SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
REDDING BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2823865
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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1951 CHURN CREEK ROAD
REDDING, CALIFORNIA 96002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (530) 224-3333
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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NONE NONE
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SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE PER SHARE
(TITLE OF CLASS)
TABLE OF CONTENTS
Page
ITEM 1. BUSINESS................................................................... 1
ITEM 2. FINANCIAL INFORMATION...................................................... 20
ITEM 3. PROPERTIES................................................................. 39
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................................. 40
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS........................................... 41
ITEM 6. EXECUTIVE COMPENSATION..................................................... 43
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 47
ITEM 8. LEGAL PROCEEDINGS.......................................................... 47
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................ 47
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.................................... 49
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED................................................................. 49
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................. 50
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................ 51
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................... 88
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.......................................... 88
SIGNATURES..................................................................................... 89
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ITEM 1. BUSINESS
This Registration Statement includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading "Financial Information-Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate", "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including the risks discussed under the heading "Business-Risk Factors and Investment Considerations" and elsewhere in this Registration Statement. The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company's ability to control or predict. Investors are cautioned not to put undue reliance on any forward-looking statements. In addition, the Company does not have any intention or obligation to update forward-looking statements after the effectiveness of this Registration Statement, even if new information, future events or other circumstances have made them incorrect or misleading. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in Section 21E of the Exchange Act.
Except as specifically noted herein (i) all references to the "Company" refer to Redding Bancorp, a California corporation, and its consolidated subsidiaries and (ii) all information herein has been adjusted to give effect to a three-for-one stock split effected by the Company in July 1998.
GENERAL
Redding Bancorp (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and was incorporated in California on January 21, 1982 for the purpose of organizing, as a wholly owned subsidiary, Redding Bank of Commerce (the "Bank"). As a bank holding company, the Company is subject to the BHCA and to supervision by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Company's principal business is to serve as a holding company for the Bank and Redding Service Corporation, a California corporation formed in 1993 for the purpose of processing trust deeds, and for other banking or banking-related subsidiaries which the Company may establish or acquire. The Company's principal source of income is dividends from its subsidiaries. The Company conducts its business operations at the offices of the Bank located at 1951 Churn Creek Road, Redding, California 96002. The Company conducts all of its business operations within a single geographic area and within a single industry segment.
The Bank was incorporated as a California banking corporation on November 25, 1981 and received its certificate of authority to begin banking operations on October 22, 1982. The Bank operates two full service branches and two loan production offices. The Company established its first full service branch at 1177 Placer Street, Redding, California, and opened for business on October 22, 1982. On November 1, 1988 the Bank received a certificate of authority to establish and maintain a loan production office in Citrus Heights, California. On September 1, 1998, the Company relocated the loan production office to 2400 Professional Drive in Roseville, California.
On March 1, 1994 the Bank received a certificate of authority to open a second full service branch at 1951 Churn Creek Road in Redding, California. On June 29, 1995, the Bank received a certificate of authority to open a second loan production office at 676 East First Avenue in Chico, California. The Bank established an interactive marketing website on July 31, 1998, at http://www.reddingbankofcommerce.com for the purpose of making information about the Bank's products and services publicly available.
The Bank is principally supervised and regulated by the California Department of Financial Institutions ("DFI") and the Federal Deposit Insurance Corporation ("FDIC"), and conducts a general commercial banking business in the counties of Butte, El Dorado, Placer, Shasta, and Sacramento, California. The Company considers Shasta County, California to be the Bank's major market area. The services offered by the Bank include those traditionally offered by commercial banks of similar size and character in California, such as checking, interest-bearing checking ("NOW") and savings accounts, money market deposit accounts, commercial, real estate, construction, personal, home improvement, automobile and other installment and term loans, travelers checks, safe deposit boxes, collection services and telephone transfers. The primary focus of the Bank is to provide services to the business and professional community of its major market area, including Small Business Administration loans, and payroll and accounting packages and billing programs. The Bank does not offer trust services or international banking services and does not plan to do so in the near future.
Most of the Bank's customers are small to medium sized businesses and individuals with medium to high net worth. The Bank emphasizes servicing the needs of local businesses and professionals and individuals requiring specialized services. The Bank's business strategy is to focus on commercial and multi-family real estate loans, including construction loans, and commercial business loans. The majority of the Bank's loans are direct loans made to individuals and small businesses in the Bank's major market area and are secured by real estate. The Bank accepts real estate, listed and unlisted securities, savings and time deposits, automobiles, machinery and equipment as collateral for loans. See "-Risk Factors and Investment Considerations-Lending Risks Associated with Commercial Banking and Construction Activities" and "-Dependence on Real Estate."
Most of the Bank's deposits are obtained from commercial businesses, professionals and other individuals. The Bank does not accept brokered deposits or deposits outside of its market area.
In April 1993, the Bank entered into an agreement (the "Merchant Services Agreement") with Cardservice International, Inc. ("CSI"), an independent sales organization ("ISO"), pursuant to which the Bank has agreed to provide credit and debit card processing services for merchants solicited by the ISO who accept credit and debit cards as payment for goods and services. Pursuant to the Merchant Services Agreement, the Bank acts as a clearing bank for CSI, a nonbank merchant credit card processor, and processes credit or debit card transactions into the Visa(R) or MasterCard(R) system for presentment to the card issuer. As a result of the Merchant Services Agreement, the Bank has acquired electronic credit and debit card processing relationships with merchants in various industries on a nationwide basis. Contract deposit relationships with the Bank's merchants and CSI represented approximately 25% of the Bank's capital as of September 30, 1998. The Merchant Services Agreement with CSI was renewed in 1997 for a period of four years which expires on April 1, 2001, and will automatically renew for additional four year periods unless terminated in advance of the renewal period by CSI or the Bank upon 30 days prior written
notice. See "-Risk Factors and Investment Considerations-Ability to Sustain Growth; Merchant Processing Services" and "-Chargebacks and Payment Risks Associated with Merchant Processing Services."
In 1995, the Company established a sales team to market merchant processing services to merchants in its major market area and, as of September 30, 1998, the Bank had 786 merchants in its portfolio. The fee income generated from the Bank's local merchant portfolio is substantially less than that generated from the CSI portfolio because of the lower volume of transactions.
The fee income from merchant processing services represented approximately 11.1%, 9.3% and 7.5% of the Company's consolidated revenues in 1997, 1996 and 1995, respectively.
RISK FACTORS AND INVESTMENT CONSIDERATIONS
In addition to other information in this Registration Statement, investors should consider carefully the following risk factors in evaluating the Company, its subsidiaries and Common Stock. The risks highlighted herein should not be assumed to be the only factors that could affect future performance of the Company and the Bank.
LENDING RISKS ASSOCIATED WITH COMMERCIAL BANKING AND CONSTRUCTION
ACTIVITIES
The Bank's business strategy is to focus on commercial and multi-family real estate loans, construction loans and commercial business loans. Loans secured by commercial real estate are generally larger and involve a greater degree of credit and transaction risk than residential mortgage (1 to 4 family) loans. Because payments on loans secured by commercial and multi-family real estate properties are often dependent on successful operation or management of the properties, repayment of such loans may be subject to a greater extent to the then prevailing conditions in the real estate market or the economy. Moreover, construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, the Bank may be confronted with a project which, when completed, has a value which is insufficient to assure full repayment of the construction loan.
Although the Bank manages lending risks through its underwriting and credit administration policies, no assurance can be given that such risks would not materialize, in which event the Company's financial condition, results of operations, cash flows and business prospects could be materially adversely affected.
DEPENDENCE ON REAL ESTATE
At September 30, 1998, approximately 68% of the Bank's loans were secured by real estate. The value of the Bank's real estate collateral has been, and could in the future continue to be, adversely affected by any economic recession and any resulting adverse impact on the real estate market in Northern California such as that experienced during the early years of this decade. See "-Economic Conditions and Geographic Concentration."
The Bank's primary lending focus has historically been real estate mortgage, construction and, to a lesser extent, commercial business lending. At September 30, 1998, commercial real estate mortgage and construction loans comprised approximately 40% and 25%, respectively, of the total loans in the Bank's portfolio. All of the real estate mortgage and construction loans, and approximately 10% of the commercial business loans, were secured fully or in part by deeds of trust on underlying real estate. The Bank's dependence on real estate increases the risk of loss in both the Bank's loan portfolio and its holdings of other real estate owned if economic conditions in Northern California deteriorate in the future. Deterioration of the real estate market in Northern California would have a material adverse effect on the Company's business, financial condition and results of operations. See "-Economic Conditions and Geographic Concentration."
INTEREST RATE RISK
The income of the Bank depends to a great extent on "interest rate differentials" and the resulting net interest margins (i.e., the difference between the interest rates earned on the Bank's interest-earning assets such as loans and investment securities, and the interest rates paid on the Bank's interest-bearing liabilities such as deposits and borrowings). These rates are highly sensitive to many factors which are beyond the Company's control, including general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments and the generation of deposits and will affect the rates received on loans and investment securities and paid on deposits, which could have a material adverse effect on the Company's business, financial condition and results of operations.
ABILITY TO SUSTAIN GROWTH; MERCHANT PROCESSING SERVICES
A significant amount of the Company's growth in the recent past is attributable to the fee income received by the Bank in connection with merchant processing services provided pursuant to the Merchant Services Agreement and, to a lesser extent, the Bank's own portfolio of local merchants. The Bank's fee income from merchant processing services represented approximately 11.1%, 9.3% and 7.5% of the Company's consolidated revenues in 1997, 1996 and 1995, respectively. In addition, contract deposit relationships with the merchants in the Bank's portfolio and CSI represented approximately 25% of the Bank's capital as of September 30, 1998. The Merchant Services Agreement was renewed in 1997 for a period of four years which expires on April 1, 2001, and will automatically renew for additional four year periods unless terminated by CSI or the Bank upon written notice 30 days prior to the expiration of any renewal period. In the event the Merchant Services Agreement is not renewed by the Bank, CSI may transfer the merchants in its portfolio to another financial institution, the result of which would be that the Bank would lose the related deposits. Termination of the Merchant Services Agreement and loss of the related deposits would have a material adverse effect on the Company's financial condition and results of operations. See "Financial Information-Management's Discussion and Analysis of Financial Condition and Results of Operations-Noninterest Income-Merchant Processing Services Income."
In addition, the ability of the Bank to increase the level of fee income currently being generated by merchant processing relationships is limited. Under the Visa(R) and MasterCard(R) associations' rules that apply to a bank or other processing firm that acquires a card transaction from a merchant and processes and enters the transaction into the Visa(R) or MasterCard(R) system for presentment to the card issuer (the "Card Association Rules"), fees that can be charged on
monthly credit card sales above $93 million are significantly less than the fees that can be charged on monthly credit card sales below $93 million. Further, the Visa(R) bylaws limit the amount of quarterly Visa(R) credit card sales that the Bank may process to four times the Bank's equity capital unless additional collateral is pledged by the Bank. The Company's ability to sustain or increase fee income from merchant processing relationships is also affected by other factors, some of which are beyond the Company's control, such as (i) competition from other banks, ISOs and other nonbank processors, (ii) continuation of the requirement that ISOs and other nonbank processors access the Visa(R) and MasterCard(R) payment system through banks, (iii) the ability to avoid losses through various contractual methods including indemnification by the ISO, reserve balances controlled by the Bank and insurance and (iv) the ability to continue to grow both locally and nationally. No assurance can be given that the Company will be able to sustain its growth from fee income from merchant processing services. See "Financial Information-Management's Discussion and Analysis of Financial Condition and Results of Operations-Noninterest Income-Merchant Processing Services Income."
CHARGEBACKS AND PAYMENT RISKS ASSOCIATED WITH MERCHANT PROCESSING
SERVICES
The Bank is subject to the Card Association Rules in processing credit and debit card transactions. In the event of certain types of billing disputes between a cardholder and a merchant, the processor of the transaction assists the merchant in investigating and resolving the dispute. If the dispute is not resolved in favor of the merchant, the transaction is "charged back" to the merchant and that amount is credited or otherwise refunded to the cardholder. If the processor is unable to collect such amounts from the merchant's account, and if the merchant refuses or is unable due to bankruptcy or other reasons to reimburse the processor for the chargeback, the processor bears the loss for the amount of the refund paid to the cardholder. Pursuant to the Merchant Services Agreement, CSI has agreed to indemnify the Bank against losses incurred in connection with credit card transactions generated by merchants in CSI's portfolio. In addition, pursuant to the Merchant Services Agreement CSI is required to maintain a reserve account and a general account with the Bank and has granted the Bank a security interest in such accounts to secure CSI's obligations under the Merchant Services Agreement. The balances required to be maintained by CSI in the reserve account and general account constitute a small percentage of the dollar volume of transactions processed by the Bank each month. In the event that the funds in accounts maintained by CSI are not sufficient to cover chargebacks and refund payments to cardholders and CSI is unable to reimburse the Bank for such deficiencies, the Bank would bear the loss which could have a material adverse effect on the Company's financial condition, results of operations and cash flows. See "Business-General" and "Financial Information-Management's Discussion and Analysis of Financial Condition and Result of Operations-Noninterest Income-Merchant Processing Services Income."
Chargeback exposure can also result from fraudulent credit card transactions initiated by merchant customers. Examples of merchant fraud include logging fictitious sales transactions and falsification of transaction amounts on actual sales. The Bank conducts a background review of its merchant customers at the time the relationship is established with the merchant. The Bank also can withhold or delay a merchant's daily settlement if fraudulent activity is suspected, thereby mitigating exposure to loss. However, there can be no assurance that the Bank will not experience significant amounts of merchant fraud, which could have a material adverse effect on the Company's business, financial condition and results of operations. The degree of exposure to chargebacks may also be adversely affected by the development of new transaction delivery channels, such as the Internet, which has yet to be fully evaluated.
The Company is not exposed to card issuer credit losses unassociated with a dispute between the cardholder and the merchant.
POTENTIAL VOLATILITY OF DEPOSITS
At September 30, 1998, 22% of the dollar value of the Bank's total deposits was represented by time certificates of deposit in excess of $100,000. As such, these deposits are considered volatile and could be subject to withdrawal. Withdrawal of a material amount of such deposits would adversely impact the Bank's liquidity, profitability, business prospects, results of operations and cash flows.
DIVIDENDS
Because the Company conducts no other significant activity than the management of its investment in the Bank, the Company is dependent on the Bank for income. The ability of the Bank to pay cash dividends in the future will depend on the Bank's profitability, growth and capital needs. In addition, the California Financial Code restricts the ability of the Bank to pay dividends. No assurance can be given that the Company or the Bank will pay any dividends in the future or, if paid, such dividends will not be discontinued. See "-Supervision and Regulation-Restrictions on Dividends and Other Distributions."
COMPETITION
In California generally, and in the Company's primary market area specifically, major banks dominate the commercial banking industry. By virtue of their larger capital bases, such institutions have substantially greater lending limits than those of the Bank. In obtaining deposits and in making loans, the Bank competes with these larger commercial banks and other financial institutions, such as savings and loan associations and credit unions, which offer many services which traditionally were offered only by banks. In addition, the Bank competes with other institutions such as money market funds, brokerage firms, and even retail stores seeking to penetrate the financial services market. During periods of declining interest rates, competitors with lower costs of capital may solicit the Bank's customers to refinance their loans. Furthermore, during periods of economic slowdown or recession, the Bank's borrowers may face financial difficulties and be more receptive to offers from the Bank's competitors to refinance their loans. No assurance can be given that the Bank will be able to compete with these lenders.
Competition in the merchant processing industry is intense. The Bank competes with other banks, ISOs and other nonbank processors. Many of these competitors are substantially larger than the Bank. The Bank competes on the basis of price, the availability of products and services, the quality of customer service and support and transaction processing speed. The majority of the Bank's contracts with merchants are cancelable at will or on short notice or provide for renewal at frequent periodic intervals and, as a result, the Bank regularly rebids such contracts. This competition may influence the prices that can be charged by the Bank and require aggressive cost control or increased transaction volume in order to maintain acceptable profit margins. If the Bank is not able to maintain acceptable profit margins, it could be forced to discontinue merchant processing services which would have a material adverse effect on the Company's results of operations and cash flows. Further, because of tightening margins, there has been a trend toward consolidation in the merchant processing industry. Consolidation will enable certain of the Bank's competitors to have access to significant capital, management, marketing and technological
resources that are equal to or greater than those of the Bank. No assurance can be given that the Bank or any ISO for which the Bank performs clearing bank services will be able to compete successfully for merchant processing business in the future.
GOVERNMENT REGULATION AND LEGISLATION
The Company and the Bank are subject to extensive state and federal regulation, supervision and legislation which govern almost all aspects of the operations of the Company and the Bank. The business of the Company is particularly susceptible to being affected by the enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. Such laws are subject to change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds and not for the protection of shareholders of the Company. The Company cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on the business and prospects of the Company, but it could be material and adverse. See "-Supervision and Regulation."
ECONOMIC CONDITIONS AND GEOGRAPHIC CONCENTRATION
The Company's operations are located and concentrated primarily in Northern California, particularly the counties of Butte, El Dorado, Placer, Shasta and Sacramento, and are likely to remain so for the foreseeable future. At September 30, 1998, approximately 64% of the Bank's loan portfolio consisted of real estate related loans, all of which were related to collateral located in Northern California. The performance of these loans may be adversely affected by changes in California's economic and business conditions. A deterioration in economic conditions could have a material adverse effect on the quality of the Bank's loan portfolio and the demand for its products and services. In addition, during periods of economic slowdown or recession, the Bank may experience a decline in collateral values and an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies and defaults increase the possibility and severity of losses. California real estate is also subject to certain natural disasters, such as earthquakes, floods and mud slides, which are typically not covered by the standard hazard insurance policies maintained by borrowers. Uninsured disasters may render borrowers unable to repay loans made by the Bank. The occurrence of adverse economic conditions or natural disasters in California could have a material adverse effect on the Bank's financial condition, results of operations, cash flows and business prospects.
RELIANCE ON KEY EMPLOYEES AND OTHERS
The Company is dependent upon the continued services of its key employees, including Russell L. Duclos, President and Chief Executive Officer, Michael C. Mayer, Executive Vice President and Chief Credit Officer, and Linda J. Miles, Executive Vice President and Chief Financial Officer. The loss of the services of any such employee, or the failure of the Company to attract and retain other qualified personnel, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has entered into a three-year employment agreement with Mr. Duclos which expires on June 30, 2000. See "Executive Compensation-Employment Agreements."
The Company does not maintain any life insurance with respect to any of its officers, except with regard to a nonqualified deferred compensation plan.
ADEQUACY OF ALLOWANCE FOR LOAN AND OTHER REAL ESTATE LOSSES
The Bank's allowance for estimated losses on loans was approximately $3.02 million or 2.09% of total loans and 215% of total nonperforming loans at September 30, 1998. Material future additions to the allowance for estimated losses on loans may be necessary if material adverse changes in economic conditions occur and the performance of the Bank's loan portfolio deteriorates. In addition, future additions to the Bank's allowance for losses on other real estate owned may also be required in order to reflect changes in the markets for real estate in which the Bank's other real estate owned is located and other factors which may result in adjustments which are necessary to ensure that the Bank's foreclosed assets are carried at the lower of cost or fair value, less estimated costs to dispose of the properties. Moreover, the FDIC and the DFI, as an integral part of their examination process, periodically review the Bank's allowance for estimated losses on loans and the carrying value of its assets. The Bank was most recently examined by the FDIC and the DFI in this regard during the third quarter of 1997. Increases in the provisions for estimated losses on loans and foreclosed assets would adversely affect the Bank's financial condition and results of operations. See "Financial Information-Management's Discussion and Analysis of Financial Condition and Results of Operations-Asset Quality" and "--Allowance for Loan and Lease Losses (ALLL)."
CERTAIN OWNERSHIP RESTRICTIONS UNDER CALIFORNIA AND FEDERAL LAW
Federal law prohibits a person or group of persons "acting in concert"
from acquiring "control" of a bank holding company unless the Federal Reserve
has been given 60 days prior written notice of such proposed acquisition and
within that time period the Federal Reserve has not issued a notice disapproving
the proposed acquisition or extending for up to another 30 days, the period
during which such a disapproval may be issued. An acquisition may be made prior
to the expiration of the disapproval period if the Federal Reserve issues
written notice of its intent not to disapprove the action. Under a rebuttal
presumption established by the Federal Reserve, the acquisition of more than 10%
of a class of voting stock of a bank with a class of securities registered under
Section 12 of the Exchange Act, such as the Common Stock), would, under the
circumstances set forth in the presumption, constitute the acquisition of
control. In addition, any "company" would be required to obtain the approval of
the Federal Reserve under the BHCA, before acquiring 25% (5% in the case of an
acquiror that is, or is deemed to be, the bank holding company) or more of the
outstanding shares of the Company's Common Stock, or such lesser number of
shares as constitute control.
Under the California Financial Code, no person shall, directly or indirectly, acquire control of a California licensed bank or a bank holding company unless the California Commissioner of Financial Institutions (the "Commissioner") has approved such acquisition of control. A person would be deemed to have acquired control of the Company under this state law if such person, directly or indirectly, has the power (i) to vote 25% or more of the voting power of the Company or (ii) to direct or cause the direction of the management and policies of the Company. For purposes of this law, a person who directly or indirectly owns or controls 10% or more of the Common Stock would be presumed to control the Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of October 30, 1998, the Company had 2,684,103 shares of Common Stock outstanding, of which approximately 1,959,507 shares are eligible for sale in the public market without restriction. Approximately 724,596 shares are eligible for sale in the public market pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). Future sales of substantial amounts of the Company's Common Stock, or the perception that such sales could occur, could have a material adverse effect on the market price of the Common Stock. In addition, options to acquire up to 16% of the shares of Common Stock at an exercise price equal to not less than 85% of the market value of the Company's Common Stock on the date of grant are reserved for issuance to directors and certain employees of the Company under the Company's 1998 Stock Option Plan. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Company's Common Stock. See "Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters."
ABSENCE OF PUBLIC MARKET; VOLATILITY IN STOCK PRICE
There currently is no active trading market for the Company's Common Stock. No assurance can be given that an active public trading market will develop or that, if developed, it will be sustained. As a result of the lack of a trading market, the market price of the Company's Common Stock may experience fluctuations that are unrelated to the operating performance of the Company and the Bank. In particular, the price of the Company's Common Stock may be affected by general market price movements as well as developments specifically related to the financial services sector, including interest rate movements, quarterly variations, or changes in financial estimates by securities analysts and a significant reduction in the price of the stock of another participant in the financial services industry.
TECHNOLOGY AND COMPUTER SYSTEMS
Advances and changes in technology can significantly impact the business and operations of the Company. The Bank faces many challenges including the increased demand for providing computer access to bank accounts and the systems to perform banking transactions electronically. The Bank's merchant processing services require the use of advanced computer hardware and software technology and rapidly changing customer and regulatory requirements. The Company's ability to compete depends on its ability to continue to adapt its technology on a timely and cost-effective basis to meet these requirements. In addition, the Bank's business and operations are susceptible to negative impacts from computer system failures, communication and energy disruption and unethical individuals with the technological ability to cause disruptions or failures of the Bank's data processing systems.
Many computer programs were designed and developed utilizing only two digits in the date field, thereby creating the inability to recognize the year 2000 or years thereafter. This year 2000 issue creates risks for the Bank from unforseen or unanticipated problems in its internal computer systems as well as from computer systems of the Federal Reserve Bank of San Francisco, correspondent banks, customers and vendors. Failures of these systems or untimely corrections could have a material adverse impact on the Bank's ability to conduct its business and results of operations. See "Financial Information-Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000."
ENVIRONMENTAL RISKS
The Bank, in its ordinary course of business, acquires real property securing loans that are in default, and there is a risk that hazardous substances or waste, contaminants or pollutants could exist on such properties. The Bank may be required to remove or remediate such substances from the affected properties at its expense, and the cost of such removal or remediation may substantially exceed the value of the affected properties or the loans secured by such properties. Furthermore, the Bank may not have adequate remedies against the prior owners or other responsible parties to recover its costs. Finally, the Bank may find it difficult or impossible to sell the affected properties either prior to or following any such removal. In addition, the Bank may be considered liable for environmental liabilities in connection with its borrowers' properties, if, among other things, it participates in the management of its borrowers' operations. The occurrence of such an event could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.
DILUTION
The Company has issued options to purchase shares of the Company's Common Stock at prices below the fair market value of the Company's Common Stock on the date of grant. As of October 30, 1998, the Company had outstanding options to purchase an aggregate of 411,000 shares of Common Stock at exercise prices ranging from $9.07 to $10.67 per share, or a weighted average exercise price per share of $9.62. To the extent such options are exercised, shareholders of the Company will experience dilution. See "Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters."
THE EFFECT OF GOVERNMENT POLICY ON BANKING
The earnings and growth of the Company are affected not only by local market area factors and general economic conditions, but also by government monetary and fiscal policies. For example, the Federal Reserve influences the supply of money through its open market operations in United States government securities and adjustments to the discount rates applicable to borrowings by depository institutions and others. Such actions influence the growth of loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of future changes in such policies on the business and earnings of the Company cannot be predicted. Additionally, state and federal tax policies can impact banking organizations.
As a consequence of the extensive regulation of commercial banking activities in the United States, the business of the Company is particularly susceptible to being affected by the enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of the Company.
SUPERVISION AND REGULATION
REGULATION AND SUPERVISION OF BANK HOLDING COMPANIES
The Company is a bank holding company subject to the BHCA. The Company reports to, registers with, and may be examined by, the Federal Reserve. The Federal Reserve also has the authority to examine the Company's subsidiaries. The costs of any examination by the Federal Reserve are payable by the Company.
The Company is a bank holding company within the meaning of Section 3700 of the California Financial Code. As such the Company and the Bank are subject to examination by, and may be required to file reports with, the Commissioner.
The Federal Reserve has significant supervisory and regulatory authority over the Company and its affiliates. The Federal Reserve requires the Company to maintain certain levels of capital. The Federal Reserve also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the Federal Reserve. See "-Prompt Corrective Action and Other Enforcement Mechanisms."
Under the BHCA, a company generally must obtain the prior approval of the Federal Reserve before it exercises a controlling influence over a bank, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. Thus, the Company is required to obtain the prior approval of the Federal Reserve before it acquires, merges or consolidates with any bank or bank holding company; any company seeking to acquire, merge or consolidate with the Company also would be required to obtain the prior approval of the Federal Reserve.
The Company is generally prohibited under the BHCA from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks, or providing services to affiliates of the holding company. However, a bank holding company may, with the approval of the Federal Reserve, engage, or acquire the voting shares of companies engaged, in activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. A bank holding company must demonstrate that the benefits to the public of the proposed activity will outweigh the possible adverse effects associated with such activity.
A bank holding company may acquire banks in states other than its home state without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to or following the proposed acquisition, controls no more than 10% of the total amount of deposits of insured depository institutions in the United States and no more than 30% of such deposits in that state (or such lesser or greater amount set by state law). Banks may also merge across states lines, therefore creating interstate branches. Furthermore, a bank is now able to open new branches in a state in which it does not already have banking operations, if the laws of such state permit such de novo branching.
Under California law, (i) out-of-state banks that wish to establish a
California branch office to conduct core banking business must first acquire an
existing five year old California bank or industrial loan company by merger or
purchase, (ii) California state-chartered banks are empowered to conduct various
authorized branch-like activities on an agency basis through affiliated and
unaffiliated insured depository institutions in California and other states and
(iii) the Commissioner is authorized to approve an interstate acquisition or
merger which would result in a deposit concentration exceeding 30% if the
Commissioner finds that the transaction is consistent with public convenience
and advantage. However, a state bank chartered in a state other than California
may not enter California by purchasing a California branch office of a
California bank or industrial loan company without purchasing the entire entity
or by establishing a de novo California bank.
The Federal Reserve generally prohibits a bank holding company from declaring or paying a cash dividend which would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements that might adversely affect a bank holding company's financial position. The Federal Reserve's policy is that a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. See "-Restrictions on Dividends and Other Distributions" for additional restrictions on the ability of the Company and the Bank to pay dividends.
Transactions between the Company and the Bank are subject to a number of other restrictions. Federal Reserve policies forbid the payment by bank subsidiaries of management fees which are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). Subject to certain limitations, depository institution subsidiaries of bank holding companies may extend credit to, invest in the securities of, purchase assets from, or issue a guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided that the aggregate of such transactions with affiliates may not exceed 10% of the capital stock and surplus of the institution, and the aggregate of such transactions with all affiliates may not exceed 20% of the capital stock and surplus of such institution. The Company may only borrow from depository institution subsidiaries if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, the Company may not sell a low-quality asset to a depository institution subsidiary.
The Federal Reserve has adopted comprehensive amendments to Regulation Y in 1997 intended to improve the competitiveness of bank holding companies by, among other things, (i) expanding the list of permissible nonbanking activities in which well-run bank holding companies may engage without prior Federal Reserve approval, (ii) streamlining the procedures for well-run bank holding companies to obtain approval to engage in other nonbanking activities and (iii) eliminating most of the anti-tying restrictions imposed upon bank holding companies and their nonbank subsidiaries. Amended Regulation Y also provides for a streamlined and expedited review process for bank acquisition proposals submitted by well-run bank holding companies and eliminates certain duplicative reporting requirements when there has been a further change in bank control or in bank directors or officers after an earlier approved change. These changes to Regulation Y are subject to numerous qualifications, limitations and restrictions. In order for a bank holding company to qualify as "well-run," both it and the insured depository institutions that it controls must meet the "well-capitalized" and "well-managed" criteria set forth in Regulation Y.
To qualify as "well-capitalized," the bank holding company must, on a
consolidated basis, (i) maintain a total risk-based capital ratio of 10% or
greater, (ii) maintain a Tier 1 risk-based capital ratio of 6% or greater, and
(iii) not be subject to any order by the Federal Reserve to meet a specified
capital level. Its lead insured depository institution must be well-capitalized
as that term is defined in the capital adequacy regulations of the applicable
bank regulator, 80% of the total risk-weighted assets held by its insured
depository institutions must be held by institutions that are well-capitalized,
and none of its insured depository institutions may be undercapitalized.
To qualify as "well-managed," (i) each of the bank holding company, its lead depository institution and its depository institutions holding 80% of the total risk-weighted assets of all its depository institutions at their most recent examination or review must have received a composite rating, rating for management and rating for compliance which were at least satisfactory, (ii) none of the bank holding company's depository institutions may have received one of the two lowest composite ratings and (iii) neither the bank holding company nor any of its depository institutions during the previous 12 months may have been subject to a formal enforcement order or action.
REGULATION AND SUPERVISION OF BANKS
The Bank is subject to regulation, supervision and regular examination by the DFI and the FDIC. The regulations of these agencies affect most aspects of the Bank's business and prescribe permissible types of loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of the Bank's activities and various other requirements. While the Bank is not a member of the Federal Reserve system, it is subject to certain regulations of the Federal Reserve dealing primarily with check clearing activities, establishment of banking reserves, Truth-in-Lending (Regulation Z), Truth-in-Savings (Regulation DD), and Equal Credit Opportunity (Regulation B).
Under California law, the Bank is subject to various restrictions on, and requirements regarding, its operations and administration, including the maintenance of branch offices and automated teller machines, capital and reserve requirements, deposits and borrowings, stockholder rights and duties, and investment and lending activities. Whenever it appears that the contributed capital of a California bank is impaired, the Commissioner shall order the bank to correct such impairment. If a bank is unable to correct the impairment, such bank is required to levy and collect an assessment upon its common shares. If such assessment becomes delinquent, such common shares are to be sold by the bank.
California law permits a state chartered bank to invest in the stock and securities of other corporations, subject to a state chartered bank receiving either general authorization or, depending on the amount of the proposed investment, specific authorization from the Commissioner. Federal banking laws, however, imposes limitations on the activities and equity investments of state chartered, federally insured banks. The FDIC rules on investments prohibit a state bank from acquiring an equity investment of a type, or in an amount, not permissible for a national bank. The FDIC rules also prohibit a state bank from engaging as a principal in any activity that is not permissible for a national bank, unless the bank is adequately capitalized and the FDIC approves the activity after determining that such activity does not pose a significant risk to the deposit insurance fund. The FDIC rules on activities generally permit subsidiaries of banks, without prior specific FDIC authorization, to engage in those that have been approved by the Federal Reserve for bank holding companies because such activities are so closely related to banking to be a proper incident thereto. Other activities generally require specific FDIC prior approval, and the FDIC may
impose additional restrictions on such activities on a case-by-case basis in approving applications to engage in otherwise impermissible activities.
CAPITAL STANDARDS
The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain United States government securities, to 100% for assets with relatively higher credit risk, such as certain loans.
In determining the capital level a bank is required to maintain, the federal banking agencies do not, in all respects, follow generally accepted accounting principles ("GAAP") and have special rules which have the effect of reducing the amount of capital it will recognize for purposes of determining the capital adequacy of a bank.
A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock, other types of qualifying preferred stock and minority interests in certain subsidiaries, less most other intangible assets and other adjustments. Net unrealized losses on available-for-sale equity securities with readily determinable fair value must be deducted in determining Tier 1 capital. For Tier 1 capital purposes, deferred tax assets that can only be realized if an institution earns sufficient taxable income in the future are limited to the amount that the institution is expected to realize within one year, or ten percent of Tier 1 capital, whichever is less. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses, term preferred stock and other types of preferred stock not qualifying as Tier 1 capital, term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital to adjusted average risk-adjusted assets and off balance sheet items of 4%.
On October 1, 1998, the FDIC adopted two 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 debt and equity securities to be recognized for risk-based capital purposes as of September 1, 1998. The FDIC rules also provide that a qualifying institution that sells small business loans and leases with recourse must hold capital only against the amount of recourse retained. In general, a qualifying institution is one that is well-capitalized under the FDIC's prompt corrective action rules. The amount of recourse that can receive the preferential capital treatment cannot exceed 15% of the institution's total risk-based capital.
In addition to the risked-based guidelines, the federal banking agencies require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average total assets, referred to as the leverage capital ratio. For a banking organization rated in the highest of the five categories used to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. It is improbable, however, that an institution with a 3% leverage ratio would receive the highest rating since a strong capital position is a significant part of the rating. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, must be at least 4% or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the federal banking agencies have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
The following tables present the capital ratios for the Bank, compared to the standards for well-capitalized depository institutions, as of December 31, 1997 (amounts in thousands except percentage amounts).
Actual Well Minimum
---------------------- Capitalized Capital
Capital Ratio Ratio Requirement
------- ------- ----------- -----------
Leverage ................. $20,783 10.41% 5.0% 4.0%
Tier 1 Risk-Based ........ $20,783 14.91% 6.0 4.0
Total Risk-Based ......... $22,526 16.16% 10.0 8.0
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The federal banking agencies must take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. This evaluation will be made as a part of the institution's regular safety and soundness examination. The federal banking agencies must also consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in evaluation of a bank's capital adequacy.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The law required each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
Under the prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated below:
"Well capitalized" "Adequately capitalized" ------------------ ------------------------ Total risk-based capital of 10%; Total risk-based capital of 8%; Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and Leverage ratio of 5%. Leverage ratio of 4%. "Undercapitalized" "Significantly undercapitalized" ------------------ -------------------------------- Total risk-based capital less than 8%; Total risk-based capital less than 6%; Tier 1 risk-based capital less than 4%; Tier 1 risk-based capital less than 3%; or or Leverage ratio less than 4%. Leverage ratio less than 3%. "Critically undercapitalized" ----------------------------- Tangible equity to total assets less than 2%. |
An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions.
In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal banking agencies for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company.
SAFETY AND SOUNDNESS STANDARDS
FDICIA also implemented certain specific restrictions on transactions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation and asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit
insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts.
The federal banking agencies may require an institution to submit to an acceptable compliance plan as well as the flexibility to pursue other more appropriate or effective courses of action given the specific circumstances and severity of an institution's noncompliance with one or more standards.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.
The federal banking agencies also have authority to prohibit a depository institution from engaging in business practices which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute.
In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent such payments do not exceed the lesser of retained earnings of the bank or the bank's net income for its last three fiscal years (less any distributions to shareholders during such period). In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the Commissioner in an amount not exceeding the greatest of the bank's retained earnings, the bank's net income for its last fiscal year, or the bank's net income for its current fiscal year.
PREMIUMS FOR DEPOSIT INSURANCE AND ASSESSMENTS FOR EXAMINATIONS
FDICIA established several mechanisms to increase funds to protect deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is authorized to borrow up to $30 billion from the United States Treasury; up to 90% of the fair market value of assets of institutions acquired by the FDIC as receiver from the Federal Financing Bank; and from depository institutions that are members of the BIF. Any borrowings not repaid by asset sales are to be repaid through insurance premiums assessed to member institutions. Such premiums must be sufficient to repay any borrowed funds within 15 years and provide insurance fund reserves of $1.25 for each $100 of insured deposits. FDICIA also provides authority for special assessments against insured deposits. No assurance can be given at this time as to what the future level of premiums will be.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution
in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities.
RECENTLY ENACTED LEGISLATION
During 1996, new federal legislation amended the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and the underground storage tank provisions of the Resource Conversation and Recovery Act to provide lenders and fiduciaries with greater protections from environmental liability. In June 1997, the U.S. Environmental Protection Agency ("EPA") issued its official policy with regard to the liability of lenders under CERCLA as a result of the enactment of the Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 1996. California law provides that, subject to numerous exceptions, a lender acting in the capacity of a lender shall not be liable under any state or local statute, regulation or ordinance, other than the California Hazardous Waste Control Law, to undertake a cleanup, pay damages, penalties or fines, or forfeit property as a result of the release of hazardous materials at or from the property.
In 1997, California adopted the Environmental Responsibility Acceptance Act (Cal. Civil Code Sections 850-855) to facilitate (i) the notification of government agencies and potentially responsible parties (e.g., for cleanup) of the existence of contamination and (ii) the cleanup or other remediation of contamination by the potentially responsible parties. The Act requires, among other things, that owners of sites who have actual awareness of a release of a hazardous material that exceeds a specified notification threshold to take all reasonable steps to identify the potentially responsible parties and to send a notice of potential liability to the parties and the appropriate oversight agency.
PENDING LEGISLATION AND REGULATIONS
There are pending legislative proposals to reform the Glass-Steagall Act to allow affiliations between banks and other firms engaged in "financial activities," including insurance companies and securities firms. Certain other pending legislative proposals include bills to let banks pay interest on business checking accounts, to cap consumer liability for stolen debit cards, and to give judges the authority to force high-income borrowers to repay their debts rather than cancel them through bankruptcy.
While the effect of such proposed legislation on the business of financial institutions cannot be accurately predicted at this time, it seems likely that a significant amount of consolidation in the banking industry will continue to occur throughout the remainder of the decade.
COMPETITION
In the past, an independent bank's principal competitors for deposits and loans have been other banks (particularly major banks), savings and loan associations and credit unions. To a lesser extent, competition was also provided by thrift and loans, mortgage brokerage companies and insurance companies. Other institutions, such as brokerage houses, mutual fund companies, credit card companies, and even retail establishments have offered new investment vehicles which also compete with banks for deposit business. The direction of federal legislation in recent years seems
to favor competition between different types of financial institutions and to foster new entrants into the financial services market, and it is anticipated that this trend will continue.
Among the competitive advantages that major banks have is their ability to finance wide ranging advertising campaigns and to allocate their investment assets into regions of higher yield and demand. Such institutions offer certain services such as trust services and international banking services which are not offered directly by the Bank (but are offered indirectly through correspondent relationships). Because of their greater total capitalization, major banks have substantially higher legal lending limits than the Bank.
In order to compete with major banks and other competitors in its primary service areas, the Bank relies upon the experience of its executive and senior officers in serving business clients, and upon its specialized services, local promotional activities and the personal contacts made by its officers, directors and employees. For customers whose loan demand exceeds the Bank's legal lending limit, the Bank may arrange for such loans on a participation basis with correspondent banks.
The recent enactment of Federal and California interstate banking legislation will likely increase competition within California. Regulatory reform, as well as other changes in federal and California law will also affect competition. While the impact of these changes, and of other proposed changes, cannot be predicted with certainty, it is clear that the business of banking in California will remain highly competitive.
Competitive pressures in the banking industry significantly increase changes in the interest rate environment, reducing net interest margins, and less than favorable economic conditions can result in a deterioration of credit quality and an increase in the provisions for loan losses.
With respect to its merchant processing services, the Bank competes with other banks, ISOs and other nonbank processors. Many of these competitors are substantially larger than the Bank. The bank competes on the basis of price, the availability of products and services, the quality of customer service and support, and transaction processing speed. The majority of the Bank's contracts with merchants are cancelable at will or on short notice or provide for renewal at frequent periodic intervals and, accordingly, the Bank regularly rebids such contracts. This competition may influence the prices that can be charged by the Bank and require aggressive cost control or increase transaction volume in order to maintain acceptable profit margins. Further, because of tightening margins, there has been a trend toward consolidation in the merchant processing industry. Consolidation will enable certain of the Company's competitors to have access to significant capital, management, marketing and technological resources that are equal to or greater than those of the Company.
EMPLOYEES
As of October 30, 1998, the Company and its subsidiaries employed 71 persons. None of the Company's employees is represented by a labor union and the Company considers its employee relations to be good.
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The selected condensed consolidated financial data set forth below for the five years ended December 31, 1997, have been derived from the Company's audited financial statements. The selected condensed consolidated financial data set forth below as of December 31, 1995, 1994 and 1993, and for the two years ended December 31, 1994, have been derived from the Company's historical financial statements not included in this Registration Statement. The selected historical condensed financial data set forth below as of September 30, 1998, and 1997 and for the nine month periods then ended are derived from the unaudited condensed consolidated financial statements of the Company. The unaudited condensed consolidated financial statements have been prepared on a consistent basis with the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations of the Company for the periods covered thereby. The Company's historical financial statements may not be indicative of future performance. The results of operations and cash flows for the nine months ended September 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. The information set forth below should be read in conjunction with "Financial Information-Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's historical financial statements and notes thereto, included elsewhere in this Registration Statement.
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(dollars in thousands, except share data)
STATEMENTS OF INCOME:
Total Interest Income $ 12,041 $ 11,603 $ 15,764 $ 15,565 $ 15,122 $ 11,292 $ 9,116
Net Interest Income 7,720 6,908 9,430 8,767 8,740 6,966 5,699
Provision for Loan Losses 250 827 1,024 2,160 1,045 655 243
Total Other Income 2,334 1,917 2,636 2,079 1,698 843 508
Net Income 3,162 2,501 3,658 2,615 2,931 2,158 1,856
BALANCE SHEETS:
Total Assets 202,814 207,915 204,820 192,389 185,995 156,829 134,229
Total Loans 144,435 110,126 113,410 111,353 115,668 104,939 94,051
Allowance for Loan and
Lease Losses (ALLL) (3,019) (2,860) (2,819) (2,294) (2,053) (1,730) (1,127)
Total Deposits 176,654 184,322 180,673 171,368 166,869 140,824 119,716
Shareholders' Equity $ 22,497 $ 20,108 $ 21,825 $ 19,180 $ 17,266 $ 14,411 $ 13,351
PERFORMANCE RATIOS:
Return on Average Assets 2.08%(1) 1.70%(1) 1.83% 1.35% 1.74% 1.50% 1.55%
Return on Average Equity 18.88%(1) 16.79%(1) 18.27% 14.41% 18.45% 15.69% 15.04%
Dividend Payout 63.25% 63.97% 24.62% 25.83% 23.04% 26.08% 30.32%
Average Equity to Average
Assets 11.03% 10.12% 10.03% 9.35% 9.42% 9.58% 10.33%
Tier 1 Risk-Based Capital
Ratio 13.53% 14.88% 14.91% 13.70% 13.40% 13.25% 13.15%
Total Risk-Based Capital
Ratio 14.79% 16.14% 16.16% 14.90% 14.60% 14.45% 14.35%
Net Interest Margin 5.56%(1) 5.15%(1) 5.20% 4.96% 5.62% 5.21% 5.12%
Earning Assets to Total
Assets 92.1% 91.80% 90.90% 91.10% 92.30% 93.10% 93.30%
Nonperforming Assets to
Total Assets .69% .59% .50% 3.63% 1.64% .96% .40%
Annualized Net Charge-
offs .05%(1) .32%(1) .44% 1.64% .64% .05% .03%
ALLL to Total Loans 2.09% 2.60% 2.49% 2.06% 1.77% 1.65% 1.20%
Nonperforming Loans to
ALLL 46.60% 42.70% 23.90% 99.10% 137.40% 84.50% 48.00%
SHARE DATA:
Common Shares
Outstanding 2,684 2,697 2,697 2,700 2,700 2,700 2,700
Book Value Per Share $ 8.42 $ 7.49 $ 8.13 $ 7.10 $ 6.39 $ 5.34 $ 4.94
Basic Earnings Per Share $ 1.18 $ 0.93 $ 1.36 $ 0.97 $ 1.08 $ 0.80 $ 0.69
Diluted Earnings Per Share $ 1.15 $ 0.93 $ 1.35 $ 0.97 $ 1.08 $ 0.80 $ 0.69
Cash Dividends Per Share $ 0.50 $ 0.33 $ 0.33 $ 0.25 $ 0.25 $ 0.21 $ 0.21
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(1) Annualized.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and related notes thereto as of December 31, 1997, and 1996 and the years ended December 31, 1997, 1996 and 1995, and the Unaudited Condensed Consolidated Financial Statements of the Company as of and for the nine months ended September 30, 1998, and 1997 appearing elsewhere in this Registration Statement. All statements other than statements of historical fact included in the following discussion are forward-looking statements within the meaning of the Exchange Act. These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company and also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including the risks discussed under the heading "Business-Risk Factors and Investment Considerations" and elsewhere in this Registration Statement. The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company's ability to control or predict. Investors are cautioned not to put undue reliance on any forward-looking statements. In addition, the Company does not have any intention or obligation to update forward-looking statements after the effectiveness of this Registration Statement, even if new information, future events or other circumstances have made them incorrect or misleading. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in Section 21E of the Exchange Act.
GENERAL
The Company is a bank holding company with its principal offices in Redding, California. The Company engages in a general commercial banking business in Redding and the counties of Butte, El Dorado, Placer, Shasta, and Sacramento, California. The Company considers Shasta County to be the Company's major market area. The Company conducts its business through the Bank, its principal subsidiary. The services offered by the Company include those traditionally offered by commercial banks of similar size and character in California, such as checking, interest-bearing checking ("NOW") and savings accounts, money market deposit accounts, commercial, construction, real estate, personal, home improvement, automobile and other installment and term loans, travelers checks, safe deposit boxes, collection services, and telephone transfers. The primary focus of the Company is to provide service to the business and professional community of its major market area including Small Business Administration ("SBA") loans, and payroll and accounting packages and billing programs. The Company does not offer trust services or international banking services and does not plan to do so in the near future.
The Company derives its income from two principal sources: (i) net interest income, which is the difference between the interest income it receives on interest-earning assets and the interest expense it pays on interest-bearing liabilities, and (ii) fee income, which includes fees earned on deposit services, income from SBA lending, electronic-based cash management services and merchant credit card processing services.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997
Net income for the nine months ended September 30, 1998, was $3.16 million, an increase of $661,000, or 26%, over net income of $2.50 million for the nine months ended September 30,
1997. The increase in net income was attributable to growth in net interest income and noninterest income and a reduction in the provision for loan losses, which were partially offset by increases in noninterest expense required to support asset and loan growth.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net income for the year ended December 31, 1997, was $3.66 million, an increase of $1.04 million, or 40%, over net income of $2.62 million for the year ended December 31, 1996. The increase in net income was the result of growth in net interest income and noninterest income and a reduction in the provision for loan losses, which were partially offset by increases in noninterest expense required to support asset and loan growth.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net income for the year ended December 31, 1996, was $2.62 million, a decrease of $316,000, or 11%, from net income of $2.93 million for the year ended December 31, 1995. The decrease in net income was the result of an increase in the provision for loan losses necessary to reserve for increases in nonperforming assets in 1996.
NET INTEREST INCOME
The primary source of income for the Bank is derived from net interest income, which is the difference between the interest earned from loans and investments less the interest paid on deposit accounts and borrowings. Net interest income increased from $8.74 million in 1995 to $8.77 million in 1996, and to $9.43 million in 1997, representing a .3% increase in 1996 over 1995 and a 7.6% increase in 1997 over 1996. Net interest income increased from $6.91 million for the nine months ended September 30, 1997, to $7.72 million for the nine months ended September 30, 1998, representing an 11.8% increase. Net interest income increases in 1997 over 1996 and the nine months ended September 30, 1998, over the comparable period in 1997 were primarily the result of loan growth which increased the volume of earning assets and improved the Bank's interest income through reinvestment of maturing securities into higher yielding loans.
Total interest expense increased from $6.38 million in 1995 to $6.80 million in 1996 and decreased to $6.33 million in 1997, representing a 6.5% increase in 1996 over 1995 and a 6.8% decrease in 1997 over 1996. The decrease in total interest expense in 1997 was primarily the result of a lower cost of funds brought about by an increase in demand deposits, lower levels of certificates of deposits and a general decline in interest rates. Total interest expense decreased from $4.70 million for the nine months ended September 30, 1997, to $4.32 million for the nine months ended September 30, 1998, representing an 8.0% decrease. This decrease is primarily attributable to a decline in the average volume of the Bank's interest-bearing liabilities and the decline in interest rates generally.
The Company's net interest margin (net interest income divided by average earning assets) was 5.62% in 1995, 4.96% in 1996 and 5.20% in 1997. The decrease in the net interest margin from 1995 to 1996 was primarily the result of declining yields on the Bank's loan portfolio which were not fully offset by declining rates on interest-bearing liabilities. The increase in the Company's net interest margin from 1996 to 1997 was attributable to the growth and change in mix of earning assets funded by growth of both interest-bearing and noninterest-bearing demand deposits. The net interest margin increased to 5.56% for the nine months ended September 30, 1998, from 5.15% for the nine months ended September 30, 1997, primarily as a result of (i) the overall growth and change in mix in the loan and investment portfolios, which increased the yield on interest earning assets, and (ii) the growth in noninterest-bearing demand deposits, which increased earning assets without a corresponding increase in interest-bearing liabilities.
The following table sets forth the Company's daily average balance sheet, related interest income or expense and yield or rate paid for the periods indicated. The yield on tax-exempt securities has not been adjusted to a tax-equivalent yield basis.
AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES PAID
YEARS ENDED DECEMBER 31,
1997 1996 1995
-------------------------------- ------------------------------- -------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
EARNING ASSETS
Portfolio Loans(1) $113,030 $ 11,519 10.19% $117,021 $ 12,023 10.27% $112,366 $ 12,624 11.23%
Tax Exempt Securities 6,142 292 4.75% 7,960 367 4.61% 5,486 258 4.70%
US Government Securities 47,583 3,009 6.32% 36,982 2,320 6.27% 22,148 1,316 5.94%
Federal Funds Sold 10,825 569 5.26% 11,693 602 5.15% 12,011 699 5.82%
Other Securities 3,875 375 9.68% 3,276 253 7.72% 3,621 224 6.19%
-------- -------- -------- -------- -------- --------
Average Earning Assets 181,455 15,764 8.69% 176,932 15,565 8.80% 155,632 15,121 9.72%
-------- -------- --------
Cash and Due From Banks 10,149 8,317 7,153
Bank Premises 5,781 5,975 3,893
Other Assets 2,211 2,899 1,997
-------- -------- --------
Average Total Assets $199,596 $194,123 $168,675
======== ======== ========
INTEREST-BEARING
LIABILITIES
Demand Interest-Bearing $ 42,911 $ 857 2.00% $ 35,887 $ 814 2.27% $ 31,886 $ 877 2.75%
Savings Deposits 11,802 343 2.91% 10,749 317 2.95% 9,541 314 3.29%
Certificates of Deposit 88,701 5,134 5.79% 96,979 5,667 5.84% 83,214 5,191 6.24%
-------- -------- -------- -------- -------- --------
143,414 6,334 4.42% 143,615 6,798 4.73% 124,641 6,382 5.12%
-------- -------- --------
Demand Noninterest Bearing 34,299 30,542 26,397
Other Liabilities 1,864 1,818 1,747
Shareholder's Equity 20,019 18,148 15,890
-------- -------- --------
Average Liabilities and
Shareholders' Equity $199,596 $194,123 $168,675
======== ======== ========
Net Interest Income and
Net Interest Margin $ 9,430 5.20% $ 8,767 4.96% $ 8,739 5.62%
======== ======== ========
|
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
------------------------------------- -------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- --------
(dollars in thousands)
EARNING ASSETS
Portfolio Loans(1) $124,279 $ 9,399 10.08% $112,200 $ 8,664 10.30%
Tax Exempt
Securities 9,994 366 4.88% 6,052 215 4.74%
US Government
Securities 40,106 1,912 6.36% 46,374 2,009 5.78%
Federal Funds Sold 8,330 304 4.87% 11,190 439 5.23%
Other Securities 2,319 60 3.45% 3,188 276 11.54%
-------- -------- -------- --------
Average Earning
Assets $185,028 $ 12,041 8.68% $179,004 $ 11,603 8.64%
-------- --------
Cash and Due
From Banks $ 10,189 $ 9,819
Bank Premises 5,715 5,794
Other Assets 2,012 2,239
-------- --------
Average Total
Assets $202,944 $196,856
======== ========
INTEREST-BEARING
LIABILITIES
Demand Interest
Bearing $ 42,061 $ 590 1.87% $ 42,147 $ 598 1.89%
Savings Deposits 12,586 259 2.74% 11,763 302 3.42%
Certificates of
Deposit 86,843 3,472 5.33% 88,729 3,795 5.70%
-------- -------- -------- --------
$141,490 $ 4,321 4.07% $142,639 $ 4,695 4.39%
-------- --------
Demand Non
Interest-Bearing 36,725 32,594
Other Liabilities 2,340 1,702
Shareholders'
Equity 22,389 19,921
-------- --------
Average Liabilities
& Shareholder Equity $202,944 $196,856
======== ========
Net Interest Income
and Net Interest
Margin $ 7,720 5.56% $ 6,908 5.15%
======== ========
|
(1) Interest income on loans includes loan fee income of $332,000 and $330,000 for the nine months ended September 30, 1998, and 1997, respectively, and $423,000, $686,000 and $836,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
The Company's average total assets increased from $194.1 million in 1996 to $199.6 million in 1997, representing a 2.8% increase. The Company's average total assets increased from $196.9 million for the nine month period ended September 30, 1997, to $202.9 million for the nine month period ended September 30, 1998, representing a 3.1% increase. In 1997, the Company's average loan portfolio decreased by $4.0 million while the investment portfolio increased by $8.5 million, reflecting management's efforts to improve asset quality rather than increase new loan production. In addition, the Company's average demand deposits increased from $32.6 million for the nine months ended September 30, 1997, to $36.7 million for the same period in 1998, representing a 12.7% increase, as a result of expansion of the Bank's commercial banking activities and merchant processing services on both a local and national level.
In late 1997, the Company increased loan production by hiring additional lenders. As a result, average loans for the nine month period ended September 30, 1998, increased by $12.1 million, or 10.8%, over the comparable period in 1997. The increase has been funded through maturities and sales of available-for-sale securities, increased earnings and an increase in the Company's average demand deposits.
The following tables set forth changes in interest income and expense for each major category of earning assets and interest-bearing liabilities, and the amount of change attributable to volume and rate changes for the periods indicated. Changes attributable to rate/volume have been allocated to volume changes.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
YEARS ENDED
1997 OVER 1996 1996 OVER 1995
----------------------------------- -----------------------------------
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
(dollars in thousands)
INCREASE (DECREASE)
IN INTEREST INCOME
Portfolio Loans $ (407) $ (97) $ (504) $ 478 $(1,179) $ (601)
Tax Exempt
Securities (86) 11 (75) 114 (5) 109
US Government
Securities 670 19 689 931 73 1,004
Federal Funds Sold (46) 13 (33) (16) (81) (97)
Other Securities 58 64 122 (27) 56 29
------- ------- ------- ------- ------- -------
Total Increase/
(Decrease) $ 189 $ 10 $ 199 $ 1,480 $(1,036) $ 444
------- ------- ------- ------- ------- -------
INCREASE (DECREASE)
IN INTEREST EXPENSE
Demand Interest
Bearing $ 140 $ (97) $ 43 $ 91 $ (154) $ (63)
Savings Deposits 30 (5) 25 36 (33) 3
Certificates of
Deposit (478) (54) (532) 804 (328) 476
------- ------- ------- ------- ------- -------
Total Increase/
(Decrease) $ (308) $ (156) $ (464) $ 931 $ (515) $ 416
======= ======= ======= ======= ======= =======
Net Increase/
(Decrease) $ 497 $ 166 $ 663 $ 549 $ (521) $ 28
======= ======= ======= ======= ======= =======
|
NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Volume Rate Total
------ ----- -----
(dollars in thousands)
INCREASE(DECREASE)
IN INTEREST INCOME
Portfolio Loans $ 914 $(179) $ 735
Tax Exempt
Securities 144 7 151
US Government
Securities (299) 202 (97)
Federal Funds Sold (104) (31) (135)
Other Securities (22) (194) (216)
----- ----- -----
Total Increase/
(Decrease) $ 633 $(195) $ 438
===== ===== =====
INCREASE (DECREASE)
IN INTEREST EXPENSE
Demand Interest
Bearing $ (1) $ (9) $ (8)
Savings Deposits 17 (60) (43)
Certificates of
Deposit (75) (248) (323)
----- ----- -----
Total Increase/
(Decrease) $ (59) $(315) $(374)
----- ----- -----
Net Increase/
(Decrease) $ 692 $ 120 $ 812
===== ===== =====
|
NONINTEREST INCOME
The Company's noninterest income consists primarily of service charges on deposit accounts and processing fees for merchants who accept credit and debit cards as payment for goods and services. Noninterest income also includes ATM fees earned at various locations. For the year ended December 31, 1997, noninterest income represented 14.3% of the Company's revenues. Historically, the Company's service charges on deposit accounts have lagged peer levels for similar services. This is consistent with the Company's philosophy of allowing customers to pay for services with compensating balances and the emphasis on certificates of deposit as a significant funding source.
Total noninterest income increased from $1.70 million in 1995 to $2.08 million in 1996 and to $2.64 million in 1997, representing a 22.4% increase in 1996 over 1995 and a 26.7% increase in 1997 over 1996. Noninterest income increased from $1.92 million for the nine months ended September 30, 1997, to $2.33 million for the nine months ended September 30, 1998, representing a 21.8% increase. The increases in noninterest income in 1996, 1997 and for the nine month period ended September 30, 1998, were primarily the result of expansion of the Bank's merchant processing services on both a local and national level and, to a lesser extent, an increase in ATM fees earned at various locations.
MERCHANT PROCESSING SERVICES INCOME
Pursuant to the Merchant Services Agreement, the Bank acts as a clearing bank for CSI, a nonbank merchant credit card processor, and processes credit or debit card transactions into the Visa(R) or MasterCard(R) system for presentment to the card issuer. As a result of the Merchant Services Agreement, the Bank has acquired electronic credit and debit card processing relationships with merchants in various industries on a nationwide basis. As of September 30, 1998, the CSI portfolio consisted of 36,075 merchants. Contract deposit relationships with the merchants and CSI represented approximately 25% of the Bank's capital as of September 30, 1998.
The Merchant Services Agreement was renewed in 1997 for a period of four years which expires on April 1, 2001, and will automatically renew for additional four year periods unless terminated in advance of the renewal period by CSI or the Bank upon 30 days prior written notice. In the event the Merchant Services Agreement is not renewed by the Bank, CSI may transfer the merchants to another financial institution.
The Merchant Services Agreement provides for indemnification of the Bank by CSI against losses incurred by the Bank in connection with either the processing of credit/debit card transactions for covered merchants or any alleged violations by CSI of the Card Association Rules. CSI is required to maintain a merchant specific reserve of approximately $6.44 million as well as a general reserve equal to .75% of the net monthly processing volume. These reserves are held in accounts with the Bank with activity authorized only by certain Bank personnel. The Bank has been granted a security interest in the reserve accounts to secure CSI's obligations under the Merchant Services Agreement.
The ability of the Bank to increase the level of fee income currently being generated by merchant processing relationships is limited. Under the Card Association Rules, fees that can be charged on monthly credit card sales above $93 million are significantly less than the fees that can be charged on monthly sales credit card below $93 million. Further, the Visa(R) bylaws limit the amount of quarterly Visa(R) credit card sales that the Bank may process to four times the Bank's equity capital unless additional collateral is pledged by the Bank. The Company's ability to sustain or increase fee income from merchant processing relationships is also affected by other factors, some of which are beyond the Company's control, such as (i) competition from other banks, ISOs and other nonbank processors, (ii) continuation of the requirement that ISOs and other nonbank
processors access the Visa(R) and MasterCard(R) payment system through banks,
(iii) the ability to avoid potential losses through various contractual methods
including indemnification by the ISO, reserve balances controlled by the Bank
and insurance, and (iv) the ability to continue to grow both locally and
nationally.
In 1995, the Company established a sales team to provide merchant processing services to merchants in its major market area and, as of September 30, 1998, the Bank had 786 merchants in its portfolio. The income generated from the Bank's local merchant portfolio is substantially less than that generated from the CSI portfolio because of the lower volume of transactions.
Merchant processing services income was $1.3 million in 1995, $1.6 million in 1996 and $2.0 million in 1997, representing an increase of 30.6% from 1995 to 1996 and 25.0% from 1996 to 1997. Merchant processing services income for the nine months ended September 30, 1998, was $1.8 million compared to $1.5 million for the nine months ended September 30, 1997, representing a 20.4% increase. These increases are attributable to growth in the number of merchants for whom the Bank provides processing services and the volume of transactions processed.
The following table sets forth a summary of noninterest income for the periods indicated.
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(dollars in thousands)
Noninterest Income:
Service Charges $ 160 $ 161 $ 212 $ 187 $ 180
Other Income 370 276 370 311 263
Gain (Loss) on Sale of
Investment Securities 28 5 5 (58) --
Credit Card Service Income 1,776 1,475 2,049 1,639 1,255
------- ------- ------- ------- -------
Total Noninterest Income $ 2,334 $ 1,917 $ 2,636 $ 2,079 $ 1,698
======= ======= ======= ======= =======
|
NONINTEREST EXPENSE
Noninterest expense consists of salaries and related employee benefits, occupancy and equipment expense and other operating expenses. Noninterest expense increased from $4.6 million in 1996 to $5.3 million in 1997, representing an increase of $635,000, or 13.7%. Noninterest expense for the nine months ended September 30, 1998, was $4.8 million compared to $4.0 million for the nine months ended September 30, 1997, representing an increase of $791,000, or 19.7%. The increases in noninterest expense were primarily the result of growth in the Company's loan portfolio, earning assets and merchant processing activities for merchants in the Company's major market area.
The following table sets forth a summary of noninterest expense for the periods indicated.
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(dollars in thousands)
Noninterest Expense:
Salaries and Benefits $2,512 $2,262 $3,024 $2,754 $2,641
Occupancy and Equipment 623 591 796 814 646
FDIC Assessments 16 23 41 7 159
Data Processing and Professional
Services 262 206 283 256 250
Stationery and Supplies 138 130 161 128 172
Postage 57 66 83 85 69
Other Expense 1,208 747 867 576 774
------ ------ ------ ------ ------
Total Noninterest Expense $4,816 $4,025 $5,255 $4,620 $4,710
====== ====== ====== ====== ======
|
INCOME TAXES
The Company's provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to the Company's net income before taxes. The principal difference between statutory tax rates and the Company's effective tax rate is the benefit derived from investing in tax-exempt securities. Increases and decreases in the provision for taxes reflect changes in the Company's net income before tax.
The following table reflects the Company's tax provision and the related effective tax rate for the periods indicated.
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
Tax Provision $ 1,826 $ 1,472 $ 2,129 $ 1,451 $ 1,752
Effective Tax Rate 36.6% 37.1% 36.8% 35.5% 37.2%
|
ASSET QUALITY
The Company concentrates its lending activities primarily within Shasta County, California, the location of the Bank's two full service branches. The Company also makes loans to borrowers in Butte, El Dorado, Placer, Sacramento and Tehama counties through its loan production offices.
The Company manages its credit risk through diversification of its loan portfolio and the application of underwriting policies and procedures and credit monitoring practices. Although the Company has a diversified loan portfolio, a significant portion of its borrowers' ability to repay the loans is dependent upon the professional services and residential real estate development industry sectors. Generally, the loans are secured by real estate or other assets and are expected to be repaid from cash flows of the borrower or proceeds from the sale of the collateral.
The primary risks associated with commercial loans are the financial condition of the borrower, general economic conditions in the Company's market area, the sufficiency of collateral, the timeliness of payment, and, with respect to adjustable rate loans, interest rate fluctuations.
The following table sets forth the amounts of loans outstanding by category as of the dates indicated:
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ --------- --------- --------- --------- ---------
(dollars in thousands)
Commercial and Financial
Loans $ 49,297 $ 41,432 $ 37,592 $ 36,248 $ 31,967 $ 23,926
Real Estate -
Construction 36,572 16,393 32,474 42,784 40,746 36,403
Real Estate - Commercial
Mortgage 57,254 54,533 40,067 35,299 31,090 32,874
Installment Loans 224 72 241 69 489 832
Other 1,550 1,274 1,284 1,699 1,077 464
--------- --------- --------- --------- --------- ---------
144,897 113,704 111,658 116,099 105,369 94,499
Less:
Deferred Loan Fees and
Costs (461) (294) (305) (430) (430) (448)
Allowance for Loan
Losses (3,019) (2,819) (2,294) (2,053) (1,730) (1,127)
--------- --------- --------- --------- --------- ---------
Total Net Loans $ 141,417 $ 110,591 $ 109,059 $ 113,615 $ 103,210 $ 92,924
========= ========= ========= ========= ========= =========
|
The Company's practice is to place an asset on nonaccrual status when one of the following events occurs: (i) any installment of principal or interest is 90 days or more past due (unless in management's opinion the loan is well-secured and in the process of collection), (ii) management determines the ultimate collection of principal or interest to be unlikely or (iii) the terms of the loan have been renegotiated due to a serious weakening of the borrower's financial condition.
Nonperforming loans are loans that are on nonaccrual, are 90 days past due and still accruing or have been restructured.
The following table sets forth a summary of the Company's nonperforming loans as of the dates indicated:
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------
(dollars in thousands)
Nonaccrual loans $1,336 $ 500 $1,734 $3,381 $1,169 $ 336
90 days past due and
still accruing -- 173 540 347 293 205
Restructured loans in
compliance with
modified terms -- -- 2,450 -- -- --
Other real estate
owned 66 352 2,268 229 38 --
|
The Company's nonaccrual loans decreased from $1.73 million in 1996 to $500,000 in 1997 primarily as a result of increased collection and liquidation efforts in 1997 and increased quality of the Company's loan portfolio. The increase in nonaccrual loans at September 30, 1998, is attributable to one loan which is secured by real estate and equipment.
Other real estate owned ("OREO") decreased to $352,000 in 1997 from $2.26 million in 1996, and at September 30, 1998, consisted of one property totaling $66,000. Reductions in OREO balances are attributable to sales of OREO in 1997.
The Company assigns all loans a credit risk rating and monitors ratings for accuracy. The aggregate credit risk ratings are used to determine the allowance for loan and lease losses. The Company employs a credit review officer that reports directly to the Audit Committee of the Board of Directors. The credit review officer has the authority to initiate a change in individual credit risk ratings as deemed appropriate. This enables management to effect corrective actions when necessary.
The following table sets forth the maturity distribution of the Company's commercial and real estate loans outstanding as of December 31, 1997, which, based on remaining scheduled repayments of principal, were due within the periods indicated.
After One
Within Through After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
(dollars in thousands)
Commercial Loans $25,006 $12,884 $ 3,542 $41,432
Real Estate
Construction Loans 16,393 16,393
------- -------
Total $41,399 $12,884 $ 3,542 $57,825
======= ======= ======= =======
Loans due after one year with:
Fixed Rates $ 1,031 $ 292 $ 1,323
Variable Rates 11,853 3,250 15,103
------- ------- -------
Total $12,884 $ 3,542 $16,426
======= ======= =======
|
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
In determining the amount of the Company's ALLL, management assesses the diversification of the portfolio. Each credit is assigned a credit risk rating factor, and this factor, multiplied by the dollars associated with the credit risk rating, is used to calculate one component of the ALLL. In addition, management estimates the probable loss on individual credits that are receiving increased management attention due to actual or perceived increases in risk.
The Company makes provisions to the ALLL on a regular basis through
charges to operations that are reflected in the Company's statements of income
as a provision for loan losses. When a loan is deemed uncollectible, it is
charged against the allowance. Any recoveries of previously charged-off loans
are credited back to the allowance. There is no precise method of predicting
specific losses or amounts that ultimately may be charged-off on particular
categories of the loan portfolio. Similarly, the adequacy of the ALLL and the
level of the related provision for possible loan losses is determined on a
judgment basis by management based on consideration of (i) economic conditions,
(ii) borrowers' financial condition, (iii) loan impairment, (iv) evaluation of
industry trends, (v) industry and other concentrations, (vi) loans which are
contractually current as to payment terms but demonstrate a higher degree of
risk as identified by management, (vii) continuing evaluation of the performing
loan portfolio, (viii) monthly review and evaluation of problem loans identified
as having loss potential, (ix) quarterly review by the Board of Directors, (x)
off balance sheet risks and (xi) assessments by regulators and other third
parties. Management and the Board of Directors evaluate the allowance and
determine its desired level considering objective and subjective measures, such
as knowledge of the borrowers' business, valuation of collateral, the
determination of impaired loans and exposure to potential losses.
The ALLL is a general reserve available against the total loan portfolio and off balance sheet credit exposure. It is maintained without any interallocation to the categories of the loan portfolio and the entire allowance is available to cover loan losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's ALLL. Such agencies may require the Bank to provide additions to the allowance based on their judgment of information available to them at the time of their examination. There is uncertainty concerning future economic trends. Accordingly, it is not possible to predict the effect future economic trends may have on the level of the provision for possible loan losses in future periods.
Net charge-offs were $499,000 or .44% of average loans during 1997. Net charge-offs were $1.919 million or 1.64% of average loans during 1996. During 1995, the Company experienced net charge-offs of $722,000 or .64% of average loans. The decrease in net charge-offs in 1997 as compared to 1996 resulted primarily from improved credit quality of the overall loan portfolio. Management does not believe there were any trends indicated by the detail of the aggregate charge-offs for any of the periods discussed.
The ALLL should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or proportions.
The following table summarizes the activity in the ALLL reserves for the periods indicated.
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
Beginning Balance: $ 2,819 $ 2,294 $ 2,294 $ 2,053 $ 1,730 $ 1,128 $ 915
Provision for ALLL 250 827 1,024 2,160 1,045 655 243
Charge-offs:
Commercial (118) (197) (393) (1,074) (510) (54) (40)
Real Estate (32) (129) (209) (916) (273) (18) (11)
Other (8) (39) (3) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total Charge-offs (158) (365) (605) (1,990) (783) (72) (51)
------- ------- ------- ------- ------- ------- -------
Recoveries:
Commercial 95 43 60 37 61 16 21
Real Estate 13 50 46 34 -- 3 --
------- ------- ------- ------- ------- ------- -------
Total Recoveries: 108 93 106 71 61 19 21
------- ------- ------- ------- ------- ------- -------
Ending Balance $ 3,019 $ 2,609 $ 2,819 $ 2,294 $ 2,053 $ 1,730 $ 1,128
======= ======= ======= ======= ======= ======= =======
ALLL to Total Loans 2.09% 2.60% 2.49% 2.06% 1.77% 1.65% 1.20%
|
INVESTMENT PORTFOLIO
The Company classifies its investment securities as "held-to-maturity" or "available-for-sale" at the time of investment purchase. Generally, all securities are purchased with the intent and ability to hold the security for long-term investment. However, situations may arise which necessitate selling some securities before maturity. Such situations include a need for liquidity, increased loan demand, a change in the asset/liability mix of the Company which requires some rebalancing in order to reduce the Company's risk, a change in interest rates requiring either an increase or decrease in the overall market risk of the securities portfolio, or a change in accounting standards. Securities held as available-for-sale may be sold to implement the Company's asset/liability management strategies.
The following table summarizes the contractual maturities of the Company's investment securities available-for-sale at their amortized cost basis and their weighted average yields at December 31, 1997.
Within After One After Five
One Year Through Five Years Through Ten Years Total
----------------- --------------------- --------------------- -------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
U.S. Government and Agencies $14,452 6.14% $21,516 6.10% $ 1,000 7.55% $36,968 6.60%
Obligations of State and
Political Subdivisions 2,326 4.20% 5,929 4.10% 2,270 4.15% 10,525 4.13%
Other Bonds 7,762 6.42% 283 4.98% 8,045 6.37%
Total $24,545 6.03% $27,725 5.12% $ 3,267 6.11% $55,538 5.80%
|
Investment securities held-to-maturity at December 31, 1997, consisted solely of mortgage-backed securities with a remaining contractual maturity greater than ten years and a weighted average yield of 6.58%.
The following table summarizes the book value of the Company's investment securities held on the dates indicated.
DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------- -------
(dollars in thousands)
U.S. Government and Agencies $36,968 $41,432 $28,151
Municipal Obligations $10,525 $ 6,529 $ 7,893
Corporate and Other Bonds $17,081 $ 3,944 $ 4,253
------- ------- -------
Total $64,574 $51,905 $40,297
======= ======= =======
|
DEPOSIT STRUCTURE
The Company primarily obtains deposits from local businesses and professionals as well as through certificates of deposits, savings and checking accounts.
The following table sets forth the distribution of the Company's average daily deposits for the periods indicated.
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------------------- --------------------- ---------------------
Amount Rate Amount Rate Amount Rate
------- ------- ------- ------- ------- -------
(dollars in thousands)
NOW Accounts $23,554 1.99% $19,536 2.14% $15,492 1.98%
Savings Accounts $11,802 2.91% $10,749 2.95% $ 9,541 3.29%
Money Market Accounts $19,357 2.06% $16,351 2.38% $16,394 2.74%
Certificates of Deposit $88,701 5.79% $96,979 5.84% $83,214 6.24%
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The following table sets forth the remaining maturities of certificates of deposit in amounts of $100,000 or more at December 31, 1997 (dollars are in thousands).
3 months or less $21,373
Over 3 through 6 months $ 8,579
Over 6 through 12 months $ 2,294
Over 12 months $ 4,763
-------
Total $37,009
=======
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LIQUIDITY
The Company's objective in liquidity management is to maintain a balance between the sources and uses of funds such that the cash flow needs of the Company are met in an economical manner. With respect to assets, liquidity is provided by cash and short term money market investments such as interest-bearing time deposits, federal funds sold, investment securities available-for-sale and principal and interest payments on loans. With respect to liabilities, the
Company's core deposits, shareholders' equity and the ability of the Bank to borrow funds and to generate deposits, provide asset funding.
The Company's liquid assets (cash and due from banks, federal funds sold and available-for-sale investment securities) totaled $42.96 million, or 20.9% of total assets, at September 30, 1998, and $74.11 million, or 36.2% of total assets, at December 31, 1997, compared to $68.63 million or 35.67% of total assets, at December 31, 1996. The Company expects that its primary source of liquidity will be supported by the earnings of the Company and the acquisition of core deposits. Core deposits totaled $143.66 million and $133.54 million at December 31, 1997, and 1996, respectively.
CAPITAL ADEQUACY
Capital adequacy is a measure of the amount of capital needed to sustain asset growth and act as a cushion for losses. Capital protects depositors and the deposit insurance fund from potential losses and is a source of funds for the investments the Company needs to remain competitive. Historically, capital has been generated principally from the retention of earnings, net of cash dividends.
Overall capital adequacy is monitored on a day-to-day basis by the Company's management and reported to the Company's Board of Directors on a monthly basis. The Bank's regulators measure capital adequacy by using a risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines. Under the risk-based capital standard, assets reported on the Company's balance sheet and certain off-balance sheet items are assigned to risk categories, each of which is assigned a risk weight. This standard characterizes an institution's capital as being "Tier 1" capital (defined as principally comprising shareholders' equity) and "Tier 2" capital (defined as principally comprising the qualifying portion of the ALLL). The minimum ratio of total risk-based capital to risk-adjusted assets, including certain off-balance sheet items, is 8%. At least one-half (4%) of the total risk-based capital (Tier 1) is to be comprised of common equity; the balance may consist of debt securities and a limited portion of the ALLL.
The following table sets forth the Bank's capital ratios as of September 30, 1998, and December 31, 1997.
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
Total Risk-Based Capital 14.79% 16.16%
Tier 1 Capital to Risk-Based Assets 13.53% 14.91%
Tier 1 Capital to Average Assets 10.83% 10.41%
(Leverage ratio)
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The declines in each of the Bank's capital ratios as of September 30, 1998, compared to December 31, 1997, are principally the result of growth in the Bank's loan portfolio, which requires greater percentages of capital than investment securities under the risk-based capital standards.
IMPACT OF INFLATION
Inflation affects the Company's financial position as well as its operating results. It is management's opinion that the effects of inflation on the financial statements have not been material.
YEAR 2000
The "Year 2000 issue" relates to the fact that many computer programs use only two digits to represent a year, such as "98" to represent "1998," which means that in the Year 2000 such programs could incorrectly treat the Year 2000 as the year 1900. This issue has grown in importance as the use of computers and microchips has become more pervasive throughout the economy, and interdependencies between systems have multiplied. The issue must be recognized as a business problem, rather than simply a computer problem, because of the way its effects could ripple through the economy. The Company could be materially and adversely affected either directly or indirectly by the Year 2000 issue. This could happen if any of its critical computer systems or equipment containing embedded logic fail, if the local infrastructure (electric power, phone system, or water system) fails, if its significant vendors are adversely impacted, or if its borrowers or depositors are adversely impacted by their internal systems or those of their customers or suppliers.
Failure of the Company to complete testing and renovation of its critical systems on a timely basis could have a material adverse effect on the Company's financial condition and results of operations, as could Year 2000 problems faced by others with whom the Company does business. Because of the range of possible issues and the large number of variables involved, it is impossible to quantify the potential cost of problems should the Company's remediation efforts or the efforts of those with whom it does business not be successful.
Federal banking regulators have responsibility for supervision and examination of banks to determine whether each institution has an effective plan for identifying, renovating, testing and implementing solutions for Year 2000 processing and coordinating Year 2000 processing capabilities with its customers, vendors and payment system partners. Bank examiners are also required to assess the soundness of a bank's internal controls and to identify whether further corrective action may be necessary to assure an appropriate level of attention to Year 2000 processing capabilities. The Company is utilizing both internal and external resources to identify, correct or reprogram, and test the systems for Year 2000 compliance. The Company has scheduled its reprogramming efforts to be completed by December 31, 1998, to allow time for testing. Reprogramming efforts of the Company's primary processing applications have been completed and are in the testing phase.
The Company has contacted its major customers and asked them to complete a Year 2000 compliance questionnaire. All questionnaires are scheduled to be received and evaluated by December 31, 1998, and testing of these customer relationships is scheduled to be complete by June 30, 1999. The impact of the Year 2000 on these customer relationships is not currently known. The Company has also obtained Year 2000 compliance information from most of its vendors and testing is scheduled to be completed by December 31, 1998. Any subsequent remediation and implementation is scheduled to be substantially complete by June 30, 1999. Although the Company is attempting to monitor and validate the efforts of third parties, it cannot control the success of these efforts. The Company is currently identifying all noninformation technology systems, which typically include embedded technology such as microcontrollers. These systems are expected to be identified and evaluated by December 31, 1998, with testing, remediation and implementation timing to be determined after the evaluation phase.
The Company has adopted a corporate contingency plan which details specific processes and procedures that will take place in the event Year 2000 preparations do not perform as expected. The processes and procedures include identifying alternate processing sites, restoring back up files, increasing cash on hand or the availability of cash, setting cash withdrawal limits and training employees on manual record keeping. In addition, the Company has strengthened its back-up system capabilities in the event its suppliers and vendors are not fully in compliance with Year 2000 standards by the turn of the century.
As of September 30, 1998, the Company has incurred $200,000 in Year 2000 costs, which have been expensed as incurred. Year 2000-related costs have been funded from the continuing operations of the Company and, as of September 30, 1998, have constituted approximately 22% of the Company's information systems budget for 1998. The Company estimates that its costs to complete Year 2000 compliance will be approximately $100,000. This estimate includes the cost of purchasing hardware and licenses for software programming tools, the cost of the time of internal staff and the cost of consultants. The estimate does not include the time that internal staff are devoting to testing programming changes. Testing is not expected to add significant incremental costs. Certain information system projects at the Company have been deferred as a result of the Company's Year 2000 compliance efforts. However, these deferrals are not expected to have a material effect on the Company's business.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary component of market risk is interest rate volatility. Fluctuation in interest rates will ultimately impact both the level of interest income and interest expense recorded on a large portion of the Company's assets and liabilities, and the fair market value of interest earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Because the Company's interest-bearing liabilities and interest-earning assets are with the Bank, the Company's interest rate risk exposure is in connection with the Bank's operations. As a result, all significant interest rate risk management procedures are performed at the Bank level. Based upon the nature of its operations, the Bank is not subject to foreign currency exchange or commodity price risk. The Bank's real estate loan portfolio, concentrated within Northern California, is subject to risks associated with the local economy. The Company does not own any trading assets. See "-Asset Quality."
The fundamental objective of the Company's management of its assets and liabilities is to enhance the economic value of the Company while maintaining adequate liquidity and an exposure to interest rate risk deemed acceptable by the Company's management. The Company manages its exposure to interest rate risk through adherence to maturity, pricing and asset mix policies and procedures designed to mitigate the impact of changes in market interest rates. The Bank's profitability is dependent to a large extent upon its net interest income, which is the difference between its interest income on interest-earning assets, such as loans and securities, and its interest expense on interest-bearing liabilities, such as deposits and borrowings.
The formal policies and practices adopted by the Bank to monitor and manage interest rate risk exposure measure risk in two ways: (i) repricing opportunities for earning assets and interest-bearing liabilities and (ii) changes in net interest income for declining interest rate shocks of 100 basis points.
The following table sets forth, as of December 31, 1997, the distribution of repricing opportunities for the Company's earning assets and interest-bearing liabilities, the GAP between repricing earning assets and interest-bearing liabilities, the cumulative GAP, the ratio of rate sensitive assets to rate sensitive liabilities for each repricing interval, and the cumulative GAP to total assets.
Within 3 3 Months to One One to Five Five Plus
Months Year Years Years Total
---------- --------------- ----------- --------- -----
(dollars in thousands)
EARNING ASSETS:
Investment Securities
Available-for-Sale $ 0 $ 0 $ 0 $ 9,037 $ 9,037
Investments 8,675 6,901 32,718 7,487 55,781
Federal Funds Sold 6,900 0 0 0 6,900
Net Loans 83,730 4,250 12,940 9,671 110,591
--------- --------- --------- --------- ---------
Total Earning Assets 99,305 11,151 45,658 26,195 182,309
--------- --------- --------- --------- ---------
INTEREST-BEARING
LIABILITIES:
Demand Deposits 42,121 0 0 0 42,121
Savings Deposits 11,581 0 0 0 11,581
Time Deposits 58,853 20,314 7,734 0 86,901
--------- --------- --------- --------- ---------
Total Interest-Bearing
Liabilities 112,555 20,314 7,734 0 140,603
--------- --------- --------- --------- ---------
GAP $ (13,250) $ (9,163) $ 37,924 $ 26,195 $ 41,706
========= ========= ========= ========= =========
Cumulative GAP $ (13,250) $ (22,413) $ 15,511 $ 41,706
========= ========= ========= =========
RSA/RSL .88 .55 5.90 1.30
Cumulative GAP to
Total Earning Assets (7.27)% (12.29)% 8.51% 22.88%
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Because of the Bank's capital position and noninterest-bearing demand deposit accounts, the Bank is asset sensitive. As a result, management anticipates that, in a declining interest rate environment, the Company's net interest income and margin would be expected to decline, and, in an increasing interest rate environment, the Company's net interest income and margin would be expected to increase. However, no assurance can be given that under such circumstances the Company would experience the described relationships to declining or increasing interest rates. Because the Bank is asset sensitive, the Company is adversely effected by declining rates rather than rising rates.
To estimate the effect of interest rate shocks on the Company's net interest income, management uses a model to prepare an analysis of interest rate risk exposure. Such analysis calculates the change in net interest income given a change in the federal funds rate of 100 basis points up or down. All changes are measured in dollars and are compared to projected net interest income.
The model utilized by management to create the analysis described in the
preceding paragraph uses balance sheet simulation to estimate the impact of
changing rates on the annual net interest income of the Bank. The model
considers a number of factors, including (i) change in customer and management
behavior in response to the assumed rate shock, (ii) the ratio of the amount of
rate change for each interest-bearing asset or liability to assumed changes in
the federal funds rate based on local market conditions for loans and core
deposits and national market conditions for other assets and liabilities and
(iii) timing factors related to the lag between the rate shock and its effect on
other interest-bearing assets and liabilities.
ITEM 3. PROPERTIES
The Company's principal offices and the Bank's main office are housed in a two-story building with approximately 21,000 square feet of space located at 1951 Churn Creek Road, Redding, California, 96002. The Bank owns the building and the 1.25 acres of land on which the building is situated. The Bank also owns the land and building located at 1177 Placer Street, Redding, California, 96002, in which the Bank utilizes approximately 11,650 square feet of space for its banking operations.
The Company's Roseville loan production office is located in a one-story building with approximately 1,484 square feet of space located at 2400 Professional Drive, Roseville, California. The Company leases the space pursuant to a triple net lease expiring in August 31, 2003.
The Company's Chico loan production office is located in a one-story building with approximately 600 square feet of space located at 676 East First Avenue, Chico, California, 95926. The Company leases the space pursuant to a lease expiring in March 1999.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of October 30, 1998 by (i) each person who is known by the Company to beneficially own more than five percent of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers (as defined on p. 43) and (iv) all directors and executive officers of the Company as a group.
Number of
Shares of
Common Stock
Beneficially
Name and Address of Beneficial Owner Owned(1) Percent
------------------------------------ ------------ -------
Gilbert and Irene Goetz
P. O. Box 493130
Redding, CA 96049 ................................. 150,240 5.80
Robert C. Anderson(2)
1954 Bechelli Lane
Redding, CA 96002 ................................. 144,600 5.38
John C. Fitzpatrick(3)
P. O. Box 994206
Redding, CA 96099 ................................. 170,670 6.34
Harry L. Grashoff, Jr.(4)
3677 Rosita Drive
Redding, CA 96001 ................................. 143,220 5.32
Welton L. Carrel(5) ................................ 77,040 2.86
Russell L. Duclos .................................. 17,082 *
Kenneth R. Gifford ................................. 23,940 *
Richard W. Green(6) ................................ 42,000 1.56
Charles E. Metro(7) ................................ 66,000 2.35
Eugene L. Nichols(8) ............................... 36,144 1.36
David H. Scott ..................................... 900 *
Michael C. Mayer ................................... 3,000 *
All directors and executive officers as a
group (12 persons) ................................. 724,596 26.99
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* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnotes and subject to community property laws, where applicable, the persons named above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
(2) Consists of 144,600 shares held by the Anderson Family Revocable Living Trust of which Mr. Anderson is a co-trustee and shares voting and investment power with respect to such shares.
(3) Consists of 119,010 shares held by Pepsi Cola Bottling Company of Northern California ("Pepsi") and 51,660 shares owned by the Pepsi Profit Sharing Plan (the "Pepsi Plan"). Mr. Fitzpatrick is chief executive officer of Carbonated Industries, a majority stockholder of Pepsi, and may be deemed to share voting and investment power with respect to such shares. Mr. Fitzpatrick is a participant in the Pepsi Plan. Mr. Fitzpatrick disclaims
beneficial ownership of such shares except for those shares in which he has a pecuniary interest.
(4) Includes 129,720 shares held jointly with Mr. Grashoff's spouse and 5,640 shares held separately in his spouse's name.
(5) Consists of 76,860 shares held by the Carrel Family Living Trust of which Mr. Carrel is a co-trustee and shares voting and investment power with respect to such shares, and 180 shares held in Mr. Carrel's spouse's name for their grandchildren.
(6) Includes 36,300 shares held in the Green Family Revocable Living Trust of which Mr. Green is a co-trustee and shares voting and investment power with respect to such shares.
(7) Includes 47,250 shares held by Charles E. Metro Investment Company Profit Sharing Plan (the "Profit Sharing Plan"). Mr. Metro is a trustee of the Profit Sharing Plan and shares voting and investment power with respect to such shares.
(8) Includes 1,500 shares held by Mr. Nichols' spouse.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, and their ages as of October 30, 1998, are as follows:
Name Age Position(s)
---- --- -----------
Robert C. Anderson.......................... 65 Chairman of the Board
Russell L. Duclos........................... 59 President and Chief Executive Officer
Michael C. Mayer............................ 42 Executive Vice President and Chief
Credit Officer
Linda J. Miles.............................. 44 Executive Vice President, Chief Financial
Officer and Assistant Secretary
Welton L. Carrel............................ 61 Director
John C. Fitzpatrick......................... 63 Director
Kenneth R. Gifford.......................... 52 Director
Harry L. Grashoff, Jr....................... 63 Director
Richard W. Green............................ 69 Director
Charles E. Metro............................ 69 Director
Eugene L. Nichols........................... 64 Director
David H. Scott.............................. 54 Director
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Robert C. Anderson has served as Chairman of the Board of the Company since the Company's incorporation in January 1982 and is a member of the loan, marketing, executive compensation, asset/liability, audit, long range planning and executive committees of the Board. Mr. Anderson is a member of the Redding City Council.
Russell L. Duclos has served as President and Chief Executive Officer of the Company since July 1997. From 1982 to July 1997, he served as Chief Loan Officer of the Company. Mr. Duclos presently serves on the executive, loan, marketing and long range planning committees of the Board of Directors.
Michael C. Mayer has served as Executive Vice President and Chief Credit Officer of the Company since April 1997. From 1993 to April 1997, Mr. Mayer was Senior Vice President and Senior Loan Officer of Mid Valley Bank, a community bank located in Red Bluff, California. From 1990 to 1993, he was a Vice President and Commercial Lender of River City Bank, a
community bank in Sacramento, California. Mr. Mayer serves on the loan, executive, asset/liability and marketing committees of the Board of Directors.
Linda J. Miles has served as Executive Vice President, Chief Financial Officer and Assistant Secretary of the Company since October 1989. Ms. Miles attends all meetings of committees of the Board of Directors. From 1980 to 1989, she served as Chief Financial Officer of Scott Valley Bank, a community bank located in Yreka, California.
Welton L. Carrel has served as a director of the Company since January 1982. Mr. Carrel is retired. From 1961 to 1989, he was President of Western Business Equipment d.b.a. Carrel's Office Machines. Mr. Carrel serves as chairman of the asset/liability committee and is a member of the audit, long range planning and marketing committees of the Board of Directors.
John C. Fitzpatrick has been a director of the Company since January 1982. Mr. Fitzpatrick has served as President and Chief Executive Officer of Pepsi Cola Bottling Company of Northern California since 1986 and Chief Executive Officer of Carbonated Industries since its inception in 1986. From 1962 to 1985, Mr. Fitzpatrick was President and Chief Executive Officer of McCall's Dairy Milk and Ice Cream. Mr. Fitzpatrick also serves as Secretary of John Fitzpatrick & Sons, Inc., a Property Investment Company. Mr. Fitzpatrick serves on the executive, long range planning and audit committees of the Board of Directors.
Kenneth R. Gifford has served as a director of the Company since January 1998. Mr. Gifford has been a director, President and Chief Executive Officer of Gifford Construction, Inc. since 1972. Mr. Gifford serves on the audit, executive compensation, long range planning and marketing committees of the Board of Directors.
Harry L. Grashoff Jr. has served as a director of the Company since January 1982. From 1982 to July 1997, Mr. Grashoff was President and Chief Executive Officer of the Company. Mr. Grashoff serves on the executive, loan, long range planning, asset/liability and marketing committees of the Board of Directors.
Richard W. Green has been a director of the Company since January 1982. Mr. Green has been retired since 1991. From 1955 to 1991, he served as Vice President and General Manager of California-Oregon Broadcasting Company, Inc., a television and radio broadcasting company. Mr. Green serves as chairman of the loan committee and the marketing committee, and is a member of the executive, long range planning, executive compensation and asset/liability committees of the Board of Directors.
Charles E. Metro has been a director of the Company since January 1982. Mr. Metro is President of Charles E. Metro Investment Co., a real estate investment and development company, a position he has held for more than five years. Mr. Metro serves on the loan and long range planning committees of the Board of Directors.
Eugene L. Nichols has been a director of the Company since January 1982. He is a General Partner and Chief Executive Officer of Nichols, Melburg and Rossetto and Associates, an architectural firm, a position he has held since 1981. Mr. Nichols serves on the audit, long range planning and marketing committees of the Board of Directors.
David H. Scott has been a director of the Company since April 1997. He is Managing Partner of D. H. Scott & Company, a public accounting firm, a position he has held since 1986. Mr. Scott serves on the audit, asset/liability, executive compensation and loan committees of the Board of Directors.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning compensation paid to the Company's Chief Executive Officer and two other officers who were serving as executive officers on December 31, 1997, and whose aggregate salary and bonus exceeded $100,000 in fiscal 1997 (the "Named Executive Officers") and for each of the fiscal years ended December 31, 1996, and 1995.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
-----------
Annual Compensation Awards
--------------------------------------- -----------
Securities All Other
Underlying Compensa-
Name and Principal Position Year Salary ($) Bonus ($) Other ($)(3) Options (#) tion ($)(4)
--------------------------- ---- ---------- --------- ------------ ----------- -----------
Harry L. Grashoff, Jr 1997 $130,263 -- $ 5,000 -- $ 2,342
President and Chief Executive 1996 $115,000 $116,000 $ 5,000 -- $ 2,342
Officer(1) 1995 $110,000 $110,000 $ 5,000 -- $ 2,342
Russell L. Duclos 1997 $100,000(2) $ 80,000 $ 5,000 -- $ 2,342
President and Chief Executive 1996 $ 77,500 $ 62,500 $ 5,000 -- $ 2,342
Officer 1995 $ 75,000 $ 57,000 $ 5,000 -- $ 2,342
Linda J. Miles 1997 $ 80,000 $ 70,000 $ 5,000 -- $ 2,342
Executive Vice President and 1996 $ 72,500 $ 62,500 $ 5,000 -- $ 2,342
Chief Financial Officer 1995 $ 70,000 $ 57,000 $ 5,000 -- $ 2,342
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(1) Mr. Grashoff retired as President and Chief Executive Officer of the Company on June 30, 1997 and was succeeded by Russell L. Duclos.
(2) Includes $15,400 deferred by Mr. Duclos pursuant to the Company's Directors Deferred Compensation Plan.
(3) Mr. Duclos, Mr. Mayer and Mrs. Miles are each provided with an automobile for business use and the Company pays all expenses relating to those vehicles. In addition, the Company pays membership expenses for Mr. Duclos, Mr. Mayer and Mrs. Miles in connection with the use of a private club for business purposes, particularly for the purpose of entertaining the Bank's clients. These officers may have derived some personal benefit from the use of such automobiles and membership. The Company, after reasonable inquiry, believes that the value of any personal benefit not directly related to job performance which is derived from the personal use of such automobiles and memberships does not exceed $5,000 per year in the aggregate for any single executive officer.
(4) Represents health insurance premiums paid by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to the Company's Named Executive Officers during the fiscal year ended December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE TABLE
No options were exercised by the Named Executive Officers during the fiscal year ended December 31, 1997, and none held unexercised options at December 31, 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Russell L. Duclos, the President and Chief Executive Officer of the Company. The agreement may be terminated by either the Company or Mr. Duclos, with or without cause or notice. Unless sooner terminated, the agreement shall automatically terminate on June 30, 2000. Pursuant to the agreement, Mr. Duclos' initial base salary shall be $100,000 per year and shall be reviewed and adjusted annually. The agreement also provides that Mr. Duclos shall be eligible to receive profit sharing compensation pursuant to the Company's Incentive Profit Sharing Plan. The Company also agreed to provide Mr. Duclos with the following additional benefits: (i) an automobile and payment of all necessary and customary expenses therefor, (ii) a proprietary membership and monthly dues in the Riverview Country Club for use by Mr. Duclos for business development and (iii) an annual paid vacation of four weeks. In the event Mr. Duclos is terminated by the Company for a reason other than cause, the Company is obligated to pay Mr. Duclos an amount equal to twice his then annual base salary, which amount is required to be paid over a period of one year.
COMPENSATION OF DIRECTORS
Each outside director of the Company receives $850 for each Board of Directors meeting attended, $500 for each meeting not attended, $250 for each loan committee meeting attended and $200 for each other committee meeting attended. The Chairman of the Board is paid an additional $700 per month, regardless of the number of meetings attended. Directors are eligible to participate in the Company's 1998 Stock Option Plan, as determined by the Executive Compensation Committee.
INCENTIVE PROFIT SHARING PLAN
The Board of Directors of the Company adopted an Incentive Profit Sharing Plan in July 1983, which will remain in effect until terminated by the Board of Directors. The Incentive Profit Sharing Plan provides that bonuses are computed on the Company's profits after a 20% return to shareholders, before taxes, less any gain on investment securities plus any loss on investment securities sold. The bonus is paid on the first day of each calendar quarter as to 70% of the bonus earned for the previous calendar quarter. Upon receipt of the certified annual statement, the incentive bonus is adjusted and the remainder of the bonus earned, if any, is paid to the recipients thereof.
The participants in the plan are the Company's President and Chief Executive Officer, Russell L. Duclos, as to 3.05% of the profits as defined above; Michael Mayer, Executive Vice President and Chief Credit Officer, as to 2.45% of such profits; and Linda J. Miles, Executive Vice President and Chief Financial Officer as to 2.55% of such profits. The remainder of the Company's employees may receive up to 12% of the profits at the discretion of the President of the Company.
DIRECTORS DEFERRED COMPENSATION PLAN
Effective January 1993, the Board of Directors adopted the Directors Deferred Compensation Plan (the "Deferred Compensation Plan") pursuant to which each director of the Company may elect to defer all or any part of the compensation to which such director would be entitled as a director such as director's fees or committee fees. An election to defer compensation continues in effect until revoked and deferred compensation, together with interest thereon, is payable to the director or his or her beneficiary within 30 days after the date of death or resignation unless the director has designated an optional installment method of payment over a period of up to ten years. Pursuant to the Deferred Compensation Plan, each director may designate one or more beneficiaries to receive amounts due such director upon such director's death. Interest on amounts deferred is credited on a monthly basis and compounded at a rate equal to .5% above the Bank's reference
rate, which is set on July 1 of each year. If the Bank changes the method of computing its reference rate, then the Deferred Compensation Plan provides that the Bank's reference rate will be replaced by the prime rate published in the West Coast edition of the Wall Street Journal. The Deferred Compensation Plan may be terminated by the Company at any time with respect to compensation earned on or after the termination date.
1998 STOCK OPTION PLAN
On February 17, 1998, the Board of Directors adopted the 1998 Stock Option Plan (the "Plan") which was approved by the Company's shareholders on April 21, 1998. The Plan provides for awards in the form of options (which may constitute incentive stock options ("Incentive Options") under Section 422(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options ("NSOs")) to key personnel of the Company, including the Directors of the Company or any subsidiary. The Plan is not qualified under section 401(a) of the Code or subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. The Plan provides that Incentive Options under the Plan may not be granted at less than 100% of fair market value of the Company's Common Stock on the date of the grant, which means the recipient receives no benefit unless the Company's Common Stock price increases over the option term. Under the terms of the Plan, NSOs may not be granted at less than 85% of the fair market value of the Common Stock on the date of the grant. The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by (i) encouraging key personnel to focus on critical long range objectives, (ii) increasing the ability of the Company to attract and retain key personnel and (iii) linking key personnel directly to shareholder interests through increased stock ownership. A total of 540,000 shares of the Company's Common Stock are available for grant under the Plan. If an option granted under the Plan expires, is canceled, forfeited or terminates without having been fully exercised, the unpurchased shares which were subject to that option again become available for the grant of additional options under the Plan.
The Plan is administered by the Executive Compensation Committee of the Board of Directors. Subject to the terms of the Plan, the Executive Compensation Committee determines the number of options in the award as well as the vesting and all other conditions. The Plan provides that all options under the Plan shall vest at a rate of at least 20% per year from the date of the grant. Vesting may be accelerated in the event of an optionee's death, disability, or retirement, or in the event of a change in control. As of October 30, 1998, the Company had outstanding options to purchase an aggregate of 411,000 shares of the Company's Common Stock at exercises prices ranging from $9.07 to $10.67 per share or a weighted average exercise price per share of $9.62.
INDEMNIFICATION MATTERS
The Company's bylaws provide for indemnification of the Company's directors, officers, employees and other agents of the Company to the extent and under the circumstances permitted by the California General Corporation Law. The Company's bylaws also provide that the Company 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 the Company would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of the Company's bylaws.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee of the Board of Directors consists of five directors, none of whom is an officer or employee of the Company.
REPORT ON EXECUTIVE COMPENSATION
The Company's compensation programs and policies applicable to its executive officers are administered by the Executive Compensation Committee of the Board of Directors. The Executive Compensation Committee is made up entirely of nonemployee directors. The members of the Executive Compensation Committee are Robert C. Anderson, John C. Fitzpatrick, Richard W. Green, David H. Scott and Kenneth R. Gifford.
COMPENSATION PHILOSOPHY AND POLICIES
The Company's compensation programs and policies are designed to enhance shareholder value by aligning the financial interests of the executive officers of the Company with those of the Company's shareholders. The Company has established an Executive Compensation Committee, which meets annually to review the salaries of executive officers. It is the Committee's responsibility to reestablish the base salary and propose adjustments to the incentive compensation portion, and establish a discretionary bonus plan if all performance objectives are met. Income arising under the Company's 1998 Stock Option Plan currently does not qualify as performance-based compensation. The Company intends to retain the flexibility necessary to provide total cash compensation in line with competitive practice, the Company's compensation philosophy and the Company's best interests, including compensation that may not be deductible.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
There are four primary components of executive compensation: base salary, incentive bonus, discretionary bonus and, commencing in 1998, the Plan.
Base Salary
The annual base salaries of executive officers are reviewed by the Executive Compensation Committee, taking into consideration the competitive level of salaries in the industry, the overall performance of the Company, the performance of the portfolio and department under the executive officer's management control and the individual executive officer's contribution and performance.
The base salary for the Chief Executive Officer was determined by (i) examining the Company's performance against its preset goals, (ii) comparing the Company's performance against its competitors, (iii) evaluating the effectiveness and performance of the Chief Executive Officer and (iv) comparing the base salary of the Chief Executive Officer to that of other chief executive officers in the business banking industry.
Incentive Bonus Plan
The Company's 1997 Incentive Bonus Plan (the "Bonus Plan") was a cash-based incentive bonus program. The Bonus Plan provides that bonuses are computed on the Company's profit after a 20% return to shareholders, before income taxes, less any gain on investments securities sold and plus any losses on investment securities sold. The cash incentive is paid the first week of each calendar quarter as to 70% of the incentive earned for the previous calendar quarter. The corporation on its certified annual financial statement makes an adjustment of the incentive bonuses upon receipt. Upon receipt of the statement, the incentive bonus is adjusted, and the remainder of the bonus, if any, is paid to the recipients thereof. The Company's President & Chief Executive Officer earns 3.05% of the profits as defined above, the Company's Executive Vice President and Chief Credit Officer earns 2.45% of the profits, and the Company's Executive Vice President and Chief Financial Officer earns 2.55% of the profits.
Stock Options
Under the Company's compensation philosophy, ownership of the Company's Common Stock is a key element of executive compensation. The grant of a stock option is intended to retain and motivate key executives and to provide a direct link with the interest of the shareholders of the Company. In general, stock option grants are determined based on (i) prior award levels, (ii) total awards received to date by the individual executives, (iii) the total stock award to be made and the executive's percentage participation in that award, (iv) the executive's direct ownership of Company Common Stock, (v) the number of options vested and nonvested and (vi) the options outstanding as a percentage of total shares outstanding.
Respectfully submitted,
Robert C. Anderson
John C. Fitzpatrick
Richard W. Green
David H. Scott
Kenneth R. Gifford
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the directors, officers and principal shareholders of the Company and their associates were customers of and had banking transactions with the Bank in the ordinary course of the Bank's business during 1997 and the Bank expects to have such transactions in the future. All loans and commitments to loans included in such transactions were made in compliance with the applicable laws on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar creditworthiness, and in the opinion of the Company, did not involve more than a normal risk of collectibility or present other unfavorable features.
ITEM 8. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various legal actions arising in the ordinary course of business. The Company believes that the ultimate disposition of all currently pending matters will not have a material adverse effect on the Company's financial condition or results of operations.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is not listed on any stock exchange or quoted on the NASDAQ and there is no established public trading market for the Company's Common Stock. The Company is aware that Van Kasper & Company located at 600 California Street, Suite 1700, San Francisco, California 94108, handles trades in the Company's Common Stock.
The following table, which summarizes trading activity during the Company's last two fiscal years and the nine month period ended September 30, 1998, is based on information provided by Van Kasper & Company. The quotations reflect the price that would be received by the seller without retail mark-up, mark-down or commissions and may not have represented actual transactions.
Sales Price
----------------------
Quarter Ended: High Low Volume
-------------- ------ ------ ------
March 31, 1996 $ 8.33 $ 8.00 18,450
June 30, 1996 $10.33 $10.33 600
September 30, 1996 -- -- --
December 31, 1996 $11.33 $10.67 14,130
March 31, 1997 $10.67 $10.67 2,175
June 30, 1997 $10.67 $10.67 32,280
September 30, 1997 $10.83 $10.33 19,914
December 31, 1997 $11.42 $10.00 26,223
March 31, 1998 $11.33 $10.67 4,440
June 30, 1998 $11.42 $10.75 648
September 30, 1998 $16.00 $16.00 426
|
On October 22, 1998, the Company paid a $.50 per share cash dividend to shareholders of record on October 1, 1998. On October 22, 1997, the Company paid a $.25 per share cash dividend to shareholders of record as of October 1, 1997, and on October 22, 1996, the Company paid a $.33 per share cash dividend to shareholders of record as of October 1, 1996.
As of October 30, 1998, there were approximately 298 holders of record of the Company's Common Stock.
As of October 30, 1998, the Company had options outstanding to purchase an aggregate of 411,000 shares of Common Stock at exercise prices ranging from $9.07 to $10.67 per share or a weighted average exercise price per share of $9.62, and 540,000 shares reserved for issuance pursuant to the Company's 1998 Stock Option Plan.
As of October 30, 1998, the Company had issued and outstanding 2,684,103 shares of Common Stock, approximately 1,959,507 of which are eligible for sale in the public market without restriction by persons other than affiliates of the Company under the Securities Act, and 724,596 of which are eligible for sale in the public market pursuant to Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, if one year has elapsed since the later of the date of acquisition of restricted securities from the Company or any affiliate of the Company, a person (or persons whose shares are aggregated) would be entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) 1% of the number of then outstanding shares of Common Stock (26,841 shares as of October 30, 1998) and (ii) the average weekly trading volume of Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also subject to certain manner of sales provisions, notice requirements and the availability of current public information about the Company. If two years have elapsed since the date of acquisition of restricted securities from the Company or any affiliate of the Company, and the acquiror or subsequent holder thereof is deemed not to have been an affiliate of the Company at any time during the 90 days preceding a sale, such person (or persons whose shares are aggregated) would be entitled to sell such shares in the public market under Rule 144(k) without regard to the volume limitations, manner of sale provisions, notice requirements and the availability of current public information requirements. An "affiliate" of an entity is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with such entity and may include officers and directors, principal shareholders and certain shareholders with special relationships. The foregoing is a summary of Rule 144 and is not intended to be a complete description of it.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In each of 1995 and 1998, outstanding options to purchase 6,000 shares of the Company's Common Stock were exercised. The options were issued pursuant to the Company's 1982 Stock Option Plan which was terminated in April 1992. As of October 30, 1998, there were no options outstanding under the 1982 Stock Option Plan.
The Company relied on the exemption provided by Section 3(a)(11) of the Securities Act in connection with the exercise of outstanding options in 1995 and 1998. The persons who exercised the options were all residents of the State of California and the Company is a California corporation doing business in the State of California.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
COMMON STOCK
The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock, no par value (the "Common Stock"). As of October 30, 1998, there were issued and outstanding 2,684,103 shares of Common Stock.
VOTING RIGHTS
The holders of the Company's Common Stock are entitled to one vote per share on all matters requiring shareholder action, except that in connection with the election of directors, the shares may be voted cumulatively if a nominee's or nominee's name(s) have been properly placed in nomination prior to the voting and a shareholder present at the meeting has given notice of his or her intention to vote his or her shares cumulatively. If a shareholder has given such notice, then all shareholders entitled to vote for the election of directors may cumulate their votes. Cumulative voting entitles a shareholder to give one or more nominees as many votes as is equal to the number of directors to be elected multiplied by the number of shares owned by such shareholder, or to distribute his or her votes on the same principle between two or more nominees as he or she sees fit.
The holders of Common Stock have no preemptive or other rights and there are no redemption, sinking fund or conversion privileges applicable thereto. The holders of Common Stock are entitled to receive dividends as and when declared by the Board of Directors out of funds legally available therefore, subject to the restrictions by its regulators. See "Business-Supervision and Regulation-Restrictions on Dividends and Other Distributions." Upon liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities.
The Company's transfer agent is ChaseMellon Shareholder Services, 235 Montgomery Street, 23rd Floor, San Francisco, California.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law provides for the
indemnification of officers, directors and other corporate agents, subject to
limited exceptions, against liabilities arising by reason of their status or
services as an officer, director or corporate agent. 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.
Section 12 of Article III of the Company's bylaws (Exhibit 3.2 hereto) provides for indemnification of the Company's directors, officers, employees and other agents of the Company to the extent and under the circumstances permitted by the California General Corporation Law. The Company's bylaws also provide that the Company 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 the Company would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of the Company's bylaws.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing, the Company has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS
Page
----
Report of KPMG Peat Marwick LLP, Independent Auditors' Report 52
Consolidated Balance Sheets 53
Consolidated Statements of Income 54
Consolidated Statements of Stockholders' Equity 55
Consolidated Statements of Cash Flows 56
Notes to Consolidated Financial Statements 57
|
All schedules are omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the Consolidated Financial Statements or Notes thereto.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Unaudited Condensed Consolidated Balance Sheets 81
Unaudited Condensed Statements of Income 82
Unaudited Condensed Statements of Shareholders' Equity 83
Unaudited Condensed Statements of Cash Flows 84
Notes to Unaudited Condensed Consolidated Financial Statements 85
|
All schedules are omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the Unaudited Condensed Consolidated Financial Statements thereto.
KPMG Peat Marwick LLP
400 Capitol Mall
Sacramento, CA 95814
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Redding Bancorp and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Redding Bancorp and subsidiaries (the Bank) as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Redding Bancorp and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 21, 1998, except as to note 12,
which is as of June 16, 1998
|
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
------ ------------ ------------
Cash and due from banks (note 2) $ 11,431,374 11,970,652
Federal funds sold 6,900,000 6,780,000
Investment securities available-for-sale, at market (note 3) 55,780,926 49,883,352
Investment securities held-to-maturity, at cost
(aggregate market value of $9,081,482 in 1997 and
$2,111,613 in 1996) (note 3) 9,037,300 2,168,712
Loans, net (note 4) 110,591,206 109,059,282
Bank premises and equipment, net (note 5) 5,842,379 5,855,591
Other assets (note 6) 5,237,155 6,670,925
------------ ------------
Total assets $204,820,340 192,388,514
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand - noninterest bearing $ 40,069,672 31,116,937
Demand - interest bearing 42,121,317 36,418,044
Savings 11,580,784 12,456,486
Certificates of deposits (note 7) 86,901,502 91,376,502
------------ ------------
180,673,275 171,367,969
Other liabilities (note 8) 2,322,480 1,840,702
------------ ------------
Total liabilities 182,995,755 173,208,671
------------ ------------
Shareholders' equity (notes 10, 11, 12, 13 and 17):
Common stock, no par value; 10,000,000 shares
authorized; 2,684,103 shares issued and
outstanding in 1997 and 2,701,416 shares issued
and outstanding in 1996 4,561,821 4,561,821
Retained earnings 17,108,836 14,526,071
Accumulated other comprehensive income, net 153,928 91,951
------------ ------------
Total stockholders' equity 21,824,585 19,179,843
Commitments and contingencies (note 15)
------------ ------------
Total liabilities and stockholders' equity $204,820,340 192,388,514
============ ============
|
See accompanying notes to consolidated financial statements.
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
Interest income:
Interest and fees on loans $11,519,475 12,023,193 12,624,135
Interest on tax exempt securities 292,038 367,189 258,253
Interest on U.S. government securities 3,008,859 2,319,742 1,316,215
Interest on federal funds sold 568,784 601,798 698,820
Interest on other securities 375,446 253,494 224,378
----------- ----------- -----------
Total interest income 15,764,602 15,565,416 15,121,801
----------- ----------- -----------
Interest expense:
Interest on demand deposits 856,979 813,823 876,768
Interest on savings deposits 342,839 317,479 314,379
Interest on time deposits 5,134,417 5,666,898 5,190,709
----------- ----------- -----------
Total interest expense 6,334,235 6,798,200 6,381,856
----------- ----------- -----------
Net interest income 9,430,367 8,767,216 8,739,945
Provision for loan losses (note 4) 1,023,500 2,160,000 1,045,000
----------- ----------- -----------
Net interest income after
provision for loan losses 8,406,867 6,607,216 7,694,945
----------- ----------- -----------
Other income:
Service charges on deposit accounts 212,034 187,150 180,531
Other income 369,537 310,891 262,672
Gain (loss) on sale of investment
securities 4,807 (58,280) --
Credit card service income 2,049,411 1,638,768 1,254,641
----------- ----------- -----------
Total other income 2,635,789 2,078,529 1,697,844
----------- ----------- -----------
Other expenses:
Salaries and related benefits 3,024,280 2,753,986 2,641,257
Net occupancy and equipment expense 796,085 813,619 645,721
FDIC insurance premium 40,799 7,638 158,667
Data processing and professional services 283,296 255,594 250,099
Other expenses 1,110,760 788,741 1,014,466
----------- ----------- -----------
Total other expenses 5,255,220 4,619,578 4,710,210
----------- ----------- -----------
Income before income taxes 5,787,436 4,066,167 4,682,579
Provision for income taxes (note 9) 2,129,741 1,450,863 1,751,828
----------- ----------- -----------
Net income $ 3,657,695 2,615,304 2,930,751
=========== =========== ===========
Basic earnings per share
(note 13) $ 1.36 0.97 1.08
=========== =========== ===========
Diluted earnings per share
(note 13) $ 1.35 0.97 1.08
=========== =========== ===========
|
See accompanying notes to consolidated financial statements.
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
COMMON STOCK
---------------------------- COMPREHENSIVE RETAINED
SHARES AMOUNT INCOME EARNINGS
----------- ----------- ------------- -----------
Balance at December 31, 1994 2,701,416 $ 4,561,821 10,384,724
Comprehensive income:
Net income $ 2,930,751 2,930,751
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $348,654 631,176
-----------
Other comprehensive income 631,176
-----------
Comprehensive income $ 3,561,927
===========
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 6,000 35,000
Redemption of common stock (6,000) (35,000) (31,000)
----------- ----------- -----------
Balance at December 31, 1995 2,701,416 4,561,821 12,609,121
Comprehensive income:
Net income $ 2,615,304 2,615,304
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of
tax effect of $12,835 (21,921)
Less: reclassification adjustment for losses included
in net income, net of tax effect of $10,790 (18,428)
-----------
Other comprehensive income (3,493)
-----------
Comprehensive income $ 2,611,811
===========
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 6,000 23,000
Redemption of common stock (6,000) (23,000) (23,000)
----------- ----------- -----------
Balance at December 31, 1996 2,701,416 4,561,821 14,526,071
Comprehensive income:
Net income $ 3,657,695 3,657,695
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $37,713 65,019
Less: reclassification adjustment for gains included
in net income, net of tax effect of $1,765 3,042
-----------
Other comprehensive income 61,977
-----------
Comprehensive income $ 3,719,672
===========
Cash dividends ($0.33 per share) (900,472)
Repurchase and retirement of common stock (17,313) (174,458)
----------- ----------- -----------
Balance at December 31, 1997 2,684,103 $ 4,561,821 17,108,836
=========== =========== ===========
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ACCUMULATED
OTHER
COMPREHENSIVE
INCOME, NET TOTAL
-------------- -----------
Balance at December 31, 1994 (535,732) 14,410,813
Comprehensive income:
Net income 2,930,751
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $348,654
Other comprehensive income 631,176 631,176
Comprehensive income
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 35,000
Redemption of common stock (66,000)
----------- -----------
Balance at December 31, 1995 95,444 17,266,386
Comprehensive income:
Net income 2,615,304
Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of
tax effect of $12,835
Less: reclassification adjustment for losses included
in net income, net of tax effect of $10,790
Other comprehensive income (3,493) (3,493)
Comprehensive income
Cash dividends ($0.25 per share) (675,354)
Stock options exercised 23,000
Redemption of common stock (46,000)
----------- -----------
Balance at December 31, 1996 91,951 19,179,843
Comprehensive income:
Net income 3,657,695
Other comprehensive income, net of tax:
Unrealized holding gains arising during period, net of
tax effect of $37,713
Less: reclassification adjustment for gains included
in net income, net of tax effect of $1,765
Other comprehensive income 61,977 61,977
Comprehensive income
Cash dividends ($0.33 per share) (900,472)
Repurchase and retirement of common stock (174,458)
----------- -----------
Balance at December 31, 1997 153,928 21,824,585
=========== ===========
|
See accompanying notes to consolidated financial statements.
REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 3,657,695 2,615,304 2,930,751
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,023,500 2,160,000 1,045,000
Provision for depreciation 405,597 460,495 306,581
Amortization of investment premiums and
accretion of discounts, net (295,446) (162,213) 132,740
Gain on sale of loans (30,285) (37,379) (33,395)
Gain on sale of equipment -- -- (1,043)
Proceeds from sale of loans 3,972,000 5,479,675 5,244,808
Loans originated for sale (4,002,285) (5,517,054) (5,211,413)
Deferred income taxes, net (362,950) (118,980) (165,583)
Decrease (increase) in other assets 1,848,770 (1,929,039) (742,323)
(Decrease) increase in deferred loan fees (11,400) (125,150) 312
Increase (decrease) in other liabilities 429,728 (64,344) 224,064
------------ ------------ ------------
Net cash provided by operating
activities 6,634,924 2,761,315 3,730,499
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from maturities of available for sale
securities 39,136,648 25,036,404 14,276,000
Proceeds from sale of available for sale
securities 2,275,042 1,942,500 --
Purchases of available for sale securities (47,824,174) (35,158,493) (28,866,054)
Purchases of mortgage-backed securities
held-to-maturity (5,996,255) -- --
Loan originations, net of principal repayments (2,483,454) 2,595,788 (11,450,638)
Purchase of premises and equipment (392,385) (680,108) (2,904,066)
Proceeds from sale of equipment -- -- 44,583
------------ ------------ ------------
Net cash used by investing activities (15,284,578) (6,263,909) (28,900,175)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand deposits and savings
accounts 13,780,306 8,235,542 2,842,426
Net (decrease) increase in certificates of
deposit (4,475,000) (3,736,080) 23,202,527
Cash dividends (900,472) (675,354) (675,354)
Common stock transactions (174,458) (23,000) (31,000)
------------ ------------ ------------
Net cash provided by financing
activities 8,230,376 3,801,108 25,338,599
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents (419,278) 298,514 168,923
Cash and cash equivalents at beginning of year 18,750,652 18,452,138 18,283,215
------------ ------------ ------------
Cash and cash equivalents at end of year $ 18,331,374 18,750,652 18,452,138
============ ============ ============
|
See accompanying notes to consolidated financial statements.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Redding Bancorp (the Company) and its wholly owned subsidiaries, Redding Bank of Commerce (the Bank) and Redding Service Corporation, conform with generally accepted accounting principles and general practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results could differ from those estimates. The more significant accounting and reporting policies and estimates applied in the preparation of the accompanying consolidated financial statements are discussed below.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, the Bank and Redding Service Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.
(b) INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
At the time of purchase of a security, the Bank designates the security as held-to-maturity or available-for-sale, based on its investment objectives, operational needs and intent to hold. The Bank does not engage in trading activity.
Held-to-maturity securities are recorded at amortized cost, adjusted for amortization or accretion of premiums or discounts. Available-for-sale securities are recorded at fair value with unrealized holding gains and losses, net of the related tax effect, reported as a separate component of stockholders' equity. For the year ended December 31, 1997, there were no transfers between classifications.
A decline in market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the security. No such declines have occurred.
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
(c) LOANS
Loans are stated at the principal amounts outstanding less deferred loan fees and costs and the allowance for loan losses. Interest on commercial, installment and real estate loans is accrued daily based on the principal outstanding.
Loan origination and commitment fees and certain origination costs are deferred and, if material, the net amount is amortized over the contractual life of the loans as an adjustment of their yield.
Impaired loans are measured based upon the present value of future cash flows discounted at the loan's effective rate, the loan's observable market price, or the fair value of collateral if the loan is collateral dependent. Interest on impaired loans is recognized on a cash basis.
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full, timely collection of interest or principal or when a loan becomes contractually past-due by ninety days or more with respect to principal or interest.
When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period income. Accruals are resumed on loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loan is estimated to be fully collectible. Renegotiated loans are those loans on which concessions in terms have been granted because of the borrower's financial or legal difficulties. Interest is generally accrued on such loans in accordance with the new terms.
(d) SALE OF LOANS
The Bank has realized gain from the sale of the guaranteed portion of Small Business Administration (SBA) loans. Gains or losses are recognized upon completion of the sales (net of related commissions paid that are directly attributable to the sale), and are based on the differences between the net sales proceeds and the relative fair value of the portion of the loans sold. The Bank carries these loans held for sale at the lower of cost
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or market value. The Bank had SBA loans available for sale totaling $8,314,443 and $7,998,512 as of December 31, 1997 and 1996, respectively.
Certain adjustable rate and fixed rate real estate loans are originated for sale. Such loans held for sale are carried at the lower of cost or market at the balance sheet date or the date on which investors have committed to purchase such loans. To the extent there are recourse provisions, the Bank considers an accrual for all estimated adjustments in connection with the recourse obligation to the buyer. The Bank had real estate loans available for sale totaling $267,150 and $460,800 as of December 31, 1997 and 1996, respectively.
(e) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision charged to expense. Loans are charged off against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans, standby letters of credit, overdrafts and commitments to extend credit based on evaluations of collectibility and prior loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, commitments, and current and anticipated economic conditions that may affect the borrowers' ability to pay. While management uses these evaluations to recognize the provision for loan losses, future provisions may be necessary based on changes in the factors used in the evaluations.
Material estimates relating to the determination of the allowance for loan losses are particularly susceptible to significant change in the near term. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, the Federal Deposit Insurance Corporation (FDIC), as an integral part of its examination process, periodically reviews the Bank's allowance for loan losses. The FDIC may require the Bank to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.
(f) GAIN OR LOSS ON SALE OF LOANS AND SERVICING RIGHTS
In June, 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
after December 31, 1996, and is to be applied prospectively. This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. In addition, it requires that servicing assets and other retained interests in transferred assets be measured by allocating the previous carrying amount of the transferred assets between the assets sold, if any and retained interests, if any, based on their relative fair value at the date of transfer. Liabilities and derivatives incurred or obtained by transferors as part of a transfer of financial assets are to be initially measured at fair value. Servicing assets and liabilities are to be subsequently amortized in proportion to and over the period of estimated net servicing income or loss and assessed for asset impairment or increased obligation based on fair value.
The Bank recognizes a gain and a related asset for the fair value of the rights to service loans for others when loans are sold. In accordance with SFAS No. 125, the fair value of the servicing assets is estimated based upon the present value of the estimated expected future cash flows. The Bank measures the impairment of the servicing asset based on the difference between the carrying amount of the servicing asset and its current fair value. As of December 31, 1997 and 1996, there was no impairment in mortgage servicing asset.
A gain or loss is recognized to the extent that the sales proceeds and the fair value of the servicing asset exceed or are less than the book value of the loan. Additionally, a normal cost for servicing the loan is considered in the determination of the gain or loss.
When servicing rights are sold, a gain or loss is recognized at the closing date to the extent that the sales proceeds, less costs to complete the sale, exceed or are less than the carrying value of the servicing rights held.
(g) BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation. Provisions for depreciation included in operating expenses, are computed on the straight-line method over the estimated useful lives of the related assets. Expenditures for major renewals and betterments are capitalized and those for maintenance and repairs are charged to expense as incurred.
(h) EARNINGS PER SHARE
For the years ended December 31, 1997, the Company adopted SFAS No. 128, Earnings per Share. SFAS No. 128 replaces Accounting Principles Board (APB) Opinion 15,
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per Share, and simplifies the computation of earnings per share (EPS) by replacing the presentation of primary EPS with a presentation of basic EPS. In addition, the statement requires dual presentation of basic and diluted EPS by entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted EPS. The computation of EPS will be compatible with international standards, as the International Accounting Standards Committee recently issued a comparable standard.
(i) CASH EQUIVALENTS
Cash equivalents include amounts due from banks and federal funds sold. Generally, federal funds sold are for a one-day period.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
Market quotes for investments and borrowings were obtained from representative over-the-counter quotations based on transactions from major market publications. Fair value of loans and savings deposits was calculated by estimating the net present value of future cash flows using current market rates of interest. Prepayment assumptions were obtained from standard industry publications.
(k) OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure, is carried at the lower of the recorded investment in the property or its fair value less estimated selling costs. Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, if necessary. Fair value of other real estate is generally determined based on an appraisal of the property. Any subsequent write-downs are charged against operating expenses. Operating expenses of such properties, net of related income, and gains and losses on their disposition are included in other expenses. A net loss of $52,991, $27,974 and $3,907 was recorded for the years ended December 31, 1997, 1996, and 1995, respectively.
Revenue recognition on the disposition of real estate is dependent upon the transaction meeting certain criteria relating to the nature of the property sold and the terms of the sale. Under certain circumstances, revenue recognition may be deferred until these criteria are met.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(l) INCOME TAXES
The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(m) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of the grant. SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide proforma net income and proforma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the proforma disclosure provisions of SFAS No. 123 for stock option grants. The Company has not made any stock option grants since 1992, therefore, a proforma disclosure is not required.
(n) YEAR 2000
In January 1997, the Company developed a plan to address the Year 2000 problem and began converting its computer systems to be Year 2000 compliant. The plan provides for the conversion efforts to be completed by the end of 1998. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Most software used by the Company is vendor developed software. Therefore, the Company's total direct cost of the project is expected to be immaterial and will be funded through operating cash flows. The Company will expense all costs associated with these system changes as the costs are incurred. As of December 31, 1997, no costs had been expended.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(o) CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". This Statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an entity classify items of other comprehensive earnings by their nature in an annual financial statement. The Company's only source of other comprehensive earnings is derived from unrealized gains and losses on marketable securities classified as available-for-sale. Reclassification adjustments result from gains or losses on investment securities that were realized and included in net income of the current period that also had been included in other comprehensive income as unrealized holding gains in the period in which they arose. They are excluded from comprehensive income of the current period to avoid double counting. The financial statements have been reclassified, as required.
(2) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of these reserve balances for the year ended December 31, 1997 was approximately $1,126,000. In addition, the Bank maintains compensating balances with the Federal Reserve Bank, which totaled $2,338,000 at December 31, 1997.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of investment securities available-for-sale are summarized as follows:
DECEMBER 31, 1997
------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
INVESTMENT SECURITIES
AVAILABLE-FOR-SALE:
U.S. Treasury securities and
obligations of U.S.
agencies $36,968,171 175,976 (12,797) 37,131,350
Obligations of state and
political subdivisions 10,525,339 92,574 (7,349) 10,610,564
Corporate bonds/CMML &
Bankers Acceptance 8,044,204 71 (5,263) 8,039,012
----------- ----------- ----------- -----------
$55,537,714 268,621 (25,409) 55,780,926
=========== =========== =========== ===========
|
At December 31, 1997, the Bank has pledged $1,000,000 of investment securities for treasury, tax and loan accounts, and $3,000,000 for deposits of public funds.
DECEMBER 31, 1996
------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
INVESTMENT SECURITIES
AVAILABLE-FOR-SALE:
U.S. Treasury securities and
obligations of U.S.
agencies $41,432,599 265,628 (143,499) 41,554,728
Obligations of state and
political subdivisions 6,529,536 42,594 (45,272) 6,526,858
Corporate bonds 1,774,824 27,222 (280) 1,801,766
----------- ----------- ----------- -----------
$49,736,959 335,444 (189,051) 49,883,352
=========== =========== =========== ===========
|
The amortized cost and estimated market value of investment securities available-for-sale at December 31, 1997, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
Due in one year or less $15,076,158 15,085,113
Due after one year through five years 33,218,144 33,370,246
Due after five years through ten years 7,243,412 7,325,567
----------- -----------
$55,537,714 55,780,926
=========== ===========
|
The amortized cost and estimated market value of investment securities held-to-maturity at December 31, 1997 and 1996 which have contractual maturities of one to five years consist of the following:
DECEMBER 31, 1997
--------------------------------------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
INVESTMENT SECURITIES
HELD-TO-MATURITY:
Mortgage backed
securities $9,037,300 71,888 (27,706) 9,081,482
========== ========== ========== ==========
|
DECEMBER 31, 1996
--------------------------------------------------------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
INVESTMENT SECURITIES
HELD-TO-MATURITY:
Mortgage backed
securities $2,168,712 -- (57,099) 2,111,613
========== ========== ========== ==========
|
The excess of market value over cost of investment securities available-for-sale at December 31, 1997 resulted in a non-cash increase of $243,211 in their carrying value and an increase in deferred tax liabilities of $89,283.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LOANS
Outstanding loan balances consist of the following:
DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
Commercial and financial loans $ 41,432,703 37,591,873
Real estate - construction loans 16,393,009 32,474,363
Real estate - commercial 54,533,058 40,067,445
Installment loans 71,573 240,657
Other 1,273,615 1,284,203
------------ ------------
113,703,958 111,658,541
Less:
Deferred loan fees and costs 293,713 305,113
Allowance for loan losses 2,819,039 2,294,146
------------ ------------
$110,591,206 109,059,282
============ ============
|
Included in total loans are nonaccrual loans of approximately $499,563 and $1,733,861 at December 31, 1997 and 1996, respectively. If interest on nonaccrual loans had been accrued, such income would have approximated $31,940 and $120,399 during the years ended December 31, 1997 and 1996, respectively.
Impaired loans are loans for which it is probable that the Bank will not be able to collect all amounts due. The Bank had outstanding balances of $2,758,325 and $2,699,532 in impaired loans which had allowances of $861,484 and $881,786 as of December 31, 1997 and 1996, respectively. The average outstanding balance of impaired loans were $2,728,928, $3,232,000, and $2,275,174 for the years ended 1997, 1996 and 1995, respectively.
The Bank services, for others, loans and participations that are sold of approximately $2,639,841 and $3,616,055 as of December 31, 1997 and 1996, respectively.
The Bank's lending activities are with customers primarily located within Shasta County, with residential real estate construction lending extending into El Dorado, Placer and Sacramento Counties and commercial lending in Butte County. Although the Bank has a diversified loan portfolio, a significant portion of its customers' ability to repay the loans is dependent upon the professional services and residential real estate development industry sectors. Generally, the loans are secured by real estate or other assets and are expected to be repaid from cash flows of the borrower or proceeds from the sale of the collateral. The Bank's exposure to credit loss, if any, is the difference between the fair value of the collateral, if any, and the outstanding balance of the loan.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for loan losses consist of the following:
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
Balance at beginning of year $ 2,294,146 2,053,259 1,729,786
Provision for loan losses 1,023,500 2,160,000 1,045,000
Loans charged off (604,846) (1,990,490) (782,723)
Recoveries of loans previously charged off 106,239 71,377 61,196
----------- ----------- -----------
Balance at end of year $ 2,819,039 2,294,146 2,053,259
=========== =========== ===========
|
(5) BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
DECEMBER 31,
ESTIMATED ------------------------------
LIVES 1997 1996
----------- ----------- -----------
Land -- $ 1,595,808 1,595,808
Building and leasehold improvements 31.5 years 3,673,847 3,693,657
Furniture, fixtures and equipment 3 - 7 years 2,316,767 2,219,735
----------- -----------
7,586,422 7,509,200
Less accumulated depreciation (1,904,006) (1,703,494)
----------- -----------
5,682,416 5,805,706
Construction in progress 159,963 49,885
----------- -----------
$ 5,842,379 5,855,591
=========== ===========
|
Depreciation expense, included in net occupancy and equipment expense, is $405,597, $460,495 and $306,581 for the years ended December 31, 1997, 1996 and 1995, respectively.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
---------------------------
1997 1996
---------- ----------
Cash surrender value of life insurance policies
(note 15) $1,761,490 1,677,879
Net deferred tax assets (note 9) 1,609,502 1,194,502
Accrued interest on loans 619,487 712,851
Accrued interest on investment securities 805,915 764,760
Other real estate owned 352,350 2,268,031
Other 88,411 52,902
---------- ----------
$5,237,155 6,670,925
========== ==========
|
(7) DEPOSITS
Time certificates of deposit of $100,000 or more totaled $37,009,448 and $37,823,821 at December 31, 1997 and 1996, respectively. Interest expense on such deposits was $1,981,657, $2,327,922 and $1,836,334 during 1997, 1996 and 1995, respectively. The Bank paid $6,267,812, $6,789,002 and $6,315,045 in interest on deposits during 1997, 1996 and 1995, respectively.
At December 31, 1997, the aggregate maturities for time deposits in excess of one year are as follows:
YEAR ENDING
DECEMBER 31,
------------
1998 $ 69,939,138
1999 15,032,795
2000 766,519
2001 1,163,050
-----------
Total $ 86,901,502
===========
|
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) OTHER LIABILITIES
Other liabilities consist of the following:
DECEMBER 31,
---------------------------
1997 1996
---------- ----------
Deferred compensation $1,347,415 1,173,421
Employee incentive payable 287,705 129,250
Accrued interest payable 251,005 270,668
Deferred tax liability (note 9) 421,100 334,211
Other 15,255 (66,848)
---------- ----------
$2,322,480 1,840,702
========== ==========
|
(9) INCOME TAXES
Provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
Current:
Federal $ 1,988,106 1,210,464 1,513,790
State 504,585 359,379 403,621
----------- ----------- -----------
2,492,691 1,569,843 1,917,411
----------- ----------- -----------
Deferred:
Federal (290,325) (59,748) (136,254)
State (72,625) (59,232) (29,329)
----------- ----------- -----------
(362,950) (118,980) (165,583)
----------- ----------- -----------
$ 2,129,741 1,450,863 1,751,828
=========== =========== ===========
|
Income tax expense attributable to income before income taxes differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent to income before income taxes as a result of the following:
% OF PRETAX INCOME
---------------------------------------
1997 1996 1995
------- ------- -------
Computed "expected" tax expense 34.00% 34.00% 34.00%
State franchise tax, net of Federal
tax benefit 8.09 7.08 7.84
Tax-exempt interest (4.37) (8.13) (5.68)
Other (.92) 2.56 1.03
------- ------- -------
36.80% 35.51% 37.19%
======= ======= =======
|
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 consist of the following:
1997 1996
----------- -----------
Deferred tax assets:
State franchise taxes $ 268,012 194,964
Deferred compensation 604,180 531,559
Loan loss reserves 996,331 712,586
Other -- 14,414
----------- -----------
Total deferred tax assets 1,868,523 1,453,523
Less valuation allowance (259,021) (259,021)
----------- -----------
Net deferred tax assets 1,609,502 1,194,502
----------- -----------
Deferred tax liabilities:
Depreciation (305,087) (255,870)
Unrealized securities gains (89,283) (54,444)
Deferred loan origination costs (26,730) (23,897)
----------- -----------
Total deferred tax liabilities (421,100) (334,211)
----------- -----------
Net deferred taxes $ 1,188,402 860,291
=========== ===========
|
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Management believes that the valuation allowance is sufficient to cover that portion that may not be fully recognized. Income tax payments of $2,441,600, $1,573,500 and $1,913,000 were made by the Company during 1997, 1996 and 1995, respectively.
(10) STOCK OPTION PLAN
Under the incentive stock option plan adopted by the shareholders, a maximum of 49,500 shares of common stock are reserved for issuance. Options generally become exercisable in 20% increments during each year subsequent to the date of grant. A significant number of the options granted were exercisable at the date of grant. Stock options generally expire upon termination of employment. Options are exercisable at prices equal to the fair market value at the date of grant.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NUMBER OF OPTION
OPTIONS PRICE
------- -------
December 31, 1995 outstanding 12,000 $ 10.00 to $11.00
Exercised (6,000) $ 10.00
-------
December 31, 1996 and 1997 outstanding 6,000 $ 11.00
=======
|
(11) COMMON STOCK
On September 16, 1997, the Board of Directors authorized the purchase in the open market or in private transactions up to 63,000 shares of its outstanding common stock. 17,313 shares were purchased during the year ended December 31, 1997.
(12) STOCK SPLIT
On June 16, 1998, the Board of Directors declared a three-for-one stock split of the Company's Common Stock effective for shareholders of record on June 30, 1998. All share and per share data has been restated to give effect to the stock split.
(13) EARNINGS PER SHARE (EPS)
The following reconciles the denominator used in the calculation of both the basic and diluted earnings per share for each of the years ended December 31:
1997 1996 1995
---------- ---------- ----------
BASIC EPS CALCULATION
Numerator $3,657,695 2,615,304 2,930,751
---------- ---------- ----------
Denominator 2,698,530 2,701,416 2,701,416
---------- ---------- ----------
Basic EPS $ 1.36 0.97 1.08
========== ========== ==========
DILUTED EPS CALCULATION
Numerator $3,657,695 2,615,304 2,930,751
---------- ---------- ----------
Denominator:
Common Stock Outstanding 2,698,530 2,701,416 2,701,416
Options 3,957 3,732 2,679
---------- ---------- ----------
2,702,487 2,705,148 2,704,095
---------- ---------- ----------
Diluted EPS $ 1.35 0.97 1.08
========== ========== ==========
|
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) PROFIT-SHARING PLAN
In 1985, the Bank adopted a profit-sharing 401(k) plan for eligible
employees to be funded out of the Bank's earnings. The employees'
contributions are limited to the maximum amount allowable under IRS
Section 402(G). The Bank's contributions include a 50% matching
contribution up to a maximum of $900 per employee, and a discretionary
contribution is also permitted. The Bank made matching contributions
aggregating $28,181, $25,791 and $11,267 for the years ended December 31,
1997, 1996 and 1995, respectively. The Bank made a discretionary
contribution of $25,000 in 1997.
(15) RELATED PARTY TRANSACTIONS
Certain directors and officers of the Bank and entities with which they are associated are customers and have transactions with the Bank in the ordinary course of business. All loans and commitments included in such transactions are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collectibility or present other unfavorable features. An analysis of the activity in related party loans consists of the following:
YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996
--------- ---------
Balance at beginning of year $ 548,960 601,494
New loan additions 401,413 338,795
Principal repayments (475,597) (391,329)
--------- ---------
Balance at end of year $ 474,776 548,960
========= =========
|
(16) COMMITMENTS AND CONTINGENCIES
(a) DEFERRED COMPENSATION PLAN
During 1990, the Bank established deferred compensation plans with two Bank officers providing for annual payments on retirement or death benefits over fifteen year periods. One of the officers retired during the current year. The bank intends to hold the life insurance policy on this retired officer. The remaining officer's plan is funded through salary deferrals and the cash surrender value of a life insurance policy acquired by the Bank.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank enters into various types of transactions which involve financial instruments with off-balance sheet risk. These instruments include commitments to extend credit and stand-by letters of credit which are not reflected in the accompanying consolidated balance sheets. These transactions may involve, to varying degrees, credit and interest rate risk in excess of the amount, if any, recognized in the consolidated balance sheets. Management does not anticipate any loss to result from these commitments.
The Bank's off-balance sheet credit risk exposure is the contractual amount of commitments to extend credit and stand-by letters of credit. The Bank applies the same credit standards to these contracts as it uses for loans recorded on the balance sheet.
DECEMBER 31,
-----------------------------
1997 1996
----------- -----------
Off-balance sheet commitments:
Commitments to extend credit $25,768,674 21,932,361
Standby letters of credit 1,573,700 2,206,770
|
Commitments to extend credit are agreements to lend to customers. These commitments have specified interest rates and generally have fixed expiration dates but may be terminated by the Bank if certain conditions of the contract are violated. Although currently subject to draw down, many of the commitments do not necessarily represent future cash requirements. Collateral held relating to these commitments varies, but generally includes real estate, securities and cash.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Credit risk arises in these transactions from the possibility that a customer may not be able to repay the Bank upon default of performance. Collateral held for standby letters of credit is based on an individual evaluation of each customers' creditworthiness, but may include cash and securities.
Commitments to extend credit and standby letters of credit bear similar credit risk characteristics as outstanding loans.
As of December 31, 1997, the Company has no off-balance sheet derivatives requiring additional disclosure.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) CAPITAL ADEQUACY AND RESTRICTION ON DIVIDENDS
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate mandatory and possibly 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).
First, a bank must meet a minimum Tier I (as defined in the regulations) Capital ratio ranging from 3% to 5% based upon the bank's CAMEL (capital adequacy, asset quality, management, earnings and liquidity) rating. Second, a bank must meet minimum Total Risk-Based Capital to risk-weighted assets ratio of 8%. Risk-based capital and asset guidelines vary from Tier I capital guidelines by redefining the components of capital, categorizing assets into different risk classes, and including certain off-balance sheet items in the calculation of the capital ratio. The effect of the risk-based capital guidelines is that banks with high exposure will be required to raise additional capital while institutions with low risk exposure could, with the concurrence of regulatory authorities, be permitted to operate with lower capital ratios. In addition, a bank must meet minimum Tier I Capital to average assets ratio.
Management believes, as of December 31, 1997, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1997, the most recent notification, the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Bank must meet the minimum ratios as set forth above. There are no conditions or events since that notification that management believes have changed the institution's category.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank's actual capital amounts and ratios as of December 31, 1997 are as follows:
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
--------------------------- --------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- ----------- ----------- -----------
Total Risk-Based
Capital (to Risk
Weighted Assets) $22,526,322 16.16% $11,152,837 8.0% $13,941,046 10.0%
Tier I Capital (to
Risk Weighted
Assets) $20,783,322 14.91% $ 5,576,418 4.0% $ 8,364,628 6.0%
Tier I Capital (to
Average Assets) $20,783,322 10.41% $ 7,983,860 4.0% $ 9,979,825 5.0%
|
Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank's retained earnings or the Bank's net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of California Superintendent of Banks, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year. As of December 31, 1997 the maximum amounts available for dividend distribution under this restriction were approximately $6,253,000.
(18) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value.
Investment securities
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans receivable
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.
Commitments to extend credit and standby letters of credit
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.
Deposit liabilities
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The carrying amount of accrued interest payable approximates its fair value.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and other information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include the mortgage banking operation, deferred tax assets and liabilities, and property, plant and equipment. In addition, the tax ramifications related to the
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
The estimated fair values of the Bank's financial instruments are approximately as follows:
DECEMBER 31, 1997
----------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
Financial assets:
Cash and short-term investments $ 18,331,374 18,331,374
============= =============
Investment securities $ 64,818,226 64,862,408
============= =============
Loans:
Fixed rate:
Commercial and financial loans $ 8,187,199 8,812,108
Real estate - construction loans 7,140,442 7,838,704
Real estate - commercial 16,072,258 17,524,300
Installment loans 4,844 5,280
Other 90,674 90,674
------------- -------------
Total fixed rate 31,495,417 34,271,066
Variable rate 82,208,541 90,380,197
Less allowance for loan losses (2,819,039) (2,819,039)
Net deferred origination fees (293,713) (293,713)
------------- -------------
Net loans $ 110,591,206 121,538,511
============= =============
Financial liabilities:
Deposits:
Demand $ 93,771,773 93,771,773
Fixed rate certificates 47,750,657 49,523,798
Variable certificates 39,150,845 39,150,845
------------- -------------
Total deposits $ 180,673,275 182,446,416
============= =============
|
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTRACT CARRYING FAIR
AMOUNT AMOUNT VALUE
----------- ----------- -----------
Unrecognized financial instruments:
Commitments to extend credit $25,768,674 -- 515,373
Standby letters of credit 1,573,700 -- 31,474
|
DECEMBER 31, 1996
----------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
Financial assets:
Cash and short-term investments $ 18,750,652 18,750,652
============= =============
Investment securities $ 52,052,064 51,994,965
============= =============
Loans:
Fixed rate:
Commercial and financial loans $ 2,300,291 2,584,621
Real estate - construction loans 13,190,982 14,450,707
Real estate - commercial 6,140,978 6,720,818
Installment loans 224,628 248,213
Other 1,284,203 1,411,206
------------- -------------
Total fixed rate 23,141,082 25,415,565
Variable rate 88,517,459 88,517,459
------------- -------------
111,658,541 113,933,024
Less allowance for loan losses (2,294,146) (2,294,146)
Net deferred origination fees (305,113) (305,113)
------------- -------------
Net loans $ 109,059,282 111,333,765
============= =============
Financial liabilities:
Deposits:
Demand $ 79,991,467 79,991,467
Fixed rate certificates 51,312,703 53,375,131
Variable certificates 40,063,799 40,063,799
------------- -------------
Total deposits $ 171,367,969 173,430,397
============= =============
|
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTRACT CARRYING FAIR
AMOUNT AMOUNT VALUE
----------- ----------- -----------
Unrecognized financial instruments:
Commitments to extend credit $21,932,361 -- 438,647
Standby letters of credit 2,206,770 -- 44,135
|
(19) REDDING BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS DECEMBER 31,
-----------------------------
1997 1996
----------- -----------
Assets:
Cash $ 532,636 7,715
Time deposit with subsidiary 190,000 200,000
Investment in subsidiaries 21,101,949 18,972,128
----------- -----------
Total assets $21,824,585 19,179,843
=========== ===========
Shareholders' Equity:
Common stock $ 4,561,821 4,561,821
Retained earnings 17,108,836 14,526,071
Accumulated other comprehensive
income, net 153,928 91,951
----------- -----------
Total shareholders' equity $21,824,585 19,179,843
=========== ===========
|
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
Income:
Interest on time deposit $ 8,531 9,592 10,665
Dividend from subsidiary 1,600,000 675,354 675,354
----------- ----------- -----------
1,608,531 684,946 686,019
Expenses 17,984 16,862 12,114
----------- ----------- -----------
Income before income taxes and net
equity in undistributed net income of
subsidiaries 1,590,547 668,084 673,905
Benefit (provision) for income taxes (800) (800) 800
----------- ----------- -----------
Income before equity in undistributed
net income of subsidiaries 1,589,747 667,284 674,705
Equity in undistributed net income of
subsidiaries 2,067,948 1,948,020 2,256,046
----------- ----------- -----------
Net income $ 3,657,695 2,615,304 2,930,751
=========== =========== ===========
|
REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
Operating activities:
Net income $ 3,657,695 2,615,304 2,930,751
Adjustments to reconcile net income to
net cash provided by operating
activities:
Deferred taxes 104 (696) (800)
Equity in undistributed net income of
subsidiaries (2,067,948) (1,948,020) (2,256,046)
----------- ----------- -----------
Net cash provided by operating
activities 1,589,851 666,588 673,905
Financing activities:
Redemption of common stock, net of
issuances (174,458) (23,000) (31,000)
Cash dividends (900,472) (675,354) (675,354)
----------- ----------- -----------
Net cash used by financing
activities (1,074,930) (698,354) (706,354)
----------- ----------- -----------
Decrease in cash and cash equivalents 514,921 (31,766) (32,449)
Cash and cash equivalents at beginning of
year 207,715 239,481 271,930
----------- ----------- -----------
Cash and cash equivalents at end of year $ 722,636 207,715 239,481
=========== =========== ===========
|
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (in thousands except share data)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
Cash and due from banks $ 9,293 $ 11,431
Federal funds sold 3,210 6,900
Investment securities available-for-sale, at market 30,466 55,781
Investment securities held-to-maturity, at cost (aggregate market
value of $8,310 in 1998 and $9,081 in 1997) 8,119 9,037
Loans, net of allowance for loan losses of $3,019 in 1998 and
$2,819 in 1997 141,417 110,591
Bank premises and equipment, net 5,596 5,842
Other assets 4,713 5,237
-------- --------
Total assets $202,814 $204,820
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand - noninterest-bearing $ 34,690 $ 40,070
Demand - interest-bearing 41,455 42,121
Savings 13,701 11,581
Certificates of deposits 86,808 86,901
-------- --------
176,654 180,673
Other liabilities 2,483 2,322
-------- --------
Total liabilities 179,137 182,995
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 10,000,000 shares authorized;
2,684,103 shares issued and outstanding in 1998 and 894,701
shares issued and outstanding in 1997 4,562 4,562
Retained earnings 18,926 17,109
Accumulated other comprehensive income:
Unrealized gains on securities available-for-sale, net of tax 189 154
-------- --------
Total shareholders' equity 23,677 21,825
-------- --------
Total liabilities and shareholders' equity $202,814 $204,820
======== ========
|
See notes to unaudited condensed consolidated financial statements.
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (in thousands except per share
data)
1998 1997
Interest income:
Interest and fees on loans $ 9,399 $ 8,664
Interest on tax exempt securities 366 215
Interest on U.S. government securities 1,912 2,009
Interest on federal funds sold 304 439
Interest on other securities 60 276
------- -------
Total interest income 12,041 11,603
------- -------
Interest expense:
Interest on demand deposits 590 598
Interest on savings deposits 259 302
Interest on time deposits 3,472 3,795
------- -------
Total interest expense 4,321 4,695
------- -------
Net interest income 7,720 6,908
Provision for loan losses 250 827
------- -------
Net interest income after provision for loan losses 7,470 6,081
------- -------
Other income:
Service charges on deposit accounts 160 161
Other income 370 276
Gain on sale of investment securities 28 5
Credit card service income 1,776 1,475
------- -------
Total other income 2,334 1,917
------- -------
Other expenses:
Salaries and related benefits 2,512 2,262
Net occupancy and equipment expense 623 591
FDIC insurance premium 16 23
Data processing and professional services 262 206
Other expenses 1,403 943
------- -------
Total other expenses 4,816 4,025
------- -------
Income before income taxes 4,988 3,973
Provision for income taxes 1,826 1,472
------- -------
Net income $ 3,162 $ 2,501
======= =======
Basic earnings per share $ 1.18 $ .93
Diluted earnings per share $ 1.15 $ .93
|
See notes to unaudited condensed consolidated financial statements
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 (in thousands except shares)
Accumulated
Other
Comprehensive
Income:
Unrealized
Gains On
Securities
Common Stock Available-For-
------------------------- Retained Sale,
Shares Amount Earnings Net of Tax Total
--------- --------- --------- --------------- ---------
Balance at December 31, 1997 894,701 $ 4,562 $ 17,109 $ 154 $ 21,825
Net income 3,162 3,162
Three-for-one stock split 1,789,402 -- -- --
Cash dividend ($.50 per share) (1,345) (1,345)
Change in unrealized gain on
available-for-sale securities, net
of tax 35 35
--------- --------- --------- --------- ---------
Balance, September 30, 1998 2,684,103 $ 4,562 $ 18,926 $ 189 $ 23,677
========= ========= ========= ========= =========
|
See notes to unaudited condensed consolidated financial statements.
REDDING BANCORP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (amounts in thousands)
1998 1997
Cash flows from operating activities:
Net income $ 3,162 $ 2,501
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 250 827
Provision for depreciation 325 350
Amortization of investment premiums and accretion of discounts, net (43) (151)
Gain on sale of loans (23) (26)
Loss on sale of equipment -- 14
Proceeds from sale of loans 2,007 3,439
Loans originated for sale (2,030) (3,465)
Decrease in other assets 525 1,711
Increase (decrease) in deferred loan fees 168 (43)
Increase in other liabilities 161 1,644
-------- --------
Net cash provided by operating activities 1,340 4,300
-------- --------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities 24,024 29,834
Proceeds from sale of available-for-sale securities 8,029 2,275
Purchases of available-for-sale securities (5,741) (48,105)
Loan originations, net of principal repayments (31,198) 1,061
Purchase of premises and equipment (79) (193)
-------- --------
Net cash used by investing activities (4,965) (15,128)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in demand deposits and savings accounts (3,926) 14,340
Net decrease in certificates of deposit (94) (1,425)
Cash dividends (1,345) (1,600)
-------- --------
Net cash (used) provided by financing activities (5,365) 11,355
-------- --------
Net (decrease) increase in cash and cash equivalents (5,828) 2,983
Cash and cash equivalents at beginning of period 18,331 18,751
-------- --------
Cash and cash equivalents at end of period $ 12,503 $ 21,734
======== ========
Supplemental cash flow information:
Income taxes paid $ 1,798 $ 1,796
Interest paid $ 4,328 $ 4,710
|
See notes to unaudited condensed consolidated financial statements.
REDDING BANCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes of Redding Bancorp and subsidiaries as of December 31, 1997. The statements include the accounts of Redding Bancorp ("Redding"), and its wholly owned subsidiaries, Redding Bank of Commerce ("RBC") and Redding Service Corporation. All significant inter-company balances and transactions have been eliminated. The financial information contained in this report reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the nine months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998.
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and repurchase agreements. Federal funds sold and repurchase agreements are generally for one day periods.
2. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The following table displays the computation of earnings per share for the nine months ended September 30, 1998 and 1997.
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
------ ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Basic earnings per share:
Net income $3,162 $2,501
====== ======
Weighted average common shares outstanding 2,684 2,697
====== ======
Basic earnings per share $ 1.18 $ .93
====== ======
Diluted earnings per share:
Net income $3,162 $2,501
Weighted average common shares outstanding 2,684 2,697
Effect of outstanding stock options 57 6
------ ------
Weighted average common shares outstanding 2,741 2,703
------ ------
Diluted earnings per share $ 1.15 $ .93
====== ======
|
3. CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This Statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an entity classify items of other comprehensive earnings by their nature in an annual financial statement. The Company's only source of other comprehensive earnings is derived from unrealized gains and losses on marketable securities classified as available-for-sale. Reclassification adjustments result from gains or losses on investment securities that were realized and included in net income of the current period that also had been included in other comprehensive income as unrealized holding gains in the period in which they arose. They are excluded from comprehensive income of the current period to avoid double counting. Annual financial statements for prior periods will be reclassified, as required.
The Company's total comprehensive earnings were as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
Net income as reported $ 3,162 $ 2,501
Other comprehensive income (net of tax):
Change in unrealized holding gain (losses) on
available-for-sale securities 53 27
Reclassification adjustment (18) (4)
------- -------
Total comprehensive income $ 3,197 $ 2,524
======= =======
|
4. COMMON STOCK
On June 16, 1998 the Board of Directors declared a three for one stock split for shareholders of record as of June 30, 1998 and distributed on July 10, 1998. All per share data has been restated to give effect to the stock split. On September 15, 1998, the Board of Directors declared an annual cash dividend of 50 cents per share on the Company's Common Stock. The dividend is payable to shareholders of record as of October 1, 1998 and was paid on October 22, 1998.
5. STOCK BASED COMPENSATION
On February 17, 1998, the Board of Directors adopted the 1998 Stock Option Plan (the "Plan") which was approved by the Company's shareholders on April 21, 1998. The Plan provides for awards in the form of options (which may constitute incentive stock options ("Incentive Options") under Section 422(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options ("NSOs") to key personnel of the Company, including directors. The Plan provides that Incentive Options under the Plan may not be granted at less than 100% of fair market value of the Company's common stock on the date of the grant and that NSOs may not be granted at less than 85% of the fair market value of the common stock on the date of the grant. The purpose of the plan is to promote the long-term success of the Company and the creation of shareholder value by (a) encouraging key personnel to focus on critical long range objectives, (b) increasing the ability of the Company to attract and retain key personnel and (c) linking key personnel directly to shareholder interests through increased stock
ownership. A total of 540,000 shares of the Company's common stock are reserved for grant under the Plan.
The Plan provides that all options under the Plan shall vest at a rate of at least 20% per year from the date of the grant. Vesting may be accelerated in the event of an optionee's death, disability, retirement or in the event of a change of control.
During the nine months ended September 30, 1998, stock options were granted for 411,000 shares of common stock with a weighted average exercise price of $9.62 per share, none of which were exercisable at September 30, 1998.
The Company uses the intrinsic value based method for measuring compensation cost related to the Plan. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date over the amount an employee must pay to acquire the stock. This cost is amortized on a straight-line basis over the vesting period of the options granted.
The Company uses an option-pricing model to compute grant-date fair value of options granted for purposes of disclosing pro forma net income and net income per share. In computing the grant-date fair value of options granted during the period for disclosure purposes, the Company used an option-pricing model that takes into account the stock price at the grant date ($10.67), the exercise price (ranging from $9.07 to $10.67), the expected life of the option (seven years), the expected dividends on the Company's common stock (increasing $.08 per share per year) and the risk-free interest rate over the expected life of the option (5.625%). Had the Company recognized compensation expense according to the provisions of FAS 123, earnings per share as reported would not have changed.
6. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted SFAS No. 131, Disclosures About Segments Of An Enterprise And Related Information, which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. This statement will not impact the Company's consolidated financial position, results of operations or cash flows. Interim reporting standards of the statement are not applicable to interim reports in the year of adoption. Management is currently evaluating the effect this standard will have on disclosures of financial performance.
In June, 1998 the Financial Accounting Standards Board issued SFAS No. 133, Accounting For Derivative Instruments And Hedging Activities. The statement establishes accounting and reporting standards for derivative instruments and hedging activities. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company is in the process of determining the impact of SFAS No. 133 on the Company's financial statements, which is not expected to be material.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective April 1, 1998, Deloitte & Touche LLP was engaged as the Company's principal independent auditors, replacing KPMG Peat Marwick LLP ("Peat Marwick"). In the period from December 31, 1992, through December 31, 1997, Peat Marwick issued no audit report which was qualified or modified as to uncertainty, audit scope or accounting principles, or which contained adverse opinions or disclaimers of opinion on any of the Company's financial statements and there were no disagreements with Peat Marwick on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit
Number Description of Document
------ -----------------------
3.1 Articles of Incorporation, as amended.
3.2 Bylaws of the Registrant, as amended.
4.1 Specimen Common Stock Certificate.
10.1 Office Building Lease by and between David and Maria Wong and
Redding Bank of Commerce dated June 10, 1998.
10.2 Office Building Lease between Garian Partnership/First Avenue
Square and Redding Bank of Commerce dated July 16, 1998.
10.3 1998 Stock Option Plan.
10.4 Form of Incentive Stock Option Agreement used in connection with
1998 Stock Option Plan.
10.5 Form of Nonstatutory Stock Option Agreement used in connection
with 1998 Stock Option Plan.
10.6 Employment Agreement between the Registrant and Russell L.
Duclos dated June 17, 1997.
10.7 Directors Deferred Compensation Plan.
10.8 Form of Deferred Compensation Agreement Used In Connection With
Directors Deferred Compensation Plan.
10.9 Merchant Services Agreement dated as of April 1, 1993, between
Cardservice International, Inc. and Redding Bank of Commerce, as
amended.
11.1 Statement re: Computation of Earnings Per Share (see Pages 60
and 85).
16.1 Letter on Change in Certifying Accountants.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
|
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
REDDING BANCORP
DATE: November 17, 1998 By /s/ Russell L. Duclos
--------------------------------------
Russell L. Duclos
President, Chief Executive
Officer and Director
|
REDDING BANCORP
FORM 10
EXHIBITS
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
REDDING BANCORP
I
NAME
The name of this corporation is REDDING BANCORP.
II
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 Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
III
AGENT FOR SERVICE
The name and address in the State of California of this corporation's initial agent for service of process is:
JOHN W. REESE, JR.
1330 West Street
Redding, CA 96001
IV
STOCK
The corporation is authorized to issue only one class of shares of stock; and the total number of shares which the corporation is authorized to issue is Ten Million (10,000,000).
IN WITNESS WHEREOF, the undersigned, who is the incorporator of this corporation, has executed these Articles of Incorporation on January 19, 1982.
By: /s/ John W. Reese, Jr.
------------------------------------
JOHN W. REESE, JR.
Incorporator
|
DECLARATION
The undersigned declares that he is the incorporator who has executed these Articles of Incorporation, which execution is his act and deed.
EXECUTED: January 19, 1982
By: /s/ John W. Reese, Jr.
------------------------------------
JOHN W. REESE, JR.
Incorporator
|
Law Offices of
REESE & BANDELL
1330 West Street
Redding, California 96001
January 20, 1982
Office of the Secretary of State
Corporation Filing Office
1230 J Street
Sacramento, CA 95814
Re: Redding Bancorp -- Use of Name
Dear Sirs:
Please be advised that this office represents Redding Bank of Commerce, a California corporation. Our client is in process of forming a new corporation to be known as Redding Bancorp. The Board of Directors of Redding Bank of Commerce has, by resolution duly adopted on January 20, 1982, authorized the usage of the corporate name Redding Bancorp by the undersigned, John W. Reese, Jr., as the initial incorporator of that corporation. The new corporation, Redding Bancorp, will be become a holding company which will eventually hold all of the issued and outstanding stock of Redding Bank of Commerce. Please accept this letter as the authorization for the use of the name Redding Bancorp.
Very truly yours,
REESE & BANDELL
JOHN W. REESE, JR.
JWR:lh
The undersigned, Harry L. Grashoff, certified that he is the duly elected Chief Executive Officer and President of Redding Bank of Commerce, a California corporation, and that pursuant to a resolution adopted by the Board of Directors of Redding Bank of Commerce on January 20, 1982, the formation of a corporation under the name Redding Bancorp was authorized, and that John W. Reese, Jr. is authorized to be the initial incorporator of that corporation.
Dated: January 20, 1982 /s/ Harry L. Grashoff
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HARRY L. GRASHOFF
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CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
REDDING BANCORP
Russell L. Duclos and Richard W. Green certify that:
1. They are the President and Secretary, respectively, of REDDING BANCORP, a California corporation.
2. Article IV of the Articles of Incorporation is amended to read as follows:
The corporation is authorized to issue only one class of shares of stock which shall be designated common stock, no par value per share, and the total number of shares which the corporation is authorized to issue is Ten Million (10,000,000). Upon the effective date of the filing of this Certificate of Amendment, each outstanding share of the corporation's common stock shall be split and converted into three (3) shares.
3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors pursuant to Section 902(c) of the California Corporations Code.
We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge.
Dated: July 10, 1998.
/s/ Russell L. Duclos
----------------------------------------
Russell L. Duclos, President
/s/ Richard W. Green
----------------------------------------
Richard W. Green, Secretary
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EXHIBIT 3.2
BYLAWS
OF
REDDING BANCORP
SIGNED APRIL 26, 1981
TABLE OF CONTENTS
Page
----
ARTICLE I Offices.................................................................... 1
Section 1. Principal Executive Office............................................ 1
Section 2. Other Offices......................................................... 1
ARTICLE II Meetings of Shareholders................................................... 1
Section 1. Place of Meetings..................................................... 1
Section 2. Annual Meeting........................................................ 1
Section 3. Notice of Annual Meeting.............................................. 2
Section 4. Special Meetings...................................................... 3
Section 5. Notice of Special Meetings............................................ 3
Section 6. Quorum................................................................ 3
Section 7. Adjourned Meeting and Notice.......................................... 4
Section 8. Record Date........................................................... 4
Section 9. Voting................................................................ 5
Section 10. Proxies............................................................... 6
Section 11. Validation of Defectively Called or
Noticed Meetings........................................................... 7
Section 12. Action Without Meeting................................................ 7
Section 13. Inspectors of Election................................................ 8
ARTICLE III Board of Directors......................................................... 9
Section 1. Powers................................................................ 9
Section 2. Number and Qualification of Directors................................. 9
Section 3. Election and Term of Office........................................... 10
Section 4. Vacancies............................................................. 10
Section 5. Time and Place of Meetings............................................ 11
Section 6. Notice of Special Meetings............................................ 11
Section 7. Action at a Meeting: Quorum and Required
Vote Required Vote (sic)................................................... 12
Section 8. Action Without a Meeting.............................................. 12
Section 9. Adjourned Meeting and Notice.......................................... 13
Section 10. Fees and compensation. ............................................... 13
Section 11. Appointment of Executive and Other
Committees................................................................. 13
Section 12. Indemnification of Agents of the
Corporation; Purchase of Liability Insurance............................... 14
Section 2. The Chairman of the Board............................................. 17
Section 3. The President......................................................... 17
ARTICLE IV Officers............................................................ 17
Section 1. Officers.............................................................. 17
Section 4. Vice Presidents....................................................... 18
Section 5. The Secretary......................................................... 18
Section 6. The Treasurer......................................................... 19
Section 7. The Controller........................................................ 19
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ARTICLE V Execution of Corporate Instruments,
Ratification, and Voting of Stocks Owned by
the Corporation..................................................... 20
Section 1. Execution of Corporation Instruments.................................. 20
Section 2. Ratification by Shareholders.......................................... 20
Section 3. Voting of Stocks Owned by the Corporation............................. 21
ARTICLE VI Annual and Other Reports............................................ 21
ARTICLE VII Shares of Stock..................................................... 22
ARTICLE VIII Inspection of Corporation Records................................... 23
Section 1. General Records....................................................... 23
Section 2. Inspection of Bylaws.................................................. 24
ARTICLE IX Amendments.......................................................... 24
Section 1. Power of Shareholders.................................................. 24
Section 2. Power of Directors..................................................... 24
ARTICLE X Definitions......................................................... 24
ARTICLE XI Corporation Seal.................................................... 25
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BYLAWS
OF
REDDING BANCORP
a California Corporation
ARTICLE I
Offices
Section 1. Principal Executive Office.
The principal executive office of the corporation is hereby fixed and located at: 1177 Placer Street,, Redding, California 96001. The Board of Directors is hereby granted full power and authority to change said principal executive office from one location to another. Any such change shall be noted on these Bylaws by the Secretary, opposite this Section, or this Section may be amended to state the new location.
Section 2. Other Offices.
Other business offices may at any time be established at any place or places specified by the Board of Directors.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings.
All meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place, within or without the State of California, specified by the Board of Directors.
Section 2. Annual Meeting.
The annual meeting of the shareholders, after the year 1982, shall be held at the time and date in each year fixed by the Board of Directors. At the annual meeting directors shall be elected, reports of the affairs of the corporation shall be considered, and any other business may be transacted that is within the power of the shareholders.
Section 3. Notice of Annual Meeting.
Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined in accordance with Section 605 of the General Corporation Law) on the record date for the meeting, by third-class mail, or by other means of written communication, charges prepaid, addressed to such shareholder at the shareholder's address appearing on the books of the corporation or given by such shareholder to the corporation for the purpose of notice. If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Services is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon 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 or report to all other shareholders. If a shareholder gives no address, notice shall be deemed to have been given to such shareholder if addressed to the shareholder at the place where the principal executive office of the corporation is situated, or if published at least once in some newspaper of general circulation in the county in which said principal executive office is located.
All such notices shall be given to each shareholder entitled thereto not less than ten (10) days (or, if sent by third-class mail, thirty (30) days) nor more than sixty (60) days before each annual meeting. Any such notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the Secretary, Assistant Secretary or any transfer agent of the corporation shall be prima facie evidence of the giving of the notice.
Such notice shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters that the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders (but, subject to the provisions of subsection (d) below, any proper matter may be presented at the meeting for such action);
(c) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by the Board of Directors for election;
(d) the general nature of proposal, if any, to take action with respect
to approval of (i) a contract or other transaction with an interested director,
(ii) amendment of the Articles of Incorporation, (iii) a reorganization of the
corporation as defined in Section 181 of the General Corporation Law, (iv)
voluntary dissolution of the corporation, or (v) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares, if
any; and
(e) such other matters, if any, as may be expressly required by statute.
Section 4. Special Meetings.
Special meetings of the shareholders for any purpose or purposes whatsoever may be called at any time by the Chairman of the Board (if there be such an officer appointed), by the President, by the Board of Directors, or by one or more shareholders entitled to cast not less than ten percent (10%) of the votes at the meeting.
Section 5. Notice of Special Meetings.
Upon request in writing that a special meeting of shareholders be called for any proper purpose, directed to the Chairman of the Board (if there be such an officer appointed), President, Vice President or Secretary by any person (other than the Board of Directors) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be 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 thirty-five (35) nor more than sixty (60) days after the receipt of the request. Except in special cases where other express provision is made by statute, notice of any special meeting of shareholders shall be given in the same manner as for annual meetings of shareholders. In addition to the matters required by Section 3(a) and, if applicable, Section 3(a) of this Article II of these Bylaws, notice of any special meeting shall specify the general nature of the business to be transacted, and no other business may be transacted at such meeting.
Section 6. Quorum.
The presence in person or by proxy of persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. If a quorum is present, the affirmative vote of a majority of the shares represented and voting at the meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number of voting by classes is required by the General Corporation Law or the Articles of Incorporation. Any meeting of shareholders, whether or not a quorum is present, may be adjourned from time to time by the vote of the
holders of a majority of the shares present in person or represented by proxy thereat and entitled to vote, but in the absence of a quorum no other business may be transacted at such meeting, except that the shareholders present or represented by proxy 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 7. Adjourned Meeting and Notice.
When any shareholders' meeting, either annual or special, is adjourned for more than forty-five (45) days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Except as provided above, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement of the time and place thereof at the meeting at which such adjournment is taken.
Section 8. Record Date.
(a) The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to give consent to corporate action in writing without a meeting, to receive any report, to receive any dividend or other distribution, or allotment of any rights, or to exercise rights in respect of any other lawful action. The record date so fixed shall be not more than sixty (60) days nor less than ten (10) days prior to the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. When a record date is so fixed, only shareholders of record at the close of business on that date are entitled to notice of and to vote at any such meeting, to give consent without a meeting, to receive any report, to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or these Bylaws.
(b) If no record date is fixed:
(1) 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 is given or, if notice is waived, at the close of business on the business day preceding the day on which the meeting is held.
(2) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given.
(3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (sic) (both) day prior to the date of such other action, whichever is later.
Section 9. Voting.
(a) Except as provided below with respect to cumulative voting and except as may be otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders. Any holders of shares entitled to vote on any matter 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 elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote.
(b) Subject to the provisions of Sections 702 through 704 of the General Corporation law (relating to voting of shares held by a fiduciary, receiver, pledgee, or minor, in the name of a corporation, or in joint ownership), persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the record date shall be entitled to vote at the meeting of shareholders. Such vote may be viva voce or by ballot; provided, however, that all elections for directors must be by ballot upon demand made by a shareholder at any election and before the voting begins. Shares of this corporation owned by a corporation more than twenty-five percent (25%) of the voting power of which is owned directly by this corporation, or indirectly through one or more majority-owned directly by this corporation, or indirectly through one or more majority-owned subsidiaries of this corporation, shall not be entitled to vote on any matter.
(c) Subject to the requirements of the next sentence, every shareholder entitled to vote at any election for directors shall have the right to 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 such shareholder's shares are normally entitled, or to distribute votes on the same principle among as many candidates as such shareholder thinks fit. No shareholder shall be entitled to cumulate votes unless such candidate's name or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting, prior to the voting, of the shareholder's intention to cumulate such shareholder's votes. If any one shareholder has given notice, all shareholders may cumulate their votes for candidates in nomination. The candidates receiving the highest number of affirmative votes of shares entitled to be voted for them, up to the number of directors to be elected by such shares, shall be elected. Votes against a director and votes withheld shall have no legal effect.
Section 10. Proxies.
(a) Every person entitled to vote shares may authorize another person or
other persons to act by proxy with respect to such shares. "Proxy" means a
written authorization signed by a shareholder or the shareholder's
attorney-in-fact giving another person or persons power to vote with respect to
the shares of such shareholder. "Signed" for the purpose of this Section means
the placing of the shareholder's name on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. Any proxy duly executed is not revoked and
continues in full force and effect until (i) a written instrument revoking it is
filed with the Secretary of the corporation prior to the vote pursuant thereto,
(ii) a subsequent proxy executed by the person executing the prior proxy is
presented to the meeting, (iii) the person executing the proxy attends the
meeting and votes in person, or (iv) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided that no such proxy shall be valid after
the expiration of eleven (11) months from the date of its execution, unless
otherwise provided in the proxy. Notwithstanding the foregoing sentence, a proxy
that states that it is irrevocable, is irrevocable for the period specified
therein to the extent permitted by Section 705(e) of the General Corporation
Law. The dates contained on the forms of proxy presumptively determine the order
of execution, regardless of the postmark dates on the envelopes in which they
are mailed.
(b) As long as no outstanding class of securities of the corporation is registered under Section 12 of the Securities Exchange Act of 1934, or is not exempted from such registration by Section 12(g)(2) of such Act, any form of proxy or written consent distributed to ten (10) or more shareholders of the corporation when outstanding shares of the corporation are held of record by 100 or more persons shall afford an opportunity on the proxy or form of
written consent to specify a choice between approval and disapproval of each matter or group of related matters intended to be acted upon at the meeting for which the proxy is solicited or by such written consent, other than elections to office, and shall provide, subject to reasonable specified conditions, that where the person solicited specifies a choice with respect to any such matter the shares will be voted in accordance therewith. In any election of directors, any form of proxy in which the directors to be voted upon are named therein as candidates and which is marked by a shareholder "withhold" or otherwise marked in a manner indicating that the authority to vote for the election of directors is withheld shall not be voted for the election of a director.
Section 11. Validation of Defectively Called or Noticed Meetings.
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, 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 and 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 these Bylaws or by the General Corporation Law to be included in the notice 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 thereof, unless otherwise provided in the Articles of Incorporation or these Bylaws, or unless the meeting involves one or more matters specified in Section 3(d) of this Article II of these Bylaws.
Section 12. Action Without Meeting.
(a) Directors may be elected without a meeting by a consent in writing, setting forth the action so taken, signed by all of the persons who would be entitled to vote for the election of directors, provided that, without notice except as hereinafter set forth, a director may be elected at any time to fill a vacancy not filled by the directors (other than a vacancy created by removal of a director) by the written consent of persons holding a majority of the outstanding shares entitled to vote for the election of directors.
Any other action that may be taken at a meeting of the shareholders, may be taken without a meeting, and without prior notice except as hereinafter set forth, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes 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.
(b) Unless the consents of all shareholders entitled to vote have been solicited in writing:
(1) notice of any proposed shareholder approval of (i) a contract or other transaction with an interested director, (ii) indemnification of an agent of the corporation, (iii) a reorganization of the corporation as defined in Section 181 of the General Corporation Law, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any, without a meeting by less than unanimous written consent, shall be given at least ten (10) days before the consummation of the action authorized by such approval; and
(2) prompt notice shall be given of the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent; to those shareholders entitled to vote who have not
consented in writing. Such notices shall be given in the manner provided in
Section 3 of this Article II of these Bylaws.
(c) Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation.
Section 13. Inspectors of Election.
(a) In advance of any meeting of shareholders, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any such meeting may, and on the request of any shareholder or the holder of such shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be neither (sic) one or three. If inspectors are appointed at a meeting on the request of one or more shareholders or holders of proxies, the
majority of shares represented in person or by proxy shall determine whether one inspector or three inspectors are to be appointed.
(b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; receive votes, ballots or consents; hear and determine all challenges and questions in any way arising in connection with the right to vote; count and tabulate all votes or consents; determine when the polls shall close; determine the result; and do such acts as may be proper to conduct the election or vote with fairness to all shareholders.
(c) The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. 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. Any report or certificate made by the inspectors of election is Prima facie evidence of the facts stated therein.
ARTICLE III
Board of Directors
Section 1. Powers.
Subject to the provisions of the General Corporation Law and any limitations in the Articles of Incorporation relating to action 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 of Directors. The Board of Directors may delegate the management of the day-to-day operation 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 of Directors.
Section 2. Number and Qualification of Directors.
The number of directors of the corporation shall not be less than nine (9) nor more than fifteen (15) until changed by amendment of the Articles of Incorporation or by a bylaw amending this Section 2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares, provided that a proposal to reduce the minimum number of directors to any number below five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. The exact number of directors
shall be fixed from time to time, within the limits specified in the Articles of Incorporation or in this Section 2, 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 by the Board of Directors.
Subject to the foregoing provisions for changing the number of directors, the number of directors of the corporation has been fixed at eleven (11).
Section 3. Election and Term of Office.
The directors shall be elected at each annual meeting of shareholders, but, if any such annual meeting is not held or the directors are not elected threat, the directors may be elected at any special meeting of shareholders held for that purpose. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified.
Section 4. Vacancies.
A vacancy in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, if a director has been declared of unsound mind by order of court or convicted of a felony, if the authorized number of directors is increased, if the incorporator or incorporators have failed to appoint the authorized number of directors in any resolution for appointment of directors upon the initial organization of the corporation, 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.
Vacancies in the Board of Directors, except for a vacancy created by the removal of a director, may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his or her successor is elected at an annual or a special meeting of the shareholders. A vacancy in the Board of Directors created by the removal of a director may be filled only 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 all of the holders 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 shall require the consent of holders of a majority of the outstanding shares entitled to vote. Any such election by written
consent to fill a vacancy created by removal shall require the unanimous written consent of all shares entitled to vote for the election of directors.
Any director may resign effective upon giving written notice to the Chairman of the Board (if there be such an officer appointed), the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
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 5. Time and Place of Meetings.
The Board of Directors shall hold a regular meeting immediately after the meeting of shareholders at which it is elected and at the place where such meeting is held, or at such other place as shall be fixed by the Board of Directors, for the purpose of appointing officers of the corporation and otherwise organizing and for the transaction of other business, and notice of such meeting is hereby dispensed with. Other regular meetings of the Board of Directors shall be held without notice at such times and places as are fixed by the aboard (sic) of Directors. Special meetings of the Board of Directors may be held at any time whenever called by the Chairman of the Board (if there be such an officer appointed), the President, any Vice President, the Secretary or any two directors.
Except as hereinabove provided in this Section 5, all meetings of the Board of Directors may be held at any place within or without the State of California that has been designated by resolution of the Board of Directors as the place for the holding of regular meetings, or by written consent of all directors. In the absence of such designation.(sic) meetings of the Board of Directors shall be held at the principal executive office of the corporation. Special meetings of the Board of Directors may be held either at a place so designated or at the principal executive office of the corporation.
Section 6. Notice of Special Meetings.
Notice of the time and place of special meetings shall be delivered personally to each director or communicated to each director by telephone, telegraph or mail, charges prepaid, addressed to the director at the director's address as it is shown upon the records of the corporation or, if it is not so shown on such records or is not readily ascertainable, at the place at which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or
delivered to the telegraph company in the place in which the principal executive office of the corporation is located at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered personally or by telephone, as above provided, it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery, personally or by telephone, as above provided, shall be due, legal and personal notice to such director. 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 thereof, whether before or after the meeting, or who attend the meeting without protesting, prior thereto or at its commencement, the lack of notice of such director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meetings.
Section 7. Action at a Meeting: Quorum and Required Vote Required Vote (sic).
Presence of a majority of the authorized number of directors at a meeting of the Board of Directors constitutes a quorum for the transaction of business, except as hereinafter provided. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting as permitted in the preceding sentence constitutes presence in person at such meeting. 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 is the act of the Board of Directors, unless a greater number, or the same number after disqualifying one or more directors from voting, is required by law, by the Articles of Incorporation, or by these Bylaws. 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 8. Action Without a Meeting.
Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors 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 of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors.
Section 9. Adjourned Meeting and Notice.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
Section 10. 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 resolution of the Board of Directors.
Section 11. Appointment of Executive and Other Committees.
The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the Board of Directors or in these Bylaws, shall have all the authority of the Board of Directors, except with respect to:
(a) The approval of any action for which the general Corporation Law also requires shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any committee.
(c) The fixing of compensation of the directors for serving on the Board of Directors or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new Bylaws.
(e) The amendment or repeal of any resolution of the Board of Directors that by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at a rate, in a periodic amount or within a price range determined by the Board of Directors.
(g) The appointment of other committees of the Board of Directors or the members thereof.
The provisions of Section 5 through 9 of this Article III apply also to committees of the Board of Directors and action by such committees, mutates mutandis (with the necessary changes having been made in the language thereof).
Section 12. Indemnification of Agents of the Corporation; Purchase of Liability Insurance.
(a) For the purposes of this Section 12 and of Section 12(b)(1)(ii) of Article II, "agent" means any person who is or was a director, officer, employee or other agent of the corporation, or 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, or was a director, officer, employee or agent of a foreign or domestic corporation that was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" include without limitation attorneys' fees and any expenses of establishing a right to indemnification under subsection (d) or subsection (e)(3) of this Section 12.
(b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment of the corporation, against expenses, judgments, finds, settlements and other amounts actually and reasonably incurred in connection with such proceeding 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 proceeding, if such person had no reasonable cause to believe that such person's conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contenders or its equivalent shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person reasonably believed to be in the best interests of the corporation or that such person had reasonable cause to believe that such person's conduct was unlawful.
(c) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an agent of the corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a
manner such person believed to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this subsection (a):
(1) In respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation in the performance of such person's duty to the corporation, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for the expenses which such court shall determine;
(2) Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or
(3) Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval.
(d) To the extent that an agent of the corporation has been successful on the merits in defense of any proceeding referred to in subsection (b) or (a) of this Section 12 or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
(e) Except as provided in subsection (d) of this Section 12, any
indemnification under this Section 12 shall be made by the Corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in subsection (b) or (c) of this
Section 12, by:
(1) A majority vote of a quorum consisting of directors who are not parties to such proceeding;
(2) Approval or ratification by the affirmative vote of a majority of the shares of the corporation represented and voting at a duly held meeting at which a quorum is present which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of holders of a majority of the outstanding shares entitled to vote; for such purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or
(3) The court in which such proceeding is or was pending, upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense,
whether or not such application by the agent, attorney or other person is opposed by the corporation.
(f) Expenses incurred in defending any proceeding may be advanced by the corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Section 12.
(g) Nothing contained in this Section 12 shall affect any right to indemnification to which persons other than directors and officers of the corporation or any subsidiary thereof may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this Section 12, except as provided in subsection (d) or (e)(3) of this Section 12, in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the Articles of incorporation, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
(i) Upon and in the event of a determination by the Board of Directors of the corporation to purchase such insurance, the corporation shall purchase and maintain elected, and until their successors are elected; provided that all officers, as well as any other employee or agent of the corporation, may, subject to any claim for breach of contract based on any contractual arrangements between any such person and the corporation, be removed at any time at the pleasure of the Board of Directors, or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Director's and upon the removal, resignation, death or incapacity of any officer, the Board of Directors or the President, in cases where he or she has been vested by the Board of Directors with power to appoint, may declare such office vacant and fill such vacancy.
Any officer may resign at any time by giving written notice to the Board of Directors, the President, or the Secretary of the corporation, without prejudice, however, to the rights, if any, of the corporation under any contract to which such 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.
The salary and other compensation of the officers shall be fixed from time to time by resolution of or in the manner determined by the Board of Directors.
Section 2. The Chairman of the Board.
The Chairman of the Board (if there be such an officer appointed) shall, when present, preside at all meetings of the Board of Directors and shall perform all the duties commonly incident to that office. The Chairman of the Board shall have authority to execute in the name of the corporation bonds, contract, deeds, leases and other written instruments to be executed by the corporation (except where by law the signature of the President is require(sic)), and shall perform such other duties as the Board of Directors may from time to time determine.
Section 3. The President.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, the President shall be the chief executive officer of the corporation and shall perform all the duties commonly incident to that office. The President shall have authority to execute in the name of the corporation bonds, contracts, insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out the agent's status as such whether or not the corporation would have the power to indemnify the agent against such liability under the provisions of this Section 12 or otherwise.
(j) This Section 12 does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in such person's capacity as such, even though such person may also be an agent of this Corporation as defined in subsection (a) of this Section 12. The corporation shall have the power to indemnify such trustee, investment manager or other fiduciary to the extent permitted by subdivision (f) of Section 207 of the General corporation (sic) Law.
ARTICLE IV
Officers
Section 1. Officers.
The officers of the corporation shall consist of the President, the Secretary and Treasurer and each of them shall be appointed by the Board of Directors. The corporation may also have a Chairman of the
Board, one or more Vice President, a Controller, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be appointed by the Board of Directors, or with authorization from the Board of Directors by the President. The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. Any two or more of such offices may be held by the same person. The Board of Directors shall designate one officer as the chief financial officer of the corporation. In the absence of such designation, the Treasurer shall be the chief financial officer. The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of the corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
All officers of the corporation shall hold office from the date appointed to the date of the next succeeding regular meeting of the Board of Directors following the meeting of shareholders at which the Board of Directors is deeds leases and other written instruments to be executed by the corporation. The president shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board or if there is none, at all meetings of the Board of Directors, and shall perform such other duties as the Board of Directors may from time to time determine.
Section 4. Vice Presidents.
The Vice Presidents (if there be such officers appointed), in the order of their seniority, unless otherwise established by the Board of Directors, may assume and perform the duties of the President in the absence or disability of the President or whenever the offices of the Chairman of the Board and President are vacant. The Vice Presidents shall have such titles, perform such other duties, and have such other powers as the Board of Directors or the President may designate from time to time.
Section 5. The Secretary.
The Secretary shall record or cause to be recorded, and shall keep or cause to be kept, at the principal executive office and such other place ac (sic) the Board of Directors may order, a book of minutes of actions taken at all meetings of directors and committees thereof and of shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent
a share register or a duplicate share register in a form capable of being converted into written form, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the name, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors and committees thereof required by these Bylaws or by law to be given, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.
The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time.
Section 6. The Treasurer.
The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. The books of account shall at all reasonable times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of the Treasurer's transactions as Treasurer 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 of Directors or these Bylaws.
The President may direct any Assistant Treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant treasurer (sic) shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time.
Section 7. The Controller.
The Controller (if there be such an officer appointed) shall be responsible for the establishment and maintenance of accounting and other systems required to control and account for the assets of the corporation and provide safeguards therefor, and to collect information required for management purposes, and shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time. The President may
direct any Assistant Controller to assume and perform the duties of the Controller, in the absence or disability of the Controller, and each Assistant Controller shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board (if there be such an officer appointed) or the President may designate from time to time.
ARTICLE V
Execution of Corporate Instruments, Ratification, and Voting of Stocks Owned by the Corporation
Section 1. Execution of Corporation Instruments.
The Board of Directors may, in its discretion, determine the method, and designate the signatory officer or officers or other person or person, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or otherwise required by law or permitted by these Bylaws, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation and other corporate instruments or documents, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board if there be such an officer appointed) (sic), the President, any Vice President and by the Secretary, the Treasurer, any Assistant Secretary, any Assistant Treasurer or the Controller.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize to do so.
Section 2. Ratification by Shareholders.
The Board of Directors may, in its discretion, submit any contract or act for approval or ratification of the shareholders at any annual meeting of shareholders, or at any special meeting of shareholders called for that purpose; and any contract or act that shall be approved or ratified by the holders of a majority of the voting power of the corporation shall be as valid and binding upon the corporation and upon the shareholders thereof as though approved or ratified by each and every shareholder of the corporation, unless a greater vote is required by law for such purpose.
Section 3. Voting of Stocks Owned by the Corporation.
All stock of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized to do so by resolution of the Board of Directors, or in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), the President or any Vice President, or by any other person authorized to do so by the Chairman of the Board, the President or any Vice President.
ARTICLE VI
Annual and Other Reports
The Board of Directors of the corporation shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year, and at least fifteen (15) days for (sic), if sent by third-class mail, thirty-five (35) days prior to the annual meeting of shareholders to be held during the next fiscal year. Such report shall contain a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. Such report shall also contain such other matters as required by Section 1501(b) of the General Corporation Law, unless the corporation has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, or exempted therefrom under Section 12(g)(2) thereof. As long as the corporation has less than 100 holders of record of its shares (determined as provided in Section 605 of the General Corporation Law), the foregoing requirement of an annual report is hereby waived. If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days 24 after the close of such fiscal year, deliver or mail to the person making the request within thirty (30) days thereafter the financial statements for such year as required by Section 1501(a) of the General Corporation Law. A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the current fiscal year ended more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the annual report for the last fiscal year, unless such report has been waived under these Bylaws. The statements shall be delivered or mailed to the person making the request within thirty (30) days thereafter. A copy of any such
statements shall be kept on file in the principal executive office of the corporation for twelve (12) months, and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them, or a copy shall be mailed to such shareholder.
The quarterly income statements and balance sheets referred to in this Section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation.
ARTICLE VII
Shares of Stock
Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board (if there be such officers appointed) or the President or a Vice President and by the chief financial officer or any Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. any (sic) of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
Any such certificate shall also contain such legends or other statements as may be required by Sections 417 and 418 of the General Corporation Law, the Corporate Securities Law of 1968, federal or other state securities laws, and any agreement between the corporation and the issuee of the certificate.
Certificates for shares may be issued prior to full payment, under such restrictions and for such purposes as the Board of Directors or these Bylaws may provide; provided, however, that any such certificate so issued prior to full payment shall state on the face thereof the amount remaining unpaid and the terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time; provided, however, that a new certificate will be issued without the surrender and cancellation of the old certificate if (1) the old certificate is lost, apparently destroyed or wrongfully taken; (2) the request for the issuance of the new certificate is made within a reasonable time after the owner of the old certificate has notice of its loss, destruction, or theft; (3) the request for the issuance of a new certificate is made prior to the receipt of
notice by the corporation that the old certificate has been acquired by a bona
fide purchaser; (4) the owner of the old certificate files a sufficient
indemnity bond with or provides other adequate security to the corporation; and
(5) the owner satisfies any other reasonable requirement imposed by the
corporation. In the event of the issuance of a new certificate, the rights and
liabilities of the corporation, and of the holders of the old and new
certificates, shall be governed by the provisions of Sections 8104 and 8405 of
the California Commercial Code.
ARTICLE VIII
Inspection of Corporation Records
Section 1. General Records.
The accounting books and records, the record of shareholders, and the minutes of proceedings of the shareholders, the Board of Directors and committees thereof of the corporation and any subsidiary of the corporation shall be open to inspection upon the written demand on the corporation of 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 interests as a shareholder or as the holder of such voting trust certificate. Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts.
A shareholder or shareholders 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 such voting shares and have filed a schedule 14B with the United States Securities and Exchange Commissions* relating to the election of directors of the corporation shall have (in person, or by agent or attorney) the right to inspect and copy the record of shareholders' names and addresses and share holdings during usual business hours upon five (5) business-days' prior written demand upon the corporation or to obtain from the transfer agent for the corporation, upon written demand and upon the tender of its usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their share holdings, as of the most recent record date for which it has been compiled or as of a date
* OPTION. If the corporation is a bank the deposits of which are insured under the federal deposit Insurance Act (sic), substitute the following language for the bracketed language: "Form F-6 with the appropriate federal banking regulatory agency".
specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5)
business days after the demand is received or the date specified therein as the date as of which the list is to be compiled.
Every director 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 its subsidiaries. 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 2. Inspection of Bylaws.
The corporation shall keep at its principal executive office in California, or if its principal executive office is not in California, then at its principal business office in California (or shall otherwise provide upon written request of any shareholder if it has no such office in California) the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours.
ARTICLE IX
Amendments
Section 1. Power of Shareholders.
New bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by the written assent of shareholders entitled to vote such shares, except as otherwise provided by law or by the Articles of Incorporation.
Section 2. Power of Directors.
Subject to the right of shareholders as provided in Section 1 of this Article IX to adopt, amend or repeal these Bylaws, these Bylaws may be adopted, amended or repealed by the Board of Directors; provided, however, that the Board of Directors may adopt a bylaw or amendment thereof changing the authorized number of directors only for the purpose of fixing the exact number of directors within the limits specified in the Articles of Incorporation or in Section 2 of Article III of these Bylaws.
ARTICLE X
Definitions
Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the General Corporation Law as amended from time to time shall govern the construction of these Bylaws. Without limiting the generality of the foregoing, the
masculine gender includes the feminine and neuter, the singular number includes the plural and the plural number includes the singular, and the term "person" includes a corporation as well as a natural person.
ARTICLE XI
Corporation Seal
The corporate seal shall consist of a circular die bearing the name of the corporation, the state in which it was incorporated and the date of its incorporation. If and when authorized by the Board of Directors, a duplicate of the corporate seal may be kept and used by such officer or person as the Board of Directors may designate.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of REDDING BANCORP, a California corporation; and
2. That the foregoing By-Laws, comprising 29 pages, constitute the By-Laws of said corporation as duly adopted at a meeting of the Board of Directors thereof duly held on
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this 26th day of April, 1982
Daniel C. Beyer, Jr., Secretary
EXHIBIT 4.1
NUMBER REDDING BANCORP SHARES
RBC 1871
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
SEE REVERSE FOR
CERTAIN CONDITIONS
This Certifies that
is the owner of
SHARES OF THE COMMON STOCK OF
REDDING BANKCORP
transferable on the books of the Bank by the holder thereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed or assigned.
WITNESS the seal of the Bank and the signatures of its duly authorized officers.
Dated:
CERTIFICATE OF STOCK
[SEAL]
Secretary President
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as through 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)
COM PROP - as community property under Uniform Gifts to Minors
Act _________________________
JT TEN - as joint tenants with right of (State)
survivorship and not as tenants
in common
|
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED _______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________________________________________ Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
_______________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated ________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
EXHIBIT 10.1
STANDARD OFFICE LEASE #7183
THIS LEASE is made and entered into this 10TH day of JUNE, 1998, by and between DAVID AND MARIA WONG (hereinafter "Lessor") and REDDING BANK OF COMMERCE, A CALIFORNIA CORPORATION (hereinafter "Lessee").
For and in consideration of the rental and of the covenants and agreements hereinafter set forth to be kept and performed by the Lessee, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the Premises herein described for the term, at the rental and subject to and upon all of the terms, covenants and agreements hereinafter set forth.
1. PREMISES
1.1 DESCRIPTION. Lessor hereby leases to Lessee and Lessee hereby rents from Lessor those certain Premises (hereinafter "Premises") crosshatched on Exhibit A containing approximately 1,484 square feet (SQUARE FOOTAGE INCLUDES A PROPORTIONATE SHARE OF THE COMMON AREA) on the FIRST floor of that certain office building (hereinafter "Building") located in the City of ROSEVILLE, County of PLACER, California, commonly known as, CORPORATE COMMONS, and more particularly described as 2400 PROFESSIONAL DRIVE, SUITE 100, ROSEVILLE, CA 95661.
1.2 WORK OF IMPROVEMENT. The obligations of Lessor and Lessee to perform the work and supply the necessary materials and labor to prepare the Premises for occupancy are set forth in detail in Exhibit B. Lessor and Lessee shall expend all funds and do all acts required of them in Exhibit B and shall have the work performed promptly and diligently in a first class workmanlike manner.
2. TERM
2.1 TERM. The term of this Lease shall be for SIXTY (60) MONTHS
commencing SEPTEMBER 1, 1998 and ending on AUGUST 31, 2003 unless sooner
terminated pursuant to this Lease.
2.2 DELAY IN COMMENCEMENT. Lessee agrees that in the event of the
inability of Lessor for any reason to deliver possession of the Premises
to Lessee on the commencement date set forth in Section 2.1, Lessor
shall not be liable for any damage thereby nor shall such inability
affect the validity of this Lease or the obligations of Lessee
hereunder, but in such case Lessee shall not be obligated to pay rent or
other monetary sums until possession of the Premises is rendered to
Lessee, provided that if the delay in delivery of possession exceeds
sixty (60) days, then the expiration date of the term of the Lease shall
be extended by the period of time computed from the scheduled
commencement date to the date possession is tendered. In the event
Lessor shall not have delivered possession of the Premises within two
(2) months from the scheduled commencement date, then Lessee at its
option to be exercised within fifteen (15) days after the end of said
two (2) month period, may terminate this Lease and upon Lessor's return
of any monies previously deposited by Lessee, the parties shall have no
further rights or liabilities toward each other.
2.3 ACKNOWLEDGEMENT OF COMMENCEMENT DATE. In the event the commencement date of the term of the Lease is other than as provided in Section 2.1, then Lessor and Lessee shall execute a written acknowledgement of the date of commencement and shall attach it to the Lease as Exhibit D.
2.4 EARLY POSSESSION. The Lessor shall permit Lessee to occupy the Premises for one week prior to the commencement date of the term, such occupancy shall be subject to all the provisions of this Lease except for payment of rent. Said early possession shall not advance the termination date hereinabove provided.
3. BASE RENT. Lessee shall pay to Lessor as base rent for the Premises in
advance on the first day of each calendar month of the term of this
Lease without deduction, offset, prior notice or demand, in lawful money
of the United States, the sum of (SEE "RENT SCHEDULE" ATTACHED) (subject
to additional rental as provided in paragraph 5). If the commencement
date is not the first day of a month, or if the Lease termination date
is not the last day of a month, a prorated monthly installment shall be
paid at the then current rate for the fractional month during which the
Lease commences and/or terminates. Concurrently with Lessee's execution
of this Lease, Lessee shall pay to Lessor the sum of TWO THOUSAND FIVE
HUNDRED TWENTY TWO AND 80/100THS DOLLARS ($2,522.80) as rent for the
month of SEPTEMBER 1998.
4. SECURITY DEPOSIT.
_________________ -1- _________________ Lessor's Initials Lessee's Initials
5. TAX AND BUILDING OPERATING COST INCREASES
5.1 DEFINITIONS. For purposes of this Section, the following terms are herein defined:
(a) Base Year: 1999.
(b) Building Operating Costs: All costs and expenses of
ownership, operation and maintenance of the Building (excluding
depreciation on the Building, all amounts paid on loans of Lessor and
expenses capitalized for federal income tax purposes) including by way
of illustration but not limited to: real and personal property taxes and
assessments and any tax in addition to or in lieu thereof, other than
taxes covered by Section 5.4, whether assessed against Lessor or Lessee
or collected by Lessor or both; utilities; supplies; insurance; license,
permit and inspection fees; costs of services of independent contractors
(including property management fees); Owner's Association dues, if any;
cost of compensation (including employment taxes and fringe benefits) of
all persons who perform regular and recurring duties connected with
day-to-day operation, maintenance and repair of the Building, its
equipment and the adjacent walks, malls and landscaped areas, including
five (5) days a week janitorial (including vacuum service three (3) days
per week), scavenger, gardening, security, parking, operating engineer,
elevator, painting, plumbing, electrical, carpentry, heating,
ventilation, air conditioning, window washing, signing and advertising
(but excluding persons performing services not uniformly available to or
performed for substantially all Building Tenants), and rental expense or
a reasonable allowance for depreciation of personal property used in the
maintenance, operation and repair of the building. LESSEE WILL NOT HAVE
TO PAY ANY INCREASE IN REAL ESTATE TAXES DUE TO BUILDING SALE PRIOR TO
JULY 1, 2000.
(c) Net Rentable Area: The rentable area computed by measuring to the window glass of outer building walls, to the Premises side of public corridors and/or other permanent partitions and to the center of partitions which separate the adjoining rentable areas with no deduction for columns and projections necessary to the Building structure. On multi-tenant floors, common corridors and toilets, air conditioning rooms, fan rooms, janitorial closets, electrical and telephone closets and any other areas within and exclusively serving that floor are considered common area and for purposes of this Section shall be allocated pro rata to the Tenants on the floor.
5.2 LESSEE'S SHARE. In the event the Building Operating Costs incurred by Lessor during any calendar year following the Base Year shall exceed Building Operating Costs incurred by Lessor during any calendar year following the Base Year shall exceed Building Operating Costs incurred by Lessor during the Base Year, Lessee shall pay to Lessor an amount equal to FORTY FIVE percent (45%) (1,484/3,273) of such increase, which share is computed on the basis of the ratio between Net Rentable Area in the Premises and Net Rentable Area in the Building. Said costs shall be calculated assuming the building is ninety (90) [sic] occupied.
5.3 PAYMENT. Within ninety (90) days after the end of each calendar year following the Base Year, Lessor shall furnish Lessee a written statement showing in reasonable detail Lessor's Building Operating Costs for the preceding calendar year and the Base Year, and showing the amount, if any, of any increase or decrease in the sums due from Lessee taking into account prior increases paid by Lessee (if any).
Concurrent with the monthly rent payment next due following Lessee's receipt of such statement, Lessee shall pay to Lessor (in the case of an increase), or Lessor shall credit against the next rent due from Lessee (in the case of a decrease), an amount equal to the sum of (1) the difference between Building Operating Costs for the preceding calendar year and the Base Year less increases paid by Lessee (if any); and (2) one-twelfth (1/12th) of said increases for the current calendar year multiplied by the number of rent payments (including the current one) then elapsed in such calendar year. Thereafter the one twelfth (1/12th) shall be paid monthly with the rent until the adjustment the following year pursuant hereto. In no event shall the adjustment entitled Lessee to receive the benefit of a reduction in Building Operating Costs below the level of the initial Base Year during the term hereof.
5.4 NEW TAXES. In addition to rent and other charges to be paid by Lessee hereunder, Lessee shall reimburse to Lessor, within thirty (30) days of receipt of a demand therefor, any and all taxes payable by Lessor (other than net income taxes) whether or not now customary or within the contemplation of the parties hereto; (a) upon, allocable to, or measured by the area of the Premises or on the rent payable hereunder, including without limitation any gross income tax or excise tax levied by the State, any political subdivision thereof, City or Federal Government with respect to the receipt of such rent; or (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Lessee of the Premises or any portion thereof; or (c) upon or measured by the value of Lessee's personal property, equipment or fixtures located in the Premises; or (d) upon this transaction or any document to which Lessee is a party creating or transferring an interest or an estate in the Premises. Lessee agrees to pay, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon Lessee's equipment, furniture, fixtures and other personal property located in the Premises. For the purpose of determining said amount, figures supplied by the County Assessor as to the amount so assessed shall be conclusive. Lessee shall
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comply with the provisions of any law, ordinance or rule of the taxing
authorities that require Lessee to file a report of Lessee's property
located in the Premises.
6. USE.
6.1 USE. The Premises shall be used and occupied by Lessee for a Bank and for general office purposes and for no other purpose without the prior written consent of Lessor.
6.2 SUITABILITY. Lessee acknowledges that neither Lessor nor any agent of Lessor has made any representation or warranty with respect to the Premises or the Building or with respect to the suitability of either for the conduct of Lessee's business, nor has Lessor agreed to undertake any modification, alteration or improvement to the Premises except as provided in this Lease. The taking of possession of the Premises by Lessee shall conclusively establish that the Premises and the Building were at such time in satisfactory condition unless within fifteen (15) days after such date Lessee shall give Lessor written notice specifying in reasonable detail the respects in which the Premises or the Building were not in satisfactory condition.
6.3 USES PROHIBITED.
(a) Lessee shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate or affect any fire or other insurance upon the Building or any of its contents (unless Lessee shall pay any increased premium as a result of such use or acts), or cause a cancellation of any insurance policy covering said Building or any part thereof or any of its contents, nor shall Lessee sell or permit to be kept, used or sold in or about said Premises any articles which may be prohibited by a standard form policy of fire insurance.
(b) Lessee shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other Tenants or occupants of the Building or injure or annoy them or use or allow the Premises to be used for any unlawful or objectionable purpose, nor shall Lessee cause, maintain or permit any nuisance in or about the Premises. Lessee shall not commit or suffer to be committed any waste in or upon the Premises.
(c) Lessee shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation or requirement of duly constituted public authorities now in force or which may hereafter be enacted or promulgated. Lessee shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not relating to or affecting the condition, use or occupancy of the premises, or not related or afforded by Lessee's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Lessee in any action against Lessee, whether Lessor be a party thereto or not, that Lessee has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of the fact as between Lessor and Lessee.
7. SERVICE AND UTILITIES
7.1 LESSOR'S OBLIGATIONS. Lessor agrees to furnish to the Premises during reasonable hours of generally recognized business days, to be determined by Lessor, and subject to the Rules and Regulations of the Building, water, gas and electricity suitable for the intended use of the Premises, heat and air conditioning required in Lessor's judgment for the comfortable use and occupancy of the Premises, scavenger, janitorial and interior and exterior window washing service, to include removal of spider webs, and security customary in similar buildings in the competing geographical areas. Lessor shall also maintain and keep lighted the common stairs, entries and toilet rooms in the Building.
7.2 LESSEE'S OBLIGATION. Lessee shall pay for, prior to delinquency, all telephone and all other materials and services, not expressly required to be paid by Lessor, which may be furnished to or used in, on or about the Premises during the term of this Lease.
7.3 LESSEE'S ADDITIONAL REQUIREMENTS.
(a) Lessee will not, without the written consent of Lessor, use any apparatus or device in the Premises, including but without limitation thereto, electronic data processing machines, punch card machines and machines using current in excess of 110 volts, which will in any way increase the amount of electricity or water usually furnished or supplied for use of the Premises as general office space; nor connect with electric current, except through existing electrical outlets in the Premises, or water pipes, any apparatus or device, for the purposes of using electric current or water.
(b) If Lessee shall require water or electric current in excess of that usually furnished or supplied for use of the Premises as general office space, Lessee shall first procure the consent of Lessor for the use thereof, which consent Lessor may refuse and Lessor may cause a water meter or electric current meter to be installed in the Premises, so as to measure he [sic] amount of water and electric current consumed for any such other use. The cost of such meters and of installation, maintenance and repair thereof shall be paid for by Lessee and Lessee agrees to pay Lessor promptly upon demand by Lessor for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the City in which the Building is located or the local public utility, as the case may be, furnishing the same, plus any additional expense incurred in keeping account of the water and electric current so consumed.
(c) Wherever heat generating machines or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Lessor reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of
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installation, operation, and maintenance thereof, shall be paid by Lessee to Lessor upon demand by Lessor.
7.4 NON-LIABILITY. Lessor shall not be liable for, and Lessee shall not be entitled to, any abatement or reduction of rent by reason of Lessor's failure to furnish any of the foregoing when such failure is caused by accidents, breakage, repairs, strikes,lockouts or other labor disturbances or labor disputes of any character, or by any other cause similar or dissimilar, beyond the reasonable control of Lessor. Lessor shall not be liable under any circumstances for loss of or injury to property, however occurring, through or in connection with or incidental to failure to furnish any of the foregoing.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
8.1 MAINTENANCE AND REPAIRS.
(a) Lessor's Obligations. Lessor shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Lessee or any other tenant in the Building.
(b) Lessee's Obligations.
(i) Lessee at Lessee's sole cost and expense, except for services furnished by Lessor pursuant to Section 7 hereof, shall maintain the Premises in good order, condition and repair including the interior surfaces of the ceilings, walls and floors, all doors, interior windows, exterior windows at or below street level, all plumbing pipes, electrical wiring, switches, fixtures and special items in excess of building standard furnishings, and equipment installed by or at the expense of Lessee. UNLESS DAMAGE IS CAUSED BY LESSEE, LESSOR SHALL BE RESPONSIBLE FOR ROUGH PLUMBING AND EXTERIOR WINDOWS.
(ii) Upon the expiration or earlier termination of this Lease, Lessee shall surrender the Premises in the same condition as received, ordinary wear and tear and damage by fire, earthquake, act of God or the elements alone excepted, and shall promptly remove or cause to be removed at Lessee's expense from the Premises and the Building any signs, notices and displays placed by Lessee.
(iii) Lessee agrees to repair any damage to the Premises or the Building caused by or in connection with the removal of any articles of personal property, business or trade fixtures, machinery, equipment, cabinetwork, furniture, movable partition or permanent improvements or additions, including without limitation thereto, repairing the floor and patching and painting the walls where required by Lessor to Lessor's reasonable satisfaction, all at Lessee's sole cost and expense. Lessee shall indemnify the Lessor against any loss or liability resulting from delay by Lessee in so surrendering the Premises, including without limitation any claims made by any succeeding tenant founded on such delay.
(iv) In the event Lessee fails to maintain the Premises in good order, condition and repair, Lessor shall give Lessee notice to do such acts as are reasonably required to so maintain the Premises. In the event Lessee fails to promptly commence such work and diligently prosecute it to completion, then Lessor shall have the right to do such acts and expend such funds at the expense of Lessee as are reasonably required to perform such work. Lessee shall have thirty (30) days following the notice of completion and submission of an invoice to pay the charge in questions. Any amount so expended by Lessor shall be paid by Lessee promptly after demand with interest at ten percent (10%) per annum from the date of invoice. Lessor shall have no liability to Lessee for any damage, inconvenience or interference with the use of the Premises by Lessee as a result of performing any such work.
(c) Compliance with Law. Lessor and Lessee shall each do all acts required to comply with all applicable laws, ordinances, regulations and rules of any public authority relating to their respective maintenance obligations as set forth herein.
8.2 ALTERATIONS AND ADDITIONS.
(a) Lessee shall make no alterations, additions or improvements to the Premises or any part thereof without obtaining the prior written consent of Lessor.
(b) Lessor may impose as a condition to the aforesaid consent such requirements as Lessor may deem necessary in its sole discretion, including without limitation thereto, the manner in which the work is done, a right of approval of the contractor by whom the work is to be performed, the times during which is to be accomplished, and the requirement that upon written request of Lessor prior to the expiration or earlier termination of the Lease, Lessee will remove any and all permanent improvements or additions to the Premises installed at Lessee's expense and all movable partitions, counters, personal property, equipment, fixtures and furniture.
(c) All such alterations, additions or improvements shall at the expiration or earlier termination of the Lease become the property of Lessor and remain upon and surrendered with the Premises, unless specified pursuant to Section 8.2(b) above.
(d) All articles of personal property and all business and trade fixtures, machinery and equipment, cabinetwork, furniture and movable partitions owned by Lessee or installed by Lessee at its expense in the Premises shall be and remain the property of Lessee and may be removed by Lessee at any time during the Lease term when Lessee is not in default hereunder.
9. ENTRY BY LESSOR. Lessor reserves and shall at any and all times have the right to enter the Premises to inspect the same, to supply janitor service and any other service to be provided by Lessor to Lessee hereunder, to submit said Premises to prospective purchasers or Lessees, to post notices of non-responsibility and "for lease" signs, and to alter, improve or repair the Premises and any portion
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of the Building without abatement of rent, and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing the entrance to the Premises shall not be blocked thereby, and further providing that the business of Lessee shall not be interfered with unreasonably. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the aforesaid purposes, Lessor shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Lessee's vaults and safes, and Lessor shall have the right to use any and all means which Lessor may deem proper to open said doors in an emergency, in order to obtain entry to the Premises and any entry to the Premises obtained by Lessor by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Lessee from the Premises or any portion thereof. Any entry of Premises by Lessor shall be without liability to Lessee except for any failure to exercise due care for Lessee's property.
10. LIENS. Lessee shall keep the Premises and any building of which the Premises are a part free from any liens arising out of work performed, materials furnished, or obligations incurred by Lessee and shall indemnify, hold harmless and defend Lessor from any liens and encumbrances arising out of any work performed or materials furnished by or at the direction of Lessee. In the event that Lessee shall not, within twenty (20) days following the imposition of any such lien, cause such lien to be released of record by payment or posting of a proper bond. Lessor shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Lessor and all expenses incurred by it in connection therewith including attorney's fees and costs shall be payable to Lessor by Lessee on demand with interest at the rate of ten percent (10%) per annum. Lessor shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law or which Lessor shall deem proper, for the protection of Lessor and the Premises, and any other party having an interest therein, from mechanics' and materialmen's liens, and Lessee shall give to Lessor at least ten (10) business days prior written notice of the expected date of commencement of any work relating to alterations or additions to the Premises.
11. INDEMNITY.
11.1 INDEMNITY. Lessee shall indemnify and hold Lessor harmless from and defend Lessor against any and all claims of liability for any injury or damage to any person or property whatsoever; (1) occurring in, on or about the Premises or any part thereof; and (2) occurring in, on or about any facilities (including, without prejudice to the generality of the term "facilities," elevators, stairways, passageways, hallways, and parking areas), the use of which Lessee may have in conjunction with other tenants of the Building, when such injury or damage is caused in part or in whole by the act, neglect, fault or omission of any duty with respect to the same by Lessee, its agents, contractors, employees or invitees. Lessee shall further indemnify and hold Lessor harmless from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or negligence of Lessee, or any of its agents, contractors, employees and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon. In case any action or proceeding be brought against Lessor by reason of any such claim, Lessee, upon notice from Lessor, shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor, provided, however, that Lessee shall not be liable for damage or injury occasioned by the negligence or intentional acts of Lessor and its designated agents or employees unless covered by insurance Lessee is required to provide.
Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause and Lessee hereby waives all claims in respect thereof against Lessor, unless damage to property or injury to persons occasioned by the negligence or intentional acts of Lessor and its designated agents or employees or invitees.
11.2 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage which may be sustained by the person, goods, wares, merchandise or property of Lessee, its employees, invitees or customers, or any other person in or about the Premises caused by or resulting from fire, steam, electricity, gas, water or rain, which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures of the same, whether the damage or injury results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of the Building, unless damage to property or injury to persons occasioned by the negligence or intentional acts of Lessor and its designated agents or employees or invitees. NOTWITHSTANDING THE ABOVE, THE LESSOR SHALL BE RESPONSIBLE FOR THE REPAIR OF, AND THE DAMAGE TO THE PREMISES OR LESSEE'S CONTENTS CAUSED BY THE DEFECTS IN THE ROOF, EXTERIOR WALLS AND WINDOWS, ROOF AND HVAC DRAINAGE SYSTEMS.
12. INSURANCE
12.1 COVERAGE. Lessee shall, at all times during the term of this Lease, and at its own cost and expense procure and continue in force the following insurance coverage:
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(a) Bodily Injury and Property Damage Liability insurance with a combined single limit for bodily injury and property damage of not less than $1,000,000.
(b) Fire and Extended Coverage Insurance, including vandalism and malicious mischief coverage, in an amount equal to the full replacement value of all fixtures, furniture and improvements.
12.2 INSURANCE POLICIES. The aforementioned minimum limits of policies shall in no event limit the liability of Lessee hereunder. The aforesaid insurance shall name Lessor as an additional insured. Said insurance shall be with companies having a rating of not less than AAA in "Best's Insurance Guide." Lessee shall furnish from the insurance companies or cause the insurance companies to furnish certificates of coverage. No such policy shall be cancelable or subject to reduction of coverage or other modification or cancellation except after thirty (30) days prior written notice to Lessor by the insurer. All such policies shall be written as primary policies, not contributing with and not in excess of the coverage which Lessor may carry. Lessee shall, at least twenty (20) days prior to the expiration of such policies, furnish Lessor with renewals or binders. Lessee agrees that if Lessee does not take out and maintain such insurance, Lessor may (but shall not be required to) procure said insurance on Lessee's behalf and charge Lessee the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Lessee shall have the right to provide such insurance coverage pursuant to blanket policies obtained by Lessee provided such blanket policies expressly afford coverage to the Premises and to Lessee as required by this Lease.
12.3 WAIVER OF SUBROGATION. Lessor and Lessee each hereby waive any and all rights of recovery against the other or against the officers, employees, agents and representatives of the other, on account of loss or damage occasioned to such waiving party or its property or the property of others under its control to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of such loss or damage. Lessee shall, upon obtaining the policies of insurance required under this Lease, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease.
13. DAMAGE OR DESTRUCTION
13.1 PARTIAL DAMAGE - INSURED. In the event the Premises or the Building are damaged by any casualty which is covered under fire and extended coverage insurance carried by Lessor, then Lessor shall restore such damage provided insurance proceeds are available to pay eighty percent (80%) or more of the cost of restoration and provided such restoration can be completed within sixty (60) days after the commencement of the work in the opinion of a registered architect or engineer appointed by Lessor. In such event this Lease shall continue in full force and effect, except that Lessee shall be entitled to proportionate reduction of rent while such restoration takes place, such proportionate reduction to be based upon the extent to which the restoration efforts interfere with Lessee's business in the Premises.
13.2 PARTIAL DAMAGE - UNINSURED. In the event the Premises or the Building are damaged by a risk not covered by Lessor's insurance or the proceeds of available insurance are less than eighty percent (80%) of the cost of restoration, or if the restoration cannot be completed within sixty (60) days after the commencement of work in the opinion of the registered architect or engineer appointed by Lessor, then Lessor shall have the option either to (1) repair or restore such damage, this Lease continuing in full force and effect, but the rent to be proportionately abated as hereinabove provided, or (2) give notice to Lessee at any time within thirty (30) days after such damage terminating this Lease as of a date to be specified in such notice, which date shall be not less than thirty (30) nor more than sixty (60) days after giving such notice. In the event of the giving of such notice, this Lease shall expire and all interest of Lessee in the Premises shall terminate on such date so specified in such notice and the rent, reduced by any proportionate reduction based upon the extent, if any, to which said damage interfered with the use and occupancy of Lessee, shall be paid to the date of such termination; Lessor agrees to refund to the Lessee any rent theretofore paid in advance for any period of time subsequent to such date.
13.3 TOTAL DESTRUCTION. In the event the Premises are totally destroyed or the Premises cannot be restored as required herein under applicable laws and regulations, notwithstanding the availability of insurance proceeds, this Lease shall be terminated effective the date of the damage.
13.4 DAMAGE NEAR END OF THE TERM. Notwithstanding anything to the contrary contained in Section 13, Lessor shall not have any obligation whatsoever to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Section 13 occurs during the last twelve (12) months of the term of this Lease or any extension thereof.
13.5 LESSOR'S OBLIGATIONS. The Lessor shall not be required to repair any injury or damage by fire or other cause, or to make any restoration or replacement of any panelings, decorations, partitions, railings, floor covering, office fixtures or any other improvements or property installed in the Premises by Lessee or at the direct or indirect expense of Lessee. Lessee shall be required to restore or replace same in the event of damage. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration.
14. CONDEMNATION. If all or any part of the Premises shall be taken or appropriated for public or quasi-public use by right of eminent domain with or without litigation or transferred by agreement in connection with such public or quasi-public use, either party hereto shall have the right at its option exercisable within thirty (30) days of receipt of notice of such taking to terminate this Lease as of the date possession is taken by the condemning authority, provided, however, that before Lessee may terminate this Lease by reason of taking or appropriation as provided hereinabove, such taking or
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appropriation shall be of such an extent and nature as to substantially handicap, impede or impair Lessee's use of the Premises. If any part of the Building other than the Premises shall be so taken or appropriated, Lessor shall have the right at its option to terminate this Lease. No award for any partial or entire taking shall be apportioned, and Lessee hereby assigns to Lessor any award which may be made in such taking or condemnation, together with any and all rights of Lessee now or hereafter arising in or to the same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Lessor any interest in or to require Lessee to assign to Lessor any award made to Lessee for the taking of personal property and fixtures belonging to Lessee and/or for the interruption of or damage to Lessee's business and/or for Lessee's unamortized cost of leasehold improvements. In the event of a partial taking which does not result in a termination of this Lease, rent shall be abated in the proportion which the part of the premises so made unusable bears to the rented area of the Premises immediately prior to the taking. No temporary taking of the Premises and/or of Lessee's rights therein or under this Lease shall terminate this Lease or give Lessee any right to any abatement of rent thereunder; any award made to Lessee by reason of any such temporary taking shall belong entirely to Lessee and Lessor shall not be entitled to share therein.
15. ASSIGNMENT AND SUBLETTING
15.1 LESSOR'S CONSENT REQUIRED. Lessee shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest therein, and shall not sublet the Premises or any part thereof, without the prior written consent of Lessor and any attempt to do so without such consent being first had and obtained shall be wholly void and shall constitute a breach of this Lease.
15.2 REASONABLE CONSENT. If Lessee complies with the following conditions, Lessor shall not unreasonably withhold its consent to the subletting of the Premises or any portion thereof or the assignment of this Lease, Lessee shall submit in writing to Lessor (a) the name and legal composition of the proposed subLessee or assignee; (b) the nature of the business proposed to be carried on in the Premises; (c) the terms and provisions of the proposed sublease; (d) such reasonable financial information as Lessor may request concerning the proposed subLessee or assignee.
15.3 NO RELEASE OF LESSEE. No consent by Lessor to any assignment or subletting by Lessee shall relieve Lessee of any obligation to be performed by Lessee under this Lease, whether occurring before or after such consent, assignment or subletting. The consent by Lessor to any assignment or subletting shall not relieve Lessee from the obligation to obtain Lessor's express written consent to any other assignment or subletting. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision of this Lease or to be a consent to any assignment, subletting or other transfer. Consent to one assignment, subletting or other transfer shall not be deemed to constitute consent to any subsequent assignment, subletting or other transfer.
15.4 ATTORNEY'S FEES. In the event Lessor shall consent to a sublease or assignment under this Section 15, Lessee shall pay Lessor's actual cost of reasonable attorney's fees not to exceed $500 incurred in connection with giving such consent.
16. SUBORDINATION
16.1 SUBORDINATION. This Lease at Lessor's option shall be subject and subordinate to all ground or underlying leases which now exist or may hereafter be executed affecting the Premises or the land upon which the Premises are situated or both, and to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the land or improvements or either thereof, of which the Premises are a part, or on or against Lessor's interest or estate therein, or on or against any ground or underlying lease without the necessity of the execution and delivery of any further instruments on the part of Lessee to effectuate such subordination. If any mortgagee, trustee or ground Lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust, or ground lease or the date of the recording thereof.
16.2 SUBORDINATION AGREEMENTS. Lessee covenants and agrees to execute and deliver upon demand without charge therefore, such further instruments evidencing such subordination of this Lease to such ground or underlying leases and to the lien of any such mortgages or deeds of trust as may be required by Lessor. Lessee hereby appoints Lessor as Lessee's attorney-in-fact, irrevocably, to execute and deliver any such agreements, instruments, releases or other documents.
16.3 QUIET ENJOYMENT. Lessor covenants and agrees with Lessee that upon Lessee paying rent and other monetary sums due under the Lease, performing its covenants and conditions under the Lease and upon recognizing Lessor's successor as Lessor pursuant hereto, Lessee shall and may peaceably and quietly have, hold and enjoy the Premises for the term, subject, however, to the terms of the Lease and of any of the aforesaid ground leases, mortgages or deeds of trust described above.
16.4 ATTORNMENT. In the event any proceedings are brought for default under ground or any underlying lease or in the event of foreclosure or the exercise of the power of sale under any mortgage or deed of trust made by the Lessor covering the Premises, the Lessee shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Lessor under this Lease, provided said purchaser expressly agrees in writing to be bound by the terms of the Lease.
17. DEFAULTS; REMEDIES
17.1 DEFAULT. The occurrence of any of the following shall constitute a material default and breach of this Lease by Lessee:
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(a) Any failure by Lessee to pay the rent or any other monetary sums required to be paid hereunder (where such failure continues for five (5) days after written notice by Lessor to Lessee);
(b) The abandonment or vacation of the Premises by Lessee;
(c) A failure by Lessee to observe and perform any other provision of this Lease to be observed or performed by Lessee, where such failure continues for twenty (20) days after written notice thereof by Lessor to Lessee; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said twenty (20) day period, Lessee shall not be deemed to be in default if Lessee shall within such period commence such cure and thereafter diligently prosecute the same to completion;
(d) The making by Lessee of any general assignment or general
arrangement for the benefit of creditors; the filing by or against
Lessee of a petition to have Lessee adjudged a bankrupt or of a petition
for reorganization or arrangement under any law relating to bankruptcy
unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days, the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days.
17.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may, at any time thereafter without limiting Lessor in
the exercise of any right or remedy at law or in equity which Lessor may
have by reasons of such default or breach;
(a) Maintain this Lease in full force and effect and recover the rent and other monetary charges as they become due, without terminating Lessee's right to possession irrespective of whether Lessee shall have abandoned the Premises. In the event Lessor elects not to terminate the Lease, Lessor shall have the right to attempt to re-let the Premises at such rent and upon such conditions and for such a term, and to do all acts necessary to maintain or preserve the Premises as Lessor deems reasonable and necessary without being deemed to have elected to terminate the Lease, including removal of all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Lessee. In the event any such re-letting occurs, this Lease shall terminate automatically upon the new Lessee taking possession of the Premises. Notwithstanding that Lessor fails to elect to terminate the Lease initially, Lessor at any time during the term of this Lease may elect to terminate this Lease by virtue of such previous default of Lessee.
(b) Terminate Lessee's right to possession by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default, including without limitation thereto, the following: (i) the worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that is proved could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that is proved could be reasonably avoided; plus (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform his obligations under this Lease or which in the ordinary course of events would be likely to result therefrom; plus (v) at Lessor's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable State law. Upon any such re-entry Lessor shall have the right to make any reasonable repairs, alterations or modifications to the Premises, which Lessor in its sole discretion deems reasonable and necessary. As used in (i) above, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per annum from the date of default. As used in (ii) and (iii) the "worth at the time of award" is computed by discounting such amount at the discount rate of the U.S. Federal Reserve Bank at the time of award plus one percent (1%). The term "rent," as used in this Section 17, shall be deemed to be and to mean the rent to be paid pursuant to Section 3 and all other monetary sums required to be paid by Lessee pursuant to the terms of this Lease. RELATING TO THE ABOVE, LESSEE'S SOLE LIABILITY SHALL BE ALL UNPAID RENT, COMMON AREA EXPENSES, REPAIR AND CLEAN-UP, ATTORNEYS FEES, AND 75% OF THE UN-AMORTIZED LEASE COMMISSIONS (ON A STRAIGHT LINE BASIS) FOR LEASE TERMINATION.
17.3 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, Lessee shall pay to Lessor a late charge equal to ten percent (10%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount nor prevent Lessor from exercising any of the other rights and remedies granted hereunder.
_________________ -8- _________________ Lessor's Initials Lessee's Initials
17.4 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligations, provided, however, that is the nature of Lessor's obligation is such that more than thirty (30) days are required for performance, then Lessor shall not be in default if Lessor commences performance within such thirty-day period and thereafter diligently prosecutes the same to completion.
18. MISCELLANEOUS
18.1 ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) day's prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statement within time shall
be conclusive upon Lessee(i) that this Lease is in full force and
effect, without modification except as may be represented by Lessor,
(ii) that there are no uncured defaults in Lessor's performance and
(iii) that not more that one month's rent has been paid in advance.
(c) If Lessor desires to finance or refinance the Building, or any part thereof, Lessee hereby agrees to deliver to any lender designated by Lessor such financial statements as may be reasonably required by such lender. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by Lessor in confidence and shall be used only for the purposes herein set forth.
18.2 TRANSFER OF LESSOR'S INTEREST. In the event of a sale or conveyance by Lessor of Lessee's interest in the Premises or the Building other than a transfer for security purposes only, Lessor shall be relieved from and after the date specified in any such notice of transfer of all obligations and liabilities accruing thereafter on the part of Lessor, provided that any funds in the hands of the Lessor at the time of transfer in which Lessee has an interest, shall be delivered to the successor of Lessor. This Lease shall not be affected by any such sale and Lessee agrees to attorn to the purchaser or assignee provided all Lessor's obligations hereunder are assumed in writing by the transferee.
18.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS. (a) The captions of the
paragraphs of this Lease are for convenience only and shall not be
deemed to be relevant in resolving any question of interpretation or
construction of any section of this Lease. (b) Exhibits attached hereto,
and addendums and schedules initiated by the parties, are deemed by
attachment to constitute part of this Lease and are incorporated herein.
(c) The words "Lessor" and "Lessee," as used herein, shall include the
plural as well as the singular. Words used in neuter gender include the
masculine and feminine and words in the masculine or feminine gender
include the neuter. If there be more than one Lessor or Lessee, the
obligations hereunder imposed upon Lessor or Lessee shall be joint and
several; as to a Lessee which consists of husband and wife, the
obligations shall extend individually to the sole and separate property
as well as community property. The term "Lessor" shall mean only the
owner or owners at the time in question of the fee title or a tenant's
interest in a ground lease of the land underlying the Building. The
obligations contained in this Lease to be performed by Lessor shall be
binding on Lessor's successor's and assigns only during their respective
periods of ownership.
18.4 ENTIRE AGREEMENT. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Lessor and Lessee relative to the Premises and this Agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Lessor and Lessee. Lessor and Lessee agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the premises are written in or revoked by this Agreement.
18.5 SEVERABILITY. If any term or provision of this Lease shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforceable to the fullest extent permitted by law.
18.6 COSTS OF SUIT.
(a) If Lessee or Lessor shall bring any action for any relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Lessor for the recovery of rent or possession of the Premises, the losing party shall pay the successful party a reasonable sum for attorney's fees which shall be deemed to have accrued on the commencement of such action and shall be paid whether or not such action is prosecuted to judgement.
(b) Should Lessor, without fault on Lessor's part, be made a party to any litigation instituted by Lessee or by any third party against Lessee, or by or against any person holding under or using the Premises by license of Lessee, or for the foreclosure of any lien for labor or material furnished to or for Lessee or any such other person or otherwise arising out of or resulting from any
_________________ -9- _________________ Lessor's Initials Lessee's Initials
act or transaction of Lessee or of any such other person, Lessee covenants to save and hold Lessor harmless from any judgement rendered against Lessor or the Premises, or any part thereof, and all costs and expenses, including reasonable attorneys' fees, incurred by Lessor in or in connection with such litigation.
(c) If Lessee or Lessor or their successors as assigns shall bring an action against Broker or make Broker a party to litigation arising out of this Lease, Broker shall be entitled to recover reasonable attorney's fees and court costs from either Lessor or Lessee if Broker is adjudged by a court of competent jurisdiction to be without fault in such matter.
18.7 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this Lease and each and every provision hereof, except as to the conditions relating to the delivery of possession of the Premises to Lessee. All the terms, covenants and conditions contained in this Lease to be performed by either party, if such party shall consist of more than one person or organization, shall be deemed to be joint and several, and all rights and remedies of the parties shall be cumulative and nonexclusive of any other remedy at law or in equity.
18.8 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree that all provisions hereof are to be construed as both covenants and conditions as though the words importing such covenants and conditions were used in each separate paragraph hereof. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to Section 15, all of the provisions hereof shall bind and inure tho the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California.
18.9 WAIVER. No covenant, term or condition or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver to the breach of any covenant, term or condition shall not be deemed to be a waiver of any preceding or succeeding breach of the same of any other covenant, term or condition. Acceptance by Lessor of any performance by Lessee after the time the same shall have become due shall not constitute a waiver by Lessor of the breach or default of any covenant, term or condition unless otherwise expressly agreed to by Lessor in writing.
18.10 SURRENDER OF PREMISES. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of the Lessor, terminate all or any existing subleases or subtenancies, or may, at the option of the Lessor, operate as an assignment to it of any or all such subleases or subtenancies.
18.11 HOLDING OVER. If Lessee remains in possession of all or any part of the Premises after the expiration of the term hereof, with or without the express or implied consent of Lessor, such tenancy shall be from month to month only, and not a renewal hereof or an extension for any further term, and in such case, rent and other monetary sums due hereunder shall be payable in the amount and at the time specified in this Lease and such month to month tenancy shall be subject to every other term, covenant and agreement contained herein.
18.12 SIGNS.
(a) Lessee shall not place or permit to be placed in or upon the Premises, where visible from outside the Premises, or outside the Premises or any part of the Building any signs, notices, drapes, shutters, blinds or displays of any type without the prior written consent of Lessor.
(b) Lessor reserves the right in Lessor's sole discretion to place and locate on the roof, exterior of the Building, and in any area of the Building not leased to Lessee such signs, notices, displays and similar items as Lessor deems appropriate in the proper operation of the Building.
18.13 REASONABLE CONSENT. Except as limited elsewhere in this Lease, wherever in this Lease Lessor or Lessee is required to give its consent or approval to any action on the part of the other, such consent or approval shall not be unreasonably withheld. In the event of failure to give any such consent, the other party shall be entitled to specific performance at law and shall have such other remedies as are reserved to it under this Lease, but in no event shall Lessor or Lessee be responsible in monetary damages for failure to give consent unless said consent is withheld maliciously or in bad faith.
18.14 INTEREST ON PAST DUE OBLIGATIONS. Except as expressly provided, any amount due to Lessor not paid when due shall bear interest at ten percent (10%) per annum from the due date. Payment of such interest shall not excuse or cure any default by Lessee under this Lease.
18.15 RULES AND REGULATIONS; PARKING.
(a) Lessee and Lessee's agents, servants, employees, visitors and licensees shall observe and comply fully and faithfully with all reasonable and non-discriminatory rules and regulations adopted by Lessor for the care, protection, cleanliness and operation of the Building and its tenants including those annexed to this Lease as Exhibit C and any modification or addition thereto adopted by Lessor, provided Lessor shall give written notice thereof to Lessee. Lessor shall not be responsible to Lessee for the non-performance by any other tenant or occupant of the Building of any said rules and regulations.
(b) Lessee shall have approximately six (6) parking stalls available on a non-reserved basis during the term of this Lease. 18.16 NOTICES. All Notices or demands of any kind required or desired to be given by Lessor or Lessee hereunder shall be in writing and shall be deemed delivered forty-eight (48) hours after depositing the notice or demand in the United States mail, certified or registered, postage prepaid, addressed to the Lessor or Lessee respectively at the address set forth after their signatures at the end of this Lease.
_________________ -10- _________________ Lessor's Initials Lessee's Initials
18.17 CORPORATE AUTHORITY. If Lessee is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with the duly adopted resolution of the Board of Directors of said corporation or in accordance with the By-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. If Lessee is a corporation Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease.
18.18 RECORDATION. Neither Lessor nor Lessee shall record this Lease or a short form memorandum hereof without the prior written consent of the other party.
18.19 INABILITY TO PERFORM. This Lease and the obligations of the Lessee hereunder shall not be affected or impaired because the Lessor is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of strike, labor troubles, acts of God, or any other cause beyond the reasonable control of the Lessor.
18.20 AMERICANS WITH DISABILITIES ACT. Any other provision of this Lease notwithstanding, the parties hereby agree that the demised premises may be subject to the terms and conditions of the Americans with Disabilities Act of 1990 (hereinafter the "ADA"). The parties further agree and acknowledge that is shall be the sole responsibility of the Lessee to comply with any and all provisions of the ADA, as such compliance may be required to operate the demised premises. The Lessee further agrees to indemnify and hold the Lessor harmless against any claims that may arise out of Lessee's failure to comply with the ADA. Such indemnification shall include, but not necessarily be limited to reasonable attorney's fees, court costs and judgements as a result of said claims. Landlord shall deliver the premises and building in substantial compliance with current ADA standards.
19. ADDITIONAL PARAGRAPHS 20 through 22 are attached hereto and made a part of the Lease.
In Witness Whereof, Lessor and Lessee have executed this Lease the date and year first above written.
LESSOR: LESSEE:
DAVID AND MARIA WONG REDDING BANK OF COMMERCE,
A CALIFORNIA CORPORATION
By: /s/ DAVID WONG 7/20/98 By: /s/ RUSS DUCLOS 6-25-98
-------------------------------- ------------------------------
David Wong Date Russ Duclos Date
President
By: /s/ MARIA WONG 7/20/98
--------------------------------
Maria Wong Date
Address: Address:
4318 Almond Drive Redding Bank of Commerce
Davis, CA 95616 2400 Professional Drive, Suite 100
(916) 756-1192 Roseville, CA 95661
_________________ -11- _________________
Lessor's Initials Lessee's Initials
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ADDENDUM TO THAT CERTAIN LEASE DATED JUNE 10, 1998
BY AND BETWEEN
DAVID AND MARIA WONG, "LESSOR"
AND
REDDING BANK OF COMMERCE
A CALIFORNIA CORPORATION, "LESSEE"
20. RENT SCHEDULE:
TERM: MONTHLY RENT:
9/1/98 to 8/31/99 Two Thousand Five Hundred Twenty Two
and 80/100ths Dollars ($2,522.80).
9/1/99 to 8/31/00 Two Thousand Five Hundred Ninety
Seven and no/100ths Dollars ($2,597.00).
9/1/00 to 8/31/01 Two Thousand Six Hundred Seventy One
and 20/100ths Dollars ($2,671.20).
9/1/01 to 8/31/02 Two Thousand Seven Hundred Forty Five
and 40/100ths Dollars ($2,745.40).
9/1/02 to 8/31/03 Two Thousand Eight Hundred Nineteen
and 60/100ths Dollars ($2,819.60).
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21. OPTION TO RENEW:
In the event that the Lessee shall not be in default in the performance of any term or condition of this Lease, at the time of exercise or at any time thereafter prior to commencement of the renewal term, then upon expiration of the lease term, Lessee shall have an option to renew the lease for an additional term of five (5) years. This option may be exercised by the Lessee at any time prior to the date that shall be three (3) months from the expiration of the term of the Lease. The option shall be exercised by delivery or mailing, postage prepaid, certified mail, notice to Lessor stating that the Lessee is exercising his option to renew. Such exercise of the option shall automatically extend their term of the lease upon the terms and conditions herein set forth, and no further writing need be executed by the Lessor, except as to the rental charge. Once exercised, the Lessee shall not have the right to revoke his election to exercise the option. In the event that the option is not exercised as provided for herein within the time provided for, then the option shall expire, and the Lessee shall not have the right to renew the Lease. The total rent for the Premises in the event this Lease is so extended, shall be negotiated by the parties prior to the expiration of the existing Lease term.
22. SIGNAGE:
So long as not in default under this Lease, Lessee shall be allowed to install signage at Lessee's sole cost and expense, subject to the CC&R's and the City of Roseville sign criteria for Corporate Commons. Said signage shall be subject to (1) approval by all government entities having jurisdiction and (2) Lessor's design approval, which shall not be unreasonably withheld. Lessor further agrees to give a response to Lessee within ten (10) days of Lessors receipt from Lessee of Lessee's sign request. All costs of the sign, it [sic] design, its installation, its operation, its maintenance and/or its removal shall be borne solely by Lessee.
THIS AGREEMENT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE REAL ESTATE
BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS AGREEMENT OR THE TRANSACTION INVOLVED
HEREIN.
AGREED AND ACCEPTED
LESSOR: LESSEE:
DAVID AND MARIA WONG REDDING BANK OF COMMERCE
A CALIFORNIA CORPORATION
BY: /s/ DAVID WONG BY: /s/ RUSS DUCLOS
------------------------- ---------------------
David Wong Russ Duclos
President
DATE: 7/20/98 DATE: 6-25-98
------------------------- --------------------
BY: /s/ MARIA WONG
-------------------------
Maria Wong
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EXHIBIT "A"
EXHIBIT "B"
Lessor agrees that the interior of the Premises will be completed in substantial form to the floorplan and specifications as described in this Exhibit "B", attached hereto and made a part of this Lease. Lessor shall provide sink with upper and lower cabinet as located below, HVAC, flooring, light fixtures, electrical, lighting and paint. Paint colors to be mutually agreed to by both parties. All tenant improvements shall be in building standard quality and quantity and agreed to between both parties within two (2) weeks of lease execution. Lessor shall be responsible for installation and maintenance of all tenant improvements subject to normal wear and tear by Lessee. Any additional tenant improvements, any upgrades, or change orders from the Standard Tenant Improvement Allowance provided by Lessor at the request of Lessee, shall be paid by Lessee to Lessor in cash prior to occupancy.
Lessor shall, at Lessor's sole cost and expense, provide "turnkey" tenant improvements using building standard finishes and materials based upon a mutually acceptable floor plan. Please see the floor plan below identifying Lessee's proposed modifications to Lessor's floor plan. Said changes shall include, but not be limited to, converting the full-height wall in the reception area to a partial wall eliminating one (1) wall, creating the break/storage room (with sink and cabinetry) as indicated on the floor plan; converting Lessor's proposed break/storage room to an office; and adding glass approximately 2' wide and 5' high adjacent to the door on the two (2) offices as indicated on the floor plan below, subject to final specifications to be mutually agreed by Lessee and Lessor. Window frames to match door in style with one-quarter inch (1/4") glass. Cabinet in breakroom to be plastic laminate with fifteen inch by fifteen inch (15" x 15") sink. The following will also be required:
-- 2'x4' Suspended T-Bar Ceiling, 2'x2' Armstrong Second-Look ceiling panels, lights are 2x4 recessed-florescent. Lessor shall pay $250.00 above building standard towards the ceiling panels.
-- Timely door frames with brown tone finish.
-- Doors 1 3/4 solid oak doors with clear finish, F-Series Slaag hardware.
-- Walls; spray texture with light/medium spray knockdown.
-- Carpet 26 oz. closed loop with either 2 1/2" or 4" rubber base.
-- Glass in wall to be 24" wide, 72" long, flush to the top of the door in two offices.
EXHIBIT C
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part or the outside or inside of the Building or the Premises without the written consent of Lessor first hand and obtained and Lessor shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Lessee. Lessee shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside "the Premises"; provided, however, the Lessor is to furnish and install a building standard window drapery at all exterior windows.
2. The bulletin board or directory of the Building will be provided exclusively for the display of the name and location of Lessee only and Lessor reserves the right to exclude any other names therefrom.
3. The sidewalks, halls, passages, exits, entrances and stairways shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress to and egress from their respective Premises. The halls, passages, exits, entrances, stairways, balconies and roof are not for the use of the general public and the Lessor shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of the Lessor shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom the Lessee normally deals in the ordinary course of Lessee's business unless such persons are engaged in illegal activities. No tenant and no employees or invitees of any tenant shall go upon the roof of the Building.
4. Lessee shall not alter any lock or install any new or additional locks or any bolts on any door of the Premises without the written consent of Lessor.
5. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Lessee who, or whose employees or invitees shall have caused it.
6. Lessee shall not overload the floor of the Premises or mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof. No boring, cutting or stringing of wires or laying of linoleum or other similar floor coverings shall be permitted except with the prior written consent of the Lessor and as the Lessor may direct.
7. No furniture, freight or equipment of any kind shall be brought into the Building without the consent of Lessor and all moving of the same into or out of the Building shall be done at such time and in such manner as Lessor shall designate. Lessor shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the Building and also the times and manner of moving the same in and out of the Building. Safes or other heavy objects shall, if considered necessary by Lessor, stand on wood strips of such thickness as is necessary to properly distribute the weight. Lessor will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the Building by moving or maintaining any such safe or other property shall be repaired at the expense of Lessee. There shall not be used in any space, or in the public halls of the Building, either by any tenant or others, any hand trucks except those equipped with rubber tires and side guards.
8. Except with the written consent of Lessor, no person or persons other than those approved by Lessor shall be permitted to enter the building for the purpose of cleaning the same. Lessee shall not cause an unnecessary labor by reason of Lessee's carelessness or indifference in the preservation of good order and cleanliness. Lessor shall in no way be responsible to any Lessee for any loss of property on the Premises, however occurring, or for any damage done to the effects of any Lessee by the janitor or any other employee or any other person.
9. Lessee shall not use, keep or permit to be used or kept any food or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to the Lessor or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought in or kept in or about the Premises or the Building. No Lessee shall make or permit to be made any unseemly or disturbing noises or disturb or interfere with occupants of this or neighboring Buildings or premises or those having business with them whether by the use of any musical instrument, radio, phonograph, unusual noise, or in any other way. No Lessee shall throw anything out of doors or down the passageways.
10. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises for medical office purposes. No Lessee shall occupy or permit any portion of his Premises to be occupied as an office for a public stenographer or typist, or for the manufacture or sale of liquor, or tobacco in any form, or as a barber shop or manicure shop. No Lessee shall advertise for laborers giving an address at the Premises. The Premises shall not be used for lodging or sleeping or for any illegal purposes.
11. Lessee shall not use or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Lessor.
12. Lessor will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the consent of Lessor. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Lessor.
13. All keys to offices, rooms and toilet rooms shall be obtained from Lessor's Office and Lessee shall not from any other source duplicate, obtain keys or have keys made without Lessor's approval. The Lessee, upon termination of the tenancy, shall deliver to the Lessor the keys of the offices, rooms and toilet rooms which shall have been furnished or shall pay the Lessor the cost of replacing same or of changing the lock or locks opened by such lost key if Lessor deems it necessary to make such change.
14. No Lessee shall lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by the Lessor. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by the Lessee by whom, or by whose contractors, employees or invitees, the damage shall have been caused.
15. No furniture, packages, supplies, equipment or merchandise will be received in the Building, except between such hours as shall be designated by Lessor.
16. On Sundays, legal holidays and on Saturday commencing at 12:00 noon, and
on other days between the hours of 7:00 P.M. and 7:00 A.M. the following
day, access to the building, or to the halls, corridors, or stairways in
the Building, or to the Premises may be refused unless the person
seeking access is known to the person or employee of the building in
charge and has a pass or is properly identified. The Lessor shall in no
case be liable for damages for any error with regard to the admission to
or exclusion from the Building of any person. The Lessor reserves the
right to prevent access to the Building for the safety of the tenants
and protection of property in the Building and the Building. Lessor
reserves the right to close and keep locked all entrance and exit doors
of the Building on Sundays, legal holidays, and on Saturdays commencing
at 12:00 noon, and on other days between the hours of 7:00 P.M. and 7:00
A.M., and during such further hours as Lessor may deem advisable for the
adequate protection of said Building and the property of its tenants.
17. Lessee shall see that the doors of the Premises are closed and securely locked before leaving the Building and most observe strict care and caution that all water faucets or water apparatus are entirely
shut off before Lessee or Lessee's employees leave the building, and that all electricity shall likewise be carefully shut off, so as to prevent waste or damage, and for any default or carelessness Lessee shall make good all injuries sustained by other tenants or occupants of the Building.
18. Lessor reserves the right to exclude or expel from the Building any person who, in the judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building.
19. The requirements of Lessee will be attended to only upon application at the Office of the Building. Employees of Lessor shall not perform any work or do anything outside of their regular duties unless under special instructions from the Lessor, and no employee will admit any person (Lessee or otherwise) to any office without specific instructions from the Lessor.
20. No vending machine or machines of any description shall be installed, maintained, or operated upon the Premises without the written consent of the Lessor.
21. Lessor shall have the right, exercisable without notice and without liability to Lessee, to change the name and the street address of the Building of which the Premises are a part.
22. Lessee agrees that it shall comply with all fire and security regulations that may be issued from time to time by Lessor and Lessee also shall provide Lessor with the name of a designated responsible employee to represent Lessee in all matters pertaining to such fire or security regulations.
23. Lessor reserves the right by written notice to Lessee, to rescind, alter or waive any rule or regulation at any time prescribed for the Building when, in Lessor's judgment, it is necessary, desirable or proper for the best interest of the Building and its tenants.
24. Lessees shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate to prevent same.
25. Without the written consent of Lessor, Lessee shall not use the name of the Building and shall cooperate to prevent same.
26. Lessor shall furnish heating and air conditioning during the hours of 7:00 A.M. to 7:00 P.M. Monday through Friday, and 8:00 A.M. to 12:00 P.M. on Saturday, except for Holidays.
EXHIBIT 10.2
COMMERCIAL LEASE
REDDING BANK OF COMMERCE, hereinafter referred to as LESSEE and GARIAN PARTNERSHIP/FIRST AVENUE SQUARE, hereinafter referred to as LESSOR, enter into agreement whereby Lessee hereby offers to lease from Lessor the premises situated in the City of Chico, County of Butte, State of California, described as Suite 4 (consisting of approximately 500 sq. ft.) First Avenue Square, located at 676 E. First Avenue upon the following TERMS AND CONDITIONS:
1. TERM: The term hereof shall commence on August 1, 1998, and expire on July 31, 2001 (3 year).
2-A. RENT: The monthly rent shall be as follows:
August 1, 1998 - July 31, 2001 $400.00 per mo.
Rent is payable in advance of the first day of each month to First Avenue Square, 676 E. First Avenue, Suite 7, Chico, California 95926 or at such other places as may be designated by Owner from time to time. Any rent which is paid five days from the due date shall be subject to a late charge equal to 5% of the monthly rent, plus interest. Any rent which is paid by a check which is subsequently dishonored shall be subject to a returned check fee of $25. Late charge and returned check fees shall be liquidated damages to cover Lessor's damages incurred by reason of late payment or returned checks, the actual amount of which is difficult to determine.
2B. DEPOSIT: Lessee has deposited with Lessor, first and last month's rent in the amount of $800.00 and cleaning deposit, the sum of $400.00, paid in advance of August 1, 1995.
3. USE: The premises are to be used for the operation of a bank branch office for lending and no other purpose, without prior written consent of Lessor.
4. USES PROHIBITED: Lessee shall not use any portion of the premises for purposes other than those specified hereinabove, and no use shall be made or permitted upon the property, nor acts done, which shall increase the existing rate of insurance upon the property, or cause cancellation of insurance policies covering said property. Lessee shall not conduct or permit any sale by auction on the premises.
5. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this lease or sublet any portion of the premises without prior written consent of the Lessor, which shall not be unreasonably withheld. Any such assignment or subletting without written consent shall be void and, at the option of the Lessor, may terminate this lease.
6. ORDINANCES AND STATUTES: Lessee shall comply with all statutes, ordinances and requirements of all municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the premises, occasioned by or affecting the use thereof by Lessee. The commencement or dependence of any state or federal court abatement proceeding affecting the use of the premises shall, at the option of the Lessor, be deemed a breach hereof.
7. MAINTENANCE, REPAIRS, ALTERATIONS: Lessee acknowledges that the premises are in good order and repair, unless otherwise indicated herein. Lessee shall at his own expense, and at all times, maintain the interior of the premises in good and safe condition including: plate glass, all electrical fixtures (outlets, breakers, light bulbs, ballasts and switches), plumbing, (interior and exterior of the building). Lessee shall be responsible for performing the recommended manufacturer's maintenance of all heating and air conditioning installations and any other system or equipment upon the premises. Lessee shall be responsible for all interior repairs required. Lessor is responsible for the maintenance and repair of the roof and exterior walls unless damaged by Lessee. Lessee shall surrender the premises at termination hereof, in as good condition as received, normal wear and tear excepted. Lessee may, at Lessee's expense, provide one (1) exterior signage in harmony with existing signage, on the exterior of the buildings. No other improvements or alterations of the premises shall be made without the prior WRITTEN consent of Lessor.
Prior to the commencement of any substantial repair, improvement or alteration, Lessee shall give Lessor at least 5 days written notice in order that Lessor may post appropriate notices to avoid any liability for liens. Any window coverings installed by Lessee must be of a neutral color.
Lessor is responsible for all exterior landscape maintenance and upkeep, as well as maintenance and cleaning of parking lots.
8. ENTRY AND INSPECTION: Lessee shall permit Lessor or Lessor's agents to
enter upon the premises at reasonable times and upon reasonable notice, for the
purpose of inspecting the same, and will permit Lessor at any time within sixty
(60) days prior to the expiration of this lease, to place upon the premises any
usual "To Let" or "For Lease" signs, and permit persons desiring to lease the
same to inspect the premises thereafter.
9. INDEMNIFICATION OF LESSOR: Lessor shall not be liable for any damage or injury to Lessee, or any other person, or to any property, occurring on the demised premises or any part thereof, and Lessee agrees to hold harmless from any claim for damages.
10. POSSESSION: If Lessor is unable to deliver possession of the premises at the commencement hereof, Lessor shall not be liable for any damage caused thereby, nor shall this lease be void or voidable, but Lessee shall not be liable for any rent until possession is delivered. Lessee may terminate this lease if possession is not delivered within ten days of the commencement of the term hereof.
11. INSURANCE: Lessee, at his expense, shall maintain plate glass, public liability and property damage insurance insuring Lessee with minimum coverage for Bodily Injury Liability and Property Damage. Lessee shall name Lessor as his interest may appear but not as co-insured and furnish Lessor with a Certificate of Insurance which shall provide for a ten-day written notice to Lessor in the event of cancellation or material change of coverage. Lessee shall be responsible for his own personal property and fire insurance. To the maximum extent permitted by insurance policies which may be owned by Lessor or Lessee for the benefit of each other, waive any and all rights of subrogation which might otherwise exist.
12. UTILITIES: Lessee agrees that he shall be responsible for the payment of all utilities, including telephone, gas, electricity and heat. Lessor will provide water & rubbish service for normal use, excluding packing crates and/or boxes, which will be the Lessee's responsibility to dispose of immediately.
13. SIGNS: Lessor reserves the exclusive right to the roof and exterior walls of the premises. Lessee shall not construct or place any projecting sign or awning without the prior written consent of Lessor which consent shall not be unreasonably withheld, nor shall anything be placed in [sic] window that would obstruct view, including signs, displays or emblems.
14. ABANDONMENT: Lessee shall not vacate or abandon the premises at any time during the term hereof, and if Lessee shall abandon or vacate the premises or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee left upon the premises shall be deemed to be abandoned, at the option of Lessor.
15. CONDEMNATION: If any part of the premises shall be taken or condemned
for public use, and a part thereof remains which is susceptible of occupation
hereunder, this lease shall, as to the part taken, terminate as of the date the
condemnor acquires possession, and thereafter Lessee shall be required to pay
such proportion of the rent for the remaining term as the value of the premises
remaining bears to the total value of the premises at the date of condemnation:
provided however, that such portion is condemned that the remainder is not
susceptible for use hereunder, this lease shall terminate upon the date upon
which the condemnor acquires possession. All sums which may be payable on
account of any condemnation shall belong to the Lessor, and Lessee shall not be
entitled to any part thereof, provided however, that Lessee shall be entitled to
retain any amount awarded to him for his trade fixtures or moving expenses.
16. TRADE FIXTURES: Any and all improvements made to the premises during the term hereof shall belong to the Lessor, except trade fixtures of the Lessee. Lessee may, upon termination hereof, remove all his trade fixtures, but shall repair or pay for all repairs necessary for damages to the premises occasioned by removal.
17. DESTRUCTION OF PREMISES: In the event of partial destruction of the premises during the term hereof, from any cause, Lessor shall forthwith repair the same, provided that such repairs can be made within sixty (60) days under existing governmental laws and regulation, but such partial destruction shall not terminate this lease, except that Lessee shall be entitled to proportionate reduction of rent while such repairs are being made, based upon the extent to which the making of such repairs shall interfere with the business of Lessee on the premises. If such repairs cannot be made within said sixty (60) days, this lease may be terminated at the option of either party.
In the event that the building in which the demised premises may be situated is destroyed to an extent of not less than one-third of the replacement costs thereof, Lessor may elect to terminate this lease whether the demised premises be injured or not. A total destruction of the building in which the premises may be situated shall terminate this lease.
In the event of any dispute between Lessor and Lessee with respect to the provisions hereof, the matter shall be settled by arbitration in such a manner as the parties may agree upon, or if they cannot agree, in accordance with the rules of the American Arbitration Association.
18. INSOLVENCY: In the event that a receiver shall be appointed to take over the business of the Lessee, or in the event that the Lessee shall make, take or suffer under any insolvency or bankruptcy act, the same shall constitute breach of this lease by Lessee.
19. REMEDIES OF OWNER ON DEFAULT: In the event of any breach of this lease by Lessee, Lessor may, at his option, terminate the lease and recover from Lessee (a) the worth at the time of award of the unpaid rent which was earned at the time of termination; (b) the worth at the time of the award of the amount by which the unpaid rent would have been earned after termination until the time of the award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided (c) the worth at the time of award exceeds the amount of such rent loss that Lessee proves could be reasonably avoided; and (d) any other amount necessary to compensate Lessor for all detriment proximately caused by Lessee's failure to perform his obligations under the lease or which in the ordinary course of things would be likely to result therefrom.
Lessor may, in the alternative, continue this lease in effect, as long as Lessor does not terminate Lessee's right to possession, and Lessor may enforce all his rights and remedies under the lease, including the right to recover the rent as it becomes due under the lease. If said breach of lease continues, Lessor may, at any time thereafter, elect to terminate the lease. Nothing contained herein shall be deemed to limit any other rights or remedies which Lessor may have.
20. SECURITY: The security deposit set forth above, if any, shall secure the performance of the Lessee's obligations hereunder. Lessor may but shall not be obligated to, apply all portions of said deposit on account of Lessee's obligations hereunder. Any balance remaining upon termination shall be returned to Lessee. Lessee shall not have the right to apply the Security Deposit in payment of the last month's rent.
21. ATTORNEYS FEES: In case suit should be brought for recovery of the premises, or for any sum due hereunder, or because of any act which may arise out of the possession of the premises, by either party, the prevailing party shall be entitled to all costs incurred in connection with such action, including a reasonable attorney's fee.
22. WAIVER: No failure of Lessor to enforce any term hereof shall be deemed to be a waiver.
23. NOTICES: Any notice which either party may or is required to give, shall be given by mailing the same, postage prepaid, to Lessee at the premises or Lessor at the address shown below, or at such other places as may be designated by the parties from time to time.
24. INCREASES BY SERVICES RENDERED: In the event there is an extraordinary increase(s) during any year of the term of this lease in building maintenance, landscape maintenance, insurance, water and/or garbage over and above the amount(s) in effect as of August 1, 1998 because of rate increases, Lessee shall pay to Lessor upon presentation of paid invoice(s) an amount equal to the percentage of square footage of space occupied by Lessee of the increase in services upon the land and buildings in which the leased premises are situated. Extraordinary expenses are defined as costs greater than normal inflationary rates.
25. HOLDING OVER: Any holding over after the expiration of this lease, with the consent of Lessor, shall be construed as a month-to-month tenancy at a rental rate to be determined sixty (60) days prior to expiration of lease. Lessee shall have option to renew lease within sixty (60) days written request to continue occupancy.
26. OPTION TO RENEW: Provided that Lessee is not in default in the performance of this lease, Lessee shall have the option to renew for three (3) years. The option shall be exercised by written notice given to Lessor not less than ninety (90) days prior to the expiration of the initial lease
term, and a new lease to be signed by both parties prior to the expiration date. The new lease rate is to be defined by market rate for the area and CPI.
27. TIME: Time [sic] of the essence of this lease.
28. HEIRS, ASSIGNS, SUCCESSORS: This lease is binding upon and insures to the benefit of the heirs, assigns and successors in interest to the parties.
29. TAX INCREASE: In the event there is any increase during any year of the term of this lease in the City, County or State real estate taxes over and above the amount of such taxes assessed for the tax year during which the term of this lease commences, whether because of increase rate of valuation, Lessee shall pay to Lessor upon presentation of paid tax bills an amount equal to the percentage of square footage of space occupied by Lessee of the increase in taxes upon the land and building in which the leased premises are situated. In the event that such taxes are assessed for a tax year extending beyond the term of the lease, the obligation of lessee shall be proportionate to the portion of the lease term included in such year. Tax Base Year shall be 1988-1989.
30. JANITORIAL SERVICE: Lessee will provide, at his sole cost, janitorial services for his leased premises, including the exterior cleaning of the windows, doorways and patio. Lessor will provide, at his sole cost, maintenance and utilities of the building exterior, common areas, parking lot, single large office identification sign and rubbish service excluding packing crates and/or boxes or other large objects.
31. PARKING: Parking is available in common areas. There will be no "back-in" parking. It is requested that Lessee and Employees not park directly in front of other offices. Shipping and receiving is to be scheduled before or after normal business hours so as not to block or disrupt regular traffic flow (Customers, Clients of other Lessees). No storage of personal vehicles or recreational vehicles is allowed on site. Company vehicles left on-site over weekend or vacations will be kept neat and clean in appearance. Parking area is not to be used for repair of vehicles. No motorcycles or bicycles are permitted on the walkways. Any activity considered damaging to the asphalt by Lessee or Sublessee will be the responsibility of Lessee.
ENTIRE AGREEMENT: The foregoing constitutes the entire agreement between the parties and may be modified only by a writing signed by both parties. The following Exhibits, if any, have been made a part of this lease before the parties execution hereof:
The undersigned Lessee hereby acknowledges receipt of a copy hereof
Date: 7-16-98
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LESSEE: REDDING BANK OF LESSOR:GARIAN PARTNERSHIP FIRST
COMMERCE AVENUE SQUARE
BY: /s/ Russell L. Duclos BY: /s/ Garey B. Weibel
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TITLE: PRESIDENT & CEO GAREY B. WEIBEL
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BUSINESS PHONE: (916) 893-2200
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BUSINESS PHONE: AGENT:
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MAILING ADDRESS:
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EXHIBIT 10.3
REDDING BANCORP
1998 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
----
SECTION 1. ESTABLISHMENT AND PURPOSE..................................................... 1
SECTION 2. DEFINITIONS................................................................... 1
(a) "Bancorp".................................................................. 1
(b) "Board of Directors"....................................................... 1
(c) "Cause..................................................................... 1
(d) "Change in Control"........................................................ 1
(e) "Code"..................................................................... 2
(f) "Committee"................................................................ 2
(g) "Disability"............................................................... 3
(h) "Employee"................................................................. 3
(i) "Exchange Act"............................................................. 3
(j) "Exercise Price"........................................................... 3
(k) "Fair Market Value"........................................................ 3
(l) "ISO"...................................................................... 3
(m) "Nonstatutory Option"...................................................... 3
(n) "Option"................................................................... 3
(o) "Optionee"................................................................. 3
(p) "Outside Director"......................................................... 3
(q) "Plan"..................................................................... 4
(r) "Service".................................................................. 4
(s) "Share".................................................................... 4
(t) "Stock".................................................................... 4
(u) "Stock Option Agreement"................................................... 4
(v) "Subsidiary"............................................................... 4
SECTION 3. ADMINISTRATION................................................................ 4
(a) Committee Procedures....................................................... 4
(b) Committee Responsibilities................................................. 4
(c) Financial Reports.......................................................... 5
SECTION 4. ELIGIBILITY................................................................... 6
(a) General Rule............................................................... 6
(b) Ten-Percent Shareholders................................................... 6
(c) Attribution Rules.......................................................... 6
(d) Outstanding Stock.......................................................... 6
SECTION 5. STOCK SUBJECT TO PLAN......................................................... 6
(a) Basic Limitation........................................................... 6
(b) Additional Shares.......................................................... 6
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SECTION 6. TERMS AND CONDITIONS OF OPTIONS............................................... 6
(a) Stock Option Agreement..................................................... 6
(b) Number of Shares........................................................... 7
(c) Exercise Price............................................................. 7
(d) Vesting. .................................................................. 7
(e) Withholding Taxes.......................................................... 7
(f) Exercisability and Term.................................................... 7
(g) Nontransferability......................................................... 7
(h) Exercise of Options Upon Termination of Service............................ 8
(i) No Rights as a Shareholder................................................. 8
(j) Modification, Extension and Renewal of Options............................. 8
(k) Restrictions on Transfer of Shares......................................... 8
SECTION 7. PAYMENT FOR SHARES............................................................ 8
(a) General Rule............................................................... 8
(b) Cashless Exercise.......................................................... 8
SECTION 8. ADJUSTMENT OF SHARES.......................................................... 9
(a) General.................................................................... 9
(b) Reorganizations............................................................ 9
(c) Reservation of Rights...................................................... 9
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS............................................. 9
SECTION 10. NO EMPLOYMENT RIGHTS.......................................................... 10
SECTION 11. DURATION AND AMENDMENTS....................................................... 10
(a) Term of the Plan........................................................... 10
(b) Right to Amend or Terminate the Plan....................................... 10
(c) Effect of Amendment or Termination......................................... 10
SECTION 12. EXECUTION..................................................................... 10
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REDDING BANCORP
1998 STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan is being established to attract and retain qualified employees, directors and consultants, to offer selected employees, directors and consultants an opportunity to acquire a proprietary interest in the success of Bancorp, or to increase such interest, by purchasing Shares of Bancorp's Common Stock. The Plan provides for the grant of Options to purchase Shares. Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under Code section 422.
The Plan shall be governed by, and construed in accordance with, the laws of the State of California. Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or a Stock Option Agreement.
SECTION 2. DEFINITIONS.
(a) "Bancorp" shall mean Redding Bancorp, a California corporation.
(b) "Board of Directors" shall mean the Board of Directors of Bancorp, as constituted from time to time.
(c) "Cause" shall mean (i) an Optionee's willful failure to substantially perform the Optionee's duties to Bancorp or a Subsidiary, other than a failure resulting from Disability, (ii) a willful act which constitutes gross misconduct or fraud and which is materially injurious to Bancorp or a Subsidiary, or (iii) conviction of, or a plea of "guilty" or "no contest" to, a felony. Whether Cause exists shall be determined by the Committee in its sole and absolute discretion and its determination shall be conclusive and binding on all persons.
(d) "Change in Control" means the occurrence of any of the following events:
(i) A change in the composition of the Board of Directors, as a result of which fewer than one-half of the incumbent directors are directors who either:
(A) Had been directors of Bancorp twenty-four (24) months prior to such change; or
(B) Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of Bancorp twenty-four (24) months prior to such change and who were still in office at the time of the election or nomination;
(ii) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act) by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of Bancorp representing twenty percent (20%) or more of the combined voting power of Bancorp's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); except that any change in the relative beneficial ownership of Bancorp's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of Bancorp. For purposes of this Subsection (ii), the term "person" shall not include an employee benefit plan maintained by Bancorp;
(iii) The sale of all or substantially all of the assets of Bancorp to a person or entity who is not an affiliate (including a Subsidiary) of Bancorp;
(iv) the dissolution of Bancorp pursuant to action validly taken by the shareholders of Bancorp in accordance with applicable state law; or
(v) the occurrence of any other tender offer, merger, consolidation, sale, reorganization, dissolution or other such event or series of events, which in the opinion of a majority of the Board of Directors (as reflected in a written resolution of the Board of Directors) has resulted in a change of control of Bancorp.
Any other provision of this Section 2(d) notwithstanding, the term "Change in Control" shall not include any of the following events, if undertaken at the election of Bancorp:
(A) A transaction, the sole purpose of which is to change the state of Bancorp's incorporation; or
(B) A transaction, the result of which is to sell all or substantially all of the assets of Bancorp to another corporation (the "surviving corporation"); provided that the surviving corporation is owned directly or indirectly by the shareholders of Bancorp immediately following such transaction in substantially the same proportions as their ownership of Bancorp's common stock immediately preceding such transaction; and provided, further, that the surviving corporation expressly assumes this Plan and all outstanding options; or
(C) a public offering of securities by Bancorp.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the full Board of Directors and/or a committee of the Board of Directors which is authorized to administer the Plan under Section 3. The Committee shall have membership composition which enables the Plan to qualify under Rule 16b-3 with regard to the grant of Options to persons who are subject to Section 16 of the Securities
Exchange Act of 1934. The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of Bancorp who need not qualify under Rule 16b-3, who may administer the Plan with respect to employees who are not subject to Section 16 of the Exchange Act, may grant Options under the Plan to such employees and may determine all terms of such Options.
(g) "Disability" shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.
(h) "Employee" shall mean (i) any individual who is a common-law employee of Bancorp or of a Subsidiary, (ii) a member of the Board of Directors (including Outside Directors), or (iii) an independent contractor or advisor who performs services for Bancorp or a Subsidiary. Service as a member of the Board of Directors or as an independent contractor or advisor shall be considered employment for all purposes of the Plan except the second sentence of Section 4(a).
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(j) "Exercise Price" shall mean the amount for which one Share may be purchased upon exercise of an Option, as specified by the Committee in the applicable Stock Option Agreement.
(k) "Fair Market Value" shall mean (i) the closing price of a Share on
the principal exchange which the Shares are trading, on the first trading day
immediately preceding the date on which the Fair Market Value is determined, or
(ii) if the Shares are not traded on an exchange but are quoted on the Nasdaq
National Market or a successor quotation system, the closing price on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (iii) if the Shares are not traded on an exchange or quoted on
the Nasdaq National Market or a successor quotation system, the fair market
value of a Share, as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(l) "ISO" shall mean an employee incentive stock option described in Code section 422.
(m) "Nonstatutory Option" shall mean an employee stock option that is not an ISO.
(n) "Option" shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.
(o) "Optionee" shall mean an individual who holds an Option.
(p) "Outside Director" shall mean a member of the Board of Directors who is not a common-law employee of Bancorp or of a Subsidiary.
(q) "Plan" shall mean this Redding Bancorp 1998 Stock Option Plan, as amended from time to time.
(r) "Service" shall mean service as an Employee.
(s) "Share" shall mean one share of Stock, as adjusted in accordance with Section 8 (if applicable).
(t) "Stock" shall mean the Common Stock, no par value per share, of Bancorp.
(u) "Stock Option Agreement" shall mean the agreement between Bancorp and an Optionee which contains the terms, conditions and restrictions pertaining to his or her Option.
(v) "Subsidiary" shall mean any corporation if Bancorp and/or one or more other Subsidiaries own not less than fifty percent (50%) of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
SECTION 3. ADMINISTRATION.
(a) Committee Procedures. The Board of Directors shall designate one of the members of the Committee as chairman. The Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a quorum exists, or acts reduced to or approved in writing by all Committee members, shall be valid acts of the Committee.
(b) Committee Responsibilities. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take the following actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating to the Plan;
(iii) To authorize any person to execute, on behalf of Bancorp, any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each Option;
(vii) To prescribe the terms and conditions of each Option, including (without limitation) the Exercise Price, the duration of the Option, to determine whether such Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the Stock Option Agreement relating to such Option;
(viii) To amend any outstanding Stock Option Agreement, subject to applicable legal restrictions and to the consent of the Optionee who entered into such agreement;
(ix) To prescribe the consideration for the grant of each Option under the Plan and to determine the sufficiency of such consideration;
(x) To determine the disposition of each Option under the Plan in the event of an Optionee's divorce or dissolution of marriage;
(xi) To determine whether Options under the Plan will be granted in replacement of other grants under an incentive or other compensation plan of an acquired business;
(xii) To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Stock Option Agreement; and
(xiii) To take any other actions deemed necessary or advisable for the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Options under the Plan to persons subject to Section 16 of the Exchange Act. All decisions, interpretations and other actions of the Committee shall be final and binding on all Optionees and all persons deriving their rights from an Optionee. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan or any Option to acquire Shares under the Plan.
(c) Financial Reports. To the extent required by applicable law, and not less often than annually, Bancorp shall furnish to Optionees who do not have duties with Bancorp that assure them access to equivalent information Bancorp's summary financial information including a balance sheet regarding Bancorp's financial condition and results of operations. Such financial statements need not be audited.
SECTION 4. ELIGIBILITY.
(a) General Rule. Only Employees shall be eligible for designation as Optionees by the Committee. In addition, only individuals who are employed as common-law employees by Bancorp or a Subsidiary shall be eligible for the grant of ISOs.
(b) Ten-Percent Shareholders. An Employee who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of Bancorp or any of its Subsidiaries shall not be eligible for the grant of an ISO unless such grant satisfies the requirements of Code section 422(c)(5).
(c) Attribution Rules. For purposes of Subsection (b) above, in determining stock ownership, an Employee shall be deemed to own the stock owned, directly or indirectly, by or for his brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its shareholders, partners or beneficiaries.
(d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding stock" shall include all stock actually issued and outstanding immediately after the grant. "Outstanding stock" shall not include shares authorized for issuance under outstanding options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized but unissued Shares. The aggregate number of Shares which may be issued under the Plan upon exercise of Options shall not exceed one hundred eighty thousand (180,000) Shares, subject to adjustment pursuant to Section 8. The number of Shares which are subject to Options outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan. During the term of the Plan, Bancorp shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any reason expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such Option shall again be available for the purposes of the Plan. In the event Shares issued under the Plan are reacquired by Bancorp pursuant to any forfeiture provision, right of repurchase or right of first refusal, such Shares shall again be available under the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and Bancorp. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant and the
Exercise Price of a Nonstatutory Option shall not be less than eighty-five
percent (85%) of the Fair Market Value of a Share on the date of grant, except
as otherwise provided in Section 4(b). Subject to the preceding sentence, the
Exercise Price under any Option shall be determined by the Committee at its sole
discretion. The Exercise Price shall be payable in one of the forms described in
Section 7.
(d) Vesting. The right to exercise each Option shall vest as to not less
than twenty percent (20%) of the Shares covered by the Option on each one-year
anniversary from the date of grant. The number of Shares that may be purchased
under an Option at the Exercise Price shall be equal to the difference between
(i) the product of the number of one-year anniversaries of the Optionee's
continuous Service (including all days of any approved leaves of absence) from
the date of grant times the number of Shares covered by the Option times the
annual vesting percentage, minus (ii) the number of Shares purchased pursuant to
the Option prior to such exercise, but in no case shall be more than the number
of Shares covered by the Option minus the number of Shares purchased pursuant to
the Option prior to such exercise. The resulting number of Shares will be
rounded to the nearest whole number. Notwithstanding the foregoing, the right to
exercise each Option shall be fully vested upon a Change in Control or if the
Optionee terminates employment with Bancorp by reason of death, Disability,
termination without Cause, or, in case of an Outside Director, mandatory
retirement.
(e) Withholding Taxes. As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Committee may require for the satisfaction of any federal, state or local withholding tax obligations that may arise in connection with such exercise. The Optionee shall also make such arrangements as the Committee may require for the satisfaction of any federal, state or local withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.
(f) Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option. The term shall not exceed ten (10) years from the date of grant, except as otherwise provided in Section 4(b). Subject to the preceding three sentences, the Committee at its sole discretion shall determine when all or any installment of an Option is to become exercisable and when an Option is to expire.
(g) Nontransferability. During an Optionee's lifetime, his Option(s) shall be exercisable only by him and shall not be transferable, unless the Stock Option Agreement
otherwise provides. In the event of an Optionee's death, his Option(s) shall not be transferable other than by will, beneficiary designation or by the laws of descent and distribution.
(h) Exercise of Options Upon Termination of Service. Each Stock Option Agreement shall set forth the extent to which the Optionee shall have the right to exercise the Option following termination of the Optionee's Service with Bancorp and its Subsidiaries, and the right to exercise the Option of any executors or administrators of the Optionee's estate or any person who has acquired such Option(s) directly from the Optionee by beneficiary designation, bequest or inheritance. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service. Notwithstanding the foregoing, to the extent required by applicable law, each Option shall provide that the Optionee shall have the right to exercise the vested portion of any Option held at termination for at least 30 days following termination of service with Bancorp for any reason, and that the Optionee shall have the right to exercise the Option for at least six months following termination of service if the Optionee's service terminates due to death or Disability.
(i) No Rights as a Shareholder. An Optionee, or a transferee of an Optionee, shall have no rights as a shareholder with respect to any Shares covered by his Option until the date of the issuance of a stock certificate for such Shares. No adjustments shall be made, except as provided in Section 8.
(j) Modification, Extension and Renewal of Options. Within the limitations of the Plan, the Committee may cancel, modify, extend or renew outstanding Options or may accept the cancellation of outstanding Options (to the extent not previously exercised) in return for the grant of new Options at the same or a different price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair his rights or increase his obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued under the Plan shall be payable in lawful money of the United States of America at the time when such options are exercised, except as provided in Subsections (b) below.
(b) Cashless Exercise. To the extent that a Stock Option Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to Bancorp in payment of the aggregate Exercise Price.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the value of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (i) the number of Shares available for future grants under Section 5, (ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that Bancorp is a party to a merger or other reorganization, outstanding Options shall be subject to the agreement of merger or reorganization. Such agreement may provide for the assumption of outstanding Options by the surviving corporation or its parent or for their continuation by Bancorp (if Bancorp is a surviving corporation); provided, however, that if assumption or continuation of the outstanding Options is not provided by such agreement then the Committee shall have the option of offering the payment of a cash settlement equal to the difference between the amount to be paid for one Share under such agreement and the Exercise Price, in all cases without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 8, an Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by Bancorp of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of Bancorp to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on which Bancorp's securities may then be listed, and Bancorp has obtained the approval or favorable ruling from any governmental agency which Bancorp determines is necessary or advisable.
SECTION 10. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option granted under the Plan, shall be construed to give any person any right to become, to be treated as, or to remain an Employee. Bancorp and its Subsidiaries reserve the right to terminate any person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective as of the date first set forth above, subject to the approval of
Bancorp's shareholders. In the event that the shareholders fail to approve the
Plan within twelve (12) months of its adoption by the Board of Directors, any
Option grants already made shall be null and void, and no additional Option
grants shall be made after such date. The Plan shall terminate automatically ten
(10) years after its original adoption by the Board of Directors and may be
terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may amend or terminate the Plan at any time and from time to time. Rights and obligations under any Option granted before amendment or termination of the Plan shall not be materially altered, or impaired adversely, by such amendment or termination, except with consent of the person to whom the Option was granted. An amendment of the Plan shall be subject to the approval of Bancorp's shareholders only to the extent required by applicable laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan.
SECTION 12. EXECUTION.
To record the adoption of the Plan by the Board of Directors, Bancorp has caused its authorized officer to execute the same as of __________, 1998.
REDDING BANCORP
EXHIBIT 10.4
REDDING BANCORP
1998 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Redding Bancorp, a California corporation ("Bancorp"), hereby grants an option to purchase Shares of its common stock to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment and in Bancorp's 1998 Stock Option Plan (the "Plan").
Date of Option Grant: _____________, 199__
Name of Optionee: ______________________________________________________________
Optionee's Social Security Number: _____-___-_____
Number of Shares of Common Stock Covered by Option: ____________________________
Exercise Price per Share:(1) $_________________________________________________
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THIS COVERSHEET, THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF WHICH IS ALSO ENCLOSED.
Optionee: ______________________________________________________________________
(Signature)
Bancorp: _______________________________________________________________________
(Signature)
Title: _________________________________________________________________________
(1) Must not be less than 100% of the fair market value of Bancorp's common stock on the date of grant and must not be less than 110% of the fair market value of Bancorp's common stock on the date of grant for option holders who own 10% or more of the outstanding common stock of Bancorp.
REDDING BANCORP
1998 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK This option is intended to be an incentive stock option
OPTION under section 422 of the Internal Revenue Code and will be
interpreted accordingly.
VESTING Your right to exercise this option begins to vest on the
Date of Option Grant, as shown on the cover sheet. The
option will vest at the rate of ____% [not less than 20%]
per year on the anniversary date of the Date of Grant over
______ years of your continuous employment, beginning on the
Date of Option Grant. The resulting number of Shares will be
rounded to the nearest whole number. No additional Shares
will vest after your service with Bancorp has terminated for
any reason. However, this option will be 100% vested upon a
Change in Control or if you terminate employment by reason
of death, Disability (as defined below), or [AN INVOLUNTARY
TERMINATION WITHOUT CAUSE]. The terms "Cause" and "Change in
Control" are defined in the Plan.
TERM This option will expire in any event at the close of
business at Bancorp headquarters on the day before the 10th
anniversary of the Date of Grant, as shown on the cover
sheet. (It will expire earlier if your service with Bancorp
terminates, as described below.)
REGULAR If your service as an employee of Bancorp (or any
TERMINATION Subsidiary) terminates for any reason except death or
Disability, then this option will expire at the close of
business at Bancorp headquarters on the 30th day after your
termination date.
[NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT TO THE
CONTRARY, IN THE EVENT THAT YOU CEASE TO BE EMPLOYED BY
BANCORP WITHIN ONE YEAR FROM THE DATE OF GRANT FOR ANY
REASON ALL RIGHTS TO PURCHASE SHARES UNDER THIS OPTION SHALL
IMMEDIATELY TERMINATE.]
DEATH If you die as an employee of Bancorp (or any Subsidiary),
then this option will expire at the close of business at
Bancorp headquarters on the date six months after the date
of death. During that six-month period, your estate or heirs
may exercise this option.
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DISABILITY If your service as an employee of Bancorp (or any
Subsidiary) terminates because of your Disability, then this
option will expire at the close of business at Bancorp
headquarters on the date six months after your termination
date. (However, if your Disability is not due to a physical
or mental impairment which results in your inability to
engage in any substantial gainful activity or is not
expected to result in death or last for a continuous period
of at least 12 months, this option will be eligible for ISO
tax treatment only if it is exercised within three months
following the termination of your service.)
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months.
LEAVES OF ABSENCE For purposes of this option, your service does not terminate
when you go on a bona fide leave of absence that was
approved by Bancorp in writing, if the terms of the leave
provide for continued service crediting, or when continued
service crediting is required by applicable law. However,
for purposes of determining whether this option is entitled
to ISO status, your service will be treated as terminating
90 days after you went on leave, unless your right to return
to active work is guaranteed by law or by a contract. Your
service terminates in any event when the approved leave ends
unless you immediately return to active work.
Bancorp determines which leaves count for this purpose, and
when your service terminates for all purposes under the
Plan.
RESTRICTIONS ON Bancorp will not permit you to exercise this option if the
EXERCISE issuance of Shares at that time would violate any law or
regulation.
NOTICE OF EXERCISE When you wish to exercise this option, you must notify
Bancorp by filing the proper "Notice of Exercise" form at
the address given on the form. Your notice must specify how
many Shares you wish to purchase. Your notice must also
specify how your Shares should be registered (in your name
only or in your and your spouse's names as community
property or as joint tenants with right of survivorship).
The notice will be effective when it is received by Bancorp.
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If someone else wants to exercise this option after your
death, that person must prove to Bancorp's satisfaction that
he or she is entitled to do so.
PERIODS OF Any other provision of this Agreement notwithstanding,
NONEXERCISABILITY Bancorp shall have the right to designate one or more
periods of time, each of which shall not exceed 180 days in
length, during which this option shall not be exercisable if
Bancorp determines (in its sole discretion) that such
limitation on exercise could in any way facilitate a
lessening of any restriction on transfer pursuant to the
Securities Act of 1933, as amended (the "Securities Act") or
any state securities laws with respect to any issuance of
securities by Bancorp, facilitate the registration or
qualification of any securities by Bancorp under the
Securities Act or any state securities laws, or facilitate
the perfection of any exemption from the registration or
qualification requirements of the Securities Act or any
applicable state securities laws for the issuance or
transfer of any securities. Such limitation on exercise
shall not alter the vesting schedule set forth in this
Agreement other than to limit the periods during which this
option shall be exercisable.
FORM OF PAYMENT When you submit your notice of exercise, you must include
payment of the option price for the Shares you are
purchasing. Payment may be made [IN ONE (OR A COMBINATION)
OF THE FOLLOWING FORMS:]
o Your personal check, a cashier's check or a money
order.
o [IF PERMITTED BY THE COMMITTEE IN ITS SOLE DISCRETION
AND TO THE EXTENT THAT A PUBLIC MARKET FOR THE SHARES
EXISTS AS DETERMINED BY BANCORP, BY DELIVERY (ON A FORM
PRESCRIBED BY THE COMMITTEE) OF AN IRREVOCABLE
DIRECTION TO A SECURITIES BROKER TO SELL SHARES AND TO
DELIVER ALL OR PART OF THE SALE PROCEEDS TO BANCORP IN
PAYMENT OF THE AGGREGATE EXERCISE PRICE.] [OPTIONAL]
WITHHOLDING TAXES You will not be allowed to exercise this option unless you
make acceptable arrangements to pay any withholding or other
taxes that may be due as a result of the option exercise or
the sale of Shares acquired upon exercise of this option and
the sale of the Shares.
RESTRICTIONS ON By signing this Agreement, you agree not to exercise this
RESALE option or sell any Shares acquired by exercise of this
option at a time when applicable laws, regulations or
underwriter trading policies prohibit exercise or a sale. In
particular, Bancorp shall have the right to designate one or
more periods of time, each of which
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shall not exceed 180 days in length, during which this
option shall not be exercisable if Bancorp determines (in
its sole discretion) that such limitation on exercise could
in any way facilitate a lessening of any restriction on
transfer pursuant to the Securities Act or any state
securities laws with respect to any issuance of securities
by Bancorp, facilitate the registration or qualification of
any securities by Bancorp under the Securities Act or any
state securities laws, or facilitate the perfection of any
exemption from the registration or qualification
requirements of the Securities Act or any applicable state
securities laws for the issuance or transfer of any
securities. Such limitation on exercise shall not alter the
vesting schedule set forth in this Agreement other than to
limit the periods during which this option shall be
exercisable.
If the sale of Shares under the Plan is not registered under
the Securities Act, but an exemption is available which
requires an investment or other representation, you shall
represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being
acquired for investment, and not with a view to the sale or
distribution thereof, and shall make such other
representations as are deemed necessary or appropriate by
Bancorp and its counsel.
BANCORP'S RIGHT OF In the event that you propose to sell, pledge or otherwise
FIRST REFUSAL transfer to a third party any Shares acquired under this
Agreement, or any interest in such Shares, Bancorp shall
have the "Right of First Refusal" with respect to all (and
not less than all) of such Shares. If you desire to transfer
Shares acquired under this Agreement, you must give a
written "Transfer Notice" to Bancorp describing fully the
proposed transfer, including the number of Shares proposed
to be transferred, the proposed transfer price and the name
and address of the proposed transferee. The Transfer Notice
shall be signed both by you and by the proposed new
transferee and must constitute a binding commitment of both
parties to the transfer of the Shares. Bancorp shall have
the right to purchase all, and not less than all, of the
Shares on the terms of the proposal described in the
Transfer Notice (subject, however, to any change in such
terms permitted in the next paragraph) by delivery of a
notice of exercise of the Right of First Refusal within 30
days after the date when the Transfer Notice was received by
Bancorp. Bancorp's rights under this paragraph shall be
freely assignable, in whole or in part.
If Bancorp fails to exercise its Right of First Refusal
within 30 days after the date when it received the Transfer
Notice, you may, not later than 90 days following receipt of
the Transfer
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Notice by Bancorp, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by you, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in the paragraph above. If Bancorp exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when Bancorp received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than lawful money paid at the time of transfer, Bancorp shall have the option of paying for the Shares with lawful money equal to the present value of the consideration described in the Transfer Notice.
Bancorp's Right of First Refusal shall inure to the benefit of its successors and assigns and shall be binding upon any transferee of the Shares.
Bancorp's Right of First Refusal shall terminate in the event that the Stock is listed or traded on an established stock exchange.
RIGHT OF REPURCHASE Following termination of your employment for any reason,
Bancorp shall have the right to purchase all of the Shares
that you have acquired or will acquire under this option. If
Bancorp exercises its right to purchase such Shares, the
purchase price shall be the higher of the Fair Market Value
of those Shares on the date of purchase or the aggregate
Exercise Price for those Shares and shall be paid in cash.
Bancorp will notify you of its intention to purchase such
shares, and will consummate the purchase within the period
established by applicable law. Bancorp's right of repurchase
shall terminate in the event Bancorp's Common Stock is
listed on an established stock exchange or is quoted
regularly on the Nasdaq National Market.
TRANSFER OF OPTION Prior to your death, only you may exercise this option. You
cannot transfer or assign this option. For instance, you may
not sell this option or use it as security for a loan. If
you attempt to do any of these things, this option will
immediately become invalid. You may, however, dispose of
this option in your will.
Regardless of any marital property settlement agreement,
Bancorp is not obligated to honor a notice of exercise from
your spouse or
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former spouse, nor is Bancorp obligated to recognize such
individual's interest in this option in any other way.
RETENTION RIGHTS This option or this Agreement do not give you the right to
be retained by Bancorp (or any Subsidiary) in any capacity.
Bancorp (and any Subsidiary) reserve the right to terminate
your service at any time and for any reason.
SHAREHOLDER RIGHTS You, or your estate or heirs, have no rights as a
shareholder of Bancorp until a share certificate for your
option Shares has been issued. No adjustments are made for
dividends or other rights if the applicable record date
occurs before your share certificate is issued, except as
described in the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or a similar
change in the Stock, the number of Shares covered by this
option and the exercise price per share may be adjusted
pursuant to the Plan. This option shall be subject to the
terms of the agreement of merger, liquidation or
reorganization in the event Bancorp is subject to such
corporate activity.
LEGENDS All certificates representing the Shares issued upon
exercise of this option shall, where applicable, have
endorsed thereon the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN AN
AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN
INTEREST. A COPY OF SUCH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL
BE FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY
OF THE CORPORATION BY THE HOLDER OF RECORD OF THE
SHARES REPRESENTED BY THIS CERTIFICATE."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION
OF COUNSEL,
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SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
APPLICABLE LAW This Agreement will be interpreted and enforced under the
laws of the State of California.
THE PLAN AND OTHER The text of the Plan is incorporated in this Agreement by
AGREEMENTS reference. Certain capitalized terms used in this Agreement
are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and Bancorp regarding this option.
Any prior agreements, commitments or negotiations concerning
this option are superseded.
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BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
EXHIBIT 10.5
REDDING BANCORP
1998 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Redding Bancorp, a California corporation ("Bancorp"), hereby grants an option to purchase Shares of its common stock to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment and in Bancorp's 1998 Stock Option Plan (the "Plan").
Date of Option Grant: __________, 199__
Name of Optionee: ___________________________________
Optionee's Social Security Number: _____-____-_____
Number of Shares of Common Stock Covered by Option:
Exercise Price per Share:(1) $_______________________
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THIS COVERSHEET, THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF WHICH IS ALSO ENCLOSED.
Optionee:______________________________________________________________________
(Signature)
Bancorp:_______________________________________________________________________
(Signature)
Title:__________________________________________________________
REDDING BANCORP
1998 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
NONSTATUTORY This option is not intended to be an incentive stock option
STOCK OPTION under section 422 of the Internal Revenue Code and will be
interpreted accordingly.
VESTING Your right to exercise this option begins to vest on the Date of
Option Grant, as shown on the cover sheet. The option will vest
at the rate of ____% [not less than 20%] per year on each
anniversary of the Date of Grant over _____ years of your
continuous employment beginning on the Date of Option Grant. The
resulting number of Shares will be rounded to the nearest whole
number. No additional Shares will vest after your service with
Bancorp has terminated for any reason. However, this option will
be 100% vested upon a Change in Control or if you terminate
employment by reason of death, Disability (as defined below)[,
AN INVOLUNTARY TERMINATION WITHOUT CAUSE,] or mandatory
retirement, provided that you are an Outside Director. The terms
"Cause," "Change in Control" and "Outside Director" are defined
in the Plan.
TERM This option will expire in any event at the close of business at
Bancorp headquarters on the day before the 10th anniversary of
the Date of Grant, as shown on the cover sheet. (It will expire
earlier if your service with Bancorp terminates, as described
below.)
REGULAR If your service as an employee of Bancorp (or any
TERMINATION Subsidiary) terminates for any reason except death or
Disability, then this option will expire at the close of
business at Bancorp headquarters no less than 30 days after your
termination date.
[NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT TO THE
CONTRARY, IN THE EVENT THAT YOU CEASE TO BE EMPLOYED BY BANCORP
WITHIN ONE YEAR FROM THE DATE OF GRANT FOR ANY REASON ALL RIGHTS
TO PURCHASE SHARES UNDER THIS OPTION SHALL IMMEDIATELY
TERMINATE.]
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DEATH If you die as an employee of Bancorp (or any Subsidiary), then
this option will expire at the close of business at Bancorp
headquarters on a date no less than six months after the date of
death. During that interim period, your estate or heirs may
exercise the vested portion of this option.
DISABILITY If your service as an employee of Bancorp (or any Subsidiary)
terminates because of your Disability, then this option will
expire at the close of business at Bancorp headquarters on a
date not less than six months after your termination date.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months.
LEAVES OF For purposes of this option, your service does not terminate
ABSENCE when you go on a military leave, a sick leave or another bona
fide leave of absence, if the leave was approved by Bancorp in
writing. Your service terminates in any event when the approved
leave ends, unless you immediately return to active work.
Bancorp determines which leaves count for this purpose, whether
this option continues to vest during a leave and when your
service terminates for all purposes under the Plan.
RESTRICTIONS ON Bancorp will not permit you to exercise this option if the
EXERCISE issuance of Shares at that time would violate any law or
regulation.
NOTICE OF When you wish to exercise this option, you must notify Bancorp
EXERCISE by filing the proper "Notice of Exercise" form at the address
given on the form. Your notice must specify how many Shares you
wish to purchase. Your notice must also specify how your Shares
should be registered (in your name only or in your and your
spouse's names as community property or as joint tenants with
right of survivorship). The notice will be effective when it is
received by Bancorp.
If someone else wants to exercise this option after your death,
that person must prove to Bancorp's satisfaction that he or she
is entitled to do so.
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FORM OF PAYMENT When you submit your notice of exercise, you must include payment of the option price for the Shares you are purchasing.
Payment may be made [IN ONE OF (OR A COMBINATION) THE
FOLLOWING FORMS:]
o Your personal check, a cashier's check or a money order.
o [TO THE EXTENT THAT A PUBLIC MARKET FOR THE SHARES EXISTS AS DETERMINED BY BANCORP, BY DELIVERY (ON A FORM PRESCRIBED BY THE COMMITTEE) OF AN IRREVOCABLE DIRECTION TO A SECURITIES BROKER TO SELL SHARES AND TO DELIVER ALL OR PART OF THE SALE PROCEEDS TO BANCORP IN PAYMENT OF
THE AGGREGATE EXERCISE PRICE]. [OPTIONAL]
WITHHOLDING You will not be allowed to exercise this option unless
TAXES you make acceptable arrangements to pay any withholding
or other taxes that may be due as a result of the option
exercise or the sale of Shares acquired upon exercise of
this option.
PERIODS OF By signing this Agreement, you agree not to
NONEXERCISABILITY sell any Shares acquired by exercise of this Option at a
time when applicable laws, regulations or underwriter
trading policies prohibit exercise or a sale. In
particular, Bancorp shall have the right to designate
one or more periods of time, each of which shall not
exceed 180 days in length, during which this option
shall not be exercisable if Bancorp determines (in its
sole discretion) that such limitation on exercise could
in any way facilitate a lessening of any restriction on
transfer pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities
laws with respect to any issuance of securities by
Bancorp, facilitate the registration or qualification of
any securities by Bancorp under the Securities Act or
any state securities laws, or facilitate the perfection
of any exemption from the registration or qualification
requirements of the Securities Act or any applicable
state securities laws for the issuance or transfer of
any securities. Such limitation on exercise shall not
alter the vesting schedule set forth in this Agreement
other than to limit the periods during which this option
shall be exercisable.
If the sale of Shares under the Plan is not registered
under the Securities Act, but an exemption is available
which requires an investment or other representation,
you shall represent and agree at the time of exercise
that the Shares being acquired upon exercising this
option are being acquired for investment, and not with a
view to the sale or distribution thereof, and shall make
such other representations as are deemed necessary or
appropriate by Bancorp and its counsel.
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BANCORP'S RIGHT OF In the event that you propose to sell, pledge or
FIRST REFUSAL otherwise transfer to a third party any Shares acquired
under this Agreement, or any interest in such Shares,
Bancorp shall have the "Right of First Refusal" with
respect to all (and not less than all) of such Shares.
If you desire to transfer Shares acquired under this
Agreement, you must give a written "Transfer Notice" to
Bancorp describing fully the proposed transfer,
including the number of Shares proposed to be
transferred, the proposed transfer price and the name
and address of the proposed transferee. The Transfer
Notice shall be signed both by you and by the proposed
new transferee and must constitute a binding commitment
of both parties to the transfer of the Shares. Bancorp
shall have the right to purchase all, and not less than
all, of the Shares on the terms of the proposal
described in the Transfer Notice (subject, however, to
any change in such terms permitted in the next
paragraph) by delivery of a notice of exercise of the
Right of First Refusal within 30 days after the date
when the Transfer Notice was received by Bancorp.
Bancorp's rights under this paragraph shall be freely
assignable, in whole or in part.
If Bancorp fails to exercise its Right of First Refusal
within 30 days after the date when it received the
Transfer Notice, you may, not later than 90 days
following receipt of the Transfer Notice by Bancorp,
conclude a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and
conditions different from those described in the
Transfer Notice, as well as any subsequent proposed
transfer by you, shall again be subject to the Right of
First Refusal and shall require compliance with the
procedure described in the paragraph above. If Bancorp
exercises its Right of First Refusal, the parties shall
consummate the sale of the Shares on the terms set forth
in the Transfer Notice within 60 days after the date
when Bancorp received the Transfer Notice (or within
such longer period as may have been specified in the
Transfer Notice); provided, however, that in the event
the Transfer Notice provided that payment for the Shares
was to be made in a form other than lawful money paid at
the time of transfer, Bancorp shall have the option of
paying for the Shares with lawful money equal to the
present value of the consideration described in the
Transfer Notice.
Bancorp's Right of First Refusal shall inure to the
benefit of its successors and assigns and shall be
binding upon any transferee of the Shares.
-5-
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Bancorp's Right of First Refusal shall terminate in the
event that Stock is listed or traded on an established
stock exchange.
RIGHT OF REPURCHASE Following termination of your employment
for any reason, Bancorp shall have the right to purchase
all of the Shares that you have acquired or will acquire
under this option. If Bancorp exercises its right to
purchase such Shares, the purchase price shall be the
higher of the Fair Market Value of those Shares on the
date of purchase or the aggregate Exercise Price for
those Shares and shall be paid in cash. Bancorp will
notify you of its intention to purchase such shares, and
will consummate the purchase within the period
established by applicable law. Bancorp's right of
repurchase shall terminate in the event Bancorp's Common
Stock is listed on an established stock exchange or is
quoted regularly on the Nasdaq National Market.
TRANSFER OF OPTION Prior to your death, only you may exercise
this option. You cannot transfer or assign this option.
For instance, you may not sell this option or use it as
security for a loan. If you attempt to do any of these
things, this option will immediately become invalid. You
may, however, dispose of this option in your will.
Regardless of any marital property settlement agreement,
Bancorp is not obligated to honor a notice of exercise
from your spouse or former spouse, nor is Bancorp
obligated to recognize such individual's interest in
this option in any other way.
RETENTION RIGHTS This option or this Agreement do not give you
the right to be retained by Bancorp (or any Subsidiary)
in any capacity. Bancorp (and any Subsidiary) reserve
the right to terminate your service at any time and for
any reason.
SHAREHOLDER RIGHTS You, or your estate or heirs, have no rights
as a shareholder of Bancorp until a certificate for your
option Shares has been issued. No adjustments are made
for dividends or other rights if the applicable record
date occurs before your stock certificate is issued,
except as described in the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or a
similar change in the Stock, the number of Shares
covered by this option and the exercise price per share
may be adjusted pursuant to the Plan. This option shall
be subject to the terms of the agreement of merger,
liquidation or reorganization in the event Bancorp is
subject to such corporate activity.
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LEGENDS All certificates representing the Shares issued upon exercise
of this option shall, where applicable, have endorsed thereon
the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO
PURCHASE SUCH SHARES SET FORTH IN AN AGREEMENT BETWEEN
THE CORPORATION AND THE REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL
BE FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY OF
THE CORPORATION BY THE HOLDER OF RECORD OF THE SHARES
REPRESENTED BY THIS CERTIFICATE."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED."
APPLICABLE This Agreement will be interpreted and enforced under the laws
LAW of the State of California.
THE PLAN AND The text of the Plan is incorporated in this Agreement by
OTHER AGREEMENTS reference. Certain capitalized terms used in this Agreement
are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and Bancorp regarding this option.
Any prior agreements, commitments or negotiations concerning
this option are superseded.
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BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE
TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Redding Bank of Commerce, a California Corporation, hereinafter referred to as Employer, and Russell L. Duclos, hereinafter referred to as Employee, for and in consideration of their respective promises and undertakings set forth herein, the sufficiency of which is hereby acknowledged, do hereby agree, covenant, and acknowledge as follows:
1. Employment and Duties
Employer is employing Employee as Chief Executive Officer for the purpose of providing Employer with the services described in the position description set forth in Paragraph 10 and to perform any other services as may be directed by the Board of Directors of Employer.
2. At-Will Employment
Employee is employed as an "at-will" employee - that is, there is no fixed term or minimum term. Employee and Employer may each terminate this agreement at any time for any reason, or for no reason, with or without notice. Unless sooner terminated, pursuant to the terms hereof, this agreement shall automatically terminate on June 30, 2000.
3. Salary
Employee's initial base salary will be $4,166.67 per pay period, payable twice per month on the fifteen (15th) day and on the last day of the month. Employer will make customary withholdings. The fact that the salary is payable twice per month is not to be construed to create a minimum employment term or notice requirement. The base salary shall be reviewed and adjusted annually.
4. Benefits
(a) Profit Sharing: In addition to the base salary, Employee shall be eligible to receive Profit Sharing compensation pursuant to the Incentive Profit Sharing Plan adopted by Employer in December 1992 and as amended from time to time thereafter or terminated.
(b) Fringe Benefits: Employer agrees to provide Employee with the following benefits for so long as Employee is employed under this Agreement:
(i) An automobile suitable to his position with Employer. Employer shall pay or reimburse Employee for all necessary and customary expenses for such automobile, incurred by Employee in the conduct of business of Employer, including maintenance, insurance and expenses of operation.
(ii) Employer will sponsor and pay for a proprietary membership and monthly dues in the Riverview Country Club for the use by Employee for business development.
(iii) An annual paid vacation of four (4) weeks.
(iv) Employee is authorized to incur necessary and customary expenses in connection with the business of the Employer, including expenses for entertainment, travel, promotional and similar matters. Employer will pay or reimburse Employee for such expenses upon presentation of appropriate records which verify such expenses.
5. Severance
In the event Employee is terminated for a reason other than cause (termination for cause is a termination for any legitimate business reason), Employer shall be obligated to pay Employee the sum of twice Employees's then annual base salary, to be paid out over one year; provided, however, that Employer shall not be obligated by contract, statute, or otherwise to pay to Employee any additional amount of money for any reason. Employee accepts, and acknowledges that, the sum of twice Employee's then base salary, is the only money which Employer will ever owe or pay Employee in the event of a termination. In the event Employee sues Employer for any reason, he shall, by such suit, relinquish all rights to severance of any kind, including severance in the amount of twice Employee's then annual base salary, and/or any part of that sum, and Employee shall be obligated to refund any part of the sum previously paid.
In exchange for the guaranteed amount stated above, Employee also agrees that, for a twelve month period after leaving the employe [sic] of the Employer, regardless of the reason for leaving, Employee will not become employed by a financial institution (i.e. regulated by the Federal or State Banking or savings and loan authorities) within Shasta County, California. Should Employee become employed by a financial institution in Shasta County, within 12 months of his termination, in violation of
his above-stated promises, Employee shall relinquish all rights (if any) to the amount stated above, and/or any part of that sum and shall be obligated to refund any part of the sum previously paid.
6. Performance
During his employment, Employee shall devote his entire time and attention to the interests of the Employer in a manner consistent with the highest professional standards and Employer policies.
7. Confidentiality
In order to render services to Employer, Employee will be informed of confidential information developed by Employer, will develop confidential information for Employer, and will receive and use confidential information from Employer and others solely as a consequence of the employment relationship and solely for the purpose of conducting Employer's business. Employee acknowledges the existence of his fiduciary duty to employer not to sue or divulge any such confidential information for any purpose other than as necessary to conduct Employer's business. Employee acknowledges that Employer's confidential information, both written and oral, constitutes valuable property and that Employer may take such actions as are necessary to protect that property. Employee covenants and agrees that he will neither use for any reason or purpose nor divulge to any person all or any portion of any confidential information acquired in his employment, nor shall Employee make disparaging statements regarding Employer or any of Employer's employees, irrespective of the time, manner, cause of, or reason for termination of his employment. Likewise, after his employment with Employer, Employee will not solicit any employee of Employer for three (3) years for the purpose of employing such an employee.
8. Modification and Severability
No addition to, modification of, amendment to, or deletion from this agreement shall be valid unless it is in writing and executed by the parties to this agreement. A legal determination that any paragraph, sub-paragraph, sentence, clause or provision of this agreement is void, invalid, or unenforceable shall have no effect on any other paragraph, sentence, clause or provision of this agreement.
9. Entire Agreement
Employee and Employer agree that this Employment Agreement contains the entire understanding and agreement between them regarding Employee's employment by Employer. There are no oral agreements or understanding or any other written agreements which directly or indirectly affect the employment relationship between us and you.
10. Description of Employee's
Employee shall be the Chief Executive Officer and President of Employer, and in that capacity shall perform the duties customarily performed in such offices, subject to the authority of the Board of Directors of the Employer. Employee shall hold and perform all the responsibilities and duties prescribed by the Board and by the Bylaws of the Employer. Employee shall devote his full time and attention to the affairs of the Employer and shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, major stockholder, corporate officer, director or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the business of Employer.
Dated: June 17, 1997 REDDING BANK OF COMMERCE
BY: /s/ Robert C. Anderson
-------------------------
Robert C. Anderson
Chairman of the Board
/s/ Russell L. Duclos
-------------------------
Russell L. Duclos
President & C.E.O.
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EXHIBIT 10.7
DIRECTORS DEFERRED COMPENSATION PLAN
JANUARY 1, 1993
1. Effective January 1, 1993, each director of Redding Bank of Commerce shall have the right to elect to defer the payment of all or any part of the compensation to which such director would otherwise be entitled as director's fees or committee fees, with such deferred compensation to be payable at the time or times and in the manner herein stated. The account will be segregated from other assets owned by the Bank, only by way of its identification on the books and records of Bank as a liability of Bank to the Director. The account will be subject to the claims of general creditors or the Bank, and Directors, as to the Account, shall be a general unsecured creditor of the bank.
2. Each director so electing to defer the payment of compensation shall execute and deliver to the Bank a "Notice of Election", in the form attached hereto and incorporated herein by reference. Such election shall be effective as follows:
For any current director of the Bank that files an election with the bank on or prior to the effective date of the plan, such election shall be applicable to compensation accrued by reason of services rendered after the effective date of the plan.
For a new director of the Bank that files an election with the bank within thirty days of having been elected a member of the Board of Directors, such election shall be applicable to compensation accrued by reason of services rendered after the date of filing the notice of election.
In all other cases such election shall be applicable only to compensation to accrue by reason of services rendered after December 31 of the year in which the notice of election was received by the Bank.
3. An election to defer compensation shall continue in effect until revoked, provided however, that every election to defer compensation shall be irrevocable as to compensation earned for services performed in the calendar year of such revocation. Partial or complete revocation as to unearned compensation shall be made in writing upon a form of notice to be furnished by the Bank and signed by the director and shall be effective for the succeeding calendar years.
4. Each director may designate one or more beneficiaries to receive all sums due to such director upon his death. Such beneficiary designation may be revoked or amended by such director, from time to time, by appropriate notice in writing delivered to the bank.
In the absence of any beneficiary designation or in the even [sic] that no designated beneficiary shall be living at the time of the death of the director, all deferred compensation and interest accrued to the date of death of the director shall be payable to the estate of such deceased director.
5. No compensation so deferred shall be payable to a director until the death,
disability, resignation or removal from office of such director, whereupon all
such deferred compensation, together with interest thereon as hereinafter
provided, shall be payable to such director, or his beneficiary, within thirty
(30) days from the date of death, or resignation unless the director shall
designate an optional installment payment method as hereinafter provided, in
which event the first such installment shall be paid within thirty (30) days of
such date. A director shall be deemed to have resigned on the date stated in any
oral or written voluntary resignation, and on the day following the third
consecutive monthly meeting of the Board of Directors of the Bank which such
director shall have failed to attend.
6. Notwithstanding anything herein contained to the contrary, the Bank reserves the exclusive right to discontinue this deferred compensation plan, at any time, with respect to compensation earned on the date of termination or with respect to compensation to be earned in the future. Notwithstanding anything herein contained to the contrary, the Bank reserves the exclusive right to terminate this plan with respect to any individual director, whether or not he is then acting in such capacity, and to distribute promptly to such director all compensation theretofore deferred, together with interest thereon, if it is determined that it is in the best interest of the Bank to sever all relations with such individual director.
7. Interest on compensation deferred hereunder shall be credited on a monthly basis and compounded at a rate of 1/2 percent above the bank's reference rate, to be set annually on July 1st. In the event the bank discontinues or changes the method of determining its reference rate, then the prime rate published in the West Coast edition of the Wall Street Journal will replace the banks reference rate.
8. Upon the death of a director, while serving in such a capacity, distribution of compensation deferred hereunder, together with interest, shall be made in one lump sum to his designated beneficiary. Upon the death of a director who had previously retired and had elected an installment method of distribution, all sums remaining undistributed shall be paid in one lump sum to his designated beneficiary. Deferred compensation distributable by reason of the resignation of a director may, at the option of such director, be payable in approximately equal monthly installments over a period not to exceed ten (10) years, provided however, that on any such installment method of distribution, interest shall continue to be credited on the undistributed sums as hereinabove provided.
9. In the event that any person to whom compensation is distributable under the terms of this plan shall be unable to properly manage his or her own affairs by reason of physical or mental disability, in the judgement of the management of the Bank payment of all sums due may be made to a duly appointed personal representative, conservator, guardian, or to any person, firm or corporation furnishing or providing support and maintenance to such distributee. The Bank and its officers and directors shall be fully and completely exonerated from all liability to any distributee upon making payment in accordance with the terms of this paragraph.
10. No compensation accrued or payable by virtue of the terms of this plan shall be assignable or transferable by any director or any beneficiary, neither of whom shall have any right to anticipate, hypothecate, assign or transfer any rights hereunder except to a trust established by the director for the benefit of the director or his beneficiary.
11. The terms hereof cannot be amended, modified or supplemented, except to comply with applicable laws of the state and Federal government and the rules and regulations of any agency or instrumentality thereof having supervisory or regulatory jurisdiction over the bank. The terms hereof shall be binding upon and inure to the benefit of the successors and assigns of the bank and upon each director so electing to defer compensation pursuant hereto and his beneficiary.
12. The masculine pronoun whenever used herein will include the feminine pronoun and the singular number will include the plural number unless the context of the plan requires otherwise.
/s/ Russell L. Duclos ----------------------- Russell L. Duclos, President & CEO |
/s/ Robert C. Anderson ----------------------- Robert C. Anderson, Director 9-16-97 ----------------------- Date |
EXHIBIT 10.8
REDDING BANK OF COMMERCE
DEFERRED COMPENSATION AGREEMENT
--OOO--
THIS AGREEMENT is made and entered into this 18th day of April 1990, by and between REDDING BANK OF COMMERCE, a state bank organized under the laws of the State of California ("Bank") and _____________, a full-time employee and officer, being the President & CEO of the bank ("Employee").
This agreement is made with respect to the following facts:
A. Bank has employed Employee in the capacity set forth hereinabove, and Employee desires to provide for a retirement program through a Deferred Compensation Agreement; and
B. Bank and Employee desire to set forth their contractual agreement as to deferring a portion of Employee's compensation as a Deferred Compensation Plan and to provide Employee certain additional benefits as set forth in this Agreement in the event of Employee's death while employed by the Bank.
NOW, THEREFORE in consideration of the mutual agreements contained herein, Bank and Employee agree as follows:
1. Employee hereby agrees to a reduction of the current payment of compensation otherwise payable to him due to his employment by Bank in the amount set forth on the "Salary Reduction Authorization Form" attached hereto as Exhibit "A".
The amount of salary elected by the Employee to be deferred pursuant to the Salary Reduction Authorization form may be changed annually be [sic] a new executed Salary Reduction Authorization Form delivered to Bank prior to January 1st of each year as to which such an election for deferral of salary applies. The election by employee to defer salary shall be a binding election to defer receipt of such amount until such time as the deferred compensation is payable to him pursuant to the express terms and conditions of this Agreement.
Compensation reductions as elected by the Employee under this Agreement shall cease at the end of the month in which Employee attains the age of sixty-five (65) years, even if Employee is still employed by the Bank at that time.
2. Bank will record all amounts deferred pursuant to Section 1 hereof in a separate unfunded account maintained on the books of the Bank ("Account"). The Account will be segregated from other assets owned by the Bank, only by way of its identification on the books and records of Bank as a liability of Bank to Employee. The Account will be subject to the claims of general creditors or the Bank, and Employee, as to the Account, shall be a general unsecured creditor of the Bank.
3. Until such time as all amounts held in the Account for the benefit of Employee are fully paid out pursuant to the provisions of this Agreement, Bank will credit interest on deferred compensation amounts held in the Account at a rate determined as follows: Interest on amounts of deferred compensation held in the Account will be calculated on a simple interest basis, using a 365-day year with interest earned on the monthly balance.
The rate of interest shall be set annually on July 1st of each year and, such rate shall correspond to a rate of 1/2 percent over the banks reference rate. In the event the bank discontinues or changes the method for determining its reference rate, then the prime rate published in the West Coast edition of the Wall Street Journal will replace the banks reference rate. Prior to July 1997, the rate paid on the account corresponded to the rate credited to earnings pursuant to the Keyman insurance policies carried on Employee and as listed in Exhibit "B" attached hereto.
4. Amounts held in the Account will be payable to Employee or to his designated beneficiary upon the first to occur of the following events:
(a) Termination of Employee's employment with Bank.
(b) Attainment by Employee of age sixty-five (65).
(c) Termination due to the disability of Employee.
The term "disability" shall be defined as being a demonstrable injury or disease (including legally established mental incompetency), which will wholly and continuously prevent Employee from performing his normal duties as an employee of Bank for a period of six (6) months. Disability as herein defined shall be finally determined in the sole and absolute discretion of the Plan Co- Administrator.
(d) Termination of the Agreement by Bank upon one hundred eighty (180) days written notice of such termination to Employee.
5. Upon the occurrence of an event described in Section 4 above, Bank will pay to Employee or his designated beneficiary, subject to the election hereinafter set forth, amounts credited to the Account for the benefit of the Employee at the time of the payment of such amount.
Amounts payable to Employee upon the occurrence of an event described in
Section 4 shall be paid to Employee or his beneficiary in
accordance with the method elected by Employee in a signed writing setting forth the method of payment desired by Employee and delivered to the Bank prior to the occurrence of an event of payment. Methods which Employee may elect are:
(a) a lump sum payment;
(b) In substantially equal monthly, quarterly or annual installments
over a five (5) year period;
(c) In substantially equal monthly, quarterly or annual installments
over a ten (10) year period;
(d) In substantially equal monthly, quarterly or annual installments
over a fifteen (15) year period.
Should Employee have not elected a method of payment as set forth hereinabove prior to the occurrence of an event described in Section 4, then the Plan co-administrators, in their sole and absolute discretion but by unanimous vote, shall select the method of payment from those provided hereinabove.
6. Bank, in its sole and absolute discretion, may acquire an insurance policy on the life of Employee. Should Bank elect to acquire such a policy, Bank shall be the owner and beneficiary of the policy. Employee will have no interest in or right to the policy or the proceeds thereof, except as expressly set forth in this Agreement.
In the event that Bank does elect to obtain a policy of insurance on the life of Employee, and further, in the event that upon Employee's death prior to termination of his employment with Bank and prior to Employee's attainment of age sixty-five (65), then and in only those events the amount to be paid to Employee's beneficiary shall be the greater of the amount credited in the Account for the benefit of Employee or the amount of the "Projected Death Benefit" as set forth on Exhibit "C" to this Agreement.
It is expressly understood and agreed by the parties hereto that should Employee's death be from a cause which is not covered by a then existing policy of insurance payable to Bank, Bank shall have no obligation to pay Projected Death Benefits and shall be responsible only for payment of the amounts credited in the Account.
The Projected Death Benefit shall be determined in the sole and absolute discretion of the Bank, and the amount of the Projected Death Benefit may, from time to time, be modified by the Bank. Any modifications of the Projected Death Benefit shall be delivered in writing to Employee upon such modification. The initial Projected Death Benefit is attached hereto as Exhibit "C".
Any amounts payable to Employee's beneficiary pursuant to the terms of this agreement will be paid to the beneficiary designated by Employee in a
Salary Reduction Deferred Compensation Beneficiary Designation, the form of which is attached hereto as Exhibit "D". Employee shall have the right to change his beneficiary designation at any time by delivering to Bank a subsequent signed designation.
In the event that Employee's designated beneficiary at any time is a beneficiary other than the Employee's spouse (in the event that Employee is married), Employee shall, with such beneficiary designation, deliver written acknowledgement and authorization from Employee's spouse approving such beneficiary designation. A form of Acknowledgement and Authorization is set forth on the Salary Reduction Deferred Compensation Beneficiary Designation attached hereto as Exhibit "D".
No one other than Employee Shall have a right to designate a beneficiary for this Agreement.
In the event that Employee does not designate a beneficiary in the manner required by this section, or in the event that a designated beneficiary has predeceased Employee, then amounts payable pursuant to this Agreement will first be payable to Employee's surviving spouse, if any, and if Employee has no surviving spouse, then amounts due to Employee will be payable to Employee's estate.
7. The right to receive payments pursuant to this Agreement may not be assigned or encumbered, and shall not be subject to anticipation, garnishment, attachment, or any other legal process, or to creditors of Employee, or of any designated beneficiary. Should Employee or designated beneficiary attempt to assign any such rights, Bank, in its sole and absolute discretion, may suspend, reduce or terminate any and all rights created by this Agreement as to Employee or the designated beneficiary attempting such assignment.
8. Nothing in this agreement shall be construed as providing Employee with any right to be retained in Banks employment. Employee, subject to any existing written employment agreement, shall remain subject to termination or discharge at any time with or without cause and to the same extent as if this Agreement had not been executed.
9. The Bank shall provide to Employee, on an annual basis, an account statement showing the status of the deferred compensation account, including deferred compensation credited thereto, together with interest credited thereon.
10. Bank does not assure or guarantee any tax consequences as to the compensation deferred hereunder or as to payments to be made hereunder, and Employee warrants and represents that his decision to reduce or defer receipt of compensation is not due to reliance by Employee upon financial, tax or legal advice given to Employee by Bank or any of its employees, directors or agents.
11. Employee acknowledges that, if required by law, Bank shall be authorized upon payments of sums due Employee hereunder, to withhold from such sums all taxes required to be withheld.
12. This Agreement may be amended at any time by Bank, in writing, upon notification of such amendment to all parties hereto. Further, this Agreement may be terminated by Bank upon one hundred eighty (180) days prior written notice of such termination to Employee.
13. This Agreement has been entered into in the City of Redding, County of Shasta, State of California, and shall be interpreted under and pursuant to the laws of the State of California.
14. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes any prior agreements or understandings, whether written or oral.
15. This Agreement will bind and benefit the successors, heirs and assigns of the parties hereto.
16. In the event legal proceedings are instituted due to a disagreement with respect to the subject matter of this Agreement, or to interpret the provisions of this Agreement, the prevailing party in any such action shall be entitled to recover reasonable attorney's fees.
IN WITNESS THEREOF, the parties hereto, thereunto duly authorized by all appropriate corporate action, if any be required, have executed this Agreement as of the date first above written.
REDDING BANK OF COMMERCE
-----------------------, CHAIRMAN
EMPLOYEE:
EXHIBIT "A"
SALARY REDUCTION AUTHORIZATION
REDDING BANK OF COMMERCE
EXECUTIVE DEFERRED COMPENSATION
____________________, ("Employee"), having read and understood the terms of that certain Redding Bank of Commerce Deferred Compensation Agreement dated April 18, 1990, hereby elects to participate in such Agreement and hereby elects to irrevocably defer compensation otherwise payable to Employee in the sum of Dollars _________($______ ) for the period ending _________________.
Employee further authorizes Bank to reduce his compensation for such sums and period as provided in said Agreement and as set forth hereinabove.
Employee understands that the Salary Reduction Authorization contained herein must be renewed, in writing, prior to January 1st of each year.
DATED:______________________
EMPLOYEE:___________________
ACKNOWLEDGED AND RECEIVED BY REDDING BANK OF COMMERCE ON ______________
REDDING BANK OF COMMERCE
BY:_____________________
Chairman of the Board
EXHIBIT "B"
KEYMAN INSURANCE POLICY
EXHIBIT "C"
PROJECTED DEATH BENEFIT
PAYABLE ANNUALLY FOR
15 YEARS
Plan Year
1 $_______
2 $_______
3 $_______
4 $_______
5 $_______
6 $_______
7 $_______
8 $_______
9 $_______
10 $_______
11 $_______
12 $_______
13 $_______
14 $_______
15 $_______
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This schedule is to be reviewed annually by the Executive Compensation committee to coincide with the participants change in elective deferral. The projected death benefit to be paid beneficiaries shall be equal to the amount in the participants deferred compensation account plus any recognized gain on the proceeds of the life insurance policy over the amount carried on the banks books.
EXHIBIT "D"
SALARY REDUCTION DEFERRED COMPENSATION BENEFICIARY DESIGNATION
REDDING BANK OF COMMERCE
---OOO---
Employee, _____________________ , pursuant to the terms of the Deferred Compensation Agreement dated , 19 , between Employee and REDDING BANK OF COMMERCE, hereby designates the following beneficiary (beneficiaries) to receive payments pursuant to the Deferred Compensation Agreement:
PRIMARY BENEFICIARY: ___________________________________________
SECONDARY BENEFICIARY: _________________________________________
This beneficiary designation revokes any prior beneficiary designations which may have been in effect. This beneficiary designation is revocable by a subsequent beneficiary designation in writing.
DATED: _____________________, 19__.
EMPLOYEE:
Exhibit 10.9
CARDSERVICE INTERNATIONAL INC.
MERCHANT SERVICES AGREEMENT
This Agreement (the "Agreement") is effective as of April 1, 1993 by and between CARDSERVICE INTERNATIONAL, INC., a California Corporation (herein "CARDSERVICE"), with its principal business at 26775 Malibu Hills Road, Agoura Hills, CA 91301 and REDDING BANK OF COMMERCE, a California Corporation (hereinafter "BANK") with its principal business address at 1177 Placer Street - P. O. Box 4748, Redding, CA 96099.
R E C I T A L S
WHEREAS, CARDSERVICE is in the business of providing consulting and business development services to financial institutions which may be delivered through its own facilities or subcontracted with external vendors.
WHEREAS, CARDSERVICE will function as marketing, business development, and merchant servicing service for credit card services point of sale equipment, and other related merchant transactions (those merchants for which CARDSERVICE provides services, from time to time, under this Agreement shall be referred to herein as "COVERED MERCHANTS");
WHEREAS, BANK will serve as an acquirer by maintaining and/or obtaining necessary membership and licensing in VISA U.S.A. INCORPORATED ("VISA") and MASTERCARD INTERNATIONAL ("MCI") for merchant bankcard clearing; and
WHEREAS, CARDSERVICE will provide BANK with certain services to facilitate credit card and financial transactions.
NOW, THEREFORE, in consideration of the covenants and conditions herein contained, the parties agree as follows:
1.0 DEPOSIT ACCOUNTS AND PAYROLL EXPENSE.
Within 30 days after the effective date of this agreement CARDSERVICE shall establish a reserve account (the "Reserve Account"), which shall be in an interest bearing "money market deposit account held by BANK in an initial amount equal to the greater of $10,000 or 50 basis points of the net processing volume for COVERED MERCHANTS for the first full month of this Agreement. CARDSERVICE shall have no control over, or access to funds deposited in, the Reserve Account.
1.1 CARDSERVICE shall increase the amount deposited in the Reserve Account at the rate of 5 basis points of the net monthly processing volume for COVERED MERCHANTS per month, until the Reserve Account balance is equal to 75 basis points of the net monthly processing volume for COVERED MERCHANTS; provided that in no event shall the Reserve Account balance be less than $10,000. CARDSERVICE shall deposit additional funds in the Reserve Account, in an amount sufficient to maintain the above balance level, at any time the balance falls below the required level.
1.2 CARDSERVICE agrees to maintain the reserve account, at the balance level set forth above, throughout the term of this Agreement (including any renewal term(s)) and for a period of six months following termination of this agreement, at the end of which six month period BANK
shall return to CARDSERVICE all funds remaining in the Reserve Account, including any accrued interest.
1.3 Within 30 days after the effective date of this Agreement, CARDSERVICE shall establish a noninterest bearing demand deposit account (the "General Account") with BANK in an amount of $10,000. CARDSERVICE shall have no control over, or access to funds deposited in, the General Account.
1.4 CARDSERVICE shall maintain minimum operating balance of $10,000 in the General Account for the term of this Agreement, (including any renewal terms).
1.5 CARDSERVICE hereby grants BANK a security interest in the Reserve Account and the General Account (the "Accounts"), in all funds in the Accounts, all writings evidencing the accounts, and all the proceeds of the Accounts, to secure CARDSERVICE'S existing and future obligations to BANK under this agreement. CARDSERVICE agrees to take such actions as may be required, from time to time, to establish and maintain such security interest as a first lien security interest. For the purpose of this provision, any failure by CARDSERVICE to identify BANK promptly for losses incurred in connection with credit card transactions generated by COVERED MERCHANTS or to reimburse BANK for other amounts owed by CARDSERVICE under this Agreement shall constitute a default by CARDSERVICE. Upon any such default BANK, shall have all rights and remedies provided by law, including the right to enforce its security interest by applying all funds in the Accounts to any and all of CARDSERVICE's indebtedness to BANK.
1.6 CARDSERVICE agrees to reimburse BANK on a monthly basis for payroll expense in an amount set by BANK, but not to exceed $2,000.
2.0 SERVICES AND INCOME.
BANK'S relationship with CARDSERVICE, through the executed duties and responsibilities listed herein, will provide BANK with:
a) An expanded geographic marketing area;
b) Reduced risk in VISA/MasterCard processing; and
c) Generation of fee income.
CARDSERVICE shall provide the following services for the BANK:
a) Solicitation of new merchants.
b) Complete documentation, processing, evaluation and
recommendation of new merchants.
c) All input necessary to set-up new merchants and then
maintain them on the processing vendors computer system.
d) Daily loss prevention monitoring of the serviced accounts.
e) Maintenance of a well trained, readily available, Merchant
Service Department to provide processing, equipment and
fraud prevention assistance to the merchants.
The fees collected by Bank from COVERED MERCHANTS pursuant to BANK'S agreement with such Merchants ("Merchant Fees") shall be allocated, used, and distributed as follows:
2.1 BANK shall retain for itself that portion of the Merchant Fees which equals 13.5 basis points of the net sales by COVERED MERCHANTS.
2.2 BANK shall deposit the remainder of the Merchant Fees into the General Account. Upon request, the remaining funds will be wired to an account designated by CARDSERVICE.
2.3 BANK shall charge the general account from time to time, amounts necessary to cover any/all of the following:
a) All VISA interchange charges, transaction charges, frequency charges, application fees, dues;
b) All MCI interchange charges, transaction charges, frequency charges, application fees, dues;
c) All third party vendor processing charges, i.e.; FDR, Envoy, MDI, etc.
d) Automated Clearing House ("ACH") fees incurred in connection with the transmittal by BANK of funds to COVERED MERCHANTS;
e) BANK'S payroll expenses of up to $2,000 per month;
f) All initial and annual third party service provider registration fees charged to BANK by VISA and MCI.
g) All fines paid by BANK to VISA or MCI resulting from CARDSERVICE's violation of the bylaws, rules, regulations, and other directives of VISA or MCI (the "Card Association Rules"); and
h) Travel expenses and related out-of-pocket expenses incurred by BANK in connection with periodic visits by BANK to CARDSERVICE.
2.4 CARDSERVICE shall hold BANK harmless from and indemnify BANK against all claims, losses, damages, and liabilities, including attorneys' fees and other costs of defense, that relate to or result from either the processing of credit card transactions for COVERED MERCHANTS or any alleged violations by CARDSERVICE or the Card Association Rules. BANK may reimburse itself for any such claims, losses, damages, or liabilities by immediately charging the Reserve Account and/or the General Account in the amount of the loss incurred.
3.0 BANK'S OBLIGATIONS.
BANK agrees to the following considerations:
3.1 BANK agrees to perform all requirements as acquirer for COVERED MERCHANTS.
3.2 BANK agrees that for the term of this agreement, or any extension thereof, CARDSERVICE shall be the BANK'S exclusive outside provider of merchant credit card marketing and business development services and that if at the conclusion of this agreement, it is not renewed BANK shall allow CARDSERVICE to transfer the COVERED MERCHANTS, to another institution without any additional consideration, subject to applicable Card Association Rules; provided, however, that nothing herein shall prohibit BANK from contracting directly with merchants other than the COVERED MERCHANTS without the assistance of any third party service provider.
3.3 BANK agrees to maintain and/or obtain appropriate membership in VISA, MCI and in all other entities required to allow BANK to serve as an acquirer and to provide
CARDSERVICE the authority to participate as a third party merchant service provider. CARDSERVICE shall reimburse BANK for all costs incurred by BANK in obtaining and maintaining the necessary memberships in VISA, MCI, and any similar entity; provided, however, that all such costs, if any, that are attributable directly and solely to BANK's role as an issuer shall be borne by BANK. BANK may collect any amounts for which CARDSERVICE is responsible under this paragraph by charging the General Account in the amount owed by CARDSERVICE.
3.4 BANK shall cooperate with CARDSERVICE to establish a computer to computer interface through which BANK and the processing vendor, may transmit information necessary to provide accurate merchant account setup, on-line merchant information, and daily security reporting. Expenses associated with setting up this data link will be the responsibility of CARDSERVICE.
4.0 VISA, MCI RULES AND REGULATIONS.
CARDSERVICE acknowledges that it has received and understands all applicable Card Association Rules, and agrees to comply fully with such rules, as they are amended from time to time, including but not limited to the rules governing third party service providers and the use of card association trademarks. In the event of any inconsistency between any provisions of the Agreement and any of the Card Association Rules, the Card Association Rules shall take precedence and shall apply. CARDSERVICE shall not be liable for the failure of any merchant of BANK to comply with any Card Association Rules applicable to that merchant.
4.1 BANK shall control approval and review of all Merchants. BANK shall control the establishment of Merchant Fees with respect to VISA and MCI transactions.
4.2 BANK, VISA, MCI and/or their designees may conduct financial and procedural audits and/or reviews of CARDSERVICE at any time.
4.3 CARDSERVICE shall make available, within seven business days of any request by BANK, VISA, MCI, or any other regulatory agency, all records and documents within CARDSERVICE'S control that relate to the merchant services CARDSERVICE provides to BANK.
4.4 CARDSERVICE has disclosed and will continue to disclose to BANK the identity and location of all of CARDSERVICE'S sales or other business locations. BANK, VISA, and MCI each shall have the right to inspect any business location of CARDSERVICE to ensure full compliance with provisions of this Agreement and all applicable Card Association Rules. CARDSERVICE shall reimburse BANK for amounts BANK pays to VISA or MCI to cover the costs of any such inspection.
5.0 DAILY RECORD KEEPING BY BANK.
BANK agrees to provide CARDSERVICE with the following records within three business days after such request is made by CARDSERVICE.
5.1 Gross merchant charges per day per merchant; (VISA/MCI)
5.2 Net VISA/MCI sales per day per merchant on all;
a) All VISA interchange charges.
b) All MCI interchange charges.
c) All Chargebacks.
d) All rejects.
e) All daily FDR (or other processor) charges.
5.3 Settlement statement to reconcile the funds received from vendor processor, including computation of BANK fees, and addition to CARDSERVICE'S reserve account; and any other pertinent information upon request.
6.0 ADVERTISING.
BANK agrees that CARDSERVICE may use its name in CARDSERVICE'S promotional/advertising material, but only with the advance consent of BANK as further explained in paragraph 6.4.
6.1 CARDSERVICE acknowledges that MCI is the owner of the MasterCard trademarks and service marks, that CARDSERVICE will not contest the ownership of such marks, and that MCI has the right to immediately and without advance notice prohibit CARDSERVICE from performing any further service or activity relating to any MCI program if MCI deems CARDSERVICE to have violated any applicable MCI rule or regulation.
6.2 CARDSERVICE shall not use any of the VISA or MCI trademarks or service marks on any material unless BANK is prominently identified by name and city adjacent to those marks. Such material may not identify CARDSERVICE unless CARDSERVICE is prominently identified as an agent or representative of BANK.
6.3 CARDSERVICE shall not use the VISA or MCI trademarks or service marks on any marketing material, including, but not limited to, business cards stationery, nor shall CARDSERVICE permit any of its agents to use any of the VISA or MCI trademarks or service marks.
6.4 BANK must review and approve in advance all marketing and solicitation material prepared by CARDSERVICE for use in connection with its performance of the services contemplated by this Agreement. All marketing or solicitation material used by CARDSERVICE shall clearly disclose that any merchant agreement entered into will be between the merchant and BANK.
7.0 SUPPLIES AND EQUIPMENT.
CARDSERVICE agrees to provide COVERED MERCHANTS with all supplies/equipment necessary to enable such Merchants to accept credit cards in payment for goods and services.
8.0 LAW AND REGULATIONS.
BANK agrees to comply with all applicable laws and regulations regulating banks as acquirers of credit card transactions.
9.0 ELECTRONIC TICKET CAPTURE AND MERCHANT ACCOUNT APPROVAL.
Through the use of a point of sale terminal, merchant VISA/MCI sales will be processed by electronic ticket capture.
9.1 BANK shall facilitate Merchant deposits by opening the necessary merchant accounts, or by providing deposit service to the merchant through use of the Automatic Clearing House (ACH).
9.2 BANK shall have the final right to refuse any merchant recommended by CARDSERVICE.
9.3 All COVERED MERCHANTS will complete, to the satisfaction of BANK, all necessary forms and agreements required by BANK, VISA, and MCI on forms approved by BANK and distributed to COVERED MERCHANTS by CARDSERVICE.
9.4 BANK agrees to release CARDSERVICE, its respective officers, directors and representatives from all claims, demands, liabilities and damages resulting from BANK'S relationships with COVERED MERCHANTS for normal banking services such as maintaining checking accounts.
10.0 TERM.
This agreement shall be effective as of the first date written above and shall continue in full force for a period of four years. This Agreement will automatically renew for additional four year periods unless written notice of cancellation is delivered 30 days prior to the expiration of any renewal periods by either party, provided CARDSERVICE must notify BANK of the date the current period ends via certified mail 90 days prior to the expiration of that period.
10.1 Notwithstanding the provisions of Section 10.0 above, BANK may terminate this Agreement immediately, during the initial term or any renewal term, if CARDSERVICE fails to comply fully with any applicable Card Association Rules. In addition, this Agreement will terminate automatically if (a) either VISA or MCI prohibits CARDSERVICE from continuing to provide services with respect to the products of that card association; or (b) either VISA or MCI terminates BANK'S membership in or licensing by that card association.
11.0 NON PERFORMANCE CLAUSE.
CARDSERVICE agrees to perform to the best of its ability all of its responsibilities listed herein. BANK may invoke revocation of this Agreement by prevailing in a claim brought against CARDSERVICE for NON PERFORMANCE in accordance with the ARBITRATION provision set forth in Section 24 of this Agreement.
12.0 WARRANTY STATEMENT.
CARDSERVICE warrants that in carrying out its obligations hereunder, the information originated and transmitted to BANK by CARDSERVICE or its sub-contractors shall be accurate and the services shall be performed with due care.
13.0 CONFIDENTIALITY.
It is understood that, in the performance of services under this Agreement, CARDSERVICE may have access to private or confidential information of BANK. CARDSERVICE shall use its best efforts to keep, and to have its employees and agents keep, any and all such information confidential and to use such information only for the purpose of fulfilling the service to be performed under this Agreement or as otherwise agreed by merchant. CARDSERVICE shall not be entitled to provide information concerning BANK accounts to third parties pursuant to an administrative or judicial subpoena, summons, search warrant or other governmental order, or through informal request of governmental agencies without first notifying BANK of such order or informal request and providing BANK adequate time to satisfy any requirements that BANK may have under applicable laws. BANK agrees to hold confidential and to use only in conjunction with the services provided under this Agreement, all proprietary information. CARDSERVICE furnishes to BANK which is identified as proprietary.
14.0 REGULATION.
It is understood and agreed to by the parties hereto that the performance of the services contemplated hereunder is or may be subject to regulation or examination by federal and state regulatory agencies, and CARDSERVICE and BANK are each authorized to submit or furnish to any such agency such reports, information, assurances or other data as may be required by them under related and applicable laws and regulations. CARDSERVICE shall notify BANK promptly upon receipt of any request for such information.
15.0 NOTICES.
Any written notice required or permitted to be given by BANK to CARDSERVICE hereunder shall be addressed to:
CARDSERVICE INTERNATIONAL, INC.
26775 MALIBU HILLS RD.
AGOURA HILLS, CA 91301
ATTENTION: CHUCK BURTZLOFF
and any written notice required or permitted to be given by CARDSERVICE to BANK under this Agreement shall be addressed to:
REDDING BANK OF COMMERCE
1177 PLACER STREET P.O. BOX 4748
REDDING, CA 96099
ATTENTION: RUSSELL L. DUCLOS
16.0 INDEPENDENT CONTRACTOR.
Nothing herein contained shall be construed as constituting a form of any type of a partnership, joint venture or agency between the parties hereto. The relationship is intended by the parties as one of independent contractor.
17.0 ASSIGNMENT.
This Agreement shall not be assignable in whole or in part by any of the parties hereto without the prior written consent of the other parties hereto and any assignment without such written consent shall be void. However, any of the parties hereto may assign this Agreement to the successor of its business through merger, sale of assets or other reorganization.
18.0 AUTHORITY.
Each party of this Agreement hereby represents and warrants to the others that is [sic] has the full right, power and authority to enter into and perform this Agreement in accordance with all of the terms, provisions, covenants and conditions hereof, and that the execution and delivery of this Agreement has been duly authorized by proper corporate action.
19.0 SPECIAL EVENTS.
In the event any of the parties to this Agreement shall cease conducting business in the ordinary course, becomes insolvent, makes a general assignment for the benefit of creditors, suffers or permits appointment of a receiver for its business or assets, or shall avail itself of, or become subject to, any proceeding under the Federal Bankruptcy Laws or any statute of any sale relating to insolvency or the protection of the rights of creditors, then (at the option
of the other parties hereto), this Agreement shall terminate and be of no further force and effect, and any property or rights of such other parties, tangible or intangible, shall forthwith be returned to them.
20. FORCE MAJEURE.
Each party hereto will be excused from performance hereunder when and to the extent that it is prevented from performance by, but not limited to the following: computer, utility, or communications breakdown, inability to operate or obtain services for its equipment, fire and Act of God, or any act of a third party beyond its control provided that it takes all steps reasonably practical and necessary to effect prompt resumption of its respective responsibilities set forth hereunder in full or in part.
21.0 WAIVER.
Any delay, waiver or omission by any party to this Agreement to exercise any right or power arising from any breach or default of any other party in any of the terms, provisions or covenants of this Agreement shall not be construed to be a waiver by that party or any subsequent breach of default of the same or other terms, provisions of covenants on the part of any other party hereto.
22.0 BENEFIT.
This Agreement shall be binding upon all parties, their officers, directors, representatives, successors and assigns as provided herein.
23.0 ATTORNEY'S FEES.
Should either party hereto be required to seek the services of an attorney to enforce its rights hereunder, the prevailing party in such action, arbitration, or other proceedings shall be awarded attorney's fees and other collection fees and legal costs incurred by that party in connection with those proceedings.
24.0 ARBITRATION.
Any controversy or claim arising out of or relating to this or any related agreements or default thereunder shall be settled by arbitration with the Commercial Arbitration Rules of the American Arbitration Association and judgement upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof.
25.0 LAW.
This Agreement shall be governed in all respects by and construed in accordance with the laws of the State of California.
26.0 SEVERABILITY.
Should any of the provisions of this Agreement be invalid, such invalidity shall not affect the validity of the remaining provisions.
27.0 ENTIRE AGREEMENT.
This Agreement constitutes the only agreement between the parties hereto relating to the subject matter hereof, and all prior negotiations, agreements, and understandings, whether oral
or written, are therefore superseded hereby. No modification or amendment of this Agreement shall be effective unless and until set forth in writing and signed by all parties hereto.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by a duly authorized representative on the day and written below.
REDDING BANK OF COMMERCE
NAME: /s/ Russell L. Duclos
-----------------------------------
TITLE: Executive Vice President
----------------------------------
DATE: April 16, 1993
-----------------------------------
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CARDSERVICE INTERNATIONAL, INC.
NAME: /s/ Chuck Burtzloff
-----------------------------------
TITLE: President/CEO
----------------------------------
DATE: April 15, 1993
-----------------------------------
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ADDENDUM
This is an addendum to the contract entered into by and between Cardservice International Inc., hereinafter "CARDSERVICE", and Redding Bank of Commerce, hereinafter "BANK", on April 1, 1993.
The parties mutually desire to offer electronic point of sale debit card services, in addition to credit card services currently offered to merchants. In order to accomplish this objective the parties are amending the aforementioned contract in the following respects:
1. BANK agrees to become a member of the networks identified by CARDSERVICE and agreed to by the BANK.
2. BANK agrees to provide settlement services for CARDSERVICE for the networks BANK joins.
3. CARDSERVICE agrees to pay all fees and costs related to network membership. These fees and costs are to include, but are not limited to, entry fees, membership fees, sponsorship fees, transaction fees and etc.
4. CARDSERVICE agrees to pay the BANK five cents ($0.05) per debit transaction processed.
All other terms and conditions of the contract remain in force and where appropriate are applicable to debit processing.
Any breach of this addendum shall constitute a breach of the April 1, 1993 agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed on is [sic] behalf by a duly authorized representative on the day and written below.
REDDING BANK OF COMMERCE CARDSERVICE INTERNATIONAL, INC.
Name: /s/ Linda J. Miles Name: /s/ Chuck Burtzloff
---------------------------- ----------------------------
Title: CFO Title:
--------------------------- ---------------------------
Date: 11-9-93 Date:
---------------------------- ----------------------------
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THIRD ADDENDUM
This is an addendum to the Agreement entered into by and between Cardservice International, Inc., hereinafter "CARDSERVICE", and Redding Bank of Commerce, hereinafter "BANK", on April 1, 1993.
The parties mutually desire [sic] amend the agreement as follows:
SECTIONS 1.1:
The Reserve Account balance referred to in line 3 is hereby changed from 75 basis points to 25 basis points.
SECTION 2.1:
This Section shall be replaced with the following:
Each month the BANK shall retain for itself that portion of the Merchant Fees for COVERED MERCHANTS which equals 13.5 basis points (.135%) of the first $93,000,000 of net bankcard sales ($125,550); for net bankcard sales that exceed $93,000,000 the BANK shall retain 2.0 basis points (.02%) of such net bankcard sales.
All other terms and conditions of the Agreement remain in force.
Any breach of this addendum shall constitute a breach of the April 1, 1993 Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed on its behalf by a duly authorized representative on the day written below.
REDDING BANK OF COMMERCE CARDSERVICE INTERNATIONAL, INC.
NAME: /s/ Russell L. Duclos NAME: /s/ Donald C. Headlund
-------------------------------- -----------------------------
DONALD C. HEADLUND
TITLE: EXECUTIVE VP/CLO TITLE: CFO
------------------------------- ----------------------------
DATE: SEPT. 19, 1996 DATE: SEPT. 23, 1996
-------------------------------- -----------------------------
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FOURTH ADDENDUM
This is an addendum to the Agreement entered into by and between Cardservice International Inc., hereinafter "CARDSERVICE", and Redding Bank of Commerce, hereinafter "BANK", on April 1, 1993.
The parties mutually desire [sic] amend the agreement as follows:
SECTIONS 1.6:
The amount referred to in line 2 is hereby changed from $2,000 to $4,000.
SECTION 2.3 e):
The amount referred to is hereby changed from $2,000 to $4,000.
All other terms and conditions of the Agreement remain in force.
Any breach of this addendum shall constitute a breach of the April 1, 1993 Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be executed on its behalf by a duly authorized representative on the day written below.
REDDING BANK OF COMMERCE CARDSERVICE INTERNATIONAL, INC.
NAME: /s/ Russell L. Duclos NAME: /s/ Donald C. Headlund
--------------------------------- ----------------------------
Donald C. Headlund
TITLE: Executive Vice President TITLE: Chief Financial Officer
-------------------------------- ---------------------------
DATE: September 30, 1996 DATE: Sept. 23, 1996
--------------------------------- ----------------------------
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EXHIBIT 16.1
KPMG Peat Marwick LLP
400 Capitol Mall
Sacramento, CA 95814
November 17, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Redding Bancorp and subsidiaries and, under the date of January 21, 1998, except as to note 12, which is as of June 16, 1998, we reported on the consolidated financial statements of Redding Bancorp and subsidiaries as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997. On April 1, 1998, our appointment as principal accountants was terminated. We have read Redding Bancorp and subsidiaries' statements included under Item 14 of its Form 10 dated November 17, 1998, and we agree with such statements.
Very truly yours,
/s/ KPMG Peat Marwick LLP |
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Redding Bank of Commerce
2. Redding Service Corporation, a California Corporation
| ARTICLE 9 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 INCLUDED IN ITEM 13, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 9 MOS | 12 MOS |
| FISCAL YEAR END | SEP 30 1998 | DEC 31 1997 |
| PERIOD END | SEP 30 1998 | DEC 31 1997 |
| CASH | 9,293 | 11,431 |
| INT BEARING DEPOSITS | 0 | 0 |
| FED FUNDS SOLD | 3,210 | 6,900 |
| TRADING ASSETS | 0 | 0 |
| INVESTMENTS HELD FOR SALE | 30,466 | 55,781 |
| INVESTMENTS CARRYING | 8,119 | 9,037 |
| INVESTMENTS MARKET | 8,310 | 9,081 |
| LOANS | 144,436 | 113,410 |
| ALLOWANCE | 3,019 | 2,819 |
| TOTAL ASSETS | 202,814 | 204,820 |
| DEPOSITS | 176,654 | 180,673 |
| SHORT TERM | 0 | 0 |
| LIABILITIES OTHER | 2,483 | 2,322 |
| LONG TERM | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 4,562 | 4,562 |
| OTHER SE | 19,115 | 17,263 |
| TOTAL LIABILITIES AND EQUITY | 202,814 | 204,820 |
| INTEREST LOAN | 9,399 | 11,519 |
| INTEREST INVEST | 2,278 | 3,301 |
| INTEREST OTHER | 364 | 944 |
| INTEREST TOTAL | 12,041 | 15,764 |
| INTEREST DEPOSIT | 4,321 | 6,334 |
| INTEREST EXPENSE | 4,321 | 6,334 |
| INTEREST INCOME NET | 7,720 | 9,430 |
| LOAN LOSSES | 250 | 1,023 |
| SECURITIES GAINS | 28 | 5 |
| EXPENSE OTHER | 4,816 | 4,025 |
| INCOME PRETAX | 4,988 | 5,787 |
| INCOME PRE EXTRAORDINARY | 4,988 | 5,787 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | 3,162 | 3,658 |
| EPS PRIMARY | 1.18 | 1.36 |
| EPS DILUTED | 1.15 | 1.35 |
| YIELD ACTUAL | 5.56 | 5.20 |
| LOANS NON | 1,336 | 1,734 |
| LOANS PAST | 0 | 173 |
| LOANS TROUBLED | 0 | 0 |
| LOANS PROBLEM | 0 | 0 |
| ALLOWANCE OPEN | 2,819 | 2,294 |
| CHARGE OFFS | 158 | 605 |
| RECOVERIES | 108 | 106 |
| ALLOWANCE CLOSE | 3,019 | 2,819 |
| ALLOWANCE DOMESTIC | 3,019 | 2,819 |
| ALLOWANCE FOREIGN | 0 | 0 |
| ALLOWANCE UNALLOCATED | 0 | 0 |