10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 2001

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                             to                             

Commission file number 0-26552

California Independent Bancorp
(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	68-0349947 (I.R.S. Employer Identification No.)
1227 Bridge Street, Suite "C," Yuba City, California (Address of principal executive offices)	95991 (zip code)

Registrant's telephone number, including area code: (530) 674-6025

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        The aggregate market value of the voting stock held by non-affiliates of California Independent Bancorp at March 13, 2002 was $33,424,067.

        The number of outstanding shares of common stock as of March 13, 2002 was 2,115,419.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Proxy Statement for 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A are incorporated into Part III.

Selected pages of the Company's 2001 Annual Report to Shareholders are incorporated into Part II and IV.

THIS REPORT INCLUDES A TOTAL OF 29 PAGES
EXHIBIT INDEX IS ON PAGE 26-29

INDEX

	Description	Page No.
ITEM 1.	BUSINESS	3
ITEM 2.	PROPERTIES	19
ITEM 3.	LEGAL PROCEEDINGS.	20
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 5.	MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS	21
ITEM 6.	SELECTED FINANCIAL DATA	21
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	22
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	22
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	22
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	22
ITEM 11.	EXECUTIVE COMPENSATION	22
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.	22
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.	22
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.	23

PART I

ITEM 1. BUSINESS

        Certain statements in this Annual Report on Form 10-K (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry increases significantly; changes in the interest rate environment that reduce margins; other changes in the interest rate environment; general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan and lease losses; the loss of key personnel; changes in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; and changes in the securities markets. In addition, such risks and uncertainties include mortgage banking activities, merchant card processing, concentration of lending activities; the impact of the California energy shortage; and the effects of terrorism, including the events of September 11, 2001 and thereafter, and the conduct of the war on terrorism by the United States and its allies. Therefore, the information set forth herein should be carefully considered when evaluating the business prospects of California Independent Bancorp and Feather River State Bank (collectively, the "Company").

GENERAL

        California Independent Bancorp ("CIB") is a California corporation and the bank holding company for Feather River State Bank (the "Bank"), both located in Yuba City, California. CIB was incorporated on October 28, 1994 and became the bank holding company for the Bank on May 2, 1995, pursuant to the Bank Holding Company Act of 1956, as amended ("BHC Act").

        The Bank was incorporated as a California state banking corporation on December 1, 1976 and commenced operations on April 6, 1977. On October 1, 1996, the Bank acquired an equipment leasing company, E.P.I. Leasing Co., Inc. ("EPI"), and operates it as a wholly-owned subsidiary of the Bank. As a part of the Company's restructuring efforts, it is anticipated that the business affairs of EPI will be dissolved following the orderly wind-down of the remaining lease portfolio. On June 25, 1984, the Bank formed Yuba-Sutter Financial Services Corporation ("Yuba-Sutter") as a wholly-owned subsidiary. This subsidiary is inactive.

        At December 31, 2001, CIB had four employees, of which three serve as executive officers of the Bank. The Bank at December 31, 2001, employed 145 persons, including 25 part-time employees, 6 executive officers and 49 other officers. None of the Company's employees is currently represented by a union or covered under a collective bargaining agreement. Management believes that its employee relations are excellent.

        CIB itself does not engage in any business activities other than ownership of the Bank. CIB's primary asset is its ownership of the Bank's stock, and the dividends paid by the Bank are the CIB's primary source of income. At December 31, 2001, the Company had consolidated assets of $306,167,695, deposits of $275,576,069, gross loans and leases of $192,281,591, and shareholders' equity of $27,213,127.

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GENERAL BANKING SERVICES

        The Bank engages in a broad range of financial services activities. Its primary market is located in the northern portion of the Sacramento Valley, with a total of nine branches in Yuba City, Marysville, Colusa, Arbuckle, Wheatland, Woodland, Lincoln, and Roseville, California, serving Sutter, Yuba, Colusa, Yolo, and Placer Counties, and secondarily, Sacramento, El Dorado, Butte, and Glenn counties. All of the Bank's branches are located in areas that are in the periphery of housing for those individuals who work in the growing Sacramento area.

        The total population base, in the nine counties served by the Bank, is approximately 1,964,000 people. The economic base of the Bank's primary operating territory is predominantly agricultural in nature. A wide variety of food crops are produced in the area. The leading agricultural commodities produced in the Bank's trade area include peaches, tomatoes, prunes, rice, and almonds. Plentiful water for irrigation and quality soils result in excellent agricultural diversification. In addition to agriculture, western Placer County is one of California's fastest growing regions. Western Placer County is developing into a high-tech, light industry and retail center, and Lincoln, in particular, is becoming a large retirement community with developments by Del Webb and U.S. Homes.

        The Bank currently has no applications pending to open additional branch offices. The Bank may increase the number of its banking facilities in its trade areas when such expansion is appropriate. The Bank's expansion program is dependent on obtaining the necessary governmental approvals, governmental monetary policies, and competition. No assurance can be given that all or any part of the Bank's expansion program can be accomplished without the Bank being required to raise additional capital.

        The Bank is engaged in the commercial banking business, including accepting demand, savings and time deposits and making commercial, real estate, agricultural, and consumer loans. The Bank also offers installment note collection, issues cashier's checks and money orders, sells traveler's checks, and provides bank-by-mail, night depository, safe deposit boxes, ATMs, Visa debit cards, and other customary banking services. The Bank offers its customers home banking services, whereby the customers can make transfers between accounts, pay bills, receive balance inquiries and statements via their personal computer or telephone. The Bank does not provide trust or international banking services. Moreover, it does not plan to do so in the near future.

DEPOSITS

        Most of the Bank's deposits are obtained from individuals, small and medium-sized businesses, and professionals. The Bank is able to attract and retain these deposits through advertising in the local media and the reputation the Bank has established in the communities it serves. No single depositor or group of related depositors control a significant amount of the Bank's total deposits. The loss of any one depositor or group of related depositors should not have a materially adverse effect on the business of the Bank. The Bank is a member of the Federal Deposit Insurance Corporation ("FDIC"). As a result, deposit accounts held with the Bank are insured in accordance with the FDIC's rules and regulations.

LENDING ACTIVITIES

        The Bank engages in a full complement of lending activities, including agricultural, real estate, commercial, and consumer loans.

        The Bank makes real estate loans secured by residential, agricultural, and commercial property. Residential loans are made to purchase or refinance one to four family residences or multi-family residential properties and are secured by a first deed of trust on the property, except for loans to improve existing properties that are secured by junior liens. The maximum loan-to-value ratio for these

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loans is 90% of the real estate's appraised value. Loans secured by agricultural property include mortgages, loans for farm residences, and other improvement loans. Such agricultural loans are secured by a first lien on real estate. The maximum loan-to-value ratio for farmland is 70% of the real estate's appraised value. Commercial real estate loans are made to owner and non-owner occupied businesses for such purposes as offices, warehouses, professional buildings, retail, and storage facilities. The maximum loan-to-value ratio for commercial properties is 75% of the real estate's appraised value. As of December 31, 2001, these types of real estate secured loans totaled $100,685,224, or 52.4% of the Bank's loan portfolio.

        The Bank also makes real estate construction and development loans for acquisition of raw land to be developed into subdivisions for the construction of one to four family and multi-family housing, and for commercial real estate construction. These loans are secured by a first deed of trust and have maximum loan to value ratios ranging from 60% to 80% of the project's appraised value at completion, depending upon the type of project. As of December 31, 2001, the Bank had construction and development loans of $32,268,227, representing 16.8% of the Bank's loan portfolio.

        The Bank makes a variety of commercial and industrial loans to small-to-medium-sized businesses for working capital, inventory, accounts receivable, equipment, and general improvements. Typically, the Bank obtains a security interest in the collateral being financed or in other available assets of the customer. Loan to value ratios vary but generally do not exceed 75%. As of December 31, 2001, the Bank had loans for these purposes of $26,763,479, representing 13.9% of the Bank's loan portfolio.

        Additionally, the Bank has made Small Business Administration ("SBA") loans since its inception. The Bank offers both SBA 7(a) and SBA 504 real estate guaranteed loans ranging from amounts of $50,000 to $2,000,000. SBA 7(a) loans are for such purposes as working capital, inventory, and other purposes and are guaranteed by the SBA up to 80%. SBA 504 loans are made to finance commercial real estate.

        Furthermore, the Bank offers Business and Industry guaranteed loans through the Rural Development Agency ("RDA"). These loans are designated for businesses that create jobs in rural areas. RDA loans are in amounts up to $10 million and are 80%-90% guaranteed by the RDA. The Bank generally sells the guaranteed portion of its SBA and RDA loans in the secondary market.

        Agricultural loans are primarily made to finance agricultural production expenses generally as non-revolving lines of credit that are drawn upon when crop expenses are incurred and are repaid as crop sale proceeds are received. Crops and crop proceeds typically secure these loans. The Bank generally requires a repayment margin of 25% for permanent plantings (i.e., tree and vine crops) and 20% for row crops. The Bank participates in the Farm Service Agency ("FSA" an agency of the U.S. Department of Agriculture) guaranteed loan program. The program allows the Bank to obtain loan note guarantees on agricultural loans of up to 90% of the loan amount for eligible farmers. As of December 31, 2001, the Bank had agricultural loans outstanding of $13,329,260 (of which the FSA guaranteed approximately 21%), representing 6.9% of the Bank's total loan and lease portfolio.

        Being located in a prime agricultural area, the Bank participates in the Farmer Mac I loan program, pursuant to which it makes and then sells agricultural real estate loans to the Federal Agricultural Mortgage Corporation ("Farmer Mac"), and other institutional investors. In addition, the Bank participates in the Farmer Mac II loan program, pursuant to which it makes FSA guaranteed farm real estate loans and subsequently sells the 90% guaranteed portion of these loans directly to the secondary market and retains the servicing of these loans.

        The Bank also originates mortgage loans on residential and farm properties, which it sells and/or brokers into the secondary market in order to divest itself of the interest rate risk associated with these mostly fixed interest rate products. The purchasers and/or funders of the loans establish the underwriting criteria for residential and agricultural mortgage loans sold and/or brokered in the

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secondary market. The Company accounts for sold loans in accordance with Statement of Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125." These loans are sold without recourse. As of December 31, 2001, 2000, and 1999, total loans serviced by the Bank for third parties were $78,062,314, $92,741,075, and $131,991,682, respectively. For the years ended December 31, 2001, 2000, and 1999, total loans sold by the Bank were $1,725,830, $760,000, and $21,968,279, respectively.

        Consumer and installment loans are made for household, family and other personal expenditures. These loans are made on both a secured and unsecured basis. As of December 31, 2001 the Bank had a total of $4,826,959 in consumer and installment loans representing 2.5% of its loan portfolio.

        The Bank maintains commercial and industrial equipment leases that were primarily originated through its subsidiary EPI. Leases were made to a wide variety of businesses including professional, agricultural, industrial, and construction concerns. Total net lease financing receivables as of December 31, 2001 were $11,653,824, or 6.10% of the Bank's portfolio. Although the business affairs of EPI will be dissolved following the orderly wind-down of the remaining lease portfolio, the Bank may continue to originate or purchase equipment leases.

        The Bank also makes other miscellaneous loans that totaled $2,754,618, or 1.4% of the Bank's portfolio, as of December 31, 2001.

INVESTMENT POLICY

        The Bank's investment policy is to provide the Bank with the maximum return on its investment securities consistent with safety and liquidity.

        In accordance with this policy and state laws regarding permissible investments, the Bank invests primarily in U. S. Treasury and Agency securities with a maturity or weighted average life of 10 years or less, tax-free municipal bonds rated "A" or better by Standard and Poors or Moody's with a maturity not to exceed 13 years, and corporate bonds rated "A" or better by Moody's or Standard and Poors with a maturity not to exceed 7 years. The Bank also invests in federal funds.

        The Bank's investment securities may also be used as collateral for public deposits and for other borrowings.

OTHER SERVICES

        The Bank offers other financial products and services including annuities, mutual funds, mutual fund advisory service, IRAs, brokerage and custodial services, 401(k) plans, estate plans, asset management, asset consulting, charitable remainder trusts, fiduciary services, pension plans, non-qualified deferred compensation, and retirement plans. All these investments and/or financial services are offered by a registered investment representative through the Bank's affiliation with London Pacific Securities, Inc., a registered broker/dealer and a member of the National Association of Securities Dealers ("NASD") and the Securities Investor Protection Corporation ("SIPC").

COMPETITION

        The Bank's primary service area consists of Colusa, Placer, Sutter, Yolo, and Yuba Counties. It is estimated that this service area contains 138 competitive banking and savings and loan offices, of which other independent banks own 45 offices. Based upon total bank deposits as of June 30, 2001 (the last period for which data is available), the Bank is third in market share in Sutter County, third in Colusa County, third in Yuba County, eleventh in Yolo County, and twenty-third in southern Placer County. The southern Placer County ranking only takes into consideration one month of operation for the

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Lincoln branch, and does not reflect the Roseville branch deposits, as it was not open until September 26, 2001.

        The banking business in California and, specifically, in the Bank's primary service area is highly competitive with respect to both loans and deposits. The business is dominated by a relatively small number of major banks with many offices operating over a wide geographic area. Among the advantages such major banks have over the Bank are their ability to finance wide-ranging advertising campaigns and to allocate their investment assets to regions of highest yield and demand. Such institutions offer certain services, such as trust services and international banking, that are not offered directly by the Bank, and, by virtue of their greater total capitalization, they have substantially higher lending limits than does the Bank. Other entities, both governmental and in private industry, seeking to raise capital through the issuance and sale of debt or equity securities also provide competition for the Bank in the acquisition of deposits. The Bank also competes with money-market funds for deposits.

        In order to compete with major financial institutions and other competitors, the Bank relies upon the experience of its executive and senior officers in serving businesses and individuals and upon its specialized service, local promotional activities, and the personal contacts made by its officers, directors, and employees. For customers whose loan demands exceed the Bank's legal lending limit (15% of its capital and allowance for loan losses for unsecured loans and 25% of its capital and allowance for loan losses for certain types of secured loans), the Bank may arrange to extend such loans on a participation basis with other financial institutions or institutional lenders. In this manner, the Bank is able to close the loan while selling a portion of the credit to a participant.

SUPERVISION AND REGULATION

        Bank holding companies and their subsidiary banks are extensively regulated under applicable federal and/or state laws and regulations. Statutes, regulations, and policies affecting the banking industry are frequently being reviewed, added to, or changed by Congress, the state legislature, or the federal or state supervisory agencies responsible for the industry's oversight. Changes in the laws, regulations, or policies that impact CIB and the Bank cannot always be predicted and may have a material impact on earnings and the manner with which they conduct business.

        Discussed below are brief summaries of certain laws, regulations, or policies that apply to the operation of bank holding companies and to the banks they own or control. The summaries are qualified in their entirety by reference to the full text of the applicable law, regulation, or policy.

Regulation of CIB

        CIB is a registered bank holding company within the meaning of the BHC Act and is subject to the supervision of the Federal Reserve Board ("FRB"). The FRB requires CIB to file quarterly and annual reports and may conduct examinations of CIB and its subsidiaries.

        The FRB can require CIB to terminate an activity of, control of, liquidation of, or divestiture of certain subsidiaries or affiliates when the FRB believes that the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness, or stability of any of its banking subsidiaries. The FRB also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, CIB must file a written notice and obtain approval from the FRB prior to the purchase or redemption of its own common stock.

        Under the BHC Act, a company generally must obtain the prior approval of the FRB before it exercises a controlling influence over, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. CIB is required to obtain the FRB's prior approval before it acquires, merges, or consolidates with any bank or bank holding

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company. Additionally, any company seeking to acquire, merge, or consolidate with CIB would also be required to obtain the FRB's approval.

        The BHC Act generally prohibits CIB from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks, or providing services to affiliates of the holding company. A bank holding company, with the approval of the FRB, may engage, or acquire the voting shares of companies engaged, in activities that the FRB has determined to be so closely related to banking, managing, or controlling banks as to be a proper incident thereto. A bank holding company must demonstrate that the benefits to the public of the proposed activity will outweigh the possible adverse effects associated with such activity.

        Transactions between CIB, the Bank, and any future subsidiaries of CIB are subject to a number of other restrictions. FRB policies forbid the payment by bank subsidiaries of management fees that are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). Additionally, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit, sale or lease of property, or furnishing of services. Subject to certain limitations, depository institution subsidiaries of bank holding companies may extend credit to, invest in the securities of, purchase assets from, or issue a guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided that the aggregate of such transactions with affiliates may not exceed 10% of the capital stock and surplus of the institution, and the aggregate of such transactions with all affiliates may not exceed 20% of the capital stock and surplus of such institution. CIB may borrow only from depository institution subsidiaries if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, CIB may not sell a low-quality asset to a depository institution subsidiary.

        The FRB requires CIB to maintain certain levels of capital. (See "Capital Standards.") The FRB also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice or violates certain laws, regulations, or conditions imposed in writing by the FRB. (See "Prompt Corrective Action and Other Enforcement Mechanisms.")

        Pursuant to FRB regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, the FRB has issued a policy that in order to serve as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB's regulations, or both.

        CIB is also a bank holding company within the meaning of California Financial Code section 3700. As a result, CIB and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Financial Institutions ("DFI").

        CIB's securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 ("the 1934 Act"). As such, the Company is subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the 1934 Act.

Regulation of the Bank

        As a California state chartered bank, the Bank is subject to primary supervision, periodic examination, and regulation by the DFI and the FDIC. Additionally, the Bank is subject to certain regulations promulgated by the FRB.

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        If the FDIC should determine, as a result of an examination of the Bank, that the Bank's financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating, or has violated, any law or regulation, various actions are available to the FDIC to remedy the situation. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate the Bank's deposit insurance, which would result in a revocation of the Bank's California charter. The DFI also has many of the same remedial powers.

        Various other requirements and restrictions under the laws of California and the United States affect the Bank's operations. State and federal statutes and regulations which relate to many aspects of the Bank's operations include: reserve requirements against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, and capital requirements. Furthermore, the Bank is required to maintain certain levels of capital. (See "Capital Standards.")

Capital Standards

        The FRB, FDIC, and other federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of credit, unused commitments, and recourse arrangements, that are reported as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, that range from 0% for assets with low credit risk, such as certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as business loans.

        A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock, and minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. Since December 31, 1992, the federal banking agencies have required a minimum ratio of qualifying total capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off balance sheet items of 4%.

        In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total average assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3%. It is improbable, however, that an institution with a 3% leverage ratio would receive the highest rating by the regulators since a strong capital position is a significant part of the regulators' rating. For all banking organizations not rated in the highest category, the minimum leverage ratio is at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, is at least 4% or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

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        The following tables present the capital ratios for the Company and the Bank as of December 31, 2001:

		Company			Bank
		Amount		Ratio	Amount		Ratio
		(Dollars in thousands)
Risk Based Capital Ratio As of December 31, 2001
Tier 1 Capital		$	26,490	11.23%	$	26,177	11.09%
Tier 1 Capital Minimum Requirement			9,434	4.00%		9,442	4.00%
	Excess	$	17,056	7.23%	$	16,735	7.09%
Total Capital			29,470	12.49%		29,159	12.35%
Total Capital Minimum Requirement			18,868	8.00%		18,884	8.00%
	Excess	$	10,602	4.49%	$	10,275	4.35%
Risk-Adjusted Assets		$	235,855		$	236,044
Leverage Capital Ratio
Tier 1 Capital to Quarterly Average Total Assets		$	26,490	8.56%	$	26,177	8.47%
Minimum Leverage Requirement			12,379	4.00%		12,369	4.00%
	Excess	$	14,111	4.56%	$	13,808	4.47%
Total Quarterly Average Assets		$	309,473		$	309,228

Prompt Corrective Action and Other Enforcement Mechanisms

        Federal banking agencies possess broad powers to take corrective or other supervisory action to resolve an insured depository institution's problems. Problems that may be addressed through such actions include, but are not limited to, institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2001, the Company and the Bank exceeded all the required ratios for classification as "well capitalized."

        An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

        A bank may fall into the critically undercapitalized category if its "tangible equity" does not exceed 2% of the bank's total assets. Federal guidelines generally define "tangible equity" as a bank's tangible assets less liabilities. Federal regulators may, among other alternatives, require the appointment of a conservator or a receiver for a critically undercapitalized bank. In California, the Commissioner may require the appointment of a conservator or receiver for a state-chartered bank if its tangible equity does not exceed 3% of the bank's total assets, or $1 million.

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        In addition to measures taken under the prompt corrective action provisions, banks may be subject to potential enforcement actions by the federal or state regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency.

Safety and Soundness Standards

        The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") implemented certain specific restrictions on transactions and required the regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation, and asset growth. Among other things, FDICIA limited the interest rates paid on deposits by undercapitalized institutions, the use of brokered deposits, and the aggregate extension of credit by a depository institution to an executive officer, director, principal stockholder, or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts.

        The federal financial institution agencies published a final rule effective August 9, 1995, implementing safety and soundness standards. The FDICIA added a new section 39 to the Federal Deposit Insurance Act, which required the agencies to establish safety and soundness standards for insured financial institutions covering: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth; (6) compensation, fees, and benefits; (7) asset quality, earnings, and stock valuation; and (8) excessive compensation for executive officers, directors, or principal shareholders which could lead to material financial loss. The agencies issued the final rules in the form of guidelines that set forth operational and managerial standards relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees, and benefits.

        In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets; (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses; (iii) compare problem asset totals to capital; (iv) take appropriate corrective action to resolve problem assets; (v) consider the size and potential risks of material asset concentrations; and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

        If an agency determines that an institution fails to meet any standard established by the guidelines, the agency may require the financial institution to submit to the agency an acceptable plan to achieve compliance with the standard. Should the agency require submission of a compliance plan and the institution fails to timely submit an acceptable plan, within 30 days of a request to do so, or to implement an accepted plan, the agency must require the institution to correct the deficiency. The agencies may elect to initiate enforcement action in certain cases rather than rely on an existing plan, particularly where failure to meet one or more of the standards could threaten the safe and sound operation of the institution.

Restrictions on Dividends and Other Distributions

        The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions that limit

11

the amount available for such distribution depending upon the earnings, financial condition, and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.

        The FRB has issued a policy statement that a bank holding company should not declare or pay a cash dividend to its stockholders if the dividend would place undue pressure on the capital of its subsidiary banks or if the dividend could be funded only through additional borrowings or other arrangements that might adversely affect the financial position of the bank holding company. Specifically, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each cash dividend consistent with its capital needs, asset quality, and overall financial condition. Further, as previously stated, CIB is expected to act as a source of financial strength for each of its subsidiary banks and to commit resources to support each subsidiary bank in circumstances when it might not do so absent such policy.

        CIB's ability to pay dividends depends in large part on the ability of the Bank to pay management fees and dividends to CIB. The ability of its subsidiary bank to pay dividends will be subject to restrictions set forth in California banking law and the regulations of the FDIC.

        Under California Financial Code section 642, funds available for cash dividend payments by a bank are restricted to the lesser of: (i) retained earnings; or (ii) the bank's net income for its three fiscal years (less any distributions to stockholders made during such period). However, with the prior approval of the California Commissioner of Financial Institutions, California Financial Code section 643 provides that a bank may pay cash dividends in an amount not to exceed the greater of: (1) the retained earnings of the bank; (2) the net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year. However, if the Commissioner finds that the stockholders' equity of the bank is not adequate or that the payment of a dividend would be unsafe or unsound, the Commissioner may order such bank not to pay a dividend to stockholders.

        Additionally, under FDICIA a bank may not make any capital distribution, including the payment of dividends, if, after making such distribution, the bank would be in any of the "under-capitalized" categories under the FDIC's Prompt Corrective Action regulations.

        Also, under the Financial Institution's Supervisory Act, the FDIC has the authority to prohibit a bank from engaging in business practices that the FDIC considers unsafe or unsound. It is possible, depending upon the financial condition of a bank and other factors, that the FDIC could assert that the payment of dividends or other payments in some circumstances might be such an unsafe or unsound practice and thereby prohibit such payment.

        Finally, the Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, CIB or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of CIB or other affiliates. Such restrictions prevent CIB and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Bank to or in CIB or to or in any other affiliate are limited, individually, to 10% of the Bank's capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20% of the Bank's capital and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving CIB and other controlling persons of the Bank. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law.

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Interstate Banking and Branching

        On September 29, 1994, the Reigle/Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was signed into law, effectively permitting nationwide banking. The Interstate Act provides that adequately capitalized and adequately managed bank holding companies may acquire banks in any state, even in those jurisdictions that currently bar acquisition by out-of-state institutions, subject to deposit concentration limits. The deposit concentration limits provide that regulatory approval by the FRB may not be granted for a proposed interstate acquisition if, after the acquisition, the acquirer on a consolidated basis would control more than 10% of the total deposits nationwide or would control more than 30% of deposits in the state where the acquiring institution is located. The deposit concentration state limit does not apply for initial acquisitions in a state and, in every case, may be waived by the state regulatory authority. Interstate acquisitions are subject to compliance with the Community Reinvestment Act (the "CRA"). States are permitted to impose age requirements not to exceed five years on target banks for interstate acquisitions.

        Branching between states may be accomplished either by merging separate banks located in different states into one legal entity or by establishing new branches in another state. Interstate branching is also subject to a 30% statewide deposit concentration limit on a consolidated basis and a 10% nationwide deposit concentration limit. The laws of the host state regarding community reinvestment, fair lending, consumer protection (including usury limits), and establishment of branches shall apply to the interstate branches.

        The opening of a new branch by an out-of-state bank is not permitted unless the host state expressly permits such an opening. The establishment of an initial new branch in a state is subject to the same conditions as apply to the initial acquisition of a bank in the host state, other than the deposit concentration limits.

        The Interstate Act permits bank subsidiaries of a bank holding company to act as agents for affiliated depository institutions in receiving deposits, renewing time deposits, closing loans, servicing loans, and receiving payments on loans and other obligations. When acting as agent for an affiliate, a bank shall not be considered a branch of the affiliate. Any agency relationship between affiliates must be on terms that are consistent with safe and sound banking practices. The authority for an agency relationship for receiving deposits includes the taking of deposits for an existing account, but is not meant to include the opening or origination of new deposit accounts. Subject to certain conditions, insured savings associations that were affiliated with banks as of June 1, 1994 may act as agents for such banks. An affiliate bank or savings association may not conduct any activity as an agent that it is prohibited from conducting as a principal.

        If an interstate bank decides to close a branch located in a low or moderate income area, it must comply with additional branch closing notice requirements. The appropriate regulatory agency is authorized to consult with community organizations to explore options to maintain banking services in the affected community where the branch is to be closed.

        To ensure that interstate branching does not result in taking deposits without regard to a community's credit needs, the regulatory agencies have implemented regulations prohibiting interstate branches from being used as "deposit production offices." The regulations include a provision to the effect that if loans made by an interstate branch are less than 50% of the average of all depository institutions in the state, then the regulator must review the loan portfolio of the branch. If the regulator determines that the branch is not meeting the credit needs of the community, it has the authority to close the branch and to prohibit the bank from opening new branches in the state.

        The Caldera, Weggeland and Killea California Interstate Banking and Branching Act of 1995 (the "Caldera Act"), effective October 2, 1995, amends the California Financial Code to, among other matters, regulate the operations of state banks to eliminate conflicts with and to implement the

13

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 discussed above. The Caldera Act includes: (1) an election to permit early interstate merger transactions; (2) a prohibition against interstate branching through the acquisition of a branch business unit located in California without acquisition of the whole business unit of the California bank; and (3) a prohibition against interstate branching through de novo establishment of California branch offices. The Caldera Act mandates that initial entry into California by an out-of-state institution be accomplished by acquisition of or merger with an existing whole bank that has been in existence for at least five years.

Community Reinvestment Act

        The Bank is subject to the fair lending requirements and reporting obligations involving home mortgage lending operations and CRA activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities.

        A Bank's compliance with its CRA obligations is based on a performance-based evaluation system, which bases CRA ratings on the institution's lending, service, and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the FRB will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. Based on an examination conducted in the third quarter of 2001, the Bank was rated satisfactory in complying with its CRA obligations.

Deposit Insurance Premiums

        The Bank's deposit accounts are insured by the FDIC's Bank Insurance Fund ("BIF") to the maximum permitted by law. This deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or the institution's primary regulator.

        The FDIC charges an annual assessment for the insurance of deposits. As of December 31, 2001, the assessment ranged from 0 to 27 basis points per $100 of insured deposits, based on the risk a particular institution poses to its deposit insurance fund. The risk classification is based on an institution's capital group and supervisory subgroup assignment.

        Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 ("EGPRA"), at January 1, 1997, the Bank began paying, in addition to its normal deposit insurance premium as a member of the BIF, an amount equal to approximately 1.2 basis points per $100 of insured deposits toward the retirement of the Financing Corporation Bonds ("FICO Bonds") issued in the 1980s to assist in the recovery of the savings and loan industry. Members of the Savings Association Insurance Fund ("SAIF"), by contrast, pay, in addition to their normal deposit insurance premium, approximately 5.8 basis points. Under the EGPRA, the FDIC is not permitted to establish SAIF assessment rates that are lower than comparable BIF assessment rates. Beginning January 1, 2000, the rate paid to retire the FICO Bonds was required to be equal for members of the BIF and the SAIF.

Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996

        Environmental Protection Agency regulations excluding financial institutions from liability for the clean up of toxic materials on property held as collateral for loans were overturned by the federal courts. Due to concerns expressed by interested parties (owners, realtors, and lenders), Congress passed amendments to the Comprehensive Environmental Response, Compensation and Liability Act of 1980

14

("CERCLA") to reinstate certain safeguards for fiduciaries and lenders. A bank or other party acting as a fiduciary may hold property in such capacity and shall have no liability for the release or threatened release of a hazardous substance in excess of the value of the property held in a fiduciary capacity. For example, a bank acting as trustee under the terms of a written trust agreement will not have any liability in excess of the actual value of the assets in that particular trust. The assets of the Bank will not be at risk for a release occurring on property belonging to the trust. This amendment does not limit the liability of the fiduciary to private parties that may have a cause of action outside the scope of CERCLA. "Fiduciary," as used in CERCLA, includes trustees, executors, administrators, custodians, guardians, receivers, conservators, and personal representatives.

        The amendments to CERCLA include changes in the definitions contained in 42 U.S.C. section 9601(20), entitled "Definitions." A major change in the definition of "Owner" or "Operator" has the effect of limiting the liability of a financial institution that does not participate in management of an environmentally impaired property. Section 9607 of CERCLA states that owners and operators of a vessel or facility are liable for damages arising out of discharge of a hazardous substance on property. The amendment specifically states that a financial institution holding a deed of trust on real property that does not participate in the management of the operations carried out on the property is not an owner or an operator under the statute. The amendments further state that a financial institution that forecloses on such property does not incur liability simply by the act of foreclosing on the property or through the subsequent sale of the property to a third party.

Financial Modernization Act

        President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the "Financial Modernization Act") on November 12, 1999. The Financial Modernization Act generally accomplishes the following:

(1)

Facilitates the affiliation of commercial banks with security firms, insurance companies and other financial service providers by: repealing restrictions on affiliation contained in the Glass-Steagall Act; expressly preempting any state law restrictions on affiliation; and by eliminating the BHC Act's prohibition on insurance underwriting activities.



(2)

Substantially modifies and expands the BHC Act to permit bank holding companies to engage in a full range of "financial activities" through a new entity known as a "Financial Holding Company." "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking, real estate development and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system.



(3)

Sets forth a systematic structure for the functional regulation of banks, savings institutions, holding companies and their activities.



(4)

Provides enhanced protections for the privacy rights of consumer information.



(5)

Adopts provisions to modernize the Federal Home Loan Bank system including provisions relating to the capitalization, membership and corporate governance.



(6)

Revises the laws that implement CRA.



(7)

Amends the Federal Deposit Insurance Act regarding the governance of subsidiaries of state banks that engage in "activities as principal that would only be permissible" for a national bank to conduct in a financial subsidiary. The amendment expressly preserves a state bank's ability to retain all existing subsidiaries. And;

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(8)

Addresses a wide range of other legal and regulatory issues affecting financial institutions operations and activities.

        CIB has not determined whether it will seek an election to become a Financial Holding Company. The Board and Management are evaluating the benefits to determine whether CIB desires to utilize any of the Financial Modernization Act's expanded powers. Since California permits state chartered commercial banks to engage in any activity permissible for national banks, the Bank should be allowed to form subsidiaries to engage in the activities authorized by the Financial Modernization Act, to the same extent as a national bank.

        CIB does not expect that the Financial Modernization Act will have a material adverse effect on its operations in the near future. However, some commentators have projected that in the long term the Financial Modernization Act's enactment may result in further consolidation of and increased competition in the financial services industry.

USA Patriot Act of 2001

        President Bush signed the USA Patriot Act of 2001 ("Patriot Act") on October 26, 2001. This legislation was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C. on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement and the intelligence communities' ability to work together to combat terrorism on a variety of levels. The potential impact of the Patriot Act on financial institutions is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations, including:

(1)

Due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.



(2)

Standards for verifying customer identification at account opening.



(3)

Rules to promote cooperation among financial institutions, regulators, and law enforcement entities to assist in the identification of parties that may be involved in terrorism or money laundering.



(4)

Reports to be filed by nonfinancial trades and business with the Treasury Department's Financial Crimes Enforcement Network for transactions exceeding $10,000.



(5)

The filing of suspicious activities reports by securities brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

        Until all new regulations, rules or standards have been developed; the Company is not able to predict the impact of such law on its financial condition or results of operations at this time.

Proposed Legislation

        Periodically, legislation is enacted and regulations are promulgated which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. It is likely that additional legislation will be introduced in Congress or in state legislatures in the future that may impact the Company's business. It cannot be predicted whether or in what form any of these proposals will be taken or adopted, or the extent to which the present or future business of the Company may be affected.

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IMPACT OF MONETARY POLICIES

        Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and other borrowings and the interest rate earned by a bank on loans, securities, and other interest-earning assets comprises the major source of a bank's earnings. Thus, the earnings and growth of banks are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the FRB. The FRB implements national monetary policy, such an seeking to curb inflation and combat recession, by its open-market dealings in United States government securities, by adjusting the required level of reserves for financial institutions subject to reserve requirements and through adjustments to the discount rate applicable to borrowings by banks that are members of the FRB. The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates. The nature and timing of any future changes in such policies and their impact on the Bank cannot be predicted. In addition, adverse economic conditions could make a higher provision for loan losses a prudent course and could cause higher loan loss charge-offs, thus adversely affecting a bank's net earnings.

ACCOUNTING PRONOUNCEMENTS

SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"

        In September of 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125" ("SFAS No. 140"). This statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 revised the standard of accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS' No. 125's provisions without reconsideration. The Company has adopted the disclosure provisions related to the securitization of financial assets. All transactions entered into after the first quarter of 2001 have been accounted for in accordance with SFAS No. 140. This adoption did not have a material impact on the Company.

SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets"

        In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). These Statements change the method of accounting for business combinations and goodwill in two significant ways. First, SFAS No. 141 prohibits the use of the pooling of interests method and requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001. Second, SFAS No. 142 changes the accounting method for goodwill from an amortization method to an impairment-only approach. As a result, goodwill will be accounted for as an asset unless it declines in value. Companies will be required to test their goodwill valuation periodically for "impairment" or loss and to recognize any change on their books. The amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of SFAS No. 142, which for companies with calendar year ends, will be January 1, 2002. Management does not believe that the adoption of these Statements will have a material impact on the Company or its ability to accomplish certain business strategies.

SFAS No. 143, "Accounting for Asset Retirement Obligations"

        In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible, long-lived assets and the associated asset retirement costs. SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets which

17

result from the acquisition, construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. Management does not expect the adoption of this statement to have a material impact on its financial position and results of operations.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provision of Accounting Principles Board Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business," for the disposal of segments of a business. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less costs to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. Management does not expect that the adoption of this statement will have a significant impact on the Company's current financial position or results of operations.

CALIFORNIA ENERGY SHORTAGE

        Throughout 2001, California experienced periodic shortages in the supply of electricity to the state. There has been, and there may be in the future, limited rolling power outages or "blackouts" throughout the state. Power outages could disrupt the Company's operations, increase operating costs, and impact its borrowers ability to repay their debts. Contingency plans to deal with the power outages have been developed; however, the frequency of the duration of the power outages cannot be predicted. As a result, such outages could adversely affect the Company's future operating results.

EFFECTS OF TERRORISM

        The terrorists' acts of September 11, 2001, and thereafter, have had significant adverse effects upon the United States economy. Whether terrorist activities in the future, and the actions of the United States and its allies in combating terrorism on a worldwide basis, will adversely impact the Company and the extent of such impact is uncertain. Such events, however, have had and may continue to have, an adverse effect on the economy in the Company's market areas. Such continued economic deterioration could adversely affect the Company's future results of operations by, among other matters, reducing the demand for loans and other products and services offered by the Bank, increasing nonperforming loans and the amounts reserved for loan losses, and causing a decline in the Company's stock price.

SEGMENT REPORTING

        On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for a public business enterprises' reporting of information about its operating segments in its annual financial statements. The Statement requires that the enterprises report selected information concerning operating segments in interim financial reports issued to shareholders. Additionally, the Statement

18

establishes requirements for related disclosures about products, services, geographic areas, and major customers.

        SFAS No. 131 requires public business enterprises to report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. The Statement further requires reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprise's general purpose financial statements. It requires that all public business enterprises report information about the revenues derived from the enterprise's products or services (or groups of similar products and services), about the countries in which the enterprise earns revenues and holds assets, and about major customers regardless of whether that information is used in making operating decisions. However, SFAS No. 131 does not require an enterprise to report information that is not prepared for internal use if reporting it would be impracticable. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997.

        The adoption of the applicable provisions of SFAS No. 131 did not have a material effect on the Company, as Management believes that it operates only in one segment, the commercial banking segment.

OTHER INFORMATION

        There has been no material effect upon the Bank's capital expenditures, earnings, or competitive position as a result of federal, state, or local provisions regarding the discharge of materials into the environment.

ITEM 2. PROPERTIES

        The Bank currently conducts its banking operations from an administrative office, a loan operations and special asset office, and nine branch offices.

        The Bank's principal branch office in Yuba City, California, is located at 777 Colusa Avenue in a modern, single-story, shopping center end building, that has drive-up windows and off-street parking for its customers. This office was opened in 1982 and has a total square footage of 9,122.

        In 1991, the Bank purchased a 3,694 square foot building located at 1005 Stafford Way, Yuba City, California, located directly behind its main branch. This building housed the Bank's note department until March 2000. This vacant building was sold on March 30, 2001.

        The Bank purchased land for the Bank's office at 1221 Bridge Street, Yuba City, California, in 1978. In 1991, the Bank purchased a combined 14,972 square foot retail and office building with parking located at 1227 Bridge Street, adjacent to the Bank's Bridge Street branch. Currently, the Company's headquarters, the Bank's Data Center, and the Bank's administrative and financial consulting service offices are located in this building.

        The Bank's Marysville office is located at 700 "E" Street in Marysville, California. The Bank purchased this 3,702 square foot building, which was a branch of another bank, in September 1995.

        The Bank's Colusa branch office is located at 655 Fremont Street in a 2,819 square foot office building that was converted to banking quarters. The Bank owns the land and premises for the branch.

        In 1985, the Bank purchased a 5,306 square foot premises for its Arbuckle office located at the corner of Amanda and Sixth Streets. The Bank moved its Arbuckle office to this location in June 1986.

        In 1993, the Bank purchased a 4,427 square foot building that is now the location of its Woodland, California, branch office located at 203 Main Street. This was formerly the site of a branch of another bank.

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        The Bank leased the land and a module on the property located at 114 "D" Street, Wheatland, California, from March 1997 until April 1998 for its Wheatland branch office. In April 1998, the Bank entered a new lease for the same site together with a new freestanding building. The 2,831 square foot building was completed on September 21, 1998. At that time, the Bank relocated from the previously leased module. The term of the lease is 10 years with the option to extend the original term of this lease for two periods of five years each. The monthly lease payment is $2,797 and is subject to annual adjustments on the anniversary of the lease commencement date.

        The Bank moved its Citrus Heights loan production office ("LPO") to a new office in Roseville in December 2000. This LPO was converted into a full-service branch on September 26, 2001. The Bank entered into an agreement on July 26, 2000, to lease 3,816 square feet of office space at 1552 Eureka Road in Roseville. The term of this lease is sixty-two (62) months. Commencing on October 1, 2000, lease payments of $6,296 per month are required continuing through the twenty-sixth (26) month. Between months twenty-six (26) and fifty (50), rent will be $6,678 per month. Thereafter, the monthly payment rises to $7,060 through the end of the lease term.

        On October 18, 2000, the Bank entered into an agreement to lease a 1,200 square foot office space located at 435 South Highway 65, Suite A in Lincoln, California. The term of this lease is five years with rent payments of $2,340 per month for the first twenty-four (24) months. Thereafter, monthly lease payments are subject to annual adjustments pursuant to the lease agreement. This lease was amended on March 1, 2001. At that time, the Bank leased an additional 1,080 square feet of office space at the same location. Under the terms of the amended lease, the monthly rent payment is $5,426 beginning June 1, 2001.

        On December 2, 1996, the Bank purchased a former bank branch located at 995 Tharp Road in Yuba City, California. The Bank's Loan Operations Department and Special Assets Department are located at this facility.

        Rental expense for all premises leased by the Company totaled $143,102 for the year ended December 31, 2001. It is estimated that rental expense for leased premises will be approximately $176,116 for 2002.

ITEM 3. LEGAL PROCEEDINGS

        Other than routine litigation incidental to the ordinary course of the Company's business, neither CIB nor any of its subsidiary entities is a party to any material legal proceedings nor is any of their property the subject of any such proceeding. The Company believes that the ultimate disposition of all currently pending matters will not have a material adverse affect on the Company's financial condition or the results of its operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        CIB's common stock is trading on the NASDAQ Stock Market under the trading symbol "CIBN." CIB's common stock began trading on the NASDAQ Stock Market on July 31, 1996. Prior to that time, CIB's common stock was listed on the NASDAQ Bulletin Board and was the subject of limited trading.

        The following table presents the high and low closing sale prices of CIB's common stock for each quarterly period for the last two years as reported and as retroactively adjusted for the effect of applicable stock dividends by the NASDAQ Stock Market:

RANGE OF STOCK PRICES

2001 Quarters	High		Low
4th	$	24.30	$	21.99
3rd	$	25.14	$	21.67
2nd	$	26.67	$	21.91
1st	$	21.91	$	18.10

2000 Quarters	High		Low
4th	$	20.60	$	18.10
3rd	$	20.98	$	17.23
2nd	$	22.56	$	14.63
1st	$	15.76	$	12.93

        After adjusting retroactively for the effect of applicable stock dividends, cash dividends paid on CIB's common stock were $0.42 per share for the year ending December 31, 2001, and $0.40 per share for the year ending December 31, 2000.

        It is currently the intention of the Board of Directors of CIB to pay cash dividends on a quarterly basis. However, there is no assurance that cash dividends will be paid in the future, as CIB's ability to pay dividends is dependent upon the earnings, financial condition, and capital requirements of CIB and the Bank, as well as legal and regulatory requirements.

        Federal and State banking and corporate laws could limit the Bank's ability to pay dividends to CIB. The FRB has issued a policy statement that a bank holding company should not declare or pay a cash dividend to its shareholders if the dividend would place undue pressure on the capital of its subsidiary banks or if the dividend could be funded only through additional borrowings or other arrangements that may adversely affect the financial position of the company. In addition, a bank holding company may not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend, and its prospective rate of earnings retention is sufficient to fully fund each dividend and appears consistent with its capital needs, asset quality, and overall financial condition.

        As of March 13, 2002, there were 1,795 holders of record of CIB's common stock.

ITEM 6. SELECTED FINANCIAL DATA

        For the "Selected Financial Data," see page 8 of the Company's 2001 Annual Report to the Shareholders, which is incorporated herein by reference.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        For the "Management's Discussion and Analysis of Financial Condition and Results of Operations," see pages 10-28 of the Company's 2001 Annual Report to Shareholders, which is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        For the discussion of "Quantitative and Qualitative Disclosures About Market Risk," see section titled "Interest Rate Sensitivity" at pages 23-24 of the Company's 2001 Annual Report to the Shareholders, which is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        For "Financial Statements and Supplemental Data," see pages 29-51 of the Company's 2001 Annual Report to the Shareholders, which is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        On March 11, 2002, CIB's chief financial officer and corporate secretary, Robert J. Lampert, submitted his resignation effective March 25, 2002, from all positions held with CIB, the Bank, and EPI. Kevin R. Watson has been appointed as chief financial officer and corporate secretary of CIB and the Bank. Mr. Watson, a Certified Management Accountant, came to the Bank in 2001 with more than twelve years of business experience and most recently served as the Controller of CIB and the Bank. For information concerning directors and executive officers of the Company, see "ELECTION OF DIRECTORS" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the definitive Proxy Statement for the Company's 2002 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A (the "Proxy Statement"), which is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

        For information concerning executive compensation, see "EXECUTIVE COMPENSATION" in the Proxy Statement, which is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        For information concerning security ownership of certain beneficial owners and management, see "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in the Proxy Statement, which is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        For information concerning certain relationships and related transactions, see "Indebtedness of Management and Other Transactions" in the Proxy Statement, which is incorporated herein by reference.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)	1.	FINANCIAL STATEMENTS
	The consolidated financial statements of the Company and subsidiaries, other financial information, and the Independent Auditors' Report on Consolidated Financial Statements are contained herein under Item 8.
	2.	FINANCIAL STATEMENT SCHEDULES
	In accordance with Regulation S-X, the financial statement schedules have been omitted because (a) they are not applicable to or required of the Company; or (b) the information required is included in the consolidated financial statements or notes thereto.
	3.	EXHIBITS
	See Index to Exhibits of this Form 10-K.
(b)	REPORTS ON FORM 8-K
	The Company filed a Form 8-K on November 13, 2001, announcing the adoption of a program to affect repurchases of the Company's common stock.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly issued this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CALIFORNIA INDEPENDENT BANCORP
Date: March 19, 2002	By:	/s/  LARRY D. HARTWIG Larry D. Hartwig President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/  ROBERT J. LAMPERT Robert J. Lampert	Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)	March 19, 2002
/s/  JOHN L. DOWDELL John L. Dowdell	Director	March 19, 2002
/s/  HAROLD M. EASTRIDGE Harold M. Eastridge	Director	March 19, 2002
/s/  WILLIAM H. GILBERT William H. Gilbert	Director	March 19, 2002
/s/  LARRY D. HARTWIG Larry D. Hartwig	President, Chief Executive Officer and Director	March 19, 2002
/s/  JOHN I. JELAVICH John I. Jelavich	Director	March 19, 2002
/s/  DONALD H. LIVINGSTONE Donald H. Livingstone	Director	March 19, 2002
/s/  ALFRED G. MONTNA Alfred G. Montna	Director	March 19, 2002
/s/  DAVID A. OFFUTT David A. Offutt	Chairman of the Board of Directors, and Director	March 19, 2002

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/s/  WILLIAM K. RETZER William K. Retzer	Director	March 19, 2002
/s/  MICHAEL C. WHEELER Michael C. Wheeler	Director	March 19, 2002

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INDEX TO EXHIBITS

Exhibit No.
2.1	Plan of Reorganization and Merger Agreement dated January 30, 1995 by and between Feather River State Bank, FRSB Merger Company and California Independent Bancorp. Filed as Exhibit 2.1 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
3.1	Secretary's Compiled, Amended and Restated Articles of Incorporation for California Independent Bancorp as of April 26, 1999. Filed as Exhibit 3.1 to the Company's Quarterly Report filed on Form 10Q for the period ended March 31, 1999.*
3.2	Secretary's Compiled, Amended and Restated Bylaws of California Independent Bancorp as of September 30,1999. Filed as Exhibit 3.2 to the Company's Quarterly Report filed on Form 10Q for the period ended September 30, 1999.*
10.1	Salary Continuation Agreement dated April 28, 1993 with Annette Dier Bertolini. Filed as Exhibit 10.1 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.2	Software License Agreement dated March 16, 1998 with Information Technology, Inc.
10.3	Product License Agreement dated March 16, 1998 with Information Technology, Inc.
10.4	Equipment Sale Agreement dated May 21, 2001 with Information Technology, Inc.
10.5	Addendum to Software and Product License Agreements dated May 21, 2001 with Information Technology, Inc.
10.6	Deferred Compensation Agreement dated July 19, 1994 with William H. Gilbert. Filed as Exhibit 10.6 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.7	California Independent Bancorp Employee Stock Ownership Plan dated January 1, 2001.
10.8	California Independent Bancorp 401K Retirement Savings Plan dated January 1, 2001.
10.9	Bank Affiliate Agreement between Feather River State Bank and London Pacific Securities, Inc., formerly know as Select Advisors, Inc. Filed as Exhibit 10.8 to the Company's General Form for Registration of Securities on Form 10 (File No. 0-26552).*
10.10	California Independent Bancorp 1989 Amended and Restated Stock Option Plan including related Incentive and Non Statutory Stock Option Agreements. Filed as Exhibit 4 to Amendment No. 1 to the Company's Registration Statement on Form S-8/SEC Registration No. 333-09813 dated November 26, 1996.*
10.11	California Independent Bancorp 1996 Stock Option Plan and related Incentive Stock Option and Nonstatutory Stock Option Agreements. Filed as Exhibit to Amendment No. 1 to the Company's Form S-8/SEC Registration No. 333-09823 dated November 26, 1996.*
10.12	Lease by and between Raj J. Sharma and Feather River State Bank for 114 D Street, Wheatland, California. Filed as Exhibit 10.16 to the Company's Form 10-K for December 31, 1998.*
10.13	Severance Agreement between California Independent Bancorp, Feather River State Bank and Robert J. Mulder dated May 25, 1999. Filed as Exhibit 10.19 to the Company's Form 10-Q for June 30, 1999.*

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10.14	Director Deferred Fee Agreement between Feather River State Bank and David A. Offutt dated April 1, 1999. Filed as Exhibit 10.20 to the Company's Form 10-Q for September 30, 1999.*
10.15	Employment Agreement between California Independent Bancorp, Feather River State Bank and Larry D. Hartwig dated July 19, 1999. Filed as Exhibit 10.21 to the Company's Form 10-Q for September 30, 1999.*
10.16	Nonqualified Stock Option Agreement between California Independent Bancorp and Larry D. Hartwig dated July 19, 1999. Filed as Exhibit 10.22 to the Company's Form 10-Q for September 30, 1999.*
10.17	Executive Salary Continuation Agreement between Feather River State Bank and Blaine C. Lauhon dated May 7, 1999. Filed as Exhibit 10.23 to the Company's Form 10-Q for September 30, 1999.*
10.18	Executive Salary Continuation Agreement between Feather River State Bank and Larry D. Hartwig dated October 27, 1999. Filed as Exhibit 10.19 to the Company's Form 10-K for December 31, 1999.*
10.19	Promissory Note, Loan Agreement and Annual Contribution Agreement dated May 11, 2000, by and between Feather River State Bank Employee Stock Ownership Plan and Trust and United ComServe. Filed as Exhibit 10.21 to the Company's Form 10-Q for June 30, 2000.*
10.20	California Independent Bancorp Revised 2000 Equity Incentive Plan. Filed as Exhibit 10.22 to the Company's Form 10-Q for September 30, 2000.*
10.21	California Independent Bancorp 2000 Equity Incentive Plan Form Nonqualifying Stock Option Agreement. Filed as Exhibit 10.23 to the Company's Form 10-Q for September 30, 2000.*
10.22	California Independent Bancorp 2000 Equity Incentive Plan Form Nonqualifying Stock Option Exercise Agreement. Filed as Exhibit 10.24 to the Company's Form 10-Q for September 30, 2000.*
10.23	California Independent Bancorp 2000 Equity Incentive Plan Form Incentive Stock Option Agreement. Filed as Exhibit 10.25 to the Company's Form 10-Q for September 30, 2000.*
10.24	California Independent Bancorp 2000 Equity Incentive Plan Form Incentive Stock Option Exercise Agreement. Filed as Exhibit 10.26 to the Company's Form 10-Q for September 30, 2000.*
10.25	Severance Agreement and Release of Claims dated August 11, 2000 between Feather River State Bank and Annette Bertolini. Filed as Exhibit 10.27 to the Company's Form 10-Q for September 30, 2000.*
10.26	Consulting Agreement dated July 5, 2000 between Feather River State Bank and Annette Bertolini. Filed as Exhibit 10.28 to the Company's Form 10-Q for September 30, 2000.*
10.27	Lease by and between Eureka Corporate Plaza, Ltd., L.P. and Feather River State Bank, for the premises at 1552 Eureka Road, Roseville, California. Filed as Exhibit 10.29 to the Company's Form 10-Q for September 30, 2000.*

27

10.28	Pursuant to the 2000 Equity Incentive Plan as referenced in Exhibit 10.22, to the Company's Form 10-Q for September 30, 2000, Nonqualifying Stock Options amounting to 825 shares at $20.75 per share were granted to non-employee directors on September 19, 2000. The options vest 20% after twelve months and 20% each year thereafter. Such options terminate September 19, 2010. The following Directors were granted shares under these terms: John Dowdell, Harold Eastridge, William Gilbert, John Jelavich, Don Livingstone, Alfred Montna, David Offutt, William Retzer, Ross Scott and Michael Wheeler. Each Director has entered into Nonqualifying Stock Option Agreements with the Company in the form attached as Exhibit 10.23 to the Company's Form 10-Q for September 30, 2000.*
10.29	Pursuant to the 2000 Equity Incentive Plan as referenced in Exhibit 10.22, to the Company's Form 10-Q for September 30, 2000, Nonqualifying Stock Options amounting to 10,000 shares were granted at $22.62 per share on July 18, 2000, to Robert Lampert, Executive Vice President/Chief Operating Officer of the Bank. The options vest 20% after twelve months and 20% each year thereafter. Such options terminate July 18, 2010. Mr. Lampert has entered into a Nonqualifying Stock Option Agreement with the Company in the form attached as Exhibit 10.23 to the Company's Form 10-Q for September 30, 2000, to the Company's Form 10-Q for September 30, 2000.*
10.30	Pursuant to the 2000 Equity Incentive Plan as referenced in Exhibit 10.25, to the Company's Form 10-Q for September 30, 2000, Incentive Stock Options were granted to the following executive and senior officers of the Bank. The options were granted on September 19, 2000 at $20.75 per share. The options vest 20% after twelve months and 20% each year thereafter. Such options terminate September 19, 2010. Each officer has entered into an Incentive Stock Option Agreement with the Company in the form attached as Exhibit 10.25 to the Company's Form 10-Q for September 30, 2000.*

Larry Hartwig, President/CEO	15,000 shares
Robert Lampert, Chief Operating Officer	5,000 shares
Blaine Lauhon, Chief Lending Officer	4,000 shares
Kenneth Anderson, Marketing & Branch Services Officer	4,000 shares
Douglas Marr, Chief Credit Officer	5,000 shares
Don McDonel, Senior Loan Officer	5,000 shares

10.31	Lease for a branch office at 435 South Highway 65, Suite A, Lincoln, California, entered into between Lincoln Town Center, LLC and Feather River State Bank on December 1, 2000. Filed as Exhibit 10.28 to the Company's Form 10-K for December 31, 2000.*.
10.32	Lincoln lease Amendment for a branch office at 435 South Highway 65, Suite A, Lincoln, California, entered into between Lincoln Town Center, LLC and Feather River State Bank on March 1, 2001.
10.33	Lease Servicing Agreement dated May 26, 2000, by and among Bancorp Financial Services, Inc., as the Servicer, and EPI Leasing Company Inc., a subsidiary of Feather River State Bank as the Originator. Filed as Exhibit 10.29 to the Company's Form 10-K for December 31, 2000.*

28

Exhibit No.
10.34	Form of Employment Security Agreement ("ESA"). During the first-quarter of 2001, the Company entered into the attached Form of ESA with certain of its senior officers and the following executive officers:

Robert Lampert, EVP, Chief Operating Officer
Don McDonel, EVP, Commercial & Retail Banking
Kenneth Anderson, SVP, Branch Services Officer
Blaine Lauhon, SVP, Chief Lending Officer
Doug Marr, SVP, Chief Credit Officer

Filed as Exhibit 10.29 to the Company's Form 10-Q for March 31, 2001.*

10.35

Pursuant to the 1996 Stock Option Plan, as referenced in Exhibit 10.8 to the Company's Form 10-K for December 31, 2000, Nonqualified Stock Options were granted to the following executive and senior officers of the Bank. The options were granted on July 17, 2001 at $25.10 per share. The options vest 20% after twelve months and 20% each year thereafter. Such options terminate July 17, 2011. Each officer has entered into a Nonqualified Stock Option Agreement with the Company in the Form S-8/SEC Registration No. 333-09823 dated November 26, 1996.

Robert J. Lampert, EVP, Chief Operating Officer	5,000 shares
Don McDonel, EVP, Commercial & Retail Banking	5,000 shares
Douglas R. Marr, SVP, Chief Credit Officer	2,500 shares

	Filed as Exhibit 10.31 to the Company's Form 10-Q for September 30, 2001.*
13	California Independent Bancorp's 2001 Annual Report to Shareholders. (Deemed filed only with respect to those sections that have been incorporated into this Form 10-K by reference.)
21	Feather River State Bank, a California banking corporation, is the only subsidiary of Registrant.
23	Consent of Arthur Andersen LLP for audited financial statements for the year ended December 31, 2001.

*

Document incorporated herein by reference.

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QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
THIS REPORT INCLUDES A TOTAL OF 29 PAGES EXHIBIT INDEX IS ON PAGE 26-29 INDEX
PART I
PART II
RANGE OF STOCK PRICES
PART III
PART IV
SIGNATURES
INDEX TO EXHIBITS

EX-10.2

Exhibit 10.2

[LOGO]

INFORMATION TECHNOLOGY INC.

SOFTWARE LICENSE AGREEMENT

Agreement made between Information Technology, Inc. (the “Vendor”), and the “Customer” identified below.

I.LICENSED SOFTWARE

                1.1  LICENSE.  Vendor grants to Customer and Customer accepts from Vendor a nonexclusive and nontransferable license to use the software identified in Appendix A (the “Software”) under the terms set forth in this agreement.  The license herein granted shall commence upon the date of delivery of the software and shall remain in effect for so long as Vendor’s warranties set forth in Article V remain in effect.

                1.2  PROPRIETARY NATURE OF SOFTWARE AND TITLE.  The Software and any operations manuals, instructions, and other documents or written materials provided to Customer as instruction in the use of the Software (the “Documentation”) are acknowledged by Customer to be and contain Vendor’s proprietary information and trade secrets, whether or not any portion thereof is or may be validly copyrighted or patented, acknowledged to be protected by civil and criminal law, and acknowledged to be of great value to Vendor.  Except as specifically licensed under this agreement, title and all ownership rights to the Software and the Documentation remain with Vendor.  Customer shall retain or affix such evidences of ownership and proprietary notices as Vendor may reasonably request.  This paragraph shall survive the term or termination of this agreement.

                1.3  USE OF SOFTWARE.  The Software may be used only for, by and on behalf of Customer and only in connection with Customer’s business operations.  This license is granted only for use at the single location identified in Appendix A, upon a single computer system (CPU) as identified in Appendix A, and is limited to processing of not more than the number of accounts (as hereinafter defined) specified in Appendix A.  This license may not be used upon any other computer or at any other location except as provided under paragraph 1.4.  In the event Customer’s usage exceeds the account limitation set forth in Appendix A, a new, upgraded Software License Agreement shall be required, including the payment of an additional license fee.  For purposes of this Agreement, “accounts” are defined as the total of all accounts (open or closed) for demand deposit, demand deposit loan, savings, time savings, IRA, certificate of deposit, and loan accounts, whether processed or not by Customer, for the institutions being served with the Software licensed hereunder.

                1.4  BACKUP AND EMERGENCY USE.  In the event Customer is unable to use the Software at the location identified in Appendix A due to an emergency, or to test emergency procedures, Vendor grants to Customer the right to use the Software at a location other than the location defined in Appendix A.  Any such use shall be subject to all other restrictions of this agreement and shall continue only so long as the condition giving rise to such use continues.  Prior to commencing such use, if possible, and in any event within forty-eight (48) hours of such use, Customer shall give Vendor written notice of the circumstance, location and the expected length of such use.  Failure to give notice shall nullify Customer’s right of emergency use, as herein granted.

                1.5  ASSIGNMENT.  Customer rights under this agreement and in and to the Software may not be assigned, licensed, sublicensed, pledged, or otherwise transferred voluntarily, by operation of law or otherwise without Vendor’s prior written consent, and any such prohibited assignment shall be null and void.

II.CONSIDERATION

                2.1  LICENSE FEE.  In consideration of the license of the Software granted under this agreement, Customer shall pay to Vendor the license fee specified in Appendix A.  Such license fee does not include, except as expressly provided in this agreement or Appendix A hereto, installation or maintenance of the Software, data base conversion, media, transportation charges, or taxes, all of which costs and taxes shall be the obligation of Customer.

                2.2  MANNER OF PAYMENT.  The license fee listed in Appendix A shall be payable in the following manner:

(A) A percentage of the license fee, as specified in Appendix A, upon execution of this license agreement by Customer.

(B) The balance, including any applicable taxes, upon delivery of the Software by Vendor to Customer.

Invoices respecting the license fee shall be rendered in accordance with the above payment schedule and are payable to Vendor at Vendor’s address set forth below within ten (10) days of receipt.

                2.3  TAXES.  In addition to the license fee payable hereunder, Customer shall pay all taxes (including, without limitation, sales, use, privilege, ad valorem or excise taxes) and customs duties paid or now or hereafter payable, however designated, levied or based on amounts payable to Vendor hereunder or on Customer’s use or possession of the Software under this agreement, or upon the presence of the Software at the location identified in Appendix A, but exclusive of federal, state and local taxes based on Vendor’s net income.  Customer shall not deduct from payments to Vendor any amounts paid or payable to third parties for customs duties or taxes, however designated.

                2.4  CURRENCY.  The purchase price and any other charges arising under this agreement shall be invoiced and be payable in U.S. Dollars.

                2.5  LATE PAYMENT.  Customer shall pay a late payment charge of one and one-half percent (1 1/2%) per month, or the maximum late payment charge permitted by applicable law, whichever is less, on any amount payable by Customer under this Agreement and not paid when due.  Said late payment charge shall be applied for each calendar month (or fraction thereof) that such payment is not made following its due date.

                2.6  SECURITY.  Vendor reserves and Customer grants to Vendor a security interest in the rights of Customer for the use of the Software and in the Documentation as security for the performance by Customer of its obligations hereunder including, but not limited to, payment of the license fee set forth in Appendix A.  A copy of this agreement may be filed in appropriate filling offices at after signature by Customer as a financing statement or Vendor may require and Customer shall execute a separate financing statement for purposes of perfecting Vendor’s security interest granted pursuant to the provisions of this paragraph.

III.DELIVERY, TRAINING AND OPERATION

                3.1  DELIVERY.  Vendor shall deliver the Software and Customer shall accept delivery of the Software at Customer’s address set forth below.  Unless delayed, as hereinafter provided for, delivery shall be completed within one (1) year of the date accepted by Vendor.

                3.2  DELIVERY DELAYS.  In the event Customer requests delay of delivery, Vendor shall not be obligated to effect delivery of the Software except upon thirty (30) days written notice by Customer to Vendor.  If delay in delivery is due to any cause beyond the control of Vendor, the date upon which delivery is to be completed shall be extended by the number of days of such delay.

                3.3  TRAINING.  Classes in the operation of the Software are available at the offices to Vendor on a regularly scheduled basis at Vendor’s normal rates with respect thereto.  All travel, meal and lodging expenses of Customer in connection with such training shall be borne by Customer.  On-site training or assistance will be available solely at Vendor’s discretion and will be charged to Customer at Vendor’s normal rates together with reasonable expenses for travel, meals, lodging and local transportation.

                3.4  ASSISTANCE BY CUSTOMER.  Customer shall provide reasonable assistance and cooperation to Vendor in preparation of the Software and the delivery or installation thereof.  Such assistance and cooperation shall include, as appropriate, reasonable access to Customer’s facility and to Customer’s records, as necessary.

                3.5  DOCUMENTATION.  Operations manuals in respect to the Software will be delivered to Customer prior to or contemporaneously with the delivery of the Software.

                3.6  RISK OF LOSS.  If the Software or the Documentation is lost or damaged, in whole or in part, during shipment, Vendor will replace said Software or Documentation at no additional charge to Customer.  Upon delivery in good condition of the Software and the Documentation,

1

Customer shall be responsible therefor and bear the risk of loss for said Software and Documentation.

                3.7  CONVERSION ASSISTANCE.  Vendor may, at its sole discretion, assist Customer in the conversion of Customer’s files from a computer processor or in-house computer system at Vendor’s normal charges for such assistance.  Expenses, including but not limited to computer time, travel, meals, lodging and local transportation incurred in connection therewith, shall be borne by Customer.  In no event shall Vendor be liable to Customer for loss of profits, consequential, incidental, indirect or special damages arising from Vendor’s effort to assist in the conversion of Customer’s files.  Vendor agrees to treat Customer’s confidential business with the same security as it would its own.

                3.8  OPERATION.  Customer acknowledges and agrees that it is exclusively responsible for the operation, supervision, management and control of the Software, including, but not limited to, providing adequate training for its personnel, instituting appropriate security procedures, and implementing reasonable procedures to examine and verify all output before use.  Vendor shall have no responsibility or liability for Customer’s selection or use of the Software or any associated equipment.

                3.9  CUSTOMER OBLIGATIONS.  In order to maintain the continuing integrity and proper operation of the Software, Customer agrees to implement, in the manner instructed by Vendor, each error correction and each enhancement and improvement provided to Customer by Vendor.  Customer’s failure to do so shall relieve Vendor of any responsibility or liability whatsoever for any failure or malfunction of the Software as modified by a subsequent correction or improvement, but in no such event shall Customer be relieved of the responsibility for payment of fees and charges otherwise properly invoiced during the term hereof.  If requested by Vendor, Customer agrees to provide written documentation and details to Vendor to substantiate problems and to assist Vendor in the identification and detection of problems, errors and malfunctions; and Customer agrees that Vendor shall have no obligation or liability for said problems until it has received such documentation and details from Customer.

IV.VENDOR’S PROPRETARY RIGHTS

                4.1  NON-DISCLOSURE.  Customer shall take all reasonable steps necessary to ensure that neither the Software nor the Documentation, nor any portion thereof, on magnetic tape or disk or in any other form, is made available or disclosed by Customer or any of its agents or employees to any other person, firm or corporation.  Customer may disclose relevant aspects of the Software and Documentation to its employees and agents to the extent such disclosure is reasonably necessary to Customer’s use of the Software, provided, however, Customer agrees that it will cause all persons permitted such access to the Software and the Documentation to observe and perform the foregoing non-disclosure covenant, and that it will advise Vendor of the procedures employed for this purpose.  Customer shall hold Vendor harmless against any loss, cost, expense, claim or liability, including reasonable attorney's fees, resulting from Customer’s breech of this non-disclosure obligation. This paragraph shall survive the term or termination of this agreement.

                4.2  COPIES.  Customer agrees that while the Software and the Documentation are in its custody and possession, it will not (a) copy or duplicate or permit anyone else to copy or duplicate any of the Software, Documentation or information furnished by Vendor, or (b) create or attempt to create, or permit others to create of attempt to create, by reverse engineering or otherwise, the source programs or any part thereof from the object program for the Software, the Documentation or other information made available under this agreement or otherwise, (whether oral, written, tangible or intangible).  Notwithstanding the foregoing, Customer may make and retain two (2) copies of the Software, including all enhancements and charges hereto, only for use in emergencies or to test emergency procedures an may copy  for its own use in emergencies or to test emergency procedures and may copy for its own use and at its own expense the Documentation, but shall advise Vendor of the specific item copied, the number of copies made and their distribution.  The original and any copies in whole or in part of the Software or Documentation which are made pursuant to this provision shall be the exclusive property of Vendor and shall be fully subject to the provision of this agreement.  Customer agrees to retain or place Vendor ‘s proprietary notice on any copies or partial copies made pursuant to this provision.

                4.3  UNAUTHORIZED ACTS.  Customer agrees to notify Vendor immediately of the unauthorized possession, use, or knowledge of the Software, Documentation or any information made available to Customer pursuant to this agreement, by any person or organization not authorized by this agreement to have such possession, use or knowledge Customer will, thereafter, fully cooperate with Vendor in the protection and redress of Vendor’s proprietary rights.  Customer’s compliance with this paragraph shall not, however, be constructed in any way as a waiver of Vendor’s rights against Customer for Customer’s negligent or intentional harm to Vendor’s proprietary rights, or for breech of Vendor’s contractual rights.

                4.4  INSPECTION.  To assist Vendor in the protection of its proprietary rights, Customer shall permit representatives of Vendor to inspect the Software and Documentation and their use, including inspection of any location in which they are being used or kept at all reasonable times.

                4.5  INJUNCTIVE RELIEF.  If Customer attempts to use, copy license, sublicense, sell or otherwise convey or to disclose the Software or Documentation, in any manner contrary to the terms of this agreement or in derogation of Vendor’s proprietary rights, whether such rights are explicitly herein stated, determined by law or otherwise, Vendor shall have, in addition to any other remedies available to it, the right to injunctive relief enjoining such actions, Customer hereby acknowledging that other remedies are inadequate.

                4.6  ACCESS TO SOURCE CODE.  Vendor has deposited the Software in source code form and Documentation sufficient to facilitate maintenance, modification or correction of the Software with the custodial agent named in Appendix A.  Vendor reserves the right to change said custodial agent at any time with written notification to Customer within sixty (60) days of said change.  If Vendor, its successors or assigns shall cease to conduct business for any period in excess of thirty (30) days.  Customer shall have the right to obtain, for its own and sole use only, a single copy of the than current version of the sources code form of the Software supplied under this agreement; and a single copy of the Documentation associated therewith, upon payment to the person in control of the said source code form of the software of the reasonable cost of making each copy.  The source code form of the software supplied to customer under this paragraph shall be subject to each and every restriction on use set forth in this agreement.  Customer acknowledges that the source code form of the Software and the associated Documentation are extraordinarily valuable proprietary property of Vendor and will be guarded against unauthorized use or disclosure with great care.

V.MAINTENANCE, ENHANCEMENTS AND WARRANTIES

                5.1  SOFTWARE WARRANTY.  Vendor warrants that at delivery of the Software, the Software will perform in accordance with the then current Documentation provided Customer, and further warrants that it has the right to authorize the use of the Software under this agreement.  Vendor’s obligation and liability under this paragraph shall, however, be limited to the replacement and correction of the Software so that it will so perform, or to obtaining any authorization necessary to make effective the grant of license to Customer of the use of the Software.

                5.2  PATENT INFRINGEMENTS.  Vendor shall hold harmless and defend Customer from any claim or any suit based on any claim that the use of the Software by Customer under this agreement infringes on any patent, copyright, trademark, or other proprietary right of any third party, provided that Customer gives Vendor prompt and written notice of any such claim or suit and permits vendor to control the defense thereof.

                5.3  WARRANTY DISCLAIMER.  THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES AND NO OTHER WARRANTY IS EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

                5.4  RENEWAL OF WARRANTIES.  Unless sooner terminated pursuant to the provisions of paragraph 5.6, the warranties granted by paragraphs 5.1 and 5.2 (subject, however to all limitations and disclaimers contained within this agreement) and the right to any enhancement or correction developed by Vendor under paragraph 5.5 shall be subject to extension for successive one-year warranty periods commencing on the date of the delivery of the software.  Each one year extension (the “Warranty Period”) shall be deemed to automatically occur unless notice is given by either Customer or Vendor of an election not to so extend, such notice to be given on or prior to the beginning of the Warranty Period its then current annual maintenance fee.

                5.5  ENHANCEMENTS AND CHANGES.  Vendor shall provide Customer with all enhancement and changes to the Software designed or developed by Vendor and released to its other customers during the Warranty Period.  Any change or enhancement to the Software, whether developed or designed by Vendor or by Customer shall be and remain the property of Vendor, provided, however, that Customer shall be entitled to

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a perpetual license without additional license fee of any enhancements or corrections developed by Customer.  Vendor reserves the right to make changes in operating procedures, program language, file structures, access techniques, general purpose programs, data storage requirements, input and output formats, report formats, types of hardware supported, throughput, and other related programming and documentation improvements required to maintain the Software current.  As part of these services, Vendor will provide Customer the changes with written instructions concerning implementation.  It is understood and agreed that Vendor provision of improvements and enhancements under this paragraph does not include providing to Customer a new set of software which may result from rewriting the Software.  Vendor alone shall determine whether the work product of Vendor constitutes new software as a result of a complete rewrite (which is not provided to Customer hereunder) or an improvement or enhancement of the Software (which will be provided to Customer).

                5.6  TERMINATION OF WARRANTIES.  The warranties expressed in paragraphs 5.1 and 5.2 and Customer’s rights under paragraph 5.5 shall immediately terminate if the Software is revised, changed, enhanced, modified or maintained by any one other than Vendor without the prior specific direction or written approval of Vendor.

                5.7.  LIMITATION OF LIABILITY.  Customer expressly agrees that Vendor’s responsibilities in the event of its breech of the warranties contained in paragraphs 5.1 and 5.2 are as set forth in said paragraphs.  Vendor’s liability for damages, including but not limited to liability for patent or copyright infringement, regardless of the form of action, shall not exceed the license fee set forth in Appendix A to this and shall arise only if the remedies provided in paragraphs 5.1 and 5.2 are not fulfilled by Vendor.  Customer further agrees that Vendor will not be liable for any lost profits, or for any claim or demand against Customer by any other party, except a claim or demand against Customer by any other party, except a claim for patent or copyright infringement as provided herein.  IN NO EVENT WILL VENDOR BE LIABLE FOR CONSEQUENTIAL DAMAGES EVEN IF VENDOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  No action, regardless of form, arising out of this agreement, may be brought by either party more than one (1) year after the cause of action has accrued, except that an action for non-payment may be brought within one (1) year after the date of last payment.  No action by Vendor for wrongful disclosure or use of the Software or Documentation shall be deemed to have accrued until Vendor receives actual notice of such wrongful disclosure or use of Vendor receives actual notice of such wrongful disclosure or use.

THE CUSTOMER’S REMEDIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE.

VI.DEFAULT

                6.1  TERMINATION.  Vendor may terminate this agreement and the license granted hereunder in the event of a default by Customer unless Customer shall have cured the event of default, as hereinafter defined, within twenty (20) days after notice of such event of default given by Vendor to Customer.  This agreement and the license granted hereunder shall automatically terminate if Vendor’s warranties are not renewed as contemplated in paragraph 5.4 hereof.  Upon any termination of this agreement, Customer shall deliver to Vendor the Software, the Documentation and all copies thereof and shall also warrant in writing that all copies have been returned to Vendor or destroyed.

                6.2  EVENTS OF DEFAULT.  An event of default is defined as any of the following:

(A)  Customer’s failure to pay any amounts required to be paid to Vendor under this agreement on a timely basis;

(B)  Any attempt (i) to assign, soil, mortgage, lease, sublease, license, sublicense or otherwise convey, (ii) to grant any interest in, right of use of, or access to, or (iii) to otherwise disclose the Software or the Documentation, except, in any such case, as herein expressly permitted or as consented to in writing by the Vendor;

(C)  Causing or permitting any encumbrance, of any nature—whatsoever to attach to Customer’s interest in the Software in favor of any person or entity other than Vendor.

(D)  The entry of any order for relief under any provision of the federal bankruptcy proceedings initiated by or against Customer; or

(E)  Customer’s breech of any of the terms or conditions of this agreement.

                6.3  DAMAGES.  Upon the occurrence of an event of default without cure within the period of time above-provided, all license or other fees payable to Vendor under this agreement shall without notice or demand by Vendor become immediately due and payable as liquidated damages.  This provision for liquidated damages shall not be regarded as a waiver by Vendor of any other rights to which it may be entitled in the event of Customer’s default, but rather, such remedy shall be an addition to any other remedy lawfully available to Vendor.

VIIGENERAL

                7.1  TITLES.  Titles and paragraph headings are for reference purposes only and are not to be considered a part of this agreement.

                7.2  FORCE MAJEURE.  No party shall be liable for delay in performance hereunder due to causes beyond its control, including but not limited to acts of God, fires, strikes, delinquencies of suppliers, acts of war or intervention by any governmental authority, and each party shall take steps to minimize any such delay.

                7.3  WAIVER.  No waiver of any breach of any provision of this agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof and no waiver shall be effective unless made in writing and signed by an authorized representative of the party to be charged therewith.

                7.4  SEVERABILITY.  In the event that any provision of this agreement shall be illegal or otherwise unenforceable, such provision shall be severed from this agreement and the entire agreement shall not fall on account thereof, the balance of the agreement continuing in full force and effect.

                7.5  NOTICES.  Any notice which either party hereto is required or permitted to give hereunder shall be addressed to the party to be changed therewith at the address set forth below and shall be given by certified or registered mail.  Any such notice shall be deemed given on the date of deposit in the mail.

                7.6  ENTIRE AGREEMENT.  THE PARTIES HERETO ACKNOWLEDGE THAT EACH HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS.  THE PARTIES FURTHER AGREE THAT THIS AGREEMENT AND ANY MODIFICATIONS MADE PURSUANT TO IT CONSTITUTE THE COMPLETE AND EXCLUSIVE WRITTEN EXPRESSION OF THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES, AND SUPERSEDE ALL PRIOR OR CONTEMPORANEOUS PROPOSALS, ORAL OR WRITTEN, UNDERSTANDINGS, REPRESENTATIONS, CONDITIONS, WARRANTIES, COVENANTS, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.  THE PARTIES FURTHER AGREE THAT THIS AGREEMENT MAY NOT IN ANY WAY BE EXPLAINED OR SUPPLEMENTED BY A PRIOR OR EXISTING COURSE OF DEALINGS BETWEEN THE PARTIES, BY ANY USAGE OF TRADE OR CUSTOM, OR BY ANY PRIOR PERFORMANCE BETWEEN THE PARTIES PURSUANT TO THIS AGREEMENT OR OTHERWISE.  IN THE EVENT CUSTOMER ISSUES A PURCHASE ORDER OR OTHER INSTRUMENT COVERING THE SOFTWARE HEREIN SPECIFIED, IT IS UNDERSTOOD AND AGREED THAT SUCH PURCHASE ORDER OR OTHER INSTRUMENT IS FOR CUSTOMER’S INTERNAL USE AND PURPOSES ONLY AND SHALL IN NO WAY AFFECT ANY OF THE TERMS AND CONDITIONS OF THIS AGREEMENT.

                7.7  GOVERNING LAW.  This agreement is accepted in the State of Nebraska, and shall be enforced in accordance with and governed by the laws of the State of Nebraska.

                7.8  CHOICE OF FORUM.  Any action arising out of or related to this agreement or the transaction herein described, whether at law or in equity, may be instituted in and litigated in the state and federal courts of the State of Nebraska.  In accordance herewith, the parties hereto submit to the jurisdiction of the courts of said state.  Any party being not a resident of Nebraska at the time of suit hereby appoints the Secretary of State of Nebraska as its agent for receipt of service of process.

                7.9  ATTORNEY’S FEES.  In the event that any action or proceeding is brought in connection with this agreement the prevailing party therein shall be entitled to recover its costs and reasonable attorney’s fees.

                7.10  COUNTERPARTS/FACSIMILES.  This agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Any signature to this agreement may be transmitted by fax and a facsimile signature received by a party hereto shall for all purposes be deemed an original signature hereto.

                7.11  EFFECTIVE DATE.  This agreement shall be effective on the date accepted and executed by an authorized representative of Vendor.

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CUSTOMER:						VENDOR:
FEATHER RIVER STATE BANK						INFORMATION TECHNOLOGY, INC.
Signature:			/s/ Martha Cassi			Signature:	/s/ Michael K. Young
Name:		Martha Cassi				Name:		Michael K. Young
Title:	Vice President					Title		Executive Vice President
Address:				1005 Stafford Way		Address:		1345 Old Cheney Road
				Yuba City, CA 95991				Lincoln, NE 68512
Date:					3-5-98	Date Accepted:		March 16, 1998

APPENDIX A

DUE UPON EXECUTION:	30%		LOCATION WHERE THE PRODUCT(S) WILL BE USED:
COMPUTER SYSTEM (CPU):		NX4221-21 (A151)		Feather River State Bank
NUMBER OF ACCOUNTS:		under 48,000 accounts		1227 Bridge Street, Ste. C
				Yuba City, CA 95991
CUSTODIAL AGENT:
West Gate Bank, 1204 West O Street, Lincoln, NE 68528

SOFTWARE PRODUCT(S) AND LICENSE FEE(S)

101-000	Central Information System
102-000	Demand Deposit Accounting System
103-000	Savings Accounting System
104-000	Certificate of Deposit Accounting System
105-000	Loan Accounting System
106-000	Item Entry System
151-000	General Ledger System
	Package Price	$	88,511
102-103	Express Exception Item Processing Module	2,864
105-101	Automated Credit Reporting Module	1,604
105-301	Loan Custodial Module (Single Institution)	3,437
108-101	Bulk Filing Module	5,729
151-101	Holding Company Reporting Module	2,979
152-001	Asset Liability Management System (Single Institution)	5,729
220-000	ATM File Transfer Module	3,437
220-130	ATM File Transfer Network Interface — Fiserv, Portland, OR	4,585
221-000	Data Communication File Transfer Module	4,585
320-000	Currency Transaction System	2,149
370-000	Connect	2,865
370-101	TeleBanc—InterVoice Interface	3,938
702-000	Accounts Payable System	3,760
	SUBTOTAL:	$	13,6172
	LESS: Prior System Credit	(115,466		)
	TOTAL:	$	20,706

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EX-10.3

Exhibit 10.3

[LOGO]

INFORMATION TECHNOLOGY INC.

PRODUCT LICENSE AGREEMENT

Agreement made between Information Technology, Inc. (the “Vendor”), and the “Customer” identified below.

I.LICENSED PRODUCT

                1.1  LICENSE.  Vendor grants to Customer and Customer accepts from Vendor a nonexclusive and nontransferable license to use the products identified in Appendix A (the “Product”) under the terms set forth in this agreement.  The license herein granted shall commence upon the date of delivery of the Product and shall remain in effect for so long as Vendor’s warranties set forth in Article V remain in effect.

                1.2  PROPRIETARY NATURE OF PRODUCT AND TITLE.  The Product and any operations manuals, instructions, and other documents or written materials provided to Customer as instruction in the use of the Product (the “Documentation”) are acknowledged by Customer to be and contain Vendor’s proprietary information and trade secrets, whether or not any portion thereof is or may be validly copyrighted or patented, acknowledged to be protected by civil and criminal law, and acknowledged to be of great value to Vendor.  Except as specifically licensed under this agreement, title and all ownership rights to the Product and the Documentation remain with Vendor.  Customer shall retain or affix such evidences of ownership and proprietary notices as Vendor may reasonably request.  This paragraph shall survive the term or termination of this agreement.

                1.3  USE OF PRODUCT.  The Product may be used only for, by and on behalf of Customer and only in connection with Customer’s business operations.  This license is granted only for use at the single location identified in Appendix A, and upon a single computer system (CPU) as identified in Appendix A and may not be used upon any other computer or at any other location except as provided under Paragraph 1.4.

                1.4  BACKUP AND EMERGENCY USE.  In the event Customer is unable to use the Product at the location identified in Appendix A due to an emergency, or to test emergency procedures, Vendor grants to Customer the right to use the Product at a location other than the location defined in Appendix A.  Any such use shall be subject to all other restrictions of this agreement and shall continue only so long as the condition giving rise to such use continues.  Prior to commencing such use, if possible, and in any event within forty-eight (48) hours of such use, Customer shall give Vendor written notice of the circumstance, location and the expected length of such use.  Failure to give notice shall nullity Customer’s right of emergency use, as herein granted.

                1.5  ASSIGNMENT.  Customer rights under this agreement and in and to the Product may not be assigned, licensed, sublicensed, pledged, or otherwise transferred voluntarily, by operation of law or otherwise without Vendor’s prior written consent, and any such prohibited assignment shall be null and void.

II.CONSIDERATION

                2.1  LICENSE FEE.  In consideration of the license of the Product granted under this agreement, Customer shall pay to Vendor the license fee specified in Appendix A.  Such license fee does not include, except as expressly provided in this agreement or Appendix A hereto, installation or maintenance of the Product, data base conversion, media, transportation charges, or taxes, all of which costs and taxes shall be the obligation of Customer.

                2.2  MANNER OF PAYMENT.  The license fee listed in Appendix A shall be payable in the following manner:

(A) A percentage of the license fee, as specified in Appendix A, upon execution of this license agreement by Customer.

(B) The balance, including any applicable taxes, upon delivery of the Product by Vendor to Customer.

Invoices respecting the license fee shall be rendered in accordance with the above payment schedule and are payable to Vendor at Vendor’s address set forth below within ten (10) days of receipt.

                2.3  TAXES.  In addition to the license fee payable hereunder, Customer shall pay all taxes (including, without limitation, sales, use, privilege, ad valorem or excise taxes) and customs duties paid or now or hereafter payable, however designated, levied or based on amounts payable to Vendor hereunder or on Customer’s use or possession of the Product under this agreement, or upon the presence of the Product at the location identified in Appendix A, but exclusive of federal, state and local taxes based on Vendor’s net income.  Customer shall not deduct from payments to Vendor any amounts paid or payable to third parties for customs duties or taxes, however designated.

                2.4  CURRENCY.  The purchase price and any other charges arising under this agreement shall be invoiced and be payable in U.S. Dollars.

                2.5  LATE PAYMENT.  Customer shall pay a late payment charge of one and one-half percent (1 1/2%) per month, or the maximum late payment charge permitted by applicable law, whichever is less, on any amount payable by Customer under this Agreement and not paid when due.  Said late payment charge shall be applied for each calendar month (or fraction thereof) that such payment is not made following its due date.

                2.6  SECURITY.  Vendor reserves and Customer grants to Vendor a security interest in the rights of Customer for the use of the Product and in the Documentation as security for the performance by Customer of its obligations hereunder including, but not limited to, payment of the license fee set forth in Appendix A.  A copy of this agreement may be filed in appropriate filing offices at any time after signature by Customer as a financing statement or Vendor may require and Customer shall execute a separate financing statement for purposes of perfecting Vendor’s security interest granted pursuant to the provisions of this paragraph.

III.DELIVERY, TRAINING AND OPERATION

                3.1  DELIVERY.  Vendor shall deliver the Product and Customer shall accept delivery of the Product at Customer’s address set forth below.  Unless delayed, as hereinafter provided for, delivery shall be completed within one (1) year of the date accepted by Vendor.

                3.2  DELIVERY DELAYS.  In the event Customer requests delay of delivery, Vendor shall not obligated to effect delivery of the Product except upon thirty (30) days written notice by Customer to Vendor.  If delay in delivery is due to any cause beyond the control of Vendor, the date upon which delivery is to be completed shall be extended by the number of days of such delay.

                3.3  TRAINING.  Classes in the operation of the Product are available at the offices to Vendor on a regularly scheduled basis at Vendor’s normal rates with respect thereto.  All travel, meal and lodging expenses of Customer in connection with such training shall be borne by Customer.  On-site training or assistance will be available solely at Vendor’s discretion and will be charged to Customer at Vendor’s normal rates together with reasonable expenses for travel, meals, lodging and local transportation.

                3.4  ASSISTANCE BY CUSTOMER.  Customer shall provide reasonable assistance and cooperation to Vendor in preparation of the Product and the delivery or installation thereof.  Such assistance and cooperation shall include, as appropriate, reasonable access to Customer’s facility and to Customer’s records, as necessary.

                3.5  DOCUMENTATION.  Operations manuals in respect to the Product will be delivered to Customer prior to or contemporaneously with the delivery of the Product.

                3.6  RISK OF LOSS.  If the Product or the Documentation is lost or damaged, in whole or in part, during shipment, Vendor will replace said Product or Documentation at no additional charge to Customer.  Upon delivery in good condition of the Product and the Documentation, Customer shall be responsible therefor and bear the risk of loss for said Product and Documentation.

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3.7.INSTALLATION ASSISTANCE Vendor may, at its sole discretion, assist Customer in any required installation of the Product at Vendor’s normal charges for such assistance, Expenses, including but not limited to computer time, travel, meals, lodging and local transportation incurred in connection therewith, shall be borne by Customer.  In no event shall Vendor be liable to Customer for loss of profits, consequential, incidental, indirect or special damages arising from Vendor’s efforts to assist in such installation. Vendor agrees to treat Customer’s confidential business with the same security as it would its own.

3.8.OPERATION.  Customer acknowledges and agrees that it is exclusively responsible for the operation, supervision, man- agreement and control of the Product, including, but not limited to, providing adequate training for its personnel, instituting appropriate security procedures, and implementing reasonable procedures to examine and verify all output before use.  Vendor shall have no responsibility or liability for Customer’s selection or use of the Product or any associated equipment.

3.9 CUSTOMER OBLIGATIONS.  In order to maintain the continuing integrity and proper operation of the Product, Customer agrees to implement, in the manner instructed by Vendor, each error correction and each enhancement and improvement provided to Customer by Vendor. Customer’s failure to do so shall relieve Vendor or any responsibility or liability whatsoever for any failure or malfunction of the Product as modified by a subsequent correction or improvement, but in no such event shall Customer be relieved of the responsibility for payment of fees and charges otherwise properly invoiced during the term hereof.  If requested by Vendor, Customer agrees to provide written documentation and details to Vendor to substantiate problems and to assist Vendor in the identification and detection of problems, errors and malfunctions; and Customer agrees that Vendor shall have no obligation or liability for said problems until it has received such documentation and details from Customer.

IV. VENDOR’S PROPRIETARY RIGHTS

4.1.NON-DISCLOSURE.  Customer shall take all reasonable steps necessary to ensure that neither the Product nor the Documentation, nor any portion thereof, on magnetic tape or disk or in any other form, is made available or disclosed by Customer or any of its agents or employees to any other person, firm or corporation. Customer may disclose relevant aspects of the Product and Documentation to its employees and agents to the extent such disclosure is reasonably necessary to Customer’s use of the Product, provided, however, Customer agrees that it will cause all persons permitted such access to the Product and the Documentation to observe and perform the foregoing non-disclosure covenant, and that it will advise Vendor of the procedures employed for this purpose.  Customer shall hold Vendor harmless against any loss, cost, expense, claim or liability, including reasonable attorney’s fees, resulting from Customer’s breach of this non-disclosure obligation. This paragraph shall survive the term or termination of this agreement.

4.2 COPIES.  Customer agrees that while the Product and the Documentation are in its custody and possession, it will not (a) copy or duplicate or permit anyone else to copy or duplicate any of the Product, Documentation or information furnished by Vendor, or (b) create or attempt to create, or permit others to create or attempt to create, by reverse engineering or otherwise, the Product, the Documentation or other information made available under this agreement or otherwise, (whether oral, written, tangible or intangible).  Notwithstanding the foregoing, Customer may make land retain two (2) copies of the Product, including all enhancements and changes hereto, only for use in emergencies or to test emergency procedures land may copy for its own use and at its own expense the Documentation, but shall advise Vendor of the specific item copied, the number of copies made and their distribution.  The original and any copies in whole or in part of the Product or Documentation which are made pursuant to this provision shall be the exclusive property of Vendor and shall be fully subject to the provisions of this agreement. Customer agrees to retain or place Vendor’s proprietary notice on any copies or partial copies made pursuant to this provision.

4.3 UNAUTHORIZED ACTS.  Customer agrees to notify Vendor immediately of the unauthorized possession, use, or knowledge of the Product. Documentation or any information made available to Customer pursuant to this agreement, by any person or organization not authorized by this agreement to have such possession, use or knowledge.  Customer will, thereafter, fully cooperate with Vendor in the protection and redress of Vendor’s proprietary rights.  Customer’s compliance with this paragraph shall not, however, be construed in any way as a waiver of Vendor’s rights against Customer for Customer’s negligent or intentional harm to Vendor’s proprietary rights, or for breach of Vendor’s contractual rights.

4.4.INSPECTION.  To assist Vendor in the protection of its proprietary rights, Customer shall permit representatives of Vendor to inspect the Product and Documentation and their use, including inspection of any location in which they are being used or kept at all reasonable times.

4.5.INJUNCTIVE RELIEF.  If Customer attempts to use, copy, license, sublicense, sell or otherwise convey or to disclose the Product or Documentation, in any manner contrary to the terms of this agreement or in derogation of Vendor’s proprietary rights, whether such rights are explicitly herein stated, determined by law or otherwise, Vendor shall have, in addition to any other remedies available to it, the right to injunctive relief enjoining such actions, Customer hereby acknowledging that other remedies are inadequate.

V. MAINTENANCE, ENHANCEMENTS AND WARRANTIES

5.1.PRODUCT WARRANTY.  Vendor warrants that at delivery, the Product will perform in accordance with the then current Documentation provided customer, and further warrants that it has the right to authorize the use of the Product under this agreement. Vendor’s obligation and liability under this paragraph shall, however, be limited to the replacement and correction of the Product so that it will so perform, or to obtaining any authorization necessary to make effective the grant of license to Customer of the use of the Product.

5.2.PATENT INFRINGEMENTS. Vendor shall hold harmless and defend Customer from any claim or any suit based on any claim that the use of the Product by Customer under this agreement infringes on any patent, copyright, trademark, or other proprietary right of any third party, provided that Customer gives Vendor prompt and written notice of any such claim or suit and permits Vendor to control the defense thereof.

5.3.WARRANTY DISCLAIMER.  THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES AND NO OTHER WARRANTY IS EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY LAND FITNESS FOR A PARTICULAR PURPOSE.

5.4.RENEWAL OF WARRANTIES.  Unless sooner terminated pursuant to the provisions of paragraph 5.6, the warranties granted by paragraphs 5.1 and 5.2 (subject, however, to all limitations and disclaimers contained within this agreement) and the right to any enhancements or corrections developed by Vendor under paragraph 5.5, shall be subject to extension for successive one-year warranty periods commencing on the date of the delivery of the Product.  Each one year extension (the “Warranty Period”) shall be deemed to automatically occur unless notice is given by either Customer or Vendor of an election not to so extend, such notice to be given on or prior to the sixtieth (60th) day preceding the Warranty Period. Any such extension shall in no event be effective unless Customer shall have paid to Vendor on or prior to the beginning of the Warranty Period its then current annual maintenance fee.

5.5.ENHANCEMENTS AND CHANGES.  Vendor shall provide Customer with all enhancements and changes to the Product designed or developed by Vendor and released to its other customers during the Warranty Period.  Any change or enhancement to the Product, whether developed or designed by Vendor or by Customer shall be and remain the property of Vendor, provided, however, that Customer shall be entitled to a perpetual license without additional license fee of any enhancements or corrections developed by Customer.  Vendor reserves the right to make changes in operating procedures, program language, file structures, access techniques, general purpose programs, data storage requirements, input and output formats, report formats, types of hardware supported, throughout, and other related programming and

2

documentation improvements required to maintain the Product current. As part of these services, Vendor will provide Customer the changes with written instructions concerning implementation.  It is understood and agreed that Vendor provision of improvements and enhancements under this paragraph does not include providing to Customer new product which may result from rewriting the Product.  Vendor alone shall determine whether the work product of Vendor constitutes new product as a result of a complete rewrite (which is not provided to Customer hereunder) or an improvement or enhancement of the Product (which will be provided to Customer).

5.6 TERMINATION OF WARRANTIES.  The warranties expressed in paragraphs 5.1 and 5.2 and Customer’s rights under paragraph 5.5 shall immediately terminate if the Product is revised, changed, enhanced, modified or maintained by any one other than Vendor without the prior specific direction or written approval of Vendor.

5.7. LIMITATION OF LIABILITY.  Customer expressly agrees that Vendor’s responsibilities in the event of its breach of the warranties contained in paragraphs 5.1 and 5.2 are as set forth in said paragraphs.  Vendor’s liability for damages, including but not limited to liability for patent or copyright infringement, regardless of the form of action, shall not exceed the license fee set forth in Appendix A to this agreement and shall arise only if the remedies provided in paragraphs 5.1 and 5.2 are not fulfilled by Vendor.  Customer further agrees that Vendor will not be liable for any lost profits, or for any claim or demand against Customer by any other party, except a claim for patent or copyright infringement as provided herein.  IN NO EVENT WILL VENDOR BE LIABLE FOR CONSEQUENTIAL DAMAGES EVEN IF VENDOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  No action, regardless of form, arising out of this agreement, may be brought by either party more than one (1) year after the cause of action has accrued, except that an action for non-payment may be brought within one (1) year after the date of the last payment.  No action by Vendor for wrongful disclosure or use of the Product or Documentation shall be deemed to have accrued until Vendor receives actual notice of such wrongful disclosure or use.

THE CUSTOMER’S REMEDIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE.

VI. DEFAULT

6.1 TERMINATION.  Vendor may terminate this agreement and the license granted hereunder in the event of a default by Customer unless Customer shall have cured the event of default, as hereinafter defined, within twenty (20) days after notice of such event of default given by Vendor to Customer.  This agreement and the license granted hereunder shall automatically terminate if’Vendor’s warranties are not renewed as contemplated in paragraph 5.4 hereof.  Upon any termination of this agreement, Customer shall deliver to Vendor the Product, the Documentation and all copies thereof and shall warrant in writing that all copies have been returned to Vendor or destroyed.

6.2 EVENTS OF DEFAULT.  An event of default is definedas any of the following:

(A) Customer’s failure to pay any amounts required to be paid to Vendor under this agreement on a timely basis;

(B) Any attempt (i) to assign, sell, mortgage, lease, sublease, license, sublicense or otherwise convey, (ii) to grant any interest in, right of use of, or access to, or (iii) to otherwise disclose the Product or the Documentation, except, in any such case, as herein expressly permitted or as consented to in writing by the Vendor;

(C) Causing or permitting any encumbrance, of any nature whatsoever to attach to Customer’s interest in the Product in favor of any person or entity other than Vendor;

(D) The entry of any order for relief under any provision of the federal bankruptcy code in any bankruptcy proceedings initiated by or against Customer; or

(E) Customer’s breach of any of the terms or conditions of this agreement.

6.3 DAMAGES.  Upon the occurrence of an event of default without cure within the period of time above-provided, all license or other fees payable to Vendor under this agreement shall without notice or demand by Vendor become immediately due and payable as liquidated damages.  This provision for liquidated damages shall not be regarded as a waiver by Vendor of any other rights to which it may be entitled in the event of Customer’s default, but rather, suchremedy shall be an addition to any other remedy lawfully available to Vendor.

VII. GENERAL

7.1. TITLES.  Titles and paragraph headings are reference purposes only and are not to be considered a part of this agreement.

7.2. FORCE MAJEURE.  No party shall be liable for delay in performance hereunder due to causes beyond its control, including but not limited to acts of God, fires, strikes, delinquencies of suppliers, acts of war or intervention by any governmental authority, and each party shall take steps to minimize any such delay.

7.3. WAIVER.  No waiver of any breach of any provision of this agreement shall constitute a waiter of any prior, concurrent or subsequent breach of the same or any other provisions hereof and no waiver shall be effective unless made in writing and signed by an authorized representative of the party to be charged therewith.

7.4. SEVERABILITY.  In the event that any provision of this agreement shall be illegal or otherwise unenforceable, such provision shall be severed from this agreement and the entire agreement shall not fail on account thereof, the balance of the agreement continuing in full force and effect.

7.5 NOTICES.  Any notice which either party hereto is required or permitted to give hereunder shall be addressed to the party to be charged therewith at the address set forth below and shall be given by certified by registered mail.  Any such notice shall be deemed given on the date of deposit in the mail.

7.6 ENTIRE AGREEMENT.  THE PARTIES HERETO ACKNOWLEDGE THAT EACH HAS READ THIS AGREEMENT,UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS.  THE PARTIES FURTHER AGREE THAT THIS AGREEMENT AND ANY MODIFICATIONS MADE PURSUANT TO IT CONSTITUTE THE COMPLETE AND EXCLUSIVE WRITTEN EXPRESSION OF THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES, AND SUPERSEDE ALL PRIOR OR CONTEMPORANEOUS PROPOSALS, ORAL OR WRITTEN, UNDERSTANDINGS, REPRESENTATIONS, CONDITIONS, WARRANTIES, COVENANTS, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.  THE PARTIES FURTHER AGREE THAT THIS AGREEMENT MAY NOT IN ANY WAY BE EXPLAINED OR SUPPLEMENTED BY A PRIOR OR EXISTING COURSE OF DEALINGS BETWEEN THE PARTIES, BY ANY USAGE OF TRADE OR CUSTOM, OR BY ANY PRIOR PERFORMANCE BETWEEN THE PARTIES PURSUANT TO THIS AGREEMENT OR OTHERWISE.  IN THE EVENT CUSTOMER ISSUES A PURCHASE ORDER OR OTHER INSTRUMENT COVERING THE SERVICES OR DOCUMENTATION HEREIN SPECIFIED, IT IS UNDERSTOOD AND AGREED THAT SUCH PURCHASE ORDER OR OTHER INSTRUMENT IS FOR CUSTOMER’S INTERNAL USE AND PURPOSES ONLY AND SHALL IN NO WAY AFFECT ANY OF THE TERMS AND CONDITIONS OF THIS AGREEMENT.

7.7 GOVERNING LAW.  This agreement is accepted in the State of Nebraska, and shall be enforced in accordance with and governed by the laws of the State of Nebraska.

7.8 CHOICE OF FORUM.  Any action arising out of or related to this agreement or the transaction herein described, whether at law or in equity, may be instituted in and litigated in the state or federal courts of the State of Nebraska.  In accordance herewith, the parties hereto submit to the jurisdiction of the courts of said state.  Any party being not a resident of Nebraska at the time of suit hereby appoints’ the Secretary of State of Nebraska as its agent for receipt of service of process.

7.9 ATTORNEY’S FEES.  In the event that any action or proceeding is brought in connection with this agreement the prevailing party therein shall be entitled to recover its costs and reasonable attorney’s fees.

7.10 EFFECTIVE DATE.  This agreement shall be effective on the date accepted and executed by an authorized representative’ of Vendor.

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CUSTOMER:						VENDOR:
FEATHER RIVER STATE BANK						INFORMATION TECHNOLOGY, INC.
Signature:				Martha Cassi		Signature:			Michael K. Young
Name:		Martha Cassi				Name:		Michael K. Young
Title:	Vice President					Title:	Executive Vice President
Address:					1005 Stafford Way	Address:				1345 Old Cheney Road
					Yuba City, CA 95991					Lincoln, NE 68512
Date			3-5-98			Date Accepted:					March 16, 1998

APPENDIX A

DUE UPON EXECUTION:	30%	LOCATION WHERE THE PRODUCT(S) WILL BE USED
COMPUTER SYSTEM(CPU):	NX4221-21 (A151)
	*under 48,000 accounts	Feather River State Bank
		1227 Bridge Street, Ste. C
		Yuba City, CA 95991

PRODUCT(S) AND LICENSE FEE(S):
106-102	DP1000/1800 Item Processing Module	$	8,012
108-108	DP1000/1800 Bulk Filing Module Interface	3,723
109-001	DP1000/1800 Directed Fine Sort Module	7,162
	SUBTOTAL:	$	18,897
	LESS: Prior System Credit	(17,812		)
	TOTAL:	$	1,085

* Accounts being defined as the total of all accounts (open or closed) for demand deposit, demand deposit loan, savings, time savings, IRA, certificate of deposit, and loan accounts, whether processed or not by Customer, for the institutions being serviced by Vendor’s software listed in Appendix A.

4

EX-10.4

Exhibit 10.4

INFORMATION TECHNOLOGY INC.

EQUIPMENT SALE AGREEMENT

Agreement made between Information Technology, Inc. (the “Vendor”), and the “Customer” identified below.

1. PURCHASE

1.1.Customer hereby purchases from Vendor and Vendor hereby sells to Customer the equipment identified in Appendix A (the “Equipment”), upon the terms set forth in this agreement.  The term “Equipment” shall also include any software, documentation (including manuals and educational materials) or software maintenance releases and updates which are provided by the manufacturer of the Equipment identified in Appendix A (the “Manufacturer”).

II. DELIVERY

2.1 INSTALLATION.  Delivery and, if required by the complexity of the Equipment or by agreement with the Customer, installation of the Equipment will be made by the Manufacturer at Customer’s address set forth below.  Customer shall pay the installation charges of Manufacturer, if any.

2.2 SUBSTITUTION.  Equipment of equivalent or superior functionality and performance may be substituted by Vendor or Manufacturer.

III. CONSIDERATION

3.1 PURCHASE PRICE.  As and for the purchase price for the Equipment, Customer agrees to pay Vendor and Vendor agrees to accept from Customer, the purchase price specified in Appendix A.

3.2 TAXES AND OTHER CHARGES.  In addition to the purchase price, Customer shall pay all transportation charges and all taxes (including, without limitation, sales, use, privilege, ad valorem or excise taxes) and customs duties paid or payable by Vendor, however designated, levied or based on amounts payable to Vendor under this agreement, but exclusive of federal, state and local taxes based on Vendor’s net income.  If additional labor and rigging are required for installation due to Customer’s special site requirements, Customer will pay those costs, including costs to meet union or local law requirements.  Customer shall not deduct from payments to Vendor any amounts paid or payable to third parties for transportation charges, customs duties or taxes, however designated.

3.3 MANNER OF PAYMENTS.  The purchase price and other charges arising under this agreement shall be payable by Customer to Vendor in the following manner:

(A) A percentage of the purchase price, as specified in Appendix A, shall be payable upon execution of this agreement by Customer; the receipt or deposit of such payment, however, shall not constitute Vendor’s acceptance of this agreement.

(B) The balance of the purchase price, together with any transportation charges and any taxes and duties theretofore incurred by Vendor, shall be payable upon delivery of the Equipment to Customer.

(C) Any taxes, duties, or other charges incurred by Vendor following delivery of the Equipment shall be payable within ten (10) days of receipt by Customer of Vendor’s invoice therefor.

3.4 CURRENCY.  The purchase price and any other charges arising under this agreement shall be invoiced and be payable in U.S. Dollars.

3.5 LATE PAYMENT.   Customer shall pay a late payment charge of one and one-half percent (1 1/2%) per month, or the maximum late payment charge permitted by applicable law, whichever is less, on any amount payable by Customer under this Agreement and not paid when due.  Said late payment charge shall be applied for each calendar month (or fraction thereof) that such payment is not made following its due date.

IV. TITLE

4.1 Until such time as the purchase price and any other charges payable to Vendor as of the date of delivery have been paid in full, the Equipment and all instruction manuals therefor shall remain the property of Vendor and, at the option of Vendor, shall be returned to Vendor at Customer’s expense in the event the purchase price is not paid as hereinabove provided.

V. SECURITY

5.1 Vendor reserves and Customer grants to Vendor a security interest in the Equipment as security for the performance by Customer of its obligations hereunder including, but not limited to, payment of the purchase price and other charges as specified in Section III above.  A copy of this agreement may be filed in appropriate filing offices at any time after signature by Customer as a financing statement or Vendor may require and Customer shall execute a separate financing statement for purposes of perfecting Vendor’s security interest granted pursuant to the provisions of this paragraph.

VI. CUSTOMER OBLIGATIONS

6.1 RISK OF LOSS.  From and after the date of delivery, the risk of loss or damage to the Equipment shall be on the Customer.

6.2 OPERATION.  Customer acknowledges and agrees that it is exclusively responsible for the operation, supervision, management and control of the Equipment, including, but not limited to, providing adequate training for its personnel, instituting appropriate security procedures, and implementing reasonable procedures to examine and verify all output before use.  Vendor shall have no responsibility or liability for Customer’s selection or use of the Equipment or any associated equipment.

VII. WARRANTIES

7.1 WARRANTY. Vendor warrants to Customer that it has the right to transfer title of the Equipment to Customer.  Vendor’s sole liability under this warranty shall be to obtain any title or authorization necessary to transfer such title to Customer.

7.2 DISCLAIMER.  THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES AND NO OTHER WARRANTY IS EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

7.3 MANUFACTURER’S WARRANTY.  Customer expressly understands and agrees that warranties regarding patents, materials, workmanship or use of the Equipment (the “Manufacturer’s Warranty”), if any, are made exclusively by the Manufacturer and not by Vendor, and if made, shall be encompassed within a separate agreement.  Customer’s exclusive remedy under Manufacturer’s Warranty shall be as provided therein and shall lie exclusively against and be obtainable only from the Manufacturer, and Customer expressly agrees that it shall have no claim or cause of action against Vendor in the event the Manufacturer is for any

1

reason unwilling or unable to perform under the terms of manufacturer’s Warranty.

7.4  LIMITATION OF LIABILITY. Customer expressly agrees that Vendor’s responsibilities in the event of its breach of the warranties contained in paragraph 7.1 of this agreement are as set forth in said paragraph.  Vendor’s liability for damages, regardless of the form of action shall not exceed the purchase price set forth in Appendix A to this agreement and shall arise only if the remedies set forth in paragraph 7.1 are not fulfilled by Vendor.  Customer further agrees that Vendor will not be liable for any lost profits, or for any claim or demand against Customer by any other party.  IN NO EVENT WILL VENDOR BE LIABLE FOR CONSEQUENTIAL DAMAGES EVEN IF VENDOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  No action, regardless of form, arising out of the transactions under this agreement, may be brought by either party more than one (1) year after the cause of action has accrued, except that an action for non-payment may be brought within one (1) year after the date of the last payment.

THE CUSTOMER’S REMEDIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE.

VIII. DEFAULT

8.1 REMEDY. Upon the occurrence of an event of default, as hereinafter defined, by Customer, if the Equipment has theretofore been delivered, Vendor may recover, together with any incidental damages, any unpaid portion of the purchase price of the Equipment as specified in Appendix A hereto.  If the Equipment has not been delivered, in which event Vendor may withhold delivery of such Equipment, or if the Equipment is returned to Vendor upon Vendor’s election pursuant to Section IV, Vendor may resell the Equipment.  Upon such resale, Vendor shall recover from Customer the difference between the unpaid portion of the purchase price, as specified in Appendix A, and the resale price, together with any incidental damages, including expenses of resale, sustained by Vendor by reason of Customer’s default.  The remedy herein specified is not exclusive.  Vendor may elect to pursue any other remedy available to it pursuant to applicable law.

8.2 EVENTS OF DEFAULT. As utilized in this agreement, an event of default is defined as any of the following:

(A) Customer’s failure to pay any amounts required to be paid to Vendor under this agreement on a timely basis;

(B) Customer’s refusal to accept delivery of the Equipment;

(C) Until the purchase price has been paid in full, any attempt by Customer to assign, sell, mortgage, or otherwise convey the Equipment;

(D) Prior to the payment in full of the purchase price, Customer causing or permitting any encumbrance, of any nature whatsoever, to attach to Customer’s interest in the Equipment in favor or any person or entity other than Vendor;

(E) The entry of any order for relief under any provision of the federal bankruptcy code in any bankruptcy proceedings initiated by or against Customer; or

(F) Customer’s breach of any of the terms or conditions of this agreement.

IX. GENERAL

9.1 TITLES. Titles and paragraph headings are for reference purposes only and are not to be considered a part of this agreement.

9.2 FORCE MAJEURE. No party shall be liable for delay in performance hereunder due to causes beyond its control, including but not limited to acts of God, fires, strikes, delinquencies of suppliers, intervention of any governmental authority or acts of war, and each party shall take steps to minimize any such delay.

9.3 WAIVER. No waiver of any breach of any provision of this agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof and no waiver shall be effective unless made in writing and signed by an authorized representative of the party to be charged therewith.

9.4 SEVERABILITY. In the event that any provision of this agreement shall be illegal or otherwise unenforceable, such provision shall be severed from this agreement and the entire agreement shall not fail on account thereof, the balance of the agreement continuing in full force and effect.

9.5 NOTICES. Any notice which either party hereto is required or permitted to give hereunder shall be addressed to the party to be charged therewith at the address set forth below and shall be given by certified or registered mail.  Any such notice shall be deemed given on the date of deposit in the mail.

9.6 ENTIRE AGREEMENT. THE PARTIES HERETO ACKNOWLEDGE THAT EACH HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS.  THE PARTIES FURTHER AGREE THAT THIS AGREEMENT AND ANY MODIFICATIONS MADE PURSUANT TO IT CONSTITUTE THE COMPLETE AND EXCLUSIVE WRITTEN EXPRESSION OF THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES, AND SUPERSEDE ALL PRIOR OR CONTEMPORANEOUS PROPOSALS, ORAL OR WRITTEN, UNDERSTANDINGS, REPRESENTATIONS, CONDITIONS, WARRANTIES, COVENANTS, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.  THE PARTIES FURTHER AGREE THAT THIS AGREEMENT MAY NOT IN ANY WAY BE EXPLAINED OR SUPPLEMENTED BY A PRIOR OR EXISTING COURSE OF DEALINGS BETWEEN THE PARTIES, BY ANY USAGE OF TRADE OR CUSTOM, OR BY ANY PRIOR PERFORMANCE BETWEEN THE PARTIES PURSUANT TO THIS AGREEMENT OR OTHERWISE.  IN THE EVENT CUSTOMER ISSUES A PURCHASE ORDER OR OTHER INSTRUMENT COVERING THE EQUIPMENT HEREIN SPECIFIED, IT IS UNDERSTOOD AND AGREED THAT SUCH PURCHASE ORDER OR OTHER INSTRUMENT IS FOR CUSTOMER’S INTERNAL USE AND PURPOSES ONLY AND SHALL IN NO WAY AFFECT ANY OF THE TERMS AND CONDITIONS OF THIS AGREEMENT.

9.7 GOVERNING LAW. This agreement is accepted in the State of Nebraska, and shall be enforced in accordance with and governed by the laws of the State of Nebraska.

9.8 CHOICE OF FORUM. Any action arising out of or related to this agreement or the transaction herein described, whether at law or in equity, may be initiated in and litigated in the state or federal courts of the State of Nebraska.  In accordance herewith, the parties hereto submit to the jurisdiction of the courts of said state.  Any party being not a resident of Nebraska at the time of suit hereby appoints the Secretary of State of Nebraska as its agent for receipt of service of process.

9.9 ATTORNEY’S FEES. In the event that any action or proceeding is brought in connection with this agreement the prevailing party therein shall be entitled to recover its costs and reasonable attorney’s fees.

9.10 COUNTERPARTS/FACSIMILES. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Any signature to this Agreement may be transmitted by fax and a facsimile signature received by a party hereto shall for all purposes be deemed an original signature hereto.

9.11 EFFECTIVE DATE. This agreement shall be effective on the date accepted and executed by an authorized representative of Vendor.

2

CUSTOMER:				VENDOR
Feather River State Bank				INFORMATION TECHNOLOGY, INC.
Signature:	Brent Davis				Signature:	Timothy D. Conzemius
Name:	Brent Davis		Name:			Timothy D. Conzemius
Title:	VP Chief Technology Officer			Title:		Vice President
Address:		1227 Bridge Street		Address:			1345 Old Cheney Road
		YUBA CITY CA 95991						Lincoln, NE 68512
Date:	03/15/01			Date Accepted:			May 21, 2001

APPENDIX A

EQUIPMENT AND TERMS

1. MANUFACTURER. The Manufacturer of the Equipment subject to this agreement is:	2. PURCHASE PRICE: The purchase price for the Equipment is $ 247,236 . 30 % thereof shall be payable upon execution of this  agreement, the balance upon delivery of the Equipment. .
3. EQUIPMENT. The Equipment subject to this agreement consists of the following:

Appendix A

QTY	STYLE	DESCRIPTION	PURCHASE PRICE	EXTENDED PRICE
	1 ITI6100-T2	SYS: ITI LX6100 TOWER PKG	14,971	14,971
	1 ES504141-Z	SVR: TOWER Z-BOX 5044
	1 ES504141-OK1	ACC: ES5044 OP. KIT
	1 B25-LC	PWR CORD: LINE CORD
	1 MGT50-PCI	CTRL: REMOTE MGMT CARD
	1 ES204141-TAP	ACC: SERVER TOWER KIT
	2 XEO37001-1MB	PROC:XEON 700MHZ/1MB LVT
	2 XEO37001-TRM	ACC:PROC. TERMINATOR
	1 XEO37001-VRM	ACC: PROC. VOLT REGULATOR
	4 DIM 10068-128	MEM: 128MB SDRAM PC 100 EC
	1 LX6100-LCP	INSTL: CLEARPATH HOLO LBL
	1 ES204410-HBP	ACC: HOTSWAP BK. PLANE 1”
	2 HDM 18110-CX1	DISK: 18GB, 1”, 10K, SCA NR
	1 SVG 100-EXT	CABLE: SVGA EXTENSION
	1 EVG3200-P	DISPLAY: 17"
	1 PWM2-PS2	MOUSE: SCROLLING MOUSE
	1 PCK104-SKB	KEYBD: SPACE SAVER
	1B25-LC	PWR CORD: LINE CORD
	2 PCK1-EXT	CABLE: PS2 KYB EXTENSION
	2DRV1000-SUP	ACC: DRIVER KIT
	1 ESR504141-LB	N ACC: ESR5044 WINDOWS LBL
	1 PCI400-1UD	CTRL: 1CHAN ULT SCSI DIFF	525	525
	1 OP378-34	ADPTR: DATA COMM HOST 5	4,000	4,000
	1 CBL378-8	CABLE: CONN BOX - 8 FT	150	150
	1 OP246-94	CTRL: PARALLEL PORT PRINT	90	90
	1 CSM311000-LR	DISK: LVD RAID W/O ENV	7,012	7,012
	1 OSM3000-SU2	DISK: OSM LVD SINGLE BUS
	1 OSM1200-RAD	CTRL: LVD RAID CTRL
	1 PC1502-P64	CTRL: 64BIT 2CHAN,LVD/SCS	765	765
	1 ETH1010052-PCI	ACC: PCI FAST ETHERNET 3.	135	135
	1 CBL 134-2	CABLE: OSM LVD 2M	121	121
	2 USE 1936-LC6	PWR CORD : C20/NEMA L6-20P	75	150
	1 OSD18209-W45	DISK: 18GB, 10K RPM LVD	1,022	1,022
		SUBTOTAL		28,941
		LESS: TRADE-IN ALLOWANCE		5,778
		TOTAL HARDWARE		23,163

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SYSTEM SOFTWARE

QTY	STYLE	DESCRIPTION	ONE TIME LICENSE CHARGE	EXTENDED PRICE
	1ESS504030-N	SYS MGT: VALUE ADDED S/W	650	650
	1ESS500030-CO	R SYS MGT: VALUE S/W BASE
	1 ESS1004-SD	SYS MGT: 4X SRVR DIRECTOR
	1 ESS5000-ANA	SYS MGT: ESANALAYST MGR.
	1 ESS5000-INS	FILE MGT: ES INSTALL MGR
	1 ESS5000-PRS	FILE MGT: ES PROCESS. MGR
	1 ESS5000-CST	FILE MGT: ES CONTRAST. MGR
	1 ESS5000-SVC	FILE MGT: ES SERVICE MGR
	1 ESS5000-PWR	FILE MGT: ES POWER.MGR
	1 ESS5000-SCR	SYS MGT: ES SCRIPTMGR
	1 ESS5000-RES	SYS MGT: ES TESTARTMGR
	1 ESS5000-THR	SYS MGT: ESTHRESHOLD MGR.
	1 ESS5000-STM	SYS MGT: ESSYSTEMS MGR.
	1 ESS5000-PER	SYS MGT: PERFORMANCE MGR
	1 ESS50000-EVT	SYS MGT: EVENT LOG MGR
	1 ESS5000-LOG	SYS MGT: LOG OFF MANAGER
	1 CAI4008-L	SYS MGT: ESS5000 CAI IT
	1 ESS99-BLV	FILE MGT: B&L VERTICES
	1 LXS820005-L	O/S: WIN2000 SVR 1-8P US	3,999	3,999
	1 WSA200008-L	O/S: WIN2000 SVR 1-8P US
	1 LXS6 1006-IT7	O/S: MCP/TDS 88K ACTS6.0	198,000	198,000
	1 LX10-MCM	O/S: LX SYS SW COR MEDIA
	1 LX10-MCS	O/S: MCP SRVR COM PLAT SW
	1 LX10-CNN	O/S: MCP SRVR COMM NW SW
	1 LX6000-PSS	O/S: MCP SRVR PLT SPEC SW
	1 LX6100-STU	O/S: EMULATION SW LX6100
	1 ACD6100-300	ACC: SEC.DEVICE LX6130
	1 LX10-TDS	DATAMGT: TRANS/DATA SRVR
	1 LXC25-NXV	WRKST SW: ICNXVIEW 25U LO
	1 ICS16-CS	WRKST SW: INFOCONNECT 16
	1 ICS32-CS	WRKST SW: INFOCONNECT 32
	1 LXC999-CAL	O/S: MCP/TDS CAL UNLIMITD
	1 NXT99-JSN	WWW: NX/WEBSTN UNRESRCTLO
	1 LX10-WLS	BEA: WEBLOGIC SERVER/LX
	1 ESS100030-RN	DOC: 3.0 RELEASE NOTES	20	20
	1 NXP40-BYC	COM SW: BISYNC PROTOCOL	5,039	5,039
	1 NX10-BYC	COM SW: BISYNC PROTOCOL
	1 NXP40-DCS	COM SW: DATA COMMUNICATN	14,438	14,438
	1 NX10-DCS	COM SW: DATA COMMUNICATN
		LESS: OTC UPGRADE ALLOW		47,573
		TOTAL OTC		174,573

4

QTY	STYLE	DESCRIPTION	FIVE YEAR  LICENSE CHARGE	EXTENDE PRICE
	1 LXU6100-IT7	SUBSCRN: SSU PLUS 88K AC	49,500	49,500
	1 LX10-SSU	SUBSCRN: SSU PLUS UNLIMTD
	1 ESR2050-SER	SERV: ES2K/5KE-SERV REQ
		SUB TOTAL		49,500
		TOTAL 5YR LICENSE		49,500
		TOTAL SYSTEM SOFTWARE		224,073
		TOTAL SOFTWARE		224,073
		Summary
		TOTAL HARDWARE		23,163
		TOTAL SOFTWARE		224,073
		TOTAL		247,236

5

EX-10.5

Exhibit 10.5

[LOGO]

INFORMATION TECHNOLOGY INC.

CHANGE of CPU ADDENDUM

Agreement made between Information Technology, Inc., (the “Vendor”), and the “Customer” identified below.

WHEREAS pursuant to those Software License Agreements and Product License Agreements executed on the dates identified below, (hereinafter collectively referred to as the “License Agreement”), Vendor has granted to Customer a nonexclusive and nontransferable license to use Vendor’s software upon a single computer system (CPU); and

WHEREAS Customer desires to change the CPU model identified in Appendix A of the License Agreement to the new CPU mode identified below; and

WHEREAS Vendor is willing to grant the change in CPU to Customer for good and valuable consideration;

NOW, THEREFORE, the parties agree as follows:

The License Agreement between Vendor and Customer shall be amended to change the CPU.

All other terms and conditions of the License Agreement shall remain in full force and effect.

This agreement shall be effective on the date accepted and executed by an authorized representative of Vendor.

CPU Model Changed To:  Unisys ITI6000-06 (A326) under 48,000 accounts.

License Agreement Dated:  March 16, 1998, August 17, 1998, December 28, 1998, March 1, 1999, November 2, 1999, March 28,2000, September 5, 2000 and April 2, 2001.

CUSTOMER:				VENDOR:
FEATHER RIVER STATE BANK				INFORMATION TECHNOLOGY, INC.
Signature:			Brent Davis	Signature:			Timothy D. Conzemius
Name:	Brent Davis			Name:	Timothy D. Conzemius
Title:	VP/Chief Technology Officer			Title:	Vice President & CFO
Address:		1227 Bridge Street, Suite C		Address:		1345 Old Cheney Road
		Yuba City, CA 95991				Lincoln, NE 68512
Date:	May 17, 2001			Date Accepted:				May 21, 2001

EX-10.7

Exhibit 10.7

CALIFORNIA INDEPENDENT BANCORP

EMPLOYEE STOCK OWNERSHIP PLAN

(Amendment and Restatement)

TABLE OF CONTENTS
ARTICLE I DEFINITIONS
ARTICLE II TOP HEAVY AND ADMINISTRATION
2.1	Top Heavy Plan Requirements
2.2	Determination of Top Heavy Status
2.3	Powers and Responsibilities of the Employer
2.4	Designation of Administrative Authority
2.5	Allocation and Delegation of Responsibilities
2.6	Powers and Duties of the Administrator
2.7	Records and Reports
2.8	Appointment of Advisers
2.9	Information From Employer
2.10	Payment of Expenses
2.11	Majority Actions
2.12	Claims Procedures
2.13	Claims Review Procedure
ARTICLE III ELIGIBILITY
3.1	Conditions of Eligibility
3.2	Effective Date of Participation
3.3	Determination of Eligibility
3.4	Termination of Eligibility
3.5	Omission of Eligible Employee

i

3.6	Inclusion of Ineligible Employee
3.7	Election Not to Participate
ARTICLE IV CONTRIBUTION AND ALLOCATION
4.1	Formula for Determining Employer’s Contribution
4.2	Time of Payment of Employer Contribution
4.3	Allocation of Contribution, Forfeitures and Earnings
4.4	Maximum Annual Additions
4.5	Diversification
ARTICLE V FUNDING AND INVESTMENT POLICY
5.1	Investment Policy
5.2	Application of Cash
5.3	Transaction Involving Company Stock
5.4	Loans to the Trust
ARTICLE VI VALUATIONS
6.1	Valuation of the Trust Fund
6.2	Method of Valuation
ARTICLE VII DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1	Determination of Benefits Upon Retirement
7.2	Determination of Benefits Upon Death
7.3	Disability Retirement Benefits
7.4	Determination of Benefits Upon Termination

ii

7.5	Distribution of Benefits
7.6	How Plan Benefit Will be Distributed
7.7	Distribution for Minor Beneficiary
7.8	Location of Participant or Beneficiary Unknown
7.9	Right of First Refusals
7.10	Stock Certificates Legend
7.11	Nonterminable Protections and Rights
7.12	Qualified Domestic Relations Order Distributions
7.13	Put Option
ARTICLE VIII TRUSTEE
8.1	Basic Responsibilities of the Trustee
8.2	Investment Powers and Duties of the Trustee
8.3	Other Powers of the Trustee
8.4	Voting Company Stock
8.5	Duties of the Trustee Regarding Payments
8.6	Trustee’s Compensation and Expenses and Taxes
8.7	Annual Report of the Trustee
8.8	Audit
8.9	Resignations, Removal and Succession of Trustee
8.10	Transfer of Interest
8.11	Direct Rollover
ARTICLE IX AMENDMENT, TERMINATION AND MERGERS
9.1	Amendment
9.2	Termination
9.3	Merger or Consolidation

iii

ARTICLE X MISCELLANEOUS
10.1	Participants’ Rights
10.2	Alienation
10.3	Construction for Plan
10.4	Gender and Number
10.5	Legal Action
10.6	Prohibition Against Diversion of Funds
10.7	Bonding
10.8	Receipt and Release for Payments
10.9	Action by the Employer
10.10	Named Fiduciaries and Allocation of Responsibility
10.11	Headings
10.12	Approval by Internal Revenue Service
10.13	Uniformity
10.14	Securities and Exchange Commission Approval

iv

CALIFORNIA INDEPENDENT BANCORP

EMPLOYEE STOCK OWNERSHIP PLAN

(Amendment and Restatement)

THIS AGREEMENT, hereby made and entered into this ___________________day of ________________________, 2001 between California Independent Bancorp (herein referred to as the “Employer”) and Theresa Cole, Cindy Seidel, and Robert Epley (hereinafter referred to as the “Trustee”).

W I T N E S S E T H:

WHEREAS, the Employer heretofore established an Employee Stock Ownership Plan and Trust effective January 1, 1989 (hereinafter called the “Effective Date”), known as Feather River State Bank Employee Stock Ownership Plan (hereinafter referred to as the “Plan”) in recognition for the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and

WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustee joins in such amendment if the provisions of the P1an affecting the Trustee are amended; and

WHEREAS, contributions to the Plan will be made by the Employer and such contributions made to the trust will be invested primarily in the capital stock of the Employer;

NOW, THEREFORE, effective January 1, 2001, except as otherwise provided, the Employer and the Trustee in accordance with the provisions of the Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and restate the Plan to provide as follows:

ARTICLE I

DEFINITIONS

1.1  “Act” means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.2  “Administrator” means the person or entity designated by the Employer pursuant to Section 2.4 to administer the Plan on behalf of the Employer.

1.3  “Affiliated Employer” means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant” to Regulations under Code Section 414(o).

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1.4  “Aggregate Account” means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, subject to the provisions of Section 2.2.

1.5  “Anniversary Date” means December 31^st .

1.6  “Beneficiary” means the person to whom the share of a deceased Participant’s total account is payable, subject to the restrictions of Sections 7.2 and 7.5.

1.7  “Code” means the Internal Revenue Code of 1986, as amended or replaced from time to time.

1.8  “Company Stock” means common stock issued by the Employer (or by a corporation which is a member of the controlled group of corporations) which is readily tradeable on an established securities market. If there is no common stock which meets the foregoing requirement, the term “Company Stock” means common stock issued by the Employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of the Employer (or of any other such corporation) preferred having the greatest voting power, and (B) that class of common stock of the Employer (or of any other such corporation) having the greatest dividend rights.  Noncallable preferred stock shall be deemed to be “Company Stock” if such stock is convertible at any time into stock which constitutes “Company Stock” hereunder and if such conversion is at a conversion price which (as of the date of the acquisition by, the Trust) is reasonable. For purposes of the preceding sentence, pursuant to Regulations, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence.

1.9  “Company Stock Account” means the account of a Participant which is credited with the shares of Company Stock purchased and paid for by the Trust Fund or contributed to the Trust Fund

1.10  “Compensation”, effective January 1, 1998, with respect to any Participant means such Participant’s wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer or any Affiliated Employer (in the course of the Employer’s trade or business) for a Plan Year for which the Employer or any Affiliated Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401 (a) that limit the remuneration included in wages based on the nature of location of the employment or the services, performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

For purposes of this Section, the determination of Compensation shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f), 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions.

For a Participant’s initial year of participation, Compensation shall be recognized for the entire Plan year.

Compensation in excess of $160,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 401(a)(17). For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the

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calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12).

1.11  “Early Retirement Date” means any Anniversary Date (prior to the Normal Retirement date) coinciding with or following the date on which a Participant or Former Participant attains age 55 and has completed at least 7 Years of Service with the Employer (Early Retirement Age). A Participant shall become fully Vested upon satisfying this requirement if still employed at his Early Retirement Age.

A Former Participant who terminates employment after satisfying the service requirement for early Retirement and who thereafter reaches the age requirement contained herein shall be entitled to receive his benefits under this Plan.

1.12  “Eligible Employee” means any Employee.

Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing.

1.13  “Employee” means any person who is employed by the Employer or Affiliated Employer, but excludes any person who is an independent contractor. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient’s non-highly compensated work force.

1.14  “Employer” means California Independent Bancorp and any successor which shall maintain this Plan, any predecessor which has maintained this Plan, and each Affiliated Employer which has been designated by California Independent Bancorp as an Employer under the Plan and which has adopted the Plan for the benefit of its Employees. The Employer is a corporation with principal offices in the State of California.

1.15  “Employer Contributions” means contributions made to the Plan for a Plan Year by the Employer pursuant to section 4.1 below.

1.16  “ESOP” means an employee stock ownership plan that meets the requirements of Code Section 4975(e)(7) and regulation 54.4975-11.

1.17  “Exempt Loan” means a loan made to the Plan by a disqualified person or a loan to the Plan which is guaranteed by a disqualified person and which satisfies the requirements of Section 2550.408b-3 of the Department of Labor Regulations,

Section 54.4975-7(b) of the Treasury Regulations and Section 5.4 hereof.

1.18  “Family Member” means, with respect to an affected Participant, such Participant’s spouse and such Participant’s lineal descendants and ascendants and their spouses, all as described in Code Section 414(q)(6)(B).

1.19  “Fiduciary” means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator.

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1.20  “Fiscal Year” means the Employer’s accounting year of 12 months commencing on January 1^st of each year and ending the following December 31^st.

1.21  “Forfeiture” means that portion of a Participant’s Account that is not Vested, and occurs on the earlier of:

(a)  the distribution of the entire Vested portion of a Terminated Participant’s Account, or

(b)  the last day of the Plan Year in which the Participant incurs five (5) consecutive 1-Year Breaks in Service.

Furthermore, for purposes of paragraph (a) above, in the case of a Terminated Participant whose Vested benefit is zero, such Terminated Participant shall be deemed to have received a distribution of his Vested benefit upon his termination of employment. Restoration of such amounts shall occur pursuant to Section 7.4(g)(2). In addition, the term Forfeiture shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan.

1.22  “Former Participant” means a person who has been a Participant, but who has ceased to be a Participant for any reason.

1.23  “415 Compensation”, effective January 1, 1998, with respect to any Participant means such Participant’s wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer’s trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052 and specifically includes any elective deferral as defined in Code section 402(g)(3) and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code section 125, 132(f)(4) or 457. “415 Compensation” must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

If, in connection with the adoption of this amendment and restatement, the definition of “415 Compensation” has been modified, then, for Plan Years prior to the Plan Year which includes the adoption date of this amendment and restatement, “415 Compensation” means compensation determined pursuant to the Plan then in effect.

1.24  “414(s) Compensation”, effective January 1, 1998, with respect to any Participant means such Participant’s “415 Compensation” paid during a Plan Year. The amount of “414(s) Compensation” with respect to any Participant shall include “414(s) Compensation” for the entire twelve (12) month period ending on the last day of such Plan Year.

For purposes of this Section, the determination of “414(s) Compensation” shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f), 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions.

The annual Compensation of each Employee taken into account under the Plan shall not exceed $160,000 adjusted by the Commissioner for increase in the cost of living in accordance

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with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12.

If, in connection with the adoption of this amendment and restatement, the definition of “414(s) Compensation” has been modified, then, for Plan Years prior to the plan Year which includes the adoption date of this amendment and restatement, “414(s) Compensation” means compensation determined pursuant to the Plan then in effect.

1.25  “Highly Compensated Employee” means effective January 1, 1997, an Employee who performs Service during a determination year and who is described in one or more of the following groups:

(1)  An Employee who is a 5% owner during either the current or preceding Plan year, or

(2)  An Employee who earned in excess of $80,000 (as such may be adjusted by the IRS for future cost of living) during the preceding Plan Year.

1.26  “Highly Compensated Former Employee” means a former Employee who had a separation year prior to the “determination year” and was a Highly Compensated Employee in the year of separation from service or in any “determination year” after attaining age 55. For purposes of this Section, “determination year,” “415 Compensation” and “five percent owner” shall be determined in accordance with Section 1.31. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a “Highly Compensated Former Employee” shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable.

1.27  “Highly Compensated Participant” means any Highly Compensated Employee who is eligible to participate in the Plan.

1.28  “Hour of Service” means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties during the applicable computation period; (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty, or leave of absence) during the applicable computation period; (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages. These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. The same Hours of Service shall not be credited both under (1) or (2), as the case may be and under (3).

Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if

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such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker’s compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

For purposes for this Section, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.

An Hour of Service must be counted for the purposes of determining a Year of Service, a year of participation for purposes of accrued benefits, a 1-Year Break in Service, and employment commencement date (or reemployment commencement date). In addition, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor Regulations 2530.200(b) and (c) are incorporated herein by reference .

1.29  “Investment Manager” means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company.

1.30  “Key Employee” means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the “Determination Date” or any of the preceding four (4) Plan Years, has been included in one of the following categories:

(a)  an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual “415 Compensation” greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year.

(b)  One of the ten employees having annual “415 Compensation” from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer.

(c)  a “five percent owner” of the Employer. “Five percent owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers.

(d)  a “one percent owner” of the Employer having an annual “415 Compensation” from the Employer of more than $150,000. “One percent owner”

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means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has “415 Compensation” of more than $150,000, “415 Compensation” from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account.

For purposes of this Section, effective January 1, 1998, the determination of “415 Compensation” shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f), 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions.

1.31  “Late Retirement Date” means the Anniversary Date coinciding with or next following a Participant’s actual Retirement Date after having reached his Normal Retirement Date.

1.32  “Leased Employee” means, effective January 1, 1997, any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person (“leasing organization”) has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under the primary direction or control of the recipient employer. Contributions or benefits provided a Leased Employee by the leasing organization, which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A Leased Employee shall not be considered an Employee of the recipient:

(a)  if such employee is covered by a money purchase pension plan providing:

(1)     a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code  Section 415(c)(3), but including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) are treated as Employer contributions;

(2)     immediate participation;

(3)     full and immediate vesting; and

(b)  if Leased Employees do not constitute more than 20% of the recipient’s non-highly compensated work force.

1.33  “Limitation Year’’ means the Plan Year.

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1.34  “Net Profit” means with respect to any Fiscal Year the Employer’s net income or profit for such Fiscal Year determined upon the basis of the Employer’s books of account in accordance with generally accepted accounting principles, without any reduction for taxes based upon income, or for contributions made by the Employer to this Plan.

1.35  “Non-Highly Compensated Participant” means any Participant who is not a Highly Compensated Employee.

1.36  “Non-Key Employee” means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee.

1.37  “Normal Retirement Age” means the Participant’s 65^th birthday. A Participant shall become fully vested in his Participant’s Account upon attaining his Normal Retirement Age.

1.38  “Normal Retirement Date” means the Anniversary Date coinciding with or next following the Participant’s Normal Retirement Age.

1.39  “1-Year Break In Service” means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for “authorized leaves of absence” and “maternity and paternity leaves of absence.” “Years of Service and I-Year Breaks in Service shall be measured on the same computation period.

“Authorized leave of absence” means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason.

A “maternity, or paternity leave of absence” means an absence from work for any period by reason of the Employee’s pregnancy, birth of the Employee’s child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a “maternity or paternity leave of absence” shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a “maternity or paternity leave of absence” shall not exceed 501.

1.40  “Other Investments Account” means the account of a Participant which is credited with his share of the net gain (or loss) of the Plan, Forfeitures and Employer contributions in other than Company Stock and which is debited with payments made to pay for Company Stock.

1.41  “Participant” means any Eligible Employee who participates in the Plan as provided in Sections 3.2 and 3.3, and has not for any reason become ineligible to participate further in the Plan.

1.42  “Plan” means this instrument, including all amendments thereto.

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1.43  “Plan Year” means the Plan’s accounting year of 12 months commencing on January 1^st of each year and ending the following December 31^st.

1.44  “Regulation” means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time .

1.45  “Retired Participant” means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan.

1.46  “Retirement Date” means the date as of which a Participant retires whether such retirement occurs on a Participant’s Normal Retirement Date, Early or Late Retirement Date (see Section 7.1).

1.47  “Super Top Heavy Plan” means a plan described in Section 2.2(b).

1.48  “Terminated Participant” means a person who has been a Participant, but whose employment has been terminated other than by death or retirement.

1.49  “Top Heavy Plan” means a plan described in Section 2.2 (a).

1.50  “Top Heavy Plan Year” means a Plan Year during which the Plan is a Top Heavy Plan.

1.51  “Top Paid Group” means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of “415 Compensation” (determined for this purpose in accordance with Section 1.31) received from the Employer during such year. All affiliated Employers shall be taken into account as a single employer, and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 86l(a)(3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded; however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group:

(a)  Employees with less than six (6) months of service;

(b)  Employees who normally work less than 17 ½ hours per week;

(c)  Employees who normally work less than six (6) months during a year; and

(d)  Employees who have not yet attained age 21.

In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group.

9

The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable.

1.52  “Trustee” means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors.

1.53  “Trust Fund” means the assets of the Plan and Trust as the same shall exist from time to time.

1.54  “Unallocated Company Stock Suspense Account” means an account containing Company Stock acquired with the proceeds of an Exempt Loan and which has not been released from such account and allocated to the Participants’ Company Stock Accounts.

1.55  “Vested” means the nonforfeitable portion of any account maintained on behalf of a Participant.

1.56  “Year of Service” means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service.

For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate.

For vesting purposes, the computation period shall be the Plan Year, including periods prior to the Effective Date of the Plan.

For all other purposes, the computation period shall be the Plan Year.

Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year.

Years of Service with any affiliated Employer shall be recognized.

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ARTICLE II

TOP HEAVY AND ADMINISTRATION

2.1Top Heavy Plan Requirements

                   For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 7.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan.

2.2Determination of Top Heavy Status

(a)  This Plan shall be a Top Heavy Plan for any Plan year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.

If any Participant is a Non-Key Employee for any Plan year, but such Participant was a Key Employee for any prior Plan Year, such Participant’s Present Value of Accrued benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group).  In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan.

(b)  This Plan shall be a Super Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.

(c)  Aggregate Account:  A Participant’s Aggregate Account as of the Determination Date is the sum of:

(1)     his Participant’s Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date.

(2)     an adjustment for any contributions due as of the Determination Date.  Such adjustment shall be the amount of any contributions actually made after the valuation date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year.

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(3)     any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years.  However, in the case of distributions made after the valuation date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant’s Aggregate Account balance as of the valuation date.  Notwithstanding anything herein to the contrary, all distributions, including distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be included in an Aggregation Group, will be counted.  Further, distributions from the Plan of a Participant’s account balance because of death shall be treated as a distribution for the purposes of this paragraph.

(4)     with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section.  If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant’s Aggregate Account balance.

(5)     with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section.  If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant’s Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted.

(6)     For the purposes of determining whether two employers are to be treated as the same employer in (4) and (5) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer.

(d)  “Aggregation Group” means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined.

(1)     Required Aggregation Group:  In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated.  Such group shall be known as a Required Aggregation Group.

In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group.  No plan in the Required Aggregation Group will be

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considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.

(2)     Permissive Aggregation Group:  The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410.  Such group shall be known as a Permissive Aggregation Group.

In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group.

(3)     Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans.

(4)     An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years endings on the Determination Date.

(e)  “Determination Date” means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year.

(f)   Present Value of Accrued Benefit:  In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C).  The determination of the Present Value of Accrued Benefit shall be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan.

(g)  “Top Heavy Group” means an Aggregation Group in which, as of the determination Date, the sum of:

(1)     the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and

(2)     the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined from all Participants.

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2.3Powers and Responsibilities of the Employer

(a)  The Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act.

(b)  The Employer shall establish a “funding policy and method,” i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so.  The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy.  The communication of such a “funding policy and method” shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds.  Such “funding policy and method” shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act.

(c)  The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder.  This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways.

(d)  The Employer will furnish Plan Fiduciaries and Participants with notices and information statements when voting rights must be exercised pursuant to Section 8.5.

2.4Designation of Administrative Authority

                   The Employer shall appoint one or more Administrators.  Any person, including, but not limited to, the Employees of the Employer, shall be eligible to serve as an Administrator.  Any person so appointed shall signify his acceptance by filing written acceptance with the Employer.  An Administrator may resign by delivering his written resignation to the Employer or be removed by the Employer by delivery of written notice of removal, to take effect at a date specified therein, or upon delivery to the Administrator if no date is specified.

                   The Employer, upon the resignation or removal of an Administrator, shall promptly designate in writing a successor to this position.  If the Employer does not appoint an Administrator, the Employer will function as the Administrator.

2.5Allocation and Delegation of Responsibilities

                   If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator.  In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator.  The Trustee thereafter shall accept and rely upon any documents executed by the

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appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation.

2.6Powers and Duties of the Administrator

                   The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan.  The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan.  Any such determination by the Administrator shall be conclusive and binding upon all persons.  The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto.  The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan.

                   The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following:

(a)  the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan;

(b)  to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder;

(c)  to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust;

(d)  to maintain all necessary records for the administration of the Plan;

(e)  to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof;

(f)   to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased;

(g)  to compute and certify to the Employer and to the Trustee from time-to-time the sums of money necessary or desirable to be contributed to the Plan;

(h)  to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives;

(i)   to establish and communicate to participants a procedure and method to insure that each Participant will vote Company Stock allocated to such Participant’s Company Stock Account pursuant to Section 8.5;

(j)   to assist any Participant regarding his rights, benefits, or elections available under the Plan.

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2.7Records and Reports

                   The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law.

2.8Appointment of Advisors

                   The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisors, and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration or this Plan.

2.9Information From Employer

                   To enable the Administrator to perform his functions, the Employer shall supply full and timely information to the Administrator on all matters relating to the Compensation of all Participants, their Hours of Services, their Years of Service, their retirement, death, disability, or termination of employment, and such other pertinent facts as the Administrator may require; and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee’s duties under the Plan.  The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information.

2.10Payment of Expenses

                   All expenses of administration may be paid out of the Trust Fund unless paid by the Employer.  Such expenses shall include any expenses incident to the functioning of the Administrator, including, but not limited to, fees of accountants, counsel, and other specialists and their agents, and other costs of administering the Plan.  Until paid, the expenses shall constitute a liability of the Trust Fund.

2.11Majority Actions

                   Except where there has been an allocation and delegation of administrative authority pursuant to Section 2.5, if there shall be more than one Administrator, they shall act by a majority of their number, but may authorize one or more of them to sign all papers on their behalf.

2.12Claims Procedure

                   Claims for benefits under the Plan may be filed in writing with the Administrator.  Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed.  In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided.  In addition, the claimant shall be furnished with an explanation of the Plan’s claims review procedure.

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2.13Claims Review Procedure

                   Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.12 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing.  Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.12.  The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim.  At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance.  Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings.  In such event, a complete written transcript of the proceedings shall be borne by the party causing the court reporter to attend the hearing.  A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period).  Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.

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ARTICLE III

ELIGIBILITY

3.1Conditions of Eligibility

                   Any Eligible Employee who has completed ninety (90) days of Service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements.  An Eligible Employee will be deemed to have completed ninety (90) days of Service if he is in the employ of the Employer at any time ninety (90) days after his employment commencement date.  Notwithstanding the foregoing, any Employee who was a Participant in the Plan on the last day of the Plan Year prior to the general effective date of this amendment and restatement shall continue to participate in the Plan without interruption.

3.2Effective Date of Participation

                   An Eligible Employee shall become a participant effective as of the first day of January, April, July or October coinciding with or next following the date such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred).

3.3Determination of Eligibility

                   The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer.  Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act.  Such determination shall be subject to review per Section 2.13.

3.4Termination of Eligibility

(a)  In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant’s Account shall be forfeited or distributed pursuant to the terms of the Plan.  Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund.

(b)  In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate but has not incurred a 1-Year Break in Service, such Employee will participate immediately upon returning to an eligible class of Employees.  If such Participant incurs a 1-Year Break in Service, eligibility will be determined under the break in service rules of the Plan.

3.5Omission of Eligible Employee

                   If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted.  Such contribution shall be made regardless of whether or not it is applicable provisions of the Code.

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3.6Inclusion of Ineligible Employee

                   If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution.  In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture for the Plan Year in which the discovery is made.

3.7Election Not to Participate

                   An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan.  The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year.

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ARTICLE IV

CONTRIBUTION AND ALLOCATION

4.1Formula for Determining Employer’s Contributions

                   For each Plan year, the Employer shall contribute to the Plan:

(a)  A discretionary amount out of its current or accumulated Net Profit, which amount shall be deemed an Employer Contribution.

(b)  Notwithstanding the foregoing, however, the Employer’s Contributions for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404.  All contributions by the Employer shall be made in cash, Company Stock or in such property as is acceptable to the Trustee.

(c)  Except, however, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds current accumulated Net Profit or the amount which is deductible under Code Section 404.

4.2Time of Payment of Employer Contribution

                   Employer contributions will be paid in cash, Company Stock or other property as the Employer may from time to time determine.  Company Stock and other property will be valued at their then fair market value.  The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year, within the time prescribed by law, including extensions of time, for the filing of the Employer’s federal income tax return for the Fiscal Year.

4.3Allocation of Contribution, Forfeitures and Earnings

(a)  The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such participant as set forth herein.

(b)  The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer’s Contributions for each Plan Year.  Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows:

(1)     With respect to the Employer Contribution made pursuant to Section 4.1(a), to each Participant’s Account in the same proportion that each such Participant’s Compensation for the year bears to the total Compensation of all Participants for such year.

                   Only Participants who have completed a Year of Service during the Plan Year shall be eligible to share in the Employer Contribution for the Plan Year.

(c)  The Company Stock Account of each Participant shall be credited as of each Anniversary Date with Forfeitures of Company Stock and his Allocable

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share of Company Stock (including fractional shares) purchased and paid for by the Plan or contributed in kind by the Employer.  Stock dividends on Company Stock held in his Company Stock Account shall be credited to his Company Stock Account when paid.  Cash dividends on Company Stock held in his Company Stock Account shall, in the sole discretion of the Administrator, either be credited to his Other Investments Account when paid or be used to repay an Exempt Loan; provided, however, that when cash dividends are used to repay an Exempt Loan, Company Stock shall be released from the Unallocated Company Stock Suspense Account and allocated to the Participant’s Company Stock Account pursuant to Section 4.3(f) and, provided further, that Company Stock allocated to the Participant’s Company Stock Account shall have a fair market value not less than the amount of cash dividends which would have been allocated to such Participant’s Other Investments Account for the year.

Company Stock acquired by the Plan with the proceeds of an Exempt Loan shall only be allocated to each Participant’s Company Stock Account upon release from the Unallocated Company Stock Suspense Account as provided in Section 4.3(f) herein.  Company Stock acquired with the proceeds of an Exempt Loan shall be an asset of the Trust Fund and maintained in the Unallocated Company Stock Suspense Account.

(d)  As of each Anniversary Date or other valuation date, before the current valuation period allocation of Employer contributions and after allocation of Forfeitures, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant’s and Former Participant’s nonsegregated accounts (other than each Participant’s Company Stock Account) bear to the total of all Participant’s and Former Participant’s nonsegregated accounts (other than Participant’s Company Stock Accounts) as of such date.

Earnings or losses do not include the interest paid under any installment contract for the purchase of Company Stock by the Trust Fund or on any loan used by the Trust Fund to purchase Company Stock, nor does it include income received by the Trust Fund with respect to Company Stock acquired with the proceeds of an Exempt Loan; all income received by the Trust Fund from Company Stock acquired with the proceeds of an Exempt Loan may, at the discretion of the Administrator, be used to repay such loan.

Participants’ transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above.  Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses.

(e)  Participants’ accounts shall be debited for any insurance or annuity premiums paid, if any, and credited with any dividends received on insurance contracts.

(f)   All Company Stock acquired by the Plan with the proceeds on an Exempt Loan must be added to and maintained in the Unallocated Company Stock Suspense Account.  Such Company Stock shall be released and withdrawn from that account as if all Company Stock in that account were encumbered.  For each

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Plan Year during the duration of the loan, the number of shares of Company Stock released shall equal the number of encumbered shares held immediately before release for the current Plan Year multiplied by a fraction, the numerator for which is the amount of principal and interest paid for the Plan Year and the denominator of which is the sum of the numerator plus the principal and interest to be paid for all future Plan Years.  As of each Anniversary Date, the Plan must consistently allocate to each Participant’s Account, in the same manner as Employer Contributions pursuant to Section 4.1(a) are allocated, non-monetary units (shares and fractional shares of Company Stock) representing each Participant’s interest in Company Stock withdrawn from the Unallocated Company Stock Suspense Account.  However, Company Stock released from the Unallocated Company Stock Suspense Account with cash dividends pursuant to Section 4.3(c) shall be allocated to each Participant’s Company Stock Account in the same proportion that each such Participant’s number of shares of Company Stock sharing in such cash dividends bears to the total number of shares of all Participants’ Company Stock sharing in such cash dividends.  Income earned with respect to Company Stock in the Unallocated Company Stock Suspense Account shall be used, at the discretion of the Administrator, to repay the Exempt Loan used to purchase such Company Stock.  Company Stock released from the Unallocated Company Stock Suspense Account with such income, and any income which is not so used, shall be allocated as of each Anniversary Date or other valuation date in the same proportion that each Participant’s and Former Participant’s nonsegregated accounts after the allocation of any earnings of losses pursuant to Section 4.4(d) bear to the total of all Participants’ and Former Participants’ nonsegregated accounts after the allocation of any earnings or losses pursuant to Section 4.3(d).

(g)  As of each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date shall first be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 7.4(g)(2).  The remaining Forfeitures, if any shall be allocated to Participants’ Accounts and used to reduce the contribution of the Employer hereunder for the Plan Year in which such Forfeitures occur in the following manner:

(1)     Forfeitures attributable to Employer Contributions made pursuant to Section 4.1(a) shall be added to the Employer Contribution for the Plan Year in which such Forfeitures occur and allocated among the Participants’ Accounts in the same manner as the Employer Contributions.

Provided, however, that in the event the allocation of Forfeitures provided herein shall cause the “annual addition” (as defined in Section 4.9) to any Participant’s Account to exceed the amount allowable by the Code, the excess shall be reallocated in accordance with Section 4.10.

(h)  For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible to share in the allocation of contributions and Forfeitures as provided above, shall receive the minimum allocation provided for in Section 4.3(j) if eligible pursuant to the provisions of Section 4.3(l).

(i)   Participants who are not actively employed on the last day of the Plan Year due to Retirement (Early, Normal or Late) or death shall share in the

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allocation of contributions and Forfeitures for that Plan Year only if otherwise eligible in accordance with this Section.

(j)   Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer’s Contributions and Forfeitures allocated to the Participant’s Combined Account of each Non-Key Employee shall be equal to at least three percent (3%) of such Non-Key Employee’s “415 Compensation” (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this plan in a Required Aggregation Group).  However, if (1) the sum of the Employer’s Contributions and Forfeitures allocated to the Participant’s combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee’s “415 Compensation” and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer’s Contributions and Forfeitures allocated to the Participant’s Combined Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant’s Account of any Key Employee.

However, no such minimum allocation shall be required in this Plan for any Non-Key Employee who participates in another defined contribution plan subject to Code Section 412 providing such benefits included with this Plan in a Required Aggregation Group.

(k)  For purposes of the minimum allocations set forth above, the percentage allocated to the Participant’s Account of any Key Employee shall be equal to the ratio of the sum of the Employer’s Contributions and Forfeitures allocated on behalf of such Key Employee divided by the “Compensation” for such Key Employee.

(l)   For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant’s Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have failed to complete a Year of Service.

(m) For the purposes of this Section, “Compensation” shall be limited to $170,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B).  The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year.  If a determination period consists of fewer than 12 months, the annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12.

(n)  If a Former Participant is reemployed after five (5) consecutive 1-Year Breaks in Service, then separate accounts shall be maintained as follows:

(1)     one account for nonforfeitable benefits attributable to pre-break service; and

(2)     one account representing his status in the Plan attributable to post-break service.

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(o)  Notwithstanding anything to the contrary, for any Plan Year, if this is a Plan that would otherwise fail to meet the requirements of Code Sections 410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because Employer Contributions would not be allocated to a sufficient number or percentage of Participants for that Plan Year, then the following rules shall apply:

(1)     The group of Participants eligible to share in the Employer’s Contribution and Forfeitures for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above.  The specific Participants who shall become eligible under the terms of this paragraph shall be those who are actively employed on the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year.

(2)     If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer Contribution and Forfeitures for the Plan Year shall be further expanded to include the minimum number of Participants who are not actively employed on the last day of the Plan Year as are necessary to satisfy the applicable test.  The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before terminating employment.

(3)     Nothing in this Section shall permit the reduction of a Participant’s accrued benefit.  Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements.  In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404.  Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year.

(4)     Notwithstanding the foregoing, for any Top Heavy Plan Year, if the Plan would fail to satisfy Code Section 410(b) if the coverage tests were applied by treating those Participants whose only allocation would otherwise be provided under the top heavy formula as if they were not currently benefiting under the Plan, then, for purposes of this Section 4.3(p), such Participants shall be treated as not benefiting and shall therefore be eligible to be included in the expanded class of Participants who will share in the allocation provided under the Plan’s non top heavy formula.

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4.4Maximum Annual Additions

(a)  Effective January 1, 1995, in no event may a Participant’s annual additions to all defined contribution plans maintained by the Employer and allocated to a Participant’s Accounts in a given Limitation Year exceed the lesser of:

(i)      Twenty-five percent (25%) of his Compensation; or

(ii)     $30,000 (as adjusted for cost of living increases pursuant to Sections 415(c)(1), 415(d)(1) and 415(d)(3) of the Code).

(b)  For purposes of the foregoing limitations, annual additions include:

(i)      Employer Contributions,

(ii)     Employee Contributions, if any not including roll-over amounts as defined in Section 402(c) of the Code,

(iii)    Forfeitures, and

(iv)    Amounts allocated to individual medical accounts as defined in Section 415(1)(2) of the Code and accounts of key employees to provide post retirement medical benefits as defined in Section 418A(d)(1) of the Code, except as such amounts may have already been treated as annual additions under another provision of this sub-section.

(c)  Pursuant to Code Section 415(c)(6), provided that no more than 1/3 of the Contribution for a given Plan Year is allocated to the Accounts of Highly Compensated Employees, the “annual addition” for such Limitation Year will include neither Contributions applied by the Trustee to service interest on an ESOP Loan nor Forfeitures of Financed Shares.

(d)  For purposes of determining “annual additions” Forfeitures of Company Stock shall be valued as of the Anniversary Date for which the allocation is being made.

(e)  For purposes of this Section, effective January 1, 1998, compensation shall mean a Participant’s earned income, wages, salaries, and fees for professional services, and other amounts received for personal service actually rendered in the course of employment with the employer maintaining the Plan (including, but not limited to, commissions paid salesmen, compensation for services on a basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, any salary reduction elected pursuant to any employee benefit plan as defined fin Section 401(k) of the Code, any cafeteria plan as described in Section 125 of the Code, or any deferred compensation plan as defined in Section 457 of the Code), and excluding the following:

(i)      Employer contributions to a plan of deferred compensation, other than as included above, which are not included in the Employee’s gross income for the taxable year in which contributed or any distributions from a plan of deferred compensation;

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(ii)     Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

(iii)    Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and

(iv)    Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Section 403(b) of the Code (Whether or not the amounts are actually excludible from the gross income of the Employee.

(f)   If the limitation would be exceeded as to any Participant for any Plan Year, the allocation to his Accounts for Limitation Year will be reduced to an amount which would limit the total “annual additions” to the maximum permitted.

(g)  Any amount by which Employer Contributions for a Participant must be reduced under (i)(6) above will be reallocated to the Accounts of the remaining Participants (under subsections(d) and (e) of this Section 6) to the extent possible without exceeding the limitation with respect to any other Participant.

(h)  The limits described in this Section shall apply to all qualified contribution plans sponsored by the Employer in aggregate.  To the extent these limits would be exceeded in aggregate, adjustments shall be made to other defined contribution plans before being made to this Plan.

(j)   Any Forfeitures which cannot be allocated to any Participant’s Accounts by reason of this limitation will be credited to a Forfeiture Suspense Account and treated (for allocation purposes) as Forfeitures and allocated first for the succeeding Plan Year (or Years, if necessary) until exhausted, provided that any such Forfeiture Suspense Account will not share in the allocation of any income or other gains and losses of the Trust except for changes in its own fair market value.

(k)  For the purpose of this Section, all qualified defined benefit plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan.

(l)   For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 41(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be

26

aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer.

(m) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, all Employers of a Participant who maintain this Plan will be considered to be a single Employer.

(n)(1)     If a Participant participates in more than one defined contribution plan maintained by the employer which have different Anniversary Dates, the maximum “annual additions” under this Plan shall equal the maximum “annual additions” for the “limitation year” minus any “annual additions” previously credited to such Participant’s Accounts during the “limitation year.”

(2)     If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, “annual additions” will be credited to the Participant’s accounts under the defined contribution plan subject to Code Section 412 prior to crediting “annual additions” to the Participant’s accounts under the defined contribution plan not subject to Code Section 412.

(3)     If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum “annual additions” under this Plan shall equal the product of (A) the maximum “annual additions” for the limitation year” minus any “annual additions” previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the “annual additions” which would be credited to such Participant’s accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such “annual additions” for all plans described in this subparagraph.

(o)  Effective only for Plan Years Commencing prior to January 1, 2000, if an Employee is (or has been) a Participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any “limitation year” may not exceed 1.0.

(1)     The defined benefit plan fraction for any “limitation year” is a fraction, the numerator of which is the sum of the Participant’s projected annual benefits under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser or 125 percent  of the dollar limitation determined for the “limitation year” under Code Sections 415(b) and (d) or 140 percent of the highest average compensation, including any adjustment under Code Section 415(b).

(2)     Notwithstanding the above, if the Participant was a Participant as of the first day of the first “limitation year” beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator or this fraction

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will not be less than 125 percent of the sum of the annual benefits before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986.  The preceding sentence applies only if the defined plans individually and in the aggregate satisfied  the requirements of Code Section 415 for all “limitation years beginning before January 1, 1986

(3)     The defined contribution plan fraction for any “limitation year” is a fraction, the numerator of which is the sum of the annual additions to the Participant’s Account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior “limitation years” (including the annual additions attributable to the Participant’s nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419 9(e), and individual medical accounts, as defined in Code Section 415(1)(2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior “Limitation years” of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer).  The maximum aggregate amount in any “limitation year” is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the Participant’s Compensation for such year.

(4)     If the Employee was a Participant as of the end of the first day of the first “limitation year” beginning after December 31, 1986, in one or more defined contribution plans maintained by the employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan.  Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction.  The adjustment is calculated using the fractions as they would be computed as of the end of the last “limitation year” beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first “limitation year” beginning on or after January 1, 1987 shall not be computed to treat all Employee contributions as annual additions.

(5)     Notwithstanding the foregoing, for any “limitation year” in which the Plan is a Top Heavy Plan, 100 percent shall be substituted for 125 percent in Sections 4.9(1) and 4.9(m) unless the extra minimum allocation is being provided pursuant to Section 4.4. However, for any “limitation year” in which the Plan is a Super Top Heavy Plan, 100percent shall be substituted for 125 percent in any event.

(p)  Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at

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all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference.

4.5Diversification

(a)  Each “Qualified Participant” may elect within ninety (90) days after the close of each Plan Year during the “Qualified Election Period” to direct the Trustee in writing as to the investment of 25 percent of the total number of shares of Company Stock acquired by or contribute to the Plan that have ever been allocated to such “Qualified Participant’s” Company Stock Account (reduced by the number of shares of Company Stock previously invested pursuant to a prior election).  In the case of the election year in which the Participant can make his last election, the preceding sentence shall be applied by substituting “50 percent” for “25 percent”.  If the “Qualified Participant” elects to direct the Trustee as to the investment of his Company Stock Account, such direction shall be effective no later than 180 days after the close of the Plan Year to which such direction applies.  In lieu of directing the Trustee as to the investment of his Company Stock Account, the “Qualified Participant” may elect a distribution in cash or Company Stock of the portion of his Company Stock Account covered by the election within ninety (90) days after the last day of the period during with the election can be made.

Notwithstanding the above, if the fair market value (determined pursuant to Section 6.1 at the Plan valuation date immediately preceding the first day on which a “Qualified Participant” is eligible to make an election) of Company Stock acquired by or contributed to the Plan and allocated to a “Qualified Participant’s Company Stock Account is $500 or less, then such Company Stock shall not be subject to this paragraph.  For purposes of determining whether the fair market value exceeds $500, Company Stock held in accounts of all employee stock owner ship plans (as defined in Code Section 4975(e)(7)) and tax credit employee stock ownership plans (as defined in Code 409(a)) maintained by the Employer or any Affiliated Employer shall be considered as held by the Plan.

(b)  For the purposes of this Section the following definitions shall apply:

(1)     “Qualified Participant” means any Participant or Former Participant who has completed ten (10) Plan Years of Service as a Participant and has attained age 55.

(2)     “Qualified Election Period” means the six (6) Plan year period beginning with the first Plan Year in which the Participant first became a “Qualified Participant”.

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ARTICLE V

FUNDING AND INVESTMENT POLICY

5.1Investment Policy

(a)  The Plan is designed to invest primarily in Company Stock.

(b)  With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan in other property described in the Trust or in life insurance policies to the extent permitted by subparagraph (c) below, or the Trustee may hold such funds in cash or cash equivalents.

(c)  With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan in insurance policies on the life of any “keyman” Employee.  The proceeds of a “keyman” insurance policy may not be used for the repayment of any indebtedness owed by the Plan which is secured by Company Stock.  In the event any “keyman” insurance is purchased by the Trustee, the premiums paid thereon during any Plan Year, net of any policy dividends and increases in cash surrender values, shall be treated as the cost of Plan investment and any death benefit or cash surrender value received shall be treated as proceeds from an investment of the Plan.

(d)  The Plan may not obligate itself to acquire Company Stock under a put option binding upon the plan.  However, at the time a put option is exercised, the Plan may be given an option to assume the rights and obligations of the Employer under a put option binding upon the Employer.

(e)  All purchases of Company Stock shall be made at a price which, in the judgment of the Administrator, does not exceed the fair market value thereof.  All sales of Company Stock shall be made at a price which, in the judgment of the Administrator, is not less than the fair market value thereof.  The valuation rules set forth in Article VI shall be applicable.

5.2Application of Cash

                   Employer contributions in cash and other cash received by the Trust Fund shall first be applied to pay any Current Obligations of the Trust Fund.

5.3Transactions Involving Company Stock

(a)  No portion of the Trust Fund attributable to (or allocable in lieu of) Company Stock acquired by the Plan in a sale to which Code Section 1042 applied may accrue or be allocated directly or indirectly under any plan maintained by the Employer meeting the requirements of Code Section 401(a):

(1)     during the “Nonallocation Period”, for the benefit of

(i)          any taxpayer who makes an election under Code Section 1042(a) with respect to Company Stock,

(ii)         any individual who is related to the taxpayer (within the meaning of Code Section 267(b)), or

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(2)     for the benefit of any other person who owns (after application of Code Section 318(a) applied without regard to the employee trust exception in Code Section 3l8(a)(2)(B)(i)) more than 25 percent of

(i)          any class of outstanding stock of the Employer or Affiliated Employer which issued such Company Stock, or

(ii)         the total value of any class of outstanding stock of the Employer or Affiliated Employer.

(b)  Except, however, subparagraph (a)(1)(ii) above shall not apply to lineal descendants of the taxpayer, provided that the aggregate amount allocated to the benefit of all such lineal descendants during the “Nonallocation Period” does not exceed more than five (5) percent of the Company Stock (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendants (within the meaning of Code Section 267(c)(4)) in a transaction to which Code Section 1042 is applied.

(c)  A person shall be treated as failing to meet the stock ownership limitation under paragraph (a)(2) above if such person fails such limitation:

(1)     at any time during the one (1) year period ending on the date of sale of Company Stock to the Plan, or

(2)     on the date as of which Company Stock is allocated to Participants in the Plan.

(d)  For purposes of this Section, “Nonallocation Period” means the period beginning on the date of the sale of the Company Stock and ending on the late of:

(1)     the data which is ten (10) years after the date of sale, or

(2)the date of the Plan allocation attributable to the final payment of the Exempt Loan incurred in connection with such sale.

5.4           Loans to the Trust

(a)  The Plan may borrow money for any lawful purpose, provided the proceeds of an Exempt Loan are used within a reasonable time after receipt only for any or all of the following purposes:

(1)     To acquire Company Stock.

(2)     To repay such loan.

(3)     To repay a prior Exempt Loan.

(b)  All loans to the Trust which are made or guaranteed by a disqualified person must satisfy all requirements applicable to Exempt Loans including but not limited to the following:

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(1)     The loan must be at a reasonable rate of interest;

(2)     Any collateral to the creditor by the Plan shall consist only of the Company Stock purchased with the borrowed funds;

(3)     Under the terms of the loan, any pledge of Company Stock shall provide for the release of shares so pledged on a pro-rata basis pursuant to Section 4.3(f);

(4)     Under the terms of the loans, the creditor shall have no recourse against the Plan except with respect to such collateral, earnings attributable to such collateral, Employer contributions (other than contributions of Company Stock) that are made to meet Current Obligations and earnings attributable to such contributions;

(5)     The loan must be for a specific term and may not be payable at the demand of any person, except in the case of default;.

(6)     In the event of default upon an Exempt Loan, the value of the Trust Fund transferred in satisfaction of the Exempt Loan shall not exceed the amount of default. If the lender is a disqualified person, as Exempt Loan shall provide for a transfer of Trust Funds upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the Exempt Loan;

(7)     Exempt Loan payments during a Plan Year must not exceed an amount equal to: (A) the sum, over all Plan Years, of all contributions and cash dividends paid by the Employer to the Plan with respect to such Exempt Loan and earnings on such Employer contributions and cash dividends and earnings until the Exempt Lean is repaid.

(c)  For purposes of this Section, the term “disqualified person” means a person who is a Fiduciary, a person providing services to the Plan, an Employer any of whose Employees are covered by the Plan, an employee organization any of whose member are covered by the Plan, an owner, direct or indirect, of 50% or more of the total combined voting power of all classes of voting stock or of the total value of all classes of the stock, or an officer, director, 10% or more shareholder, or a Highly Compensated  Employee.

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ARTICLE VI

VALUATIONS

6.1Valuation of the Trust Fund

                   The Administrator shall direct the Trustee, as of each Anniversary Date, and at such other date or dates deemed necessary by the Administrator, herein called “valuation date,” to determine the net worth of the assets comprising the Trust Fund as it exists on the “valuation date.”  In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the “valuation date” and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.

6.2Method of Valuation

                   Valuations must be made is good faith and based on all relevant factors for determining the fair market value of securities. In the case of a transaction between a plan and a disqualified person, value must be determined as of the data of the transaction. For all other Plan purposes, value must be determined as of the most recent “valuation date” under the Plan. An independent appraisal will not in itself be a good faith determination of value in the case of a transaction between the Plan and a disqualified person. However, in other cases, a determination of fair market value based on at least an annual appraisal independently arrived at by a person who customarily makes appraisals for such purposes and who is independent of any party to the transaction will be deemed to be a good faith determination for value. Company Stock not readily tradeable on an established securities market shall be valued by an independent appraiser meeting requirements similar to the requirements of the Regulations prescribed under Code Section 170(a)(1). Notwithstanding anything in this Plan to the contrary, determination, of the fair market value of Company Stock will in all cases be made based on the opinion of an independent third-party appraiser experienced in valuing the securities of closely held companies for ESOP purposes as required by Code Section 401(a)(28)(C).

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ARTICLE VII

DETERMINATION AND DISTRIBUTION OF BENEFITS

7.1Determination of Benefits Upon Retirement

                   Every Participant may terminate his employment with the Employer and retire for the purposes hereof on his Normal Retirement Date or Early Retirement Data.  However, a Participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.3, shall continue until his Late Retirement Date. Upon a Participant’s Retirement Date, or as soon thereafter as is practicable, the Trustee shall distribute all amounts credited to such Participant’s Account in accordance with Sections 7.5 and 7.6.

7.2Determination of Benefits Upon Death

(a)  Upon the death of a participant before his Retirement Date or other termination of his employment, all amounts credited to such Participant’s Combined Account shall become fully Vested. If elected, distribution of the Participant’s Combined Account shall commence not later than one (1) year after the close of the Plan Year in which such Participant’s death occurs. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute the value of the deceased Participant’s accounts to the Participant’s Beneficiary.

(b)  Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute any remaining Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant’s Beneficiary.

(c)  Any security interest held by the Plan by reason of as outstanding loan to this Participant or Former Participant shall be taken into account in determining the amount of the death benefit.

(d)  The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator’s determination of death and of the right of any person to receive payment shall be conclusive.

(e)  The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant’s spouse. Except, however, the Participant may designate a Beneficiary other than his spouse if:

(1)     the spouse has waived the right to be the Participant’s Beneficiary or

(2)     the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no “qualified domestic relations” as defined in Code Section 414(p) which provides otherwise), or

(3)     the Participant has no spouse, or

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(4)     the spouse cannot be located.

In such event, the designation of a Beneficiary shall be made on a form satisfactory Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant’s spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant’s death, the death benefit shall be payable to his estate.

(f)   Any consent by the Participant’s spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a plan representative or a notary public. Further, the spouse’s consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary.

7.3Disability Retirement Benefits.

                   No disability benefits, other than those payable upon termination of employment, are provided in this Plan.

7.4Determination of Benefits Upon Termination

(a)  On or before the Anniversary Data coinciding with or subsequent to the termination, of a Participant’s employment for any reason other then death or retirement, the Administrator may direct the Trustee to segregate the amount of the Vested portion of such Terminated Participant’s Account and invest the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit, common or collective trust fund of a bank or a deferred annuity. In the event the Vested portion of a Participant’s Account is not segregated, the amount shall remain in a separate account for the Terminated participant and share in allocations pursuant to Section 4.3 until such time as a distribution is made to the Terminated Participant.

If a portion of a Participant’s Account is forfeited, Company Stock allocated to the Participant’s Company Stock Account must be forfeited only after the Participant’s Other Investments Account has bean depleted. If interest in more than one class of Company Stock has been allocated to a Participant’s Account, the Participant must be treated as forfeiting the same proportion of each such class.

In the event that the amount of Vested portion of the Terminated Participant’s Accounts equals or exceeds the fair market value of any insurance Contracts, the Trustee, when so directed by the Administrator and agreed to by the Terminated Participant, shall assign, transfer, and set over to such Terminated Participant all Contracts on his life in such form or with such endorsements so that the settlement options and forms of payment are consistent with the provisions of Section 7.5. In the event that the Terminated Participants Vested portion does not at least equal the fair market value of the Contracts, if any, the

35

Terminated Participant may pay over to the Trustee the sum needed to make the distribution equal to the value of the Contracts being assigned or transferred, or, the Trustee, pursuant to the Participant’s election, may borrow the cash value of the Contracts from the insurer so that the value of the Contracts is equal to the Vested portion of the Terminated Participant’s amount and then  assign the Contracts to the Terminated Participant.

Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant’s death, Early or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant’s Account to be payable to such Terminated Participant as soon as administratively feasible after the Anniversary Date coinciding with or next following termination of employment. Distribution to a Participant shall not include any Company Stock acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which such loan is repaid in full. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder.

Effective for distributions on or after August 1, 1997, if the value of a Terminated Participant’s Vested benefit derived from Employer contributions does not exceed $5,000, the Administrator shall direct the Trustee to cause the entire Vested to benefit paid to such Participant in a single lump sum.

For purposes of this Section 7.4, if the value of a Terminated Participant’s Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit as of the date of his termination of Service with the Employer.

(b)  The Vested portion of any Participant’s Account shall be a percentage of the total amount credited to his Participant’s Account determined on the basis of the Participant’s number of Years of Service.

A Participant’s Vested percentage of the Employer Contribution made pursuant to Section 4.1(a) shall be determined according to the following schedule:

Vesting Schedule

Years of Service:	Percentage:
2	20	%
3	40	%
4	60	%
5	80	%
6	100	%

(c)  Notwithstanding, the vesting schedule provided for in paragraph (b) above, for any Top Heavy Plan Year, the Vested portion of the Participant’s Account of any Participant who has an Hour of Service after the Plan becomes

36

Top Heavy shall be a percentage of the total amount credited to his Participant’s Account determined on the basis of the participant’s number of Years of Service according to the schedule described above, which meets the requirements for a Top Heavy Plan Year.

(d)  Notwithstanding the vesting schedule above, upon the complete a discontinuance of the Employer’s Contributions to the Plan or upon any full or partial termination of the Plan, all amounts credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture.

(e)  The computation of a Participant’s nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant’s election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of:

(1)   the adoption date of the amendment,

(2)   the effective date of the amendment, or

(3)   the date the Participant receives written notice of the amendment from the Employer or Administrator.

(f)(1)   If any Former Participant shall be reemployed by the Employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred.

(2)   If any Former Participant shall be reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received, or was deemed to have received, a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before the earlier of five (5) year after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution, or in the event of a deemed distribution, upon the reemployment of such Former Participant. In, the event the Former Participant does repay the full amount distributed to him, or in the event of a deemed distribution, the undistributed portion of the Participant’s Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Anniversary Date or other valuation date coinciding with or preceding his termination. The source for such reinstatement shall first be any Forfeitures occurring during the year. If such source is insufficient, then the Employer shall contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that is a discretionary contribution is made for such year pursuant to Section 4.1(c), such contribution shall first be applied to

37

restore any such Accounts and remainder shall be allocated in accordance with Section 4.4

(3)   If any Former Participant is reemployed at a 1-Year Break Service has occurred, Yeas of Service shall include Years of Service prior to his 1-Year Break in Service subject to the following rules:

(i)          If a Former participant has a 1-Year Break in Service his pre-break and post-break service shall be used for computing Years of Service for eligibility and for vesting purposes only after he has been employed for one (1) Year of Service following the date of his reemployment with the Employer;

(ii)         Any Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions shall lose credits otherwise allowable under (i) above if his consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of his pre-break Years of Service;

(iii)        After five (5) consecutive 1-year Breaks in Service, a Former Participant’s Vested Account balance attributable to pre break service shall not be increased as a result of post-break service;

(iv)       If a Former Participant who has not had his Years of Service before a 1-Year Break in Service disregarded pursuant to (ii) above completes one (1) Year of Service for eligibility purposes following his reemployment with the Employer, he shall participate in the Plan retroactively from his date of reemployment;

(v)        If a Former Participant who has not had his Years of Service before a 1-Year Break in Service disregarded pursuant to (ii) above completes a Year of Service (a 1-Year Break in Service previously occurred, but employment had not terminated), he shall participate in the Plan retroactively from the first day of the Plan Year during which he completes one (1) Year of Service.

(h)  In determining Years of Service for purposes of vesting under the Plan, Years of Service prior to the vesting computation period in which an Employee attained his eighteenth birthday shall be excluded.

7.5Distribution of Benefits

(a)  The Administrator, pursuant to the election of the Participant (or if no election has been made prior to the participant’s death, by his Beneficiary), shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one or more of the following methods:

(1)     One lump-sum payment;

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(2)     Payments over a period certain in monthly, quarterly, semiannual, or annual installments. The period over which such payment is to be made shall not extend beyond the earlier of the Participant’s life expectancy (or the life expectancy of the Participant and his designated Beneficiary) or the limited distribution period provided for in Section 7.5(b).

(b)  Unless the Participant elects in writing a longer distribution period, distributions to a Participant or his Beneficiary attributable to Company Stock shall be in substantially equal monthly, quarterly, semiannual, or annual installments over a period not longer than five (5) years. In the case of a Participant with an account balance attributable to Company stock in excess of $780,000, the five (5) year period shall be extended one (1) additional year (but not more than five (5) additional years) for each $155,000 or fraction thereof by which such balance exceeds $780,000. The dollar limits herein shall be adjusted at the same time and in the same manner as provided in Code Section 415(d).

(c)  Effective far distributions after August 5, 1997, any distribution to a Participant who has a benefit which exceeds $5,000 shall require such Participant’s consent if such distribution commences prior to the later of his Normal Retirement Age or age 62. With regard to this required consent:

(1)     The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 7.5(f).

(2)     Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the first day on which ail events have occurred which entitle the Participant to such benefit.

(3)     Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 9 days before the first day on which all events have occurred which entitle the Participant to such benefit.

(4)     No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution.

If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice required under Regulation 1.411(a)-11(c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution.

(d)  Notwithstanding anything herein to the contrary, the Administrator, in his sole discretion, may direct that cash dividends on shares of Company Stock allocable to Participants’ or Former Participants’ Company Stock Accounts be

39

distributed to such Participants or Former Participants within 90 days after the close of the Plan Year in which the dividends are paid.

(e)  Any part of a Participant’s benefit which is retained in the Plan after the Anniversary Date on which his participation ends will continue to be treated as a Company Stock Account or as an Other Investments Account (subject to Section 7.4(a)) as provided in Article IV.  However, neither account will be credited with any further Employer contributions or Forfeitures.

(f)   Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant’s benefits shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference:

(1)     Effective January 1, 1997, a Participant’s benefits shall be distributed to him not later than April 1^st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70½ or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a  “five (5) percent owner”.

(2)     Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder.

(g)  Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant’s interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 7.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31^st of the calendar year in which the fifth anniversary of his date of death occurs.

However, the 5-year distribution, requirement of the preceding paragraph shall not apply to any portion of the deceased Participant’s interest which is payable to or for the benefit of a designated Beneficiary. In such event, such portion shall be distributed over a period not beyond the life expectancy of such designated Beneficiary provided such distribution begins not later than December 31^st of the calendar year immediately following the calendar year in which the Participant died. However, in the event the Participant’s spouse (determined as of the date of the Participant’s death) is his Beneficiary, the requirement that distributions commence within one year of a Participant’s death shall not apply. In lieu thereof, distributions must commence on or before the later of: (1) December 31^st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31^st of the calendar year in which the Participant would have attained age 70½.  If the surviving

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spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant.

(h)  For purposes for this Section, the life expectancy of a Participant and a Participant’s spouse shall not be redetermined in accordance with Code Section 401(a)(9)(D).

(i)   Except as limited by Sections 7.5 and 7.6, whenever the Trustee is to make a distribution or to commence a series of payments on or as of an Anniversary Date, the distribution or series of payments may be made or begun on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall begin not later than the 60^th day after the close of the Plan Year in which the latest of the following events occurs:

(1)     the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein;

(2)     the 10^th anniversary of the year in which the Participant commenced participation in the Plan; or

(3)     the date the Participant terminates his service with the Employer.

(j)   If a distribution is made at a time when a Participant is not fully Vested in his Participant’s Account (employment has not terminated) and the Participant may increase the Vested percentage in such account:

(1)     a separate account shall be established for the Participant’s interest in the Plan as of the time of the distribution; and

(2)     at any relevant time, the Participant’s Vested portion of the separate account shall be equal to an amount (“X”) determined by the formula:

X equals P (AB plus (R x D)) - (R x D)

For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution.

7.6How Plan Benefit Will be Distributed

(a)  Distribution of a Participant’s benefit may be made in cash or Company Stock or both, provided, however, that if a Participant or Beneficiary so demands, such benefit (other than Company stock previously diversified pursuant to Section 4.12(a)) shall be distributed only in the form of Company Stock. Prior to making a distribution of benefit, the Administrator shall advise the Participant or his Beneficiary, in writing, of the right to demand that benefits be distributed solely in Company Stock.

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(b)  If a Participant or Beneficiary demands that benefits be distributed solely in Company Stock, distribution of a Participant’s benefit will be made entirely in whole shares or other units of Company Stock; Any balance in a Participant’s Other Investments Account will be applied to acquire for distribution the maximum number of whole shares or other units of Company Stock at the then fair market value. Any fractional unit value unexpended will be distributed in cash. If Company Stock is not available for purchase by the Trustee, then the Trustee shall hold such balance until Company Stock is acquired and then make such distribution, subject to Sections 7.5(i) and 7.5(f).

(c)  The Trustee will make distribution from the Trust only on instructions from the Administrator.

(d)  Notwithstanding anything contained herein to the contrary, if the Employer’s charter or by-laws restrict ownership of substantially all shares of Company Stock to Employer and the Trust Fund, as described in Code Section 409(h)(2), the Administrator shall distribute a Participant’s Combined Account entirely in cash without granting the Participant the right to demand distribution in shares of Company Stock.

(e)  Except as otherwise provided herein, Company Stock distributed by the Trustee may be restricted as to sale or transfer by the by-laws or articles of incorporation of the Employer, provided restrictions are applicable to all Company Stock of the same class. If a Participant is required to offer the sale of his Company Stock to the Employer before offering to sell his Company Stock to a third party, in no event may the Employer pay a price less than that offered to the distributee by another potential buyer making a bona fide offer and in no event shall the Trustee pay a price less than the fair market value of the Company Stock.

(f)   If Company Stock acquired with the proceeds of an Exempt Loan (described in Section 5.4 hereof) is available for distribution and consists of more than one class, a Participant or his Beneficiary must receive substantially the same proportion of each such class.

7.7Distribution for Minor Beneficiary

                   In the event a distribution is to made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof.

7.8Location of Participant or Beneficiary Unknown

                   In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at time a distribution would be otherwise payable, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, rerun receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as

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a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored.

7.9Rights of First Refusal

(a)  If any Participant, his Beneficiary or any other person to whom shares of Company Stock are distributed from the Plan (the “Selling Participant”) shall, at any time, desire to sell scene or all of such shares (the “Offered Shares”) to a third party (the “Third Party”), the Selling Participant shall give written notice of such desire to the Employer and the Administrator, which notice shall contain the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Selling Participant and Third Party. Both the Trust Fund and the Employer shall each have the right of first refusal for a period of fourteen (14) days from the date the Selling Participant gives such written notice to the Employer and the Administrator (such fourteen (14) day period to run concurrently against the Trust Fund and the Employer) to acquire the Offered Shares. As between the Trust Fund and the Employer, the Trust Fund shall have priority to acquire the shares pursuant to the right of first refusal. The selling price and terms shall be the same as offered by the Third Party.

(b)  If the Trust Fund and the Employer do not exercise their right of first refusal within the required fourteen (14) day period provided above, the Selling Participant shall have the right, at any time following the expiration of such fourteen (14) day period, to dispose of the Offered Shares to the Third Party; provided, however, that (i) no disposition shall be made to the Third Party on terms more favorable to the Third Party than those set forth in the written notice delivered by the Selling Participant above, and (ii) if such disposition shall not be made to a third party on the terms offered to the Employer and the Trust Fund, the offered Shares shall again be subject to the right of first refusal set forth above.

(c)  The closing pursuant to the exercise of the right of first refusal under Section 7.9(a) above shall take place at such place agreed upon between the Administrator and the Selling Participant, but not later than ten (10) days after the Employer, or the Trust Fund shall be notified the Selling Participant of the exercise of the right of first refusal. At such closing, the Selling Participant shall deliver certificates representing the Offered Shares duly endorsed in blank for transfer, or with stock powers attached duly executed in blank with all required transfer tax stamps attached, or provided for, and the Employer or the Trust Fund shall deliver the purchase Selling Participant.

(d)  Except as provided in this paragraph (d), no Company Stock acquired with the proceeds of an Exempt Loan complying with the requirements of Section 5.4 hereof shall be subject to a right of first refusal. Company Stock acquired with the proceeds of an Exempt Loan, which is distributed to a Participant or Beneficiary, shall be subject to the right of first refusal provided for in paragraph (a) of this Section only so long as the Company Stock is not publicly traded. The term “publicly traded” refers to a securities exchange registered under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or that is quoted on a system sponsored by a national securities association registered under Section 15A(b) of the Securities Exchange Act (15 U.S.C. 780). In addition, in the case of Company Stock which was acquired with proceeds of a loan described in Section 5.4, the selling price and other terms under the right must not be less

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favorable to the seller than the greater of the value of the security determined under Section 6.2, or the purchase price and other terms offered by a buyer (other than the Employer or the Trust fund), making a good faith offer to purchase the security. The right of first refusal must lapse no later than fourteen (14) days after the security holder gives notice to the holder of the right that an offer by a third party to purchase the security has been made. The right of first refusal shall comply with the provisions of paragraphs (a), (b) and (c) of this Section, except to the extent those provisions may conflict with the provisions of this paragraph.

7.10Stock Certificate Legend

                   Certificates for shares distributed pursuant to the Plan shall contain the following legend:

                   “The shares represented by this certificate are transferable only upon compliance with the terms of CALIFORNIA INDEPENDENT BANCORP EMPLOYEE STOCK OWNERSHIP PLAN effective as of January 1, 1989, which grants to California Independent Bancorp a right of first refusal, a copy of said Plan being on file in the office of the Company.”

7.11Nonterminable Protections and Rights

                   No Company Stock, except as specifically described in this Plan, may be subject to a put, call, or other option, or buy-sell or similar anent when held by and when distributed from the Trust Fund, whether or not the Plan is then an ESOP. The protections and rights granted in this Section are nonterminable, and such protections and rights shall continue to exist under the terms of this Plan so long as any Company Stock acquired with the proceeds of a loan described in Section 5.4 hereof is held by the Trust Fund or by any Participant or other person for whose benefit such protections and rights have been created, and neither the repayment of such loan nor the failure of the Plan to termination of said protections and rights.

7.12Qualified Domestic Relations Order Distributions

                   All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any “alternate payee” under a “qualified domestic relations order.” Furthermore, a distribution to an “alternate payee” shall be permitted if such distribution is authorized by a “qualified domestic relations off,” even if the affected Participant has not separated from service and has rot reached the “earliest retirement age” under the Plan. For the purposes of this Section, “alternate payee,” “qualified domestic relations order” and “earliest retirement age” shall have the meaning set forth under Code Section 414(p).

7.13Put Option

(a)  The Employee will issue a put option on all Financed Shares and all other shares of Company Stock acquired by the Trust after December 31, 1986 (regardless of how such shares were acquired).

(b)  The Put Option will allow the Participant to deliver a written notice of exercise on a form provided by the Committee requiring the Employer to repurchase (or commence repurchasing) distributed shares during either of two option periods.

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(c)  The first put option period is the period of sixty (60) days commencing on the day following the date of distribution.

(d)  If the put option is not exercised during the initial put option period, then the second option period will be the sixty (60) day period beginning after the determination of the fair market value of Financed Shares (and notice to the Participant or Beneficiary) in the following Plan Year.

(e)  The price of shares purchased unto this put option will be that determined by an independent appraiser experienced in the valuation of businesses for ESOP purposes which determination shall conform in all respects to the requirements of Code Section 401(a)(28).

(f)   The Trustee may be given the opportunity to purchase shares tendered to the Employer under the put option.

(g)  In general, payment for shares purchased as a result of the exercise of the put option shall be made in substantially equal installments payable no less frequently than annually over a period not exceeding five (5) years.

(h)  Installment repurchases under this put option shall begin no later than thirty (30) days after the put option is exercised, shall be adequately secured, and shall bear it payable at a reasonable rate art any unpaid principal balance.

(i)   The put option periods described in this Section will be extended by any period during which the Company is prohibited from honoring the option by applicable Federal or State Law.

(j)   Shares of Company Stock which are distributed by the Trustee which are neither Financed Shares nor shares acquired after December 31, 1986, may, but need not, be accompanied by a put option identical to the option described in this Section 7.13).

(k)  These provisions relating to the put option on shares distributed by the Trust shall be nonterminable and shall therefore continue to be applicable even if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code or if the ESOP Loan is repaid.

(l)   In the case of a plan established and maintained by a bank (as defined in Section 581 of the code) which is prohibited by law from redeeming or purchasing its own securities, the requirements of this Section 7.13 shall not apply if the Plan provides that Participants entitled to a distribution from the Plan shall have a right to receive a distribution in cash.

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ARTICLE VIII

TRUSTEE

8.1Basic Responsibilities of the Trustee

                   The Trustee shall have the following categories of responsibilities:

(a)  Consistent with the “funding policy and method” determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of an Investment Manager if the Trustee should appoint such manager as to all or a portion of the assets of the Plan;

(b)  At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participant, or, in the event of their death, to their Beneficiaries;

(c)  To maintain records of receipts an disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 8.8; and

(d)  If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf.

8.2Investment Powers and Duties of the Trustee

(a)  The Trustee shall invest and reinvest the Trust fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real, or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, theTrustee shall not be restricted to securities or other property of the character expressly authorized by the applicable laws for trust investments; limitations imposed by the Code or the Act so that at all times the Plan may qualify as an Employee Stock Ownership Plan and Trust,

(b)  The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature.

(c)  In the event the Trustee invests any part of the Trust Fund, pursuant to the directions of the Administrator, in any shares of stock issued by the Trustee to dispose of such investment, or any part thereof, under circumstances which in the opinion of counsel for the Trustee, require registration of the securities under the Securities Act of 933 and/or qualification of the securities under the Blue Sky laws of any state or states, then the Employer at its own expense, will take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration and/or qualification.

(d)  The Trustee, at the direction of the Administrator, shall ratably apply for, own, and pay premiums on Contracts on the lives of the Participants. If a life

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insurance policy is to be purchased for a Participant, the aggregate premium for ordinary life insurance for each Participant must be less than 50% of the aggregate of the contributions and Forfeitures to the credit of the Participant at any particular time. If term insurance is purchased with such contributions, the aggregate premium must be less than 25% of the aggregate contributions and Forfeitures allocated to a Participant’s Account. If both term insurance and ordinary life insurance are purchased with such contributions, the amount expended for term insurance plus one-half of the premium for ordinary life insurance may not in the aggregate exceed 25% of the aggregate contributions and Forfeitures allocated to a Participant’s Account. The trustee must convert the entire value of the life insurance contracts at or before retirement into cash or provide for a periodic income so that no portion of such value may be used to continue life insurance protection beyond retirement, or distribute the Contracts to the Participant. In the event of any conflict between the terms of this Plan and the terms of any insurance Contract purchased hereunder, the Plan provisions shall control.

8.3Other Powers of the Trustee

                   The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee’s sole discretion:

(a)  To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained;

(b)  To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or, other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement;

(c)  To vote upon any stock, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stock, bonds, securities, or other property;

(d)  To cause any securities or other property to be registered in the Trustee’s own name or in the name of one or more of the Trustee’s nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund;

(e)  To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging lending money to the Trustee shall be bound to see

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to the application of the money lent or to inquire into the validity, expediency, or, propriety of any borrowing;

(f)   To keep such portion of the Trust Fund, in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon;

(g)  To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder;

(h)  To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;

(i)   To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing, to or from the Plan, to commence or defend suits or legal or Administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings;

(j)   To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer;

(k)  To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts as and when entitled to do so under the provisions thereof;

(l)   To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee’s bank;

(m) To invest in Treasury Bills and other forms of United States government obligations;

(n)  To invest in shares of investment companies registered under the Investment Company Act of 1940;

(o)  To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations;

(p)  To vote Company Stock as provided in Section 8.4;

(q)  To consent to or otherwise participate in reorganizations, consolidations, mergers and similar transactions with, respect to Company Stock or any other securities and to pay any assessments or charges in connection therewith;

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(r)   To deposit such Company Stock (but only if such deposit does not violate the provisions of Section 8.4 hereof) or other securities in any voting trust, or trustee or with depositories designated thereby;

(s)  To sell or excise any options, subscription rights and conversion privileges and to make any payments in incidental thereto;

(t)   To exercise any of the powers of an owner, with respect to such Company Stock and other securities or other property comprising the Trust Fund. The Administrator, with the Trustee’s Approval, may authorize the Trustee to act on any administrative matter or class of matters with respect to which direction or instruction to the Trustee by the Administrator is called for hereunder without specific direction or other instruction from the Administrator;

(u)  To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm for the New York Stock Exchange;

(v)  To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan.

8.4Voting Company Staff

                   The Trustee shall vote all Company Stock held by it as part of the Plan assets.  Provided, however, that if any agreement entered into by the Trust provides for voting of any shares of Company Stock pledged as security for any obligation on the Plan, then such shares of Company Stock shall be voted in accordance with such agreement. The Trustee shall not vote Company Stock which a Participant or Beneficiary fails to exercise pursuant to this Section.

                   Notwithstanding the foregoing, if the Employer has a registration-type class of securities or, with respect to Company Stock acquired by, or transferred to, the Plan in connection with a securities acquisition loan (as defined in Code Section 133(b)) after July 10, 1989, each Participant or Beneficiary shall be entitled to direct the Trustee as to the manner in which the Company Stock which is entitled to vote and which is allocated to the Company Stock Account of such Participant or Beneficiary is to be voted. If the Employer does not have a registration-type class of securities, with respect to Company Stock other then Company Stock acquired by, or transferred to, the Plan in connection with a securities acquisition loan (as defined in Code 133(b)) after July 10, 1989, each Participant or Beneficiary in the Plan shall be entitled to direct the Trustee as to the manner in which voting rights on shares of Company Stock which are allocated to the Company Stock Account of such Participant of Beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger, or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as prescribed in Regulations. For purposes of this Section the term “registration-type class of securities” means: (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such Section 12.

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                   If the Employer does not have a registration-type class of securities and the by-laws of the Employer require the Plan to vote an issue in a manner that reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall vote the shares held by the Plan in proportion to the results of the votes cast on the issue by the Participants and Beneficiaries.

8.5Duties of the Trustee Regarding Payments

(a)  The Trustee shall make distributions from the Trust Fund at such times and in such numbers of shares or other units of Company Stock and amounts of cash to or for the benefit for the person entitled thereto under the Plan as the Administrator directs in writing.  Any undistributed part of a Participant’s interest in his accounts shall be retained in the Trust Fund until the Administrator directs its distribution.  Where distribution is directed in Company Stock, the Trustee shall cause an appropriate certificate to be issued to the person entitled thereto and mailed to the address furnished it by the Administrator. Any portion of a Participant’s Account to be distributed in cash shall be paid by the Trustee mailing its check to the same person at the same address. If a dispute arises as to who is entitled to or should receive any benefit or payment, the Trustee may withhold or cause to be withheld such payment until the dispute has been resolved.

(b)  As directed by the Administrator, the Trustee shall make payments out of the Trust Fund. Such directions or instructions need rot specify the purpose of the payments so directed and the Trustee shall not be responsible in any way respecting the purpose or propriety of such payments except as mandated by the Act,

(c)  In the event that any distribution or payment directed by the Administrator shall be mailed by the Trustee to the person specified in such direction at the latest address of such person filed with the administrator and shall be returned to the Trustee because such person cannot be located at such address, the Trustee shall promptly notify the Administrator of such return. Upon the expiration of sixty (60) days after such notification, such direction shall become void and unless and until a further direction by the Administrator is received by the Trustee with respect to such distribution or payment, the Trustee shall thereafter continue to administer the Trust as if such direction had not been made by the Administrator. The Trustee shall not be obligated to search for or ascertain the whereabouts of any such person.

8.6Trustee's Compensation and Expenses and Taxes

                   The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund.

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8.7Annual Report of the Trustee

                   Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer’s Contributions for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written-statement of account with respect to the Plan Year for which such contribution was made setting forth:

(a)  the net income, or loss, of the Trust Fund;

(b)  the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets;

(c)  the increase, or decrease, in the value of the Trust Fund;

(d)  all payments and distributions made from the Trust Fund; and

(e)  such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed as approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all parsons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires.

8.8Audit

(a)  If an audit of the Plan’s records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close for the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan’s annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. All auditing and accounting fees shall be an expense of any may, at the election of the Administrator, be paid from the Trust Fund.

(b)  If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days may be prescribed under regulations of the Secretary of Labor.

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8.9Resignation, Removal and Succession of Trustee

(a)  The Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, written notice of his resignation.

(b)  The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before its effective date, a written notice of his removal:

(c)  Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer, and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall without further act, become vested with all estate, rights, powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is, appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan.

(d)  The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee.  In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretion, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor.

(e)  Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 8.8 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 8.8 for the approval by the Employer of annual statements of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 8.7 shall have the same effect upon the statement as the Employer’s approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 8.7 and this subparagraph.

8.10Transfer of Interest

                   Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the vested interest, if any, of such participant in his account to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant’s new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided the transfer to be made.

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8.11Direct Rollover

(a)  Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

(b)  For purposes of this. Section the following definitions shall apply:

(1)     Effective January 1, 1999, an eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy of the distributee or the joint lives (or joint life expectancy) of the distributee and the distributee’s designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and any hardship distribution described in Section 40l(k)(2)(B)(i)(IV) of the Code.

(2)     An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or qualified trust described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.

(3)     A distributee includes an Employee or former Employee.  In addition, the Employee’s or former Employee’s surviving spouse and the Employee’s or former Employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse.

(4)     A direct rollover is a payment by, the Plan to the eligible retirement plan specified by the distributes.

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ARTICLE IX

AMENDMENT, TERMINATION AND MERGERS

9.1Amendment

(a)  The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section.  However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may only be made with the Trustee’s and Administrator’s written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained affects the duties of the Trustee hereunder.

(b)  No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purposes other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer.

(c)  Except as permitted by Regulations, no plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective to the extent it eliminates or reduces any “Section 411(d)(6) protected benefit” or adds or modifies conditions relating to “Section 41l(d)(6) protected benefits” the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment.  “Section 411(d)(6) protected benefits” are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms for benefit.

In addition, no such amendment shall be the effect of terminating the protections and rights set forth in Section 7.11, unless such termination shall then be permitted under the applicable provisions of the Code and Regulations; such a termination is currently expressly prohibited by Regulation 54.4975-11(a)(3)(ii).

9.2Termination

(a)  The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee, and Administrator written notice of such termination. Upon any full or partial termination, all amounts, credited to the affected Participants’ Accounts shall become 100% Vested as provided in Section 7.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof.

(b)  Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent- with and satisfies the provisions of Sections 7.5 and 7.6.  Except as permitted by Regulation, the termination of the Plan shall not result in the

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reduction for “Section 411(d)(6) protected benefits” in accordance with Section 9.1(c).

9.3Merger or Consolidation

                   This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger, or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any “Section 411(d)(6) protected benefits” in accordance with Section 9.1(c).

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ARTICLE X

MISCELLANEOUS

10.1Participants’ Rights

                   This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan.

10.2Alienation

(a)  Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements; or torts or any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law.

(b)  This provision shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, as a result of a loan from the Plan.  At the time a distribution is to be made to or for a Participant’s or Beneficiary’s benefit, such proportion of the amount distributed as shall equal such loan indebtedness.  Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such loan indebtedness is to be so paid in whole or part from his Participant’s Combined Account.  If the Participant or Beneficiary does not agree that the loan indebtedness is a valid claim against his Vested Participant’s Account, he shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.12 and 2.13.

(c)  This provisions shall not apply to a” qualified domestic relations order” defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a “qualified domestic relations order,” a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan.

10.3Construction of Plan

                   This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of California, other than its laws respecting choice of law, to the extent not preempted by the Act.

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10.4Gender and Number

                   Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply.

10.5Legal Action

                   In the event any claim suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee or Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney’s fees, and other expenses pertaining thereto incurred by them for which they shall have become liable.

10.6Prohibition Against Diversion of Funds

(a)  Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants Retired Participants, or their Beneficiaries.

(b)  In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time for payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned.

10.7Bonding

                   Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during .the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason for acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act Section 412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and) may, at the election for the Administrator, be paid from the Trust Fund or by the Employer.

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10.8Receipt and Release for Payments

                   Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.

10.9Action by the Employer

                   Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority.

10.10Named Fiduciaries and Allocation of Responsibility

                   The “named Fiduciaries” of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under the Plan. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the sole authority to appoint and remove the Trustee and the Administrator; to formulate the Plan’s “funding policy and method”; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action.  It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the “named fiduciaries” shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive.

10.11Headings

                   The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof

10.12 Approval by Internal Revenue Service

(a)  Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon, the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial

58

qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer’s return for the taxable years in which the Plan was adopted, or such later data as the Secretary of the Treasury may prescribe.

(b)  Notwithstanding any provisions to the contrary, except Sections 3.6, 3.7, and 4.1(e), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned thereto must reduce the amount so returned.

10.13 Uniformity

                   All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner.

10.14 Securities and Exchange Commission Approval

                   The Employer may request an interpretative letter from the Securities and Exchange Commission stating that the transfers of Company Stock contemplated hereunder do not involve transactions requiring a registration of such Company Stock under the Securities Act of 1933. In the event that a favorable interpretative letter is not obtained, the Employer reserves the right to amend the Plan and Trust retroactively to their Effective Dates in order to obtain a favorable interpretative letter or to terminate the Plan.

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IN WITNESS WHEREOF, this plan has been executed the day and year first above written.

	California Independent Bancorp:
	By:	/s/ [ILLEGIBLE]
		President
:	By:	/s/ [ILLEGIBLE]
		Secretary

Trustee:
By:	/s/ [ILLEGIBLE]
	Trustee
By:	/s/ [ILLEGIBLE]
	Trustee
By:	/s/ [ILLEGIBLE]
	Trustee

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Feather River State Bank hereby adopts the California Independent Bancorp Employee Stock Ownership Plan (Amendment and Restatement) effective as of January 1, 2001 as an Affiliated Employer.

Dated this 18th day of December, 2001.

Feather River State Bank:
By:	/s/ [ILLEGIBLE]
	President
By:	/s/ [ILLEGIBLE]
	Secretary

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EX-10.8

EXHIBIT 10.8

CALIFORNIA INDEPENDENT BANCORP

401(k) RETIREMENT SAVINGS PLAN

Defined Contribution Plan 8.0

Restated January 1, 1997

Addendum to: California Independent Bancorp 401(k)

Retirement Savings Plan

Contract Number: 4-45278

The following benefits were included in your prior plan and are being removed as of the amendment/restatement date. According to Section 411(d)(6) of the Internal Revenue Code benefits listed below shall be available to all member account balances accrued prior to this date. This addendum is for informational purposes only and not a part of the plan document.

Protected Benefit	Prior Plan Effective Date	Prior Plan Article;Section;Page	Amendment/Restatement Effective Date
Installments — Allowed as a distribution option under prior plan.	01-01-1988	Plan Document Section 7.5 (b)	01-01-2001
Form of Distribution — Property	01-01-1988	Plan Document Section 7.6	01-01-2001

TABLE OF CONTENTS

INTRODUCTION
ARTICLE I	FORMAT AND DEFINITIONS
Section 1.01	Format
Section 1.02	Definitions
ARTICLE II	PARTICIPATION
Section 2.01	Active Participant
Section 2.02	Inactive Participant
Section 2.03	Cessation of Participation
Section 2.04	Adopting Employers - Single Plan
ARTICLE III	CONTRIBUTIONS
Section 3.01	Employer Contributions
Section 3.01 A	Rollover Contributions
Section 3.02	Forfeitures
Section 3.03	Allocation
Section 3.04	Contribution Limitation
Section 3.05	Excess Amounts
ARTICLE IV	INVESTMENT OF CONTRIBUTIONS
Section 4.01	Investment and Timing of Contributions
Section 4.01A	Investment in Qualifying Employer Securities
ARTICLE V	BENEFITS
Section 5.01	Retirement Benefits
Section 5.02	Death Benefits
Section 5.03	Vested Benefits
Section 5.04	When Benefits Start
Section 5.05	Withdrawal Benefits
Section 5.06	Loans to Participants
Section 5.07	Distributions Under Qualified Domestic Relations Orders
ARTICLE VI	DISTRIBUTION OF BENEFITS
Section 6.01	Form of Distribution
Section 6.02	Election Procedures
Section 6.03	Notice Requirements

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ARTICLE VII	DISTRIBUTION REQUIREMENTS
Section 7.01	Application
Section 7.02	Definitions
Section 7.03	Distribution Requirements
ARTICLE VIII	TERMINATION OF THE PLAN
ARTICLE IX	ADMINISTRATION OF THE PLAN
Section 9.01	Administration
Section 9.02	Expenses
Section 9.03	Records
Section 9.04	Information Available
Section 9.05	Claim and Appeal Procedures
Section 9.06	Delegation of Authority
Section 9.07	Exercise of Discretionary Authority
Section 9.08	Voting and Tender of Qualifying Employer Securities
ARTICLE X	GENERAL PROVISIONS
Section 10.01	Amendments
Section 10.02	Direct Rollovers
Section 10.03	Mergers and Direct Transfers
Section 10.04	Provisions Relating to the Insurer and Other Parties
Section 10.05	Employment Status
Section 10.06	Rights to Plan Assets
Section 10.07	Beneficiary
Section 10.08	Nonalienation of Benefits
Section 10.09	Construction
Section 10.10	Legal Actions
Section 10.11	Small Amounts
Section 10.12	Word Usage
Section 10.13	Change In Service Method
Section 10.14	Military Service
ARTICLE XI	TOP-HEAVY PLAN REQUIREMENTS
Section 11.01	Application
Section 11.02	Definitions
Section 11.03	Modification of Vesting Requirements
Section 11.04	Modification of Contributions
Section 11.05	Modification of Contribution Limitation

PLAN EXECUTION

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INTRODUCTION

The Primary Employer previously established a 401 (k) retirement savings plan on January 1, 1988.

The Primary Employer is of the opinion that the plan should be changed. It believes that the best means to accomplish these changes is to completely restate the plan’s terms, provisions and conditions. The restatement, effective January 1, 1997, is set forth in this document and is substituted in lieu of the prior document.

This restatement is made retroactively to reflect the law changes made through the Internal Revenue Service Restructuring and Reform Act of 1998. The provisions of this Plan apply as of the effective date of the restatement except as provided in the attached addendums which reflect the operation of the Plan between the effective date of the restatement and the date this restatement is adopted and identify those provisions which are not amended retroactively.

The restated plan continues to be for the exclusive benefit of employees of the Employer. All persons covered under the plan on December 31, 1996, shall continue to be covered under the restated plan with no loss of benefits.

It is intended that the plan, as restated, shall qualify as a profit sharing plan under the Internal Revenue Code of 1986, including any later amendments to the Code.

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ARTICLE I

FORMAT AND DEFINITIONS

SECTION 1.01—FORMAT.

Words and phrases defined in the DEFINITIONS SECTION of Article I shall have that defined meaning when used in this Plan, unless the context clearly indicates otherwise.

These words and phrases have an initial capital letter to aid in identifying them as defined terms.

SECTION 1.02—DEFINITIONS.

Account means, for a Participant, his share of the Plan Fund. Separate accounting records are kept for those parts of his Account that result from:

(a)           Elective Deferral Contributions

(b)           Matching Contributions

(c)           Qualified Nonelective Contributions

(d)           Rollover Contributions

A Participant’s Account shall be reduced by any distribution of his Vested Account and by any Forfeitures. A Participant’s Account shall participate in the earnings credited, expenses charged, and any appreciation or depreciation of the Investment Fund. His Account is subject to any minimum guarantees applicable under the Annuity Contract or other investment arrangement and to any expenses associated therewith.

ACP Test means the nondiscrimination test described in Code Section 401(m)(2) as provided for in subparagraph (d) of the EXCESS AMOUNTS SECTION of Article III.

Active Participant means an Eligible Employee who is actively participating in the Plan according to the provisions in the ACTIVE PARTICIPANT SECTION of Article II.

Adopting Employer means an employer which is a Controlled Group member and which is listed in the ADOPTING EMPLOYERS - SINGLE PLAN SECTION of Article II.

ADP Test means the nondiscrimination test described in Code Section 401(k)(3) as provided for in subparagraph (c) of the EXCESS AMOUNTS SECTION of Article III.

Affiliated Service Group means any group of corporations, partnerships or other organizations of which the Employer is a part and which is affiliated within the meaning of Code Section 414(m) and regulations thereunder. Such a group includes at least two organizations one of which is either a service organization (that is, an organization the principal business of which is performing services), or an organization the principal business of which is performing management functions on a regular and

6

continuing basis. Such service is of a type historically performed by employees. In the case of a management organization, the Affiliated Service Group shall include organizations related, within the meaning of Code Section 144(a)(3), to either the management organization or the organization for which it performs management functions. The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group.

Alternate Payee means any spouse, former spouse, child, or other dependent of a Participant who is recognized by a qualified domestic relations order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant.

Annual Compensation means, for a Plan Year, the Employee’s Compensation for the Compensation Year ending with or within the consecutive 12-month period ending on the last day of the Plan Year.

Annuity Contract means the annuity contract or contracts into which the Trustee enters with the Insurer for guaranteed benefits, for the investment of Contributions in separate accounts, and for the payment of benefits under this Plan. The term Annuity Contract as it is used in this Plan shall include the plural unless the context clearly indicates the singular is meant.

Annuity Starting Date means, for a Participant, the first day of the first period for which an amount is payable as an annuity or any other form.

Beneficiary means the person or persons named by a Participant to receive any benefits under the Plan when the Participant dies. See the BENEFICIARY SECTION of Article X.

Claimant means any person who makes a claim for benefits under this Plan. See the CLAIM AND APPEAL PROCEDURES SECTION of Article IX.

Code means the Internal Revenue Code of 1986, as amended.

Compensation means, except for purposes of the CONTRIBUTION LIMITATION SECTION of Article III and Article XI, the total earnings, except as modified in this definition, paid or made available to an Employee by the Employer during any specified period.

“Earnings” in this definition means wages within the meaning of Code Section 3401 (a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3), and 6052. Earnings must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The amount reported in the “Wages, Tips and Other Compensation” box on Form W-2 satisfies this definition.

For any Self-employed Individual, Compensation means Earned Income.

For purposes of determining the amount of Elective Deferral Contributions and Matching Contributions Compensation shall exclude reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation (other then elective contributions), and welfare benefits.

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Compensation shall also include elective contributions. For this purpose, elective contributions are amounts contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Employee under Code Section 125, 402(e)(3), 402(h)(1)(B), or 403(b). Elective contributions also include compensation deferred under a Code Section 457 plan maintained by the Employer and employee contributions “picked up” by a governmental entity and, pursuant to Code Section 414(h)(2), treated as Employer contributions. For years beginning after December 31, 1997, elective contributions shall also include amounts contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Employee under Code Section 132(f)(4).

For purposes of the EXCESS AMOUNTS SECTION of Article III, the Employer may elect to use an alternative nondiscriminatory definition of Compensation in accordance with the regulations under Code Section 414(s).

For Plan Years beginning on or after January 1, 1994, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any determination period shall not exceed $150,000, as adjusted for increases in the cost-of-living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year.

If a determination period consists of fewer than 12 months, the annual limit is an amount equal to the otherwise applicable annual limit multiplied by a fraction. The numerator of the fraction is the number of months in the short determination period, and the denominator of the fraction is 12.

If Compensation for any prior determination period is taken into account in determining a Participant’s contributions or benefits for the current Plan Year, the Compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that determination period. For this purpose, in determining contributions or benefits in Plan Years beginning on or after January 1, 1994, the annual compensation limit in effect for determination periods beginning before that date is $150,000.

Compensation means, for a Leased Employee, Compensation for the services the Leased Employee performs for the Employer, determined in the same manner as the Compensation of Employee who are not Leased Employees, regardless of whether such Compensation is received directly from the Employer or from the leasing organization.

Compensation Year means the consecutive 12-month period ending on the last day of each Plan Year, including corresponding periods before January 1, 1988.

Contributions means

Elective Deferral Contributions

Matching Contributions

Qualified Nonelective Contributions

Rollover Contributions

as set out in Article III, unless the context clearly indicates only specific contributions are meant.

8

Controlled Group means any group of corporations, trades, or businesses of which the Employer is a part that are under common control. A Controlled Group includes any group of corporations, trades, or businesses, whether or not incorporated, which is either a parent-subsidiary group, a brother-sister group, or a combined group within the meaning of Code Section 414(b), Code Section, 414(c) and regulations thereunder and, for purposes of determining contribution limitations under the CONTRIBUTION LIMITATION SECTION of Article III, as modified by Code Section 415(h) and, for the purpose of identifying Leased Employees, as modified by Code Section 144(a)(3). The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group and any other employer required to be aggregated with the Employer under Code Section 414(o) and the regulations thereunder.

Direct Rollover means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

Distributee means an Employee or former Employee. In addition, the Employee’s (or former Employee’s) surviving spouse and the Employee’s (or former Employee’s) spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse.

Early Retirement Age means a Participant’s age on the date he meets the following requirement(s):

(a)           He has attained age 55.

(b)           He has completed 7 years of service with the Employer.

Early Retirement Date means the first day of any month before a Participant’s Normal Retirement Date which the Participant selects for the start of his retirement benefits. This day may be on or after the date on which he ceases to be an Employee and reaches Early Retirement Age. If a Participant ceases to be an Employee before satisfying any age requirement for Early Retirement Age, but after satisfying any other requirements, the Participant shall be entitled to elect an early retirement benefit upon satisfying such age requirement.

Earned Income means, for a Self-employed Individual, net earnings from self-employment in the trade or business for which this Plan is established if such Self-employed Individual’s personal services are a material income producing factor for that trade or business. Net earnings shall be determined without regard to items not included in gross income and the deductions properly allocable to or chargeable against such items. Net earnings shall be reduced for the employer contributions to the Employer’s qualified retirement plan(s) to the extent deductible under Code Section 404.

Net earnings shall be determined with regard to the deduction allowed to the Employer by Code Section 164(f) for taxable years beginning after December 31, 1989.

Elective Deferral Contributions means contributions made by the Employer to fund this Plan in accordance with elective deferral agreements between Eligible Employees and the Employer.

Elective deferral agreements shall be made, changed, or terminated according to the provisions of the EMPLOYER CONTRIBUTIONS SECTION of Article III.

Elective Deferral Contributions shall be 100% vested and subject to the distribution restrictions of Code Section 401(k) when made. See the WHEN BENEFITS START SECTION of Article V.

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Eligibility Service means an Employee’s Period of Service. Eligibility Service shall be measured from his Employment Commencement Date to his most recent Severance Date. Eligibility Service shall be reduced by any Period of Severance that occurred prior to his most recent Severance Date, unless such Period of Severance is included under the service spanning rule below. This period of Eligibility Service shall be expressed as months (on the basis that 30 days equal one month).

However, Eligibility Service is modified as follows:

Period of Military Duty included:

A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited.

Period of Severance included (service spanning rule):

A Period of Severance shall be deemed to be a Period of Service under either of the following conditions:

(a)the Period of Severance immediately follows a period during which an Employee is not absent from work and ends within 12 months; or

(b)the Period of Severance immediately follows a period during which an Employee is absent from work for any reason other than quitting, being discharged, or retiring (such as a leave of absence or layoff) and ends within 12 months of the date he was first absent.

Controlled Group service included:

An Employee’s service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer.

Eligible Employee means any Employee of the Employer who meets the following requirement. His employment classification with the Employer is the following:

Not an Employee considered by the Employer to be an independent contractor, or the employee of an independent contractor, who is later determined by the Internal Revenue Service to be an Employee.

Eligible Retirement Plan means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a) or a qualified trust described in Code Section 401(a), that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

Eligible Rollover Distribution means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated Beneficiary, or for a specified period of ten years or more; (ii) any

10

distribution to the extent such distribution is required under Code Section 401(a)(9); (iii) any hardship distribution described in Code Section 401(k)(2)(B)(i)(IV) received after December 31, 1998; (iv) the portion of any other distribution(s) that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and (v) any other distribution(s) that is reasonably expected to total less than $200 during a year.

Employee means an individual who is employed by the Employer or any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m), or (o). A Controlled Group member is required to be aggregated with the Employer.

The term Employee shall include any Self-employed Individual treated as an employee of any employer described in the preceding paragraph as provided in Code Section 401(c)(1). The term Employee shall also include any Leased Employee deemed to be an employee of any employer described in the preceding paragraph as provided in Code Section 414(n) or (o).

Employer means the Primary Employer. This will also include any successor corporation or firm of the Employer which shall, by written agreement, assume the obligations of this Plan or any Predecessor Employer which maintained this Plan.

Employer Contributions means

Elective Deferral Contributions

Matching Contributions

Qualified Nonelective Contributions

as set out in Article III and contributions made by the Employer to fund this Plan in accordance with the provisions of the MODIFICATION Of CONTRIBUTIONS SECTION of Article XI, unless the context clearly indicates only specific contributions are meant.

Employment Commencement Date means the date an Employee first performs an Hour-of-Service.

Entry Date means the date an Employee first enters the Plan as an Active Participant. See the ACTIVE PARTICIPANT SECTION of Article II.

ERISA means the Employee Retirement Income Security Act of 1974, as amended.

Fiscal Year means the Primary Employer’s taxable year. The last day of the Fiscal Year is December 31.

Forfeiture means the part, if any, of a Participant’s Account that is forfeited. See the FORFEITURES SECTION of Article III.

Highly Compensated Employee means any Employee who:

(a)           was a 5-percent owner at any time during the year or the preceding year, or

(b)for the preceding year had compensation from the Employer in excess of $80,000 and, if the Employer so elects, was in the top-paid group for the preceding year. The $80,000 amount is

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adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996.

For this purpose the applicable year of the plan for which a determination is being made is called a determination year and the preceding 12-month period is called a look-back year. If the Employer makes a calendar year data election, the look-back year shall be the calendar year beginning with or within the look-back year. The Plan may not use such election to determine whether Employees are Highly Compensated Employees on account of being a 5-percent owner.

In determining who is a Highly Compensated Employee the Employer does not make a top-paid group election. In determining who is a Highly Compensated Employee the Employer does not make a calendar year data election.

Calendar year data elections and top-paid group elections, once made, apply for all subsequent years unless changed by the Employer. If the Employer makes one election, the Employer is not required to make the other. If both elections are made, the look-back year in determining the top-paid group must be the calendar year beginning with or within the look-back year. These elections must apply consistently to the determination years of all plans maintained by the Employer which reference the highly compensated employee definition in Code Section 414(q), except as provided in Internal Revenue Service Notice 97-45 (or superseding guidance). The consistency requirement will not apply to determination years beginning with or within the 1997 calendar year, and for determination years beginning on or after January 1, 1998 and before January 1, 2000, satisfaction of the consistency requirement is determined without regard to any nonretirement plans of the Employer.

The determination of who is a highly compensated former Employee is based on the rules applicable to determining Highly Compensated Employee status as in effect for that determination year, in accordance with section 1.414(q)-1T, A-4 of the temporary Income Tax Regulations and Internal Revenue Service Notice 97-45.

In determining whether an Employee is a Highly Compensated Employee for years beginning in 1997, the amendments to Code Section 414(q) stated above are treated as having been in effect for years beginning in 1996.

The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the compensation that is considered, and the identity of the 5-percent owners, shall be made in accordance with Code Section 414(q) and the regulations thereunder.

Hour-of-Service means, for an Employee, each hour for which he is paid, or entitled to payment, for performing duties for the Employer.

Hours-of-Service shall be credited for employment with any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o) and the regulations thereunder for purposes of eligibility and vesting. Hours-of-Service shall also be credited for any individual who is considered an employee for purposes of this Plan pursuant to Code Section 414(n) or Code Section 414(o) and the regulations thereunder.

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Inactive Participant means a former Active Participant who has an Account. See the INACTIVE PARTICIPANT SECTION of Article II.

Insurer means Principal Life Insurance Company and any other insurance company or companies named by the Trustee or Primary Employer.

Investment Fund means the total of Plan assets, excluding the guaranteed benefit policy portion of any Annuity Contract. All or a portion of these assets may be held under the Trust Agreement.

The Investment Fund shall be valued at current fair market value as of the Valuation Date. The valuation shall take into consideration investment earnings credited, expenses charged, payments made, and changes in the values of the assets held in the Investment Fund.

The Investment Fund shall be allocated at all times to Participants, except as otherwise expressly provided in the Plan. The Account of a Participant shall be credited with its share of the gains and losses of the Investment Fund. That part of a Participant’s Account invested in a funding arrangement which establishes one or more accounts or investment vehicles for such Participant thereunder shall be credited with the gain or loss from such accounts or investment vehicles. The part of a Participant’s Account which is invested in other funding arrangements shall be credited with a proportionate share of the gain or loss of such investments. The share shall be determined by multiplying the gain or loss of the investment by the ratio of the part of the Participant’s Account invested in such funding arrangement to the total of the Investment Fund invested in such funding arrangement.

Investment Manager means any fiduciary (other than a trustee or Named Fiduciary)

(a)           who has the power to manage, acquire, or dispose of any assets of the Plan;

(b)           who (i) is registered as an investment adviser under the Investment Advisers Act of 1940; (ii) is not registered as an investment adviser under such Act by reason of paragraph (1) of section 203A(a) of such Act, is registered as an investment adviser under the laws of the state (referred to in such paragraph (1)) in which it maintains its principal office and place of business, and, at the time it last filed the registration form most recently filed by it with such state in order to maintain its registration under the laws of such state, also filed a copy of such form with the Secretary of Labor, (iii) is a bank, as defined in that Act; or (iv) is an insurance company qualified to perform services described in subparagraph (a) above under the laws of more than one state; and

(c)           who has acknowledged in writing being a fiduciary with respect to the Plan.

Late Retirement Date means the first day of any month which is after the date a Participant’s Normal Retirement Date and on which retirement benefits begin. If a Participant continues to work for the Employer after his Normal Retirement Date, his Late Retirement Date shall be the earliest first day of the month on or after the date he ceases to be an Employee. An earlier or a later Retirement Date may apply if the Participant so elects. An earlier Retirement Date may apply if the Participant is age 70 1/2. See the WHEN BENEFITS START SECTION of Article V.

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Leased Employee means any person (other than an employee of the recipient) who, pursuant to an agreement between the recipient and any other person (“leasing organization”), has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient. Contributions or benefits provided by the leasing organization to a Leased Employee, which are attributable to service performed for the recipient employer, shall be treated as provided by the recipient employer.

A Leased Employee shall not be considered an employee of the recipient if:

(a)such employee is covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludible from the employee’s gross income under Code Sections 125,402(e)(3), 402(h)(1)(B), or 403(b), (ii) immediate participation, and (iii) full and immediate vesting, and

(b)           Leased Employees do not constitute more than 20 percent of the recipient’s nonhighly compensated work force.

Loan Administrator means the person(s) or position(s) authorized to administer the Participant loan program.

The Loan Administrator is the V. P. of Human Resources.

Matching Contributions means contributions made by the Employer to fund this Plan which are contingent on a Participant’s Elective Deferral Contributions. See the EMPLOYER CONTRIBUTIONS SECTION of Article III.

Monthly Date means each Yearly Date and the same day of each following month during the Plan Year beginning on such Yearly Date.

Named Fiduciary means the person or persons who have authority to control and manage the operation and administration of the Plan.

The Named Fiduciary is the Employer.

Nonhighly Compensated Employee means an Employee of the Employer who is not a Highly Compensated Employee.

Normal Retirement Age means the age at which the Participant’s normal retirement benefit becomes nonforfeitable if he is an Employee. A Participant’s Normal Retirement Age is 65.

Normal Retirement Date means the earliest first day of the month on or after the date the Participant reaches his Normal Retirement Age. Unless otherwise provided in this Plan, a Participant’s retirement benefits shall begin on a Participant’s Normal Retirement Date if he has ceased to be an Employee on such date and has a Vested Account. Even if the Participant is an Employee on his Normal Retirement Date, he may choose to have his retirement benefit begin on such date. See the WHEN BENEFITS START SECTION of Article V.

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Owner-employee means a Self-employed Individual who, in the case of a sole proprietorship, owns the entire interest in the unincorporated trade or business for which this Plan is established. If this Plan is established for a partnership, an Owner-employee means a Self-employed Individual who owns more than 10 percent of either the capital interest or profits interest in such partnership.

Parental Absence means an Employee’s absence from work:

(a)           by reason of pregnancy of the Employee,

(b)           by reason of birth of a child of the Employee,

(c)           by reason of the placement of a child with the Employee in connection with adoption of such child by such Employee, or

(d)           for purposes of caring for such child for a period beginning immediately following such birth or placement.

Participant means either an Active Participant or an Inactive Participant.

Period of Military Duty means, for an Employee

(a)           who served as a member of the armed forces of the United States, and

(b)who was reemployed by the Employer at a time when the Employee had a right to reemployment in accordance with seniority rights as protected under Chapter 43 of Title 38 of the U. S. Code,

the period of time from the date the Employee was first absent from active work for the Employer because of such military duty to the date the Employee was reemployed.

Period of Service means a period of time beginning on an Employee’s Employment Commencement Date or Reemployment Commencement Date (whichever applies) and ending on his Severance Date.

Period of Severance means a period of time beginning on an Employee’s Severance Date and ending on the date he again performs an Hour-of-Service.

A one-year Period of Severance means a Period of Severance of 12 consecutive months.

Solely for purposes of determining whether a one-year Period of Severance has occurred for eligibility or vesting purposes, the consecutive 12-month period beginning on the first anniversary of the first date of a Parental Absence shall not be a one-year Period of Severance.

Plan means the 401(k) retirement savings plan of the Employer set forth in this document, including any later amendments to it.

Plan Administrator means the person or persons who administer the Plan.

The Plan Administrator is the Employer.

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Plan Fund means the total of the Investment Fund and the guaranteed benefit policy portion of any Annuity Contract. The Investment Fund shall be valued as stated in its definition. The guaranteed benefit policy portion of any Annuity Contract shall be determined in accordance with the terms of the Annuity Contract and, to the extent that such Annuity Contract allocates contract values to Participants, allocated to Participants in accordance with its terms. The total value of all amounts held under the Plan Fund shall equal the value of the aggregate Participants’ Accounts under the Plan.

Plan Year means a period beginning on a Yearly Date and ending on the day before the next Yearly Date.

Plan-year Quarter means a period beginning on a Quarterly Date and ending on the day before the next Quarterly Date.

Predecessor Employer means a firm of which the Employer was once a part  (e.g., due to a spinoff or change of corporate status) or a firm absorbed by the Employer because of a merger or acquisition (stock or asset, including a division or an operation of such company).

Primary Employer means California Independent Bancorp.

Qualified Nonelective Contributions means contributions made by the Employer to fund this Plan (other than Elective Deferral Contributions) which are 100% vested and subject to the distribution restrictions of Code Section 401(k) when made. See the EMPLOYER CONTRIBUTIONS SECTION of Article III and the WHEN BENEFITS START SECTION of Article V.

Qualifying Employer Securities means any security which is issued by the Employer or any Controlled Group member and which meets the requirements of Code Section 409(l) and ERISA Section 407(d)(5). This shall also include any securities that satisfied the requirements of the definition when these securities were assigned to the Plan.

Qualifying Employer Securities Fund means that part of the assets of the Trust Fund that are designated to be held primarily or exclusively in Qualifying Employer Securities for the purpose of providing benefits for Participants.

Quarterly Date means each Yearly Date and the third, sixth, and ninth Monthly Date after each Yearly Date which is within the same Plan Year.

Reemployment Commencement Date means the date an Employee first performs an Hour-of-Service following a Period of Severance.

Reentry Date means the date a former Active Participant reenters the Plan. See the ACTIVE PARTICIPANT SECTION of Article II.

Retirement Date means the date a retirement benefit will begin and is a Participant’s Early, Normal, or Late Retirement Date, as the case may be.

Rollover Contributions means the Rollover Contributions which are made by an Eligible Employee or an Inactive Participant according to the provisions of the ROLLOVER CONTRIBUTIONS SECTION of Article III.

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Self-employed Individual means, with respect to any Fiscal Year, an individual who has Earned Income for the Fiscal Year (or who would have Earned Income but for the fact the trade or business for which this Plan is established did not have net profits for such Fiscal Year).

Severance Date means the earlier of:

(a)           the date on which an Employee quits, retires, dies, or is discharged, or

(b)the first anniversary of the date an Employee begins a one-year absence from service (with or without pay). This absence may be the result of any combination of vacation, holiday, sickness, disability, leave of absence or layoff.

Solely to determine whether a one-year Period of Severance has occurred for eligibility or vesting purposes for an Employee who is absent from service beyond the first anniversary of the first day of a Parental Absence, Severance Date is the second anniversary of the first day of the Parental Absence. The period between the first and second anniversaries of the first day of the Parental Absence is not a Period of Service and is not a Period of Severance.

Totally and Permanently Disabled means that a Participant is disabled, as a result of sickness or injury, to the extent that he is prevented from engaging in any substantial gainful activity, and is eligible for and receives a disability benefit under Title II of the Federal Social Security Act.

Trust Agreement means an agreement of trust between the Primary Employer and Trustee established for the purpose of holding and distributing the Trust Fund under the provisions of the Plan. The Trust Agreement may provide for the investment of all or any portion of the Trust Fund in the Annuity Contract.

Trust Fund means the total funds held under the Trust Agreement.

Trustee means the party or parties named in the Trust Agreement. The term Trustee as it is used in this Plan is deemed to include the plural unless the context clearly indicates the singular is meant.

Valuation Date means the date on which the value of the assets of the Investment Fund is determined. The value of each Account which is maintained under this Plan shall be determined on the Valuation Date. In each Plan Year, the Valuation Date shall be the last day of the Plan Year. At the discretion of the Plan Administrator, Trustee, or Insurer (whichever applies), assets of the Investment Fund may be valued more frequently. These dates shall also be Valuation Dates.

Vested Account means the vested part of a Participant’s Account. The Participant’s Vested Account is equal to his Account.

The Participant’s Vested Account is nonforfeitable. The percentage used to determine that portion of a Participant’s Account attributable to Employer Contributions which is nonforfeitable is 100%.

Yearly Date means January 1, 1988, and the same day of each following year.

Years of Service means an Employee’s Period of Service. Years of Service shall be measured from his Employment Commencement Date to his most recent Severance Date. Years of Service shall be

17

reduced by any Period of Severance that occurred prior to his most recent Severance Date, unless such Period of Severance is included under the service spanning rule below. This period of Years of Service shall be expressed as years and fractional parts of a year (to four decimal places) on the basis that 365 days equal one year.

However, Years of Service is modified as follows:

Period of Military Duty included:

A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited.

Period of Severance included (service spanning rule):

A Period of Severance shall be deemed to be a Period of Service under either of the following conditions:

(a)           the Period of Severance immediately follows a period during which an Employee is not absent from work and ends within 12 months; or

(b)           the Period of Severance immediately follows a period during which an Employee is absent from work for any reason other than quitting, being discharged or retiring (such as a leave of absence or layoff) and ends within 12 months of the date he was first absent.

Controlled Group service included:

An Employee’s service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer.

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ARTICLE II

PARTICIPATION

SECTION 2.01—ACTIVE PARTICIPANT.

(a)An Employee shall first become an Active Participant (begin active participation in the Plan) on the earliest Quarterly Date on which he is an Eligible Employee and has met both of the eligibility requirements set forth below. This date is his Entry Date.

(1)           He has completed three months of Eligibility Service before his Entry Date.

(2)           He is age 21 or older.

Each Employee who was an Active Participant under the Plan on December 31, 1996, shall continue to be an Active Participant if he is still an Eligible Employee on January 1, 1997, and his Entry Date shall not change.

If a person has been an Eligible Employee who has met all of the eligibility requirements above, but is not an Eligible Employee on the date which would have been his Entry Date, he shall become an Active Participant on the date he again becomes an Eligible Employee. This date is his Entry Date.

In the event an Employee who is not an Eligible Employee becomes an Eligible Employee, such Eligible Employee shall become an Active Participant immediately if such Eligible Employee has satisfied the eligibility requirements above and would have otherwise previously become an Active Participant had he met the definition of Eligible Employee. This date is his Entry Date.

(b)An Inactive Participant shall again become an Active Participant (resume active participation in the Plan) on the date he again performs an Hour-of-Service as an Eligible Employee. This date is his Reentry Date.

Upon again becoming an Active Participant, he shall cease to be an Inactive Participant.

(c) A former Participant shall again become an Active Participant (resume active participation in the Plan) on the date he again performs an Hour-of-Service as an Eligible Employee. This date is his Reentry Date.

There shall be no duplication of benefits for a Participant under this Plan because of more than one period as an Active Participant.

SECTION 2.02—INACTIVE PARTICIPANT.

An Active Participant shall become an inactive Participant (stop accruing benefits under the Plan) on the earlier of the following:

(a)           the date the Participant ceases to be an Eligible Employee, or

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(b)           the effective date of complete termination of the Plan under Article VIII.

An Employee or former Employee who was an Inactive Participant under the Plan on December 31, 1996, shall continue to be an Inactive Participant on January 1, 1997. Eligibility for any benefits payable to the Participant or on his behalf and the amount of the benefits shall be determined according to the provisions of the prior document, unless otherwise stated in this document.

SECTION 2.03—CESSATION OF PARTICIPATION.

A Participant shall cease to be a Participant on the date he is no longer an Eligible Employee and his Account is zero.

SECTION 2.04—ADOPTING EMPLOYERS - SINGLE PLAN.

Each of the Controlled Group members listed below is an Adopting Employer. Each Adopting Employer listed below participates with the Employer in this Plan. An Adopting Employer’s agreement to participate in this Plan shall be in writing.

The Employer has the right to amend the Plan. An Adopting Employer does not have the right to amend the Plan.

If the Adopting Employer did not maintain its plan before its date of adoption specified below, its date of adoption shall be the Entry Date for any of its Employees who have met the requirements in the ACTIVE PARTICIPANT SECTION of Article II as of that date. Service with and Compensation from an Adopting Employer shall be included as service with and Compensation, from the Employer. Transfer of employment, without interruption, between an Adopting Employer and another Adopting Employer or the Employer shall not be considered an interruption of service. The Employer’s Fiscal Year defined in the DEFINITIONS SECTION of Article I shall be the Fiscal Year used in interpreting this Plan for Adopting Employers.

Contributions made by an Adopting Employer shall be treated as Contributions made by the Employer. Forfeitures arising from those Contributions shall be used for the benefit of all Participants.

An employer shall not be an Adopting Employer if it ceases to be a Controlled Group member. Such an employer may continue a retirement plan for its Employees in the form of a separate document. This Plan shall be amended to delete a former Adopting Employer from the list below.

If (i) an employer ceases to be an Adopting Employer or the Plan is amended to delete an Adopting Employer and (ii) the Adopting Employer does not continue a retirement plan for the benefit of its Employees, partial termination may result and the provisions of Article VIII shall apply.

ADOPTING EMPLOYERS

NAME	FISCAL YEAR END	DATE OF ADOPTION
Feather River State Bank	December 31	January 1, 1988

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ARTICLE III

CONTRIBUTIONS

SECTION 3.01—EMPLOYER CONTRIBUTIONS.

Employer Contributions shall be made without regard to current or accumulated net income, earnings or profits of the Employer. Notwithstanding the foregoing, the Plan shall continue to be designed to qualify as a profit sharing plan for purposes of Code Sections 401(a), 402, 412, and 417. Such Contributions shall be equal to the Employer Contributions as described below:

(a)The amount of each Elective Deferral Contribution for a Participant shall be equal to a portion of Compensation as specified in the elective deferral agreement. An Employee who is eligible to participate in the Plan may file an elective deferral agreement with the Employer. The Participant shall modify or terminate the elective deferral agreement by filing a new elective deferral agreement. The elective deferral agreement may not be made retroactively and shall remain in effect until modified or terminated.

The elective deferral agreement to start or modify Elective Deferral Contributions shall be effective on the first day of the first pay period following the pay period in which the Participant’s Entry Date (Reentry Date, if applicable) or any following Quarterly Date occurs. The elective deferral agreement must be entered into on or before the date it is effective.

The elective deferral agreement to stop Elective Deferral Contributions may be entered into on any date. Such elective deferral agreement shall be effective on the first day of the pay period following the pay period in which the elective deferral agreement is entered into.

Elective Deferral Contributions cannot be less than 2% nor more than 15% of Compensation for the pay period.

Elective Deferral Contributions are fully (100%) vested and nonforfeitable.

(b)The Employer may make discretionary Matching Contributions. The percentage of Elective Deferral Contributions matched, if any, shall be a percentage as determined by the Employer. Elective Deferral Contributions which are over a percentage of Compensation won’t be matched. The percentage shall be determined by the Employer. The percentage shall not be more than 6%.

Matching Contributions are calculated based on Elective Deferral Contributions and Compensation for the pay periods ending with or within each Plan-year Quarter. Matching Contributions shall be made for all persons who were Active Participants at any time during the Plan-year Quarter.

Any percentage determined by the Employer shall apply to all eligible persons for the entire Plan Year.

Matching Contributions are fully (100%) vested and nonforfeitable.

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(c)Qualified Nonelective Contributions may be made for each Plan Year in an amount determined by the Employer to be used to reduce Excess Aggregate Contributions and Excess Contributions, as defined in the EXCESS AMOUNTS SECTION of the article. If the Plan is treated as separate plans because it is mandatorily disaggregated under the regulations of Code Section 401(k), a separate Qualified Nonelective Contribution may be determined for each separate plan.

Qualified Nonelective Contributions are 100% vested and subject to the distribution restrictions of Code Section 401(k) when made.

No Participant shall be permitted to have Elective Deferral Contributions, as defined in the EXCESS AMOUNTS SECTION of this article, made under this Plan, or any other qualified plan maintained by the Employer, during any taxable year, in excess of the dollar limitation contained in Code Section 402(g) in effect at the beginning of such taxable year.

An elective deferral agreement (or change thereto) must be made in such manner and in accordance with such rules as the Employer may prescribe (including by means of voice response or other electronic system under circumstances the Employer permits) and may not be made retroactively.

Employer Contributions are allocated according to the provisions of the ALLOCATION SECTION of this article.

The Employer wilt make 50% of the Matching Contributions, which are to be invested in Qualifying Employer Securities, to the Trustee in the form of Qualifying Employer Securities.

A portion of the Plan assets resulting from Employer Contributions (but not more than the original amount of those Contributions) may be returned if the Employer Contributions are made because of a mistake of fact or are more than the amount deductible under Code Section 404 (excluding any amount which is not deductible because the Plan is disqualified). The amount involved must be returned to the Employer within one year after the date the Employer Contributions are made by mistake of fact or the date the deduction is disallowed, whichever applies. Except as provided under this paragraph and Article VIII, the assets of the plan shall never be used for the benefit of the Employer and are held for the exclusive purpose of providing benefits to Participants and their Beneficiaries and for defraying reasonable expenses of administering the Plan.

SECTION 3.01A—ROLLOVER CONTRIBUTIONS.

A Rollover Contribution may be made by an Active Participant if the following conditions are met:

(a)The Contribution is of amounts distributed from a plan that satisfies the requirements of Code Section 401(a) or from a “conduit” individual retirement account described in Code Section 408(d)(3)(A). In the case of an Inactive Participant, the Contribution must be of an amount distributed from another plan of the Employer, or a plan of a Controlled Group member, that satisfies the requirements of Code Section 401(a).

(b)The Contribution is of amounts that the Code permits to be transferred to a plan that meets the requirements of Code Section 401(a).

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(c)The Contribution is made in the form of a direct rollover under Code Section 401(a)(31) or is a rollover made under 402(c) or 408(d)(3)(A) within 60 days after the Active Participant receives the distribution.

(d)The Active Participant furnishes evidence satisfactory to the Plan Administrator that the proposed rollover meets conditions (a), (b), and (c) above.

A Rollover Contribution shall be allowed in cash only and must be made according to procedures set up by the Plan Administrator.

Rollover Contributions made by an Active Participant shall be credited to his Account. The part of the Participant’s Account resulting from Rollover Contributions is fully (100%) vested and nonforfeitable at all times. A separate accounting record shall be maintained for that part of his Rollover Contributions consisting of voluntary contributions which were deducted from the Participant’s gross income for Federal income tax purposes.

SECTION 3.02—FORFEITURES.

A Forfeiture shall occur as provided in the EXCESS AMOUNTS SECTION of this article.

Forfeitures shall be determined at least once during each Plan Year. Forfeitures may first be used to pay administrative expenses. Forfeitures of Matching Contributions which relate to excess amounts as provided in the EXCESS AMOUNTS SECTION of this article, which have not been used to pay administrative expenses, shall be applied to reduce the earliest Employer Contributions made after the Forfeitures are determined. Upon their application to reduce Employer Contributions, Forfeitures shall be deemed to be Employer Contributions.

SECTION 3.03—ALLOCATION.

A person meets the allocation requirements of this section if he was an Active Participant at any time during the Plan Year.

Elective Deferral Contributions shall be allocated to Participants for whom such Contributions are made under the EMPLOYER CONTRIBUTIONS SECTION of this article. Such Contributions shall be allocated when made and credited to the Participant’s Account.

Matching Contributions shall be allocated to the persons for whom such Contributions are made under the EMPLOYER CONTRIBUTIONS SECTION of this article. Such Contributions shall be allocated when made and credited to the person’s Account.

The discretionary Qualified Nonelective Contributions to be used to reduce excess amounts, as described in the EMPLOYER CONTRIBUTIONS SECTION of this article, shall be allocated as of the last day of the Plan Year only to Nonhighly Compensated Employees who meet the allocation requirements of this section. Such Contributions (or separate Contributions) shall be allocated first to the eligible person under the Plan (or separate Plan) with the lowest Annual Compensation for the Plan Year, then to the eligible person under the Plan (or separate Plan) with the next lowest Annual Compensation, and so forth, in each case subject to the applicable limits of the CONTRIBUTION LIMITATION SECTION of this article. This amount shall be credited to the person’s Account.

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If Leased Employees are Eligible Employees, in determining the amount of Employer Contributions allocated to a person who is a Leased Employee, contributions provided by the leasing organization which are attributable to services such Leased Employee performs for the Employer shall be treated as provided by the Employer. Those contributions shall not be duplicated under this Plan.

SECTION 3.04—CONTRIBUTION-LIMITATION.

(a)Definitions. For the purpose of determining the contribution limitation set forth in this section, the following terms are defined.

Annual Additions means the sum of the following amounts credited to a Participant’s account for the Limitation Year:

(1)           employer contributions;

(2)           employee contributions; and

(3)           forfeitures.

Annual Additions to a defined contribution plan shall also include the following:

(4)amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(I)(2), which are part of a pension or annuity plan maintained by the Employer,

(5)amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits, allocated to the separate account of a key employee, as defined in Code Section 419A(d)(3), under a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer; and

(6)           allocations under a simplified employee pension.

For this purpose, any Excess Amount applied under (e) and (k) below in the Limitation Year to reduce Employer Contributions shall be considered Annual Additions for such Limitation Year.

Compensation means wages within the meaning of Code Section 3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3), and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The amount reported in the “Wages, Tips and Other Compensation” box on Form W-2 satisfies this definition.

For any Self-employed Individual, Compensation shall mean Earned Income.

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For purposes of applying the limitations of this section, Compensation for a Limitation Year is the Compensation actually paid or made available in gross income during such Limitation Year.

For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this section, Compensation paid or made available during such Limitation Year shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Section 125, 132(f)(4), or 457.

Defined Benefit Plan Fraction means a fraction, the numerator of which is the sum of the Participant’s Projected Annual Benefits under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the Limitation Year under Code Sections 415(b) and (d) or 140 percent of the Highest Average Compensation, including any adjustments under Code Section 415(b).

Notwithstanding the above, if the Participant was a participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987.

Defined Contribution Dollar Limitation means, for Limitation Years beginning after December 31, 1994, $30,000, as adjusted under Code Section 415(d).

Defined Contribution Plan Fraction means a fraction, the numerator of which is the sum of the Annual Additions to the Participant’s account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years (including the Annual Additions attributable to the Participant’s nondeductible employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the Annual Additions attributable to all welfare benefit funds, individual medical accounts, and simplified employee pensions, maintained by the Employer), and the denominator of which is the sum of the maximum aggregated amounts for the current and all prior Limitation Years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any Limitation Year is the lesser of (i) 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or (iii) 35 percent of the Participant’s Compensation for such year.

If the Employee was a participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (i) the excess of the sum of the fractions over 1.0 times (ii) the denominator of this fraction, will be permanently

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subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987.

The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat all employee contributions as Annual Additions.

Employer means the employer that adopts this Plan, and all members of a controlled group of corporations (as defined in Code Section 414(b) as modified by Code Section 415(h)), all commonly controlled trades or businesses (as defined in Code Section 415(c) as modified by Code Section 415(h)) or affiliated service groups (ass defined in Code Section 414(m)) of which the adopting employer is a part, and any other entity required to be aggregated with the employer pursuant to regulations under Code Section 414(o).

Excess Amount means the excess of the Participant’s Annual Additions for the Limitation Year over the Maximum Permissible Amount.

Highest Average Compensation means the average Compensation for the three consecutive Years of Service (see the DEFINITIONS SECTION of Article 1) with the Employer that produces the highest average.

Limitation Year means the consecutive 12-month period ending on the last day of each Plan Year, including corresponding consecutive 12-month periods before January 1, 1988. If the Limitation Year is other than the calendar year, execution of this Plan (or any amendment to this Plan changing the Limitation Year) constitutes the Employer’s adoption of a written resolution electing the Limitation Year. If the Limitation Year is amended to a different consecutive 12-month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made.

Maximum Permissible Amount means the maximum Annual Addition that may be contributed or allocated to a Participant’s Account under the Plan for any Limitation Year. This amount shall not exceed the lesser of:

(1)           The Defined Contribution Dollar Limitation, or

(2)           25 percent of the Participant’s Compensation for the Limitation Year.

The compensation limitation referred to in (2) shall not apply to any contribution for medical benefits (within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition under Code Section 415(I)(1) or 419A(d)(2).

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If a short Limitation Year is created because of an amendment changing the Limitation Year to a different consecutive 12-month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:

Number of months in the short Limitation Year

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Projected Annual Benefit means the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) to which the participant would be entitled under the terms of the plan assuming:

(1)           the Participant will continue employment until normal retirement age under the plan (or current age, if later), and

(2)           the Participant’s Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years.

(b)If the Participant does not participate in, and has never participated in, another qualified plan maintained by the Employer or a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, or an individual medical account, as defined in Code Section 415(I)(2), maintained by the Employer, or a simplified employee pension, as defined in Code Section 408(k), maintained by the Employer, which provides an Annual Addition, the amount of Annual Additions which may be credited to the Participant’s Account for any Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer Contribution that would otherwise be contributed or allocated to the Participant’s Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated shall be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount.

(c)Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant’s Compensation for the Limitation Year, uniformly determined for all Participants similarly situated.

(d)As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year.

(e)If a reasonable error in estimating a Participant’s Compensation for the Limitation Year, a reasonable error in determining the amount of elective, deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any individual under the limits of Code Section 415, or under other facts and circumstances allowed by the Internal Revenue Service, there is an excess Amount, the excess will be disposed of as follows:

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(1)Any Elective Deferral Contributions that are not the basis for Matching Contributions (plus attributable earnings), to the extent they would reduce the Excess Amount, will be distributed to the Participant.

(2)If after the application of (1) above an Excess Amount still exists, any Elective Deferral Contributions that are the basis for Matching Contributions (plus attributable earnings), to the extent they would reduce the Excess Amount, will be distributed to the Participant. Concurrently with the distribution of such Elective Deferral Contributions, any Matching Contributions which relate to any Elective Deferral Contributions distributed in the preceding sentence, to the extent such application would reduce the Excess Amount, will be applied as provided in (3) or (4) below:

(3)If after the application of (2) above an Excess Amount still exists and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant’s Account will be used to reduce Employer Contributions for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary.

(4)If after the application of (2) above an Excess Amount still exists, and the Participant is not covered by the Plan at the end of the Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer Contributions for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary.

(5)If a suspense account is in existence at any time during a Limitation Year pursuant to this (e), it will participate in the allocation of investment gains or losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participant’s Accounts before any Employer Contributions may be made to the Plan for that Limitation Year. Excess Amounts held in a suspense account may not be distributed to Participants or former  Participants.

(f)This (f) applies if, in addition to this Plan, the Participant is covered under another qualified defined contribution plan maintained by the Employer, a welfare benefit fund maintained by the Employer, an individual medical account maintained by the Employer, or a simplified employee pension maintained by the Employer which provides an Annual Addition during any Limitation Year. The Annual Additions which may be credited to a Participant’s Account under this Plan for any such Limitation Year will not exceed the Maximum Permissible Amount, reduced by the Annual Additions credited to a Participant’s account under the other qualified defined contribution plans, welfare benefit funds, individual medical accounts, and simplified employee pensions for the same Limitation Year. If the Annual Additions with respect to the Participant under other qualified defined contribution plans, welfare benefit funds, individual medical accounts, and simplified employee pensions maintained by the Employer are less than the Maximum Permissible Amount, and the Employer Contribution that would otherwise be contributed or allocated to the Participant’s Account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other qualified defined Contribution plans, welfare benefit funds,

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individual medical accounts, and simplified employee pensions in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant’s Account under this Plan for the Limitation Year.

(g)Prior to determining the Participant’s actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Member in the manner described in (c) above.

(h) As soon as administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s actual Compensation for the Limitation Year.

(i)If pursuant to (h) above or as a result of the allocation of forfeitures or as a result of a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any individual under the limits of Code Section 415, a Participant’s Annual Additions under this Plan and such other plan would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a simplified employee pension will be deemed to have been allocated first, followed by Annual Additions to a welfare benefit fund or individual medical account, regardless of the actual allocation date.

(j)If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of:

(1)the total Excess Amount allocated as of such date, times

(2)the ratio of (i) the Annual Addition allocated to the Participant for the Limitation Year as of such date under this Plan to (ii) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all other qualified defined contribution plans.

(k)Any Excess Amount attributed to this Plan will be disposed of in the manner described in (e) above.

(l)If the Employer maintains, or, at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant’s Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year. The Projected Annual Benefit shall be limited first. If the Participant’s annual benefit(s) equal his Projected Annual Benefit, as limited, then Annual Additions to the defined contribution plan(s) shall be limited to the extent needed to reduce the sum to 1.0 in the same manner in which the Annual Additions are limited to meet the Maximum Permissible Amount. This subparagraph shall cease to apply effective as of the first Limitation Year beginning on or after January 1, 2000.

(g)If the Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant’s Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year. The Projected Annual Benefit shall be limited first. If the Participant’s annual benefit(s) equal his Projected

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Annual Benefit, as limited, then Annual Additions to the defined contribution plan(s) shall be limited to the extent needed to reduce the sum to 1.0 in the same manner in which the Annual Additions are limited to meet the Maximum Permissible Amount. This subparagraph shall cease to apply effective as of the first Limitation Year beginning on or after January 1, 2000.

SECTION 3.05—EXCESS AMOUNTS.

(a)Definitions. For the purposes of this section, the following terms are defined:

ACP means the average (expressed as a percentage) of the Contribution Percentages of the Eligible Participants in a group.

ADP means the average (expressed as a percentage) of the Deferral Percentages of the Eligible Participants in a group.

Aggregate Limit means the greater of:

(1)The sum of:

(i)125 percent of the greater of the ADP of the Nonhighly Compensated Employees for the prior Plan Year or the ACP of the Nonhighly Compensated Employees under the plan subject to Code Section 401(m) for the Plan Year beginning with or within the prior Plan Year of the cash or deferred arrangement, and

(ii)the lesser of 200 percent or 2 percent plus the lesser of such ADP or ACP.

(2)The sum of:

(i)125 percent of the lesser of the ADP of the Nonhighly Compensated Employees for the prior Plan Year or the ACP of the Nonhighly Compensated Employees under the plan subject to Code Section 401 (m) for the Plan Year beginning with or within the prior Plan Year of the cash or deferred arrangement, and

(ii)the lesser of 200 percent or 2 percent plus the greater of such ADP or ACP.

If the Employer has elected to use the current testing method, then, in calculating the Aggregate Limit for a particular Plan Year, the Nonhighly Compensated Employees’ ADP and ACP for that Plan Year, instead of the prior Plan Year, is used.

Contribution Percentage means the ratio (expressed as a percentage) of the Eligible Participant’s Contribution Percentage Amounts to the Eligible Participant’s Compensation for the Plan Year (whether or not the Eligible Participant was an Eligible Participant for the entire Plan Year). For an Eligible Participant for whom such Contribution Percentage Amounts for the Plan Year are zero, the percentage is zero.

Contribution Percentage Amounts means the sum of the Participant Contributions and Matching Contributions (that are not Qualified Matching Contributions taken into account for purposes of the ADP Test) made under the Plan on behalf of the Eligible Participant for the Plan Year. Such

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Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the Contributions to which they relate are Excess Elective Deferrals, Excess Contributions, or Excess Aggregate Contributions. Under such rules as the Secretary of the Treasury shall prescribe, in determining the Contribution Percentage the Employer may elect to include Qualified Nonelective Contributions under this Plan which were not used in computing the Deferral Percentage. The Employer may also elect to use Elective Deferral Contributions in computing the Contribution Percentage so long as the ADP Test is met before the Elective Deferral Contributions are used in the ACP Test and continues to be met following the exclusion of those Elective Deferral Contributions that are used to meet the ACP Test.

Deferral Percentage means the ratio (expressed as a percentage) of Elective Deferral Contributions under this Plan on behalf of the Eligible Participant for the Plan Year to the Eligible Participant’s Compensation for the Plan Year (whether or not the Eligible Participant was an Eligible Participant for the entire Plan Year). The Elective Deferral Contributions used to determine the Deferral Percentage shall include Excess Elective Deferrals (other than Excess Elective Deferrals of Nonhighly Compensated Employees that arise solely from Elective Deferral Contributions made under this Plan or any other plans of the Employer or a Controlled Group member), but shall exclude Elective Deferral Contributions that are used in computing the Contribution Percentage (provided the ADP Test is satisfied both with and without exclusion of these Elective Deferral Contributions). Under such rules as the Secretary of the Treasury shall prescribe, the Employer may elect to include Qualified Nonelective Contributions and Qualified Matching Contributions under this Plan in computing the Deferral Percentage. For an Eligible Participant for whom such contributions on his behalf for the Plan Year are zero, the percentage is zero.

Elective Deferral Contributions means any employer contributions made to a plan at the election of a participant, in lieu of cash compensation, and shall include contributions made pursuant to a salary reduction agreement or other deferral mechanism. With respect to any taxable year, a participant’s Elective Deferral Contributions are the sum of all employer contributions made on behalf of such participant pursuant to an election to defer under any qualified cash or deferred arrangement described in Code Section 401(k), any salary reduction simplified employee pension plan described in Code Section 408(k)(6), any SIMPLE IRA plan described in Code Section 408(p), any eligible deferred compensation plan under Code Section 457, any plan described under Code Section 501(c)(18), and any employer contributions made on behalf of a participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. Elective Deferral Contributions shall not include any deferrals properly distributed as excess annual additions.

Eligible Participant means, for purposes of determining the Deferral Percentage, any Employee who is otherwise entitled to make Elective Deferral Contributions under the terms of the Plan for the Plan Year. Eligible Participant means, for purposes of determining the Contribution Percentage, any Employee who is eligible (i) to make a Participant Contribution or an Elective Deferral Contribution (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or (ii) to receive a Matching Contribution (including forfeitures) or a Qualified Matching Contribution. If a Participant Contribution is required as a condition of participation in the Plan, any Employee who would be a Participant in the Plan if such Employee made such a contribution shall be treated as an Eligible Participant on behalf of whom no Participant Contributions are made.

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Excess Aggregate Contributions means, with respect to any Plan Year, the excess of:

(1)The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over

(2)The maximum Contribution Percentage Amounts permitted by the ACP Test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages).

Such determination shall be made after first determining Excess Elective Deferrals and then determining Excess Contributions.

Excess Contributions means, with respect to any Plan Year, the excess of:

(1)The aggregate amount of employer contributions actually taken into account in computing the Deferral Percentage of Highly Compensated Employees for such Plan Year, over

(2)The maximum Amount of such contributions permitted by the ADP Test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in the order of the Deferral Percentages, beginning with the highest of such percentages).

Such determination shall be made after first determining Excess Elective Deferrals.

Excess Elective Deferrals means those Elective Deferral Contributions that are includible in a Participant’s gross income under Code Section 402(g) to the extent such Participant’s Elective Deferral Contributions for a taxable year exceed the dollar limitation under such Code section. Excess Elective Deferrals shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article, under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the participant’s taxable year.

Matching Contributions means employer contributions made to this or any other defined contribution plan, or to a contract described in Code Section 403(b), on behalf of a participant on account of a Participant Contribution made by such participant, or on account of a participant’s Elective Deferral Contributions, under a plan maintained by the Employer or a Controlled Group member.

Participant Contributions means contributions made to the plan by or on behalf of a participant that are included in the participant’s gross income in the year in which made and that are maintained under a separate account to which the earnings and losses are allocated.

Qualified Matching Contributions means Matching Contributions which are subject to the distribution and nonforfeitability requirements under Code Section 401(k) when made.

Qualified Nonelective Contributions means any employer contributions (other than Matching Contributions) which an employee may not elect to have paid to him in cash instead of being contributed to the plan and which are subject to the distribution and nonforfeitability requirements under Code Section 401(k) when made.

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(b)Excess Elective Deferrals. A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Plan Administrator in writing on or before the first following March 1 of the amount of the Excess Elective Deferrals to be assigned to the Plan. A Participant is deemed to notify the Plan Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferral Contributions made to this Plan and any other plan of the Employer or a Controlled Group member. The Participant’s claim for Excess Elective Deferrals shall be accompanied by the Participant’s written statement that if such amounts are not distributed, such Excess Elective Deferrals will exceed the limit imposed on the Participant by Code Section 402(g) for the year in which the deferral occurred. The Excess Elective Deferrals assigned to this Plan cannot exceed the Elective Deferral Contributions allocated under this Plan for such taxable year.

Notwithstanding any other provisions of the Plan, Elective Deferral Contributions in an amount equal to the Excess Elective Deferrals assigned to this Plan, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year.

The Excess Elective Deferrals shall be adjusted for income or loss. The income or loss allocable to such Excess Elective Deferrals shall be equal to the income or loss allocable to the Participant’s Elective Deferral Contributions for the taxable year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Elective Deferrals. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such taxable year (as of the end of such taxable year) of the Participant’s Account resulting from Elective Deferral Contributions.

Any Matching Contributions which were based on the Elective Deferral Contributions which are distributed as Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be forfeited.

(c)ADP Test. As of the end of each P1an Year after Excess Elective Deferrals have been determined, the Plan must satisfy the ADP Test. The ADP Test shall be satisfied using the prior year testing method, unless the Employer has elected to use the current year testing method.

(1)Prior Year Testing Method. The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the prior year’s ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year must satisfy one of the following tests:

(i)The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the prior year’s ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 1.25; or

(ii)The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

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A.shall not exceed the prior year’s ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 2, and

B.the difference between such ADPs is not more than 2.

If this is not a successor plan, for the first Plan Year the Plan permits any Participant to make Elective Deferral Contributions, for purposes of the foregoing tests, the prior year’s Nonhighly Compensated Employees’ ADP shall be 3 percent, unless the Employer has elected to use the Plan Year’s ADP for these Eligible Participants.

(2)Current Year Testing Method. The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year must satisfy one of the following tests:

(i)The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or

(ii)The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

A.shall not exceed the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, and

B.the difference between such ADP’s is not more than 2.

If the Employer has elected to use the current year testing method, that election cannot be changed unless (i) the Plan has been using the current year testing method for the preceding five Plan Years, or if less, the number of Plan Years the Plan has been in existence; or (ii) the Plan otherwise meets one of the conditions specified in Internal Revenue Service Notice 98-1 (or superseding guidance) for changing from the current year testing method.

A Participant is a Highly Compensated Employee for a particular Plan Year if he meets the definition of a Highly Compensated Employee in affect for that Plan Year. Similarly, a Participant is a Nonhighly Compensated Employee for a particular Plan Year if he does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

The Deferral Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferral Contributions for purposes of the ADP Test) allocated to his account under two or more arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if such Elective Deferral Contributions (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two or

34

more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. The foregoing notwithstanding, certain plans shall be treated as separate if mandatorily disaggregated under the regulations of Code Section 401(k). If the Employer elects to apply Code Section 410(b)(4)(B) to satisfy the requirements of Code Section 410(b), the Employer may elect to do a single ADP Test for the mandatorily disaggregated plans for Plan Years beginning after December 31, 1998 in accordance with Code Section 401(k) and the regulations thereunder.

In the event this Plan satisfies the requirements of Code Section 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then this section shall be applied by determining the Deferral Percentage of Employees as if all such plans were a single plan. Any adjustments to the Nonhighly Compensated Employee ADP for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 (or superseding guidance), unless the Employer has elected to use the current year testing method. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same plan year and use the same testing method for the ADP Test.

For purposes of the ADP Test, Elective Deferral Contributions, Qualified Nonelective Contributions, and Qualified Matching Contributions must be made before the end of the 12-month period immediately following the Plan Year to which the contributions relate.

The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP Test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test.

If the Plan Administrator should determine during the Plan Year that the ADP Test is not being met, the Plan Administrator may limit the amount of future Elective Deferral Contributions of the Highly Compensated Employees.

Notwithstanding any other provisions of this Plan, Excess Contributions, plus any income and minus any toss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Contributions were allocated for the preceding Plan Year. Excess Contributions are allocated to the Highly Compensated Employees with the largest amounts of employer contributions taken into account in calculating the ADP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such employer contributions and continuing in descending order until all of the Excess Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined after distribution of any Excess Contributions. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10 percent excise tax shall be imposed on the employer maintaining the plan with respect to such amounts.

Excess Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article.

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The Excess Contributions shall be adjusted for income or loss. The income or loss allocable to such Excess Contributions allocated to each Participant shall be equal to the income or loss allocable to the Participant’s Elective Deferral Contributions (and, if applicable, Qualified Nonelective Contributions or Qualified Matching Contributions, or both) for the Plan Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant’s Account resulting from Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if such contributions are included in the ADP Test).

Excess Contributions allocated to a Participant shall be distributed from the Participant’s Account resulting from Elective Deferral Contributions. If such Excess Contributions exceed the balance in the Participant’s Account resulting from Elective Deferral Contributions, the balance shall be distributed from the Participant’s Account resulting from Qualified Matching Contributions (if applicable) and Qualified Nonelective Contributions, respectively.

Any Matching Contributions which were based on the Elective Deferral Contributions which are distributed as Excess Contributions, plus any income and minus any loss allocable thereto, shall be forfeited.

(d)ACP Test. As of the end of each Plan Year, the Plan must satisfy the ACP Test. The ACP Test  shall be satisfied using the prior year testing method, unless the Employer has elected to use the current year testing method.

(1)Prior Year Testing Method. The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the prior year’s ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year must satisfy one of the following tests:

(i)The ACP for the Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the prior year’s ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 1.25; or

(ii)The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

A.shall not exceed the prior year’s ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 2, and

B.the difference between such ACPs is not more than 2.

If this is not a successor plan, for the first Plan Year the Plan permits any Participant to make Participant Contributions, provides for Matching Contributions, or both, for purposes of the foregoing tests, the prior year’s Nonhighly Compensated Employees’ ACP shall be 3 percent, unless the Employer has elected to use the Plan Year’s ACP for these Eligible Participants.

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(2)Current Year Testing Method. The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year must satisfy one of the following tests:

(i)The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by, 1.25; or

(ii)The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

A.shall not exceed the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, and

B.the difference between such ACPs is not more than 2.

If the Employer has elected to use the current year testing method, that election cannot be changed unless (i) the Plan has been using the current year testing method for the preceding five Plan Years, or if less, the number of Plan Years the Plan has been in existence; or (ii) the Plan otherwise meets one of the conditions specified in Internal Revenue Service Notice 98-1 (or superseding guidance) for changing from the current year testing method.

A Participant is a Highly Compensated Employee for a particular Plan Year if he meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Nonhighly Compensated Employee for a particular Plan Year if he does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

Multiple Use. If one or more Highly Compensated Employees participate in both a cash or deferred arrangement and a plan subject to the ACP Test maintained by the Employer or a Controlled Group member, and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the Contribution Percentage of those Highly Compensated Employees who also participate in a cash or deferred arrangement will be reduced in the manner described below for allocating Excess Aggregate Contributions so that the limit is not exceeded. The amount by which each Highly Compensated Employee’s Contribution Percentage is reduced shall be treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet the ADP Test and ACP Test and are deemed to be the maximum permitted under such tests for the Plan Year. Multiple use does not occur if either the  ADP or ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP, respectively, of the Nonhighly Compensated Employees.

The Contribution Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Contribution Percentage Amounts allocated to his account under two or more plans described in Code Section 401(a) or arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if the total of such Contribution Percentage Amounts was made under each plan.

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If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. The foregoing notwithstanding, certain plans shall be treated as separate if mandatorily disaggregated under the regulations of Code Section 401 (m). If the Employer elects to apply Code Section 410(b)(4)(B) to satisfy the                requirements of Code Section 410(b), the Employer may elect to do a single ACP Test for the mandatorily disaggregated plans for Plan Years beginning after December 31, 1998 in accordance with Code Section 401(m) and the regulations thereunder.

In the event this Plan satisfies the requirements of Code Section 401(m), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then this section shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. Any adjustments to the Nonhighly Compensated Employee ACP for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 (or superseding guidance), unless the Employer has elected to use the current year testing method. Plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same plan year and use the same testing method for the ACP Test.

For purposes of the ACP Test, Participant Contributions are considered to have been made in the Plan Year in which contributed to the Plan. Matching Contributions and Qualified Nonelective Contributions will be considered to have been made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year.

The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP Test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test.

Notwithstanding any other provisions of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if not vested, or distributed, if vested, no later than the last day of each Plan Year to Participants to whose Accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions are allocated to the Highly Compensated Employees with the largest Contribution Percentage Amounts taken into account in calculating the ACP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Contribution Percentage Amounts and continuing in descending order until all of the Excess Aggregate Contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined after distribution of any Excess Aggregate Contributions. If such Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10 percent excise tax shall be imposed on the employer maintaining the plan with respect to such amounts.

Excess Aggregate Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article.

The Excess Aggregate Contributions shall be adjusted for income or loss. The income or loss allocable to such Excess Aggregate Contributions allocated to each Participant shall be equal to the income or loss allocable to the Participant’s Contribution Percentage Amounts for the Plan

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Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Aggregate Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant’s Account resulting from Contribution Percentage Amounts.

Excess Aggregate Contributions allocated to a Participant shall be distributed from the Participant’s Account resulting from Participant Contributions that are not required as a condition of employment or participation or for obtaining additional benefits from Employer Contributions. If such Excess Aggregate Contributions exceed the balance in the Participant’s Account resulting from such Participant’s Contributions, the balance shall be forfeited, if not vested, or distributed, if vested, on a pro-rata basis from the Participant’s Account resulting from Contribution Percentage Amounts.

(e)Employer Elections. The Employer has not made an election to use the current year testing method.

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ARTICLE IV

INVESTMENT OF CONTRIBUTIONS

SECTION 4.01—INVESTMENT AND TIMING OF CONTRIBUTIONS.

The handling of Contributions is governed by the provisions of the Trust Agreement, the Annuity Contract and any other funding arrangement in which the Plan Fund is or may be held or invested. To the extent permitted by the Trust Agreement, Annuity Contract, of other funding arrangement, the parties named below shall direct the Contributions to the guaranteed benefit policy portion of the Annuity Contract, any of the investment options available under the Annuity Contract, or any of the investment vehicles available under the Trust Agreement and may request the transfer of amounts resulting from those Contributions between such investment options and investment vehicles or the transfer of amounts between the guaranteed benefit policy portion of the Annuity Contract and such investment options and investment vehicles. A Participant may not direct the Trustee or Insurer to invest the Participant’s Account in collectibles. Collectibles mean any work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage, or other tangible personal property specified by the Secretary of the Treasury. However, for tax years beginning after December 31, 1997, certain coins and bullion as provided in Code Section 408(m)(3) shall not be considered collectibles. To the extent that a Participant who has investment direction fails to give timely direction, the Primary Employer shall direct the investment of his Account. If the Primary Employer has investment direction, such Account shall be invested ratably in the guaranteed benefit policy portion of the Annuity Contract, the investment options available under the Annuity Contract, or the investment vehicles available under the Trust Agreement in the same manner as the Accounts of all other Participants who do not direct their investments. The Primary Employer shall have investment direction for amounts which have not been allocated to Participants. To the extent an investment is no longer available, the Primary Employer may require that amounts currently held in such investment be reinvested in other investments.

At least annually, the Named Fiduciary shall review all pertinent Employee information and Plan data in order to establish the funding policy of the Plan and to determine appropriate methods of carrying out the Plan’s objectives.  The Named Fiduciary shall inform the Trustee and any Investment Manager of the Plan’s short-term and long-term financial needs so the investment policy can be coordinated with the Plan’s financial requirements.

(a)           Elective Deferral Contributions:  The participant shall direct the investment of Elective Deferral Contributions and transfer of amounts resulting from those Contributions.

(b)           Matching Contributions which are made in the form of Qualifying Employer Securities:  The Primary Employer shall direct the investment of such Matching Contributions and transfer of amounts resulting from those Contributions.

(c)           Employer Contributions other than Elective Deferral Contributions and Matching Contributions made in the form of Qualifying Employer Securities:  The Participant shall direct the investment of such Employer Contributions and transfer of amounts resulting from those Contributions.

(d)           Rollover Contributions:  The Participant shall direct the investment of Rollover Contributions and transfer of amounts resulting, from those Contributions.

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However, the Named Fiduciary may delegate to the Investment Manager investment discretion for Contributions and amounts which are not subject to Participant direction.

The Employer shall pay to the Insurer or Trustee, as applicable, the Elective Deferral Contributions and Qualified Nonelective Contributions for each Plan Year not later than the end of the 12-month period immediately following the Plan Year for which they are deemed to be paid.

All Contributions are forwarded by the Employer to the Trustee to be deposited in the Trust Fund or to the Insurer to be deposited under the Annuity Contract, as applicable. Contributions that are accumulated through payroll deduction shall be paid to the Trustee or Insurer, as applicable, by the earlier of (i) the date the Contributions can reasonably be segregated from the Employer’s assets, or (ii) the 15th business day of the month following the month in which the Contributions would otherwise have been paid in cash to the Participant.

SECTION 4.01 A—INVESTMENT IN QUALIFYING EMPLOYER SECURITIES.

One half of the Participant’s Account resulting from the following Contributions will be invested in Qualifying Employer Securities:

Matching Contributions

For purposes of determining the annual valuation of the Plan, and for reporting to Participants and regulatory authorities, the assets of the Plan shall be valued at least annually on the Valuation Date which corresponds to the last day of the Plan Year. The fair market value of Qualifying Employer Securities shall be determined on such Valuation Date. The prices of Qualifying Employer Securities as of the date of the transaction shall apply for purposes of valuing distributions and other transactions of the Plan to the extent such value is representative of the fair market value of such securities in the opinion of the Plan Administrator. The value of a Participant’s Account held in the Qualifying Employer Securities Fund may be expressed in units.

If the Qualifying Employer Securities are not publicly traded, or if an extremely thin market exists for such securities so that reasonable valuation may not be obtained from the market place, then such securities must be valued at least annually by an independent appraiser who is not associated with the Employer, the Plan Administrator, the Trustee, or any person related to any fiduciary under the Plan. The independent appraiser may be associated with a person who is merely a contract administrator with respect to the Plan, but who exercises no discretionary authority and is not a plan fiduciary.

If there is a public market for Qualifying Employer Securities of the type held by the Plan, then the Plan Administrator may use as the value of the securities the price at which such securities trade in such market. If the Qualifying Employer Securities do not trade on the relevant date, or if the market is very thin on such date, then the Plan Administrator may use for the valuation the next preceding trading day on which the trading prices are representative of the fair market value of such securities in the opinion of the Plan Administrator.

Cash dividends payable on the Qualifying Employer Securities shall be reinvested in additional shares of such securities. In the event of any cash or stock dividend or any stock split, such dividend or split shall be credited to the Accounts based on the number of shares of Qualifying Employer Securities credited to each Account as of the payable date of such dividend or split.

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All purchases of Qualifying Employer Securities shall be made at a price, or prices, which, in the judgement of the Plan Administrator, do not exceed the fair market value of such securities.

In the event that the Trustee acquires Qualifying Employer Securities by purchase from a “disqualified person” as defined in Code Section 4975(e)(2) or from a “party-in-interest” as defined in ERISA Section 3(14), the terms of such purchase shall contain the provision that in the event there is a final determination by the Internal Revenue Service, the Department of Labor, or court of competent jurisdiction that the fair market value of such securities as of the date of purchase was less than the purchase price paid by the Trustee, then the seller shall pay or transfer, as the case may be, to the Trustee an amount of cash or shares of Qualifying Employer Securities equal in value to the difference between the purchase price and such fair market value for all such shares. In the event that cash or shares of Qualifying Employer Securities are paid or transferred to the Trustee under this provision, such securities shall be valued at their fair market value as of the date of such purchase, and interest at a reasonable rate from the date of purchase to the date of payment or transfer shall be paid by the seller on the amount of cash paid.

The Plan Administrator may direct the Trustee to sell, resell, or otherwise dispose of Qualifying Employer Securities to any person, including the Employer, provided that any such sales to any disqualified person or party-in-interest including the Employer, will be made at not less than the fair market value and no commission will be charged. Any such sale shall be made in conformance with ERISA Section 408(e).

The Employer is responsible for compliance with any applicable Federal or state securities law with respect to all aspects of the Plan. If the Qualifying Employer Securities or interest in this Plan are required to be registered in order to permit investment in the Qualifying Employer Securities Fund as provided in this section, then such investment will not be effective until the later of the effective date of the plan or the date such registration or qualification is effective. The Employer, at its own expense, will take or cause to be taken any and all such actions as may be necessary or appropriate to affect such registration or qualification. Further, if the Trustee is directed to dispose of any Qualifying Employer Securities held under the Plan under circumstances which require registration or qualification of the securities under applicable Federal or state securities laws, then the Employer will, at its own expense, take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration or qualification. The Employer is responsible for all compliance requirements under Section 16 of the Securities Act.

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ARTICLE V

BENEFITS

SECTION 5.01—RETIREMENT BENEFITS.

On a Participant’s Retirement Date, his Vested Account shall be distributed to him according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of Article X.

SECTION 5.02—DEATH BENEFITS.

If a Participant dies before his Annuity Starting Date, his Vested Account shall be distributed according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION Article X.

SECTION 5.03—VESTED BENEFITS.

If an Inactive Participant’s Vested Account is not payable under the SMALL AMOUNTS SECTION of Article X, he may elect, but is not required, to receive a distribution of his Vested Account after he ceases to be an Employee. A distribution under this paragraph shall be a retirement benefit and shall be distributed to the Participant according to the distribution of benefits provisions of Article VI.

A Participant may not elect to receive a distribution under the provisions of this section after he again becomes an Employee until he subsequently ceases to be an Employee and meets the requirements of this section.

If an Inactive Participant does not receive an earlier distribution, upon his Retirement Date or death, his Vested Account shall be distributed according to the provisions of the RETIREMENT BENEFITS SECTION or the DEATH BENEFITS SECTION of Article V.

SECTION 5.04—WHEN BENEFITS START.

(a)           Unless otherwise elected, benefits shall begin before the 60th day following the close of the Plan Year in which the latest date below occurs:

(1)           The date the Participant attains age 65 (or Normal Retirement Age, if earlier).

(2)           The 10th anniversary of the Participant’s Entry Date.

(3)           The date the Participant ceases to be an Employee.

Notwithstanding the foregoing, the failure of a Participant to consent to a distribution while a benefit is immediately distributable, within the meaning of the ELECTION PROCEDURES SECTION of Article VI, shall be deemed to be an election to defer the start of benefits sufficient to satisfy this section.

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The Participant may elect to have his benefits begin after the latest date for beginning benefits described above, subject to the following provisions of this section. The Participant shall make the election in writing. Such election must be made before his Normal Retirement Date or the date he ceases to be an Employee, if later. The election must describe the form of distribution and the date benefits will begin. The Participant shall not elect a date for beginning benefits or a form of distribution that would result in a benefit payable when he dies which would be more than incidental within the meaning of governmental regulations.

Benefits shall begin on an earlier date if otherwise provided in the Plan. For example, the Participant’s Retirement Date or Required Beginning Date, as defined in the DEFINITIONS SECTION of Article VII.

(b)           The Participant’s Vested Account which results from Elective Deferral Contributions and Qualified Nonelective Contributions may not be distributed to a Participant or to his Beneficiary (or Beneficiaries) in accordance with the Participant’s or Beneficiary’s (or Beneficiaries’) election, earlier than separation from service, death, or disability. Such amount may also be distributed upon:

(1)           Termination of the Plan, as permitted in Article VIII.

(2)           The disposition by the Employer, if the Employer is a corporation, to an unrelated corporation of substantially all of the assets, within the meaning of Code Section 409(d)(2), used in a trade or business of the Employer if the Employer continues to maintain, the Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring such assets.

(3)           The disposition by the Employer, if the Employer is a corporation, to an unrelated entity of the Employer’s interest in a subsidiary, within the meaning of Code Section 409(d)(3), if the Employer continues to maintain the Plan, but only with respect to Employees who continue employment with such subsidiary.

(4)           The hardship of the Participant as permitted in the WITHDRAWAL BENEFITS SECTION of this article.

All distributions that may be made pursuant to one or more of the foregoing distributable events will be a retirement benefit and shall be distributed to the Participant according .to the distribution of benefit provisions of Article VI. In addition, distributions that are triggered by (1), (2) and (3) above must be made in a lump sum.

SECTION 5.05—WITHDRAWAL BENEFITS.

A Participant may withdraw any part of his Vested Account resulting from Rollover Contributions. A Participant may make only two such withdrawals in any 12-month period.

A Participant may withdraw any part of his Vested Account which results from the following

Contributions

Elective Deferral Contributions

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in the event of hardship due to an immediate and heavy financial need.  Withdrawals from the Participant’s Account resulting from Elective Deferral Contributions shall be limited to the amount of the Participant’s Elective Deferral Contributions plus income allocable thereto credited to his Account as of December 31, 1988. Immediate and heavy financial need shall be limited to:  (i) expenses incurred or necessary for medical care, described in Code Section 213(d), of the Participant, the Participant’s spouse, or any dependents of the Participant (as defined in Code Section 152); (ii) purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) payment of tuition, related educational fees, and room and board expenses, for the next 12 months of post-secondary education for the Participant, his spouse, children, or dependents; (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence; or (v) any other distribution which is deemed by the Commissioner of Internal Revenue to be made on account of immediate and heavy financial need as provided in Treasury regulations.

No withdrawal shall be allowed which is not necessary to satisfy such immediate and heavy financial need. Such withdrawal shall be deemed necessary only if all of the following requirements are met: (i) the distribution is not in excess of the amount of the immediate and heavy financial need (including amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution); (iii) the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer; (iii) the Plan, and all other plans maintained by the Employer, provide that the Participant’s elective contributions and participant contributions will be suspended for at least 12 months after receipt of the hardship distribution; and (iv) the Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective contributions for the Participant’s taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant’s elective contributions for the taxable year of the hardship distribution. The Plan will suspend elective contributions and participant contributions for 12 months and limit elective deferrals as provided in the preceding sentence. A Participant shall not cease to be an Eligible Participant, as defined in the EXCESS AMOUNTS SECTION of Article III, merely because his elective contributions or participant contributions are suspended.

A request for withdrawal shall be made in such manner and in accordance with such rules as the Employer will prescribe for this purpose (including by means of voice response or other electronic means under circumstances the Employer permits). Withdrawals shall be a retirement benefit and shall be distributed to the Participant according to the distribution of benefits provisions of Article VI.A forfeiture shall not occur solely as a result of a withdrawal.

SECTION 5.06—LOANS TO PARTICIPANTS.

Loans shall be made available to all Participants on a reasonably equivalent basis. For purposes of this section, and unless otherwise specified, Participant means any Participant or Beneficiary who is a party-in-interest as defined in ERISA. Loans shall not be made to Highly Compensated Employees in an amount greater than the amount made available to other Participants.

No loans will be made to any shareholder-employee or Owner-employee. For purposes of this requirement, a shareholder-employee means an employee or officer of an electing small business (Subchapter S) corporation who owns (or is considered as owning within the meaning of Code Section 318(a)(1)), on any day during the taxable year of such corporation, more than 5 percent of this outstanding stock of the corporation.

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A loan to a Participant shall be a Participant-directed investment of his Account. The portion of the Participant’s Account held in the Qualifying Employer Securities Fund may be redeemed for purposes of a loan only after the amount held in other investment options has been depleted. The loan is a Trust Fund investment but no Account other than the borrowing Participant’s Account shall share in the interest paid on the loan or bear any expense or loss incurred because of the loan.

The number of outstanding loans shall be limited to one. No more than one loan shall be approved for any Participant in any 12-month period. The minimum amount of any loan shall be $1,000.

Loans must be adequately secured and bear a reasonable rate of interest.

The amount of the loan shall not exceed the maximum amount that may be treated as a loan under Code Section 72(p) (rather than a distribution) to the Participant and shall be equal to the lesser of (a) or (b) below:

(a)           $50,000, reduced by the highest outstanding loan balance of loans during the one-year period ending on the day before the new loan is made.

(b)           The greater of (1) or (2), reduced by (3) below:

(1)           One-half of the Participant’s Vested Account.

(2)           $10,000.

(3)           Any outstanding loan balance on the date the new loan is made.

For purposes of this maximum, a Participant’s Vested Account does not include any accumulated deductible employee contributions, as defined in Code Section 72(o)(5)(B), and all qualified employer plans, as defined in Code Section 72(p)(4), of the Employer and any Controlled Group member shall be treated as one plan.

The foregoing notwithstanding, the amount of such loan shall not exceed 50 percent of the amount of the Participant’s Vested Account. For purposes of this maximum, a Participant’s Vested Account does not include any accumulated deductible employee contributions, as defined in Code Section 72(o)(5)(B). No collateral other than a portion of the Participant’s Vested Account (as limited above) shall be accepted. The Loan Administrator shall determine if the collateral is adequate for the amount of the loan requested.

Each loan shall bear a reasonable fixed rate of interest to be determined by the Loan Administrator. In determining the interest rate, the Loan Administrator shall take into consideration fixed interest rates currently being charged by commercial lenders for loans of comparable risk on similar terms and for similar durations, so that the interest will provide for a return commensurate with rates currently charged by commercial lenders for loans made under similar circumstances. The Loan Administrator shall not discriminate among Participants in the matter of interest rates: but loans granted at different times may bear different interest rates in accordance with the current appropriate standards.

The loan shall by its terms require that repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan. If the loan is used to acquire a dwelling unit, which within a reasonable time (determined at the time the loan is made) will be used as the principal residence of the Participant, the repayment period may extend beyond five years from the date of the loan. The period of repayment for any loan shall be arrived at

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by mutual agreement between the Loan Administrator and the Participant and if the loan is for a principal residence, shall not be made for a period longer than the repayment period consistent with commercial practices.

The Participant shall make an application for a loan in such manner and in accordance with such rules as the Employer shall prescribe for this purpose (including by means of voice response or other electronic means under circumstances the Employer permits). The application must specify the amount and duration requested.

Information contained in the application for the loan concerning the income, liabilities, and assets of the Participant will be evaluated to determine whether there is a reasonable expectation that the Participant will be able to satisfy payments on the loan as due. Additionally, the Loan Administrator will pursue any appropriate further investigations concerning the creditworthiness and credit history of the Participant to determine whether a loan should be approved.

Each loan shall be fully documented in the form of a promissory note signed by the Participant for the face amount of the loan, together with interest determined as specified above.

There will be an assignment of collateral to the Plan executed at the time the loan is made.

In those cases where repayment through payroll deduction is available, installments are so payable, and a payroll deduction agreement shall be executed by the Participant at the time the loan is made. Loan repayments that are accumulated through payroll deduction shall be paid to the Trustee by the earlier of (i) the date the loan repayments can reasonably be segregated from the Employer’s assets, or (ii) the 15th business day of the month following the month in which such amounts would otherwise have been paid in cash to the Participant.

Where payroll deduction is not available, payments in cash are to be timely made. Any payment that is not by payroll deduction shall be made payable to the Employer or the Trustee, as specified in the promissory note, and delivered to the Loan Administrator, including prepayments, service fees and penalties, if any, and other amounts due under the note. The Loan Administrator shall deposit such amounts into the Plan as soon as administratively practicable after they are received, but in no event later than the 15th business day of the month after they are received.

The promissory note may provide for reasonable late payment penalties and service fees. Any penalties or service fees shall be applied to all Participants in a nondiscriminatory manner. If the promissory note so provides, such amounts may be assessed and collected from the Account of the Participant as part of the loan balance.

Each loan may be paid prior to maturity, in part or in full, without penalty or service fee, except as may be set out in the promissory note.

The Plan shall suspend loan payments for a period not exceeding one year during which an approved unpaid leave of absence occurs other then a military leave of absence. The Loan Administrator shall provide the Participant a written explanation of the effect of the suspension of payments upon his loan.

If a Participant separates from service (or takes a leave of absence) from the Employer because of service in the military and does not receive a distribution of his Vested Account, the Plan shall suspend loan payments until the Participant’s completion of military service of until the Participant’s fifth anniversary of

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commencement of military service, if earlier, as permitted under Code Section 414(u). The Loan Administrator shall provide the Participant a written explanation of the effect of his military service upon his loan.

If any payment of principal and interest, or any portion thereof, remains unpaid for more than 90 days after due, the loan shall be in default. For purposes of Code Section 72(p), the Participant shall then be treated as having received a deemed distribution regardless of whether or not a distributable event has occurred.

Upon default, the Plan has the right to pursue any remedy available by law to satisfy the amount due, along with accrued interest, including the right to enforce its claim against the security pledged and execute upon the collateral as allowed by law.

The entire principal balance whether or not otherwise then due, along with accrued interest, shall become immediately due and payable without demand or notice, and subject to collection or satisfaction by any lawful means, including specifically, but not limited to, the right to enforce the claim against the security pledged and to execute upon the collateral as allowed by law.

In the event of default, foreclosure on the note and attachment of security or use of amounts pledged to satisfy the amount then due shall not occur until a distributable event occurs in accordance with the Plan, and shall not occur to an extent greater than the amount then available upon any distributable event which has occurred under the Plan.

All reasonable costs and expenses, including but not limited to attorney’s fees, incurred by the Plan in connection with any default or in any proceeding to enforce any provision of a promissory note or instrument by which a promissory note for a Participant loan is secured, shall be assessed and collected from the Account of the Participant as part of the loan balance.

If payroll deduction is being utilized, in the event that a Participant’s available payroll deduction amounts in any given month are insufficient to satisfy the total amount due, there will be an increase in the amount taken subsequently, sufficient to make up the amount that is then due. If any amount remains past due more than 90 days, the entire principal amount, whether or not, otherwise then due, along with interest then accrued and any other amount then due under the promissory note, shall become due and payable, as above.

If no distributable event has occurred under the Plan at the time that the Participant’s Vested Account would otherwise be used under this provision to pay any amount due under the outstanding loan, this will not occur until the time, or in excess of the extent to which, a distributable event occurs under the Plan. An outstanding loan will become due and payable in full 60 days after a Participant ceases to be an Employee and a party-in-interest as defined in ERISA or after complete termination of the Plan.

SECTION 5.07—DISTRIBUTIONS UNDER QUALIFIED DOMESTIC RELATIONS ORDERS.

The Plan specifically permits distributions to an Alternate Payee under a qualified domestic relations order as defined in Code Section 414(p), at any time, irrespective of whether the Participant has attained his earliest retirement age, as defined in Code Section 414(p), under the Plan. A distribution to an Alternate Payee before the Participant has attained his earliest retirement age is available only if the order specifies that distribution shall be made prior to the earliest retirement age or allows the Alternate Payee to elect a distribution prior to the earliest retirement age.

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Nothing in this section shall permit a Participant to receive a distribution at a time otherwise not permitted under the Plan nor shall it permit the Alternate Payee to receive a form of payment not permitted under the Plan.

The benefit payable to an Alternate Payee shall be subject to the provisions of the SMALL AMOUNTS SECTION of Article X if the value of the benefit does not exceed $5,000 ($3,500 for Plan Years beginning before August 6, 1997).

The Plan Administrator shall establish reasonable procedures to determine the qualified status of a domestic relations order. Upon receiving a domestic relations order, the Plan Administrator shall promptly notify the Participant and the Alternate Payee named in the order, in writing, of the receipt of the order and the Plan’s procedures for determining the qualified status of the order. Within a reasonable period of time after receiving the domestic relations order, the Plan Administrator shall determine the qualified status of the order and shall notify the Participant and each Alternate Payee, in writing, of its determination. The Plan Administrator shall provide notice under this paragraph by mailing to the individual’s address specified in the domestic relations order, or in a manner consistent with Department of Labor regulations. The Plan Administrator may treat as qualified any domestic relations order entered into before January 1, 1985, irrespective of whether it satisfies all the requirements described in Code Section 414(p).

If any portion of the Participant’s Vested Account is payable during the period the Plan Administrator is making its determination of the qualified status of the domestic relations order, a separate accounting shall be made of the amount payable. If the Plan Administrator determines the order is a qualified domestic relations order within 18 months of the date amounts are first payable following receipt of the order, the payable amounts shall be distributed in accordance with the order. If the Plan Administrator does: not make its determination of the qualified status of the order within the 18-month determination period, the payable amounts shall be distributed in the manner the Plan would distribute if the order did not exist and the order shall apply prospectively if the Plan Administrator later determines the order is a qualified domestic relations order.

The Plan shall make payments or distributions required under this section by separate benefit checks or other separate distribution to the Alternate Payee(s).

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ARTICLE VI

DISTRIBUTION OF BENEFITS

SECTION 6.01—FORM OF DISTRIBUTION.

(a)           Retirement Benefits.  The only form of retirement benefit is a single sum payment.

(b)           Death Benefits.  The only form of death benefit is a single sum payment.

SECTION 6.02—ELECTION PROCEDURES.

The Participant shall make any election under this section in writing. The Plan Administrator may require such individual to complete and sign any necessary documents as to the provisions to be made. Any election               permitted under (a) below shall be subject to the qualified election provisions of (b) below.

(a)           Death Benefits.  A Participant may elect his Beneficiary.

(b)           Qualified Election.  The Participant may make an election at any time during the election period. The Participant may revoke the election made (or make a new election) at any time and any number of times during the election period. An election is effective only if it meets the consent requirements below.

(1)           Election Period for Death Benefits.  A Participant may make an election as to death benefits at any time before he dies.

(2)           Consent to Election.  If the Participant’s Vested Account exceeds $5,000 ($3,500 for Plan Years beginning before August 6, 1997), any benefit which is immediately distributable requires the consent of the Participant. Such consent shall also be required if the Participant’s Vested Account at the time of any prior distribution exceeded $5,000 ($3,500for Plan Years beginning before August 6, 1997). However, for distributions made after March 21, 1999, such consent shall only be required if the Participant’s Vested Account exceeds $5,000.

The consent of the Participant to a benefit which is immediately distributable must not be made before the date the Participant is provided with the notice of the ability to defer the distribution. Such consent shall be made in writing.

The consent shall not be made more then 90 days before the Annuity Starting Date. The consent of the Participant Shall not be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415.

In addition, upon termination of this Plan, if the Plan does not offer an annuity option (purchased from a commercial provider), and if the Employer (or any entity within the same Controlled Group) does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), the Participant’s’ Account balance will, without the Participant’s consent, be distributed to the Participant.

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However, if any entity within the same Controlled Group maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) then the Participant’s Account will be transferred, without the Participant’s consent, to the other plan if the Participant does not consent to an immediate distribution.

A benefit is immediately distributable if any part of the benefit could be distributed to the Participant before the Participant attains the older of Normal Retirement Age or age 62.

Spousal consent is needed to name a Beneficiary other then the Participant’s spouse. If a Participant names a Beneficiary other than his spouse, the spouse has the right to limit consent only to a specific Beneficiary. The spouse can relinquish such right. Such consent shall be in writing. The spouse’s consent shall be witnessed by a plan representative or notary public. The spouse’s consent must acknowledge the effect of the election, including that the spouse had the right to limit consent only to a specific Beneficiary and that the relinquishment of such right was voluntary. Unless the consent of the spouse expressly permits designations by the Participant without a requirement of further consent by the spouse, the spouse’s consent must be limited to the Beneficiary, class of Beneficiaries, or contingent Beneficiary named in the election.

Spousal consent is not required, however, if the Participant establishes to the satisfaction of the plan representative that the consent of the spouse cannot be obtained because there is no spouse or the spouse cannot be located. A spouse’s consent under this paragraph shall not be valid with respect to any other spouse. A Participant may revoke a prior election without the consent of the spouse. Any new election will require a new spousal consent, unless the consent of the spouse expressly permits such election by the Participant without further consent by the spouse. A spouse’s consent may be revoked at any time within the Participant’s election period.

SECTION 6.03—NOTICE REQUIREMENTS.

Right to Defer. The Plan Administrator shall furnish to the Participant a written explanation of the right of the Participant to defer distribution until the benefit is no longer immediately distributable.

The Plan Administrator shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant no less than 30 days, and no more then 90 days, before the Annuity Starting Date.

However, distribution may begin less than 30 days after the notice described in this subparagraph is given, provided the Plan Administrator clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution, and the Participant, after receiving the notice, affirmatively elects a distribution.

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ARTICLE VII

DISTRIBUTION REQUIREMENTS

SECTION 7.01—APPLICATION.

The timing of any distribution must meet the requirements of this article.

SECTION 7.02—DEFINITIONS.

For purposes of this article, the following terms are defined:

5-percent Owner means a 5-percent owner as defined in Code Section 416. A Participant is treated as a 5-percent Owner for purposes of this article if such Participant is a 5-percent Owner at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2.

In addition, a Participant is treated as a 5percent Owner for purposes of this article if such Participant becomes a 5-percent Owner in a later Plan Year. Such Prticipant’s Required Beginning Date shall not be later than the April 1 of the calendar year following the calendar year in which such later Plan Year ends.

Once distributions have begun to a 5-percent Owner under this article, they must continue to be distributed, even if the Participant ceases to be a 5-percent Owner in a subsequent year.

Required Beginning Date means, for a Participant who is a 5-percent Owner, the April 1 of the calendar-, year following the calendar year in which he attains age 70 1/2.

Required Beginning Date means, for any Participant who is not a 5-percent Owner, the April 1 of the calendar year following the later of the calendar year in which he attains age 70 1/2 or the calendar year in which he retires.

The preretirement age 70 1/2 distribution option is only eliminated with respect to Participants who reach age 70 1/2 in or later a calendar year that begins after the tartar of December 31, 1998, or the adoption date of the amendment which eliminated such option. The preretirement age 701/2 distribution is an optional form of benefit under which benefits payable in a particular distribution form (including any modifications that may be elected after benefits begin) begin at a time during the period that begins on or after January 1 of the calendar year in which the Participant attains age 70 1/2 and ends April 1 of the immediately following calendar year.

The options available for Participants who are not 5-percent Owners and attained age 701/2 in calendar years before the calendar year that begins after the later of December 31, 1998, or the adoption date of the amendment which eliminated the preretirement age 70 1/2 distribution shall be the following. Any such Participant attaining age 70 1/2 in years after 1995 may elect by April 1 of the calendar year following the calendar year in which he attained age 70 1/2 (or by December 31, 1997 in the case of a Participant attaining age 70 1/2 in 1996) to defer distributions until the calendar year following the calendar year in which he retires.

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SECTION 7.03—DISTRIBUTION REQUIREMENTS.

(a)           General Rules.

(1)           The requirements of this article shall apply to any distribution of a Participant’s interest and shall take precedence over any inconsistent provisions of this Plan. Unless otherwise specified, the provisions, of this article apply to calendar years beginning after December 31, 1984.

(2)           All distributions required under this article shall be determined and made in accordance with the proposed regulations under Code Section 401(a)(9).

(3)           With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2001 (January 1 of the calendar year in which these provisions were first adopted, if later), the Plan will apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the regulations under Code Section 401(a)(9) that were proposed on January 17, 2001, notwithstanding any provision of the Plan to the contrary. These provisions shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Code Section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service.

(b)           Required Beginning Date. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant’s Required Beginning Date.

(c)           Death Distribution Provisions. If the Participant dies before distribution of his interest begins, distribution of the Participant’s entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

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ARTICLE VIll

TERMINATION OF THE PLAN

The Employer expects to continue the Plan indefinitely but reserves the right to terminate the Plan in whole or in part at any time upon giving written notice to all parties concerned. Complete discontinuance of Contributions constitutes complete termination of the Plan.

The Account of each Participant shall be fully (100%) vested and nonforfeitable as of the effective date of complete termination of the Plan. The Account of each Participant who is included in the group of Participants deemed to be affected by the partial termination of the Plan shall be fully (100%) vested and nonforfeitable as of the effective date of the partial termination of the Plan. The Participant’s Account shall continue to participate in the earnings credited, expenses charged, and any appreciation or depreciation of the Investment Fund until his Vested Account is distributed.

A Participant’s Account which does not result from the Contributions listed below may be distributed to the Participant after the effective date of the complete termination of the Plan:

Elective Deferral Contributions

Qualified Nonelective Contributions

A Participant’s Account resulting from such Contributions may; be distributed upon complete termination of the Plan, but only if neither the Employer nor any Controlled Group member maintain or establish a successor defined contribution plan (other than an employer stock ownership plan as defined in Code Section 4975(e)(7), a simplified employee pension plan as defined in Code Section 408(k) of a SIMPLE IRA plan as defined in Code Section 408(p)) and such distribution is made in a lump sum. A distribution under this article shall be a retirement benefit and shall be distributed to the Participant according to the provisions of Article VI.

The Participant’s entire Vested Account shall be paid in a single sum to the Participant as of the effective date of complete termination of the Plan if (i) the requirements for distribution of Elective Deferral Contributions in the above paragraph are met and (ii) consent of the Participant is not required in the ELECTION PROCEDURES SECTION of Article VI to distribute a benefit which is immediately distributable. This is a small amounts payment. The small amounts payment is in full settlement of all benefits otherwise payable.

Upon complete termination of the Plan, no more Employees shall become Participants and no more Contributions shall be made.

The assets of this Plan shall not be paid to the Employer at any time, except that, after the satisfaction of all liabilities under the Plan, any assets remaining may be paid to the Employer. The payment may not be made if it would contravene any provision of law.

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ARTICLE IX

ADMINISTRATION OF THE PLAN

SECTION 9.01—ADMINISTRATION.

Subject to the provisions of this article, the Plan Administrator has complete control of the administration of the Plan. The Plan Administrator has all the powers necessary for it to properly carry out its administrative duties. Not in limitation, but in amplification of the foregoing, the Plan Administrator has complete discretion to construe or interpret the provisions, of the Plan, including ambiguous provisions, if any, and to determine all questions that may arise under the Plan, including all questions relating to the eligibility of Employees to participate in the Plan and the amount of benefit to which any Participant or Beneficiary may become entitled. The Plan Administrator’s decisions upon all matters within the scope of its authority shall be final.

Unless otherwise set out in the Plan or Annuity Contract, the Plan Administrator may delegate recordkeeping and other duties which are necessary for the administration of the Plan to any person or firm which agrees to accept such duties. The Plan Administrator shall be entitled to rely upon all tables, valuations, certificates and reports furnished by the consultant or actuary appointed by the Plan Administrator and upon all opinions given by any counsel selected or approved by the Plan Administrator.

The Plan Administrator shall receive all claims for benefits by Participants, former Participants and Beneficiaries. The Plan Administrator shall determine all facts necessary to establish the right of any Claimant to benefits and the amount of those benefits under the provisions of the Plan. The Plan Administrator may establish rules and procedures to be followed by Claimants in filing claims for benefits, in furnishing and verifying proofs necessary to determine age, and in any other matters required to administer the Plan.

SECTION 9.02—EXPENSES.

Expenses of the Plan, to the extent that the Employer does not pay such expenses, may be paid out of the assets of the Plan provided that such payment is consistent with ERISA. Such expenses include, but are not limited to, expenses for bonding required by ERISA; expenses for recordkeeping and other administrative services; fees and expenses of the Trustee or Annuity Contract; expenses for investment education service; and direct costs that the Employer incurs with respect to the Plan.

SECTION 9.03—RECORDS.

All acts and determinations of the Plan Administrator shall be duly recorded. All these records, together with other documents necessary for the administration of the Plan, shall be preserved in the Plan Administrator’s custody.

Writing (handwriting, typing, printing), photostating, photographing, microfilming, magnetic impulse, mechanical or electrical recording, or other forms of data compilation shall be acceptable means of keeping records.

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SECTION 9.04—INFORMATION AVAILABLE.

Any Participant in the Plan or any Beneficiary may examine copies of the Plan description, latest annual report, any bargaining agreement, this Plan, the Annuity Contract or any other instrument under which the Plan was established or is operated.  The Plan Administrator shall maintain all of the items listed in this section in its office, or in such other place or places as it may designate in order to comply with governmental regulations. These items may be examined during reasonable business hours.  Upon the written request of a Participant or Beneficiary receiving benefits under the Plan, the Plan Administrator shall furnish him with a copy of any of these items.  The Plan Administrator may make a reasonable charge to the requesting person for the copy.

SECTION 9.05—CLAIM AND APPEAL PROCEDURES.

A Claimant must submit any required forms and pertinent information when making a claim for benefits under the Plan.

If a claim for benefits under the Plan is denied, the Plan Administrator shall provide adequate written notice to the Claimant whose claim for benefits under the Plan has been denied.  The notice must be furnished within 90 days of the date that the claim is received by the Plan Administrator.  The Claimant shall be notified in writing within this initial 90-day period if special circumstances require an extension of time needed to process the claim and the date by which the Plan Administrator’s decision is expected to be rendered.  The written notice shall be furnished no later than 180 days after the date the claim was received by the Plan Administrator.

The Plan Administrator’s notice to the Claimant shall specify the reason for the denial; specify references to pertinent Plan provisions on which denial is based; describe any additional material and information needed for the Claimant to perfect his claim for benefits; explain why the material and information is needed; inform the Claimant that any appeal he wishes to make must be in writing to the Plan Administrator within 60 days after receipt of the Plan Administrator’s notice of denial of benefits and that failure to make he written appeal within such 60-day period renders the Plan Administrator’s determination of such denial final, binding and conclusive.

If the Claimant appeals to the Plan Administrator, the Claimant (or his authorized representative) may submit in writing whatever issues and comments the Claimant (or his authorized representative) feels are pertinent.  The Claimant (for his authorized representative) may review pertinent Plan documents.  The Plan Administrator shall reexamine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances.  The Plan Administrator shall advise the Claimant of its decision within 60 days of his written request for review, unless special circumstances (such as a hearing) would make rendering a decision within the 60-day limit unfeasible.  The Claimant must be notified within the 60-day limit if an extension is necessary.  The Plan Administrator shall render a decision on a claim for benefits no later than 120 days after the request for review is received.

SECTION 9.06—DELEGATION OF AUTHORITY.

All or any part of the administrative duties and responsibilities under this article may be delegated by the Plan Administrator to a retirement committee.  The duties and responsibilities of the retirement committee shall be set out in a separate written agreement.

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SECTION 9.07—EXERCISE OF DISCRETIONARY AUTHORITY.

The Employer, Plan Administrator and any other person or entity who has authority with respect to the management, administration, or investment of the Plan may exercise that authority in its/his full discretion, subject only to the duties imposed under ERISA. This discretionary authority includes, but is not limited to, the authority to make any and all factual determinations and interpret all terms and provisions of the Plan documents relevant to the issue under consideration. The exercise of authority will be binding upon all persons; will be given deference in all courts of law; and will not be overturned or set aside by any court of law unless found to be arbitrary and capricious or made in bad faith.

SECTION 9.08—VOTING AND TENDER OF QUALIFYING EMPLOYER SECURITIES.

Voting rights with respect to Qualifying Employer Securities will be passed through to Participants. Participants will be allowed to direct the voting rights of Qualifying Employer Securities for any matter put to the vote of shareholders. Before each meeting of shareholders, the Employer shall cause to be sent to each person with power to control such voting rights a copy of any notice and any other information provided to shareholders and, if applicable, a form for instructing the Trustee how to vote at such meeting (or any adjournment thereof) the number of full and fractional shares subject to such person’s voting control. The Trustee may establish a deadline in advance of the meeting by which such forms must be received in order to be effective.

Each Participant shall be entitled to one vote for each share credited to his Account.

If some or all of the Participants have not directed or have not timely directed the Trustee on how to vote, then the Trustee shall vote such Qualifying Employer Securities in the same proportion as those shares of Qualifying Employer Securities for which the Trustee has received proper direction for such matter.

Tender rights or exchange offers for Qualifying Employer Securities will be passed through to Participants. As soon as practicable after the commencement of a tender or exchange offer for Qualifying Employer Securities, the Employer shall cause each person with power to control the response to such tender or exchange offer to be advised in writing the terms of the offer and, if applicable, to be provided with a form for instructing the Trustee, or for revoking such instruction, to tender or exchange shares of Qualifying Employer Securities, to the extent permitted under the terms of such offer. In advising such persons of the terms of the offer, the Employer may include statements from the board of directors setting forth its position with respect to the offer.

If some or all of the Participants have not directed or have not timely directed the Trustee on how to tender, then the Trustee shall tender such Qualifying Employer Securities in the same proportion as those shares of Qualifying Employer Securities for which the Trustee has received proper direction for such matter.

If the tender or exchange offer is limited so that all of the share that the Trustee has been directed to tender or exchange cannot be sold or exchanged, the shares that each Participant directed to be tendered or exchanged shall be deemed to have been sold or exchanged in the same ratio that the number of shares actually sold or exchanged bears to the total number of shares that the Trustee was directed to tender or exchange.

The Trustee shall hold the Participant’s individual directions with respect to voting rights or tender decisions in confidence and, except as required by raw, shall not divulge or release such individual directions

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to anyone associated with the Employer. The Employer may require verification of the Trustee’s compliance with the directions received from Participants by any independent auditor selected by the Employer, provided that such auditor agrees to maintain the confidentiality of such individual directions.

The Employer may develop procedures to facilitate the exercise of votes or tender rights, such as the use of facsimile transmissions for the Participants located in physically remote areas.

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ARTICLE X

GENERAL PROVISIONS

SECTION 10.01—AMENDMENTS.

The Employer may amend this Plan at any time, including any remedial retroactive changes (within, the time specified by Internal Revenue Service regulations), to comply with any law or regulation issued by any governmental agency to which the Plan is subject.

An amendment may not diminish or adversely affect any accrued interest or benefit of Participants or their Beneficiaries nor allow reversion or diversion of Plan assets to the Employer at any time, except as may be required to comply with any law or regulation issued by any governmental agency to which the Plan is subject.

No amendment to this Plan shall be effective to the extent that it has the effect of decreasing a Participant’s accrued benefit. However, a Participant’s Account may be reduced to the extent permitted under Code Section 412(c)(8). For purposes of this paragraph, a Plan amendment which has the effect of decreasing a Participant’s Account with respect to benefits attributable to service before the amendment shall be treated as reducing an accrued benefit. Furthermore, if the vesting schedule of the Plan is amended, in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee’s right to his employer-derived accrued benefit shall not be less than his percentage computed under the Plan without regard to such amendment.

No amendment to the Plan shall be effective to eliminate or restrict an optional form of benefit with respect to benefits attributable to service before the amendment except as provided in the MERGERS AND DIRECT TRANSFERS SECTION of this article and below:

(a)           The Plan is amended to eliminate or restrict the ability of a Participant to receive payment of his Account balance under a particular optional form of benefit and the amendment satisfies the conditions in (1) and (2) below:

(1)           The amendment provides a single sum distribution form that is otherwise identical to the optional form of benefit eliminated or restricted. For purposes of this condition (1), a single sum distribution form is otherwise identical only if it is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement.

(2)           The amendment provides that the amendment shall not apply to any distribution with an Annuity Starting Date earlier than the earlier of:

(i)            the 90th day after the date the Participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the ERISA requirements at 29 CFR 2520.104b-3 relating to a summary of material modifications, or

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(ii)           the first day of the second Plan Year following the Plan Year in which the amendment is adopted.

(b)           The Plan is amended to eliminate or restrict in-kind distributions and the conditions in Q&A 2 (b)(2)(iii) in section 1.411 (d)-4 of the regulations are met.

If, as a result of an amendment, an Employer Contribution is removed that is not 100% immediately vested when made, the applicable vesting schedule shall remain in effect after the date of such amendment. The Participant shall not become immediately 100% vested in such Contributions as a result of the elimination of such Contribution except as otherwise specifically provided in the Plan.

An amendment shall not decrease a Participant’s vested interest in the Plan. If an amendment to the Plan, or a deemed amendment in the case of a change in top-heavy status of the Plan as provided in the; MODIFICATION OF VESTING REQUIREMENTS SECTION of Article XI, changes the computation of the percentage used to determine that portion of a Participant’s Account attributable to Employer Contributions which is nonforfeitable (whether directly or indirectly), each Participant or former Participant

(c)           who has completed at least three Years of Service on the date the election period described below ends (five Years of Service if the Participant does not have at least one Hour-of-Service in a Plan Year beginning after December 31, 1988) and

(d)           whose nonforfeitable percentage will be determined on any date after the date of the change

may elect, during the election period, to have the nonforfeitable percentage of his Account that results from Employer Contributions determined without regard to the amendment. This election may not be revoked. If after the Plan is changed, the Participant’s nonforfeitable percentage will at all times be as great as it would have been if the change had not been made, no election needs to be provided. The election period shall begin no later than the date the Plan amendment is adopted, or deemed adopted in the case of a change in the top-heavy status of the Plan, and end no earlier than the 60th day after the latest of the date the amendment is adopted (deemed adopted) or becomes effective, or the date the Participant is issued written notice of the amendment (deemed amendment) by the Employer or the Plan Administrator.

SECTION 10.02—DIRECT ROLLOVERS.

Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributive in a Direct Rollover.

Any distributions made under the SMALL AMOUNTS SECTION of this article (or which are small amounts payments made under Article VIII at complete termination of the Plan) which are Eligible Rollover Distributions and for which the Distributee has not elected to either have such distribution paid to him or to an Eligible Retirement Plan shall be paid to the Distributee.

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SECTION 10.03—MERGERS AND DIRECT TRANSFERS.

The Plan may not be merged or consolidated with, nor have its assets or liabilities transferred to, any other retirement plan, unless each Participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit the Participant would have been entitled to receive immediately before he merger, consolidation, or transfer (if this Plan had then terminated). The Employer may enter into merger agreements or direct transfer of assets agreements with the employers under other retirement plans which are qualifiable under Code Section 401(a), including an elective transfer, and may accept the direct transfer of plan assets, or may transfer plan assets, as a party to any such agreement. The Employer shall not consent to, or be a party to a merger, consolidation, or transfer of assets with a plan which is subject to the survivor annuity requirements of Code Section 401 (a)(11) if such action would result in a survivor annuity feature being maintained under this Plan.

Notwithstanding any provision of the Plan to the contrary, to the extent any optional form of benefit under the Plan permits a distribution prior to the Employee’s retirement, death, disability, or severance from employment, and prior to plan termination, the optional form of benefit is not available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred, within the meaning of Code Section 414(1), to this Plan from a money purchase pension plan qualified under Code Section 401(a) (other than any portion of those assets and liabilities attributable to voluntary employee contributions).

The Plan may accept a direct transfer of plan assets on behalf of an Eligible Employee. If the Eligible Employee is not an Active Participant when the transfer is made, the Eligible Employee shall be deemed to be an Active Participant only for the purpose of investment and distribution of the transferred assets. Employer Contributions shall not be made for or allocated to the Eligible Employee, until the time he meets all of the requirements to become an Active Participant.

The Plan shall hold, administer, and distribute the transferred assets as a part of the Plan. The Plan shall maintain a separate account for the benefit of the Employee on whose behalf the Plan accepted the transfer in order to reflect the value of the transferred assets.

Unless a transfer of assets to the Plan is an elective transfer as described below, the Plan shall apply the optional forms of benefit protections described in the AMENDMENTS SECTION of this article to all transferred assets.

A Participant’s protected benefits may be eliminated upon transfer between qualified defined contribution plans if the conditions in Q&A 3(b)(1) in section 1.411(d)-4 of the regulations are met. The transfer must meet all of the other applicable qualification requirements.

A Participant’s protected benefits may be eliminated upon transfer between qualified plans (both defined benefit and defined contribution) if the conditions in Q&A 3(c)(1) in section 1.411(d)-4 of the regulations are met. Beginning January 1, 2002, if the Participant is eligible to receive an immediate distribution of his entire, nonforfeitable accrued benefit in a single sum distribution that would consist entirely of an eligible rollover distribution under Code Section 4011(a)(31), such transfer will be accomplished as a direct rollover, under Code Section 401(a)(31). The rules applicable to distributions under the plan would apply to the transfer, but the transfer would not be treated as a distribution for purposes of the minimum distribution requirements of Code Section 401(a)(9).

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SECTION 10.04—PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.

The obligations of an Insurer shall be governed solely by the provisions of the Annuity Contract. The Insurer shall not be required to perform any act not provided in or contrary to the provisions of the Annuity Contract. Each Annuity Contract when purchased shall comply with the Plan. See the CONSTRUCTION SECTION of this article.

Any issuer or distributor of investment contracts or securities is governed solely by the terms of its policies, written investment contract, prospectuses, security instruments, and any other written agreements entered into with the Trustee with regard to such investment contracts or securities.

Such Insurer, issuer or distributor is not a party to the Plan, nor bound in any way by the Plan provisions. Such parties shall not be required to look to the terms of this Plan, nor to determine whether the Employer, the Plan Administrator, the Trustee, or the Named Fiduciary have the authority to act in any particular manner or to make any contract or agreement.

Until notice of any amendment or termination of this Plan or a change in Trustee has been received by the Insurer at its home office or an issuer or distributor at their principal address, they are and shall be fully protected in assuming that the Plan has not been amended or terminated and in dealing with any party acting as Trustee according to the latest information which they have received at their home office or principal address.

SECTION 10.05-EMPLOYMENT STATUS.

Nothing contained in this plan gives an Employee the right to be retained in the Employer’s employ or to interfere with the Employer’s right to discharge any Employee.

SECTION 10.06-RIGHTS TO PLAN ASSETS.

An Employee shall not have any right to or interest in any assets of the Plan upon termination of employment or otherwise except as specifically provided under this Plan, and then only to the extent of the benefits payable to such Employee according to the Plan provisions.

Any final payment or distribution to a Participant or his legal representative or to any Beneficiaries of such Participant under the Plan provisions shall be in full satisfaction of all claims against the Plan, the Named Fiduciary, the Plan Administrator, the Insurer, the Trustee, and the Employer arising under or by virtue of the Plan.

SECTION 10.07—BENEFICIARY.

Each Participant may name a Beneficiary to receive any death benefit that may arise but of his participation in the Plan. The Participant may change his Beneficiary from time to time. Unless .a qualified election has been made, for purposes of distributing any death benefits, before the Participant’s Retirement Date, the Beneficiary of a Participant who has a spouse shall be the Participant’s spouse. The Participant’s Beneficiary designation and any change of Beneficiary shall be subject to the provisions of the ELECTION PROCEDURES SECTION of Article VI. It is the responsibility of the Participant to give written notice to the Insurer of the name of the Beneficiary on a form furnished for that purpose.

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With the Employer’s consent, the Plan Administrator may maintain records of Beneficiary designations for Participants before their Retirement Dates. In that event, the written designations made by Participants shall be filed with the Plan Administrator. If a Participant dies before his Retirement Date, the Plan Administrator shall certify to the Insurer the Beneficiary designation on its records for the Participant.

If there is no Beneficiary named or surviving when a Participant dies, the Participant’s Beneficiary shall be the Participant’s surviving spouse, or where there is no surviving spouse, the executor or administrator of the Participant’s estate.

SECTION 10.08—NONALIENATION OF BENEFITS.

Benefits payable under the Plan are not subject to the claims of any creditor of any Participant, Beneficiary or spouse. A Participant, Beneficiary or spouse does not have any rights to alienate, anticipate, commute, pledge, encumber, or assign any of such benefits, except in the case of a loan as provided in the LOANS TO PARTICIPANTS SECTION of Article V. The preceding sentences shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant according to a domestic relations order, unless such order is determined by the Plan Administrator to be a qualified domestic relations order, as defined in Code Section 414(p), or any domestic relations order entered before January 1, 1985. The preceding sentences shall not apply to any offset of a Participant’s benefits provided under the Plan against an amount the Participant is required to pay the Plan with respect to a judgement, order, or decree issued, or a settlement entered into, on or after Augusts 5, 1997, which meets the requirements of Code Sections 401(a)(13)(C) or (D).

SECTION 10.09—CONSTRUCTION.

The validity of the Plan or any of its provisions is determined under and construed according to Federal law and, to the extent permissible, according to the laws of the state in which the Employer has its principal office. In case any provision of this Plan is hold illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included.

In the event of any conflict between the provisions of the Plan and the terms of any Annuity Contract issued hereunder, the provisions of the Plan control.

SECTION 10.10—LEGAL ACTIONS.

No person employed by the Employer, no Participant, former Participant, or their Beneficiaries, or any other person having or claiming to have an interest in the Plan is entitled to any notice of process. A final judgment entered in any such action or proceeding shall be binding and conclusive on all persons having or claiming to have an interest in the Plan.

SECTION 10.11—SMALL AMOUNTS.

If consent of the Participant is not required for a benefit which is immediately, distributable in the ELECTION PROCEDURES SECTION of Article VI, a Participant’s entire Vested Account shall be paid in a single sum as of the earliest of this Retirement Date, the date he dies, or the date he ceases to be art Employee for any other reason. If a Participant would have received a distribution under the first sentence of this

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paragraph but for the fact that the Participant’s consent was needed to distribute a benefit which is immediately distributable, and if at a later time consent would not be needed to distribute a benefit which is immediately distributable and such Participant has not again become an Employee, such Vested Account shall be paid in a single sum. This is a small amounts payment.

If a small amounts payment is made as of the date the Participant dies, the small amounts payment shall be made to the Participant’s Beneficiary. If a small amounts payment is made while the Participant is living, the small amounts payment shall be made to the Participant. The small amounts payment is in full settlement of benefits otherwise payable.

No other small amounts payments shall be made.

SECTION 10.12—WORD USAGE.

The masculine gender, where used in this Plan, shall include the feminine gender and the singular words, as used in this Plan, may include the plural, unless the context indicates otherwise.

The words in writing and written, where used in this Plan, shall include any other forms, such as voice response or other electronic system, as permitted by any governmental agency to which the Plan is subject.

SECTION 10.13-CHANGE IN SERVICE METHOD.

(a)           Change of Service Method Under This Plan.  If this Plan is amended to change the method of crediting service from the elapsed time method to the hours method for any purpose under this Plan, the Employee’s service shall be equal to the sum of (1), (2): and (3) below:

(1)           The number of whole years of service credited to the Employee under the Plan as of the date the change is effective.

(2)           One year of service for the applicable computation period in which the change is effective if he is credited with the required number of Hours-of-Service. If the Employer does not have sufficient records to determine the Employee’s actual Hours-of-Service in that part of the service period before the effective date of the change, the Hours-of-Service shall be determined using an equivalency. For any month in which he would be required to be credited with one Hour-of-Service, the Employee shall be deemed for purposes of this section to be credited with 190 Hours-of-Service.

(3)           The Employee’s service determined under this Plan using the hours method after the end of the computation period in which the change in service method was effective.

If this Plan is amended to change the method of crediting service from the hours method to the elapsed time method for any purpose under this Plan, the Employee’s service shall be equal to the sum of (4), (5), and (6) below:

(4)           The number of whole years of service credited to the Employee under the Plan as of the beginning of the computation period in which the change in service method is effective.

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(5)           the greater of (i) the service that would be credited to the Employee for that entire computation period using the elapsed time method or (ii) the service credited to him under the Plan as of the date the change is effective.

(6)           The Employee’s service determined under this Plan using the elapsed time method after the end of the applicable computation period in which the change in service method was effective.

(b)           Transfers Between Plans with Different Service Methods.  If an Employee has been a participant in another plan of the Employer which credited service under the elapsed time method for any purpose which under this Plan is determined using the hours method, then the Employee’s service shall be equal to the sum of (1), (2), and (3) below:

(1)           The number of whole years of service credited to the Employee under the plan as of the date he became an Eligible Employee under this Plan.

(2)           One year of service for the applicable computation period in which he became an Eligible Employee if he is credited with the required number of Hours-of-Service. If the Employer does not have sufficient records to determine the Employee’s actual Hours-of-Service in that part of the service period before the date he became an Eligible Employee, the Hours of-Service shall be determined using an equivalency. For any month in which he would be required to be credited with one Hour-of-Service, the Employee shall be deemed for purposes of this section to be credited with 190 Hours-of-Service.

(3)           The Employee’s service determined under this Plan using the hours method after the end of the computation period in which he became an Eligible Employee.

If an Employee has been a participant in another plan of the Employer which credited service under the hours method for any purpose which under this Plan is determined using the elapsed time method, then the Employee’s service shall be equal to the sum of (4), (5), and (6) below:

(4)           The number of whole years of service credited to the Employee under the other plan as of the beginning of the computation period under that plan in which he became an Eligible Employee under this Plan.

(5)           The greater of (i) the service that would be credited to the Employee for that entire computation period using the elapsed time method or (ii) the service credited to him under the other plan as of the date he became an Eligible Employee under this Plan.

(6)           The Employee’s service determined under this Plan using the elapsed time method after the end of the applicable computation period under the other plan in which he became an Eligible Employee.

If an Employee has been a participant in a Controlled Group member’s plan which credited service under a different method than is used in this Plan, in order to determine entry and vesting, the provisions in (b) above shall apply as though the Controlled Group member’s plan were a plan of the Employer.

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Any modification of service contained in this Plan shall be applicable to the service determined pursuant to this section.

SECTION 10.14—MILITARY SERVICE.

Notwithstanding any provision of this Plan to the contrary, the Plan shall provide contributions, benefits, and service credit with respect to qualified military service in accordance with Code Section 414(u). Loan repayments shall be suspended under this Plan as permitted under Code Section 414(u).

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ARTICLE XI

TOP-HEAVY PLAN REQUIREMENTS

SECTION 11.01—APPLICATION.

The provisions of this article shall supersede all other provisions in the Plan to the contrary.

For the purpose of applying the Top-heavy Plan requirements of this article, all members of the Controlled Group shall be treated as one Employer. The term Employer, as used in this article, shall be deemed to include all members of the Controlled Group, unless the term as used clearly indicates only the Employer is meant.

The accrued benefit or account of a participant which results from deductible employee contributions shall not be included for any purpose under this article.

The minimum vesting and contribution provisions of the MODIFICATION OF VESTING REQUIREMENTS and MODIFICATION OF CONTRIBUTIONS SECTIONS of this article shall not apply to any Employee who is included in a group of Employees covered by a collective bargaining agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, including the Employer, if there is evidence that retirement benefits were the subject of good faith bargaining between such representatives. For this purpose, the term “employee representatives” does not include any organization more than half of whose members are employees who are owners, officers, or executives.

SECTION 11.02—DEFINITIONS.

For purposes of this article the following terms are defined:

Aggregation Group means:

(a)           each of the Employer’s qualified plans in which a Key Employee is a participant during the Plan Year containing the Determination Date (regardless of whether the plan was terminated) or one of the four preceding Plan Years,

(b)           each of the Employees other qualified plans which allows the plan(s) described in (a) above to meet the nondiscrimination requirement of Code Section 401(a)(4) or the minimum coverage requirement of Code Section 410, and

(c)           any of the Employer’s other qualified plans not included in (a) or (b) above which the Employer desires to include as part of the Aggregation Group. Such a qualified plan shall be included only if the Aggregation Group would continue to satisfy the requirements of Code Section 401(a)(4) and Code Section 410.

The plans in (a) and (b) above constitute the “required” Aggregation Group, The plans in (a), (b), and (c) above constitute the “permissive” Aggregation Group.

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Compensation means compensation as defined in the CONTRIBUTION LIMITATION SECTION of Article III. For purposes of determining who is a Key Employee in years beginning before January 1, 1998, Compensation shall include, in addition to compensation as defined in the CONTRIBUTION LIMITATION SECTION of Article III, elective contributions. Elective contributions are amounts excludible from the gross income of the Employee under Code Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b), and contributed by the Employer, at the Employee’s election, to a Code Section 401(k) arrangement, a simplified employee pension, cafeteria plan, or tax-sheltered annuity. Elective contributions also include amounts deferred under a Code Section 457 plan maintained by the Employer.

Determination Date means as to any plan, for any plan year subsequent to the first plan year, the last day of the preceding plan year. For the first plan year of the plan, the last day of that year.

Key Employee means any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was:

(a)           an officer of the Employer if such individual’s annual Compensation exceeds 50 percent of the dollar limitation under Code Section 415(b)(1)(A).

(b)           an owner (or considered an owner under Code Section 318) of.one of the ten largest interests in the Employer if such individual’s annual Compensation exceeds 100 percent of the dollar, limitation under Code Section 415(c)(1)(A).

(c)           a 5-percent owner of the Employer, or

(d)           a 1-percent owner of the Employer who has annual, Compensation of more than $150,000.

The determination period is the Plan Year containing the Determination Date and the four preceding Plan Years.

The determination of who is a Key Employee shall be made according to Code Section 416(i)(1) and the regulations thereunder.

Non-key Employee means any Employee who is not a Key Employee.

Present Value means the present value of a participant’s accrued benefit under a defined benefit plan. For purposes of establishing Present Value to compute the Top-heavy Ratio, any benefit shall be discounted only for 7.5% interest and mortality according to the 1971 Group Annuity Table (Male) without the 7% margin but with projection by Scale E from 1971 to the later of (a) 1974, or (b) the year determined by adding the age to 1920, and wherein for females the male age six years younger is used.

Top-heavy Plan means a plan which is top-heavy for any plan year beginning after December 31, 1983. This Plan shall be top-heavy if any of the following conditions exist:

(a)           The Top-heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any required Aggregation Group or permissive Aggregation Group.

(b)           This Plan is a part of a required Aggregation Group, but not part of a permissive Aggregation Group, and the Top-heavy Ratio for the required Aggregation Group exceeds 60 percent.

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(c)           This Plan is a part of a required Aggregation Group and part of a permissive Aggregation Group and the Top-heavy Ratio for the permissive Aggregation Group exceeds 60 percent.

Top-heavy Ratio means:

(a)           If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer has not maintained any defined benefit plan which during the five-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-heavy Ratio for this Plan alone or for the required or permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account balance distributed in the five-year period ending on the Determination Date(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the five-year period ending on the Distribution Date(s)), both computed in accordance with Code Section 416 and the regulations thereunder. Both the numerator and denominator of the Top-heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416 and the regulations thereunder.

(b)           If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer maintains or has maintained one or more defined benefit plans which during the five-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-heavy Ratio for any required or permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the account balances under the aggregated defined contribution plan or plans of all Key Employees determined in accordance with (a) above, and the Present Value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all participants, determined in accordance with (a) above, and the Present Value of accrued benefits under the defined benefit plan or plan for all participants as of the Determination Date(s), all determined in accordance with Code Section 416 and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-heavy Ratio are increased for any distribution of an accrued benefit made in the five-year period ending on the Determination Date.

(c)           For purposes of (a) and (b) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code Section 416 and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a participant (i) who is not a Key Employee but who was a Key Employee in a prior year or (ii) who has not been credited with at least an hour of service with any employer maintaining the plan at any time during the five-year period ending on the Determination Date will be disregarded. The calculation of the Top-heavy Ratio and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the regulations thereunder. Deductible employee contributions will not be taken into account for purposes of computing the Top-heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.

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The accrued benefit of a participant other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C).

SECTION 11.03—MODIFICATION OF VESTING REQUIREMENTS.

A Participant’s nonforfeitable percentage is 100%. Such percentage is at all times at least as great as the nonforfeitable percentage, required to satisfy the requirements of Code Section 416.

The part of the Participant’s Vested Account resulting from the minimum contributions required pursuant a to the MODIFICATION OF CONTRIBUTIONS SECTION of this article (to the extent required to be nonforfeitable under Code Section 416(b)) may not be forfeited under Code Section 411(a)(3)(B) or (D).

SECTION 11.04—MODIFICATION OF CONTRIBUTIONS.

During any Plan Year in which this Plan is a Top-heavy Plan, the Employer shall make a minimum contribution or allocation as of the last day of the Plan Year for each Non-key Employee who is an Employee on the last day of the Plan Year and who was an Active Participant at any time during the Plan Year. A Non-key Employee is not required to have a minimum number of Hours-of-Service or minimum amount of Compensation in order to be entitled to this minimum. A Non-key Employee who fails to be an Active Participant merely because his Compensation is less than a stated amount or merely because of a failure to make mandatory participant contributions or, in the ease of a cash or deferred arrangement, elective contributions shall be treated as if he were an Active Participant. The minimum is the lesser of (a) or (b) below:

(a)           3 percent of such person’s Compensation for such Plan Year.

(b)           The “highest percentage” of Compensation for such Plan Year at which the Employer’s contributions are made for or allocated to any Key Employee. The highest percentage shall be determined by dividing the Employer Contributions made for or allocated to each Key Employee during the Plan Year by the amount of his Compensation for such Plan Year, and selecting the greatest quotient (expressed as a percentage). To determine the highest percentage, all of the Employer’s defined contribution plans within the Aggregation Group shall be treated as one plan. The minimum shall be the amount in (a) above if this Plan and a defined benefit plan of the Employer are required to be included in the Aggregation Group and this Plan enables the defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410.

For purposes of (a) and (b) above, Compensation shall be limited by Code Section 401(a)(17).

If the Employer’s contributions and allocations otherwise required under the defined contribution plan(s) are at least equal to the minimum above, no additional contribution or reallocation shall he required. If the Employer’s total contributions and allocations are less than the minimum above, the Employer shall contribute the difference for the Plan Year.

The minimum contribution or allocation applies to all of the Employer’s defined contribution plans in the aggregate which are Top-heavy Plans. A minimum allocation under a profit sharing plan shall be made without regard to whether or not the Employer has profits.

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If a person who is otherwise entitled to a minimum contribution or allocation above is also covered under another defined contribution plan of the Employer’s which is a Top-heavy Plan during that same Plan Year, any additional contribution required to meet the minimum above shall be provided in this Plan.

If a person who is otherwise entitled to a minimum contribution or allocation above is also covered under a defined benefit plan of the Employer’s which is a Top-heavy Plan during that same Plan Year, the minimum benefits for him shall not be duplicated. The defined benefit plan shall provide an annual benefit for him on, or adjusted to, a straight life basis equal to the lesser of:

(c)           2 percent of his average pay multiplied by his years of service, or

(d)           20 percent of his average pay.

Average pay and years of service shall have the meaning set forth in such defined benefit plan for this purpose.

For purposes of this section, any employer contribution made according to a salary reduction or similar arrangement and employer contributions which are matching contributions, as defined in Code Section 401(m), shall not apply in determining if the minimum contribution requirement has been met, but shall apply in determining the minimum contribution required.

The requirements of this section shall be met without regard to any Social Security contribution.

SECTION 11.05—MODIFICATION OF CONTRIBUTION LIMITATION.

If the provisions of subparagraph (I) of the CONTRIBUTION LIMITATION SECTION of Article III are applicable for any Limitation Year during which this Plan is a Top-heavy Plan, the contribution limitations shall be modified. The definitions of Defined Benefit Plan Fraction and Defined Contribution Plan Fraction in the CONTRIBUTION LIMITATION SECTION of Article III shall be modified by substituting “100 percent” in lieu of “125 percent.” In addition, an adjustment shall be made to the numerator of the Defined Contribution Plan Fraction. The adjustment is a reduction of that numerator similar to the modification of the Defined Contribution Plan Fraction described in the CONTRIBUTION LIMITATION SECTION of Article III, and shall be made with respect to the last Plan Year beginning before January 1, 1984.

The modifications in the paragraph above shall not apply with respect to a Participant so long as employer contributions, forfeitures, or nondeductible employee contributions are not credited to his account under this or any of the Employer’s other defined contribution plans and benefits do not accrue for such Participant under the Employer’s defined benefit plan(s), until the sum of his Defined Contribution and Defined Benefit Plan Fractions is less than 1.0.

This section shall cease to apply effective as of the first Limitation Year beginning on or after January 1, 2000.

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By executing this Plan, the Primary Employer acknowledges having counseled to the extent necessary with selected legal and tax advisors regarding the Plan’s legal and tax implications.

Executed this 20 day of September, 2001.

CALIFORNIA INDEPENDENT BANCORP
By:	/s/ [ILLEGIBLE]
	President/CEO
	Title
	Defined Contribution Plan 8.0

The Adopting Employer must agree to participate in or adopt the Plan in writing. If this has not already been done, it may be done by signing below.

FEATHER RIVER STATE BANK
By:	/s/ [ILLEGIBLE]
	President/CEO
	Title
	9/20/2001
	Date

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EX-10.32

EXHIBIT 10.32

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE IS MADE EFFECTIVE AS OF MARCH 1, 2001 BY AND BETWEEN LINCOLN TOWN CENTER, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, (“LANDLORD”) AND FEATHER RIVER STATE BANK, A CALIFORNIA STATE CHARTERED BANK, (“TENANT”) WITH REFERENCE TO THE FACTS SET FORTH BELOW.

RECITALS

A.            Landlord and Tenant are parties to that certain lease dated December 1, 2000, and hereby express their mutual desire and intent to amend the terms of the Lease by this First Amendment to Lease with those terms, covenants, and conditions as hereinafter provided.

B.            Landlord leased to Tenant a certain retail space consisting of approximately 1,200 square feet identified as 435 South Highway 65, Suite A, Lincoln, California (the “Premises”).

C.            Landlord and Tenant desire to amend and modify the lease document effective March 1, 2001.

NOW, THEREFORE, IN CONSIDERATION OF THE RECITALS AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS SET FORTH BELOW.

1.             Section 1.4 Premises shall now read, “In consideration of the rents, covenants and agreements on the part of Tenant to be paid and performed, the Landlord leases to the Tenant, and Tenant leases from Landlord, for the Term, at the rental and upon the conditions of this Lease, that certain space (referred to herein as the “Premises”), now or hereafter to be erected in the Lincoln Hills Town Center Shopping Center (herein called the “Shopping Center”) in Lincoln (City) Placer (County) California (State).  The location of the Premises is outlined in red on the site plan of the Shopping Center, attached hereto as Exhibit “A” and made a part hereof, and otherwise known as 435 South Highway 65, Suites A & B, Lincoln, California, (address) said Premises being agreed for purposes of this Lease, to have an area of approximately 2,280 square feet.  Tenant acknowledges that the site plan shown on Exhibit “A” is tentative and that Landlord may change the shape, size, location, number and extent of the improvements shown thereon and eliminate or add any improvements to any portion of the Shopping Center as provided in Article VII herein."

2.             Section 1.11 Minimum Monthly Rent and Other Charges Payable by Tenant shall now read,

"(a) Minimum Monthly Rent.  Four thousand four hundred forty-six and 00/100 Dollars ($4,446,00) per month for the first twenty-four (24) months, as provided in Section 3.1, which shall be increased annually on the day and the month on which the Commencement Date occurs in each consecutive year following the Commencement Date (the “Anniversary Date”) (except on the first anniversary of the Commencement Date, i.e. month thirteen (13) as set forth above), either (i) in accordance with the increase in the United States-Department of Labor, Bureau of Labor Statistics, Consumer Price Index for Urban Wage Earners and Clerical Workers (all Items for the San Francisco-Oakland-San Jose Statistical Area on the basis of 1982-84 = 100 [the “Index”]), as provided in Section 3.2, or (ii) by five percent (5%) over the Minimum Monthly Rent then in effect.  If (ii) is completed, then (i) and Section 3.2 are inapplicable. Notwithstanding the foregoing, (i) shall only apply during the “extended term” pursuant to Rider One hereof, and (ii) shall be applicable during the initial five (5) year Term.

(b) Other Periodic Payments.  Monthly Payments of Operating Costs (see Section 4.8) including, without limitation, Taxes, Utilities, Insurance Premiums, or other amounts as provided in this Lease.  The initial monthly charge for such Operating Costs is nine hundred eighty and 40/100 Dollars ($980.40)."

3.             Landlord agrees to remove the demising wall separating Suite A from Suite B, and existing ceiling grid.

4.             Except as modified herein, the Lease shall remain in full force and effect as modified

1N WITNESS WHEREOF THIS AMENDMENT TO LEASE IS EXECUTED AS OF THE DATE FIRST WRITTEN ABOVE.

LANDLORD:	LINCOLN TOWN CENTER, LLC
	A California Limited Liability Company

TENANT:	FEATHER RIVER STATE BANK,
	A California State Chartered Bank
By:
Its:
By:
Its:

2

EX-13

Exhibit 13

[GRAPHIC]

California Independent Bancorp

Feather River State Bank

Annual Report 2001

[FEATHER RIVER STATE BANK LOGO]

[GRAPHIC]

MISSION STATEMENT

Our mission is to be a premier Bank that creates value for our customers by building relationships with individuals, businesses and professionals in the communities we serve.  To achieve our mission, we will form an alliance with those who influence our success.The Bank will promote these alliances with a commitment to excellence and positive results.

TABLE OF CONTENTS

CORPORATE PROFILE

With this annual report, we celebrate twenty-five years of citizenship and service to the Northern California communities we serve.  California Independent Bancorp (“CIB”) and its banking subsidiary, Feather River State Bank, engage in a broad range of financial service activities and comprise one of Northern California’s leading independent financial institutions.

Feather River State Bank was established in 1977 to offer personal service, local decisions, and innovative financial products to its served communities.  CIB was formed in 1994 and, after receiving regulatory and shareholder approval, became the bank’s holding company in May 1995.

Feather River State Bank serves a customer base of approximately 24,000 accounts through nine retail branches.   Our customers have access to a full range of traditional financial services to meet their consumer, commercial, agri-business, real estate, and small business needs.   The bank is a member of the Federal Deposit Insurance Corporation and each depositor’s account is insured for up to $100,000.

Feather River State Bank also offers noninsured financial services through our affiliation with London Pacific Advisory Services, Inc., a registered Broker/Dealer, member NASD/SIPC, and London Pacific Investment Advisory Services, Inc., a Registered Investment Advisor.

MILESTONES
1976	1977	1979
A group of Yuba and Sutter County businesspeople came together to establish a new community bank	Feather River State Bank established in Yuba City	The operating of the bank's second branch in Marysville

[FEATHER RIVER STATE BANK LOGO]

1

LETTER TO THE SHAREHOLDERS

Dear Shareholders:

2001 was a year of both challenge and achievement for California Independent Bancorp (“CIB”) and our subsidiary, Feather River State Bank (collectively, the “Company”).   Feather River State Bank (the “Bank”) will complete its twenty-fifth year in business in April 2002.   We are extremely proud of a quarter century of serving customers and expanding our unique banking franchise, which combines the very best in community banking with a strong branch system.   Despite the challenges that presented themselves during 2001, we clearly delivered on our motto of providing “a better brand of banking with measurably superior service” and remain firmly committed to do so as we move forward.

In addition to the events of September 11th, fourth quarter 2001 results were particularly affected by the impact of the softening economic environment on our exposure to a large, long running agribusiness problem credit relationship, a construction loan relationship, and our exposure to a limited number of other previously identified problem credits.   Reflecting this fourth quarter decline, we deemed it prudent to record a $2,450,000 provision for credit loss, moving aggressively to value those exposures to market.   These actions along with our current aggressive loan resolution program position us well for the future.   Additionally, we remain very cognizant of the dual challenges of a highly competitive marketplace and the current soft economy. 

[PHOTO OF DAVID OFFUTT AND LARRY HARTWIG]

(left to right) David Offutt, Chairman of the Board, and Larry Hartwig, President/CEO

It would be easy to allow this fourth  quarter event to overshadow the Company’s many significant accomplishments during the year.  The process of realigning our loan portfolio began in earnest in 1999 and to some extent remains a work in progress.  During the last three years, we steadily improved credit quality, upgraded loan underwriting, diversified our loan portfolio, and established a strategic reemphasis on traditional commercial and consumer banking.  In many ways this is like changing the tires on your car while driving at freeway speeds.  Total loans and deposits were $192.3 million and $275.6 million on December 31, 2001, compared to $179.0 million and $267.6 million on December 31, 2000, respectively.  Not only did we grow the loan portfolio and deposit base, but also we are pleased with the balance and diversification achieved.

Change in our industry continues and we have reconfigured our branch system to respond to a more knowledgeable and technology oriented customer.  In addition, we expanded our geographic market presence with the opening of our two newest full service branches in the high growth communities of Lincoln and Roseville, California.  We invested in a larger franchise, a more cost-effective branch system, product improvements, and technology enhancements — each of which can be expected to contribute meaningfully to the bottom line in the years ahead.  We are

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confident that these actions ensure that our customers have access to the best financial products available and that we maintain the highest level of professional, personalized service that is key to our success.

While there have been landmark achievements during the year which have strengthened the value of our franchise and market position, these good things are not fully evident in our operating results.  The Company’s net income for 2001 was $1,409,000, or $0.66 per diluted share, compared to $2,720,000, or $1.29 per diluted share for 2000.  As mentioned at the outset, the decline in earnings resulted from the $2,450,000 provision for credit losses recorded in the fourth quarter of 2001.  However, despite an unprecedented eleven consecutive interest rate cuts by the Federal Reserve Board, the Company’s net interest margin increased to 4.65% for 2001, compared to 4.33% for 2000.  Total assets at December 31, 2001 were $306.2 million compared to $301.4 million at December 31, 2000.

We believe the future outlook for California Independent Bancorp and Feather River State Bank is excellent.  With the process of restructuring behind us, we are in a strong position to weather the impacts of a softening economy, and more importantly to capitalize on an economic recovery.  We will also continue our community bank tradition of working hard to address the needs of the communities and neighborhoods where we do business.  As we move forward, improved earnings and balance sheet strength will be our primary objectives.  We are a well-financed and competitive community bank and will continue to be very involved in the communities we serve.

The real strength of our organization is the team of creative, results-oriented professionals who bring a highly competitive spirit to their work.  On their behalf, we wish to thank our customers and shareholders for continued support as we work to make California Independent Bancorp one of Northern California’s premier financial service companies.  All of us at the Company share a common purpose for a prosperous future and pledge our best efforts to make the future rewarding for our customers, shareholders, and employees.

/s/ David A. Offutt	/s/ Larry Hartwig
David A. Offutt	Larry Hartwig
Chairman of the Board	President/CEO

MILESTONES
1980	1980	1982
Successful secondary stock offering of $2 million completed	Opening of the third branch in Colusa	Opening of a fourth branch on Colusa Avenue to better serve Yuba City

[FEATHER RIVER STATE BANK LOGO]

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CELEBRATING TWENTY-FIVE YEARS OF CITIZENSHIP & SERVICE

In many respects, 2001 was a watershed year for America.  Our country and our economy were jolted by the twin shocks of recession and terrorism.  In addition to deepening the economic downturn, the events of September 11, 2001 will be remembered as the most traumatic in our history since Pearl Harbor.  But in the great American tradition, our people have risen to the occasion.

Patriotism is back in America and love of flag and country is more evident than at any time in recent memory.  Polls show a high number of people wanting to help their nation and to participate in their community.  Family has a higher priority now, and tradition means more in the wake of these events.

[PHOTO]

In late March 1977, the temporary headquarters of Feather River State Bank was placed on-site at the Bridge Street location in Yuba City, the current location of the Company headquarters and the Bank’s largest branch.

It is with a sense of pride and a renewed commitment to our community that we celebrate the twenty-fifth anniversary of California Independent Bancorp’s subsidiary, Feather River State Bank (collectively, the “Company”).  The date of that founding was April 6, 1977, and in the years since we have achieved a great deal.  The historic photos and major milestones included in this report highlight a quarter century of growth, development, and progress.

We are proud to be a community bank and, while we recognize that our brand of banking requires extra effort, we recognize that it also yields extra rewards.  Our customers and their families know they can count on us whenever they need responsive solutions to meet their financial needs.  While we take pride in our tradition, we definitely are not resting on our past success.  In fact, we are doing quite the opposite.  Following a carefully developed set of strategic principles, we are committed to a future that includes these core values:

OUR PROMISE OF A BETTER BRAND OF BANKING

Service sets us apart from the competition.  We remain fully committed to continuing the Company’s strategic agenda of building meaningful, long-term relationships with our customers.  But we will not just meet customer expectations, we plan to exceed them through the delivery of innovative and personalized financial solutions.

MEASURABLY SUPERIOR SERVICE

Our customers come to us for expertise and advice, and they expect constructive results, each and every time.  Employees of our organization are trained to understand and serve those needs in a way that will demonstrate a high level of responsiveness and professionalism.  This unsurpassed level of service sets us apart from other banking organizations.

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[PHOTO OF CHARLES LEWIS, WILLA SHIPPEN, BARBARA McFARLAND AND JERRY BERSCH]

Feather River State Bank officially opens with a ribbon cutting ceremony on April 6, 1977. Pictured (left to right) are Charles Lewis, Willa Shippen, Barbara McFarland, and Jerry Bersch.

IN-TOUCH RELATIONSHIP BANKING

Employees throughout the organization nurture the one-on-one relationships that provide mutual benefit to our customers and our company.  Complementing this promise of personalized service, the organization continues to place top priority on staying technologically competitive and enhancing its selection of automated delivery systems that offer optimal customer convenience.  We never substitute technology for personal service, but use it as a means to enhance our personal service capabilities.  At Feather River State Bank, when it’s high-tech, it’s also high-touch.

CUSTOMER-DRIVEN PRODUCT DEVELOPMENT & DELIVERY

Listening to what our customers have to say about our employees, products and processes is a critical principle for our organization.  The ideas that drive our delivery methods and enhance service levels are based on customer perspective, which we gain from a variety of market research and customer satisfaction tracking programs.  Front-line participation in product development and process improvements come from the employees who know our customers best.

TRUST & FINANCIAL STRENGTH

For the full quarter century of our existence we have maintained a strong reputation for financial achievement, professionalism, and integrity.  Shareholder value is created through disciplined risk management and cost controls that assure the financial safety and soundness of our organization.  These are maintained, while we provide the kind of service that builds customer loyalty, which in turn, further assures the long-term enhancement of our shareholders’ investment.

MILESTONES
1985	1990	1993
The Bank reaches $60 million in assets and opens a fifth branch in Arbuckle	Started Farmer Mac farmland department	Opening of the sixth branch in the community of Woodland

[FEATHER RIVER STATE BANK LOGO]

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CELEBRATING TWENTY-FIVE YEARS OF CITIZENSHIP & SERVICE

COMMITMENT TO OUR COMMUNITIES

Good corporate citizenship continues to be a guiding principle of our organization.  We are also committed to improving the communities in which we work and live.  We firmly believe in community involvement, which includes heightened levels of economic partnership, community understanding, and volunteerism.  This continues to be a priority as we are generous with our time and economic support of local civic projects and organizations.

COMMITMENT TO GROWTH

We are proud to uphold the principles of our free enterprise system, which reward those who value hard-work, thrift, and innovation.  By helping our consumer and business customers grow, we help our communities prosper.  To support this goal, we have added full service banking offices in contiguous communities.

[GROUP PHOTO]

More than 200 people representing a cross section of the community attended the Grand Opening party.  Included were Founders, Directors, Officers, and civic officials.

As we celebrate our first twenty-five years, we look to the future firmly committed to serving the needs of our customers and community.  We will continue to provide customers with a banking experience that they will truly find remarkable, and we will succeed in the future as we have over the years by delivering a better brand of banking.  Our ability to provide financial services, shared expertise, and Company resources without disrupting the effectiveness of local branch leadership makes Feather River State Bank unique and has always been a priority.  Our branch officers retain local market authority, delivering quick, personal decisions to customers whose financial services needs they understand and appreciate.

MILESTONES
1995	1996	2001
California Independent Bancorp becomes the parent company of the Bank	Opening of the seventh branch in Wheatland	Opening of the eighth and ninth branches, in Lincoln and Roseville

[FEATHER RIVER STATE BANK LOGO]

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SHAREHOLDER & INVESTOR INFORMATION

PRICE RANGE OF COMMON STOCK

California Independent Bancorp’s (“CIB’s”) common stock is traded on the NASDAQ Stock Market under the trading symbol “CIBN.”  The common stock began trading on the NASDAQ Stock Market on July 31, 1996.  Prior to that time, the common stock was listed on the NASDAQ Bulletin Board and was the subject of limited trading.

The following table presents the high and low closing sale prices of CIB’s common stock for each quarterly period for the last two years as reported and as retroactively adjusted for the effect of applicable stock dividends by the NASDAQ Stock Market:

	Range of Stock Prices
2001 Quarters	High		Low
4th	$	24.30	$	21.99
3rd	25.14		21.67
2nd	26.67		21.91
1st	21.91		18.10

2000 Quarters	High		Low
4th	$	20.60	$	18.10
3rd	20.98		17.23
2nd	22.56		14.63
1st	15.76		12.93

CASH DIVIDEND INFORMATION

After adjusting retroactively for the effect of applicable stock dividends, cash dividends paid on CIB’s common stock were $0.42 per share for the year ending December 31, 2001, and $0.40 per share for the year ending December 31, 2000.

CIB has paid cash dividends on its common stock since 1980, and has paid consecutive quarterly cash dividends since 1991.  It is currently the intention of the Board of Directors to continue the payment of cash dividends on a quarterly basis.  However, there is no assurance that cash dividends will be paid in the future, as such dividends are dependent upon the earnings, financial condition, and capital requirements of  CIB and Feather River State Bank, as well as legal and regulatory requirements.  As of December 31, 2001, CIB had $2,157,747 available for payment of dividends to its shareholders.

The number of shares issued and outstanding as of December 31, 2001, was 2,115,419.

Call your stockbroker or one of our market makers for stock information:

First Union Securities	(888) 383-3112
Hoefer & Arnett	(800) 346-5544
Sutro & Co.	(800) 288-2811

First Union Securities offers Dividend Reinvestment Plans.  These plans allow conversion of cash dividends into whole or fractional shares of CIB stock.  This service is offered free of fee or commission charges.

SHAREHOLDER INFORMATION

Shareholders wishing more detailed information about CIB may obtain a copy of its Form 10-K or Quarterly Newsletter upon request  from:

California Independent Bancorp

Investor Relations Department

1227 Bridge St., Suite C

Yuba City, CA 95991

(530) 674-6025

(800) 258-4334

STOCKHOLDER ACCOUNT INFORMATION

If you have questions concerning your stockholder account, please call our transfer agent:

U.S. Stock Transfer Corporation

1745 Gardena Avenue

Glendale, California 91204

(800) 835-8778

ANNUAL MEETING

The annual shareholders’ meeting of CIB will be held May 21, 2002, 6:00 P.M., at Feather River State Bank’s Colusa Avenue Branch located at 777 Colusa Avenue in Yuba City, California.

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FINANCIAL HIGHLIGHTS

CALIFORNIA INDEPENDENT BANCORP & SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,

	2001			2000			1999			1998			1997
Interest Income	$	21,731,566		$	23,535,234		$	23,279,582		$	24,799,713		$	23,386,677
Interest Expense	7,022,370			9,469,856			8,573,383			8,830,774			9,288,694
Net Interest Income	14,709,196			14,065,378			14,706,199			15,968,939			14,097,983
Provision for Loan and Lease Losses	2,450,000			200,000			1,000,000			2,246,145			6,153,000
Net Interest Income After Provision for Loan and Lease Losses	12,259,196			13,865,378			13,706,199			13,722,794			7,944,983
Noninterest Income	2,209,246			2,668,972			2,564,447			3,454,179			3,142,139
Noninterest Expense	12,568,197			12,214,959			13,810,491			12,850,678			11,900,255
Income (Loss) Before Provision for Income Taxes	1,900,245			4,319,391			2,460,155			4,326,295			(813,133		)
Provision (Benefit) for Income Taxes	547,200			1,643,525			865,000			1,603,600			(511,350		)
Net Income (Loss) From Continuing Operations	1,353,045			2,675,866			1,595,155			2,722,695			(301,783		)
Loss on Disposal of Subsidiary	$	—		$	—		$	(713,772	)	$	—		$	—
Income (Loss) on Discontinued Operations	56,084			44,092			(277,685		)	157,781			140,353
Net Income (Loss)	$	1,409,129		$	2,719,958		$	603,698		$	2,880,476		$	(161,430	)
Per Common Share Data (see notebelow)
Basic Earnings Per Share From Continuing Operations	$	0.64		$	1.27		$	0.79		$	1.40		$	(0.16	)
Cash Dividends	$	0.42		$	0.40		$	0.38		$	0.36		$	0.34
Book Value	$	12.86		$	12.83		$	12.20		$	12.99		$	11.65
Dividend Payout Ratio	65.63		%	31.50		%	47.73		%	25.97		%	n/a
Weighted Average Common Shares Outstanding - Basic	2,110,031			2,103,500			2,008,257			1,944,079			1,917,154
Financial Ratios From Continuing Operations
Return on Average Assets	0.46		%	0.90		%	0.54		%	0.95		%	-0.11		%
Return on Average Common Shareholders’ Equity	4.97		%	11.18		%	6.70		%	11.82		%	-1.33		%
Net Interest Margin	4.65		%	4.33		%	4.84		%	5.40		%	4.92		%
Net Charge-Offs to Average Loans and Leases	1.45		%	0.70		%	0.14		%	0.91		%	2.70		%
Allowance for Loan and Lease Loss as a Percent of Loans and Leases	2.90		%	3.20		%	4.20		%	3.33		%	3.29		%
Efficiency Ratio	74.29		%	73.00		%	79.96		%	66.16		%	69.03		%

Note regarding per common share data: All per share amounts and the weighted average number of common shares outstanding as shown in the preceding table have been adjusted retroactively, as applicable, to reflect the 5% stock dividends distributed in each of the years presented.

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[CALIFORNIA INDEPENDENT BANCORP LOGO]

[GRAPHIC]

MANAGEMENT'S DISCUSSION AND ANALYSIS

&

CONSOLIDATED FINANCIAL STATEMENTS

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years Ended December 31, 2001 and 2000

Certain statements in the annual report, Form 10-K, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections.  These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.  Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry increases significantly; changes in the interest rate environment reduce margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan and lease losses; the loss of key personnel; change in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; changes in the securities markets; the impact of the California energy shortage; and the effects of terrorism, including the events of September 11, 2001 and thereafter, and the conduct of the war on terrorism by the United States and its allies.

The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to California Independent Bancorp’s and Feather River State Bank’s (collectively, the “Company’s”) financial condition, operating results, asset and liability management, and liquidity and capital resources; and should be read in conjunction with the Consolidated Financial Statements of the Company and its accompanying notes.

Summary of Financial Results

California Independent Bancorp (“CIB”) through its wholly owned subsidiary, Feather River State Bank (the “Bank”) engages in a broad range of financial service activities.  The Bank commenced operations in 1977.  CIB was formed in 1994 and, after receiving regulatory and shareholder approval, became the holding company for the Bank in May 1995.  In October 1996, the Bank acquired E.P.I. Leasing Co., Inc. (“EPI”), and has operated it as a subsidiary.

On March 21, 2000, the Board of Directors of the Bank, voting as the sole shareholder of EPI, approved the dissolution and winding up of EPI’s affairs.  The provision for the loss on discontinued operations reflected in the 1999 consolidated statement of operations includes the write-down of the assets of EPI to estimated net realizable values and the estimated costs of disposing of these operations, net of applicable expected tax benefits.  The loss associated with the 1999 operation and disposal of EPI is $991,457, net of income tax benefits.  This amount includes the write-off of the Bank’s original investment in its subsidiary and associated goodwill.  During 2001, income attributable to EPI was $56,084, net of income tax expense.  It is anticipated that the business affairs of EPI will be dissolved following the orderly wind-down of the remaining lease portfolio.

This annual report, the Form 10-K, and the following Management’s Discussion and Analysis along with the accompanying financial statements, tables, and charts have been written to exclude the effects of EPI for the periods stated.

In 2001, the Company recognized an increase in total assets over 2000.  At December 31, 2001, total assets were $306,167,695 as compared to $301,446,561 at December 31, 2000.  Cash and cash equivalents decreased to $23,046,870 at December 31, 2001 from $27,058,528 at December 31, 2000, while total investments decreased to $78,357,289 at December 31, 2001 from $82,011,931 at December 31, 2000.  Net loans and leases increased 7.8% to $186,783,158 at December 31, 2001 over $173,290,843 at December 31, 2000.  Total deposits increased 3.0% to $275,576,069 at year-end 2001 over $267,632,227 at year-end 2000.  The Company’s shareholders’ equity increased $1,443,518, or 5.6%, to $27,213,127 at December 31, 2001 versus $25,769,609 at December 31, 2000.

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During 2001, the Company recognized full-year net income from continuing operations of $1,353,045, a decrease of $1,322,821 from 2000.  Net income after disposal and discontinuance of EPI was $1,409,129 and $2,719,958, for the years ended December 31, 2001 and 2000, respectively.  The decrease in net income was principally due to an increase in the provision for possible loan and lease losses of $2,250,000 when comparing full-year 2001 operating results with those of 2000.  This and other factors impacting the Company’s net income are discussed in detail throughout this Management’s Discussion and Analysis.

Basic earnings per share from continuing operations in 2001 were $0.64, a decrease from 2000 basic earnings per share from continuing operations of $1.27.  Diluted earnings per share from continuing operations were $0.63 in  2001 and $1.27 in 2000.  The Company paid cash dividends of $0.42 per share in 2001, $0.40 per share in 2000, and $0.38 per share in 1999.  Additionally, the Company declared and distributed 5% stock dividends in 2001, 2000, and 1999.  Consequently, for all periods presented, basic and diluted earnings per share, cash dividends paid on common shares, and the weighted-average number of shares, have been adjusted retroactively to reflect the 5% stock dividends distributed on September 25, 2001, September 15, 2000, and September 17, 1999, as well as all other previously declared and distributed stock dividends.

The following table depicts the Average Daily Balance Sheets for the years ended December 31, 2001, 2000, and 1999.  This table shows the composition of average earning assets and average interest-bearing liabilities, average  yields and rates, and the Company’s net interest margin for years 1999 through 2001.

Average Daily Balance Sheets

	2001							2000							1999
	Average Balance			Yield/ Rate		Interest Amount		Average Balance			Yield/ Rate		Interest Amount		Average Balance			Yield/ Rate		Interest Balance
Assets
Earning-Assets:
Short-Term Investments:
Federal Funds Sold	$	13,265,950		3.64	%	$	483,512	$	10,811,814		5.83	%	$	630,170	$	11,724,518		5.06	%	$	593,197
Investment Securities:
Taxable	70,126,926			6.20	%	4,347,405		88,214,956			6.59	%	5,815,142		66,143,534			5.90	%	3,900,332
Nontaxable	2,257,511			4.14	%	93,354		2,919,889			4.07	%	118,719		4,035,737			4.01	%	161,764
Total	72,384,437			6.13	%	4,440,759		91,134,845			6.51	%	5,933,861		70,179,271			5.79	%	4,062,096
Loans and Leases	184,397,462			9.11	%	16,807,295		169,272,897			10.03	%	16,971,203		181,165,760			10.28	%	18,624,289
Total Earning Assets	270,047,849			8.05	%	21,731,566		271,219,556			8.68	%	23,535,234		263,069,549			8.85	%	23,279,582
Allowance for Possible Loan and Lease Losses	(5,187,636		)					(6,582,886		)					(6,515,380		)
Non Earning Assets:
Cash and due from banks	13,060,787							12,366,116							17,858,822
Premises and Equipment	6,908,879							7,101,571							7,626,073
Other	11,074,349							14,008,173							11,949,985
Net Assets from Discontinued Operations	179,100							160,128							434,413
Total Non Earning Assets	31,223,115							33,635,988							37,869,293
Total Assets	$	296,083,328						$	298,272,658						$	294,423,462
Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Demand, Savings and Money Market	$	108,286,106		1.94	%	$	2,098,230	$	111,131,911		3.00	%	$	3,336,430	$	112,541,448		3.09	%	$	3,473,386
Time Certificates	95,684,104			5.02	%	4,803,844		98,437,633			5.71	%	5,619,730		97,162,885			5.06	%	4,917,252
Other Interest-Bearing Liabilities	2,899,042			4.15	%	120,296		8,099,524			6.34	%	513,696		4,028,291			4.54	%	182,745
Total Interest-Bearing Liabilities	206,869,252			3.39	%	7,022,370		217,669,068			4.35	%	9,469,856		213,732,624			4.01	%	8,573,383
Noninterest-Bearing Liabilities:
Demand	58,234,534							53,724,117							54,675,233
Other Liabilities	3,775,080							2,941,627							2,203,717
Total Noninterest-Bearing Liabilities	62,009,614							56,665,744							56,878,950
Shareholders’ Equity	27,204,462							23,937,846							23,811,888
Total Liabilities and Shareholders’ Equity	296,083,328							298,272,658							294,423,462
Net Interest Income						$	14,709,196						$	14,065,378						$	14,706,199
Net Interest Margin				4.65	%						4.33	%						4.84	%

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Net Interest Income

Net interest income, the difference in interest earned on assets and interest paid on liabilities, increased to $14,709,196 for 2001 over a comparable 2000 net interest income figure of $14,065,378.  Interest earning assets consist of overnight federal funds sold, investment securities, and loans and leases.  In total, these assets averaged $270,047,849, $271,219,556, and $263,069,549 in 2001, 2000, and 1999, respectively.  Average loans and leases were $184,397,462, $169,272,897, and $181,165,760 in 2001, 2000, and 1999, respectively, representing an increase of 8.9% in 2001 over 2000, and a decrease of 6.6% in 2000 from 1999.

Interest income decreased 7.7% for 2001 to $21,731,566 from $23,535,234 for 2000, and was $23,279,582 for 1999.

The Company’s primary source of income is interest and fees on loans and leases.  For full-year 2001, interest and fees on loans and leases decreased $163,908 from the comparable 2000 period.  The decline in interest and fee income is primarily the result of a 0.92% reduction in portfolio yield which was driven by the Federal Reserve Bank’s continual easing of interest rates throughout the year.  The unfavorable impact of the lower portfolio yield on interest and fee income was significantly offset by an increase of $15,124,565, or 8.9%, in average loan and lease balances outstanding in 2001 over 2000.  This increase in average loan and lease balances outstanding is directly attributable to successful business development efforts and the Bank’s strategic decision to further diversify its overall loan portfolio via growth primarily in the real estate secured and commercial lending sectors.

Interest earned on investment securities decreased $1,493,102, or 25.2%, for 2001 in comparison to 2000.  Average investment securities in 2001, 2000, and 1999, were $72,384,437, $91,134,845, and $70,179,271, respectively.  The principal reason for the decline in interest earned on the Bank’s investment securities was a decrease of $18,750,408, or 20.6%, in the average balance of investment securities in 2001 from 2000.  This was primarily the result of bond calls driven by the downward movement in interest rates and, to a lesser extent, principal paydowns on mortgage-backed securities and other normal bond maturities.  The proceeds from securities liquidations were principally used to fund loan growth, with the excess being reinvested into qualifying replacement securities and federal funds sold.  Additionally, the declining interest rate environment resulted in an overall investment portfolio yield of 6.13% for 2001 compared to 6.51% for 2000.  Interest income on investment securities for the years ending December 31, 2001, 2000, and 1999 was $4,440,759, $5,933,861, and $4,062,096, respectively.  When comparing 2000 with 1999, the increase in interest income on investments was $1,871,765, or 46.1%.  This was due both to an increase in volume and an increase in the average interest rate earned on the investment portfolio, which was 6.51% for 2000 versus 5.79% for 1999.

Average federal funds sold were $13,265,950 for 2001, $10,811,814 for 2000, and $11,724,518 for 1999, representing an increase of 22.7% in 2001 over 2000, and a decrease of 7.8% in 2000 from 1999.  The yield on federal funds sold was 3.64%, 5.83%, and 5.06% for full-years 2001, 2000, and 1999, respectively, and is reflective of the general interest rate environment as previously discussed.

After considering the effect of the preceding factors that had an impact on the Company’s interest income, the overall yield on average earning assets was 8.05%, 8.68%, and 8.85% for the full-years ending 2001, 2000, and 1999, respectively.

Average interest-bearing liabilities decreased to $206,869,252 for 2001 from $217,669,068 for 2000, and $213,732,624 for 1999.  The primary component of interest-bearing liabilities is interest-bearing deposits which averaged $203,970,210, $209,569,544, and $209,704,333 for 2001, 2000, and 1999, respectively.  The Company has experienced a significant decrease in total interest expense on deposits of $2,054,086, or 22.9%, in 2001 from 2000.  This decrease is primarily due to an overall decrease in the average yield on deposits from 4.27% for 2000 to 3.38% for 2001.  This sharp decline in average deposit yields was a direct result of the eleven rate cuts made throughout the year by the Federal Reserve Bank.  Further contributing to the overall decline in interest expense,

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but to a lesser extent, was a decline in the average balance of interest-bearing deposits of $5,599,334, or 2.7%, for full-year 2001 from 2000.

The Company experienced a decrease of $5,200,482 in average other interest-bearing liabilities when comparing 2001 with 2000.  Other interest-bearing liabilities consist primarily of seasonal short term borrowings from the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank.  Historically, during the first half of each year the Bank experiences excess liquidity.  The Bank’s seasonal agricultural and construction loan demand, which typically occurs each year from early June through late October, tends to absorb excess liquidity and frequently results in a net borrowed position during that time frame.  The average balance of other interest-bearing liabilities was $2,899,042, $8,099,524, and $4,028,291 in 2001, 2000, and 1999, respectively.  During 2001, proceeds from bond calls and the maturity of investment securities were more readily available to fund loan demand, thereby decreasing the extent to which the Company utilized other interest-bearing liabilities.

After considering the effect of the preceding factors that had an impact on the Company’s interest expense, total interest expense decreased 25.8% to $7,022,370 for 2001 from $9,469,856 for 2000, and increased 10.5% for 2000 over $8,573,383 for 1999.  The decline in 2001 from 2000 is essentially the result of the overall declining interest rate environment and, to a lesser extent, the overall reduction in interest-bearing liabilities as previously discussed.

The rate paid on total average interest-bearing liabilities was 3.39%, 4.35%, and 4.01% for the full-years ending 2001, 2000, and 1999, respectively.  Consequently, the net interest margins were 4.65%, 4.33%, and 4.84% for the full-years ending 2001, 2000, and 1999, respectively.

Changes in Interest Rates and the Volume of Interest Sensitive Assets and Liabilities

Changes in the rates earned and paid and the volume of interest-earning assets and interest-bearing liabilities affect the Company’s net interest margin.  The impact of changes in volume and rate on net interest income in 2001 compared to 2000, and 2000 compared to 1999, is shown in the following table.

Changes in Volume/Rate

	2001 Compared to 2000									2000 Compared to 1999
	Volume			Rate			Total			Volume			Rate			Total
	(Dollars in thousands)
Federal Funds Sold	$	143		$	(289	)	$	(146	)	$	(46	)	$	83		$	37
Investment Securities:
Taxable	(1,192		)	$	(276	)	(1,468		)	1,302			613			1,915
Nontaxable	(27		)	$	1		(26		)	(45		)	2			(43		)
Loans and Leases	1,516			$	(1,680	)	(164		)	(1,223		)	(430		)	(1,653		)
Total	$	440		$	(2,244	)	$	(1,804	)	$	(12	)	$	268		$	256
Demand, Savings and Money Market	(85		)	$	(1,153	)	(1,238		)	(44		)	(93		)	(137		)
Time Certificates	(157		)	$	(659	)	(816		)	65			638			703
Other	(330		)	$	(64	)	(394		)	185			146			331
Total	$	(572	)	$	(1,876	)	$	(2,448	)	$	206		$	691		$	897
Increase(Decrease) in Net Interest Income	$	1,012		$	(368	)	$	644		$	(218	)	$	(423	)	$	(641	)

Loans and Leases

The Company continues to emphasize real estate, real estate construction, commercial, agricultural, and consumer lending activities.  During 2001, the Company continued to pro-actively intensify its focus on real estate secured and commercial lending to further diversify the portfolio, improve asset quality, and meet customers’ needs in its served geographic market segments.  Gross loans and leases increased $13,266,336, or 7.4%, when comparing December 31, 2001 with December 31, 2000.  The increase in gross loans and leases during 2001 is attributable to substantial increases in the commercial real estate mortgage secured loan portfolio and the commercial portion of the “Commercial and Agricultural” loan portfolio.  Additionally, at December 31, 2001 consumer loans were up slightly over the previous year-end, while the agricultural, real estate construction, and lease portfolios declined.

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The Company lends primarily to small and medium sized businesses, small to large sized farms, professionals, and consumers within its market area, which is principally comprised of Sutter, Yuba, Colusa, Yolo, and Placer counties, and secondarily, Sacramento, El Dorado, Butte, and Glenn counties.  A significant portion of the Company’s loan portfolio consists of loans secured by commercial, agricultural, and residential real estate.  The following table depicts the composition of the Bank’s loan and lease portfolio as of December 31, for each of the last five years:

Composition of Loan and Lease Portfolio

	December 31,
	2001		2000		1999		1998		1997
Commercial and Agricultural	$	40,092,739	$	41,691,321	$	55,111,154	$	72,104,377	$	79,384,520
Real Estate-Construction	32,268,227		35,783,474		30,513,920		53,967,821		23,927,538
Real Estate-Mortgage	100,685,224		75,626,555		46,003,764		28,930,047		28,032,552
Consumer	4,826,959		4,471,652		2,523,695		2,443,283		1,956,254
Lease Financing	11,653,824		19,608,845		27,009,815		23,033,956		33,223,586
Other	2,754,618		1,833,408		158,322		392,570		1,021,665
Total	$	192,281,591	$	179,015,255	$	161,320,670	$	180,872,054	$	167,546,115

During 2001, the Bank continued to realize substantial growth in its real estate mortgage loan portfolio.  The year-end balance of mortgage loans secured by commercial, agriculture, and residential real estate increased $25,058,669, or 33.1%, at year-end 2001 over year-end 2000.  This increase is attributable to successful business development efforts and the Bank’s strategic decision to further diversify its overall portfolio via growth in the real estate secured lending arena.  At December 31, 2001, the Bank’s real estate mortgage loan portfolio equaled $100,685,224, or 52.4% of the total loan and lease portfolio.  At December 31, 2000, the real estate mortgage loan portfolio equaled $75,626,555, or 42.3% of the total loan and lease portfolio.  These loans are fully secured by real estate collateral and advances are limited to 65% to 90% of the real estate’s appraised value depending on the type of loan.

The Bank makes real estate construction loans, primarily to finance a variety of commercial, office, and retail projects, as well as the construction of single-family homes.  At December 31, 2001, these loans decreased $3,515,247, or 9.8%, compared to year-end 2000.  The Bank had $32,268,227, or 16.8%, and $35,783,474, or 20.0%, of its total loan and lease portfolio in real estate construction loans outstanding at December 31, 2001 and 2000, respectively.  In all cases, real estate construction loans are fully secured by the real property being improved.  Advance rates are limited to 60% to 80% of the project’s appraised value at completion depending upon the type of project.  Generally, to further its business development goals, the Bank enters into construction lending relationships with the commitment, or the intent to commit, to provide term real estate mortgage financing to its customer upon project completion.

The Bank makes commercial and small business loans (including lines of credit) that are secured by the assets of the business.  Commercial loans increased $5,720,493, or 27.2%, between December 31, 2000 and December 31, 2001.  This increase is the result of a strategically focused marketing effort in the business loan sector throughout the Bank’s geographically served areas.  The Bank had $26,763,479, or 13.9%, and $21,042,986, or 11.8%, of thetotal loan and lease portfolio in commercial and industrial loans outstanding at December 31, 2001 and 2000,  respectively.

The Bank provides agricultural production lines of credit and other agricultural loans that are secured by crops, crop proceeds, and other collateral.  These loans are generally at their peak in the third quarter of each year.  At December 31, 2001, agricultural loans decreased $7,319,075, or 35.4%, in comparison to December 31, 2000.  There were five principal factors that contributed to the decline in agricultural loans.  First, the Bank’s enhanced credit standards continued to result in lower agricultural loan production.  Second, the economic adversities  affecting certain agricultural commodities produced in the Bank’s trade area have softened new loan demand.  Third, the Bank successfully collected several troubled agricultural loans over the past twelve months.  Fourth, the

14

Bank charged-off a large, long running agribusiness problem credit relationship.  And fifth, agricultural lending competition in the Bank’s core market area remains intense.  The Bank had $13,329,260, or 6.9%, and $20,648,335, or 11.5%, of the total loan and lease portfolio in agricultural loans outstanding at December 31, 2001 and 2000, respectively.  Approximately 21% of these loans are guaranteed by the Farm Service Agency  (“FSA,” an agency of the U.S. Department of Agriculture).

The Bank grants consumer loans, including secured and unsecured loans and lines of credit, to finance a variety of consumer needs.  At December 31, 2001, consumer loans increased $355,307, or 8.0%, over December 31, 2000.  The Bank had $4,826,959, or 2.5%, and $4,471,652, or 2.5%, of the total loan and lease portfolio in consumer loans at December 31, 2001 and 2000, respectively.

During 2001, the Bank experienced a significant decline in its lease portfolio.  As of December 31, 2001, net lease financing receivables declined $7,955,021, or 40.6%, from year-end 2000.  The decline is the direct result of the Bank’s decision in the first quarter of 2000 to discontinue originating and purchasing leases through EPI.  Consequently, the reduction of the remaining lease portfolio during 2001 was primarily due to scheduled lease amortization.  The Bank had $11,653,824, or 6.1%, and $19,608,845, or 11.0%, of the total loan and lease portfolio in leases at December 31, 2001 and 2000, respectively.

In conjunction with the Bank’s March 21, 2000 decision to discontinue and wind-down the operations of EPI, servicing of the lease portfolio was outsourced to Bancorp Financial Services, Inc. (“BFS”), a third party specializing in the origination, acquisition, and servicing of small ticket leases.  On May 21, 2001, Humboldt Bancorp, BFS’ parent company, announced a plan to wind-down the operations of BFS in an orderly fashion over time.  Subsequently, on January 28, 2002, BFS notified the Bank that it had targeted March 31, 2002 as the completion date for its wind-down process and furthermore advised the Bank of its intent to resign as the servicer of the EPI lease portfolio.  However, BFS also advised the Bank that while March 31, 2002 is the target date to complete its  wind-down, BFS committed to performing its responsibilities under the servicing agreement until the orderly transition to a successor servicer could be effected.

BFS’ wind-down continues to be an ongoing process and BFS continues to perform its servicing obligations with regard to the EPI lease portfolio.  As a result of these developments, Management is in the process of identifying  and selecting a successor servicer for the EPI lease portfolio, after which the orderly transition to the successor servicer  will be effected.  Management continues to monitor the situation closely and evaluate its alternatives to mitigate any potential impact relative to BFS’ change in status.

The Company also originates certain mortgage loans on residential and agricultural properties, which it sells into the secondary market to divest itself of the interest rate risk associated with these mostly fixed-interest rate products.  The Company accounts for these loans in accordance with Statement of Financial Accounting Standards  No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement  of FASB Statement No. 125.”

As of December 31, 2001, 2000, and 1999, total loans serviced by the Company were $78,062,314, $92,741,075, and $131,991,682, respectively.  Total loans sold by the Company were $1,725,830 in 2001, $760,000 in 2000, and $21,968,279 in 1999.  The significant drop in loans sold during 2001 and 2000 compared to 1999 is, in large  part, the result of the Company changing its secondary market loan origination process.  Prior to 2000, the  Company would fund mortgage loans on its books and subsequently sell the mortgages into the secondary market.   Beginning in 2000 and continuing throughout 2001, the Company primarily brokered secondary market mortgages  “servicing released.”  In this process, the Company originates and processes mortgage loan applications and  delivers the loan application for approval to a secondary market investor.  Upon loan approval, the investor fundsand services the loan directly and the Company is paid a one-time packaging fee.  Consequently, total loans serviced  by the Company declined during 2001 due to principal amortization, loan payoffs, and fewer originations of  “servicing retained” brokered and sold loans.

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Quality of Loans and Leases

Inherent in the lending function is the fact that loan and lease losses will be experienced, and the risk of loss will vary with the type of loan or lease extended, general economic conditions, and the creditworthiness of the borrower.  To reflect the estimated risks of loss associated with its loan and lease portfolio, provisions are made to the Company’s allowance for loan and lease losses.  As an integral part of this process, the allowance for loan and  lease losses is subject to review and possible adjustment as a result of Management’s assessment of risk, third party  reviews, or regulatory examinations conducted by governmental agencies.

Allowance for Loan and Lease Losses

The Company uses the allowance method in providing for loan and lease losses.  Loan and lease losses are charged against the Allowance for Loan and Lease Losses (“ALLL”) and recoveries are credited to it.  The ALLL at December 31, 2001 was $5,498,433, or 2.9% of total loans and leases outstanding, as compared to $5,724,412, or 3.2% of total loans and leases outstanding, at December 31, 2000.  Management believes that the total ALLL is adequate to cover potential losses in the loan and lease portfolios.  While Management uses all available information to provide for loan and lease losses, future additions to the ALLL may be necessary based on changes in economic  conditions and other factors.

Additions to the ALLL are made by provisions for possible losses.  The provision for possible loan and lease losses is charged to operating expense and is based upon past loss experience and estimates of potential losses which, in Management’s judgment and in accordance with generally accepted accounting principles, deserves current recognition.  Other factors considered by Management include growth, composition and overall quality of the loan and  lease portfolio, review of specific problem loans and leases, and current economic conditions that may affect the customer’s ability to repay the obligation.  Actual losses may vary from current estimates.  The estimates are  reviewed regularly and adjustments, if necessary, are charged to operations in the period in which they become known.

Provisions to the ALLL totaled $2,450,000 and $200,000 for the years ended December 31, 2001 and December 31, 2000, respectively.  Full-year 2001 provisions were primarily driven by the impact of the fourth quarter 2001 acceleration of the already softening economic environment on the Bank’s exposure to a large, long running  agribusiness problem credit relationship, a construction loan relationship, and a limited number of other previously  identified problem credits.  Reflecting this fourth quarter decline, the Bank deemed it prudent to move aggressively to value those exposures to market and, in view of the economy, to further build loan loss reserves.

The Company had loan and lease charge-offs of $3,108,809 for 2001, $1,739,930 for 2000, and $1,146,903 for 1999.  Over the same periods, the Company experienced net loan and lease charge-offs (which are net of recoveries) of $2,675,980, $1,246,111, and $253,588, respectively.  These net charge-offs are equal to 1.5%, 0.7%, and 0.1% of average loans and leases for 2001, 2000, and 1999, respectively.

The following table illustrates the activity in the Bank’s allowance for loan and lease losses for the years ending December 31, 1997 through 2001.

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Activity in Allowance for Loan and Lease Losses

	2001			2000			1999			1998			1997
	(Dollars in thousands)
Balance of Allowance at January 1	$	5,724		$	6,771		$	6,024		$	5,514		$	4,053
Charge-Off by Loan Category:
Commercial and Other	3,095			1,251			1,009			2,095			4,311
Consumer	14			19			15			49			73
Real Estate	—			470			123			189			335
Total	3,109			1,740			1,147			2,333			4,719
Recoveries by Loan Category:
Commercial and Other	396			281			627			499			19
Consumer	2			2			—			98			3
Real Estate	35			210			267			—			5
Total	433			493			894			597			27
Net Charge-offs (Recoveries)	2,676			1,247			253			1,736			4,692
Provision Charged to Expense	2,450			200			1,000			2,246			6,153
Balance, December 31	$	5,498		$	5,724		$	6,771		$	6,024		$	5,514
Total Loans and Leases at End of Year	$	192,282		$	179,015		$	161,321		$	180,872		$	167,546
Average Loans and Leases	184,397			169,273			181,166			189,892			173,906
Ratios:
Net Charge-offs (Recoveries) to Average Loans and Leases	1.5		%	0.7		%	0.1		%	0.9		%	2.7		%
Allowance to Loans and Leases at End of Year	2.9		%	3.2		%	4.2		%	3.3		%	3.3		%

In 2001, loan and lease losses were divided among two loan categories: “Commercial and Other,” which totaled $3,095,238, or 99.6% of full-year 2001 total loan and lease losses; and “Consumer,” which totaled $13,571, or 0.4% of total loan and lease losses.

For 2001, the largest category of loss is “Commercial and Other” and includes the subcategories of commercial 24.6%, agricultural 66.4%, and leases that totaled 8.6% of total losses.  Of these three subcategories, agricultural losses were $2,062,528 of total losses and represent the largest subcategory of losses.  This entire amount was centered in one large, long running agribusiness problem credit relationship that experienced a sharp decline in real estate collateral value during the fourth-quarter driven principally by the softening of the overall local agricultural economy.

The commercial subcategory of “Commercial and Other” loan losses at December 31, 2001 was $764,272.  Approximately 60%, or $460,000, of the loss experienced in commercial loans was centered in the same agribusiness problem credit relationship discussed in the preceding paragraph.  The remaining $304,272 of commercial charge-offs were attributable to two borrowers.  The largest is a contractor who liquidated and filed bankruptcy resulting in a loss of $162,300.  Management expects significant recovery to ultimately come from the sale of residential lots that had been pledged as additional security on the loan.  The other commercial loan was a protracted workout, for which the Bank had obtained real property collateral as additional security.  Due to the excessive passage of time while trying to liquidate the property, the loan was charged-off.  The borrower subsequently sold the property and the Bank recovered its prior charge-off.

The lease subcategory of “Commercial and Other” loan losses at December 31, 2001 was $268,438.  Previously, the Company purchased leases from EPI, who originated the leases.  Lease originations were discontinued in March 2000, and EPI’s operations are in the process of being wound-down.  As previously discussed, lease servicing will continue to be outsourced to a qualified and experienced third party lease servicing provider.  Recognizing the inherent risks associated with lease activity, the Company continues to maintain higher reserves for this portfolio than other conventional loan portfolios.  During 2001, actual net lease charge-offs remained within established reserves for this portfolio.  Close monitoring of the lease collections has been assigned to the Special Asset Department of the Bank.  Lease portfolio recoveries totaled $138,300, or 32% of total recoveries, reflecting improved collection results.  The lease charge-off activity is consistent with Management expectations.

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During 2000, loan and lease losses totaled $1,739,930 divided among three categories: “Commercial and Other,” which totaled $1,250,519, or 71.9% of 2000 total loan and lease losses; “Real Estate,” which totaled $469,991, or 27.0% of total loan and lease losses; and “Consumer,” which totaled $19,419, or 1.1% of total loan and lease losses.

For 2000, the largest category of loss was “Commercial and Other” and includes the subcategories of commercial 20.8%, agricultural 13.3%, and leases that totaled 37.8% of total losses.  Of these three categories, lease losses were $656,891 of total losses and represent the largest subcategory of losses.  The commercial subcategory of loss was $361,692 and was centered in one commercial business that experienced repetitive periods of unsustained profitability that eventually led to bankruptcy.  The agricultural subcategory of loss was $231,937 and was centered in two agribusinesses that were not able to withstand a sustained period of agricultural adversity that existed at that time.

Real estate losses for 2000 totaled $469,991 and were centered in two agribusiness problem credit relationships, both of which had been protracted workout situations for which the underlying real property collateral value no longer supported the loan position.

During 1999, loan and lease losses totaled $1,146,903, divided among three categories, the largest of which was the “Commercial and Other” category totaling $1,008,895, or 88.0% of total loan and lease losses.  Within this category, lease losses were the largest subcategory of loss totaling $929,406, or 81.0% of total loan and lease losses.

The allocation of the ALLL by loan and lease type as of December 31 for each of the last five fiscal years is summarized in the following table.  Any allocation or breakdown in the ALLL is provided for informational purposes only and should not be construed to lend an appearance of exactness that does not exist.  Thus, the following allocation should not be interpreted as an indication of expected amounts or categories where charge-offs will occur.  Management uses available information to provide for loan and lease loss reserve allocation; however, future additions to the ALLL may be necessary based upon changes in economic conditions and other variables.

Allocation of Allowance

	2001					2000				1999				1998				1997
	$		%			$		%		$		%		$		%		$		%
	(Dollars in thousands)
Balance Applicable to:
Commercial and Agricultural	$	1,826		33.2	%	$	2,230	39.0	%	$	3,642	53.8	%	$	3,644	60.5	%	$	3,423	62.1	%
Real Estate-Construction	1,270			23.1	%	399		7.0	%	417		6.2	%	925		15.4	%	897		16.3	%
Real Estate-Mortgage	1,320			24.0	%	578		10.1	%	542		8.0	%	610		10.1	%	392		7.1	%
Consumer	67			1.2	%	36		0.6	%	48		0.7	%	32		0.5	%	31		0.6	%
Leases	488			8.9	%	832		14.5	%	940		13.9	%	706		11.7	%	656		11.9	%
Other	527			9.6	%	1,649		28.8	%	1,182		17.5	%	107		1.8	%	115		2.1	%
Total	$	5,498		100.0	%	$	5,724	100.0	%	$	6,771	100.0	%	$	6,024	100.0	%	$	5,514	100.0	%
Nonperforming Loans and Leases:
Accounted for on a Nonaccrual Basis	$	3,060				$	4,926			$	6,115			$	5,644			$	7,585
Accruing Past Due 90 Days or More	—					—				—				854				328
Total	$	3,060				$	4,926			$	6,115			$	6,498			$	7,913

Management believes the total ALLL is adequate as of December 31, 2001.  The $527,700 amount shown as “Other” consisted of $158,100 reserved for undisbursed commitments on the combined loan and lease portfolios, $1,300 reserved for standby lines of credit, and $368,300 in unallocated reserves.  This unallocated reserve equals 6.7% of the reserve deemed necessary by Management and provides an added margin of safety for the overall portfolio.

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Nonperforming Loans

The Company places loans on nonaccrual status when either principal or interest has been past due for 90 days or more.  Exceptions to this policy can be made if the loan is well secured and in the process of collection.  The Company also places loans on nonaccrual when payment in full of principal or interest is not expected or the financial condition of the borrower has significantly deteriorated.  At the time that a loan is placed on nonaccrual, any accrued but uncollected interest is reversed, and additional income is recorded on a cash basis as payments are received.  However, loans that are in the process of renewal in the normal course of business or that are well-secured and in the process of collection, may not be placed on nonaccrual status, at the discretion of  Management.  A nonaccrual loan may be restored to an accrual basis when interest and principal payments are current and the prospects for future payments are no longer in doubt.

The trend in nonperforming assets has improved over the past year as nonperforming assets decreased from $4,925,579, or 2.8% of the portfolio, on December 31, 2000, to $3,059,798, or 1.6% of the portfolio, on December 31, 2001.  The Company continued to successfully implement its classified asset reduction plan and enhance quality control in the management of the loan portfolio.  The amount of nonperforming loans and leases at December 31, 2001 reflects a five-year improving trend in the reduction of nonperforming loans and leases for the Company.  However, in view of the continuing softening of the economy and other factors, there is no assurance that this trend will continue.

The composition of the Company’s nonaccrual loans and leases remain limited to a few large agricultural and real estate relationships.  As of December 31, 2001, 95.6% of the Company’s total nonaccrual loans and leases were concentrated in five relationships.  Four of the relationships, totaling $2,664,339, or 87.1%, are real estate loan relationships, while the remainder, totaling $260,064, or 8.5%, is an agribusiness credit relationship.  Each of the nonaccrual loans associated with these relationships is in the process of collection and is believed to be adequately supported by collateral.

Similarly, as of December 31, 2000, 94.9% of the Company’s total nonaccrual loans and leases were concentrated in ten relationships.  Three of the relationships, totaling $2,649,952, or 53.2%, were agribusiness in nature, while the remaining seven relationships, equaling $2,079,691, or 41.7%, were commercial.

Loans on accrual status that were past due 90 days or more as to the principal and interest continue to be held at zero for December 31, 2001, as was December 31, 2000, and December 31, 1999.

Investments

At December 31, 2001, the Company’s investment portfolio was $78,357,289, or 25.5% of total assets, a decrease from $82,011,931, or 27.2% of total assets, at December 31, 2000. At December 31, 1999, the Bank’s investment portfolio was $86,998,504, or 29.0% of total assets.  At December 31, 2001, 2000, and 1999, federal funds sold were $5,300,053, $7,700,000, and $22,000,000, respectively.  Federal funds sold are overnight deposits with other banks.

Under Statement of Financial Accounting Standard No. 115 (“SFAS 115”), investments in debt and equity securities must be classified in one of three different categories: “Trading,” “Available-for-Sale,” or “Held-to-Maturity,” and there are different accounting methods for each category.  The Company has classified all of its investment securities as either “Available-for-Sale” or “Held-to-Maturity.”

SFAS 115 requires that any unrealized gain or loss related to the “Available-for-Sale” category be reported as an adjustment to the Company’s shareholders’ equity, even though this gain or loss would only be realized if the investment were actually sold.  If the investment is in the “Held-to-Maturity” category, no unrealized gains or losses need be reported.

The following table summarizes the distribution of the Company’s investment securities as of December 31, 2001 and 2000.

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Investments

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2001
Available-for-Sale:
Obligations of U.S. Government Agencies	$	39,183,995	$	1,028,397	$	(127,235	)	40,085,157
Mortgage-Backed Securities	19,588,131		385,793		(102,496		)	19,871,428
Debt Securities	8,606,413		131,922		(925		)	8,737,410
Equity Securities	6,410,305		68,714		(419,500		)	6,059,519
	$	73,788,844	$	1,614,826	$	(650,156	)	$	74,753,514
Held-to-Maturity:
Obligations of States and Political Subdivisions	$	1,854,204	$	57,323	$	—		$	1,911,527
Debt and Other Securities	1,749,571		36,629		—			1,786,200
	$	3,603,775	$	93,952	$	—		$	3,697,727
December 31, 2000
Available-for-Sale:
Obligations of U.S. Government Agencies	$	64,190,292	$	191,075	$	(244,192	)	64,137,175
Mortgage-Backed Securities	6,191,832		213,143		(1,488		)	6,403,487
Equity Securities	6,755,505		35,907		(637,500		)	6,153,912
	$	77,137,629	$	440,125	$	(883,180	)	$	76,694,574
Held-to-Maturity:
Obligations of States and Political Subdivisions	$	2,568,282	$	17,784	$	(3,966	)	$	2,582,100
Debt and Other Securities	2,749,075		—		(9,651		)	2,739,424
	$	5,317,357	$	17,784	$	(13,617	)	$	5,321,524

As of December 31, 2001, the Company’s “Available-for-Sale” category adjustment to the Company’s shareholders’ equity reflected a net unrealized gain of $530,568, net of taxes, and the approximate market value of the  Company’s total investment portfolio was $78,451,241 reflecting a net unrealized pre-tax gain of $1,058,622.

As of December 31, 2000, the Company’s “Available-for-Sale” category adjustment to the Company’s shareholders’ equity reflected a net unrealized loss of $243,680, net of taxes, and the approximate market value of the Company’s total investment portfolio was $82,016,098 reflecting a net unrealized pre-tax loss of $438,888.

In the normal course of business, the Bank pledges its investment securities as collateral for certain deposits (typically deposits of government entities), and for the Bank’s borrowing lines.  The book value of pledged securities was $50,807,817 and $52,339,269 at December 31, 2001 and 2000, respectively.

Other Assets

During 2001, the Company recognized a decrease in total other assets.  These assets consist primarily of premises and equipment, interest receivable, other real estate owned (“OREO”), investment in a Community Reinvestment Act (“CRA”) qualified California Affordable Housing Project, cash surrender value of life insurance policies associated with certain executive officers and directors of the Company, net deferred taxes, and other miscellaneous assets.

Total other assets related to continuing operations decreased $1,041,411 to $17,817,876 at December 31, 2001 compared to $18,859,287 at December 31, 2000.  The decline in total other assets is the result of several factors.  Interest receivable declined $748,286 to $2,091,325 at December 31, 2001 from $2,839,611 at December 31,2000.  Deferred taxes decreased $1,145,626 and stood at $1,022,450 at December 31, 2001 compared to $2,168,076 at December 31, 2000.  This decrease is attributed to differences in the timing of the recognition of certain income and expense items for tax and financial accounting purposes.

Premises and equipment also declined $41,905 from December 31, 2000 to December 31, 2001.  During the year 2001, the Company acquired $901,637 of new property, recognized depreciation of $919,672, and disposed of various equipment with an immaterial book value.

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Other miscellaneous assets decreased from $1,508,892 at December 31, 2000 to $1,075,181 at December 31, 2001.  The majority of this decline is the result of an investment made in a California Affordable Housing Project for which the Company recognizes recurring pre-tax impairment and equity losses.  This investment contributed toward the Bank’s achievement of its CRA objectives, and its economic value is ultimately realized through the tax benefits it generates.

The decreases in other assets described above were offset by increases in OREO of $137,358, cash surrender value of life insurance policies of $238,468, and income tax receivable of $952,291.  The increase in OREO can be attributed to the foreclosure on certain residential lots that had been pledged as additional security on a commercial loan that was charged-off during 2001.

Deposits

Total deposits at December 31, 2001, 2000, and 1999 were $275,576,069, $267,632,227, and $273,459,118, respectively.  These figures represent an increase of $7,943,842, or 3.0%, at December 31, 2001 over December 31, 2000, and a decrease of $5,826,891, or 2.1%, when comparing December 31, 2000 to December 31, 1999.  Average daily total deposits were $262,204,744 for 2001, $263,293,661 for 2000, and $264,379,566 for 1999.

The Company has been able to attract and retain deposits by providing superior customer service and offering interest rates on deposits competitive with other financial institutions in its market area.  Total deposits consist of interest and noninterest-bearing deposits.  At December 31, 2001, the mix of deposits consists of 25.4% noninterest-bearing and 74.6% interest-bearing.  The mix of interest-bearing deposits consists of 45.4% in time certificates  of deposit, 30.0% in interest-bearing demand deposits, and 24.6% in savings and money market accounts.  Average time certificates of deposit, the largest portion of interest-bearing deposit accounts, were $95,684,104 for 2001, $98,437,633 for 2000, and $97,162,885 for 1999, representing a decrease of 2.8% in 2001 from 2000, and an increase of 1.3% in 2000 over 1999.

Average daily noninterest-bearing demand deposits, the majority of which are business checking accounts, increased $4,510,417 to $58,234,534 for 2001, from $53,724,117 for 2000, and stood at $54,675,233 for 1999.

The remaining contractual maturities of the Company’s time certificates of deposit, including public time deposits, as of December 31, 2001 and 2000, are indicated in the following table.  Interest expense on time certificates of deposit totaled $4,803,844 in 2001 and $5,619,730 in 2000.  The decrease in interest expense on time certificates of deposit was primarily due to the decreasing interest rate environment experienced during 2001.  The average yields paid on time certificates of deposit were 5.02% and 5.71% for the years ended December 31,2001 and 2000, respectively.

Contractual Maturity of Certificates of Deposits

	December 31, 2001				December 31, 2000
	$100,000 and over		Under $100,000		$100,000 and over		Under $100,000
	(Dollars in thousands)
Three Months or Less	$	18,430	$	25,164	$	16,199	$	20,483
Over Three Months Through Twelve Months	12,378		28,231		19,837		28,869
Over One Year Through Three Years	2,902		4,279		3,424		4,811
Over Three Years	1,101		792		884		1,248
Total	$	34,811	$	58,466	$	40,344	$	55,411

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Other Liabilities

Total other liabilities relating to continuing operations for the Company decreased to $3,378,499 at December 31, 2001 from $8,044,725 at December 31, 2000.  Total other liabilities consist of other borrowings, interest payable  on interest-bearing liabilities, deferred compensation payable, and other miscellaneous liabilities.  The decrease of $4,666,226, or 58.0%, at year-end 2001 from year-end 2000 in total other liabilities was primarily due to a $4,000,000 decrease in short term borrowings on the Bank’s line of credit at the FHLB.

Noninterest Income

Noninterest income from continuing operations for 2001 was $2,209,246, a decrease of 17.2% from 2000, which stood at $2,668,972.  Noninterest income in 2000 was 4.1% greater than the 1999 amount of $2,564,447.  The table below sets forth the components of noninterest income for the years indicated:

Noninterest Income

	2001		2000		1999
	(Dollars in thousands)
Service Charges and Fees on Deposit Accounts	$	1,083	$	1,010	$	971
Brokered Loan Fees	158		112		236
Loan Servicing Fees	366		489		553
Other	602		1,058		804
Total	$	2,209	$	2,669	$	2564

Service charges and fees on deposit accounts, one of the main components of noninterest income, increased in 2001 to $1,082,547, or 7.2% over the 2000 amount of $1,009,455.

Brokered loan fees, another primary source of noninterest income, were $158,195 in 2001.  This represents an increase of $46,140 from 2000, which stood at $112,055.  Alternatively, brokered loan fee income experienced a substantial decrease of 52.5% from $235,768 in 1999 when compared to 2000.  The increase in brokered loan fee income in 2001 over 2000 is largely attributable to higher demand in the home refinance market due to the decreasing interest rate environment throughout 2001.

Loan servicing fees, another major component of noninterest income declined 25.1% to $366,276 in 2001, from $488,995 in 2000.  This decrease is principally due to the lower amount of total loans serviced as previously described in detail in the “Loans and Leases” section of this Management Discussion and Analysis.

All other noninterest income decreased $456,239, or 43.1%, to $602,228 in 2001, from $1,058,467 during the comparable 2000 period.  The primary reason for this decline was a non-recurring gain of $297,871 on the sale of other real estate owned during 2000.  There were also declines in noninsured deposit fee income and other miscellaneous income items.

Noninterest Expense

Noninterest expense from continuing operations increased in 2001 to $12,568,197, or 2.9% over 2000 results, which stood at $12,214,959.  The 2000 results reflected a decrease of 11.6% from 1999 totals of $13,810,491.  The  table below sets forth the components of noninterest expense for the years indicated.

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Noninterest Expense

	2001		2000		1999
	(Dollars in thousands)
Salaries and Benefits	$	7,261	$	6,541	$	6,835
Occupancy	822		726		746
Furniture and Equipment	1,171		1,170		1,339
Other Operating and Administrative	3,314		3,778		4,890
Total	$	12,568	$	12,215	$	13,810

Salaries and benefits, the largest component of noninterest expense, was $7,261,191 for 2001, $6,541,651 for 2000, and $6,834,859 for 1999, representing an increase of 11.0% in 2001 over 2000, and a decrease of 4.3% in 2000 from 1999.  The increase in 2001 is in large part due to four factors.  First, the cost of employee benefit plans, primarily medical insurance and costs associated with the Company’s 401K plan, rose significantly over the last year.  Second, higher incentive accruals resulted from the Company’s goal to further strengthen its sales and service culture.  Third, the Bank recognized a one-time charge relating to the reorganization and streamlining of its loan origination delivery system.  And fourth, the Company opened and staffed two new branches in Lincoln and Roseville, California.

Collectively, occupancy and furniture and equipment expenses increased $97,144, or 5.1%, for 2001 over 2000 and stood at $1,992,937 and $1,895,793, for the full year periods, respectively.  During 2000, the Company recognized a decrease of 9.1% from $2,085,437 in 1999.  The increase in 2001 over 2000 was principally driven by the opening of the Bank’s Lincoln and Roseville, California branches as described in the preceding paragraph.

Other operating and administrative expenses were $3,314,069 for 2001, a decrease of $463,446, or 12.3%, from 2000’s noninterest operating and administrative expenses of $3,777,515.  This same classification of expenses amounted to $4,890,195 in 1999.  The decline in other noninterest operating and administrative expense during 2001 is attributed primarily to a variety of initiatives implemented by the Company to further streamline workflow processes and improve its use of technology, thereby achieving greater operational efficiency.

Other factors impacting the decline in other noninterest operating and administrative expenses were a decline of $58,714 in attorney fees and $44,898 in Federal Deposit Insurance Corporation (“FDIC”) Bank Insurance Fund assessments in 2001 from 2000.

Income Taxes

The provision for income taxes from continuing operations was $547,200 in 2001, $1,643,525 in 2000, and $865,000 in 1999.  The Company’s effective tax rate was 28.8%, 38.0%, and 35.2% for full-years’ 2001, 2000, and 1999, respectively.

Interest Rate Sensitivity

Interest rate sensitivity is the relationship between market interest rates and net interest income (“NII”) due to the repricing characteristics of assets and liabilities.  As interest rates change, interest income and expense also change, thereby changing NII.  If more liabilities reprice than assets in a given period, a liability sensitive position is created.  If interest rates decline, a liability sensitive position will benefit NII.  Alternatively, where assets reprice more quickly than liabilities in a given period (an asset sensitive position), a decline in market rates will have an adverse effect on NII.

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The following table depicts the Company’s interest rate sensitivity position as of December 31, 2001.

Interest Rate Sensitivity as of December 31, 2001

	Repricing Opportunity
	Three months or less			Over three months through 12 months			1 year- 3 years			Over 3 years		Total
	(Dollars in thousands)
Interest-Earning Assets:
Federal Funds Sold	$	5,300		$	—		$	—		$	—	$	5,300
Loans and Leases	116,841			10,951			12,479			52,011		192,282
Investments	6,060			6,814			20,983			44,500		78,357
Total Interest-Earning Assets	$	128,201		$	17,765		$	33,462		$	96,511	$	275,939
Interest-Bearing Liabilities:
Interest-Bearing Demand	$	61,692		$	—		$	—		$	—	$	61,692
Savings and Money Market Deposits	50,639			—			—			—		50,639
Time Certificates	43,594			40,609			7,181			1,893		93,277
Other Interest-Bearing Liabilities	398			—			—			—		398
Total Interest-Bearing Liabilities	$	156,323		$	40,609		$	7,181		$	1,893	$	206,006
Gap	(28,122		)	(22,844		)	26,281			94,618		69,933
Cumulative Gap	(28,122		)	(50,966		)	(24,685		)	69,933

The above table indicates the time period in which interest-earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms.  However, this table does not necessarily indicate the impact of general interest rate movements on the Bank’s NII or yield because the repricing of various categories of assets and liabilities is discretionary and is subject to competitive and other pressures.  As a result, various assets and liabilities indicated as maturing or repricing within the same period may in fact mature or  reprice at different times and at different rate levels.  For example, although the Bank’s regular savings accounts generally are subject to immediate withdrawal, Management considers most of these accounts to be core deposits having significantly longer effective maturities based on the Bank’s experience of retention of such deposits in changing interest rate environments.

Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital.  The composition of the Company’s Balance Sheet is planned and monitored by the Asset and Liability Committee (“ALCO”), a committee comprised of the Bank’s executive management.  The primary tool used by the ALCO to measure and manage interest rate exposure is a simulation model.  Use of the model to perform simulations reflecting changes in interest rates over one and two-year time horizons has enabled Management to develop and initiate strategies for managing exposure to interest rate risks.  The ALCO believes that both individually and in the aggregate its modeling assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not an absolutely precise calculation of exposure.

Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates and prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices.  The Company’s primary market risk exposure is interest rate risk.  The continuous monitoring and management of this risk is an important component of the Company’s asset and liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually.  The Board of Directors delegates responsibility for carrying out the asset and liability management policies to the ALCO.  In this capacity, Management develops guidelines and strategies impacting the Company’s asset and liability management related activities based upon estimated market risk sensitivity, policy limits, and overall market interest rate levels and trends.

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Interest Rate Risk

Interest rate risk represents the sensitivity of earnings to changes in market interest rates.  As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change thereby impacting NII, the primary component of the Company’s earnings.  The ALCO utilizes the results of the detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes.

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet as well as for off balance sheet financial instruments.  This sensitivity analysis is compared to policy limits that specify a maximum tolerance level for NII exposure over a one-year horizon, assuming no balance sheet growth, given both a 200 basis point (“bp”) upward and downward shift in interest rates.  A parallel shift in rate, pro-rated over a 12-month period, is assumed.  The Bank’s policy limit threshold is that NII exposure shall not exceed 10% of estimated NII over the next 12 months.  The following table reflects the Company’s NII sensitivity analysis as of December 31, 2001.

Rate change (bp)	Estimated benefit (exposure) as a% of annual projected NII
+200	1.20	%
-200	1.05	%

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of future operating results.  These hypothetical estimates are based on numerous assumptions including the nature and timing of interest rate levels including yield curve shape, repayments on loans, leases and securities, deposit rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows, and others.  While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.  Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables.  Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates.

Liquidity

The need for liquidity in a banking institution arises principally to provide for deposit withdrawals, the credit needs of its customers, and to take advantage of investment opportunities.  A banking institution may achieve desired liquidity from both assets and liabilities.  The Company considers cash and deposits held in other banks, federal funds sold, other short-term investments, maturing loans and investments, receipts of principal and interest on loans, investments available for sale, and potential loan sales as sources of asset liquidity.  Deposit growth and access to credit lines established with correspondent banks and market sources of funds are considered by the Company as sources of liability liquidity.

Historically, during the first half of each year the Bank experiences excess liquidity.  The Bank’s seasonal agricultural and construction loan demand, which typically occurs each year from early June through late October, tends to absorb excess liquidity and usually results in a net borrowed position during that time frame.

25

The Bank’s short-term liquid assets consist of cash and due from banks, federal funds sold, and investment securities with maturities of one year or less (exclusive of pledged securities).  Irrespective of maturity, U.S. Government and Agency securities qualify as collateral for borrowings at the FHLB, Federal Reserve Bank, and with broker-dealers.

The Company’s short-term liquid assets totaled $29,684,979 and $34,687,540 at December 31, 2001 and 2000, respectively.  Short-term liquid assets as a percentage of total assets were 9.70% and 11.51%, respectively as of those dates.

In order to fund its liquidity needs, the Bank maintains formal and informal borrowing arrangements with the Federal Reserve Bank to meet unforeseen deposit outflows or seasonal loan funding demands.  The Bank has also entered an agreement to borrow funds from the FHLB secured by U.S. Government and Agency obligations in the Bank’s investment portfolio.  As of December 31, 2001 and December 31, 2000, the Bank had $0 and $4,000,000, respectively, outstanding on these lines.  Liquidity is also affected by collateral requirements of the Bank’s public deposit and certain borrowings.  Total pledged securities were $50,807,817 at December 31, 2001 and $52,339,269 at December 31, 2000.

The Bank monitors its credit facility availability and unencumbered qualifying collateral in conjunction with its asset and liability management process.  Policy limits are established and monitored for maximum borrowings and minimum contingency liquidity levels.

Management believes the Company maintains adequate amounts of liquidity to meet its needs.

Capital Resources

CIB and the Bank are subject to requirements of the Federal Reserve Board (“FRB”) and FDIC, respectively, governing capital adequacy.  These regulations are intended to reflect the degree of risk associated with both on and off balance sheet items.  Financial institutions are expected to comply with a minimum ratio of qualifying total capital to risk-weighted assets of 8.0%.  At least half of which must be in Tier 1 Capital, as defined by the regulations.  Federal regulatory agencies have also adopted a minimum leverage ratio of 4.0%, which is intended to supplement the risk-based capital requirements and to ensure that all financial institutions continue to maintain a minimum level of core capital.

Total shareholders’ equity on December 31, 2001, increased by $1,443,518 to $27,213,127 over December 31, 2000 total shareholders’ equity of $25,769,609.  The increase is attributed to net income during 2001 of $1,409,129, an increase of $774,248 in the accumulated other comprehensive income associated with the market value adjustment on the Bank’s Available-for-Sale securities, an increase of $127,018 associated with stock options exercised, and a decrease of $40,000 to the Bank’s guarantee of its Employee Stock Ownership debt.  These increases to shareholder equity were offset by cash dividends paid in the amount of $895,024, and cash paid in lieu of fractional shares related to the Company’s 5% stock dividend in the amount of $11,853. As can be seen by the following table, the Company and Bank exceeded all regulatory capital ratios on December 31, 2001.

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Risk Based Capital Ratio

As of December 31, 2001

	Company				Bank
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Tier 1 Capital	$	26,490	11.23	%	$	26,177	11.09	%
Tier 1 Capital Minimum Requirement	9,434		4.00	%	9,442		4.00	%
Excess	$	17,056	7.23	%	$	16,735	7.09	%
Total Capital	29,470		12.49	%	29,159		12.35	%
Total Capital Minimum Requirement	18,868		8.00	%	18,884		8.00	%
Excess	$	10,602	4.49	%	$	10,275	4.35	%
Risk-Adjusted Assets	$	235,855			$	236,044
Leverage Capital Ratio
Tier 1 Capital to Quarterly Average Total Assets	$	26,490	8.56	%	$	26,177	8.47	%
Minimum Leverage Requirement	12,379		4.00	%	12,369		4.00	%
Excess	$	14,111	4.56	%	$	13,808	4.47	%
Total Quarterly Average Assets	$	309,473			$	309,228

Inflation

It is Management’s opinion that the effects of inflation on the Company’s financial statements for the years ended December 31, 2001, 2000, and 1999 are not material.

Supervision and Regulation

CIB and the Bank operate in a highly regulated environment and are subject to supervision and examination by various federal and state regulatory agencies.  CIB, as a bank holding company, is subject to regulation and supervision  by primarily the FRB, and the Bank, as a California-chartered commercial bank, is subject to supervision and regulation by primarily the FDIC and the California Department of Financial Institutions (“DFI”).  Federal and California state laws and regulations govern numerous matters involving both entities, including maintenance of adequate capital and financial condition, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits, and restrictions on dividend payments.  The federal and state regulatory agencies possess extensive discretion and powers to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies.  CIB and the Bank also undergo periodic examinations by one or more of these regulatory agencies, which may subject them to changes in asset valuations, in amounts of required loss allowances, and in operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examination.  The Bank’s operations are also subject to a wide variety of state and federal consumer protection and similar statutes and regulations.  Those and other restrictions limit the manner in which CIB and the Bank may conduct business and obtain financing.  The laws and regulations to which CIB and the Bank are subject can and do change significantly from time to time, and such changes could materially affect the Company’s business, financial condition, and operating results.

Changes in Senior Management

To further strengthen senior management of the Bank, on February 20, 2001 the Board announced that Don McDonel was promoted to the position of Executive Vice President, Commercial and Retail Banking.  He accepted this assignment after serving as the Senior Vice President, Senior Loan Officer of the Bank.  Mr. McDonel came to the Bank in 1999 with more than twenty (20) years of experience in the banking industry, having most recently served as Executive Vice President/Credit Administrator of Douglas National Bank in Roseburg, Oregon.  The Bank received the necessary approvals to appoint Mr. McDonel to the executive officer position.

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New Branch Openings

On May 31, 2001, the Bank opened its eighth full service branch in Lincoln, California.  Approval from the FDIC was received on July 21, 2000.  Additionally, the Bank received approval from the DFI on July 3, 2000.

On September 26, 2001, the Bank’s Roseville, California loan production office was converted into its ninth full service branch.  Regulatory approval from the FDIC and DFI were granted on July 2, 2001, and June 30, 2001, respectively.

Approval of Stock Repurchase Plan

On November 13, 2001, CIB’s Board of Directors approved a plan to repurchase, as conditions warrant, up to 5% of CIB’s common stock on the open market.  The duration of the plan is open-ended and the timing of purchases is dependent upon market conditions.  During 2001, CIB did not repurchase any of its common stock pursuant to the plan.

Segment Reporting

On January 1, 1998, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (“SFAS No. 131”).  SFAS No. 131 establishes standards for a public business enterprises’ reporting of information about its operating segments in its annual financial statements.  The Statement requires that the enterprise report selected information concerning operating segments in interim financial reports issued to shareholders.  Additionally, the Statement establishes requirements for related disclosures about products, services, geographic  areas, and major customers.

SFAS No. 131 requires public business enterprises to report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets.  The Statement further requires reconciliation of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprise’s general purpose financial statements.  It requires that all public business enterprises report information about the revenues derived from the enterprise’s products or services (or groups of similar products and services), about the countries in which the enterprise earns revenues and holds assets, and about major customers regardless of whether that information is used in making operating decisions.  However, SFAS No. 131 does not require an enterprise to report information that is not prepared for internal use if reporting it would be impracticable. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997.

The adoption of the applicable provisions of SFAS No. 131 did not have a material effect on the Company, as Management believes that it operates only in one segment, the commercial banking segment.

California Energy Shortage

Throughout 2001, California experienced periodic shortages in the supply of electricity to the state.  There has been, and there may be in the future, limited rolling power outages or “blackouts” throughout the state.  Power outages could disrupt the Company’s operations, increase operating costs, and impact its borrowers’ ability to repay their debts.  Contingency plans to deal with power outages have been developed; however, the frequency or duration of the power outages cannot be predicted.  As a result, such outages could adversely affect the Company’s future operating results.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of California Independent Bancorp:

We have audited the accompanying consolidated balance sheets of California Independent Bancorp (a California corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of California Independent Bancorp and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP

Sacramento, California

February 14, 2002

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CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2001 AND 2000

	2001			2000
Assets
Cash and Due From Banks	$	17,746,817		$	19,358,528
Federal Funds Sold	5,300,053			7,700,000
Cash and Cash Equivalents	23,046,870			27,058,528
Investment Securities Held-to-Maturity	3,603,775			5,317,357
Investment Securities Available-for-Sale	74,753,514			76,694,574
Total Investments	$	78,357,289		$	82,011,931
Loans and Leases	175,808,138			158,681,594
Loans and Leases Held-For-Sale	16,473,453			20,333,661
Less: Allowance for Loan and Lease Losses	(5,498,433		)	(5,724,412		)
Net Loans and Leases	$	186,783,158		$	173,290,843
Premises and Equipment, Net	6,936,936			6,978,841
Interest Receivable	2,091,325			2,839,611
Other Real Estate Owned	541,976			404,618
Cash Surrender Value of Insurance Policies	5,108,392			4,869,924
Deferred Taxes	1,022,450			2,168,076
Income Tax Receivable	1,041,616			89,325
Other Assets	1,075,181			1,508,892
Net Assets From Discontinued Operations	162,502			225,972
Total Assets	$	306,167,695		$	301,446,561
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-Bearing	$	69,968,239		$	63,995,909
Interest-Bearing	205,607,830			203,636,318
Total Deposits	$	275,576,069		$	267,632,227
Interest Payable	1,246,582			1,879,722
Deferred Compensation Payable	935,319			631,263
Other Borrowings	120,000			4,160,000
Other Liabilities	1,076,598			1,373,740
Total Liabilities	$	278,954,568		$	275,676,952
Commitments and Contingencies (Note 14)
Shareholders’ Equity:
Common Stock, No Par Value - Shares Authorized - 20,000,000, Shares Issued and Outstanding — 2,115,419 in 2001 and 2,008,966 in 2000	$	22,321,519		$	19,909,484
Retained Earnings	4,481,040			6,263,805
Debt Guarantee of ESOP	(120,000		)	(160,000		)
Accumulated Other Comprehensive Income (Loss)	530,568			(243,680		)
Total Shareholders’ Equity	$	27,213,127		$	25,769,609
Total Liabilities and Shareholders’ Equity	$	306,167,695		$	301,446,561

The accompanying notes are an integral part of these consolidated financial statements.

30

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

	2001		2000		1999
Interest Income
Interest and Fees on Loans and Leases	$	16,807,295	$	16,971,203	$	18,624,289
Interest on Investments -
Taxable Interest Income	4,347,405		5,815,142		3,900,332
Nontaxable Interest Income	93,354		118,719		161,764
Interest on Federal Funds Sold	483,512		630,170		593,197
Total Interest Income	21,731,566		23,535,234		23,279,582
Interest Expense
Interest on Deposits	6,902,074		8,956,160		8,390,638
Interest on Other Borrowings	120,296		513,696		182,745
Total Interest Expense	7,022,370		9,469,856		8,573,383
Net Interest Income	14,709,196		14,065,378		14,706,19
Provision for Loan and Lease Losses	2,450,000		200,000		1,000,000
Net Interest Income After Provision for Loan and Lease Losses	12,259,196		13,865,378		13,706,199
Noninterest Income
Service Charges on Deposit Accounts	1,082,547		1,009,455		970,908
Brokered Loan Fees	158,195		112,055		235,768
Loan Servicing Fees	366,276		488,995		553,280
Other	602,228		1,058,467		804,491
Total Noninterest Income	2,209,246		2,668,972		2,564,447
Noninterest Expense
Salaries and Employee Benefits	7,261,191		6,541,651		6,834,859
Occupancy Expense	821,624		725,767		746,046
Furniture and Equipment Expense	1,171,313		1,170,026		1,339,391
Other Operating and Administrative Expense	3,314,069		3,777,515		4,890,195
Total Noninterest Expense	12,568,197		12,214,959		13,810,491
Income Before Provision for Income Taxes	1,900,245		4,319,391		2,460,155
Provision for Income Taxes	547,200		1,643,525		865,000
Net Income From Continuing Operations	1,353,045		2,675,866		1,595,155
Loss on Disposal of Subsidiary (Net of Income Tax Benefit of $0, $0, $499,094)	—		—		(713,772		)
Income (Loss) on Discontinued Operations (Net of Income Tax Benefit (Provision) of ($39,400), ($30,950), $185,225)	56,084		44,092		(277,685		)
Net Income	$	1,409,129	$	2,719,958	$	603,698
Per Share Amounts
Basic Earnings Per Share From Continuing Operations	$	0.64	$	1.27	$	0.79
Diluted Earnings Per Share From Continuing Operations	0.63		1.27		0.79
Basic Earnings Per Share After Disposal and Discontinuance of Subsidiary	0.67		1.29		0.30
Diluted Earnings Per Share After Disposal and Discontinuance of Subsidiary	0.66		1.29		0.30
Cash Dividends Per Common Share	0.42		0.40		0.38

The accompanying notes are an integral part of these consolidated financial statements.

31

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

	Common Stock					Retained			Debt Guarantee			Accumulated Other Comprehensive
	Shares		Amount			Earnings			of ESOP			Income (Loss)			Total
Balance December 31, 1998	1,744,580		$	15,612,227		$	8,194,823		$	(40,000	)	$	33,930		$	23,800,980
Comprehensive Income:
Net Income from Continuing Operations	—		—			1,595,155			—			—			1,595,155
Net Loss on Discontinued Operations	—		—			(277,685		)	—			—			(277,685		)
Net Loss on Disposal of Discontinued Operation	—		—			(713,772		)	—			—			(713,772		)
Other Comprehensive Loss, Net of Tax:
Net Unrealized Investment Losses	—		—			—			—			—			(982,834		)
Other Comprehensive Loss, Net of Tax:	—		—			—			—			(982,834		)	(982,834		)
Comprehensive (Loss):	—		—			—			—			—			(379,136		)
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares	90,084		1,756,638			(1,766,084		)	—			—			(9,446		)
Reduction of ESOP Debt	—		—			—			40,000			—			40,000
Options Exercised	132,482		117,755			—			—			—			117,755
Shares Surrendered From Exercise of Options	(62,528	)	(163,580		)	—			—			—			(163,580		)
Tax Benefit Arising From Exercise of Nonqualified															—
Stock Options and Disqualifying Dispositions	—		627,485			—			—			—			627,485
Cash Dividends	—		—			(799,211		)	—			—			(799,211		)
Balance December 31, 1999	1,904,618		$	17,950,525		$	6,233,226		$	—		$	(948,904	)	$	23,234,847
Comprehensive Income:
Net Income from Continuing Operations	—		—			2,675,866			—			—			2,675,866
Net Income on Discontinued Operations	—		—			44,092			—			—			44,092
Other Comprehensive Income, Net of Tax:
Net Unrealized Investment Gains	—		—			—			—			—			705,224
Other Comprehensive Income, Net of Tax:	—		—			—			—			705,224			705,224
Comprehensive Income:															3,425,182
ESOP Debt Guarantee	—		—			—			(200,000		)	—			(200,000		)
Reduction of ESOP Debt	—		—			—			40,000			—			40,000
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares	94,881		1,829,875			(1,839,597		)	—			—			(9,722		)
Options Exercised	14,695		102,584			—			—			—			102,584
Shares Surrendered From Exercise of Options	(5,228	)	(32,733		)	—			—			—			(32,733		)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	—		59,233			—			—			—			59,233
Cash Dividends	—		—			(849,782		)	—			—			(849,782		)
Balance December 31, 2000	2,008,966		$	19,909,484		$	6,263,805		$	(160,000	)	$	(243,680	)	$	25,769,609
Comprehensive Income:
Net Income from Continuing Operations	—		—			1,353,045			—			—			1,353,045
Net Income on Discontinued Operations	—		—			56,084			—			—			56,084
Other Comprehensive Income, Net of Tax:
Net Unrealized Investment Gains	—		—			—			—			—			774,248
Other Comprehensive Income, Net of Tax:	—		—			—			—			774,248			774,248
Comprehensive Income:															2,183,377
Reduction of ESOP Debt	—		—			—			40,000			—			40,000
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares	99,957		2,285,017			(2,296,870		)	—			—			(11,853		)
Options Exercised	6,724		116,182			—			—			—			116,182
Shares Surrendered From Exercise of Options	(228	)	(5,529		)	—			—			—			(5,529		)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	—		16,365			—			—			—			16,365
Cash Dividends	—					(895,024		)	—			—			(895,024		)
Balance December 31, 2001	2,115,419		$	22,321,519		$	4,481,040		$	(120,000	)	$	530,568		$	27,213,127

The accompanying notes are an integral part of these consolidated financial statements.

32

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

	2001			2000			1999
Cash Flows From Operating Activities
Net Income	$	1,409,129		$	2,719,958		$	603,698
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	919,672			996,724			1,055,667
Provision for Losses on Other Real Estate Owned	—			140,000			3,800
Provision for Loan and Lease Losses	2,450,000			200,000			1,000,000
Provision (Benefit) for Deferred Taxes	—			832,340			(1,065,186		)
Investment Security Losses, Net	—			—			440,634
Purchase of Loans and Leases Held-for-Sale	—			—			(16,171,844		)
Proceeds From Loan and Lease Sales	1,725,830			760,000			21,968,279
Origination of Loans and Leases Held-for-Sale	—			(1,414,700		)	(8,807,109		)
(Gain) Loss on Sale of Real Estate Properties, Net	(13,996		)	(291,871		)	—
(Gain) Loss on Sale of Premises and Equipment	23,870			(19,249		)	—
Loss on Disposal of Discontinued Operations	—			—			713,772
(Increase) Decrease in Assets:
Interest Receivable	748,286			443,346			(428,283		)
Deferred Taxes	512,150			649,894			(361,754		)
Cash Surrender Value of Insurance Policies	(238,468		)	(221,801		)	(2,332,418		)
Income Tax Receivable	(952,291		)	286,587			(181,238		)
Net Assets From Discontinued Operations	63,470			(338,106		)	—
Other Assets	433,711			(1,228,854		)	782,051
Increase (Decrease) in Liabilities:
Interest Payable	(633,140		)	346,183			(89,120		)
Deferred Compensation Payable	304,056			177,387			115,881
Net Liabilities From Discontinued Operations	—			—			(126,060		)
Other Liabilities	(297,142		)	(193,208		)	935,434
Net Cash Provided By (Used For) Operating Activities	$	6,455,137		$	3,844,630		$	(1,943,796	)
Cash Flows From Investing Activities
Net (Increase) Decrease in Loans and Leases	(17,945,645		)	(18,285,996		)	20,803,511
Purchase of Securities Held-to Maturity	—			—			(9,226,784		)
Purchase of Securities Available-for-Sale	(43,441,081		)	(16,046,452		)	(47,981,149		)
Proceeds From Maturity of Securities Held-to-Maturity	1,580,000			10,712,105			2,174,299
Proceeds From Sales, Maturities and Calls of Securities Available-for-Sale	46,923,447			11,026,144			27,250,996
Proceeds From Sales of Other Real Estate Owned	154,138			1,091,590			302,536
Purchases of Premises and Equipment	(901,637		)	(613,657		)	(640,426		)
Net Cash Used for Investing Activities	$	(13,630,778	)	$	(12,116,266	)	$	(7,317,017	)
Cash Flows From Financing Activities
Net Increase (Decrease) in Noninterest-Bearing Deposits	5,972,330			3,512,111			(5,157,680		)
Net Increase (Decrease) in Interest-Bearing Deposits	1,971,512			(9,339,002		)	10,174,905
Net Increase (Decrease) in Borrowed Funds	(4,000,000		)	4,000,000			—
Cash Dividends	(895,024		)	(849,782		)	(799,211		)
Stock Options Exercised	127,018			129,084			581,660
Cash Paid in Lieu of Fractional Shares	(11,853		)	(9,722		)	(9,446		)
Net Cash Provided by (Used For) Financing Activities	$	3,163,983		$	(2,557,311	)	$	4,790,228
Net Decrease in Cash and Cash Equivalents	$	(4,011,658	)	$	(10,828,947	)	$	(4,470,585	)
Cash and Cash Equivalents, Beginning of Year	$	27,058,528		$	37,887,475		$	42,358,060
Cash and Cash Equivalents, End of Year	$	23,046,870		$	27,058,528		$	37,887,475
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest Expense	$	7,655,510		$	9,123,673		$	8,662,503
Income Taxes	730,000			1,375,000			477,434
Supplemental Disclosures of Noncash Investing and Financing Activities
Debt Guarantee of ESOP	(40,000		)	160,000			(40,000		)
Net Unrealized Gain (Loss) On Securities Held as Available-for-Sale (Net of Taxes)	774,248			705,224			(982,834		)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	16,365			59,233			627,485
Stock Dividends	2,285,017			1,829,875			1,756,638
Increase (Decrease) in Other Real Estate Owned as a Result of Foreclosure	277,500			—			1,504,959

The accompanying notes are an integral part of these consolidated financial statements.

33

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001

(1)  Summary of Significant Accounting Policies:

The accounting and reporting policies of California Independent Bancorp and its subsidiaries (collectively, the “Company”) conform with generally accepted accounting principles in the United States and general practice within the banking industry.  The more significant of these policies applied in the preparation of the accompanying financial statements are discussed below.

Principles of Consolidation-

The accompanying financial statements include the accounts of California Independent Bancorp (“CIB”) and its wholly-owned subsidiary, Feather River State Bank (the “Bank”) and its wholly-owned subsidiary, E.P.I.  Leasing Company, Inc. (“EPI”).  Significant intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations-

CIB is a California corporation and the bank holding company for the Bank, located in Yuba City, California.  The Bank was incorporated as a California state banking corporation on December 1, 1976, and commenced operations on April 6, 1977.  The Company was incorporated on October 28, 1994, and became the holding company for the Bank on May 2, 1995.  The Bank engages in a broad range of financial services activities, and its primary market is located in the Northern Sacramento Valley, with a total of nine branches.  The main source of income for the Bank is from lending activities, including commercial, agricultural, real estate, and consumer and installment loans and leases.

Use of Estimates in the Preparation of Financial Statements-

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents-

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods.

Investment Securities-

The Bank classifies its investments as either “Held-to-Maturity” or “Available-for-Sale.” Securities that the Bank has the positive intent and ability to hold to maturity are classified as “Held-to-Maturity” and accounted for at amortized cost in the consolidated balance sheets.

Other securities that the Bank does not have the positive intent or ability to hold to maturity are classified as “Available-for-Sale” and are reported at their fair values, with unrealized gains and losses reported on a net-of-tax basis as a separate component  of shareholders’ equity.  Fair values are based on quoted market prices or broker or dealer price quotations on a specific identification basis.  Certain economic factors could cause the Bank to sell some of these securities prior to maturity.  Such factors include significant movements in interest rates and significant changes in liquidity demands.  Gains or losses on sale of investment securities are computed using the specific identification method.

Loans and Leases-

Loans and leases are stated at the principal amount outstanding less applicable unearned interest income.  A loan or lease is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan or lease agreement.  When a loan or lease is impaired, the recorded amount of the loan or lease on the balance sheet is based on the present value of expected future cash flows discounted at the loan’s or lease’s effective interest rate, or on the observable or estimated market price of the loan or lease, or the fair value of the collateral if the loan or lease is collateral dependent.  Income on impaired loans and leases is recognized in accordance with the Bank’s accounting policy for loans and leases placed on a nonaccrual status.  Cash payments are first applied as a reduction of the principal balance until collectibility of the remaining principal and interest can be reasonably assured.  Thereafter, interest income is recognized as it is collected in cash.

34

Loans and Leases Held-for-Sale-

The Bank originates mortgage loans on residential and farm properties that it sells into the secondary market to divest itself of the interest rate risk associated with these primarily fixed-interest rate products.  The Bank accounts for these loans at the lower of cost or net realizable value.

As of the first quarter of 2001, the Bank adopted Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125”  (“SFAS No. 140”).  This statement revised the standard of accounting for securitizations and other transfers of financial assets as collateral and requires, under certain circumstances, entities to recognize as a separate asset an amount related to the right to service mortgage loans.  The adoption of this statement did not have a material impact on the Company’s financial position and results of operations.

Sales and Servicing of SBA Loans-

The Bank originates loans to customers under the Small Business Administration (“SBA”) program that generally provides for SBA guarantees of 70% to 90% of each loan.  The Bank usually maintains these loans in its portfolio, but occasionally sells the guaranteed portion of each loan to a third party and retains the unguaranteed portion in its own portfolio.  The Bank may be required to refund a portion of the sales premium received, if the borrower defaults or the loan prepays within 90 days of the settlement date.  At December 31, 2001, the Bank had received no premiums subject to such recourse.  A gain is recognized on the sale of SBA loans through the collection on sale of a premium over the adjusted carrying value, through the retention of an ongoing rate differential less a normal service fee (excess servicing fee) between the rate paid by the borrower to the buyer and the rate paid by the Bank to the purchaser, or both.

To calculate the gain (or loss) on the sale, the Bank’s investment in an SBA loan is allocated among the retained portion of the loan, the excess servicing retained, and the sold portion of the loan, based on the relative fair market value of each portion.  The gain (or loss) on the sold portion of the loan is recognized at the time of sale based on the difference between the sale proceeds and the allocated investment.  As a result of the relative fair value allocation, the carrying value of the retained portion is discounted, with the discount accreted to interest income over the life of the loan.  The excess servicing fees are reflected as an asset that is amortized over an estimated life using a method approximating the level yield method.  In the event future prepayments exceed Management’s estimates and future expected cash flows are inadequate to cover the unamortized excess servicing asset, additional amortization would be recognized.  In its calculation of excess servicing fees, the Bank is required to estimate a “normal” servicing fee.  The Bank uses the contractual rate of 100 basis points as its estimate of a normal servicing fee.

Allowance for Loan and Lease Losses-

The Allowance for Loan and Lease Losses (“ALLL”) is maintained at a level considered adequate by Management to provide for losses that can be reasonably anticipated.  Accordingly, loan and lease losses are charged to the ALLL, and recoveries are credited to it.  The provision for loan and lease losses charged to operating expense is based upon past loan loss experience, loan impairment, and estimates of potential losses, which in Management’s judgment, deserve current recognition.  Other factors considered by Management include growth, composition, and overall quality of the loan and lease portfolio, reviews of specific problem loans and leases, and current economic conditions that may affect the borrowers’ ability to pay.  This evaluation process requires the use of current estimates that may vary from the ultimate losses experienced in the future.  The estimates are reviewed periodically, and adjustments, as they become necessary, are charged to operations in the period in which they become known.

Other Real Estate Owned-

Other real estate owned (“OREO”) consists of properties acquired by the Bank through foreclosure and is carried at the lower of cost or fair value, less estimated costs to sell.  At the time the property is acquired, if the estimated fair value is less than the amount outstanding on the loan, the difference is charged against the allowance for loan and lease losses.  Subsequent declines in estimated fair value, if any, are charged to expense.

Interest and Fees on Loans and Leases-

Origination fees and commitment fees, offset by certain direct loan and lease origination costs, are deferred and recognized over the contractual life of the loan as a yield adjustment.  Interest income on loans and direct lease financing is accrued daily as earned on all credits not classified as nonaccrual.  Unearned income on loans or leases, where applicable, is recognized as income using the effective interest method over the term of the loan or lease.

35

Loans and leases are generally placed on nonaccrual status when the timely collection of future interest or principal becomes uncertain, when they are 90 days past due as to either interest or principal, or are otherwise determined to be impaired.  At that time, any accrued but uncollected interest is reversed, and additional income is recorded on a cash basis as payments are received.  However, loans and leases that are well-secured and in the process of collection may not be placed on nonaccrual status, at the discretion of Management.  A nonaccrual loan or lease may be restored to an accrual basis when interest and principal payments are current and prospects for future payments are no longer in doubt.

Depreciation and Amortization-

Bank premises and equipment are stated at cost, less accumulated depreciation.  Depreciation on premises, furniture, fixtures, and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 31.5 years.  Leasehold improvements are amortized using the straight-line method over the asset’s useful life or the term of the lease, whichever is shorter.  Expenditures for major renewals and improvements of bank premises and equipment are capitalized, and those for maintenance and repairs are charged to expense as incurred.

Stock-Based Compensation-

The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board 25, rather than the fair value method under Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”).  As permitted by SFAS 123, the Company has not changed its method of accounting for stock options but has provided the additional required disclosures as if it applied the fair value approach.  For the years ended December 31, 2001, 2000, and 1999 the Company recognized no compensation expense related to stock options pursuant to SFAS 123.

Comprehensive Income-

The Company has adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income.” The statement requires an entity to report and display comprehensive income and its components. 

For the Company, comprehensive income (loss) includes net income and changes in the fair value, net of applicable taxes, of its available-for-sale investment securities.  Total comprehensive income (loss) for 2001, 2000, and 1999 was $2,183,377, $3,425,182, and $(379,136), respectively.  Comprehensive income (loss) and its components have been reported as an integral part of the Company’s Statement of Changes in Shareholders’ Equity.

Income Taxes-

Income taxes reported in the financial statements are computed at current tax rates, including deferred taxes resulting from temporary differences in the recognition of items for tax and financial reporting purposes.

The Bank records income taxes for financial statement purposes using the liability or balance sheet method, under which the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities.  Under this method, the computation of the net deferred tax asset or liability gives current recognition to changes in tax laws and rates.

Financial Accounting Pronouncements-

In September of 2000, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 140.  This Statement replaced SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 140 revised the standard of accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125’s provisions without reconsideration.  The Company has adopted the disclosure provisions related to the securitization of financial assets.  All transactions entered into after the first quarter of 2001 have been accounted for in accordance with SFAS No. 140.  This adoption did not have a material impact on the Company.

In July 2001, the FASB issued SFAS No. 141, “Business Combinations” (“SFAS No. 141”), and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”).  These Statements change the method of accounting for business combinations and goodwill in two significant ways.  First, SFAS No. 141 prohibits the use of the pooling of interests method and requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001.  Second, SFAS No. 142 changes the accounting method for goodwill from an amortization method to an impairment-only approach.  As a result, goodwill shall be accounted for as an asset unless it declines in value.  Companies will be required to test their goodwill valuation periodically for “impairment” or loss and to recognize any change on their books.  The amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of SFAS No. 142, which, for companies with calendar year ends, will be January 1, 2002.  Management does not believe that the adoption of these Statements will have a material impact on the Company.

Reclassifications-

Certain reclassifications have been made to amounts previously reported to conform with current presentation methods.  Such reclassifications have no effect on net income or shareholders’ equity previously reported.

36

(2)  Investment Securities:

As of December 31, 2001, 2000, and 1999, the Bank’s equity capital reflected a net unrealized gain (loss) on the Bank’s “Available-for-Sale” investment securities, net of applicable taxes, of $530,568, $(243,680), and $(948,904), respectively.

The amortized cost and approximate fair value of investments in debt securities, mortgage backed securities, and other investments at December 31, 2001 and 2000 were as follows:

Investments

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2001
Available-for-Sale:
Obligations of U.S. Government Agencies	$	39,183,995	$	1,028,397	$	(127,235	)	40,085,157
Mortgage-Backed Securities	19,588,131		385,793		(102,496		)	19,871,428
Debt Securities	8,606,413		131,922		(925		)	8,737,410
Equity Securities	6,410,305		68,714		(419,500		)	6,059,519
	$	73,788,844	$	1,614,826	$	(650,156	)	$	74,753,514
Held-to-Maturity:
Obligations of States and Political Subdivisions	$	1,854,204	$	57,323	$	—		$	1,911,527
Debt and Other Securities	1,749,571		36,629		—			1,786,200
	$	3,603,775	$	93,952	$	—		$	3,697,727
December 31, 2000
Available-for-Sale:
Obligations of U.S. Government Agencies	$	64,190,292	$	191,075	$	(244,192	)	64,137,175
Mortgage-Backed Securities	6,191,832		213,143		(1,488		)	6,403,487
Equity Securities	6,755,505		35,907		(637,500		)	6,153,912
	$	77,137,629	$	440,125	$	(883,180	)	$	76,694,574
Held-to-Maturity:
Obligations of States and Political Subdivisions	$	2,568,282	$	17,784	$	(3,966	)	$	2,582,100
Debt and Other Securities	2,749,075		—		(9,651		)	2,739,424
	$	5,317,357	$	17,784	$	(13,617	)	$	5,321,524

The following table shows the amortized cost and estimated fair value of investment securities by contractual maturity at December 31, 2001 and 2000.  Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Held-to-Maturity				Available-for-Sale
	Amortized Costs		Fair Value		Amortized Costs		Fair Value
December 31, 2001
No Stated Contractual Maturity	$	—	$	—	$	6,410,305	$	6,059,519
Within One Year	589,204		593,295		6,032,211		6,225,255
After One But Within Five Years	2,869,571		2,951,573		25,046,098		23,776,484
After Five But Within Ten Years	145,000		152,859		10,283,303		15,063,369
After 10 Years	—		—		26,016,927		23,628,887
Total	3,603,775		3,697,727		73,788,844		74,753,514
December 31, 2000
No Stated Contractual Maturity	$	—	$	—	$	6,755,505	$	6,153,912
Within One Year	1,580,107		1,578,808		—		—
After One But Within Five Years	3,592,250		3,592,876		47,902,874		47,866,027
After Five But Within Ten Years	145,000		149,840		18,140,001		18,123,400
After 10 Years	—		—		4,339,249		4,551,235
Total	$	5,317,357	$	5,321,524	$	77,137,629	$	76,694,574

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Net gains (losses) from sales of “Available-for-Sale” investment securities during 2001, 2000, and 1999 were $0, $0, and $(440,634), respectively.  Gross gains of $0, $0, and $14,141 and gross losses of $0, $0, and $454,775 were realized on those sales in 2001, 2000, and 1999, respectively.

Investment securities pledged as collateral for certain lines of credit and deposits amounted to $50,807,817 and $52,339,269 at December 31, 2001 and 2000, respectively.

(3)  Loans and Leases:

Loans and Leases outstanding are summarized as follows:

	December 31,
	2001		2000
Commercial and Agricultural	$	40,092,739	$	41,691,321
Real Estate-Construction	32,268,227		35,783,474
Real Estate-Mortgage	100,685,224		75,626,555
Consumer	4,826,959		4,471,652
Lease Financing	11,653,824		19,608,845
Other	2,754,618		1,833,408
Total	$	192,281,591	$	179,015,255

Loans and leases on which the accrual of interest has been discontinued or reduced amounted to approximately $3,059,798 and $4,925,579 at December 31, 2001 and 2000, respectively.  This represents the total recorded investment in impaired loans and leases.  The allowance for loan and lease losses that was allocated to these impaired loans and leases totaled $1,080,082 and $954,208 as of December 31, 2001 and 2000, respectively.  For income reporting purposes, impaired loans and leases are placed on a nonaccrual status.  This is more fully discussed in Note 1.  The average balance of impaired loans and leases during 2001, 2000, and 1999 was $4,444,063, $7,437,963, and $5,774,926, respectively.  Interest income recorded on those loans and leases during 2001, 2000, and 1999 was $290,651, $269,776, and $212,610, respectively.  Foregone interest on loans and leases placed on nonaccrual status was $597,145, $744,369, and $883,268 for the years ended December 31, 2001, 2000, and 1999, respectively.

Changes in the allowance for loan and lease losses are summarized as follows:

	Years Ended December 31,
	2001			2000			1999
Balance, Beginning of Year	$	5,724,412		$	6,770,523		$	6,024,111
Provision	2,450,000			200,000			1,000,000
Charge-Offs	(3,108,808		)	(1,739,930		)	(1,146,903		)
Recoveries on Previous Charge-Offs	432,829			493,819			893,315
Balance, End of Year	$	5,498,433		$	5,724,412		$	6,770,523

(4)  Premises and Equipment:

A summary of premises and equipment follows:

	December 31,
	2001			2000
Land	$	1,316,224		$	1,432,957
Bank Premises and Improvements	5,962,324			6,045,506
Furniture, Fixtures and Equipment	5,447,096			7,329,037
	$	12,725,644		$	14,807,500
Less Accumulated Depreciation and Amortization	(5,788,708		)	(7,828,659		)
Total Premises and Equipment	$	6,936,936		$	6,978,841

Depreciation and amortization charged to expense was $919,672, $966,724, and $1,055,667 in 2001, 2000, and 1999, respectively.

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(5)  Deposits:

A summary of deposit balances follows:

	December 31,
	2001		2000
Demand	$	69,968,239	$	63,995,909
Interest-Bearing Transaction Accounts	70,627,893		70,980,794
Savings Deposits	41,703,241		36,900,690
Time Certificate of Deposits	93,276,696		95,754,834
Total Deposits	$	275,576,069	$	267,632,227

Time certificates of deposit of $100,000 or more, including public time deposits, amounted to approximately $34,810,408 and $40,344,063 at December 31, 2001 and 2000, respectively.

Interest expense on time certificates of deposit of $100,000 or more, including public time deposits, amounted to approximately $2,009,467, $2,479,544, and $2,192,867 in 2001, 2000, and 1999, respectively.

At December 31, 2001, the scheduled contractual maturities of all time certificates of deposit were as follows:

	December 31, 2001
Three Months or Less	$	43,594,080
Over Three Through Twelve Months	40,608,752
Over One Through Three Years	7,180,960
Over Three Years	1,892,904
Total	$	93,276,696

(6)  Other Borrowings:

The Bank maintains secured lines of credit with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank, against which the Bank may take advances.  The terms of these credit facilities require the Bank to maintain in safekeeping with the FHLB or Federal Reserve Bank, as applicable, eligible collateral of at least 100% of outstanding advances.  To provide  borrowing capacity for short-term liquidity needs, as of December 31, 2001, the Company had $37,631,914 and $8,000,000 in  safekeeping and pledged to the FHLB and Federal Reserve Bank, respectively.  At December 31, 2001, 2000, and 1999  there  was $0, $4,000,000, and $0 outstanding, respectively, under the FHLB line of credit.  At December 31, 2001, 2000, and 1999 there were no amounts outstanding on the Federal Reserve Bank line of credit.

The interest rates on FHLB and Federal Reserve Bank credit advances vary dependent on the term of the advance and the nature of collateral supporting the advance.  Interest is paid at maturity for overnight advances and monthly for other  advances.  Principal is due at maturity.  The interest expense on all FHLB and Federal Reserve Bank advances was $83,804,  $460,668, and $156,448 for the years ended December 31, 2001, 2000, and 1999, respectively.

(7)  Other Noninterest Income and Expense:

The components of other operating income and expense were as follows:

	Years Ended December 31,
	2001		2000		1999
	(Dollars in thousands)
Non-Insured Deposit Income	$	174	$	222	$	249
Gains on Sale of OREO	14		292		—
Gains on Sales of Leases	—		—		45
Other	414		544		510
Total Other Noninterest Income	$	602	$	1,058	$	804
Attorney Fees	166		225		377
Other Operating and Administrative Expense	3,148		3,553		4,513
Total Other Noninterest Expense	$	3,314	$	3,778	$	4,890

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(8)  Income Taxes:

The provision (benefit) for income taxes consists of the following:

	Years Ended December 31,
	2001			2000		1999
Current -
Federal	$	(65,929	)	$	703,171	$	1,765,746
State	28,085			108,014		164,440
	$	(37,844	)	$	811,185	$	1,930,186
Deferred -
Federal	466,884			631,850		(983,263		)
State	118,160			200,490		(81,923		)
	585,044			832,340		(1,065,186		)
	$	547,200		$	1,643,525	$	865,000

The effective tax rate and statutory federal income tax rate are reconciled as follows:

	Years Ended December 31,
	2001		2000		1999
Federal Statutory Income Tax Rate	34.0	%	34.0	%	34.0	%
State Franchise Taxes, Net of Federal Income Tax Benefit	7.2		7.2		7.2
Tax-Exempt Interest	(7.9	)	(4.9	)	(4.0	)
Income Tax Credits	(5.1	)	—		—
Other	0.6		1.7		(2.0	)
	28.8	%	38.0	%	35.2	%

The components of the net deferred tax asset of the Company, recorded in other assets, as of December 31, 2001 and 2000, were as follows:

	2001		2000
Deferred Tax Assets -
Loan and Lease Losses	$	1,430,950	$	1,662,775
California Franchise Tax	13,085		70,725
Other Real Estate Owned	26,904		32,920
Unrealized Loss on Securities Available-for-Sale	—		199,375
Nonaccrual Loans and Leases	202,114		895,004
Deferred Compensation	370,647		244,662
Other	24,448		—
Total Deferred Tax Assets	$	2,068,148	$	3,105,461
Deferred Tax Liabilities -
Depreciation	135,865		$	150,471
Stock Dividends	475,733		425,884
Unrealized Gain on Securities Available-for-Sale	434,100		—
Other	—		361,030
Total Deferred Tax Liabilities	$	1,045,698	$	937,385
Net Deferred Tax Asset	$	1,022,450	$	2,168,076

In addition to the net deferred tax assets as shown in the preceding table, the Company also had net deferred tax assets related to EPI of $0 and $72,894 as of December 31, 2001 and December 31, 2000, respectively.  These amounts are included as part of  the line item “Net Assets from Discontinued Operations” in the Company’s Consolidated Balance Sheets.

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The components of the deferred income tax provision (benefit) are summarized as follows:

	Years Ended December 31,
	2001			2000			1999
Provisions (Benefit) for Possible Loan and Lease Losses	$	231,825		$	607,364		$	(269,615	)
Interest on Nonaccrual Loans and Leases	692,890			(146,064		)	(372,311		)
Tax Depreciation Methods	(14,606		)	(47,148		)	(22,930		)
California Franchise Tax	57,640			(14,815		)	110,512
Other Real Estate Owned	6,016			(32,920		)	58,383
Deferred Compensation	(125,985		)	(136,143		)	(108,519		)
Other	(262,736		)	602,066			(460,706		)
	$	585,044		$	832,340		$	(1,065,186	)

(9)  Discontinued Operations:

On March 21, 2000, the Board of Directors of the Bank, voting as the sole shareholder of EPI, approved the dissolution and winding up of EPI’s affairs.  The loss associated with the 1999 operation and disposal of EPI was $991,457, net of income tax  benefit.  The loss on disposal of EPI includes the write-down of the assets of EPI to estimated net realizable values, the write-off of the Bank’s investment in EPI and the goodwill associated with it, and the estimated costs of disposing of these operations.  During 2001, EPI had net income from operations of $56,084.

Summarized balance sheet data for the discontinued operations as of December 31, 2001 is as follows:

Assets
Cash and Due From Banks	$	—
Receivables and All Other Assets	201,520
Total Assets	$	201,520
Liabilities
Payables and All Other Liabilities	$	39,018
Net Assets of Discontinued Operations	$	162,502

(10)  Shareholders’ Equity:

At December 31, 2001, CIB was authorized to issue 20,000,000 shares of no par common stock.  Of this amount, 2,115,419 and 2,008,966 shares of common stock were issued and outstanding at December 31, 2001 and 2000, respectively.

The principal source of cash for CIB is dividends from the Bank.  Banking regulations limit the amount of dividends that may be paid without prior approval of the Company’s regulatory agencies to the lesser of retained earnings or the net income of the  Company for its last three fiscal years, less any distributions during such period, subject to capital adequacy requirements.  At December 31, 2001, the Company had approximately $2,157,747 available for payments of dividends, which would not require the prior approval of the banking regulators under this limitation.

The Company adopted Statement of Financial Accounting Standards No. 128, “Earnings per Share,” effective December 15, 1998.  As a result, the Company’s earnings per share for all prior periods have been restated.  The following table reconciles the numerator and denominator of the basic and diluted earnings per share computations:

41

Year Ended December 31,

	Income (Numerator)								Per Share Amount
	Continuing Operations		Discontinued Operations			Net		Shares (Denominator)	Continuing Operations		Discontinued Operations			Net
Basic Earnings (Loss) Per Share
2001	$	1,353,045	$	56,084		$	1,409,129	2,110,031	$	0.64	$	0.03		$	0.67
2000	2,675,866		44,092			2,719,958		2,103,500	1.27		0.02			1.29
1999	1,595,155		(991,457		)	603,698		2,008,257	0.79		(0.49		)	0.30
Effect of Dilutive Securities - Employee Stock Options
2001	$		$			$		40,509
2000	—		—			—		2,945
1999	—		—			—		21,720
Diluted Earnings (Loss) Per Share
2001	$	1,353,045	$	56,084		$	1,409,129	2,150,540	$	0.63	$	0.03		$	0.66
2000	2,675,866		44,092			2,719,958		2,106,445	1.27		0.02			1.29
1999	1,595,155		(991,457		)	603,698		2,029,977	0.79		(0.49		)	0.30

For the year ending December 31, 2001, employee stock options in the amount of $342 were excluded from the computation of diluted earnings (loss) per share, as their effect was antidilutive.

In August 2001, the Board of Directors authorized a 5% stock dividend that was distributed on September 25, 2001.  The dividend was declared on August 25, 2001, to holders of record on September 10, 2001.  The dividend resulted in the issuance of 99,957 additional shares of common stock.  All common stock and per share amounts have been retroactively adjusted to reflect the stock dividend.

In August 2000, the Board of Directors authorized a 5% stock dividend that was distributed on September 15, 2000.  The dividend was declared on August 15, 2000, to holders of record on August 31, 2000.  The dividend resulted in the issuance of 94,811 additional shares of common stock.  All common stock and per share amounts have been retroactively adjusted to reflect the stock dividend.

In August 1999, the Board of Directors authorized a 5% stock dividend that was distributed on September 17, 1999.  The dividend was declared on August 17, 1999, to holders of record on August 31, 1999.  The dividend resulted in the issuance of 90,084 additional shares of common stock.  All common stock and per share amounts have been retroactively adjusted to reflect the stock dividend.

On November 13, 2001, CIB’s Board of Directors approved a plan to repurchase, as conditions warrant, up to 5% of CIB’s common stock on the open market.  The duration of the plan is open-ended and the timing of purchases is dependent upon market conditions.  During 2001, CIB did not repurchase any of its common stock pursuant to the plan.

(11)  Disclosure of Fair Value of Financial Instruments:

Cash and Cash Equivalents-

For these short-term instruments, the carrying value approximates fair value.

Investments-

For securities held-for-investment purposes, fair values are based on quoted market prices or dealer quotes.  (See Note 2 for further discussion.)

Loans and Leases-

The fair value of loans and leases is estimated by discounting the future cash flows using current rates at which similar loans and leases with similar remaining maturities would be made to borrowers with similar credit ratings.  The fair value of nonperforming loans and leases is estimated based on allocating specific and general reserves to the various nonperforming loan and lease classifications.

42

Deposit Liabilities-

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Other Liabilities-

Other liabilities represent short-term instruments.  The carrying amount approximates fair value.

Off-Balance Sheet Financial Instruments-

The fair value of amounts for fees arising from commitments to extend credit, standby letters of credit, and financial guarantees written are not material. 

The estimated fair values of the Company’s financial instruments at December 31, 2001 and 2000 were as follows:

	December 31, 2001				December 31, 2000
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and Cash Equivalents	$	23,047,000	$	23,047,000	$	27,059,000	$	27,059,000
Investments	78,357,000		78,451,000		82,012,000		82,016,000
Loans and Leases (Net)	186,783,000		190,538,000		173,291,000		173,516,000
Financial Liabilities:
Deposits	$	275,576,000	$	276,264,000	$	267,632,000	$	268,075,000
Other Borrowings	120,000		120,000		4,160,000		4,160,000
Interest Payable, Deferred Compensation					—		—
Payable, and Other Liabilities	3,259,000		3,259,000		3,885,000		3,885,000

(12)  Stock Options:

During 1989, the Bank adopted the Feather River State Bank 1989 Amended and Restated Stock Option Plan.  The plan is nonqualified and provides that nonemployee directors and key employees may be granted options to purchase the Bank’s stock at the fair market value of the shares as determined by the Board of Directors.  As of May 1995, all previously granted options to purchase the Bank’s stock had been retired and exchanged for options to purchase CIB’s stock, on a one-for-one option basis.  All granted options must be exercised within the earlier of ten years of the date of grant, or no later than three (3) months and one (1) day after any termination of employment or status as a director.  Vesting is determined at the time of grant by the Board of Directors.

During 1996, CIB adopted the California Independent Bancorp 1996 Stock Option Plan (“1996 Plan”) which, as of December 31, 2001, after adjustment for all subsequently distributed stock dividends, sets aside 190,286 shares of no par value common stock of CIB for which options may be granted to key, full-time salaried employees and officers of the Company, as well as nonemployee directors of the Company.  The exercise price of all options to be granted under the 1996 Plan must be at least 100% of the fair market value of CIB’s common stock on the granting date.  Additionally, the options must be paid in full at the time the option is exercised in cash, shares of CIB’s common stock with a fair value equal to the purchase price, or a combination thereof.  Under the 1996 Plan, all options expire no more than ten years after the date of grant.

43

During 2000, CIB adopted the California Independent Bancorp 2000 Stock Option Plan (“2000 Plan”) which, as of December 31, 2001, after adjustment for all subsequently distributed stock dividends, sets aside 110,250 shares of no par value common stock of CIB.  The 2000 Plan provides for the grant of Incentive Stock Options (“ISO”) and Non-qualified Stock Options (“NQSO”), within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), to employees, including directors and officers who are also employees of the Company.  The 2000 Plan also provides for other types of stock and option awards that may be granted to employees, officers and directors of the Company and its subsidiaries.  Awards may also be granted to the Company’s consultants, independent contractors, and advisors, provided they render bona fide services that are not in connection with the offer and sale of securities in a capital-raising transaction.  Options granted may be exercised within the times or upon the events determined by the Stock Option Committee (the “Committee”) as set forth in the Award Agreement governing such option.  However, no option will be exercisable after the expiration of one hundred twenty (120) months from the date the option is granted.

The vesting of any option granted under the 2000 Plan will be determined by the Committee at its sole discretion.  The exercise price of each NQSO granted pursuant to the 2000 Plan will be determined by the Committee, but may not be less than eighty five percent (85%) of the fair market value of the stock subject to the option on the date the option is granted.  The exercise price of each ISO granted pursuant to the 2000 Plan will also be determined by the Committee, but may not be less than one hundred percent (100%) of the fair market value of shares on the grant date, unless the optionee owns 10% or more of the combined voting power of CIB.  In such event, the purchase price of the stock subject to the ISO may not be less than one hundred ten percent (110%) of the fair market value of shares on the grant date.

Federal income tax benefits relating to options exercised under the plans have been credited to shareholders’ equity.  The Company accounts for these plans under Accounting Principals Board Opinion No. 25, under which no compensation cost is recognized upon issuance of options.  Had compensation cost for these plans been determined consistent with SFAS 123, the Company’s net income and earnings per share would have been reduced to the following pro forma amounts:

		2001		2000		1999
Net Income From Continuing Operations:	As reported	$	1,353,045	$	2,675,866	$	1,595,155
	Pro forma	1,353,045		2,625,397		313,074
Basic EPS:	As reported	0.64		1.27		0.79
	Pro forma	0.64		1.25		0.16
Diluted EPS:	As reported	0.63		1.27		0.79
	Pro forma	0.63		1.25		0.15

Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years.

A summary of the status of the Company’s three stock option plans, after adjustment for all subsequently distributed stock dividends, at December 31, 2001, 2000, and 1999, and changes during the years then ended, is presented in the table and narrative below.

	2001			2000			1999
Outstanding at Beginning of Year	397,887			344,235			245,544
Granted	41,529			110,002			248,577
Exercised	(6,724		)	(14,694		)	(119,353		)
Expired	—			(1,044		)	—
Forfeited	(24,987		)	(40,612		)	(30,533		)
Outstanding at End of Year	407,705			397,887			344,235
Exercisable at End of Year	313,847			309,551			282,489
Weighted Average Fair Value of Options Granted	$	8.88		$	7.70		$	7.48

44

The options outstanding at December 31, 2001 have exercise prices between $7.16 and $28.50 and remaining contractual lives between 1 year and 9.8 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001, 2000, and 1999, respectively: weighted average risk-free interest rates of 4.96%, 6.08%, and 5.46%; weighted average expected dividend yields of 1.78%, 2.13%, and 2.05%.  For all three years, the expected life used was seven years and the expected volatility used was 30.77%.

(13)  Profit Sharing Plan and Employee Stock Ownership Plan:

The Bank formed a 401(k) Qualified Savings Plan (“the Plan”) effective August 1, 1993.  All full-time employees who have reached the age of 21 are eligible to participate following 90 days of employment.  All eligible employees are 100% vested in their own contributions, which may be any whole percentage of pay between 2% and 15%, inclusive.  Beginning January 1, 1995, the Bank made annual matching contributions, which were equal to 20% of each employee’s elective contributions not exceeding 6% of pay.  Contributions were invested with Lincoln National Life Insurance Company under employee directed investment options.

Beginning January 2000, the Bank made annual matching contributions equal to 50% of each employee’s elective contributions not exceeding 6% of pay.  Of the matching contributions, 50% is applied in cash and 50% of the funds are applied to the purchase of CIB common stock.  The Bank’s matching contribution amounted to approximately $114,565 in 2001, $127,211 in 2000, and $40,000 in 1999.

Beginning January 2001, contributions were invested in the Principal Financial Group under employee directed investment options.

The Bank formed an Employee Stock Ownership Plan (the “ESOP”) effective January 1, 1988.  Effective January 1, 1995, the ESOP was amended to recognize CIB and all of its employees as participants.  All employees who have completed 90 days of service and have reached the age of 21 are eligible to participate in the ESOP.  The ESOP provides for annual contributions at the discretion of the Board of Directors.  The contributions are allocated based on the participants’ compensation for the year.  Employees vest ratably in the ESOP over six years.  The ESOP borrowed $200,000 from a nonprofit corporation to acquire 8,125 shares of CIB common stock in June 2000.  The borrowing is payable in five equal annual installments with interest at prime minus 1/2%, which rate was 4.25% at December 31, 2001.  The Bank made contributions to the ESOP of approximately $40,000 in each of the years 2001, 2000, and 1999.

(14)  Financial Instruments with Off-Balance-Sheet Risk:

The Bank makes commitments to extend credit in the normal course of business to meet the financing needs of its customers.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

In the event of nonperformance by the borrower, the Bank is exposed to credit loss in the contract amount of the commitment.  The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments and evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Bank, is based on Management’s credit evaluation of the borrower.  Collateral held varies but may include certificates of deposit, accounts receivable, inventory, personal property and equipment, and real property.

The Bank also issues standby letters of credit, that are unconditional commitments to guarantee the performance of a customer to a third party.  These guarantees are primarily issued to support construction bonds, private borrowing arrangements, and similar transactions.  Most of these guarantees are short-term commitments expiring in 2002 and are not expected to be drawn upon.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Bank holds collateral as deemed necessary, as described above.

The contract amount of commitments not reflected on the balance sheet at December 31, 2001 were as follows:

Loan Commitments	$	40,832,117
Standby Letters of Credit	$	520,000

45

The Bank is obligated under a number of noncancelable operating leases for premises and equipment used for banking purposes.  Minimum future rental commitments under noncancellable operating leases as of December 31, 2001 were as follows:

Lease Commitments
2002	$	176,116
2003	179,704
2004	184,543
2005	189,609
2006	78,300
Thereafter	72,626
	$	880,899

Rent under operating leases was approximately $143,102, $53,004, and $179,201 in 2001, 2000, and 1999, respectively.

(15)  Related Party Transactions:

The Bank has had loan and deposit transactions and has contracted for services with certain officers and directors and the companies with which they are associated.  In the opinion of Management and the Board of Directors, all such loans, commitments  to lend, and contracts for services were made under terms that are consistent with the Bank’s normal policies.  Loan transactions with these officers and directors for the years ended December 31, 2001 and 2000, respectively, were as follows:

	2001			2000
Loan Balances - Beginning of Year	$	3,177,423		$	3,607,217
Additions	740,986			843,823
Collections	(2,096,316		)	(626,937		)
Reclassification to Third Party Loans	—			(646,680		)
End of Year	$	1,822,093		$	3,177,423

At December 31, 2001, the Bank had loans outstanding to a director and his associates in excess of 5% of shareholders’ equity.  The total principal balance of the loans to this director was approximately $1,565,586.

At December 31, 2000, the Bank had loans outstanding to two directors and their associates in excess of 5% of shareholders’ equity.  The total principal balance of the loans to these directors was approximately $2,765,482.

46

(16)  California Independent Bancorp Financial Statements (Parent Only):

	December 31,
	2001			2000
	(Dollars in thousands)
Balance Sheets -
Assets:
Cash and Due From Banks	$	57		$	56
Investment in Subsidiaries	26,900			25,621
Other Assets	448			95
Total Assets	$	27,405		$	25,772
Liabilities and Shareholders’ Equity:
Liabilities	$	192		$	2
Shareholders’ Equity	27,213			25,770
Total Liabilities and Shareholders’ Equity	$	27,405		$	25,772
Statements of Income -
Administrative Expense	$	288		$	127
Other Expense	113			89
Loss Before Equity in Net Income of Subsidiaries	$	401		$	216
Equity in Net Income of Subsidiaries
Distributed	1,307			1,010
Undistributed	338			1,837
Income Tax Benefit	165			89
Net Income	$	1,409		$	2,720
Statements of Cash Flows -
Operating Activities:
Net Income	$	1,409		$	2,720
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
(Deficit) Equity in Net Income of Subsidiaries	(338		)	(1,837		)
Increase (Decrease) in Other Operating Assets	(353		)	10
Increase in Other Operating Liabilities	190			2
Net Cash Provided by Operating Activities	908			895
Financing Activities:
Dividends Paid	(907		)	(860		)
Net Cash Used in Financing Activities	(907		)	(860		)
Increase (Decrease) in Cash and Cash Equivalents	1			35
Cash and Cash Equivalents, Beginning of Year	56			21
Cash and Cash Equivalents, End of Year	$	57		$	56

47

(17)  Quarterly Statements of Operations:

The following information is unaudited.  However, in the opinion of Management, all adjustments, which include only normal recurring adjustments necessary to present fairly the results of operations for such periods, are reflected.  All per share amounts and the weighted average number of shares outstanding as shown for each quarterly period in the following tables have been adjusted retroactively, if applicable, to reflect the 5% stock dividends distributed in each of the years presented.  Reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further explanation of results of operations.

Quarterly Statements of Operations

	2001 Quarter Ended
	March 31		June 30		September 30		December 31
	(Unaudited)
	(Dollar amounts in thousands, except per share data)
Interest Income	5,706		5,557		5,244		5,224
Interest Expense	2,116		1,848		1,673		1,385
Net Interest Income	3,590		3,709		3,571		3,839
Provision for Loan and Lease Losses	—		—		—		2,450
Net Interest Income After Provision for Loan and Lease Losses	3,590		3,709		3,571		1,389
Noninterest Income	601		511		613		484
Noninterest Expense	3,188		3,089		3,129		3,162
Income Before Income Taxes	1,003		1,131		1,055		(1,289		)
Provision for Income Taxes	364		405		380		(602		)
Net Income From Continuing Operations	639		726		675		(687		)
Gain (Loss) on Disposal of Subsidiary & Discontinued Operations	12		14		12		18
Net Income (Loss)	651		740		687		(669		)
Basic Earnings Per Share From Continuing Operations	$	0.30	$	0.34	$	0.32	$	(0.33	)
Diluted Earnings Per Share From Continuing Operations	0.30		0.34		0.31		(0.32		)
Weighted Average Shares Outstanding	2,109,414		2,109,414		2,109,740		2,111,536

48

	2000 Quarter Ended
	March 31		June 30		September 30			December 31
	(Unaudited)
	(Dollar amounts in thousands, except per share data)
Interest Income	5,684		5,816		6,044			5,991
Interest Expense	2,242		2,260		2,520			2,448
Net Interest Income	3,442		3,556		3,524			3,543
Provision for Loan and Lease Losses	150		50		—			—
Net Interest Income After Provision for Loan and Lease Losses	3,292		3,506		3,524			3,543
Noninterest Income	738		497		726			708
Noninterest Expense	2,931		2,914		2,935			3,435
Income Before Income Taxes	1,099		1,089		1,315			816
Provision for Income Taxes	419		403		496			325
Net Income From Continuing Operations	680		686		819			491
Gain (Loss) on Disposal of Subsidiary & Discontinued Operations	—		20		(17		)	41
Net Income (Loss)	680		706		802			532
Basic Earnings Per Share From Continuing Operations	$	0.32	$	0.33	$	0.39		$	0.23
Diluted Earnings Per Share From Continuing Operations	$	0.32	$	0.33	$	0.39		$	0.23
Weighted Average Shares Outstanding	2,100,042		2,101,040		2,103,655			2,109,199

	1999 Quarter Ended
	March 31		June 30			September 30			December 31
	(Unaudited)
	(Dollar amounts in thousands, except per share data)
Interest Income	5,831		5,733			5,820			5,895
Interest Expense	2,055		2,039			2,244			2,235
Net Interest Income	3,776		3,694			3,576			3,660
Provision for Loan and Lease Losses	550		250			50			150
Net Interest Income After Provision for Loan and Lease Losses	3,226		3,444			3,526			3,510
Noninterest Income	646		586			687			645
Noninterest Expense	3,110		3,493			3,500			3,707
Income Before Income Taxes	762		537			713			448
Provision for Income Taxes	279		194			254			138
Net Income From Continuing Operations	483		343			459			310
Gain (Loss) on Disposal of Subsidiary & Discontinued Operations	1		(7		)	(63		)	(922		)
Net Income (Loss)	484		336			396			(612		)
Basic Earnings Per Share From Continuing Operations	$	0.25	$	0.17		$	0.23		$	0.15
Diluted Earnings Per Share From Continuing Operations	$	0.25	$	0.17		$	0.22		$	0.15
Weighted Average Shares Outstanding	1,926,302		1,976,441			2,029,702			2,098,456

49

(18)  Regulatory Matters:

CIB and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on CIB’s and the Bank’s financial statements.  Pursuant to capital adequacy guidelines and the regulatory framework for prompt corrective action, CIB and the Bank must meet specific capital guidelines that involve quantitative measures of CIB’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated pursuant to regulatory accounting practices.  CIB and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require CIB and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital (“Total Risk-Based”), and Tier 1 capital (“Tier 1 Risk-Based”) (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (“Tier 1 Leverage Ratio”) (as defined) to average assets (as defined).  Management believes, that as of December 31, 2001, CIB and the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2001, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Bank must maintain minimum Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Ratios as set forth in the table.  There are no conditions or events since that notification that Management believes have changed the institution’s category.

CIB and the Bank’s actual capital amounts and ratios are also presented in the table:

	Actual				For Capital Adequacy Purposes			To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount	Ratio		Amount	Ratio
	(Dollar amounts in thousands, except ratio data)
As of December 31, 2001
Total Risk-Based Capital:
California Independent Bancorp	$	29,470	12.49	%	18,868	8.00	%	23,685	10.00	%
Feather River Sate Bank	29,159		12.35	%	18,884	8.00	%	23,604	10.00	%
Tier I Risked Based Capital:
California Independent Bancorp	26,490		11.23	%	9,434	4.00	%	14,151	6.00	%
Feather River State Bank	26,177		11.09	%	9,442	4.00	%	14,163	6.00	%
Tier I Leverage Ratio:
California Independent Bancorp	26,490		8.56	%	12,379	4.00	%	15,474	5.00	%
Feather River Sate Bank	26,177		8.47	%	12,369	4.00	%	15,461	5.00	%
As of December 31, 2000
Total Risk-Based Capital:
California Independent Bancorp	$	28,509	12.77	%	17,856	8.00	%	22,320	10.00	%
Feather River Sate Bank	28,357		12.72	%	17,835	8.00	%	22,294	10.00	%
Tier I Risked Based Capital:
California Independent Bancorp	25,683		11.51	%	8,928	4.00	%	13,392	6.00	%
Feather River State Bank	25,534		11.45	%	8,917	4.00	%	13,376	6.00	%
Tier I Leverage Ratio:
California Independent Bancorp	25,683		8.49	%	12,093	4.00	%	15,117	5.00	%
Feather River Sate Bank	25,534		8.45	%	12,090	4.00	%	15,112	5.00	%

50

(19)  Future Financial Accounting Standards:

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”).  This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible, long-lived assets and the associated asset retirement costs. SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets which result from the acquisition, construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees.  The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002.  Management does not expect the adoption of this statement to have a material impact on its financial position and results of operations.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), which replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.”  The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provision of Accounting Principles Board Opinion No. 30, “Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business,” for the disposal of segments of a business.  SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less costs to sell, whether reported in continuing operations or in discontinued operations.  Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred.  The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively.  Management does not expect that the adoption of this statement will have a significant impact on the Company’s current financial position or results of operations.

51

DIRECTORS AND MANAGEMENT TEAM

CALIFORNIA INDEPENDENT BANCORP AND FEATHER RIVER STATE BANK

California Independent Bancorp and Feather River State Bank Directors

David A. Offutt

Chairman of the Board

President, Offutt, Shephard & Haven

Attorneys-at-Law

John L. Dowdell

President/CEO, Dowdell Financial Services

Harold M. Eastridge

President, Trident Investment Corporation

Real Estate Development

William H. Gilbert

Partner, Gilbert Orchards, Walnut Grower

Larry D. Hartwig

President/Chief Executive Officer

California Independent Bancorp

President/Chief Executive Officer

Feather River State Bank

John I. Jelavich

Retired, Banker/Investor

Donald H. Livingstone

Teaching Professor, Brigham Young University

Marriott School of Business

Alfred G. Montna

Owner, Montna Farms

William K. Retzer

Chairman/CEO, Examen, Inc.

Michael C. Wheeler

President and General Manager,

Wheeler Chevrolet-Oldsmobile-Cadillac

Directors Emeritus

Dale L. Green

Chief Financial Officer, Dale L. Green, Inc.

Contractor

Lawrence Harris

Walnut Grower, Consulting Civil Engineer

Ross D. Scott

Owner, Scott Center, Physical Therapist

Louis F. Tarke

Partner, Tarke Brothers & Anderson

Walnut and Rice Grower

California Independent Bancorp Management

Larry D. Hartwig

President/Chief Executive Officer

Robert J. Lampert

Chief Financial Officer/Corporate Secretary

Douglas R. Marr

Assistant Corporate Secretary

Kevin R. Watson

Assistant Corporate Secretary

Feather River State Bank Managing Committee

Larry D. Hartwig

President/Chief Executive Officer

Robert J. Lampert

Executive Vice President/Chief Operating Officer

Don R. McDonel

Executive Vice President/Commercial and Retail Banking

Kenneth M. Anderson

Senior Vice President/Business Development and Marketing

Blaine C. Lauhon

Senior Vice President/Commercial and Agricultural Lending

Douglas R. Marr

Senior Vice President/Chief Credit Officer

Financial Information and Media Contact

Analysts, stockholders and other investors seeking financial information about California Independent Bancorp or any of its subsidiaries, or news media seeking general information, should contact:

Investor Relations Department

1227 Bridge St., Suite C

Yuba City, CA, 95991

(530) 674-6025 or

(800) 258-4334

Certified Public Accountants/Auditors

Arthur Andersen LLP

Sacramento, CA

Legal Counsel

Weintraub Genshlea Chediak Sproul, A Law Corporation

Sacramento, CA

52

BRANCHES AND OFFICES

For information Call (530) 674-6000 or (800) 258-4334

YUBA CITY, CA
1.	Bridge Street Branch 1221 Bridge Street
2.	Colusa Avenue Branch & Consumer Loan Center 777 Colusa Avenue
3.	Loan Operations Center 995 Tharp Rd.
4.	Administrative Office CIB/FRSB Corporate Headquarters 1227 Bridge Street, Suite C
ARBUCKLE, CA
5.	Arbuckle Branch 540 Amanda Street
COLUSA, CA
6.	Colusa Branch 655 Fremont Street
MARYSVILLE, CA
7.	Marysville Branch 700 E Street
ROSEVILLE, CA
8.	Roseville Branch & Regional Loan Center 1552 Eureka Road, Suite 101
WHEATLAND, CA
9.	Wheatland Branch 114 D Street
WOODLAND, CA
10.	Woodland Branch 203 Main Street
LINCOLN, CA
11.	Lincoln Branch 435 S. Highway 65, Suite A

[MAP OF SACRAMENTO]

53

[FEATHER RIVER STATE BANK LOGO]

[CALIFORNIA INDEPENDENT BANCORP LOGO]

[FDIC LOGO] [LENDER LOGO]

EX-23

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EXHIBIT 23

ARTHUR ANDERSEN LLP

Consent of Independent Public Accountants

        As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File Nos.: 333-09813, 333-09823, and 333-39960.

Arthur Andersen LLP

Sacramento, California
March 19, 2002

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ARTHUR ANDERSEN LLP Consent of Independent Public Accountants