the Bank is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel to the Bank as to the current status of these claims or proceedings to which the Bank is a party, management is of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse affect on the financial condition of the Bank. 27 MANAGEMENT OF BANK OF THE SIERRA Board of Directors and Officers Bank of the Sierra's Board of Directors is presently composed of nine members, all of whom are also directors of Sierra Bancorp. The Board of Directors is staggered into two classes serving terms of two years each, one class consisting of five members and the second class consisting of four members. Those members are as follows: Class I (terms to expire in 2002) Class II (terms to expire in 2001) Morris A. Tharp Albert L. Berra Gregory A. Childress Vincent L. Jurkovich Robert L. Fields Robert H. Tienken James C. Holly Gordon T. Woods Howard H. Smith The following table sets forth certain information as of December 31, 2000, with respect to (i) each of the Bank's directors, (ii) each of the Bank's executive officers,/1/ and (iii) the directors and executive officers/1/ of the Bank as a group:
Common Stock Beneficially Owned on December 31, 2000/2/ Year First -------------------------------------------- Elected or Percentage Names and Offices Principal Occupation Appointed Number Vested Option of Shares Held with Bank for Past Five Years Age Director of Shares Shares/3/ Outstanding/4/ - ----------------- -------------------- --- ---------- ------------ ------------- --------------- Morris A. Tharp/5/ President and Owner, 60 1977 414,480 50,000 5.01% Chairman of the Board E.M. Tharp, Inc. (Truck Sales and Repair) Albert L. Berra Orthodontist/Rancher 59 1977 243,109 50,000 3.76% Director Gregory A. Childress/5,6/ Rancher 43 1994 1,572,478/7/ 50,000 17.52% Director
_____________________ /1/ As used throughout this written consent statement, the term "executive officer" means President/Chief Executive Officer, Executive Vice President/Chief Operating Officer, Senior Vice President/Chief Financial Officer or Senior Vice President/Chief Credit Officer. /2/ Except as otherwise noted, may include shares held by such person's spouse (except where legally separated) and minor children, and by any other relative of such person who has the same home; shares held in "street name" for the benefit of such person; shares held by a family or retirement trust as to which such person is a trustee and primary beneficiary with sole voting and investment power (or shared power with a spouse); or shares held in an Individual Retirement Account or pension plan as to which such person (and/or his spouse) is the sole beneficiary and has pass-through voting rights and investment power. /3/ Consists of shares which the applicable individual or group has the right to acquire upon the exercise of stock options which are vested or will vest within 60 days of December 31, 2000 pursuant to the Bank's Stock Option Plan. (See "Compensation of Directors" and "Stock Options" herein.) /4/ The percentages are based on the total number of shares of Bank of the Sierra's Common Stock outstanding, plus the number of option shares which the applicable individual or group has the right to acquire upon the exercise of stock options which are vested or will vest within 60 days of December 31, 2000 pursuant to the Bank's Stock Option Plan. (See "Compensation of Directors" and "Stock Options" herein.) /5/ Mr. Tharp's address is 15243 Road 192, Porterville, California 93257; Mr. Childress' address is 12012 Road 200, Porterville, California 93257; Mr. Fields' address is 200 North Main Street, Porterville, California 93257; and Mr. Holly's address is 86 North Main Street, Porterville, California 93257. /6/ Mr. Childress has served as Chairman of the Board of Lindsay Olive Growers, a cooperative association in Lindsay, California since 1988. In 1994, that association filed a petition in bankruptcy under applicable provisions of the Federal Bankruptcy Act and was liquidated effective in 1999. /7/ Includes 5,280 shares owned by Childress, Bates, Childress, Inc. ("CBC"), a corporation of which Mr. Childress is President and a 33 1/3% shareholder; 35,440 shares owned by the CBC Defined Benefit Pension Plan, of which Mr. Childress is a trustee and a beneficiary; and 677,992 shares owned by CPG Ranch, a partnership of which Mr. Chrildress is a partner; as to all of which shares Mr. Childress has shared voting and investment power. (Table and footnotes continued on following page.) 28
Common Stock Beneficially Owned on December 31, 2000/2/ Year First -------------------------------------------- Elected or Percentage Names and Offices Principal Occupation Appointed Number Vested Option of Shares Held with Bank for Past Five Years Age Director of Shares Shares/3/ Outstanding/4/ - ----------------- -------------------- --- ---------- ------------ ------------- --------------- Robert L. Fields/5/ Investor (formerly 72 1982 643,382 50,000 7.49% Director Owner, Bob Fields Jewelers) James C. Holly/5/ President and Chief 59 1977 462,976/8/ 50,000 5.54% President, Chief Executive Officer, Executive Officer Bank of the Sierra and Director Vincent L. Jurkovich President, 72 1977 136,950 50,000 2.02% Director Porterville Concrete Pipe, Inc Howard H. Smith Retired/Investor 87 1977 402,700 50,000 4.89% Director (formerly Owner and Chief Executive Officer, Smith's Complete Market) Robert H. Tienken Retired (formerly 80 1977 187,628 50,000 2.57% Corporate Secretary Realtor/Farmer) and Director Gordon T. Woods Owner, Gordon T. 64 1977 1,386/9/ 50,000 0.55% Director Woods Construction Kenneth E. Goodwin Executive Vice 57 n/a 152,004 30,000 1.97% Executive Vice President and Chief President and Chief Operating Officer, Operating Officer Bank of the Sierra Jack B. Buchold Senior Vice President 56 n/a 344 10,000 0.11% Senior Vice President and Chief Financial and Chief Financial Officer, Officer Bank of the Sierra Charlie C. Glenn Senior Vice President 61 n/a 1,873 10,000 0.13% Senior Vice President and Chief Credit and Chief Credit Officer, Officer Bank of the Sierra/10/ Directors and 4,219,310 500,000 48.59% Executive Officers as a Group (12 persons)
____________________ (Certain footnotes appear on previous page.) /8/ Includes 10,200 shares owned by Mr. Holly's adult children, as to which shares Mr. Holly has sole voting power but no investment power, pursuant to an agreement with the record owners of the shares. /9/ Does not include 203,357 shares held by Filinco, Ltd., as to which Mr. Woods' spouse and daughters have sole voting and investment power and as to which Mr. Woods disclaims beneficial ownership. /10/ Mr. Glenn was appointed Senior Vice President and Chief Credit Officer of the Bank in September, 1995. Previously, he served as Senior Vice President/Chief Credit Administrator of Commerce Bank of San Luis Obispo in San Luis Obispo, California from August, 1994 to September, 1995; and as Executive Vice President/Chief Credit Administrator of Mineral King National Bank in Visalia, California from 1983 to 1994. 29 Committees of the Board of Directors The Bank has, among others, a standing Audit/CRA Committee, of which directors Berra (Chairman), Childress, Fields, Jurkovich and Tienken are members. During the fiscal year ended December 31, 1999, the Audit/CRA Committee held a total of twelve (12) meetings. The purpose of the Audit/CRA Committee, with respect to its audit duties, is to meet with the outside auditors of the Bank in order to fulfill the legal and technical requirements necessary to adequately protect the directors, shareholders, employees and depositors of the Bank. It is also the responsibility of the Audit/CRA Committee to recommend to the Board of Directors the selection of independent accountants and to make certain that the independent accountants have the necessary freedom and independence to freely examine all bank records. While the Board has no standing "compensation" committee, it has a Personnel Committee of which directors Berra (Chairman), Fields, Smith and Woods are members. The primary function of the Personnel Committee, which met four (4) times during 1999, is to approve the employment of executive officers and recommend the compensation for all executive officers. Additionally, the Personnel Committee recommends salary ranges for graded personnel and approves personnel policies recommended by senior officers of the Bank. The Bank has no standing nominating committee; however, the procedures for nominating directors, other than by the Board of Directors itself, are set forth in the Bank's Bylaws and in the Notice of Annual Meeting of Shareholders. During the fiscal year ended December 31, 1999, the Board of Directors of the Bank held a total of fourteen (14) meetings. Each incumbent director of the Bank attended at least 75% of the aggregate of (a) the total number of such meetings and (b) the total number of meetings held by all committees of the Board on which such director served during 1999. Executive Compensation The table on the following page sets forth certain summary compensation information with respect to the Chief Executive Officer and the only other executive officers of the Bank whose total salary and bonus for the fiscal year ended December 31, 1999, exceeded $100,000 (the "Named Executive Officers"): 30 Summary Compensation Table
Long Term Compensation ------------- Stock Options Granted Annual Compensation (Number of ------------------- All Other Name and Principal Position Year Salary/1/ Bonus Shares) Compensation - --------------------------- ---- --------- -------- ------- ------------- James C. Holly 1999 $130,000 $130,000 -0- $21,831/2/ President and 1998 130,000 130,000 50,000 22,220/2/ Chief Executive Officer 1997 110,000 110,000 -0- 18,663/2/ Kenneth E. Goodwin 1999 $105,000 $ 42,000 -0- $ 7,139/3/ Executive Vice President 1998 105,000 34,200 30,000 4,949/3/ and Chief Operating Officer 1997 92,500 34,200 -0- 4,096/3/ Jack B. Buchold 1999 $ 85,000 $ 25,500 -0- $ 3,816/4/ Senior Vice President 1998 85,000 26,250 25,000 3,639/4/ and Chief Financial Officer 1997 75,467 26,250 -0- 2,943/4/ Charlie C. Glenn 1999 $ 82,000 $ 22,500 -0- $ 4,702/4/ Senior Vice President 1998 82,000 22,500 25,000 3,275/4/ and Chief Credit Officer 1997 72,000 14,400 -0- 3,240/4/
Stock Options The Bank's 1998 Stock Option Plan (the "Plan"), intended to advance the interests of the Bank by encouraging stock ownership on the part of key employees, was adopted by the written consent of the shareholders effective July 21, 1998. The Plan provides for the issuance of both "incentive" and "non- qualified" stock options to full-time salaried officers and employees of the Bank and of "non-qualified" stock options to non-employee directors of the Bank. All options are granted at an exercise price of not less than 100% of the fair market value of the stock on the date of grant./5/ Each option expires not later than ten (10) years from the date the option was granted. Options are exercisable in installments as provided in individual stock option agreements; provided, however, that if an optionee fails to exercise his or her rights under the options within the year such rights arise, the optionee may accumulate them and exercise the same at any time thereafter during the term of the option. In addition, in the event of a "Terminating Event," i.e., a merger or consolidation of the Bank as a result of which the Bank will not be the surviving corporation, a sale of substantially all of the Bank's assets, or a change in ownership of at least 25% of the Bank's stock, all outstanding options under the Plan shall become exercisable in full (subject to certain notification requirements), and shall terminate if not exercised within a specified period of time, unless provision is made in connection with the Terminating Event for assumption of such options, or substitution of new options covering stock of a successor corporation. As of December 31, 1999, the Bank had options outstanding to purchase a total of 1,090,000 shares of ____________________________________ /1/ Salary figures include amounts deferred pursuant to the Bank's 401(k) Plan. The 401(k) Plan permits all participants to contribute up to 15% of their annual salary on a pre-tax basis (subject to a statutory maximum), which contributions vest immediately when made. Employer contributions are made in varying amounts at the discretion of the Board of Directors, and become vested over a period of five (5) years at the rate of twenty percent (20%) per year. /2/ Includes the Bank's contributions to Mr. Holly's account pursuant to the 401(k) Plan in the amounts of $6,158, $5,460 and $4,290 for 1999, 1998 and 1997, respectively; term life insurance premiums in the amount of $598 per year; and director's fees in the amount of $15,075, $14,550 and $13,775 for 1999, 1998 and 1997, respectively. /3/ Represents the Bank's contributions to Mr. Goodwin's account pursuant to the 401(k) Plan in the amounts of $6,651, $4,461 and $3,608 for 1999, 1998 and 1997, respectively; and term life insurance premiums in the amount of $488 per year. /4/ Consists entirely of the Bank's contributions to these individuals' accounts pursuant to the 401(k) Plan. /5/ Exercise price per share is equivalent to market price per share on the date of grant, as determined by the Board of Directors of the Bank, based upon trades in Bank of the Sierra's Common Stock known to the Bank and opening and closing prices quoted on the Nasdaq National Market concerning Bank of the Sierra's Common Stock. 31 its Common Stock under the Plan, with an average exercise price of $9.00 per share with respect to all such options. As of that same date, the fair market value of Bank of the Sierra's Common Stock was $9.25 per share. No stock options were granted to or exercised by the Named Executive Officers during 1999. The following information is furnished with respect to stock options held by the Named Executive Officers at December 31, 1999:
Number of Unexercised Options at Value of Unexercised in-the-Money December 31, 1999 Options at December 31, 1999/1/ Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- James C. Holly 50,000 -0- $12,500 n/a Kenneth E. Goodwin 30,000 -0- $ 7,500 n/a Jack B. Buchold 5,000 20,000/2/ $ 1,250 $5,000 Charlie C. Glenn 5,000 20,000/2/ $ 1,250 $5,000
Compensation of Directors Non-employee directors of the Bank received $400 per month for their attendance at regular Board meetings in 1999, $225 per meeting for their attendance at special Board meetings, and between $150 and $250 per committee meeting, depending upon the particular committee involved. The President received $400 per month for attendance at regular Board of Directors meetings (and $225 for attendance at the organizational Board meeting), but did not receive special Board or committee meeting fees. In addition, all directors received an annual retainer of $9,800. No stock options were granted to or exercised by any non-employee directors during 1999. As of December 31, 1999, each non-employee director of the Bank held outstanding stock options to purchase 50,000 shares of Common Stock, all with expiration dates in 2008, and all at exercise prices of $9.00 per share. As of that same date, the fair market value of Bank of the Sierra's Common Stock was $9.25 per share. As of December 31, 1999, all of these options were exercisable in full. Information concerning stock options held by Mr. Holly, who is also a Named Executive Officer, is set forth above under "Stock Options." ____________________________ /1/ Represents the difference between the aggregate fair market value and the aggregate exercise price of the shares at December 31, 1999. /2/ This option will become cumulatively exercisable as to 5,000 additional shares per year commencing in September, 2000. 32 Performance Graph The following graph compares the yearly percentage change in the Bank's cumulative total shareholders' return on the Bank's stock with the cumulative total return of (i) the Nasdaq market index; (ii) all banks and bank holding companies listed on Nasdaq; (iii) an index comprised of banks and bank holding companies headquartered in the western United States; and (iv) an index comprised of banks and bank holding companies located throughout the United States with total assets of between $250 and $500 million. The latter two peer group indexes were compiled by SNL Securities LP of Charlottesville, Virginia. The Bank reasonably believes that the members of the fourth group listed above constitute peer issuers for the period from January 1, 1995 through December 31, 1999. The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is not necessarily indicative of future price performance. Total Return Performance [GRAPH APPEARS HERE] Period Ending ----------------------------------------------------- Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 - -------------------------------------------------------------------------------- Bank of the Sierra 100.00 389.32 274.27 436.73 255.68 302.65 NASDAQ - Total US 100.00 141.33 173.89 213.07 300.25 542.43 NASDAQ - Bank Index 100.00 149.00 196.73 329.39 327.11 314.42 SNL $250M-$500 Bank Index 100.00 134.95 175.23 303.07 271.41 252.50 33 Transactions with Directors and Executive Officers Certain of the executive officers, directors and principal shareholders of the Bank and the companies with which they are associated have been customers of, and have had banking transactions with, the Bank in the ordinary course of the Bank's business since January 1, 1999, and the Bank expects to continue to have such banking transactions in the future. All loans and commitments to lend included in such transactions have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar creditworthiness, and in the opinion of Management of the Bank, have not involved more than the normal risk of repayment or presented any other unfavorable features. SUPERVISION AND REGULATION Both federal and state law extensively regulate bank holding companies. This regulation is intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of shareholders of Sierra Bancorp. The following is a summary of particular statutes and regulations affecting Sierra Bancorp and Bank of the Sierra. This summary is qualified in its entirety by the statutes and regulations. Regulation of Sierra Bancorp Sierra Bancorp will be a registered bank holding company under the Bank Holding Company Act of 1956 as amended, and will be regulated by the Federal Reserve Board. Sierra Bancorp will be required to file periodic reports with the Federal Reserve Board and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act. The Federal Reserve Board may conduct examinations of Sierra Bancorp and its subsidiaries, which will include Bank of the Sierra. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before acquiring substantially all the assets of any bank or bank holding company or ownership or control of any voting shares of any bank or bank holding company, if, after the acquisition, it would own or control, directly or indirectly, more than 5% of the voting shares of the bank or bank holding company. Sierra Bancorp will be prohibited by the Bank Holding Company Act, except in statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiaries. However, Sierra Bancorp, subject to the prior approval of the Federal Reserve Board, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve Board to be "so closely related to banking" or managing or controlling banks as to be a "proper incident thereto." In approving acquisitions by bank holding companies of companies engaged in banking-related activities, the Federal Reserve Board considers whether the performance of any activity by a subsidiary of the holding company reasonably can be expected to produce benefits to the public, including greater convenience, increased competition, or gains in efficiency, which outweigh possible adverse effects, including over-concentration of resources, decrease of competition, conflicts of interest, or unsound banking practices. Although management of Sierra Bancorp has no present intention to do so, at some point in the future Sierra Bancorp may file an election with the FRB to become a "financial holding company." Unlike a bank holding company, a financial holding company may engage in a broad range of activities that are deemed by the Federal Reserve Board as "financial in nature or incidental" to financial activities. Moreover, even in the case where an activity cannot meet that test, the Federal Reserve Board may approve the activity if the proposed activity is "complementary" to financial activities and does not pose a risk to the safety and soundness of depository institutions. One example of such activities 34 which would be allowed for a financial holding company but not for a bank or a simple bank holding company is real estate development activities. The Federal Reserve Board has adopted capital adequacy guidelines for bank holding companies on a consolidated basis substantially similar to those of the FDIC currently applicable to the Bank. Regulations and policies of the Federal Reserve Board also require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. It is the Federal Reserve Board's policy that a bank holding company should stand ready to use available resources to provide adequate capital funds to a subsidiary bank during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting a subsidiary bank. Under certain conditions, the Federal Reserve Board may conclude that certain actions of a bank holding company, such as a payment of a cash dividend, would constitute an unsafe and unsound banking practice. Sierra Bancorp will be required to give the Federal Reserve Board prior written notice of any repurchase of its outstanding equity securities which (for a period of 12 months) is equal to 10% or more of Sierra Bancorp's consolidated net worth, unless certain conditions are met. (See discussion under "Reasons for the Reorganization" above.) Bank holding company transactions with subsidiaries and other affiliates are restricted, including qualitative and quantitative restrictions on extensions of credit and similar transactions. The securities of Sierra Bancorp will also be subject to the requirements of the Securities Act of 1933 and matters related thereto will be regulated by the SEC. Additionally, Sierra Bancorp's securities will be registered with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"), just as the Bank's securities are now registered with the FDIC under the Exchange Act. As such, Sierra Bancorp will be subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act, just as the Bank has been prior to the reorganization. Regulation of Bank of the Sierra As a California state-chartered bank whose accounts are insured by the FDIC up to a maximum of $100,000 per depositor, the Bank is subject to regulation, supervision and regular examination by the DFI and the FDIC. In addition, while the Bank is not a member of the Federal Reserve System, it is subject to certain regulations of the Federal Reserve Board. The regulations of these agencies govern most aspects of the Bank's business, including the making of periodic reports by the Bank, and the Bank's activities relating to dividends, investments, loans, borrowings, capital requirements, certain check-clearing activities, branching, mergers and acquisitions, reserves against deposits and numerous other areas. All of such supervision and regulation of the Bank will continue following the reorganization and, in addition, Sierra Bancorp will be subject to extensive supervision and regulation by the Federal Reserve Board and the SEC (see "Regulation of Sierra Bancorp" above). Government Policies and Legislation The policies of regulatory authorities, including the Federal Reserve Board, the FDIC and the Depository Institutions Deregulation Committee, have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. An important function of the Federal Reserve System is to regulate aggregate national credit and money supply through the means of open market dealings in securities, establishment of the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. Policies of these agencies may be influenced by many factors, including inflation, unemployment, short-term and long-term changes in the international trade balance and fiscal policies of the United States government. Effective March, 2000, the Gramm-Leach Bliley Act eliminated many of the barriers that previously separated the insurance, securities, and banking industries since the Great Depression. As a result, these three industries may more freely compete with each other. The extent to which the changes made by the Gramm-Leach Bliley Act to the 35 structure and operation of the financial marketplace are unknown and it is unclear how Sierra Bancorp or Bank of the Sierra will be affected. However, Sierra Bancorp may become a "financial holding company" to be able to take advantage if appropriate of the increased flexibility provided by the Gramm- Leach Bliley Act, but it has no current intention to do so. Additionally, other legislation which could affect Sierra Bancorp or Bank of the Sierra and the financial services industry in general may be proposed in the future. Such proposals, if enacted, may further alter the structure, regulation, and the competitive relationship among financial institutions and financial intermediaries, and may subject Sierra Bancorp or Bank of the Sierra to increased regulation, disclosure and reporting requirements. Moreover, the various banking regulatory agencies may propose rules and regulations to implement and enforce current and future legislation. It cannot be predicted whether, or in what form, any such legislation or regulations will be enacted or the extent to which Sierra Bancorp or Bank of the Sierra would be affected. LEGAL MATTERS Legal matters related to the validity of Sierra Bancorp Common Stock being registered with the SEC will be passed upon for Sierra Bancorp and Bank of the Sierra by Fried, Bird & Crumpacker, P.C., Los Angeles, California. 36 APPENDIX A _______________ AGREEMENT AND PLAN OF REORGANIZATION by and among SIERRA BANCORP, BANK OF THE SIERRA and SIERRA MERGER CORPORATION Dated December 14, 2000 _____________ A-1 PLAN OF REORGANIZATION AND AGREEMENT OF MERGER ---------------------------------------------- THIS PLAN OF REORGANIZATION AND AGREEMENT OF MERGER ("Agreement") is made and entered into this 14th day of December, 2000, between Bank of the Sierra, a California state chartered banking corporation (the "Bank"), Sierra Merger Corporation, a Delaware corporation (the "Subsidiary") and Sierra Bancorp, a California corporation (the "Holding Company"). R E C I T A L S: ---------------- A. The Bank is a banking corporation duly organized and validly existing and doing business in good standing under the laws of the State of California, and has its principal office in Porterville, California and has authorized capital stock of 24,000,000 shares of common stock, without par value ("Bank Stock"), of which, as of the date hereof, there are 9,212,280 shares issued and outstanding; and B. The Subsidiary is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and has authorized capital of 1,000 shares of no par value common stock of which, as of the date hereof, there are 100 shares issued and outstanding ("Subsidiary Stock"), all of which are owned by the Holding Company; and C. The Holding Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has authorized capital of 24,000,000 shares, without par value ("Holding Company Stock"), of which, as of the date hereof, there are 100 shares issued and outstanding, all of which are owned by James C. Holly; and D. At least a majority of the entire Board of Directors of the Bank, the Holding Company and the Subsidiary, respectively, have approved this Agreement and authorized its execution; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein set forth and for the purpose of prescribing the terms and conditions of the merger of the Subsidiary with and into the Bank, the parties hereto agree as follows: ARTICLE 1 --------- TERMS OF MERGER --------------- 1.1 Merger. On the Effective Date, as defined in Section 3.1, the ------ Subsidiary shall be merged with and into the Bank ("Merger"), with the Bank being the surviving corporation (the "Surviving Corporation") and a subsidiary of the Holding Company. The Surviving Corporation's name shall continue to be "Bank of the Sierra." 1.2 Articles, Bylaws and Certificate of Authority. The Articles of --------------------------------------------- Incorporation of the Bank as in effect immediately prior to the Effective Date shall, at and after the Effective Date, continue to be the Articles of Incorporation of the Surviving Corporation, without change or amendment; the Bylaws of the Bank as in effect immediately prior to the Effective Date shall, at and after the Effective Date, continue to be the Bylaws of the Surviving Corporation, without change or amendment; the Certificate of Authority of Bank of the Sierra issued by the Department of Financial Institutions of the State of California shall be and remain the Certificate of Authority of the Surviving Corporation, and the Bank's insurance of accounts coverage by the Federal Deposit Insurance Corporation shall be and remain the insurance of accounts coverage of the Surviving Corporation. 1.3 Officers and Directors. On and after the Effective Date, the ---------------------- directors and officers of the Bank immediately prior to the Effective Date shall continue to be the directors and officers of the Surviving Corporation. The directors of the Surviving Corporation shall serve until the next annual meeting of shareholders of the Surviving Corporation and until such time as their successors are elected and have qualified. A-2 1.4 Rights and Privileges. On and after the Effective Date, all the --------------------- rights, privileges, powers, franchises, facilities and immunities, as well as all the properties, real, personal and mixed, tangible and intangible, of the Bank shall continue unaffected and unimpaired by the Merger. On and after the Effective Date, the Surviving Corporation shall without further transfer, possess all of the rights, privileges, powers, franchises, facilities, and immunities, as well as all the properties, real, personal and mixed, tangible and intangible, of the Subsidiary. 1.5 Assumption of Liabilities. On and after the Effective Date, the ------------------------- Surviving Corporation shall succeed to and be liable for all debts, liabilities and other obligations, known or unknown, contingent or otherwise, of the Subsidiary, of any nature whatsoever, existing on the Effective Date or attributable to the operations of the Subsidiary as though the Surviving Corporation had incurred them. 1.6 Further Cooperation. If at any time after the Effective Date any ------------------- further conveyance, assignment or other documents, or any further action is necessary or desirable to further effectuate the transactions set forth herein or contemplated hereby, the officers and directors of the parties hereto shall execute and deliver, or cause to be executed and delivered, all such documents as may be reasonably required to effectuate such transactions. ARTICLE 2 --------- CAPITAL STOCK ------------- 2.1 Stock of the Subsidiary. On the Effective Date, each share of ----------------------- Subsidiary Stock issued and outstanding immediately prior to the Effective Date shall be converted into one share of Bank Stock. 2.2 Stock of the Bank. On the Effective Date, each share of Bank Stock ----------------- issued and outstanding immediately prior to the Effective Date shall be converted into and exchanged for one share of Holding Company Stock. 2.3 Exchange of Holding Company Stock for Bank Stock. On the Effective ------------------------------------------------ Date, each Bank shareholder of record at that date shall be entitled to receive one share of Holding Company Stock for each share of Bank Stock held on that date. The Holding Company shall issue that number of shares which shareholders are entitled to receive. On and after the Effective Date, certificates representing the issued and outstanding Bank Stock immediately prior to the Effective Date shall thereafter represent shares of the Holding Company Stock, and such certificates may be exchanged by the holders thereof, after the Effective Date, for new certificates for the appropriate number of shares bearing the name of the Holding Company. 2.4 Repurchase of Holding Company Stock. Immediately following the ----------------------------------- effectiveness of the Merger, each of the 100 shares of the Holding Company Stock issued and outstanding and owned by James C. Holly immediately prior to the Effective Date shall be repurchased by the Holding Company for $1.00 per share. 2.5 Rights to Stock Options. On and after the Effective Date, all ----------------------- outstanding options to purchase shares of Bank Stock granted pursuant to the Bank's Stock Option Plan(s) shall be assumed by and shall be deemed options to purchase shares of Holding Company Stock on the same terms and conditions, subject to the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and for the same number of shares as have been agreed upon and set forth in the Bank's Stock Option Plan(s) and stock option agreements entered into pursuant thereto. 2.6 Employee Benefit Plans. On and after the Effective Date, each ---------------------- share of Bank Stock held in trust or otherwise in connection with any and all of the Bank's employee benefit plans, shall be converted into one share of Holding Company Stock. Such plans shall be subject to the same terms and conditions as existed prior to the Effective Date, subject to the requirements of the Securities Act. A-3 ARTICLE 3 --------- EFFECTIVE DATE -------------- 3.1 Effective Date. The Effective Date of the Merger shall be the date of -------------- filing, in the Office of the Secretary of State of California, of an executed copy of an Agreement of Merger which sets forth the terms of this Plan of Reorganization and Agreement of Merger, and includes all requisite accompanying certificates, in accordance with Section 1103 of the California Corporations Code, or such later date as may be indicated in the Agreement of Merger. The date of such filing or later indicated date shall be the "Effective Date" of the Merger. ARTICLE 4 --------- APPROVALS --------- 4.1 Shareholder Approvals. This Agreement shall be submitted to the --------------------- shareholders of the Bank, the Subsidiary and the Holding Company for approval and ratification, as provided by the applicable laws of the State of California and other applicable law. 4.2 Regulatory Approvals. The parties hereto agree that each shall -------------------- proceed to and cooperate fully to obtain the regulatory approvals and consents and to satisfy the requirements prescribed by applicable law and/or regulation or which are otherwise necessary or desirable in connection with the completion of the Merger as outlined herein. Such regulatory approvals, consents and requirements shall include, but shall not be limited to, the approvals and consents set forth in Article 5 herein. ARTICLE 5 --------- CONDITIONS PRECEDENT -------------------- 5.1 The Merger is subject to and conditioned upon the following: 5.1.1 Shareholder Approvals. Approval and ratification of this --------------------- Agreement by the holders of a majority of the outstanding shares of the Bank, the Subsidiary and the Holding Company as required by applicable law. 5.1.2 Regulatory Approvals. Receipt of all other approvals and -------------------- consents, and satisfaction of all other requirements as are prescribed by applicable law in connection with the Merger including, but not limited to, approval of the Federal Deposit Insurance Corporation, non-disapproval by the Board of Governors of the Federal Reserve System and approval of the California Department of Financial Institutions. 5.1.3 Performance of Obligations. Performance by each party hereto -------------------------- of all its obligations under this Agreement. ARTICLE 6 --------- TERMINATION ----------- 6.1 Termination. The Agreement may be terminated at any time upon the ----------- occurrence of any of the following events: 6.1.1 If any of the conditions set forth in Article 5 is not fulfilled within a reasonable period of time, such reasonable period of time to be determined by a majority of the Board of Directors of any of the parties, in their sole and absolute discretion; or 6.1.2 If any action, suit, proceeding or claim has been instituted, made or threatened, relating to the proposed Merger which makes consummation of the Merger inadvisable in the opinion of a majority of the Board of Directors of any of the parties; or A-4 6.1.3 If for any reason consummation of the Merger is inadvisable in the opinion of a majority of the Board of Directors of any of the parties. 6.2 Effect of Termination. Upon termination, this Agreement shall be void --------------------- and of no further effect, and there shall be no liability by reason of this Agreement or the termination thereof on the part of the parties hereto or their respective directors, officers, employees, agents or shareholders. ARTICLE 7 --------- EXPENSES -------- 7.1 Expenses of the Merger. All of the expenses of the Merger, including ---------------------- filing fees, printing and mailing costs, and accountants' fees and legal fees, shall be borne by the Surviving Corporation. In the event that the Merger is abandoned or terminated for any reason, all expenses shall be borne by the Bank. ARTICLE 8 --------- AMENDMENT, MODIFICATION, ETC. ----------------------------- 8.1 Amendment, Modification, Etc. The Bank, the Subsidiary and the ----------------------------- Holding Company, by mutual consent of their respective Boards of Directors, to the extent permitted by law, may amend, modify, supplement and interpret this Agreement in such manner as may be mutually agreed upon by them in writing at any time before or after adoption thereof by shareholders of the Bank, the Subsidiary and the Holding Company; provided, however, that no such amendment, modification or supplement shall change any principal term hereof or the number or kind of shares to be issued by the Holding Company in exchange for each share of the Bank, except by the affirmative action of such shareholders as required by law. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in counterparts by their duly authorized officers as of the date first above written. BANK OF THE SIERRA By: /s/ James C. Holly ------------------------- James C. Holly, President and Chief Executive Officer By: /s/ Robert H. Tienken ------------------------- Robert H. Tienken, Secretary SIERRA MERGER CORPORATION By: /s/ James C. Holly ------------------------- James C. Holly, President and Secretary SIERRA BANCOR By: /s/ James C. Holly ------------------------- James C. Holly, President and Chief Executive Officer By: /s/ Robert H. Tienken ------------------------- Robert H. Tienken, Secretary A-5 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers The Articles of Incorporation and Bylaws of Sierra Bancorp provide for indemnification of agents including directors, officers and employees to the maximum extent allowed by California law including the use of an indemnity agreement. Sierra Bancorp's Articles further provide for the elimination of director liability for monetary damages to the maximum extent allowed by California law. The indemnification law of the State of California generally allows indemnification in matters not involving the right of the corporation, to an agent of the corporation if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation, and in the case of a criminal matter, had no reasonable cause to believe the conduct of such person was unlawful. California law, with respect to matters involving the right of a corporation, allows indemnification of an agent of the corporation, if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and its shareholders; provided that there shall be no indemnification for: (i) amounts paid in settling or otherwise disposing of a pending action without court approval; (ii) expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval; (iii) matters in which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which the proceeding is or was pending shall determine that such person is entitled to be indemnified; or (iv) other matters specified in the California General Corporation Law. Sierra Bancorp's Bylaws provide that Sierra Bancorp shall to the maximum extent permitted by law have the power to indemnify its directors, officers and employees. Sierra Bancorp's Bylaws also provide that Sierra Bancorp shall have the power to purchase and maintain insurance covering its directors, officers and employees against any liability asserted against any of them and incurred by any of them, whether or not Sierra Bancorp would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of Sierra Bancorp's Bylaws. ITEM 21. Exhibits and Financial Statement Schedules (a) Exhibits. See Exhibit Index (b) Financial Statement Schedules All schedules are omitted because the required information is not applicable. (c) Not applicable. ITEM 22. Undertakings (a) The undersigned Registrant hereby undertakes to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price II-1 represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (e) The undersigned Registrant hereby undertakes to supply by means of a post- effective amendment all information concerning any transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Porterville, State of California, on January 2, 2001. SIERRA BANCORP /s/ James C. Holly ------------------ By: James C. Holly President and Chief Executive Officer (Duly Authorized Representative) We the undersigned directors and officers of Sierra Bancorp do hereby severally constitute and appoint James C. Holly and Jack B. Buchold and each or any one of them our true and lawful attorney and agent, to do any and all things and acts in our names in the capacities indicated below and to execute all instruments for us and in our names in the capacities indicated below which said attorneys may deem necessary or advisable to enable Sierra Bancorp to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-4 relating to the offering of Sierra Bancorp common stock, including specifically but not limited to, power and authority to sign for us or any of us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that attorneys shall do or cause to be done by virtue hereof. 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. Signature Title Date - --------- ----- ---- /s/ Albert L. Berra Director January 2, 2001 - -------------------------- Albert L. Berra /s/ Gregory A. Childress Director January 2, 2001 - -------------------------- Gregory A. Childress /s/ Robert L. Fields Director January 2, 2001 - -------------------------- Robert L. Fields /s/ James C. Holly President, Chief Executive January 2, 2001 - -------------------------- Officer and Director James C. Holly /s/ Vincent L. Jurkovich Director January 2, 2001 - -------------------------- Vincent L. Jurkovich /s/ Howard H. Smith Director January 2, 2001 - -------------------------- Howard H. Smith /s/ Morris A. Tharp Chairman of the Board January 2, 2001 - -------------------------- Morris A. Tharp /s/ Robert H. Tienken Director and January 2, 2001 - -------------------------- Corporate Secretary Robert H. Tienken /s/ Gordon T. Woods Director January 2, 2001 - -------------------------- Gordon T. Woods /s/ Jack B. Buchold Chief Financial Officer January 2, 2001 - -------------------------- Jack B. Buchold II-3 INDEX TO EXHIBITS ----------------- Exhibit No. Description - ----------- ----------- 2 Plan of Reorganization and Agreement of Merger dated December 14, 2000 among Bank of the Sierra, Sierra Bancorp and Sierra Merger Corporation (Annex I of Written Consent Statement/Prospectus) 3.1 Articles of Incorporation of Sierra Bancorp 3.2 Amendment to Articles of Incorporation of Sierra Bancorp 3.3 Bylaws of Sierra Bancorp 5.1 Opinion of Fried, Bird & Crumpacker, P.C. regarding Legality of Securities being Registered 8.1 Opinion of RSM McGladrey, Inc. concerning the Reorganization under Internal Revenue Code 368(a)(2)(E) 8.2 Opinion of RSM McGladrey, Inc. concerning the assumption of the Bank of the Sierra Stock Option Plan 10.1 Bank of the Sierra 1998 Stock Option Plan (assumed by Registrant in the reorganization) 10.2 Agreement and Plan of Merger by and between Bank of the Sierra and Taft National Bank dated December 15, 2000 21 Subsidiaries of Registrant 23.1 Consent of Fried, Bird & Crumpacker, P.C. (included in Exhibit 5.1) 23.2 Consent of RSM McGladrey, Inc. with respect to Tax Opinion (included within Exhibits 8.1 and 8.2) 24 Power of Attorney (included in the signature page) 99.1 Form of Written Consent for use by Shareholders of Bank of the Sierra II-4 EX-3.1 2 0002.txt ARTICLES OF INCORPORATION OF SIERRA BANCORP Exhibit 3.1 ARTICLES OF INCORPORATION OF SIERRA BANCORP ONE: The name of this corporation is: --- SIERRA BANCORP TWO: The purpose of this corporation is to engage in any lawful act or --- activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THREE: The name and address in this State of the Corporation's initial ----- agent for service of process is Jack Fried, Esq., 1900 Avenue of the Stars, 25th Floor, Los Angeles, California 90067. FOUR: The corporation is authorized to issue only one (1) class of ---- shares, and the total number of shares of stock which the Corporation shall have authority to issue is 24,000,000 (Twenty-Four Million). FIVE: The liability of the directors of this corporation for monetary ---- damages shall be eliminated to the fullest extent permissible under California law. SIX: The corporation is authorized to provide indemnification of --- agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders. DATED: November 15, 2000 /s/ Madge S. Beletsky ----------------------------------- Madge S. Beletsky, Incorporator I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ Madge S. Beletsky ----------------------------------- Madge S. Beletsky, Incorporator EX-3.2 3 0003.txt AMENDMENT TO ARTICLES OF INCORPORATION Exhibit 3.2 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF SIERRA BANCORP James C. Holly and Robert H. Tienken certify that: 1. They are the President and Secretary, respectively, of Sierra Bancorp, a California corporation (the "Corporation"). 2. That new Articles SEVEN, EIGHT, NINE and TEN are hereby added to the Articles of Incorporation of the Corporation which shall read in full as follows: "SEVEN: A. The number of directors on the board of directors ----- shall be fixed from time to time by the board of directors pursuant to a resolution adopted by the board within the range set forth in the by-laws of the Corporation, which shall in no event be fewer than six directors. The directors shall be divided into two classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of shareholders after this provision becomes effective and the term of office of the second class to expire at the annual meeting of shareholders one year thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the second succeeding annual meeting of shareholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. B. The newly created directorships resulting from any increase in the authorized number of directors, or any vacancies on the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause, may be filled in accordance with Section 305 of the Corporations Code, and directors so chosen shall hold office for a term expiring at the annual meeting of shareholders at which the term of office of the class to which they have been chosen expires. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. C. This Article SEVEN shall become effective only when the Corporation becomes a listed corporation within the meaning of Section 301.5 of the Corporations Code." 1 "EIGHT: A. The shareholders of the Corporation shall no longer ----- be entitled to cumulative voting in the election of directors. B. This Article EIGHTH shall become effective only when the Corporation becomes a listed corporation within the meaning of Section 301.5 of the Corporations Code. "NINE: The approval of two-thirds of the outstanding shares of ---- the Corporation shall be required to approve (i) a merger in which the Corporation is not the surviving corporation or in which it issues a significant number of shares (more than 16.67% of previously outstanding shares), or (ii) a sale of substantially all of the assets of the Corporation (collectively, a "business combination"), unless such business combination has been approved by a majority of the Board of Directors of the Corporation, provided that at least a majority of the Board was holding office prior to commencement of proceedings or negotiations leading to the business combination. This provision shall cease to be effective two years after the filing of the amendment to the Corporation's Articles of Incorporation effecting this provision, unless renewed within one year before the applicable expiration date." "TEN: The Board of Directors of the Corporation, when evaluating --- any offer of another party to (a) make a tender or exchange offer for any equity security of the Corporation, (b) merge or consolidate the Corporation with another corporation or association, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, shall, in connection with the exercise of its judgment and fiduciary duty in determining what is in the best interest of the Corporation and its shareholders, give due consideration to (i) the potential social and economic effects on the Corporation's, and any of the Corporation's subsidiaries', employees, depositors, customers and other affected persons, and on the communities served by the Corporation and its subsidiaries, (ii) the value of the Corporation in relation to the Board of Directors' estimate of the Corporation's future value as an independent going concern, (iii) the competence, experience and integrity of the proposed purchaser, (iv) the financial condition, earnings prospects and strategic plan of the proposed purchaser; and (v) such other factors as the Board of Directors may deem relevant under the circumstances." 3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of outstanding shares of the Corporation is 100. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. 2 We further declare under penalty of perjury under the laws of the State of California that the matters set forth herein are true and correct and of our own knowledge. Executed in Porterville, California on December 14, 2000 /s/ James C. Holly ------------------ James C. Holly, President /s/ Robert H. Tienken --------------------- Robert H. Tienken, Secretary 3 EX-3.3 4 0004.txt BYLAWS OF SIERRA BANCORP Exhibit 3.3 BYLAWS OF SIERRA BANCORP (a California corporation) Adopted November 16, 2000 TABLE OF CONTENTS -----------------
Page ---- ARTICLE I - Applicability Section 1. Applicability of Bylaws................ 1 ARTICLE II - Offices Section 1. Principal Offices.......................... 1 Section 2. Change in Location or Number of Offices.... 1 ARTICLE III - Meetings of Shareholders Section 1. Place of Meetings.......................... 1 Section 2. Annual Meetings............................ 1 Section 3. Nominations for Director................... 1 Section 4. Special Meetings........................... 2 Section 5. Notice of Annual, Special or Adjourned Meetings......................... 2 Section 6. Record Date................................ 3 Section 7. Quorum..................................... 4 Section 8. Adjournment................................ 4 Section 9. Validation of Actions Taken at Defectively Called, Noticed or Held Meetings........... 4 Section 10. Voting for Election of Directors........... 5 Section 11. Proxies.................................... 6 Section 12. Inspectors of Election..................... 6 Section 13. Action by Written Consent.................. 7 ARTICLE IV - Directors Section 1. Number of Directors........................ 7 Section 2. Election of Directors...................... 8 Section 3. Term of Office............................. 8 Section 4. Vacancies.................................. 8
i TABLE OF CONTENTS - continued -----------------
Page ---- Section 5. Removal............................. 8 Section 6. Resignation......................... 9 Section 7. Fees and Compensation............... 9 Section 8. Indemnification of Corporate Agents. 9 ARTICLE V - Committees of the Board of Directors Section 1. Designation of Committees........... 9 Section 2. Powers of Committees................ 9 ARTICLE VI - Meetings of the Board of Directors and Committees Thereof Section 1. Place of Meetings................... 10 Section 2. Organization Meeting................ 10 Section 3. Special Meetings.................... 10 Section 4. Notice of Special Meetings.......... 10 Section 5. Waivers, Consents and Approvals..... 11 Section 6. Quorum; Action at Meetings; Telephone Meetings.................. 11 Section 7. Adjournment......................... 11 Section 8. Action Without a Meeting............ 11 Section 9. Meetings of and Action by Committees 11 ARTICLE VII - Officers Section 1. Officers............................ 11 Section 2. Election of Officers................ 12 Section 3. Subordinate Officers, Etc........... 12 Section 4. Removal and Resignation............. 12 Section 5. Vacancies........................... 12
ii TABLE OF CONTENTS - continued -----------------
Page ---- Section 6. Chairman of the Board.......... 12 Section 7. President...................... 12 Section 8. Vice President................. 13 Section 9. Secretary...................... 13 Section 10. Chief Financial Officer........ 13 ARTICLE VIII - Records and Reports Section 1. Minute Book.................... 13 Section 2. Share Register................. 14 Section 3. Books and Records of Account... 14 Section 4. Bylaws......................... 14 Section 5. Inspection of Records.......... 14 Section 6. Annual Report to Shareholders.. 14 ARTICLE IX - Miscellaneous Section 1. Checks, Drafts, Etc............ 14 Section 2. Contracts, Etc. - How Executed. 14 Section 3. Certificates of Stock.......... 15 Section 4. Lost Certificates.............. 15 Section 5. Representation of Shares of Other Corporations............. 15 Section 6. Construction and Definitions... 15 Section 7. Purchase of Liability Insurance 15 ARTICLE X - Amendments Section 1. Power of Shareholders.......... 16 Section 2. Power of Directors............. 16
iii BYLAWS OF SIERRA BANCORP (a California corporation) ARTICLE I Applicability ------------- Section 1. Applicability of Bylaws. These Bylaws govern, except as ----------------------- otherwise provided by statute or its Articles of Incorporation, the management of the business and the conduct of the affairs of the Corporation. ARTICLE II Offices ------- Section 1. Principal Offices. The Board of Directors shall fix the ----------------- location of the principal executive office of the Corporation at any place within or outside the State of California. If the principal executive office is located outside this state, and the Corporation has one or more business offices in this state, the Board of Directors shall designate a principal business office in the State of California. Section 2. Change in Location or Number of Offices. The Board of --------------------------------------- Directors may change any office from one location to another or establish or eliminate any office or offices. ARTICLE III Meetings of Shareholders ------------------------ Section 1. Place of Meetings. Meetings of the shareholders shall be ----------------- held at any place within or without the State of California designated by the Board of Directors, or, in the absence of such designation, at the principal executive office of the Corporation. Section 2. Annual Meetings. The Annual Meeting of Shareholders shall --------------- be held each year on a date and at a time as designated by the Board of Directors. The date so designated shall be within fifteen (15) months after incorporation or after the last Annual Meeting. Directors shall be elected at each Annual Meeting and any other proper business may be transacted thereat. Section 3. Nominations For Director. Nominations for election of ------------------------ members of the Board of Directors may be made by the Board of Directors or by any shareholder of any outstanding class of voting stock of the Corporation entitled to vote for the election of directors. Notice of intention to make any nominations, other than by the Board of Directors, shall be made in writing and shall be received by the President of the Corporation no more than 60 days prior to any meeting of shareholders called for the election of directors, and no more than 10 days after the date the notice of such meeting is sent to shareholders pursuant to Section 5(a) of Article III of these bylaws; provided, however, that if only 10 days' notice of the meeting is given to shareholders, such notice of intention to nominate shall be received by the President of the Corporation not later than the time fixed in the notice of the meeting for the opening of the meeting. Such notification shall contain the following information to the extent known to the notifying shareholder: (A) the name and address of each proposed nominee; (B) the principal occupation of each proposed nominee; (C) the number of shares of voting stock of the Corporation owned by each proposed nominee; (D) the name and residence address of the notifying shareholder; and (E) the number of shares of voting stock of the Corporation owned by the notifying shareholder. Nominations not made in accordance herewith may be disregarded by the then chairman of the meeting, and the inspectors of election shall then disregard all votes cast for each such nominee. Section 4. Special Meetings. ---------------- (a) Special meetings of the shareholders may be called by the Board of Directors, the Chairman of the Board, the President, or by the shareholders upon the request of the holders of shares entitled to cast not less than ten percent (10%) of the votes at such meeting. (b) Any request for the calling of a special meeting of the shareholders shall (1) be in writing, (2) specify the date and time thereof, which date shall be not less than thirty-five (35) nor more than sixty (60) days after receipt of the request, (3) specify the general nature of the business to be transacted thereat and (4) be given either personally or by first-class mail, postage prepaid, or other means of written communication to the Chairman of the Board, Presi dent, any Vice President or the Secretary of the Corporation. The officer receiving a proper request to call a special meeting of the shareholders shall cause notice to be given pursuant to the provisions of Section 4 of this Article to the shareholders entitled to vote thereat that a meeting will be held at the date and time specified by the person or persons calling the meeting. If notice is not given within 20 days of the receipt of the request, the shareholders making the request may give notice of such meeting so long as the notice given complies with the other provisions of this subsection. (c) No business may be transacted at a special meeting unless the general nature thereof was stated in the notice of such meeting. Section 5. Notice of Annual, Special or Adjourned Meetings. ----------------------------------------------- (a) Whenever any meeting of the shareholders is to be held, a written notice of such meeting shall be given in the manner described in subdivision (d) of this Section not less than ten (10) nor more than sixty (60) days before the date thereof to each shareholder entitled to vote thereat. The notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted or (2) in the case of the annual meeting, those matters which the Board of Directors, at the time of the giving of the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are 2 to be elected shall include the name of any nominee or nominees who, at the time of the notice, management intends to present for election. (b) Any proper matter may be presented at an annual meeting for action. However, any action to approve (1) a contract or transaction in which a director has a direct or indirect financial interest under Section 310 of the Corporations Code of California, (2) an amendment of the Articles of Incorporation under Section 902 of that code, (3) a reorganization of the Corporation, under Section 1201 of that code, (4) a voluntary dissolution of the Corporation under Section 1900 of that code, or (5) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares under Section 2007 of that code may be taken only if the notice of the meeting states the general nature of the matter to be approved. (c) Notice need not be given of an adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, except that if the adjournment is for more than 45 days or if after the adjournment a new record date is provided for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at that meeting. (d) Notice of any meeting of the shareholders shall be given personally, by first-class mail, or by telegraph or other written communication, addressed to the shareholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the Corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice shall be deemed to have been given at the time when delivered personally to the recipient, deposited in the mail, delivered to a common carrier for transmission to the recipient or sent by other means of written communication. An affidavit of the mailing or other means of giving notice may be executed by the Secretary, Assistant Secretary or any transfer agent of the Corporation giving the notice and shall be prima facie evidence of ----- ----- the giving of the notice. Such affidavits shall be filed and maintained in the minute books of the Corporation. (e) If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon his written demand at the principal executive office of the Corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. Section 6. Record Date. ----------- (a) The Board of Directors may fix a time in the future as a record date for determination of the shareholders (1) entitled to notice of any meeting or to vote thereat, (2) entitled to give written consent to any corporate action without a meeting, (3) entitled to receive payment of any dividend or other distribution or allotment of any rights or (4) entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall be not 3 more than 60 nor less than 10 days prior to the date of any meeting of the shareholders nor more than 60 days prior to any other action. (b) In the event no record date is fixed: (1) The record date for determining the shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given. (3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. (c) Only shareholders of record on the close of business on the record date are entitled to notice and to vote, to give written consent or to receive a dividend, distribution or allotment of right or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. (d) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. Section 7. Quorum. ------ (a) A majority of the shares entitled to vote at a meeting of the shareholders, represented in person or by proxy, shall constitute a quorum for the transaction of business at the meetings. (b) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 8. Adjournment. Any meeting of the shareholders may be ----------- adjourned from time to time whether or not a quorum is present by the vote of a majority of the shares represented thereat either in person or by proxy. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. 4 Section 9. Validation of Actions Taken at Defectively Called, -------------------------------------------------- Noticed or Held Meetings. ------------------------ (a) The transactions of any meeting of the shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote thereat, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. Any written waiver of notice shall comply with subdivision (f) of Section 601 of the Corporations Code of California. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. (b) Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except (1) when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and (2) that attendance at a meeting is not a waiver of any right to object to the consideration of any matter required by the General Corporation Law of California to be included in the notice but not so included, if such objection is expressly made at the meeting. Section 10. Voting for Election of Directors. -------------------------------- (a) Except as provided in subdivision (c) of this Section, the affirmative vote of the majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number is required by law or the Articles of Incorporation. At such time as the Corporation shall become a listed corporation within the meaning of Section 301.5 of the California Corporations Code, no shareholder shall be entitled to cumulate his votes as set forth in Section (b) and (c) below if the Articles of Incorporation shall effectively eliminate cumulative voting. (b) Every shareholder complying with subdivision (c) of this Section and entitled to vote at any election of directors may cumulate his votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are normally entitled, or distribute his votes on the same principle among as many candidates as he thinks fit. (c) No shareholder shall be entitled to cumulate his votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) unless the candidate's or candidates' names for which he desires to cumulate his votes have been properly placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of his intention to cumulate his votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. 5 (d) Elections for directors may be by voice vote or by ballot unless any shareholder entitled to vote demands election by ballot at the meeting prior to the voting, in which case the vote shall be by ballot. (e) In any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected as directors. Section 11. Proxies. ------- (a) Every person entitled to vote shares may authorize another person or persons to act with respect to such shares by a written proxy signed by him or his attorney-in-fact and filed with the Secretary of the Corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by him or his attorney-in-fact. (b) Any validly executed proxy, except a proxy which is irrevocable pursuant to subdivision (c) of this Section, shall continue in full force and effect until the expiration of the term specified therein or upon its earlier revocation by the person executing it prior to the vote pursuant thereto (1) by a writing delivered to the Corporation stating that it is revoked, (2) by written notice of the death of the person executing the proxy, delivered to the Corporation, (3) by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting or (4) as to any meeting by attendance at such meeting and voting in person by the person executing the proxy. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. The date contained on the form of proxy shall be deemed to be the date of its execution. (c) A proxy which states that it is irrevocable is irrevocable for the period specified therein subject to the provisions of subdivisions (e) and (f) of Section 705 of the Corporations Code of California. Section 12. Inspectors of Election. ---------------------- (a) In advance of any meeting of the shareholders, the Board of Directors may appoint either one or three persons (other than nominees for the office of director) as inspectors of election to act at such meeting or any adjournments thereof. If inspectors of election are not so appointed, or if any person so appointed fails to appear or refuses to act, the chairman of any such meeting may, and on the request of any shareholder or his proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse to act) at the meeting. If appointed at a meeting on the request of one or more shareholders or the proxies thereof, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. (b) The duties of inspectors of election and the manner of performance thereof shall be as prescribed in subdivisions (b) and (c) of Section 707 of the Corporations Code of California. 6 Section 13. Action by Written Consent. ------------------------- (a) Subject to subdivisions (b) and (c) of this Section, any action which may be taken at any annual or special meeting of the shareholders may be taken without a meeting, without a vote and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the Secretary of the Corporation and maintained with the corporate records. (b) Except for the election of a director by written consent to fill a vacancy (other than a vacancy created by removal), directors may be elected by written consent only by the unanimous written consent of all shares entitled to vote for the election of directors. In the case of an election of a director by written consent to fill a vacancy (other than a vacancy created by removal), any such election requires the consent of a majority of the outstanding shares entitled to vote for the election of directors. (c) Unless the consents of all shareholders entitled to vote have been solicited in writing, the Secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. This notice shall be given in the manner specified in subdivi sion (d) of Section 5 of this Article III. In the case of approval of (1) contracts or transactions in which a director has a direct or indirect financial interest under Section 310 of the Corporations Code of California, (2) indemnification of agents of the Corporation, under Section 317 of that code, (3) a reorganization of the Corporation, under Section 1201 of that code, or (4) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, under Section 2007 of that code, notice of such approval shall be given at least ten (10) days before the consummation of any action authorized by that approval. (d) Any shareholder giving a written consent, or his proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the Corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the Corporation. ARTICLE IV Directors --------- Section 1. Number of Directors. The authorized number of Directors ------------------- shall be not less than six (6) nor more than eleven (11) unless changed by amendment of the Articles or by a Bylaw duly adopted by approval of the outstanding shares. The exact number of directors shall be fixed, within the limits specified, by amendment of the next sentence duly adopted either by the Board or the shareholders, or by a resolution duly adopted by wither the Board of Directors or the shareholders. The exact number of directors shall be nine until changed as provided in this Section 1. 7 Section 2. Election of Directors. The directors shall be elected at --------------------- each annual meeting of the shareholders. At such time as the Corporation shall become a listed corporation within the meaning of Section 301.5 of the California Corporations Code the directors, shall be divided, with respect to the time for which they severally hold office, into two classes, with the term of the first class to expire at the first annual meeting of shareholders after the first election of two classes of directors, and the term of office of the second class to expire at the annual meeting of shareholders one year thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of shareholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the second succeeding annual meeting of shareholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. Section 3. Term of Office. Each director, including a director -------------- elected to fill a vacancy, shall hold office until the expiration of the term for which he is elected and until a successor has been elected and qualified. Section 4. Vacancies. --------- (a) A vacancy in the Board of Directors exists whenever any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal, change in the authorized number of directors, or otherwise. (b) Subject to the right of the holders of any class or series of Preferred Stock, except for a vacancy created by the removal of a director, vacancies on the Board of Directors may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director shall be filled only by a person elected by a majority of the shareholders entitled to vote at a duly held meeting at which there is a quorum present or by the unanimous written consent of the holders of the outstanding shares entitled to vote at such a meeting. (c) The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Section 5. Removal. ------- (a) The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. (b) Any or all of the directors may be removed without cause if such removal is approved by a majority of the outstanding shares entitled to vote; provided, however, that no director may be removed (unless the entire Board of Directors is removed) if whenever the votes cast against his removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the 8 entire number of directors authorized at the time of his most recent election were then being elected. (c) Any reduction of the authorized number of directors does not remove any director prior to the expiration of his term of office. Section 6. Resignation. Any director may resign effective upon giving ----------- written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 7. Fees and Compensation. Directors may be paid for their --------------------- services in such capacity a sum in such amounts, at such times and upon such conditions as may be determined from time to time by resolution of the Board of Directors and may be reimbursed for their expenses, if any, for attendance at each meeting of the Board. No such payments shall preclude any director from serving the Corporation in any other capacity and receiving compen sation in any manner therefor. Section 8. Indemnification of Corporate Agents. The Corporation may ----------------------------------- indemnify each of its agents against expenses, judgments, fines, settlements and other amounts, actually and reasonably incurred by such person having been made or having been threatened to be made a party to a proceeding to the fullest extent possible by the provisions of the General Corporation Law and the Corporation may advance the expenses reasonably expected to be incurred by such agent in defending any such proceeding upon receipt of the undertaking required by the General Corporation Law. The terms "agent," "proceeding" and "expense" made in this Section 8 shall have the same meaning as such terms in said Section 317 of the General Corporation Law, as amended. ARTICLE V Committees of the Board of Directors ------------------------------------ Section 1. Designation of Committees. The Board of Directors may, by ------------------------- resolution adopted by a majority of the authorized number of directors, designate (1) one or more committees, each consisting of two or more directors and (2) one or more directors as alternate members of any committee, who may replace any absent member at any meeting thereof. Any member or alternate member of a committee shall serve at the pleasure of the Board. Section 2. Powers of Committees. Any committee, to the extent -------------------- provided in the resolution of the Board of Directors designating such committee, shall have all the authority of the Board, except with respect to: (a) The approval of any action for which the General Corporation Law of California also requires any action by the shareholders; 9 (b) The filling of vacancies on the Board or in any committee thereof; (c) The fixing of compensation of the directors for serving on the Board or on any committee thereof; (d) The amendment or repeal of these Bylaws or the adoption of new bylaws; (e) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable; (f) A distribution to the shareholders of the Corporation, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) The designation of other committees of the Board or the appointment of members or alternate members thereof. ARTICLE VI Meetings of the Board of Directors ---------------------------------- and Committees Thereof ---------------------- Section 1. Place of Meetings. Regular meetings of the Board of ----------------- Directors shall be held at any place within or without the State of California which has been designated from time to time by the Board or, in the absence of such designation, at the principal executive office of the Corporation. Special meetings of the Board shall be held either at any place within or without the State of California which has been designated in the notice of meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the Corporation. Section 2. Organization Meeting. Immediately following each annual -------------------- meeting of the shareholders the Board of Directors shall hold a regular meeting for the purpose of organization and the transaction of other business. Notice of any such meeting is not required. Section 3. Special Meetings. Special meetings of the Board of ---------------- Directors may be called at any time for any purpose or purposes by the Chairman of the Board or the President or any Vice President or the Secretary or any two directors. Notice shall be given of any special meeting of the Board. Section 4. Notice of Special Meetings. Notice of the time and place -------------------------- of special meetings of the Board of Directors shall be delivered personally or by telephone to each director or sent to each director by first-class mail or telegraph, charges prepaid, addressed to each director at that director's address as shown on the records of the Corporation. Such notice shall be given four days prior to the holding of the special meeting if sent by mail or 48 hours prior to the holding thereof if delivered personally or given by telephone or telegraph. The notice or report shall be deemed to have been given at the time when delivered personally to the recipient or deposited in the mail or sent by other means of written communication. Notice of any special meeting of the Board of Directors need not specify the purpose thereof. 10 Section 5. Waivers, Consents and Approvals. Notice of any meeting of ------------------------------- the Board of Directors need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 6. Quorum; Action at Meetings; Telephone Meetings. ---------------------------------------------- (a) A majority of the authorized number of directors shall constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the directors present is the act of the Board of Directors, unless action by a greater proportion of the directors is required by law or the Articles of Incorporation. (b) A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. (c) Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment so long as all members participating in such meeting can hear one another. Section 7. Adjournment. A majority of the directors present, whether ----------- or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 8. Action Without a Meeting. Any action required or permitted ------------------------ to be taken by the Board of Directors may be taken without a meeting, if all members of the Board individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 9. Meetings of and Action by Committees. The provisions of ------------------------------------ this Article apply to committees of the Board of Directors and action by such committees with such changes in the language of those provisions as are necessary to substitute the committee and its members for the Board and its members. ARTICLE VII Officers -------- Section 1. Officers. The Corporation shall have as officers, a -------- President, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board, a Chairman of the Board, a Vice Chairman of the Board, one or more Vice Presidents, 11 a Treasurer, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. Election of Officers. The officers of the Corporation, -------------------- except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by the Board of Directors. Section 3. Subordinate Officers, Etc. The Board of Directors may -------------------------- appoint by resolution, and may empower the Chairman of the Board, if there be such an officer, or the President, to appoint such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are determined from time to time by resolution of the Board or, in the absence of any such determina tion, as are provided in these Bylaws. Any appointment of an officer shall be evidenced by a written instrument filed with the Secretary of the Corporation and maintained with the corporate records. Section 4. Removal and Resignation. ----------------------- (a) Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors or, except in case of any officer chosen by the Board, by any officer upon whom such power of removal may be conferred by resolution of the Board. (b) Subject to the rights, if any, of the Corporation under any contract of employment, any officer may resign at any time effective upon giving written notice to the Chairman of the Board, President, any Vice President or Secretary of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. Section 5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office. Section 6. Chairman of the Board. If there is a Chairman of the --------------------- Board, he shall, if present, preside at all meetings of the Board of Directors, exercise and perform such other powers and duties as may be from time to time assigned to him by resolution of the Board or prescribed by these Bylaws and, if there is no President, the Chairman of the Board shall be the chief executive officer of the corporation and have the power and duties set forth in Section 7 of this Article. Section 7. President. Subject to such supervisory powers, if any as --------- may be given by these Bylaws or the Board of Directors to the Chairman of the Board, if there be such an officer, the President may be the chief executive officer and general manager of the Corporation and shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. He shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings 12 of the Board. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed from time to time by resolution of the Board. Section 8. Vice President. In the absence or disability of the -------------- President, the Vice Presidents in order of their rank as fixed by the Board of Directors, or, if not ranked, the Vice President designated by the Board, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board or as the President may from time to time delegate. Section 9. Secretary. --------- (a) The Secretary, any Assistant Secretary, or, if they are absent or unable to act, any other officer shall keep or cause to be kept (1) the minute book, (2) the share register and (3) the seal, if any, of the Corporation. (b) The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required by these Bylaws or bylaw to be given, and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors or any committee of the Board of Directors. Section 10. Chief Financial Officer. ----------------------- (a) The Chief Financial Officer shall keep, or cause to be kept, the books and records of account of the Corporation. (b) The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated from time to time by resolution of the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and the Board, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board or as the President may from time to time delegate. ARTICLE VIII Records and Reports ------------------- Section 1. Minute Book. The Corporation shall keep or cause to be ----------- kept in written form at its principal executive office or such other place as the Board of Directors may order, a minute book which shall contain a record of all actions by its shareholders, Board or committees of the Board including the time, date and place of each meeting; whether a meeting is regular or special and, if special, how called; the manner of giving notice of each meeting and 13 a copy thereof; the names of those present at each meeting of the Board or committees thereof; the number of shares present or represented at each meeting of the shareholders; the proceedings of all meetings; any written waivers of notice, consents to the holding of a meeting or approvals of the minutes thereof; and written consents for action without a meeting. Section 2. Share Register. The Corporation shall keep or cause to be -------------- kept at its principal executive office or, if so provided by resolution of the Board of Directors, at the Corporation's transfer agent or registrar, a share register, or a duplicate share register, which shall contain the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. Section 3. Books and Records of Account. The Corporation shall keep ---------------------------- or cause to be kept at its principal executive office or such other place as the Board of Directors may order, adequate and correct books and records of account. Section 4. Bylaws. The Corporation shall keep at its principal ------ executive office or, in the absence of such office in the State of California, at its principal business office in the state, the original or a copy of the Bylaws as amended to date. Section 5. Inspection of Records. The shareholders and directors of --------------------- the Corporation shall have all of the rights to inspect the books and records of the Corporation that are specified in Section 213 and 1600 through 1602 of the Corporations Code of California. Section 6. Annual Report to Shareholders. The annual report to the ----------------------------- shareholders described in Section 1501 of the Corporations Code of California is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the shareholders of the Corporation as they see fit. ARTICLE IX Miscellaneous ------------- Section 1. Checks, Drafts, Etc. All checks, drafts or other orders -------------------- for payment of money, notes or other evidences of indebtedness, and any assignment or endorsement thereof, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 2. Contracts, Etc. - How Executed. The Board of Directors, ------------------------------ except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board, no officer, employee or other agent shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount. However, any contract or other instrument in writing 14 executed or entered into between the Corporation and any other person, when signed by (1) the Chairman of the Board, the President or any vice president and (2) the Secretary, any assistant secretary, the Chief Financial Officer or any assistant treasurer, is not invalid as to the Corporation by any lack of authority of the signing officer in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute such contract or other instrument. Section 3. Certificates of Stock. A certificate or certificates for --------------------- shares of the capital stock of the Corporation shall be issued to each shareholder when the shares are fully paid or the Board of Directors may authorize the issuance of certificates for shares as partly paid provided that these certificates shall conspicuously state the amount of the consideration to be paid for them and the amount already paid. All certificates shall be signed in the name of the Corporation by the Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares and the class or series thereof owned by the shareholder. Any or all of the signatures on a certificate may be by facsimile signature. In case any officer, transfer agent or registrar has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 4. Lost Certificates. Except as provided in this Section, no ----------------- new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Board of Directors may in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions as the Board may require, including provision for indemnification of the Corporation secured by a bond or other adequate security sufficient to protect the Corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. Section 5. Representation of Shares of Other Corporations. Any person ---------------------------------------------- designated by resolution of the Board of Directors or, in the absence of such designation, the Chairman of the Board, the President or any Vice President or the Secretary, or any other person authorized by any of the foregoing, is authorized to vote on behalf of the Corporation any and all shares of any other corporation or corporations, foreign or domestic, owned by the Corporation. Section 6. Construction and Definitions. Unless the context otherwise ---------------------------- requires, the general provisions, rules of construction and definitions contained in the Corporations Code of California shall govern the construction of these Bylaws. Section 7. Purchase of Liability Insurance. The Corporation shall, if ------------------------------- and to the extent the Board of Directors so determines by resolution, purchase and maintain insurance in an amount and on behalf of such agents of the Corporation as the Board may specify in such resolution against any liability asserted against or incurred by the agent in such capacity or arising 15 out of the agent's status as such whether or not the Corporation would have the capacity to indemnify the agent against such liability under the provisions of this Section 7. ARTICLE X Amendments ---------- Section 1. Power of Shareholders. New bylaws may be adopted or these --------------------- Bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by the written consent of the shareholders entitled to vote such shares, except as otherwise provided by law or by the Articles of Incorporation. Section 2. Power of Directors. Subject to the right of shareholders ------------------ (as provided in Section 1 of this Article X) to adopt, amend or repeal bylaws, these Bylaws may be adopted, amended or repealed by the Board of Directors; provided, however, that the Board of Directors may adopt a bylaw or amendment thereof changing the authorized number of directors only for the purpose of fixing the exact number of directors within the limits specified in Section 1 of Article IV of these Bylaws. 16 CERTIFICATE OF SECRETARY The undersigned does hereby certify: 1. That I am the duly elected and acting Secretary of Sierra Bancorp, a California corporation; and 2. That the foregoing bylaws constitute the bylaws of said Corporation as duly adopted by action of the Sole Incorporator of the Corporation duly taken on November 16, 2000. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of this Corporation this 14/th/ day of December, 2000. /s/ Robert H. Tienken --------------------- Robert H. Tienken Secretary EX-5.1 5 0005.txt OPINION OF FRIED, BIRD & CRUMPACKER Exhibit 5.1 [LETTERHEAD OF FRIED, BIRD & CRUMPACKER, P.C.] January 3, 2001 Board of Directors Sierra Bancorp 86 North Main Street Porterville, California 93257 Ladies and Gentlemen: We have acted as counsel to Sierra Bancorp, a California corporation (the "Company"), in connection with the proposed registration under the Securities Act of 1933, as amended, of a maximum of 9,212,280 shares of common stock, no par value, (the "Shares") of the Company, which are proposed to be issued by the Company in connection with the merger of a new wholly-owned subsidiary of the Company with and into Bank of the Sierra, a California banking corporation (the "Reorganization"). The shares will be issued pursuant to a Plan of Reorganization and Agreement of Merger by and among the Company, Bank of the Sierra and Sierra Merger Corporation dated December 14, 2000 (the "Reorganization Agreement"). In our capacity as counsel to the Company we have examined such corporate records and other documents, including the registration statement on Form S-4 relating to the Shares and the Reorganization Agreement, and have reviewed such matters of law as we have deemed necessary. On the basis of the foregoing, and in reliance thereon and subject to the assumptions, qualifications, exemptions and limitations expressed herein, we are of the opinion that when the Shares are issued in accordance with the terms of the Reorganization Agreement, the Shares will be duly authorized, legally issued, fully paid and non-assessable shares of the Company's common stock. This opinion is limited to the present laws of the State of California and of the United States of America, and the corporate law of the State of California. This opinion is solely for your information in connection with the offer and sale of the Shares by the Company, and is not, without the prior written consent of this firm, to be quoted in full or in part or otherwise referred to in any documents nor to be filed with any governmental agency or other persons, other than with the Securities and Exchange Commission and various state securities administrators in connection with the qualification of the Shares, to which reference and filings we hereby expressly consent. Sincerely, /s/ Fried, Bird & Crumpacker, P.C. EX-8.1 6 0006.txt OPINION OF RSM MCGLADREY, INC. Exhibit 8.1 [LETTERHEAD OF RSM McGLADREY, INC.] January 2, 2001 Board of Directors Board of Directors Sierra Bancorp Bank of the Sierra 86 N. Main Street 86 N. Main Street Porterville, CA 93257 Porterville, CA 93257 re: Tax Opinion Concerning Reorganization under Internal Revenue Code 368(a)(2)(E) You have requested our opinion as to certain Federal Income Tax consequences of the merger (Merger) of Sierra Merger Corporation (Sierra Merger) a newly formed wholly owned subsidiary of Sierra Bancorp with and into The Bank of the Sierra (BOTS). Sierra Merger was formed exclusively to engage in this transaction. The shareholders of BOTS will receive stock of Sierra Bancorp (SB) in exchange for their stock of BOTS. In connection with your request, you have provided us with the Plan of Reorganization and Agreement of Merger dated as of December 14, 2000 (Agreement), by and among SB, Sierra Merger and BOTS. We have also received and relied upon the following representations made by and on behalf of SB, Sierra Merger, and BOTS: o To the extent not inconsistent with the representations, the "Merger" will be consummated in accordance with the Plan of Reorganization and Agreement of Merger, by and among SB, BOTS and Sierra Merger. o The fair market value of SB stock to be received by BOTS' shareholders in the "Merger" will, in each instance, be approximately equal to the fair market value of BOTS stock surrendered in exchange therefore. o In the "Merger", shares of BOTS representing at least 90% of the outstanding stock of BOTS will be exchanged solely for voting stock of SB. Shares of BOTS stock held by BOTS shareholders and otherwise sold, redeemed or disposed of prior or subsequent to the "Merger" will be considered as outstanding stock of BOTS in making this representation. o BOTS has no plan intention or obligation, including pursuant to outstanding options to acquire its stock, to issue stock that would cause SB's ownership to be less than control as defined in 368(c) of the Code. For this purpose control means the ownership of stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation o Other than the proposed Taft National Bank merger, SB has no plan or intention to liquidate or merge BOTS after the "Merger". o Neither SB nor any party "related", as defined in the Internal Revenue Code of 1986 for purposes of Treasury Regulation 1.368-1(e)(3), to SB has a plan, binding commitment or intention to redeem or otherwise reacquire any of the SB stock issued in the "Merger". o Following the "Merger", BOTS will retain substantially all (defined to be at least 70% of the gross assets and 90% of the net assets) of the assets of BOTS and Sierra Merger and continue the historic business of BOTS. o Sierra Merger was formed solely for purpose of effectuating the "Merger" and has no other purpose. o 100% of the stock of Sierra Merger will be owned by SB prior to the "Merger". o Sierra Merger will have no liabilities to be assumed by BOTS and will transfer no assets to BOTS in the "Merger". o The merger expenses are expenses of BOTS and will be borne by BOTS. Shareholders' cost, if any, will be paid by the shareholders. o There is and will be no intercorporate indebtedness between or among BOTS, SB and Sierra Merger that was or will be issued, acquired or settled at a discount. o BOTS, SB and Sierra Merger are not investment companies as defined in 368(a)(2)(F)(iii) and (iv) of the Code. o Neither BOTS or nor SB are under the jurisdiction of a court in a Title 11 or similar case within the meaning of 368(a)(3)(A) of the Code. o None of the compensation to be received by any shareholder- employees of BOTS or SB is separate consideration for, or allocable to, any of their shares of BOTS or SB stock. SB stock received by any shareholder-employee of BOTS or SB is not separate consideration for, or allocable to, any employment agreement or other compensation owed to such shareholder- employee. o Prior to the "Merger" SB has not nor will own any stock of BOTS. o The reasons for the "Merger" of Sierra Merger into BOTS constitute substantial business purposes of BOTS, SB and Sierra Merger and can be documented and demonstrated clearly. o No dividends will be paid by BOTS or SB before the consummation of the "Merger", other than regular periodic dividends, consistent in amount and in effect with prior dividend distributions. o BOTS has 400,000 non-qualified stock options outstanding for the purchase of BOTS shares. The exercise price for all the outstanding options is $9 per share. The sample non-qualified stock option agreement provided is identical to all other non-qualified stock option agreements except as to the name of the optionee. o BOTS has 373,600 Incentive Stock Options outstanding for the purchase of BOTS shares. The exercise price for all the outstanding options is $9 per share. The sample Incentive Stock Option agreement provided is identical to all other Incentive Stock Option agreements except as to the name of the optionee. 2 o No fractional shares of stock will be issued as a result of the "Merger" and no fractional shares will be purchased for cash as a result of the Merger. o As a result of the "Merger" no cash will be paid to dissenting shareholders. o It is intended that BOTS's outstanding Incentive Stock Options will be assumed by SB and that subsequent to the "Merger" upon exercise of the Incentive Stock Options the optionee will receive SB stock. With this assumption by SB the terms of the outstanding stock options will not change except that the number of shares subject to an option issued or assumed may be adjusted to compensate for any change in the aggregate spread between the option price and the fair market value of the stock subject to the option immediately after the substitution or assumption as compared to the aggregate spread between the option price and the aggregate fair market value of the stock subject to the option immediately before such substitution or assumption which would not be treated as a modification under Treasury Regulation 1.425-1(e)(5). o The options granted under the incentive stock option agreement are incentive stock options within the meaning of Section 422 of the code. o No individual ISO optionee, when considering stock owned directly or indirectly by a corporation partnership estate or trust or when considering stock held by spouse, brother, sister, ancestor or lineal descendents will own more than 10% of the stock of SB or BOTS. Assumptions We have assumed all of the representations contained herein are true and correct. We have relied upon the opinion of Fried, Bird & Crumpacker counsel to SB and BOTS, and upon which such counsel has expressly stated we are entitled to rely, that the Merger qualifies as a merger under applicable state law as more fully described in such opinion. Opinion Based on our understanding of the facts, and relying upon the opinion of Fried, Bird & Crumpacker with respect to the qualification of the Merger, the representations made to us and assumptions stated herein, our review of the relevant sections of the Internal Revenue Code of 1986, as amended, (Code) the regulations promulgated thereunder, and cases, rulings and other authorities, it is our opinion that the transaction will be treated as follows for Federal Income Tax purposes: 1. The Merger of Sierra Merger into BOTS will qualify as a reorganization within the meaning of 368(a)(2)(E) of the Code, and Sierra Merger, SB and BOTS will each be a "party to a reorganization" within the meaning of 368(b) of the Code. 2. No gain or loss will be recognized by Sierra Merger, SB or BOTS as a result of the Merger under 361(a) and 357(a) of the Code and Rev. Rul. 57-278. 3 3. No gain or loss will be recognized by the shareholders of BOTS upon receipt of SB Common Stock in exchange for their shares of BOTS Common Stock pursuant to the reorganization. 4. The tax basis of the assets of BOTS retained by BOTS will be the same as the tax basis of such assets immediately before the transaction. 5. The holding period of BOTS assets will include the holding period of such assets immediately before the transaction. 6. The SB stock received by BOTS shareholders in exchange for their BOTS stock will have the same basis for Federal Income Tax purposes as the basis of the BOTS stock surrendered in exchange therefore under 358(a)(1) of the Code. 7. The holding period of SB stock received by the BOTS shareholders in exchange for their BOTS stock will include the holding period for the BOTS shares surrendered in the Merger under 1223(a)(1) of the Code, provided that BOTS shares surrendered were held as capital assets by the BOTS shareholders at the time of the Merger. 8. No gain or loss will be recognized by SB upon the issuance of its own stock under 361(a) of the Code. Our opinion is based on the representations made to us and the assumptions stated herein. If any of the facts, representations or assumptions are determined to be incorrect, our opinion may be adversely affected. We express no opinion as to the accuracy of the facts, representations and assumptions stated herein. We express no opinion regarding Federal, state, local, foreign or other tax matters not contained in items 1. through 8. above. Our opinion is based upon existing law, Treasury Regulations and on administrative and judicial interpretations of the law and regulations. Administrative positions of the Internal Revenue Service contained in Revenue Rulings and Revenue Procedures as well as judicial decisions are subject to change either prospectively or retroactively. We undertake no obligation to update this opinion for changes in facts or law occurring subsequent to the date of this opinion. This opinion is effective as of closing effective time as provided in Agreement. This opinion is not binding on the Internal Revenue Service or the courts. We consent to the inclusion of this opinion as an exhibit to the Registration Statement on Form S-4 filed by Sierra Bancorp with the Securities and Exchange Commission for the purpose of registering securities under the Securities Act of 1933, as amended. /s/ RSM McGladrey, Inc. 4 EX-8.2 7 0007.txt OPINION OF RSM MCGLADREY, INC. Exhibit 8.2 [LETTERHEAD OF RSM McGLADREY, INC.] January 2, 2001 Board of Directors Board of Directors Sierra Bancorp Bank of the Sierra 86 N. Main Street 86 N. Main Street Porterville, CA 93257 Porterville, CA 93257 re: Tax Opinion Concerning the assumption of Bank of the Sierra Incentive Stock Option Plan in connection with the merger of Sierra Merger Corporation (A wholly-owned subsidiary of Sierra Bancorp) into Bank of the Sierra You have requested our opinion as to certain Federal Income Tax consequences of the merger ("Merger") of Sierra Merger Corporation (Sierra Merger) a newly formed wholly-owned subsidiary of Sierra Bancorp with and into Bank of the Sierra (BOTS). Sierra Merger was formed exclusively to engage in this transaction. The shareholders of BOTS will receive stock of Sierra Bancorp (SB) in exchange for their stock of BOTS. In connection with your request, you have provided us with the Plan of Reorganization and Agreement of Merger dated as of December 14, 2000 (Agreement), by and among SB, Sierra Merger and BOTS. We have also received and relied upon the following representations made by and on behalf of SB, Sierra Merger, and BOTS: . To the extent not inconsistent with the representations, the "Merger" will be consummated in accordance with the Plan of Reorganization and Agreement of Merger, by and among SB, BOTS and Sierra Merger. . The fair market value of SB stock to be received by BOTS' shareholders in the "Merger" will, in each instance, be approximately equal to the fair market value of BOTS stock surrendered in exchange therefore. . In the "Merger", shares of BOTS representing at least 90% of the outstanding stock of BOTS will be exchanged solely for voting stock of SB. Shares of BOTS stock held by BOTS shareholders and otherwise sold, redeemed or disposed of prior or subsequent to the "Merger" will be considered as outstanding stock of BOTS in making this representation. . BOTS has no plan intention or obligation, including pursuant to outstanding options to acquire its stock, to issue stock that would cause SB's ownership to be less than control as defined in 368(c) of the Code. For this purpose control means the ownership of stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation . Other than the proposed Taft National Bank merger, SB has no plan or intention to liquidate or merge BOTS after the "Merger". . Neither SB nor any party "related", as defined in the Internal Revenue Code of 1986 for purposes of Treasury Regulation 1.368-1(e)(3), to SB has a plan, binding commitment or intention to redeem or otherwise reacquire any of the SB stock issued in the "Merger". . Following the "Merger", BOTS will retain substantially all (defined to be at least 70% of the gross assets and 90% of the net assets) of the assets of BOTS and Sierra Merger and continue the historic business of BOTS. . Sierra Merger was formed solely for purpose of effectuating the "Merger" and has no other purpose. . 100% of the stock of Sierra Merger will be owned by SB prior to the "Merger". . Sierra Merger will have no liabilities to be assumed by BOTS and will transfer no assets to BOTS in the "Merger". . The merger expenses are expenses of BOTS and will be borne by BOTS. Shareholders' cost, if any, will be paid by the shareholders. . There is and will be no intercorporate indebtedness between or among BOTS, SB and Sierra Merger that was or will be issued, acquired or settled at a discount. . BOTS, SB and Sierra Merger are not investment companies as defined in 368(a)(2)(F)(iii) and (iv) of the Code. . Neither BOTS or nor SB are under the jurisdiction of a court in a Title 11 or similar case within the meaning of 368(a)(3)(A) of the Code. . None of the compensation to be received by any shareholder- employees of BOTS or SB is separate consideration for, or allocable to, any of their shares of BOTS or SB stock. SB stock received by any shareholder-employee of BOTS or SB is not separate consideration for, or allocable to, any employment agreement or other compensation owed to such shareholder- employee. . Prior to the "Merger" SB has not nor will own any stock of BOTS. . The reasons for the "Merger" of Sierra Merger into BOTS constitute substantial business purposes of BOTS, SB and Sierra Merger and can be documented and demonstrated clearly. . No dividends will be paid by BOTS or SB before the consummation of the "Merger", other than regular periodic dividends, consistent in amount and in effect with prior dividend distributions. . BOTS has 400,000 non-qualified stock options outstanding for the purchase of BOTS shares. The exercise price for all the outstanding options is $9 per share. The sample 2 non-qualified stock option agreement provided is identical to all other non-qualified stock option agreements except as to the name of the optionee. . BOTS has 373,600 Incentive Stock Options outstanding for the purchase of BOTS shares. The exercise price for all the outstanding options is $9 per share. The sample Incentive Stock Option agreement provided is identical to all other Incentive Stock Option agreements except as to the name of the optionee. . No fractional shares of stock will be issued as a result of the "Merger" and no fractional shares will be purchased for cash as a result of the "Merger". . As a result of the "Merger" no cash will be paid to dissenting shareholders. . It is intended that BOTS's outstanding Incentive Stock Options will be assumed by SB and that subsequent to the "Merger" upon exercise of the Incentive Stock Options the optionee will receive SB stock. With this assumption by SB the terms of the outstanding stock options will not change except that the number of shares subject to an option issued or assumed may be adjusted to compensate for any change in the aggregate spread between the option price and the fair market value of the stock subject to the option immediately after the substitution or assumption as compared to the aggregate spread between the option price and the aggregate fair market value of the stock subject to the option immediately before such substitution or assumption which would not be treated as a modification under Treasury Regulation 1.425-1(e)(5). . The options granted under the incentive stock option agreement are incentive stock options within the meaning of Section 422 of the code. . No individual ISO optionee, when considering stock owned directly or indirectly by a corporation partnership estate or trust or when considering stock held by spouse, brother, sister, ancestor or lineal descendents will own more than 10% of the stock of SB or BOTS. Assumptions We have assumed all of the representations contained herein are true and correct. We have relied upon the opinion of Fried, Bird & Crumpacker counsel to SB and BOTS, and upon which such counsel has expressly stated we are entitled to rely, that the "Merger" qualifies as a "Merger" under applicable state law as more fully described in such opinion. Opinion Based on our understanding of the facts, and relying upon the opinion of Fried, Bird & Crumpacker with respect to the qualification of the "Merger", the representations made to us and assumptions stated herein, our review of the relevant sections of the Internal Revenue Code of 1986, as amended, (Code) the regulations promulgated thereunder, and cases, rulings and other authorities, it is our opinion that the transaction will be treated as follows for Federal Income Tax purposes: 3 1. The "Merger" of Sierra Merger into BOTS will qualify as a reorganization within the meaning of 368(a)(2)(E) of the Code, and Sierra Merger, SB and BOTS will each be a "party to a reorganization" within the meaning of 368(b) of the Code. 2. A holder of an outstanding option granted under the BOTS incentive stock option plan will not recognize income, gain or loss solely as a result of the assumption of the BOTS incentive stock option plan by SB; and, 3. The assumption by SB of the outstanding incentive stock options granted under the BOTS incentive stock option plan will not be deemed a modification of the option under Section 424(h) of the code. Our opinion is based on the representations made to us and the assumptions stated herein. If any of the facts, representations or assumptions are determined to be incorrect, our opinion may be adversely affected. We express no opinion as to the accuracy of the facts, representations and assumptions stated herein. We express no opinion regarding Federal, state, local, foreign or other tax matters not contained in items 1. through 3. above. Our opinion is based upon existing law, Treasury Regulations and on administrative and judicial interpretations of the law and regulations. Administrative positions of the Internal Revenue Service contained in Revenue Rulings and Revenue Procedures as well as judicial decisions are subject to change either prospectively or retroactively. We undertake no obligation to update this opinion for changes in facts or law occurring subsequent to the date of this opinion. This opinion is effective as of closing effective time as provided in the Agreement. This opinion is not binding on the Internal Revenue Service or the courts. We consent to the inclusion of this opinion as an exhibit to the Registration Statement on Form S-4 filed by Sierra Bancorp with the Securities and Exchange Commission for the purpose of registering securities under the Securities Act of 1933, as amended. /s/ RSM McGladrey, Inc. 4 EX-10.1 8 0008.txt BANK OF SIERRA 1998 STOCK OPTION PLAN EXHIBIT 10.1 BANK OF THE SIERRA 1998 STOCK OPTION PLAN Adopted June 11, 1998 1. Purpose. The purpose of the 1998 Stock Option Plan (the "Plan") is to ------- strengthen BANK OF THE SIERRA (the "Bank") and those corporations which are or hereafter become subsidiary corporations of the Bank, within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"), by providing to participating employees and directors added incentive for high levels of performance and for unusual efforts to increase the earnings of the Bank and its subsidiary corporations. The Plan seeks to accomplish these purposes and results by providing a means whereby such employees and directors may purchase shares of the common stock of the Bank pursuant to (a) options granted pursuant to the Incentive Stock Option Plan (the "Incentive Plan") (Division A hereof) which will qualify as incentive stock options under Section 422 of the Code ("Incentive Options"), or (b) options granted pursuant to the Non-Qualified Stock Option Plan (the "Non-Qualified Plan") (Division B hereof) which are intended to be non- qualified stock options described in Treas. Reg. (S)1.83-7 to which Section 421 of the Code does not apply ("Non-Qualified Options"). (Hereinafter, the term "Options" shall collectively refer to Incentive Options and Non-Qualified Options.) 2. Administration. This Plan shall be administered by the Board of -------------- Directors of the Bank (the "Board of Directors"). Any action of the Board of Directors with respect to adminis tration of the Plan shall be taken pursuant to a majority vote of its members; provided, however, that with respect to action taken by the Board of Directors in granting an option to an individual director, such action must be authorized by the required number of directors without counting the interested director, who shall abstain as to any vote on his option. An interested director may be counted in determining the presence of a quorum at a meeting of the Board of Directors where such action will be taken. The Board of Directors may, in its sole discretion, from time to time, establish a Stock Option Committee composed of not less than three (3) persons who must be directors of the Bank and, by appropriate resolution, delegate to the Stock Option Committee such power and authority over the administration of the Plan as the Board of Directors deems appropriate. Nothing contained herein shall prevent the Board of Directors from delegating to the Stock Option Committee full power and authority over the administration of the Plan. Subject to the express provisions of the Plan, the Board of Directors (or the Stock Option Committee, if authorized) shall have the authority to construe and interpret the Plan, and to define the terms used therein, to prescribe, amend, and rescind rules and regulations relating to admini stration of the Plan, to determine the duration and purposes of leaves of absence which may be granted to participants without constituting a termination of their employment for purposes of the Plan, and to make all other determinations necessary or advisable for administration of the Plan. Determinations of the Board of Directors (or the Stock Option Committee, if authorized) on matters referred to in this section shall be final and conclusive. 3. Participation. All full-time salaried employees of the Bank and its ------------- subsidiary corporations shall be eligible for selection to receive both Incentive Options and Non-Qualified Options. Directors of the Bank and its subsidiary corporations who are not also full-time salaried officers or employees of the Bank or a subsidiary corporation shall be eligible to receive only Non-Qualified Options under the Plan. Subject to the express provisions of the Plan, the Board of Direc tors (or the Stock Option Committee, if authorized) shall select from the eligible class and determine the individuals who shall receive Options, whether such Options shall be Incentive Options or Non-Qualified Options, and the terms and provisions of the Options, and shall grant such Options to such individuals. An individual who has been granted an Option (an "Optionee") may, if such individual is otherwise eligible, be granted additional Options if the Board of Directors (or the Stock Option Committee, if authorized) shall so determine. 4. Stock Subject to the Plan. Subject to adjustment as provided in ------------------------- Section 13 hereof, the stock to be offered under the Plan shall be shares of the Bank's authorized but unissued common stock, no par value (hereinafter called "stock"), and the aggregate amount of stock to be delivered upon exercise of all Options granted under the Plan, whether Incentive Options or Non-Qualified Options, shall not exceed Two Million Seven Hundred Sixty-Three Thousand Eight Hundred Sixty-Four (2,763,864) shares (30% of the number of shares of the Bank's stock issued and outstanding as of June 11, 1998). Two-thirds (2/3) of such shares shall be reserved exclusively for the grant of options to full-time salaried officers and employees of the Bank. The remaining one-third (1/3) of such shares may be granted to anyone eligible to participate in the Plan, including directors, officers and employees. If any Option shall expire for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for purposes of the Plan. 5. Option Price. The purchase price of stock subject to each Option ------------ shall be determined by the Board of Directors (or the Stock Option Committee, if authorized) but shall not be less than one hundred percent (100%) of the fair market value of such stock at the time such Option is granted. As to any Incentive Option granted to an Optionee who, immediately before the Option is granted, owns beneficially more than ten percent (10%) of the outstanding stock of the Bank, the purchase price must be at least one hundred ten percent (110%) of the fair market value of the stock at the time when such Option is granted. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treas. Reg. (S)20.2031-2. The purchase price of any shares purchased shall be paid in full in cash at the time of each such purchase. 6. Option Period. Each Option and all rights or obligations thereunder ------------- shall expire on such date as the Board of Directors (or the Stock Option Committee, if authorized) may determine, but not later than ten (10) years from the date such Option is granted, and shall be subject to earlier termination as provided elsewhere in the Plan. As to any Incentive Option granted to an Optionee who, immediately before the Option is granted, owns beneficially more than ten percent (10%) of the outstanding stock of the Bank (whether acquired upon exercise of Options or otherwise), such Option must not be exercisable by its terms after five (5) years from the date of its grant. 7. Continuation of Employment. In the case of employees, nothing -------------------------- contained in the Plan (or in any Option agreement) shall obligate the Bank or its subsidiary corporations to employ 2 any Optionee for any period or interfere in any way with the right of the Bank or its subsidiary corporations to reduce such Optionee's compensation. 8. Exercise of Options. Each Option shall become exercisable in such ------------------- installments, which need not be equal, and upon such contingencies as the Board of Directors (or the Stock Option Committee, if authorized) shall determine; provided, however, that if an Optionee shall not in any given installment period purchase all of the shares which such Optionee is entitled to purchase in such installment period, such Optionee's right to purchase any shares not purchased in such installment period shall continue until the expiration of such Option. No Option or installment thereof shall be exercisable except in respect of whole shares, and fractional share interests shall be disregarded except that they may be accumulated in accordance with the next preceding sentence. Options may be exercised by ten (10) days written notice delivered to the Bank stating the number of shares with respect to which the Option is being exercised, together with cash in the amount of the purchase price for such shares. No fewer than ten (10) shares may be purchased at one time unless the number purchased is the total number which may be purchased under the Option. As a condition to the exercise of a Non-Qualified Option, in whole or in part, by an Optionee who is an employee of the Bank (or who was an employee during the term of the Option), the Optionee shall be required to pay to the Bank, in addition to the purchase price for the shares being exercised, an amount equal to any taxes required to be withheld by the Bank in order to enable the Bank to claim a deduction in connection with the exercise of the Option. 9. Non-transferability of Options. Each Option shall, by its terms, be ------------------------------ non-transferable by the Optionee, other than by Will or the laws of descent and distribution, and shall be exercisable during such Optionee's lifetime only by the Optionee. 10. Cessation of Employment; Disability. Except as provided in Sections 6 ----------------------------------- and 11 hereof, if an Optionee ceases to be employed by or to serve as a director of the Bank or a subsidiary corporation for any reason other than death or disability, such Optionee's Option shall expire thirty (30) days thereafter, and during such period after such Optionee ceases to be an employee or director, such Option shall be exercisable only as to those shares with respect to which installments, if any, had accrued as of the date on which the Optionee ceased to be employed by or ceased to serve as a director of the Bank or such subsidiary corporation. Except as provided in Sections 6 and 11 hereof, if an Optionee ceases to be employed by or ceases to serve as a director of the Bank or a subsidiary corporation by reason of disability (within the meaning of Section 22(e)(3) of the Code), such Optionee's Option shall expire not later than one (1) year thereafter, and during such period after such Optionee ceases to be an employee or director such Option shall be exercisable only as to those shares with respect to which installments, if any, had accrued as of the date on which the Optionee ceased to be employed by or ceased to serve as a director of the Bank or such subsidiary corporation. 11. Termination of Employment for Cause. If an Optionee's employment by ----------------------------------- or service as a director of the Bank or a subsidiary corporation is terminated for cause, such Optionee's Option shall expire immediately; provided, however, that the Board of Directors may, in its sole discretion, within thirty (30) days of such termination, waive the expiration of the Option by giving written notice of such waiver to the Optionee at such Optionee's last known address. In the event of such waiver, the Optionee may exercise the Option only to such extent, for such time, and upon such terms 3 and conditions as if such Optionee had ceased to be employed by or ceased to serve as a director of the Bank or such subsidiary corporation upon the date of such termination for a reason other than cause, disability, or death. In the case of an employee, termination for cause shall include termination for malfeasance or gross misfeasance in the performance of duties, conviction of illegal activity in connection therewith, any conduct seriously detrimental to the interests of the Bank or a subsidiary corporation, or removal pursuant to the exercise of regulatory authority by the California Department of Financial Institutions (the "DFI"), the Federal Deposit Insurance Corporation (the "FDIC") or other bank supervisory agency; and, in any event, the determination of the Board of Directors with respect thereto shall be final and conclusive. In the case of a director, termination for cause shall include removal pursuant to Sections 302 or 304 of the California Corporations Code or removal pursuant to the exercise of regulatory authority by the DFI, the FDIC or other bank supervisory agency. 12. Death of Optionee. Except as provided in Section 6 hereof, if any ----------------- Optionee dies while employed by or serving as a director of the Bank or a subsidiary corporation or during the thirty-day or one-year period referred to in Section 10 hereof, such Optionee's Option shall expire one (1) year after the date of such death. After such death but before such expiration, the persons to whom the Optionee's rights under the Option shall have passed by Will or by the applicable laws of descent and distribution shall have the right to exercise such Option to the extent that installments, if any, had accrued as of the date on which the Optionee ceased to be employed by or ceased to serve as a director of the Bank or such subsidiary corporation. 13. Adjustments Upon Changes in Capitalization. If the outstanding shares ------------------------------------------ of the stock of the Bank are increased, decreased, or changed into, or exchanged for a different number or kind of shares or securities of the Bank, without receipt of consideration by the Bank, through reorganization, merger, recapitalization, reclassification, stock split-up, stock dividend, stock consolidation, or otherwise, an appropriate and proportionate adjustment shall be made in the number and kind of shares as to which Options may be granted. A corresponding adjustment changing the number or kind of shares and the exercise price per share allocated to unexercised Options, or portions thereof, which shall have been granted prior to any such change shall likewise be made. Any such adjustment, however, in an outstanding Option shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the price for each share subject to the Option. No fractional shares of stock shall be issued under the Plan on account of any such adjustment. 14. Terminating Events. Not less than thirty (30) days prior to a ------------------ "Terminating Event," i.e., a dissolution or liquidation of the Bank, a reorganization, merger, or consolidation of the Bank with one or more corporations as a result of which the Bank will not be the surviving corporation, a sale of substantially all the assets and property of the Bank to another person, or any other transac tion involving the Bank where there is a change in ownership of at least twenty-five percent (25%), except as may result from a transfer of shares to another corporation in exchange for at least eighty percent (80%) control of that corporation, the Stock Option Committee or the Board of Directors shall notify each Optionee of the pendency of the Terminating Event. Upon delivery of said notice, any Option granted prior to the Terminating Event shall be, notwithstanding the provisions of Section 8 hereof, exercisable in full and not only as to those shares with respect to which installments, 4 if any, have then accrued, subject, however, to earlier expiration or termination as provided elsewhere in the Plan. Upon the date thirty (30) days after delivery of said notice, any Option or portion thereof not exercised shall terminate, and upon the effective date of the Terminating Event, the Plan and any Options granted thereunder shall terminate, unless provision is made in connection with the Terminating Event for assumption of Options theretofore granted, or substitution for such Options of new options covering stock of a successor employer corporation, or a parent or subsidiary corporation thereof, with appropriate adjustments as to the number and class of shares and prices. 15. Amendment and Termination by Board of Directors. The Board of ----------------------------------------------- Directors may at any time suspend, amend, or terminate the Plan and may, with the consent of an Optionee, make such modification of the terms and conditions of such Optionee's Option as it shall deem advisable; provided that, except as permitted under the provisions of Section 13 hereof, any amendment or modification of the Plan which would: (a) increase the maximum number of shares which may be purchased pursuant to Options granted under the Plan; (b) change the minimum option price; (c) increase the maximum term of Options provided for herein; or (d) permit Options to be granted to anyone other than a director or a full-time salaried officer or employee of the Bank or a subsidiary corporation; requires the approval of the Bank's shareholders as described below. Any amendment or modification requiring shareholder approval shall be deemed adopted as of the date of the action of the Board of Directors effecting such amendment or modification and shall be effective immediately, unless otherwise provided therein, subject to approval thereof within twelve (12) months before or after the effective date by shareholders of the Bank holding not less than a majority of the voting power of the Bank. Notwithstanding the above, the Board of Directors (or the Stock Option Committee, if authorized to do so) may grant to an Optionee, if such Optionee is otherwise eligible, additional Options or, with the consent of the Optionee, grant a new Option in lieu of an outstanding Option for a number of shares, at a purchase price and for a term which in any respect is greater or less than that of the earlier Option, subject to the limitations of Sections 5, 6 and A-2 hereof. No Option may be granted during any suspension of the Plan or after termination of the Plan. Amendment, suspension, or termination of the Plan shall not, without the consent of the Optionee, alter or impair any rights or obligations under any Option outstanding prior to such amendment, suspension or termination of the Plan. 16. Time of Granting Options. The time an Option is granted, sometimes ------------------------ referred to as the date of grant, shall be the day of the action of the Board of Directors (or action of the Stock Option Committee, if authorized to take such action) described in the second sentence of Section 2 hereof; provided, however, that if appropriate resolutions of the Board of Directors (or the Stock Option Committee, if authorized to grant options) indicate that an Option is to be granted as of and on some future date, the time such Option is granted shall be such future date. If action by the Board of Directors (or the Stock Option Committee, if authorized to take such action) is taken by the unanimous written consent of its members, the action of the Board of Directors (or the Stock Option 5 Committee) shall be deemed to be at the time the last Board (or Stock Option Committee) member signs the consent. 17. Privileges of Stock Ownership; Securities Laws Compliance; Notice of -------------------------------------------------------------------- Sale. No Optionee shall be entitled to the privileges of stock ownership as to - ---- any shares of stock not actually issued and delivered. No shares shall be issued upon the exercise of any Option unless and until any then applicable requirements of any regulatory agencies having jurisdiction, and of any exchanges upon which stock of the Bank may be listed, shall have been complied with fully. The Bank will diligently endeavor to comply with all applicable securities laws before any Options are granted under the Plan and before any stock is issued pursuant to Options. The Optionee shall give the Bank notice of any sale or other disposition of any such shares not more than five (5) days after such sale or other disposition. 18. Effective Date of the Plan. The Plan shall be deemed adopted as of -------------------------- the date first shown herein and shall be effective immediately, subject to approval hereof within twelve (12) months before or after said date by shareholders holding not less than a majority of the voting power of the Bank. 19. Termination. Unless previously terminated by the Board of Directors ----------- or as provided in Section 14 hereof, the Plan shall terminate at the close of business on June 11, 2008, and no Options shall be granted under it thereafter, but such termination shall not affect any Option theretofore granted. 20. Option Agreement. Each Option shall be evidenced by a written Stock ---------------- Option Agreement executed by the Bank and the Optionee and shall contain each of the provisions and agreements herein specifically required to be contained therein, including whether the Option is an Incentive Option or Non-Qualified Option, and such other terms and conditions as are deemed desirable and are not inconsistent with the Plan. 21. Exculpation and Indemnification. The Bank shall indemnify and hold ------------------------------- harmless a member or members of the Board of Directors (or the Stock Option Committee), in any action brought against such member or members to the maximum extent permitted by then applicable law and the Articles of Incorporation and Bylaws of the Bank and any amendments thereto. DIVISION A ---------- INCENTIVE STOCK OPTION PLAN --------------------------- A-1. Eligible Persons. All full-time salaried officers and employees of ---------------- the Bank and its subsidiary corporations shall be eligible for selection to participate in the Incentive Plan. Notwithstanding any other provisions of the Plan to the contrary, no director of the Bank or a subsidiary corporation who is not a full-time salaried employee of the Bank or a subsidiary corporation and no member of the Stock Option Committee may be granted options under the Incentive Plan. 6 A-2. Limit on Exercisability. The aggregate fair market value (determined ----------------------- as of the time the Option is granted) of the stock for which any full-time salaried officer or employee may be granted Incentive Options which are first ----- exercisable during any one calendar year (under all Incentive Stock Option Plans - ----------- of such employee's employer corporation and its parent and subsidiary corpora tions) shall not exceed One Hundred Thousand Dollars ($100,000). A-3. Incorporation by Reference. The provisions of Sections 5, 6, 9, 10, -------------------------- 15 and 19 of the Plan are hereby incorporated by this reference into this Incentive Stock Option Plan. A-4. Interpretation of Plan. Options granted pursuant to the Incentive ---------------------- Plan are intended to be "incentive stock options" within the meaning of Section 422 of the Code, and the Incentive Plan shall be construed to implement that intent. If all or any part of an Incentive Option shall not be deemed an "incentive stock option" within the meaning of Section 422 of the Code, said Option shall nevertheless be valid and carried into effect as a Non-Qualified Option. DIVISION B ---------- NON-QUALIFIED STOCK OPTION PLAN ------------------------------- B-1. Eligible Persons. All full-time salaried officers and employees and ---------------- all directors of the Bank and its subsidiary corporations, except members of the Stock Option Committee, shall be eligible for selection to participate in the Non-Qualified Plan. B-2. Interpretation of Plan. Options granted pursuant to the Non-Qualified ---------------------- Plan are intended to be non-qualified stock options described in Treas. Reg. (S) 1.83-7 to which Section 421 of the Code does not apply, and the Non-Qualified Plan shall be construed to implement that intent. 7 EX-10.2 9 0009.txt AGREEMENT AND PLAN OF MERGER Exhibit 10.2 AGREEMENT AND PLAN OF MERGER by and between BANK OF THE SIERRA and TAFT NATIONAL BANK Dated as of December 15, 2000 Table of Contents
Page No. ARTICLE I. Definitions........................................................................... 1 ----------- 1.1 Definitions................................................................. 1 1.2 Rules of Construction....................................................... 7 ARTICLE II. The Consolidation..................................................................... 8 ----------------- 2.1 The Consolidation........................................................... 8 2.2 Corporate Documents, Directors and Officers................................. 8 2.3 Treatment of TNB Common Stock............................................... 9 2.4 Exchange Procedures......................................................... 9 2.5 Closing of TNB Transfer Books............................................... 10 2.6 Treatment of Outstanding Consolidation Sub Common Stock..................... 10 2.7 Bank Merger................................................................. 10 2.8 Alternative Structure....................................................... 11 ARTICLE III. Representations and Warranties........................................................ 11 ------------------------------ 3.1 By TNB...................................................................... 11 3.2 By Sierra................................................................... 21 ARTICLE IV. Additional Agreements................................................................. 23 --------------------- 4.1 Discussions with Third Parties.............................................. 23 4.2 Proxy Statement; Shareholder Approval....................................... 24 4.3 Access...................................................................... 25 4.4 Prosecution of Regulatory Filings; Cooperation.............................. 25 4.5 Advice of Changes........................................................... 26 4.6 Current Information......................................................... 26 4.7 Interim and Annual Financial Statements; Monthly Board Packages............. 27 4.8 Conduct of Business......................................................... 27 4.9 Certain Operating Covenants of TNB.......................................... 27 4.10 Operating Covenant of Sierra................................................ 30 4.11 Covenants Regarding Employees, Directors and Officers....................... 30 4.12 Reserves.................................................................... 32 4.13 Retention Payments.......................................................... 33 ARTICLE V. Conditions to Closing................................................................. 33 --------------------- 5.1 Conditions to Obligations of Both Parties................................... 33 5.2 Conditions to the Obligations of Sierra..................................... 34
i 5.3 Conditions to the Obligations of TNB....................................... 36 ARTICLE VI. Termination: Termination Fee......................................................... 37 ---------------------------- 6.1 By Mutual Agreement........................................................ 37 6.2 Regulatory Impediment...................................................... 37 6.3 By Sierra.................................................................. 37 6.4 By TNB..................................................................... 38 6.5 Termination Fee............................................................ 39 6.6 Effect of Termination; Remedies............................................ 39 ARTICLE VII. Miscellaneous........................................................................ 39 ------------- 7.1 Closing.................................................................... 40 7.2 Expenses................................................................... 40 7.3 Publicity.................................................................. 40 7.4 Notices.................................................................... 40 7.5 Entire Agreement........................................................... 41 7.6 Non-Survival of Representations, Warranties and Agreements................. 41 7.7 Benefits; Binding Effect; Assignment and Designation....................... 41 7.8 Waiver..................................................................... 42 7.9 No Third Party Beneficiary................................................. 42 7.10 Severability............................................................... 42 7.11 Counterparts............................................................... 42 7.12 Applicable Law; Consent to Jurisdiction.................................... 42 7.13 Waiver of Jury Trial....................................................... 42 EXHIBIT 2.1 Form of Agreement of Consolidation.........................................Exhibit 2.1 EXHIBIT 3.1.5 Form of TNB Voting Agreement...........................................Exhibit 3.1.5 EXHIBIT 4.11.1(b) Form of Director Agreement....................................... Exhibit 4.11.1(b) EXHIBIT 4.11.1(d) Severance Payments................................................Exhibit 4.11.1(d) EXHIBIT 4.11.1(e) Form of Consulting Agreement......................................Exhibit 4.11.1(e) EXHIBIT 4.13 Form of Retention Agreement..............................................Exhibit 4.13 EXHIBIT 5.2.9 Form of Legal Opinion - TNB Counsel....................................Exhibit 5.2.9 EXHIBIT 5.2.11 Form of Amendment to Lease...........................................Exhibit 5.2.11 EXHIBIT 5.3.4 Form of Legal Opinion - Sierra Counsel.................................Exhibit 5.3.7
ii AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of December 15, 2000, is by and between Bank of the Sierra, a California banking corporation ("Sierra"), and Taft National Bank, a national banking association ("TNB"). RECITALS: WHEREAS, the respective Boards of Directors of Sierra and TNB have deemed it advisable and in the best interests of their respective companies and shareholders to consummate the transactions contemplated herein, pursuant to which, subject to the terms and conditions set forth herein and for the consideration set forth herein, (1) a new wholly owned California state chartered bank subsidiary of Sierra will be formed ("Consolidation Sub") and consolidated with and into TNB (as more fully defined herein, the "Consolidation"), in consideration of which all of the then outstanding shares of TNB Common Stock shall be converted into the right to receive cash as provided herein; and (2) immediately following the Consolidation, TNB will be merged with and into Sierra (the "Bank Merger"); and WHEREAS, Sierra and TNB desire to make certain representations, warranties, covenants and agreements in connection with the Consolidation, as contained herein; NOW THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and other agreements set forth herein, and intending to be legally bound hereby, Sierra and TNB hereby agree as follows: ARTICLE I. Definitions ----------- 1.1 Definitions. Capitalized terms contained in this Agreement and not defined in the preamble or the recitals above shall have the meanings set forth in this Section 1.1: "1999 Financial Statements" means a Party's audited balance sheet, income statement, cash flow statement and statement of shareholders' equity, with footnotes, prepared in accordance with GAAP, as of December 31, 1999 and for the year then ended, as audited by the applicable Party's independent auditors. "Accounting Letter" shall have the meaning set forth in Section 5.2.10. "Affiliate" shall mean, with respect to any Person, any other Person controlling, controlled by or under common control with such Person. As used in this definition,"control" (including with its correlative meanings, "controlled by" and "under common control with") means the possession, directly or indirectly, of power to direct or cause the direction of the management and policies of a Person whether through the ownership of voting securities, by contract or otherwise. 1 "Agreement" means this Agreement and Plan of Merger, including the Disclosure Schedule and all Exhibits hereto, as the same may be hereafter amended. "Agreement of Consolidation" means an agreement of consolidation in substantially the form of Exhibit 2.1, executed by TNB and Consolidation Sub, ----------- under which the Consolidation shall be effected. "Associate" shall have the meaning ascribed thereto in Rule 14a-1 under the Exchange Act. "Balance Sheet Date" means September 30, 2000. "Bank Merger" means the merger of TNB with and into Sierra, to be completed immediately following the Consolidation. "Bank Regulators" means any and all Federal or state Governmental Entities charged with the supervision or regulation of banks or bank holding companies, or engaged in the insurance of bank deposits. "Benefit Plan" means any employee benefit plan (including any "employee benefit plan" as defined in Section 3(3) of ERISA) maintained or contributed to by the applicable entity. "Borrower Group Obligations" means, as the context requires, all loans from TNB and other obligations to TNB of, (a) the applicable borrower, (b) all guarantors of such borrower, and (c) all affiliates and associates of such borrower and guarantors. "Business Day" means each Monday, Tuesday, Wednesday, Thursday or Friday that banks in the State of California are not required by Law to be closed. "Classified Asset" means (a) any loan or lease asset that is classified on the books and records of the applicable entity as "Substandard," "Doubtful" or "Loss", and (b) any property classified on the books and records of the applicable entity as OREO. "Closing" means the closing of the Consolidation, to be held on the Closing Date at a location fixed pursuant to Section 7.1. "Closing Date" shall mean the date as of which the Closing of the Consolidation occurs, as the same may be fixed pursuant to Section 7.1. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" means the Comptroller of the Currency. "Consideration" shall have the meaning given that term in Section 2.3.1. 2 "Consolidated Bank" shall mean TNB, as the national banking association surviving the Consolidation. "Consolidation" means the consolidation of Consolidation Sub with and into TNB, as more particularly described in Section 2.1. "Consolidation Sub" means a wholly owned California state chartered bank subsidiary of Sierra created for the purpose of completing the Consolidation. "Consolidation Sub Common Stock" means the outstanding shares of Consolidation Sub, all of which shall be owned by Sierra. "Criticized Asset" means any Classified Asset and any other loan or lease asset of the applicable Party classified on the books and records of the applicable Party as Other Loans Especially Mentioned, Special Mention, Classified, Criticized, Credit Risk Assets, Concerned Loans or by words of similar import. "DFI" means the California Department of Financial Institutions. "Director Agreement" shall have the meaning set forth in Section 4.11.1(b). "Disclosure Schedule" means the schedule delivered prior to the execution of this Agreement by TNB to Sierra or by Sierra to TNB, as supplemented hereafter from time to time in accordance with Section 4.5. "Dissenting TNB Shares" means all shares of TNB Common Stock whose holders have perfected dissenters' rights under Section 215(b) of the National Bank Act. "Employee Retention Agreement" shall have the meaning set forth in Section 4.13. "Effective Time" means the time as of which the Consolidation is deemed to have become effective, as agreed upon by the Parties. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Agent" means U.S. Stock Transfer Corporation, or another banking institution, corporate trust company or entity regularly engaged in a stock transfer business that Sierra shall appoint to act as exchange agent hereunder. "Excluded Shares" means shares of TNB Common Stock owned as of the Effective Time by Sierra other than shares owned in a fiduciary capacity or as a result of debts previously contracted. 3 "Expenses" means all legal, accounting, consulting, investment banking and other fees and expenses incurred by the applicable Party in connection with the Consolidation or Bank Merger (including expenses incurred in connection with the preparation of this Agreement and all negotiations, due diligence and other activities conducted prior hereto, and including all broker's, finder's and similar fees and expenses), subject to a cap of $200,000 with respect to the Expenses of TNB as such term is used in the definition of "Per Share Equity Adjustment" below, and subject to a cap of $150,000 with respect to the Expenses of each of TNB and Sierra, as applicable, as such term is used in Article VI; provided, however, that there shall be added to the Expenses reimbursable - -------- pursuant to Article VI, all costs of enforcement of payment of any Termination Fee and Expenses. "FDIC" means the Federal Deposit Insurance Corporation. "Final Approval Date" means the later of (a) the date on which the final Governmental Approval is received, and (b) the date by which the TNB Shareholders shall have approved the Consolidation. "GAAP" means generally accepted accounting principles as in effect in the United States, consistently applied. "Governmental Approval" means the approval of, or effectiveness of a filing or registration with, a Governmental Entity necessary or desirable for the consummation of the Consolidation or Bank Merger (including the expiration of any waiting period imposed thereby), including the TNB Governmental Approvals and Sierra Governmental Approvals. "Governmental Entity" means any administrative agency, commission, court or other governmental authority or instrumentality, domestic or foreign, including any government sponsored corporation having regulatory authority under law. "Hazardous Material" means any pollutant, contaminant, waste or hazardous or toxic substance regulated by Law as such, and petroleum or petroleum products. "Holding Company" means Sierra Bancorp, a newly formed California corporation which will own all of the issued and outstanding shares of Sierra. "Holding Company Reorganization" means the one bank holding company reorganization to be effected by the Holding Company and Sierra pursuant to which Holding Company will acquire all of the issued and outstanding shares of Sierra in exchange for shares of the Holding Company. "Interim Financial Statements" means a Party's unaudited balance sheet, income statement and cash flow statement, prepared in accordance with GAAP, as at September 30, 2000 and for the nine months then ended. "Law" means any statute, law, ordinance, rule or regulation of any Governmental Entity that is applicable to the referenced Person. 4 "Loans" shall have the meaning set forth in Section 3.1.11(a). "Material Adverse Effect" means, with respect to any Person, a material adverse effect on the business, properties, assets, liabilities, results of operations or financial condition of such Person (including such an effect caused indirectly through any of its subsidiaries), or on the ability of such Person to consummate the Consolidation on the terms hereof; provided, however, -------- ------- that a Material Adverse Effect does not include a change with respect to, or effect on, such Person resulting from a change in Law, GAAP, RAP, or a change with respect to, or effect on, such Person resulting from any other matter having a comparable effect on financial institutions generally. "Monthly Board Package" shall have the meaning given that term in Section 4.7. "OLEM Asset" means any loan or lease asset of the applicable entity classified on the books and records of the applicable entity as "Other Loans Especially Mentioned, "Special Mention," "Criticized," "Credit Risk Assets", "Concerned Loans" or by words of similar import. "Parties" means, collectively, Sierra and TNB. "Per Share Equity Adjustment" means (a) the amount, if any, by which TNB's total shareholder's equity as determined for purposes of the Accounting Letter is less than $4,700,000, without giving effect to the Expenses of TNB, divided by (b) the number of shares of TNB Common Stock outstanding immediately prior to the Effective Time. "Person" means any natural person, corporation, limited liability company, general or limited partnership, limited liability partnership, joint venture, joint stock company, trust, unincorporated organization, association, sole proprietorship, governmental body, or agency or political subdivision of any government. "Principal Shareholder" means a holder of five percent (5%) or more of the outstanding common stock of TNB. "Proxy Statement" means the Proxy Statement by which TNB will solicit proxies from the TNB Shareholders to vote such TNB Shareholders' shares in favor of the Consolidation and this Agreement at a meeting of TNB Shareholders held for such purpose, including any amendments or supplements thereto. "Qualifying Strategic Transaction Proposal" shall have the meaning given that term in Section 4.1.2. "RAP" means Regulatory Accounting Principles, as interpreted by the applicable entity's principal federal bank regulator. 5 "Recommendation of Approval" shall mean the unanimous, unqualified recommendation of the Board of Directors of TNB to the TNB Shareholders that they approve the Consolidation and this Agreement. "Records" means all books, records and original documents in TNB's possession which pertain to and are utilized by TNB or any of its subsidiaries to administer, reflect, monitor, evidence or record information respecting its business and operations, including but not limited to all books, records and documents relating to (a) corporate, regulatory, supervisory and litigation matters, (b) tax planning and payment of taxes, (c) personnel and employment matters, and (d) the business or conduct of the business of TNB or any of its subsidiaries. "Regulatory Agreement" means any regulatory agreement, memorandum of understanding or similar agreement with, any cease and desist or similar order or directive entered or issued by, commitment letter or similar undertaking to, any extraordinary supervisory letter from, any Bank Regulator. "Representatives" means each of the applicable Person's directors, officers, employees, agents, representatives and advisors. "Retention Payments" shall have the meaning set forth in Section 4.13. "Returns" shall have the meaning set forth in Section 3.1.16(a). "Securities Act" means the Securities Act of 1933, as amended. "Sierra" means Bank of the Sierra, a California banking corporation. "Sierra Governmental Approvals" means the approvals listed on Disclosure ---------- Schedule Section 3.2.4. - ---------------------- "Strategic Acquisition Agreement" means a binding agreement entered into by Sierra or the Holding Company and a third party relating to the acquisition or purchase of all or a significant portion of the assets of, or an equity interest in, Sierra or Holding Company by a third party or in a third party by Sierra or Holding Company, or any merger or other business combination with a third party including Sierra or Holding Company, which acquisition or business combination would have the effect of precluding Sierra from consummating the transaction contemplated by this Agreement. "Strategic Transaction" means any acquisition or purchase of all or a significant (i.e., more than 20%) portion of the assets of, or a more than 10% equity interest in, TNB, or any merger or other business combination involving TNB or any recapitalization involving TNB resulting in an extraordinary dividend or distribution to TNB Shareholders or a self-tender for or the redemption of some or all of the TNB Common Stock. "Strategic Transaction Proposal" means any proposal regarding a Strategic Transaction. 6 "Surviving Bank" shall mean Sierra, as the bank surviving the Bank Merger. "TNB" means Taft National Bank, a national banking association, including, unless the context clearly indicates otherwise, all direct and indirect subsidiaries of TNB as of the applicable time. "TNB Common Stock" means the common stock of TNB, $4.00 par value per share. "TNB Employee Plan" shall have the meaning set forth in Section 3.1.18(a). "TNB Governmental Approvals" means the approvals listed on Disclosure ---------- Schedule Section 3.1.7. - ---------------------- "TNB Shareholder" means a holder of TNB Common Stock as of the relevant time. "TNB Voting Agreement" shall mean an agreement in substantially the form of Exhibit 3.1.5. - ------------- "Tax" means, except where the context otherwise requires, all Federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise, ad valorem, transfer, license, occupancy, stamp and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts. "Termination Fee" shall have the meaning set forth in Article VI. "Violation" means a conflict with, violation of, default under, creation of a right of termination under, cancellation of, acceleration of any obligation under, loss of a material benefit under, or creation of any lien, pledge, security interest, charge or other encumbrance on assets under, the referenced Law, organic document, agreement or other instrument, in each case with or without notice or lapse of time, or both. 1.2 Rules of Construction. The following rules of construction shall apply to the interpretation of this Agreement: 1.2.1 Any reference to any event, change or effect being "material" with respect to any Person means an event, change or effect which is material in relation to the condition (financial or otherwise), properties, assets, liabilities, businesses or operations of such entity and its subsidiaries taken as a whole. 1.2.2 Disclosure of any matter in the Disclosure Schedule hereto shall not be deemed to imply that such matter is or is not material, and shall not constitute an admission or raise any inference that such matter constitutes a violation of law or an admission of liability or facts supporting liability. 7 1.2.3 Whenever used in this Agreement, the word "including" shall be non-exclusive and shall mean "including without limitation." 1.2.4 All references to Sections, Articles and sections of the Disclosure Schedule shall, unless another agreement is expressly referenced, mean the applicable sections or articles of, or section of the Disclosure Schedule to, this Agreement. 1.2.5 The section titles and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of any provisions of this Agreement. 1.2.6 The terms "herein", "hereunder", and terms of similar import refer to this Agreement as a whole and not to the specific Section or Article in which they are used. 1.2.7 The phrase "to the knowledge" of a Party (and phrases of similar import) shall mean to the actual knowledge, after reasonable inquiry, of the executive officers of Sierra and TNB, as applicable. 1.2.8 This Agreement is the joint product of Sierra and TNB, and each provision hereof has been subject to the mutual consultation, negotiation and agreement of such Parties, and shall not be construed for or against any Party. ARTICLE II. The Consolidation ----------------- 2.1 The Consolidation. TNB and Consolidation Sub shall be the constituent corporations to the Consolidation. Subject to the terms and conditions of this Agreement, at the Effective Time, the Consolidation shall be effected by means of a consolidation (the "Consolidation") of Consolidation Sub with and into TNB in accordance with Section 215 of Title 12 of the United States Code, undertaken pursuant to an Agreement of Consolidation substantially in the form attached hereto as Exhibit 2.1. In accordance with such statute, at the ----------- Effective Time, Consolidation Sub shall be consolidated with TNB and shall cease to exist. TNB shall be the Consolidated Bank and shall continue its corporate existence under the laws of the United States. 2.2 Corporate Documents, Directors and Officers. From and after the Effective Time and thereafter until amended as provided by law, the Articles of Association of the Consolidated Bank shall be the Articles of Association of TNB as in effect immediately prior to the Effective Time and the Bylaws of the Consolidated Bank shall be the Bylaws of TNB as in effect immediately prior to the Effective Time. At the Effective Time, the directors of Sierra listed in the Agreement of Consolidation shall be the directors of the Consolidated Bank, and the officers of the Consolidated Bank shall be the officers of Sierra appointed to offices of the Consolidated Bank by the Board of Directors of the Consolidated Bank. Each such director or officer shall serve until his or her successor has been duly elected or appointed and qualified or until his or her earlier death, resignation 8 or removal in accordance with the terms of the Consolidated Bank's Articles of Association and Bylaws. 2.3 Treatment of TNB Common Stock. 2.3.1 Conversion of TNB Common Stock. At the Effective Time, ------------------------------ each share of TNB Common Stock issued and outstanding immediately prior to the Effective Time, excluding Dissenting TNB Shares and Excluded Shares, shall, by virtue of the Consolidation and without any action on the part of the holder thereof, be converted into the right to receive cash in the amount of $28.00 per share without interest minus the Per Share Equity Adjustment, if any, (the "Consideration"). All shares of TNB Common Stock converted into the right to receive the Consideration pursuant to the preceding sentence shall, as of the Effective Time, no longer be outstanding and shall automatically be canceled and shall cease to exist, and each certificate previously representing any such shares shall thereafter represent only the right to receive the Consideration into which the shares of TNB Common Stock represented by such certificate have been converted. As of the Effective Time, all Excluded Shares shall cease to exist and the certificates for such shares shall, as promptly as practicable thereafter, be canceled and no payments shall be made in consideration therefor. 2.3.2 Dissenting TNB Shares. Notwithstanding anything in this --------------------- Agreement to the contrary, Dissenting TNB Shares shall not be converted into the right to receive, or be exchangeable for, the Consideration provided for in Section 2.3.1 hereof, but, instead, the holders thereof shall be entitled to payment, by Sierra on behalf of TNB, of the value of such Dissenting TNB Shares as agreed upon or determined in accordance with the provisions of Section 215(b) of the National Bank Act. 2.3.3 Delivery of Cash to Exchange Agent. Subject to the terms and ---------------------------------- conditions hereof, immediately prior to the Closing Sierra shall issue and deliver to the Exchange Agent cash in the amount of the Consideration which former TNB Shareholders are entitled to receive pursuant to Section 2.3.1. 2.4 Exchange Procedures. 2.4.1 TNB Common Stock Exchange Procedures. As soon as practicable ------------------------------------ after the Effective Time, each holder of a certificate or certificates theretofore representing shares of issued and outstanding TNB Common Stock (other than the Dissenting TNB Shares and Excluded Shares) shall, upon the surrender of such certificates to the Exchange Agent, be entitled to receive in exchange therefor the Consideration, without interest and subject to any required withholding of Taxes. The holder of a certificate that prior to the Consolidation represented issued and outstanding shares of TNB Common Stock shall have no rights, after the Effective Time, with respect to such shares except to surrender the certificate in exchange for the Consideration without interest thereon 9 or, if applicable, to perfect such rights as a holder of Dissenting TNB Shares as such holder may have pursuant to applicable law. As soon as practicable after the Effective Time Sierra will send, or will cause the Exchange Agent to send, to each holder of TNB Common Stock at the Effective Time a letter of transmittal for use in such exchange. 2.4.2 Certain Taxes. If any Consideration is to be paid to a Person ------------- other than the Person in whose name the certificate surrendered in exchange therefor is registered, it shall be a condition of such payment thereof that the certificate so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, including, but not limited to, that the signature of the transferor shall be properly guaranteed by a commercial bank, trust company, member firm of the NASD or other eligible guarantor institution, and that the person requesting such payment shall pay to the Exchange Agent in advance any transfer or other Taxes required by reason of the payment of the Consideration, or shall establish to the reasonable satisfaction of the Exchange Agent that such Tax has been paid or is not payable. 2.4.3 Lost, Stolen or Destroyed Certificates. In the event any --------------------------------------- certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed and, if required by Sierra, the posting by such Person of a bond in such amount as Sierra may direct as indemnity against any claim that may be made against it with respect to such certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed certificate cash in respect thereof pursuant to Section 2.4.1. 2.4.4 Unclaimed Consideration. Any portion of the Consideration ----------------------- delivered to the Exchange Agent that remains unclaimed by the TNB Shareholders pursuant to the provisions of Section 2.4.1 six months after the Closing Date shall be returned to Sierra, upon demand, and any former TNB Shareholder who has not exchanged his, her or its shares of TNB Common Stock for the Consideration in accordance with Section 2.4.1 prior to that time shall thereafter look solely to Sierra for receipt of the Consideration. Notwithstanding the foregoing, Sierra shall not be liable to any TNB Shareholder for any amount paid or any property delivered to a public official pursuant to applicable abandoned property laws. 2.5 Closing of TNB Transfer Books. At the Effective Time, the transfer books for TNB Common Stock shall be closed, and no transfer of shares of TNB Common Stock shall thereafter be made on such books. If, after the Effective Time, certificates representing such shares are presented for transfer to the Exchange Agent, they shall be canceled and exchanged for the Consideration as provided in this Article II. 2.6 Treatment of Outstanding Consolidation Sub Common Stock. At the Effective Time, each share of Consolidation Sub Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into five hundred shares of TNB Common Stock. 2.7 Bank Merger. Immediately following the Effective Time, pursuant to an Agreement of Merger to be executed by TNB and Sierra, TNB will be merged into Sierra in accordance with the 10 procedures specified in Section 4887 of the California Financial Code. Sierra will be the Surviving Bank in the Bank Merger. 2.8 Alternative Structure. Notwithstanding anything to the contrary in this Agreement, Sierra may specify that Holding Company, Sierra, TNB, Consolidation Sub or an affiliate or subsidiary of the Parties shall enter into transactions other than those described in this Article II in order to effect the acquisition of TNB by Sierra, and the Parties shall take or cause to be taken all actions necessary or appropriate to effect such transactions; provided, however, that no such transaction may (a) alter the form or change the - -------- amount of the Consideration; (b) diminish the benefits to be received or impose additional obligations upon the directors, officers or employees of TNB; or (c) materially delay the receipt of any necessary Governmental Approval. ARTICLE III Representations and Warranties ------------------------------ 3.1 By TNB. TNB represents and warrants as follows, except as specifically disclosed in the Disclosure Schedule: 3.1.1 Organization, Standing and Power. TNB is a national banking -------------------------------- association duly organized, validly existing and in good standing under the laws of the United States, and is authorized to conduct a general banking business by the Comptroller. TNB is a member of the Federal Reserve System and the deposit accounts of TNB are insured by the FDIC, and all premiums and assessments required in connection therewith have been paid by TNB as the same have become due. TNB has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing to do business in each jurisdiction in which a failure to be so qualified could reasonably be expected to have a Material Adverse Effect on TNB. Copies of the Articles of Association and Bylaws of TNB, including all amendments thereto as of the date of this Agreement, have been delivered to Sierra and are complete and correct. The minute books of TNB accurately reflect in all material respects all corporate actions held or taken by TNB's Shareholders and TNB's Board of Directors, including all committees of such Board of Directors. 3.1.2 Capital Structure. ----------------- (a) Capital Stock of TNB. As of the date hereof, the authorized -------------------- capital stock of TNB consists of 337,500 shares of TNB Common Stock, $4.00 par value, of which 267,481 shares are issued and outstanding. No shares are held in treasury by TNB, and no shares are reserved for future issuance. All outstanding shares of TNB Common Stock have been duly authorized and validly issued and are fully paid and nonassessable, except as provided under the National Bank Act, and are not subject to preemptive rights. All of the issued and outstanding shares of TNB Common Stock have been offered, issued and sold by TNB in compliance with applicable federal and state securities laws and regulations and in compliance with any preemptive right held by any Person. There are no dividends which have accrued or been declared but are unpaid on the TNB Common Stock. 11 TNB has no contractual obligation to register any shares of TNB Common Stock under the Securities Act or otherwise. TNB has delivered to Sierra a true and correct list of all holders of TNB Common Stock as of June 30, 2000 (b) Other Securities. There are no options, warrants, calls, rights, ---------------- commitments or agreements of any character, outstanding or in existence as of the date hereof to which TNB is a party or by which TNB is bound obligating it to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other securities of TNB or obligating TNB to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding contractual obligations of TNB to repurchase, redeem or otherwise acquire any shares of capital stock of TNB. There are no bonds, debentures, notes or other instruments evidencing indebtedness of TNB issued or outstanding that entitle the holders thereof to vote on any matters on which TNB Shareholders may vote. 3.1.3 Interests in Other Entities. TNB has no subsidiaries and does --------------------------- not otherwise hold more than 1% of the outstanding equity securities of any corporation or other entity, is not a member of any partnership, joint venture or similar entity, and is not a party to any partnership agreement or joint venture agreement, however named. 3.1.4 Authority and Related Matters. Subject only to the approval of ----------------------------- the Consolidation and this Agreement by the holders of two-thirds of the outstanding shares of TNB Common Stock and the TNB and Sierra Governmental Approvals, TNB (a) has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby (including the Consolidation), and (b) has duly authorized the execution and delivery of this Agreement, and the consummation of such transactions (including the Consolidation) by all necessary corporate action on the part of TNB's Board of Directors. The Board of Directors has made a Recommendation of Approval of the Consolidation and this Agreement to the TNB Shareholders and has directed the officers of TNB to submit the Consolidation and this Agreement to the TNB Shareholders for approval at a meeting of such shareholders, and no other corporate proceedings on the part of TNB not heretofore taken are necessary to approve this Agreement or to consummate the Consolidation. This Agreement has been duly executed and delivered by TNB and, subject to such approval by the TNB Shareholders and assuming due authorization, execution and delivery by Sierra, constitutes the valid and binding obligation of TNB, enforceable in accordance with its terms subject only to laws regarding bankruptcy, insolvency, reorganization, moratorium or otherwise affecting creditors' rights generally, to the application of general principles of equity (whether considered in a proceeding in law or at equity), and to the provisions of 12 U.S.C. Section 1818(b)(6)(D) and the powers of the FDIC thereunder. 3.1.5 TNB Voting Agreements. Each Director and Principal Shareholder --------------------- of TNB has executed and delivered to Sierra a TNB Voting Agreement substantially in the form of Exhibit 3.1.5, whereby each such Person has irrevocably agreed to ------------- vote all shares of TNB Common Stock directly or beneficially owned by such Person (including shares held as community property) or over which such Person has voting control, in favor of any facet of the Consolidation that may require approval by the TNB Shareholders and against any competing transaction. 12 3.1.6 Conflicts. Neither the execution and delivery of this --------- Agreement, nor consummation of the transactions contemplated hereby (including the Consolidation) nor compliance by TNB with any of the provisions hereof, (i) conflict with or result in a breach of any provisions of the Articles of Association or Bylaws of TNB (ii) except as set forth in Disclosure Schedule ------------------- Section 3.1.6, violate, conflict with or result in a breach of any term, - ------------- condition or provision of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of TNB pursuant to, any note, bond, mortgage, indenture, deed of trust, lease, agreement or other instrument or obligation to which TNB is a party, or by which any of its properties or assets may be bound or affected, or (iii) subject to receipt of all required governmental and shareholder approvals, violate any law, rule or regulation or any judgment, decree, order, governmental permit or license applicable to TNB, excluding from the foregoing clauses (ii) and (iii) conflicts, breaches, defaults or violations which, either individually or in the aggregate, would not have a Material Adverse Effect on TNB. 3.1.7 Consents. Except as disclosed on Disclosure Schedule Section -------- --------------------------- 3.1.7 (collectively, the "TNB Governmental Approvals"), no consent, approval, - ------ order or authorization of, or registration, declaration or filing with, any Governmental Entity or other Person is required in connection with TNB's execution and delivery of this Agreement or its consummation of the Consolidation or Bank Merger, as to which the failure to obtain the same could reasonably be expected to have a Material Adverse Effect on TNB or materially interfere with TNB's ability to consummate the Consolidation or Bank Merger. 3.1.8 Financial Statements. TNB has provided to Sierra the Interim -------------------- Financial Statements, the TNB 1999 Financial Statements, audited by Williams, Brown & Armstrong, as well as audited financial statements for TNB for the years ended December 31, 1997 and December 31, 1998. The Interim Financial Statements, the TNB 1999 Financial Statements and the prior two years' audited financial statements comply, in all material respects, with applicable accounting requirements and have been prepared in accordance with GAAP subject, in the case of the Interim Financial Statements, to recurring audit adjustments normal in nature and amount, and fairly present the financial position of TNB as of the dates thereof and the results of its operations and cash flows for the periods then ended. The Records of TNB have been, and are being, maintained in all material respects in accordance with GAAP and reflect only actual transactions. 3.1.9 Regulatory Filings and Agreements. Except as set forth in --------------------------------- Disclosure Schedule Section 3.1.9, TNB has timely filed all reports, - --------------------------------- registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file since December 31, 1996 with any Bank Regulator, and has paid all fees and assessments due and payable in connection therewith. Except as set forth on Disclosure Schedule Section 3.1.9, ---------------------------------- and except for normal examinations conducted by a Bank Regulator in the regular course of the business of TNB, (a) no Bank Regulator has initiated any proceeding or investigation or, to the best knowledge of TNB, has threatened to initiate any proceeding or investigation, into the business or operations of TNB since December 31, 1996; (b) TNB is not a party to or subject to, and since December 31, 1996 has not been a party to or subject to, any Regulatory Agreement with or from, and has not adopted any board 13 resolutions at the request of, any Bank Regulator that restricts the conduct of TNB's business or in any manner relates to its business or financial condition, including without limitation its capital adequacy, credit policies, loan origination practices or management; (c) to the best knowledge of TNB, no Bank Regulator is contemplating issuing or requesting (or considering the appropriateness of issuing or requesting) any such Regulatory Agreement; (d) there is no material unresolved violation, criticism, or exception by any Bank Regulator with respect to any report or statement relating to any examination of TNB; (e) the most recent Regulatory Rating given to TNB respecting both CRA and other compliance matters is at least "satisfactory"; and (f) to the best knowledge of TNB, since the date of its last compliance examination it has not received any complaints regarding its compliance with CRA, Regulation B of the Federal Reserve Board or other similar Laws. 3.1.10 Undisclosed Liabilities. Except as and to the extent ----------------------- reflected in the Interim Financial Statements, TNB does not have any liabilities, commitments or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due, and which would be required under GAAP to be shown in such balance sheet or referenced in the notes thereto, other than (a) obligations (including guarantees and letters of credit) not required by GAAP to be reflected, reserved against or disclosed in the Interim Financial Statements, all of which are set forth on Disclosure ---------- Schedule Section 3.1.10 and none of which, individually or in the aggregate, - ----------------------- could reasonably be expected to have a Material Adverse Effect on TNB and (b) those incurred in the ordinary course of business consistent with past practice since the date of the Interim Financial Statements. 3.1.11 Loans, Classified and OLEM Assets, Reserves ------------------------------------------- (a) All currently outstanding loans of, or current extensions of credit or credit commitments by, TNB (the "Loans") were solicited, originated and currently exist in material compliance with all applicable requirements of Federal and state law and regulations promulgated thereunder and applicable loan policies of TNB, except (i) for such changes to the circumstances of the obligor thereunder or the collateral occurring subsequent to the origination thereof, (ii) as set forth in Disclosure Schedule Section 3. l.11 or (iii) where the ----------------------------------- failure to so comply would not result in a Material Adverse Effect on TNB. Except as set forth in Disclosure Schedule Section 3.1.11, to TNB's knowledge ------------------------------------ the Loans are adequately documented and each note evidencing a Loan or loan or credit agreement or security instrument related to the Loans constitutes a valid, legal and binding obligation of the obligor thereunder, enforceable in accordance with the terms thereof, except that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting enforcement of creditors' rights generally and except that enforcement thereof may be subject to general principles of equity (regardless of whether enforcement is considered in a proceeding of law or in equity) and the availability of equitable remedies. Except as set forth in Disclosure ---------- Schedule Section 3.1.11 no claims of defense as to the enforcement of any Loan - ----------------------- have been asserted against TNB for which there is a reasonable possibility of an adverse determination, and TNB is aware of no acts or omissions which would give rise to any claim or right of rescission, set-off, counterclaim or defense for which there is a reasonable possibility of an adverse determination to TNB, where such adverse determination could be expected to have a Material Adverse Effect on TNB. 14 (b) As of the Balance Sheet Date, the only assets of TNB that were (a) Classified Assets or OLEM Assets on TNB's Records, or (b) over 90 days delinquent in payment of principal or interest whether or not the same are Classified Assets or OLEM Assets, are those listed on Part A of Disclosure ---------- Schedule Section 3.1.11 hereto (which Disclosure Schedule Section identifies the - ----------------------- asset by loan number or other designation and sets forth the original principal amount, the current book balance, the amount of any reserve (or portion of the general reserve) allocated thereto, and the loan classification). The loan and other asset classification procedures utilized by TNB are in accordance with RAP and prudent banking practice, and are consistently applied. Part B of Disclosure ---------- Schedule Section 3.1.11 sets forth a complete list of all existing or pending - ----------------------- Loans or other agreements or understandings with directors, Principal Shareholders, officers, employees or Affiliates of TNB, or their related interests all of which comply, in all respects, with all provisions of applicable Law. (c) TNB currently maintains, and shall continue to maintain, an allowance for loan losses allocable to the Loans which is adequate to provide for all known and estimable losses, net of any recoveries relating to such extensions of credit previously charged off, on the Loans, such allowance for loan losses complying in all material respects with all applicable loan loss reserve requirements established in accordance with GAAP and by any Governmental Authority having jurisdiction with respect to TNB. 3.1.12 Investment Securities. Disclosure Schedule Section 3.1.12 --------------------- ---------------------------------- describes all of the investment securities owned by TNB as of the date hereof, including identification of the type of security, CUSIP numbers, pool face values (where applicable), book values, market values and coupon rates. Except as identified on such schedule, TNB does not hold any forward contracts, futures, options on futures, swaps or other derivative instruments. 3.1.13 Absence of Certain Changes or Events. Since December 31, ------------------------------------ 1999, (a) TNB has conducted its business in the ordinary and usual course and (b) no event has occurred or circumstances arisen that, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on TNB. 3.1.14 Compliance with Applicable Laws. Except as set forth in ------------------------------- Disclosure Schedule Section 3.1.14, the business of TNB is, and at all times - ---------------------------------- since December 31, 1996 has been, conducted in compliance with all Laws (including those relating to equal credit, fair lending, fair housing and community reinvestment), except where a failure to so comply individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect on TNB, and (b) TNB holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities that are material to the operation of the business of TNB, and is in compliance with the terms of the same except where the failure so to comply individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect on TNB. 3.1.15 Litigation and Other Disputes. Except as disclosed on ----------------------------- Disclosure Schedule Section 3.1.15, (a) there is no suit, action, or proceeding - ---------------------------------- (including any cross- or counter-claim) pending or, to the knowledge of TNB, threatened, against or affecting TNB or any of its assets, nor 15 is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against TNB the obligations under which have not heretofore been fully performed; (b) TNB has not accrued nor set aside any reserves relating to any suit, action, or proceeding (including any cross- or counter-claim) pending or, to the knowledge of TNB, threatened, against or affecting TNB or any of its assets; (c) since December 31, 1996, TNB has not been a defendant, either directly or as defendant-in-counterclaim or cross- claim, in any litigation in which any "lender liability" cause of action was asserted against TNB; and (d) there are no claims pending by any director, officer, employee or agent of TNB for indemnification under any outstanding indemnification agreement, arrangement or understanding respecting indemnification or under applicable laws relating to indemnification. 3.1.16 Taxes. ----- (a) Except as set forth in Disclosure Schedule Section 3.1.16, TNB and ---------------------------------- any affiliated, combined or unitary group of which TNB is or was a member has in all material respects (i) correctly prepared and timely filed all returns, declarations, estimates, reports, claims for refund, information returns and statements ("Returns") required to be filed with respect to all Taxes, (ii) timely and properly paid all Taxes that are due and payable, (iii) established on its Records reserves that are adequate for the payment of all Taxes accrued but not yet due and payable and (iv) complied with all Laws relating to the withholding and payment of all Taxes with respect to employees' wages. (b) There are no actual or proposed Tax deficiencies, assessments, or adjustments for Taxes with respect to TNB or any assets, property or operations of TNB. Except as set forth in Disclosure Schedule Section 3.1.16, (i) there are ---------------------------------- no liens for Taxes upon the assets of TNB (other than liens for taxes not yet due and payable), (ii) TNB has not requested any extension of time within which to file any Return which has not since been filed, (iii) there are no waivers or consents given by TNB regarding the application of the statute of limitations with respect to any Taxes or Returns, (iv) no federal, state, local or foreign audits or other administrative proceedings or court proceedings are pending against TNB with regard to any Taxes or Returns; and (v) TNB has not filed or permitted any election under the Code, including any election, agreement or consent under Section 341(f) or Sections 338(e),(g) or (h). (c) TNB is not required to include in income any adjustment pursuant to Section 481(a) of the Code by reason of a voluntary change in accounting method nor does TNB have any knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method. TNB, as a result of any "closing agreement" as defined in Section 7121 of the Code (or any corresponding provisions of any state, local or foreign tax law), is not required to include any item of income in or exclude any item of deduction from taxable income. TNB has never been a member of an affiliated group, as defined in Section 1504 of the Code. (d) TNB has not made any payments and is not obligated under any contract to make any payments that will be nondeductible, in whole or in part, under Section 280G or 162(m) of the Code. 16 3.1.17 Certain Agreements. ------------------ (a) Except as disclosed on Disclosure Schedule Section 3.1.17, TNB is ---------------------------------- not a party to, is not bound or affected by, or receives or is obligated to pay, benefits under (i) any agreement, arrangement or commitment, including without limitation any agreement, indenture or other instrument, relating to the borrowing of money by TNB (other than in the case of deposits, federal funds purchased and securities sold under agreements to repurchase in the ordinary course of business) or the guarantee by TNB of any obligation; (ii) any agreement, arrangement or commitment relating to the employment of a consultant or the employment, election or retention in office of any present or former director, officer or employee of TNB, other than any agreement, arrangement or commitment terminable at will and without the payment of any penalty by TNB, or the termination of which otherwise would not have a Material Adverse Effect on TNB; (iii) any agreement, arrangement or understanding pursuant to which any payment (whether of severance pay or otherwise) became or may become due to any director, officer or employee of TNB upon execution of this Agreement or upon or following consummation of the transactions contemplated by this Agreement (either alone or in connection with the occurrence of any additional acts or events); (iv) any agreement, arrangement or understanding pursuant to which TNB is obligated to indemnify any director, officer, employee or agent of TNB; (v) any agreement, arrangement or understanding to which TNB is a party or by which either of the same is bound which limits the freedom of TNB to compete in any line of business or with any person or entity; (vi) any supervisory agreement, memorandum of understanding, consent order, cease and desist order or condition of any regulatory order or decree with or by an applicable federal or state regulatory agency; (vii) any lease of real or personal property requiring payments of annual rental in excess of $10,000, whether as lessor or lessee; or (viii) any other agreement, arrangement or understanding which involves an annual payment of more than $10,000. A copy of each such agreement, arrangement or understanding has been delivered to Sierra or, if oral, is described in Disclosure Schedule Section 3.1.17. - ---------------------------------- (b) TNB is not in default or in non-compliance, which default or non- compliance could reasonably be expected to have a Material Adverse Effect on TNB, under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party or by which its assets, business or operations may be bound or affected, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that with the lapse of time or the giving of notice, or both, would constitute such a default or non-compliance. 3.1.18 Employees and Employee Benefit Plans. ------------------------------------ (a) Disclosure Schedule Section 3.1.18 sets forth all Benefit Plans ---------------------------------- and any agreement, understanding, practice or commitment, formal or informal, sponsored, maintained or contributed to by TNB for the benefit of the current or former directors, officers, employees or independent contractors of TNB (collectively, with the Benefits Plans, the "TNB Employee Plans"). TNB has previously furnished or made available to Sierra accurate and complete copies of the TNB Employee Plans together with (i) the most recent actuarial and financial reports prepared with respect to any such plans that are qualified plans, (ii) the most recent annual reports filed with any 17 Governmental Entity with respect to each such plan and (iii) all rulings and determination letters and any open requests for rulings or letters that pertain to any such plan that is a qualified plan. (b) Except as set forth in Disclosure Schedule Section 3.1.18, none of ---------------------------------- TNB, any pension plan maintained by it and qualified under Section 401 of the Code or, to the best of TNB's knowledge, any fiduciary of such plan has incurred any liability to the Pension Benefit Guaranty Corporation, the Department of Labor or the Internal Revenue Service with respect to the coverage of any employees of TNB under any TNB Employee Plan that has not been satisfied in full and that could have a Material Adverse Effect on TNB. To the best of TNB's knowledge, no reportable event under Section 4043(b) of ERISA has occurred with respect to any TNB Employee Plan that is a pension plan. (c) TNB does not participate in nor has it incurred any liability under Section 4201 of ERISA for a complete or partial withdrawal from a multi- employer plan (as such term is defined in ERISA). (d) A favorable determination letter has been issued by the Internal Revenue Service with respect to each TNB Employee Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) (a "TNB Pension Plan") which is intended to qualify under Section 401 of the Code to the effect that (i) such plan is qualified under Section 401 of the Code and (ii) the trust associated with such employee pension plan is tax exempt under Section 501 of the Code. No such letter has been revoked or, to the best of TNB's knowledge, is threatened to be revoked and TNB does not know of any ground on which such revocation may be based. TNB has no material liability under any such plan that is not reflected on the balance sheet of TNB at September 30, 2000 included in the TNB Financial Statements, other than liabilities incurred in the ordinary course of business in connection therewith subsequent to the date thereof. (e) Except as set forth in Disclosure Schedule Section 3.1.18, no ---------------------------------- prohibited transaction (which shall mean any transaction prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with respect to any TNB Employee Plan which would result in the imposition, directly or indirectly, of a material excise tax on TNB under Section 4975 of the Code or otherwise have a Material Adverse Effect on TNB. (f) Except as set forth in Disclosure Schedule Section 3.1.18, full ---------------------------------- payment has been made (or proper accruals have been established to the extent required by generally accepted accounting principles) of all contributions which are required for periods prior to the date hereof, and full payment will be so made (or proper accruals will be so established to the extent required by generally accepted accounting principles) of all contributions which are due and payable after the date hereof and prior to the Effective Time, under the terms of each TNB Employee Plan or ERISA; no accumulated funding deficiency (as defined in Section 302 of ERISA or Section 412 of the Code), whether or not waived, exists with respect to any TNB Pension Plan, and there is no "unfunded current liability" (as defined in Section 412 of the Code) with respect to any TNB Pension Plan. 18 (g) Except as set forth in Disclosure Schedule Section 3.1.18, the TNB ---------------------------------- Employee Plans have been operated in compliance in all material respects with the applicable provisions of ERISA, the Code, all regulations, rulings and announcements promulgated or issued thereunder and all other applicable governmental laws and regulations. (h) Except as set forth in Disclosure Schedule Section 3.1.18, there ---------------------------------- are no pending or, to the best knowledge of TNB, threatened claims (other than routine claims for benefits) by, on behalf of or against any of the TNB Employee Plans or any trust related thereto or any fiduciary thereof. (i) No work stoppage involving TNB is pending or, to the best knowledge of TNB, threatened. TNB is not involved in, or to the best knowledge of TNB threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding involving the employees of TNB which could reasonably be expected to have a Material Adverse Effect on TNB. Employees of TNB are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees, and to the best of TNB's knowledge, there have been no efforts to unionize or organize any employees of TNB. 3.1.19 Properties. All real and personal property owned by TNB or ---------- presently used by it in its business is in condition (ordinary wear and tear excepted) sufficient to carry on the business of TNB in the ordinary course of business consistent with its past practices. TNB has good and marketable title free and clear of all liens, encumbrances, charges, defaults or equities (other than equities of redemption under applicable foreclosure laws or of lessors respecting any leased property) to all of the material properties and assets, real and personal, reflected on the Interim Financial Statements or acquired after such date, other than properties sold by TNB in the ordinary course of business, except (i) liens for current taxes not yet due or payable, (ii) pledges to secure deposits and other liens incurred in the ordinary course of its banking business and (iii) such imperfections of title, easements and encumbrances, if any, as are not material in character, amount or extent. All real and personal property which is material to TNB's business and leased or licensed by TNB is held pursuant to leases or licenses which are valid and enforceable in accordance with their respective terms and such leases will not terminate or lapse prior to the Effective Time. Disclosure Schedule Section --------------------------- 3.1.19 sets forth a brief description of each material real property owned or - ------ leased by TNB and used in the conduct of its business, and TNB has provided Sierra with a current title report dated within 30 days of the date hereof for each such property owned by TNB. 3.1.20 Environmental. Except as set forth on Disclosure Schedule ------------- ------------------- Section 3.1.20, TNB and all real property (including OREO) in the possession of - ---------------- TNB or over which TNB exercises control are, and at all times while in the possession or control of TNB each property at any time since January 1, 1997 owned, possessed or controlled by TNB has been, in compliance with all applicable Laws relating to pollution or protection of human health or the environment (including Laws relating to emissions, discharges, releases or threatened releases of Hazardous Material or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Material), except for any violations of Law that, either individually or in the aggregate, have not had and cannot reasonably be expected to have a Material Adverse Effect on TNB. Except 19 as set forth on Disclosure Schedule Section 3.1.20 to the best knowledge of ---------------------------------- TNB there has not occurred any release of Hazardous Material on, under or affecting any real property during the period of TNB's ownership, possession or operation of such property (including its participation in the management of any business located on such property) or during any prior period except for releases that, individually or in the aggregate, have not had and cannot reasonably be expected to have a Material Adverse Effect on TNB. To the knowledge of TNB, neither TNB nor any property now or heretofore in its possession is or has ever been a defendant in or the subject of any suit, claim, action, proceeding, investigation or notice before any Governmental Entity or other forum relating to an alleged violation (including by any predecessor) of any environmental Law or any Law relating to the release or threatened release into the environment of any Hazardous Material, whether or not occurring at or on a site owned, leased or operated by TNB. 3.1.21 Intellectual Property. TNB owns, or possesses valid and --------------------- binding licenses and other rights to use without payment (other than payments for software licenses incurred in the ordinary course of business), all material trademarks, trade names, service marks, copyrights, trade secrets and patents used in its businesses, and TNB has not received any challenge of the same by any Person or any notice of alleged conflict between the same and the rights of any other Person. TNB has, in all material respects, performed all of its obligations under, is not materially in default under, and has not created any right of termination under, cancellation of, acceleration of any obligation under, or loss of a material benefit under, any contract, agreement, arrangement or commitment relating to any of the foregoing. 3.1.22 Insurance. TNB is insured, and during each of the past --------- three calendar years has been insured, for reasonable amounts with financially sound and reputable insurance companies against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured and has maintained all insurance required by applicable laws and regulations. Disclosure Schedule Section 3.1.22 contains a list ---------------------------------- identifying all insurance policies maintained by it as of the date hereof, and describing all claims made since January 1, 1998. All of the policies and bonds maintained by TNB are in full force and effect and all claims thereunder have been filed in a due and timely manner and no such claim has been denied. 3.1.23 Fairness Opinion. TNB has received an opinion from The ---------------- Findley Group, addressed to TNB's Board of Directors, to the effect that as of the date hereof the Consideration is fair, from a financial point of view, to the holders of the TNB Common Stock. 3.1.24 Brokers. TNB has not employed any broker, finder or similar ------- Person in connection with the Consolidation, and has not incurred and will not incur any broker's, finder's or similar fees, commissions or expenses in connection with the Consolidation except as set forth in Disclosure Schedule ------------------- Section 3.1.24. - -------------- 3.1.25 Disclosure of All Material Matters. None of the ---------------------------------- representations and warranties of TNB or any of the written information or documents which are furnished by TNB to Sierra pursuant to this Agreement or in connection with the transactions contemplated hereby, when considered as a whole, contains or will contain any untrue statement of a material fact, or omits or 20 will omit to state any material fact required to be stated or necessary to make any such information or document, at the time and in light of the circumstances (including without limitation the nature and scope of the information described in the representation, warranty, information or document), not misleading. Copies of all documents previously provided to Sierra or made available to Sierra pursuant to this Article III are true, correct and complete copies thereof and include all amendments, supplements and modifications thereto and all waivers thereunder. 3.1.26 Regulatory Matters. TNB knows of no reason that any ------------------ Governmental Entity will not approve the transactions contemplated by this Agreement. TNB shall cooperate with Sierra in pursuing and filing all applications with all Governmental Entities required to approve the transactions. 3.2 By Sierra. Sierra represents and warrants as follows, except as specifically disclosed in the Disclosure Schedule: 3.2.1 Organization, Standing and Power. Sierra is a California -------------------------------- banking corporation duly organized, validly existing and in good standing under the laws of the State of California, and is authorized to conduct a general banking business by the DFI. The deposit accounts of Sierra are insured by the FDIC, and all premiums and assessments required in connection therewith have been paid by Sierra as the same have become due. Sierra has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing to do business in each jurisdiction in which a failure to be so qualified could reasonably be expected to have a Material Adverse Effect on the ability of Sierra to complete the Consolidation. 3.2.2 Authority and Related Matters. Subject only to the TNB and ----------------------------- Sierra Governmental Approvals, Sierra (a) has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby (including the Consolidation), and (b) has duly authorized the execution and delivery of this Agreement, and the consummation of such transactions (including the Consolidation) by all necessary corporate action on the part of Sierra's Board of Directors. This Agreement has been duly executed and delivered by Sierra and, assuming due authorization, execution and delivery by TNB, constitutes the valid and binding obligation of Sierra, enforceable in accordance with its terms subject only to laws regarding bankruptcy, insolvency, reorganization, moratorium or otherwise affecting creditors' rights generally, to the application of general principles of equity (whether considered in a proceeding in law or at equity), and to the provisions of 12 U.S.C. Section 1818(b)(6)(D) and the powers of the FDIC thereunder. 3.2.3 Conflicts. Neither the execution and delivery of this --------- Agreement, nor consummation of the transactions contemplated hereby (including the Consolidation) nor compliance by Sierra with any of the provisions hereof, (i) conflict with or result in a breach of any provisions of the Articles of Incorporation or Bylaws of Sierra (ii) except as set forth in Disclosure ---------- Statement Schedule 3.2.3, violate, conflict with or result in a breach of any - ------------------------ term, condition or provision of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a 21 default) under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of Sierra pursuant to, any note, bond, mortgage, indenture, deed of trust, lease, agreement or other instrument or obligation to which Sierra is a party, or by which any of its properties or assets may be bound or affected, or (iii) subject to receipt of all required governmental and shareholder approvals, violate any law, rule or regulation or any judgment, decree, order, governmental permit or license applicable to Sierra, excluding from the foregoing clauses (ii) and (iii) conflicts, breaches, defaults or violations which, either individually or in the aggregate, would not have a Material Adverse Effect on Sierra. 3.2.4 Consents. Except as disclosed on Disclosure Schedule Section -------- --------------------------- 3.2.4, (collectively, the "Sierra Governmental Approvals"), no consent, - ----- approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or other Person is required in connection with Sierra's execution and delivery of this Agreement or its consummation of the Consolidation or Bank Merger, as to which the failure to obtain the same could reasonably be expected to have a Material Adverse Effect on Sierra or materially interfere with Sierra's ability to consummate the Consolidation or Bank Merger. 3.2.5 Financial Statements. Sierra has provided to TNB the Sierra -------------------- Interim Financial Statements, the Sierra 1999 Financial Statements, audited by McGladrey & Pullen, as well as audited financial statements for Sierra for the years ended December 31, 1998 and December 31, 1997. The Sierra Interim Financial Statements, the Sierra 1999 Financial Statements and the prior two years' audited financial statements comply, in all material respects, with applicable accounting requirements and have been prepared in accordance with GAAP subject, in the case of the Sierra Interim Financial Statements, to recurring audit adjustments normal in nature and amount, and fairly present the financial position of Sierra as of the dates thereof and the results of its operations and cash flows for the periods then ended. 3.2.6 Access to Funds. Sierra has, or on the date of the Closing --------------- will have, all funds necessary to consummate the Consolidation and pay the aggregate Consideration to holders of TNB Common Stock. 3.2.7 Legal Proceedings. There are no existing or, to the best ----------------- knowledge of Sierra, threatened, legal, administrative, arbitration or other proceedings, claims, actions, controversies or governmental investigations of any nature against or involving Sierra which could reasonably be expected to have a Material Adverse Effect on the ability of Sierra to consummate the transactions contemplated hereby. 3.2.8 Certain Information. None of the information relating to ------------------- Sierra supplied or to be supplied by Sierra to TNB expressly for inclusion in the Proxy Statement, as of the date such Proxy Statement is mailed to shareholders of TNB and up to and including the date of the meeting of shareholders to which such Proxy Statement relates, will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 22 3.2.9 Disclosure of All Material Matters. None of the ---------------------------------- representations and warranties of Sierra or any of the written information or documents which are furnished by Sierra to TNB pursuant to this Agreement or in connection with the transactions contemplated hereby, when considered as a whole, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact required to be stated or necessary to make any such information or document, at the time and in light of the circumstances (including without limitation the nature and scope of the information described in the representation, warranty, information or document), not misleading. 3.2.10 Regulatory Matters. Sierra knows of no reason that any ------------------ Governmental Entity will not approve the transactions contemplated by this Agreement. Sierra shall diligently pursue the filing of all applications with all Governmental Entities required to approve the transactions. ARTICLE IV. Additional Agreements --------------------- 4.1 Discussions with Third Parties. 4.1.1 TNB (a) shall not, and shall instruct and cause each of its Representatives not to, solicit or encourage, directly or indirectly, inquiries or proposals with respect to any Strategic Transaction Proposal, and, (b) except as expressly permitted by Section 4.1.2, shall not, and shall instruct and cause each of its Representatives not to, furnish any non-public information relating to or participate in any negotiations, discussions or other activities concerning, any Strategic Transaction with any Person other than Sierra. TNB shall notify Sierra promptly after any Strategic Transaction Proposal is received by, or any negotiations or discussions regarding a Strategic Transaction Proposal are sought to be initiated with, directly or indirectly, TNB or any of its Representatives, and shall disclose to Sierra the identity of the third party making or seeking to make such Strategic Transaction Proposal, the terms and conditions thereof and such other information as Sierra reasonably may request. 4.1.2 Notwithstanding Section 4.1.1, following receipt of a Qualifying Strategic Transaction Proposal, neither TNB nor any of its Representatives shall be prohibited from (a) engaging in discussions or negotiations with a third party which has made a proposal that satisfies the requirements of a Qualifying Strategic Transaction Proposal and thereafter providing to such third party information previously provided or made available to Sierra, provided the third party shall have entered into a confidentiality agreement substantially similar to the confidentiality provisions of Section 4.3 hereof, (b) taking and disclosing to the TNB Shareholders a position contemplated by Rule 14e-2(a) under the Exchange Act or otherwise making disclosure of the Qualifying Strategic Transaction Proposal to its shareholders, or (c) subject to the terms of Section 6.4.2 of this Agreement, terminating this Agreement. A "Qualifying Strategic Transaction Proposal" shall mean a bona fide written Strategic Transaction Proposal with respect to which the Board of Directors shall have determined, after consultation with TNB's counsel, that the action by TNB contemplated under either clause (a), (b) or (c), as applicable, of the immediately preceding sentence is required under the 23 fiduciary duties owed by the Board of Directors to the TNB Shareholders, which determination has been made acting in good faith and on the basis of a written opinion from a financial advisor retained by TNB to the effect that the financial terms of such Strategic Transaction Proposal are, from such shareholders' perspective, financially superior to the Consideration. 4.1.3 In the event that TNB receives a Qualifying Strategic Transaction Proposal, it shall, within 15 Business Days of its receipt thereof, give notice to Sierra either (i) reaffirming TNB's intent to proceed under this Agreement and to consummate the Consolidation, or (ii) terminating this Agreement pursuant to Section 6.4.2. If TNB does not, within such 15 Business Day period, either expressly reaffirm its intent to proceed under this Agreement or terminate this Agreement pursuant to Section 6.4.2, Sierra may at any time within 20 Business Days thereafter terminate this Agreement pursuant to Article VI. 4.2 Proxy Statement; Shareholder Approval. 4.2.1 TNB shall take all action necessary to have its shareholders consider this Agreement and the transactions contemplated hereby at a special meeting of shareholders which is called for this purpose as promptly as practicable after the date hereof. The parties hereto shall promptly cooperate with each other in the preparation of the Proxy Statement, which shall contain such information as is mutually agreeable to the parties. If required by law, TNB shall cause the Proxy Statement to be filed with the Comptroller. 4.2.2 The Proxy Statement shall include a Recommendation of Approval by the TNB Board of Directors; provided, that in the event that TNB has received -------- a Strategic Transaction Proposal and its Board of Directors has determined, in accordance with Section 4.1.2, that such Strategic Transaction Proposal constitutes a Qualifying Strategic Transaction Proposal, then its Board of Directors shall not be prohibited from failing to include such Recommendation of Approval in the Proxy Statement, from retracting or qualifying its Recommendation of Approval if previously given, or from postponing or adjourning the meeting of the TNB Shareholders called for the purpose of approving the Consolidation. 4.2.3 TNB represents and warrants to Sierra that as of the date the Proxy Statement is issued and as of the date its shareholders act to approve this Agreement and the transactions contemplated hereby, the Proxy Statement, with respect to all information set forth therein relating to TNB and with respect to this Agreement, will (a) comply in all material respects with the provisions of all applicable laws and regulations; and (b) the Proxy Statement will not at the time of its issuance and as of the date of the TNB Shareholder meeting to approve this Agreement and the transactions contemplated hereby, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. TNB will promptly advise Sierra in writing if, at any time prior to the date of the later to occur of TNB shareholder and Sierra shareholder meetings to act upon approval of this Agreement and the transactions contemplated hereby, it shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Proxy Statement 24 in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law and agrees to correct any statements that are or have become misleading. 4.3 Access. 4.3.1 With Respect to TNB. TNB shall make available to Sierra all ------------------- information regarding itself that Sierra reasonably may request other than information prohibited to be disclosed to Sierra by confidentiality or privacy laws, rules or regulations, and shall authorize, upon reasonable notice, visits to its premises with such staff, consultants and experts as Sierra reasonably may request. Sierra agrees to coordinate closely all such activities with TNB's President and to conduct any such inquiries with appropriate discretion and sensitivity to TNB's relationships with its employees, customers and suppliers. 4.3.2 With Respect to Sierra. Sierra shall make available to TNB all ---------------------- information regarding itself that TNB reasonably may request. 4.3.3 Confidentiality. Each Party acknowledges that certain of the --------------- information made available to it pursuant to this Section 4.3 and otherwise in connection with the Consolidation or Bank Merger may be confidential, proprietary or otherwise non-public, and each Party agrees, for itself and for each of its Representatives, that it (i) shall hold in confidence all confidential information received by it from or with regard to the other Party ("Confidential Information") subject to the terms of this Section 4.3, (ii) shall disclose such Confidential Information only to those of its Representatives, in each case having a need to know the same for purposes of evaluating, negotiating or implementing the Consolidation or Bank Merger, and (iii) shall inform each Representative to whom Confidential Information is disclosed that such information is confidential and direct such Representative not to disclose the same. Each Party shall remain responsible for any disclosure of Confidential Information by any of its Representatives. Each Party further agrees that, upon the request of the other Party given following any termination of this Agreement, the receiving Party and each of its Representatives either shall return to the requesting Party all Confidential Information received by the receiving Party and its Representatives (including all compilations, analyses or other documents prepared by it that contain Confidential Information) or shall certify that the same has been destroyed. As used herein, Confidential Information shall not include (i) information that is or becomes generally available to the public other than as a result of a breach of this Agreement, (ii) information that the receiving Party demonstrates was known to it on a non-confidential basis prior to receiving such information from the other Party, (iii) information that the receiving Party develops independently without relying on Confidential Information, and (iv) information that becomes available to the receiving Party on a non-confidential basis from another source if the source was not known to or not reasonably believed by the receiving Party to be subject to any prohibition against disclosing such information. The foregoing provisions shall also extend to any Confidential Information previously provided under any written confidentiality agreement between the Parties. 4.4 Prosecution of Regulatory Filings; Cooperation. The Parties shall cooperate with each other and use all commercially reasonable efforts to prepare and file promptly all necessary documentation, to effect all applications, notices, petitions and filings, and to obtain as promptly as 25 practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the Consolidation or Bank Merger. The Parties agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the Consolidation and Bank Merger and each Party will keep the other apprised of the status of matters relating to completion of the Consolidation and Bank Merger. Each Party shall, upon request, furnish the other Party with all information concerning itself as may be reasonably necessary or advisable in connection with any filing or application made by or on behalf of such Party to any Governmental Entity in connection with the Consolidation and Bank Merger. Each Party shall promptly advise the other Party upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the Consolidation and Bank Merger which causes such Party to believe that there is a reasonable likelihood that any required Governmental Approval will not be obtained or that the receipt of any such Governmental Approval will be materially delayed. Subject to the terms and conditions herein provided, each of the Parties hereto agrees to use all reasonable efforts to, as promptly as practicable, take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement or to vest Sierra, indirectly through the Consolidated Bank, with full title to all properties, assets, rights, approvals, immunities and franchises of TNB. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest Sierra with full title to all properties, assets, rights, approvals, immunities and franchises of TNB, the proper officers and directors of each party to this Agreement shall take all such necessary action. 4.5 Advice of Changes. Each Party shall promptly advise the other Party of any change or event having a Material Adverse Effect on it or which it believes would or may be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein or to preclude the satisfaction of one or more of the conditions set forth in Article V. From time to time prior to the Closing Date, each Party will promptly supplement or amend the Disclosure Schedules delivered by it in connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedules, or which is necessary to correct any information in such Disclosure Schedules which has been rendered inaccurate thereby; provided, however, that no such supplement or amendment to -------- the Disclosure Schedules shall have any effect for the purpose of determining the accuracy of any representation or warranty when made, for determining satisfaction of the conditions set forth in Article V, or for determining the compliance by any Party with any other provision of this Agreement. 4.6 Current Information. During the period from the date of this Agreement to the Closing Date, TNB will cause one or more of its designated representatives to confer on a regular and frequent basis (not less than bi- weekly) with representatives of Sierra and to report the general status of its ongoing operations. TNB will promptly notify Sierra of any material change in the normal course of its business or in the operation of its properties and of any governmental complaint, investigation or hearing (or communications indicating that the same may be contemplated), or the 26 institution or the threat of significant litigation involving it, and will keep Sierra fully informed of such events. A representative of Sierra will be permitted to attend all meetings of the Board of Directors and board committees of TNB, except any portions of such meetings relating to the Consolidation or Bank Merger or when necessary to protect the attorney-client privilege, and shall receive notice thereof at the time notice is given to Board and committee members. 4.7 Interim and Annual Financial Statements; Monthly Board Packages. As soon as reasonably available, but in no event more than 30 days after the end of each fiscal quarter ending after the date of this Agreement and prior to the Closing Date, each Party will deliver to the other Party its call reports as filed with its Bank Regulators, and as soon as reasonably available, but in no event later than February 28, 2001 (provided that the Closing has not yet occurred and the Agreement has not theretofore been terminated), TNB will deliver to Sierra its audited financial statements for the year ending December 31, 2000, which financial statements shall be audited by Vavrinek, Trine, Day & Co., LLP. In addition, TNB will cause Vavrinek, Trine, Day & Co., LLP to provide Sierra's auditors complete access to such firm's work papers prepared with respect to such audited financial statements. TNB will deliver to Sierra all other information provided to its Board of Directors (the "Monthly Board Packages"), including monthly financial statements prepared in accordance with GAAP (excepting only by the absence of footnotes and other presentation items and subject to normal year-end adjustments) and otherwise in the form delivered to the members of its Board of Directors, no later than the time at which such financial statements are delivered to such directors but in no event later than the twenty-first calendar day of the month immediately following the month to which such financial statements relate. 4.8 Conduct of Business. TNB shall (a) conduct its business in the usual, regular and ordinary course of business consistent with the past practice (except as required by applicable Law or as required by this Agreement), (b) use all commercially reasonable efforts to maintain and preserve intact its business organization, employees and advantageous business relationships and retain the services of its officers and key employees (including by causing its current insurance policies not to be canceled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such event replacement policies providing substantially similar coverage for substantially similar (or lesser) premiums are in full force and effect), (c) conduct relations with its employees, including hiring and terminating practices, only in the ordinary course of business and consistent with past practice, and (d) take no action which would adversely affect or delay the ability of TNB or Sierra to obtain any necessary approvals of any Governmental Entity required for the Consolidation or for the transactions contemplated in connection therewith, or to perform its covenants and agreements under this Agreement. Through the Effective Time, TNB will maintain its Records in the same manner and with the same care that the Records have been maintained prior to the execution of this Agreement. Sierra may, at its own expense, make such copies of and excerpts from the Records as it may deem desirable. 4.9 Certain Operating Covenants of TNB. Without Sierra's prior written consent, which consent shall not be unreasonably withheld or delayed, TNB shall not: 27 4.9.1 declare or make any payment or distribution with respect to its capital stock or other securities, whether by way of payment of interest or principal, redemption, dividend or otherwise; 4.9.2 (a) create, authorize, issue, sell or deliver any of its capital stock, bonds or other of its securities (whether authorized and unissued or held in treasury) or any instrument convertible into any of them; (b) grant or otherwise issue any options, warrants or other rights with respect thereto; (c) amend the terms of any rights with regard to the TNB securities; or (d) split up, combine or reclassify any of its outstanding stock; 4.9.3 acquire, by merging or consolidating with, by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business, including any corporation, partnership, association or other business organization or division thereof; 4.9.4 excepting those matters identified on Disclosure ---------- Schedule 4.9.4, (a) create, renew, amend or terminate, or give notice of a - --------------- proposed renewal, amendment or termination of, any material contract, agreement or lease for goods, services or office space to which TNB is a party or by which TNB or any of its properties is bound, excepting only contracts, agreements and leases under which the aggregate annual payments by either party do not exceed $10,000, (b) make any single capital expenditure exceeding $5,000 or any capital expenditures exceeding $10,000 in the aggregate, or (c) relocate or terminate, or file any application to relocate or terminate the operations of any of its banking offices; 4.9.5 enter into any new line of business; 4.9.6 change its methods of accounting in effect at December 31, 1999, except as required by changes in GAAP or RAP as concurred with by TNB's independent auditors; 4.9.7 commit any act or omission which constitutes a Violation of any Law, Regulatory Agreement or any material contract or license to which TNB is a party or by which it or any of its properties is bound which Violation, individually or in the aggregate, has or reasonably could be expected to have a Material Adverse Effect on TNB; 4.9.8 make any equity investment, including any equity investment in any real estate or real estate development project, other than in connection with foreclosures, settlements in lieu of foreclosure or troubled loan or debt restructuring in the ordinary course of business consistent with prudent banking practices; 4.9.9 except as contemplated by Section 5.2.12, sell, lease, assign, transfer or otherwise dispose of any property or asset, except for (a) investment portfolio transactions in the ordinary course of business and substantially consistent with past practice, and which past practice shall be deemed to include any sale of any investment carried as available for sale by TNB on market terms; (b) sales of assets having a gross book value not in excess of $5,000 individually or $10,000 in the aggregate; and (c) sales of real estate acquired by foreclosure or by a deed in lieu thereof; 28 4.9.10 (a) enter into any agreement with any labor union or association representing any employee, (b) institute, amend or terminate any Benefit Plan, (c) pay any pension or retirement allowance to any Person not required by an existing plan or agreement, (d) except as set forth on Disclosure ---------- Schedule 3.1.18, increase in any manner the compensation or fringe benefits of, - --------------- or pay any bonus to, any officer or employee other than customary annual (or less frequent) increases in the wages or salaries of non-officer employees consistent with past practice, which increases on an annualized basis do not increase the salary or wage of any individual employee by more than 5% and in the aggregate do not increase personnel costs for all non-officer employees by more than 5% over the levels in effect as of September 30, 2000, or (e) increase any other direct or indirect compensation or employee benefit for or to any of its officers, directors or employees; 4.9.11 (a) make, amend or renew, or enter into any commitment to make, amend or renew, any loan if, as a result of the disbursement of the proceeds of such loan, the total Borrower Group Obligations (including accrued and unpaid interest) of the borrower to the applicable Party would exceed $100,000 with respect to unsecured loans or $150,000 with respect to secured loans, as defined under the National Bank Act, except that if Sierra does not grant or refuse its consent or reasonably request additional information regarding such proposed loan within five Business Days of Sierra's receipt of TNB's request for consent, then Sierra shall be deemed to have granted its consent; or (b) amend or renew, or enter into any commitment to amend or renew, any Criticized Asset; 4.9.12 incur any indebtedness for borrowed money, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity, in each case except in the usual, regular and ordinary course of business consistent with the past practice, it being understood and agreed that purchase of federal funds, and the creation of deposit liabilities and entering into repurchase agreements (in each case with maturities of not more than one year) shall be deemed to be in the ordinary course of business; 4.9.13 make, amend or compromise any loan or advance (whether in cash or other property) to any officer, to any director, or to any Principal Shareholder or Affiliate thereof, except advances made to employees in the usual, regular and ordinary course of business consistent with the past practice; 4.9.14 restructure or materially change its investment securities portfolio through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, or invest in any securities other than obligations of the United States Treasury with maturities of not more than one year, or agency securities or other investments approved by Sierra; 4.9.15 file any applications or make any contract with respect to branching or site location or relocation; 4.9.16 enter into any futures contract, option contract, interest rate caps, interest rate floors, interest rate exchange agreement or other agreement for purposes of hedging the exposure of its interest-earning assets and interest-bearing liabilities to changes in market rates of interest; 29 4.9.17 enter or agree to enter into any agreement or arrangement granting any preferential right to purchase any of its assets or rights or requiring the consent of any party to the transfer and assignment of any such assets or rights; 4.9.18 take any action that will result in any of the representations or warranties of TNB contained in this Agreement not to be true and correct in any material respect as of the Effective Time or that could reasonably result in any material delay in consummation of the transactions contemplated hereby; or 4.9.19 enter into any agreement or commitment to do any of the foregoing. 4.10 Operating Covenant of Sierra. Without TNB's prior written consent, Sierra shall not take any action that will result in any of the representations or warranties of Sierra contained in this Agreement not to be true and correct in any material respect as of the Effective Time or that could reasonably result in any material delay in consummation of the transactions contemplated hereby. In addition, Sierra agrees that it shall diligently pursue the consummation of the Holding Company Reorganization and the raising of the funds necessary to consummate the transaction. 4.11 Covenants Regarding Employees, Directors and Officers. 4.1.11 Employee Benefit Plans. ---------------------- (a) Generally. Sierra agrees to provide the employees of --------- TNB (the "TNB Employees") who remain employed after the Closing Date (collectively, the "Transferred TNB Employees") with the types and levels of employee benefits maintained by Sierra for similarly situated employees of Sierra. As soon as administratively practicable after the Effective Time, Sierra shall permit the Transferred TNB Employees to participate in Sierra's group hospitalization, medical, life and disability insurance plans, 401k plan, thrift plan, severance plan and similar plans, on the same terms and conditions as applicable to comparable employees of Sierra and the Bank (including the waiver of pre-existing conditions, restrictions, exclusions or limitations), giving the Transferred TNB Employees full credit for all "years of service," as that term is defined in Section 411(a)(5) of the Code, with TNB (to the extent TNB gave effect to such service) as if such service were with Sierra, for purposes of eligibility, vesting and calculation of benefits under vacation and other benefit plans (other than severance), but not for benefit accrual or for any other purpose. (b) Director Agreements. All current directors of TNB ------------------- concurrent with the execution and delivery of this Agreement by the Parties shall execute and deliver to Sierra a Director Agreement in the form of Exhibit 4.11.1(b) hereto. - ----------------- (c) Continuation of Plans. Notwithstanding anything to the --------------------- contrary contained herein, Sierra shall have sole discretion with respect to the determination as to whether to terminate, merge or continue any employee Benefit Plans and programs of TNB to the extent permitted by and in accordance with the terms of such plans and programs and TNB shall cause to be taken all actions reasonably required to terminate such plans and programs as Sierra may specify; 30 provided, however, that Sierra shall continue to maintain TNB plans (other than - -------- ------- stock based or incentive plans) until TNB Employees are permitted to participate in Sierra's plans in accordance with this Section 4.11.1. Nothing in this Agreement shall alter or limit Sierra's obligations, if any, under ERISA, as amended by the Consolidated Omnibus Budget Reconciliation Act of 1985 and/or the Health Insurance Portability and Accountability Act of 1996 with respect to the rights of TNB Employees and their qualified beneficiaries in connection with the group health plan maintained by TNB as of the Effective Time. Without limiting the foregoing, the Board of Directors of TNB shall promptly adopt resolutions required to cause any plan or agreement providing shares of TNB Common Stock or equity-based rights to any Person to be terminated as of the Effective Time, and shall request, if applicable, an IRS termination letter respecting the same. (d) Severance. The employees of TNB (other than Charles E. Smith and --------- Charles Byrd) shall be entitled to receive severance compensation equal to the amount to which they are entitled under Exhibit 4.11.1(d) hereto, provided they ----------------- meet the terms set forth in such Exhibit with respect to the receipt of severance, and, provided further, that they execute a Waiver and Release Agreement in the form included in such Exhibit. Charles E. Smith shall be entitled to receive those salary continuation benefits as set forth in his existing Salary Continuation Plan as well as a lump sum severance payment of $30,000 and payment for consulting services as set forth in Section 4.11.1(e) below. Charles Byrd shall be entitled to receive a lump sum severance payment of $100,000. In order to receive their respective lump sum severance payments, each of Messrs. Smith and Byrd shall be required to execute a Waiver and Release Agreement in the form included in Exhibit 4.11.1(d), and their respective lump sum severance payments shall be payable on the Closing Date, provided that the Waiver and Release Agreement shall have become irrevocable as provided therein prior to such payment becoming due and payable. (e) Consulting Agreement. Sierra shall enter into a consulting -------------------- agreement with Charles E. Smith for a term of one year following the Closing Date, which term may be extended for one additional year upon the mutual consent of the parties, and which consulting agreement shall provide that Mr. Smith shall render consulting services to Sierra for an annual consulting fee of $30,000. The form of the consulting agreement is included as Exhibit 4.11.1(e) ----------------- hereto. 4.11.2 Indemnification. --------------- (a) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including any such claim, action, suit, proceeding or investigation in which any person who is now, or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Time, a director or officer or employee of TNB (collectively, the "Indemnified Parties") is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he or she is or was a director, officer or employee of TNB or any of its predecessors or (ii) this Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or after the Effective Time, the parties hereto agree to cooperate and use all commercially reasonable efforts to defend against and respond thereto. It is understood and agreed that after the Effective Time, Sierra shall indemnify and hold harmless, as and to the fullest extent permitted by the National Bank Act and 31 regulations of the Comptroller, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorney's fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by law upon receipt of any undertaking required by applicable law), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation, and in the event of any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted or arising before or after the Effective Time). The Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with Sierra respecting any matter covered by this indemnity; provided, however, that (a) Sierra shall have the right to assume the defense - -------- thereof and upon such assumption Sierra shall not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by any Indemnified Party of any legal expenses of other counsel or any other expenses subsequently incurred by any Indemnified Party in connection with the defense thereof, except that if Sierra elects not to assume such defense, or counsel for the Indemnified Parties reasonably advised the Indemnified Parties that there are issues which raise conflicts of interest between Sierra and the Indemnified Parties, the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with Sierra, and Sierra shall pay the reasonable fees and expenses of such counsel for the Indemnified Parties, (b) Sierra shall be obligated pursuant to this paragraph to pay for only one firm of counsel for all Indemnified Parties, (c) Sierra shall not be liable for any settlement without its prior written consent and (d) Sierra shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and nonappealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. Any Indemnified Party wishing to claim indemnification under this Section 4.11.2, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify Sierra thereof; provided that the failure to so notify -------- shall not affect the obligations of Sierra under this Section 4.11.2 except to the extent such failure to notify materially prejudices Sierra. Sierra's obligations under this Section 4.11 .2 continue in full force and effect for a period of six (6) years from the Effective Time; provided, however, that all -------- rights to indemnification in respect of any claim asserted or made within such period shall continue until the final disposition of such claim. (b) In the event Sierra or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of Sierra assume the obligation set forth in this Section 4.11.2. (c) The indemnification granted under this Section 4.11 shall not apply to any loss, claim, damage, liability, cost or expense arising from any matter required to be included in Disclosure Schedule 3.1.15 and which was not -------------------------- included in such Disclosure Schedule. 4.12 Reserves. TNB agrees to establish such reserves and to take such charge-offs respecting loans and other assets and operations as may be requested by Sierra immediately prior to 32 the Closing; provided, that any such action taken solely by reason of such -------- request shall not be deemed to constitute a Material Adverse Effect respecting TNB for purposes of this Agreement or considered in determining the shareholders' equity of TNB for purposes of Section 5.2.10. 4.13 Retention Payments. In order to assure the continued service of such employees through the completion of the Consolidation and Bank Merger and a reasonable transition period thereafter, the Parties agree that TNB may allocate up to $55,000 in aggregate retention payments to certain key employees identified by TNB ("Retention Payments"). The Retention Payments shall be payable on the earlier of the date on which the employee's employment is terminated by Sierra or on the 30/th/ day after the Closing Date. Prior to receiving any Retention Payments, any employee who has been designated to receive a Retention Payment shall be required to execute an employee retention agreement in the form of Exhibit 4.13 annexed hereto ("Employee Retention Agreement") All employees who receive Retention Payments shall also be entitled to receive severance as provided in Section 4.11.1(d) above if they otherwise meet the requirements for receipt of such severance. ARTICLE V. Conditions to Closing --------------------- 5.1 Conditions to Obligations of Both Parties. The obligations of Sierra and TNB to consummate the Consolidation are subject to the satisfaction of each of the following conditions: 5.1.1 Approval by TNB Shareholders. The Agreement and Consolidation ---------------------------- shall have been approved by the affirmative vote of the holders of two-thirds of all shares of TNB Common Stock entitled to vote thereon. 5.1.2 Regulatory Approvals. All necessary approvals of any -------------------- Governmental Entity required for the consummation of the Consolidation and Bank Merger (including the TNB Governmental Approvals and Sierra Governmental Approvals) shall have been obtained and shall remain in full force and effect; all statutory or other required waiting periods in respect thereof shall have expired; and no approval of any Governmental Entity shall have imposed any condition or requirement which, in the reasonable opinion of Sierra, would so materially adversely affect the economic or business benefits to Sierra of the Consolidation or Bank Merger so as to render inadvisable the consummation thereof. 5.1.3 No Prohibition; No Pending or Threatened Claims. Neither Sierra ----------------------------------------------- nor TNB shall be subject to any law or order of any court or other Governmental Entity which prohibits, restricts or makes illegal the consummation of the Consolidation or Bank Merger; and there shall be no claim, action, suit, investigation or other proceeding pending or overtly threatened before any Governmental Entity that presents a substantial risk of restraint or prohibition of the Consolidation or Bank Merger, or the obtaining of material damages from TNB or Sierra or their respective officers or directors in connection therewith; and no such restraint or prohibition shall be effective as of the Closing, whether or not the action in which the same was entered shall remain pending. 33 5.2 Conditions to the Obligations of Sierra. The obligations of Sierra to consummate the Consolidation are further subject to the satisfaction of, or Sierra's written waiver of, each of the following conditions: 5.2.1 Accuracy of Representations and Warranties; Compliance With ----------------------------------------------------------- Covenants. TNB's representations and warranties contained in this Agreement - --------- shall have been true and correct as of the dates when made, and TNB shall have performed, satisfied and complied with, in all material respects, each of its agreements and covenants contained in Articles II and IV and elsewhere in this Agreement. 5.2.2 Bringdown of Representations and Warranties. TNB's ------------------------------------------- representations and warranties contained in this Agreement remain true and correct as of the Closing as though made at and as of the Closing, excepting only representations and warranties which speak expressly as of an earlier specified date. 5.2.3 TNB Common Stock Outstanding. There shall be no shares of TNB ---------------------------- Common Stock or other TNB securities issued and outstanding as of the Effective Time other than the 267,481 shares issued and outstanding as of the date hereof. In the event any additional shares of TNB Common Stock or options to purchase Common Stock shall be issued and outstanding, Sierra may, at its sole option, complete the Consolidation and reduce the per share Consideration to reflect the dilution resulting from the issuance of such additional shares or options. 5.2.4 Dissenting TNB Shares. The aggregate number of shares of TNB --------------------- Common Stock owned by Persons who have made a demand for purchase under Section 215(b) of the National Bank Act shall constitute less than 10% of all shares of TNB Common Stock outstanding as of the date of the meeting of the TNB Shareholders called for the purpose of voting on the Consolidation. 5.2.5 Unsatisfactory Regulatory Review. TNB shall not have received -------------------------------- between the date of this Agreement and the Closing an "unsatisfactory" rating in any supervisory, CRA or compliance exam conducted by any Bank Regulator. 5.2.6 Third Party Consents. The consent, approval or waiver of each -------------------- Person (other than the Governmental Entities referred to in Section 5.1.2) whose consent, approval or waiver shall be required in order to permit the consummation of the Consolidation or Bank Merger or the preservation of the contractual rights of TNB with respect to its business shall have been obtained except where the failure to obtain any such consent, approval or waiver would not, individually or in the aggregate, have a Material Adverse Effect on Sierra or TNB or materially adversely affect the ability of Sierra and TNB to consummate the Consolidation or Bank Merger. 5.2.7 Receipt of Officers' Certificates. TNB shall have delivered to --------------------------------- Sierra (a) a certificate, executed by the President and Chief Financial Officer of TNB and dated as of the Closing Date, (i) certifying to the fulfillment of the conditions specified in Section 5.1 (with regard to TNB only) and Section 5.2, including a certification that each representation or warranty of TNB contained in Article III is true and correct as of the Closing Date (or, if such certification cannot be made, 34 specifying the exceptions thereto), excepting only representations and warranties which speak expressly as of an earlier specified date, (ii) certifying to the absence of any change or event since the date of this Agreement that has had or reasonably could be expected to have a Material Adverse Effect on TNB and, (iii) certifying that all expenses of the Bank have either been paid or properly accrued for through the Determination Date, and (b) a certificate, executed by the Chief Financial Officer of TNB and dated as of not more than five (5) Business Days prior to the Closing Date, containing, and certifying to the accuracy of, the same information required to be included on Part A of Schedule 3.1.11 had such Schedule been delivered as of the date of --------------- such certificate. 5.2.8 Director Agreements. Each director of TNB shall have executed ------------------- and delivered to Sierra a Director Agreement. 5.2.9 Legal Opinion. Sierra shall have received an opinion of Gary ------------- Steven Findley & Associates, respecting the matters set forth in Exhibit 5.2.9. ------------- 5.2.10 TNB Shareholders Equity. Sierra shall have received and ----------------------- accepted a letter from Vavrinek, Trine, Day & Co., LLP, independent accountants, setting forth TNB's shareholders' equity, as determined in accordance with GAAP and this Agreement as of the end of March 31, 2001 (the "Determination Date") in accordance with such limitations and standards of review as may be specified in such letter, but without the performance of such procedures as are necessary in order for such firm to express an opinion with respect thereto, and provided that (a) no Expenses of TNB shall be capitalized in making such determination of shareholders' equity, (b) the aggregate of $55,000 in Retention Payments to be made to employees of TNB as set forth in Section 4.13 above shall be expensed as of the Determination Date without regard to whether any portion of such payment is attributable to a period after the Closing Date, (c) the $100,000 severance payment to Charles Byrd and the $30,000 severance payment to Charles E. Smith shall be expensed as of the Determination Date, without regard to whether any portion of such payments are attributable to a period after the Closing Date, (d) future payments due under the salary continuation plan of Charles E. Smith shall, as of the Determination Date, be fully funded or reserved for in the amount required under the amortization schedule provided to Sierra, (e) if TNB shall continue to own the single family residence referred to in Section 5.2.12 at the Determination Date, the value of such residence shall be deemed the appraised value as determined in accordance with Section 5.2.12, and a reserve shall be established to the extent the appraised value is less than the book value of such asset as of such date, and (f) adequate reserves shall be established for all liabilities set forth in Disclosure Schedule 3.1.18 (the -------------------------- "Accounting Letter"). In expensing the payments described in (c) and (d) above, any portion of such payments otherwise properly allocable to periods after the Closing Date shall only be recorded net of associated anticipated income tax benefits. Each of Sierra and TNB shall pay one-half of the fee with respect to the Accounting Letter, and the portion of the fee payable by TNB shall be expensed as of the Determination Date. 5.2.11 Amendment to Lease. TNB and the lessor of TNB's main office ------------------ shall have entered into an Amendment ("Amendment") to the Lease dated September 22, 1982 ("Lease"), in the form annexed as Exhibit 5.2.11 hereto, which -------------- Amendment shall provide for a reduction of the monthly rental due under said Lease to an amount of no more than $7,000 per month, shall 35 provide the lessee with a right of first refusal in the event the lessor shall determine to sell the leased premises, and shall ratify all other terms and conditions of the Lease. 5.2.12 Appraisal of Single Family Residence. In the event that the ------------------------------------ sale of the single family residence which TNB purchased from its former Chief Credit Officer has not been sold, or is not likely to be sold, prior to the Determination Date, then TNB shall obtain an appraisal of such residence, from an appraiser reasonably satisfactory to Sierra, which appraisal shall be received on or about the Determination Date. The appraised value of the residence shall be used by the independent accountants with respect to the calculation of shareholders' equity as of the Determination Date as set forth in Section 5.2.10. 5.2.13 2000 Financial Statements. TNB shall have delivered to ------------------------- Sierra the 2000 Financial Statements, including the audit report thereon, prepared by Vavrinek, Trine, Day & Co., LLP, which 2000 Financial Statements and report shall be acceptable to Sierra in all respects. Sierra shall advise TNB in writing within ten (10) Business Days of receipt of the 2000 Financial Statements if the 2000 Financial Statements are not acceptable. 5.2.14 Holding Company Reorganization. Sierra shall have ------------------------------ consummated its Holding Company Reorganization. 5.2.15 Documents and Instruments in Satisfactory Form. All ---------------------------------------------- corporate and other proceedings in connection with this Agreement and with the Consolidation or Bank Merger and all documents and instruments incidental to the Consolidation or Bank Merger shall be reasonably satisfactory in substance and form to Sierra and its counsel, and Sierra and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 5.3 Conditions to the Obligations of TNB. The obligations of TNB to consummate the Consolidation are further subject to the satisfaction of, or TNB's written waiver of, each of the following conditions: 5.3.1 Accuracy of Representations and Warranties; Compliance with ----------------------------------------------------------- Covenants. Sierra's representations and warranties contained in this Agreement - --------- shall have been true and correct as of the dates when made, and Sierra shall have performed, satisfied and complied with, in all material respects, each of its agreements and covenants contained in Articles II and IV and elsewhere in this Agreement. 5.3.2 Bringdown of Representations and Warranties. Sierra's ------------------------------------------- representations and warranties contained in this Agreement remain true and correct as of the Closing as though made at and as of the Closing, excepting only representations and warranties which speak expressly as of an earlier specified date. 5.3.3 Delivery of Cash to Exchange Agent. Sierra shall have delivered ---------------------------------- to the Exchange Agent the aggregate Consideration. 36 5.3.4 Legal Opinion. TNB shall have received an opinion of Fried, ------------- Bird & Crumpacker respecting the matters set forth in Exhibit 5.3.4. ------------- 5.3.5 Documents and Instruments in Satisfactory Form. All corporate ---------------------------------------------- and other proceedings in connection with this Agreement and with the Consolidation or Bank Merger and all documents and instruments incidental to the Consolidation or Bank Merger shall be reasonably satisfactory in substance and form to TNB and its counsel, and TNB and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. ARTICLE VI. Termination: Termination Fee ---------------------------- This Agreement may be terminated, and the Consolidation and Bank Merger abandoned, prior to the Closing by the following means and with the following effects: 6.1 By Mutual Agreement. TNB and Sierra may terminate this Agreement by mutual written consent at any time. 6.2 Regulatory Impediment. Either Sierra or TNB may unilaterally terminate this Agreement at any time prior to the Closing if (a) a Bank Regulator shall have made a final determination denying an application of either Party the granting of which is essential to the consummation of the Consolidation or Bank Merger, or (b) the occurrence of the Closing would violate any final order, decree or judgment of any court having competent jurisdiction. 6.3 By Sierra. Sierra may unilaterally terminate this Agreement: 6.3.1 if TNB has breached any representation or warranty contained in this Agreement, or has failed to perform, satisfy or comply with in any material respect any of its agreements and covenants contained in this Agreement (other than as described in Section 6.4.2), and such breach or failure would or could reasonably be expected to have a Material Adverse Effect on TNB or the Surviving Bank; such termination to take effect fifteen (15) Business Days following notice to TNB identifying such breach if such breach has not been cured prior to the expiration of such period; provided, that in the case of a termination under -------- this Section 6.3.1, where a breach or failure giving rise to such termination shall have been caused in whole or in part by any action or inaction on the part of TNB or any of its directors or officers or any TNB Affiliates, Sierra shall be entitled to receive from TNB the Termination Fee. The Termination Fee, if due under this Section 6.3.1, shall be $200,000 plus Sierra's Expenses, unless TNB enters into a binding agreement with a potential acquiror respecting a Strategic Transaction within 12 months following the date of termination of this Agreement under this Section 6.3.1, in which case the total Termination Fee shall be increased to $500,000 plus Sierra's Expenses; 6.3.2 upon notice to TNB if (a) TNB has not reaffirmed its intent to proceed with the Consolidation pursuant to Section 4.1.3 following its receipt of a Qualifying Strategic Transaction Proposal; (b) the TNB Shareholders fail to approve the Consolidation at the Meeting 37 of TNB Shareholders called for the purpose of voting on the Consolidation; (c) TNB or any director or officer has participated in any action to oppose or frustrate the obtaining of the approval of the Consolidation by the TNB Shareholders or any TNB Affiliate which is a party to an TNB Voting Agreement has violated the terms of a TNB Voting Agreement and the TNB Shareholders fail to approve the Consolidation; (d) the Board of Directors fails to give its Recommendation of Approval to the holders of the TNB Common Stock; or (e) the TNB Board of Directors withdraws its Recommendation of Approval prior to the affirmative vote of such shareholders, whether or not such failure or withdrawal is permitted under Section 4.2.3. In the case of a termination under this Section 6.3.2 other than Section 6.3.2(b), Sierra shall be entitled to receive from TNB a Termination Fee of $500,000 plus Sierra's Expenses. In the case of a termination under Section 6.3.2(b), no Termination Fee shall be payable but Sierra shall be entitled to reimbursement of its Expenses; 6.3.3 upon notice to TNB if the TNB Shareholders fail to approve the Consolidation, and a Termination Fee is not otherwise payable under Section 6.3.2, in which case Sierra shall be entitled to reimbursement of its Expenses; 6.3.4 upon notice to TNB if any of the conditions to the obligations of Sierra contained in Section 5.2 has not been satisfied as of the Closing Date; 6.3.5 upon notice to TNB after August 31, 2001, if the Closing shall not have occurred by such date, unless such failure results primarily from Sierra breaching any of its representations, warranties, covenants or agreements contained in this Agreement. 6.3.6 upon notice to TNB if Sierra enters into a Strategic Acquisition Agreement; provided, however, that a condition to the effectiveness -------- ------- of any termination pursuant to this Section 6.3.6 is the payment to TNB of a Termination Fee of $500,000 plus TNB's Expenses. 6.4 By TNB. TNB may unilaterally terminate this Agreement: 6.4.1 if Sierra has breached any representation or warranty contained in this Agreement, or has failed to perform, satisfy or comply with in any material respect any of its agreements and covenants contained in this Agreement, and such breach or failure would or could reasonably be expected to have a Material Adverse Effect on the ability of Sierra to complete the Consolidation; such termination to take effect fifteen (15) Business Days following notice to Sierra identifying such breach if such breach has not been cured prior to the expiration of such period; provided, that in the case of a -------- termination under this Section 6.4.1, where a breach or failure giving rise to such termination shall have been caused in whole or in part by any action or inaction on the part of Sierra or any of its directors or officers or any Sierra Affiliates, TNB shall be entitled to receive from Sierra a Termination Fee. The Termination Fee, if due, shall be $200,000 plus TNB's Expenses; 6.4.2 upon notice to Sierra if TNB receives a Qualifying Strategic Transaction Proposal; provided, however, that a condition to the effectiveness -------- of any termination pursuant to 38 this Section 6.4.2 is the payment to Sierra by TNB of a Termination Fee of $500,000 plus Sierra's Expenses; 6.4.3 upon notice to Sierra if the TNB Shareholders fail to approve the Consolidation at the meeting of the TNB Shareholders called for the purpose of voting on the Consolidation; provided, however, that a condition to the -------- effectiveness of any termination pursuant to this Section 6.4.3 is TNB's payment to Sierra of a Termination Fee of $500,000 plus Sierra's Expenses if such payments would have been due under Section 6.3.2 had Sierra terminated the Agreement other than pursuant to Section 6.3.2(b), and, in all other cases, payment to Sierra of Sierra's total Expenses; 6.4.4 upon notice to Sierra if any of the conditions to the obligations of TNB contained in Section 5.3 has not been satisfied as of the Closing Date; 6.4.6 upon notice to Sierra after August 31, 2001, if the Closing shall not have occurred prior to such date and time, unless the failure results primarily from TNB breaching any of its representations, warranties, covenants or agreements contained in this Agreement; 6.5 Termination Fee. The Termination Fee means either $200,000 or $500,000 and, in all cases, the Expenses of the Party entitled to the Termination Fee, payable in same day funds, as set forth herein. The Termination Fee is an attempt by the Parties to calculate the reasonable compensation for the loss to a Party, other than the Party's Expenses, including but not limited to the Party's administrative time, in the event of termination and as a liquidated damage and not as a penalty or as a forfeiture. In the event the Agreement is terminated under circumstances that would cause the Party entitled to a Termination Fee to be entitled to a Termination Fee under more than one provision of this Agreement, only a single Termination Fee shall be payable and, in the event such Party would be entitled to a Termination Fee of $500,000 plus such Party's Expenses under any applicable provision, the Party shall be paid a Termination Fee of $500,000 plus such Party's Expenses. 6.6 Effect of Termination; Remedies. In the event this Agreement is terminated pursuant to this Article VI, this Agreement shall become void and of no effect and neither Party shall have any liabilities or other obligations whatsoever hereunder, except that (a) the provisions of Section 4.3 relating to Confidential Information, Article VI and Section 7.2 shall survive such termination, and (b) notwithstanding anything else to the contrary contained herein, neither Party shall be relieved of or released from any liability or damages arising out of its breach of any provision of this Agreement prior to such termination except under circumstances where a Termination Fee is payable and is paid with respect to such breach. In each case where a Termination Fee is payable, the payment of such fee shall be the sole and exclusive remedy, at law or in equity, of the Party receiving the Termination Fee, for any such breach, failure or default of the other party. ARTICLE VII Miscellaneous ------------- 39 7.1 Closing. Unless the Parties shall mutually fix another date, the Closing Date shall be on such Business Day as Sierra shall select that is not more than five (5) Business Days after the latter of the Final Approval Date or the receipt by Sierra of funds necessary to consummate the Transaction from an offering of securities by the Holding Company, or such later date on which the latest to occur of the conditions set forth in Section 5.1 is satisfied. Subject to the fulfillment or waiver of those conditions and the other conditions set forth in Article V, the Closing of the Consolidation shall take place at the offices of Sierra's counsel in Los Angeles, California, at 10:00 a.m. (local time) on the Closing Date. Except as otherwise provided herein, all proceedings to be taken and all documents to be executed at the Closing shall be deemed to have been taken, delivered and executed simultaneously as of the Effective Time, and no proceeding shall be deemed taken nor documents deemed executed or delivered until all have been taken, delivered and executed. 7.2 Expenses. Except as expressly provided in Article VI with respect to reimbursement of Expenses under certain circumstances, and except as otherwise expressly provided in this Agreement, each Party shall be responsible for its own expenses. 7.3 Publicity. Promptly following the execution and delivery of this Agreement, TNB and Sierra shall issue a joint press release in a form mutually to be agreed upon. TNB and Sierra shall not, and shall instruct their Representatives not to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, this Agreement or the Consolidation without the consent of the other Party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, in the event that either Sierra or TNB determines, based upon the advice of counsel, that a press release, disclosure in a public filing, or other public disclosure of, or reference to, this Agreement, the Consolidation or Sierra is required by law, such Party shall first notify the other of the potential disclosure, afford the other Party a reasonable opportunity to review and comment on the proposed disclosure, and obtain the other Party's approval of such disclosure, which approval shall not be withheld or delayed in any manner that is unreasonable under the circumstances. 7.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or by electronic facsimile transmission (with confirmation) or on the next business day after dispatch by an overnight courier of national reputation to the respective Parties as follows: If to Sierra, to it at: Bank of the Sierra 86 North Main Street Porterville, CA 93257 Attn: James C. Holly fax: (559) 782-4994 with a copy to: 40 Fried, Bird & Crumpacker 10100 Santa Monica Boulevard Los Angeles, California 90067 Attention: Keith T. Holmes, Esq. fax: (310) 282-8903 If to TNB, to it at: Taft National Bank 523 Cascade Place Taft, CA 93268 Attention Charles E. Smith fax: (661) 765-4340 with copies to: Gary Steven Findley & Associates 1470 North Hundley Street Anaheim, CA 92806 Attn: Gary Steven Findley, Esq. fax: (714) 630-7910 or to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above (provided that notice of any change of address shall be effective only upon receipt thereof). 7.5 Entire Agreement. This Agreement constitutes the entire agreement among the Parties and, supersedes all prior agreements, understandings, negotiations and discussions, both written and oral, among the Parties with respect to the subject matter hereof. 7.6 Non-Survival of Representations, Warranties and Agreements. None of the representations, warranties, covenants and agreements contained herein or in any instrument delivered pursuant to this Agreement shall survive the Effective Time except those covenants and agreements that by their express terms apply in whole or in part to periods after the Effective Time. 7.7 Benefits; Binding Effect; Assignment and Designation. This Agreement shall be for the benefit of and binding upon the Parties, their respective successors and, where applicable, assigns. No Party may assign this Agreement or any of its rights, interests or obligations hereunder without the prior written consent of the other Party. Notwithstanding any assignment or delegation of any Party's rights, interests or obligations, each Party shall nonetheless remain responsible for the performance of all of its obligations provided hereunder. 41 7.8 Waiver. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall any such waiver constitute a continuing waiver unless otherwise expressly so provided. 7.9 No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any Person other than the Parties and their respective successors and permitted assigns any rights or remedies under or by reason of this Agreement, except for the provisions of Sections 4.11.1(d) and 4.11.2. 7.10 Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, Sections or Articles contained in this Agreement shall not affect the enforceability of the remaining portions of the Agreement or any part hereof, all of which are inserted conditionally on their being valid in law. In the event any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall be declared invalid, this Agreement shill be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections, or subsection or subsections, had not been inserted; provided, however, that if any provision is declared to be unenforceable because it is determined to be overbroad, then, to the extent possible, in lieu of deletion such provision shall be modified to the minimum extent necessary to render such provision enforceable. 7.11 Counterparts. This Agreement may be executed in any number of counterparts and by the several Parties in separate counterparts, each of which shall be deemed to be one and the same instrument. 7.12 Applicable Law; Consent to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE UNITED STATES AND THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF) AND ALL QUESTIONS CONCERNING THE VALIDITY AND CONSTRUCTION THEREOF SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES AND SAID STATE. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN THE STATE OF CALIFORNIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND HEREBY IRREVOCABLY AGREES, ON BEHALF OF ITSELF AND ON BEHALF OF SUCH PARTY'S SUCCESSORS AND PERMITTED ASSIGNS, THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION SUCH PERSON MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. 7.13 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY 42 ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, THE RELATED DOCUMENTS OR THE RELATIONSHIP ESTABLISHED HEREUNDER. IN WITNESS WHEREOF, the Parties have each executed and delivered this Agreement as of the day and year first above written. BANK OF THE SIERRA By: /s/ James C. Holly ------------------ James C. Holly President and Chief Executive Officer By: /s/ Robert H. Tienken --------------------- Robert H. Tienken, Secretary TAFT NATIONAL BANK By: /s/ Charles E. Smith -------------------- Charles E. Smith, President and Chief Executive Officer By: /s/ Bob J. Hampton ------------------ Bob J. Hampton, Secretary 43 EX-21 10 0010.txt SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT -------------------------- Name of Subsidiary Jurisdiction of Incorporation % Ownership - ------------------ ----------------------------- ----------- Sierra Phoenix, Inc. California 100% EX-99.1 11 0011.txt FORM OF WRITTEN CONSENT Exhibit 99.1 FORM OF WRITTEN CONSENT OF SHAREHOLDERS OF BANK OF THE SIERRA APPROVING HOLDING COMPANY REORGANIZATION The undersigned shareholder(s) of Bank of the Sierra (the "Bank") hereby [ ] CONSENTS TO [ ] DOES NOT CONSENT TO [ ] ABSTAINS WITH RESPECT TO a proposal to approve the Plan of Reorganization and Agreement of Merger dated December 14, 2000, by and among Bank of the Sierra, Sierra Bancorp and Sierra Merger Corporation, pursuant to which Sierra Merger Corporation will merge with and into Bank of the Sierra, with Bank of the Sierra thereby becoming a wholly owned subsidiary of Sierra Bancorp (the "Reorganization"), and pursuant to which Reorganization each share of the issued and outstanding shares of the common stock of Bank of the Sierra will be exchanged for one share of the common stock of Sierra Bancorp, a copy of which Plan of Reorganization and Agreement of Merger is included as Appendix A to the accompanying Written Consent Statement/Prospectus (the "Proposal"). By signing this written consent, a shareholder of the Bank shall be deemed to have voted all shares of the Bank's Common Stock which he or she is entitled to vote in accordance with the specifications made above, with respect to the Proposal described above. IF A SHAREHOLDER SIGNS AND RETURNS THIS WRITTEN CONSENT, BUT DOES NOT INDICATE THEREON THE MANNER IN WHICH HE OR SHE WISHES HIS OR HER SHARES TO BE VOTED WITH RESPECT TO THE PROPOSAL DESCRIBED ABOVE, THEN SUCH SHAREHOLDER WILL BE DEEMED TO HAVE GIVEN HIS OR HER AFFIRMATIVE WRITTEN CONSENT TO THE PROPOSAL. THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE BANK. THIS WRITTEN CONSENT MAY BE REVOKED AT ANY TIME PRIOR TO FEBRUARY __, 2001 BY FILING A WRITTEN INSTRUMENT REVOKING THE CONSENT WITH THE BANK'S SECRETARY. THE BANK'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU GIVE YOUR AFFIRMATIVE WRITTEN CONSENT TO THE PROPOSAL. ____________________________ (Number of Shares) Dated: ______________________ ____________________________ (Please Print Name) ____________________________ (Signature of Shareholder) ____________________________ (Please Print Name) ____________________________ (Signature of Shareholder) (Please date this written consent and sign your name as it appears on your stock certificate. Executors, administrators, trustees, etc., should give their full titles. All joint owners should sign.) Please complete and return to the Bank by February __, 2001 -----END PRIVACY-ENHANCED MESSAGE-----