As filed with the Securities and Exchange Commission on April 5, 2001.
Registration No. 333-53178
==================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
AMENDMENT NO. 1
TO
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.)
or Organization) 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. [_]
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.
PROXY STATEMENT/
PROSPECTUS
[BANK OF THE SIERRA LETTERHEAD]
April ___ , 2001
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Bank of the Sierra on Wednesday, May 23, 2001 at 7:30 p.m., to be held at our
Bank's Main Office, 90 North Main Street, Porterville, California 93257.
Your Board of Directors 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. After the reorganization you will have the same number of shares in
Sierra Bancorp as you currently have in Bank of the Sierra.
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
Bank of the Sierra's directors, officers, or other personnel are contemplated as
a result of the formation of the bank holding company. Bank of the Sierra will
continue its present business and operations under its current name.
The enclosed proxy statement/prospectus is also provided by the Board of
Directors in connection with the annual election of the Board of Directors of
Bank of the Sierra (all of whom are also directors of Sierra Bancorp). We are
pleased to enclose for your review this proxy statement/prospectus that provides
you with the information you need to evaluate the reorganization. We encourage
you to review it carefully.
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
proxy statement/prospectus. Any representation to the contrary is a criminal
offense.
The date of this proxy statement/prospectus is April ___, 2001, and it is
being mailed to Bank of the Sierra shareholders on or about April ___, 2001.
BANK OF THE SIERRA
86 North Main Street
Porterville, California 93257
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 23, 2001
TO THE SHAREHOLDERS OF BANK OF THE SIERRA:
The Annual Meeting of Shareholders of Bank of the Sierra will be held at
our Bank's Main Office, 90 North Main Street, Porterville, California 93257 on
Wednesday, May 23, 2001 at 7:30 p.m., local time, for the following purposes:
1. Election of Directors. To elect the following Class II directors to
serve until the 2003 annual meeting of shareholders and until their successors
are elected and qualified:
Albert L. Berra Robert H. Tienken
Vincent L. Jurkovich Gordon T. Woods
2. Reorganization of Bank of the Sierra into a Bank Holding Company. To
consider and act upon a proposal to approve a plan of reorganization and
agreement of merger pursuant to which:
. Bank of the Sierra will continue as a wholly owned subsidiary of
Sierra Bancorp.
. Sierra Bancorp will become the sole shareholder and holding company
of Bank of the Sierra.
. You will become shareholders of Sierra Bancorp. You will receive
one share of Sierra Bancorp for each share of Bank of the Sierra
that you own prior to the reorganization.
A copy of the plan of reorganization and agreement of merger is attached as
Appendix "A" to the accompany proxy statement/prospectus.
3. Other Business. To consider and transact other business that may
properly come before the Annual Meeting and at any adjournments or
postponements.
The Bylaws of Bank of the Sierra provide for the nomination of
directors in the following manner:
"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 2.2(d)
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
1
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 chairman of the meeting, and the inspectors of election shall
then disregard all votes cast for each such nominee."
Only those shareholders of record at the close of business on March 26,
2001 will be entitled to notice of and to vote at the Meeting.
Your vote is very important. Please mark, sign, date and return your proxy
promptly, whether or not you plan to attend the Annual Meeting. This will not
prevent you from voting but will assure that your vote will be counted if you
are unable to attend. Your proxy will be revocable, either in writing or by
voting in person at the Annual Meeting, at any time prior to its exercise, by
following the procedure described in the proxy statement/prospectus.
If you would like to attend the Annual Meeting and your shares are held by
a broker, bank or other nominee, you must bring to the meeting a recent
brokerage statement or a letter from the nominee confirming your beneficial
ownership of the shares. You must also bring a form of personal identification.
In order to vote your shares at the Annual Meeting, you must obtain from the
nominee a proxy issued in your name.
April ___, 2001
Porterville, California
By Order of the Board of Directors
James C. Holly
President and Chief Executive Officer
In order to facilitate the providing of adequate accommodations, please
indicate on the proxy whether or not you plan to attend the annual meeting.
2
BANK OF THE SIERRA AND SIERRA BANCORP
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION.......................................................... 1
SUMMARY................................................................................................. 2
RISK FACTORS............................................................................................ 5
FORWARD-LOOKING STATEMENTS.............................................................................. 9
THE ANNUAL MEETING OF BANK OF THE SIERRA................................................................ 10
General............................................................................................ 10
Revocability of Proxies............................................................................ 10
Solicitation of Proxies............................................................................ 10
VOTING SECURITIES....................................................................................... 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS......................................................... 11
PROPOSAL 1
ELECTION OF DIRECTORS................................................................................... 11
Information Concerning Directors, Nominees and Executive Officers.................................. 12
Committees of the Board of Directors............................................................... 13
Report of the Audit Committee...................................................................... 14
Executive Compensation............................................................................. 15
Stock Options...................................................................................... 15
Compensation of Directors.......................................................................... 16
Performance Graph.................................................................................. 17
Board of Directors' Compensation Committee Report.................................................. 18
Transactions with Directors and Executive Officers................................................. 19
PROPOSAL 2
BANK HOLDING COMPANY REORGANIZATION..................................................................... 19
Reasons for the Reorganization..................................................................... 19
Description of the Plan of Reorganization and Agreement of Merger.................................. 20
Costs of Reorganization............................................................................ 21
Accounting Treatment............................................................................... 21
Rights of Dissenting Shareholders.................................................................. 21
Affiliate Restrictions............................................................................. 22
Federal Income Tax Consequences.................................................................... 22
Comparison of Rights of Shareholders of Sierra Bancorp and Bank of the Sierra...................... 23
Authorized Capital Stock...................................................................... 24
Dividend Rights............................................................................... 24
Voting Rights................................................................................. 25
Preemptive Rights............................................................................. 25
Liquidation Rights............................................................................ 25
Charter Documents............................................................................. 25
Shareholder Vote for Mergers and Other Matters................................................ 25
Dissenters' Rights............................................................................ 26
Board of Directors' Recommendation and Required Vote............................................... 26
i
TABLE OF CONTENTS
(continued)
Page
----
MARKET PRICES OF STOCK................................................................... 26
Sierra Bancorp...................................................................... 26
Bank of the Sierra.................................................................. 26
DIVIDENDS................................................................................ 27
Sierra Bancorp...................................................................... 27
Bank of the Sierra.................................................................. 27
SELECTED FINANCIAL DATA.................................................................. 28
HISTORY AND BUSINESS OF SIERRA BANCORP................................................... 30
Organization........................................................................ 30
Business............................................................................ 30
Management.......................................................................... 30
Indemnification..................................................................... 31
HISTORY AND BUSINESS OF BANK OF THE SIERRA............................................... 32
General............................................................................. 32
Competition......................................................................... 34
Employees........................................................................... 35
Properties.......................................................................... 35
Legal Proceedings................................................................... 35
SUPERVISION AND REGULATION............................................................... 36
Regulation of Sierra Bancorp........................................................ 36
Regulation of Bank of the Sierra.................................................... 37
Government Policies and Legislation................................................. 37
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS......................................... 38
Fees................................................................................ 38
PROPOSALS OF SHAREHOLDERS................................................................ 38
OTHER MATTERS............................................................................ 38
LEGAL MATTERS............................................................................ 38
WHERE YOU CAN FIND MORE INFORMATION...................................................... 39
ANNUAL REPORT ON FORM 10-K AND ANNUAL DISCLOSURE STATEMENT............................... 39
ii
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.
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 proxy card how you want to vote and then sign and
mail your proxy card in the enclosed return envelope as soon as possible. Your
Board of Directors unanimously recommends that you vote "FOR" 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: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You may change your vote at any time before your proxy is voted at the
annual meeting. If your shares are held in your name you may do this in one of
three ways. First, you may send a written notice stating that you would like to
revoke your proxy. Second, you may complete and submit a new proxy card. If you
choose either of these two methods, you must submit your notice of revocation or
your new proxy card to Bank of the Sierra's secretary. Third, you may attend the
meeting and vote in person. Simply attending Bank of the Sierra's annual
meeting, however, will not revoke your proxy. If you have instructed a broker to
vote your shares, you must follow directions received from your broker to change
your vote or to vote at Bank of the Sierra's annual meeting.
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 by the end of June,
2001.
Q: Why have you sent this document and who can help answer my questions?
A: This proxy 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 proxy statement/prospectus
carefully, including its appendices. You may also want to review the documents
listed under "WHERE CAN YOU FIND MORE INFORMATION" on page 38. 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 proxy statement/prospectus carefully to fully understand the
reorganization.
Formation of a Bank Holding Company Which Will Own Bank of the Sierra
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 by giving us:
. 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.
We have attached the reorganization agreement as Appendix "A" at the back
of this proxy 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 Bank of the Sierra. After
the reorganization, Sierra Bancorp will become a registered bank holding
company, whose principal asset will be its stockholdings in Bank of the Sierra.
The address of Sierra Bancorp's and Bank of the Sierra's principal
executive offices is 86 North Main Street, Porterville, California 93257 and the
telephone number is (559) 782-4900.
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 $607 million at December
31, 2000. Bank of the Sierra operates sixteen branch offices in Tulare, Kern,
Kings and Fresno counties.
Sierra Merger Corporation
Sierra Merger Corporation is a Delaware corporation newly organized as a
wholly-owned subsidiary of Sierra Bancorp in November, 2000. Sierra Merger
Corporation's sole purpose is to merge into Bank of the Sierra in order to
facilitate the reorganization. Sierra Merger Corporation 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 our Bank following the reorganization. After the
reorganization, the present directors of Sierra Bancorp (who are also directors
of Bank of the Sierra) 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.
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 March 26, 2001, 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 4,226,573 voting shares or 45.9% of the
outstanding shares of Bank of the Sierra common stock as of March 26, 2001,
intend to vote for the approval of the reorganization.
Shareholders Do Not Have Dissenters' 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
RSM McGladrey, Inc., which is affiliated with McGladrey & Pullen, LLP, Bank
of the Sierra'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.
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 B Comparison of Rights of Shareholders of
Sierra Bancorp and Bank of the Sierra." There are also differences in the
availability of funds for the payment of dividends by Bank of the Sierra and
Sierra Bancorp. (See "DIVIDENDS.")
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.
3
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 Bank of the Sierra's 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 Bank of the Sierra's 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
Bank of the Sierra will retain the former bases of accounting of Bank of the
Sierra and will initially be identical to Bank of the Sierra's financial
statements prior to the reorganization.
Regulatory Approvals
We cannot complete the reorganization unless it is approved or not
disapproved (as appropriate) by the Federal Reserve Board of San Francisco, the
FDIC and the California Department of Financial Institutions.
Bank of the Sierra, Sierra Bancorp and Sierra Merger Corporation have filed
all of the required applications or notices with the above regulatory agencies.
As of the date of this document, the Federal Reserve Board, the Department
of Financial Institutions and the FDIC have all issued the approvals or notices
of non-disapproval needed to consummate the reorganization, subject to certain
conditions. While we do not know of any reason that we would not be able to
comply with any conditions, we cannot be certain that we will be able to meet
them.
Public Trading of Sierra Bancorp Stock
Bank of the Sierra stock is listed for quotation on the Nasdaq National
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 proxy
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.
The California Energy Crisis May Adversely Impact Our Customers and May
Cause a General Downturn in the California Economy. California has recently
experienced severe energy shortages which have resulted in "rolling blackouts"
in certain instances in portions of the state. Rolling blackouts could cause
substantial disruptions and significant losses to our business customers,
including our significant base of borrowers in the agricultural industry who are
dependent on timely receipt of sufficient energy in connection with their
businesses. Poor economic conditions as a result of energy shortages in the
agricultural industry or in other industries in the areas where our customers
are located could adversely affect our borrower base, and consequently, may
negatively impact our business. In order to ensure future sources of energy for
California, it is anticipated that the prices paid by consumers for energy could
increase significantly. Significant increases in energy prices could cause our
customers to experience losses or go out of business, which could result in
delinquencies and losses on loans made to our borrowers and in turn have a
material adverse effect on our business. In addition, increases in the price of
energy as well as rolling blackouts could cause a general economic downturn in
the California economy, which could have a material adverse effect on our
financial condition and results of operations.
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 $607 million at December 31, 2000, or an increase of over 50% in
two years. Our acquisition of Sierra National Bank in May 2000 increased our
Bank's assets by approximately $87 million. 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.
5
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,
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 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.
We have found that growth by acquisition is substantially different than
growth by de novo branch banking from both an operational and a cost standpoint.
Our assimilation of four operating units of Sierra National Bank in 2000 and the
concurrent demands of remodeling, upgrading electronic operating systems,
training the staff and eliminating wasteful activities required very different
skills than those involved in opening a new branch office. The fiscal effect of
adding four new branches in one year compared to the one or two per year we have
added in the past was to temporarily increase our overhead expenses as a
percentage of our total assets. Further, the actions we took to correct
deferred maintenance, undocumented operating standards, organizational issues,
and a more narrow product line in these branches all contributed to additional
costs of operation. The overall effect in 2000 was that our earnings were
reduced because of these increased costs. Should we continue to grow by
acquisition, we expect to face similar increased costs in the future.
Dividends in 2001 Will Be Lower Than in the Past Two Years and There is No
Assurance Sierra Bancorp Will Be Able to Pay Dividends. We have recently
changed our dividend policy from paying quarterly cash dividends totaling at
least thirty-five percent (35%) of the prior year's net earnings (subject to
certain conditions) to paying cash dividends totaling between approximately
twenty percent (20%) and twenty-five percent (25%) of the prior year's net
earnings (subject to the same conditions). In addition, 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. Although Sierra Bancorp anticipates continuing to pay
dividends in the future consistent with Bank of the Sierra's recently revised
dividend policy, 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 "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
6
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 Market since June, 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 Federal Reserve Board, 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 Department of Financial
Institutions, 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 for loan losses required by the FDIC or the Department of
Financial Institutions could also hurt our business.
7
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;
. 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 45.9% of Bank
of the Sierra'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 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 Bank of the Sierra
or Sierra Bancorp.
These provisions in Sierra Bancorp's Articles of Incorporation are
essentially identical to comparable provisions in Bank of the Sierra's Articles
of Incorporation which were approved by the shareholders in May, 2000.
8
FORWARD-LOOKING STATEMENTS
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this proxy statement/prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential," or
"continue" or the negative of such terms and other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to differ from those
expressed or implied by the forward-looking statement. These factors include,
among other things, those listed under "Risk Factors" and the following:
. general economic and business conditions in those areas in which Bank of
the Sierra operates;
. demographic changes;
. competition;
. fluctuations in interest rates;
. changes in business strategy or development plans;
. changes in governmental regulation;
. credit quality;
. the availability of capital to fund the expansion of Sierra Bancorp and
Bank of the Sierra's business;
. changes in the securities markets; and other factors referenced in this
proxy statement/prospectus or the documents incorporated herein by
reference.
Given these uncertainties, you are cautioned not to place undue reliance on
such forward-looking statements. Bank of the Sierra and Sierra Bancorp disclaim
any obligation to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
You should rely only on the information in this proxy statement/prospectus
or other information referred to in this document. Neither Sierra Bancorp or
Bank of the Sierra has authorized anyone to provide you with other or different
information. This proxy statement/prospectus is dated April ___, 2001. You
should not assume that the information contained in this proxy
statement/prospectus to shareholders nor the issuance of Sierra Bancorp stock
for Bank of the Sierra stock in the reorganization shall create any implication
to the contrary.
9
THE ANNUAL MEETING OF BANK OF THE SIERRA
General
An annual meeting of the shareholders of Bank of the Sierra will be held at
Bank of the Sierra's Main Office, 90 North Main Street, Porterville, California
93257 on Wednesday, May 23, 2001 at 7:30 p.m.
At the annual meeting, the holders of the common stock of Bank of the
Sierra will vote on:
. the election of four persons to serve as directors until the 2003 annual
meeting;
. the approval of the principal terms of the reorganization; and
. such other business as may properly come before the annual meeting or
any adjournments or postponements thereof.
Revocability of Proxies
A proxy for use at the annual meeting is enclosed. Any shareholder who
executes and delivers such proxy has the right to revoke it at any time before
it is exercised by filing with the Secretary of Bank of the Sierra an instrument
revoking it or a duly executed proxy bearing a later date, or by attending the
annual meeting and voting in person. Subject to such revocation, all shares
represented by a properly executed proxy received in time for the annual meeting
will be voted by the proxy holders whose names are set forth in the accompanying
proxy in accordance with the instructions on the proxy. If no instruction is
specified with respect to a matter to be acted upon, the shares represented by
the proxy will be voted in favor of (i) the election of the nominees for
directors set forth herein, (ii) the approval of the bank holding company
reorganization and, if any other business is properly presented at the annual
meeting, in accordance with the recommendations of your Board of Directors.
Solicitation of Proxies
Bank of the Sierra will bear the cost of this solicitation, including the
expense of preparing, assembling, printing and mailing this proxy
statement/prospectus and the material used in this solicitation of proxies. The
proxies will be solicited principally through the mails, but Bank of the
Sierra's directors, officers and regular employees may solicit proxies
personally or by telephone. Arrangements will be made with brokerage firms and
other custodians, nominees and fiduciaries to forward these proxy solicitation
materials to shareholders whose Bank of the Sierra stock is held of record by
such entities, and Bank of the Sierra will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. In addition, we may pay for and
utilize the services of individuals or companies we do not regularly employ in
connection with the solicitation of proxies.
VOTING SECURITIES
There were issued and outstanding 9,212,280 shares of Bank of the Sierra's
common stock on March 26, 2001, which has been set as the record date for the
purpose of determining the shareholders entitled to notice of and to vote at the
Meeting. The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of the Common Stock is necessary to
constitute a quorum at the Meeting for the transaction of business. Abstentions
and broker non-votes are each included in the determination of the number of
shares present for determining a quorum but are not counted on any matters
brought before the Meeting.
Each holder of common stock will be entitled to one vote, in person or by
proxy, for each share of common stock standing in his or her name on the books
of Bank of the Sierra as of March 26, 2001 for the annual meeting on any matter
submitted to the vote of the shareholders. An abstention or broker non-vote
will have the same effect as
10
a vote against a director nominee and against any other matters submitted for
shareholder approval. Shareholders of Bank of the Sierra do not have cumulative
voting rights in connection with the election of directors.
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 Bank of the Sierra as of March 26, 2001,
except for Gregory A. Childress, Robert L. Fields, James C. Holly and Morris A.
Tharp, each of whom is a member of Bank of the Sierra's Board of Directors (see
"PROPOSAL 1 - ELECTION OF DIRECTORS - Information Concerning Directors, Nominees
and Executive Officers").
PROPOSAL 1
ELECTION OF DIRECTORS
The Bylaws of Bank of the Sierra provide that the number of directors shall
be not fewer than six (6) nor more than eleven (11) until changed by a bylaw
amendment duly adopted by the vote or written consent of the shareholders. The
Bylaws further provide that the exact number of directors shall be fixed from
time to time, within the foregoing range, by a bylaw or amendment thereof or by
a resolution duly adopted by the vote or written consent of the shareholders or
by the Board of Directors. The exact number of directors is presently fixed at
nine (9).
In May, 2000, the shareholders approved an amendment to Bank of the
Sierra's Articles of Incorporation providing for two classes of directors, each
serving terms of two years. Five of the directors elected at the 2000 Annual
Meeting of Shareholders were elected for a two year term and the remaining four
directors were elected for a one year term. At this year's annual meeting, only
the four directors whose terms expire this year will be elected.
Since shareholders do not have cumulative voting rights in the election of
directors, the affirmative vote of a plurality of the votes cast is required for
the election of directors. In the event that any of the nominees should be
unable to serve as a director, it is intended that the Proxy will be voted for
the election of such substitute nominee, if any, as shall be designated by the
Board of Directors. Management has no reason to believe that any nominee will
become unavailable.
Your Board of Directors unanimously recommends a vote of "AUTHORITY GIVEN"
to elect all of the nominees for director of Bank of the Sierra.
11
Information Concerning Directors, Nominees and Executive Officers
The following table sets forth certain information as of March 26,
2001, with respect to (i) each of the persons to be nominated by the Board of
Directors for election as directors, (ii) each of Bank of the Sierra's executive
officers,/1/ and (iii) the directors and executive officers/1/ as a group:
Common Stock
Beneficially Owned on
March 26, 2001/2/
-----------------------------------------------
Names and Director Percentage
Offices Principal Occupation Since/Term Number Vested Option of Shares
Held with Bank for Past Five Years Age to Expire of Shares Shares/3/ Outstanding/4/
-------------- --------------------- -------- ------------- -------------- -------------- ---------------
Morris A. Tharp/5/ President and Owner, 60 1977/ 414,480 50,000 5.01%
Chairman of E.M. Tharp, Inc. 2002
the Board (Truck Sales and
Repair)
Albert L. Berra Orthodontist/Rancher 59 1977/ 243,109 50,000 3.16%
Director 2003
Gregory A. Childress/5,6/ Rancher 43 1994/ 1,583,748/7/ 50,000 17.64%
Director 2002
Robert L. Fields/5/ Investor (formerly 72 1982/ 643,357 50,000 7.49%
Director Owner, Bob Fields 2002
Jewelers)
James C. Holly/5/ President and Chief 59 1977/ 462,976/8/ 50,000 5.54%
President, Chief Executive Officer, 2002
Executive Officer Bank of the Sierra
and Director
_________________
/1/As used throughout this Proxy 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 March 26, 2001 pursuant to Bank of the Sierra's Stock Option Plan.
(See "Compensation of Directors" and "Stock Options.")
/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 March 26, 2001
pursuant to Bank of the Sierra's Stock Option Plan. (See "Compensation of
Directors" and "Stock Options.")
/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;
41,000 shares owned by the CBC Defined Benefit Pension Plan, of which Mr.
Childress is a trustee and a beneficiary; and 684,992 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.
/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.
(Table and footnotes continued on following page.)
12
Common Stock
Beneficially Owned on
March 26, 2001/2/
-----------------------------------------------
Names and Director Percentage
Offices Principal Occupation Since/Term Number Vested Option of Shares
Held with Bank for Past Five Years Age to Expire of Shares Shares/3/ Outstanding/4/
-------------- --------------------- -------- ------------- -------------- -------------- ---------------
Vincent L. Jurkovich President, 72 1977/ 136,950 50,000 2.02%
Director Porterville Concrete 2003
Pipe, Inc
Howard H. Smith Retired/Investor 87 1977/ 398,700 50,000 4.84%
Director (formerly Owner and 2002
Chief Executive
Officer, Smith's
Complete Market)
Robert H. Tienken Retired (formerly 80 1977/ 187,628 50,000 2.57%
Corporate Secretary Realtor/Farmer) 2003
and Director
Gordon T. Woods Owner, Gordon T. 64 1977/ 1,386/9/ 50,000 0.55%
Director Woods Construction 2003
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 56 n/a 347 10,000 0.11%
Senior Vice President President and Chief
and Chief Financial Financial Officer,
Officer Bank of the Sierra
Charlie C. Glenn Senior Vice 61 n/a 1,888 10,000 0.13%
Senior Vice President President and Chief
and Chief Credit Credit Officer,
Officer Bank of the Sierra
Directors and 4,226,573 500,000 48.66%
Executive Officers as
a Group (12 persons)
Committees of the Board of Directors
Bank of the Sierra 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, 2000, 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 Bank of the Sierra in order to fulfill the legal and technical
requirements necessary to adequately protect the directors, shareholders,
employees and depositors of Bank of the Sierra. 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
__________________________
(Certain footnotes appear on previous page.)
/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.
13
and independence to freely examine all bank records. Each February the committee
reviews the risk management assessment of Bank of the Sierra's branches, credit
centers and operating units and assigns priorities for the year to have
independent reviews conducted by loan, operational, information systems and
compliance teams hired by the committee. The committee meets with such
independent review consultants on an annual basis and approves the contractual
basis of each engagement letter and arrangement under consideration. Further, as
part of its regular monthly meeting schedule, the committee meets on a quarterly
basis to review our Bank's Form 10-Q with the independent accountants prior to
such Form being filed with appropriate agencies. Also, the committee meets with
the accounting audit partner in charge of the engagement who presents the
audited consolidated financial reports to the committee upon completion of the
annual engagement. The committee receives and reviews management letters and all
reports of external independent firms which have been contracted to perform
agreed upon procedures for the benefit of Bank of the Sierra and the Committee.
Additionally, the committee receives and reviews all Reports of Examination
prepared by regulators regarding safety and soundness, compliance, or other
examinations performed by such agencies. As part of its responsibilities, the
committee also receives, reviews and approves, any and all management initiated
responses to engagements conducted by independent consultant firms or regulatory
agencies, prior to their dispersal to the appropriate reviewing agent. The Audit
Committee Charter (attached as Appendix "B") requires that the Audit Committee
be comprised of at least three directors, each of whom must be independent.
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 two (2)
times during 2000, 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 Bank of the Sierra.
Bank of the Sierra has no standing nominating committee; however, the
procedures for nominating directors, other than by the Board of Directors
itself, are set forth in Bank of the Sierra's Bylaws and in the Notice of Annual
Meeting of Shareholders.
During the fiscal year ended December 31, 2000, the Board of Directors of
Bank of the Sierra held a total of fourteen (14) meetings. Each director
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 2000.
Report of the Audit Committee
The Audit/CRA Committee has reviewed and discussed with management Bank of
the Sierra's audited consolidated financial statements as of and for the year
ended December 31, 2000. The committee has discussed with Bank of the Sierra's
independent auditors, which are responsible for expressing an opinion on the
conformity of Bank of the Sierra's audited consolidated financial statements
with generally accepted accounting principles, the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended, including their
judgments as to the quality of Bank of the Sierra's financial reporting. The
committee has received from the independent auditors written disclosures and a
letter as required by the Independence Standards Board, Standard No. 1, as
amended, and discussed with the independent auditors the firm's independence
from management and Bank of the Sierra. In considering the independence of Bank
of the Sierra's independent auditors, the committee took into consideration the
amount and nature of the fees paid the firm for non-audit services, as described
on page 37 below.
In reliance on the review and discussions described above, the committee
recommends to the Board of Directors that the year-end audited consolidated
financial statements be included in Bank of the Sierra's Annual Report on Form
10-K for the year ended December 31, 2000 for filing with the FDIC.
Submitted by:
Albert L. Berra, Chairman
Gregory A. Childress
Robert L. Fields
Vincent L. Jurkovich
Robert H. Tienken
14
Executive Compensation
The following table sets forth certain summary compensation information
with respect to the Chief Executive Officer and the only other executive
officers of Bank of the Sierra whose total salary and bonus for the fiscal year
ended December 31, 2000, exceeded $100,000 (the "Named Executive Officers"):
Summary Compensation Table
Long Term
Compensation
---------------
Stock Options
Annual Compensation Granted
------------------- (Number of All Other
Name and Principal Position Year Salary/1/ Bonus Shares) Compensation
--------------------------- ---- --------- ----- --------------- ------------
James C. Holly 2000 $130,000 $116,675 -0- $23,303/2/
President and 1999 130,000 130,000 -0- 21,831/2/
Chief Executive Officer 1998 130,000 130,000 50,000 22,220/2/
Kenneth E. Goodwin 2000 $105,000 $ 33,172 -0- $ 7,813/3/
Executive Vice President 1999 105,000 42,000 -0- 7,139/3/
and Chief Operating Officer 1998 105,000 34,200 30,000 4,949/3/
Jack B. Buchold 2000 $ 85,000 -0- -0- $ 5,746/4/
Senior Vice President 1999 85,000 $ 25,500 25,000 3,816/4/
and Chief Financial Officer 1998 85,000 26,250 -0- 3,639/4/
Charlie C. Glenn 2000 $ 82,000 $ 19,429 -0- $ 5,388/4/
Senior Vice President 1998 82,000 22,500 -0- 4,702/4/
and Chief Credit Officer 1997 82,000 22,500 25,000 3,275/4/
Stock Options
Bank of the Sierra's 1998 Stock Option Plan, intended to advance the
interests of Bank of the Sierra by encouraging stock ownership on the part of
key employees, was adopted by the written consent of the shareholders effective
July 21, 1998. The stock option plan provides for the issuance of both
"incentive" and "non-qualified" stock options to full-time salaried officers and
employees, and of "non-qualified" stock options to non-employee directors. 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
____________________________
/1/ Salary figures include amounts deferred pursuant to Bank of the Sierra'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 employer contributions to Mr. Holly's account pursuant to the
401(k) Plan in the amounts of $7,605, $6,158 and $5,460 for 2000, 1999 and 1998,
respectively; term life insurance premiums in the amount of $598 per year; and
director's fees in the amount of $15,100, $15,075 and $14,550 for 2000, 1999 and
1998, respectively.
/3/ Represents employer contributions to Mr. Goodwin's account pursuant to the
401(k) Plan in the amounts of $7,325, $6,651 and $4,461 for 2000, 1999 and 1998,
respectively; and term life insurance premiums in the amount of $488 per year.
/4/ Consists entirely of employer 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 Bank of the Sierra, based
upon trades in Bank of the Sierra's Common Stock known to Bank of the Sierra and
opening and closing prices quoted on the Nasdaq National Market concerning Bank
of the Sierra's Common Stock.
15
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 Bank of the Sierra as a result of which Bank of the Sierra will not be the
surviving corporation, a sale of substantially all of Bank of the Sierra's
assets, or a change in ownership of at least 25% of Bank of the Sierra's stock,
all outstanding options under the stock option 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, 2000, Bank of the Sierra had options outstanding to purchase a
total of 1,055,000 shares of its Common Stock under the stock option 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 $6.94 per share.
No stock options were granted to or exercised by the Named Executive
Officers during 2000. The following information is furnished with respect to
stock options held by the Named Executive Officers at December 31, 2000:
Number of Unexercised Options at Value of Unexercised in-the-Money
December 31, 2000 Options at December 31, 2000/1/
Name Exercisable Unexercisable Exercisable Unexercisable
--------------------- ----------- ------------- ----------- -------------
James C. Holly 50,000 -0- -0- n/a
Kenneth E. Goodwin 30,000 -0- -0- n/a
Jack B. Buchold 10,000 15,000 -0- -0-
Charlie C. Glenn 10,000 15,000 -0- -0-
Compensation of Directors
Non-employee directors of Bank of the Sierra received $400 per month for
their attendance at regular Board meetings in 2000, $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 2000. As of December 31, 2000, each non-employee director of Bank of the
Sierra 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 $6.94 per share. As of December 31, 2000, 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 excess of the aggregate fair market value over the aggregate
exercise price of the shares at December 31, 2000.
16
Performance Graph
The following graph compares the yearly percentage change in Bank of the
Sierra's cumulative total shareholders' return on Bank of the Sierra'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. Bank of the Sierra reasonably believes that the members of the fourth
group listed above constitute peer issuers for the period from January 1, 1996
through December 31, 2000. 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 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
----------------------------------------------------------------------------------------------------
Bank of the Sierra 100.00 70.45 112.18 65.67 77.74 60.15
Nasdaq - Total US 100.00 123.04 150.69 212.51 394.92 237.62
Nasdaq Bank Index 100.00 132.04 221.06 219.64 211.14 241.08
SNL $250M-$500M Bank Index 100.00 129.85 224.58 201.12 187.11 180.15
17
Board of Directors' Compensation Committee Report
The Personnel Committee of the Board is responsible for overseeing the
various compensation programs of the Bank. It approves compensation objectives
and policy for all employees and sets compensation levels for the Bank's
Executive Officers. During 1999, the Personnel Committee was comprised entirely
of independent outside directors, namely, directors Berra (Chairman), Fields,
Smith and Woods. In addition, director Holly (President and Chief Executive
Officer of the Bank) is an ex-officio member of this Committee.
The objectives of the Committee are three-fold; (i) to ensure that
compensation and benefits are at levels that enable the Bank to attract and
retain the high quality employees it needs; (ii) to align the interests of the
Bank's officer corps with those of its stockholders through at risk compensation
programs; and (iii) to provide rewards that are closely linked to Bank-wide team
and individual performance goals which are measured in terms of the Bank's
profitability, growth and asset quality.
Executive officer base salaries are fixed for a three-year term. Executive
Officer bonuses are awarded annually and are determined with reference to Bank-
wide team and individual performance. Base salaries are determined on a wide
range of measures which require comparisons with salaries and compensation
programs at banks comparable in terms of asset size, capitalization and
performance. In order to evaluate the Bank's competitive position in the
industry, the Personnel Committee reviews and analyzes the compensation
packages, including base salary levels offered by community banks, specifically
reviewing the annual survey prepared by the California Department of Financial
Institutions, and that prepared for the California Bankers Association by
Deloitte and Touche, C.P.A.'s. The Bank's practice, however, is not to provide
employment contracts to any executive officers as all employees of the Bank are
employed at will.
Salaries are fixed for Executive Officers; however, bonuses are dependent
on the achievement by the Bank of annual profitability goals and specific
performance goals. In 1998, the Board implemented a three-year incentive plan
for Bank officers. The President is specifically excluded from this plan to
enable him to objectively administer the plan; his bonus is determined by a
separate plan related solely to Bank profitability and base salary. All other
officers are eligible for incentive bonuses based upon the attainment of certain
corporate performance goals related to both pre-tax earnings and after-tax
return on equity, thereby reflecting favorably upon enhanced stockholder return.
Under this plan, a formula was developed which created a pool from which
incentive bonuses would be allocated to eligible officers. The earnings
targets, as well as the corporate performance goals, are based on confidential
information and are competitively sensitive to the Bank as they are derived from
the Bank's internal projections and business plan. The distribution of the pool
is based on the level of the participant, with the eligible Executive Officers
receiving up to a maximum of 40% of base salary and less senior officers
receiving lesser percentages. The amounts paid to the Named Executive Officers
pursuant to these incentive plans are listed in the Summary Compensation Table
above (see "Executive Compensation" herein).
In order to (i) provide an additional incentive for the Bank's officers and
employees to contribute to the Bank's success, (ii) encourage their increased
stock ownership in the Bank, and (iii) enable the Bank to be competitive in the
industry with respect to compensation packages, the Board of Directors adopted a
Stock Option Plan (the "Option Plan") in 1998. Details concerning the Option
Plan and options granted thereunder to the Named Executive Officers are set
forth above under "Stock Options."
Personnel Committee:
Albert L. Berra, Chairman
Robert L. Fields Gordon T. Woods
Howard H. Smith James C. Holly (ex officio)
18
Transactions with Directors and Executive Officers
Certain of the executive officers, directors and principal shareholders of
Bank of the Sierra and the companies with which they are associated have been
customers of, and have had banking transactions with, Bank of the Sierra in the
ordinary course of Bank of the Sierra's business since January 1, 2000, and Bank
of the Sierra 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,
have not involved more than the normal risk of repayment or presented any other
unfavorable features.
PROPOSAL 2
BANK HOLDING COMPANY REORGANIZATION
The Board of Directors of Bank of the Sierra has approved a plan of
reorganization under which the business of Bank of the Sierra 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
Bancorp and Sierra Merger Corporation which is attached as Exhibit "A" hereto.
Your 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,
19
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 Department of Financial
Institutions 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 Federal
Reserve Board and the limitations on dividends under applicable state law.
Current policies of the Federal Reserve Board would require Sierra Bancorp to
notify the Federal Reserve Board 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 than
this amount would require no regulatory notification. (The Federal Reserve
Board may permit repurchases in excess of this amount if it determines 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 Federal Reserve Board. At present,
neither Bank of the Sierra 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 Federal Reserve Board, that has received a composite "1" or
"2" rating at its most recent bank holding company inspection by the Federal
Reserve Board, 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 Bank of the Sierra in order to increase Bank of the Sierra'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 Bank of the Sierra's legal lending limit or in situations where
bank regulators might require a higher leverage capital ratio for Bank of the
Sierra than the Federal Reserve Board would require for the holding company.)
At present, neither Bank of the Sierra nor Sierra Bancorp has any present plans
to borrow funds for the use of or to contribute to any subsidiary of Sierra
Bancorp. 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 Bank of the Sierra
and initially will hold all the stock of Sierra Merger Corporation, a newly
organized California corporation. The reorganization plan is proposed to be
accomplished by merging Bank of the Sierra with and into Sierra Merger
Corporation. Upon consummation of the reorganization, Bank of the Sierra 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 Department of
Financial Institutions.
On the effective date of the reorganization, shareholders of Bank of the
Sierra will automatically become shareholders of Sierra Bancorp, with each share
of Bank of the Sierra Common Stock held by them being converted
20
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 of $100 and
the shares of Sierra Merger Corporation will be converted into shares of Bank of
the Sierra. 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 Rights of
Shareholders of Sierra Bancorp and Bank of the Sierra."
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, Bank of the Sierra 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 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 Corporation, the non-disapproval by
the Federal Reserve Board of Sierra Bancorp's notice of intention to become a
bank holding company, the approval of the Department of Financial Institutions
for Sierra Bancorp to acquire control of Bank of the Sierra, the approval of the
FDIC for Bank of the Sierra to merge with Sierra Merger Corporation and the
fulfillment of certain other legal requirements. It is anticipated that the
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 Bank of the
Sierra 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 Corporation or Sierra Bancorp,
the reorganization may be terminated by any of them either before or after the
shareholders of Bank of the Sierra vote to approve the reorganization. If the
holders of a majority of the issued and outstanding shares of Bank of the Sierra
should fail to approve the reorganization, the conditions and legal requirements
to consummate the reorganization are not satisfied or fulfilled, or the
transaction is otherwise terminated as provided above, the business of Bank of
the Sierra would continue to operate under the ownership of its then-existing
shareholders.
Costs of Reorganization
The costs of the reorganization to Sierra Bancorp and Bank of the Sierra
are estimated at approximately $125,000. If the reorganization is consummated,
costs of the reorganization will be assumed and paid, to the extent properly
allocated, by Sierra Bancorp and Bank of the Sierra. In the event the
reorganization is not consummated, such costs as have been incurred, including
the cost of organizing Sierra Bancorp will be assumed and paid by Bank of the
Sierra.
Accounting Treatment
Because the proposed transaction is a reorganization with no change in
ownership interests, the consolidated financial statements of Sierra Bancorp and
Bank of the Sierra will retain the former bases of accounting of Bank of the
Sierra and will initially be identical to Bank of the Sierra's consolidated
financial statements prior to the reorganization.
Rights of Dissenting Shareholders
Shareholders of Bank of the Sierra do not have dissenters' rights with
respect to the reorganization.
21
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 Bank of the
Sierra 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.
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, Bank of the
Sierra's certified public accountants, is limited to all material 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 Bank of the Sierra 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. 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 Internal Revenue Code:
(a) No gain or loss will be recognized by Bank of the Sierra, Sierra
Merger Corporation or Sierra Bancorp as a result of the reorganization under
361(a) and 357(a) of the Internal Revenue Code and Revenue Ruling 57-278;
(b) No gain or loss will be recognized by the shareholders of Bank of the
Sierra 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 Bank
of the Sierra 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 Internal Revenue Code;
22
(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 Internal
Revenue 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;
(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 Internal Revenue Code;
(h) A holder of an outstanding option granted under Bank of the Sierra's
Stock Option Plan will not recognize income, gain or loss solely as a result of
the assumption of Bank of the Sierra's Stock Option Plan by Sierra Bancorp; and
(i) The assumption by Sierra Bancorp of outstanding incentive stock
options granted under Bank of the Sierra's Stock Option Plan will not be deemed
a modification of the option under Section 424(h) of the Internal Revenue Code.
Bank of the Sierra'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 Rights of Shareholders of Sierra Bancorp and Bank of the Sierra
The following chart sets forth a comparison which summarizes significant
similarities and differences between the rights of shareholders 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 Same
stock
Dividend Rights........... Payable when declared by Board Similar, but subject to
out of legally available funds California Financial
(subject to California General Code and federal law
Corporation Law and federal
law)
Voting Rights............. One vote per share; no Same
cumulative voting in the
election of directors
Preemptive Rights......... None None
Liquidation Rights........ Pro rata, after payment of Same
debts
Number of Directors....... Range of 6 to 11, currently Same
fixed at 9 by Board
Classification............ Board is divided into two (2) Same
classes of directors, serving
terms of two years each.
-------------------------------------------------------------------------------------------------------
23
Authorized Capital Stock
Bank of the Sierra 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 1,055,000 shares of Bank of
the Sierra Common Stock pursuant to Bank of the Sierra's Stock Option Plan.
Upon the effectiveness of the reorganization, all outstanding options to
purchase Bank of the Sierra Common Stock under Bank of the Sierra's Stock Option
Plan, will be automatically converted to options to purchase Sierra Bancorp
Common Stock. Bank of the Sierra 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 Bank of the Sierra are entitled to dividends when, as
and if declared by your 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, 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 of Financial Institutions 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 of Financial
Institutions may order the bank to refrain from making a proposed distribution.
The payment of any cash dividends by Bank of the Sierra also depends on its
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
Corporations Code. The Corporations Code 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 Corporations Code 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.
24
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 Bank of the Sierra's operations. Following the
reorganization, Sierra Bancorp anticipates paying dividends in the future
consistent with Bank of the Sierra's recently revised dividend policy. (See
"DIVIDENDS.") 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 B There is no Assurance Sierra Bancorp
Will be Able to Pay Dividends.")
Voting Rights
All voting rights with respect to Bank of the Sierra 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 Bank of the Sierra 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. Bank of the Sierra'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 will expire in 2002
and 2003 (see "PROPOSAL 1 B ELECTION OF DIRECTORS"). The Board of Directors of
Sierra Bancorp will also be divided into two (2) such classes and the directors
will also 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 Bank of the Sierra or Sierra Bancorp
distributable to shareholders upon liquidation, subject, however, to the
preferential rights, if any, of the holders of outstanding senior securities.
Charter Documents
The Bylaws and Articles of Incorporation of Bank of the Sierra and Sierra
Bancorp are similar in all material respects, except that the stated purpose of
Bank of the Sierra in its Articles of Incorporation is to engage in the banking
business and the stated purpose of Sierra Bancorp is to engage in any lawful
activity other than the banking business, the trust company business or the
practice of a profession. Procedures for amending such charter documents are
discussed immediately below under "Shareholder Vote for Mergers and Other
Matters."
Shareholder Vote for Mergers and Other Matters
The reorganization will change the procedures required for obtaining
shareholder approval of certain matters. Currently, approval of Bank of the
Sierra's shareholders is required, for example, for any amendment to Bank of the
Sierra's Bylaws which would change the authorized range of directors, and for
any amendments to Bank of the Sierra's Articles of Incorporation. 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 Bank of the Sierra could be amended by action of
Sierra Bancorp's Board of Directors, authorizing Sierra Bancorp, as sole
shareholder of Bank of the Sierra, 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 Corporations Code, is subject to the shareholder
25
approval requirements of the Corporations Code. (The term includes merger
reorganizations, exchange reorganizations and sale-of-assets reorganizations.)
As the Corporations Code will also apply to Sierra Bancorp, the rights of Sierra
Bancorp's shareholders will be essentially the same as the current rights of
Bank of the Sierra's existing shareholders with respect to such reorganizations.
In this connection, the Corporations Code 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
Corporations Code 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 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 Corporations Code also requires
a class vote when a shareholder vote is required in connection with these
transactions.
Dissenters' Rights
The Corporations Code 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 Corporations Code). Under the Corporations Code, in connection
with the merger of a corporation for which the approval of outstanding shares is
required, dissenting shareholders of such corporation who follow prescribed
statutory procedures are entitled to receive payment of the fair market value of
their shares. No such rights are available, however, if the shares are listed
on a national securities exchange certified by the California Commissioner of
Corporations or appear on the Federal Reserve list of over-the-counter margin
stocks unless (i) such shares are subject to certain restrictions on transfer or
(ii) the holders of at least 5% of such shares elect dissenters' rights.
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 Corporations Code) where Bank of the Sierra is
the corporation surviving such transaction, even if dissenters' rights were
otherwise available pursuant to Chapter 13.
Board of Directors' Recommendation and Required Vote
Approval of the plan of reorganization and agreement of merger requires the
approval of owners of at least a majority of the outstanding shares of the
common stock of Bank of the Sierra. Bank of the Sierra's directors and executive
officers who beneficially owned in the aggregate approximately 4,226,573 voting
shares or 45.9% of the outstanding shares of Bank of the Sierra common stock as
of March 26, 2001, intend to vote in favor of the reorganization.
Your Board of Directors unanimously recommends a vote "for" this proposal.
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 Nasdaq National Market with the same trading symbol (BSRR) as that
currently used for Bank of the Sierra shares.
Bank of the Sierra
Bank of the Sierra's Common Stock has been trading on the Nasdaq National
Market under the symbol BSRR since June, 1999. Trading in Bank of the Sierra's
Common Stock has not been extensive and such trades cannot be
26
characterized as amounting to an active trading market. Management is aware of
the following securities dealers who make a market in Bank of the Sierra's
stock: Hoefer & Arnett, San Francisco, California; J. Alexander Securities,
Inc., Los Angeles, California; and Sutro & Co., Los Angeles, California.
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 Nasdaq Stock
Market. The information in the following table does not include trading
activity between dealers.
Approximate
Calendar Quarter Ended High Low Trading Volume
---------------------- ---- --- --------------
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 36,767
June 30, 2000.......................... 8.25 7.13 24,913
September 30, 2000..................... 8.00 5.68 39,319
December 31, 2000...................... 7.50 5.75 76,454
The last sale price of Bank of the Sierra's common stock, as reported on
the Nasdaq National Market as of April 2, 2001, was $7.00 per share.
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.
The power of Bank of the Sierra'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 Bank of the Sierra, as well as general business
conditions. Since we are a state-chartered bank, our 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 B
Comparison of Rights of Shareholders of Sierra Bancorp and Bank of the Sierra B
Dividend Rights.")
Bank of the Sierra
Bank of the Sierra paid cash dividends of $2.12 million or $0.23 per share
during 2000 and $2.02 million or $0.22 per share in 1999, representing
approximately thirty-eight percent (38%) and thirty-nine percent (39%) of the
prior year's earnings, respectively, pursuant to a policy of paying quarterly
cash dividends totaling at least thirty-five percent (35%) of the prior year's
net earnings to the extent consistent with general considerations of safety and
soundness and provided that such payments do not adversely affect Bank of the
Sierra=s financial condition. In view of the recent growth of Bank of the
Sierra resulting in part from its acquisition of Sierra National Bank in May,
2000, the Board of Directors has decided to revise the dividend policy for 2001
and the foreseeable future to pay cash
27
dividends totaling approximately between twenty percent (20%) and twenty-five
percent (25%) of the prior year's net earnings, subject to the same limitations
as the previous dividend policy. While Bank of the Sierra anticipates paying
cash dividends in the future pursuant to this new policy, no assurance can be
given that Bank of the Sierra's future earnings in any given year will justify
the payment of such a dividend. The Bank has also implemented a plan to return
the Bank from its "adequately capitalized" position to a "well capitalized"
position by the end of 2001 if possible, and if necessary the Bank may consider
a further modification of its dividend policy to achieve this goal.
Sierra Bancorp anticipates paying dividends in the future consistent with
Bank of the Sierra's dividend policy as described above. 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. For a discussion of
certain legal restrictions on Sierra Bancorp's ability to pay cash dividends,
see "BANK HOLDING COMPANY REORGANIZATION B Comparison of Rights of Shareholders
of Sierra Bancorp and Bank of the Sierra B Dividend Rights" above.
SELECTED FINANCIAL DATA
Bank of the Sierra's audited Consolidated Balance Sheets as of December 31,
2000 and 1999, and the related audited Consolidated Statements of Income and
Comprehensive Income, Shareholder's Equity and Cash Flows for each of the three
years in the period ended December 31, 2000 are included in Bank of the Sierra's
Annual Report to Shareholders, which is being sent to each shareholder
concurrently with this proxy statement/prospectus. Financial statements of Bank
of the Sierra are not included as part of or incorporated by reference into this
proxy statement/prospectus as they are not deemed material to the exercise of
prudent judgment by shareholders on the matters to be acted upon at the annual
meeting. If any shareholder so desires, he may obtain an additional copy of the
consolidated financial statements without charge 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 consolidated
financial data of Bank of the Sierra. Statistical information is generally
based on average daily amounts. The selected financial data has been derived
from the Bank's audited consolidated financial statements and certain unaudited
daily average balance information was derived from our accounting system.
28
As of and For the Years Ended December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in
Thousands, except
per share data)
Income Statement Summary:
Interest income.......................................... $ 46,993 $ 34,511 $ 33,652 $ 30,011 $ 26,850
Interest expense......................................... 18,677 11,721 12,378 9,846 8,690
Net interest income before
provision for possible loan losses...................... 28,316 22,790 21,274 20,165 18,160
Provision for loan losses................................ 2,760 2,118 2,800 2,013 1,493
Noninterest income....................................... 6,436 5,346 6,076 4,389 3,544
Noninterest expense...................................... 23,769 17,631 16,383 15,463 14,261
Income before provision for income taxes................. 8,223 8,387 8,167 7,078 5,950
Provision for income taxes............................... 2,742 2,775 2,943 2,536 2,035
Net income............................................... 5,481 5,612 5,224 4,542 3,915
Balance Sheet Summary:
Total loans, net......................................... $ 416,392 $ 314,474 $ 270,920 $ 258,142 $ 217,238
Allowance for loan losses................................ (5,362) (3,319) (4,394) (3,034) (2,904)
Securities held to maturity.............................. 0 64,886 53,096 37,033 37,590
Securities available for sale............................ 112,516 27,986 30,656 23,082 13,544
Cash and due from banks.................................. 43,433 31,413 24,545 26,774 32,791
Federal funds sold....................................... 246 - 9,800 5,300 -
Other real estate owned.................................. 1,530 2,553 1,273 2,285 2,226
Premises and equipment, net.............................. 14,477 11,597 9,491 7,540 6,851
Total interest-earning assets............................ 535,689 410,382 369,216 327,264 271,695
Total assets/1/.......................................... 606,726 458,384 404,064 365,333 314,232
Total interest-bearing liabilities....................... 431,468 327,835 283,464 260,373 210,554
Total deposits........................................... 527,776 385,818 355,881 321,113 283,021
Total liabilities........................................ 565,944 421,685 369,046 334,882 287,595
Total shareholders' equity............................... 40,782 36,699 35,018 30,451 26,637
Per Share Data:/2/
Net income............................................... $ 0.60 $ 0.61 $ 0.57 $ 0.49 $ 0.42
Book value............................................... 4.43 3.98 3.80 3.31 2.89
Cash dividends........................................... 0.23 0.22 0.15 0.05 0.04
Weighted average common shares
outstanding, basic...................................... 9,212,280 9,212,280 9,212,280 9,212,280 9,212,280
Weighted average common shares
outstanding, diluted.................................... 9,212,280 9,252,193 9,212,280 9,212,280 9,212,280
Selected Financial Ratios:
Return on average assets/3/.............................. 0.96% 1.33% 1.33% 1.37% 1.32%
Return on average equity/4/.............................. 14.30% 16.24% 15.81% 15.74% 16.45%
Dividend payout ratio/5/................................. 38.33% 36.07% 26.32% 10.20% 9.52%
Net interest spread/6/................................... 4.60% 5.10% 4.97% 5.68% 5.93%
Net interest margin/7/................................... 5.48% 5.97% 5.92% 6.68% 6.80%
Equity to assets ratio/8/................................ 6.69% 8.22% 8.42% 8.71% 8.48%
Tier 1 Capital to adjusted total assets.................. 5.64% 8.13% 8.16% 8.10% 8.10%
Tier 1 Capital to total risk-weighted assets............. 7.76% 10.30% 11.54% 10.50% 11.00%
Total capital to total risk-weighted assets.............. 9.00% 11.32% 12.79% 11.61% 12.30%
Nonperforming loans to total loans....................... 0.68% 0.29% 1.43% 0.55% 1.21%
Nonperforming assets to total loans
and other real estate owned............................. 1.05% 1.08% 1.88% 1.41% 2.20%
Net charge-offs (recoveries)
to average loans........................................ 0.43% 1.11% 0.55% 0.78% 0.63%
Allowance for possible loan losses
to net loans at period end.............................. 1.29% 1.06% 1.62% 1.18% 1.34%
Net loans to total deposits at period end................ 78.90% 81.51% 76.13% 80.39% 76.76%
________________________________
/1/ On May 19, 2000, Bank of the Sierra acquired the net assets of Sierra
National Bank. The transaction was accounted for using the purchase method of
accounting. Bank of the Sierra paid $9,563,000 in cash (including acquisition-
related costs of $463,000) for net assets of $3,694,000. The resulting purchase
price in excess of net assets acquired (intangibles) is $5,869,000. The
allocation of the purchase price is preliminary as not all estimations have been
finalized
/2/ All per share data and the average number of shares outstanding have been
retroactively restated on a split adjusted basis.
/3/ Net income divided by average total assets.
/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 as a percentage of average interest-earning
assets.
/8/ Average equity divided by average total assets.
29
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 Bank
of the Sierra. 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 Corporation, 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 Federal Reserve Board 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. Sierra
Bancorp has also filed an application with the Department of Financial
Institutions for approval to acquire control of Bank of the Sierra pursuant to
the provisions of the California Financial Code, and Bank of the Sierra and
Sierra Merger Corporation have filed an application with the FDIC, providing for
the merger of Sierra Merger Corporation 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, Bank of the Sierra will be Sierra Bancorp's wholly-
owned bank subsidiary and Sierra Bancorp will be registered as a bank holding
company. As of the date of this document, the Federal Reserve Board, the
Department of Financial Institutions and the FDIC have all issued the approvals
or notices of non-disapproval needed to consummate the reorganization subject to
certain conditions. While we do not know of any reason that we would not be
able to comply with such conditions, we cannot be certain that we will be able
to meet them.
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 Bank of the Sierra.
However, subject to the constraints under the Bank Holding Company Act, Sierra
Bancorp may acquire other financial institutions in the future. 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 Bank of the Sierra following the reorganization, and
Bank of the Sierra 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.
30
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 "PROPOSAL 1-ELECTION OF DIRECTORS-Information Concerning
Directors, Nominees and Executive Officers" above. 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 Bank of the Sierra.
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 Bank of the Sierra's policy regarding
indemnification of executive officers and directors is also the same as that of
Sierra Bancorp. Bank of the Sierra has obtained liability insurance covering
all of Bank of the Sierra'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.
31
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. We operate 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 offer a full range of banking services to individuals and various
sized businesses in the communities which we serve. The locations of those
offices are:
Porterville: Main Office Bakersfield: Bakersfield California Office
90 North Main Street 5060 California Avenue
Administrative Headquarters Bakersfield Ming Office
86 North Main Street 1621 Mill Rock Way
West Olive Branch
1498 West Olive Avenue
Lindsay: Lindsay Office Tulare: Tulare Office
142 South Mirage Avenue 246 East Tulare Avenue
Exeter: Exeter Office Hanford: Hanford Office
1103 West Visalia Road 427 West Lacey Boulevard
Visalia: Visalia Mooney Office Tehachapi: Tehachapi Downtown Office
2515 South Mooney Boulevard 224 West "F" Street
Visalia Downtown Office Tehachapi Old Town Office
128 East Main Street 21000 Mission Street
Three Rivers: Three Rivers Office Fresno: Fresno Office
40884 Sierra Drive 636 East Shaw Avenue
Dinuba: Dinuba Office California City: California City Office
401 East Tulare Street 8031 California City
In addition, our Bank Card Center is located at 80 North Main Street,
Porterville, California. We also have 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.
Prior to 1997, Bank of the Sierra had grown exclusively by establishing de
novo full-service branch offices and credit centers in each of its current
locations. In February 1997, we made our first branch purchase of the Dinuba
Office of Wells Fargo Bank. Between February 1997 and September, 1999 we opened
three additional de novo offices, in Tulare, Hanford, and Fresno. In May 2000,
we added four new branches by the acquisition of Sierra National Bank. These
branches stretch from California City, in the high desert, westerly to
Bakersfield along the Highway 58 corridor, a distance of approximately 81 miles.
With a predominant focus on personal service, Bank of the Sierra has
positioned itself as a multi-community independent bank serving the financial
needs of individuals and businesses, including agricultural and real estate
customers in Tulare and other surrounding counties. We are currently the
largest independent bank headquartered in Tulare County. Although we are
primarily a retail oriented independent community bank, we have three other
dimensions which surround this core of community banking: agricultural lending,
credit card loans and real estate financing (both construction and long term).
32
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 we serve. "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.
We also have an orientation towards Small Business Administration lending
and achieved the designation of Preferred Lender during 1999. At the current
time, one branch manager is responsible for the program, which generated
approximately $11.1 million in loans during the past year. It is anticipated
that loans under this program will become an increasing segment of our loan
portfolio over the next few years.
Our 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. As of December 31, 2000, the
principal areas in which we directed our lending activities, and the percentage
of our total loan portfolio for which each of these areas was responsible, were
as follows: (i) agricultural loans (3.87%); (ii) commercial and industrial
(including SBA) loans (16.70%); (iii) real estate loans (68.31%); (iv) consumer
loans (8.40%); and (v) credit cards (2.72%).
In addition to the lending activities noted above, we offer 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 December 31, 2000, we had 47,262 deposit accounts with balances
totaling approximately $527.8 million, compared to 32,726 deposit accounts with
balances totaling approximately $385.8 million at December 31, 1999.
Bank of the Sierra 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. We also offer
other products and services to our customers, 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 our continuing efforts
to meet the needs of our various communities, we added a Spanish language option
to our network of ATMs throughout our service area. During the past two years,
we have substantially enhanced our ATM locations to include off-site areas not
previously served by cash or deposit facilities, and we now have 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,
we have a mobile ATM unit which is transportable and is used at fairs,
exhibitions, and various other community functions within our market area. In
addition to such specifically oriented customer applications, we provide 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 we provide.
Most of the Bank's deposits are attracted from individuals, business-
related sources and smaller municipal entities. This results in a relatively
modest average deposit balance of approximately $11,000 at December 31, 2000,
but makes the Bank less subject to adverse effects from the loss of a
substantial depositor who may be seeking higher
33
yields in other markets or who may have need of money otherwise on deposit with
the Bank, especially during periods of inflation or conservative monetary
policies.
For non-deposit services, we also formed a strategic alliance with
Investment Centers of America, Inc. of Bismarck, North Dakota. Through this
arrangement, registered and licensed representatives of this company provide our
customers in our 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 our other branches.
We do not believe there is a significant demand for additional trust
services in our service areas, and we do not operate or have any present
intention to seek authority to operate a Trust Department. We believe that the
cost of establishing and operating such a department would not be justified by
the potential income to be gained therefrom. However, we occasionally make
arrangements with correspondent institutions to offer trust services to our
customers upon request.
We currently have one wholly-owned subsidiary, Sierra Phoenix, Inc., whose
sole function is to hold certain investments which we are not permitted to hold
directly. This subsidiary currently holds two investments, one of which is
stock 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, an entity which was formed to facilitate
insurance product sales after enabling legislation under the Gramm-Leach-Bliley
Financial Services Modernization Act was passed. Bank of the Sierra is
currently a passive investor, through Sierra Phoenix, Inc., in both Phoenix
International, Inc. and California Banker's Insurance Agency.
Competition
The banking business in California generally, and specifically in our
market areas, 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 we do not offer directly (but some of which we offer through
correspondent institutions). By virtue of their greater total capitalization,
such banks also have substantially higher lending limits than we do.
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").
34
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, we rely upon local promotional activity,
personal contacts by our officers, directors, employees, and shareholders,
automated 24-hour banking, and the individualized service which we can provide
through our flexible policies. We provide our own style of community-oriented,
personalized service oriented towards the citizens of the San Joaquin Valley,
whom we believe appreciate a more consumer-oriented environment in which to
conduct their financial transactions. More recently we have 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 our legal
lending limit, we attempt to arrange for such loans on a participation basis
with correspondent banks. We also assist our customers requiring other services
we do not offer in obtaining such services from our correspondent banks.
Our credit card business is subject to an even higher level of competitive
pressure than our general banking business. There are a number of major banks
and credit card issuers 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, our 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 us.
Employees
As of December 31, 2000, Bank of the Sierra had 282 full-time and 41 part-
time employees. On a full time equivalent basis, our staff level was 323 at
December 31, 2000.
None of our employees is concurrently represented by a union or covered by
a collective bargaining agreement. Management of Bank of the Sierra believes
that its employee relations are satisfactory.
Properties
Bank of the Sierra 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. Our other facilities,
including our Administrative Headquarters, two branch offices in Visalia and one
branch in Bakersfield, are leased.
Legal Proceedings
From time to time, we are a party to claims and legal proceedings arising
in the ordinary course of our business. After taking into consideration
information furnished by our counsel as to the current status of these claims or
proceedings to which we are a party, management is of the opinion that the
ultimate aggregate liability represented thereby, if any, will not have a
material adverse affect on our financial condition.
35
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 Federal
Reserve Board 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 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 Bank of the Sierra. 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.
36
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, just as Bank of the Sierra's
securities are now registered with the FDIC under that act. As such, Sierra
Bancorp will be subject to the same information, proxy solicitation, insider
trading, and other requirements and restrictions under federal securities law as
Bank of the Sierra 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, we are subject to regulation,
supervision and regular examination by the Department of Financial Institutions
and the FDIC. In addition, while we are not a member of the Federal Reserve
System, we are subject to certain regulations of the Federal Reserve Board. The
regulations of these agencies govern most aspects of our business, including the
making of periodic reports, and 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 Bank of the Sierra 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 structure and operation of the financial
marketplace are unknown and it is unclear how Sierra Bancorp or Bank of the
Sierra will be affected. Sierra Bancorp may become a "financial holding
company" in the future 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.
37
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected McGladrey & Pullen, LLP as Bank of the
Sierra's independent accountants for the fiscal year ending December 31, 2001.
McGladrey & Pullen, LLP audited Bank of the Sierra's consolidated financial
statements for the fiscal year ended December 31, 2000, and have been Bank of
the Sierra's accountants since 1992. All professional services rendered by
McGladrey & Pullen, LLP concerning the fiscal year ended December 31, 2000 were
furnished at customary rates and terms. It is anticipated that a representative
or representatives of that firm will be present at the annual meeting and will
be available to respond to appropriate questions.
Fees
Audit Fees. Aggregate fees billed by McGladrey & Pullen, LLP for
professional services rendered in connection with the audit of Bank of the
Sierra's annual consolidated financial statements for the fiscal year ended
December 31, 2000 and for the required review of the Bank's consolidated
financial statements included in its Form 10-Q's and Form 10-K for that same
year totaled approximately $105,000.
Financial Information System Design and Implementation Fees. No fees were
paid to McGladrey & Pullen, LLP for financial information system design and
implementation services rendered for the 2000 fiscal year.
All Other Fees. Approximately $110,000 was paid to RSM McGladrey, Inc. for
all other services rendered for the 2000 fiscal year. These services consisted
of $50,000 for professional services related to the acquisition of Sierra
National Bank, $14,000 for an information systems' audit, and $46,000 for tax
related services.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present proposals
at shareholder meetings. Any such proposal concerning the Bank's 2002 annual
meeting of shareholders must be submitted by a shareholder prior to December 29,
2001 in order to qualify for inclusion in the proxy statement relating to such
meeting. The submission by a shareholder of a proposal does not guarantee that
it will be included in the proxy statement. Shareholder proposals are subject
to certain regulations and requirements under the federal securities laws.
The persons named as proxies for the 2002 annual meeting of shareholders
will have discretionary authority to vote on any shareholder proposal which is
not included in the Bank's proxy materials for the meeting, unless the Bank
receives notice of the proposal by March 14, 2002. If proper notice is received
by that date, the proxy holders will not have discretionary voting authority
except as provided in federal regulations governing shareholder proposals.
OTHER MATTERS
We are not aware of any matters to be presented at the annual meeting other
than those matters described in this proxy statement/prospectus. However, if
other matters properly come before the annual meeting, it is the intention of
the proxy holders designated in the attached proxy to vote said proxy in
accordance with the recommendations of your Board of Directors and authority to
do so is included in the attached proxy.
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.
38
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 proxy statement/prospectus. This proxy 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 proxy
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 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 website 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 proxy
statement/prospectus, Sierra Bancorp will become subject to the informational
requirements of the Securities Exchange Act of 1934 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 website referred to above.
Bank of the Sierra's common stock is registered under Section 12(g) of the
Securities Exchange Act of 1934 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 proxy solicitation materials, 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.
Quarterly financial data concerning Bank of the Sierra is available at the
FDIC's website at: http://www.fdic.gov.
ANNUAL REPORT ON FORM 10-K AND ANNUAL DISCLOSURE STATEMENT
Shareholders may obtain, free of charge, a copy of Bank of the Sierra's 2000
Annual Report on Form 10-K including financial statements (but without exhibits)
filed with the FDIC, by writing to Jack B. Buchold, Senior Vice President and
Chief Financial Officer, Bank of the Sierra, Post Office Box 1930, Porterville,
California 93258. If a shareholder desires copies of exhibits to the report,
they will be provided upon payment by the shareholder of the costs of furnishing
the exhibits.
Shareholders may also obtain, free of charge, a copy of Bank of the Sierra's
Annual Disclosure Statement prepared pursuant to Part 350 of the FDIC's Rules
and Regulations by writing to Jack B. Buchold at the address shown above or by
calling Bank of the Sierra at (559) 782-4900.
39
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 BANCORP
By: /s/ James C. Holly
-------------------------------
James C. Holly, President
and Chief Executive Officer
By: /s/ Robert H. Tienken
-------------------------------
Robert H. Tienken, Secretary
A-5
APPENDIX B
__________________
BANK OF THE SIERRA
AUDIT COMMITTEE CHARTER
1. Audit Committee Purpose
The Audit Committee of Bank of the Sierra (the "Bank") is appointed by the
Board of Directors to assist the Board in fulfilling its oversight
responsibilities. The Audit Committee's primary duties and responsibilities
are to:
. Monitor the integrity of the Bank's financial reporting process and
systems of internal controls regarding finance, accounting and legal
compliance.
. Monitor the independence and performance of the Bank's independent
auditors, the internal audit department, if any, and the loan review
function.
. Provide an avenue of communication among the independent auditors,
management, the internal audit department, if any, and the Board of
Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee has the ability to retain, at the Bank's expense, special legal,
accounting or other consultants or experts it deems necessary in the
performance of its duties.
2. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the National
Association of Securities Dealers ("NASD") with respect to Nasdaq Stock
Market Securities. The Audit Committee shall be comprised of three or more
independent directors as determined by the Board, each of whom shall be
independent nonexecutive directors, free from any relationship that would
interfere with the exercise of his or her independent judgment. All members
of the Committee shall have a basic understanding of finance and accounting
and be able to read and understand fundamental financial statements, and at
least one member of the Committee shall have accounting or related financial
management experience.
Audit Committee members shall be appointed by the Board. If an audit
committee chair is not designated or present, the members of the Committee
may designate a Chair by majority vote of the committee membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or
approve an agenda in advance of each meeting. The Committee should meet
privately in executive session at least annually with management, the Bank's
Auditor, the independent auditors, and as a committee to discuss any matters
that the Committee or each of these groups believe should be discussed. In
addition, the Committee, or at lease its Chair, should communicate with
management and the independent auditors quarterly to review the Bank's
financial statements and significant findings based upon the auditors
limited review procedures.
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3. Audit Committee Responsibilities and Duties
a. Review Procedures
i. Review and reassess the adequacy of this Charter at least annually.
Submit charter to the Board of Directors for approval annually and
have the document published at least every three years in accordance
with SEC regulations.
ii. Review the Bank's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
iii. In consultation with the management, the independent auditors, and
the internal auditors, if any, consider the integrity of the Bank's
financial reporting processes and controls. Discuss significant
financial risk exposures and the steps management has taken to
monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors and the internal audit
department, if any, together with management's responses.
iv. Review with financial management and the independent auditors the
Bank's quarterly financial reports prior to the release of earnings
and/or the Bank's quarterly financial reports prior to filing or
distribution. Discuss any significant changes to Bank's accounting
principles and any items required to be communicated by the
independent auditors in accordance with AICPA SAS 61 (see item
b.v.). The Chair of the Committee may represent the entire Audit
Committee for purposes of this review.
b. Independent Auditors
i. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall
review the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the
independent auditors or approve any discharge of auditors when
circumstances warrant.
ii. Approve the fees and other significant compensation to be paid to
the independent auditors.
iii. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they may have
with the Bank that could impair the auditors' independence, and the
Audit Committee shall receive the written disclosures and the
letters from independent auditors required by Independence Standards
Board Standard No. 1 (Independence Discussion with Audit Committee),
as such may be modified or supplemented.
iv. Review the independent auditors audit plan - discuss scope,
staffing, locations, reliance upon management, and general audit
approach.
v. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters
required to be communicated to audit committees in accordance with
AICPA SAS 61.
vi. Consider the independent auditors' judgments about the quality and
appropriateness of the Bank's accounting principles as applied in
its financial reporting.
c. Internal Audit Department and Legal Compliance
i. Review the budget, plan, changes in plan, activities, organizational
structure and qualification of the internal audit department, if
any, as needed.
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ii. Review the appointment, performance, and replacement of the Bank's
Auditor.
iii. Review the significant reports prepared by the internal audit
department, if any, together with management's response and
follow-up to these reports.
iv. On at least an annual basis, review with the Bank's counsel, any
legal matters that could have a significant impact on the
organization's financial statements, the Bank's compliance with
applicable laws and regulations, and inquiries received form
regulators or government agencies.
d. Other Audit Committee Responsibilities
i. Annually prepare a report to stockholders as required by the rules
and regulations of the Securities and Exchange Commission. This
report would be included in the Bank's annual proxy statement.
ii. Review significant reports prepared by the Bank's loan review
officer together with management's response and follow-up to these
reports.
iii. Perform any other activities consistent with this Charter, the
Bank's Bylaws, and governing law, as the Committee or the Board
deems necessary or appropriate.
iv. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
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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
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Porterville, State of California, on April 3, 2001.
SIERRA BANCORP
/s/ James C. Holly
------------------
By: James C. Holly
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1933, this
registration statement 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/ James C. Holly Director and President and April 3, 2001
---------------------------
James C. Holly Chief Executive Officer
/s/ Albert L. Berra* Director April 3, 2001
---------------------------
Albert L. Berra
/s/ Gregory A. Childress* Director April 3, 2001
---------------------------
Gregory A. Childress
/s/ Robert L. Fields* Director April 3, 2001
---------------------------
Robert L. Fields
/s/ Vincent L. Jurkovich* Director April 3, 2001
---------------------------
Vincent L. Jurkovich
/s/ Howard H. Smith* Director April 3, 2001
---------------------------
Howard H. Smith
/s/ Morris A. Tharp* Chairman of the Board April 3, 2001
---------------------------
Morris A. Tharp
/s/ Robert H. Tienken* Director and April 3, 2001
---------------------------
Robert H. Tienken Corporate Secretary
/s/ Gordon T. Woods* Director April 3, 2001
---------------------------
Gordon T. Woods
/s/ Jack B. Buchold Chief Financial Officer April 3, 2001
---------------------------
Jack B. Buchold
*By /s/ James C. Holly April 3, 2001
------------------
James C. Holly
as Attorney-in-Fact
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INDEX TO EXHIBITS
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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 (Appendix "A" of proxy
statement/prospectus)
3.1 Articles of Incorporation of Sierra Bancorp/1/
3.2 Amendment to Articles of Incorporation of Sierra Bancorp/1/
3.3 Bylaws of Sierra Bancorp/1/
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
Bank of the Sierra's Stock Option Plan
8.3 Opinion of Fried, Bird & Crumpacker, P.C. re Merger
10.1 Bank of the Sierra 1998 Stock Option Plan (assumed by
Registrant in the reorganization)/1/
10.2 Agreement and Plan of Merger by and between Bank of the
Sierra and Taft National Bank dated December 15, 2000/1/
21 Subsidiaries of Registrant/1/
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)/1/
24 Power of Attorney (included in the signature page)/1/
99.1 Form of Proxy for use by Shareholders of Bank of the Sierra
____________________________
/1/ Previously Filed
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