SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4 EF
Registration Statement Under the Securities Act of 1933
UNITED SECURITY BANCSHARES
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 6021 91-2112732
------------------------------- ------------------------- -------------------
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification Identification No.)
Code Number)
|
Copy to:
Laura Dean-Richardson, Esq., Gary Steven Findley & Associates 1470 North Hundley Street, Anaheim, California 92806, (714) 630-7136
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _________________________.
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _________________________.
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Maximum Maximum
Title of each Class Offering Aggregate
of Securities to Amount to be Price Offering Amount of
be Registered Registered(1) Per Unit Price(2) Registration Fee
--------------------------------------------------------------------------------
Common stock(1) 5,489,948 $16.75 $91,956,629 $22,989.16
(No Par Value)
================================================================================
|
(1) Represents the maximum number of shares of the Registrant's common stock to be issued in connection with the reorganization described herein.
(2) Estimated pursuant to Rule 457(f)(1) solely for the purpose of calculating the registration fee based on the market value of the securities to be received by the Registrant as determined on March 30, 2001.
United Security Bank
April 24, 2001
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
United Security Bank, which will be held at United Security Bank's head office
located at 2151 West Shaw Avenue, Fresno, California, on May 16, 2001 at 7:00
p.m. At this annual meeting, shareholders will be asked to elect nine directors
for the next year and to vote on a plan of reorganization and merger agreement
dated April __, 2001, which details the reorganization of United Security Bank
and the formation of a bank holding company. Following the reorganization,
United Security Bank will become a wholly-owned subsidiary of a new holding
company, United Security Bancshares. In the reorganization, all of the
shareholders of United Security Bank will become shareholders of United Security
Bancshares. The reorganization is subject to certain conditions including
shareholder and regulatory approvals.
United Security Bank is requesting your proxy to vote in favor of all of the nominees for election as directors and in favor of the plan of reorganization and merger agreement. As part of the reorganization, each share of United Security Bank common stock will be exchanged for one share of United Security Bancshares common stock. The Board of Directors of United Security Bank recommends that you vote "FOR" the election of each of the nominees and "FOR" approval of the plan of reorganization and merger agreement. The plan of reorganization and merger agreement is attached as Exhibit A to the proxy statement/prospectus.
The proxy statement/prospectus contains information about each of the nominees for directors and about United Security Bancshares and United Security Bank and describes the conditions upon which the proposed reorganization will occur. A majority of the outstanding shares of United Security Bank's common stock must vote "FOR" approval of the plan of reorganization and merger agreement, so we urge you to cast your vote.
To ensure that your vote is represented at this important meeting, please sign, date and return the proxy card in the enclosed envelope as promptly as possible.
Sincerely,
Dennis R. Woods President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities regulators have approved either the reorganization described in this proxy statement/prospectus or the United Security Bancshares common stock to be issued in the reorganization, nor have they determined if this proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.
The date of this proxy statement/prospectus is April __, 2001
Notice of Annual Meeting of Shareholders
United Security Bank
To: The Shareholders of
United Security Bank
Notice is hereby given that, pursuant to its Bylaws and the call of its Board of Directors, the annual meeting of shareholders of United Security Bank will be held at its head office located at 2151 West Shaw Avenue, Fresno, California, on Wednesday, May 16, 2001 at 7:00 p.m., for the purpose of considering and voting upon the following matters:
1. Election of Directors. To elect nine (9) persons to serve as directors of the Bank until their successors are duly elected and qualified.
Robert G. Bitter, Pharm. D. Walter Reinhard Stanley J. Cavalla John Terzian Tom Ellithorpe Bobbi Thomason Ronnie D. Miller Dennis R. Woods Mike Munoz, Jr. |
2. Approval of the Plan of Reorganization and Merger Agreement. To approve the Plan of Reorganization and Merger Agreement dated April __, 2001, attached as Exhibit A.
3. Transaction of Other Business. To transact such other business as may properly come before the meeting and any adjournment or adjournments thereof.
The plan of reorganization and merger agreement sets forth the terms of the reorganization of United Security Bank into a wholly-owned subsidiary of a newly formed holding company, United Security Bancshares. As a result, all shareholders of United Security Bank will receive for their shares of United Security Bank's common stock an equal number of shares of United Security Bancshares' common stock. These transactions are more fully described in the enclosed proxy statement/prospectus, and in the plan of reorganization and merger agreement which is attached as Exhibit A to the proxy statement/prospectus.
The Board of Directors has fixed the close of business on March 20, 2001 as the record date for determination of shareholders entitled to notice of, and the right to vote at, the meeting.
Section 2.12 of Article II of the Bylaws sets forth the nomination procedure for nominations of directors. Section 2.12 provides:
Nominations for election of members of the board of directors may be made by the board of directors or by any shareholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations (other than for persons named in the notice of the meeting at which such nomination is to be made) shall be made in writing and shall be delivered or mailed to the president of the corporation by the later of: the
close of business twenty-one (21) days prior to any meeting of shareholders called for the election of directors, or ten (10) days after the date of mailing notice of the meeting to shareholders. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; and (f) the written consent of the proposed nominee, a copy of which shall be furnished with the notification, and whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy, or been adjudged bankrupt. The notice shall be signed by the nominating shareholder and by the nominee. Nominations not made in accordance herewith shall be disregarded by the chairman of the meeting, and upon his or her instruction, the inspectors of election shall disregard all votes cast for each such nominee.
Since the affirmative vote of shareholders holding not less than a majority of the outstanding shares of United Security Bank's common stock is required to ratify and confirm the plan of reorganization and merger agreement, it is essential that all shareholders vote. You are urged to vote in favor of the proposals by signing and returning the enclosed proxy as promptly as possible, whether or not you plan to attend the meeting in person. If you do attend the meeting you may then withdraw your proxy. The proxy may be revoked at any time prior to its exercise.
By Order of the Board of Directors
Dated: April 24, 2001 ________________________________________
Robert G. Bitter, Secretary
|
Proxy Statement of United Security Bank Prospectus of United Security Bancshares
United Security Bank is providing this proxy statement of United Security Bank and prospectus of United Security Bancshares to shareholders of United Security Bank in connection with the annual meeting of shareholders of United Security Bank to be held at 2151 West Shaw Avenue, Fresno, California on May 16, 2001 at 7:00 p.m.
Shareholders of United Security Bank will elect nine directors for the ensuing year and vote upon a proposal to approve the principal terms of the Plan of Reorganization and Merger Agreement dated April _, 2001. Under the plan of reorganization and merger agreement, shareholders of United Security Bank will receive shares of United Security Bancshares' common stock for their shares of United Security Bank's common stock. After the reorganization, United Security Bank will be the sole wholly-owned subsidiary of United Security Bancshares, and shareholders of United Security Bank immediately before the reorganization will maintain their proportional interest in United Security Bancshares immediately after the reorganization.
You should rely only on the information contained in this proxy statement/prospectus or other information referred to in this document. Neither United Security Bank nor United Security Bancshares has authorized anyone to provide you with different or other information. This proxy statement/prospectus is dated April __, 2001. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date, and neither the mailing of this proxy statement/prospectus to shareholders nor the issuance of shares of United Security Bancshares in the reorganization shall create any implication to the contrary.
Proxy Statement/Prospectus
Table of Contents
Page
----
Summary of Proxy Statement.....................................................1
Introduction...................................................................4
Revocability of Proxies........................................................4
Persons Making The Solicitation................................................5
Voting Securities..............................................................5
Shareholdings of Certain Beneficial Owners And Management......................6
Bank Holding Company Reorganization And Merger
Between United Security Bank and USB Merger Company......................8
General..................................................................8
Recommendation of Directors..............................................8
Reasons for the Reorganization: Benefits of the Use of Holding
Company Form to the Shareholders of United Security Bank...........8
Description of the Reorganization and Merger
between United Security Bank and USB Merger Company................9
Ratification and Approval of the Plan of Reorganization and
Merger Agreement: Effective Date..................................10
Federal Income Tax Consequences.........................................11
Comparison of United Security Bank and United Security Bancshares:
Analysis of Corporate Structures..................................12
Authorized and Outstanding Stock........................................13
Voting Rights...........................................................13
Dividend Rights.........................................................14
Assessment of Shares....................................................15
Liquidation Rights......................................................15
Preemptive Rights.......................................................15
Directors...............................................................15
Rights of Dissenting Shareholders of United Security Bank...............16
Corporate Operation and Management......................................16
|
Proxy Statement/Prospectus
Table of Contents
Page
----
Operations Under United Security Bancshares...................................17
Organization............................................................17
Management and Directors of United Security Bancshares..................17
Supervision and Regulation of United Security Bancshares................18
Indemnification of United Security Bancshares'
Directors and Officers............................................20
USB Merger Company............................................................21
General Background......................................................21
Initial Capitalization..................................................21
United Security Bank..........................................................22
General.................................................................22
Bank Services...........................................................22
Employees...............................................................23
Properties..............................................................23
Legal Proceedings.......................................................24
Competition.............................................................24
Supervision and Regulation of United Security Bank......................25
Capital Ratios..........................................................30
Selected Financial Information................................................31
Price Range of United Security Bank's Common Stock............................32
Dividends.....................................................................33
Unaudited Pro Forma Capitalization............................................34
Financial Statements and Related Matters......................................35
Management of United Security Bank............................................36
Directors and Executive Officers........................................36
The Board of Directors and Committees...................................37
Compensation of Directors and Executive Officers........................43
Independent Accountants.......................................................50
Shareholder Proposals.........................................................50
|
Proxy Statement/Prospectus
Table of Contents
Page
----
Certain Transactions..........................................................50
Other Matters.................................................................51
Legal Matters.................................................................51
Exhibit A: Plan of Reorganization and Merger Agreement.......................A-1
Exhibit B: Audit Committee Charter...........................................B-1
|
Summary of Proxy Statement/Prospectus
This summary is qualified in its entirety by the more detailed information appearing elsewhere in this proxy statement/prospectus.
United Security Bank incorporated United Security Bancshares under California law for the purpose of becoming the holding company for United Security Bank. Upon completion of the reorganization as described in the Plan of Reorganization and Merger Agreement dated April _, 2001, attached to this proxy statement/prospectus as Exhibit A, the business activities of United Security Bancshares will initially consist solely of the operation of United Security Bank as a wholly-owned bank subsidiary. It is possible that in the future United Security Bancshares may acquire or commence additional businesses; however, no specific acquisitions or new business activities are currently planned.
After the reorganization, United Security Bank will continue its current business and operations as a California state-chartered bank under its current existing name. The existing charter and bylaws of United Security Bank will not be substantially affected by the reorganization. See "Bank Holding Company Reorganization and Merger Between United Security Bank and USB Merger Company."
The principal executive offices of United Security Bank are located at 2151 West Shaw Avenue, Fresno, California 93711, and the telephone number is (559) 225-0101. The principal executive offices of United Security Bancshares are located at 1525 East Shaw Avenue, Fresno, California 93710, and the telephone number is (559) 248-4944.
Description of the United Security Bancshares will become the
Reorganization holding company for United Security Bank. Under
the plan of reorganization and merger agreement,
United Security Bank organized USB Merger Company
as a wholly-owned subsidiary of United Security
Bancshares. United Security Bank will be merged
with USB Merger Company with United Security Bank
as the surviving corporation. The shareholders of
United Security Bank will receive shares of United
Security Bancshares' common stock on a one-for-one
basis for their shares of United Security Bank's
common stock. The shareholders of United Security
Bank will then become the sole shareholders of
United Security Bancshares in its form as the
holding company for United Security Bank. The
reorganization is subject to certain conditions
including shareholder and regulatory approvals.
|
See "Bank Holding Company Reorganization and Merger Between United Security Bank and USB Merger Company -- Description of the Reorganization and Merger between United Security Bank and USB Merger Company."
Reasons for the The reorganization will provide greater Reorganization flexibility for operations and future expansion.
See "Bank Holding Company Reorganization and
Merger Between United Security Bank and USB Merger
Company -- Reasons for the Reorganization:
Benefits of the Use of Holding Company Form to the
Shareholders of United Security Bank."
Tax Consequences of The plan of reorganization and merger agreement
the Reorganization is structured to qualify the reorganization as a
tax-free reorganization so that, among other
things, no gain or loss will be recognized by the
shareholders of United Security Bank upon the
exchange of their shares of United Security Bank's
common stock for shares of United Security
Bancshares' common stock.
Market for United Security It is anticipated that the United Security
Bancshares Stock Bancshares common stock received by United
Security Bank's shareholders in the reorganization
will be quoted on NASDAQ, however, it is not
anticipated that the shares of United Security
Bancshares will be more marketable than United
Security Bank's common stock at present. See
"Price Range of United Security Bank's Common
Stock."
Management of The directors of United Security Bancshares are,
United Security Bancshares and will be, the current directors of United
Security Bank, except that Dr. Asbury and Mr.
Weeth are resigning immediately prior to the
meeting and are not standing for reelection. The
executive officers of United Security Bancshares
are, and will be, the current executive officers
of United Security Bank. See "Management of United
Security Bank."
Regulation of United Security Bancshares will be subject to the
United Security Bancshares regulation of the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended. See
"Operations Under United Security Bancshares --
Supervision and Regulation of United Security
Bancshares."
Voting Rights of Each shareholder of United Security Bank will be
Shareholders entitled to cast one vote for each share of common
stock held of record as of the close of business
on March 20, 2001, in voting on the election of
directors and the plan of reorganization and
merger agreement. Directors and executive officers
of United Security Bank own, in the aggregate,
approximately 37.1% of United Security Bank's
common stock entitled to vote.
|
Shareholder Vote Required The nine nominees for directors receiving the most
votes will be elected as directors for the
following year. Approval of the plan of
reorganization and merger agreement requires the
affirmative vote of a majority of the outstanding
shares of United Security Bank's common stock.
Dissenters' Rights California state law does not provide for the
exercise of dissenter's rights in this
transaction.
|
Other Information Concerning the Meeting
Time and Place The meeting will be held at 2151 West Shaw Avenue,
of Meeting Fresno, California on May 16, 2001 at 7:00 p.m.
Additional Information For additional information, you may telephone
Dennis R. Woods, President of United Security
Bank, at (559) 225-0101.
|
Introduction
Management is furnishing you with this proxy statement/prospectus in connection with the solicitation of proxies for use at the annual meeting of United Security Bank, to be held at 2151 West Shaw Avenue, Fresno, California on May 16, 2001 at 7:00 p.m., and at any and all adjournments of the meeting.
It is expected that United Security Bank will mail this proxy statement/prospectus and accompanying notice and form of proxy to shareholders on or about April 24, 2001.
At the meeting, the shareholders will elect nine directors and consider and vote on approval of the plan of reorganization and merger agreement. Under the plan of reorganization and merger agreement, United Security Bank will become a wholly-owned subsidiary of the newly formed holding company, United Security Bancshares, as a result of which shareholders of United Security Bank will receive on a one-for-one basis shares of the United Security Bancshares' common stock for their shares of United Security Bank's common stock. These transactions are more fully described in this proxy statement/prospectus, and in the plan of reorganization and merger agreement attached as Exhibit A.
Revocability of Proxies
A proxy for use at the meeting is enclosed. Any shareholder who executes and delivers such proxy has the right to revoke it at any time before it is exercised, by filing with the Secretary of United Security Bank an instrument revoking it, or a duly executed proxy bearing a later date. The Secretary of United Security Bank is Robert G. Bitter, and any revocation should be filed with him at United Security Bank, 2151 West Shaw Avenue, Fresno, California 93711. In addition, the powers of the proxyholders will be revoked if the person executing the proxy is present at the meeting and elects to vote in person. Subject to such revocation or suspension, the proxyholders will vote all shares represented by a properly executed proxy received in time for the meeting in accordance with the instructions on the proxy. If no instruction is specified with regard to the matter to be acted upon, the proxyholders will vote the shares represented by the proxy "FOR" each of the nominees for directors and "FOR" approval of the principal terms of the plan of reorganization and merger agreement. If any other matter is presented at the meeting, the proxyholders will vote in accordance with the recommendations of management.
Persons Making The Solicitation
The Board of Directors of United Security Bank is soliciting these proxies. United Security Bank will bear the expense of preparing, assembling, printing and mailing this proxy statement/prospectus and the material used in the solicitation of proxies for the meeting. United Security Bank contemplates that proxies will be solicited principally through the use of the mail, but officers, directors and employees of United Security Bank may solicit proxies personally or by telephone, without receiving special compensation for the solicitation. Although there is no formal agreement to do so, United Security Bank will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding these proxy materials to their principals. In addition, United Security Bank may utilize the services of individuals or companies not regularly employed by United Security Bank in connection with the solicitation of proxies, if management of United Security Bank determines that this is advisable.
Voting Securities
Management has fixed March 20, 2001 as the record date for purposes of determining the shareholders entitled to notice of, and to vote at, the meeting. On March 20, 2001, there were 5,486,906 shares of United Security Bank's common were issued and outstanding. Each holder of United Security Bank's common stock will be entitled to one vote for each share of United Security Bank's common stock held of record on the books of United Security Bank as of the record date. In connection with the election of directors, shares may be voted cumulatively if a shareholder present at the meeting gives notice at the meeting, prior to the voting for election of directors, of his or her intention to vote cumulatively. If any shareholder of United Security Bank gives that notice, then all shareholders eligible to vote will be entitled to cumulate their shares in voting for election of directors. Cumulative voting allows a shareholder to cast a number of votes equal to the number of shares held in his or her name as of the record date, multiplied by the number of directors to be elected. These votes may be cast for any one nominee, or may be distributed among as many nominees as the shareholder sees fit. If cumulative voting is declared at the meeting, votes represented by proxies delivered pursuant to this proxy statement may be cumulated in the discretion of the proxyholders, in accordance with management's recommendation. The holders of not less than a majority of the outstanding shares of United Security Bank's common stock must vote in favor in order to approve the plan of reorganization and merger agreement.
Shareholdings of Certain Beneficial Owners And Management
Management of United Security Bank knows of no person who owns, beneficially or of record, either individually or together with associates, 5 percent or more of the outstanding shares of United Security Bank's common stock, except as set forth in the table below. The following table sets forth, as of March 20, 2001, the number and percentage of shares of United Security Bank's outstanding common stock beneficially owned, directly or indirectly, by each of United Security Bank's directors, named executive officers and principal shareholders and by the directors and executive officers of United Security Bank as a group. The shares "beneficially owned" are determined under the Securities and Exchange Commission Rules, and do not necessarily indicate ownership for any other purpose. In general, beneficial ownership includes shares over which the director, named executive officer or principal shareholder has sole or shared voting or investment power and shares which such person has the right to acquire within 60 days of March 20, 2001. Unless otherwise indicated, the persons listed below have sole voting and investment powers of the shares beneficially owned. Management is not aware of any arrangements which may result in a change of control of United Security Bank other than the proposed reorganization.
Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
----------------------------- -------------------- ----------------
Directors and Named Officers:
William J. Asbury, D.D.S. 79,428(2) 1.4
Robert G. Bitter, Pharm. D. 325,404(3) 5.9
Rhodlee A. Braa 91,714(4) 1.7
Stanley J. Cavalla 202,500(5) 3.7
Kenneth L. Donahue 108,905(6) 2.0
Tom Ellithorpe 101,725 1.9
David L. Eytcheson 294,517(7) 5.4
Ronnie D. Miller 331,709(8) 6.0
Mike Munoz, Jr. 22,432(9) *
Walter Reinhard 166,038 3.0
John Terzian 115,200(10) 2.1
Bobbi Thomason 327,646(11) 6.0
Evan Weeth 149,576 2.7
Dennis R. Woods 381,041(12) 6.8
All Directors and Officers
as a Group (14 in all) 2,221,019 39.2
----------
|
* Less than one percent
(1) Includes shares subject to options held by the directors and executive officers that were exercisable within 60 days of March 20, 2001. These are treated as issued and outstanding for the purpose of computing the percentage of each director, named executive officer and the directors and officers as a group, but not for the purpose of computing the percentage of class owned by any other person.
(Footnotes continued on the following page.)
(2) Dr. Asbury has 9,000 shares acquirable by the exercise of stock options.
(3) Dr. Bitter has shared voting and investment powers as to 317,204 shares,
of which he has shared voting and investment powers as to 238,408 shares
in his capacity as a trustee of United Security Bank's Cash or Deferred
401(k) Stock Ownership Plan and United Security Bank's Employee Stock
Ownership Plan. Dr. Bitter also has 8,200 shares acquirable by exercise of
stock options. Dr. Bitter's address is c/o United Security Bank, 2151 West
Shaw Avenue, Fresno, California 93711.
(4) Mr. Braa has shared voting and investment powers as to 57,274 shares and has 30,000 shares acquirable by exercise of stock options.
(5) Mr. Cavalla has shared voting and investment powers as to all of these shares.
(6) Mr. Donahue has shared voting and investment powers as to 90,905 shares and has 18,000 shares acquirable by exercise of stock options.
(7) Mr. Eytcheson has shared voting and investment powers as to all of these shares, of which he has shared voting and investment powers as to 238,408 shares in his capacity as a trustee of United Security Bank's Cash or Deferred 401(k) Stock Ownership Plan and United Security Bank's Employee Stock Ownership Plan. Mr. Eytcheson's address is c/o United Security Bank, 2151 West Shaw Avenue, Fresno, California 93711.
(8) Mr. Miller has shared voting and investment powers as to 238,408 shares in
his capacity as a trustee of United Security Bank's Cash or Deferred
401(k) Stock Ownership Plan and United Security Bank's Employee Stock
Ownership Plan. Mr. Miller's address is c/o United Security Bank, 2151
West Shaw Avenue, Fresno, California 93711.
(9) Mr. Munoz, Jr. has shared voting and investment powers as to all of these shares.
(10) Mr. Terzian has shared voting and investment powers as to 73,084 shares and has 3,042 shares acquirable by exercise of stock options.
(11) Ms. Thomason's address is c/o United Security Bank, 2151 West Shaw Avenue, Fresno, California 93711.
(12) Mr. Woods has shared voting and investment powers as to 4,113 shares and has 115,990 shares acquirable by exercise of stock options. Mr. Woods' address is c/o United Security Bank, 2151 West Shaw Avenue, Fresno, California 93711.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires United Security Bank's directors and certain executive officers and persons who own more than ten percent of a registered class of United Security Bank's equity securities (collectively, the "Reporting Persons"), to file reports of ownership and changes in ownership with the Federal Reserve Board. The Reporting Persons are required by the Federal Reserve Board's regulation to furnish United Security Bank with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or written representations from the Reporting Persons that no Forms 5 were required for those persons, United Security Bank believes that, during 2000 the Reporting Persons complied with all filing requirements applicable to them.
Bank Holding Company Reorganization And Merger Between United Security Bank and USB Merger Company
General
United Security Bank is asking its shareholders to consider and approve the plan of reorganization and merger agreement. Under the plan of reorganization and merger agreement, the business of United Security Bank will be conducted as a wholly-owned subsidiary of United Security Bancshares. If the plan of reorganization and merger agreement is approved, the current shareholders of United Security Bank will exchange their shares of United Security Bank's common stock for shares of United Security Bancshares' common stock on a one-for-one basis. For accounting purposes, the transaction will be accounted for in a manner similar to that of a pooling of interests where the assets and liabilities of the combining companies will be combined at their recorded amounts.
The Board of Directors of United Security Bank approved the plan of reorganization and merger agreement on March 27, 2001, and directed that the plan of reorganization and merger agreement be submitted to the shareholders of United Security Bank. The Board of Directors of United Security Bank recommends that the shareholders approve the plan of reorganization and merger agreement.
The detailed terms and conditions of the reorganization are set forth in the plan of reorganization and merger agreement attached to this proxy statement/prospectus as Exhibit A. The statements made in this proxy statement/prospectus regarding the plan of reorganization and merger agreement are qualified in their entirety by the more detailed information appearing in the plan of reorganization and merger agreement.
Recommendation of Directors
The Board of Directors of United Security Bank has approved the terms and conditions of the plan of reorganization and merger agreement. The Board of Directors of United Security Bank furthermore recommends that the shareholders of United Security Bank approve the plan of reorganization and merger agreement.
Reasons for the Reorganization: Benefits of the Use of Holding Company Form to the Shareholders of United Security Bank
As stated above, the Board of Directors of United Security Bank has approved the plan of reorganization and merger agreement, believes that the reorganization is in the best interests of United Security Bank and its shareholders, and recommends that the shareholders vote in favor of approval of the plan of reorganization and merger agreement.
Management and the Board of Directors of United Security Bank believe that the formation of a bank holding company, under which United Security Bank will operate, will result in a more flexible entity for operations and growth.
Management expects that United Security Bancshares will facilitate growth within the banking field and in areas related to banking, either by the creation of new subsidiaries or the acquisition of existing companies and banks. For example, in the event an opportunity for the acquisition of another bank were to develop, it might be desirable to maintain the separate existence of the other bank rather than merge it into United Security Bank. Neither United Security Bank nor United Security Bancshares is currently considering any acquisitions.
The bank holding company structure will also provide a framework for restructuring certain of United Security Bank's existing departments or subsidiaries into separate operating subsidiaries of United Security Bancshares, although no plans for restructuring are being considered at this time.
Many major banking institutions in the United States and in California have reorganized into bank holding companies and United Security Bank's Board of Directors believes that the reorganization is desirable for United Security Bank to maintain and enhance its competitive position.
Description of the Reorganization and Merger between United Security Bank and USB Merger Company
At the direction of the Board of Directors of United Security Bank, management incorporated United Security Bancshares for the purpose of becoming a bank holding company under the laws of the State of California. USB Merger Company, which is wholly-owned by United Security Bancshares, was also organized as a California corporation. The reorganization will be accomplished by merging United Security Bank with USB Merger Company. Upon completion of the reorganization, United Security Bank will be the surviving entity and the name will remain United Security Bank. Upon the completion date of the reorganization, the shares of capital stock of the respective parties to the plan of reorganization and merger agreement will be converted as follows:
o Each share of United Security Bank's outstanding common stock will be converted into one share of United Security Bancshares' common stock. Shareholders of United Security Bank will be entitled to exchange their present share certificates for new certificates evidencing shares of United Security Bancshares' common stock. Until the certificates are exchanged, the certificates for shares of United Security Bank's common stock after the reorganization will be deemed to represent shares of United Security Bancshares' common stock. Options to purchase shares of United Security Bank's common stock will be assumed by United Security Bancshares with the same terms and conditions and for the same number of shares of United Security Bancshares' common stock.
o The shares of common stock of USB Merger Company outstanding immediately prior to the reorganization will be converted into an equal number of shares of the surviving bank and be owned by United Security Bancshares.
o The shareholders of United Security Bank will become shareholders of
United Security Bancshares. There are no anticipated changes in United
Security Bank's shareholders' relative equity ownership interest in United
Security Bank's assets. As shareholders of United Security Bancshares,
United Security Bank's shareholders will have essentially the same rights
to govern that corporation's activities as they have with respect to
United Security Bank. However, as shareholders of United Security
Bancshares, they will not be entitled to vote on matters requiring the
approval of United Security Bank's shareholders as United Security
Bancshares will own 100 percent of United Security Bank. Shareholders of
United Security Bancshares will be entitled to vote on those matters
affecting United Security Bancshares. A discussion of those rights is
contained in the section entitled, "Bank Holding Company Reorganization
and Merger Between United Security Bank and USB Merger Company --
Comparison of United Security Bank and United Security Bancshares:
Analysis of Corporate Structures."
o United Security Bancshares will adopt the United Security Bank 1995 Stock Option Plan which will automatically, and without further action on the part of the shareholders, become the stock option plan of United Security Bancshares. All options previously granted will become an equal number of options to purchase shares of United Security Bancshares instead of shares of United Security Bank. The Board of Directors of United Security Bancshares may grant further options to purchase United Security Bancshares common stock under the stock option plan, in accordance with the terms of the stock option plan.
Upon the completion of the reorganization, the existing directors of United Security Bank will serve as the directors of the surviving bank. The surviving bank will operate under the charter of United Security Bank. The following 9 persons who currently serve as directors of United Security Bank, are expected to serve as directors of the surviving bank after the reorganization:
Robert G. Bitter, Pharm. D. Walter Reinhard Stanley J. Cavalla John Terzian Tom Ellithorpe Bobbi Thomason Ronnie D. Miller Dennis R. Woods Mike Munoz, Jr. |
Ratification and Approval of the Plan of Reorganization and Merger Agreement: Effective Date
Approvals of applications in connection with the proposed reorganization must be obtained from the Federal Reserve, the FDIC, and the California Department of Financial Institutions. Applications for the necessary approvals have been made, and are now pending before those regulatory agencies. If any of the above regulatory agencies should fail to give the required approval for this transaction within a reasonable time, the Board of Directors of United Security Bank reserves the right, in its sole discretion, to terminate and cancel the plan of reorganization and merger agreement. It is presently contemplated that the completion date of the reorganization will be in the second quarter of 2001.
Completion of the reorganization between United Security Bank and USB Merger Company is conditioned upon obtaining the required shareholder and regulatory approvals. Approval of the reorganization by United Security Bank's shareholders can only be obtained if the affirmative vote of the holders of not less than a majority of the outstanding shares of United Security Bank's common stock is obtained. The directors of United Security Bank, USB Merger Company and United Security Bancshares have approved the plan of reorganization and merger agreement. However, if any action, suit, or proceeding should be threatened or instituted with respect to the proposed reorganization, the Board of Directors of United Security Bank reserves the right, in its sole discretion, to terminate the transaction at any time before the effective date.
If the shareholders of United Security Bank should fail to approve the plan of reorganization and merger agreement, or if the transaction is otherwise terminated as provided above, then the business of United Security Bank shall continue to operate under the ownership of its existing shareholders as it has prior to the adoption of the plan of reorganization and merger agreement.
It is estimated at this time that the total expenses of the reorganization are approximately $35,000.00, and these expenses will be borne appropriately by the respective parties.
Should the plan of reorganization and merger agreement be terminated or canceled for any of the reasons set forth above or in the attached plan of reorganization and merger agreement, such termination or cancellation will not result in any liability on the part of United Security Bank, United Security Bancshares, or any of their respective directors, officers, employees, agents or shareholders.
Federal Income Tax Consequences
The plan of reorganization and merger agreement has been structured to qualify the reorganization as a tax free reorganization under Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended. The Board of Directors of United Security Bank has reserved the right and intends to terminate the plan of reorganization and merger agreement unless a satisfactory opinion regarding the nontaxability of the proposed transaction is received from either tax counsel or United Security Bank's accountants.
If the reorganization is treated as a tax-free reorganization, it will have the following federal income tax consequences:
o No gain or loss will be recognized by United Security Bank or any of the other parties to the reorganization as a result of the reorganization.
o No gain or loss will be recognized by the shareholders of United Security Bank upon the exchange of their shares of United Security Bank's common stock solely for shares of United Security Bancshares' common stock.
o The basis and holding periods of the assets exchanged between the parties to the reorganization shall remain the same as those prior to the reorganization.
o The basis of the shares of United Security Bancshares' common stock to be received by shareholders of United Security Bank will be the same as the basis of the shares of United Security Bank's common stock surrendered in exchange for the shares.
o The holding period of the shares of United Security Bancshares' common stock to be received by shareholders of United Security Bank will include the holding period of the shares of United Security Bank's common stock surrendered in exchange for the shares, provided that such stock is held as a capital asset on the date of the completion of the reorganization.
Management cannot advise individual shareholders and prospective shareholders of the proper tax consequences or suggest the methods of reporting the reorganization. Each shareholder is advised to contact his or her accountant or tax counsel with respect to the reorganization and the means of reporting the transaction as well as regarding the state and local tax consequences which may or may not parallel the federal income tax consequences.
Comparison of United Security Bank and United Security Bancshares:
Analysis of Corporate Structures
The following chart constitutes a summarization of a comparison between United Security Bank and United Security Bancshares. Reference should be made to the detailed explanations included in this proxy statement/prospectus, and this summary is qualified in its entirety by those detailed explanations.
United Security Bank United Security Bancshares
Item Stock Stock
--------------------- -------------------------- -----------------------------
Authorized and 10,000,000 shares of 10,000,000 shares of common
Outstanding common stock, no par stock, no par value; total
value, with 5,486,906 shares to be outstanding
shares outstanding as of immediately prior to the
March 20, 2001. reorganization is 100.
Voting Rights One vote per share with One vote per share with
cumulative voting in the cumulative voting in the
election of directors if election of directors if the
the requirements for requirements for cumulative
cumulative voting are voting are satisfied.
satisfied.
Dividend Rights As declared by the Board As declared by the Board
of of Directors subject Directors subject to the laws
to the laws in the in the California General
California Banking Law Corporation Law and
and applicable applicable federal law.
federal law.
Assessment Nonassessable. Nonassessable.
Liquidation Rights Pro rata after payment of Pro rata after payment of
debts. debts.
|
United Security Bank United Security Bancshares
Item Stock Stock
--------------------- -------------------------- -----------------------------
Redemption United Security Bank may United Security Bancshares
redeem its shares under may redeem its shares under
restrictive conditions of restrictive conditions of
the California Financial the California General
Code. Corporation Law.
Preemptive Rights None. None.
Number of Directors Fixed in accordance with Fixed in accordance with the
the Bylaws. Bylaws.
|
Authorized and Outstanding Stock
United Security Bank currently has an authorized capitalization of 10,000,000 shares of common stock, no par value. Of these authorized capital shares, 5,486,906 shares of United Security Bank's common stock were issued and outstanding as of March 20, 2001, and 345,130 shares of United Security Bank's common stock were reserved for issuance upon exercise of options under United Security Bank's 1995 Stock Option Plan.
United Security Bancshares has an authorized capitalization of 10,000,000 shares of common stock, no par value. Of these authorized capital shares, 100 shares of United Security Bancshares' common stock were issued and outstanding as of March 28, 2001.
Voting Rights
All voting rights are vested in the holders of common stock of United Security Bank and United Security Bancshares, each share being entitled to one vote, except with respect to the election of directors, as described below.
For the election of directors, California law provides that every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the shareholder's votes on the same principal among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected. However, a shareholder may cumulate votes only for a candidate or candidates whose names have been placed in nomination prior to the voting, and only if the shareholder has given notice at the meeting prior to the voting at such meeting of his or her intention to cumulate his or her votes. If any one shareholder has given such notice, all shareholders may cumulate votes for candidates in nomination. The shareholders of United Security Bank now have cumulative voting rights, and the shareholders of United Security Bancshares will have the same voting rights, as described above.
Dividend Rights
Holders of United Security Bank common stock are entitled to dividends legally available therefor, when and as declared by United Security Bank's Board of Directors. The California Financial Code provides that a bank may not make a cash distribution to its shareholders in an amount which exceeds the lesser of:
o the retained earnings, or
o the net income of the bank for its last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such period.
However, a bank may, with the approval of the Commissioner of Financial Institutions, make a distribution to its shareholders in an amount not exceeding the greatest of:
o the retained earnings of the bank,
o the net income of the bank for its last fiscal year, or
o the net income of the bank for its current fiscal year.
If the Commissioner of Financial Institutions finds that the shareholders' equity of a bank is not adequate or that the payment of a dividend would be unsafe or unsound for the bank, the Commissioner of Financial Institutions may order the bank not to pay any dividend to the shareholders.
In addition, under the Financial Institutions Supervisory Act of 1966, as amended, the FDIC also has the authority and general enforcement powers to prohibit a bank from engaging in practices which the FDIC considers to be unsafe or unsound. It is possible, depending upon the financial condition of United Security Bank and other factors, that the FDIC could assert that the payment of dividends or other payments might under some circumstances be such an unsafe or unsound practice and thereby prohibit such payment. The Federal Deposit Insurance Corporation Improvement Act of 1991 further prohibits a bank from paying a dividend if the dividend payment would result in the bank failing to meet any of its minimum capital requirements.
The shareholders of United Security Bancshares will be entitled to receive dividends when and as declared by its Board of Directors, out of funds legally available for the payment of dividends, as provided in the California General Corporation Law. The California General Corporation Law provides that a corporation may make a distribution to its shareholders if retained earnings immediately prior to the dividend payout at least equal the amount of the proposed distribution. In the event that sufficient retained earnings are not available for the proposed distribution, a corporation may, nevertheless, make a distribution, if it meets both the "quantitative solvency" and the "liquidity" tests. In general, the quantitative solvency test requires that the sum of the assets of the corporation equal at least 1-1/4 times its liabilities. The liquidity test generally requires that a corporation have current assets at least equal to current
liabilities, or, if the average of the earnings of the corporation before taxes on income and before interest expenses for the two preceding fiscal years was less than the average of the interest expense of the corporation for such fiscal years, then current assets must equal at least 1-1/4 times current liabilities. In certain circumstances, United Security Bancshares may be required to obtain the prior approval of the Federal Reserve Board to make capital distributions to shareholders of United Security Bancshares.
Assessment of Shares
Shares of United Security Bank are not subject to assessment and shares of United Security Bancshares also will not be subject to assessment.
Liquidation Rights
The holders of United Security Bank common stock are entitled to share equally in United Security Bank's assets legally available for distribution in the event of liquidation or dissolution. Similarly, holders of United Security Bancshares common stock will have a pro rata right to participate in the United Security Bancshares' assets legally available for distribution in the event of liquidation or dissolution.
Preemptive Rights
The holders of United Security Bank's common stock do not have preemptive rights to subscribe to any additional shares of United Security Bank's common stock being issued. The holders of United Security Bancshares' common stock also will not have preemptive rights to subscribe to any additional shares of United Security Bancshares' common stock being issued. Therefore, shares of United Security Bancshares' common stock or other securities may be offered in the future to the investing public or to shareholders at the discretion of United Security Bancshares' Board of Directors.
Directors
United Security Bank's Bylaws authorize its Board of Directors or shareholders to designate the number of directors at any number from 8 to 15 with certain limitations, and United Security Bancshares' Bylaws authorize its Board of Directors or shareholders to designate the number of directors at any number from 8 to 15. Immediately prior to the shareholders' meeting, the Board of Directors intends to change the size of the Board of Directors from the current number of eleven (11) to nine (9) as neither Dr. Asbury nor Mr. Weeth are standing for reelection.
Rights of Dissenting Shareholders of United Security Bank
California state law does not provide for exercise of dissenters' rights in the context of the reorganization.
Corporate Operation and Management
The Articles of Incorporation and Bylaws of United Security Bank and of United Security Bancshares are substantially similar in all material provisions, except with respect to provisions in United Security Bank's Articles of Incorporation and Bylaws required by California Financial Code and applicable only to banks.
Operations Under United Security Bancshares
Organization
United Security Bancshares was organized and incorporated under the laws of the State of California on February 21, 2001, at the direction of the Board of Directors of United Security Bank for the purpose of becoming a bank holding company to acquire all of the outstanding capital stock of United Security Bank. The principal location of United Security Bancshares and its operations will be at the administrative offices of United Security Bank located at 1525 East Shaw Avenue, Fresno, California 93710.
In order to effect the reorganization and to initially capitalize United Security Bancshares, Dennis R. Woods, the Chairman, President and Chief Executive Officer of United Security Bancshares, loaned $30,000 to United Security Bancshares, payable with interest. In addition, Mr. Woods has purchased 100 shares of the common stock of United Security Bancshares at an aggregate purchase price of $150 for an aggregate capitalization of $30,150. Upon the completion of the reorganization, the loan will be repaid and the 100 shares of United Security Bancshares' common stock will be repurchased and canceled by United Security Bancshares for the sum of $150. Presently, 100 shares of United Security Bancshares' common stock are outstanding, and United Security Bancshares will have no additional stock issued until after the shareholders of United Security Bank have approved the plan of reorganization and merger agreement and the reorganization is completed.
Management and Directors of United Security Bancshares
The present Board of Directors of United Security Bancshares is composed of the eleven current directors of United Security Bank, and consists of the following individuals:
William J. Asbury, D.D.S. Walter Reinhard Robert G. Bitter, Pharm. D. John Terzian Stanley J. Cavalla Bobbi Thomason Tom Ellithorpe Evan Weeth Ronnie D. Miller Dennis R. Woods Mike Munoz, Jr. |
Upon completion of the reorganization, the business of United Security Bank will be conducted as a subsidiary of United Security Bancshares, and will be carried on with the same directors, officers, personnel, property and name as before the transaction, with the exception that Dr. Asbury and Mr. Weeth are resigning from the Board of Directors immediately prior to the meeting and are not standing for reelection. United Security Bancshares will not pay its executive officers any amounts in addition to the amounts they receive as executive officers of United Security Bank.
The following directors and officers of United Security Bank have agreed to serve as the initial directors and officers of United Security Bancshares:
Position with Position with
Name United Security Bank United Security Bancshares
--------------------------- -------------------- --------------------------
Dennis R. Woods Chairman, President Chairman, President
& CEO & CEO
William J. Asbury, D.D.S. Director Director
Robert G. Bitter, Pharm. D. Director & Secretary Director & Secretary
Stanley J. Cavalla Director Director
Tom Ellithorpe Director Director
Ronnie D. Miller Vice Chairman Vice Chairman
Mike Munoz, Jr. Director Director
Walter Reinhard Director Director
John Terzian Director Director
Bobbi Thomason Director Director
Evan Weeth Director Director
Kenneth L. Donahue Senior VP & CFO Senior VP & CFO
Rhodlee A. Braa Senior VP & CCO Senior VP & CCO
David L. Eytcheson Senior VP & COO Senior VP & COO
|
The business of United Security Bank will be carried on after the reorganization, with the same officers, employees and properties, and the United Security Bancshares directors, with the exception of Dr. Asbury and Mr. Weeth, shall serve until their successors have been duly elected and qualified at United Security Bancshares' next annual meeting of shareholders.
Supervision and Regulation of United Security Bancshares
Upon completion of the reorganization, United Security Bancshares will become a bank holding company within the meaning of the Bank Holding Company Act, and will become subject to the supervision and regulation of the Federal Reserve Board. A notice application for prior approval to become a bank holding company has previously been filed by United Security Bancshares with the Federal Reserve Board.
As a bank holding company, United Security Bancshares will be required to register with the Federal Reserve Board within 180 days after the reorganization is completed, and, thereafter, to file annual reports and other information concerning its business operations and those of its subsidiaries as the Federal Reserve Board may require. The Federal Reserve Board also has the authority to examine United Security Bancshares and each of its respective subsidiaries, as well as any arrangements between United Security Bancshares and any of its respective subsidiaries, with the cost of any such examination to be borne by United Security Bancshares.
In the future, United Security Bancshares will be required to obtain the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of voting securities of any bank if, after giving effect to such acquisition,
United Security Bancshares would own or control more than 5 percent of the voting shares of such bank.
A bank holding company and its subsidiaries are also prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases, sales, or the furnishing of services. For example, United Security Bank will generally be prohibited from extending credit to a customer on the condition that the customer also obtain other services furnished by United Security Bancshares, or any of its subsidiaries, or on the condition that the customer promise not to obtain financial services from a competitor. United Security Bancshares and its subsidiaries will also be subject to certain restrictions with respect to engaging in the underwriting, public sale and distribution of securities.
United Security Bancshares and any subsidiaries which it may acquire or organize after the reorganization will be deemed affiliates of United Security Bank within the meaning of the Federal Reserve Act. Loans by United Security Bank to affiliates, investments by United Security Bank in affiliates' stock, and taking affiliates' stock by United Security Bank as collateral for loans to any borrower will be limited to 10 percent of United Security Bank's capital, in the case of each affiliate, and 20 percent of United Security Bank's capital, in the case of all affiliates. In addition, these transactions must be on terms and conditions that are consistent with safe and sound banking practices and, in particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as that term is defined in the Federal Reserve Act. Such restrictions also prevent a bank holding company and its other affiliates from borrowing from a banking subsidiary of the bank holding company unless the loans are secured by marketable collateral of designated amounts.
A bank holding company is also prohibited from itself engaging in or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged in nonbanking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board by order or regulation to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making these determinations, the Federal Reserve Board considers whether the performance of such activities by a bank holding company or a bank holding company subsidiary would offer advantages to the public which outweigh possible adverse effects.
Federal Reserve Regulation Y sets out those activities which are regarded as closely related to banking or managing or controlling banks, and thus, are permissible activities that may be engaged in by bank holding companies subject to approval in certain cases by the Federal Reserve Board. The Gramm-Leach-Bliley Act ("GLBA") allows for a new type of bank holding company under the Bank Holding Company Act. The new bank holding company is allowed to engage in insurance and securities underwriting, merchant banking and insurance company portfolio investment activities. GLBA also allows bank holding companies to engage in any activity considered "financial" in nature or incidental to such financial activities.
Although United Security Bancshares has no present plans, agreements or arrangements to engage in any nonbanking activities, United Security Bancshares may consider in the future engaging in one or more of the above activities, subject to the approval of the Federal Reserve Board.
Directors, executive officers, and principal shareholders of United Security Bancshares will be subject to restrictions on the sale of their United Security Bancshares stock under Rule 144 as promulgated under the Securities Act of 1933.
Indemnification of United Security Bancshares' Directors and Officers
United Security Bancshares' Articles of Incorporation and Bylaws provide for indemnification of agents including directors, officers and employees to the maximum extent allowed by California law. The indemnification law of the State of California generally allows indemnification, in matters not involving the right of the corporation, to an agent of the corporation if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation, and in the case of a criminal matter had no reasonable cause to believe the conduct of such person was unlawful. California law, with respect to matters involving the right of a corporation, allows indemnification of an agent of the corporation, if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and its shareholders; provided that there shall be no indemnification for: amounts paid in settling or otherwise disposing of a pending action without court approval; expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval; or matters which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which the proceeding is or was pending shall determine that such person is entitled to be indemnified.
The Bylaws provide that United Security Bancshares will indemnify its directors, officers and employees and that such right to indemnification shall be a contract right. The Bylaws also provide that United Security Bancshares may purchase and maintain insurance covering its directors, officers and employees against any liability asserted against any of them and incurred by any of them, whether or not United Security Bancshares would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of the Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling United Security Bancshares pursuant to the foregoing, United Security Bancshares has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
USB Merger Company
General Background
At the direction of the Board of Directors of United Security Bank, USB Merger Company was incorporated on ________, 2001. It was organized to facilitate the reorganization. On the date of the reorganization, United Security Bank will merge with USB Merger Company, with United Security Bank as the surviving entity.
Initial Capitalization
USB Merger Company was initially capitalized through the purchase of 100 shares of its common stock by United Security Bancshares for an aggregate sum of $100.00. The 100 shares of capital stock of USB Merger Company issued and outstanding immediately prior to the date of reorganization shall be converted into and exchanged by United Security Bancshares for 100 shares of United Security Bank common stock. USB Merger Company will disappear and all of the outstanding shares of United Security Bank common stock will be owned by United Security Bancshares.
United Security Bank
General
United Security Bank, N.A., predecessor to United Security Bank, originally commenced business as a national banking association on December 21, 1987. On February 1, 1999, United Security Bank was incorporated under the laws of the State of California, and on February 3, 1999, following its conversion from a national banking association, was licensed by the Commissioner of Financial Institutions and commenced operations as a California state-chartered bank.
Bank Services
As an independent commercial bank, United Security Bank offers a full range of commercial banking services primarily to the business and professional community and individuals located in Fresno and Madera Counties.
United Security Bank offers a wide range of deposit instruments including personal and business checking accounts and savings accounts, interest-bearing negotiable order of withdrawal accounts, money market accounts and time certificates of deposit. Most of United Security Bank's deposits are attracted from individuals and from small and medium-sized business-related sources.
United Security Bank also engages in a full complement of lending activities, including real estate mortgage, commercial and industrial, real estate construction, as well as agricultural and consumer loans, with particular emphasis on short and medium-term obligations. United Security Bank's loan portfolio is not concentrated in any one industry, although approximately 67% of United Security Bank's loans are secured by real estate. A loan may be secured (in whole or in part) by real estate even though the purpose of the loan is not to facilitate the purchase or development of real estate. At December 31, 2000, United Security Bank had loans (net of unearned fees) outstanding of $261 million, which represented approximately 96% of United Security Bank's total deposits and approximately 71% of its total assets.
Real estate mortgage loans are secured by deeds of trust primarily on commercial property. Repayment of real estate mortgage loans is generally from the cash flow of the borrower. Commercial and industrial loans have a high degree of industry diversification. A substantial portion of the commercial and industrial loans are secured by accounts receivable, inventory, leases or other collateral. The remainder are unsecured; however, extensions of credit are predicated on the financial capacity of the borrower. Repayment of commercial loans is generally from the cash flow of the borrower. Real estate construction loans consist of loans to residential contractors which are secured by single family residential properties. All real estate loans have established equity requirements. Repayment of real estate construction loans is generally from long-term mortgages with other lending institutions. Agricultural loans are generally secured by land, equipment, inventory and receivables. Repayment of this loan category is from the cash flow of the borrower. At December 31, 2000 real estate mortgage loans, commercial and industrial loans, real estate construction loans and agricultural loans
constituted approximately 43%, 25%, 23% and 3%, respectively, of United Security Bank's total loan portfolio.
In the normal course of business, United Security Bank makes various loan commitments and incurs certain contingent liabilities. At December 31, 2000, these financial instruments included commitments to extend credit of $80 million, and standby letters of credit of $7 million. Of the $80 million in loan commitments outstanding at December 31, 2000, $29 million were on loans with maturities of one year or less. Due to the nature of the business of United Security Bank's customers, there are no seasonal patterns or absolute predictability to the utilization of unused loan commitments; therefore United Security Bank is unable to forecast the extent to which these commitments will be exercised within the current year. United Security Bank does not believe that any such utilization will constitute a material liquidity demand.
In addition to the loan and deposit services discussed above, United Security Bank also offers a wide range of specialized services designed to attract and service the needs of commercial customers and account holders. These services include cashier's checks, traveler's checks, money orders, and foreign drafts. United Security Bank does not operate a trust department; however, it makes arrangements with its correspondent bank to offer trust services to its customers on request. Most of United Security Bank's business originates from within Fresno and Madera Counties. Neither United Security Bank's business or liquidity is seasonal, and there has been no material effect upon United Security Bank's capital expenditures, earnings or competitive position as a result of federal, state or local environmental regulation.
Employees
At December 31, 2000, United Security Bank employed 77 persons on a full-time equivalent basis. United Security Bank believes its employee relations are excellent.
Properties
United Security Bank's main office branch is located at 2151 West Shaw Avenue, Fresno, California. United Security Bank owns the building and leases the land under a sublease dated December 1, 1986 between Central Bank and United Security Bank. The current sublessor under the master ground lease is Bank of the West, which acquired the position through the purchase of Central Bank. The lessor under the ground lease (Master Lease) is Thomas F. Hinds. The lease expires on December 31, 2015 and United Security Bank has options to extend the term for four (4) ten-year periods and one seven (7) year period.
United Security Bank occupies the premises of approximately 3,600 square feet for its East Shaw branch under a lease expiring August 31, 2002 with extensions to August 31, 2011.
United Security Bank leases the Oakhurst branch located at 40074 Highway 49, Oakhurst, California, which consists of approximately 5,000 square feet of interior floor space in a stand alone building. United Security Bank is leasing this office from 41/49 Highway Junction Project, LTD., for an original term of 15 years beginning on April 21, 1999, with options to extend the lease for two additional five-year periods each.
United Security Bank leases the Cauthers branch located at 13356 South Henderson, Caruthers, California which consists of approximately 5,000 square feet of floor space. The Caruthers branch lease expires in January, 2006 with extensions through January, 2021.
United Securty Bank lease its real estate construction offices located at 1535 East Shaw, Suite 105, Fresno, California which consists of approximately 2,100 square feet. The lease term began on March 1, 2001 and expires February 28, 2006.
United Security Bank owns the San Joaquin branch which is located at 21574 Manning Avenue, San Joaquin, California and is approximately 2,100 square feet.
United Security Bank owns the Firebaugh branch located at 1067 O Street, Firebaugh, California. The premises are comprised of approximately 6,198 square feet of interior floor space situated on land totaling approximately one-third of an acre.
United Security Bank owns the Coalinga branch located at 145 East Durian, Coalinga, California. The Coalinga branch has 6,184 square feet of interior floor space situated on approximately 0.45 acres.
United Security Bank also owns its administrative headquarters located at 1525 East Shaw Avenue, Fresno, California. The building consists of approximately 10,000 square feet of interior floor space.
United Security Bank's total occupancy expense, exclusive of furniture and equipment expense, for the year ended December 31, 2000, was approximately $540,460. Management believes that its existing and proposed facilities are adequate for its present purposes and anticipated growth in the foreseeable future.
Legal Proceedings
From time to time, United Security Bank is a party to claims and legal proceedings arising in the ordinary course of business. United Security Bank's management is not aware of any material pending litigation proceedings to which it is a party or has recently been a party to, which will have a material adverse effect on the financial condition or results of operations of United Security Bank.
Competition
The banking business in California generally, and in the market areas served by United Security Bank specifically, is highly competitive with respect to both loans and deposits. United Security Bank competes for loans and deposits with other commercial banks, savings and loan associations, finance companies, money market funds, credit unions and other financial institutions, including a number that are much larger than United Security Bank. As of December 31, 2000 there were 142 banking offices, including 49 offices of three major chain banks, operating within United Security Bank's primary market areas in the San Joaquin Valley and Eastern Madera County. There has been increased competition for deposit and loan business
over the last several years as a result of deregulation. Many of the major commercial banks operating in United Security Bank's market areas offer certain services, such as trust and international banking services, which United Security Bank does not offer directly. Additionally, banks with larger capitalization have larger lending limits and are thereby able to serve larger customers.
In addition to competition from insured depository institutions, principal competitors for deposits and loans have been mortgage brokerage companies, insurance companies, brokerage houses, credit card companies and even retail establishments offering investment vehicles such as mutual funds, annuities and money market funds, as well as traditional bank-like services such as check access to money market funds, or cash advances on credit card accounts.
In order to compete with the other financial institutions in its principal marketing area, United Security Bank relies principally upon local promotional activities, personal contacts by its officers, directors and employees, and close connections with its community.
Supervision and Regulation of United Security Bank
General: United Security Bank, as a California state-chartered member bank whose deposits are insured by the FDIC up to the maximum legal limits thereof, is subject to regulation, supervision and regular examination by the Commissioner of Financial Institutions and the Federal Reserve Board. United Security Bank is also subject to provisions of the Federal Reserve Act and their regulations. The regulations of these various agencies govern most aspects of United Security Bank's business, including required reserves on deposits, investments, loans, certain of their check clearing activities, issuance of securities, payment of dividends, branching and numerous other matters. As a consequence of the extensive regulation of commercial banking activities in California and the United States, United Security Bank's business is particularly susceptible to changes in California and federal legislation and regulations which may have the effect of increasing the cost of doing business, limiting permissible activities or increasing competition.
Impact of Monetary Policies: Banking is a business which depends on interest rate differentials. In general, the difference between the interest paid by United Security Bank on its deposits and its other borrowings and the interest received by United Security Bank on loans extended to its customers and securities held in its portfolio, comprises the major portion of United Security Bank's earnings. These rates are highly sensitive to many factors which are beyond the control of United Security Bank. Accordingly, the earnings and growth of United Security Bank are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment.
The earnings and growth of United Security Bank are affected not only by general economic conditions, both domestic and international, but also by the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve Board. The Federal Reserve Board can and does implement national monetary policy such as seeking to curb inflation and combat recession, by its open market operations in U.S. Government securities, by adjusting the required level of reserves for financial institutions subject to reserve requirements
and by varying the discount rates applicable to borrowings by banks from the Federal Reserve System. The actions of the Federal Reserve Board influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact that future changes in fiscal or monetary policies or economic controls may have on United Security Bank's business and earnings cannot be predicted. In addition, adverse economic conditions could make a higher provision for loan losses a prudent course and could cause higher loan charge-offs, thus adversely affecting United Security Bank's net income.
Recent Legislation and Other Changes: From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory agencies. Certain of the potentially significant changes which have been enacted recently and others which are currently under consideration by Congress or various regulatory agencies are discussed below.
The Federal Reserve Board and the Secretary of the Treasury in January 2001 jointly adopted a final rule governing merchant banking investments made by financial holding companies. The rule implements provisions of the Gramm-Leach-Bliley Act discussed below that permit financial holding companies to make investments as part of a bona fide securities underwriting or merchant or investment banking activity. The rule provides that a financial holding company may not, without Federal Reserve Board approval, directly or indirectly acquire any additional shares, assets or ownership interests or make any additional capital contribution to any company the shares, assets or ownership interests of which are held by the financial holding company subject to the rule if the aggregate carrying value of all merchant banking investments held by the financial holding company exceeds:
o 30 percent of the Tier 1 capital of the financial holding company, or
o after excluding interests in private equity funds, 20 percent of the Tier 1 capital of the financial holding company.
A separate final rule will establish the capital charge of merchant banking investments for the financial holding company.
The American Homeownership and Economic Opportunity Act of 2000 was enacted in late 2000 and provides for certain regulatory and financial relief to depository institutions. With respect to savings and loan associations, the Home Owners' Loan Act was amended to
o repeal the savings association liquidity requirements, and
o permit a savings and loan holding company with prior approval to acquire more than 5% of the voting shares of a nonsubsidiary savings association or nonsubsidiary savings and loan holding company.
With respect to national banks, the Banking Act of 1933 was amended to allow a national bank to
o specifically reorganize into a bank holding company structure or merge with subsidiaries and nonbank affiliates
o have more than 25 directors as may be allowed by the Comptroller,
o have director terms of up to three years,
o have a classified board, and
o allow the repurchase of stock to prevent loss upon a previously contracted debt without having to dispose of it within a period of six months.
In addition, federal banking law was amended to authorize the Comptroller to waive the citizenship requirement for a minority of the directors on national bank board and to repeal the 20% surplus requirement for national banks. As to depository institutions, in general, the federal banking agencies are to develop a system for the electronic filing and dissemination of depository institution call reports.
The Gramm-Leach-Bliley Act ("GLBA") was enacted in late 1999. GLBA, among other things, repeals the Glass-Steagall Act. The Glass-Steagall Act enacted in the depression era prohibited banks from affiliating with securities firms. In addition, GLBA allows for a new type of bank holding company under the Bank Holding Company Act. The new bank holding company will be allowed to engage in insurance and securities underwriting, merchant banking and insurance company portfolio investment activities. Currently, bank holding companies are strictly limited in the amount of insurance and securities underwriting activities in which they may engage.
GLBA also allows bank holding company companies to engage in any activity considered "financial" in nature or incidental to such financial activities. Under the existing Bank Holding Company Act, incidental activities are limited to those that are "banking" in nature or incidental to such banking activities.
Financial activities include, as well as lending, providing insurance as an agent, broker or as principal, issuing annuities, underwriting, and dealing in or making a market in securities. All insurance activities that are to be conducted must be conducted in compliance with applicable state laws. In connection with insurance sales the United States Supreme Court case of Barnett Bank of Marion County N.A. v. Nelson, 116 S. Ct. 1103 (1996) is followed by GLBA, and GLBA further provides that "no state may, by statute, regulation, order, interpretation, or other action, prevent or significantly interfere with the ability of an insured depository institution, or a subsidiary or affiliate thereof, to engage, directly or indirectly, either by itself or in conjunction with a subsidiary, affiliate, or any other party, in any insurance sales, solicitation, or cross-marketing activity."
The Community Reinvestment Act provisions in GLBA require that any new bank holding company that is formed meet the conditions that all of the company's insured depository institutions are well capitalized and well managed or received at least a satisfactory rating in the most recent Community Reinvestment Act examination.
Other key aspects of GLBA include the following:
o streamlining bank holding company supervision by defining the roles of the Federal Reserve and other federal and state regulators;
o prohibiting FDIC assistance to affiliates and subsidiaries of banks and thrifts;
o allowing a national bank that is well capitalized and well managed to establish new operating subsidiaries that may engage in financial activities other than insurance underwriting, merchant banking, insurance company portfolio investments, real estate development and real estate investment, so long as the aggregate assets of all financial subsidiaries do not exceed 45% of the parent's assets or $50 billion, whichever is less;
o permitting national banks to underwrite municipal bonds;
o providing that securities activities conducted by a bank subsidiary will be subject to regulation by the Securities and Exchange Commission;
o providing that insurance activities conducted by a bank subsidiary will be subject to regulation by the applicable state insurance authority;
o replacing broker-dealer exemptions allowed to banks with limited exemptions;
o providing that de novo unitary thrift holding company applications received by the Office of Thrift Supervision after May 4, 1999 shall not be approved;
o providing that existing unitary thrift holding companies may only be sold to financial companies;
o adopting new privacy provisions which allow customers to "opt out" of sharing nonpublic personal information with nonaffiliated third parties subject to certain exceptions;
o requiring that ATM's which impose a fee on noncustomers to disclose on the ATM screen the amount of the fee prior to a transaction becoming irrevocable on the ATM;
o providing regulatory relief to smaller banks with less than $250 million in total assets with respect to the frequency of CRA examinations. The time between examinations may be as long as five years for small banks and savings and loans; and
o requiring plain language for federal banking agency regulations.
On October 1, 1998, the FDIC adopted two new rules governing minimum capital levels that FDIC-supervised banks must maintain against the risks to which they are exposed. The first rule makes risk-based capital standards consistent for two types of credit enhancements (i.e., recourse arrangements and direct credit substitutes) and requires different amounts of capital for different risk positions in asset securitization transactions. The second rule permits limited amounts of unrealized gains on equity securities to be recognized for risk-based capital purposes.
In August 1997, Assembly Bill 1432 ("AB1432") was signed into law, which provides for certain changes in the banking laws of California. Effective January 1, 1998 AB1432 eliminates the provisions regarding impairment of contributed capital and the assessment of shares when there is an impairment of capital. AB1432 now allows the California Department of Financial Institutions to close a bank, if the Department of Financial Institutions finds that the bank's tangible shareholders' equity is less than the greater of 3% of the bank's total assets or $1 million. AB1432 also moved administration of the Local Agency Program from the California Department of Financial Institutions to the California State Treasurer's office.
The Economic Growth and Regulatory Paperwork Reduction Act (the "1996 Act") as part of the Omnibus Appropriations Bill, was enacted on September 30, 1996 and includes many banking related provisions. The most important banking provision is the recapitalization of the Savings Association Insurance Fund ("SAIF"). The 1996 Act provides for a one time assessment, payable on November 30, 1996, of approximately 65 basis points per $100 of deposits of SAIF insured deposits including SAIF insured deposits which were assumed by banks in acquisitions of savings associations. For the years 1997 through 1999 the banking industry will assist in the payment of interest on Financing Corporation ("FICO") bonds that were issued to help pay for the clean up of the savings and loan industry. After the Year 2000, banks will pay approximately 2.4 cents per $100 of deposits until the FICO bonds mature in 2017. There is a three year moratorium on conversions of SAIF deposits to Bank Insurance Fund ("BIF") deposits. The 1996 Act also has certain regulatory relief provisions for the banking industry. Lender liability under the Superfund is eliminated for lenders who foreclose on property that is contaminated provided that the lenders were not involved with the management of the entity that contributed to the contamination. There is a five year sunset provision for the elimination of civil liability under the Truth in Savings Act. The Federal Reserve Board and Department of Housing and Urban Development are to develop a single format for Real Estate Settlement Procedures Act and Truth in Lending Act ("TILA") disclosures. TILA disclosures for adjustable mortgage loans are to be simplified. Significant revisions are made to the Fair Credit Reporting Act ("FCRA") including requiring that entities which provide information to credit bureaus conduct an investigation if a consumer claims the information to be in error. Regulatory agencies may not examine for FCRA compliance unless there is a consumer complaint investigation that reveals a violation or where the agency otherwise finds a violation. In the area of the Equal Credit Opportunity Act, banks that self-test for compliance with fair lending laws will be protected from the results of the test provided that appropriate corrective action is taken when violations are found.
It is impossible to predict what effect the enactment of certain of the above-mentioned legislation will have on United Security Bank and on the financial institutions industry in general. Moreover, it is likely that other bills affecting the business of banks may be introduced in the future by the United States Congress or California legislature.
Capital Ratios
As of December 31, 2001, United Security Bank's leverage ratio was 8.81%, its Tier 1 risk-based capital ratio was 9.65%, and its total risk-based capital ratio was 10.85%. Based upon these capital ratios and United Security Bank's standing with the Federal Reserve Board, United Security Bank is considered a well capitalized institution.
Selected Financial Information
The following table sets forth selected financial date of United Security Bank as of December 31, 2000, 1999, 1998, 1997 and 1996, respectively:
(Dollars in thousands,
except per share data) 2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Interest income $28,941 $21,920 $21,519 $17,267 $14,866
Interest expense 11,544 7,925 8,605 6,331 6,036
Provision for loan losses 1,580 1,025 1,200 1,200 700
Other income 2,537 2,780 2,797 2,354 2,161
Other expense 8,648 7,897 7,591 5,806 4,688
------- ------- ------- ------- -------
Net income 6,257 4,923 4,216 3,741 3,327
Earnings per share (basic) 1.16 .95 .82 .74 .66
Total assets 356,832 281,531 279,950 243,596 161,733
Total deposits 271,862 238,863 252,474 220,066 141,784
Total equity 33,749 28,316 24,989 21,651 18,591
|
Price Range of United Security Bank's Common Stock
The shares of United Security Bank's common stock are traded on NASDAQ under the symbol "UBFO". The shares of United Security Bank's common stock are not listed on a national exchange, and there is no established public market for United Security Bank common stock. United Security Bank currently has three market makers in its shares of common stock. These include Van Kasper & Company, Sutro & Company, and Hill, Thompson, Magid. United Security Bank is also aware of three securities dealers: Everen Securities, Smith Barney and Dean Witter Reynolds Inc., which periodically act as brokers in United Security Bank's common stock. The high and low sales prices and volume of trades concerning United Security Bank's common stock are provided in the chart below.
Sales Prices(1)
------------------------- Number of
Calendar Quarter High Low Shares Traded(1)
---------------- ------ ------- ----------------
2001
First quarter $17.75 $15.75 101,900
2000
Fourth quarter $17.38 $16.31 107,700
Third quarter $17.25 $16.50 225,200
Second quarter $18.00 $15.00 136,000
First quarter $20.50 $17.50 103,700
1999
Fourth quarter $20.88 $16.00 124,470
Third quarter $15.83 $13.67 114,700
Second quarter $13.67 $13.33 113,800
First quarter $14.00 $13.33 89,800
----------
|
(1) Since the beginning of 1999, United Security Bank has issued one three-for-one stock split on October 1, 1999. The sales prices and number of shares have been retroactively adjusted for the stock split.
Dividends
United Security Bank has paid cash dividends of $.066 per share on January 27, 1999, April 28, 1999 and July 28, 1999; cash dividends of $.08 per share on October 27, 1999, January 28, 2000 and April 26, 2000; and cash dividends of $.10 per share on July 26, 2000, October 25, 2000 and January 24, 2001. The payment of dividends in the future is subject to the discretion of the Board of Directors of United Security Bank and will depend on United Security Bank's earnings, financial condition and other relevant factors, including applicable regulatory orders and restrictions with respect to dividends. United Security Bank issued a two-for-one stock dividend on January 22, 1997 to shareholders of record as of January 16, 1997; and issued a three-for-one stock dividend on October 1, 1999 to shareholders of record as of September 15, 1999. After the reorganization, it is expected that United Security Bank will pay a dividend to United Security Bancshares in the amount of approximately $30,000 to pay for the reorganization costs and initial capitalization and provide United Security Bancshares with working capital. If the reorganization is approved, dividends to shareholders may be paid by United Security Bancshares. The payment of cash dividends by United Security Bancshares in the future is subject to the discretion of the Board of Directors of United Security Bancshares and will depend on United Security Bank paying a cash dividend to United Security Bancshares. United Security Bank's ability to pay a cash dividend to United Security Bancshares will depend on United Security Bank's earnings, financial condition and other relevant factors, including applicable regulatory orders and restrictions with respect to dividends. No cash dividends by United Security Bancshares are expected to be paid in the immediate future.
Unaudited Pro Forma Capitalization
The following table sets forth the unaudited actual capitalization of United Security Bank at December 31, 2000, the proposed capitalization of USB Merger Company and United Security Bancshares immediately prior to completion of the reorganization, and the pro forma capitalization of United Security Bank and United Security Bancshares on a consolidated basis to reflect the completion of the reorganization.
Pro Forma of
United Security
Bancshares and
United Security USB United Security United Security
Bank(1) Merger Company(2) Bancshares(3) Bank
--------------- ----------------- --------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Shareholders' Equity:
Common stock $19,178,104 $ 100 $ 150 $19,178,104
Other capital accounts 14,571,115 0 0 14,571,115
----------- ----- ----- -----------
Total $33,749,219 $ 100 $ 150 $33,749,219
=========== ===== ===== ===========
Per Share Data:
Common stock
Authorized 10,000,000 1,000,000 10,000,000 10,000,000
Outstanding 5,458,606 100 100 5,458,606
|
(1) Capital stock and outstanding shares are stated as of December 31, 2000.
(2) Funds to capitalize USB Merger Company were obtained by issuing 100 shares to United Security Bancshares for $100. At the time of the reorganization, United Security Bancshares will receive $100, and the shares of USB Merger Company common stock will be exchanged for shares of United Security Bank common stock.
(3) Funds to capitalize United Security Bancshares were obtained by a loan in the amount of $30,000 and the issuing of a total of 100 shares of United Security Bancshares for the sum of $150.00 Upon completion of the reorganization, the loan will be repaid and the 100 shares will be repurchased by United Security Bancshares.
As of December 31, 2000, United Security Bank had issued and outstanding 5,458,606 shares of common stock which, based upon the December 31, 2000 total shareholders' equity of United Security Bank of $33.7 million results in a book value of $6.18 per share for United Security Bank common stock. After the reorganization and the one-for-one share exchange of United Security Bank common stock for United Security Bancshares common stock, and based on the shares outstanding as of the March 20, 2001 record date, United Security Bancshares will have 5,486,906 shares of common stock issued and outstanding, plus any additional shares up to 345,130 shares of common stock which become outstanding pursuant to the exercise of outstanding stock options under United Security Bank's 1995 stock option plan.
Financial Statements and Related Matters
United Security Bank's audited statements of condition as of December 31, 2000 and 1999 and related audited statements of earnings, changes in stockholders' equity and cash flows for each of the years ended December 31, 2000 and 1999, prepared in conformity with generally accepted accounting principles, report of independent public accountants, management's discussion and analysis of financial condition and the results of operations are set forth in United Security Bank's 2000 Annual Report to Shareholders which is being delivered with this proxy statement/prospectus.
Management of United Security Bank
Directors and Executive Officers
The following table sets forth, as of March 20, 2001, the names of, and certain information regarding, the directors of United Security Bank.
Year First Principal Occupation
Name and Title Appointed During the
Other than Director Age Director Past Five Years
----------------------- --- ----------- --------------------------------------
William J. Asbury, 55 1986 Orthodontist.
D.D.S.
Robert G. Bitter, 62 1986 Clinical Pharmacist at Madera
Pharm. D., Secretary Community Hospital and Owner of
Berenda Creek Ranch and Partner in
Selma Shopping Center.
Stanley J. Cavalla 50 2000 Vice President of Suburban Steel,
Inc. and Vice President of Tri State
Stairway Corp.
Tom Ellithorpe 58 1986 Owner of Insurance Buying Service.
Ronnie D. Miller 59 1986 President of Ron Miller Enterprises,
Vice Chairman Inc., dba Fresno Motor Sales and
Fresno Commercial Lenders.
Mike Munoz, Jr. 58 2001 President of Ventura Supermarket,
Inc., President of R & M Supermarket,
Inc., President of Selma Cost Less
Market, Inc. and President of Dinuba
Cost Less Supermarket, Inc.
Walter Reinhard 71 1991 Retired. Owner of Reinhard's Cabinet.
John Terzian 68 1986 Retired. Former owner of Tollhouse
Enterprises, Inc., dba Peacock Market.
Bobbi Thomason 71 1995 Owner of Thomason Tractor Company of
California.
Evan Weeth 66 1995 Private investor.
Dennis R. Woods 53 1986 Chairman of the Board, President and
Chairman, President and Chief Executive Officer of United
Chief Executive Officer Security Bank.
|
All of the above directors, other than Dr. Asbury and Mr. Weeth who are resigning immediately prior to the meeting, are nominees for the members of United Security Bank's Board of Directors. In addition, all of the directors named above, other than Mr. Munoz, Jr., have served as members of United Security Bank's Board of Directors during the year 2000. Mr. Munoz, Jr. was appointed as a director on March 28, 2001. All nominees will continue to serve if elected at the meeting until the 2002 annual meeting of shareholders and until their successors are elected and have been qualified. None of the directors were selected pursuant to any arrangement or understanding other than with the directors and executive officers(1) of United Security Bank acting within their capacities as such. There are no family relationships between any of the directors of United Security Bank. No director of United Security Bank serves as a director of any company which has a class of securities registered under, or which is subject to the periodic reporting requirements of, the Securities Exchange Act of 1934, or of any company registered as an investment company under the Investment Company Act of 1940.
The Board of Directors and Committees
United Security Bank's Board of Directors met twelve (12) times in 2000. None of United Security Bank's directors attended less than 75 percent of all Board of Directors' meetings and committee meetings of which they were a member.
United Security Bank has an audit committee which meets as needed to review examinations of the Federal Reserve Board, the Department of Financial Institutions and Moss Adams LLP, United Security Bank's auditor. The audit committee consists of Ms. Thomason (chairman), and all outside directors. Mr. Woods does not serve on the audit committee. The audit committee met five (5) times during 2000. The audit committee functions are to review all internal and external audits, report any significant findings to the Board of Directors, and ensure that the internal audit plans are met, programs are carried out, and weaknesses are promptly responded to. The audit committee meets annually to discuss and review the overall audit plan. The Board of Directors has adopted a written charter for the audit committee which is attached as Exhibit B to this proxy statement/prospectus.
Audit Committee Report
This report of the audit committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that United Security Bank specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Acts.
The audit committee has reviewed United Security Bank's audited financial statements and discussed such statements with management. The audit committee has discussed with
(1) As used in this proxy statement, the term "executive officer" of United Security Bank includes the President/Chief Executive Officer, Senior Vice President/Chief Financial Officer, Senior Vice President/Chief Credit Officer and Senior Vice President/Chief Operating Officer.
Moss Adams LLP, United Security Bank's independent auditors during the year 2000, the matters required to be discussed by Statement of Auditing Standards No. 61 (Communication with Audit and Finance Committees, as amended).
The audit committee received written disclosures and a letter from Moss Adams LLP, required by Independence Standards Board Standard No. 1 and has discussed with them their independence from management. The audit committee has also considered whether the independent auditors' provision of other non-audit services is compatible with the auditors' independence.
Based on the review and discussions noted above, the audit committee recommended to the Board of Directors that United Security Bank's audited financial statements be included in United Security Bank's Annual Report on Form 10-K for the year ended December 31, 2000, for filing with the Federal Reserve Board.
The audit committee has also confirmed that there have been no new circumstances or developments since their respective appointments to the audit committee that would impair any member's ability to act independently.
The Audit Committee
Bobbi Thomason, Chairman Ronnie Miller
William Asbury Walter Reinhard
Robert Bitter John Terzian
Stanley Cavalla Evan Weeth
Tom Ellithorpe
|
United Security Bank has a personnel committee which met one (1) time in 2000. The personnel committee consists of Mr. Ellithorpe (chairman) and Messrs. Cavalla, Miller, Weeth and Woods. The purpose of the personnel committee is to set policies, review salary recommendations, grant stock options and approve other personnel matters which are in excess of management's authority.
Personnel Committee Report
Compensation Policies
The personnel committee establishes the overall executive compensation guidelines of United Security Bank and establishes the compensation plans and specific compensation levels of the Chief Executive Officer and other executive officers. The personnel committee reviews its approach to executive compensation annually.
The personnel committee believes that executive officer compensation should be closely aligned with the performance of United Security Bank on a short-term and long-term basis, and that such compensation should be structured to assist United Security Bank in attracting and retaining key executives critical to its long-term success. To that end, the personnel committee's
policy for compensation packages of executive officers consists of three components: (i) an annual base salary; (ii) the potential to earn incentive bonuses dependent on United Security Bank's performance and, in certain cases, individual performance as well, and (iii) stock option awards and salary continuation plans designed to link shareholder interests with those of executive management by providing long-term incentives to executive officers of United Security Bank. The performance based aspects, items (ii) and (iii) above, are considered major elements of the overall compensation program.
Executive Officer Compensation
Base Salary: Effective January 1, 1997, the personnel committee established a fixed based salary program whereby executive's base salaries were frozen. Future compensation increases are achieved through the performance based aspects of compensation. In establishing fixed base salaries, the personnel committee considered salaries of comparably sized California banks, banks earning between $3 and $4 million per year, as well as local area banks. The information was compiled from a variety of sources including the California Banker's Association, proxy materials, and other independent sources. However, executive officers may have their salaries adjusted from time to time as the size, complexity, and earnings of United Security Bank change, in order to ensure that total compensation remains competitive. The fixed based salary program was reviewed during 2000, and the base salaries were increased for the Chief Executive Officer and the other three executive officers as a result of the significant asset and earnings growth since the plan was first enacted in 1997.
Annual Incentives: The personnel committee believes that incentives for officers are a key component for ensuring continued growth in shareholder value through increased earnings. Accordingly, executive officers earn bonuses based upon United Security Bank achieving the Board approved "Annual Profit Plan Net Income" each year.
Additionally, with the exception of the Chief Executive Officer, executive officers can earn a Super Premier Bonus Program based on the percentage that United Security Bank's return on beginning equity exceeds 100% of the average return on beginning equity and operating income divided by average total assets of all California based Super Premier Performing Banks as reported by The Findley Reports. The Super Premier Bonus Program is designed to reward participating officers when United Security Bank's performance in these two areas exceed the average of the best rated banks in the state, according to The Findley Reports.
All executive officers are entitled to participate in United Security Bank's ESOP and 401(K) programs but are subject to more stringent matching bank contributions than other employees of United Security Bank, as required by regulation.
Long-term Incentives: Long-term incentives are provided through the grant of stock options to certain employees of United Security Bank including executive officers. Incentive stock options are granted at the market value prevailing on the date of grant and are intended to retain and motivate key management to improve United Security Bank's long-term shareholder value, as the options only have value if the market price of the underlying stock appreciates after the date granted. At December 31, 2000, stock options that have been granted to key
management and remain outstanding totaled 309,888 shares, including 159,988 to the Chief Executive Officer, 102,000 to other executive officers (3 total), and 47,900 to other senior management (3 total).
A component of United Security Bank's 401(k)/ESOP recognizes and rewards employees' contributions to its successful operation by enabling those employees to acquire a proprietary interest in its shares of common stock. Under the ESOP portion of the plan, United Security Bank contributes funds which are used to purchase United Security Bank's common stock from the open market, for each eligible employee's account in an amount proportionate to the employee's compensation. United Security Bank's contribution is at the discretion of the Board of Directors and had been 8% of employee compensation for each of the years since its inception in 1994 through 1999. For the year ended December 31, 2000, United Security Bank's contribution was 10% of employee compensation. Employees thereby have a vested interest in contributing on an ongoing basis to the profitability of United Security Bank, and with a vesting period of seven years, they have the additional incentive to remain with United Security Bank on a long-term basis.
Chief Executive Officer Compensation
Since Mr. Woods became the Chief Executive Officer in 1993, United Security Bank's performance and competitive position have improved significantly. United Security Bank's earnings have increased 550% since that time, and dividends have increased every year; a total of 180% over the period. Total assets, deposits, and loans have more than doubled during that same period. Much of this growth has come from mergers and acquisitions which in turn have strengthened United Security Bank's strategic position and competitive growth outlook for the future.
Base Salary: Mr. Woods is subject to the same fixed salary program as other executive officers in United Security Bank effective January 1, 1997. As such, the personnel committee targeted Mr. Woods' base salary at the competitive median for comparable sized California banks demonstrating comparable net earnings as taken from a variety of reliable sources. Mr. Woods' base salary of $165,000 at December 31, 1999 was increased to $239,000 during 2000 and was believed reasonable by the personnel committee based upon reference to competitive pay practices and the previously described compensation approach to executive officers. The personnel committee believes that the Performance Based Compensation Program, as it relates to the Chief Executive Officer, offers substantial additional compensation incentives to reward Mr. Woods for successful results.
Performance Based Compensation: Mr. Woods is eligible to participate in the same short-term and long-term incentive plans as the other executive officers of United Security Bank, except the Super Premier Bonus plan. In addition, the terms of the bonus plan for the Chief Executive Officer are different than the other executive officers.
Mr. Woods' entire performance based compensation is tied directly to net income of United Security Bank. Pursuant to the provisions of the Performance Based Compensation Plan for the Chief Executive Officer, Mr. Woods was awarded a cash bonus totaling $260,264 as a result of United Security Bank's performance during 2000.
As noted, United Security Bank's executive compensation policy is based primarily on performance. The personnel committee believes Mr. Woods has managed United Security Bank well, and has achieved above-normal results, not only in terms of earnings and asset growth, but also in overall stockholder value.
Members of the Personnel Committee
Dennis R. Woods Tom Ellithorpe Ronnie D. Miller G. Evan Weeth Stanley J. Cavalla |
The Personnel Committee Interlocks and Insider Participation
Messrs. Cavalla, Ellithorpe, Miller, Weeth and Woods served as members of the personnel committee during 2000. Mr. Woods serves as the President and Chief Executive Officer of United Security Bank. There are no personnel committee interlocks between United Security Bank and other entities involving United Security Bank's executive officers or Board members.
[The following table was depicted as a line chart in the printed material.]
Period Ending
--------------------------------------------------------------------------------------------
Index 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
--------------------------------------------------------------------------------------------
United Security Bank 100.00 133.32 238.52 288.65 418.42 357.65
S&P 500 100.00 122.86 163.86 210.64 254.97 231.74
SNL < $250M Bank Index 100.00 126.34 206.17 195.98 172.09 170.38
SNL < $500M Bank Index 100.00 128.71 219.41 200.34 185.44 178.90
|
United Security Bank also has a director performance committee which met five (5) times in 2000. The director performance committee consisted of Tom Ellithorpe (chairman) and Messrs. Cavalla, Miller and Woods. The purpose of the director performance committee is to evaluate the directors for various performance rating factors to determine each director's monthly director's fees and to make recommendations to the Board of Directors regarding nominees for election of directors.
Compensation of Directors and Executive Officers
Director Compensation
During 2000, directors of United Security Bank were compensated for monthly Board meetings based on a performance rating structure ranging from a minimum of $700 per meeting up to $1,000 per meeting. In addition, the vice chairman received an additional $200 per meeting and the secretary received an additional $250 per meeting. Also, directors, other than Mr. Woods, were paid $300 for their attendance at committee meetings, other than loan committee meetings, and were paid $400 for their attendance at loan committee meetings, if such committee meeting was held on a day other than the regular Board of Directors' meeting. During 2001, the directors of United Security Bank will continue to be compensated.
In September, 1995, each director of United Security Bank, other than Mr. Woods, received a stock option under United Security Bank's 1995 Stock Option Plan to acquire 15,000 shares of common stock, post 100% stock dividend and 3-for-1 stock split. The exercise price for these shares is $5.21 per share, post 100% stock dividend and 3-for-1 stock split. The options are for a term of ten years expiring in September, 2005. The vesting of the director options is 20% of the total option amount per year with the first 20% amount having vested in September, 1996.
Director Emeritus Plan
During 1995, United Security Bank also established a Directors Emeritus
Plan. Those directors who (i) retire as directors of United Security Bank or
(ii) retired as directors of Golden Oak Bank and who signed a shareholder's
agreement, are eligible to participate in the Directors Emeritus Plan. Each
Director Emeritus will be a lifetime position or until a Director Emeritus shall
sell a majority of his or her ownership in United Security Bank. Directors
Emeritus receive a monthly fee of $200, and receive preferential deposit and
customer service with free checking as long as they serve as a Director
Emeritus. Director Emeritus benefits terminate upon (i) the ultimate sale of
United Security Bank, (ii) the sale of a majority of the Director Emeritus'
shares of United Security Bank's common stock, or (iii) the finding by United
Security Bank's Board of Directors that the Director Emeritus is engaging in
activities or making statements which are detrimental to United Security Bank or
United Security Bank's public image.
Executive Officers
The following table sets forth information, as of March 20, 2001, concerning executive officers of United Security Bank:
Position and Principal Occupation
Name Age For the Past Five Years
------------------ --- --------------------------------------------------
Dennis R. Woods 53 President and Chief Executive Officer of United
Security Bank.
Kenneth L. Donahue 52 Senior Vice President and Chief Financial Officer
of United Security Bank
Rhodlee A. Braa 59 Senior Vice President and Chief Credit Officer of
United Security Bank.
David L. Eytcheson 60 Senior Vice President and Chief Operating Officer
of United Security Bank.
|
Executive Compensation
The persons serving as the executive officers of United Security Bank received during 2000, and are expected to continue to receive in 2001, cash compensation in their capacities as executive officers of United Security Bank.
The following Summary Compensation Table indicates the compensation of United Security Bank's executive officers.
Summary Compensation Table
-------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
-------------------------------------------------------------------------------------------------------------------------
Other
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs ($) ($)(3)
-------------------------------------------------------------------------------------------------------------------------
Dennis R. Woods 2000 $216,646(1) $201,680 0 0 0 0 $35,123
President and Chief ------------------------------------------------------------------------------------------
Executive Officer 1999 $180,973(2) $222,722 0 0 0 0 $30,834
------------------------------------------------------------------------------------------
1998 $180,973(2) $153,318 0 0 0 0 $25,283
-------------------------------------------------------------------------------------------------------------------------
Kenneth L. Donahue 2000 $99,691 $36,601 0 0 0 0 $23,961
Senior Vice President and ------------------------------------------------------------------------------------------
Chief Financial Officer 1999 $86,994 $45,171 0 0 0 0 $20,126
------------------------------------------------------------------------------------------
1998 $87,518 $36,073 0 0 0 0 $19,012
-------------------------------------------------------------------------------------------------------------------------
David L. Eytcheson 2000 $99,691 $36,601 0 0 0 0 $23,966
Senior Vice President and ------------------------------------------------------------------------------------------
Chief Operating Officer 1999 $86,797 $45,171 0 0 0 0 $20,110
------------------------------------------------------------------------------------------
1998 $87,518 $36,961 0 0 0 0 $18,008
-------------------------------------------------------------------------------------------------------------------------
Rhodlee A. Braa 2000 $99,045 $36,601 0 0 0 0 $23,869
Senior Vice President and ------------------------------------------------------------------------------------------
Chief Credit Officer 1999 $86,458 $45,171 0 0 0 0 $20,056
------------------------------------------------------------------------------------------
1998 $87,424 $34,500 0 0 0 0 $18,795
-------------------------------------------------------------------------------------------------------------------------
|
(1) Includes $11,800 in directors fees.
(2) Includes $10,800 in directors fees.
(3) This amount represents United Security Bank's contribution under United
Security Bank's Cash or Deferred 401(k) Plan, United Security Bank's
Employee Stock Ownership Plan and the cost of premiums for excess
disability, medical and life insurance.
Option/SAR Exercises and Year-End Value Table
Aggregated Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR Value
-------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
-------------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised In-
Unexercised the-Money
Options/SARs at Options/SARs at
Year-End (#) Year-End ($)
Shares Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
-------------------------------------------------------------------------------------------------------------------------
Dennis R. Woods 30,970 $401,202 Options Only Options Only
115,990/45,000 $1,120,091/$382,275
-------------------------------------------------------------------------------------------------------------------------
Kenneth L. Donahue 60,000 $820,200 Options Only Options Only
18,000/12,000 $108,810/$72,540
-------------------------------------------------------------------------------------------------------------------------
David L. Eytcheson 24,000 $358,080 Options Only Options Only
18,000/12,000 $108,810/$72,540
-------------------------------------------------------------------------------------------------------------------------
Rhodlee A. Braa 48,000 $612,000 Options Only Options Only
30,000/12,000 $145,523/$72,540
-------------------------------------------------------------------------------------------------------------------------
|
Mr. Woods has a salary continuation agreement with United Security Bank which provides that United Security Bank will pay him $100,000 per year for 15 years following his retirement from United Security Bank at age 61 ("Retirement Age"). In the event of disability while Mr. Woods is actively employed prior to Retirement Age, he will have the option to take a benefit amount based on the vesting schedule below for 15 years beginning at the earlier of the time when he reaches age 61 or the date on which he is no longer entitled to disability benefits under his principal disability insurance policy. In the event Mr. Woods dies while actively employed by United Security Bank prior to Retirement Age, his beneficiary will receive from United Security Bank $100,000 per year for 15 years beginning one month after his death. In the event of termination without cause, early retirement, or voluntary termination, Mr. Woods shall receive a benefit amount based on the vesting schedule below for 15 years beginning with the month following the month in which Mr. Woods terminates employment and attains age 61. The vesting schedule is 25% for the first year of service beginning July 3, 1996, 15% for the second year of service, 10% for the third year of service, 6% per year of service for the following eight years of service and 2% for the twelfth year of service. In the event Mr. Woods is terminated for cause he will forfeit any benefits from the salary continuation agreement.
In addition, Mr. Woods also has an Agreement with United Security Bank for severance compensation in the event there is a change in control of United Security Bank. The Agreement is for a term of five years beginning August 19, 1996. Pursuant to the Agreement, in the event there is an Acquisition (as defined in the Agreement) of United Security Bank, and Mr. Woods is (i) not retained by the resulting corporation for a period of three years from the time of consummation of the Acquisition in a position comparable to that of the highest level executive vice president of the resulting corporation or a position accepted by Mr. Woods or (ii) the resulting corporation reduces Mr. Woods' base salary from his base salary at the closest time prior to the Acquisition by more than 10% at any time within three years after the time of consummation of the Acquisition, then the resulting corporation shall pay Mr. Woods a lump sum amount in cash equal to the sum of (i) the last three (3) years of his total compensation, inclusive of his base annual salary and bonus for each year in such three year period and (ii) the amount necessary to cover any "golden parachute taxes" that may be assessed pursuant to Section 280G of the Internal Revenue Code.
Mr. Donahue has a salary continuation agreement with United Security Bank which provides that United Security Bank will pay him $50,000 per year for 15 years following his retirement from United Security Bank at age 59 ("Retirement Age"). In the event of disability while Mr. Donahue is actively employed prior to Retirement Age, he will have the option to take a benefit amount based on the vesting schedule below for 15 years beginning at the earlier of the time when he reaches age 59 or the date on which he is no longer entitled to disability benefits under his principal disability insurance policy. In the event Mr. Donahue dies while actively employed by United Security Bank prior to Retirement Age, his beneficiary will receive from United Security Bank $50,000 per year for 15 years beginning one month after his death. In the event of termination without cause, early retirement, or voluntary termination, Mr. Donahue shall receive a benefit amount based on the vesting schedule below for 15 years beginning with the month following the month in which Mr. Donahue terminates employment and attains age 59. The vesting schedule is 8.33% for each year of service beginning January 1, 1997. In the event
Mr. Donahue is terminated for cause he will forfeit any benefits from the salary continuation agreement.
In addition, Mr. Donahue also has an Agreement with United Security Bank
for severance compensation in the event there is a change in control of United
Security Bank. The Agreement is for a term of five years beginning February 24,
1997. Pursuant to the Agreement, in the event there is an Acquisition (as
defined in the Agreement) of United Security Bank, and Mr. Donahue is (i) not
retained by the resulting corporation for a period of one year from the time of
consummation of the Acquisition in a position comparable to that of a vice
president of the resulting corporation or a position accepted by Mr. Donahue or
(ii) the resulting corporation reduces Mr. Donahue's base salary from his base
salary at the closest time prior to the Acquisition by more than 10% at any time
within one year after the time of consummation of the Acquisition, then the
resulting corporation shall pay Mr. Donahue a lump sum amount in cash equal to
the sum of (i) his last year's total compensation, inclusive of his base annual
salary and bonus and (ii) the amount necessary to cover any "golden parachute
taxes" that may be assessed pursuant to Section 280G of the Internal Revenue
Code.
Mr. Eytcheson has a salary continuation agreement with United Security Bank which provides that United Security Bank will pay him $50,000 per year for 15 years following his retirement from United Security Bank at age 68 ("Retirement Age"). In the event of disability while Mr. Eytcheson is actively employed prior to Retirement Age, he will have the option to take a benefit amount based on the vesting schedule below for 15 years beginning at the earlier of the time when he reaches age 68 or the date on which he is no longer entitled to disability benefits under his principal disability insurance policy. In the event Mr. Eytcheson dies while actively employed by United Security Bank prior to Retirement Age, his beneficiary will receive from United Security Bank $50,000 per year for 15 years beginning one month after his death. In the event of termination without cause, early retirement, or voluntary termination, Mr. Eytcheson shall receive a benefit amount based on the vesting schedule below for 15 years beginning with the month following the month in which Mr. Eytcheson terminates employment and attains age 68. The vesting schedule is 8.33% for each year of service beginning January 1, 1997. In the event Mr. Eytcheson is terminated for cause he will forfeit any benefits from the salary continuation agreement.
In addition, Mr. Eytcheson also has an Agreement with United Security Bank for severance compensation in the event there is a change in control of United Security Bank. The Agreement is for a term of five years beginning February 24, 1997. Pursuant to the Agreement, in the event there is an Acquisition (as defined in the Agreement) of United Security Bank, and Mr. Eytcheson is (i) not retained by the resulting corporation for a period of one year from the time of consummation of the Acquisition in a position comparable to that of a vice president of the resulting corporation or a position accepted by Mr. Eytcheson or (ii) the resulting corporation reduces Mr. Eytcheson's base salary from his base salary at the closest time prior to the Acquisition by more than 10% at any time within one year after the time of consummation of the Acquisition, then the resulting corporation shall pay Mr. Eytcheson a lump sum amount in cash equal to the sum of (i) his last year's total compensation, inclusive of his base annual salary and bonus and (ii) the amount necessary to cover any "golden parachute taxes" that may be assessed pursuant to Section 280G of the Internal Revenue Code.
Mr. Braa has a salary continuation agreement with United Security Bank which provides that United Security Bank will pay him $50,000 per year for 15 years following his retirement from United Security Bank at age 66 ("Retirement Age"). In the event of disability while Mr. Braa is actively employed prior to Retirement Age, he will have the option to take a benefit amount based on the vesting schedule below for 15 years beginning at the earlier of the time when he reaches age 66 or the date on which he is no longer entitled to disability benefits under his principal disability insurance policy. In the event Mr. Braa dies while actively employed by United Security Bank prior to Retirement Age, his beneficiary will receive from United Security Bank $50,000 per year for 15 years beginning one month after his death. In the event of termination without cause, early retirement, or voluntary termination, Mr. Braa shall receive a benefit amount based on the vesting schedule below for 15 years beginning with the month following the month in which Mr. Braa terminates employment and attains age 66. The vesting schedule is 8.33% for each year of service beginning January 1, 1997. In the event Mr. Braa is terminated for cause he will forfeit any benefits from the salary continuation agreement.
In addition, Mr. Braa also has an Agreement with United Security Bank for
severance compensation in the event there is a change in control of United
Security Bank. The Agreement is for a term of five years beginning February 24,
1997. Pursuant to the Agreement, in the event there is an Acquisition (as
defined in the Agreement) of United Security Bank, and Mr. Braa is (i) not
retained by the resulting corporation for a period of one year from the time of
consummation of the Acquisition in a position comparable to that of a vice
president of the resulting corporation or a position accepted by Mr. Braa or
(ii) the resulting corporation reduces Mr. Braa's base salary from his base
salary at the closest time prior to the Acquisition by more than 10% at any time
within one year after the time of consummation of the Acquisition, then the
resulting corporation shall pay Mr. Braa a lump sum amount in cash equal to the
sum of (i) his last year's total compensation, inclusive of his base annual
salary and bonus and (ii) the amount necessary to cover any "golden parachute
taxes" that may be assessed pursuant to Section 280G of the Internal Revenue
Code.
Independent Accountants
The firm of Moss Adams LLP served as certified independent public accountants for United Security Bank with respect to the year 2000, and Moss Adams LLP has been appointed as United Security Bank's certified independent public accountants for 2001. United Security Bank's Board has determined the firm of Moss Adams LLP to be fully independent of the operations of United Security Bank.
Aggregate fees billed by Moss Adams LLP to United Security Bank for the year ended 2000 are as follows:
Audit fees $67,304.50 Tax preparation $ 5,500.00
Moss Adams LLP audited United Security Bank's financial statements for the year ended December 31, 2000. It is anticipated that a representative of Moss Adams LLP will be present at the meeting and will be available to respond to appropriate questions from shareholders at the meeting.
Shareholder Proposals
Shareholder proposals to be submitted for presentation at the 2002 annual meeting of shareholders of United Security Bank must be received by United Security Bank no later than December 31, 2001.
Certain Transactions
Some of the directors and executive officers of United Security Bank and their immediate families, as well as the companies with which they are associated, are customers of, or have had banking transactions with, United Security Bank in the ordinary course of United Security Bank's business, and United Security Bank expects to have banking transactions with such persons in the future. In management's opinion, all loans and commitments to lend in such transactions were made in compliance with applicable laws and on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness and in the opinion of management did not involve more than a normal risk of collectibility or present other unfavorable features.
Other Matters
Management does not know of any matters to be presented at the meeting other than those set forth above. However, if other matters come before the meeting, it is the intention of the persons named in the accompanying proxy to vote the shares represented by the proxy in accordance with the recommendations of management on such matters, and discretionary authority to do so is included in the proxy.
Legal Matters
Certain legal matters in connection with the issuance of the shares of United Security Bancshares' common stock will be passed upon by Gary Steven Findley & Associates, Anaheim, California.
Exhibit A
PLAN OF REORGANIZATION AND MERGER AGREEMENT
This Plan of Reorganization and Merger Agreement ("Agreement") is made and entered into as of this ____ day of April, 2001 by and between United Security Bank (the "Bank") and USB Merger Company ("Subsidiary"), to which United Security Bancshares (the "Holding Company") is a party.
RECITALS AND UNDERTAKINGS
A. The Bank is a California banking corporation with its head banking office in Fresno, County of Fresno, State of California. Subsidiary and the Holding Company are each corporations duly organized and existing under the laws of the State of California with their principal offices in Fresno, County of Fresno, State of California.
B. As of the date hereof, the Bank has 10,000,000 shares of no par value common stock authorized and 5,489,906 shares outstanding. It is anticipated that prior to the Effective Date (as defined in Section 1.2 herein), the Bank will have no more than 5,832,036 shares outstanding, reflecting the number of shares of common shares outstanding as of the date of this Agreement (5,489,906) plus the possible exercise of all stock options presently granted but unexercised (342,088).
C. As of the date hereof, Subsidiary has an authorized maximum number of shares of capital stock of 1,000 shares, and at the Effective Date of the merger 100 of such shares will be issued and outstanding, all of which shares will be owned by the Holding Company.
D. As of the date hereof, the Holding Company has an authorized maximum number of shares of capital stock consisting of 10,000,000 shares of no par value common stock, 100 of which will be outstanding at the time of the merger referred to herein.
E. The Boards of Directors of the Bank and Subsidiary have, respectively, approved this Agreement and authorized its execution, and the Board of Directors of the Holding Company has approved this Agreement, undertaken that the Holding Company shall join in and be bound by it, and authorized the undertakings hereinafter made by the Holding Company.
F. The parties intend by this Agreement to set forth the terms and conditions of a "reorganization" under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements of the parties contained herein, the parties hereby agree as follows:
Section 1. General
1.1 The Merger. On the Effective Date, Subsidiary shall be merged into the Bank, and the Bank shall be the surviving corporation (the "Surviving Corporation") and a subsidiary of the Holding Company, and its name shall continue to be "United Security Bank."
1.2 Effective Date. This Agreement shall become effective at the close of business on the day on which this Agreement shall have been filed with the Secretary of State of the State of California in accordance with Section 1103 of the California General Corporation Law (the "Effective Date").
1.3 Articles of Incorporation and Bylaws. On the Effective Date, the Articles of Incorporation of the Bank, as in effect immediately prior to the Effective Date, shall be and remain the Articles of Incorporation of the Surviving Corporation; the Bylaws of the Bank shall be and remain the Bylaws of the Surviving Corporation until altered, amended or repealed; the certificate of authority of the Bank issued by the Commissioner of the California Department of Financial Institutions ("CDFI") shall be and remain the certificate of authority of the Surviving Corporation; and the Bank's insurance of deposits coverage by the Federal Deposit Insurance Corporation ("FDIC") shall be and remain the deposit insurance of the Surviving Corporation.
1.4 Directors and Officers of the Surviving Corporation. On the Effective Date, the directors and officers of the Bank immediately prior to the Effective Date shall be and remain the directors and officers of the Surviving Corporation. Directors of the Surviving Corporation shall serve until the next annual meeting of shareholders of the Surviving Corporation or until such time as their successors are elected and have qualified.
1.5 Effect of the Merger.
a. Assets and Rights. Upon the merger becoming effective, all rights, privileges, franchises and property of Subsidiary, and all debts and liabilities due or to become due to Subsidiary, including things in action and every interest or asset of conceivable value or benefit, shall be deemed fully and finally and without any right of reversion transferred to and vested in the Surviving Corporation without further act or deed, and the Surviving Corporation shall have and hold the same in its own right as fully as the same was possessed and held by Subsidiary.
b. Liabilities. Upon the merger becoming effective, all debts, liabilities, and obligations due or to become due of, and all claims or demands for any cause existing against Subsidiary shall be and become the debts, liabilities, obligations of, and the claims and demands against, the Surviving Corporation in the same manner as if the Surviving Corporation had itself incurred or become liable for them.
c. Creditors' Rights and Liens. Upon the merger becoming effective, all rights of creditors of Subsidiary, and all liens upon the property of Subsidiary, shall be preserved unimpaired, limited in lien to the property affected by the liens immediately prior to the time of the merger.
d. Pending Actions. Upon the merger becoming effective, any action or proceeding pending by or against Subsidiary shall not be deemed to have abated or been discontinued, but may be prosecuted to judgment, with the right to appeal or review as in other cases, as if the merger had not taken place or the Surviving Corporation may be substituted for Subsidiary.
1.6 Further Assurances. The Bank and Subsidiary each agree that at any time, or from time to time, as and when requested by the Surviving Corporation, or by its successors and assigns, it will execute and deliver, or cause to be executed and delivered in its name by its last acting officers, or by the corresponding officers of the Surviving Corporation, all such conveyances, assignments, transfers, deeds or other instruments, and will take or cause to be taken such further or other action as the Surviving Corporation, its successors or assigns may deem necessary or desirable, in order to evidence the transfer, vesting or devolution of any property right, privilege or franchise or to vest or perfect in or confirm to the Surviving Corporation, its successors and assigns, title to and possession of all the property, rights, privileges, powers, immunities, franchises and interests referred to in this Section 1 and otherwise to carry out the intent and purposes hereof.
Section 2. Capital Stock of the Surviving Corporation
2.1 Stock of Subsidiary. Upon the merger becoming effective, the shares of capital stock of Subsidiary issued and outstanding immediately prior to the Effective Date shall thereupon be converted into and exchanged by the Holding Company for 100 shares of fully paid and nonassessable common stock of the Bank as the Surviving Corporation.
2.2 Stock of the Bank. Upon the merger becoming effective, each and every share of common stock of the Bank issued and outstanding shall, by virtue of the merger and without any action on the part of the holders thereof, be exchanged for and converted into one share of fully paid and nonassessable common stock of the Holding Company, without par value.
2.3 Exchange of Stock. Upon the merger becoming effective:
a. at the time the merger becomes effective, the shareholders of record of the Bank shall be entitled to receive and shall be allocated one share of common stock of the Holding Company for each share of common stock of the Bank;
b. the Holding Company shall issue the shares of its common stock which the shareholders of the Bank shall be entitled to receive; and
c. each holder of a certificate representing shares of common stock of the Bank shall, upon presentation of such certificate for surrender to the Holding Company, be entitled to receive in exchange thereof, a certificate or certificates representing the number of shares of common stock of the Holding Company to which such holder shall be entitled. Until so surrendered, each outstanding certificate which prior to the merger represented shares of common stock of the Bank shall be deemed, for all corporate purposes, to evidence ownership of an equal number of shares of common stock of the Holding Company. On and after the Effective Date, each issued and outstanding share of common stock of the Bank shall represent one (1) share of common
stock of the Holding Company. Such certificates may, but need not be, surrendered and exchanged by the holders thereof after the Effective Date, for new certificates representing the number of shares of common stock of the Holding Company to which the shareholders are entitled as set forth in this Agreement. Certificates evidencing ownership of shares of common stock of the Holding Company shall be issued to the holders of lost or destroyed shares of common stock of the Bank upon presentation to the Holding Company of such evidence of ownership and agreement of indemnity as the Holding Company may reasonably require.
2.4 Stock Options. Upon and by reason of the merger becoming effective, the options to purchase shares of common stock of the Bank which have been granted by the Bank pursuant to the United Security Bank 1995 Stock Option Plan shall be deemed to be options granted by the Holding Company and the obligations of the Bank with respect thereto shall be assumed by the Holding Company with the same terms and conditions, and each option to acquire one share of common stock of the Bank which is not exercised prior to the Effective Date, shall be deemed to be an option to acquire one share of common stock of the Holding Company.
Section 3. Approvals
3.1 Shareholder Approval. This Agreement shall be submitted to the shareholders of the Bank and Subsidiary for ratification and approval in accordance with the applicable provisions of law.
3.2 Regulatory Approvals. The parties shall obtain the waivers, consents and approvals of all regulatory authorities as required by law for consummation of the merger and plan of reorganization on the terms herein provided, including, without being limited to, those consents and approvals referred to in Paragraph 4.1b.
Section 4. Conditions Precedent, Termination and Payment of Expenses
4.1 Conditions Precedent to the Merger. Consummation of the merger is conditioned upon:
a. ratification and approval of this Agreement by the shareholders of the Bank and Subsidiary, as required by law;
b. obtaining all other consents and approvals, and satisfaction of all other requirements prescribed by law which are necessary for consummation of the merger, including, but not limited to, approval of the FDIC if required, approval of the CDFI, approval of the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended, and any required action under the Securities Act of 1933 with respect to the securities of the Holding Company issuable upon consummation of the merger;
c. obtaining all consents or approvals, governmental or otherwise, which are or, in the opinion of counsel for the Bank may be, necessary to permit or enable the Surviving Corporation, upon and after the merger, to conduct all or any part of the business and activities of
the Bank up to the time of the merger, in the manner in which such activities and business are then conducted;
d. the Bank's obtaining for the Holding Company, prior to the Closing Date, a letter, in form and substance satisfactory to the Holding Company's legal counsel, signed by each person who is an "affiliate" of the Bank for purposes of Rule 145 of the Securities and Exchange Commission to the effect that (i) such person will not dispose of any shares of common stock of the Holding Company to be received pursuant to the reorganization and merger, in violation of the Securities Act of 1933 or the rules and regulations of the Securities and Exchange Commission promulgated thereunder, or in any event prior to such time as financial results covering at least 30 days of post-merger combined operations have been published, and (ii) such person consents to the placing of a legend on the certificate(s) evidencing such shares referring to the issuance of such shares in a transaction to which Rule 145 is applicable and to the giving of stop-transfer instructions to the Holding Company's transfer agent with respect to such certificate(s);
e. for the benefit of the Bank and unless waived, the Holding Company shall have received an opinion from a law firm or tax accounting firm, in form and substance satisfactory to both the Bank and the Holding Company, to the effect that: the merger of Subsidiary with and into the Bank and the exchange of shares of common stock of the Bank for shares of common stock of the Holding Company, as provided for herein, will be considered a reorganization within the meaning of Section 368(a)(1)(A) of the Code; no gain or loss will be recognized by the Bank pursuant to consummation of the merger; and no gain or loss will be recognized by the shareholders of the Bank upon the exchange of their shares of common stock of the Bank for shares of common stock of the Holding Company, as provided for herein; and
f. performance by each party hereto of all of its obligations hereunder to be performed prior to the merger becoming effective.
4.2 Termination of the Merger. If any condition in Paragraph 4.1 has not been fulfilled, or, if in the opinion of a majority of the Board of Directors of any of the parties:
a. any action, suit, proceeding or claim has been instituted, made or threatened relating to the proposed merger which makes consummation of the merger inadvisable; or
b. for any other reason consummation of the merger is inadvisable;
then this Agreement may be terminated at any time before the merger becomes effective. Upon termination, this Agreement shall be void and of no further effect, and there shall be no liability by reason of this Agreement or the termination thereof on the part of the parties or their respective directors, officers, employees, agents or shareholders, except as provided in Section 4.3 hereof.
4.3 Expenses of the Merger. Subject to applicable federal laws and regulations, each party shall bear its own expenses of the merger, including filing fees, printing costs, mailing costs, accountants' fees and legal fees.
Section 5. Miscellaneous
5.1 Assignment. Neither party shall have the right to assign its rights or obligations under this Agreement.
5.2 Execution. This Agreement may be executed in counterparts, each of which when so executed shall be deemed an original and such counterparts shall together constitute one and the same instrument.
5.3 Governing Law. This Agreement is made and entered into in the State of California, and the laws of said State shall govern the validity and interpretation hereof.
5.4 Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the plan of reorganization and merger and supersedes all prior arrangements or understandings with respect thereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written.
UNITED SECURITY BANK
USB MERGER COMPANY
UNITED SECURITY BANCSHARES
Exhibit B
Audit Committee Charter
United Security Bank
Membership
The Audit Committee will be composed of not less than three members of the board. They will be selected by the board, taking into account prior experience in matters to be considered by the committee, probable availability at times required for consideration of these matters, and their individual independence and objectivity.
The committee membership will meet the requirements of the of the audit committee policy of the Nasdaq. Accordingly, all of the members will be directors independent of management and free from any relationship that, in the opinion of the board of directors, would interfere with the exercise of independent judgment as a committee member.
No officer or employees of the company or its subsidiaries will server on the committee. A former officer of the company or any of its subsidiaries may serve on the committee (even though the former officer may be receiving pension or deferred compensation payments from the company) if, in the opinion of the board of directors, the former officer will exercise independent judgment and will materially assist the committee's function. However, a majority of the committee will be directors who were not formerly officers of the company or any of its subsidiaries.
In considering relationships that might affect independence, including possible affiliate status, the board of directors will give appropriate consideration to guidelines issued by NASDAQ as supplementary material to its audit committee policy, which were provided to assist boards of directors in observing the spirit of the policy.
Actions of the Committee
The activities of the committee may result in the following types of actions.
a. Those in the which the committee will inform the board that action has been taken in the board's interest and does not require prior board approval.
1. Review and approve the scope of the annual audit for the company and it's subsidiaries recommended jointly by the independent CPA's and the president.
2. Review and approve the scope of the company's annual profit and pension trusts audits.
3. When requested by the chairperson of the board during an annual shareholders' meeting, the committee chairperson will answer questions raised by a shareholder on matters relating to the committees activities.
4. Request the president to have the internal audit staff study a particular area of interest or concern.
b. Those which the committee will review and study and then recommend action by the board.
1. Appoint independent public accountants.
2. Review major accounting policy changes before implementation.
3. Review SEC registration statements before signature by other board members.
4. Review annual audit reports and the content of proposed published reports.
c. Those which the committee will review and study and provide summary information reports to the board when appropriate.
1. Review trends in accounting policy changes proposed or adopted by organizations such as the Financial Accounting Standards Board (FASB), The Securities and Exchange Commission (SEC), and the American Institute of Certified Public Accountants (AICPA) or by comparable bodies outside the United States.
2. Interview independent CPA's for review and analysis of strengths and weaknesses of the company's financial staff, systems, adequacy of controls, and other factors which might be pertinent to the integrity of published financial reports.
3. Participate in financial review preceding publication of quarterly reports.
4. Review administration of the company's "conflict of interest" policy.
5. Review the performance of management and operating personnel under the company's code of ethics.
6. Review insurance programs from the standpoint of gaps and exposure as well as fraud.
7. Review reports on the company or its subsidiaries by agencies of governments in countries where the company or its subsidiaries operate.
8. Review periodic SEC filings by the company and assure that adequate programs and procedures exist to comply with SEC regulations and regulations of securities exchanges such as Nasdaq.
PART II
Item 20. Indemnification of Directors and Officers
The Articles of Incorporation and Bylaws of United Security Bancshares ("Registrant") provide for indemnification of agents including directors, officers and employees to the maximum extent allowed by California law including the use of an indemnity agreement. Registrant's Articles further provide for the elimination of director liability for monetary damages to the maximum extent allowed by California law. The indemnification law of the State of California generally allows indemnification in matters not involving the right of the corporation, to an agent of the corporation if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation, and in the case of a criminal matter, had no reasonable cause to believe the conduct of such person was unlawful. California law, with respect to matters involving the right of a corporation, allows indemnification of an agent of the corporation, if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and its shareholders; provided that there shall be no indemnification for: (i) amounts paid in settling or otherwise disposing of a pending action without court approval; (ii) expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval; (iii) matters in which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which the proceeding is or was pending shall determine that such person is entitled to be indemnified; or (iv) other matters specified in the California General Corporation Law.
Registrant's Bylaws provide that Registrant shall to the maximum extent permitted by law have the power to indemnify its directors, officers and employees. Registrant's Bylaws also provide that Registrant shall have the power to purchase and maintain insurance covering its directors, officers and employees against any liability asserted against any of them and incurred by any of them, whether or not Registrant would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of Registrant's Bylaws.
Item 21. Exhibits
-------- --------
2. Agreement and Plan of Reorganization and Merger by and between
Registrant, USB Merger Company and United Security Bank dated as of
April __, 2001 attached as Exhibit A to the proxy
statement-prospectus contained in Part I of this Registration
Statement
3.1 Articles of Incorporation of Registrant
3.2 Bylaws of Registrant
4. Specimen form of certificate for United Security Bancshares common
stock
5. Opinion re: legality
10.1 Executive Salary Continuation Agreement for Dennis Woods
10.2 Change in Control Agreement for Dennis Woods
10.3 Executive Salary Continuation Agreement for Kenneth Donahue
|
II-1
Item 21. Exhibits (Continued)
-------- --------------------
10.4 Change in Control Agreement for Kenneth Donahue
10.5 Executive Salary Continuation Agreement for David Eytcheson
10.6 Change in Control Agreement for David Eytcheson
10.7 Executive Salary Continuation Agreement for Rhodlee Braa
10.8 Change in Control Agreement for Rhodlee Braa
10.9 Stock Option Agreement for Dennis Woods dated June 16, 1996
10.10 Stock Option Agreement for Dennis Woods dated July 21, 1997
10.11 Stock Option Agreement for Kenneth Donahue dated July 21, 1997
10.12 Stock Option Agreement for David Eytcheson dated July 21, 1997
10.13 Stock Option Agreement for Rhodlee Braa dated October 10, 1995
10.14 Stock Option Agreement for Rhodlee Braa dated July 21, 1997
10.15 United Security Bank 1995 Stock Option Plan and form of incentive
stock option and nonqualified stock option agreements.
13. United Security Bank's Annual Report to shareholders for 2000. No
portion of such annual report is incorporated by reference in the
proxy statement/prospectus and is provided for information
purposes only.
21. Sole Subsidiary of the Registrant is USB Merger Company, a
California corporation.
23.1 Consent of Counsel is included with the opinion re: legality as
Exhibit 5 to this Registration Statement.
99. Form of proxy to be utilized in connection with United Security
Bank's annual meeting.
|
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which,
II-2
individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the Registration Statement is on Form S-3 or Form S-8 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus with is part of the registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
Registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-3
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fresno, California, on April 3, 2001.
United Security Bancshares
/s/ Dennis R. Woods ---------------------------------------- Dennis R. Woods, President & CEO |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
/s/ Dennis R. Woods , Chairman and Principal April 3, 2001 ---------------------------- Executive Officer Dennis R. Woods /s/ William J. Asbury , Director April 3, 2001 ---------------------------- William J. Asbury, D.D.S. /s/ Robert G. Bitter , Director and Secretary April 3, 2001 ---------------------------- Robert G. Bitter, Pharm. D. /s/ Stanley J. Cavalla , Director April 3, 2001 ---------------------------- Stanley J. Cavalla /s/ Tom Ellithorpe , Director April 3, 2001 ---------------------------- Tom Ellithorpe /s/ Ronnie D. Miller , Vice Chairman April 3, 2001 ---------------------------- Ronnie D. Miller |
II-4
/s/ Mike Munoz, Jr. , Director April 3, 2001
----------------------------
Mike Munoz, Jr.
/s/ Walter Reinhard , Director April 3, 2001
----------------------------
Walter Reinhard
/s John Terzian , Director April 3, 2001
----------------------------
John Terzian
/s/ Bobbi Thomason , Director April 3, 2001
----------------------------
Bobbi Thomason
, Director ______, 2001
----------------------------
Evan Weeth
/s/ Kenneth L. Donahue , Principal Accounting & April 3, 2001
---------------------------- Financial Officer
Kenneth L. Donahue
|
II-5
Exhibit Index
Exhibit
No. Description
------- --------------------------------------------------------------------
3.1 Articles of Incorporation of Registrant
3.2 Bylaws of Registrant
4. Specimen form of certificate for United Security Bancshares common
stock
5. Opinion re: legality
10.1 Executive Salary Continuation Agreement for Dennis Woods
10.2 Change in Control Agreement for Dennis Woods
10.3 Executive Salary Continuation Agreement for Kenneth Donahue
10.4 Change in Control Agreement for Kenneth Donahue
10.5 Executive Salary Continuation Agreement for David Eytcheson
10.6 Change in Control Agreement for David Eytcheson
10.7 Executive Salary Continuation Agreement for Rhodlee Braa
10.8 Change in Control Agreement for Rhodlee Braa
10.9 Stock Option Agreement for Dennis Woods dated June 16, 1996
10.10 Stock Option Agreement for Dennis Woods dated July 21, 1997
10.11 Stock Option Agreement for Kenneth Donahue dated July 21, 1997
10.12 Stock Option Agreement for David Eytcheson dated July 21, 1997
10.13 Stock Option Agreement for Rhodlee Braa dated October 10, 1995
10.14 Stock Option Agreement for Rhodlee Braa dated July 21, 1997
10.15 United Security Bank 1995 Stock Option Plan and form of incentive
stock option and nonqualified stock option agreements.
13. United Security Bank's Annual Report to shareholders for 2000
99. Form of proxy to be utilized in connection with United Security
Bank's annual meeting
|
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
UNITED SECURITY BANCSHARES
ONE: NAME
The name of the corporation is:
United Security Bancshares
TWO: PURPOSE
The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporations Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
THREE: AUTHORIZED STOCK
The corporation is authorized to issue only one class of shares of stock, designated "common stock," and the total number of shares which the corporation is authorized to issue is ten million (10,000,000).
FOUR: DIRECTOR LIABILITY
The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
FIVE: INDEMNIFICATION
The corporation is authorized to indemnify its agents (as defined from time to time in Section 317 of the California Corporations Code) to the fullest extent permissible under California law. Any amendment, repeal or modification of the provisions of this Article shall not adversely affect any right or protection of an agent of the corporation existing at the time of such amendment, repeal or modification.
SIX: AGENT FOR SERVICE OF PROCESS
The name and address in this State of this corporation's initial agent for service of process is:
Gary Steven Findley
1470 North Hundley Street
Anaheim, California 92806
IN WITNESS WHEREOF, for the purpose of forming this corporation under the laws of the State of California, the undersigned, constituting the incorporator of this corporation, has executed these Articles of Incorporation.
Dated: February 28, 2001
/s/ Gary Steven Findley
----------------------------------------
Gary Steven Findley
|
I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed.
/s/ Gary Steven Findley ---------------------------------------- Gary Steven Findley |
Exhibit 3.2
BYLAWS
OF
UNITED SECURITY BANKSHARES
ARTICLE I
Offices
Section 1.1. Principal Office. The principal executive office of the corporation is hereby located at such place as the board of directors (the "board") shall determine. The board is hereby granted full power and authority to change said principal executive office from one location to another.
Section 1.2. Other Offices. Other business offices may, at any time, be established by the board at such other places as it deems appropriate.
ARTICLE II
Meetings of Shareholders
Section 2.1. Place of Meetings. Meetings of shareholders may be held at such place within or outside the state of California designated by the board. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation.
Section 2.2. Annual Meeting. The annual meeting of shareholders shall be held for the election of directors on a date and at a time designated by the board. The date so designated shall be within fifteen (15) months after the last annual meeting. At such meeting, directors shall be elected, and any other proper business within the power of the shareholders may be transacted.
Section 2.3. Special Meetings. Special meetings of the shareholders may be called at any time by the board, the chairperson of the board, the president, or by the holders of shares entitled to cast not less than ten percent (10%) of the votes at such meeting. If a special meeting is called by any person or persons other than the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or by registered mail to the chairperson of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after receipt of the request. If the notice is not given within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing in this paragraph shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board may be held.
Section 2.4. Notice of Meetings. Written notice, in accordance with Section 2.5 of this Article II, of each annual or special meeting of shareholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of the annual meeting, those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.
If action is proposed to be taken at any meeting for approval of (a) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the California Corporations Code, as amended (the
"Code"), (b) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (c) a reorganization of the corporation, pursuant to Section
1201 of the Code, (d) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (e) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall also state the general nature of that
proposal.
Section 2.5. Manner of Giving Notice. Notice of a shareholders' meeting shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office or if published at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. An affidavit of mailing or other means of giving any notice in accordance with the above provisions, executed by the secretary, assistant secretary or any transfer agent, shall be prima facie evidence of the giving of the notice.
If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders.
Section 2.6. Quorum. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.
Section 2.7. Adjourned Meeting and Notice Thereof. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy at the meeting, but in the absence of a quorum (except as provided in Section 2.6 of this Article II) no other business may be transacted at such meeting.
When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, when any shareholders' meeting is adjourned for more than 45 days from the date set for the original meeting, or, if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.
Section 2.8. Voting. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 2.9 of this Article II.
Voting of shares of the corporation shall in all cases be subject to the provisions of Sections 700 through 711, inclusive, of the Code.
The shareholders' vote may be by voice or ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal (other than the election of directors), but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the articles of incorporation.
Subject to the following sentence and the provisions of Section 708 of the Code, every shareholder entitled to vote at any election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes for any candidate or candidates pursuant to the preceding sentence unless such candidate's or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting and prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination.
In any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Votes against the director and votes withheld shall have no legal effect.
Section 2.9. Record Date. The board may fix, in advance, a record date for the determination of the shareholders entitled to notice of any meeting or to vote or to receive payment of any dividend or other distribution, or allotment of any rights, or to exercise any rights in respect of any other lawful action. The record date so fixed shall be not more than 60 days nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record date. A record date for a meeting of shareholders shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting. The board shall fix a new record date if the meeting is adjourned for more than 45 days.
If no record date is fixed by the board, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice of the meeting is given or, if notice is waived, the close of business on the business day next preceding the day on which the meeting is held. The record date for determining shareholders for any purpose other than as set forth in this Section 2.9 or Section 2.11 of this Article II shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action, whichever is later.
Section 2.10. Consent of Absentees. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, who was not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes of the meeting, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of this Article II, the waiver of notice, consent or approval shall state the general nature of the proposal.
Section 2.11. Action by Written Consent Without a Meeting. Subject to Section 603 of the Code, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, is signed by the holders of the outstanding shares, or their proxies, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records; provided, however, that (1) unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval without a meeting by less than unanimous consent shall be given, as
provided by Section 603(b) of the Code, and (2) in the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that subject to applicable law, a director may be elected at any time to fill a vacancy on the board that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. Any written consent may be revoked by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary.
Unless a record date for voting purposes be fixed as provided in Section 2.9 of this Article II, the record date for determining shareholders entitled to give consent pursuant to this Section 2.11, when no prior action by the board has been taken, shall be the day on which the first written consent is given.
Section 2.12. Proxies. Every person entitled to vote shares or execute written consents has the right to do so either in person or by one or more persons authorized by a written proxy executed and dated by such shareholder and filed with the secretary of the corporation prior to the convening of any meeting of the shareholders at which any such proxy is to be used or prior to the use of such written consent. A validly executed proxy which does not state that it is irrevocable continues in full force and effect unless: (1) revoked by the person executing it prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting of shareholders, by attendance at such meeting and voting in person by the person executing the proxy; or (2) written notice of the death or incapacity of the maker of the proxy is received by the corporation before the vote pursuant thereto is counted; provided, however, that no proxy shall be valid after the expiration of 11 months from the date of its execution unless otherwise provided in the proxy.
Section 2.13. Inspectors of Election. In advance of any meeting of shareholders, the board may appoint any persons other than nominees for office as inspectors of election to act at such meeting and any adjournment thereof. If no inspectors of election are so appointed, or if any persons so appointed fail to appear or refuse to act, the chairperson of any such meeting may, and on the request of any shareholder or shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present shall determine whether one (1) or three (3) inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by Section 707(b) of the Code and shall include: determining the number of shares outstanding and the voting power of each; determining the shares represented at the meeting; determining the existence of a quorum; determining the authenticity, validity and the effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and doing such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.
Section 2.14. Conduct of Meetings. The president shall preside at all meetings of the shareholders and shall conduct each such meeting in a businesslike and fair manner, but shall not be obligated to follow any technical, formal or parliamentary rules or principles of procedure. The presiding officer's rulings on procedural matters shall be conclusive and binding on all shareholders, unless at the time of ruling a request for a vote is made to the shareholders entitled to vote and represented in person or by proxy at the meeting, in which case the decision of a majority of such shares shall be conclusive and binding on all shareholders. Without limiting the generality of the foregoing, the presiding officer shall have all the powers usually vested in the presiding officer of a meeting of shareholders.
ARTICLE III
Directors
Section 3.1. Powers. Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to actions required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the day-to-day operations of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the board shall have the following powers in addition to the other powers enumerated in these bylaws:
(a) to select and remove all the other officers, agents and employees of the corporation, prescribe any qualifications, powers and duties for them that are consistent with law, the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service;
(b) to conduct, manage and control the affairs and business of the corporation and to make such rules and regulations therefor not inconsistent with law, the articles of incorporation or these bylaws, as they may deem best;
(c) to adopt, make and use a corporate seal, to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as in their judgment they may deem best;
(d) to authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful;
(e) to borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory and capital notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor and any agreements pertaining thereto;
(f) to prescribe the manner in which and the person or persons by whom any or all of the checks, drafts, notes, contracts and other corporate instruments shall be executed;
(g) to appoint and designate, by resolution adopted by a majority of the authorized number of directors, one or more committees, each consisting of two or more directors, including the appointment of alternate members of any committee who may replace any absent member at any meeting of the committee; and
(h) generally, to do and perform every act or thing whatever that may pertain to or be authorized by the board of directors of a corporation incorporated under the laws of this state.
Section 3.2. Number and Qualification of Directors. The authorized number of directors of the corporation shall not be less than eight (8) nor more than fifteen (15) until changed by an amendment of the articles of incorporation or by a bylaw amending this Section 3.2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote. The exact number of directors shall be fixed from time to time, within the range specified in the articles of incorporation or in this Section 3.2: (i) by a resolution duly adopted by the board; (ii) by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote; or (iii) by approval of the shareholders (as defined in Section 153 of the Code.
Section 3.3. Nominations of Directors. Nominations for election of members of the board may be made by the board or by any holder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations (other than for persons named in the notice of the meeting called for the election of directors) shall be made in writing and shall be delivered or mailed to the president of the corporation by the later of: (i) the close of business twenty-one (21) days prior to any meeting of shareholders called for the election of directors; or (ii) ten (10) days after the date of mailing of notice of the meeting to shareholders. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; (f) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution owned beneficially by the nominee or by the notifying shareholder and the identities and locations of any such institutions; and (g) whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The notification shall be signed by the nominating shareholder and by each nominee, and shall be accompanied by a written consent to be named as a nominee for election as a director from each proposed nominee. Nominations not made in accordance with these procedures shall be disregarded by the chairperson of the meeting, and upon his or her instructions, the inspectors of election shall disregard all votes cast for each such nominee. The foregoing requirements do not apply to the nomination of a person to replace a proposed nominee who has become unable to serve as a director between the last day for giving notice in accordance with this paragraph and the date of election of directors if the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee.
A copy of the preceding paragraph shall be set forth in the notice to shareholders of any meeting at which directors are to be elected.
Section 3.4. Election and Term of Office. The directors shall be elected at each annual meeting of shareholders, but if any annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. Each director shall hold office until the next annual meeting and until a successor has been elected and qualified.
Section 3.5. Vacancies. Vacancies on the board, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the next annual meeting and until such director's successor has been elected and qualified. A vacancy on the board created by the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of all of the outstanding shares.
The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the chairperson of the board, the president, secretary, or the board, unless the notice specifies a later time for the effectiveness of such resignation. If the board accepts the resignation of a director tendered to take effect at a future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective.
A vacancy or vacancies on the board shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting.
The board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office.
Section 3.6. Place of Meetings. Regular or special meetings of the board shall be held at any place within or outside the state of California which has been designated in the notice of meeting or if there is no notice, at the principal executive office of the corporation, or at a place designated by resolution of the board or by the written consent of the board. Any regular or special meeting is valid wherever held if held upon written consent of all members of the board given either before or after the meeting and filed with the secretary of the corporation.
Section 3.7. Regular Meetings. Immediately following each annual meeting of shareholders, the board shall hold a regular meeting for the purpose of organization, any desired election of officers and the transaction of other business. Notice of this meeting shall not be required.
Other regular meetings of the board shall be held at any place within the State of California which has been designated from time to time by resolution of the board or by written consent of all members of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held either at a place so designated, within the State of California, or at the principal executive office. Call and notice of all regular meetings of the board are hereby dispensed with.
Section 3.8. Special Meetings. Special meetings of the board for any purpose or purposes may be called at any time by the chairperson of the board, the president, any vice president, the secretary or by any two directors.
Special meetings of the board shall be held upon four days' written notice by mail or 48 hours' notice delivered personally or by telephone, telegraph, telex or other similar means of communication. Any such notice shall be addressed or delivered to each director at the director's address as shown upon the records of the corporation or as given to the corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. Such notice may, but need not, specify the purpose of the meeting, or the place if the meeting is to be held at the principal executive office of the corporation.
Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means or by facsimile transmission, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient whom the person giving the notice has reason to believe will promptly communicate it to the recipient.
Section 3.9. Quorum. A majority of the authorized number of directors
constitutes a quorum of the board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the board, unless a greater number be
required by the articles of incorporation and subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest) and Section
317(e) of the Code (as to indemnification of directors). A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 3.10. Participation in Meetings by Conference Telephone. Members of the
board may participate in a meeting through use of a conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Participation in a meeting pursuant to this
Section 3.10 constitutes presence in person at such meeting.
Section 3.11. Waiver of Notice. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes of the meeting, whether before or after the meeting, or who attends the meeting without protesting, before the
meeting or at its commencement, the lack of notice to such director. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 3.12. Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
Section 3.13. Action Without Meeting. Any action required or permitted to be taken by the board may be taken without a meeting if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Such action by written consent shall have the same effect as a unanimous vote of the board.
Section 3.14. Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the board. This Section 3.14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation for those services.
Section 3.15. Rights of Inspection. Every director of the corporation shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts.
Section 3.16. Removal of Director without Cause. Any or all of the directors of the corporation may be removed without cause if the removal is approved by the outstanding shares, subject to the following:
(a) Except if the corporation has a classified board, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected.
(b) When by the provisions of the articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series.
(c) When the corporation has a classified board, a director may not be removed if the votes cast against removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors elected at the most recent annual meeting of shareholders, or
if greater, the number of directors for whom removal is being sought, were then being elected.
Section 3.17. Removal of Directors by Shareholder's Suit. The superior court of the proper county may, at the suit of the shareholders holding at least 10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
ARTICLE IV
Officers
Section 4.1. Officers. The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board, a chairperson of the board, a vice chairperson of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant financial officers and such other officers as may be elected or appointed in accordance with the provisions of Section 4.3 of this Article IV. One person may hold two or more offices, except those of president and secretary.
Section 4.2. Appointment. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 4.3 or Section 4.5 of this Article IV, shall be chosen by, and shall serve at the pleasure of, the board, and shall hold their respective offices until their resignation, removal or other disqualification from service, or until their respective successors shall be appointed, subject to the rights, if any, of an officer under any contract of employment.
Section 4.3. Subordinate Officers. The board may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each to hold office for such period, have such authority and perform such duties as are provided in these bylaws or as the board may from time to time determine.
Section 4.4. Removal and Resignation. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board at any time, or, except in the case of an officer chosen by the board, by any officer upon whom such power of removal may be conferred by the board.
Any officer may resign at any time by giving written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 4.5. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointment to such office.
Section 4.6. Chairperson. The chairperson of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board and exercise and perform such other powers and duties as may be assigned from time to time by the board.
Section 4.7. Vice Chairperson. The vice chairperson of the board, if there shall be such an officer, shall, in the absence of the chairperson of the board, preside at all meetings of the board and exercise and perform such other powers and duties as may be assigned from time to time by the board.
Section 4.8. President. Subject to such powers, if any, as may be given by the board to the chairperson of the board, if there shall be such an officer, the president is the general manager and chief executive officer of the corporation and has, subject to the control of the board, general supervision, direction and control of the business and affairs of the corporation. The president shall preside at all meetings of the shareholders and in the absence of both the chairperson of the board and the vice chairperson, or if there be none, at all meetings of the board. The president has the general powers and duties of management usually vested in the office of president and chief executive officer of a corporation and such other powers and duties as may be prescribed by the board.
Section 4.9. Vice President. In the absence or disability of the president, the vice presidents in order of their rank as fixed by the board or, if not ranked, the vice president designated by the board, shall perform all the duties of the president and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the bylaws, the board, the president or the chairperson of the board.
Section 4.10. Secretary. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board may order, a book of minutes of all meetings of shareholders, the board and its committees, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice or waivers of notice thereof given, the names of those present at the board and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, a copy of the bylaws of the corporation at the principal executive office or business office in accordance with Section 213 of the Code. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, if one is appointed, a record of its shareholders, or a duplicate record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each.
The secretary shall give, or cause to be given, notice of all the meetings of the shareholders, of the board and of any committees thereof required by these bylaws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board.
Section 4.11. Assistant Secretary. The assistant secretary or the assistant secretaries, in the order of their seniority, shall, in the absence or disability of the secretary, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the secretary and shall have such
additional powers and discharge such duties as may be assigned from time to time by the president or by the board.
Section 4.12. Chief Financial Officer. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of the properties and financial and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent to the shareholders of the corporation such financial statements and reports that by law or these bylaws are required to be sent to them. The books of account shall at all times be open to inspection by any director of the corporation.
The chief financial officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board, shall render to the president and directors, whenever they request it, an account of all transactions engaged in as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board.
Section 4.13. Assistant Financial Officer. The assistant financial officer or the assistant financial officers, in the order of their seniority, shall, in the absence or disability of the chief financial officer, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the chief financial officer, and shall have such additional powers and discharge such duties as may be assigned from time to time by the president or by the board.
Section 4.14. Salaries. The salaries of the officers shall be fixed from time to time by the board and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation.
Section 4.15. Officers Holding More Than One Office. Any two or more offices, except those of president and secretary, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity.
Section 4.16. Inability to Act. In the case of absence or inability to act of any officer of the corporation and of any person herein authorized to act in his or her place, the board may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select.
ARTICLE V
Indemnification
Section 5.1. Definitions. For use in this Article V, certain terms are defined as follows:
(a) "Agent": A director, officer, employee or agent of the corporation or a person who is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise (including service with respect to employee benefit plans and service on creditors'
committees with respect to any proceeding under the Bankruptcy Code, assignment for the benefit of creditors or other liquidation of assets of a debtor of the corporation), or a person who was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation.
(b) "Loss": All expenses, liabilities, and losses including attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article.
(c) "Proceeding": Any threatened, pending or completed action, suit or proceeding including any and all appeals, whether civil, criminal, administrative or investigative.
Section 5.2. Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness or otherwise) in any Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was an Agent, is entitled to indemnification. Agent shall be indemnified and held harmless by the corporation to the fullest extent authorized by law. The right to indemnification conferred in this Article V shall be a contract right. It is the corporation's intention that these bylaws provide indemnification in excess of that expressly permitted by Section 317 of the Code, as authorized by the corporation's articles of incorporation.
Section 5.3. Authority to Advance Expenses. The right to indemnification provided in Section 5.2 of these bylaws shall include the right to be paid, in advance of a Proceeding's final disposition, expenses incurred in defending that Proceeding, provided, however, that if required by the California General Corporation Law, as amended, the payment of expenses in advance of the final disposition of the Proceeding shall be made only upon delivery to the corporation of an undertaking by or on behalf of the Agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized under this Article V or otherwise. The Agent's obligation to reimburse the corporation for advances shall be unsecured and no interest shall be charged thereon.
Section 5.4. Right of Claimant to Bring Suit. If a claim under Section 5.2 or 5.3 of these bylaws is not paid in full by the corporation within thirty (30) days after a written claim has been received by the corporation, the claimant may at any time there-after bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition) that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that the indemnification of the claimant is proper under the circumstances because he or she has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of
directors, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not already met the applicable standard of conduct.
Section 5.5. Provisions Nonexclusive. The rights conferred on any person by this Article V shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the articles of incorporation, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the articles of incorporation, agreement, or vote of the shareholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence.
Section 5.6. Authority to Insure. The corporation may purchase and maintain insurance to protect itself and any Agent against any Loss asserted against or incurred by such person, whether or not the corporation would have the power to indemnify the Agent against such Loss under applicable law or the provisions of this Article V. If the corporation owns all or a portion of the shares of the company issuing the insurance policy, the company and/or the policy must meet one of the two sets of conditions set forth in Section 317 of the Code.
Section 5.7. Survival of Rights. The rights provided by this Article V shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such person.
Section 5.8. Settlement of Claims. The corporation shall not be liable to indemnify any Agent under this Article V: (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award, if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.
Section 5.9. Effect of Amendment. Any amendment, repeal or modification of this Article V shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal or modification.
Section 5.10. Subrogation. Upon payment under this Article V, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.
Section 5.11. No Duplication of Payments. The corporation shall not be liable under this Article V to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE VI
Other Provisions
Section 6.1. Inspection of Corporate Records.
(a) A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of the outstanding voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have an absolute right to do either or both of the following:
(i) inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation; or
(ii) obtain from the transfer agent, if any, for the corporation, upon written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings, as of the most recent record date for which it has been compiled, or as of a date specified by the shareholder subsequent to the date of demand. The corporation shall have a responsibility to cause the transfer agent to comply with this Section 6.1;
(b) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. A written demand for such inspection shall be accompanied by a statement in reasonable detail of the purpose of the inspection.
(c) The accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board shall be open to inspection upon written demand on the corporation by any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interest as a shareholder or as a holder of such voting trust certificate. The right of inspection created by this Section 6.1(c) shall extend to the records of each subsidiary of the corporation. A written demand for such inspection shall be accompanied by a statement in reasonable detail of the purpose of the inspection.
(d) Any inspection and copying under this Section 6.1 may be made in person or by agent or attorney.
Section 6.2. Inspection of Bylaws. The corporation shall keep at its principal executive office in California the original or a copy of these bylaws as amended to date, which shall be open to inspection by shareholders at all reasonable times during office hours.
Section 6.3. Execution of Documents, Contracts. Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance or other instrument in writing and any assignment or endorsement thereof executed or entered into between the corporation and any other person, when signed by the chairperson of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant financial officer of the corporation, or when stamped with a facsimile signature of such appropriate officers in the case of share certificates, shall be valid and binding upon the corporation in the absence of actual knowledge on the part of the other person that the signing officers did not have authority to execute the same. Any such instruments may be signed by any other person or persons and in such manner as from time to time shall be determined by the board, and unless so authorized by the board, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount.
Section 6.4. Certificates of Stock. Every holder of shares of the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairperson or the vice chairperson of the board or the president or a vice president and by the secretary or an assistant secretary or the chief financial officer or an assistant financial officer, certifying the number of shares and the class or series of shares owned by the shareholder. The signatures on the certificates may be facsimile signatures. If any officer, transfer agent or registrar who has signed a certificate or whose facsimile signature has been placed upon the certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
Except as provided in this Section 6.4, no new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and canceled at the same time. The board may, however, in case any certificate for shares is alleged to have been lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, and the corporation may require that the corporation be given a bond or other adequate security sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.
Prior to the due presentment for registration of transfer in the stock transfer book of the corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the state of California.
Section 6.5. Representation of Shares of Other Corporations. The president or any other officer or officers authorized by the board or the president are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares or other securities of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised either by any such officer in person or by any other person authorized to do so by proxy or power of attorney duly executed by said officer.
Section 6.6. Seal. The corporate seal of the corporation shall consist of two concentric circles, between which shall be the name of the corporation, and in the center shall be inscribed the word "Incorporated" and the date of its incorporation.
Section 6.7. Fiscal Year. The fiscal year of the corporation shall begin on the first day of January and end on the 31st day of December of each year.
Section 6.8. Construction and Definitions. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the Code and the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
Section 6.9. Bylaw Provisions Contrary to or Inconsistent with Provisions of
Law. Any article, section, subsection, subdivision, sentence, clause or phrase
of these bylaws which, upon being construed in the manner provided in this
Section 6.9, shall be contrary to or inconsistent with any applicable provision
of the Code or other applicable laws of the state of California or of the United
States shall not apply so long as said provisions of law shall remain in effect,
but such result shall not affect the validity or applicability of any other
portions of these bylaws, it being hereby declared that these bylaws would have
been adopted and each article, section, subsection, subdivision, sentence,
clause or phrase thereof, irrespective of the fact that any one or more
articles, sections, subsections, subdivisions, sentences, clauses or phrases is
or are illegal.
ARTICLE VII
Amendments
Section 7.1. Amendment by Shareholders. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation and provided also that a bylaw reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16 2/3 percent of the outstanding shares entitled to vote.
Section 7.2. Amendment by Directors. Subject to the rights of the shareholders as provided in Section 7.1 of this Article VII, bylaws, other than a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa, may be adopted, amended or repealed by the board.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of United Security Bankshares, a California corporation; and
2. That the foregoing Bylaws, comprising 19 pages, constitute the Bylaws of United Security Bankshares as duly adopted by action of the board of directors of United Security Bankshares duly taken on March 27, 2001.
/s/ Kenneth L. Donahue ---------------------------------------- Kennth L. Donahue, Assistant Secretary |
Exhibit 4
Common Stock Common Stock
Number Shares
______________ United Security Bancshares _______________
Incorporated under the laws of the See Reverse for
State of California Certain Definitions
CUSIP _________
This certifies that:
is the record holder of:
shares of no par value common stock of
United Security Bancshares
|
hereinafter designated the "Company", transferable on the share register of the Company in person or by duly authorized attorney upon surrender of this Certificate properly endorsed or assigned. By the acceptance of this Certificate, the holder hereof assents to and agrees to be bound by all of the provisions of the Articles of Incorporation and all amendments thereto.
Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers.
Dated:
Robert G. Bitter United Security Bancshares Dennis R. Woods
Secretary President and Chief
Executive Officer
Incorporated
Feb. 21, 2001
California
|
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to
Minors Act ____________
JT TEN - as joint tenants with right (State)
of survivorship and not as
tenants in common
|
Additional abbreviations may also be used though not in the above list.
For valued received, _________________ hereby sell, assign and transfer unto
Please insert social security or other
identifying number of assignee
__________________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint __________________________________Attorney to transfer said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated_______________________
Signature(s) Guaranteed
By____________________________________________________________ The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan association and credit unions with membership in an approved signature guarantee medallion program) pursuant to S.E.C. Rule 17Ad-15.
Exhibit 5
[LETTERHEAD OF GARY STEVEN FINDLEY & ASSOCIATES]
April 3, 2001
United Security Bancshares
1525 East Shaw Avenue
Fresno, California 93710
Re: Registration Statement on Form S-4
Gentlemen:
At your request, we have examined the form of Registration Statement to be filed with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, for the offer and sale of up to 5,489,948 shares of your common stock, no par value (the "Bancshares common stock"). We are familiar with the actions taken or to be taken in connection with the authorization, issuance and sale of the Bancshares common stock.
It is our opinion that, subject to said proceedings being duly taken and completed as now contemplated before the issuance of the Bancshares common stock, the Bancshares common stock, will, upon the issuance and sale thereof be legally and validly issued and fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to said Registration Statement.
Respectfully submitted,
GARY STEVEN FINDLEY & ASSOCIATES
By: /s/ Gary Steven Findley
Gary Steven Findley
Attorney at Law
|
Exhibit 10.1
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into this 3rd day of July , 1996, by and between United Security Bank, N.A., a California banking corporation (the "Employer"), and Dennis R. Woods , an individual residing in the State of California (hereinafter referred to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is serving as its President & Chief Executive Officer;
WHEREAS, the Executive's experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with certain salary continuation benefits, on the terms and conditions set forth herein, in order to reasonably induce the Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive, or to the Executive's spouse or the Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Employer shall be the "Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Annual Benefit. The term "Annual Benefit" shall mean an annual sum of fifty thousand dollars ($100,000) multiplied by the Applicable Percentage (defined below) and then reduced to the extent required: (i) under the other provisions of this Agreement; (ii) by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; and (iii) in order for the Employer to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (eg., FICA, FUTA, SDI).
1.3. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of complete years (with a "year" being the performance of personal services for or on behalf of the Employer as an
employee for a period of 365 days) which have elapsed starting from the Effective Date of this Agreement and ending on the date the Executive's employment is terminated for purposes of this Agreement. In the event the Executive's employment with the Employer is terminated other than by reason of death, disability, termination for cause or Retirement on the part of the Executive, the Executive shall be deemed for purposes of determining the number of complete years to have completed a year of service in its entirety for any partial year of service after the last anniversary date of the Effective Date during which the Executive's employment is terminated, provided that in no event shall the Executive be deemed to have completed a year of service for the partial year that occurs prior to the first anniversary date of this Agreement.
1.4. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Exhibit "B", to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof and is received by the Administrator prior to the Executive's death.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such term in the principal disability insurance policy covering the Executive, which is incorporated herein by reference. In the event the Executive is not covered by a disability policy containing a definition of "Disability" or "Disabled," these terms shall mean an illness or incapacity which, having continued for a period of one hundred and eighty (180) consecutive days, prevents the Executive from adequately performing the Executive's regular employment duties. The determination of whether the Executive is Disabled shall be made by an independent physician selected by mutual agreement of the parties.
1.7. Effective Date. The term "Effective Date" shall mean the date upon which this Agreement was entered into by the parties, as first written above.
1.8. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.9. Plan Year. The term "Plan Year" shall mean the Employer's calendar year.
1.10. Retirement. The term "Retirement" or "Retires" shall refer to the
date on which the Executive attains the age of at least sixty-one (61) and
acknowledges in writing to the Employer to be the last day he will provide any
significant personal services, whether as an employee, director or independent
consultant or contractor, to the Employer. For purposes of this Agreement, the
phrase "significant personal services" shall mean more than ten (10) hours of
personal services rendered to one or more individuals or entities in any thirty
(30) day period.
1.11. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive's death.
1.12. Termination for Cause. The term "Termination for Cause" shall mean the termination of the Executive by the Employer upon the occurrence of any of the following events:
(i) the Executive is convicted of illegal activity by a court of competent jurisdiction or pleads guilty to or nolo contendere to illegal activity, which activity materially adversely affects the Employer's reputation in the community or which evidences the lack of the Executive's fitness or ability to perform the Executive's duty as determined by the Board of Directors in good faith;
(ii) the Executive has committed any illegal or dishonest act which would cause termination of coverage under the Employer's Bankers' Blanket Bond as to the Executive, as distinguished from termination of coverage as to the Employer as a whole;
(iii) the Executive materially fails to perform, or habitually neglects, the Executive's duties or commits a material act of malfeasance or misfeasance in connection therewith; or
(iv) an action is commenced by any bank regulatory agency having jurisdiction, to remove or suspend the Executive from office, or a cease and desist order under 12 U.S.C. 1818(b) or any similar Federal or state statute is issued against the Executive or the Employer which calls for the Executive's suspension or removal from office.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive's employment. This Agreement shall have no impact or effect upon any separate written employment agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in said employment agreement (or any modification thereto), this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect upon, nor be affected by, the terms and provisions of said employment agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement.
3. Payments Upon or After Retirement.
3.1. Payments Upon Retirement. If the Executive shall remain in the continuous employment of the Employer until Retirement, the Executive shall be entitled to be paid the Annual Benefit, with the Applicable Percent equal to 100% for a period of fifteen (15) years, in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the month in which the Executive Retires or upon such later date as may be mutually agreed upon in writing by the Executive and the Employer in advance of said Retirement Date.
3.2. Payments in the Event of Death After Retirement. The Employer agrees that if the Executive Retires, but shall die before receiving all of the one hundred eighty (180) monthly payments described in paragraph 3.1 above, the Employer will make the remaining monthly payments, undiminished and on the same schedule as if the Executive had not died, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the term of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement. In the event the Executive should die while actively employed by the Employer at any time after the Effective Date of this Agreement, but prior to Retirement, the Employer agrees to pay the Annual Benefit with the Applicable Percentage equal to 100% for a period of fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first of each month beginning with the month following the Executive's death, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the event the Executive becomes Disabled while actively employed by the Employer at any time after the date of this Agreement but prior to Retirement, the Executive shall: (i) continue to be treated during such period of Disability as being gainfully employed by the Employer but shall not add applicable years of service for the purpose of determining the Annual Benefit; and (ii) be entitled to be paid the Annual Benefit, with the Applicable Percentage as set forth in Schedule A and as determined by the applicable years of service at the time of disability, for fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the earlier of (1) the month in which the Executive attains sixty-one (61) years of age; or (2) the date upon which the Executive is no longer entitled to receive Disability benefits under the Executive's principal Disability insurance policy and does not, at such time, return to and thereafter fulfill the responsibilities associated with the employment position held with the Employer prior to becoming Disabled by reason of such Disability continuing. Notwithstanding the foregoing, in the event the Executive should die while actively or gainfully employed by the Employer at any time after the Effective Date of this Agreement and prior to Retirement, the payments provided in Paragraph 4.1 shall be paid in lieu of the payments provided in this Paragraph 4.2, provided that the Executive or his legal representative shall have not elected to take the benefits provided by Paragraph 5 and payments provided in Paragraph 4.2 have not commenced.
5. Payments in the Event Employment is Terminated Other than by Death, Disability, Termination for Cause or Retirement.
As indicated in Paragraph 2 above, the Employer reserves the right to terminate the Executive's employment, with or without cause but subject to any written employment agreement which may
then exist, at any time prior to the Executive's Retirement. In the event that
the employment of the Executive shall be terminated for any reason, including
voluntary termination by the Executive, but other than by reason of (i)
Disability except as provided in Paragraph 4.2, (ii) death, (iii) Termination
for Cause, or (iv) Retirement, the Executive or his legal representative shall
be entitled to be paid the Annual Benefit, with the Applicable Percentage as set
forth in Schedule A and as determined by the applicable years of service at the
time of termination of employment with the Employer, for a period of fifteen
(15) years in one hundred eighty (180) equal monthly installments, with each
installment to be paid on the first day of each month, beginning with the month
following the month in which the Executive terminates employment and attains
sixty-one (61) years of age, provided that in the event the Executive dies after
such termination but prior to age 61 then such benefits are to be paid beginning
with the month following the Executive's death.
6. Termination for Cause.
Notwithstanding anything to the contrary, in the event the termination of employment of the Executive is Termination for Cause as defined in Paragraph 1.13, the Executive shall not be entitled to any benefits pursuant to this agreement.
7. No Ownership Rights to the Employer's Assets.
The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive, the Executive's spouse or the Executive's beneficiaries under the terms of this Agreement ("Benefits"). The rights of the Executive or any beneficiary of the Executive under this Agreement shall be solely those of an unsecured creditor of the Employer.
In the event that the Employer, in its sole and absolute discretion, elects to acquire an insurance policy, an annuity or any other asset to recoup the costs or any portion thereof of the Benefits, then such insurance policy, annuity or other asset shall not be deemed to be held under any trust for the benefit of the Executive or his beneficiaries or to be security for the performance of the obligations of the Employer under this Agreement, but shall be, and remain, a general unpledged, unrestricted asset of the Employer. The Executive and his beneficiaries shall have no rights whatsoever with respect to, or any claim against, any such insurance policy, annuity or other asset. In connection with the Employer electing to acquire any such insurance policy or annuity, the Executive agrees to cooperate to facilitate such acquisition, and pursuant thereto shall execute such documents and undergo such medical examinations or tests as the Employer may reasonably request.
8. Claims Procedure.
The Employer shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Employer shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Employer denying a claim by the Executive, the Executive's spouse, or the Executive's beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Executive, the Executive's spouse or the Executive's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Employer
shall provide the Executive, the Executive's spouse or the Executive's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim.
9. Status of an Unsecured General Creditor.
Notwithstanding anything contained herein to the contrary: (i) neither the Executive, the Executive's spouse nor the Executive's beneficiary shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer; (ii) none of the Employer's assets shall be held in or under any trust for the benefit of the Executive, the Executive's spouse or the Executive's beneficiary or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer's assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) the Executive, the Executive's spouse and the Executive's beneficiary shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement.
10. Covenant Not to Interfere.
The Executive agrees not to take any action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary.
11. Miscellaneous.
11.1. Opportunity to Consult with Independent Counsel. The Executive acknowledges that he has been afforded the opportunity to consult with independent counsel of his choosing regarding both the benefits granted to him under the terms of this Agreement and the terms and conditions which may affect the Executive's right to these benefits. The Executive further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in location nearest to Fresno, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in or nearest to Fresno, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Southern California, unless otherwise agreed to by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.
If to the Employer:
United Security Bank, N.A.,
2151 West Shaw Avenue
Fresno, California 93711
Attention: Ronnie D. Miller Vice Chairman of the Board
If to the Executive:
11.5. Assignment. Neither the Executive, the Executive's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive, the Executive's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or
transfer shall be void and shall terminate this Agreement, and the Employer shall thereupon have no further liability hereunder.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement. Upon the occurrence of such event, the term "Employer" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation.
11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement.
11.8. Partial Invalidity. If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative.
11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the Agreement.
11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person.
11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Federal Deposit Insurance Corporation or any other regulatory agency or governmental authority having jurisdiction over the Employer, shall govern the validity, interpretation, construction and effect of this Agreement.
12. Right of the Employer to Pay a Lump Sum.
Unless expressly provided for herein, the Employer shall at its sole discretion have the right to pay in a lump sum the then present value using a discount rate that is to be mutually agreed upon between the Employer and the Executive or the Executive's beneficiary of all payments vested and due the Executive or the Executive's beneficiary pursuant to this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Fresno, Fresno County, California.
United Security Bank, N.A., Dennis R. Woods "Employer" "Executive" ---------------------------------- ------------------------------------ Ronnie D. Miller Dennis R. Woods Vice Chairman of the Board |
SCHEDULE A
----------
NUMBER OF COMPLETE APPLICABLE
YEARS OF SERVICE PERCENTAGE
---------------- ----------
1 25%
2 40%
3 50%
4 56%
5 62%
6 68%
7 74%
8 80%
9 86%
10 92%
11 98%
12 or more 100%
|
SCHEDULE B
BENEFICIARY DESIGNATION
TO: The Administrator of United Security Bank, Executive Salary Continuation Agreement
Pursuant to the provisions of my Executive Salary Continuation Agreement with United Security Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death:
NOTE: To name a trust as beneficiary, please provide the name of the trustee and the exact date of the trust agreement.
In the event the primary beneficiary is not the spouse of the Executive, the spouse of the Executive will need to sign the Spousal Consent below and such signature must be notarized.
Primary Beneficiary:
Cheryl L. Woods 3095 W. Sample, Fresno, CA , 93711 Wife
---------------------------------------------------------------------------------------
Name Address Relationship
Secondary (Contingent) Beneficiary:
Richard C. Woods 6035 Blvd East C-9 West New York NJ Son
---------------------------------------------------------------------------------------
Name Address Relationship
Lisa Woods Armas 1618 E. Revere, Fresno CA Daughter
---------------------------------------------------------------------------------------
Name Address Relationship
|
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ANY PRIOR DESIGNATION OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES IS HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Salary Continuation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement then and in that event, the remaining unpaid benefit payable according to the terms of my Executive Salary Continuation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Executive Salary Continuation Agreement.
DENNIS R. WOODS
"Executive"
Dated: 7/3/96 ------------------------------------
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, _____________, being the spouse of _______________, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Salary Continuation Agreement entered into by my spouse on ______________, 1997. I understand that the above Beneficiary Designation adversely affects my community property interest in the benefits provided for under the terms of the Executive Salary Continuation Agreement. I understand that I have been advised to consult with an attorney of my choice prior to executing this consent, so that such attorney can explain the effects of this consent.
Dated: _____________, 1997 ____________________________________ ______________, Spouse
CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) ss.
County of Fresno )
On ________________, 1997, before me, ______________, Notary Public, State of California, personally appeared ________________
|_| personally know to me - OR
|_| proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Capacity Claimed by Signer:
|_| Individual(s) Signing for Oneself/Themselves
Title or Type of Document:_____________________________________________________
Date of Document:______________________________________________________________
Number of Pages:_______________________________________________________________
Signer(s) Other Than Named Above:_____
Exhibit 10.2
CHANGE IN CONTROL AGREEMENT
This Agreement ("Agreement") is made and entered into as of the 19th day of August, 1996 between United Security Bank, N. A. ("Bank"), and Dennis R. Woods (hereinafter referred to as "Executive").
WITNESSETH:
WHEREAS, Bank desires to provide Executive with severance compensation in the event there is a change in control of Bank, and Executive desires severance compensation in the event there is a change in control of Bank.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and conditions herein contained, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. SEVERANCE PAYMENT
This Agreement shall not be terminated by the voluntary or involuntary dissolution of Bank. Notwithstanding the foregoing, in the event proceedings for liquidation of Bank are commenced by regulatory authorities, this Agreement and all rights and benefits hereunder shall terminate.
In the event of any merger or consolidation where Bank is not the surviving or
resulting corporation, or upon transfer of all or substantially all of the
assets of Bank (any of these events shall be referred to as an "Acquisition"),
this Agreement shall continue and be in full force and effect. In the event of
an Acquisition, if (i) Executive is not retained by the resulting corporation
for a period of three years from the time of consummation of the Acquisition in
a position comparable to that of the highest executive vice president of the
resulting corporation or a position accepted by Executive or (ii) the resulting
corporation reduces Executive's base salary from Executive's base salary at the
closest time prior to the Acquisition by more than 10% at any time within three
years after the time of consummation of the Acquisition, then the resulting
corporation shall pay Executive a lump sum amount in cash equal to the sum of
(i) the last three (3) years of Executive's total compensation, inclusive of
Executive's base annual salary and bonus for such three year period and (ii) the
amount necessary to cover any "golden parachute taxes" that may be assessed
pursuant to Section 280G of the Internal Revenue Code of 1986, as amended from
time to time on such lump sum payment to Executive. The resulting corporation
may substitute a legal opinion of a major law firm acceptable to Executive that
states unequivocally that no "golden parachute taxes" will be assessed against
Executive in lieu of the payment of "golden parachute taxes" that may be
assessed against Executive. Such lump sum payment shall be paid within ten (10)
days of the date Executive's employment is terminated by the resulting
corporation or Executive leaves voluntarily because of (i) a change in
Executive's position with the resulting corporation such that Executive is no
longer in a position comparable to that of the highest level executive vice
president of the resulting corporation or a position accepted by Executive or
(ii) a reduction in Executive's base salary of more than 10% of Executive's base
salary at the closest time prior to the Acquisition. The lump sum payment shall
be considered to be in full and complete satisfaction of any and all rights
which Executive may enjoy other than rights, if any, to exercise any of the
stock options vested prior to such termination.
2. TERM OF AGREEMENT
This Agreement shall be for a term of five (5) years from the date first above stated ("Termination Date"). Such Termination Date may be amended or extended by written agreement of the parties. This Agreement shall apply to any Acquisition that is (i) consummated prior to the Termination Date provided that Executive is employed by Bank at the date of public announcement of the Acquisition or (ii) consummated at any time within one (1) year after the Termination Date, in the event Executive's employment is terminated without cause by Bank prior to the Termination Date and such termination is within twelve (12) months prior to the date of consummation of an Acquisition that was announced within six (6) months before or after the date of Executive's termination of employment with Bank.
3. APPLICABLE LAW
This Agreement is made and entered into in the State of California and the laws of the State of California shall govern the validity and interpretation hereof, and the performance of the parties hereto and their respective duties and obligations hereunder, except to the extent that the provisions of federal law are mandatorily applicable.
4. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties and it supersedes any and all other agreements, either oral or in writing, between Executive and Bank. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing signed by Bank and Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
UNITED SECURITY BANK, N.A.
EXECUTIVE
Exhibit 10.3
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into this 2nd day of January , 1997, by and between United Security Bank, N.A., a California banking corporation (the "Employer"), and Kenneth L. Donahue, an individual residing in the State of California (hereinafter referred to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is serving as its Chief Financial Officer;
WHEREAS, the Executive's experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with certain salary continuation benefits, on the terms and conditions set forth herein, in order to reasonably induce the Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive, or to the Executive's spouse or the Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Employer shall be the "Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Annual Benefit. The term "Annual Benefit" shall mean an annual sum of fifty thousand dollars ($50,000) multiplied by the Applicable Percentage (defined below) and then reduced to the extent required: (i) under the other provisions of this Agreement; (ii) by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; and (iii) in order for the Employer to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (eg., FICA, FUTA, SDI).
1.3. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of complete years (with a "year" being the performance of personal services for or on behalf of the Employer as an
employee for a period of 365 days) which have elapsed starting from the Effective Date of this Agreement and ending on the date the Executive's employment is terminated for purposes of this Agreement. In the event the Executive's employment with the Employer is terminated other than by reason of death, disability, termination for cause or Retirement on the part of the Executive, the Executive shall be deemed for purposes of determining the number of complete years to have completed a year of service in its entirety for any partial year of service after the last anniversary date of the Effective Date during which the Executive's employment is terminated, provided that in no event shall the Executive be deemed to have completed a year of service for the partial year that occurs prior to the first anniversary date of this Agreement.
1.4. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Exhibit "B", to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof and is received by the Administrator prior to the Executive's death.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such term in the principal disability insurance policy covering the Executive, which is incorporated herein by reference. In the event the Executive is not covered by a disability policy containing a definition of "Disability" or "Disabled," these terms shall mean an illness or incapacity which, having continued for a period of one hundred and eighty (180) consecutive days, prevents the Executive from adequately performing the Executive's regular employment duties. The determination of whether the Executive is Disabled shall be made by an independent physician selected by mutual agreement of the parties.
1.7. Effective Date. The term "Effective Date" shall mean the date upon which this Agreement was entered into by the parties, as first written above.
1.8. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.9. Plan Year. The term "Plan Year" shall mean the Employer's calendar year.
1.10. Retirement. The term "Retirement" or "Retires" shall refer to the
date on which the Executive attains the age of at least fifty-nine (59) and
acknowledges in writing to the Employer to be the last day he will provide any
significant personal services, whether as an employee, director or independent
consultant or contractor, to the Employer. For purposes of this Agreement, the
phrase "significant personal services" shall mean more than ten (10) hours of
personal services rendered to one or more individuals or entities in any thirty
(30) day period.
1.11. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive's death.
1.12. Termination for Cause. The term "Termination for Cause" shall mean the termination of the Executive by the Employer upon the occurrence of any of the following events:
(i) the Executive is convicted of illegal activity by a court of competent jurisdiction or pleads guilty to or nolo contendere to illegal activity, which activity materially adversely affects the Employer's reputation in the community or which evidences the lack of the Executive's fitness or ability to perform the Executive's duty as determined by the Board of Directors in good faith;
(ii) the Executive has committed any illegal or dishonest act which would cause termination of coverage under the Employer's Bankers' Blanket Bond as to the Executive, as distinguished from termination of coverage as to the Employer as a whole;
(iii) the Executive materially fails to perform, or habitually neglects, the Executive's duties or commits a material act of malfeasance or misfeasance in connection therewith; or
(iv) an action is commenced by any bank regulatory agency having jurisdiction, to remove or suspend the Executive from office, or a cease and desist order under 12 U.S.C. 1818(b) or any similar Federal or state statute is issued against the Executive or the Employer which calls for the Executive's suspension or removal from office.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive's employment. This Agreement shall have no impact or effect upon any separate written employment agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in said employment agreement (or any modification thereto), this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect upon, nor be affected by, the terms and provisions of said employment agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement.
3. Payments Upon or After Retirement.
3.1. Payments Upon Retirement. If the Executive shall remain in the continuous employment of the Employer until Retirement, the Executive shall be entitled to be paid the Annual Benefit, with the Applicable Percent equal to 100% for a period of fifteen (15) years, in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the month in which the Executive Retires or upon such later date as may be mutually agreed upon in writing by the Executive and the Employer in advance of said Retirement Date.
3.2. Payments in the Event of Death After Retirement. The Employer agrees that if the Executive Retires, but shall die before receiving all of the one hundred eighty (180) monthly payments described in paragraph 3.1 above, the Employer will make the remaining monthly payments, undiminished and on the same schedule as if the Executive had not died, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the term of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement. In the event the Executive should die while actively employed by the Employer at any time after the Effective Date of this Agreement, but prior to Retirement, the Employer agrees to pay the Annual Benefit with the Applicable Percentage equal to 100% for a period of fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first of each month beginning with the month following the Executive's death, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the event the Executive becomes Disabled while actively employed by the Employer at any time after the date of this Agreement but prior to Retirement, the Executive shall: (i) continue to be treated during such period of Disability as being gainfully employed by the Employer but shall not add applicable years of service for the purpose of determining the Annual Benefit; and (ii) be entitled to be paid the Annual Benefit, with the Applicable Percentage as set forth in Schedule A and as determined by the applicable years of service at the time of disability, for fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the earlier of (1) the month in which the Executive attains fifty-nine (59) years of age; or (2) the date upon which the Executive is no longer entitled to receive Disability benefits under the Executive's principal Disability insurance policy and does not, at such time, return to and thereafter fulfill the responsibilities associated with the employment position held with the Employer prior to becoming Disabled by reason of such Disability continuing. Notwithstanding the foregoing, in the event the Executive should die while actively or gainfully employed by the Employer at any time after the Effective Date of this Agreement and prior to Retirement, the payments provided in Paragraph 4.1 shall be paid in lieu of the payments provided in this Paragraph 4.2, provided that the Executive or his legal representative shall have not elected to take the benefits provided by Paragraph 5 and payments provided in Paragraph 4.2 have not commenced.
5. Payments in the Event Employment is Terminated Other than by Death, Disability, Termination for Cause or Retirement.
As indicated in Paragraph 2 above, the Employer reserves the right to terminate the Executive's employment, with or without cause but subject to any written employment agreement which may
then exist, at any time prior to the Executive's Retirement. In the event that
the employment of the Executive shall be terminated for any reason, including
voluntary termination by the Executive, but other than by reason of (i)
Disability except as provided in Paragraph 4.2, (ii) death, (iii) Termination
for Cause, or (iv) Retirement, the Executive or his legal representative shall
be entitled to be paid the Annual Benefit, with the Applicable Percentage as set
forth in Schedule A and as determined by the applicable years of service at the
time of termination of employment with the Employer, for a period of fifteen
(15) years in one hundred eighty (180) equal monthly installments, with each
installment to be paid on the first day of each month, beginning with the month
following the month in which the Executive terminates employment and attains
fifty-nine (59) years of age, provided that in the event the Executive dies
after such termination but prior to age 61 then such benefits are to be paid
beginning with the month following the Executive's death.
6. Termination for Cause.
Notwithstanding anything to the contrary, in the event the termination of employment of the Executive is Termination for Cause as defined in Paragraph 1.13, the Executive shall not be entitled to any benefits pursuant to this agreement.
7. No Ownership Rights to the Employer's Assets.
The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive, the Executive's spouse or the Executive's beneficiaries under the terms of this Agreement ("Benefits"). The rights of the Executive or any beneficiary of the Executive under this Agreement shall be solely those of an unsecured creditor of the Employer.
In the event that the Employer, in its sole and absolute discretion, elects to acquire an insurance policy, an annuity or any other asset to recoup the costs or any portion thereof of the Benefits, then such insurance policy, annuity or other asset shall not be deemed to be held under any trust for the benefit of the Executive or his beneficiaries or to be security for the performance of the obligations of the Employer under this Agreement, but shall be, and remain, a general unpledged, unrestricted asset of the Employer. The Executive and his beneficiaries shall have no rights whatsoever with respect to, or any claim against, any such insurance policy, annuity or other asset. In connection with the Employer electing to acquire any such insurance policy or annuity, the Executive agrees to cooperate to facilitate such acquisition, and pursuant thereto shall execute such documents and undergo such medical examinations or tests as the Employer may reasonably request.
8. Claims Procedure.
The Employer shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Employer shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Employer denying a claim by the Executive, the Executive's spouse, or the Executive's beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Executive, the Executive's spouse or the Executive's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Employer
shall provide the Executive, the Executive's spouse or the Executive's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim.
9. Status of an Unsecured General Creditor.
Notwithstanding anything contained herein to the contrary: (i) neither the Executive, the Executive's spouse nor the Executive's beneficiary shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer; (ii) none of the Employer's assets shall be held in or under any trust for the benefit of the Executive, the Executive's spouse or the Executive's beneficiary or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer's assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) the Executive, the Executive's spouse and the Executive's beneficiary shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement.
10. Covenant Not to Interfere.
The Executive agrees not to take any action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary.
11. Miscellaneous.
11.1. Opportunity to Consult with Independent Counsel. The Executive acknowledges that he has been afforded the opportunity to consult with independent counsel of his choosing regarding both the benefits granted to him under the terms of this Agreement and the terms and conditions which may affect the Executive's right to these benefits. The Executive further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in location nearest to Fresno, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in or nearest to Fresno, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Southern California, unless otherwise agreed to by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.
If to the Employer:
United Security Bank, N.A.,
2151 West Shaw Avenue
Fresno, California 93711
Attention: Dennis R. Woods
Chairman of the Board
If to the Executive:
11.5. Assignment. Neither the Executive, the Executive's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive, the Executive's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or
transfer shall be void and shall terminate this Agreement, and the Employer shall thereupon have no further liability hereunder.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement. Upon the occurrence of such event, the term "Employer" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation.
11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement.
11.8. Partial Invalidity. If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative.
11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person.
11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Federal Deposit Insurance Corporation or any other regulatory agency or governmental authority having jurisdiction over the Employer, shall govern the validity, interpretation, construction and effect of this Agreement.
12. Right of the Employer to Pay a Lump Sum.
Unless expressly provided for herein, the Employer shall at its sole discretion have the right to pay in a lump sum the then present value using a discount rate that is to be mutually agreed upon between the Employer and the Executive or the Executive's beneficiary of all payments vested and due the Executive or the Executive's beneficiary pursuant to this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Fresno, Fresno County, California.
United Security Bank, -------------------------------- "Employer" "Executive" -------------------------------- -------------------------------- Dennis R. Woods Kenneth L. Donahue Chairman of the Board |
SCHEDULE A
----------
NUMBER OF COMPLETE APPLICABLE
YEARS OF SERVICE PERCENTAGE
---------------- ----------
1 8 1/3%
2 16 2/3%
3 25%
4 33 1/3%
5 41 2/3%
6 50%
7 58 1/3%
8 66 2/3%
9 75%
10 83 1/3%
11 91 2/3%
12 or more 100%
|
SCHEDULE B
BENEFICIARY DESIGNATION
TO: The Administrator of United Security Bank, Executive Salary Continuation Agreement
Pursuant to the provisions of my Executive Salary Continuation Agreement with United Security Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death:
NOTE: To name a trust as beneficiary, please provide the name of the trustee and the exact date of the trust agreement.
In the event the primary beneficiary is not the spouse of the Executive, the spouse of the Executive will need to sign the Spousal Consent below and such signature must be notarized.
Primary Beneficiary:
Linda C. Donahue 1613 E. Fallbrook Ave, Fresno CA 93720 Wife
--------------------------------------------------------------------------------
Name Address Relationship
|
Secondary (Contingent) Beneficiary:
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ANY PRIOR DESIGNATION OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES IS HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Salary Continuation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement then and in that event, the remaining unpaid benefit payable according to the terms of my Executive Salary Continuation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Executive Salary Continuation Agreement.
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, _____________, being the spouse of _______________, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Salary Continuation Agreement entered into by my spouse on ______________, 1997. I understand that the above Beneficiary Designation adversely affects my community property interest in the benefits provided for under the terms of the Executive Salary Continuation Agreement. I understand that I have been advised to consult with an attorney of my choice prior to executing this consent, so that such attorney can explain the effects of this consent.
Dated:_____________, 1997 ____________________________________ ______________, Spouse
CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) ss.
County of Fresno )
On ________________, 1997, before me, ______________, Notary Public, State of California, personally appeared ________________________.
|_| personally know to me - OR
|_| proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Capacity Claimed by Signer:
|_| Individual(s) Signing for Oneself/Themselves
Title or Type of Document:_____________________________________________________
Date of Document:______________________________________________________________
Number of Pages:_______________________________________________________________
Signer(s) Other Than Named Above:______________________________________________
Exhibit 10.4
CHANGE IN CONTROL AGREEMENT
This Agreement ("Agreement") is made and entered into as of the 24th day of February, 1997 between United Security Bank, N. A. ("Bank"), and Kenneth L. Donahue (hereinafter referred to as "Executive").
WITNESSETH:
WHEREAS, Bank desires to provide Executive with severance compensation in the event there is a change in control of Bank, and Executive desires severance compensation in the event there is a change in control of Bank.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and conditions herein contained, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. SEVERANCE PAYMENT
This Agreement shall not be terminated by the voluntary or involuntary dissolution of Bank. Notwithstanding the foregoing, in the event proceedings for liquidation of Bank are commenced by regulatory authorities, this Agreement and all rights and benefits hereunder shall terminate.
In the event of any merger or consolidation where Bank is not the surviving or resulting corporation, or upon transfer of all or substantially all of the assets of Bank (any of these events shall be referred to as an "Acquisition"), this Agreement shall continue and be in full force and effect. In the event of an Acquisition, if (i) Executive is not retained by the resulting corporation for a period of one year from the time of consummation of the Acquisition in a position comparable to that of vice president of the resulting corporation or a position accepted by Executive or (ii) the resulting corporation reduces Executive's base salary from Executive's base salary at the closest time prior to the Acquisition by more than 10% at any time within one year after the time of consummation of the Acquisition, then the resulting corporation shall pay Executive a lump sum amount in cash equal to the sum of (i) the last year of Executive's total compensation, inclusive of Executive's base annual salary and bonus for such year and (ii) the amount necessary to cover any "golden parachute taxes" that may be assessed pursuant to Section 280G of the Internal Revenue Code of 1986, as amended from time to time on such lump sum payment to Executive. The resulting corporation may substitute a legal opinion of a major law firm acceptable to Executive that states unequivocally that no "golden parachute taxes" will be assessed against Executive in lieu of the payment of "golden parachute taxes" that may be assessed against Executive. Such lump sum payment shall be paid within ten (10) days of the date Executive's employment is terminated by the resulting corporation or Executive leaves voluntarily because of (i) a change in Executive's position with the resulting corporation such that Executive is no longer in a position comparable to that of vice president of the resulting corporation or a position accepted by Executive or (ii) a reduction in Executive's base salary of more than 10% of Executive's base salary at the closest time prior to the Acquisition. The lump sum payment shall be considered to be in full and complete satisfaction of any and all rights which Executive may enjoy other than rights, if any, to exercise any of the stock options vested prior to such termination.
2. TERM OF AGREEMENT
This Agreement shall be for a term of five (5) years from the date first above stated ("Termination Date"). Such Termination Date may be amended or extended by written agreement of the parties. This Agreement shall apply to any Acquisition that is (i) consummated prior to the Termination Date provided that Executive is employed by Bank at the date of public announcement of the Acquisition or (ii) consummated at any time within one (1) year after the Termination Date, in the event Executive's employment is terminated without cause by Bank prior to the Termination Date and such termination is within twelve (12) months prior to the date of consummation of an Acquisition that was announced within six (6) months before or after the date of Executive's termination of employment with Bank.
3. APPLICABLE LAW
This Agreement is made and entered into in the State of California and the laws of the State of California shall govern the validity and interpretation hereof, and the performance of the parties hereto and their respective duties and obligations hereunder, except to the extent that the provisions of federal law are mandatorily applicable.
4. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties and it supersedes any and all other agreements, either oral or in writing, between Executive and Bank. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing signed by Bank and Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
UNITED SECURITY BANK, N.A.
EXECUTIVE
Exhibit 10.5
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into this 2nd day of January , 1997, by and between United Security Bank, N.A., a California banking corporation (the "Employer"), and David l. Eytcheson , an individual residing in the State of California (hereinafter referred to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is serving as its Chief Operating Officer;
WHEREAS, the Executive's experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with certain salary continuation benefits, on the terms and conditions set forth herein, in order to reasonably induce the Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive, or to the Executive's spouse or the Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Employer shall be the "Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Annual Benefit. The term "Annual Benefit" shall mean an annual sum of fifty thousand dollars ($50,000) multiplied by the Applicable Percentage (defined below) and then reduced to the extent required: (i) under the other provisions of this Agreement; (ii) by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; and (iii) in order for the Employer to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (eg., FICA, FUTA, SDI).
1.3. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of complete years (with a "year" being the performance of personal services for or on behalf of the Employer as an
employee for a period of 365 days) which have elapsed starting from the Effective Date of this Agreement and ending on the date the Executive's employment is terminated for purposes of this Agreement. In the event the Executive's employment with the Employer is terminated other than by reason of death, disability, termination for cause or Retirement on the part of the Executive, the Executive shall be deemed for purposes of determining the number of complete years to have completed a year of service in its entirety for any partial year of service after the last anniversary date of the Effective Date during which the Executive's employment is terminated, provided that in no event shall the Executive be deemed to have completed a year of service for the partial year that occurs prior to the first anniversary date of this Agreement.
1.4. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Exhibit "B", to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof and is received by the Administrator prior to the Executive's death.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such term in the principal disability insurance policy covering the Executive, which is incorporated herein by reference. In the event the Executive is not covered by a disability policy containing a definition of "Disability" or "Disabled," these terms shall mean an illness or incapacity which, having continued for a period of one hundred and eighty (180) consecutive days, prevents the Executive from adequately performing the Executive's regular employment duties. The determination of whether the Executive is Disabled shall be made by an independent physician selected by mutual agreement of the parties.
1.7. Effective Date. The term "Effective Date" shall mean the date upon which this Agreement was entered into by the parties, as first written above.
1.8. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.9. Plan Year. The term "Plan Year" shall mean the Employer's calendar year.
1.10. Retirement. The term "Retirement" or "Retires" shall refer to the
date on which the Executive attains the age of at least sixty-eight (68) and
acknowledges in writing to the Employer to be the last day he will provide any
significant personal services, whether as an employee, director or independent
consultant or contractor, to the Employer. For purposes of this Agreement, the
phrase "significant personal services" shall mean more than ten (10) hours of
personal services rendered to one or more individuals or entities in any thirty
(30) day period.
1.11. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive's death.
1.12. Termination for Cause. The term "Termination for Cause" shall mean the termination of the Executive by the Employer upon the occurrence of any of the following events:
(i) the Executive is convicted of illegal activity by a court of competent jurisdiction or pleads guilty to or nolo contendere to illegal activity, which activity materially adversely affects the Employer's reputation in the community or which evidences the lack of the Executive's fitness or ability to perform the Executive's duty as determined by the Board of Directors in good faith;
(ii) the Executive has committed any illegal or dishonest act which would cause termination of coverage under the Employer's Bankers' Blanket Bond as to the Executive, as distinguished from termination of coverage as to the Employer as a whole;
(iii) the Executive materially fails to perform, or habitually neglects, the Executive's duties or commits a material act of malfeasance or misfeasance in connection therewith; or
(iv) an action is commenced by any bank regulatory agency having jurisdiction, to remove or suspend the Executive from office, or a cease and desist order under 12 U.S.C. 1818(b) or any similar Federal or state statute is issued against the Executive or the Employer which calls for the Executive's suspension or removal from office.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive's employment. This Agreement shall have no impact or effect upon any separate written employment agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in said employment agreement (or any modification thereto), this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect upon, nor be affected by, the terms and provisions of said employment agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement.
3. Payments Upon or After Retirement.
3.1. Payments Upon Retirement. If the Executive shall remain in the continuous employment of the Employer until Retirement, the Executive shall be entitled to be paid the Annual Benefit, with the Applicable Percent equal to 100% for a period of fifteen (15) years, in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the month in which the Executive Retires or upon such
later date as may be mutually agreed upon in writing by the Executive and the Employer in advance of said Retirement Date.
3.2. Payments in the Event of Death After Retirement. The Employer agrees that if the Executive Retires, but shall die before receiving all of the one hundred eighty (180) monthly payments described in paragraph 3.1 above, the Employer will make the remaining monthly payments, undiminished and on the same schedule as if the Executive had not died, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the term of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement. In the event the Executive should die while actively employed by the Employer at any time after the Effective Date of this Agreement, but prior to Retirement, the Employer agrees to pay the Annual Benefit with the Applicable Percentage equal to 100% for a period of fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first of each month beginning with the month following the Executive's death, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the event the Executive becomes Disabled while actively employed by the Employer at any time after the date of this Agreement but prior to Retirement, the Executive shall: (i) continue to be treated during such period of Disability as being gainfully employed by the Employer but shall not add applicable years of service for the purpose of determining the Annual Benefit; and (ii) be entitled to be paid the Annual Benefit, with the Applicable Percentage as set forth in Schedule A and as determined by the applicable years of service at the time of disability, for fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the earlier of (1) the month in which the Executive attains sixty-eight (68) years of age; or (2) the date upon which the Executive is no longer entitled to receive Disability benefits under the Executive's principal Disability insurance policy and does not, at such time, return to and thereafter fulfill the responsibilities associated with the employment position held with the Employer prior to becoming Disabled by reason of such Disability continuing. Notwithstanding the foregoing, in the event the Executive should die while actively or gainfully employed by the Employer at any time after the Effective Date of this Agreement and prior to Retirement, the payments provided in Paragraph 4.1 shall be paid in lieu of the payments provided in this Paragraph 4.2, provided that the Executive or his legal representative shall have not elected to take the benefits provided by Paragraph 5 and payments provided in Paragraph 4.2 have not commenced.
5. Payments in the Event Employment is Terminated Other than by Death, Disability, Termination for Cause or Retirement.
As indicated in Paragraph 2 above, the Employer reserves the right to terminate the Executive's employment, with or without cause but subject to any written employment agreement which may then exist, at any time prior to the Executive's Retirement. In the event that the employment of the Executive shall be terminated for any reason, including voluntary termination by the Executive, but other than by reason of (i) Disability except as provided in Paragraph 4.2, (ii) death, (iii) Termination for Cause, or (iv) Retirement, the Executive or his legal representative shall be entitled to be paid the Annual Benefit, with the Applicable Percentage as set forth in Schedule A and as determined by the applicable years of service at the time of termination of employment with the Employer, for a period of fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the month in which the Executive terminates employment and attains sixty-eight (68) years of age, provided that in the event the Executive dies after such termination but prior to age 61 then such benefits are to be paid beginning with the month following the Executive's death.
6. Termination for Cause.
Notwithstanding anything to the contrary, in the event the termination of employment of the Executive is Termination for Cause as defined in Paragraph 1.13, the Executive shall not be entitled to any benefits pursuant to this agreement.
7. No Ownership Rights to the Employer's Assets.
The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive, the Executive's spouse or the Executive's beneficiaries under the terms of this Agreement ("Benefits"). The rights of the Executive or any beneficiary of the Executive under this Agreement shall be solely those of an unsecured creditor of the Employer.
In the event that the Employer, in its sole and absolute discretion, elects to acquire an insurance policy, an annuity or any other asset to recoup the costs or any portion thereof of the Benefits, then such insurance policy, annuity or other asset shall not be deemed to be held under any trust for the benefit of the Executive or his beneficiaries or to be security for the performance of the obligations of the Employer under this Agreement, but shall be, and remain, a general unpledged, unrestricted asset of the Employer. The Executive and his beneficiaries shall have no rights whatsoever with respect to, or any claim against, any such insurance policy, annuity or other asset. In connection with the Employer electing to acquire any such insurance policy or annuity, the Executive agrees to cooperate to facilitate such acquisition, and pursuant thereto shall execute such documents and undergo such medical examinations or tests as the Employer may reasonably request.
8. Claims Procedure.
The Employer shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Employer shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Employer
denying a claim by the Executive, the Executive's spouse, or the Executive's beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Executive, the Executive's spouse or the Executive's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Employer shall provide the Executive, the Executive's spouse or the Executive's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim.
9. Status of an Unsecured General Creditor.
Notwithstanding anything contained herein to the contrary: (i) neither the Executive, the Executive's spouse nor the Executive's beneficiary shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer; (ii) none of the Employer's assets shall be held in or under any trust for the benefit of the Executive, the Executive's spouse or the Executive's beneficiary or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer's assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) the Executive, the Executive's spouse and the Executive's beneficiary shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement.
10. Covenant Not to Interfere.
The Executive agrees not to take any action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary.
11. Miscellaneous.
11.1. Opportunity to Consult with Independent Counsel. The Executive acknowledges that he has been afforded the opportunity to consult with independent counsel of his choosing regarding both the benefits granted to him under the terms of this Agreement and the terms and conditions which may affect the Executive's right to these benefits. The Executive further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in location nearest to Fresno, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in or nearest to Fresno, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Southern California, unless otherwise agreed to by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.
If to the Employer:
United Security Bank, N.A.,
2151 West Shaw Avenue
Fresno, California 93711
Attention: Dennis R. Woods
Chairman of the Board
If to the Executive:
11.5. Assignment. Neither the Executive, the Executive's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to
seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive, the Executive's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void and shall terminate this Agreement, and the Employer shall thereupon have no further liability hereunder.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement. Upon the occurrence of such event, the term "Employer" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation.
11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement.
11.8. Partial Invalidity. If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative.
11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person.
11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Federal
Deposit Insurance Corporation or any other regulatory agency or governmental authority having jurisdiction over the Employer, shall govern the validity, interpretation, construction and effect of this Agreement.
12. Right of the Employer to Pay a Lump Sum.
Unless expressly provided for herein, the Employer shall at its sole discretion have the right to pay in a lump sum the then present value using a discount rate that is to be mutually agreed upon between the Employer and the Executive or the Executive's beneficiary of all payments vested and due the Executive or the Executive's beneficiary pursuant to this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Fresno, Fresno County, California.
United Security Bank, N.A., David L. Eytcheson "Employer" "Executive" ----------------------------------- -------------------------------- Dennis R. Woods Chairman of the Board |
SCHEDULE A
----------
NUMBER OF COMPLETE APPLICABLE
YEARS OF SERVICE PERCENTAGE
---------------- ----------
1
8 1/3%
2
16 2/3%
3
25%
4
33 1/3%
5
41 2/3%
6
50%
7
58 1/3%
8
66 2/3%
9
75%
10
83 1/3%
11
91 2/3%
12 or more 100%
|
SCHEDULE B
BENEFICIARY DESIGNATION
TO: The Administrator of United Security Bank, Executive Salary Continuation Agreement
Pursuant to the provisions of my Executive Salary Continuation Agreement with United Security Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death:
NOTE: To name a trust as beneficiary, please provide the name of the trustee and the exact date of the trust agreement.
In the event the primary beneficiary is not the spouse of the Executive, the spouse of the Executive will need to sign the Spousal Consent below and such signature must be notarized.
Primary Beneficiary:
Christine C. Eytcheson PO Box 1175, Reedley, CA 93654 Wife
--------------------------------------------------------------------------------
Name Address Relationship
|
Secondary (Contingent) Beneficiary:
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ANY PRIOR DESIGNATION OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES IS HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Salary Continuation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement then and in that event, the remaining unpaid benefit payable according to the terms of my Executive Salary Continuation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Executive Salary Continuation Agreement.
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, _____________, being the spouse of _______________, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Salary Continuation Agreement entered into by my spouse on ______________, 1997. I understand that the above Beneficiary Designation adversely affects my community property interest in the benefits provided for under the terms of the Executive Salary Continuation Agreement. I understand that I have been advised to consult with an attorney of my choice prior to executing this consent, so that such attorney can explain the effects of this consent.
Dated: _____________, 1997 ____________________________________ ______________, Spouse
CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) ss.
County of Fresno )
|
|_| personally know to me - OR
|_| proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Capacity Claimed by Signer:
|_| Individual(s) Signing for Oneself/Themselves
Title or Type of Document:_____________________________________________________
Date of Document:______________________________________________________________
Number of Pages:_______________________________________________________________
Signer(s) Other Than Named Above:______________________________________________
Exhibit 10.6
CHANGE IN CONTROL AGREEMENT
This Agreement ("Agreement") is made and entered into as of the 24th day of February, 1997 between United Security Bank, N. A. ("Bank"), and David L. Eytcheson (hereinafter referred to as "Executive").
WITNESSETH:
WHEREAS, Bank desires to provide Executive with severance compensation in the event there is a change in control of Bank, and Executive desires severance compensation in the event there is a change in control of Bank.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and conditions herein contained, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. SEVERANCE PAYMENT
This Agreement shall not be terminated by the voluntary or involuntary dissolution of Bank. Notwithstanding the foregoing, in the event proceedings for liquidation of Bank are commenced by regulatory authorities, this Agreement and all rights and benefits hereunder shall terminate.
In the event of any merger or consolidation where Bank is not the surviving or resulting corporation, or upon transfer of all or substantially all of the assets of Bank (any of these events shall be referred to as an "Acquisition"), this Agreement shall continue and be in full force and effect. In the event of an Acquisition, if (i) Executive is not retained by the resulting corporation for a period of one year from the time of consummation of the Acquisition in a position comparable to that of vice president of the resulting corporation or a position accepted by Executive or (ii) the resulting corporation reduces Executive's base salary from Executive's base salary at the closest time prior to the Acquisition by more than 10% at any time within one year after the time of consummation of the Acquisition, then the resulting corporation shall pay Executive a lump sum amount in cash equal to the sum of (i) the last year of Executive's total compensation, inclusive of Executive's base annual salary and bonus for such year and (ii) the amount necessary to cover any "golden parachute taxes" that may be assessed pursuant to Section 280G of the Internal Revenue Code of 1986, as amended from time to time on such lump sum payment to Executive. The resulting corporation may substitute a legal opinion of a major law firm acceptable to Executive that states unequivocally that no "golden parachute taxes" will be assessed against Executive in lieu of the payment of "golden parachute taxes" that may be assessed against Executive. Such lump sum payment shall be paid within ten (10) days of the date Executive's employment is terminated by the resulting corporation or Executive leaves voluntarily because of (i) a change in Executive's position with the resulting corporation such that Executive is no longer in a position comparable to that of vice president of the resulting corporation or a position accepted by Executive or (ii) a reduction in Executive's base salary of more than 10% of Executive's base salary at the closest time prior to the Acquisition. The lump sum payment shall be considered to be in full and complete satisfaction of any and all rights which Executive may enjoy other than rights, if any, to exercise any of the stock options vested prior to such termination.
2. TERM OF AGREEMENT
This Agreement shall be for a term of five (5) years from the date first above stated ("Termination Date"). Such Termination Date may be amended or extended by written agreement of the parties. This Agreement shall apply to any Acquisition that is (i) consummated prior to the Termination Date provided that Executive is employed by Bank at the date of public announcement of the Acquisition or (ii) consummated at any time within one (1) year after the Termination Date, in the event Executive's employment is terminated without cause by Bank prior to the Termination Date and such termination is within twelve (12) months prior to the date of consummation of an Acquisition that was announced within six (6) months before or after the date of Executive's termination of employment with Bank.
3. APPLICABLE LAW
This Agreement is made and entered into in the State of California and the laws of the State of California shall govern the validity and interpretation hereof, and the performance of the parties hereto and their respective duties and obligations hereunder, except to the extent that the provisions of federal law are mandatorily applicable.
4. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties and it supersedes any and all other agreements, either oral or in writing, between Executive and Bank. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing signed by Bank and Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
UNITED SECURITY BANK, N.A.
EXECUTIVE
Exhibit 10.7
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into this 2nd day of January , 1997, by and between United Security Bank, N.A., a California banking corporation (the "Employer"), and Rhodlee A. Braa , an individual residing in the State of California (hereinafter referred to as the "Executive").
RECITALS
WHEREAS, the Executive is an employee of the Employer and is serving as its Chief Credit Officer;
WHEREAS, the Executive's experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with certain salary continuation benefits, on the terms and conditions set forth herein, in order to reasonably induce the Executive to remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive, or to the Executive's spouse or the Executive's designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows:
AGREEMENT
1. Terms and Definitions.
1.1. Administrator. The Employer shall be the "Administrator" and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. Annual Benefit. The term "Annual Benefit" shall mean an annual sum of fifty thousand dollars ($50,000) multiplied by the Applicable Percentage (defined below) and then reduced to the extent required: (i) under the other provisions of this Agreement; (ii) by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; and (iii) in order for the Employer to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (eg., FICA, FUTA, SDI).
1.3. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of complete years (with a "year" being the performance of personal services for or on behalf of the Employer as an employee for a period of 365 days) which have elapsed starting from the Effective Date of this
Agreement and ending on the date the Executive's employment is terminated for purposes of this Agreement. In the event the Executive's employment with the Employer is terminated other than by reason of death, disability, termination for cause or Retirement on the part of the Executive, the Executive shall be deemed for purposes of determining the number of complete years to have completed a year of service in its entirety for any partial year of service after the last anniversary date of the Effective Date during which the Executive's employment is terminated, provided that in no event shall the Executive be deemed to have completed a year of service for the partial year that occurs prior to the first anniversary date of this Agreement.
1.4. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Exhibit "B", to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof and is received by the Administrator prior to the Executive's death.
1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code").
1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such term in the principal disability insurance policy covering the Executive, which is incorporated herein by reference. In the event the Executive is not covered by a disability policy containing a definition of "Disability" or "Disabled," these terms shall mean an illness or incapacity which, having continued for a period of one hundred and eighty (180) consecutive days, prevents the Executive from adequately performing the Executive's regular employment duties. The determination of whether the Executive is Disabled shall be made by an independent physician selected by mutual agreement of the parties.
1.7. Effective Date. The term "Effective Date" shall mean the date upon which this Agreement was entered into by the parties, as first written above.
1.8. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.9. Plan Year. The term "Plan Year" shall mean the Employer's calendar year.
1.10. Retirement. The term "Retirement" or "Retires" shall refer to the
date on which the Executive attains the age of at least sixty-five (65) and
acknowledges in writing to the Employer to be the last day he will provide any
significant personal services, whether as an employee, director or independent
consultant or contractor, to the Employer. For purposes of this Agreement, the
phrase "significant personal services" shall mean more than ten (10) hours of
personal services rendered to one or more individuals or entities in any thirty
(30) day period.
1.11. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive's death.
1.12. Termination for Cause. The term "Termination for Cause" shall mean the termination of the Executive by the Employer upon the occurrence of any of the following events:
(i) the Executive is convicted of illegal activity by a court of competent jurisdiction or pleads guilty to or nolo contendere to illegal activity, which activity materially adversely affects the Employer's reputation in the community or which evidences the lack of the Executive's fitness or ability to perform the Executive's duty as determined by the Board of Directors in good faith;
(ii) the Executive has committed any illegal or dishonest act which would cause termination of coverage under the Employer's Bankers' Blanket Bond as to the Executive, as distinguished from termination of coverage as to the Employer as a whole;
(iii) the Executive materially fails to perform, or habitually neglects, the Executive's duties or commits a material act of malfeasance or misfeasance in connection therewith; or
(iv) an action is commenced by any bank regulatory agency having jurisdiction, to remove or suspend the Executive from office, or a cease and desist order under 12 U.S.C. 1818(b) or any similar Federal or state statute is issued against the Executive or the Employer which calls for the Executive's suspension or removal from office.
2. Scope, Purpose and Effect.
2.1. Contract of Employment. Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive's employment. This Agreement shall have no impact or effect upon any separate written employment agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in said employment agreement (or any modification thereto), this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect upon, nor be affected by, the terms and provisions of said employment agreement.
2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement.
3. Payments Upon or After Retirement.
3.1. Payments Upon Retirement. If the Executive shall remain in the continuous employment of the Employer until Retirement, the Executive shall be entitled to be paid the Annual Benefit, with the Applicable Percent equal to 100% for a period of fifteen (15) years, in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the month in which the Executive Retires or upon such later date as may be mutually agreed upon in writing by the Executive and the Employer in advance of said Retirement Date.
3.2. Payments in the Event of Death After Retirement. The Employer agrees that if the Executive Retires, but shall die before receiving all of the one hundred eighty (180) monthly payments described in paragraph 3.1 above, the Employer will make the remaining monthly payments, undiminished and on the same schedule as if the Executive had not died, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the term of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
4.1. Payments in the Event of Death Prior to Retirement. In the event the Executive should die while actively employed by the Employer at any time after the Effective Date of this Agreement, but prior to Retirement, the Employer agrees to pay the Annual Benefit with the Applicable Percentage equal to 100% for a period of fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first of each month beginning with the month following the Executive's death, to the Executive's designated beneficiary. If a valid Beneficiary Designation is not in effect, then the amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate.
4.2. Payments in the Event of Disability Prior to Retirement. In the event the Executive becomes Disabled while actively employed by the Employer at any time after the date of this Agreement but prior to Retirement, the Executive shall: (i) continue to be treated during such period of Disability as being gainfully employed by the Employer but shall not add applicable years of service for the purpose of determining the Annual Benefit; and (ii) be entitled to be paid the Annual Benefit, with the Applicable Percentage as set forth in Schedule A and as determined by the applicable years of service at the time of disability, for fifteen (15) years in one hundred eighty (180) equal monthly installments, with each installment to be paid on the first day of each month, beginning with the month following the earlier of (1) the month in which the Executive attains sixty-five (65)) years of age; or (2) the date upon which the Executive is no longer entitled to receive Disability benefits under the Executive's principal Disability insurance policy and does not, at such time, return to and thereafter fulfill the responsibilities associated with the employment position held with the Employer prior to becoming Disabled by reason of such Disability continuing. Notwithstanding the foregoing, in the event the Executive should die while actively or gainfully employed by the Employer at any time after the Effective Date of this Agreement and prior to Retirement, the payments provided in Paragraph 4.1 shall be paid in lieu of the payments provided in this Paragraph 4.2, provided that the Executive or his legal representative shall have not elected to take the benefits provided by Paragraph 5 and payments provided in Paragraph 4.2 have not commenced.
5. Payments in the Event Employment is Terminated Other than by Death, Disability, Termination for Cause or Retirement.
As indicated in Paragraph 2 above, the Employer reserves the right to terminate the Executive's employment, with or without cause but subject to any written employment agreement which may
then exist, at any time prior to the Executive's Retirement. In the event that
the employment of the Executive shall be terminated for any reason, including
voluntary termination by the Executive, but other than by reason of (i)
Disability except as provided in Paragraph 4.2, (ii) death, (iii) Termination
for Cause, or (iv) Retirement, the Executive or his legal representative shall
be entitled to be paid the Annual Benefit, with the Applicable Percentage as set
forth in Schedule A and as determined by the applicable years of service at the
time of termination of employment with the Employer, for a period of fifteen
(15) years in one hundred eighty (180) equal monthly installments, with each
installment to be paid on the first day of each month, beginning with the month
following the month in which the Executive terminates employment and attains
sixty-five (65) years of age, provided that in the event the Executive dies
after such termination but prior to age 61 then such benefits are to be paid
beginning with the month following the Executive's death.
6. Termination for Cause.
Notwithstanding anything to the contrary, in the event the termination of employment of the Executive is Termination for Cause as defined in Paragraph 1.13, the Executive shall not be entitled to any benefits pursuant to this agreement.
7. No Ownership Rights to the Employer's Assets.
The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive, the Executive's spouse or the Executive's beneficiaries under the terms of this Agreement ("Benefits"). The rights of the Executive or any beneficiary of the Executive under this Agreement shall be solely those of an unsecured creditor of the Employer.
In the event that the Employer, in its sole and absolute discretion, elects to acquire an insurance policy, an annuity or any other asset to recoup the costs or any portion thereof of the Benefits, then such insurance policy, annuity or other asset shall not be deemed to be held under any trust for the benefit of the Executive or his beneficiaries or to be security for the performance of the obligations of the Employer under this Agreement, but shall be, and remain, a general unpledged, unrestricted asset of the Employer. The Executive and his beneficiaries shall have no rights whatsoever with respect to, or any claim against, any such insurance policy, annuity or other asset. In connection with the Employer electing to acquire any such insurance policy or annuity, the Executive agrees to cooperate to facilitate such acquisition, and pursuant thereto shall execute such documents and undergo such medical examinations or tests as the Employer may reasonably request.
8. Claims Procedure.
The Employer shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Employer shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Employer denying a claim by the Executive, the Executive's spouse, or the Executive's beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Executive, the Executive's spouse or the Executive's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Employer
shall provide the Executive, the Executive's spouse or the Executive's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim.
9. Status of an Unsecured General Creditor.
Notwithstanding anything contained herein to the contrary: (i) neither the Executive, the Executive's spouse nor the Executive's beneficiary shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer; (ii) none of the Employer's assets shall be held in or under any trust for the benefit of the Executive, the Executive's spouse or the Executive's beneficiary or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer's assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) the Executive, the Executive's spouse and the Executive's beneficiary shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement.
10. Covenant Not to Interfere.
The Executive agrees not to take any action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary.
11. Miscellaneous.
11.1. Opportunity to Consult with Independent Counsel. The Executive acknowledges that he has been afforded the opportunity to consult with independent counsel of his choosing regarding both the benefits granted to him under the terms of this Agreement and the terms and conditions which may affect the Executive's right to these benefits. The Executive further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions.
11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in location nearest to Fresno, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in or nearest to Fresno, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Southern California, unless otherwise agreed to by the parties.
11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered.
11.4. Notice. Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.
If to the Employer:
United Security Bank, N.A.,
2151 West Shaw Avenue
Fresno, California 93711
Attention: Dennis R. Woods
Chairman of the Board
If to the Executive:
11.5. Assignment. Neither the Executive, the Executive's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive, the Executive's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or
transfer shall be void and shall terminate this Agreement, and the Employer shall thereupon have no further liability hereunder.
11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement. Upon the occurrence of such event, the term "Employer" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation.
11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement.
11.8. Partial Invalidity. If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.
11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding on either party.
11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative.
11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement.
11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person.
11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Federal Deposit Insurance Corporation or any other regulatory agency or governmental authority having jurisdiction over the Employer, shall govern the validity, interpretation, construction and effect of this Agreement.
12. Right of the Employer to Pay a Lump Sum.
Unless expressly provided for herein, the Employer shall at its sole discretion have the right to pay in a lump sum the then present value using a discount rate that is to be mutually agreed upon between the Employer and the Executive or the Executive's beneficiary of all payments vested and due the Executive or the Executive's beneficiary pursuant to this Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Fresno, Fresno County, California.
United Security Bank, N.A., Rhodlee A. Braa "Employer" "Executive" ---------------------------------- ------------------------------------ Dennis R. Woods Chairman of the Board |
SCHEDULE A
----------
NUMBER OF COMPLETE APPLICABLE
YEARS OF SERVICE PERCENTAGE
---------------- ----------
1 8 1/3%
2 16 2/3%
3 25%
4 33 1/3%
5 41 2/3%
6 50%
7 58 1/3%
8 66 2/3%
9 75%
10 83 1/3%
11 91 2/3%
12 or more 100%
|
SCHEDULE B
BENEFICIARY DESIGNATION
TO: The Administrator of United Security Bank, Executive Salary Continuation Agreement
Pursuant to the provisions of my Executive Salary Continuation Agreement with United Security Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death:
NOTE: To name a trust as beneficiary, please provide the name of the trustee and the exact date of the trust agreement.
In the event the primary beneficiary is not the spouse of the Executive, the spouse of the Executive will need to sign the Spousal Consent below and such signature must be notarized.
Primary Beneficiary:
Secondary (Contingent) Beneficiary:
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ANY PRIOR DESIGNATION OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES IS HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Salary Continuation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement then and in that event, the remaining unpaid benefit payable according to the terms of my Executive Salary Continuation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Executive Salary Continuation Agreement.
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, _____________, being the spouse of _______________, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Salary Continuation Agreement entered into by my spouse on ______________, 1997. I understand that the above Beneficiary Designation adversely affects my community property interest in the benefits provided for under the terms of the Executive Salary Continuation Agreement. I understand that I have been advised to consult with an attorney of my choice prior to executing this consent, so that such attorney can explain the effects of this consent.
CERTIFICATE OF ACKNOWLEDGMENT
OF NOTARY PUBLIC
State of California )
) ss.
County of Fresno )
|
On ________________, 1997, before me, ______________, Notary Public, State of California, personally appeared _____________________________________.
|_| personally know to me - OR
|_| proved to me on the basis of satisfactory evidence
to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Capacity Claimed by Signer:
|_| Individual(s) Signing for Oneself/Themselves
Title or Type of Document:_____________________________________________________
Date of Document:______________________________________________________________
Number of Pages:_______________________________________________________________
Signer(s) Other Than Named Above:______________________________________________
Exhibit 10.8
CHANGE IN CONTROL AGREEMENT
This Agreement ("Agreement") is made and entered into as of the 24th day of February, 1997 between United Security Bank, N. A. ("Bank"), and RHODLEE A. BRAA (hereinafter referred to as "Executive").
WITNESSETH:
WHEREAS, Bank desires to provide Executive with severance compensation in the event there is a change in control of Bank, and Executive desires severance compensation in the event there is a change in control of Bank.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and conditions herein contained, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. SEVERANCE PAYMENT
This Agreement shall not be terminated by the voluntary or involuntary dissolution of Bank. Notwithstanding the foregoing, in the event proceedings for liquidation of Bank are commenced by regulatory authorities, this Agreement and all rights and benefits hereunder shall terminate.
In the event of any merger or consolidation where Bank is not the surviving or resulting corporation, or upon transfer of all or substantially all of the assets of Bank (any of these events shall be referred to as an "Acquisition"), this Agreement shall continue and be in full force and effect. In the event of an Acquisition, if (i) Executive is not retained by the resulting corporation for a period of one year from the time of consummation of the Acquisition in a position comparable to that of vice president of the resulting corporation or a position accepted by Executive or (ii) the resulting corporation reduces Executive's base salary from Executive's base salary at the closest time prior to the Acquisition by more than 10% at any time within one year after the time of consummation of the Acquisition, then the resulting corporation shall pay Executive a lump sum amount in cash equal to the sum of (i) the last year of Executive's total compensation, inclusive of Executive's base annual salary and bonus for such year and (ii) the amount necessary to cover any "golden parachute taxes" that may be assessed pursuant to Section 280G of the Internal Revenue Code of 1986, as amended from time to time on such lump sum payment to Executive. The resulting corporation may substitute a legal opinion of a major law firm acceptable to Executive that states unequivocally that no "golden parachute taxes" will be assessed against Executive in lieu of the payment of "golden parachute taxes" that may be assessed against Executive. Such lump sum payment shall be paid within ten (10) days of the date Executive's employment is terminated by the resulting corporation or Executive leaves voluntarily because of (i) a change in Executive's position with the resulting corporation such that Executive is no longer in a position comparable to that of vice president of the resulting corporation or a position accepted by Executive or (ii) a reduction in Executive's base salary of more than 10% of Executive's base salary at the closest time prior to the Acquisition. The lump sum payment shall be considered to be in full and complete satisfaction of any and all rights which Executive may enjoy other than rights, if any, to exercise any of the stock options vested prior to such termination.
2. TERM OF AGREEMENT
This Agreement shall be for a term of five (5) years from the date first above stated ("Termination Date"). Such Termination Date may be amended or extended by written agreement of the parties. This Agreement shall apply to any Acquisition that is (i) consummated prior to the Termination Date provided that Executive is employed by Bank at the date of public announcement of the Acquisition or (ii) consummated at any time within one (1) year after the Termination Date, in the event Executive's employment is terminated without cause by Bank prior to the Termination Date and such termination is within twelve (12) months prior to the date of consummation of an Acquisition that was announced within six (6) months before or after the date of Executive's termination of employment with Bank.
3. APPLICABLE LAW
This Agreement is made and entered into in the State of California and the laws of the State of California shall govern the validity and interpretation hereof, and the performance of the parties hereto and their respective duties and obligations hereunder, except to the extent that the provisions of federal law are mandatorily applicable.
4. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties and it supersedes any and all other agreements, either oral or in writing, between Executive and Bank. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing signed by Bank and Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
UNITED SECURITY BANK, N.A.
EXECUTIVE
EXHIBIT 10.9
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INCENTIVE STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK
UNITED SECURITY BANK, N.A.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made and entered into as of the 17TH day of JUNE, 1996, by and between United Security Bank, N.A., a national banking association (the "Bank"), and DENNIS R. WOODS ("Optionee");
WHEREAS, pursuant to the United Security Bank 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee an incentive stock option to purchase all or any part of SEVENTEEN THOUSAND FIVE HUNDRED (17,500) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of THIRTY SIX Dollars and Fifty Cents ($36.50) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of SEVENTEEN THOUSAND FIVE HUNDRED (17,500) shares of the Bank's stock at the price of THIRTY SIX Dollars and Fifty Cents ($36.50) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Bank) as of the date of action of the Stock Option Committee granting this option.
2. EXERCISABILITY. This option shall be exercisable as to 3,500 SHARES ONE YEAR FROM THE EFFECTIVE DATE; 3,500 SHARES TWO YEARS FROM THE EFFECTIVE DATE; 3,500 SHARES THREE YEARS FROM THE EFFECTIVE DATE; 3,500 SHARES FOUR YEARS FROM THE EFFECTIVE DATE; 3,500 SHARES FIVE YEARS FROM THE EFFECTIVE DATE. . THIS OPTION SHALL REMAIN EXERCISABLE AS TO ALL VESTED SHARES UNTIL FIVE YEARS FROM ISSUANCE OF EACH OPTION. This option shall remain exercisable as to all vested shares until JUNE 17, 2006 (but not later than ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof or in the Plan. Subject to paragraphs 4 and 5, shares as to which this option becomes exercisable may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice
(substantially in the form as that which is attached as Exhibit A) delivered
to the Bank stating the number of shares with respect to which this option is
being exercised, together (a) with cash in the amount of the purchase price
of such shares, or (b) subject to applicable law, with the Bank's stock
previously acquired by Optionee. Notwithstanding the foregoing, in the event
Optionee does exercise the option by utilizing (b) above, Optionee should
obtain tax advice as to the consequences of such action. Not less than ten
(10) shares may be purchased at any one time unless the number purchased is
the total number which may be purchased under this option and in no event may
the option be exercised with respect to fractional shares. Upon exercise,
Optionee shall make appropriate arrangements and shall be responsible for the
withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5 hereof,
if Optionee shall cease to be an employee of the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")], this option shall expire three
(3) months
thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be an employee of the Bank or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the
Bank or a subsidiary corporation is terminated for cause, this option shall
expire immediately, unless reinstated by the Board of Directors within thirty
(30) days of such termination by giving written notice of such reinstatement
to Optionee at his or her last known address. In the event of such
reinstatement, Optionee may exercise this option only to such extent, for
such time, and upon such terms and conditions as if Optionee had ceased to be
an employee of the Bank or a subsidiary corporation upon the date of such
termination for a reason other than cause, death or disability. Termination
for cause shall include, but not be limited to, termination for malfeasance
or gross misfeasance in the performance of duties or conviction of a crime
involving moral turpitude, and, in any event, the determination of the Board
of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Bank or a subsidiary corporation. If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to
such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code; provided, however, that if the option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________ By_________________________
Dennis R. Woods Ronnie D. Miller, Vice Chairman
By__________________________
Robert G. Bitter, Secretary
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my incentive stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank makes no representations as to federal or state tax matters, and that I am to consult with my own tax attorney or tax accountant for advice with respect to the exercise of my stock option and the effect of the sale of the option shares. [(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further acknowledge that I am an affiliate or insider of United Security Bank and that federal securities laws are applicable to the exercise of the stock option and any subsequent sale of the option shares including the applicability of the Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
EXHIBIT 10.10
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INCENTIVE STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK
UNITED SECURITY BANK, N.A.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made and entered into as of the 21ST day of JULY, 1997, by and between United Security Bank, N.A., a national banking association (the "Bank"), and DENNIS R. WOODS ("Optionee");
WHEREAS, pursuant to the United Security Bank 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee an incentive stock option to purchase all or any part of TWENTY THOUSAND (20,000) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of THIRTY-FOUR Dollars ($34.00) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of TWENTY THOUSAND (20,000) shares of the Bank's stock at the price of THIRTY-FOUR Dollars ($34.00) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Bank) as of the date of action of the Stock Option Committee granting this option.
2. EXERCISABILITY. This option shall be exercisable as to 4,000 SHARES ONE YEAR FROM THE EFFECTIVE DATE; 4,000 SHARES TWO YEARS FROM THE EFFECTIVE DATE; 4,000 SHARES THREE YEARS FROM THE EFFECTIVE DATE; 4,000 SHARES FOUR YEARS FROM THE EFFECTIVE DATE; 4,000 SHARES FIVE YEARS FROM THE EFFECTIVE DATE. . THIS OPTION SHALL REMAIN EXERCISABLE AS TO ALL VESTED SHARES UNTIL FIVE YEARS FROM ISSUANCE OF EACH OPTION. This option shall remain exercisable as to all vested shares until JULY 21, 2007 (but not later than ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof or in the Plan. Subject to paragraphs 4 and 5, shares as to which this option becomes exercisable may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice
(substantially in the form as that which is attached as Exhibit A) delivered
to the Bank stating the number of shares with respect to which this option is
being exercised, together (a) with cash in the amount of the purchase price
of such shares, or (b) subject to applicable law, with the Bank's stock
previously acquired by Optionee. Notwithstanding the foregoing, in the event
Optionee does exercise the option by utilizing (b) above, Optionee should
obtain tax advice as to the consequences of such action. Not less than ten
(10) shares may be purchased at any one time unless the number purchased is
the total number which may be purchased under this option and in no event may
the option be exercised with respect to fractional shares. Upon exercise,
Optionee shall make appropriate arrangements and shall be responsible for the
withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5 hereof,
if Optionee shall cease to be an employee of the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of
1986, as amended from time to time (the "Code")], this option shall expire three (3) months thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be an employee of the Bank or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the
Bank or a subsidiary corporation is terminated for cause, this option shall
expire immediately, unless reinstated by the Board of Directors within thirty
(30) days of such termination by giving written notice of such reinstatement
to Optionee at his or her last known address. In the event of such
reinstatement, Optionee may exercise this option only to such extent, for
such time, and upon such terms and conditions as if Optionee had ceased to be
an employee of the Bank or a subsidiary corporation upon the date of such
termination for a reason other than cause, death or disability. Termination
for cause shall include, but not be limited to, termination for malfeasance
or gross misfeasance in the performance of duties or conviction of a crime
involving moral turpitude, and, in any event, the determination of the Board
of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Bank or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code; provided, however, that if the option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________ By_________________________
Dennis R. Woods Ronnie D. Miller, Vice Chairman
By__________________________
Kenneth L. Donahue, Assistant Secretary
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my incentive stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank makes no representations
as to federal or state tax matters, and that I am to consult with my own tax
attorney or tax accountant for advice with respect to the exercise of my
stock option and the effect of the sale of the option shares.
[(FOR EXECUTIVE 6OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further
acknowledge that I am an affiliate or insider of United Security Bank and that
federal securities laws are applicable to the exercise of the stock option and
any subsequent sale of the option shares including the applicability of the
Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an
affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
EXHIBIT 10.11
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INCENTIVE STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK
UNITED SECURITY BANK, N.A.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made and entered into as of the 21ST day of JULY, 1997, by and between United Security Bank, N.A., a national banking association (the "Bank"), and KENNETH L. DONAHUE ("Optionee");
WHEREAS, pursuant to the United Security Bank 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee an incentive stock option to purchase all or any part of TEN THOUSAND (10,000) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of THIRTY-FOUR Dollars ($34.00) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of TEN THOUSAND (10,000) shares of the Bank's stock at the price of THIRTY-FOUR Dollars ($34.00) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Bank) as of the date of action of the Stock Option Committee granting this option.
2. EXERCISABILITY. This option shall be exercisable as to 2,000 SHARES ONE YEAR FROM THE EFFECTIVE DATE; 2,000 SHARES TWO YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES THREE YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FOUR YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FIVE YEARS FROM THE EFFECTIVE DATE. . THIS OPTION SHALL REMAIN EXERCISABLE AS TO ALL VESTED SHARES UNTIL FIVE YEARS FROM ISSUANCE OF EACH OPTION. This option shall remain exercisable as to all vested shares until JULY 21, 2007 (but not later than ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof or in the Plan. Subject to paragraphs 4 and 5, shares as to which this option becomes exercisable may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice
(substantially in the form as that which is attached as Exhibit A) delivered
to the Bank stating the number of shares with respect to which this option is
being exercised, together (a) with cash in the amount of the purchase price
of such shares, or (b) subject to applicable law, with the Bank's stock
previously acquired by Optionee. Notwithstanding the foregoing, in the event
Optionee does exercise the option by utilizing (b) above, Optionee should
obtain tax advice as to the consequences of such action. Not less than ten
(10) shares may be purchased at any one time unless the number purchased is
the total number which may be purchased under this option and in no event may
the option be exercised with respect to fractional shares. Upon exercise,
Optionee shall make appropriate arrangements and shall be responsible for the
withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5 hereof,
if Optionee shall cease to be an employee of the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")], this option shall expire three
(3) months
thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be an employee of the Bank or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the
Bank or a subsidiary corporation is terminated for cause, this option shall
expire immediately, unless reinstated by the Board of Directors within thirty
(30) days of such termination by giving written notice of such reinstatement
to Optionee at his or her last known address. In the event of such
reinstatement, Optionee may exercise this option only to such extent, for
such time, and upon such terms and conditions as if Optionee had ceased to be
an employee of the Bank or a subsidiary corporation upon the date of such
termination for a reason other than cause, death or disability. Termination
for cause shall include, but not be limited to, termination for malfeasance
or gross misfeasance in the performance of duties or conviction of a crime
involving moral turpitude, and, in any event, the determination of the Board
of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Bank or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code; provided, however, that if the option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________ By_________________________
Kenneth L. Donahue Dennis R. Woods, President & CEO
By__________________________
Robert G. Bitter, Secretary
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my incentive stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank makes no representations as to federal or state tax matters, and that I am to consult with my own tax attorney or tax accountant for advice with respect to the exercise of my stock option and the effect of the sale of the option shares. [(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further acknowledge that I am an affiliate or insider of United Security Bank and that federal securities laws are applicable to the exercise of the stock option and any subsequent sale of the option shares including the applicability of the Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
EXHIBIT 10.12
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INCENTIVE STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK
UNITED SECURITY BANK, N.A.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made and entered into as of the 21ST day of JULY, 1997, by and between United Security Bank, N.A., a national banking association (the "Bank"), and DAVID L. EYTCHESON ("Optionee");
WHEREAS, pursuant to the United Security Bank 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee an incentive stock option to purchase all or any part of TEN THOUSAND (10,000) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of THIRTY-FOUR Dollars ($34.00) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of TEN THOUSAND (10,000) shares of the Bank's stock at the price of THIRTY-FOUR Dollars ($34.00) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Bank) as of the date of action of the Stock Option Committee granting this option.
2. EXERCISABILITY. This option shall be exercisable as to 2,000 SHARES ONE YEAR FROM THE EFFECTIVE DATE; 2,000 SHARES TWO YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES THREE YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FOUR YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FIVE YEARS FROM THE EFFECTIVE DATE. . THIS OPTION SHALL REMAIN EXERCISABLE AS TO ALL VESTED SHARES UNTIL FIVE YEARS FROM ISSUANCE OF EACH OPTION. This option shall remain exercisable as to all vested shares until JULY 21, 2007 (but not later than ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof or in the Plan. Subject to paragraphs 4 and 5, shares as to which this option becomes exercisable may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice
(substantially in the form as that which is attached as Exhibit A) delivered
to the Bank stating the number of shares with respect to which this option is
being exercised, together (a) with cash in the amount of the purchase price
of such shares, or (b) subject to applicable law, with the Bank's stock
previously acquired by Optionee. Notwithstanding the foregoing, in the event
Optionee does exercise the option by utilizing (b) above, Optionee should
obtain tax advice as to the consequences of such action. Not less than ten
(10) shares may be purchased at any one time unless the number purchased is
the total number which may be purchased under this option and in no event may
the option be exercised with respect to fractional shares. Upon exercise,
Optionee shall make appropriate arrangements and shall be responsible for the
withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5 hereof,
if Optionee shall cease to be an employee of the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")], this option shall expire three
(3) months
thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be an employee of the Bank or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the
Bank or a subsidiary corporation is terminated for cause, this option shall
expire immediately, unless reinstated by the Board of Directors within thirty
(30) days of such termination by giving written notice of such reinstatement
to Optionee at his or her last known address. In the event of such
reinstatement, Optionee may exercise this option only to such extent, for
such time, and upon such terms and conditions as if Optionee had ceased to be
an employee of the Bank or a subsidiary corporation upon the date of such
termination for a reason other than cause, death or disability. Termination
for cause shall include, but not be limited to, termination for malfeasance
or gross misfeasance in the performance of duties or conviction of a crime
involving moral turpitude, and, in any event, the determination of the Board
of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Bank or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code; provided, however, that if the option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________ By_________________________
David L. Eytcheson Dennis R. Woods, President & CEO
By__________________________
Kenneth L. Donahue, Assistant Secretary
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my incentive stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank makes no representations as to federal or state tax matters, and that I am to consult with my own tax attorney or tax accountant for advice with respect to the exercise of my stock option and the effect of the sale of the option shares. [(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further acknowledge that I am an affiliate or insider of United Security Bank and that federal securities laws are applicable to the exercise of the stock option and any subsequent sale of the option shares including the applicability of the Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INCENTIVE STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK
UNITED SECURITY BANK, N.A.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made and entered into as of the 10TH day of OCTOBER, 1995, by and between United Security Bank, N.A., a national banking association (the "Bank"), and RHODLEE A. BRAA ("Optionee");
WHEREAS, pursuant to the United Security Bank 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee an incentive stock option to purchase all or any part of TEN THOUSAND (10,000) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of THIRTY-ONE DOLLARS AND FIFTY CENTS ($31.50) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of TEN THOUSAND (10,000) shares of the Bank's stock at the price of THIRTY-ONE DOLLARS AND FIFTY CENTS ($31.50) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Bank) as of the date of action of the Stock Option Committee granting this option.
2. EXERCISABILITY. This option shall be exercisable as to 2,000 SHARES ONE YEAR FROM THE EFFECTIVE DATE; 2,000 SHARES TWO YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES THREE YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FOUR YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FIVE YEARS FROM THE EFFECTIVE DATE. . THIS OPTION SHALL REMAIN EXERCISABLE AS TO ALL VESTED SHARES UNTIL FIVE YEARS FROM ISSUANCE OF EACH OPTION. This option shall remain exercisable as to all vested shares until OCTOBER 10, 2005 (but not later than ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof or in the Plan. Subject to paragraphs 4 and 5, shares as to which this option becomes exercisable may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice (substantially in the form as that which is attached as Exhibit A) delivered to the Bank stating the number of shares with respect to which this option is being exercised, together (a) with cash in the amount of the purchase price of such shares, or (b) subject to applicable law, with the Bank's stock previously acquired by Optionee. Notwithstanding the foregoing, in the event Optionee does exercise the option by utilizing (b) above, Optionee should obtain tax advice as to the consequences of such action. Not less than ten (10) shares may be purchased at any one time unless the number purchased is the total number which may be purchased under this option and in no event may the option be exercised with respect to fractional shares. Upon exercise, Optionee shall make appropriate arrangements and shall be responsible for the withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5 hereof, if Optionee shall cease to be an employee of the Bank or a subsidiary corporation for any reason other than
Optionee's death or disability [as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended from time to time (the "Code")], this option shall expire three (3) months thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be an employee of the Bank or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the Bank or a subsidiary corporation is terminated for cause, this option shall expire immediately, unless reinstated by the Board of Directors within thirty (30) days of such termination by giving written notice of such reinstatement to Optionee at his or her last known address. In the event of such reinstatement, Optionee may exercise this option only to such extent, for such time, and upon such terms and conditions as if Optionee had ceased to be an employee of the Bank or a subsidiary corporation upon the date of such termination for a reason other than cause, death or disability. Termination for cause shall include, but not be limited to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of a crime involving moral turpitude, and, in any event, the determination of the Board of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Bank or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time
of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code; provided, however, that if the option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________ By_________________________ Rhodlee A. Braa Dennis R. Woods, President & CEO
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my incentive stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank makes no representations as to federal or state tax matters, and that I am to consult with my own tax attorney or tax accountant for advice with respect to the exercise of my stock option and the effect of the sale of the option shares. [(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further acknowledge that I am an affiliate or insider of United Security Bank and that federal securities laws are applicable to the exercise of the stock option and any subsequent sale of the option shares including the applicability of the Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
EXHIBIT 10-14
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INCENTIVE STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK
UNITED SECURITY BANK, N.A.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made and entered into as of the 21ST day of JULY, 1997, by and between United Security Bank, N.A., a national banking association (the "Bank"), and RHODLEE A. BRAA ("Optionee");
WHEREAS, pursuant to the United Security Bank 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee an incentive stock option to purchase all or any part of TEN THOUSAND (10,000) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of THIRTY-FOUR Dollars ($34.00) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of TEN THOUSAND (10,000) shares of the Bank's stock at the price of THIRTY-FOUR Dollars ($34.00) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Bank) as of the date of action of the Stock Option Committee granting this option.
2. EXERCISABILITY. This option shall be exercisable as to 2,000 SHARES ONE YEAR FROM THE EFFECTIVE DATE; 2,000 SHARES TWO YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES THREE YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FOUR YEARS FROM THE EFFECTIVE DATE; 2,000 SHARES FIVE YEARS FROM THE EFFECTIVE DATE. . THIS OPTION SHALL REMAIN EXERCISABLE AS TO ALL VESTED SHARES UNTIL FIVE YEARS FROM ISSUANCE OF EACH OPTION. This option shall remain exercisable as to all vested shares until JULY 21, 2007 (but not later than ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof or in the Plan. Subject to paragraphs 4 and 5, shares as to which this option becomes exercisable may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice
(substantially in the form as that which is attached as Exhibit A) delivered
to the Bank stating the number of shares with respect to which this option is
being exercised, together (a) with cash in the amount of the purchase price
of such shares, or (b) subject to applicable law, with the Bank's stock
previously acquired by Optionee. Notwithstanding the foregoing, in the event
Optionee does exercise the option by utilizing (b) above, Optionee should
obtain tax advice as to the consequences of such action. Not less than ten
(10) shares may be purchased at any one time unless the number purchased is
the total number which may be purchased under this option and in no event may
the option be exercised with respect to fractional shares. Upon exercise,
Optionee shall make appropriate arrangements and shall be responsible for the
withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5 hereof,
if Optionee shall cease to be an employee of the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")], this option shall expire three
(3) months
thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be an employee of the Bank or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the
Bank or a subsidiary corporation is terminated for cause, this option shall
expire immediately, unless reinstated by the Board of Directors within thirty
(30) days of such termination by giving written notice of such reinstatement
to Optionee at his or her last known address. In the event of such
reinstatement, Optionee may exercise this option only to such extent, for
such time, and upon such terms and conditions as if Optionee had ceased to be
an employee of the Bank or a subsidiary corporation upon the date of such
termination for a reason other than cause, death or disability. Termination
for cause shall include, but not be limited to, termination for malfeasance
or gross misfeasance in the performance of duties or conviction of a crime
involving moral turpitude, and, in any event, the determination of the Board
of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Bank or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code; provided, however, that if the option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________ By_________________________
Rhodlee A. Braa Dennis R. Woods, President & CEO
By__________________________
Kenneth L. Donahue, Assistant Secretary
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my incentive stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank makes no representations as to federal or state tax matters, and that I am to consult with my own tax attorney or tax accountant for advice with respect to the exercise of my stock option and the effect of the sale of the option shares. [(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further acknowledge that I am an affiliate or insider of United Security Bank and that federal securities laws are applicable to the exercise of the stock option and any subsequent sale of the option shares including the applicability of the Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
EXHIBIT 10.15
UNITED SECURITY BANK, N.A.
1995 STOCK OPTION PLAN
1. PURPOSE
The purpose of the United Security Bank, N.A. 1995 Stock Option Plan (the "Plan") is to strengthen United Security Bank, N.A. (the "Bank") and those corporations which are or hereafter become subsidiary corporations of the Bank by providing an additional means of attracting and retaining competent directors, officers and key employees and by providing to participating directors, officers and key employees added incentive for high levels of performance. The Plan seeks to accomplish these purposes and achieve these results by providing a means whereby such directors, officers and key employees may purchase shares of the common stock of the Bank pursuant to options granted in accordance with the Plan.
Options granted pursuant to the Plan are intended to be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or "nonqualified stock options", as shall be determined and designated upon the grant of each option hereunder. However, if an incentive stock option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
2. ADMINISTRATION
The Plan shall be administered by a committee of at least two persons appointed by the Bank's Board of Directors (the "Board"), and such committee shall consist of directors of the Bank, each of whom is not an employee of the Bank or a subsidiary of the Bank (the "Stock Option Committee").
Any action of the Stock Option Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote, or the unanimous written consent, of its members. Subject to the express provisions of the Plan, the Stock Option Committee shall have the authority to construe and interpret the Plan, define the terms used therein, prescribe, amend and rescind, the rules and regulations relating to administration of the Plan, and make all other determinations necessary or advisable for administration of the Plan; provided however, that the Stock Option Committee shall have no discretion with respect to the eligibility or selection of any Nonemployee Director (as defined in Section 4(d) herein) to receive any option under the Plan, the number of shares of stock subject to any such option, or the purchase price thereunder.
All decisions, determinations, interpretations or other actions by the Stock Option Committee shall be final, conclusive and binding on all persons, optionees, grantees, subsidiary corporations of the Bank and any successors-in-interest to such parties.
3. INCENTIVE STOCK OPTIONS
All options granted which are designated at the time of grant as an "incentive stock option" shall be deemed an incentive stock option.
(a) Incentive stock options granted under the Plan are intended to be qualified under Section 422 of the Code.
(b) Officers, who are employees and key employees of the Bank or a subsidiary corporation (as that term is defined in Section 424(f) of the Code), shall be eligible for selection to participate in the incentive stock option portion of the Plan. No director of the Bank who is not also an employee of the Bank or a subsidiary corporation, may be granted an incentive stock option hereunder. Subject to the express provisions of the Plan, the Stock Option Committee shall (i) select from the eligible class of employees and determine the individuals to whom incentive stock options shall be granted, (ii) determine the discretionary terms and provisions of the respective incentive stock option agreements (which need not be identical), (iii) determine the times at which such incentive stock options shall be granted, and (iv) determine the number of shares subject to each incentive stock option. An individual who has been granted an incentive stock option may, if he or she is otherwise eligible under the Plan, be granted additional incentive stock options if the Stock Option Committee shall so determine.
(c) Except as described in subsection (e) below, the Stock Option Committee shall not grant an incentive stock option to purchase shares of the Bank's common stock to any individual who, at the time of the grant, owns stock possessing more than 10% of the total combined voting power or value of all classes of stock of the Bank or a subsidiary corporation. The attribution rules of Section 424(d) of the Code shall apply in the determination of ownership of stock for these purposes.
(d) The aggregate fair market value (determined as of the time the incentive stock option is granted) of stock with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year (under all plans of the Bank and its subsidiary corporations, if any) shall not exceed $100,000, plus any greater amount as may be permitted under subsequent amendments to the Code.
(e) The purchase price of stock subject to each incentive stock option shall be determined by the Stock Option Committee, but shall not be less than one hundred percent (100%) of the fair market value of such stock at the time such option is granted, except, in the case of optionees who at the time of the grant own more than ten percent (10%) of the total combined voting power of all classes of stock of the Bank or a subsidiary corporation, in which case the purchase price of the stock shall not be less than one hundred ten percent (110%) of the fair market value of such stock at the time such option is granted and the term of such option shall be for no more than five (5) years. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation Section 20.2031-2.
4. NONQUALIFIED STOCK OPTIONS
(a) All options granted which are (i) in excess of the aggregate fair market value limitations set forth in Section 3(d) hereof, (ii) designated at the time of the grant as "nonqualified", or (iii) intended to be incentive stock options but do not meet the requirements of incentive stock options, shall be deemed nonqualified stock options. Nonqualified stock options granted hereunder shall be so designated in the nonqualified stock option agreement entered into between the Bank and the optionee.
(b) Directors of the Bank who are also employees of the Bank or a subsidiary corporation, officers who are employees (including such officers who are also directors) and key employees of the Bank or a subsidiary corporation shall be eligible for selection to participate in the nonqualified stock option portion of the Plan. Directors who are not employees of the Bank or a subsidiary corporation may only participate in the Plan pursuant to Section 4(d) of the Plan. Subject to the express provisions of the Plan, the Stock Option Committee shall (i) select from the eligible class of individuals and determine the individuals to whom nonqualified stock options shall be granted, (ii) determine the discretionary terms and provisions of the respective nonqualified stock option agreements (which need not be identical), (iii) determine the times at which such nonqualified stock options shall be granted, and (iv) determine the number of shares subject to each nonqualified stock option; provided however, that the Stock Option Committee shall have no discretion with respect to (i) the eligibility or selection of any director of the Bank who is not an employee of the Bank or a subsidiary corporation to receive any option under the Plan, (ii) the number of shares of stock subject to any such option of the Plan, or (iii) the purchase price thereunder. An individual who has been granted a nonqualified stock option may, if he or she is otherwise eligible under the Plan, be granted additional nonqualified stock options if the Stock Option Committee shall so determine.
(c) The purchase price of stock subject to each nonqualified stock option shall be determined by the Stock Option Committee, but shall not be less than one hundred percent (100%) of the fair market value of such stock at the time such option is granted. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation 20.2031-2.
(d) Notwithstanding anything to the contrary, a director of the Bank who is not an employee of the Bank or a subsidiary corporation as of the time of any option grant provided for in this Section 4(d) ("Nonemployee Director") shall be granted nonqualified stock options pursuant to the following automatic formula:
(i) a nonqualified option to purchase 2,500 shares of the Bank's common stock (as adjusted pursuant to Section 12) shall be automatically granted to each person who is a Nonemployee Director on the thirtieth day following approval of the Plan by the Bank's shareholders and to each other Nonemployee Director on the thirtieth day following such Nonemployee Director's appointment or election to the Bank's Board. In no event will any Nonemployee Director be granted options under this Plan in excess of the 2,500 options set forth herein;
(ii) the exercise price per share of stock for which each Nonemployee Director option is exercisable shall be 100% of the fair market value per share of the Bank's common stock on the date such option is granted;
(iii) each Nonemployee Director option granted under the Plan shall become exercisable in five equal installments, commencing on the first anniversary of the date of grant and annually thereafter. Each Nonemployee Director option granted under the Plan shall expire ten years from the date of grant ("Expiration Date"), and shall be subject to earlier termination as hereinafter provided. Such option shall remain exercisable as to all shares until the Expiration Date unless such option terminates at an earlier date;
(iv) in the event of the termination of service on the Board by the holder of any Nonemployee Director option, other than by disability or death as set forth in Section 4(d)(v) herein, such then outstanding Nonemployee Director options of such holder shall be exercisable only to the extent that the options were exercisable on the date of such termination and shall expire (a) three months after such termination, (b) on the Expiration Date, or (c) on an earlier termination date as provided for in the Plan, whichever occurs first; and
(v) in the event of termination of service by reason of disability or death of the holder of any Nonemployee Director option, such then outstanding Nonemployee Director options of such holder will continue to become exercisable in accordance with Section 4(d)(iii) above, and such holder or holder's legal representative shall be entitled to exercise such options, including any portions thereof that become exercisable within one year after such termination, during the one year period after such termination but in no event shall such option be exercisable after the earlier of the Expiration Date or an earlier termination date as provided for in the Plan.
5. STOCK SUBJECT TO THE PLAN
Subject to adjustments as provided in Section 12, hereof, the stock to be offered under the Plan shall be shares of the Bank's authorized but unissued common stock (hereinafter called "stock") and the aggregate amount of stock to be delivered upon exercise of all options granted under the Plan shall not exceed 115,000 shares. If any option shall be cancelled, surrendered or expire for any reason without having been exercised in full, the underlying shares subject thereto shall again be available for purposes of the Plan.
6. CONTINUATION OF EMPLOYMENT
Nothing contained in the Plan (or in any option agreement) shall obligate the Bank or a subsidiary corporation to employ any optionee for any period or interfere in any way with the right of the Bank or a subsidiary corporation to reduce the optionee's compensation.
7. EXERCISE OF OPTIONS
No option shall be exercisable until all necessary regulatory and shareholder approvals of the Plan are obtained. Except as otherwise provided in this section, each option other than a Nonemployee Director option shall be exercisable in such installments, which need not be equal, and upon such contingencies as the Stock Option Committee shall determine; provided, however, that if an optionee shall not in any given installment period purchase all of the shares which the optionee is entitled to purchase in such installment period, the optionee's right to purchase any shares not purchased in such installment period shall continue until expiration or termination of such option. Fractional share interests shall be disregarded, except that they may be accumulated. Not less than ten (10) shares may be purchased at any one time unless the number of shares purchased is the total number of shares which is exercisable at such time. Options may be exercised by written notice delivered to the Bank stating the number of shares with respect to which the option is being exercised, together with the full purchase price for such shares. Payment of the option price in full, for the number of shares to be delivered, must be made (a) in cash, or (b) subject to applicable law, with the Bank's stock previously acquired by the optionee. Notwithstanding the foregoing, in the event an optionee who has an incentive stock option does exercise the incentive stock option by utilizing (b) above, the optionee should obtain tax advice as to the consequences of such action. The
equivalent dollar value of shares used to effect a purchase shall be the fair market value of the shares on the date of exercise. If the option is being exercised by any person other than the optionee, said notice shall be accompanied by proof, satisfactory to counsel for the Bank, of the right of such person to exercise the option. Optionees will have no rights as shareholders with respect to stock of the Bank subject to their stock option agreements until the date of issuance of the stock certificate to them.
8. NONTRANSFERABILITY OF OPTIONS
Each option shall, by its terms, be nontransferable by the optionee other than by will or the laws of descent and distribution, and shall be exercisable during his or her lifetime only by the optionee.
9. CESSATION OF EMPLOYMENT
Except as provided in Sections 10 and 20 hereof, if an optionee, other than an optionee with a Nonemployee Director option, ceases to be an employee of the Bank or a subsidiary corporation for any reason other than his or her disability (as defined in Section 22(e)(3) of the Code) or death, such optionee's option shall expire three (3) months after the date of termination of such employment. During the period after cessation of employment, such option shall be exercisable only as to those installments, if any, which have accrued and/or vested as of the date on which such optionee ceased to be an employee of the Bank or a subsidiary corporation.
10. TERMINATION OF EMPLOYMENT FOR CAUSE
If the stock option agreement so provides and if an optionee's employment by the Bank or a subsidiary corporation is terminated for cause, the optionee's option shall expire immediately, provided, however, the Board may, in its sole discretion, within thirty (30) days of such termination, reinstate the option by giving written notice of such reinstatement to the optionee at the optionee's last known address. In the event of reinstatement, the optionee may exercise the option only to such extent, for such time, and upon such terms and conditions as if he or she had ceased to be an employee of the Bank or a subsidiary corporation upon the date of such termination for a reason other than cause, disability or death. Termination for cause shall include, but not be limited to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of a crime involving moral turpitude, and, in any event, the determination of the Board with respect thereto shall be final and conclusive.
11. DISABILITY OR DEATH OF OPTIONEE
If any optionee, other than an optionee with a Nonemployee Director option, dies while serving as an employee of the Bank or a subsidiary corporation, the option shall expire one (1) year after the date of such death, except as provided in Section 20 hereof. After such death but before such expiration, the persons to whom such optionee's rights under the option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of optionee's estate shall have the right to exercise such option to the extent that installments, if any, had accrued and/or vested as of the date on which the optionee ceased to be an employee of the Bank or a subsidiary corporation.
If the optionee, other than an optionee with a Nonemployee Director option, shall terminate his or her employment because of disability (as defined in Section 22(e)(3) of the Code), such optionee may exercise the option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, except as provided in Section 20 hereof.
If any optionee, other than an optionee with a Nonemployee Director option, dies or becomes disabled during the three (3) month period referred to in Section 9 hereof, the option shall expire one (1) year after the date of termination, except as provided in Section 20 hereof.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If the outstanding shares of the stock of the Bank are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Bank through reorganization, merger, recapitalization, reclassification, stock split, stock dividend, stock consolidation or otherwise, without consideration to the Bank, an appropriate and proportionate adjustment shall be made in the number and kind of shares as to which options may be granted. A corresponding adjustment changing the number or kind of shares and the exercise price per share allocated to unexercised options or portions thereof, which shall have been granted prior to any such change shall likewise be made. Any such adjustment, however, in an outstanding option shall be made without change in the total price applicable to the unexercised portion of the option, but with a corresponding adjustment in the price for each share subject to the option. Any adjustment under this Section 12 shall be made by the Stock Option Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final and conclusive. No fractional shares of stock shall be issued or made available under the Plan on account of any such adjustment, and fractional share- interests shall be disregarded, except that they may be accumulated.
13 TERMINATING EVENTS
A Terminating Event shall be defined as any one of the following events: (i) a dissolution or liquidation of the Bank; (ii) a reorganization, merger or consolidation of the Bank with one or more corporations, the result of which (A) the Bank is not the surviving corporation, or (B) the Bank becomes a subsidiary of another corporation (which shall be deemed to have occurred if another corporation shall own directly or indirectly, over 80% of the aggregate voting power of all outstanding equity securities of the Bank); (iii) a sale of substantially all the assets of the Bank to another corporation; or (iv) a sale of the equity securities of the Bank representing more than 80% of the aggregate voting power of all outstanding equity securities of the Bank to any person or entity, or any group of persons and/or entities acting in concert. When the Bank knows that a Terminating Event will occur, the Bank shall deliver to each optionee no less than thirty (30) days prior to the Terminating Event, written notification of the Terminating Event and such optionee's right to exercise all vested options granted pursuant to the Plan. Upon the occurrence of the Terminating Event all outstanding options, including Nonemployee Director options, and the Plan shall terminate; provided, however, that any outstanding options (excluding Nonemployee Director options) not exercised as of the occurrence of the Terminating Event shall not terminate if there is a successor corporation which assumes such outstanding options or substitutes for such options, new options covering the stock of the successor corporation with appropriate adjustments as to the number and kind of shares and prices.
14. AMENDMENT AND TERMINATION
The Stock Option Committee may at any time suspend, amend or terminate the Plan and may, with the consent of the optionee, other than an optionee with a Nonemployee Director option, make such modification of the terms and conditions of the option as it shall deem advisable; provided that, except as permitted under the provisions of Sections 12 and 13 hereof, no amendment or modification which would:
(a) increase the maximum number of shares which may be purchased pursuant to options granted under the Plan either in the aggregate or by an individual;
(b) change the minimum option price;
(c) increase the maximum term of options provided for herein;
(d) change the persons eligible to receive options pursuant to the Plan; or
(e) make any amendment to the Plan that would materially increase benefits to participants or cause the Plan to be no longer exempt pursuant to Section 16b-3 of the Securities Exchange Act of 1934;
may be adopted without the Bank having first obtained any necessary regulatory and shareholder approvals required by law. The Stock Option Committee may not amend any Nonemployee Director option.
No option may be granted during any suspension or after termination of the Plan. Amendment, suspension or termination of the Plan shall not (except as otherwise provided in Section 12 hereof), alter or impair any rights or obligations under any option theretofore granted.
Notwithstanding anything to the contrary, the provisions in Section 4(d) shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder.
15. TIME OF GRANTING OPTIONS
The time an option, other than a Nonemployee Director option, is granted, sometimes referred to as the date of grant, shall be the day of the action of the Stock Option Committee described in Sections 3(b) and 4(b) hereof; provided, however, that if appropriate resolutions of the Stock Option Committee indicate that an option is granted as of and on some future date, the time such option is granted shall be such future date. If action by the Stock Option Committee is taken by unanimous written consent of its members, the action of the Stock Option Committee shall be deemed to be at the time the last Stock Option Committee member signs the consent.
16. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE; NOTICE OF SALE
No optionee shall be entitled to the privileges of stock ownership as to any shares of stock not actually issued. No shares shall be purchased upon the exercise of any option unless and until the Bank has fully complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. The optionee shall give the Bank notice of any sale or disposition of any such shares not more than five (5) days after such sale or disposition.
17. EFFECTIVE DATE OF THE PLAN
The Plan shall be deemed adopted by the Board as of June 19, 1995 and shall be effective immediately subject to approval by the shareholders of the Bank within twelve months of the date the Plan is adopted, by the vote of a majority of the outstanding shares represented and voting at a duly held meeting of shareholders at which a quorum is present. No option under the Plan shall be exercised prior to the shareholders' approval of the Plan.
18. TERMINATION
Unless previously terminated by the Board or the Stock Option Committee, the Plan shall terminate at the close of business on June 19, 2005. No options shall be granted under the Plan thereafter, but such termination shall not affect any option theretofore granted.
19. OPTION AGREEMENT
Each option shall be evidenced by a written stock option agreement
executed by the Bank and the optionee and shall contain each of the provisions
and agreements herein specifically required to be contained therein, and such
other terms and conditions as are deemed desirable and are not inconsistent with
the Plan. Each incentive stock option agreement shall contain such terms and
provisions as the Stock Option Committee may determine to be necessary in order
to qualify such option as an incentive stock option within the meaning of
Section 422 of the Code.
20. OPTION PERIOD
Each option, other than a Nonemployee Director option, and all rights and obligations thereunder shall expire on such date as the Stock Option Committee may determine, but not later than ten (10) years from the date such option is granted, and shall be subject to earlier termination as provided elsewhere in the Plan.
21. EXCULPATION AND INDEMNIFICATION
To the extent permitted by applicable law in effect from time to time, no member of the Board or the Stock Option Committee shall be liable for any act or omission of any other member of the Board or the Stock Option Committee nor for any act or omission on the member's own part, except the member's own willful misconduct or gross negligence. The Bank and its subsidiary corporations shall pay expenses incurred by, and satisfy a judgment or fine rendered or levied
against, a present or former member of the Board or the Stock Option Committee
in any action brought by a third party against such person (whether or not the
Bank is joined as a party defendant) to impose a liability or penalty on such
person while a member of the Board or the Stock Option Committee arising with
respect to the Plan or administration thereof or out of membership on the Board
or the Stock Option Committee, or all or any combination of the preceding;
provided, the Board determines in good faith that such member of the Board or
the Stock Option Committee was acting in good faith, within what such member of
the Board or the Stock Option Committee reasonably believed to be the scope of
his or her employment or authority, and for a purpose which he or she reasonably
believed to be in the best interests of the Bank or its shareholders. Payments
authorized hereunder include amounts paid and expenses incurred in settling any
such action or threatened action. This Section 21 does not apply to any action
instituted or maintained in the right of the Bank by a shareholder or holder of
a voting trust certificate representing shares of the Bank or a subsidiary
corporation thereof. The provisions of this Section 21 shall apply to the
estate, executor, administrator, heirs, legatees or devisees of a member of the
Board or the Stock Option Committee, and the term "person" as used in this
Section 21 shall include the estate, executor, administrator, heirs, legatees or
devisees of such person.
22. AGREEMENT AND REPRESENTATIONS OF OPTIONEE
Unless the shares of stock covered by the Plan have been registered with the Office of the Comptroller of the Currency, each optionee shall, by accepting an option, represent and agree, for himself or herself and his or her transferees by will or the laws of descent and distribution, that all stock will be acquired for investment and not for resale or distribution. Upon such exercise of any portion of an option, the person entitled to exercise the same shall, upon request of the Bank, furnish evidence satisfactory to the Bank (including a written and signed representation) to the effect that the stock is being acquired in good faith for investment and not for resale or distribution. Furthermore, the Bank, at its sole discretion, may take all reasonable steps, including affixing the following legend (and/or such other legend or legends as counsel shall require) on certificates embodying the shares:
The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be sold, pledged, hypothecated or otherwise transferred or offered for sale in the absence of an effective registration statement with respect to them under the Securities Act of 1933 or a written opinion of counsel for the optionee which opinion shall be acceptable to counsel for the Bank that registration is not required.
to assure itself against any sale or distribution by the optionee which does not comply with the Plan or any federal or state securities laws.
The Bank agrees to remove any legend affixed to the certificates embodying the shares pursuant to this Section 22 when all of the restrictions on the transfer of the shares, whether imposed by the Plan or federal or state law, have terminated.
23. INFORMATION TO EMPLOYEES
The Bank shall provide optionees with financial statements of the Bank at least annually.
24. EXEMPT PLAN UNDER SECTION 16b-3
The Plan is intended to be Section 16b-3 of the Securities Exchange Act of 1934.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS INCENTIVE STOCK OPTION AGREEMENT,
NO SHARES OF UNITED SECURITY BANK, N.A.'S COMMON STOCK SHALL BE ISSUED
PURSUANT HERETO UNLESS THE UNITED SECURITY BANK, N.A. 1995 STOCK OPTION PLAN
SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK,
N.A.
UNITED SECURITY BANK, N.A.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made and entered into as of the _____ day of ____________, ____, by and between United Security Bank, N.A., a national banking association (the "Bank"), and ___________________ ("Optionee");
WHEREAS, pursuant to the United Security Bank, N.A. 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee an incentive stock option to purchase all or any part of _____________ (______) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of ___________ Dollars and _______ Cents ($__.__) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of _________________________________ (_____) shares of the Bank's stock at the price of _________ Dollars and _____ Cents ($__.__) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock (or not less than 110% of the fair market value of the stock for Optionee-shareholders who own securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Bank) as of the date of action of the Stock Option Committee granting this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice (substantially in the form as that which is attached as Exhibit A) delivered to the Bank stating the number of shares with respect to which this option is being exercised, together (a) with cash in the amount of the
purchase price of such shares, or (b) subject to applicable law, with the Bank's stock previously acquired by Optionee. Notwithstanding the foregoing, in the event Optionee does exercise the option by utilizing (b) above, Optionee should obtain tax advice as to the consequences of such action. Not less than ten (10) shares may be purchased at any one time unless the number purchased is the total number which may be purchased under this option and in no event may the option be exercised with respect to fractional shares. Upon exercise, Optionee shall make appropriate arrangements and shall be responsible for the withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT. Except as provided in Paragraphs 2 and 5
hereof, if Optionee shall cease to be an employee of the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")], this option shall expire three (3)
months thereafter. During the three (3) month period this option shall be
exercisable only as to those installments, if any, which had accrued as of
the date when Optionee ceased to be an employee of the Bank or a subsidiary
corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the Bank or a subsidiary corporation is terminated for cause, this option shall expire immediately, unless reinstated by the Board of Directors within thirty (30) days of such termination by giving written notice of such reinstatement to Optionee at his or her last known address. In the event of such reinstatement, Optionee may exercise this option only to such extent, for such time, and upon such terms and conditions as if Optionee had ceased to be an employee of the Bank or a subsidiary corporation upon the date of such termination for a reason other than cause, death or disability. Termination for cause shall include, but not be limited to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of a crime involving moral turpitude, and, in any event, the determination of the Board of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of the Bank or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
13. INCENTIVE STOCK OPTION. This Agreement is intended to be an incentive stock option agreement as defined in Section 422 of the Code; provided, however, that if the option shall fail to constitute an incentive stock option for any reason, the option shall thereafter be governed by the provisions of the Plan regarding nonqualified stock options.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________________ By_________________________________
By_________________________________
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank, N.A.
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my incentive stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank, N.A.. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, or ________ SHARES OF UNITED SECURITY BANK, N.A. HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank, N.A. makes no
representations as to federal or state tax matters, and that I am to consult
with my own tax attorney or tax accountant for advice with respect to the
exercise of my stock option and the effect of the sale of the option shares.
[(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further
acknowledge that I am an affiliate or insider of United Security Bank, N.A. and
that federal securities laws are applicable to the exercise of the stock option
and any subsequent sale of the option shares including the applicability of the
Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an
affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
NOTWITHSTANDING ANY OTHER PROVISION OF THIS NONEMPLOYEE DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK, N.A.'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK, N.A. 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK, N.A.
UNITED SECURITY BANK, N.A.
NONEMPLOYEE DIRECTOR NONQUALIFIED
STOCK OPTION AGREEMENT
This Nonemployee Director Nonqualified Stock Option Agreement ("Agreement") is made and entered into as of the ______ day of _____________, _____, by and between United Security Bank, N.A., a national banking association (the "Bank"), and _______________, ("Optionee");
WHEREAS, pursuant to the United Security Bank, N.A. 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Plan has authorized granting to Optionee a nonqualified stock option to purchase all or any part of two thousand five hundred (2,500) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of ________ Dollars and ____________ Cents ($__.__) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to the Plan and pursuant to authorizations
granted by all appropriate regulatory and governmental agencies, the Bank
hereby grants to Optionee the option to purchase, upon and subject to the
terms and conditions of the Plan, which is incorporated in full herein by
this reference, all or any part of two thousand five hundred (2,500) shares
of the Bank's stock at the price of ___________ Dollars and _________ Cents
($__.__) per share, which price is not less than one hundred percent (100%)
of the fair market value of the stock at the time of the grant as specified
in the Plan.
2. EXERCISABILITY. This option shall become exercisable in five equal installments, commencing on the first anniversary of the date of the grant and annually thereafter. This option shall remain exercisable as to all vested shares until __________, _____ (ten (10) years from the date this option is granted) unless this option has expired or terminated earlier in accordance with the provisions hereof or in the Plan. Subject to paragraphs 4 and 5, shares as to which this option becomes exercisable may be purchased at any time prior to expiration of this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice
(substantially in the form as that which is attached as Exhibit A) delivered
to the Bank stating the number of shares with respect to which this option is
being exercised, together (a) with cash in the amount of the purchase price
of such shares, or (b) subject to applicable law, with the Bank's stock
previously acquired by Optionee. Notwithstanding the foregoing, in the event
Optionee does exercise the option by utilizing (b) above, Optionee should
obtain tax advice as to the consequences of such action. Not less than ten
(10) shares may be purchased at any one time unless the number purchased is
the total number which may be purchased under this option and in no event may
the option be
exercised with respect to fractional shares. Upon exercise, Optionee shall make appropriate arrangements and shall be responsible for the withholding of any federal and state taxes then due.
4. CESSATION OF DIRECTORSHIP. Except as provided in Paragraphs 2 and 5
hereof, if Optionee shall cease to be a director of the Bank or a subsidiary
corporation for any reason other than Optionee's death or disability
[as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")], this option shall expire three (3)
months thereafter. During the three (3) month period this option shall be
exercisable only as to those installments, if any, which had accrued as of
the date when Optionee ceased to be a director of the Bank or a subsidiary
corporation.
5. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies or becomes disabled while serving as a director of the Bank or a subsidiary corporation, this option shall continue to become exercisable as set forth in Paragraph 2 hereof and Optionee or Optionee's legal representative shall be entitled to exercise this option, including any portions hereof that become exercisable within one year after termination, for a period up to the earlier of (i) the date one year after the date of (A) Optionee's death or (B) Optionee becoming disabled, (ii) the expiration date specified in Paragraph 2 hereof, or (iii) such earlier date as provided for in the Plan.
6. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
7. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
8. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
9. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
10. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_______________________________ By__________________________________
By__________________________________
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank, N.A.
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my nonemployee director nonqualified stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank, N.A.. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK, N.A. HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank, N.A. makes no
representations as to federal or state tax matters, and that I am to consult
with my own tax attorney or tax accountant for advice with respect to the
exercise of my stock option and the effect of the sale of the option shares.
[(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further
acknowledge that I am an affiliate or insider of United Security Bank, N.A. and
that federal securities laws are applicable to the exercise of the stock option
and any subsequent sale of the option shares including the applicability of the
Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an
affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
NOTWITHSTANDING ANY OTHER PROVISION OF THIS NONQUALIFIED STOCK OPTION AGREEMENT, NO SHARES OF UNITED SECURITY BANK, N.A.'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE UNITED SECURITY BANK, N.A. 1995 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF UNITED SECURITY BANK, N.A..
UNITED SECURITY BANK, N.A.
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Agreement") is made and entered into as of the ____ day of __________, ____, by and between United Security Bank, N.A., a national banking association (the "Bank"), and _________________ ("Optionee");
WHEREAS, pursuant to the United Security Bank, N.A. 1995 Stock Option Plan (the "Plan"), a copy of which is attached hereto, the Stock Option Committee of the Bank has authorized granting to Optionee a nonqualified stock option to purchase all or any part of __________ (_____) authorized but unissued shares of the Bank's common stock (hereinafter referred to as "stock") at the price of _____ Dollars and _____ Cents ($__.__) per share, such option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Stock Option Committee and pursuant to authorizations granted by all appropriate regulatory and governmental agencies, the Bank hereby grants to Optionee the option to purchase, upon and subject to the terms and conditions of the Plan, which is incorporated in full herein by this reference, all or any part of _________________________________ (_____) shares of the Bank's stock at the price of _________ Dollars and _____ Cents ($__.__) per share, which price is not less than one hundred percent (100%) of the fair market value of the stock as of the date of action of the Stock Option Committee granting this option.
3. EXERCISE OF OPTION. This option may be exercised by a written notice (substantially in the form as that which is attached as Exhibit A) delivered to the Bank stating the number of shares with respect to which this option is being exercised, together (a) with cash in the amount of the purchase price of such shares, or (b) subject to applicable law, with the Bank's stock previously
acquired by Optionee. Notwithstanding the foregoing, in the event Optionee does exercise the option by utilizing (b) above, Optionee should obtain tax advice as to the consequences of such action. Not less than ten (10) shares may be purchased at any one time unless the number purchased is the total number which may be purchased under this option and in no event may the option be exercised with respect to fractional shares. Upon exercise, Optionee shall make appropriate arrangements and shall be responsible for the withholding of any federal and state taxes then due.
4. CESSATION OF EMPLOYMENT OR DIRECTORSHIP. Except as provided in Paragraphs 2 and 5 hereof, if Optionee shall cease to be an employee or a director of the Bank or a subsidiary corporation for any reason other than Optionee's death or disability [as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended from time to time (the "Code")], this option shall expire three (3) months thereafter. During the three (3) month period this option shall be exercisable only as to those installments, if any, which had accrued as of the date when Optionee ceased to be an employee or a director of the Bank or a subsidiary corporation.
5. TERMINATION OF EMPLOYMENT FOR CAUSE. If Optionee's employment with the Bank or a subsidiary corporation is terminated for cause, this option shall expire immediately, unless reinstated by the Board of Directors within thirty (30) days of such termination by giving written notice of such reinstatement to Optionee at his or her last known address. In the event of such reinstatement, Optionee may exercise this option only to such extent, for such time, and upon such terms and conditions as if Optionee had ceased to be an employee of the Bank or a subsidiary corporation upon the date of such termination for a reason other than cause, death or disability. Termination for cause shall include, but not be limited to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of a crime involving moral turpitude, and, in any event, the determination of the Board of Directors with respect thereto shall be final and conclusive.
6. NONTRANSFERABILITY; DEATH OR DISABILITY OF OPTIONEE. This option shall not be transferable except by will or the applicable laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. If Optionee dies while serving as an employee or a director of the Bank or a subsidiary corporation, or during the three (3) month period referred to in Paragraph 4 hereof, this option shall expire one (1) year after the date of termination or on the day specified in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before such expiration, the persons to whom Optionee's rights under this option shall have passed by will or the applicable laws of descent and distribution or the executor or administrator of Optionee's estate shall have the right to exercise this option as to those shares for which installments had accrued under Paragraph 2 hereof as of the date on which Optionee ceased to be an employee or a director of the Bank or a subsidiary corporation.
If Optionee terminates his or her employment or directorship because of disability, (as defined in Section 22(e)(3) of the Code), Optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, or before the expiration date specified in Paragraph 2 hereof, whichever is earlier.
7. EMPLOYMENT. This Agreement shall not obligate the Bank or a subsidiary corporation to employ Optionee for any period, nor shall it interfere in any way with the right of the Bank or a subsidiary corporation to reduce Optionee's compensation.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall have no rights as a shareholder with respect to the Bank's stock subject to this option until the date of issuance of stock certificates to Optionee. Except as provided in the Plan, no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificates are issued.
9. MODIFICATION AND TERMINATION. The rights of Optionee are subject to modification and termination upon the occurrence of certain events as provided in Sections 13 and 14 of the Plan.
10. NOTIFICATION OF SALE. Optionee agrees that Optionee, or any person acquiring shares upon exercise of this option, will notify the Bank not more than five (5) days after any sale or other disposition of such shares.
11. REPRESENTATIONS OF OPTIONEE. Optionee understands that no shares issuable upon the exercise of this option shall be issued and delivered unless and until the Bank has complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank including registration of the stock options and underlying shares, as necessary, and all applicable requirements of any exchange upon which stock of the Bank may be listed. Optionee agrees to ascertain that such requirements shall have been complied with at the time of any exercise of this option. In addition, if Optionee is an "affiliate" for purposes of the Securities Act of 1933, there may be additional restrictions on the resale of stock, and Optionee therefore agrees to ascertain what those restrictions are and to abide by the restrictions and other applicable federal securities laws.
Furthermore, the Bank may, if it deems appropriate, issue stop transfer instructions against any shares of stock purchased upon the exercise of this option and affix to any certificate representing such shares the legends which the Bank deems appropriate.
Optionee represents that the Bank, its directors, officers, employees and agents have not and will not provide tax advice with respect to the option, and Optionee agrees to consult with his or her own tax advisor as to the specific tax consequences of the option, including the application and effect of federal, state, local and other tax laws.
12. NOTICES. Any notice to the Bank provided for in this Agreement shall be addressed to it in care of its President or Chief Financial Officer at its main office and any notice to Optionee shall be addressed to Optionee's address on file with the Bank or a subsidiary corporation, or to such other address as either may designate to the other in writing. Any notice shall be deemed to be duly given if and when enclosed in a properly sealed envelope and addressed as stated above and deposited, postage prepaid, with the United States Postal Service. In lieu of giving notice by mail as aforesaid, any written notice under this Agreement may be given to Optionee in person, and to the Bank by personal delivery to its President or Chief Financial Officer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
OPTIONEE UNITED SECURITY BANK, N.A.
By_________________________________ By_________________________________
By__________________________________
|
EXHIBIT A
NOTICE OF STOCK OPTION EXERCISE
Mr. Dennis R. Woods
President
United Security Bank, N.A.
2151 West Shaw Avenue
Fresno, California 93711
Dear Mr. Woods:
Pursuant to my nonqualified stock option agreement dated _______________, I am exercising my stock option to acquire ____________ shares of common stock of United Security Bank, N.A.. I am also enclosing payment by means of (CASH IN THE AMOUNT OF $_________, OR ________ SHARES OF UNITED SECURITY BANK, N.A. HAVING A FAIR MARKET VALUE) equal to the sum of the option exercise price.
I further acknowledge that the United Security Bank, N.A. makes no
representations as to federal or state tax matters, and that I am to consult
with my own tax attorney or tax accountant for advice with respect to the
exercise of my stock option and the effect of the sale of the option shares.
[(FOR EXECUTIVE OFFICERS OF THE BANK OR INSIDERS OF THE BANK) I further
acknowledge that I am an affiliate or insider of United Security Bank, N.A. and
that federal securities laws are applicable to the exercise of the stock option
and any subsequent sale of the option shares including the applicability of the
Securities Act of 1933 and Rule 144 (both dealing with the sale of shares by an
affiliate). I agree to comply with such securities laws and rules.]
Sincerely,
Name of Optionee
Exhibit 13
< United Security Bank - COVER >
United Security Bank - Inside cover - Financial Highlights (Graphs)
United Security Bank - About Us...
Founded in 1987, United Security Bank is a state-chartered independent community bank headquartered in Fresno, California. United Security Bank was established by local business people with the purpose of providing a full range of competitively priced commercial banking services primarily to the business and professional community and individuals located in Fresno and Madera Counties. We ended our first full year of operations with one branch, $24 million in assets, $18 million in deposits, and $13 million in loans. After thirteen years, two mergers and four branch acquisitions, United Security Bank currently operates seven branches in an area from eastern Madera County to Western Fresno County and employs 85 people. Today, with more than $356 million in assets, $271 million in deposits and $260 million in loans, we continue to seek opportunities for profitable growth in our market area while enhancing the financial services offered to our customers.
United Security Bank has seven branches including two in Fresno, and one each in Oakhurst, Caruthers, San Joaquin, Firebaugh and Coalinga. We offer a wide array of loan and deposit products provided to individuals and small to medium sized businesses. As a local independent bank, we believe strongly in the principles of community banking - prompt response and superior personal service. Expertise in such areas as commercial real estate and construction lending, as well as small business financing, enables us to provide a quality level of service not found elsewhere.
Our primary business strategy at United Security Bank is to increase market share in the local communities we serve, as well as to expand into new markets when sound business opportunities present themselves. This growth strategy is based on enhancing shareholder value through increased and consistent net income and earnings per share. We will pursue acquisitions and opportunities to expand only when it makes strategic business sense for our shareholders.
United Security Bank has consistently received the highest bank ratings for safety and soundness. We consistently maintain a "Super Premier Performing Bank" rating as determined by the Findley Reports and are rated outstanding by bank regulators in Community Reinvestment Act (CRA) performance. We are also regularly awarded a "5-Star Rating" by Bauer Financial Reports, while Veribank recognizes our institution as a top "Blue Ribbon Bank."
To Our Shareholders, Clients and Friends,
United Security Bank experienced its best year ever during 2000, with record earnings and strong asset growth. Net income for the year was $6.3 million or $1.16 basic, $1.12 diluted per common share as compared to $4.9 million or $0.95 basic, $0.89 diluted per common share in 1999. This represents an increase of $1.3 million or 27 percent between the two years. Return on average assets was 1.95 percent and the return on average shareholders' equity was 20.05 percent for the year ended December 31, 2000. Shareholders' equity increased $5.4 million to $34 million, and resulted in total risk-based capital to risk-weighted assets of 10.85 percent at year-end, exceeding the minimum regulatory requirement of 8 percent, and Tier 1 risk-based capital to risk-weighted assets of 9.65 percent at year-end, also exceeding the minimum regulatory requirement of 4 percent.
During 2000, United Security Bank enjoyed significant asset growth, as total assets grew from $281.5 million to $356.8 million, an increase of 27 percent. With deposit growth of $33.0 million and the use of borrowing lines, the Bank was able to generate loan growth of $63.1 million during the year. Loan growth was achieved in all categories while still maintaining a high level of asset quality throughout the portfolio. Over the past year, the Bank has strengthened its earning asset mix to produce a stronger yielding and more productive balance sheet. We believe that United Security Bank is strategically positioned to achieve continued strong returns for its shareholders in the future.
United Security has increased dividends each year since its formation, and 2000 was no exception. In recognition of the Bank's continued strong performance, the Board of Directors again increased the annual dividends to its shareholders by 25 percent to $.40 per common share. This is the 13th consecutive annual increase in the cash dividend since inception, and represents our 49th consecutive quarterly dividend paid. During 2000, the Bank introduced a Dividend Reinvestment Plan through which shareholders may automatically reinvest their quarterly dividends in the Bank's stock, without the cost of a brokerage fee. During the first quarter of 2001, the Bank made application to become a NASDAQ listed company. The NASDAQ listing provides greater exposure for the Bank and may provide greater liquidity for our stock in the marketplace. We anticipate the application process to be completed during the second quarter of 2001.
Changes in the banking industry continue to present additional challenges and offer new opportunities for United Security Bank. We recognize the increased emphasis placed on technology in the banking industry, and in business as a whole, and as a result continue to seek new products and services that capitalize on those technological advances. The Bank introduced its Internet Banking program during 2000, providing greater accessibility and flexibility for our customers. During the year, the Bank enhanced its ATM network with real-time on-line information that is updated immediately. We also introduced imaged checking statements, which not only saves postage costs while still providing customers a copy of their checks, but allows us to obtain a copy of a customer's check within minutes. In the first quarter of 2001, customers will have the added ability to access bill paying services through the Internet Banking program.
At United Security Bank, we continue to plan for growth in new and existing markets, and to seek acquisitions and opportunities to expand that make strategic business sense for our shareholders. We are excited about future opportunities , and look forward to greater challenges and profitability in the upcoming years. As we begin the new year, our objectives
remain constant: commitment to the communities we serve, quality service to our customers, and strong financial performance to our shareholders. We are grateful to our valued customers, dedicated employees and loyal shareholders who make this possible. Each is equally important to the ongoing success of United Security Bank. Thank you again for your continued support.
Sincerely
Dennis R. Woods Ronnie D. Miller Chairman of the Board & President Vice Chairman of the Board |
United Security Bank Statements of Condition - Balance Sheets December 31, 2000 and 1999 |
2000 1999
---------------------------------
Assets
Cash and due from banks (Note 15) $ 19,175,763 $ 11,815,235
Federal funds sold and securities purchased under
agreements to resell (Note 2) 0 0
---------------------------------
Cash and cash equivalents 19,175,763 11,815,235
Securities available for sale (Note 3) 49,757,963 46,548,256
Securities held to maturity (Note 3) 10,248,105 10,247,446
---------------------------------
Total investment securities 60,006,068 56,795,702
Loans (Note 4) 261,368,973 198,268,637
Unearned fees (793,647) (392,876)
Allowance for credit losses (3,772,943) (2,642,525)
---------------------------------
Net loans 256,802,383 195,233,236
Accrued interest receivable 3,545,160 2,048,537
Premises and equipment - net (Note 5) 3,401,703 3,893,329
Other real estate owned 2,958,841 663,235
Intangible assets 3,019,587 3,379,144
Cash surrender value of life insurance (Note 11) 2,301,765 2,206,064
Investment in limited partnership (Note 8) 2,079,557 2,257,301
Deferred income taxes (Note 9) 1,240,260 1,030,867
Other assets 2,301,326 2,208,658
---------------------------------
Total Assets $ 356,832,413 $ 281,531,308
=================================
Liabilities & Shareholders' Equity
Liabilities
Deposits (Note 6)
Noninterest bearing $ 52,897,725 $ 50,910,447
Interest bearing 218,964,804 187,952,593
---------------------------------
Total deposits 271,862,529 238,863,040
Federal funds purchased and securities sold
under agreements to repurchase (Note 7) 47,524,000 11,912,510
Other borrowings (Notes 7 and 11) 693,328 0
Accrued interest payable 1,243,757 1,079,155
Income taxes payable 63,949 (15,582)
Accounts payable and other liabilities 1,695,631 1,376,191
---------------------------------
Total liabilities 323,083,194 253,215,314
Commitments and Contingent Liabilities (Notes 4 and 12)
Shareholders' Equity (Notes 10, 13 and 15):
Common stock, no par value
10,000,000 shares authorized, 5,419,487 and 5,230,949
shares issued and outstanding, in 2000 and 1999, respectively 19,178,104 17,986,895
Retained earnings 14,916,233 10,726,115
Unearned ESOP shares (Note 11) 0
Accumulated other comprehensive income (loss) 336,547 (397,016)
---------------------------------
Total shareholders' equity 33,749,219 28,315,994
---------------------------------
Total Liabilities and Shareholders' Equity $ 356,832,413 $ 281,531,308
=================================
|
See notes to financial statements
United Security Bank
Statements of Income and Comprehensive Income
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------------------------------------------
Interest Income
Loans, including fees $ 24,738,732 $ 17,779,540 $ 16,209,409
Investment securities - available for sale - taxable 3,195,590 2,360,264 1,391,521
Investment securities - held to maturity - taxable 602,234 633,159 742,698
Investment securities - available for sale - nontaxable 162,378 165,235 189,904
Federal funds sold and securities purchased under
agreements to resell 242,470 982,114 2,985,825
----------------------------------------------
Total interest income 28,941,404 21,920,312 21,519,357
Interest Expense
Interest on deposits (Note 6) 9,693,895 7,814,409 8,597,278
Interest on other borrowings 1,850,154 111,033 7,781
----------------------------------------------
Total interest expense 11,544,049 7,925,442 8,605,059
Net Interest Income Before Provision for Credit Losses 17,397,355 13,994,870 12,914,298
Provision for Credit Losses (Note 4) 1,580,000 1,025,000 1,200,000
----------------------------------------------
Net Interest Income 15,817,355 12,969,870 11,714,298
Noninterest Income
Customer service fees 2,233,623 2,378,620 2,414,115
Gain on sale of securities 5,649 0 0
Gain (loss) on sale of OREO 62,215 157,887 (32,924)
Gain on sale of fixed assets 1,552 2,772 196,062
Other 234,312 241,290 219,506
----------------------------------------------
Total noninterest income 2,537,351 2,780,569 2,796,759
Noninterest Expense (Notes 11 and 12)
Salaries and employee benefits 3,953,523 3,219,134 2,959,430
Occupancy expense 1,608,173 1,589,992 1,461,572
Data processing 540,460 514,331 466,195
Professional fees 311,772 539,038 338,270
Director fees 173,900 166,500 166,700
Amortization of intangibles 359,557 372,040 350,357
Correspondent bank service charges 202,332 183,627 252,154
Other 1,498,690 1,312,729 1,595,925
----------------------------------------------
Total noninterest expense 8,648,407 7,897,391 7,590,603
----------------------------------------------
Income Before Taxes on Income 9,706,299 7,853,048 6,920,454
Taxes on Income (Note 9) 3,449,696 2,930,285 2,704,114
----------------------------------------------
Net Income $ 6,256,603 $ 4,922,763 $ 4,216,340
==============================================
Other Comprehensive Income (loss), net of tax (Note 17):
Unrealized (loss) gain on available-for-sale securities -
net income tax (benefit) of $489,042, ($348,273), and $30,527 733,563 (522,410) 45,793
----------------------------------------------
Comprehensive Income $ 6,990,166 $ 4,400,353 $ 4,262,133
==============================================
Net income per common share (Note 13):
Basic $ 1.16 $ 0.95 $ 0.82
==============================================
Diluted $ 1.12 $ 0.89 $ 0.77
==============================================
Shares on which net income per share were based (Note 13):
Basic 5,374,734 5,202,324 5,154,748
==============================================
Diluted 5,587,292 5,514,544 5,490,891
==============================================
|
See notes to financial statements
United Security Bank
Statements of Shareholders' Equity
Years Ended December 31, 2000, 1999 and 1998
Common Stock Accumulated
-------------------------- Unearned Other
Number Retained ESOP Comprehensive
of Shares Amount Earnings Shares Income (loss) Total
----------------------------------------------------------------------------------
Balance January 1, 1998 5,122,557 $17,179,797 $ 4,391,931 $ 0 $ 79,601 $ 21,651,329
Director/Employee stock options exercised 46,542 252,431 252,431
Tax benefit of stock options exercised 96,199 96,199
Net changes in unrealized gain
(loss) on available-for-sale securities
(net of income tax of $30,527) 45,793 45,793
Dividends on common stock
($0.24 per share) (1,273,475) (1,273,475)
Adjustment in shares issued -
Golden Oak Merger 888 1,480 (1,480) 0
Net Income 4,216,340 4,216,340
----------------------------------------------------------------------------------
Balance, December 31, 1998 5,169,987 17,529,907 7,333,316 0 125,394 24,988,617
Director/Employee stock options exercised 60,962 322,154 322,154
Tax benefit of stock options exercised 134,834 134,834
Net changes in unrealized gain
(loss) on available-for-sale securities
(net of income tax benefit of $348,273) (522,410) (522,410)
Dividends on common stock
($0.28 per share) (1,529,964) (1,529,964)
Net Income 4,922,763 4,922,763
----------------------------------------------------------------------------------
Balance, December 31, 1999 5,230,949 17,986,895 10,726,115 0 (397,016) 28,315,994
Director/Employee stock options exercised 227,657 1,049,998 1,049,998
Tax benefit of stock options exercised 141,600 141,600
Net changes in unrealized gain
(loss) on available-for-sale securities
(net of income tax of $489,042) 733,563 733,563
Dividends on common stock
($0.36 per share) (2,066,485) (2,066,485)
Unearned ESOP shares purchased (46,861) (816,570) (816,570)
Release of unearned ESOP shares 7,742 (389) 134,905 134,516
Net Income 6,256,603 6,256,603
----------------------------------------------------------------------------------
Balance, December 31, 2000 5,419,487 $19,178,104 $14,916,233 ($681,665) $ 336,547 $ 33,749,219
==================================================================================
|
See notes to financial statements
United Security Bank
Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------------------------------------------
Cash Flows From Operating Activities:
Net income $ 6,256,603 $ 4,922,763 $ 4,216,340
Adjustments to reconcile net income to cash provided
by operating activities:
Provision for credit losses 1,580,000 1,025,000 1,200,000
Depreciation and amortization 1,162,570 1,134,482 1,028,767
Amortization of investment securities (25,239) (2,077) (69,968)
Gain on sale of securities (5,649) 0 0
Increase in accrued interest receivable (1,496,623) (185,863) (664,055)
Increase in accrued interest payable 164,602 116,976 308,629
Increase (decrease) in unearned fees 400,771 (67,523) (184,479)
Increase (decrease) in income taxes payable 79,531 (236,709) 194,058
Deferred income taxes (698,435) (192,840) 214,230
Increase (decrease) in accounts payable and accrued liabilities 191,967 (3,030) 19,784
Write-down of other real estate owned 6,000 0 130,000
(Gain) loss on sale of other real estate owned (62,215) (157,887) 32,924
Gain on sale of assets (1,552) (2,772) (196,062)
Increase in surrender value of life insurance (95,701) (95,700) (95,645)
Loss on limited partnership interest 172,893 105,079 61,443
Net (increase) decrease in other assets (174,510) (160,095) 604,557
----------------------------------------------
Net cash provided by operating activities 7,455,013 6,199,804 6,800,523
Cash Flows From Investing Activities:
Purchases of available-for-sale securities (21,562,332) (97,224,300) (82,103,638)
Purchases of held-to-maturity securities 0 0 (20,240,469)
Redemption (purchase) of FHLB/FRB Stock 242,300 (409,900) (195,900)
Maturities and calls of available-for-sale securities 12,128,316 117,117,037 32,243,592
Maturities and calls of held-to-maturity securities 0 10,000,000 0
Sales of available-for-sale securities 7,477,144 2,436,257 0
Investment in limited partnership 0 (783,055) 0
Net increase in loans (66,135,069) (45,179,359) (13,190,501)
Proceeds from sales of other real estate owned 476,268 1,226,958 650,565
Capital expenditures for other real estate owned 0 (16,490) (66,036)
Capital expenditures for premises and equipment (311,435) (1,077,028) (954,706)
Proceeds from sale of premises and equipment 1,600 19,906 129,870
----------------------------------------------
Net cash used in investing activities (67,683,208) (13,889,974) (83,727,223)
Cash Flows From Financing Activities:
Net increase (decrease) in demand deposit & savings accounts 629,817 (131,075) 10,222,523
Net increase (decrease) in certificates of deposit 32,369,672 (13,479,746) 22,235,291
Net increase in federal funds purchased 20,492,000 2,138,000 0
Net increase in repurchase agreements 15,119,490 9,774,510 0
Director/Employee stock options exercised 1,049,998 322,154 252,431
Proceeds from ESOP borrowings 816,570 0 0
Repayment of ESOP borrowings (133,242) 0 0
Purchase of unearned ESOP shares (816,570) 0 0
Payment of dividends (1,939,012) (1,455,374) (1,236,390)
----------------------------------------------
Net cash provided by (used in) financing activities 67,588,723 (2,831,531) 31,473,855
----------------------------------------------
Net increase (decrease) in cash and cash equivalents 7,360,528 (10,521,701) (45,452,845)
Cash and cash equivalents at beginning of period 11,815,235 22,336,936 67,789,781
----------------------------------------------
Cash and cash equivalents at end of period $ 19,175,763 $ 11,815,235 $ 22,336,936
==============================================
|
See notes to financial statements
UNITED SECURITY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Basis of Presentation - United Security Bank, ("USB" or the "Bank") operates as one business segment providing banking services to commercial establishments and individuals primarily in the San Joaquin Valley of California.
On July 27, 1999, the Board of Directors declared a three-for-one stock split on the Bank's common stock to shareholders of record on September 15, 1999. The split was approved by the California Department of Financial Institutions and the stock split was effective October 1, 1999. Consequently, all references to the number of common shares and per share amounts have been restated for all periods presented to reflect the three-for-one stock split.
Nature of Operations - The Bank operates seven branches in an area from eastern Madera County to western Fresno County. The Bank's primary source of revenue is providing loans to customers, who are predominantly small and middle-market businesses and middle-income individuals. The Bank engages in a full compliment of lending activities, including real estate mortgage, commercial and industrial, real estate construction, agricultural and consumer loans, with particular emphasis on short and medium term obligations.
During the fourth quarter of 1998, the Bank filed an application with the California State Banking Department and other regulatory authorities to convert from a national bank to a state-chartered bank. The shareholders approved the conversion in January of 1999, and the Bank was granted approval to operate as a state-chartered bank on February 3, 1999.
The Bank offers a wide range of deposit instruments. These include personal and business checking accounts and savings accounts, interest-bearing negotiable order of withdrawal ("NOW") accounts, money market accounts and time certificates of deposit. Most of the Bank's deposits are attracted from individuals and from small and medium-sized business-related sources.
The Bank also offers a wide range of specialized services designed to attract and service the needs of commercial customers and account holders. These services include cashiers checks, travelers checks, money orders, and foreign drafts. In addition, the Bank recently began to offer Internet banking services to its commercial and retail customers. The Bank does not operate a trust department; however it makes arrangements with its correspondent bank to offer trust services to its customers upon request.
Neither the Bank's business or liquidity is seasonal, and there has been no material effect upon the Bank's capital expenditures, earnings or competitive position as a result of federal, state or local environmental regulation.
Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant Accounting Policies - The accounting and reporting policies of the Bank conform to generally accepted accounting principles and to prevailing practices within the banking industry. The following is a summary of significant policies:
a. Securities - Debt and equity securities classified as available for sale are reported at fair value, with unrealized gains and losses excluded from net income and reported, net of tax, as a separate component of comprehensive income and shareholders' equity. Debt securities classified as held to maturity are carried at amortized cost. Gains and losses on disposition are reported using the identified certificate method for the adjusted basis of the securities sold.
The Bank classifies its securities as available for sale or held to maturity. The Bank periodically reviews its investment portfolio on an individual security basis. Securities that are to be held for indefinite periods of time (including, but not limited to, those that management intends to use as part of its asset/liability strategy, those which may be sold in response to changes in interest rates, changes in prepayments or any such other
factors) are classified as securities available for sale. Securities which the Bank has the ability and intent to hold to maturity are classified as held to maturity.
b. Loans - Interest income on loans is credited to income as earned and is calculated by using the simple interest method on the daily balance of the principal amounts outstanding. Loans are placed on non-accrual status when principal or interest is past due for 90 days and/or when management believes the collection of amounts due is doubtful. For loans placed on nonaccrual status, the accrued and unpaid interest receivable may be reversed at management's discretion based upon management's assessment of collectability, and interest is thereafter credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan.
Nonrefundable fees and related direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. The net deferred fees and costs are generally amortized into interest income over the loan term using a method which approximates the interest method. Other credit-related fees, such as standby letter of credit fees, loan placement fees and annual credit card fees are recognized as noninterest income during the period the related service is performed.
Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or as a practical expedient at the loan's observable market rate or the fair value of the collateral if the loan is collateral dependent.
c. Allowance for Credit Losses - The allowance for credit losses is maintained to provide for losses that can reasonably be anticipated. The allowance is based on ongoing quarterly assessments of the probable losses inherent in the loan portfolio, and to a lesser extent, unfunded loan commitments.
The allowance for credit losses is increased by provisions charged to operations during the current period and reduced by loan charge-offs net of recoveries. Loans are charged against the allowance when management believes that the collection of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans and commitments to extend credit, based on evaluations of the probability of collection. In evaluating the probability of collection, management is required to make estimates and assumptions that affect the reported amounts of loans, allowance for credit losses and the provision for credit losses charged to operations. Actual results could differ significantly from those estimates. These evaluations take into consideration such factors as the composition of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current economic conditions that may affect the borrowers' ability to pay. The Bank's methodology for assessing the adequacy of the allowance for credit losses consists of several key elements, which include the formula allowance, specific allowances, and the unallocated allowance.
The formula allowance is calculated by applying loss factors to outstanding loans and certain unfunded loan commitments. Loss factors are based on the Bank's historical loss experience and may be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. The Bank determines the loss factors for problem graded loans (substandard, doubtful, and loss), special mention loans, and pass graded loans, based on a loss migration model. The migration analysis incorporates the Bank's losses over the past twelve quarters (three years) and loss factors are adjusted to recognize and quantify the loss exposure from changes in market conditions and trends in the Bank's loan portfolio. For purposes of this analysis, loans are grouped by internal risk classifications which are "pass", "special mention", "substandard", "doubtful", and "loss". Certain loans are homogenous in nature and are therefore pooled by risk grade. These homogenous loans include consumer installment and home equity loans. Special mention loans are currently performing but are potentially weak, as the borrower has begun to exhibit deteriorating trends, which if not corrected, could jeopardize repayment of the loan and result in further downgrade. Substandard loans have well-defined weaknesses which, if not corrected, could jeopardize the full satisfaction of the debt. A loan classified as "doubtful" has critical weaknesses that make full collection of the obligation improbable. Classified loans, as defined by the Bank, include loans categorized as substandard, doubtful, and loss.
Specific allowances are established based on management's periodic evaluation of loss exposure inherent in classified loans, impaired loans, and other loans in which management believes there is a probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance.
The unallocated portion of the allowance is based upon management's evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of the Bank, credit quality trends, collateral values, loan volumes and concentration, and other business conditions.
The allowance analysis also incorporates the results of measuring impaired loans as provided in Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". A loan is considered impaired when management determines that it is probable that the Bank will be unable to collect all amounts due according to the original contractual terms of the loan agreement. Impairment is measured by the difference between the original recorded investment in the loan and the estimated present value of the total expected cash flows, discounted at the loan's effective rate, or the fair value of the collateral, if the loan is collateral dependent. Any differences in the specific allowance amounts calculated in the impaired loan analysis and the migration analysis are reconciled by management and changes are made to the allowance as deemed necessary.
d. Premises and Equipment - Premises and equipment are carried at cost less accumulated depreciation. Depreciation expense is computed principally on the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:
Buildings 31 Years Furniture and equipment 3-7 Years
e. Other Real Estate Owned - Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at the lower of the book value of the loan, or fair value of the property, less estimated costs to sell. The excess, if any, of the loan amount over the fair value is charged to the allowance for credit losses. Subsequent declines in the fair value of other real estate owned, along with related revenue and expenses from operations, are charged to to noninterest expense.
f. Intangible Assets - Intangible assets are comprised of core deposit intangibles and goodwill acquired in business combinations. Core deposit intangibles of $1,390,658 and $1,604,725 (net of accumulated amortization of $744,364 and $530,297) at December 31, 2000 and 1999 are amortized over the estimated useful lives of the existing deposit bases (7 years) using a method which approximates the interest method. Goodwill of $1,628,929 and $1,774,419 (net accumulated amortization of $518,440 and $372,950) at December 31, 2000 and 1999, respectively is amortized on a straight line basis over 15 years.
g. Income Taxes - Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Bank's assets and liabilities.
h. Net Income per Share - Basic income per common share is computed based on the weighted average number of common shares outstanding. Diluted income per share includes the effect of stock options and other potentially dilutive securities. ESOP shares are only considered outstanding for earnings per share calculations when they are committed to be released ( Note 13).
I. Cash Flow Reporting - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and securities purchased under agreements to resell. Federal funds and securities purchased under agreements to resell are generally sold for one-day periods. ( Note 2).
j. Stock Based Compensation - The Bank accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, "Accounting for Stock Issued to Employees".
k. Long-Lived Assets - The Bank periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets. It does not apply to financial instruments, long-term customer relationships of a financial institution (i.e. core deposit intangibles), mortgage and other servicing rights, or deferred tax assets. Based on such evaluation, the Bank determined that there is no impairment loss to be recognized in 2000 or 1999.
l. Employee Stock Ownership Plan ("ESOP") - The Bank accounts for shares acquired by its ESOP in accordance with the guidelines established by the American Institute of Certified Public Accounts Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). Under SOP 93-6, the Bank recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they become committed to be released. To the extent that the fair value of the Bank's ESOP shares committed to be released differ from the cost of those shares, the differential is charged or credited to equity. The ESOP is externally leveraged and, as such, the ESOP debt is recorded as a liability and interest expense is recorded on that debt. The ESOP shares not yet committed to be released are accounted for as a reduction of shareholders' equity.
m. Reclassifications - Certain reclassifications have been made to the 1999 and 1998 financial statements to conform to the classifications used in 2000.
2. FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Bank did not have any securities purchased under agreements to resell ("repurchase agreements") at December 31, 2000 or December 31, 1999, however, the Bank did have repurchase agreements at various times during both 2000 and 1999. Repurchase agreements are with a registered broker-dealer affiliated with a correspondent bank and work much like federal funds sold, except that the transaction is collateralized by various investment securities. The securities collateralizing such transactions generally consist of U.S. Treasuries, U.S.Government and U.S. Government-sponsored agencies. Like federal funds sold, the repurchase agreements have a maturity of one day, and accordingly, are treated as a cash equivalents. Securities purchased under agreements to resell averaged approximately $2.5 million during 2000 and $17.9 million during 1999. The maximum amount outstanding at any month-end during 2000 was $15.0 million, and $39.2 million during 1999.
3. INVESTMENT SECURITIES
Following is a comparison of the amortized cost and approximate fair value of securities available-for-sale:
----------------------------------------------------------
Gross Gross Fair Value
Amortized Unrealized Unrealized (Carrying
Cost Gains Losses Amount)
----------------------------------------------------------
December 31, 2000:
U.S. Government agencies $42,522,446 $489,030 $(78,794) $42,932,682
U.S. Government agency
collateralized mortgage
obligations 1,357,252 0 (15,867) 1,341,385
Obligations of state and
political subdivisions 3,317,353 71,743 0 3,389,096
Other debt securities 2,000,000 94,800 0 2,094,800
----------------------------------------------------------
$49,197,051 $655,573 ($94,661) $49,757,963
==========================================================
December 31, 1999:
U.S. Government agencies $32,034,135 $115,364 $(489,011) $31,660,488
U.S. Government agency
collateralized mortgage
obligations 1,844,422 0 (40,958) 1,803,464
Obligations of state and
political subdivisions 3,402,230 0 (247,089) 3,155,141
Other debt securities 9,929,163 0 0 9,929,163
----------------------------------------------------------
$47,209,950 $115,364 ($777,058) $46,548,256
==========================================================
|
Realized gains on securities available-for-sale totaled $5,649 during 2000, and there were no realized losses on securities available-for-sale during the year. There were no realized gains or losses on securities available-for-sale during 1999. At December 31, 2000, other debt securities with an amortized cost of $2,000,000 and fair market value of $2,094,800 consist of corporate capital securities. At December 31, 1999, other debt securities with an amortized cost and fair market value of $9,929,163 consist of investment grade short-term commercial paper.
At December 31, 2000 and 1999, the Bank has no securities of any one issuer, excluding U.S. government agency and mortgage-backed securities, that exceed 10% of shareholders' equity.
At December 31, 2000, available-for-sale securities with an amortized cost of approximately $44,228,000 (fair value of $44,630,000) were pledged as collateral for reverse repurchase agreements, public funds, and treasury tax and loan balances. At December 31, 1999, available-for-sale securities with an amortized cost of approximately $10,550,000 (fair value of $10,626,000) were pledged as collateral for public funds and treasury tax and loan balances.
Following is a comparison of the amortized cost and approximate fair value of securities held-to-maturity:
----------------------------------------------------
Amortized Cost Gross Gross
(Carrying Unrealized Unrealized
Amount) Gains Losses Fair Value
----------------------------------------------------
December 31, 2000:
U.S. Government agencies $10,248,105 $0 $(74,380) $10,173,725
====================================================
December 31, 1999:
U.S. Government agencies $10,247,446 $0 $(350,596) $9,896,850
====================================================
|
There were no realized gains or losses on sales of held-to-maturity securities during the year ended December 31, 2000 or 1999. At December 31, 2000, held-to-maturity securities with an amortized cost of approximately $10,248,000 (fair value of $10,174,000) were pledged as collateral for public funds (including the State of California) and the Federal Reserve Discount Window. At December 31, 1999, held-to-maturity securities with an amortized cost of approximately $10,247,000 (fair value of $9,897,000) were pledged as collateral for public funds (including the State of California) and the Federal Reserve Discount Window.
The amortized cost and fair value of securities available-for-sale and held-to-maturity at December 31, 2000, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. Certain securities included in the available-for-sale and securities held-to-maturity categories have periodic call provisions and are generally classified below by their contractual maturities (except $12.5 million in U.S. Government agencies which have contractual maturities of between five and ten years, but because of current interest rate conditions have been placed in the one year or less category - the Bank is reasonably assured that these securities will be called prior to March 31, 2001). Contractual maturities on collateralized mortgage obligations are difficult to anticipate due to allowed paydowns and therefore are presented here separately.
December 31, 2000
-------------------------------
Amortized Fair
Available-for-sale: Cost Value
-------------------------------
Due in one year or less $12,660,698 $12,695,561
Due after one year through five years 20,273,525 20,355,532
Due after five years through ten years 0 0
Due after ten years 14,905,576 15,365,485
Collateralized mortgage obligations 1,357,252 1,341,385
-------------------------------
Total available-for-sale $49,197,051 $49,757,963
===============================
Held-to-maturity:
Due after one year through five years $10,248,105 $10,173,725
===============================
|
4. LOANS
Loans are comprised of the following:
December 31,
---------------------------------
2000 1999
---------------------------------
Commercial and industrial $66,433,905 $52,274,902
Real estate - mortgage 113,140,404 77,694,028
Real estate - construction 61,038,151 55,573,750
Agricultural 7,239,866 7,002,706
Installment/other 10,291,453 5,723,251
Lease financing 3,225,194 0
---------------------------------
Total Loans 261,368,973 $198,268,637
=================================
|
The Bank's loans are predominantly in the San Joaquin Valley, and the greater Oakhurst/Madera County area, although the Bank does participate in loans with other financial institutions, primarily in the state of California. Commercial and industrial loans represent 25.4% of the Bank's total loans at December 31, 2000 and have a high degree of industry diversification. A substantial portion of the commercial and industrial loans are secured by accounts receivable, inventory, leases or other collateral. The remainder are unsecured; however, extensions of credit are predicated upon the financial capacity of the borrower. Repayment of commercial loans is generally from the cash flow of the borrower.
Real estate mortgage loans, representing 43.3% of the Bank's total loans at December 31, 2000, are secured by trust deeds on primarily commercial property. Repayment of real estate mortgage loans is generally from the cash flow of the borrower.
Real estate construction loans, representing 23.4% of the Bank's total loans at December 31, 2000, consist of loans to residential contractors which are secured by single family residential properties. All real estate loans have established equity requirements. Repayment on construction loans is generally from long-term mortgages with other lending institutions.
Agricultural loans represent 2.8% of the Bank's total loans at December 31, 2000 and are generally secured by land, equipment, inventory and receivables. Repayment is from the cash flow of the borrower.
Loans over 90 days past due and accruing interest totaled $595,009 at December 31, 2000. There were no loans over 90 days past due and still accruing interest at December 31, 1999. Nonaccrual loans at December 31, 2000 and 1999, totaled $2,809,647 and $4,373,291. The interest income that would have been recorded on nonaccrual loans for the years ended December 31, 2000, 1999 and 1998 was $540,043, $332,073, and $295,674.
Loan maturities of the loan portfolio, excluding installment and other loans, at December 31, 2000 are as follows:
Within One to After One Year Five Years Five Years Total ------------------------------------------------------------------- $107,553,450 $75,208,009 $68,316,061 $251,077,520 ============ =========== =========== ============ |
The Bank has, and expects to have, lending transactions in the ordinary course of its business with directors, officers, principal shareholders and their affiliates. These loans are granted on substantially the same terms, including interest rates and collateral, as those prevailing on comparable transactions with unrelated parties, and do not involve more than the normal risk of collectibility or present unfavorable features. These loans are summarized below:
Year Ended December 31,
------------------------------
2000 1999
------------------------------
Aggregate amount outstanding, beginning of year $1,583,612 $1,000,551
New loans or advances during year 418,923 920,684
Repayments during year (486,391) (337,623)
Other (1) (656,525) 0
------------------------------
Aggregate amount outstanding, end of year $859,619 $1,583,612
==============================
Loan commitments $261,097 $1,236,803
==============================
|
(1) During the first quarter of 2000, one of the Bank's directors resigned from the Board of Directors. This figure represents the removal of their outstanding balances at December 31, 2000. The outstanding loan commitments of this director had been $925,000 at December 31, 1999.
An analysis of the changes in the allowance for credit losses is as follows:
Year Ended December 31,
------------------------------------
2000 1999 1998
------------------------------------
Balance, beginning of year $2,642,525 $1,907,467 $2,143,994
Provision charged to operations 1,580,000 1,025,000 1,200,000
Losses charged to allowance (474,153) (312,375) (1,586,366)
Recoveries on loans previously charged off 24,571 22,433 149,839
------------------------------------
Balance, end of the year $3,772,943 $2,642,525 $1,907,467
====================================
|
The allowance for credit losses represents management's estimate of the risk inherent in the loan portfolio based on current economic conditions, collateral values and economic prospects of borrowers. Significant changes in these estimates might be required in the event of a downturn in the economy and/or the real estate market in the San Joaquin Valley, and the greater Oakhurst and Madera County area.
At December 31, 2000 and 1999, the Bank's recorded investment in loans for which impairment has been recognized totaled $3,393,159 and $6,620,952. Included in total impaired loans at December 31, 2000 is $137,948 of impaired loans for which the related specific allowance is $83,982, as well as $3,255,211 of impaired loans that as a result of write-downs or the fair value of the collateral, did not have a specific allowance. At December 31, 1999, total impaired loans included $203,120 for which the related specific allowance is $106,721, as well as $6,417,832 of impaired loans that as a result of write-downs or the fair value of the collateral, did not have a specific allowance. The average recorded investment in impaired loans was $5,437,373 during 2000 and $4,606,681 during 1999. The Bank uses the cash basis method of income recognition for impaired loans. For the years ended December 31, 2000, 1999 and 1998, the Bank recognized $270,134, $289,666 and $456,984 of income on such loans.
In the normal course of business, the Bank is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. At December 31, 2000 and 1999, these financial instruments include commitments to extend credit of $84,289,157 and $61,434,962 and standby letters of credit of $7,249,590 and $3,477,208, respectively. These instruments involve elements of credit risk in excess of the amount recognized on the balance sheet. The contract amounts of these instruments reflect the extent of involvement the Bank has in off-balance sheet financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
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. Substantially all of these commitments are at floating interest rates based on prime. Commitments generally have fixed expiration dates. The Bank 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. Collateral held varies but includes accounts receivable, inventory, leases, property, plant and equipment, residential real estate and income-producing commercial properties.
Standby letters of credit are generally unsecured and are issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
5. PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
December 31,
---------------------------------
2000 1999
---------------------------------
Land $253,783 $253,783
Buildings and improvements 2,261,167 2,243,656
Furniture and equipment 4,671,761 4,464,055
---------------------------------
7,186,711 6,961,494
Less accumulated depreciation
and amortization (3,785,008) (3,068,165)
---------------------------------
$3,401,703 $3,893,329
=================================
6. DEPOSITS
|
Deposits are comprised of the following:
December 31,
---------------------------------
2000 1999
---------------------------------
Noninterest bearing deposits $52,897,725 $50,910,447
Interest bearing deposits:
NOW and money market accounts 62,142,837 62,238,828
Savings accounts 18,347,248 19,608,718
Time deposits:
Under $100,000 63,566,867 57,553,276
$100,000 and over 74,907,852 48,551,771
---------------------------------
Total interest bearing deposits 218,964,804 187,952,593
---------------------------------
$271,862,529 $238,863,040
=================================
|
At December 31, 2000, time deposits of $100,000 or more include approximately $32,578,162 maturing in three months or less, $31,166,731 maturing in three to twelve months and $11,162,959 maturing after twelve months.
At December 31, 2000, the scheduled maturities of all certificates of deposit and other time deposits are as follows:
2001 $108,094,188
2002 25,296,388
2003 3,178,165
2004 347,409
2005 and thereafter 1,558,569
--------------
$138,474,719
==============
|
The Bank may occasionally obtain brokered deposits as an additional source of funding. At December 31, 2000, the Bank held brokered time deposits totaling $12,497,489 with an average rate of 6.83%. Of this balance, $9,538,633 is included in time deposits of $100,000 or more, and the remaining $2,958,856 is included in time deposits of less than $100,000. Included in brokered time deposits are balances totaling $7,471,991 maturing in three months or less, $4,926,498 maturing in three to six months, and $99,000 maturing in six to nine months.
Deposits of directors, officers and other related parties to the Bank totaled $5,446,452 and $5,764,024 at December 31, 2000 and 1999, respectively. The rates paid on these deposits were those customarily paid to the Bank's customers in the normal course of business.
7. SHORT-TERM BORROWINGS AND LINES OF CREDIT
The Bank had collateralized and uncollateralized lines of credit aggregating $107,934,000, as well as repurchase agreement lines of credit totaling $24,894,000 at December 31, 2000. These lines of credit generally have interest rates tied to the Federal Funds rate or are indexed to short-term U.S. Treasury rates or LIBOR. At December 31, 2000, the Bank had advances on the repurchase lines of credit totaling $24,894,000, and federal funds purchased of $22,630,000. The Bank had collateralized and uncollateralized lines of credit with correspondent banks aggregating $124,450,000, as well as a repurchase agreement line of credit of $20,000,000 with a correspondent bank at December 31, 1999. These lines of credit had an interest rate equal to the Federal funds rate, or were indexed to short-term treasury notes. The Bank had repurchase agreements of $9,774,510 and federal funds purchased of $2,138,000 at December 31, 1999.
On June 20, 2000, the Bank's ESOP entered into an agreement with a correspondent bank to establish a $1,000,000 unsecured revolving line of credit with a variable rate of prime plus 100 basis points and maturity of June 20, 2005. The loan is guaranteed by the Bank. Advances on the line totaled $693,328 at December 31, 2000.
The table below provides further detail of the Bank's repurchase agreements for the years ended December 31, 2000 and December 31, 1999:
December 31, December 31,
2000 1999
----------------------------
Outstanding:
Average for the year $ 24,876,850 $ 1,553,210
Maximum during the year $ 34,761,238 $ 9,774,510
Interest rates:
Average for the year 6.61% 5.75%
Average at period end 6.67% 5.75%
8. INVESTMENT IN LIMITED PARTNERSHIP
|
During the fourth quarter of 1997, the Bank purchased a limited interest in a private limited partnership that will acquire affordable housing properties in California that generate Low Income Housing Tax Credits under Section 42 of the Internal Revenue Code of 1986, as amended. During the first quarter of 1999, the Bank purchased additional limited partnership interests totaling $815,000, and during the third quarter of the year had a return of capital totaling $31,945. Certain properties may also be eligible for state tax credits under various sections of the California Revenue and Taxation Code. The Bank's limited partnership investment is accounted for under the equity method. Accordingly, the Bank's share of net income or loss from this investment is recorded in other noninterest expense. The Bank's share of the net loss for the year ended December 31, 2000 and 1999 was $172,893 and $105,079, respectively. The limited partnership investment is expected to generate tax credits over a period of approximately 15 years. Tax credits for the years ended December 31, 2000 and 1999 totaled $297,762 and $207,010, respectively.
9. TAXES ON INCOME
The tax effects of significant items comprising the Bank's net deferred tax assets (liabilities) are as follows:
December 31,
---------------------------
2000 1999
---------------------------
Deferred tax assets:
Credit losses not currently deductible $ 1,203,797 $ 813,839
State franchise tax 308,945 226,227
Deferred compensation 246,244 190,574
Amortization of core deposit intangible 101,427 71,906
Unrealized holding loss on AFS securities 0 264,677
Other 16,608 29,644
---------------------------
Total deferred tax assets 1,877,021 1,596,867
Deferred tax liabilities:
Depreciation (153,226) (153,226)
FHLB dividend (59,754) (39,014)
Unrealized holding gain on AFS securities (224,365) (0)
Prepaid expenses (116,060) (118,249)
Other (83,356) (255,511)
---------------------------
Total deferred tax liabilities (636,761) (566,000)
---------------------------
Net deferred tax assets $ 1,240,260 $ 1,030,867
===========================
|
Taxes on income for the years ended December 31 consist of the following:
2000: Federal State Total
---------------------------------------------
Current $ 3,111,914 $ 1,036,217 $ 4,148,131
Deferred (568,323) (130,112) (698,435)
---------------------------------------------
$ 2,543,591 $ 906,105 $ 3,449,696
=============================================
1999:
Current $ 2,357,389 $ 765,736 $ 3,123,125
Deferred (125,876) (66,964) (192,840)
---------------------------------------------
$ 2,231,513 $ 698,772 $ 2,930,285
=============================================
1998:
Current $ 1,813,556 $ 676,328 $ 2,489,884
Deferred 181,680 32,550 214,230
---------------------------------------------
$ 1,995,236 $ 708,878 $ 2,704,114
=============================================
|
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
2000 1999 1998
--------------------------
Statutory federal income tax rate 34.0% 34.0% 35.0%
State franchise tax, net of federal income
tax benefit 7.2 7.2 7.1
Tax exempt interest income (1.4) (1.8) (0.8)
Low Income Housing - federal credits (3.0) (2.6) (0.6)
Other (1.3) .5 (1.6)
--------------------------
35.5% 37.3% 39.1%
==========================
10. STOCK OPTIONS
|
Options have been granted to officers and key employees at an exercise price equal to estimated fair values at the date of grant as determined by the Board of Directors. During 1995, the Board of Directors and shareholders of
the Bank approved the adoption of the 1995 Stock Option Plan. The 1987 Plan was terminated as to the granting of additional options under that plan. The options granted under both the 1987 and 1995 Stock Option Plan are exercisable 20% each year commencing one year after the date of grant and expire ten years after the date of grant. The maximum shares which can be granted under the 1995 Plan is 690,000. A total of 180,000 shares remain reserved under the 1995 Stock Option Plan.
Options outstanding, exercisable, exercised and forfeited are as follows:
1987 Weighted Average 1995 Weighted Average
Plan Exercise Price Plan Exercise Price
-----------------------------------------------------
Options outstanding January 1, 1998 186,270 $4.13 492,321 $8.01
Exercised during the year (18,300) $4.25 (28,242) $6.18
-------- --------
Options outstanding December 31, 1998 167,970 $4.11 464,079 $8.12
Exercised during the year (22,000) $4.25 (38,962) $5.28
-------- --------
Options outstanding December 31, 1999 145,970 $4.09 425,117 $8.33
Exercised during the year (145,970) $4.09 (81,687) $5.54
-------- --------
Options outstanding December 31, 2000 0 343,430 $8.99
======== ========
|
Included in total outstanding options at December 31, 2000, are 238,430 exercisable shares under the 1995 plan, at a weighted average price of $8.43. Included in total outstanding options at December 31, 1999, are 133,970 exercisable shares under the 1987 plan at a weighted average price of $4.07, and 218,117 exercisable shares under the 1995 plan, at a weighted average price of $7.58.
Additional information regarding options as of December 31, 2000 is as follows:
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------------------
Weighted Avg
Range of Number Remaining Weighted Avg Number Weighted Avg
Exercise Prices Outstanding Contract Life(yrs) Exercise Price Exercisable Exercise Price
-------------------------------------------------------------------------------------------------------
5.21 to $5.25 45,542 4.7 $ 5.22 45,542 $ 5.22
$6.08 99,988 5.5 $ 6.08 78,988 $ 6.08
$11.33 197,900 6.6 $ 11.33 113,900 $ 11.33
-------- --------
Total 343,430 238,430
======== ========
|
As discussed in Note 1, the Bank continues to account for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based Compensation", requires the disclosure of pro forma net income and earnings per share. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Bank's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Bank's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 77 months following vesting for 1997, and 64 months following vesting for 1996 and 1995; stock volatility of 15.88% in 1997, 7.08% in 1996 and 6.59% in 1995; risk free interest rates, 6.2% in 1997, 6.9.% in 1996 and 6.4.% in 1995; and dividends ranging from 1.7% to 3.8% during the expected term. The Bank's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1995, 1996 and 1997 awards had been amortized to expense over the vesting period of the awards, pro forma net income would have been
$4,038,523 ($0.78 per share basic, $0.74 diluted) in 1998, $4,816,903 ($0.93 per share basic, $0.87 diluted) in 1999 and $6,196,035 ($1.15 per share basic, $1.11 diluted) in 2000. However, the impact of outstanding non-vested stock options granted prior to 1995 has been excluded from the pro forma calculation and, accordingly, the pro forma adjustments for the three years presented are not indicative of future period pro forma adjustments, when the calculation will apply to all stock options.
11. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan
The Bank has an Employee Stock Ownership Plan and Trust, (the "ESOP"), designed to enable eligible employees of the Bank to acquire shares of common stock. ESOP eligibility is based upon length of service requirements. The Bank contributes cash to the ESOP in an amount determined at the discretion of the Board of Directors of the Bank. The trustee of the ESOP uses such contribution to purchase shares of common stock currently outstanding, or to repay debt on the leveraged portion of the ESOP. The shares of stock purchased by the trustee are allocated to the accounts of the employees participating in the ESOP on the basis of total relative compensation. Employer contributions vest at a rate of 20% per year after two years of employment. During June of 2000, the Bank's Employee Stock Ownership Plan ("ESOP") established an unsecured five-year variable-rate revolving line of credit ("the loan") in the amount of $1,000,000 for the purpose of purchasing common stock of the Bank. The loan is with a correspondent bank and is guaranteed by the plan's sponsor, United Security Bank.
The ESOP will use the proceeds of the loan to acquire shares of the Bank's common stock which will be held in a suspense account by the ESOP until the end of the year. At the end of each year, shares will be released for allocation to the accounts of the individual ESOP participants in proportion to the principal and interest paid on the loan during the year. The ESOP loan is recorded as a liability of the Bank and the unreleased shares purchased with the loan are reported as unearned ESOP shares in shareholders' equity. Unreleased shares are not recognized as outstanding for earnings per share and capital computations. Dividends on unallocated ESOP shares will be used to pay debt service on the ESOP loan and, as such, are recorded as a reduction of debt and accrued interest.
As of December 31, 2000, the ESOP had purchased 46,861 shares of common stock on the open market under the revolving line of credit for a total cost of $816,570 (average cost of $17.43 per share). Based on the allocation process outlined above, 7,742 shares were committed to be released at December 31, 2000. Compensation expense related to the committed-to-be-released shares totaled $134,516 and interest expense incurred on the ESOP loan totaled $20,542 for the year ended December 31, 2000. At December 31, 2000, the fair market value of the 39,119 unearned ESOP shares was $679,888 based on a closing market price of $17.38 per share.
Prior to June 2000 when the Bank leveraged its ESOP Plan, the Bank expensed $119,089 related to the ESOP during 2000 (for a total compensation expense of $253,604 for the year ended December 31, 2000) and purchased 8,126 shares of common stock and distributed 1,461 shares. During 1999 and 1998, the Bank expensed $211,480 and $186,402 related to the ESOP. The ESOP purchased 19,750 and 19,191 shares of common stock in 1999 and 1998, respectively, and distributed 2,721 shares in 1999.
Allocated, committed-to-be-released, and unallocated ESOP shares as of December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
--------------------------------------
Allocated 95,973 89,308 72,579
Committed-to-be-released 7,742 -- --
Unallocated 39,119 -- --
--------------------------------------
Total ESOP shares 142,834 89,308 72,579
======================================
Fair value of unreleased shares $679,888 -- --
======================================
|
401K Plan
The Bank has a Cash or Deferred 401(k) Stock Ownership Plan (the "401(k) Plan") organized under Section 401(k) of the Code. All employees of the Bank are initially eligible to participate in the 401(k) Plan upon the first day of the month after date of hire. Under the terms of the plan, the participants may elect to make contributions to the 401(k) Plan as determined by the Board of Directors of the Bank. Participants are automatically vested 100% in all employee contributions. Participants may direct the investment of their contributions to the 401(k) Plan in any of several authorized investment vehicles. The Bank contributes funds to the Plan up to 5% of the employees' eligible annual compensation. Bank contributions are subject to certain vesting requirements over a period of seven years. Contributions made by the Bank are invested in Bank stock. During 2000, 1999 and 1998, the Bank contributed a total of $120,321, $114,465, and $107,155 to the Deferral Plan.
Salary Continuation Plan
The Bank has established a non-qualified Salary Continuation Plan for five of the Bank's key employees which provides additional compensation benefits upon retirement for a period of 15 years. Future compensation under the Plan is earned by the employees for services rendered through retirement and vests over a period of 12 years. The Bank accrues for the salary continuation liability based on anticipated years of service and vesting schedules provided under the Plan. At December 31, 2000 and 1999, $555,327 and $420,052, respectively, has been accrued to date and is included in other liabilities. In connection with the implementation of the Salary Continuation Plans, the Bank purchased single premium universal life insurance policies on the life of each of the key employees covered under the Plan. The Bank is the owner and beneficiary of these insurance policies. The cash surrender value of the policies was $2,301,765 and $2,206,064 at December 31, 2000 and 1999, respectively. The assets of the Plan, under Internal Revenue Service regulations, are the property of the Bank and are available to satisfy the Bank's general creditors.
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Bank leases land and premises for its branch banking offices and administration facilities. The initial terms of these leases expire at various dates through 2015. Under the provisions of most of these leases, the Bank has the option to extend the leases beyond their original terms at rental rates adjusted for changes reported in certain economic indices or as reflected by market conditions. The total expense on land and premises leased under operating leases was $233,745, $259,027, and $250,605 during 2000, 1999, and 1998, respectively.
Future minimum rental commitments under existing leases are as follows:
Year ending December 31:
2001 $226,131
2002 206,931
2003 168,531
2004 175,331
2005 178,731
Thereafter 1,027,698
------------
$1,983,353
============
13. NET INCOME PER SHARE
|
The following table provides a reconciliation of the numerator and the denominator of the basic net income per share computation with the numerator and the denominator of the diluted net income per share computation:
For the Years Ended December 31,
2000 1999 1998
------------------------------------------
Net income available to common shareholders $6,256,603 $4,922,763 $4,216,340
==========================================
Weighted average shares outstanding 5,374,734 5,202,324 5,154,748
Dilutive effect of stock options 212,558 312,220 336,143
------------------------------------------
Weighted average shares outstanding
adjusted for potential dilution 5,587,292 5,514,544 5,490,891
==========================================
Basic net income per share $1.16 $0.95 $0.82
==========================================
Diluted net income per share $1.12 $0.89 $0.77
==========================================
|
14. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
The following summary disclosures are made in accordance with the provisions of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," which requires the disclosure of fair value information about both on- and off- balance sheet financial instruments where it is practicable to estimate that value. Fair value is defined in SFAS No. 107 as the amount at which an instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. It is not the Bank's intent to enter into such exchanges.
In cases where quoted market prices were not available, fair values were estimated using present value or other valuation methods, as described below. The use of different assumptions (e.g., discount rates and cash flow estimates) and estimation methods could have a significant effect on fair value amounts. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. Because SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Bank.
December 31, 2000 December 31, 1999
-------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 19,175,763 $ 19,175,763 $ 11,815,235 $ 11,815,235
Investment securities 60,006,068 59,931,688 56,795,702 56,445,106
Loans, net 260,575,326 260,513,606 197,875,761 196,077,396
Financial Liabilities:
Deposits 271,862,529 271,457,428 238,863,040 238,770,958
Borrowings 48,217,328 48,217,328 11,912,510 11,812,510
Commitments to extend credit -- -- -- --
|
The following methods and assumptions were used in estimating the fair values of financial instruments:
Cash and Cash Equivalents - The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their estimated fair values.
Investments - Fair values for investment securities, including collateralized mortgage obligations, are based on quoted market prices.
Loans - Fair values of variable rate loans which reprice frequently and with no significant change in credit risk are based on carrying values. Fair values for all other loans are estimated using discounted cash flows over their remaining maturities, using interest rates at which similar loans would currently be offered to borrowers with similar credit ratings and for the same remaining maturities.
Deposits - Fair values for transaction and savings accounts are equal to the respective amounts payable on demand at December 31, 2000 and 1999 (i.e., carrying amounts). Fair values of fixed-maturity certificates of deposit were estimated using the rates currently offered for deposits with similar remaining maturities.
Borrowings - Borrowings consist of federal funds sold, securities sold under agreements to repurchase, and other short-term borrowings. All have maturities or repricing terms of less than 90 days. Consequently, the carrying amounts of borrowings approximate their fair values at December 31, 2000 and 1999.
Commitments to Extend Credit - Fair values of commitments to extend credit are estimated using the interest rate currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and
the present counterparties' credit standing. Fair values of standby letters of credit are based on fees currently charged for similar agreements. There was no material difference between the contractual amount and the estimated value of commitments to extend credit at December 31, 2000 and 1999.
15. REGULATORY MATTERS
Capital Guidelines - The Bank is subject to various regulatory capital requirements adopted by the Board of Governors of the Federal Reserve System ("Board of Governors"). Failure to meet minimum capital requirements can initiate certain mandates and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. 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 the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2000, that the Bank meets all capital adequacy requirements to which it is subject to.
As of December 31, 2000 and 1999, the most recent notifications from the Bank's regulators 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 capital and Tier 1 capital (as defined) to risk-based assets (as defined), and a minimum leverage ratio of Tier 1 capital to average assets (as defined) as set forth in the table. There are no conditions or events since those notifications that management believes have changed the institution's category.
To Be Categorized
As Well Capitalized
Under Prompt Corrective For Capital
Action Provisions Actual Adequacy Purposes
---------------------------------------------------------------
(In thousands) Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------
As of December 31, 2000:
Total Capital (to Risk Weighted Assets) $34,166 10.85% $25,186 8.00% $31,482 10.00%
Tier 1 Capital (to Risk Weighted Assets) 30,393 9.65% 12,593 4.00% 18,889 6.00%
Tier 1 Capital ( to Average Assets) 30,393 8.81% 10,349 3.00% 17,257 5.00%
As of December 31, 1999:
Total Capital (to Risk Weighted Assets) $27,977 10.86% $20,608 8.00% $25,760 10.00%
Tier 1 Capital (to Risk Weighted Assets) 25,334 9.83% 10,304 4.00% 15,456 6.00%
Tier 1 Capital ( to Average Assets) 25,334 8.90% 8,540 3.00% 14,235 5.00%
|
Dividends - Under California state banking law, the Bank may not pay cash dividends in an amount which exceeds the lesser of retained earnings of the Bank or the Bank's net income for the last three fiscal years (less
the
amount of distributions to shareholders during that period of time). If
the above test is not met, cash dividends may only be paid with the prior
approval of the California State Department of Financial Institutions, in
an amount not exceeding the greater of: (i) the Bank's retained earnings;
(ii) its net income for the last fiscal year; or (iii) its net income for
the current fiscal year. As of December 31, 2000, year-to-date dividends
paid of $1,939,012 were well within those regulatory guidelines.
Cash Restriction - The Bank is required to maintain average reserve balances with the Federal Reserve Bank. At December 31, 2000, the Bank's qualifying balance with the Federal Reserve Bank was $3,809,000 consisting of vault cash and balances.
16. SUPPLEMENTAL CASH FLOW DISCLOSURES
For the Year Ended December 31,
-------------------------------------------
2000 1999 1998
-------------------------------------------
Cash paid during the period for:
Interest $11,379,447 $ 7,808,466 $ 8,296,430
Income Taxes 3,927,000 3,225,000 2,199,627
Noncash transactions:
Loans transferred to foreclosed property 2,780,725 1,113,603 597,029
Loans made to finance the sale of fixed assets 0 0 480,000
Dividends declared not paid 546,429 418,956 344,366
|
17. OTHER COMPREHENSIVE INCOME
The following table provides a reconciliation of the amounts included in comprehensive income:
For the year ended December 31,
-----------------------------------
2000 1999 1998
-----------------------------------
Other comprehensive income, net of tax:
Unrealized gain (loss) on available-for-sale securities -
net income tax of $491,302, income tax benefit of
$348,273, and income tax of $30,527 $ 736,952 ($522,410) $ 45,793
Reclassification adjustment for gain on sale of available-for-sale
Securities included in net income - net income tax of $2,260 (3,389) 0 0
-----------------------------------
Net comprehensive income $ 733,563 ($522,410) $ 45,793
===================================
|
INDEPENDENT AUDITOR'S REPORTS
To the Board of Directors and Shareholders of
United Security Bank
Fresno, California
We have audited the accompanying balance sheets of United Security Bank as of December 31, 2000 and 1999 and the related statements of income and comprehensive income, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, such financial statements present fairly, in all material respects, the financial position of United Security Bank as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
MOSS ADAMS LLP/s/ Stockton, California January 10, 2001 |
To the Board of Directors and Shareholders of
United Security Bank
Fresno, California
We have audited the accompanying balance sheet of United Security Bank as of December 31, 1998 and the related statements of income and comprehensive income, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of United Security Bank as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP/s/ Fresno, California January 14, 1999 |
Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain matters discussed or incorporated by reference in this Annual Report of Form 10-K are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those described in Management's Discussion and Analysis of Financial Condition and Result of Operations. Therefore, the information set forth therein should be carefully considered when evaluating the business prospects of the Bank.
Overview
United Security Bank (the "Bank" or "USB") continues to seek ways to better meet its customers' needs for financial services, expand into new markets and compete in today's financial services environment. The Bank's strategy is to provide a full range of competitively priced commercial banking services to its customer base while pursuing opportunities for profitable growth and asset diversification to further its ability to provide superior service. The Bank currently has seven branches which provide financial services in Fresno and Madera counties.
On July 27, 1999, the Board of Directors declared a three-for-one stock split on the Bank's common stock to shareholders of record on September 15, 1999. The split was approved by the California Department of Financial Institutions and the stock split was effective October 1, 1999. Consequently, all references to the number of common shares and per share amounts have been restated for all periods presented to reflect the three-for-one stock split.
During the fourth quarter of 1998, the Bank filed an application with the California State Banking Department and other regulatory authorities to convert from a national bank to a state-chartered bank. The shareholders approved the conversion in January of 1999, and the Bank was granted approval to operate as a state-chartered bank on February 3, 1999. As a state-chartered bank, the Bank has greater flexibility in making loans secured by real estate, and is subject to more flexible rules governing corporate practices. In addition, the Bank is supervised by a primary regulator located in California, whose representatives are very familiar with small, community banks directly affected by the unique California economy and business climate. The Bank believes this change will create a more competitive business environment in a market area where most of the Bank's peers are also state-chartered banks.
Results of Operations
The Bank completed the most profitable year in its 13 year history in 2000. Net income was $6.3 million or $1.16 per share ($1.12 diluted) for the year ended December 31, 2000, as compared to $4.9 million or $0.95 ($0.89 diluted), and $4.2 million or $0.82 per share ($0.77 diluted), for the years ended December 31, 1999 and 1998, respectively. Two widely used standards of measurement for evaluating a companies' performance are return on average assets , and return on average equity. Return on average assets indicates the efficiency with which management has used its resources, and return on average equity measures the rate of return on the shareholders' investment. The Bank's return on average assets was 1.95%, 1.77%, and 1.58% for the years ended December 31, 2000, 1999, and 1998, respectively, while the return on average equity was 20.05%, 18.31%, and 17.85% for those same three years, respectively. The Bank experienced diminished returns on average assets during 1998 primarily as the result of four branch purchases during 1997, providing a substantial increase in the Bank's deposit base which was invested in securities and overnight funds. During 1999 and 2000, these funds, along with other borrowings, were used to fund loan growth, which with higher yields, provided a stronger return on assets for the Bank.
Table 1. Distribution of Average Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential: The following sets forth the Bank's daily average balance sheets, components of net interest income and expense, and related yields and rates for the years ended December 31, 2000, 1999 and 1998:
For the Years Ended December 31,
--------------------------------
2000 1999 1998
------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------------------------------------------------------------------------------
Assets:
Interest-earning assets:
Loans (1) $ 230,305 $24,739 10.74% $ 175,324 $17,780 10.14% $ 149,100 $16,209 10.87%
Investment Securities - taxable 54,652 3,798 6.95% 50,959 2,993 5.87% 32,123 2,134 6.64%
Investment Securities - nontaxable (2) 3,346 162 4.84% 3,420 165 4.82% 3,868 190 4.91%
Federal funds sold and reverse repos 4,080 242 5.93% 19,725 982 4.98% 54,304 2,986 5.50%
------------------------------------------------------------------------------------
Total interest-earning assets 292,383 $28,941 9.90% 249,428 $21,920 8.79% 239,395 $21,519 8.99%
============== ============== ==============
Allowance for possible credit losses (3,206) (2,349) (2,091)
Noninterest-bearing assets:
Cash and due from banks 13,455 13,339 12,768
Premises and equipment, net 3,670 3,719 3,618
Accrued interest receivable 2,792 1,698 1,466
Other real estate owned 909 677 1,035
Other assets 11,442 11,027 10,350
--------- --------- ---------
Total average assets $ 321,445 $ 277,539 $ 266,541
========= ========= =========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
NOW accounts $ 24,025 $ 411 1.71% $ 25,479 $ 437 1.72% $ 24,007 $ 483 2.01%
Money market accounts 43,665 1,701 3.90% 36,955 1,307 3.54% 34,091 1,326 3.89%
Savings accounts 19,286 416 2.16% 20,465 445 2.17% 19,659 476 2.42%
Time deposits 121,529 7,166 5.90% 109,102 5,625 5.16% 112,402 6,312 5.62%
Other borrowings 27,846 1,850 6.64% 1,957 111 5.67% 143 8 5.59%
------------------------------------------------------------------------------------
Total interest-bearing liabilities 236,351 $11,544 4.88% 193,958 $ 7,925 4.09% 190,302 $ 8,605 4.52%
============== ============== ==============
Noninterest-bearing liabilities:
Noninterest-bearing checking 51,554 54,551 50,425
Accrued interest payable 1,035 1,003 952
Other liabilities 1,300 1,145 1,240
--------- --------- ---------
Total Liabilities 290,240 250,657 242,919
Total stockholders' equity 31,205 26,882 23,622
--------- --------- ---------
Total average liabilities and
stockholders' equity $ 321,445 $ 277,539 $ 266,541
========= ========= =========
Interest income as a percentage
of average earning assets 9.90% 8.79% 8.99%
Interest expense as a percentage
of average earning assets 3.95% 3.18% 3.59%
----- ----- -----
Net interest margin 5.95% 5.61% 5.40%
===== ===== =====
|
(1) Loan amounts include nonaccrual loans, but the related interest income has been included only if collected for the period prior to the loan being placed on a nonaccrual basis. Loan interest income includes loan fees of approximately $856,000, $876,000, and $1,060,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
(2) Applicable nontaxable securities yields have not been calculated on a tax-equivalent basis because they are not material to the Bank's results of operations.
Net Interest Income
Net interest income, the most significant component of earnings, is the difference between the interest and fees received on earning assets and the interest paid on interest-bearing liabilities. Earning assets consist primarily of loans, and to a lesser extent, investments in securities issued by federal, state and local authorities, and interest-bearing deposits in other financial institutions. These earning assets are funded by a combination of interest-bearing and noninterest-bearing liabilities, primarily customer deposits and short-term borrowings. Net interest income before provision for possible credit losses totaled $17.4 million for the year ended December 31, 2000, representing an increase of $3.4 million or 24.3% over the previous year, and an increase of $4.5 million or 34.7% over the year ended December 31, 1998. As summarized in Table 2 below, an increase of $7.0 million in interest income between 1999 and 2000 was only partially offset by an increase of $3.6 million in interest expense between those two years. The increase in net interest income during 2000 is primarily the result of significant growth in earning assets and interest-bearing liabilities which was enhanced by an increase in market rates of interest during the year. Between 1998 and 1999, an increase of $401 in interest income was more than offset by a decline of $680 in interest expense. While assets have grown over the three years presented and the balance sheet mix has changed, interest rate movements over those three years have played an equally important role in net interest income trends.
The Bank's net interest margin, as shown in Table 1, increased 34 basis points (100 basis points equals 1%) to 5.95% at December 31, 2000 from 5.61% at December 31, 1999, and increased 55 basis points from the net margin figure of 5.40% reported for the year ended December 31, 1998. Over the past several years, the Bank has been impacted by both its mix of assets and the Federal Reserve's movement of interest rates. As a result of branch acquisitions during 1997, the Bank experienced a decline in the percentage of loans in the earning asset mix, which brought with it, a decline in the overall yield on earning assets during 1998. An increase in loan volume during 1999 and again during 2000, was funded by overnight funds, maturing short-term investments, and short-term borrowings, which provided a stronger yielding asset mix. This more than offset the impact of a decline in average interest rates during 1999 and enhanced the increase in average interest rates experienced during 2000. The Federal Reserve reduced interest rates by a total of 75 basis points during the fourth quarter of 1998, and did not increase rates again until June 30, 1999 when rates increased 25 basis points. Two additional 25 basis point increases were added during the second half of 1999; one in August and one in November. Then during the first half of 2000, interest rates were increased three times; 25 basis points each in both February and March and, then an additional 50 basis points during May 2000. As a result, the prime rate, the market rate with which much of the Bank's assets and liabilities fluctuate, averaged approximately 9.24% during 2000 as compared to approximately 7.99% and 8.35% during 1999 and 1998, respectively.
The Bank's net interest income and net interest margin are affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as "volume change". Both are also affected by changes in yields on interest-earning assets and rates paid on interest-bearing liabilities, referred to as "rate change". The following Table 2 sets forth the changes in interest income and interest expense for each major category of interest-earning asset and interest-bearing liability, and the amount of change attributable to volume and rate changes for the years indicated:
Table 2. Rate and Volume Analysis
(dollars in thousands)
2000 compared to 1999 1999 compared to 1998
------------------------------- --------------------------------
Total Rate Volume Total Rate Volume
------------------------------- --------------------------------
Increase (decrease) in interest income:
Loans $6,959 $1,105 $5,854 $1,571 $(1,141) $2,712
Investment securities 802 582 220 834 (254) 1,088
Federal funds sold & reverse repos (740) 159 (899) (2,004) (259) (1,745)
------------------------------- --------------------------------
Total interest income 7,021 1,846 5,175 401 (1,654) 2,055
Increase (decrease) in interest expense:
Interest-bearing demand accounts 368 214 154 (65) (194) 129
Savings accounts (29) (4) (25) (31) (50) 19
Time deposits 1,541 860 681 (687) (506) (181)
Other borrowings 1,739 22 1,717 103 0 103
------------------------------- --------------------------------
Total interest expense 3,619 1,092 2,527 (680) (750) 70
------------------------------- --------------------------------
Increase in net interest income $3,402 $754 $2,648 $1,081 $(904) $1,985
=============================== ================================
|
For the year ended December 31, 2000, total interest income increased $7.0 million or 32.0% as compared to the year ended December 31, 1999. This increase is attributable primarily to a substantial increase in loan volume, which was enhanced by an increase in the average yield on all earning assets during the year. Average loans increased $55.0 million and average investment securities increased $3.6 million between December 31, 1999 and December 31, 2000 and, with increased yields on these two asset categories, interest income increased $7.0 million and $802 thousand, respectively between the years ended December 31, 1999 and December 31, 2000. Average overnight federal funds and reverse repurchase agreements ("overnight funds"), decreased between the years ended December 31, 1999 and 2000 as a result of high loan demand. This more than outweighed the increase in yield on these funds and, as a result, interest income on overnight funds declined $740 thousand between those two years.
For the year ended December 31, 2000, interest expense totaling $11.5 million represents an increase of $3.6 million or 45.7% when compared to the year ended December 31, 1999. The increase was attributable to both an increase in average volumes of deposits and borrowings, as well as an increase in the rates paid on those interest-bearing liabilities. Average time deposits increased $12.4 million and short-term borrowings increased $25.9 million between December 31, 1999 and December 31, 2000. As interest rates began to rise during 2000, so did the cost of time deposits, as renewals and new deposits were taken at the higher rates. Borrowings are short-term and repriced upwards as the year progressed. As a result of volume increases combined with rate increases, interest expense on time deposits and short-term borrowings increased $1.5 million and $1.7 million, respectively, between the years ended December 31, 1999 and December 31, 2000.
Total interest income increased $401 thousand or 1.9% for the year ended December 31, 1999 as compared to the year ended December 31, 1998. Increases were primarily the result of increased loan and investment volumes, which more than outweighed the decrease in the total average yield on those assets during the year. Average loans increased $26.2 million and average investment securities increased $18.4 million between December 31, 1998 and December 31, 1999. Even though yields on these two asset categories declined during 1999, interest income attributable to loans and investment securities increased $1.6 million and $834 thousand, , respectively, between the years ended December 31, 1998 and December 31, 1999. As with the current year, average overnight funds decreased between the years ended December 31, 1998 and 1999 as these assets were used to fund loan growth . As a result of this, combined with a decline in yield, interest income on overnight funds declined $2.0 million between those two years.
For the year ended December 31, 1999, interest expense of $7.9 million represents a decrease of $680 thousand or 7.9% when compared to the year ended December 31, 1998. The decrease was attributable to a decline in the rates paid on interest-bearing deposits, which was only slightly offset by an increase in the overall volume of interest-bearing liabilities. A major part of the decrease in interest expense experienced during 1999 was the result of declining time deposit rates, as maturing time deposits issued during earlier periods of higher rates were renewed, along with new money, at lower rates. A change in the mix of interest-bearing liabilities also contributed to the decline in the cost of interest-bearing liabilities during 1999. Time deposits, the most costly deposit category for the Bank, declined on average by $3.3 million between the years ended December 31, 1998 and December 31, 1999, while other less costly deposits experienced average increases totaling $5.1 million, and short-term borrowings increased $1.8 million between the same two periods.
Provisions for possible credit losses and the amount added to the allowance for possible credit losses is determined on the basis of management's continuous credit review of the loan portfolio, consideration of past loan loss experience, current and future economic conditions, and other pertinent factors. Such factors consider the allowance for possible credit losses to be adequate when it covers estimated losses inherent in the loan portfolio. Based on the condition of the loan portfolio, the Bank's management believes the allowance is sufficient to cover risk elements in the loan portfolio. For the year ended December 31, 2000, the provision to the allowance for possible credit losses amounted to $1.6 million as compared to $1.0 million and $1.2 million for the years ended December 31, 1999 and 1998, respectively. The amount provided to the allowance for possible credit losses during 2000 brought the allowance to 1.45% of outstanding loan balances at December 31, 2000, as compared to 1.34% and 1.24% of outstanding loan balances at December 31, 1999 and 1998, respectively.
Noninterest Income
The following table summarizes significant components of noninterest income for the years ended December 31, 2000, 1999 and 1998 and the net changes between those years (dollars in thousands):
Year ended December 31, Change during Year
------------------------------------------------------------------
2000 1999 1998 2000 1999
------------------------------------------------------------------
Customer service fees $2,233 $2,379 $2,414 $(146) $(35)
Gain on sale of securities 6 0 0 6 0
Gain (loss) on sale of OREO 62 158 (33) (96) 191
Gain on sale of fixed assets 2 3 196 (1) (193)
Other 234 241 220 (7) 21
------------------------------------------------------------------
Total $2,537 $2,781 $2,797 $(244) $(16)
==================================================================
|
Noninterest income consists primarily of fees earned on services that are provided to the Bank's customers. Total noninterest income for the year ended December 31, 2000 decreased $244 thousand or 8.7% when compared to the same period last year. Customer service fees, the primary category of total noninterest income, decreased $146 thousand or 6.1% during 2000 as compared to the previous year, primarily as the result of a decline in ATM fee income. In addition to the decline in ATM fee income, gains on the sale of other real estate owned through foreclosure declined by almost $96 thousand during 2000 from the $158 thousand realized during 1999.
Total noninterest income for the year ended December 31, 1999 decreased $16 thousand or 0.6% when compared to the same period of 1998. Total customer service fees decreased $35 thousand or 1.5% during 1999 as compared to the previous year, as the result of a decline in ATM fee income, which was only partially offset by increases in other fee income on customer accounts. During the second quarter of 1998, the Bank realized a gain of $214 thousand on the sale of its Oakhurst branch premises. Gains of this magnitude were not realized on fixed asset sales during 1999, and resulted in the decline in this income category between the two periods presented. On the other hand, gains realized on the sale of other real estate owned increased by $191 thousand during 1999, as previously foreclosed properties were disposed of during the year.
Noninterest Expense
The following table sets forth the components of total noninterest expense in dollars and as a percentage of average earning assets for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
2000 1999 1998
------------------------- ------------------------- -------------------------
% of % of % of
Average Average Average
Earning Earning Earning
Amount Assets Amount Assets Amount Assets
------------------------- ------------------------- -------------------------
Salaries and employee benefits $3,953 1.35% $3,219 1.29% $2,960 1.24%
Occupancy expense 1,608 0.55% 1,590 0.64% 1,462 0.61%
Data processing 540 0.18% 514 0.21% 466 0.19%
Professional fees 312 0.11% 539 0.22% 338 0.14%
Directors fees 174 0.06% 166 0.07% 167 0.07%
Amortization of intangibles 360 0.12% 372 0.15% 350 0.15%
Correspondent bank service charges 202 0.07% 184 0.07% 252 0.11%
Other 1,499 0.51% 1,313 0.53% 1,596 0.67%
-----------------------------------------------------------------------------
Total $8,648 2.96% $7,897 3.17% $7,591 3.17%
=============================================================================
|
Noninterest expense, excluding provision for possible credit losses and income tax expense, totaled $8.6 million for the year ended December 31, 2000 as compared to $7.9 million and $7.6 million for the years ended December 31, 1999 and 1998, respectively. These figures represent an increase of $751 thousand or 9.5% between the years ended December 31, 1999 and December 31, 2000, and an increase of $307 thousand or 4.0% between the years ended December 31,
1998 and December 31, 1999. Increases between the three years presented are primarily the result of an increase in employee, occupancy, and data processing expenses, associated with normal anticipated growth during the three years presented. As a percentage of average earning assets, total noninterest expense has remained stable over the past three years as the Bank has controlled overhead expenses while experiencing profitable growth. In fact, noninterest expense has actually declined to 2.96% of average earning assets for the year ended December 31, 2000 from 3.17% at both December 31, 1999 and 1998.
Increases in salaries and employee benefits contributed approximately $734 thousand to the increase during 2000 and $259 thousand to the increase in noninterest expense during 1999, as the Bank has incurred increased costs for insurance, employer taxes, as well as salary increases and enhanced incentive plans designed to attract and keep qualified staff.
Increases in occupancy and data processing expenses contributed $44 thousand and $176 thousand to the increase experienced in noninterest expense during 2000 and 1999, respectively. The Bank consolidated its two Oakhurst branches into one location during April 1999, and relocated its San Joaquin branch during November 1999. These changes brought with them increased overhead and depreciation costs. Maintenance and repair costs on the Bank's premises increased approximately $50 thousand between 1998 and 1999, but then declined slightly between 1999 and 2000. In addition, the Bank capitalized more than $500 thousand during 1997 to upgrade its computer software to increase the efficiency and response time of its operations, and for the same reason, capitalized an additional $340 thousand for a new mainframe computer during the fourth quarter of 1998. The Bank brought its data processing function in-house during July 1999. As a result, increases were experienced in service contract expenses on that equipment, as well as data processing fees between 1999 and 2000.
Professional fees increased $201 thousand or $59.4% between 1998 and 1999, and then decreased $227 or 42.2% between 1999 and 2000. Additional expenses incurred during 1999 were primarily the result of legal proceedings between the Bank, and former president and former cashier in which each party sought to recover costs associated with the original case begun in 1994. The case was settled during May of 1999. In addition, increased legal expenses were incurred during 1999 for the workout of impaired loans.
Other noninterest expense increased $186 thousand during 2000 as compared to 1999, but decreased $283 thousand during 1999 as compared to 1998. As a result of growth in the Bank's customer base over the three periods presented, increases have been experienced in a number of items including increases in stationary and supplies, postage, customer check and stamp charges, armored car expense, and insurance costs. With the growth over the past several years has come an increase in these expenses as the Bank continues to offer a high level of customer service to the market areas it serves. Additional expenses incurred during 1998 included write-downs on other real estate owned totaling $130 thousand, and merger expenses totaling $67 thousand, as well as transition expenses associated with the branch acquisitions during 1997.
Financial Condition
Total assets of the Bank at December 31, 2000 were $356.8 million, reflecting an increase of $75.3 million, or 26.7% from the December 31, 1999 balance of $281.5 million. Substantial asset growth during the period was primarily the result of increased loan demand which was funded by a combination of deposit growth and short-term borrowings. Total assets increased $1.6 million or 0.6% between December 31, 1998 and December 31, 1999.
Earning assets averaged approximately $292.4 million during the year ended December 31, 2000, as compared to $249.4 million and $239.4 million for the years ended December 31, 1999 and 1998, respectively. Average interest-bearing liabilities increased to an average of $236.4 million for the year ended December 31, 2000, as compared to $194.0 million and $190.3 million for the comparative twelve month periods of 1999 and 1998, respectively.
Loans
The Bank's primary business is that of acquiring deposits and making loans, with the loan portfolio representing the largest and most important part of USB's earning assets. This was yet another growth year for the Bank's loan portfolio, with loans totaling $261.4 million at December 31, 2000 as compared to $198.3 million at December 31, 1999 and $154.4 million at December 31, 1998. Total loans increased $63.1 million or 31.8% between December 31, 1999 and December 31, 2000, as compared to an increase of $43.8 million or 28.4% between December 31, 1998 and December 31, 1999. Loans on average rose 31.4% between the years ended December 1999 and December 2000, and rose 17.6%
between the years ended December 31, 1998 and December 31, 1999, with loans averaging $230.3 million for the twelve months ended December 31, 2000, as compared to $175.3 million and $149.1 million for the same twelve month periods of 1999 and 1998, respectively. The Bank's year-to-date average loan-to-deposit ratio which was 88.6% for the year ended December 31, 2000 as compared to 71.1% for the year ended December 31, 1999, and 62.0% for the year ended December 31, 1998.
The following table sets forth the amounts of loans outstanding by category as of the dates indicated (dollars in thousands):
December 31,
------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------
Dollar % of Dollar % of Dollar % of Dollar % of Dollar % of
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-----------------------------------------------------------------------------------------------
Commercial and industrial $66,434 25.4% $52,275 26.4% $43,358 28.1% $33,777 23.6% $33,479 26.2%
Real estate - mortgage 113,140 43.3 77,694 39.2 65,833 42.6 70,801 49.5 59,855 46.8
Real estate - construction 61,038 23.4 55,574 28.0 33,913 22.0 28,226 19.8 28,288 22.1
Agricultural 7,240 2.8 7,003 3.5 6,479 4.2 4,746 3.3 2,653 2.1
Installment/other 10,292 3.9 5,723 2.9 4,837 3.1 5,383 3.8 3,543 2.8
Lease financing 3,225 1.2 0 0.0 0 0.0 0 0.0 0 0.0
-----------------------------------------------------------------------------------------------
Total Loans $261,369 100.0% $198,269 100.0% $154,420 100.0% $142,933 100.0% $127,818 100.0%
===============================================================================================
|
Growth has continued to be greatest in what has historically been the Bank's primary lending emphasis, commercial, real estate mortgage, and construction lending. More than half of the growth during 2000 occurred in real estate mortgage loans which increased by $35.4 million or 45.6% during the year as compared to $11.9 million or 18.0% during 1999. Growth continues in commercial and industrial loans which increased $14.2 million or 27.1% during 2000, and increased $8.9 million or 20.6% during 1999. Real estate construction loans increased $5.5 million or 9.8% between December 31, 1999 and December 31, 2000, while installment loans increased $4.6 million or 79.8%, and agricultural loans increased by $237 thousand or 3.4% during that same period. During the year, the Bank purchased an existing leasing portfolio and will seek growth in this category in the future.
The real estate mortgage loan portfolio totaling $113.1 million at December 31, 2000 consists of commercial real estate, residential mortgages, and home equity loans. Commercial real estate is the core of this segment of the portfolio and accounted for most the growth in the real estate mortgage portfolio, with balances of $89.5 million, $56.2 million, and $43.8 million at December 31, 2000, 1999, and 1998, respectively. The Bank does not currently offer residential mortgage loans and, as a result, that portion of the portfolio has declined over time with balances of $6.1 million, $7.8 million, and $10.7 million at December 31, 2000, 1999 and 1998, respectively. The Bank began offering home equity loans early in 1997 and since that time balances have grown steadily to $17.5 million at December 31, 2000, from $13.8 million at December 31, 1999, and $11.3 million at December 31, 1998.
The following table sets forth the maturities of the Bank's loan portfolio at December 31, 2000. Amounts presented are shown by maturity dates rather than repricing periods (dollars in thousands):
Due Due after one Due
in one year through after five
year or less five years years Total
-------------- -------------- -------------- --------------
Commercial and agricultural $31,813 $21,401 $20,460 $73,674
Real estate - construction 50,896 8,366 1,776 61,038
-------------- -------------- -------------- --------------
82,709 29,767 22,236 134,712
Real estate - mortgage 23,906 43,108 46,126 113,140
All other loans 7,200 5,353 964 13,517
-------------- -------------- -------------- --------------
Total Loans $113,815 $78,228 $69,326 $261,369
============== ============== ============== ==============
|
The average yield on loans was 10.74% for the year ended December 31, 2000, representing an increase of 60 basis points when compared to the year ended December 31, 1999 and was a result of a general increase in market rates of interest between those two periods. For the year ended December 31, 1999, the overall average yield on the loan portfolio was 10.14%, representing a decrease of 73 basis points when compared to 10.87% for the same twelve-month period of 1998 and was a result of a general decrease in average market rates of interest during 1999. The Bank's loan portfolio is generally comprised of short-term or floating rate loans and is therefor susceptible to fluctuations in market rates of interest. At December 31, 2000, 1999 and 1998, approximately 65.5%, 67.5% and 68.0% of the Bank's loan portfolio consisted of floating rate instruments, with the majority of those tied to the prime rate.
Securities
Following is a comparison of the amortized cost and approximate fair value of available-for-sale and held-to-maturity securities for the three years indicated (dollars in thousands):
December 31, 2000 December 31, 1999
--------------------------------------------- ----------------------------------------------
Gross Gross Fair Value Gross Gross Fair Value
Amortized Unrealized Unrealized (Carrying Amortized Unrealized Unrealized (Carrying
Cost Gains Losses Amount) Cost Gains Losses Amount)
--------------------------------------------- ----------------------------------------------
Available-for-sale:
U.S. Government agencies $42,523 $489 $(79) $42,933 $32,034 $115 $(489) $31,660
U.S. Government agency
collateralized mortgage
obligations 1,357 0 (16) 1,341 1,845 0 (41) 1,804
Obligations of state and
political subdivisions 3,317 72 0 3,389 3,402 0 (247) 3,155
Other debt securities 2,000 95 0 2,095 9,929 0 0 9,929
--------------------------------------------- ----------------------------------------------
Total available-for-sale $49,197 $656 $(95) $49,758 $47,210 $115 $(777) $46,548
============================================= ==============================================
Held-to-maturity:
U.S. Government agencies $10,248 $0 $(74) $10,174 $10,248 $0 $(351) $9,897
============================================= ==============================================
December 31, 1998
--------------------------------------------------
Gross Gross Fair Value
Amortized Unrealized Unrealized (Carrying
Cost Gains Losses Amount)
--------------------------------------------------
Available-for-sale:
U.S. Government agencies $61,641 $81 $0 $61,722
U.S. Government agency
collateralized mortgage obligations 3,490 1 (32) 3,459
Obligations of state and
political subdivisions 3,452 162 0 3,614
Other debt securities 960 0 (3) 957
--------------------------------------------------
Total available-for-sale $69,543 $244 ($35) $69,752
==================================================
Held-to-maturity:
U.S. Government agencies $20,241 $101 $0 $20,342
==================================================
|
Realized gains on securities available-for-sale totaled $5,649 during 2000, and there were no realized losses on securities available-for-sale during the year. There were no realized gains or losses for such securities during 1999 or 1998.
Total securities changed little during the year ended December 31, 2000, although the mix of the portfolio did change. At December 31, 1999, the Bank had approximately $9.9 million in short-term commercial paper which matured during the first quarter of 2000. Much of this money was reinvested in U.S. Government agencies during 2000. Total securities decreased $33.2 million during 1999 to an ending balance of $56.8 million at December 31, 1999, representing a decrease of 36.9% between those two periods. In general, during 1999, proceeds from maturing securities were used to fund much of the Bank's loan growth as the deposit base declined during the later half of the year.
The amortized cost and fair value of investment securities as well as yields on those securities at December 31, 2000, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties (dollars in thousands).
December 31, 2000
---------------------------------------------
Weighted Amortized Fair
Average Yield (1) Cost Value
---------------------------------------------
Available-for-sale:
Due in one year or less 8.30% $12,661 $12,696
Due after one year through five years 6.13% 20,273 20,356
Due after five years through ten years -- 0 0
Due after ten years 7.11% 14,906 15,365
Collateralized mortgage obligations 5.80% 1,357 1,341
---------------------------------------------
Total available-for-sale 7.07% $49,197 $49,758
=============================================
Held-to-maturity:
Due after one year through five years 5.88% 10,248 10,174
---------------------------------------------
Total held-to-maturity 5.88% $10,248 $10,174
=============================================
|
(1) Weighted average yields are not computed on a tax equivalent basis
Contractual maturities on collateralized mortgage obligations are difficult to anticipate due to allowed paydowns and therefore have been disclosed separately for the purpose of the above table. For further discussion on the maturities of collateralized mortgage obligations, see "Liquidity and Asset/Liability Management" presented later in this text.
At December 31, 2000, available-for-sale securities with an amortized cost of approximately $44.228 million (fair value of $44.630 million) were pledged as collateral for public funds and treasury tax and loan balances. At December 31, 2000, held-to-maturity securities with an amortized cost of approximately $10.248 million (fair value of $10.174 million) were pledged as collateral for public funds (including the State of California) and the Federal Reserve Discount Window. At December 31, 1999, available-for-sale securities with an amortized cost of approximately $10.550 million (fair value of $10.626 million) were pledged as collateral for public funds and treasury tax and loan balances. At December 31, 1999, held-to-maturity securities with an amortized cost of approximately $10.247 million (fair value of $9.897 million) were pledged as collateral for public funds (including the State of California) and the Federal Reserve Discount Window.
Deposits
The Bank attracts commercial deposits primarily from local businesses and professionals, as well as retail checking accounts, savings accounts and time deposits. Total deposits increased $33.0 million or 13.8% during the year to a balance of $271.9 million at December 31, 2000 as compared to a decrease of $13.6 million or 5.4% between December 31, 1998 and December 31, 1999. Core deposits, consisting of all deposits other than time deposits of $100,000 or more and brokered deposits, continue to provide the foundation for the Bank's principal sources of funding and liquidity. These core deposits amounted to 71.4%, 79.7% and 78.5% of the total deposit portfolio at December 31, 2000, 1999 and 1998, respectively.
The following table sets forth the amounts of deposits by category for the years indicated, and the dollar change in each category during the year (dollars in thousands):
Balance as of December 31, Change during Year
-------------------------------------------------------------
2000 1999 1998 2000 1999
-------------------------------------------------------------
Noninterest bearing deposits $52,898 $50,910 $50,503 $1,988 $407
Interest bearing deposits:
NOW and money market accounts 62,143 62,239 62,582 (96) (343)
Savings accounts 18,347 19,609 19,804 (1,262) (195)
Time deposits:
Under $100,000 63,567 57,553 65,389 6,014 (7,836)
$100,000 and over 74,908 48,552 54,196 26,356 (5,644)
-------------------------------------------------------------
Total interest bearing deposits 218,965 187,953 201,971 31,012 (14,018)
-------------------------------------------------------------
Total deposits $271,863 $238,863 $252,474 $33,000 $(13,611)
=============================================================
|
The Bank's deposit base consists of two major components represented by
noninterest-bearing (demand) deposits and interest-bearing deposits.
Interest-bearing deposits consist of time certificates of deposit, NOW and money
market accounts and savings deposits. The most significant deposit changes
between the years presented above have been in total time deposits which
increased by $32.4 million between December 31, 1999 and December 31, 2000, and
decreased by $13.5 million between December 31, 1998 and December 31, 1999. Most
of the increase during 2000 was in time deposits of $100,000 or more which
increased $26.4 million or 54.3% between December 31, 1999 and December 31,
2000. Of this increase, $15.0 million is attributable to amounts deposited by
the State of California, and an additional $9.5 million is from brokered time
deposits. Time deposits of under $100,000 increased by $6.0 million or 10.5%
between December 31, 1999 and December 31, 2000 as interest rates increased
during 2000, and these deposit instruments became more attractive to retail
customers. During 1999, the majority of the deposit decrease was in total time
deposits which decreased $13.5 million or 11.3% between December 31, 1998 and
December 31, 1999. Runoff in time deposits during 1999 is most likely the result
of less attractive rates than in previous years, as customers sought higher
returns elsewhere, such as the bond and equity markets, as well as, with other
institutions offering higher than average rates on time deposits. Other
interest-bearing deposits which include NOW and money market accounts, as well
as savings accounts declined only slightly during 1999 and 2000.
Noninterest-bearing deposits have remained stable over the three years presented
and increased $2.0 million between December 1999 and December 31, 2000, and
increased $407 thousand between December 1998 and December 31, 1999.
On a year-to-date average basis, total deposits increased $13.5 million or 5.5% between the years ended December 31, 2000 and December 31, 1999. Of that total, interest-bearing deposits increased by $16.5 million or 8.6%, while noninterest bearing deposits declined $3.0 million or 5.5% during 2000. Average checking accounts and time deposits experienced increases of $5.3 million or 8.4% and $12.4 million or 11.4%, respectively, during 2000. On average during 2000, decreases of $3.0 million or 5.5% and $1.2 million or 5.8% were experienced in noninterest-bearing deposits and savings accounts, respectively. On a year-to-date average, the Bank experienced increases in all deposit categories except time deposits during 1999. Total average deposits increased $6.0 million or 2.5% for the year ended December 31, 1999, as compared to the same twelve month period of 1998. Of this increase, $1.8 million was in interest-bearing deposits, representing only a 1.0% increase for that category, while the remaining $4.2 million was in noninterest-bearing demand deposits, representing a 8.2% increase in that category between these two periods . Increases in noninterest bearing checking, NOW and money market accounts and, to a lesser degree, savings accounts during 1999, contributed to the year-to-date average increases experienced during the year.
The following table sets forth the average deposits and average rates paid on those deposits for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
2000 1999 1998
----------------------------------------------------------------------
Average Average Average
Interest bearing deposits: Balance Rate % Balance Rate % Balance Rate %
----------------------------------------------------------------------
Checking accounts $67,690 3.12% $62,434 2.80% $58,098 3.11%
|
Savings 19,286 2.16% 20,465 2.17% 19,659 2.42% Time deposits (1) 121,529 5.90% 109,102 5.16% 112,402 5.62% Noninterest bearing deposits 51,554 54,551 50,425 |
(1) Included at December 31, 2000, are $74.908 million in time certificates of deposit of $100,000 or more, of which $32.578 million matures in three months or less, $20.730 million matures in 3 to 6 months, $10.437 million matures in 6 to 12 months, and $11.163 million matures in more than 12 months.
Short-term Borrowings
From time to time, the Bank obtains borrowed funds consisting of federal funds purchased and securities sold under agreements to repurchase ("repurchase agreements") as alternatives to retail deposit funds. The Bank has established collateralized and uncollateralized lines of credit with several correspondent banks, as well as a securities dealer, for the purpose of obtaining borrowed funds as needed. The Bank may continue to borrow funds in the future as part of its asset/liability strategy, and may use these funds to acquire certain other assets as deemed appropriate by management for investment purposes and to better utilize the capital resources of the Bank. Federal funds purchased represent temporary overnight borrowings from correspondent banks and are generally unsecured. Repurchase agreements are collateralized by mortgage backed securities and securities of U.S. Government agencies, and generally have maturities of one to three months. The Bank has the ability to secure longer maturities on such instruments if deemed appropriate as part of its asset/liability strategy. In addition, the Bank has the ability to obtain borrowings from the Federal Reserve Bank of San Francisco which would be collateralized by certain pledged loans in the Bank's loan portfolio.
The table below provides further detail of the Bank's federal funds purchased and repurchase agreements for the years ended December 31, 2000 and December 31, 1999 (dollars in thousands):
December 31,
-----------------------
2000 1999
-----------------------
At period end:
Federal funds purchased $22,630 $2,138
Repurchase agreements 24,894 9,775
-----------------------
Total $47,524 $11,913
=======================
Average interest rate 6.35% 5.72%
=======================
Average for the year:
Federal funds purchased $2,793 $403
Repurchase agreements 24,876 1,554
-----------------------
Total $27,669 $1,957
=======================
Average interest rate 6.61% 5.67%
=======================
Maximum total borrowings outstanding at
any month-end during the year:
Federal funds purchased $22,630 $2,138
Repurchase agreements 24,894 9,775
-----------------------
Total $47,524 $11,913
=======================
|
The Bank had collateralized and uncollateralized lines of credit aggregating $107.9 million, as well as repurchase agreement lines of credit totaling $24.9 million at December 31, 2000. These lines of credit generally have interest rates tied to the Federal Funds rate or are indexed to short-term U.S. Treasury rates or LIBOR. At December 31, 2000, the Bank had advances on the repurchase lines of credit totaling $24.9 million, and federal funds purchased of $22.6 million. The Bank had collateralized and uncollateralized lines of credit aggregating $124.5 million, as well as a repurchase agreement line of credit of $20.0 million at December 31, 1999. The Bank had repurchase agreements of $9.8 million and federal funds purchased of $2.1 million outstanding at December 31, 1999.
On June 20, 2000, the Bank's ESOP entered into an agreement with a correspondent bank to establish a $1.0 million unsecured revolving line of credit with a variable rate of prime plus 100 basis points and maturity of June 20, 2005. The loan is guaranteed by the Bank. Advances on the line totaled $693 thousand at December 31, 2000.
Asset Quality and Allowance for Credit Losses
Lending money is the Bank's principal business activity, and ensuring appropriate evaluation, diversification, and control of credit risks is a primary management responsibility. Implicit in lending activities is the fact that losses will be experienced and that the amount of such losses will vary from time to time, depending on the risk characteristics of the loan portfolio as affected by local, regional and national economic conditions and the financial experience of borrowers.
The allowance for credit losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in existing loans and commitments to extend credit. The adequacy of the allowance for credit losses is based upon management's continuing assessment of various factors affecting the collectibility of loans and commitments to extend credit; including current economic conditions, past credit experience, collateral, and concentrations of credit. There is no precise method of predicting specific losses or amounts which may ultimately be charged off on particular segments of the loan portfolio. The conclusion that a loan may become uncollectible, either in part or in whole, is judgmental and subject to economic, environmental, and other conditions which cannot be predicted with certainty. When determining the adequacy of the allowance for credit losses, the Bank follows the guidelines set forth in the Interagency Policy Statement on the Allowance for Loan and Lease Losses ("Statement") issued jointly by bank regulators during December 1993. The Statement outlines characteristics that should be used in segmentation of the loan portfolio for purposes of the analysis including risk classification, past due status, type of loan, industry or collateral. It also outlines factors to consider when adjusting the loss factors for various segments of the loan portfolio.
The Bank's methodology for assessing the adequacy of the allowance for credit losses consists of several key elements, which include:
- the formula allowance,
- specific allowances for problem graded loans ("classified loans")
- and the unallocated allowance
In addition, the allowance analysis also incorporates the results of measuring impaired loans as provided in:
- Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan" and
- SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures."
The formula allowance is calculated by applying loss factors to outstanding loans and certain unfunded loan commitments. Loss factors are based on the Bank's historical loss experience and on the internal risk grade of those loans and, may be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. The Bank determines the loss factors for problem graded loans (substandard, doubtful, and loss), special mention loans, and pass graded loans, based on a loss migration model. The migration analysis incorporates the Bank's losses over the past twelve quarters (three years) and loss factors are adjusted to recognize and quantify the loss exposure from changes in market conditions and trends in the Bank's loan portfolio. For purposes of this analysis, loans are grouped by internal risk classifications which are "pass", "special mention", "substandard", "doubtful", and "loss". Certain loans are homogenous in nature and are therefore pooled by risk grade. These homogenous loans include consumer installment and home equity loans. Special mention loans are currently performing but are potentially weak, as the borrower has begun to exhibit deteriorating trends, which if not reversed, could jeopardize repayment of the loan and result in further downgrade. Substandard loans have well-defined weaknesses which, if not corrected, could jeopardize the full satisfaction of the debt. A loan classified as "doubtful" has critical weaknesses that make full collection of the obligation improbable. Classified loans, as defined by the Bank, include loans categorized as substandard, doubtful, and loss.
Specific allowances are established based on management's periodic evaluation of loss exposure inherent in classified loans, impaired loans, and other loans in which management believes there is a probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance.
The unallocated portion of the allowance is based upon management's evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of the Bank, credit quality trends, collateral values, loan volumes and concentrations, and other business conditions.
The Bank's methodology includes features that are intended to reduce the difference between estimated and actual losses. The specific allowance portion of the analysis is designed to be self-correcting by taking into account the Bank's current loss experience based on that portion of the portfolio. By analyzing the probable estimated losses inherent in the loan portfolio on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates using the most recent information available. In performing the periodic migration analysis, management believes that historical loss factors used in the computation of the formula allowance need to be adjusted to reflect current changes in market conditions and trends in the Bank's loan portfolio. There are a number of other factors which are reviewed when determining adjustments in the historical loss factors. They include 1) trends in delinquent and nonaccrual loans, 2) trends in loan volume and terms, 3) effects of changes in lending policies, 4) concentrations of credit, 5) competition, 6) national and local economic trends and conditions, 7) experience of lending staff, 8) loan review and Board of Directors oversight, and 9) other business conditions.
Management and the Bank's lending officers evaluate the loss exposure of classified and impaired loans on a weekly/monthly basis and through discussions and officer meetings as conditions change. The Bank's Loan Committee meets weekly and serves as a forum to discuss specific problem assets that pose significant concerns to the Bank, and to keep the directors of the Bank informed through committee minutes. All special mention and classified loans are reported quarterly on Criticized Asset Reports which are reviewed by senior management. With this information, the migration analysis and the impaired loan analysis are performed on a quarterly basis and adjustments are made to the allowance as deemed necessary.
Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. The amount of impaired loans is not directly comparable to the amount of nonperforming loans disclosed later in this section. The primary differences between impaired loans and nonperforming loans are: i) all loan categories are considered in determining nonperforming loans while impaired loan recognition is limited to commercial and industrial loans, commercial and residential real estate loans, construction loans, and agricultural loans, and ii) impaired loan recognition considers not only loans 90 days or more past due, restructured loans and nonaccrual loans but also may include problem loans other than delinquent loans.
The Bank considers a loan to be impaired when, based upon current information and events, it believes it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank's impaired loans include nonaccrual loans, restructured debt, and performing loans in which full payment of principal or interest is not expected. The Bank bases the measurement of these impaired loans on the fair value of the loan's collateral or the expected cash flows on the loans discounted at the loan's stated interest rates. Cash receipts on impaired loans not performing to contractual terms and that are on nonaccrual status are used to reduce principal balances. Impairment losses are included in the allowance for possible credit losses through a charge to the provision, if applicable.
At December 31, 2000 and 1999, the Bank's recorded investment in loans for which impairment has been recognized totaled $3.4 million and $6.6 million, respectively. Included in the 2000 total impaired loans is $138 thousand of impaired loans for which the related specific allowance is $84 thousand, as well as $3.3 million of impaired loans that as a result of write-downs or the fair value of the collateral, did not have a specific allowance. Total impaired loans at December 31, 1999 included $203 thousand of impaired loans for which the related specific allowance is $107 thousand, as well as $6.4 million of impaired loans that as a result of write-downs or the fair value of the collateral, did not have a specific allowance. The average recorded investment in impaired loans was $5.4 million during 2000 and $4.6 million during 1999. The Bank uses the cash basis method of income recognition for impaired loans. For the years ended December 31, 2000, 1999 and 1998, the Bank recognized $270 thousand, $290 thousand and $457 thousand, respectively, of income on such loans.
During 2000, there were no changes in estimation methods or assumptions that affected the methodology for assessing the adequacy of the allowance for credit losses.
Other factors that continue to gain management's attention are competition in the bank's market area and economic conditions which may ultimately affect the risk assessment of the portfolio. The Bank has experienced increased com-
petition from the major banks, local independents and non-bank institutions creating pressure on loan pricing. During 1997 and 1998, the domestic economy showed signs of slowing, due in part to the prolonged contractions of worldwide economies. As a consequence, the Federal Reserve lowered interest rates three separate times during the fourth quarter of 1998 in an attempt to support the U.S. and foreign economies. Then as foreign economies began to recover and the domestic economy continued to grow during 1999, the Federal Reserve increased interest rates three times between June 30 and November 30, 1999 for a total increase of 75 basis points during the year. Interest rates were again raised 25 basis points early in February 2000, an additional 25 basis points in March 2000, and 50 basis points in May 2000. As the domestic economy began to slow in the third quarter of 2000 and stall during the fourth quarter of 2000, the Federal Reserve dropped interest rates by a total of 100 basis points during January of 2001. We have gone from what was possibly considered the longest economic expansion in recent U.S. history, to potential recession in just a few short months, with skyrocketing energy costs, consumer confidence declining, and job layoffs announced at major corporations across the country. It is difficult to determine what effects these trends will have on the domestic economy or whether the Federal Reserve will continue to adjust interest rates in an effort to control the economy. It is likely that the California economy will continue to be impacted by these domestic as well as global events, although the overall economy of California has generally improved over the past several years. The local economy has been impacted to some degree during the past several years by such things as decreased exports and adverse weather patterns, which has increased worries about the immediate future. Local unemployment rates, as well as foreclosures in Fresno and Madera counties have increased during the past several years and persist to the current time. Despite the Central Valley's traditionally high unemployment, it is anticipated that the Central San Joaquin Valley will continue to grow and diversify as property and housing costs remain reasonable relative to other areas of the state, although this growth may slow over the next several years as the Federal Reserve seeks to control what they perceive as potential recession in the economy. Management recognizes increased risk of loss due to the Bank's exposure from local and worldwide economic conditions, as well as soft real estate markets, and takes these factors into consideration when analyzing the adequacy of the allowance for credit losses
The following table provides a summary of the Bank's allowance for possible credit losses, provisions made to that allowance, and charge-off and recovery activity affecting the allowance for the periods indicated (dollars in thousands):
December 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------
Total loans outstanding at end of period before
deducting allowances for credit losses $260,575 $197,876 $153,960 $142,288 $127,104
====================================================================
Average net loans outstanding during period $230,305 $175,324 $149,100 $137,834 $117,540
====================================================================
Balance of allowance at beginning of period $2,642 $1,907 $2,144 $1,663 $1,470
Loans charged off:
Real estate 0 0 (9) (47) (78)
Commercial and industrial (430) (285) (1,497) (779) (411)
Installment and other (44) (27) (80) (10) (51)
--------------------------------------------------------------------
Total loans charged off (474) (312) (1,586) (836) (540)
Recoveries of loans previously charged off:
Real estate 0 0 105 20 0
Commercial and industrial 11 19 33 94 29
Installment and other 14 3 11 3 4
--------------------------------------------------------------------
Total loan recoveries 25 22 149 117 33
--------------------------------------------------------------------
Net loans charged off (449) (290) (1,437) (719) (507)
Provision charged to operating expense 1,580 1,025 1,200 1,200 700
Balance of allowance for credit losses
at end of period $3,773 $2,642 $1,907 $2,144 $1,663
====================================================================
Net loan charge-offs to total average loans 0.19% 0.17% 0.96% 0.52% 0.43%
Net loan charge-offs to loans at end of period 0.17% 0.15% 0.93% 0.51% 0.40%
Allowance for credit losses to total loans at end of period 1.45% 1.34% 1.24% 1.51% 1.31%
Net loan charge-offs to allowance for credit losses 11.90% 10.98% 75.35% 33.54% 30.49%
Net loan charge-offs to provision for credit losses 28.42% 28.29% 119.75% 59.92% 72.43%
|
Total net loans charged off during 2000 and 1999 totaled $449 thousand and $290 thousand, respectively, and as a percentage of total average loans, remain stable between the two periods. The increase in charge-offs experienced by the Bank during 1998 are primarily the result of the write-down of two large commercial loan relationships rather than an overall deterioration of the loan portfolio as a whole. The charge-offs on these two loan relationships totaled $1.3 million or nearly 82% of the total charge-offs experienced by the Bank during 1998. As a result of such charge-offs and recoveries and the provision for possible credit losses, the reserve for possible credit losses was $3.8 million or 1.45% of the total loan portfolio at December 31, 2000, as compared to $2.6 million or 1.34% and $1.9 million or 1.24% of the total loan portfolio at December 31, 1999 and 1998, respectively. At December 31, 2000, the allowance for credit losses exceeded each of the annual net charge-off totals of $449 thousand, $290 thousand, and $1.4 million experienced during the years ended December 31, 2000, 1999, and 1998, respectively. Although historical net charge-offs are not necessarily indicative of the amount of net charge-offs that will be realized in the future, the balance of the allowance for credit losses at December 31, 2000 reflects management's belief that there are additional inherent losses in the loan portfolio, as indicated by an increase in provisions to the allowance for loan losses during 2000 for commercial and industrial, real estate mortgage, and real estate construction loans. Management believes that the 1.45% credit loss allowance at December 31, 2000, is adequate to absorb known and inherent risks in the loan portfolio. No assurance can be given, however, that the economic conditions which may adversely affect the Bank's service areas or other circumstances will not result in increased losses in the Bank's loan portfolio.
Although the Bank does not normally allocate the allowance for credit losses to specific loan categories, an allocation to the major categories has been made for the purposes of this report as set forth in the following table (dollars in thousands). The allocations are estimates based on the same factors as considered by management in determining the amount of additional provisions to the credit loss allowance and the overall adequacy of the allowance for credit losses.
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------
Allowance Allowance Allowance Allowance Allowance
for Loan % of for Loan % of for Loan % of for Loan % of for Loan % of
Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans
------------------------------------------------------------------------------------------------------
Commercial and industrial $1,328 25.4% $1,028 26.4% $570 28.1% $1,226 23.6% $785 26.2%
Real estate - mortgage 1,141 43.3% 1,062 39.2% 520 42.6% 421 49.5% 354 46.8%
Real estate - construction 606 23.4% 436 28.0% 289 22.0% 169 19.8% 218 22.1%
Agricultural 65 2.8% 54 3.5% 48 4.2% 24 3.3% 11 2.1%
Installment/other 72 3.9% 63 2.9% 28 3.1% 26 3.8% 16 2.8%
Lease financing 82 1.2% 0 -- 0 -- 0 -- 0 --
Not allocated 479 -- 0 -- 452 -- 278 -- 279 --
------------------------------------------------------------------------------------------------------
$3,773 100.0% $2,643 100.0% $1,907 100.0% $2,144 100.0% $1,663 100.0%
======================================================================================================
|
At December 31, 2000, the Bank's allowance for credit losses was $3.8 million, consisting of $3.2 million in formula allowance, $50 thousand in specific allowance, and $479 in unallocated allowance. At December 31, 1999, the allowance for credit losses totaling $2.6 million, consisted of $2.5 million in formula allowance, $77 thousand in specific allowance and no unallocated allowance. The formula allowance increased in all loan categories during 2000 as the result of significant increases in loan balances during the year, as well as modest increases in the level of special mention and classified loans. At December 31, 2000, the specific allowance was allocated almost evenly between commercial and industrial loans, and lease financing, while at December 31, 1999, all of the specific allowance was allocated to commercial and industrial loans. The formula allowance increased by approximately $678 thousand between December 31, 1999 and December 31, 2000 with about $360 thousand or 53% of that increase being allocated to real estate mortgage and construction loans, and about $246 thousand or 36% of that increase being allocated to commercial and industrial loans. The remaining $72 thousand increase was allocated to leases, as well as, agricultural and installment loans. The increase in the formula allowance during 2000 was the result of several factors including, an increase of $8.7 million in special mention loans, and an increase of approximately $50.4 million in "pass" loans during 2000. Substandard loans decreased by about $451 thousand between December 31, 1999 and December 31, 2000.
Although in some instances, the downgrading of a loan resulting from the factors used by the Bank in its allowance analysis has been reflected in the formula allowance, management believes that in some instances, the impact of material events and trends has not yet been reflected in the level of nonperforming loans or the internal risk grading process
regarding these loans. Accordingly, the Bank's evaluation of probable losses related to these factors may be reflected in the unallocated allowance. The evaluation of the inherent losses concerning these factors involve a higher degree of uncertainty because they are not identified with specific problem credits, and therefore the Bank does not spread the unallocated allowance among segments of the portfolio. At December 31, 2000 the Bank had an unallocated allowance of $479 thousand, reflecting an increase from the zero balance at December 31, 1999. Management's estimates of the unallocated allowance are based upon a number of underlying factors including 1) the effect of deteriorating national and local economic trends, 2) the effects of export market conditions on certain agricultural and manufacturing borrowers, 3) the effects of abnormal weather patterns on agricultural borrowers, as well as other borrowers that may be impacted by such conditions, 4) the effect of increased competition in the Bank's market area and the resultant potential impact of more relaxed underwriting standards to borrowers with multi-bank relationships, 5) the effect of soft real estate markets, and 6) the effects of having a larger number of borrowing relationships which are close to the Bank's lending limit, any one if which were not to perform to contractual terms, would have a material impact on the allowance.
The Bank's loan portfolio has concentrations in commercial real estate, commercial, and construction loans, however these portfolio percentages fall within the Bank's loan policy guidelines. Commercial and commercial real estate loans tend to have the highest delinquency rate as reflected in the above allocations. The allocation of $1.3 million for commercial and industrial loans, and $1.1 million for real estate mortgage loans at December 31, 2000 represents a modest increase from the previous year-end. The allowance allocated to construction loans increased during 2000 as the result of increased loan volume in this loan category.
It is the Bank's policy to discontinue the accrual of interest income on loans for which reasonable doubt exists with respect to the timely collectability of interest or principal due to the ability of the borrower to comply with the terms of the loan agreement. Such loans are placed on nonaccrual status whenever the payment of principal or interest is 90 days past due or earlier when the conditions warrant, and interest is recorded as income only when received by the Bank. Management may grant exceptions to this policy if the loans are well secured and in the process of collection.
The following table sets forth the Bank's nonperforming assets as of the dates indicated (dollars in thousands):
December 31,
------------
2000 1999 1998 1997 1996
------------------------------------------------------
Nonaccrual loans (1) $2,810 $4,373 $1,485 $3,595 $3,234
Restructured loans 0 2,401 2,443 2,755 2,605
------------------------------------------------------
Total nonperforming loans 2,810 6,774 3,928 6,350 5,839
Other real estate owned 2,959 663 697 863 304
------------------------------------------------------
Total nonperforming assets $5,769 $7,437 $4,625 $7,213 $6,143
======================================================
Loans, past due 90 days or more, still accruing $595 $0 $210 $99 $204
======================================================
Nonperforming loans to total gross loans 1.08% 3.42% 2.54% 4.44% 4.57%
======================================================
Nonperforming assets to total gross loans 2.21% 3.75% 3.00% 5.01% 4.81%
======================================================
|
(1) Included in nonaccrual loans at December 31, 2000, 1999 and 1998, are restructured loans totaling $57.8 thousand, $112.4 thousand and $123.4 thousand, respectively.
The overall level of nonperforming assets decreased during the year ended December 31, 2000, as the result of a decrease in nonaccrual and restructured loans. Although the Bank had a number of sales of other real estate owned, that balance increased by $2.3 million during 2000 as the result of the transfer of a single large borrowing relationship from nonaccrual status to foreclosure. This single relationship was added to nonaccrual loans during 1999 and represented nearly 69% of the nonaccrual balance at December 31, 1999. Loans past due more than 30 days continue to receive increased management attention and are monitored for increased risk. All impaired loans, nonaccrual and restructured loans are reviewed for specific reserve allocations and the allowance for credit losses is adjusted accordingly.
Except for the loans included in the above table, there were no loans at December 31, 2000 where the known credit problems of a borrower caused the Bank to have serious doubts as to the ability of such borrower to comply with the present loan repayment terms and which would result in such loan being included as a nonaccrual, past due or restructured loan at some future date.
Liquidity and Asset/Liability Management
The primary function of asset/liability management is to provide adequate liquidity and maintain an appropriate balance between interest-sensitive assets and interest-sensitive liabilities.
Liquidity
Liquidity at a banking institution may be described as the measure of the institutions ability to maintain sufficient cash flows to fulfill its financial obligations, including loan funding commitments and customer deposit withdrawals, without straining its equity structure. To maintain an adequate liquidity position, the Bank relies on, in addition to cash and cash equivalents, cash inflows from deposits and short-term borrowings, repayments of principal on loans and investments, noninterest income, and interest income received. The Bank's principal cash outflows are for loan origination, purchases of investment securities, depositor withdrawals and payment of operating expenses.
The Bank's liquid asset base which consists of cash and due from banks (net reserve requirements), federal funds sold, securities purchased under agreements to resell ("reverse repos") and available-for-sale investment securities (net pledged securities), is maintained at a level deemed sufficient to provide the cash outlay necessary to fund loan growth as well as any customer deposit runoff that may occur. Liquid assets totaled $20.5 million at December 31, 2000, as compared to more than $43.6 million at December 31, 1999. Within this framework is the objective of maximizing the yield on the Bank's earning assets. This is achieved by maintaining a high percentage of earning assets in loans, which historically have represented the Bank's highest yielding asset. At December 31, 2000 and 1999, the loan portfolio comprised 73.0% and 70.2% of total assets and the loan-to-deposit ratio was 95.8% and 82.8%,
During February of 1997, the Bank acquired from Wells Fargo Bank, two of its branches located in Caruthers and San Joaquin. Then in October of 1997, the Bank acquired two additional branches from Bank of America located in Firebaugh and Coalinga. With $33.4 million in deposits assumed during February 1997 and an additional $44.4 million in deposits assumed during October 1997, the Bank continued to maintain an extremely strong liquidity position throughout 1998 (more than $85 million at December 31, 1998). During 1999, that strong liquidity position began to decline as loan volume increased and time deposits declined, providing a stronger earning asset mix as well as an increased net interest margin.
During 2000, loan volume continued to increase, and to further fund loan growth as overnight funds were used up, the Bank sought to utilize its secured and unsecured short-term borrowings. The secured portion of these short-term borrowings would be collateralized by the Bank's investment portfolio, and certain portions of the loan portfolio. Many of these borrowing lines had been put into place during the later part of 1999 as a result of the Bank's Year 2000 preparedness strategy. Use of these borrowings not only gives the Bank the ability to fund loan growth without having to seek longer term, high cost time deposits, but it also helps to mitigate the Bank's overall interest rate risk. The borrowings are generally very short-term and more closely match the repricing characteristics of floating rate loans which comprise approximately 65.5% of the Bank's loan portfolio at December 31, 2000.
The following table sets forth the contractual maturities of the Bank's fixed rate and floating rate loans as of December 31, 2000. The amounts presented are shown by maturity dates rather than repricing periods and do not consider renewals or prepayments of loans (dollars in thousands).
Due after one Due
Due in one year through after five
year or less five years years Total
-------------- -------------- -------------- --------------
Accruing loans:
Fixed rate loans $9,403 $44,549 $36,046 $89,998
Floating rate loans 103,369 32,090 33,102 168,561
-------------- -------------- -------------- --------------
Total accruing loans 112,772 76,639 69,148 258,559
Nonaccrual loans:
Fixed rate loans 13 23 178 214
Floating rate loans 1,030 1,566 0 2,596
-------------- -------------- -------------- --------------
Total nonaccrual loans 1,043 1,589 178 2,810
-------------- -------------- -------------- --------------
Total loans $113,815 $78,228 $69,326 $261,369
============== ============== ============== ==============
|
Cash and cash equivalents totaled $19.2 million at December 31, 2000 as compared $11.8 million at December 31, 1999. As seen in the table above, nearly $113.8 million or 43.5% of the loan portfolio matures within one year and another $78.2 million or 29.9% of the portfolio matures between one and five years. In addition, $13.2 million of the securities portfolio will mature or is likely to be called within one year, and another $31.4 million will mature between one and five years. Other sources of liquidity include confirmed lines of credit from other banks and from the Federal Reserve Bank. The Bank does not currently have significant capital requirements and management believes that the Bank has more than adequate liquidity to meet its future needs.
The following table summarizes the maturities and yields of the Bank's securities at December 31, 2000 (dollars in thousands). The principal payments on U.S. government agency and collateralized mortgage obligations are based on prevailing industry prepayment assumptions, and may fluctuate based on market interest rates. In general, increasing interest rates will lengthen the average maturity and decreasing rates will shorten the average maturity of these instruments.
Maturing
------------------------------------------------------------------------------------------
After One but After Five but
Within One Year Within Five Years Within Ten Years After Ten Years
------------------------------------------------------------------------------------------
Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1)
------------------------------------------------------------------------------------------
Available-for-sale:
U.S. Government agencies $12,535 8.03% $18,723 6.30% $11,674 7.39%
U.S. Government agency
collateralized
mortgage obligations 458 5.68% 764 5.78% 120 6.38%
Obligations of state and
political subdivisions 161 4.14% 1,632 4.26% 1,596 5.04%
Other debt securities -
corporate bonds 2,095 10.26%
------------------------------------------------------------------------------------------
Total available-for-sale $13,154 7.90% $21,119 6.12% $120 6.38% $15,365 7.54%
==========================================================================================
Held-to-maturity:
U.S. Government agencies $10,248 5.88%
==========================================================================================
Total securities $13,154 7.90% $31,367 6.04% $120 6.38% $15,365 7.54%
==========================================================================================
|
(1) Weighted average yields are not computed on a tax equivalent basis
Interest Rate Sensitivity and Market Risk
An interest rate-sensitive asset or liability is one that, within a defined time period, either matures or is subject to interest rate adjustments as market rates of interest change. Interest rate sensitivity is the measure of the volatility of earnings from movements in market rates of interest, which is generally reflected in interest rate spread. As interest rates change in the market place, yields earned on assets do not necessarily move in tandem with interest rates paid on liabilities. Interest rate sensitivity is related to liquidity in that each is affected by maturing assets and sources of funds. Interest rate sensitivity is also affected by assets and liabilities with interest rates that are subject to change prior to maturity.
Changes in interest rates also affect the Bank's underlying market value (also referred to as economic value of equity). In general, market value risk is represented by the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing and other liabilities. The value of the Bank's interest-sensitive assets and liabilities and interest-rate-related off-balance-sheet items is affected by a change in rates because the present value of future cash flows, and in some cases the cash flows themselves, are changed.
The object of interest rate risk management is to minimize the adverse impact on earnings from interest rate changes in the marketplace. In recent years, deregulation, causing liabilities to become more interest rate sensitive, combined with interest rate volatility in the capital markets, has placed additional emphasis on this principle. When management de-
cides to maintain repricing imbalances, it does so on the basis of a well conceived strategy designed to ensure that the risk is not excessive and that liquidity is properly maintained. The Bank's interest rate risk management is the responsibility of the Asset/Liability Management Committee (ALCO) which reports to the Board of Directors on a periodic basis, pursuant to established operating policies and procedures.
The Bank's asset/liability profile is not complex. The Bank does not currently engage in trading activities or use derivatives to control interest rate risk, although it has the ability to do so if deemed necessary by ALCO and approved by the Board of Directors. In the short term, the Bank is apparently subject to interest rate risk to the extent that its liabilities have the potential to reprice more quickly than its assets. At December 31, 2000, the Bank had a cumulative 12 month GAP of $(49.6) million or -15.6% of total earning assets (see below for a discussion of the Bank's GAP in a declining rate environment). Management believes the GAP analysis shown below is not entirely indicative of the Bank's actual interest rate sensitivity, because certain interest-sensitive liabilities would not reprice to the same degree as interest-sensitive assets. For example, if the prime rate were to change by 50 basis points, the floating rate loans included in the $165.7 million immediately adjustable category would change by the full 50 basis points. Interest bearing checking and savings accounts which are also included in the immediately adjustable column probably would move only a portion of the 50 basis point rate change and, in fact, might not even move at all. The effects of market value risk have been mitigated to some degree by the makeup of the Bank's balance sheet. Loans are generally short-term or are floating-rate instruments. At December 31, 2000, $192.9 million or 74.6% of the loan portfolio matures or reprices within one year, and only 3.5% of the portfolio matures or reprices in more than 5 years. Total investment securities including call options and prepayment assumptions, have a duration of approximately 1.7 years. Nearly $255.4 million or 95.6% of interest-bearing deposit liabilities mature or can be repriced within the next 12 months, even though the rate elasticity of deposits with no defined maturities may not necessarily be the same as interest-earning assets.
Interest rate risk can be measured through various methods including traditional GAP analysis, Duration and market value analysis as well as income simulation models. The Bank employs these methods and refines these processes to make the most accurate measurements possible. The information provided by these calculations is the basis for management decisions in managing the Bank's interest rate risk.
The following table sets forth the Bank's Gap, or estimated interest rate sensitivity profile based on ending balances as of December 31, 2000, representing the interval of time before earning assets and interest-bearing liabilities may respond to changes in market rates of interest. Assets and liabilities are categorized by repricing opportunity rather than by principal maturities of obligations.
Maturities and Interest Rate Sensitivity
(dollars in thousands)
December 31, 2000
--------------------------------------------------------------------------------
After Three After One
Next Day But Months But Year But After
Within Three Within 12 Within Five Five
Immediately Months Months Years Years Total
--------------------------------------------------------------------------------
Interest Rate Sensitivity Gap:
Loans (1) ................................ $165,711 $10,351 $16,849 $56,638 $9,010 $258,559
Investment securities 12,681 189 31,015 16,121 60,006
--------------------------------------------------------------------------------
Total earning assets ................ $165,711 $23,032 $17,038 $87,653 $25,131 $318,565
================================================================================
Interest-bearing
transaction accounts ................ $62,143 $62,143
Savings accounts ......................... 18,347 18,347
Time deposits ............................ 25,466 49,940 51,286 11,657 126 138,475
Federal funds purchased/Other borrowings . 23,323 24,894 48,217
--------------------------------------------------------------------------------
Total interest-bearing
liabilities ...................... $129,279 $74,834 $51,286 $11,657 $126 $267,182
================================================================================
Interest rate sensitivity gap ............ $36,432 ($51,802) ($34,248) $75,996 $25,005 $51,383
Cumulative gap ........................... $36,432 ($15,370) ($49,618) $26,378 $51,383
Cumulative gap percentage to
total earning assets ................ 11.4% -4.8% -15.6% 8.3% 16.1%
|
(1) Loan balance does not include nonaccrual loans of $2.810 million.
Since May of 1994, the Bank has offered a two-year floating rate certificate of deposit product to its customers which adjusts with changes in the Prime Rate, but which has an interest rate floor below which the rate paid can not drop. This floating rate CD product is included in the $25.5 million immediately adjustable time deposit category above. The current rates below which the rates on this product can not drop range from 4.50% to 6.50%, with approximately 60.0% of those at a 6.50% floor. With increases in market rates of interest during late 1999 and throughout 2000, some of the floating rate CD's are currently above their floors, but $17.2 million or 70.5% of floating rate time deposits were at their rate floor at December 31, 2000. With the 100 basis point drop in rates during January 2001, $20.3 million or 83.5% floating rate time deposits are at their rate floor at January 31, 2001. For this reason, if market rates of interest were to continue to decline, rates on some of these instruments would not drop and therefore could have a negative impact on the Bank's net margin if instruments were not purchased to counter such events when deemed appropriate.
The Bank utilizes a vendor-purchased simulation model to analyze net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on both a 100 and 200 basis point rise and a 100 and 200 basis point fall in interest rates ramped over a twelve month period, with net interest impacts projected out as far as twenty four months. The model is based on the actual maturity and repricing characteristics of the Bank's interest-sensitive assets and liabilities. The model incorporates assumptions regarding the impact of changing interest rates on the prepayment of certain assets and liabilities. Projected net interest income is calculated assuming customers will reinvest maturing deposit accounts and the Bank will originate a certain amount of new loans. The balance sheet growth assumptions utilized correspond closely to the Bank's strategic growth plans and annual budget. Excess cash is invested in overnight funds or other short-term investments such as U.S. Treasuries or commercial paper. Cash shortfalls are covered through additional borrowing of overnight funds. The Bank's Board of Directors has adopted an interest rate risk policy which establishes maximum decreases in net interest income of 12% and 15% in the event of a 100 BP and 200 BP increase or decrease in market interest rates over a 12 month period. Based on the information and assumptions utilized in the simulation model at December 31, 2000, the resultant projected impact to net interest income falls within policy limits set by the Board of Directors for all rate scenarios run.
The Bank also utilizes the same vendor-purchased simulation model to project the impact of changes in interest rates on the underlying market value of all the Bank's assets, liabilities, and off-balance sheet accounts under alternative interest rate scenarios. The resultant net value, as impacted under each projected interest rate scenario, is referred to as the market value of equity ("MV of Equity"). This technique captures the interest rate risk of the Bank's business mix across all maturities. The market analysis is performed using an immediate rate shock of 200 basis points up and down calculating the present value of expected cash flows under each rate environment at applicable discount rates. The market value of loans is calculated by discounting the expected future cash flows over either the term to maturity for fixed rate loans or scheduled repricing for floating rate loans using the current rate at which similar loans would be made to borrowers with similar credit ratings. The market value of investment securities is based on quoted market prices obtained from reliable independent brokers. The market value of time deposits is calculated by discounting the expected cash flows using current rates for similar instruments of comparable maturities. The market value of deposits with no defined maturites, including interest-bearing checking, money market and savings accounts is calculated by discounting the expected cash flows at a rate equal to the difference between the cost of these deposits and the alternate use of the funds - federal funds in this case. Assumed maturities for these deposits are estimated using decay analysis and are generally assumed to have implied maturities of less than five years. For noninterest sensitive assets and liabilities, the market value is equal to their carrying value amounts at the reporting date. The Bank's interest rate risk policy establishes maximum decreases in the Bank's market value of equity of 12% and 15% in the event of an immediate and sustained 100 BP and 200 BP increase or decrease in market interest rates. A shown in the table below, the percentage changes in the net market value of the Bank's equity are within policy limits for both rising and falling rate scenarios. As of December 31, 2000, the market value of equity model exhibited greater volatility in a rising interest rate environment than in a declining rate environment primarily as the result of the characteristics of the investment portfolio. The Bank has approximately $38 million in investment securities which are "callable", meaning that the issuer may redeem these securities at an earlier date than the stated maturity. It is likely that in a declining interest rate environment, these securities would be "called" early, which would shorten the securities' term and, would in turn, reduce the impact on the market value of equity. The opposite would be true in a rising interest rate environment; these securities would not likely be "called" prior to the stated maturity date, which would lengthen the securities' term and, would in turn, increase the impact on the market value of equity.
The following sets forth the analysis of the Bank's market value risk inherent in its interest-sensitive financial instruments as they relate to the entire balance sheet at December 31, 2000 and 1999 ($ in thousands). Fair value estimates are subjective in nature and involve uncertainties and significant judgment and, therefore, cannot be determined with absolute precision. Assumptions have been made as to the appropriate discount rates, prepayment speeds, expected cash flows and other variables. Changes in these assumptions significantly affect the estimates and as such, the obtained fair value may not be indicative of the value negotiated in the actual sale or liquidation of such financial instruments, nor comparable to that reported by other financial institutions. In addition, fair value estimates are based on existing financial instruments without attempting to estimate future business.
December 31, 2000 December 31, 1999
------------------------------------------------------------------------------------------------
Change in Estimated MV Change in MV Change in MV Estimated MV Change in MV Change in MV
Rates Of Equity of Equity $ of Equity % of Equity of Equity $ of Equity %
------------------------------------------------------------------------------------------------------------------
+ 200 BP $42,193 $(1,587) -3.62% $35,876 $(1,084) -2.93%
+ 100 BP 43,129 (650) -1.49% 36,563 (397) -1.07%
0 BP 43,780 0 0.00% 36,960 0 0.00%
- 100 BP 43,397 (382) -0.87% 36,808 (152) -0.41%
- 200 BP 42,969 (811) -1.85% 35,993 (967) -2.62%
|
Regulatory Matters
Capital Adequacy
The capital adequacy of banking institutions has become increasingly important in recent years. The deregulation of the banking industry during the 1980's has resulted in, among other things, a broadening of business activities beyond that of traditional banking products and services. Because of this volatility within the banking industry, regulatory agencies have increased their focus upon ensuring that banking institutions meet certain capital requirements as a means of protecting depositors and investors against such volatility.
The Board of Governors of the Federal Reserve System ("Board of Governors") has adopted regulations requiring insured institutions to maintain a minimum leverage ratio of Tier 1 capital (the sum of common shareholders' equity, noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries, minus intangible assets, identified losses and investments in certain subsidiaries, plus unrealized losses or minus unrealized gains on available for sale securities) to total assets. Institutions which have received the highest composite regulatory rating and which are not experiencing or anticipating significant growth are required to maintain a minimum leverage capital ratio of 3% Tier 1 capital to total assets. All other institutions are required to maintain a minimum leverage capital ratio of at least 100 to 200 basis points above the 3% minimum requirement.
The Board of Governors has also adopted a statement of policy, supplementing its leverage capital ratio requirements, which provided definitions of qualifying total capital (consisting of Tier 1 capital and supplementary capital, including the allowance for loan losses up to a maximum of 1.25% of risk-weighted assets) and set forth minimum risk-based capital ratios of capital to risk-weighted assets. Insured institutions are required to maintain a ratio of qualifying total capital to risk weighted assets of 8%, at least one-half (4%) of which must be in the form of Tier 1 capital.
The following table sets forth the Bank's capital positions under the regulatory guidelines discussed above:
Minimum
December 31, Capital
2000 Ratios
-----------------------
Total risk-based capital ratio 10.85% 8.00%
Tier 1 capital to risk-weighted assets 9.65% 4.00%
Leverage ratio 8.81% 3.00%
|
As is indicated by the above table, the Bank exceeded all applicable regulatory capital guidelines at December 31, 2000. The Bank's management believes that, under the current regulations, the Bank will continue to meet its minimum capital requirements in the foreseeable future.
Dividends
The Bank, as a state-chartered bank, is subject to dividend restrictions set forth in California state banking law, and administered by the California Commissioner of Financial Institutions ("Commissioner"). Under such restrictions, the Bank may not pay cash dividends in an amount which exceeds the lesser of retained earnings of the Bank or the Bank's net income for the last three fiscal years (less the amount of distributions to shareholders during that time). If the above test is not met, cash dividends may only be paid with the prior approval of the Commissioner, in an amount not exceeding the Bank's net income for its last fiscal year or the amount of its net income for the current fiscal year. This is not the case with the Bank. Year-to-date dividends of $1.9 million paid through December 31, 2000, were well within maximum allowed under those regulatory guidelines, without approval of the Commissioner.
Reserve Balances
The Bank is required to maintain average reserve balances with the Federal Reserve Bank. At December 31, 2000 the Bank's qualifying balance with the Federal Reserve was approximately $3.8 million, consisting of vault cash and balances.
Year 2000 Disclosure
The date rollover into the year 2000 was a non-event for the Bank. It has not experienced any computer-related problems during the year end December 31, 2000, and it does not anticipate any computer-related problems in the future as a result of the year 2000 date rollover. The Bank will, however, continue to monitor its loan portfolio and customer base for potential emerging year 2000 related problems.
The Bank has not incurred any Year 2000 costs during the year ended December 31, 2000 and incurred approximately $15 thousand in Year 2000 costs during the year ended December 31, 1999. Year 2000 costs were expensed as incurred and have been funded from the continuing operations of the Bank. A substantial cost of the Year 2000 project has been reallocation of internal resources, and therefore does not represent incremental expense to the Bank. It is difficult to determine the estimated value of internal resources allocated to Year 2000 readiness efforts.
< United Security Bank - Back inside cover - Corporate data, Branches, Officers > |
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Registration Statement, on Form S-4 of our report dated January 10, 2001 on the balance sheets of United Security Bank as of December 31, 2000, and the related statements of income and comprehensive income, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 2000, which appears in the Prospectus. We also consent to the reference to our Firm under the heading "Experts" in the Prospectus.
/s/ Moss Adams LLP Stockton, California April 3, 2001 |
Exhibit 99
Proxy
United Security Bank
This proxy is solicited on behalf of the board of directors. The undersigned hereby appoints Tom Ellithorpe, Ronnie D. Miller and John Terzian as proxyholders with full power of substitution, to represent, vote and act with respect to all shares of common stock of United Security Bank (the "Bank") which the undersigned would be entitled to vote at the meeting of shareholders to be held on May 16, 2001.
1. Election of nine (9) persons to be directors.
Robert G. Bitter, Pharm. D. Walter Reinhard
Stanley J. Cavalla John Terzian
Tom Ellithorpe Bobbi Thomason
Ronnie D. Miller Dennis R. Woods
Mike Munoz, Jr.
|_| For All Nominees Listed Above |_| Withhold Authority
(except as marked to the contrary
below)
|
(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name on the space below:)
2. Approval of the Plan of Reorganization and Agreement of Merger dated April __, 2001 by and between United Security Bank, USB Merger Company and United Security Bancshares.
|_| FOR |_| AGAINST |_| ABSTAIN
3. In their discretion, the proxyholders are authorized to vote upon such other business as may properly come before the meeting and any adjournments or adjournments thereof.
PLEASE SIGN AND DATE BELOW
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted "FOR" each of the proposals set forth herein. If any other business is presented at the meeting, this proxy confers authority to and shall be voted in accordance with the recommendations of the proxyholders. The board of directors recommends a vote "FOR" each of the proposals set forth herein.
(Please date this proxy and sign your name exactly as it appears on your stock certificates. Executors, administrators, trustees, etc., should give their full title. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by an authorized person. All joint owners should sign.)
|_| I DO |_| I DO NOT EXPECT TO ATTEND THE MEETING
This proxy is solicited on behalf of the board of directors and may be revoked prior to its exercise by filing with the secretary of the Bank a duly executed proxy bearing a later date or an instrument revoking this proxy.